Wa Fangdian Bearing Co., Ltd 2018 Annual Report Wafangdian Bearing Company Limited 2018 Annual Report 2019-02 April 26, 2019 1 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Chapter I. Important Prompts, Table of Contents, and Definitions The Board of Directors, board of supervisors, directors, supervisors, and top management of the Company hereby guarantee that there are no false record, misleading statements and important omission of the material in this report, and assume the individual and associated responsibilities for the truth, accuracy and completeness of the contents. Chairman Meng Wei , General Accountant Ms. Sun Najuan and accounting charger Ms. Sun Najuan declare: guarantee the truth and completeness of the financial report in the annual report. Besides the following directors, all the other directors attended the Board meeting and discussed the report. Name Post Reasons Assignee name Liu Yuping Independent director Busy work Wen BO Liang Shuang Independent director Busy work SunKun The company has described detailed description of the possible risks in this report.This part of the content does not constitute a substantial commitment to investors, investors should maintain sufficient risk awareness, and understand the differences between planning, forecasting and commitment. The Company’s profit distribution preplan upon review and approval of this board meeting: Based on the total 402,600,000 shares, a cash dividend of RMB 0.4Yuan (tax included) will be distributed for every 10 shares held by shareholders. No bonus shares will be granted and no capital reserve will be turned into share capital. Table of Contents 2 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Chapter I. Important Prompts, Table of Contents, and Definitions ................................................. 2 Chapter II.Company Profile and Financial Highlights ....................................................................... 4 Chapter III Business Summary ............................................................................................................ 6 Chapter IV Discussion and Analysis of the Management................................................................... 7 ChapterⅤ Significant Events ............................................................................................................... 17 ChapterⅥ. Changes in Shares and Particulars about the Shareholders........................................ 26 Chapter Ⅶ. About the Preferred Shares ............................................................................................. 29 Chapter Ⅷ. Directors, Supervisors, Senior Management and Staff ................................................ 29 ChapterⅨ. Corporate Governance ...................................................................................................... 37 ChapterⅩ. Financial Report ............................................................................................................... . 41 ChapterⅨ. List of Documents Available for Inspection. .............................................................. . 145 Glossary 3 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Terms Defined as Description Company,the Company Defined as Wafangdian Bearing Company Limited Wazhou Group Defined as Wafangdian Bearing Group Company the report period, the current Defined as January 1,2018–December 31,2018 period, the current year Liaozhou Co.,Ltd Defined as Wazhou Liaoyang Bearing Manufacture Co.,Ltd Dalian motor Defined as Dalian motor Bearing Co.,Ltd Wafangdian Bearing Company Limited The Board of The Board of Directors Defined as Directors Wafangdian Bearing Company Limited The The Supervisory Committee Defined as Supervisory Committee Wafangdian Bearing Company Wafangdian Bearing Company Limited The Defined as Limited Shareholders’Meeting Shen Jiao Suo Defined as Shen Zhen Stock Exchange SRC Defined as China Securities Regulatory Commission Chapter II. Company Profile and Financial Highlights 4 Wa Fangdian Bearing Co., Ltd 2018 Annual Report I. Company Information Abbreviated name of the stock Wazhou B Stock code: 200706 Listing location of the Shenzhen Stock Exchange Company’s stock: Chinese name of the Company 瓦房店轴承股份有限公司 Abbreviation of Chinese name 瓦轴股份公司 English name of the Company Wafangdian Bearing Company Limited Abbreviation of English name WBC Legal representative of the Meng Wei Company Registered address No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China. P.C 116300 office address No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China. office P.C 116300 Website http//www.zwz-200706.com E-mail zwz2308@126.com II.Contacts Secretary of the Board Representative of StockA ffairs Name Sun Najuan Ke Xin No. 1 Beigongji Street, Wafangdian No. 1 Beigongji Street, Wafangdian Correspondence address City, Liaoning Province, China. City, Liaoning Province, China. Consulting telephone 0411-39116369 0411-39116732 Fax 0411-39116738 0411-39116738 E-mail zwz2308@126.com zwz2308@126.com III.Place for information disclosure Information disclosure newspapers Securities Times and Hong Kong Commercial Newspaper Web address for the annual report as http://www.cninfo.com.cn assigned byCSRC. Place for inquiry of the annual Investment and Securities Department of the Company report IV.Change of Business Registration No. of Taxation Registration 912102002423997128 manufacture and sales of bearings, bearing components mechanical equipment, bearing maintenance and technology service,automobile parts Change of main business since listed and fittings and other related products, lease of mechanical equipment and buildings, and inspection of bearings and other related mechanical equipment and measure instruments. Change of controlling shareholder all None previous(if any) V. Miscellaneous information CPA hired by the Company Name of the CPA Shine wing Certified Public Accountants Floor 9 of A section of Fu Hua mantion, No. 8, North Street of ChaoYang door, Address of the CPA Dong Cheng area, Bei Jing. The name of accountants Sui Guojun Hui Shikui Sponsoring institution hired by the Company, which is responsible to overseeing the Company’s operation on a continuous basis: [ ] Applicable [V] Not applicable 5 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Financial consultancy institution hired by the Company, which is responsible to overseeing the Company’s operation on a continuous basis: [ ] Applicable [V] Not applicable VI.Financial Highlights Are there any retrospective adjustments or restatement of financial information of previous year due to change of accounting policies or correcting of accounting errors? [V] Yes [] No In RMB Yuan 2017 % 2016 2018 Before After After adjustment Before adjustment After adjustment adjustment adjustment Turnover(RMB) 2,168,398,656.83 2,190,412,052.05 2,190,412,052.05 -1.00% 2,493,926,556.67 2,493,926,556.67 Net profit attributable to shareholders of the listed 10,632,169.84 10,182,949.16 10,182,949.16 4.41% 30,872,950.22 30,872,950.22 company(Yuan) Net profit attributable to the shareholders of the listed company after -8,737,823.23 -13,502,647.08 -13,502,647.08 -35.29% -57,771,828.22 -57,771,828.22 deducting ofnon-recurring gain/loss(RMB) Net Cash flow generated -10,858.74 by business operation 228,603,893.98 -2,124,819.67 -2,124,819.67 20,520,061.16 20,520,061.16 % (RMB) Basic earnings per 0.03 0.03 0.03 0.00% 0.08 0.08 share(Yuan/share) Diluted earnings per 0.03 0.03 0.03 0.00% 0.08 0.08 share(Yuan/share) Net return on equity(%) 0.77% 0.73% 0.73% 0.04% 2.26% 2.26% 2017 % 2016 2018 Before After Before After adjustment adjustment adjustment adjustment Total Assets (RMB) 3,298,167,332.49 3,213,772,171.61 3,213,772,171.61 2.63% 3,553,947,227.09 3,553,947,227.09 Owner’s Equity Attributed toShareholders of Listed 1,380,023,044.55 1,385,494,874.71 1,385,494,874.71 -0.39% 1,379,337,925.55 1,379,337,925.55 Company(RMB) “The Notice of amendment to the standard enterprise‘s financial statements format‖ (Caikuai[2018]No.15 File) was announced by the Ministry of Finance on June 15, 2018(hereinafter referred to as Caikuai No.15File). Due to the No.15 File, some of asset items and liability items have been merged and some of income statements items have been separated, and ―interpretation of financial statement format for the company in 2018‖ was announced on September 7, 2018. Handling charge of personal income tax shall be clearly presented under ―other income‖, the actual government received shall be presented under operating cashflow column when preparing the cashflow statement regardless of asset related or income related. The Company has prepared the financial statements in accordance with new statements format and retrospectively made adjustment to the changes mentioned and respectively adjusted the comparing figures in accordance with financial statements presentation, No 30, accounting standards applicable in China. VII. Differences in accounting information under IAS and domestic accounting standard 1. Differences in net profit and net asset under domestic and international accounting standards Inapplicable 6 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 2. Differences in net profit and net asset under domestic and overseas accounting standards Inapplicable VIII. Financial Data Summary based on Quarters In RMB Yuan s nd rd th 1 Quarter 2 Quarter 3 Quarter 4 Quarter Operating revenue 486,916,871.06 587,951,110.68 551,110,606.32 542,420,068.77 Net profit attributable to the 1,020,973.46 2,293,006.66 2,064,511.90 5,253,677.82 Company’s shareholders Net profit attributable to the Company’s shareholders less 777,477.64 -610,701.80 3,573,120.89 -12,477,719.96 the non-recurring profit and loss Net cash flows arising from 60,684,129.17 -16,477,533.94 97,809,675.37 86,587,623.38 operating activities Does there exist significant difference in the foregoing financial data or their total sum from the relevant financial data as disclosed in the quarterly reports and/or semi-annual report. No IX. Non-recurring gain/loss items and amounts In RMB Yuan Amount of Amount of Amount of Items Remarks 2018 2017 2016 Gain/loss of non-current assets (includes the neutralized part of the asset 1,714,192.31 -728,247.65 51,018,264.75 impairment provision drawn already) Gains and losses included in the current period of government subsidies, excluding those government grants which are closely related to 8,337,141.38 7,856,994.07 12,488,720.91 normal business and in line with national policy, or in accordance with fixed standards or quantities Debt restructuring gains and losses 4,178,887.79 5,304,472.04 32,573,379.44 The impairment provision of receivables subject 550,000.00 to a separate impairment test is reversed Other non-business income and expenditures 8,963,464.52 13,120,938.97 9,557,842.80 other than the above Influenced amount of income tax 4,373,692.93 1,868,561.19 16,993,429.46 Total 19,369,993.07 23,685,596.24 88,644,778.44 -- For the Company‘s non-recurring gain/loss items as defined in the Explanatory Announcement No.1 on Information Disclosure for Companies Offering their Securities to the Public–Non-recurring Gains and Losses and its non-recurring gain/loss items as illustrated in the Explanatory Announcement No.1 on Information Disclosure for Companies Offering their Securities to the Public–Non-recurring Gains and Losses which have been defined as recurring gains and losses, it is necessary to explain the reason. □Applicable √Inapplicable Chapter III Business Summary I Principal Businesses in the Reporting Period The scope of operation is: manufacture and sales of bearings, bearing components mechanical equipment, bearing maintenance and technology service, automobile parts and fittings and other related products, lease of mechanical equipment and buildings, and inspection of bearings and other related mechanical equipment and measure instruments. 7 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Company has strong manufacturing capability and quality assurance capabilities, extensive services in railway, automobile, metallurgy, mining and other industries and fields. II.Significant Changes in the Prime Assets Prime Assets Description of major changes The equity asset There were no major changes during the reporting period Fixed assets There were no major changes during the reporting period Intangible assets There were no major changes during the reporting period Projects under construction Reduction of renovation projects during the reporting period III.Analysis on Core Competitiveness As the country's largest bearing technology and product r&d and manufacturing base, company has accumulated more than seventy years practice experience in the field of bearings and related areas, set up perfect bearing technology innovation system, maintain close cooperation with domestic scientific research institutes, colleges and universities. As the main drafter of bearing industry a number of standard, company control the latest technology development trend in the industry. In technology research and development, product manufacturing, marketing , customer services and other aspects have established a significant advantage. Company improve responsiveness to the market and customer personalized demand, in line with customer's personalized design and needs of manufacturing processes balancing cost, delivery time and customer, The company has complete product service system and 24-hour dynamic service ability product operating site. And was praised with a good image of the "ten value-added services" by the majority customers. Company has strong manufacturing capability and quality assurance capabilities, extensive services in railway, automobile, metallurgy, mining, and other industries and fields. Company has established strategic cooperative relations with key customers in domestic equipment applications, carry out the depth of marketing through involvement in customer value engineer, set firmly up the company's brand and influence in the domestic bearing market, the company has won the certification qualification of important target markets in the international market , the international popularity established preliminary. Chapter IV Discussion and Analysis of the Management I General In 2018, the board of directors of the company carry out the basic requirement of high quality development, firmly grasp the historical opportunity of change, global market supply and demand in the domestic macroeconomic uncertainty increased, the market competition is more intense and other adverse factors, adhere to improve operation quality and product quality as the center, to the users of the products with higher cost performance and high quality products, the full implementation of "profit growth and profits, with a high turnover efficiency of cash flow, a reasonable return on assets" business principles, strengthen the management, seizes every market and various development opportunities and timely adjust management strategy, Adhering to the strategy of "quality first", the company realized the synchronous growth of scale speed and benefit index, continuously enhanced the competitiveness of the company during the reporting period, and realized profit. During the reporting period, the company realized operating income of RMB 2,168.4 million, which was 8 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 1.00% lower than the previous year. Realized net profit of 10.63 million yuan, an increase of 4.41% over the previous year; The net profit attributable to the owner of the parent company was 10.63 million yuan, an increase of 4.41% over the previous year. By the end of 2018, the company's total assets are 3.3 billion yuan, an increase of 2.63% over the end of the previous year, and the net assets attributable to shareholders of the listed company are 1.3 billion yuan, a decrease of 0.39% over the end of the previous year. II Analysis on Principal Businesses 1. General Refer to “I. General” of “Discussion and Analysis of the Management” 2. Revenue and Costs (1)Revenue In RMB Yuan 2018 2017 Year-on-year Proportion in the Proportion in the Amount Amount increase/decrease operating revenue operating revenue Total operating 2,168,398,656.83 100% 2,190,412,052.05 100% -1.00% revenue Classified based on sectors export 293,027,890.14 13.51% 234,072,205.39 10.69% 25.19% Civil Including: 456,109,746.33 21.03% 528,390,448.84 24.12% -13.68% Traffic Bearing Special Bearing 451,495,303.58 20.82% 498,257,042.55 22.75% -9.39% Common Bearing 616,503,171.81 28.43% 563,666,702.05 25.73% 9.37% Industrial income 120,007,315.73 5.53% 98,092,657.93 4.48% 22.34% others 231,255,229.24 10.66% 267,932,995.29 12.23% -13.69% Classified based on product Bearing 1,817,136,111.86 83.80% 1,824,386,398.83 83.29% -0.40% Componment 120,007,315.73 5.53% 98,092,657.93 4.48% 22.34% others 231,255,229.24 10.66% 267,932,995.29 12.23% -13.69% Classified based on regions Civil 1,875,370,766.69 86.49% 1,956,339,846.66 89.31% -4.14% export 293,027,890.14 13.51% 234,072,205.39 10.69% 25.19% (2) Sector(s), Product(s) or Region(s) Taking over 10% of the Operating Revenue or Operating Profit In RMB Yuan Year-on-year Year-on-year ear-on-year increase/decrea Gross increase/decreas increase/decrea Operating se of gross Operating costs profit e of operating se of operating revenue profit rate over rate revenue over costs over the the previous the previous year previous year year Classified based on sectors export 293,027,890.14 262,654,137.84 10.37% 25.19% 27.83% -1.86% Civil Including: 456,109,746.33 412,643,553.04 9.53% -13.68% -8.94% -4.71% Traffic Bearing Special Bearing 451,495,303.58 391,695,074.06 13.24% -9.39% -8.77% -0.58% Common 616,503,171.81 482,782,379.85 21.69% 9.37% 5.99% 2.50% Bearing Classified based on product Bearing 1,817,136,111.86 1,549,775,144.79 14.71% -0.40% 0.41% -0.68% Classified based on regions 9 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Civil 1,875,370,766.69 1,628,373,541.69 13.17% -4.14% -3.14% -0.90% export 293,027,890.14 262,654,137.84 10.37% 25.19% 27.83% -1.86% While adjustment of the statistical caliber for the principal business data took place in the reporting period, the principal business data with the statistical caliber adjusted at the end of the reporting period. Inapplicable Whether physical sales revenue is greater than the labor income [V]Yes [ ] No unite Business categories Items 2018 2017 Changed by %YoY Sales set 14,884,738 20,891,094 -28.75% Bearing Output set 9,528,633 11,823,014 -19.41% Inventory set 8,930,168 8,840,027 1.02% Causes of the change in the year-on-year data by over 30% inapplicable (4) Implementation of Important Sale Contracts Concluded at the End of the Reporting Period Inapplicable (5) Composition of Operating Costs Classified based on sectors and products In RMB Yuan 2018 2017 Classified Proportion in Proportion in Year-on-year based on Items Amount operating Amount operating increase/decease sectors costs costs export 262,654,137.84 13.89% 205,467,061.62 10.89% 3.00% Civil Including: Traffic 412,643,553.04 21.82% 453,145,292.04 24.02% -2.20% Bearing Special 391,695,074.06 20.71% 429,351,698.43 22.76% -2.04% Bearing Common 482,782,379.85 25.53% 455,501,119.96 24.14% 1.39% Bearing Industrial 126,806,466.76 6.71% 98,510,717.23 5.22% 1.48% income others 214,446,067.98 11.34% 244,638,709.17 12.97% -1.63% In RMB Yuan 2018 2017 Classified Proportion Proportion Year-on-year based on Item in in Amount Amount increase/decease products operating operating costs costs Bearing Materials 1,132,132,253.41 59.87% 1,108,764,315.90 59.06% 0.81% Artificial Bearing 151,567,145.25 8.02% 153,602,024.31 8.49% -0.47% compensation Bearing Depreciation 94,453,784.05 4.99% 98,002,793.91 4.72% 0.27% Bearing Energy 54,600,153.05 2.89% 52,449,481.69 2.42% 0.47% 10 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Bearing Transport 3,697,445.80 0.20% 3,989,683.45 0.46% -0.26% (6) Is there any change in the consolidation scope in the reporting period No (7) Is there any significant change or adjustment related situation take place in the Company’s business, products or services in the reporting period Inapplicable (8) Major trade debtors and major suppliers Note: The units of above date is Tao Main Clients Total Sales Revenue of Top 5 Clients(RMB) 293,102,630.93 Ratio of sales revenue in 2016(%) 13.52% Sales of the top five customers in the proportion 2.56% of total annual sales Information of Top 5 Clients No. Client Name Sales Revenue(RMB) Ratio of sales revenue(%) 1 Frst 69,854,387.46 3.22% 2 Second 63,117,411.00 2.91% 3 Third 61,226,588.00 2.82% 4 Fourth(related party) 55,559,595.00 2.56% 5 Fifth 43,344,650.00 2.00% Total —— 293,102,630.93 13.52% Main Clients Total purchase from top 5 suppliers(RMB) 842,375,469.34 Percentage of purchases from top 5 suppliers on annual total of 17.77% purchases (%) Purchases of the top five suppliers The proportion of related party 13.92 purchases in the total amount of annual purchases Profiles of top 5 suppliers Percentage in total purchase of No. Name of suppliers Amount of purchase(RMB) year(%) FIrst (sum of three other Companies 1 controlled by the same controlling 485,873,149.74 10.25% share holders) 2 Second 104,721,129.20 2.21% 3 Third(other related party) 94,789,155.63 2.00% 4 Fourth(other related party) 79,242,605.07 1.67% 5 Fifth 77,749,429.70 1.64% Total —— 842,375,469.34 17.77% 3. Expenses In RMB Yuan Year-on-year 2018 2017 Note to significant changes increase/decrease Sales expenses 165,543,842.56 157,721,750.23 4.96% Administrative 57,666,053.69 57,345,250.36 0.56% expenses Financial expenses 41,027,386.88 50,697,810.00 -19.07% R&D 5,922,083.68 4,065,054.17 45.68% 4. Investment in R & D Through the research and development of different areas bearing the project, the company in a host of ancillary areas made breakthrough progress, to achieve a number of bearing domestic alternative, more research and 11 Wa Fangdian Bearing Co., Ltd 2018 Annual Report development in the field of the supporting bearing products technology level is reached or exceeded the international level of similar products product also gradually to the international market, achieve high-end enterprise market instead of the increase in demand for imports. Through the integration of the company's technical strength, for the enterprise to provide the opportunity to quickly break through the key technology. With technical project work to further promote and realize the rapid transformation of enterprise development mode and the adjustment of product structure, developed a number of high-end products, formation of a number of high-end manufacturing, to seize a number of high-end market, cultivate a number of high-end customer strategy, comprehensive inventory of enterprise resources, effectively enhance the core competitiveness of enterprises. Information of Investment in R & D 2018 2017 Variable proportion Number of R & D staff (persons) 1,152 566 103.53% Proportion of R & D staff intotal employees 45.95% 16.73% 29.22% Amount of investment in R &D, in CNY 93,066,399.09 94,125,670.89 -1.13% Proportion of investment in R& D in operating 4.29% 4.30% -0.01% revenue Amount of capitalizedinvestment in R & D (in CNY) 0.00 0.00 0.00% Proportion of capitalizedinvestment in R & D in the 0.00% 0.00% 0.00% total investment in R & D 5.Cash flow In RMB Yuan Year-on-year Item 2018 2017 increase/decrease Sub-total of cash flow received from operation 1,150,062,852.27 1,036,265,011.79 10.98% activities Subtotal of cash flow paid for 921,458,958.29 1,038,389,831.46 -11.26% operating activities Net cash flow arising from 228,603,893.98 -2,124,819.67 operating activities Sub-total of cash flow-in received from investing 1,604,578.24 2,334,016.25 -31.25% activities Sub-total of cash flow paid 5,684,584.60 11,304,923.42 -49.72% for investment activities Net cash flow arising from -4,080,006.36 -8,970,907.17 investment activities Sub-total cash flow received 1,146,584,751.74 1,306,431,915.89 -12.24% from financing activities Sub-total cash flow paid for 1,240,474,392.94 1,377,261,165.73 -9.93% financing activities Net cash flow arising from -93,889,641.20 -70,829,249.84 financing activities Net increase in cash and 130,388,307.69 -84,189,878.98 cash equivalents Note to the major influence factors for the significant change in the relevant year-on-year data 1.Net cash flow generated by business activities: it mainly refers to the increase in monetary receipts of goods sold in 2018, while the decrease in the currency paid for goods and services 4.Subtotal of cash outflow from investment activities: the major reason is that fixed assets, such as instruments, purchased in 2018 decreased significantly 3.Net cash flow generated by investment activities: the cash recovered from the main disposal of fixed assets is basically the same as the same period, while the capital for the purchase of fixed assets has declined 4. Net increase in cash and cash equivalents: mainly a substantial increase in net cash generated by operating activities Note to the significant difference between cash flow from operating activities and net profit in the report period. □Applicable √Inapplicable 12 Wa Fangdian Bearing Co., Ltd 2018 Annual Report iii . Analysis on Non-Principal Businesses In RMB Yuan Percent in Item Amount Reason Whether it is sustainable Total profit Investment income 1,250,000.00 12.15% No Gain arising from the -49,309.20 -0.48% changes in fair value Impairment of 5,015,222.16 48.75% No assets Non-operating 14,491,888.12 140.86% No income Non-operating 1,425,061.85 13.85% No expenses IV. Situation of assets and liabilities 1. Major change in asset items In RMB Yuan End of 2018 End of 2017 Percentage of Statement on Percent in Percent in Amount Amount change(%) major change total asset total asset Monetary 247,229,860.99 7.50% 82,860,774.83 2.58% 4.92% capital Account 1,141,632,991.76 34.61% 1,128,338,013.69 35.11% -0.50% receivable Inventories 747,511,054.75 22.66% 693,836,428.55 21.59% 1.07% Investment 129,270,498.66 3.92% 136,874,108.05 4.26% -0.34% property Fixed assets 0.00% Construction in 661,598,663.85 20.06% 710,247,969.72 22.10% -2.04% process Short term loan 48,159,927.20 1.46% 82,689,318.94 2.57% -1.11% 620,000,000.00 18.80% 648,000,000.00 20.16% -1.36% 2. Assets and liabilities measured at fair value Changes in Changes in the fair value The cumulative Current Current Openning of the impairment of Items fair value purchase sales Ending balance balance current the current recorded as amount amount profit and period equity loss Financial assets 1. Financial assets measured at fair value and recorded in current profits 348,234.36 -49,309.20 0.00 0.00 0.00 0.00 298,925.16 and losses (excluding derivative financial assets) Investment property 136,874,108.10 0.00 0.00 0.00 0.00 0.00 129,270,498.70 Total 137,222,342.50 -49,309.20 0.00 0.00 0.00 0.00 129,569,423.90 Financial liability 0.00 0.00 0.00 0.00 0.00 0.00 0.00 V. Investment 1. Significant non-equity investment in process in the reporting period In RMB Yuan 13 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Invesme Fix Total Reasons of The nt Accumul Invest asset Anticip income the item’s amount ated Capital Progres Disclos Disclose Item ment investm ated at the dfiirence industr in the investm source s e Date index way ent or income end of between y report ent not 2016 plan and peirod actual Improve the quality assurance ability of Bearing Self-ra 22,860,0 22,860,0 300,000, 300,000, 000.00 000.00 None railway other Yes manufac ised/ba 00.00 00.00 road, tory nk loan automobile bearing and spare parts. 22,860,0 22,860,0 300,000, 300,000, 合计 -- -- -- -- -- -- -- 00.00 00.00 000.00 000.00 VI. Sales of Significant Assets and Equity 1. Sales of Significant Assets Inapplicable 2. Sales of Significant Equity Inapplicable VII. Analysis on Principal Subsidiaries and Mutual Shareholding Companies Particulars about the principal subsidiaries and mutual shareholding companies which may affect the Company’s net profit by over 10%. Leading Total Operating Net profit Principal products Net assets Turnover in Company name Company type assets, in profit (in (in business and (CNY) CNY CNY CNY) CNY) services Product and Sale Liaoyang Bearing and 19,350,000.0 178,578,204. -51,529,417. 103,928,038. -3,775,001.3 Bearing Subsidiary 1,156,096.62 machine-el 0 82 53 86 5 company ectrical equipment Dalian Product and 10,000,000.0 153,644,484. 146,484,560. -13,144,168. -10,400,890. Electrical Subsidiary Sale 9,190,934.34 0 16 70 95 53 Equipment Bearing Wzhou precision Product and spherical Sales 194,000,000. 251,549,722. 207,749,901. 139,307,518. -13,090,180. -5,194,115.7 roller Subsidiary Spherical 00 56 27 64 42 6 bearing(Wafa Roller ngdian) Bearing Co.,Ltd. Viii. Structurized Entities Controlled by the Company Inapplicable IX. Development Prospect 1.Status quo and development trend of the industry In 2018, our country economy to maintain the stabilization in slow, steady to good posture, the highlight of structural economic growth increased, new and high technology industry continues to increase, the overall market demand to maintain steady growth, especially as the country to deepen reform, all the way "area" strategy to promote open a number of key projects, such as 14 Wa Fangdian Bearing Co., Ltd 2018 Annual Report the construction of China's equipment manufacturing industry ushered in the new development opportunity. With the economic growth in Europe and the United States, the company's high-end bearing exports increased opportunities. Foreign bearing import cycle lengthened, China's bearing industry ushered in a rare domestic alternative market. 2.Industry position of the company and opportunities and challenges it faces The company is the leading enterprise of bearing manufacturing in China, and has participated in the formulation of many standards in the industry. In recent years, the products focus on "high-end" and "professional", breaking through the technical bottleneck of the core bearing of series of high-end products. The establishment of cooperation with a number of research institutes and universities adds impetus to the company's realization of intelligent manufacturing and high-end manufacturing, and forms a new profit growth point of the company. At the same time, the company also faces new challenges. The supply of middle and high-end bearings is insufficient, and there is a serious surplus of middle and low-end bearings. The competitive environment of enterprises becomes hotter. Customer demand is more diversified, which brings great difficulty to production organization. 3.Future development strategy of the company Develop high-end products, achieve high-end breakthrough, and drive high-quality growth of business; The implementation of differentiated management, not only focus on products, technology, market, but also more focused on the core value of customers, improve the core competitiveness of enterprises; Adhere to quality first, enhance brand influence; To accelerate the pace of reform and stimulate new vitality of enterprises; The negative factors of overseas trade war should be partly digested through this channel. By taking advantage of the difference in market positioning of the six international brands, the company can fully seize the larger market growth space and bring new profit growth points for the company. X. Statement of Such Activities as Reception of Survey, Communications, Interview, etc. 1. Registration Form of the Activities, such as Reception of Survey, Communications, Interviews,etc. in the Reporting Period Type of Main content involved and material Time/date Place Way Visitors visitors provided Telephone Private Private The company publishes the performance 2018.03.12 Office communication investor investor forecast, verify the situation. Telephone Private Private The company will be able to recover and 2018.03.23 Office communication investor investor take off the hat. Telephone Private Private Learn about SKF thawing, the company's 2018.08.15 Office communication investor investor second largest shareholder. Telephone Private Private 2018.09.25 Office The general information of the company communication investor investor Telephone Private Private Learn about SKF thawing, the company's 2018.10.23 Office communication investor investor second largest shareholder. Telephone Private Private 2018.11.20 Office The general information of the company communication investor investor times 6 Times for organization investor 0 Times for private investor 8 Times for other investor 0 Whether disclose or reveal any un-publish news No. ChapterⅤ Significant Events 15 Wa Fangdian Bearing Co., Ltd 2018 Annual Report I. Profit Distribution for Common Stock and Conversion of Capital Reserve into Share Capital Preparation, Implementation or Adjustment of the Policy for Common Stock Profit Distribution, Especially the Policy for Cash Dividend Distribution 1.Profit after tax will be rationed among the shareholders upon their shareholding portion after making up of previous losses and providing of common reserves. 2.The Company adopts a continuous and stable dividend policy.The dividend accumulated in latest three years shall not be lower than 30%of the distributable profit in the same three years. 3.The Company distribute dividends once a year except for otherwise decided by the shareholders’meetings.Dividends are distributed upon finanal settlement of each year.The dividend plan shall be announced within 4 months upon completion of each fiscal year,and implemented in the 2nd quarter of the current year. Cash dividend policy of special statement Whether compliance with the provisions of the company's articles of association yes or resolutions of the shareholders' general meeting requirements: Whethert he standard of share out bonus and the proportion are clear r: yes Whether related decision-making process and mechanism are completeness: yes Whether the independent director takes office responsible and play a proper yes role: Whether the small and medium-sized shareholders the chance to fully express their views and demands;Whether the legitimate rights and interests were yes protected fully: Cash dividend policy to adjust or change,whether Conditions and the program Companies cash dividend policy are transparent: is not to adjust or change. Profit distribution or common reserve capitalization in the latest 3 years(including the report year) Preplan 2018 Year2017 Year 2016 Common share dividend RMB0.4(tax ncluded)of RMB0.4(tax included)of RMB0.1(tax included)of payable cash for each 10 cash for each 10 shares cash for each 10 shares shares Common share dividend transferred to capital 0 0 0 share Dividend distribution scheme in last 3 years. Net profit attributable to the Company’s shareholders in to the Company’s theconsolidated statements of the Year of Amount of Proportion of the shareholders in yearof dividend distribution Ratio Amount of cash Dividen Cash cash the of the net profit attributable to the dividend d Dividend dividend consolidated Company’s distributed in Distribut (including distributed in statements of the shareholders taken in the other way(s) ion tax) other way(s) year consolidated of dividend statements distribution 2018 16,104,000.00 10,632,169.84 151.46% 0.00 0.00% 2017 16,104,000.00 10,182,949.16 158.15% 0.00 0.00% 2016 4,026,000.00 30,872,950.22 13.04% 0.00 0.00% II. Preplan for Profit Distribution and Conversion of Capital Reserve into Share Capital in the Reporting Period Bonus shares for every 10 shares (share) 0 Dividend for every 10 shares (RMB Yuan) (tax included) 0.40 Number of shares per 10 shares (shares) 0 Total shares as the basis for the allocation preplan (share) 402600000 16 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Total cash dividends (RMB Yuan) (tax included) 16,104,000.00 Distributable profit (RMB Yuan) 354,961,603.07 Percentage of the cash bonus of the total profits dividends 100 Cash dividend situation others Details about the profit allocation or turning capital reserve into share capital According to the audit report ShineWing accounting firm, the company 2018 annual net profit attributable to shareholders of the parent company 10,632,169.84 yuan, With the undistributed profit of 362,925,296.98 yuan at the beginning of the year, the profit for distribution is 373,557,466.82 yuan.According to the 10% of the net profit of the parent company, the legal surplus reserve is 2,491,863.75 yuan, and the total profit for the shareholders is 371,065,603.07 yuan, and the cash dividend paid to the shareholders in 2017 is reduced to 16,104,000.00 yuan.The undistributed profit at the end of the period is 354,961,603.07 yuan.The company decided to the end of 2018 the total share capital of 402 million 600 thousand shares as the base, each of 10 shares were distributed 0.4 yuan (including tax), a total of 16,104,000Yuan. III. Implementation of Commitments 1. Commitments finished in implementation by the Company, shareholders, actual controller,acquirer, directors, supervisors, senior executives or other related parties in the reporting period and commitments unfinished in implementation at the end of the reporting period Inapplicable 2. There existed profit anticipation for the Company’s assets or projects while the reporting period was still within the duration of the profit anticipation. The Company made explanation on whether the assets or projects reached the anticipated profit and the cause Inapplicable IV. Non-operational Occupancy of the Company’s Capital by the Controlling Shareholder and its Related Parties Inapplicable V. Explanation of the Board of Directors, the Supervisory Committee and Independent Directors (if any) on the “Qualified Auditor’s Report” issued by the CPAs in the Reporting Period Inapplicable VI. Explanation on the Changes in the Accounting Policy, Accounting Estimate, and Accounting Method in Comparison with the Financial Report of the Previous Year ―The Notice of amendment to the standard enterprise‘s financial statements format‖ (Caikuai[2018]No.15 File) was announced by the Ministry of Finance on June 15, 2018(hereinafter referred to as Caikuai No.15File). Due to the No.15 File, some of asset items and liability items have been merged and some of income statements items have been separated, and ―interpretation of financial statement format for the company in 2018‖ was announced on September 7, 2018. Handling charge of personal income tax shall be clearly presented under ―other income‖, the actual government received shall be presented under operating cashflow column when preparing the cashflow statement regardless of asset related or income related. 17 Wa Fangdian Bearing Co., Ltd 2018 Annual Report The Company has prepared the financial statements in accordance with new statements format and retrospectively made adjustment to the changes mentioned and respectively adjusted the comparing figures in accordance with financial statements presentation, No 30, accounting standards applicable in China. Effect on the comparison figure as follows: Figure prior to Restated figure Items December Effect on amount on January memo 31,2017 1,2018 Notes receivable 209,923,835.91 -209,923,835.91 - re Accounts receivable 1,128,338,013.69 -1,128,338,013.69 - Notes receivable & 1,338,261,849.60 1,338,261,849.60 Accounts receivable Other receivable 21,895,381.98 - 21,895,381.98 Notes payable 299,483,279.00 -299,483,279.00 - Accounts payable 630,832,287.45 -630,832,287.45 - Notes payable 930,315,566.45 930,315,566.45 &Accounts payable Interest payable 1,190,100.00 -1,190,100.00 - Other payable 92,123,093.92 1,190,100.00 93,313,193.92 Special payables 296,698.98 -296,698.98 Long term payable 1,597,305.72 296,698.98 1,894,004.70 Administration 61,410,304.53 -4,065,054.17 57,345,250.36 expense 4,065,054.17 4,065,054.17 R&D expense VII. Explanation on Serious Accounting Errors Occurred in the Reporting Period Necessary to be Restated Retrospectively Inapplicable VIII. Explanation on the Changes in the Scope of the Consolidated Statements in Comparison with the Financial Report of the Previous Year. Inapplicable IX. Engagement/Disengagement of CPAs CPAs currently engaged Names of the Domestic Certified Public Shine wing Certified Public Accountants Accountants Reward for of accountants of the Domestic 53 Certified Public Accountants(RMB’0000) Successive Years Offering Auditing Services 14Years Names of accountants of the Domestic Sui Guojun Hui Shikui 18 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Certified Public Accountants The consecutive years of auditing services of certified public accountants of domestic 2 accounting firms. Has the CPAs been changed in the current period? No X. Listing Suspension or Delisting Possibly to be Confronted with after Disclosure of the Annual Report Inapplicable XI. Matters concerning Bankruptcy Reorganization Inapplicable XII. Significant Lawsuits and Arbitrations Inapplicable XIII. Penalty and Rectification Inapplicable XIV. Integrity of the Company and its Controlling Shareholder and Actual Controller Inapplicab XV. Implementation of the Company’s Equit Incentive Plan, Employee Stock Ownership Plan or other Employee Incentive Measures Inapplicab VII. Important Related Transactions 1、The relate transactions related to the day-to-day operations. 2. Related transactions concerning acquisition and sales of assets or equity Inapplicable 3. Related transactions concerning joint investment in foreign countries Inapplicable 4. Current Associated Rights of Credit and Liabilities Inapplicable 5. Other Major Related Transactions 1, daily related transactions in the company disclosed in the cninfo website on April 30, 2019 "Wafangdian City bearing Limited by Share Ltd on the 2018 annual daily related transactions and related party transactions daily in 2019 plan announcement (AUDIT) and the report of eleventh section of the twelfth part" of related party transactions "(5)" related transactions" XVII. Important Contracts and Implementation 1. Custody, Contacting and Leases (1) Custody Inapplicable (2) Contracting Inapplicable (3) Leases 19 Wa Fangdian Bearing Co., Ltd 2018 Annual Report The company has associated lease please refer to the company in April 30, 2019 at http://www.cninfo.com.cn disclosed the "Wafangdian City bearing Limited by Share Ltd on the 2018 annual daily related transactions and related party transactions daily in 2019 plan announcement" and the report of the twelfth quarter of 5 (3) 2. Significant Guarantees Inapplicable 3. Entrusting other Person to Manage the Cash Assets (1) Finance Management on Commission Inapplicable (2) Entrusted Loan Inapplicable 4. Other Major Contracts Inapplicable XVIII. Social Responsibility 1.The situation of fulfilingl the social responsibility As a large state-owned enterprise, the largest shareholder of the company, vaxi group, accepts the unified leadership of poverty alleviation work of the governments of liaoning province, dalian city and wafangdian city, and the company accepts the leadership of poverty alleviation work of vaxi group.Consider the characteristic of enterprise and "state-owned enterprises" actual situation, the company's poverty alleviation work in accordance with the unified plan of the provincial party committee and municipal party committee, the complete, with major shareholders wazhou group synergy foreign mutual establishing the image of "wazhou person" the unity of social responsibility, positive response to the provincial, city to carry out the work instructions for poverty alleviation, a special meeting, the deployment of poverty alleviation measures, formulate precise poverty alleviation plan, determine the method and the way to work, take advantage of the existing enterprise implementation of the employment, vocational skills training for poverty alleviation poverty alleviation, legal aid, medical aid, trade for poverty alleviation poverty relief, etc. The company regularly visits designated helping units to understand the situation of poverty alleviation targets, find out the basic number .Affected by the downward pressure of the economy, the market demand of the tile axis is insufficient and the efficiency declines. The enterprise has some difficulties in operation. However, the company still provides poverty alleviation funds in the early stage of the Spring Festival in 2017 and 2018 to help the aided units solve their difficulties.The company has successively implemented targeted and key poverty alleviation measures for more than 80 poor households, which reflects the social responsibility and responsibility of a state-owned enterprise. Poverty alleviation is a long-term work, which cannot be accomplished overnight. The company will continue to strengthen poverty alleviation work in the future, innovate methods and methods, and make more contributions to the society with our efforts. XIX. Notes to Other Signficiant Events Inapplicable XX. Significant Events of the Company’s Subsidiaries Inapplicable 20 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Chapter Ⅵ Change of Shares and Particulars about Shareholders I. Changes in Capital Stock Before Changes Changes in Shares After Changes Conversi New Shares Ratio Bonus on of Subtota Ratio Shares Others Shares Shares Reserves l Issued to Share 1.Non-tradable Shares 244,000,000 60.61% 244,000,000 60.61% a. Promoters’ Shares 244,000,000 60.61% 244,000,000 60.61% Including:State-owned 244,000,000 60.61% 244,000,000 60.61% share 2.Tradable shares 158,600,000 39.39% 158,600,000 39.39% b.B shares 158,600,000 39.39% 158,600,000 39.39% 3.Total 402,600,000 100% 402,600,000 100% Reason of Changes of Shares □Applicable √ Inapplicable The basic situation of stock change. □Applicable √ Inapplicable The transfer of shares of □Applicable √ Inapplicable Influence from the shareholding movements upon such financial indicators as earnings per share, net asset per share of the latest year and the latest accounting period □Applicable √ Inapplicable Other information as the Company considers necessary to be disclosed or demanded by the securities regulatory authority for disclosing: □Applicable √ Inapplicable II. Issuing and Listing III. Shareholders and Actual Controlling Shareholder 1. Number of Shareholders and Shares Unit: Share Total common Total Total preference shareholders preference shareholders with at Total common shareholders the voting power the end of the shareholders in withthe voting not recovered at the 6,543 month before 6,552 0 0 the reporting powerrecovered end of the month before the date period at theend of before the day of of disclosing the reporting disclosingthe the annual period (if any) annual report report Shares held by the shareholders holding over 5% shares or the top ten shareholders Shares held by the Shares Quantity the end of Number Number of Pledging or freezing Shareholder names top ten held by at the ofthe the Status Quantity 21 Wa Fangdian Bearing Co., Ltd 2018 Annual Report shareholders the the end of reporting non-res restricte of the top ten the period tricted d shares shares sharehold reporting Increase/d shares held ers period ecrease in held (%) the reporting period Wafangdian Bearing State-owned 244,000,0 244,000 60.61% Group Corporation shareholder 00 ,000 Foreign 79,300,00 79,300,00 AKTIEBOLAGET SKF 19.70% shareholder 0 0 BOCI SECURITIES Foreign 1.74% 7,020,138 7,020,138 LIMITED shareholder Domestic Huang Junyue 1.53% 6,176,158 6,176,158 shareholder Domestic Hu Xiaofeng 0.47% 1,879,277 1,879,277 shareholder GUOTAI JUNAN Foreign SECURITIES(HONGKONG) 0.36% 1,441,206 1,441,206 shareholder LIMITED Domestic Jin Yunhua 0.33% 1,311,256 1,311,256 shareholder Domestic Chen Haitao 0.19% 750,896 750,896 shareholder Foreign private MAN,KWAI WING 0.18% 713,101 713,101 shareholder Domestic Meng Qingliang 0.15% 587,584 587,584 shareholder About the fact that a strategic investor or There was no relationship and consistent activities between the first big ordinary corporate became one of the top shareholder and other shareholders or the top ten common stock holders; The ten shareholders due to placement of new relationship among other shareholders, top ten circulation shareholders, top shares (if any) (Refer to Note 3) ten circulation shareholders and other shareholders was not clear. Explanation on associated relationship or consistent action of the above shareholders Shareholding of top 10 shareholders of unrestricted shares Quantity of unrestricted shares held Share type Shareholder’s Name at the end of thereporting period Share type Quantity AKTIEBOLAGET SKF 79,300,000 B-shares 79,300,000 BOCI SECURITIES LIMITED 7,020,138 B-shares 7,020,138 Huang Junyue 6,176,158 B-shares 6,176,158 Hu Xiaofeng 1,879,277 B-shares 1,879,277 GUOTAI JUNAN SECURITIES(HONGKONG) LIMITED 1,441,206 B-shares 1,441,206 Jin Yunhua 1,311,256 B-shares 1,311,256 Chen Haitao 750,896 B-shares 750,896 MAN,KWAI WING 713,101 B-shares 713,101 Meng Qingliang 587,584 B-shares 587,584 Zhou Junlin 575,100 B-shares 575,100 Explanation to the associated relationship or consistent action among the top 10 There was no relationship and consistent activities between the first big shareholders of non-restricted negotiable shareholder and other shareholders or the top ten common stock holders; The shares and that between the top 10 relationship among other shareholders, top ten circulation shareholders, top shareholders of non-restricted negotiable ten circulation shareholders and other shareholders was not clear. shares and top 10 shareholders. Note to the top 10 shareholders involved in margin financing & securities lending (if any) 22 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 2. Controlling Shareholder Nature of the controlling shareholder: State-owned holding directly under the Dalian government Type of the controlling shareholder: corporate Legal Person Legal Name of the Controlling Date of Organizatio Representat Principal business activities Shareholder incorporation n code ive/Leader Bearing and bearing parts, bearing special tools, tooling, equipment, machinery and equipment, abrasive, abrasive, casting, auto parts, motorcycle Wafangdian Bearing Group 9121020024 parts and related industrial products manufacturing Mei Wei 1995.10.22 Corporation 2386663D and sales; bearing design, repair, maintenance and technical services; bearing raw materials and auxiliary materials procurement and sales; housing rental, equipment leasing. Equity in other domestic and foreign listed companies held by the actual controler by means of control and mutual shareholding in the reporting period Change of Controlling Shareholder in the Report Period □ Applicable √ Inapplicable 3. Actual Controller Nature of the actual controller: State-owned assets regulatory agency directly under the Dalian government Type of the actual controller: corporate Legal Establishin Organizati Register Representative g Date on Code Capital On behalf of the people's government of dalian, the people's government shall perform the Dalian Municipal Government State-owned Mei Wei 2004.09.30 No functions and Assets Supervising and Managing committee responsibilities of the state-owned assets, and supervise and administer the state-owned assets. Equity in other domestic and foreign listed companies held by the actual controler by Dalian Heavy industry(002204)、Dalian Port(601880)、DTPC(600719)、 means of control and mutual shareholding in DA HUA B(900951) the reporting period Change of the actual controller in the reporting period Inapplicable Block Diagram of the Ownership and Control Relations between the Company and the Actual Controller 23 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Actual Controller controlled the Company by trust or other asset management method. □ Applicable √ Inapplicable 4. Other shareholders with more than 10% shares Name Legal Representative Date of Capital Main Business establishment Bearings, seals and relative AKTIEBOLAGET SKF Alrik Danielson 1907.01.01 1,138,000,000(SKR) products, and relative services 5. Shareholding Reduction Restriction on the Controlling Shareholder, the Actual Controller, the Reorganizing Party and other Commiting Party Inapplicable Chapter Ⅶ. About the Preferred Shares Inapplicable Chapter Ⅷ Directors, Supervisors, Senior Executives and Staff I. Changes of Shares held by Directors, Supervisors and Senior Management Name Position Office Shares Name Position Office Status Starting Date Status Gende Starting Expiry Date SharesHe Held on Office Status Gender Age r Age Date of Tenure ld on Increa Decrease Dec 31, Gender Age of Tenure Jan se 2016 1,2016 Meng Wei Chairman Incumbent Male 51 2015.08.25 0 0 0 0 Zhao Yang Director/GM Incumbent Male 54 2017.03.16 0 0 0 0 0 Sun Maolin Director Incumbent Male 55 2015.09.16 0 0 0 0 0 General Femal Sun Nanjuan accountant,se Incumbent 51 2013.06.26 0 0 0 0 0 e crtory of 24 Wa Fangdian Bearing Co., Ltd 2018 Annual Report board Zhang Xinghai Director Incumbent Male 51 2015.09.16 0 0 0 0 0 Chen Jiajun Director Incumbent Male 52 2013.06.26 0 0 0 0 0 Tang Yurong Director Incumbent Male 57 2015.09.16 0 0 0 0 0 Femal Fang Bo Director Incumbent 47 2013.06.26 1,500 0 0 0 1,500 e Independent Liu Yuping Incumbent Male 63 2016.05.18 0 0 0 0 0 Director Independent Resignati Femal Sun Kun 61 2018.05.18 0 0 0 0 0 Director on e Independent Wen Bo Incumbent Male 56 2015.06.18 0 0 0 0 0 Director Independent Femal Liang Shuang Incumbent 54 2017.05.18 Director e President of Sun Shicheng Supervisory Incumbent Male 55 2015.09.16 0 0 0 0 0 Committee Femal Li Xiumin Supervisory Incumbent 56 2013.06.26 0 0 0 0 0 e Wang Fuxing Supervisory Incumbent Male 47 2016.05.18 0 0 0 0 0 Femal Sun Yongsheng Supervisory Incumbent 57 2015.03.10 0 0 0 0 0 e Femal Wang Lin Supervisory Incumbent 38 2013.06.26 0 0 0 0 0 e Tan Jianguang Vice-G.M. Incumbent Male 55 2015.01.06 0 0 0 0 0 Wang Jiyuan Vice-G.M. Incumbent Male 53 2018.04.25 Resignati Zhang Shiyin Vice-G.M. Male 47 2017.02.24 2018.04.20 0 0 0 0 0 on Total -- -- -- -- -- -- 1,500 0 0 0 1,500 II. Change of Directors, Supervisors and/or Senior Executives Names Office Taken Type Date Cause Zhang Shiyin Vice-GM resignment 2018.04.20 Work change III. Posts Holding Work Experience of Directors, Supervisors and Senior Management in Current Office. (1) Director Mr.Meng Wei, was born in April 1968, Master Degree Candidate, Bachelor's degree of the university, the master of management, Senior Administration, engineer joined in the work in August, 1990. He has successively held the posts of deputy general manager of WBC, the general manager, the labor Union chairman, secretary of the commission for discipline inspection, the deputy secretary of the party committee and the director of WBGC. Now he work as the secretary of the party committee and the chairman of the board of WBGC, the chairman of WBC from August, 2015. Mr. Zhao Yang, born in October 1965. 1989 graduated from the HeFei University of Technology of mechanical design and manufacturing expertise, university education, to work in 1989 in ZWZ, senior engineer. Huamei served as quality assurance manager ZWZ bearing company; assistant chief engineer of ZWZ ZWZ Ag; assistant secretary of Department of technology and quality; quality assurance department ZWZ Corporation Deputy Minister and the quality of the office director, general manager of quality assurance department; ZWZ Corporation assistant market sales department minister; ZWZ group deputy general manager of the company and the market sales department minister; director and general manager of marketing headquarters ZWZ group company. 25 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Since August 2015, he served as director of ZWZ group company, in charge of the technical quality of the work. now his is the GM. Mr. Zhang Xinghai, was born in October 1968, university culture, professor senior accountant. Since joining Wazhou in 1991, he has successively held the posts of deputy chief accountant and board secretary of WBC, director, chief accountant and board secretary of WBC, now he is held the post of the chief accountant of WBGC. Mr. Sun Maolin, was born in December 1964, university culture, researcher professor level senior engineer. Joined in work in August, 1988, he has assumed as minister of manufacturing department, minister of Sales & Marketing Department of WBC, minister of Planning and Development Department, general-manager assistant and deputy director of the Technology Center of WBGC, deputy general-manager of WBGC. Now he work as the general manager of WBGC. Mr. Chen Jiajun, was born in December, 1967, university culture, economic manager and statistician, joined in work from August, 1990. He worked as section chief, assistant minister deputy minister and minister of operation and managing department, assistant general manager and charger of Operation and managing department of WBGC. Now he works as charger of Operation and managing department and deputy general manager. Mrs. Sun Najuan, was born in October 1968, professor senior accountant, master degree. joined in work from September, 1990, she worked as accountant in Financial Division, section leader of Checking Division of WBGC, general manager assistant of Material Providing Company of WBC, and the general manager assistant of Sales Company of WBC, the deputy chief accountant of WBGC . Now she works as chief accountant and the secretary of board of directors of WBC. Mr. Tang Yurong was born in 1962, junior college degree, electrical engineer. He hold the post of Dealer network development manager in SKF since 1989, director and general manager from 1996 to 2004 in SKF China, global marketing director of industry department in SKF from 2004 to 2007, the chairman of arcelor auto in SKF China from 2007 to 2008, the global chairman of one bearing brand in SKF, the senior deputy chairman in SKF Group and the chairman of special enterprise department from January of 2015 to now, the chairman of SKF China and industry market from May of 2015 to now, the chairman of industry market Asia from February, 2016 to now. Mrs. Fang Bo, was born in June, 1972, bachelor degree. She has served as auditor in PWC Accountant Firm since 1994. She joined the SKF(China) Co.Ltd in 1997, used to be finance manager in its subsidiary company, finance director investment company. Now she occupies the finance manager of SKF(China) Co., Ltd and Consultation Co.Ltd, and capital department manager in SKF China region. From October 2018, she hold the post of finance manage in SKF China headquarters. (2)Independent director Mr.Wen Bo, was born in 1963, granulated the law major in CUPL, he has hold a post in Dalian Justice Bureau, now he is the initiate partner of Liaoning Huaicheng Law Firm, the local legislation expert advisor of Dalian municipal people's congress standing committee, the committee member in expert advisory committee of major issues of the state-owned assets supervision and administration commission in Dalian. Ms. Sun kun, born in 1958, Chinese nationality, PhD candidate, professor of accounting, master tutor. Since 1982, he has been working in dongbei university of finance and economics, successively serving as teaching assistant, lecturer and associate professor of dongbei university of finance and economics. He served as deputy to the ninth liaoning provincial people's congress, deputy secretary-general of liaoning provincial internal audit association, and director of liaoning provincial audit association. Moderator of the hearing committee on administrative punishment of certified public accountant industry of the finance department of 26 Wa Fangdian Bearing Co., Ltd 2018 Annual Report liaoning province. From May 2002 to March 2008, served as the independent director of dalian dayang trands co., LTD. Currently, he is a member of the academic committee of China internal audit association and a professor of dongbei university of finance and economics. Mr. Liu Yuping, was born in August 1956, professor. After graduation, he has been teaching at Law school of Dongbei University of Finance and Economics. Now he assumed as director of Law school teaching department of University of Finance and Economics and pluralizes the following duties: arbitrator of Dalian Arbitration Committee, Lawyer of Liaoning Zhenghe Law Firm; Law counselor of Liaoning Dafeng Real Estate Company, Liaoning Wuhuan Import and Export Company, Economic and Technological Development Company founded by Dongbei University of Finance and Economics; Vice president of Liaoning Institute of Constitutional and Administrative Law. He has abundant knowledge of law. Now he held the position of the independent director in the Hua Dong Numerical Control Limited Company. Mrs .Liang Shuang, Born in 1965, Chinese nationality, Ph.D., professor. Since 1990, at the Dongbei University of Finance and Economics, the Dongbei University of Finance and Economics as assistant professor of Materials Department of economic management, lecturer, associate professor, Dongbei University of Finance and Economics School of accounting, Dongbei University of Finance and Economics School of accounting training center serves as the financial department minister. From 2003 to 2007 he served as the Tenth CPPCC member of Dalian City, from 2008 to 2012, he served as the Dalian Municipal Committee of the Eleventh CPPCC, from 2013 to 2017 served as the Dalian Municipal Committee of the CPPCC National Committee of the twelfth. She still served as Dalian Sunasia sixth independent directors. (3)Supervisor Mr.Sun Shicheng was born in December 1964, university culture, Senior Administration, joined in work in 1987,he worked as the section chief in organization department and organizer in Party Committee of WBGC, party branch secretary of Xibei sales company, secretary of Huabei sales company, deputy general manager, the minister of organization department, and the chairman of the labor union. Now he work as the labor Union chairman, deputy Secretary of Communist Party of WBGC, staff director and organization department of WBGC. Ms. Li Xiumin, was born in May 1962, junior college degree, senior accountant. Joined in work in November 1980, she has successively held the posts of accountant in financial audit department, financial inspector, financial section chief, assistant minister, vice minister and so on, now she is held the post of minister in financial audit department of WBGC. Mrs. Wang Lin, was born in September 1981, university degree, assistant economist. Joined in work in July 2004, she has successively held the posts of the legal counsel,office director, minister assistant,deputy minister and minister in credit management department of WBC. Now she is held the post of general manager of Import and Export Corporation. Mr. Sun Yongsheng, wad born on July 1962, university degree, engineer. Joined in work August,1987, she has successively held the posts of minister assistant, deputy minister of manufacture engineering department, minister of safety and equipment energy department, the factory manager of the seventh finished product factory, now he work as the factory manager of the second finished product factory. Mr. Wang Fuxing, was born in June, 1972, university degree. Since joined in work in our company from 1993, has successively held the posts of the minister of financial department of Wazhou Group equipment manufacturing company, financial manager, Deputy Secretary of Party General Branch and chairman of the labor union of Wazhou Group Precision turntable company, now he hold the post of deputy director of general office of WBGC. 27 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (4) Top management Mr. Tan Jianguang, born in December, 1964, technical secondary school, assistant engineer. Joined in work in August 1986, he has successively held the posts of workshop director in cage branch, salesman, section chief, deputy general manager and genera manager of Marketing Departmen, general manager assistant of WBC, the general manager of railway department, and the general manager of railway bearing sales company. Now he hold the post of deputy general manager of WBC. Mr. Wang jiyuan , was born in December 1966. Graduated from liaoning university industrial economics major, university degree. Successively served as assistant director of the business management department, assistant director of the planning and finance department, deputy director of the business management department, and director of the planning and finance department of the company. Now he is the deputy general manager of the company. Posts in Shareholder’s Company √Applicable □Inapplicable Whether receiving Starting Expiry Name Company Name remuneration Position Date Date from other of Tenure of Tenure companies Chairman of Board of Meng Wei Wafangdian Bearing Group Corporation 2016.04.11 Y Director Sun Maolin Wafangdian Bearing Group Corporation Director .GM. 2017.02.24 Y Zhao Yang Wafangdian Bearing Group Corporation Director N ZhangXinghai Wafangdian Bearing Group Corporation General accountant Y Chen Jiajun Wafangdian Bearing Group Corporation VGM Y Sun Najuan Wafangdian Bearing Group Corporation Director N Sun Shicheng Wafangdian Bearing Group Corporation deputy Secretary of Communist Party of W 2017.12.20 Y BGC,the union president, Li Xiumin Wafangdian Bearing Group Corporation Minister of auditing Y Wang Fuxing Wafangdian Bearing Group Corporation Financial Manager Y Tang Yurong SKF (China) Co,. Ltd.Rgion President 2015.05.01 Y Fang Bo SKF (China) Co,. Ltd.Rgion Financial Charger 2009.04.01 Y Other Posts √Applicable □Inapplicable Whether Starting receiving Expiry Date Name Other Company Name Position Date of remuneration of Tenure Tenure from other companies Meng Wei Wazhou group (USA) bearing co., LTD Chairman N Meng Wei Wazhou group (USA)(USA) R & D Center Co. LTD Chairman N Meng Wei Leipzig Ball and Roller Bearings Limited (KRW) Chairman N Management Meng Wei Wazhou Europe Investment Holdings Co. LTD N Director Dalian Guangyang Wazhou Auto Bearing Meng Wei Chairman N Co., Ltd. Meng Wei Dalian Di Ye Ji Kai Wazhou Industry Co. LTD Chairman N Sun Maolin Wazhou group (USA)(USA) R & D Center Co. LTD director N Sun Maolin Wazhou group (USA) bearing co., LTD director N Zhao Yang Leipzig Ball and Roller Bearings Limited (KRW) counselor N 28 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Dalian Wazhou Fengyuan Machinery Co., Zhao Yang Chairman N Ltd. Zhang Wazhou Group Wind Power Bearing Co.,LTD Chairman N Xinghai Zhang Wazhou Group (USA) Bearing Co., LTD supervisor N Xinghai Zhang Liaoning northern metal supply chain Chairman N Xinghai company. Zhang Management Wazhou Europe Investment Holdings Co. LTD N Xinghai Director Chen Jiajun Dalian Di Ye Ji Kai Wazhou Industry Co. LTD director N Dalian Guangyang Wazhou Auto Bearing Chen Jiajun director N Co., Ltd. Chen Jiajun Wazhou group (USA) bearing co., LTD director N Shanghai Aimuyi ElectroMechanical Equipment Sun Najuan director N Co., LTD Wafangdian Bearing Group National Bearing Li Xiumin supervisor N Engineering Technology Research Center Co. LTD Li Xiumin Wazhou Group Precision Forging Co.,LTD supervisor N Liaoning northern metal supply chain Wang Fuxing director N company. Wang Fuxing Wazhou Group Wind Power Bearing Co.,LTD supervisor N Sun Wazhou Group Wind Power Bearing Co.,LTD director N Yongsheng III. The Remuneration of Directors, Supervisors and Senior Management The company shall strictly implement the company's salary assessment system and determine the salary level according to the salary level of the person in charge of a state-owned enterprise in dalian and the achievement of the business objectives set by the board of directors at the beginning of the year. supervisors and senior management Unit:0000'Yuan Remuneration Total remuneration Name Position Gender Age Office actually received at received from the Status Company the end of the reporting period Meng Wei Chairman Male 51 Incumbent Y Sun Maolin Director Male 55 Incumbent Y Zhao Yang Director Male 54 Incumbent 71.53 N Sun Najuan Director Female 51 Incumbent 68.04 N Zhang Xinghai Director Male 51 Incumbent Y Chen Jiajun Director Male 52 Incumbent Y Tang Yurong Director Male 57 Incumbent Y FangBo Director Female 47 Incumbent Y President of Sun Shicheng Supervisory Male 55 Incumbent Y Committee Li Xiumin Supervisory Female 56 Incumbent Y Wang Fuxing Supervisory Male 47 Incumbent Y Sun Yongsheng Supervisory Male 57 Incumbent 25.21 N Wang Lin Supervisory Female 38 Incumbent 18.52 N 29 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Tan Jianguang Vice-G.M. Male 55 Incumbent 68.93 N Wang Jiyuan Vice-G.M. Male 53 Incumbent 21.95 N Independent Liu Yuping Male 63 Incumbent 3.6 N Director Independent Wen Bo Male 56 Incumbent 3.6 N Director Independent Liang Shuang Female 54 Incumbent 3.6 N Director Independent Sun Kun Female 61 Incumbent 3.6 N Director Zhang Shiyin Vice-G.M. Male 47 Resignation 5N Total -- -- -- -- 293.58 VI. About Employees 1. Age Structure The subject of share 2,462 Sub-company Precision Motor Company 751 Total 3,213 Total staff the company shall pay to 3,213 The number of retired workers need company pay the cost 4,398 is Professional composition of staff Type Member Production staff 2,370 Sale staff 189 Technology staff 135 Financial staff 57 Administrative staf 462 Total 3,213 Education Type Member Master’s degree 14 University graduation 399 Junior college graduation 626 below junior college 2,330 Total 3,369 2.Remuneration Policy for Staff Company based on relevant laws and regulations of the state and the government labor department a series of related policies, combined with the actual situation of the company, the company developed the company's salary evaluation system. Bingzhe "adhere to the fair, give consideration to efficiency, quality of work, the performance of priority" principle, and constantly improve the salary system, strengthen incentive mechanism, and fully mobilize the enthusiasm of the staff of the company. 3. Training Program In the year of 2018, the company continues to strengthen training management, increase training investment, carefully organize and scientifically plan, and make continuous efforts to build a learning company and cultivate learning employees, and achieve good results. The company's 30 Wa Fangdian Bearing Co., Ltd 2018 Annual Report training work this year is summarized as follows. 1. Focus and innovation of training This year, the company improves the training quality, innovates the training content, raises the study consciousness, enhances the teaching quality, strengthens the training supervision, has obtained the big achievement. The company has held key training programs including sending overseas institutions for training, operating managers to guangyang, THK tile axis company for training, "double certificates" training for engineering and technical personnel, open class training for technical experts, specialized classes for workers, and electric-clamp training for operation managers. 2. Cultivate the awareness of learning The main problems of the present contingent of skilled workers are the shortage of young technical workers and the low educational level. In order to improve the learning awareness of technical workers, the company established a special class for workers based on the training center of the tile axis, and the class was officially opened in March. A total of 57 people successfully passed the adult college entrance examination and participated in the study. 3. Improve teaching quality In terms of teacher arrangement, the company, together with relevant units, employs internal and external business experts as the teaching teachers. For example, in cooperation with the import and export company and dalian jiayin English training school, we will offer intensive English training courses for the project personnel, and employ American foreign teachers to teach in English, including basic English knowledge, professional English knowledge of bearing, etiquette and culture of European and American countries. 31 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report Chapter VIIII. Corporate Governance I. General During the report period, the Company had continuously observed Company Law, Securities Law, and Guidelines of Corporate Governance for Listed Company and relevant regulations to improve and enhance its corporate governance. 1.1 The holding of the shareholders, board of directors and board of supervisors, the voting procedures and the formation of the resolutions were totally subject to these regulations. 1.2 The Company has made its internal management systems and regulations for restriction of budgeting, purchasing, logistics and sale, etc, and executed them strictly. 1.3 The company has separated business, personnel, assets, interior organization and finance from its holding shareholder: (1) The Company had independent operations itself, with its business separated from its holding shareholders; (2)The Company was independent in terms of its personnel, labor and salary management, and had its own independent labor and personnel management systems. Except the Chairman of Board of Directors of the parent company Wafangdian Bearing Group Corporation who occupies as the Chairman of the Company, the General Manager, Deputy-General Managers and the Finance Controller of the Company were all independent from the controlling shareholder. (3)The production system, auxiliary production system and supplementary facilities of the Company were independent from the controlling shareholder. (4)The Company has separated the accounting from the controlling shareholder. The Company carried out independent finance and accounting on its own and paid taxes independently. (5)The Company has established the organizations independent on the holding shareholder Does there exist any difference in compliance with the corporate governance, the PRC Company Law and the relevant provisions of CSRC. Yes √No II. Independence in Business, Personnel, Assets, Organization, Finance, etc. from the Controlling Shareholders The company has separated business, personnel, assets, interior organization and finance from its holding shareholder with independent operation ability:(1) The Company had independent operations itself, with its business separated from its holding shareholders;(2)The Company was independent in terms of its personnel, labor and salary management, and had its own independent labor and personnel management systems. Except the Chairman of Board of Directors of the parent company Wafangdian Bearing Group Corporation who occupies as the Chairman of the Company, the General Manager, Deputy-General Managers and the Finance Controller of the Company were all independent from the controlling shareholder. (3)The production system, auxiliary production system and supplementary facilities of the Company were independent from the controlling shareholder. (4)The Company has separated the accounting from the controlling shareholder. The Company carried out independent finance and accounting on its own and paid taxes independently. (5)The Company has established the organizations independent on the holding shareholder. 32 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report III. Horizontal Competitions Inapplicable IV. Annual General Meeting and Extraordinary Shareholders’ Meetings in the Report Period 1. Annual General Meeting in the Report Period Proportion of investors in Sessions Meeting Types Meeting date Disclosure date Disclosure index total participants 2017 Annual Annual General http://www.cninfo.com. 80.36% 2018.05.18 2018.05.19 General Meeting Meeting cn 2. Request by the Preference Shareholders with the Vote Recovered for an Extraordinary General Meeting Inapplicable V. Duty Performance of Independent Directors in the Reporting Period 1. Attendance of Board Meeting and Shareholders’ Meeting Attendance of Board Meeting Attendan The number of Non-attendanc ce at the Meetings directors to e in person for general Attendance Attendance by Absence Name required to attend the two meeting in person facsimile rate be present board of consecutive of directors times sharehol ders. Liu Yuping 4 3 1 0 0 N 1 Wen Bo 4 3 1 0 0 N 1 Liang Shuang 4 3 1 0 0 N 1 Sun Kun 2 1 1 0 0 N 0 Notes to Failure to Personally Attend Board Meetings Successively Twice Inapplicable 2. Objection of independent directors on some relevant issues Did any of independent directors put forth any objection on some relevant issues No 3. Other Note to Duty Performance of Independent Directors Explanation on acceptance of or failure to accept an independent director‘s advice to the Company According to the relevant regulations and requirements of Company Law and Guideline on Establishing Independent Director System in Listed Company, Articles of Association, earnestly fulfilled the obligations of laws and regulations, articles of association and independent director system, actively attended the board meetings and shareholders‘ general meetings, examined and guided the production and operation of the Company, proposed independent opinions on significant events, put forward many valuable and expert advices 33 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report about internal control and daily operation decisions, fulfilled the duties diligently, faithfully, brought their roles into full play and effectively safeguarded the interests of listed companies and general shareholders.IV. Performance of Special Committees under the Board of Directors in the Report Period VI Duty Performance of Special Committees under the Board of Directors in the Reporting Period The board of directors of the company under the nomination, remuneration and appraisal, auditing and strategic committee, the professional committee, according to their respective functions and duties to the development of the company proposed relevant professional opinions and suggestions, to promote the normative development of the company. Especially the Board Audit Committee full participation in the company's annual audit work, including participation in the formulation of the annual audit plan, audit annual audit report draft and eventually formed the draft. Board of directors of the audit committee of the company audit reports, periodic reports for special consideration; the board Nomination Committee for consideration by the company on the election of chairman of the board, board of directors and the general manager bill, and recommended to the board. VII. Work Summary of the Supervisory Committee Did the Supervisory Committee find any risk existing in performing the supervision activities in the reporting period No VIII. Assessment and Incentive Mechanism for Senior Executives Company implement "releasing" management approach in which base annual salary plus benefit annual salary for salary of director (not including the independent director), senior management personnel (including supervisor). The remuneration and appraisal committee carry out comprehensive evaluation assessment for performance of the board directors and senior management personnel, determine the assessment principles according to assessment and procedures, carry out individually score, evaluation, summary for the directors and senior managers. Directors, executive officers personal advance monthly salary according to the basic salary, cash out after annual appraisal. Company's performance assessment and incentive mechanism has played a positive role in supervision, spur and motivate for directors, senior management. IX. Internal Control 1. No particular case found involving material defects in the internal control during the reporting period No 2. Self-assessment Report of the Internal Control Date of disclosing the full text of the internal 2019.04.30 control assessment report Index of disclosureof the full text of the internal http://www.cninfo.com.cn control assessment report Criteria for affirming the defects Categories Financial Report Non-financial Report 1. Fraud by senior management, including financial 1. The enterprise lacks democratic reporting fraud; Improper use of assets; False decision-making procedures; Qualitative criteria income, expenses and liabilities; Improper 2. Unscientific decision-making acquisition of assets; Tax evasion and high-level procedures; fraud; 3. Violating national laws and regulations, 34 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 2. Restatement of financial statements issued to such as environmental pollution; reflect corrections to misstatements; 4. Frequent occurrence of negative news 3. Certified public accountants find material by media; misstatement in the current financial report, but the 5. The results of internal control internal control fails to find such misstatement in the evaluation, especially major or important operation process; defects, have not been corrected; 4. The internal control and supervision of the 6. Lack of system control or systematic company's financial reports by the company's audit failure of system in important businesses. committee is invalid, including that the audit committee is unable to perform effective supervision over the internal control of the company's financial reports or does not have the qualification and ability to monitor the accuracy of financial reports; 5. The defect that the total amount of related party transactions exceeds the amount of related party transactions approved by the general meeting of shareholders due to the failure to imp Referring to the quantitative standard of internal control defects in financial reports, the quantitative standard for determining the importance of internal control defects in non-financial reports is: Major defects with direct property losses of more If the amount of direct property loss than 10 million yuan; 5 million yuan (including)-10 Quantitative criterion caused is more than 500,000 yuan, it shall million yuan important defect; General defects below be deemed as a major defect; It is 5 million yuan. considered as an important defect if the amount of direct property loss is less than or equal to RMB 500,000 yuan; Defects other than major or important defects shall be deemed as general defects. Number of material defects in the 0 financial statements Number of material defects in the 0 non-financial statements Number of important defects in the 0 financial report Number of important defects in the 0 non-financial report X. Internal Control Audit Report Review Opinions in the Internal Control Audit Report It is our opinion that,as of December 31,2018,the headquarter of Wafangdian Bearing Co., ltd .has maintained efficiency of internal control on financial statements in every material aspect. Disclosure of the internal control audit report Disclosure Disclosure Date of Internal Control Audit Report 2019.04.30 Disclosure Index of Internal Control Audit Report http://www.cninfo.com.cn control audit report Standard unqualified auditor’s Type of the onions in the internal control audit report report Are there any material defects in the non-financial report No Has the CPAs issued a qualified auditor’s report of internal control. No Does the internal control audit report issued by the CPAs agree with the self-assessment report of the Board of Directors Yes Chapter X. Corporate Bonds Inapplicable 35 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report ChapterXI. Financial Report I.Audit Report Opinion Type of Audit Report Standard unqualified audit opinion Date of Audit Report April26,2019 ShineWing Certified Public Accountants Dalian Name of Audit Organization Branch No. of Audit Report XYZH/2019DLA10116 Name of the auditor Sui Guojun Hui Shikui 1. Audit Opinions We have audited the financial statements of Wafangdian Bearing Company Limited (“Wafangdian Bearing Company”), which comprise the consolidated as well as Company’s balance sheet as at 31 December 2018, the Company’s and the consolidated income statement, cash flow statement and statement of changes in shareholders’ equity for the year then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements of Wafangdian Bearing Company present fairly, in all material respects, the Company’s and the consolidated financial position as at 31 December 2018, the Company’s and the consolidated results of operations and cash flows for the year then ended in accordance with Accounting Standards for Business Enterprises. 2.The Basis of Audit Opinions We conducted our audit in accordance with China Standards on Auditing for Chinese Certified Public Accountants. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of Wafangdian Bearing Company in accordance with the Code of Ethics for Chinese Certified Public Accountants, and we have fulfilled our other ethical responsibilities of the code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit. 3.Key Audit Matters Key audit matters are those matters that we consider, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole and, in forming our audit opinion thereon, and we do not express a separate opinion on these matters. 1.Inventory impairment Key Audit Matter How the matter was addressed in the audit As of December 31, 2018, as The main audit procedures carried out for addressing the key mentioned in notes VI.6to the audit matters are as follows: consolidated financial 1. Evaluate the design of internal control of the procurement statements of Wafangdian and payment cycle, determine whether it is implemented, identify Bearing Co.,LTD, the book major internal control defects, and conduct operational balance of inventory is effectiveness tests; 766,633,8 00yuan, the amount 2. Combined with inventory monitoring, inspect the appearance of inventory depreciation and shape of inventory to know whether its physical shape is reserve is 19.1227 million normal; yuan, and the depreciation 3. Check whether the basis and method of the provision for reserve is 18.0533 million inventory depreciation are consistent in the earlier and later yuan less than the previous periods; year. It is an important 4. According to the valuation method of the lower of cost and 36 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report factor affecting the total net realizable value, evaluate the data, assumptions and profit and has a significant accounting methods based on the inventory depreciation reserve, impact on the financial and consider whether there is conclusive evidence to calculate statements. To this end, we and determine the net realizable value of inventory and check identified inventory its rationality; impairment as a key audit 5. Considering the determination principle of the net realizable matter. value of inventory, check the correctness of the calculation of net realizable value (sufficient but not excessive); 6. Check the changes in the inventory depreciation provision of previous years for the current period, check whether the calculation and accounting treatment of inventory depreciation provision for resale are correct, and whether they are consistent with the amount of relevant profit and loss items. 2.Revenue recognition Key Audit Matter How the matter was addressed in the audit Bearing sales revenue and profit The main audit procedures carried out for addressing the key to profit impact. The audit matters are as follows: recognition of revenue depends 1. Evaluated and tested the management's internal control on whether the product sales can of sales and collection; properly evaluate whether they 2. Perform the analytical review procedure and analyze meet the risk reward transfer whether the changes of income and gross profit rate are conditions in the sales reasonable; contract. Due to the complexity 3. Select sales contract samples and check the consistency of commercial agreements, between the contract price and the actual settlement price; important judgments need to be 4. Select samples of income transactions recorded in this made respectively. To this end, year, check the consistency of book income, sales invoice we identified revenue as a key and confirmation sheet to customers, and evaluate whether audit matter. relevant income confirmation conforms to the income confirmation accounting policy of the company; 5. Selected samples to confirm transactions with major customers and verify the authenticity and accuracy of sales; 6. Select samples for the delivery records before and after the balance sheet date, check the delivery records, customer confirmation forms and other supporting documents, and evaluate whether the revenue is included in the appropriate period. 3. Land acquisition and storage of the old factory area of the subsidiary company, wa shaft liaoyang bearing manufacturing co., LTD Key Audit Matter How the matter was addressed in the audit The land in the old site of The main audit procedures carried out for addressing the key Liaoyang Bearing Company, a audit matters are as follows: subsidiary of Wafangdian Bearing 1. Obtain the acquisition contract of state-owned land use Co.,LTD, was successfully right of liaoyang city signed by the audited unit and acquired and saved this year. The liaoyang land reserve center, and check the accuracy of the net income was confirmed as RMB recorded amount of creditor's rights. 4,387,500 after deducting RMB 2. Checked the land listing announcement and personally went 31,202,900 as liquidated damages to liaoyang land reserve center to interview the acquisition for the land replacement and storage issues and check the collection situation after contract in 2009 from the the period to confirm the authenticity of the transaction. transfer income of RMB 3. Check the book balance of the newly built factory land and 35,590,400. As this business is plant purchase expenditure on the acquisition and storage an unconventional transaction date during the relocation, and confirm the authenticity of and involves a large amount of the income generated from the acquisition and storage. money, we determine this 4. Obtain the arbitration result of compensation for land transaction as a key audit item. replacement breach with Baolin Company, and confirm the breach loss according to the result. 4.Other Information 37 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report The management of Wafangdian Bearing Company(hereinafter referred to as the “Management”) is responsible for the other information. The other information comprises the information included in the Wafangdian Bearing Company2018 annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. 5.Responsibilities of the Management and Those Charged with Governance for the Financial Statements The Management is responsible for the preparation of the financial statements in accordance with Accounting Standards for Business Enterprises to achieve fair presentation; and designing, implementing and maintaining internal control which is necessary to enable that the financial statements are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Management is responsible for assessing Wafangdian Bearing Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intends to liquidate Wafangdian Bearing Companyor to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible to overseeing Wafangdian Bearing Company’s financial reporting process. 6.Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are generally considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. During the course of audit in accordance with auditing standards, we exercise professional judgment and maintain professional skepticism. We also carry out the following works: (1) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (2) Uderstand the internal controls related to the audit to design appropriate audit procedures. (3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. 38 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report (4) Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Wafangdian Bearing Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements in accordance with the auditing standards or, if such disclosures are inadequate, we shall modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Wafangdian Bearing Company to cease to continue as a going concern. (5) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and also whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (6) Obtain sufficient and appropriate audit evidence of financial information from Wafangdian Bearing Company and express our opinion. We are responsible for directing, monitoring and implementing the group audit and take full responsibility for audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings etc., including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with those relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and related safeguards, where applicable. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation prohibited public disclosure about the matter or when, in rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 39 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report II. Financial Statement The unit of the financial statements in the financial notes is: RMB yuan 1. Consolidated Balance Sheet. Preparation unit: wafangdian bearing co., LTD December31,12 Unit: RMB Yuan Item Opening Balance Closing Balance Current assets : Monetary fund 247,229,860.99 82,860,774.83 Financial assets held-for-trading Financial asset measured at FV and any change 298,925.16 recognized in income Bills receivable and Account receivable 1,235,257,555.58 1,338,261,849.60 Include:Bills receivable 93,624,563.82 209,923,835.91 Account receivable 1,141,632,991.76 1,128,338,013.69 Account paid in advance 21,885,856.45 39,863,576.53 Other receivables 92,255,736.14 21,895,381.98 Include:Interest receivable Dividend reciivable 1,250,000.00 Inventory 747,511,054.75 693,836,428.55 Non-current assets due within 1 year Other current assets 14,184,383.36 5,386,473.92 Total current assets 2,358,623,372.43 2,182,104,485.41 Non-current assets Financial assets available-for-sale 2,000,000.00 2,000,000.00 Investments held-to-maturity Long-term receivable Long-term equity investment Investment property 129,270,498.66 136,874,108.05 Fixed assets 661,598,663.85 710,247,969.72 Construction in progress 48,159,927.20 82,689,318.94 Construction materials Fixed assets disposal Biological assets Gas and petrol assets Intangible assets 85,667,085.86 87,530,122.26 Development expenditure Goodwill Long-term prepaid expense 1,208,536.46 700,228.04 Deferred tax assets 11,639,248.03 11,625,939.19 Other non-current assets Total non-current assets 939,543,960.06 1,031,667,686.20 Total assets 3,298,167,332.49 3,213,772,171.61 Current liabilities 40 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report Short-term loan 620,000,000.00 648,000,000.00 Note payable and Accounts payable 1,058,073,857.65 930,315,566.45 Note payable Accounts payable Accounts received in advance 21,286,971.52 31,634,532.72 Commission charge payable Accrued payroll 12,248,327.93 16,660,148.64 Tax payable 7,242,006.46 13,849,972.32 Other payables 131,854,654.39 93,313,193.92 Interest payable 748,135.28 1,190,100.00 Dividends payable 360,000.00 Non-current liabilities due within I year 50,000,000.00 Other current liabilities 4,920,248.12 3,967,022.53 Total current liabilities 1,855,626,066.07 1,787,740,436.58 Non-current liabilities Long-term loan Debenture payable Long-term payables 396,698.98 1,894,004.70 Special payables Contingent liabilities Deferred income 61,284,650.74 37,754,771.56 Deferred tax liabilities 836,872.15 888,084.06 Other non-current liabilities Total non-current liabilities 62,518,221.87 40,536,860.32 Total liabilities 1,918,144,287.94 1,828,277,296.90 Owner’s equity (shareholders’ equity) Capital stock 402,600,000.00 402,600,000.00 Capital public reserves 485,691,050.47 485,691,050.47 Less: treasury share Surplus reserve 136,770,391.01 134,278,527.26 Undistributed profit 354,961,603.07 362,925,296.98 Difference of foreign currency translation Equity attributable to parent company 1,380,023,044.55 1,385,494,874.71 Minority interest Total owner’s equity 1,380,023,044.55 1,385,494,874.71 Total owner’s equity and liabilities 3,298,167,332.49 3,213,772,171.61 Chairman: Meng Wei General Accountant : Sun Najuan Accounting charger: Sun Najuan 2. Balance Sheet Of Parent Company Unit: RMB Yuan Item Opening Balance Closing Balance Current assets : Monetary fund 146,186,890.65 78,901,032.57 Financial asset measured at FV and any change 298,925.16 41 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report recognized in income Financial assets held-for-trading Bills receivable and Account receivable 1,299,378,046.46 1,316,629,887.08 Include:Bills receivable 89,620,372.80 203,511,631.58 Account receivable 1,209,757,673.66 1,113,118,255.50 Account paid in advance 19,008,909.78 37,510,877.11 Other receivables 14,963,827.46 20,605,278.47 Include:Interest receivable Dividend receivable 1,250,000.00 Inventory 680,255,742.99 622,177,633.83 Non-current assets due within 1 year Other current assets 13,765,726.62 4,067,326.65 Total current assets 2,173,858,069.12 2,079,892,035.71 Non-current assets Financial assets available-for-sale 2,000,000.00 2,000,000.00 Investments held-to-maturity Long-term receivable Long-term equity investment 211,583,897.67 211,583,897.67 Investment property 113,277,687.13 119,890,581.55 Fixed assets 460,415,212.74 490,076,503.07 Construction in progress 47,699,459.65 82,374,150.54 Construction materials Fixed assets disposal Biological assets Gas and petrol assets Intangible assets 67,683,392.22 68,788,824.54 Development expenditure Goodwill Long-term prepaid expense 1,017,695.53 453,531.31 Deferred tax assets 10,350,000.00 10,350,000.00 Other non-current assets Total non-current assets 914,027,344.94 985,517,488.68 Total assets 3,087,885,414.06 3,065,409,524.39 Current liabilities Short-term loan 620,000,000.00 648,000,000.00 Note payable and Accounts payable 929,608,079.68 810,566,646.33 Note payable Accounts payable Accounts received in advance 21,976,484.62 31,518,509.16 Commission charge payable Accrued payroll 5,520,469.68 9,803,431.58 Tax payable 4,783,202.06 10,821,733.56 Other payables 50,471,992.39 54,100,405.81 Include:Interest payable 748,135.28 1,190,100.00 Dividends payable 360,000.00 42 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report Non-current liabilities due within I year 50,000,000.00 Other current liabilities 3,869,474.53 3,869,474.53 Total current liabilities 1,636,229,702.96 1,618,680,200.97 Non-current liabilities Long-term account payable 296,698.98 296,698.98 Debenture payable Special payables Contingent liabilities Deferred income 29,671,957.77 33,560,207.56 Deferred tax liabilities Other non-current liabilities Total non-current liabilities 29,968,656.75 33,856,906.54 Total liabilities 1,666,198,359.71 1,652,537,107.51 Owner’s equity (shareholders’ equity) Capital stock 402,600,000.00 402,600,000.00 Capital public reserves 485,678,443.26 485,678,443.26 Less: treasury share Surplus reserve 136,770,391.01 134,278,527.26 Undistributed profit 396,638,220.08 390,315,446.36 Total owner’s equity 1,421,687,054.35 1,412,872,416.88 Total owner’s equity and liabilities 3,087,885,414.06 3,065,409,524.39 3. Consolidated Income Sheet. Unit: RMB Yuan Account for the Item Account for the prior period current period 1.Total operating income 2,168,398,656.83 2,190,412,052.05 Including: Operating revenue 2,168,398,656.83 2,190,412,052.05 Interest income Handling charge and commission income 2.Total operating cost 2,182,504,811.35 2,206,331,311.07 Including: Operating cost 1,891,027,679.53 1,886,614,598.45 Interest expenses Handling charge and commission income Tax & surcharges for main operations 16,302,542.85 19,418,083.12 Selling expenses 165,543,842.56 157,721,750.23 Administrative expense 57,666,053.69 57,345,250.36 Research and development expense 5,922,083.68 4,065,054.17 Financial expense 41,027,386.88 50,697,810.00 Including: interest expenses 44,744,788.35 49,123,067.63 interest revenue 531,265.45 655,727.60 Loss of impairment of assets 5,015,222.16 30,468,764.74 Add:Other income 8,337,141.38 7,856,994.07 Investment income(loss with "-") 1,250,000.00 500,000.00 Gains of change of fair value of assets(loss with"-") -49,309.20 43 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report Including: Income form investment on associated enterprise and jointly enterprise Asset disposal income (loss with "-") 1,789,718.35 -728,247.65 3.Operating profit (loss with"-") -2,778,603.99 -8,290,512.60 Add: Non-operating revenue 14,491,888.12 19,009,072.44 Less: Non-operating cost 1,425,061.85 583,661.43 4.Total profit(loss with"-") 10,288,222.28 10,134,898.41 Less: Income tax expenses -343,947.56 -48,050.75 5. Net profit(Loss with"-") 10,632,169.84 10,182,949.16 (I) continuous operating net profit (net loss is marked with "-") 10,632,169.84 10,182,949.16 (2) termination of net profit (net loss is marked with "-") 10,632,169.84 10,182,949.16 Net profit attributable to shareholders of parent company 10,632,169.84 10,182,949.16 Minority interests 6. Other comprehensive income net off tax Total comprehensive income net off tax attributable to parent Company (Ⅰ)Items that may not be reclassified subsequently to the income statement 1.Change in net asset/liability from remeasurment on defined benefit plan 2.Under equity method, proportionate share of other comprehensive income in invested company that may not be reclassified subsequently to the income statement (Ⅱ)Items that may be reclassified subsequently to the income statement 1.Under equity method, proportionate share of other comprehensive income invested company that may be reclassified subsequently to the income statement 2.Avaliable-for-sale financial assets fair value movements 3.Profit/loss on reclassification from held to maturities to avaliable-for-sale financial assets 4.Cash flow hedges effective portion 5.Foreign currency translation difference 6. Others Total comprehensive income net off tax attributable to minority shareholders of the Company 7. Total comprehensive returns 10,632,169.84 10,182,949.16 Total comprehensive returns available for parent company Total comprehensive returns available for minority shareholders 10,632,169.84 10,182,949.16 8.Earnings per share (1) Basic earnings per share 0.03 0.03 (2) Diluted earnings per share 0.03 0.03 Chairman: Meng Wei General Accountant : Sun Najuan Accounting charger: Sun Najuan 44 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 4. Income Sheet of Parent Company. Unit: RMB Yuan Account for the current Account for the prior Item period period 1.Total operating income 2,162,469,546.51 2,138,730,061.84 Less:Total operating cost 1,892,827,228.39 1,847,965,184.83 Tax & surcharges for main operations 13,232,173.66 16,201,656.03 Selling expenses 162,404,118.64 154,364,032.50 Administrative expense 35,822,039.38 34,167,585.76 Research and development expense 4,821,297.84 3,152,824.17 Financial expense 32,834,353.49 50,747,589.77 Including: interest expenses 36,542,875.47 49,115,876.12 interest revenue 508,137.99 608,102.10 Loss of impairment of assets 3,997,682.39 29,792,760.86 Add:Other income 7,608,454.73 7,686,358.23 Investment income(loss with "-") 1,250,000.00 500,000.00 Gains of change of fair value of assets(loss with"-") -49,309.20 Asset disposal income (loss with "-") 1,789,718.35 14,622.70 2.Operating profit (loss with"-") 27,129,516.60 10,539,408.85 Add: Non-operating revenue 7,076,458.32 18,374,751.29 Less: Non-operating cost 9,566,764.26 552,045.56 3.Total profit(loss with"-") 24,639,210.66 28,362,114.58 Less: Income tax expenses -279,426.81 5,933.09 4. Net profit(Loss with"-") 24,918,637.47 28,356,181.49 (I) continuous operating net profit (net loss is marked with "-") 24,918,637.47 28,356,181.49 (2) termination of net profit (net loss is marked with "-") 5. Other comprehensive income net off tax (Ⅰ)Items that may not be reclassified subsequently to the income statement 1.Change in net asset/liability from remeasurment on defined benefit plan 2.Under equity method, proportionate share of other comprehensive income in invested company that may not be reclassified subsequently to the income statement (Ⅱ)Items that may be reclassified subsequently to the income statement 1.Under equity method, proportionate share of other comprehensive income invested company that may be reclassified subsequently to the income statement 2.Avaliable-for-sale financial assets fair value movements 3.Profit/loss on reclassification from held to maturities to avaliable-for-sale financial assets 4.Cash flow hedges effective portion 5.Foreign currency translation difference 6. Others 6.Total comprehensive returns 24,918,637.47 28,356,181.49 7.Earnings per share (1) Basic earnings per share 0.06 0.07 (2) Diluted earnings per share 0.06 0.07 45 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 5. Consolidated Cash Flow Statement. Unit: RMB yuan Account for the Account for the prior Item current period period 1.Cash from operating activities Cash received from sale of goods or rendering of services 1,112,014,767.44 998,989,298.82 Refund of taxes and fares 1,658.70 Other cash received relating to operating activities 38,046,426.13 37,275,712.97 Sub-total of cash inflows 1,150,062,852.27 1,036,265,011.79 Cash paid for goods and services 488,161,825.66 615,213,585.04 Cash paid to or on behalf of the employees 244,372,366.50 235,991,883.53 Tax payments 71,020,587.66 75,725,151.63 Other cash paid relating to operating activities 117,904,178.47 111,459,211.26 Sub-total of cash outflows 921,458,958.29 1,038,389,831.46 Net cash flows from operating activities 228,603,893.98 -2,124,819.67 2.Cash flows from investing activities Cash received from return of investment 305,344.34 Cash received from investment incomes 500,000.00 Net cash received from disposal of fixed assets, intangible 1,604,578.24 1,528,671.91 assets and other long-term assets Proceeds from sale of subsidiaries and other operating units Other cash received relating to investing activities Sub-total of cash inflows 1,604,578.24 2,334,016.25 Cash paid to acquire fixed assets, intangible assets and 5,684,584.60 11,304,923.42 other long-term assets Cash paid to acquire investment Net cash used in acquiring subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows 5,684,584.60 11,304,923.42 Net cash flows from investment activities -4,080,006.36 -8,970,907.17 3.Cash flows from financing activities Cash received from absorbing investment Including: Cash received from increase in minority interest Proceeds from borrowings 618,000,000.00 785,000,000.00 Other proceeds relating to financing activities 528,584,751.74 521,431,915.89 Sub-total of cash inflows 1,146,584,751.74 1,306,431,915.89 Repayment of borrowings 696,000,000.00 776,900,000.00 Distribution of dividends or profits & interest expenses 60,930,753.07 37,194,632.90 Cash paid for other financing activities 483,543,639.87 563,166,532.83 Sub-total of cash outflows 1,240,474,392.94 1,377,261,165.73 Net cash flows from financing activities -93,889,641.20 -70,829,249.84 4. Effects of foreign exchange rate changes on cash -245,938.73 -2,264,902.30 5.Net increases in cash and cash equivalents 130,388,307.69 -84,189,878.98 Add: cash and cash equivalent, at the beginning of year 58,043,497.54 142,233,376.52 6.Cash and cash equivalent at the end of the year 188,431,805.23 58,043,497.54 46 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 6. Cash Flow Statement Of Parent Company. Unit: RMB yuan Account for the Account for the Item current period prior period 1.Cash from operating activities Cash received from sale of goods or rendering of services 1,079,953,679.32 987,766,383.45 Refund of taxes and fares Other cash received relating to operating activities 21,555,153.70 33,836,533.17 Sub-total of cash inflows 1,101,508,833.02 1,021,602,916.62 Cash paid for goods and services 597,924,911.90 659,906,982.03 Cash paid to or on behalf of the employees 188,621,706.87 181,332,361.19 Tax payments 57,095,678.19 61,677,022.01 Other cash paid relating to operating activities 134,797,427.06 102,320,046.29 Sub-total of cash outflows 978,439,724.02 1,005,236,411.52 Net cash flows from operating activities 123,069,109.00 16,366,505.10 2.Cash flows from investing activities Cash received from investment incomes 305,344.34 Obtain the cash received from the investment income. 500,000.00 Net cash received from disposal of fixed assets, intangible assets and other 1,604,578.24 1,508,577.31 long-term assets Proceeds from sale of subsidiaries and other operating units Other cash received relating to investing activities Sub-total of cash inflows 1,604,578.24 2,313,921.65 Cash paid to acquire fixed assets, intangible assets and other long-term 5,434,940.58 10,716,219.62 assets Cash paid to acquire investment Net cash used in acquiring subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows 5,434,940.58 10,716,219.62 Net cash flows from investment activities -3,830,362.34 -8,402,297.97 3.Cash flows from financing activities Cash received from absorbing investment Proceeds from borrowings 618,000,000.00 785,000,000.00 Other proceeds relating to financing activities 528,584,751.74 521,431,915.89 Sub-total of cash inflows 1,146,584,751.74 1,306,431,915.89 Repayment of borrowings 696,000,000.00 776,900,000.00 Distribution of dividends or profits & interest expenses 52,728,840.19 37,104,632.90 Cash paid for other financing activities 483,543,639.87 563,256,532.83 Sub-total of cash outflows 1,232,272,480.06 1,377,261,165.73 Net cash flows from financing activities -85,687,728.32 -70,829,249.84 4. Effects of foreign exchange rate changes on cash -245,938.73 -1,726,793.72 5.Net increases in cash and cash equivalents 33,305,079.61 -64,591,836.43 Add: cash and cash equivalent, at the beginning of year 54,083,755.28 118,675,591.71 6.Cash and cash equivalent at the end of the year 87,388,834.89 54,083,755.28 47 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 7. Consolidated Sheet Of Changes In Shareholder’s Equity Unit: RMB yuan Amount in current period Owner’s equity attributable to parent company Minority Item Capital less: General Capital Surplus public Undistributed shareholders Owner’s equity public treasure provision for Others stock reserves profits ’ equity reserves stock risk 1.Balance at the end of 402,600,000 485,691,050.47 134,278,527.26 362,925,296.98 1,385,494,874.71 last year .00 Add: changes in accounting policies Changes in previous errors Others 2.Balance at the 402,600,000 485,691,050.47 134,278,527.26 362,925,296.98 1,385,494,874.71 beginning of this year .00 3. The changes in this 2,491,863.75 -7,963,693.91 -5,471,830.16 year(decrease with“-”) (1)Total of 10,632,169.84 10,632,169.84 comprehensive income (2)Capital contribution and reduction 1)Ordinary share 2)Capital contributed by other equity instrument holders 3)Share-based payments charged to equity 4)Others (3)Profits distribution 2,491,863.75 -18,595,863.75 -16,104,000.00 1)Provision for surplus 2,491,863.75 -2,491,863.75 public reserves 48 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 2)provision for general risks 3)distribution for -16,104,000.00 -16,104,000.00 owner(shareholders) 4)others (5)interior transference of owner’s equity 1)capital (capital stock)transferred by the capital public reserves 2)capital (capital stock)transferred by the surplus public reserves 3)loss offset by the surplus public reserves 4)others 4. Balance at the end of 402,600,000.0 the current period 0 Unit: RMB yuan Amount in previous period Owner’s equity attributable to parent company Owner’s equity Minority less: General Item Capital Capital public Surplus public Undistributed shareholders’ treasure provision for Others stock reserves reserves profits equity stock risk 1.Balance at the end of 402,600,00 485,691,050.47 131,442,909.11 359,603,965.97 1,379,337,925.55 last year 0.00 Add: changes in accounting policies Changes in previous errors Others 2.Balance at the 402,600,00 485,691,050.47 131,442,909.11 359,603,965.97 1,379,337,925.55 beginning of this year 0.00 3. The changes in this 2,835,618.15 -4,026,000.00 -1,190,381.85 year(decrease with“-”) 49 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report (1)Total of 2,835,618.15 2,835,618.15 comprehensive income (2)Capital contribution and reduction 1)Ordinary share 2)Capital contributed by other equity instrument holders 3)Share-based payments charged to equity 4)Others (3)Profits distribution 2,835,618.15 -6,861,618.15 -4,026,000.00 1)Provision for surplus 2,835,618.15 -2,835,618.15 public reserves 2)provision for general risks 3)distribution for -4,026,000.00 -4,026,000.00 owner(shareholders) 4)others (5)interior transference of owner’s equity 1)capital (capital stock)transferred by the capital public reserves 2)capital (capital stock)transferred by the surplus public reserves 3)loss offset by the surplus public reserves 4)others 4. Balance at the end of 402,600,00 485,691,050.47 134,278,527.26 355,577,965.97 1,378,147,543.70 the current period 0.00 50 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 8. Sheet Of Changes In Shareholder’s Equity Of Parent Compamy. Unit: RMB yuan Amount in current period Owner’s equity attributable to parent company Item Capital public less:treasure Surplus public General provision for Owner’s equity Capital stock Undistributed profits reserves stock reserves risk 1.Balance at the end of last year 402,600,000.00 485,678,443.26 134,278,527.26 390,315,446.36 1,412,872,416.88 Add: changes in accounting policies Changes in previous errors Others 2.Balance at the beginning of this year 402,600,000.00 485,678,443.26 134,278,527.26 390,315,446.36 1,412,872,416.88 3. The changes in this year ( decrease 2,491,863.75 6,322,773.72 8,814,637.47 with“-”) (1)Total of comprehensive income 24,918,637.47 24,918,637.47 (2)Capital contribution and reduction 1)Ordinary share 2)Capital contributed by other equity instrument holders 3)Share-based payments charged to equity 4)Others (3)Profits distribution 2,491,863.75 -18,595,863.75 -16,104,000.00 1)Provision for surplus public reserves 2,491,863.75 -2,491,863.75 2)provision for general risks 3)distribution for owner(shareholders) -16,104,000.00 -16,104,000.00 4)others (5 ) interior transference of owner’s equity 1)capital (capital stock)transferred by the capital public reserves 2)capital (capital stock)transferred by the surplus public reserves 3)loss offset by the surplus public reserves 51 WafangWa Fangdian Bearing Co., Ltd 2018 Annual Report 4)others 4. Balance at the end of the current period 402,600,000.00 485,678,443.26 136,770,391.01 396,638,220.08 1,421,687,054.35 Amount in previous period Item Owner’s equity attributable to parent company Owner’s equity Capital public less: Surplus public Capital stock Undistributed profits reserves treasure stock reserves 1.Balance at the end of last year 402,600,000.00 485,678,443.26 131,442,909.11 368,820,883.02 1,388,542,235.39 Add: changes in accounting policies Changes in previous errors Others 2.Balance at the beginning of this year 402,600,000.00 485,678,443.26 131,442,909.11 368,820,883.02 1,388,542,235.39 3. The changes in this year(decrease with“-”) 2,835,618.15 21,494,563.34 24,330,181.49 (1)Total of comprehensive income 28,356,181.49 28,356,181.49 (2)Capital contribution and reduction 1)Ordinary share 2)Capital contributed by other equity instrument holders 3)Share-based payments charged to equity 4)Others (4)Profits distribution 2,835,618.15 -6,861,618.15 -4,026,000.00 1)Provision for surplus public reserves 2,835,618.15 -2,835,618.15 2)provision for general risks 3)distribution for owner(shareholders) -4,026,000.00 -4,026,000.00 4)others (5)interior transference of owner’s equity 1)capital (capital stock)transferred by the capital public reserves 2)capital (capital stock)transferred by the surplus public reserves 3)loss offset by the surplus public reserves 4)others 4. Balance at the end of the current period 402,600,000.00 485,678,443.26 134,278,527.26 390,315,446.36 1,412,872,416.88 52 Wa Fangdian Bearing Co., Ltd 2018 Annual Report I. General Information Wafangdian Bearing Company Limited (the ―Company‖, the ―Group‖ is referred to ―Company‖ together with its subsidiaries ) is a joint stock limited company established in the People‘s Republic of China (the ―PRC‖) on 16 July, 1997. In the opinion of the directors, its parent and ultimate holding company is Wafangdian Bearing Group Company Limited (―Wazhou Group‖). The Company‘s B shares have been listed on the Shenzhen Stock Exchange since 19February, 1997. The parent company is Wazhou Group. General shareholders meeting is the company‘s authority and have the resolution power over company‘s business policy, financing, investment and profit appropriation etc.significant events in accordance with relevant law. Board of directors is responsible for general meeting and has the power over the company‘s decision making. Management is in charge of implementation of resolution made by general meeting and board meeting and is responsible for operation management. The company has the following functional departments including: procurement department, portfolio investment department, operating department, HR, marketing department, manufacturing and construction department, quality control department, financial department and logistic department. Wholly owned subsidiaries include Wazhou Liaoyang Bearing Manufacturing Co., Ltd(―Liaoyang Bearing‖), Dalian Wazhou Precision Electric Motor Car Bearing (―DalianElectrical Motor‖),and Wazhou Precision of Spherical Roller Bearings(Wafangdian)Co., Ltd(―Spherical Bearings‖). The addresses of the registered office and principal place of business of the Company are No.1, Phrase 1, Gongji Street, Wafangdian North, Liaoning Province, and the PRC.Legal representative is Meng Wei. The Company is principally engaged in the manufacturing and sale of bearing, bearing spare parts, engineering equipment, automobile spare parts and relating products, bearing repair, maintenance and technology service etc and also in renting mechanical equipment and estate, inspection of bearings, mechanical equipment, measuring instruments and meters. II.Financial Statement Consolidation Scope The Group‘s financial statements consolidation includes Liaoyang Bearing, Dalian Wazhou Precision Motor Car Bearing Company and Spherical Bearing three companies. There is no change for consolidation scope by comparing to last year. Please refer to ―VII. Change of consolidation scope‖ and ―VIII. Equity within other entity‖ in the Note to the financial statements. III. Financial Statements Preparation Basis 13 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (1) Basis of preparation The Company‘s financial statements are prepared on the basis of going concern assumption, according to the actual occurred transactions and events and in accordance with Accounting Standards for Business Enterprises‘ and relevant regulations, and also based on the note IV ―Significant Accounting Policies, Accounting Estimates‖. (2) Going concern The group has evaluated the going-concern capability for the 12 months from the end of the reporting period, and has found no significant doubts about the going-concern capability. Therefore, the financial statements are prepared on the assumption of going concern. IV. Significant Accounting Policies and Accounting Estimates Specific accounting policy and estimates reminder: the group established the accounting policy and estimate, such as operation cycle, bad debt recognition and measurement, dispatched inventory measurement and classification of fixed assets and FA‘s depreciation, intangible asset‘s amortization, revenue recognition and measurement based on the actual characters of business operation. 1. Declaration for compliance with accounting standards for business enterprises The financial statements are prepared by the Group according to the requirements of Accounting Standard for Business Enterprise, and reflect the relative information for the financial position, operating performance, cash flow of the Group truly and fully. 2. Accounting period The Group adopts the Gregorian calendar year as accounting period, i.e. from Jan 1 to Dec 31. 3.Operating cycle Normal operating cycle refers to the duration starting from purchasing the assets for manufactuing up to cash or cash equivelant realisation. The group sets twelve months for one operating cycle and as the liquidity criterion for assets and liability. 4. Funcitonal currency The Group adopts RMB as functional currency. 5. Accounting for business combination under same control and not under same control As an acquirer, the assets and liabilities that The Group obtained in a business combination under the same control should be measured on the basis of their carrying amount in the consolidated financial statements on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it, the capital surplus shall be adjusted. If the capital surplus is not sufficient to be offset, the retained earnings shall be adjusted. For a business combination not under same control, the asset, liability and contingent liability obtained from the acquirer shall be measured at the fair value on the acquisition date. The combination cost shall be the fair value, on the acquisition date, of the assets paid, the liabilities incurred or assumed and equity securities issued by the acquirer in exchange for the 14 Wa Fangdian Bearing Co., Ltd 2018 Annual Report control of the acquire, and sum of all direct expenses(if the combination is achieved in stages, the combination cost shall be the sum of individual transaction). The difference when combination cost exceeds proportionate share of the fair value of identifiable net assets of acquiree should be recognized as goodwill. If the combination cost is less than proportionate share of the fair value of identifiable net assets of acquiree, firstly, fair value of identifiable asset, liability or contingent liability shall be reviewed, and so the fair value of non-monetary assets or equity instruments issued in the combination consideration , after review, still the combination cost is less than proportionate share of the fair value of identifiable net assets of acquire, the difference should be recognized as non-operating income. 6. Method of preparation of consolidated financial statements All subsidiaries controlled by the Group and structured entities are within the consolidation scope. If subsidiaries adopt different accounting policy or have different accounting period from the parent company, appropriated adjustments shall be made in accordance with the Group policy in preparation of the consolidated financial statements. All significant intragroup transactions, outstanding balances and unrealized profit shall be eliminated in full when preparing the consolidated financial statements. Portion of the subsidiary‘s equity not belonging to the parent, profit, loss for the current period, portion of other comprehensive income and total comprehensive belonging to minority interest, shall be presented separately in the consolidated financial statements under ―minority interest of equity‖,‖minority interest of profit and loss‖, ―other comprehensive income attributed to minority interest‖ and ―total comprehensive income attributed to minority interest‖ title. If a subsidiary is acquired under common control, its operation results and cash flow shall be consolidated since the beginning of the consolidation period. When preparing the comparative consolidated financial statements, adjustments shall be made to relevant items of comparative figures as regarded that reporting entity established through consolidation has been always there since the point when the ultimate controlling party starts to have the control. If a business consolidation under common control is finally achieved in stages, consolidation accounting method shall be disclosed additionally for the period in which the control is obtained. For example, if a business consolidation under common control is finally achieved in stages, when preparing the consolidated financial statements, adjustments shall be made for the current consolidation status as if consolidation has always been there since the point when the ultimate controlling party starts to control. In preparation of comparative figures, asset and liability of the acquiree shall be consolidated into the Group‘s comparative financial statements, but to the extent no earlier than the point when the Group and acquiree are both under ultimate control and relevant items under equity in comparative financial statements shall be adjusted for net asset increased in combination. To avoid the duplicated computation of net asset of acquiree, for long-term equity investment held by the Group before the consolidation, relevant profit and loss, other comprehensive income and movement in other net asset, recognized for the period between the combination date and later date when original shareholding is obtained and when the Group and the acquiree are under common control of same ultimate controlling party, shall be respectively used for writing down the opening balance of retained earnings of comparative financial statements and profit and loss for the current period. 15 Wa Fangdian Bearing Co., Ltd 2018 Annual Report If a subsidiary is acquired not under common control, its operation results and cash flow shall be consolidated since the beginning of the consolidation period. In preparation of the consolidated financial statements, adjustments shall be made to subsidiary‘s financial statements based on the fair value of its all identifiable assets, liability or contingent liability on the acquisition date. If a business consolidation under non-common control is finally achieved in stages, consolidation accounting method shall be disclosed additionally for the period in which the control is obtained. For example, if a business consolidation not under common control is finally achieved in stages, when preparing the consolidated financial statements, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss as investment income for the current period. Other comprehensive income, under equity method accounting rising from the interest held in acquiree in relation to the period before the acquisition, and changes in the value of its other equity other than net profit or loss, other comprehensive income and profit appropriation shall be transferred to investment gain or loss for the period in which the acquisition incurs, excluding the other comprehensive income from the movement on the remeasurement of ne asset or liability of defined benefit plan. When the Group partially disposes of the long –term equity investment in subsidiary without losing the control over it, in the consolidated financial statements, the difference, between disposals price and respective disposed value of share of net assets in the subsidiary since the acquisition date or combination date, shall be adjusted for capital surplus or share premium, no enough capital surplus, then adjusted for retained earnings. When the Group partially disposes of the long –term equity investment in subsidiary and lose the control over it, in preparation of consolidated financial statements, remaining share of interest in the subsidiary shall be remeasured on the date of losing control. Sum of the share disposal consideration and fair value of remaining portion of shareholding minus the share of the net assets in the subsidiary held based on the previous shareholding percentage since the acquisition date or combination date, the balance of above is recognized as investment gain/loss for the period and goodwill shall be written off accordingly. Other comprehensive income relevant to share investment in subsidiary shall be transferred to investment gain /loss for the period on the date of losing control. When the Group partially disposes of the long –term equity investment in subsidiary and lose the control over it by stages, if all disposing transactions are bundled, each individual transaction shall be seen as a transaction of disposal of a subsidiary by losing control. The difference between the disposal price and the share of the net assets in the subsidiary held before the date of losing control, shall be recognize as other comprehensive income until the date of losing control where it is transferred into investment gain/ loss for the current period. 7. Joint arrangement classification and joint operation accounting The Group‘s joint arrangement includes joint operation and joint venture. For joint operation, the Group as a joint operator shall recognize its own assets and its share of any assets held jointly, its liabilities and its share of any liabilities incurred jointly, its revenue from the sale of its share of the output arising from the joint operation, its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. When an entity enters into a transaction with a joint operation in which it is a 16 Wa Fangdian Bearing Co., Ltd 2018 Annual Report joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the joint operator shall recognize gains and losses resulting from such a transaction only to the extent of the other parties‘ interests in the joint operation. 8. Cash and cash equivalent The cash listed on the cash flow statements of the Group refers to cash on hand and bank deposit. The cash equivalents refer to short-term (normally with original maturities of three months or less) and liquid investments which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. 9. Translation of foreign currency (1) Foreign currency transaction Foreign currency transactions are translated at the spot exchange rate issued by People‘s Bank of China (―PBOC‖) when the transaction incurs. Monetary assets and liabilities in foreign currencies are translated into RMB at the exchange rate prevailing at the balance sheet day. Exchange differences arising from the settlement of monetary items are charged as in profit or loss for the period. Exchange differences of specific borrowings related to the acquisition or construction of a fixed asset should be capitalized as occurred, before the relevant fixed asset being acquired or constructed is ready for its intended uses. (2) Translation of foreign currency financial statements The asset and liability items in the foreign currency balance sheet should be translated at a spot exchange rate at the balance sheet date. Among the ower‘s equity items except ―undistributed profit‖, others should be translated at the spot exchange rate when they are incurred. The income and expense should be translated at spot exchange rate when the transaction incurs. Translation difference of foreign currency financial statements should be presented separately under the other comprehensive income title. Foreign currency cash flows are translated at the spot exchange rate on the day when the cash flows incur. The amounts resulted from change of exchange rate are presented separately in the cash flow statement. 10. Financial assets and financial liabilities A financial asset or liability shall be recognised when the entity becomes a party to the contractual provisions of a financial instrument. (1) Financial assets 1)Classification, recognition and measurement The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity financial assets and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are subsequently measured at amortised cost using the effective interest method.The amortisation, impairment and any gain or loss from derecognition shall be recognized in the profit and loss for the current year. Available-for-sale financial assets are non-derivative financial assets that are either 17 Wa Fangdian Bearing Co., Ltd 2018 Annual Report designated in this category or not classified as financial assets of any other class at initial recognition. This category includes the derivative financial assets that linked to the investments in equity instruments without a quoted price in an active market, no fair value can be reliably measured and must be settled by delivery of such an equity instrument, and shall be measured at cost subsequently. Others have a quoted price in an active market or fair value can be measured reliably although no quoted price available, they shall be measured at fair value. Any change on fair value shall be recognized in other comprehensive income and subsequently be measured at fair value. Except impairment loss and exchange gain or loss arising from foreign currency monetary financial assets, changes in fair value of available-for-sale financial assets are directly recorded in shareholders‘ equity until such financial assets is derecognized and the accumulated fair value adjustments previously recorded in equity are charged to profit or loss for the period. Interests for the period in which the assets are held as investment in debt instrument is calculated using the effective interest method and is charged to profit or loss for the period as Investment income‘. Cash dividends declared by the investee company relating to available-for-sale equity instruments are charged to profit or loss for the period as Investment income‘. Equity instruments that a quoted price is not applicable in an active market and no fair value can be reliably measured, shall be measured at cost. 2)Recognition and measurement of transfer of financial assets Where an entity neither transfers nor retains substantially all risks and rewards of financial asset and does not give up the control over such financial asset, then the entity recognises such financial asset to the extent of its continuous involvement and recognises the corresponding liabilities. The extent of the continuous involvement represents the extent to which the entity exposes to changes in the value of such financial asset. In the case where the financial asset as a whole qualifies for the derecognition conditions, the difference between the carrying value of transferred financial asset and the sum of the consideration received for transfer and the accumulated amount of changes in fair value that was previously recorded under other comprehensive income is charged into profit or loss for the period. In the case where only part of the financial asset qualifies for derecognition, the carrying amount of financial asset being transferred is allocated between the portions that to be derecognised and the portion that continued to be recognised according to their relative fair value. The difference between the amount of consideration received for the transfer and the accumulated amount of changes in fair value that was previously recorded in other comprehensive income of the part qualifies for derecognition and the above-mentioned allocated carrying amount is charged to profit or loss for the period. 3) Impairment of financial assets The Group assesses the carrying amount of financial assets other than financial assets at fair value through profit or loss at each balance sheet date. If there is objective evidence that the financial asset is impaired, the Group shall determine the amount of any impairment loss accounts. If an impairment loss on a financial asset carried at amortized cost has been incurred, the amount of loss is measured at the difference between the asset‘s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been 18 Wa Fangdian Bearing Co., Ltd 2018 Annual Report incurred). If there is objective evidence that the value of the financial asset recovered and the recovery can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and the amount of reversal is recognized in income statement. Ifobjective evidence shows that impairment for available-for-sale financial assets will occur,the cumulative loss arising from the decline in fair value that had been recognized directly in equity is removed from equity and recognized as impairment loss. For an available for sale debt instrument, if there is objective evidence that the value of the financial asset recovered and the recovery can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and the amount of reversal is recognized in income statement. For an available for sale equity instrument, if there is objective evidence that the value recovered and the recovery can be objectively related to an event occurring after the impairment loss recognized, the previously recognized impairment loss is reversed and directly recognized in equity. (2) Financial liabilities 1) Classification, basis for recognition and measurement Financial liabilities of an entity are classified at initial recognition as ―financial liabilities at fair value through profit or loss‖ and ―other financial liabilities‖ on initial recognition Financial liabilities at fair value through profit or loss include financial liabilities held for trading and those designated as fair value through profit or loss on initial recognition(relevant basis for classification shall be disclosed by reference to financial assets ). They are subsequently measured at fair value. The net gain or loss arising from changes in fair value, dividends and interest paid related to such financial liabilities are recorded in profit or loss for the period in which they are incurred. Other financial liability is measured at amortized cost by adopting the effective rate method. 2) Financial liability derecognition A financial liability is derecognized when the underlying present obligations or part of it are discharged. Existing financial liability shall be derecognized and new financial liability shall be recognized when the entity sign the agreement with creditor to undertake the new financial liability in replacement of existing financial liability, and the terms of agreement are different in substance. Any significant amendment to the agreement as a whole or part o it is made, then the existing liabilities or part of it shall be derecognized and financial liability after terms amendment shall be recognized as a new financial liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid is recognized in profit or loss for the period. (3)Fair value measurement of financial asset and financial liability If there is an acitve market for the financial assets and liability measured at fair value, the fair value is measured at the quoted price in the active market; originally obtained or derived financial assets or liability is measured at market trade price.If no active market exists for the financial asset or liability, applicable valuation techniques is used for fair value measurement. When valuating, the price in the most advantageous market shall be used for fair value measurement and applicable valuation techniques which enough data is available for and supported by other information shall be adopted, and the group chooses the input with same characters of asset or liability as considered by market participant and try to give 19 Wa Fangdian Bearing Co., Ltd 2018 Annual Report priority in use of observable input. Unobservable input shall be used when observable inputcan not be obtained or it is infeasible to be obtained. 11. Provision for bad debts of receivables The Group shall review the carrying amount of receivables fully at the balance sheet date. The Group shall calculate the full provision for bad debts for the following receivables: debtor has been log-out, bankruptcy, minus net asset, significant poor cash flow and significant nature disaster leads to discontinue production and the debtors could not pay for the debts within the foreseeable time . Other solid evidences indicates that the receivables cound not be paid or be of a slim chance. The allowance method is applied to the potential loss of bad debt. The Group should make the impairment test separately or in combination and accure the bad debt provisions which shall be recorded into current profit or loss at the end of the period. If there is defined evidence for the receivables not to or not likely to be received, which shall be recognized as the loss of bad debt and write off the accrued bad debts provisions after going through the approval procedure of the Group. (1) Individually significant amounts of accounts receivable accrued bad debt provision as per portfolio The receivables with more than RMB 3 million Judgment basis or amount standards of individual amount shall be recognized as the individually significant amounts significant receivables; The accruing method of the receivables The bad debt provisions shall be accrued based on with individually significant amounts the difference between current value of future cash flow and the carrying amounts. (2) Accounts receivable accrued bad debt provision by credit risk portfolio The basis of portfolio(aging analysis, other method) Use the accounting aging of the receivables as the Accounting aging credit risk characteristics to classify the portfolio Use the amount characteristics of the receivables , Related parties if the transaction party is related parties characteristics need to classify the portfolio Use the amount characteristics of the receivables, the credit of transaction party, the nature of the Risk-free amounts and the safeguard mechanism of transaction as characteristics to classify the portfolio 1) The percentage of provision for bad debts based on the age of receivables as followings: Accounting aging Accrual percentage of the Accrual percentage of receivables (%) other receivables (%) Within 1 year 1 1 1-2 years 5 5 2-3 years 20 20 20 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Over 3 years 50 50 2) The other methods is applied to accrualing of bad debts provision Related parties No bad debt provision is needed, unless the related party is unable to pay back Risk-free No bad debt provision is needed (3) Individually insignificant amount accounts receivable but accrued bad debt provision as per portfolio The individual amount is not significant, but the Accrual reason accrued bad debt provision on the basis of portfolio can not reflect its risk characteristic The bad debt provisions should be accrued based on Accrual method the difference between current value of future cash flow and the carrying amount. 12. Inventories Classification of inventory: Inventories are classified as raw material, wrappage, low-valuable consumable, working-in-progress, and finished goods etc. The inventories are processed on perpetual inventory system, and are measured at their budgeted cost on acquistion. The raw materials are accounted daily on their bedgeted costs. The differences between the budget and actual costs is recorded into the costs of materials purchased and cost of materials dispatched according to proportion of inventory in stock and dispatched, and adjust the budgeted costs of raw material into actual costs. The working-in-progress and finished goods are accounted on their budgeted costs; the differences between the budgeted costs and actual costs are recorded into the costs of working-in-progress and finished goods according to the receiving and sending out proportion, and finaly adjust the budgetedcosts into actual costs.Inventory usage and dispatch is measured at average cost as actual cost.Low value consumables and packaging materials is recognized in the income statement by one-off method. At the balance sheet date inventory should be measured at the lower of the cost and net realizable value. For the inventories which are damaged, fully or partly obsoleted and selling price below cost, the Group should calculate the provision for impairment of inventories according to the estimated nonrecoverable part of cost. Finished goods and a large amount raw materials should be calculated provision for impairment based on the difference of the cost exceed the realizable value of single item. For raw and accessorial materials with a large 21 Wa Fangdian Bearing Co., Ltd 2018 Annual Report quantities and lower unit price should be calculated provison for impairment according to classify of inventory. For the finished goods, working in progress and raw material held for sale etc which shall be sold directly, the net realizable value should be confirmed at the estimated selling price less estimated selling expenses and related tax and expenses. The raw material held for production, its realizable value should be confirmed at the estimated selling price of finished goods less estimated cost of completion, estimated selling expenses and related tax. The net realizable value of inventories held for execution of sale contracts or labor contracts shall be calculated based on the contract price. If the quantities of inventories in the Group are more than quantities if inventories subscribed in the sales contracts, the net realizable value of the excessive part of the inventories should be calculated based on the general selling price. 13. Long-term equity investment Long term equity investments are the investment in subsidiary, in associated company and in joint venture. Joint control is the contractual agreement sharing of control over an economic activity by all participants or participants‘ combination and decisions or policies relating to the operating activity of the entity require the unanimous consent of the parties sharing the control. Significant influence exists when the entity directly or indirectly owned 20% or more but less than 50% shares with voting rights in the investee company.If holding less than 20% voting rights, the entity shall also take other facts or circumstances into accounts when judging any significant influences. Factors and circumstances include: representation on the board of directors or equivalent governing body ofthe investee, participation in financial or operating activities policy-making processes,material transactions between the investor and the investee, interchange of managerial personnel or provision of essential technical information. When control exists over an investee, the investee is a subsidiary of an entity. The initial investment cost for long-term equity investment acquired through business combination under common control, is the carrying amount presented in the consolidated financial statements of the share of net assets at the combination date in the acquired company. If the carrying amount of net assets at the combination date in the acquired company is negative, investment shall be recognized at zero. If the equity of investee under common control is acquired by stages and business combination incursin the end, an entity shall disclose the accounting method for long-term equity investment in the parent financial statement as a supplemental. For example, if the equity of investee under common control is acquired by stages and business combination incursin the end, and it‘s a bundled transaction, the entity shall regard all transactions as a one for accounting. If it‘s not a bundled transaction, the carrying amount presented in the 22 Wa Fangdian Bearing Co., Ltd 2018 Annual Report consolidated financial statements of the share of net assets at the combination date in the acquired company since acquisition is determined as for the initial cost of long-term equity investment. The difference between the cost initially recognized and carrying amount of long-term equity investment prior to the business combination plus the newly paid consideration for further share acquired, and capital reserve shall be adjusted accordingly. If no enough capital reserve is available for adjustment, retain earnings shall be adjusted. If long-term equity investment is acquired through business combination not under common control, initial investment cost shall be the combination cost. If the equity of investee not under common control is acquired by stages and business combination incursin the end, an entity shall disclose the accounting method for long-term equity investment in the parent financial statement as a supplemental. If the equity investment of investee not under common control is acquired by stages and business combination incursin the end, and it‘s a bundled transaction, the entity shall regard all transactions as a one for accounting. If it‘s not a bundled transaction, the carrying amount of the equity investment held previously plus newly increased investment cost are taken as the initial investment cost under cost model. If equity investment is held under equity method before the acquisition date, other comprehensive income under equity method previously shall not be adjusted accordingly. When disposing of the investment, the entity shall adopt the same basis as the investee directly disposing of related assets or liability for accounting treatment. Equity held prior to acquisition date as available for sale financial assets under fair value model, accumulated change on fair value previously recorded in other comprehensive shall be transferred into investment gain/loss for the period. Apart from the long-term equity investments acquired through business combination mentioned above, the cost of investment for the long-term equity investments acquired by cash payment is the amount of cash paid. For long-term equity investment acquired by issuing equity instruments, the cost of investment is the fair value of the equity instrument issued. For long-term equity investment injected to the entity by the investor, the investment cost is the consideration as specified in the relevant contract or agreement. The Group adopts cost method to account for investment in subsidiary and equity method for investment in joint venture and affiliate. Long-term equity investment subsequently measured under cost model shall increase the carrying amount of investment by adjusting the fair value of additional investment and relevant transaction expenses. Cash dividend or profit declared by investee shall be recognized as investment gain/loss for the period based on the proportion share in the investee. Long-term equity investment subsequently measured under equity method shall be adjusted for its carrying amount according to the share of equity increase or decrease in the investee. 23 Wa Fangdian Bearing Co., Ltd 2018 Annual Report The entity shall recognize its share of the investee‘s net profits or losses based on the fair value of the investee‘s individual identifiable assets at the acquisition date, after making appropriate adjustments thereto in conformity with the accounting policies and accounting period, and offsetting the unrealized profit or loss from internal transactions entered into between the entity and its associates and joint ventures according to the shareholding attributable to the entity and accounted for as investment income and loss based on such basis. On disposal of a long-term equity investment, the difference between the carrying value and the consideration actually received is recognised as investment income for the period. For long-term investments accounted for under equity method, the movements of shareholder‘s equity, other than the net profit or loss, of the investee company, previously recorded in the shareholder‘s equity of the Company are recycled to investment income for the period on disposal. Where the entity has no longer joint control or significant influence in the investee company as a result of partially disposal of the investment, the remaining investment will be changed to be accounted for as available for sale financial assets, and the difference between the fair value of remaining investment at the date of losing joint control or significant influence and its carrying amount shall be recognized in the profit or loss for the year. Other comprehensive income recognized from previous equity investment under equity model shall be accounted for on the same basis as the investee directly disposing of related assets or liability when stopping using under equity model. Where the entity has no longer control over the investee company as a result of partially disposal of the investment, the remaining investment will be changed to be accounted for using equity method providing remaining joint control or significant influence over the investee company. The difference between carrying amount of disposed investment and consideration received actually shall be recognised in the profit and loss for the period as investment gain or loss, and investment shall be adjusted accordingly as if it was accounted for under equity model since acquisition. Where the entity has on longer joint control or significant influence in the investee as a result of disposal, the investment shall be changed to be accounted for as available for sale financial assets, and difference between the carrying amount and disposal consideration shall be recognized in profit and loss for the period, and the difference between the fair value of remaining investment at the date of losing control and its carrying amount shall be recognized in the profit or loss for the year as investment gain or loss. If the entity loses its control through partially disposal of investment by stages and it‘s not a bundled transaction, the entity shall account for all transactions separately. If it‘s a bundled transaction, the entity shall regard all transactions as one disposal of subsidiary by losing 24 Wa Fangdian Bearing Co., Ltd 2018 Annual Report control, but the difference between disposal consideration and carrying amount of the equity investment disposed prior to losing control, which arises from each individual transaction shall be recognized as other comprehensive income until being transferred into profit and loss for the period by the time of losing control. 14. Investment property Investment property of the Company includes land and property. Cost model is adpoted. Investment property is depreciated or amortized under straight line method. Estimated net residual value rate, useful life, depreciation rate as follows: Estimated Useful net Annual Category life residual depreciation (years) value rate rate (%) Use right of land 40 8.33% Property and buildings Including: Buildings 15 3 6.47% Housing for 30 3 3.23% production Housing for 35 3 2.77% non-production 15. Fixed assets Recognition criteria of fixed assets: Fixed assets are defined as the tangible assets which are held for the purpose of producing goods, rendering services, leasing or for operation & management, and have more than one year of useful life, and whose unit price is over RMB2,000. Fixed assets shall be recognized when the economic benefit probably flows into the Group and its cost can be measured reliably. Fixed assets include: building, machinery, transportation equipment, electronic equipment and others. All fixed assets shall be depreciated unless the fixed assets had been fully depreciated and are still being used and land is separately measuered. Straight-line depreciation method is adopted by the Group. Estimated net residual value rate, useful life, depreciation rate as follows: Estimated Annual Useful life No Category net residual depreciation (years) value rate rate 25 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (%) 1 Housing and Buildings Including: Buildings 15 3 6.47% Housing for 30 3 3.23% production Housing for 35 3 2.77% non-production 2 Machinery equipment 10-15 3 6.47%~9.70% 3 Transportation equipment 6 3 16.17% 4 Electronic equipment Including: Computer 4 3 24.25% General testing instruments 7 3 13.86% Specialized electronic equipment 8 3 12.13% Automated controlling equipment 8 3 12.13% Automated controlling meters 8 3 12.13% 5 Others equipment Including: Industrial kiln 7 3 13.86% Tools & other production 9 3 10.78% tools Transmission equipment 15 3 6.47% Non-operational equipment 18 3 5.39% and tools The Group should review the estimated useful life, estimated net residual value and depreciation method at the end of each year. If any change has occurred, it shall be regarded as a change in the accounting estimates. 16. Construction in progress The criteria and time spot of constructions in progress‘s being transferred to fixed assets: Constructions in progress are carried down to fixed assets on their actual costs when completing and achieving estimated usable status. The fixed assets that have been completed and reached estimated usable status but have not yet been through completion and settlement procedures are charged to an account according to their estimate values; adjustment will be conducted upon confirmation of their actual values. The Group should withdraw depreciation in the next month after completion. 17. Borrowing costs The borrowing cost includes the interest expenses of the borrowing, amortization of underflow or overflow from borrowings, additional expenses and the foreign exchange profit and loss because of foreign currency borrowings. The borrowing costs incurred which can be 26 Wa Fangdian Bearing Co., Ltd 2018 Annual Report directly attribute to the fixed assets, investments properties, inventories requesting over 1 year purchasing or manufacturing so to come into the expected condition of use or available for sale shall start to be capitalized when expenditure for the assets is being occurred, borrowing cost has occurred, necessary construction for bringing the assets into expected condition for use is in progress. The borrowing costs shall stop to be capitalized when the assets come into the expected condition of use or available for sale. The borrowing costs subsequently incurred should be recorded into profit and loss when occurred. The borrowing costs should temporarily stop being capitalized when there is an unusual stoppage of over consecutive 3 months during the purchase or produce of the capitalized assets, until the purchase or produce of the asset restart. The borrowing costs of special borrowings, deducting the interest revenue of unused borrowings kept in the bank or the investment income from transient investment should be capitalized. The capitalized amount of common borrowings should be calculated as follows: average assets expenditure of the accumulated assets expenditure excess the special borrowing, multiplied by the capital rate. The capital rate is the weighted average rate of the common borrowings. 18. Intangible assets The intangible assets of the Group refer to land use right, ERP system software. The cost of outsourcing intangible assets shall include the purchase price, relevant taxes and other necessary expenditures directly attributable to intangible assets. The cost invested into intangible assets by investors shall be determined according to the stated value in the investment contract or agreement, except for those of unfair value in the contract or agreement. Land use right shall be amortized evenly within the amortization period since the remised date.ERP system softwareand other intangible assets are amortized over the shortest of their estimated useful life, contractual beneficial period and useful life specified in the law. Amortization charge is included in the cost of assets or expenses, as appropriate, for the period according to the usage of the assets. At the end of the year, for definite life of intangible assets, their estimated useful life and amortization method shall be assessed. Any change shall be treated as change on accounting estimate. 19. Impairment of non-financial assets The Group checks the long-term equity investment, fixed asset, construction-in-progress, intangible asset and others on each balance sheet date. When impairment indicators occur, the Group shall perform impairments test. For goodwill andindefinite life of intangible assets, impairment test shall be performed irrelevant to any impairment indicators, if any at the end of every year. 27 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Estimate of recoverable amount is the higher of its fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. The group estimates the recoverable amount based on single asset and estimates the recoverable amount based on the asset group if the single asset estimation is impossible. Asset group is recognized if the cash inflow from the group is independent from other asset or asset group. After impairment test, if the book value exceeds the recoverable amount of the asset or asset group, the book value shall be adjusted to recoverable amount and the difference should be recognized as impairment loss. Once any loss of impairment is recognized, it shall not be reversed in the future accounting periods. 20. Long-term deferred expenses Long-term deferred expenses of the Group refer to expenses which are paid and should be deferred over the future period. The amortization period shall be more than one year (no including 1 year). The expenses should be amortized evenly over the beneficial period. If the deferred expense cannot take benefit for the future accounting period, the unamortized balance of the deferred expenses should be transferred into the current profit or loss. 21. Employee benefits Employee compensation comprises short-term benefit, post-employment benefit, termination benefit and other long-term employee‘s benefit. Employee‘s payables include salary, bonus, allowance, welfare, social insurance, housing funds, labour union expense, staff training expense, during the period in which the service rendered by the employees, the actually incurred short term employee benefits shall be recognized as liability and shall be recognized in P&L or related cost of assets based on benefit objective allocated from the service rendered by employees. Post-employment benefits include the basic pension scheme and unemployment insurance etc. Based on the risk and obligation borne by the Group, post-employment benefits are classified into defined contribution plan and defined benefit plan. For defined contribution plan, liability shall be recognized based on the contributed amount made by the Group to separate entity at the balance sheet date in exchange of employee service for the period and it shall be recorded into current profit and loss account or relevant cost of assets in accordance with beneficial objective. Termination benefits are employee benefits payable as a result of either an entity‘s decision to terminate an employee‘s employment before the contract due date or an employee‘s decision to accept voluntary redundancy in exchange for those benefits. An entity shall recognize the termination benefits as a liability and an expense at the earlier date when the entity cannot unilateral withdraw the termination benefits due to employment termination plan or due to 28 Wa Fangdian Bearing Co., Ltd 2018 Annual Report redundancy suggestion, or when the entity can recognize the restricting cost or expense arising from paying termination benefits. For the termination benefits that will not be expected to be fully paid within twelve months after the end of the reporting period, it shall be accounted as other long-term employee benefit. For employee internally retired informally, termination benefits accounting shall be applied. The Group shall recognized the planned wages and social insurance of retired employee in the current profit and loss account when provision conditions are met, for the period since the termination of employee service rendered until the formal retirement date.(termination benefit). Other long-term employee benefit provided by the Group, shall be accounted for as defined contribution plan if the defined contribution plan are met, otherwise shall be accounted for as defined benefit plan. 22. Contingent liabilities When the company has transactions such as commitment to externals, discounting the trade acceptance, unsettled litigation or arbitration which meets the following criterion, provision should be recognized: It is the Company's present obligation; carrying out the obligation will probably cause the Company's economic benefit outflow; the obligation can be reliably measured. Provision is originally measured on the best estimate of outflow for paying off the present obligations, and to consider the risk, uncertainty, time value of monetary relevant to contingent items. If the time value of monetary is significant, the best estimate will be determined by discounted cash outflow in the future. At each balance sheet date, the book value of provision is reviewed and adjustment will be made on the book value if there is any change, in order to reflect the current best estimate. 23. Share-based payment An equity-settled share-based payment in exchange for the employee‘s services is measured at the fair value at the date when the equity instruments are granted to the employee. Such fair value during the vesting period of service or before the prescribed exercisable conditions are achieved is recognised as relevant cost or expense on a straight-line during the vesting period based on the best estimated quantity of exercisable equity instruments, accordingly increase capital reserve. A cash-settled share-based payment is measured at the fair value at the date at which the Group incurred liabilities that are determined based on the price of the shares or other equity instruments. If it is immediately vested, the fair value of the liabilities at the date of grant is recognised as relevant cost or expense, and corresponding liabilities. If it is exercisable only when the vesting period of service is expired or the prescribed conditions are achieve, the fair value of liabilities undertaken by the Group are re-measured at each balance sheet date based 29 Wa Fangdian Bearing Co., Ltd 2018 Annual Report on the best estimate of exercisable situation. The fair value of the liabilities is re-measured at each balance sheet date. Any changes are recognised in the profit or loss for the year. If the granted equity instruments are cancelled within the vesting period, the equity instrument shall be treated as accelerated vesting and the balance linked to the remaining vesting period shall be recognized in the profit or loss account, accordingly be recognized in the capital reserve. If employees or other parties can choose but fail to satisfy non-vesting conditions during the vesting period, the Company sees this as cancellation of granted equity instruments. 24. Principle of recognition of revenue The revenue of the Group is mainly from selling goods, providing labour services and abalienating the right of use assets. Recognition standards for revenue are as below: 1) Selling goods revenue: company has transferred all the significant risks and rewards of the ownership of the goods to the buyers, and retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. The relative sale proceeds have been reliably measured, respective economic benefit probably inflow to the company, and the incurred or incurring cost can be reliably measured, and then the revenue can be recognized. 2) The service revenue should be recognized when the total revenue and outcome of the services can be estimated reliably, and the economic benefits associated with the transaction are likely to flow to the company, the stage of completion of the service can be estimated reliably. At the balance sheet date, revenue is recognised using the percentage of completion method when the outcome of the services rendered are estimated reliably. The percentage of completion method is determined as the proportion of completed work measured/ services rendered to date over the total contracted services/ (the proportion of costs incurred to date over the total estimated cost). When the outcome of the services cannot be estimated reliably, costs incurred may be probably recovered, revenue is recognized only to the extent of costs incurred that are expected to be recoverable, and costs shall be recognized as an expense in the period in which they are incurred. When the outcome of the services cannot be estimated reliably and costs incurred are not probable of being recovered, then these cost incurred are recognized as an expense immediately, no revenue shall be recognized. 3) Revenue from transfer of asset use rights is recognised when the economic benefits in connection with the transaction are probably flow to the Group and the amount of revenue can be reliably measured. .25. Government grants 30 Wa Fangdian Bearing Co., Ltd 2018 Annual Report A government grant is a monetary asset or non-monetary asset granted by government without consideration. It shall be recognized when the company complies with the conditions attaching to the grant and when the company is able to receive the grant. Assets-related government grant is the government fund obtained by the company for the purpose of long-term assets purchase and construction or establishment in the other forms. Income-related grants are the grant given by the government apart from the assets-related grants. If no grant objective indicated clearly in the government documents, the company shall judge it according to the principle mentioned above. Where a government grant is in the form of a transfer of monetary asset, it is measured at the amount received. Where a government grant is made on the basis of fixed amount or conclusive evidence indicates relevant conditions for financial support are met and expect to probably receive the fund, it is measured at the amount receivable. Where a government grant is in the form of a transfer of non-monetary asset, it is measured at fair value. If fair value cannot be determined reliably, it is measured at a nominal amount of RMB1 Yuan. Government grant are classified as assets-related government grants and income-related grants. Assets-related government grants are recognized as deferred income and assets are evenly amortized to profit or loss over the useful life of the related asset. Any assets are sold, transferred, disposed off or impaired earlier than their useful life expired date, the remaining balance of deferred income which hasn‘t been allocated shall be carried forward to the income statement when the assets are disposed off. Income-related government grants that is a compensation for related expenses or losses to be incurred in subsequent periods are recognized as deferred income and credited to the relevant period when the related expense are incurred. Government grants relating to compensation for related expenses or losses already incurred are charged directly to the profit or loss for the period. Government grants related to daily business, shall be recognized as other income in accordance with business nature, otherwise, shall be recognized as non-operating expenses. If the group obtains the discount interest of policy preferential loans, it shall follow the accounting standards according to the following principles, in the case of either the financial allocation of discount interest funds to the lending bank or the financial allocation of discount interest funds directly to the group. (1) If interest discount funds is given to the lending bank, and bank provides loans at a preferential interest rate to the group, the group's borrowing cost is measured at the actual amount received, according to the loan principal and the preferential interest rate, work out borrowing expense (or the fair value of the loan is taken as borrowing costs 31 Wa Fangdian Bearing Co., Ltd 2018 Annual Report and work out he borrowing expense at effective interest rate. Any difference between the amount received and FV is recognized as deferred income. Deferred income is amortised by using effective interest rate method within the loan term period and offset borrowing expense). (2) If interest discount funds are given to the group directly, the preferential interest shall be offset the borrowing expense. If any government grant already recognized needs to be returned to the government, the accounting shall be differed according to the following circumstances: 1) originally recognized as offsetting of related assets' book value, assets book value shall be adjusted 2) if any deferred income, book value of deferred income shall be offset, excessive portion shall be accounted into income statement 3) Other situation, it shall be accounted into income statement directly 26. Deferred tax assets and deferred tax liabilities The deferred income tax assets or the deferred income tax liabilities should be recognized according to the differences (temporary difference) between the carrying amount of the assets or liabilities and its tax base. Deferred tax assets shall be respectively recognised for deductible tax losses that can be carried forward in accordance with tax law requirements for deduction of taxable income in subsequent years. No deferred tax liabilities shall be recognized for any temporary difference arising from goodwill initially recognition. No deferred tax assets or liabilities shall be recognized for any difference arising from assets or liabilities initial recognition on non-business combination with no effect on either accounting profit or taxable profit (or deductible tax loss). At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available to offset the deductible temporary difference, deductible loss and tax reduction. 27. Lease The leases of the Group refer to operating lease. The rents paid for operating leases shall be recorded into the relevant asset costs or the profits and losses for the current period by using the straight-line method over each period of the lease term. Rents received, if the Group as a leaser shall be recognised as income under straight line method. 28. Change of Significant Accounting Policy, Accounting Estimate and Prior Period 32 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Errors (1) Effect of change on accounting policy ―The Notice of amendment to the standard enterprise‘s financial statements format‖ (Caikuai[2018]No.15 File) was announced by the Ministry of Finance on June 15, 2018(hereinafter referred to as Caikuai No.15File). Due to the No.15 File, some of asset items and liability items have been merged and some of income statements items have been separated, and ―interpretation of financial statement format for the company in 2018‖ was announced on September 7, 2018. Handling charge of personal income tax shall be clearly presented under ―other income‖, the actual government received shall be presented under operating cashflow column when preparing the cashflow statement regardless of asset related or income related. The Company has prepared the financial statements in accordance with new statements format and retrospectively made adjustment to the changes mentioned and respectively adjusted the comparing figures in accordance with financial statements presentation, No 30, accounting standards applicable in China. Effect on the comparison figure as follows: Restated figure Figure prior to Effect on on January Items December memo amount 1,2018 31,2017 re Notes receivable 209,923,835.91 -209,923,835.91 - Accounts receivable 1,128,338,013.69 -1,128,338,013.69 - Notes receivable & 1,338,261,849.60 1,338,261,849.60 Accounts receivable Other receivable 21,895,381.98 - 21,895,381.98 Notes payable 299,483,279.00 -299,483,279.00 - Accounts payable 630,832,287.45 -630,832,287.45 - Notes payable 930,315,566.45 930,315,566.45 &Accounts payable Interest payable 1,190,100.00 -1,190,100.00 - Other payable 92,123,093.92 1,190,100.00 93,313,193.92 33 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Restated figure Figure prior to Effect on on January Items December memo amount 1,2018 31,2017 re Special payables 296,698.98 -296,698.98 Long term payable 1,597,305.72 296,698.98 1,894,004.70 Administration 61,410,304.53 -4,065,054.17 57,345,250.36 expense 4,065,054.17 4,065,054.17 R&D expense The above policy change has been approved by the board meeting. (2) Effect of change on accounting estimate None V. Taxation 1. The main applicable tax and rate to the Group as follows: Tax Tax base Tax rate Value-added tax Sales revenue or Purchase 16%,13%,10%,6%,5% (VAT) City construction tax Value-added tax payables 7% Education surcharge Value-added tax payables 3% Local education Value-added tax payables 2% surcharge Enterprise income Current period taxable profit 15% tax(EIT) 70% of cost of own property or revenue Real estate tax 1.2% or 12% from leasing property RMB 6 per square Land use tax Land using right area meter Notes: EIT rate for different tax payer Tax principles EIT rate Wazhou Liaoyang Bearing construction Co.,Ltd 15% Dalian Wazhou Precision Motor Car Bearing 25% Company Limited Wazhou Precision of Spherical Roller 25% Bearings(Wafangdian)Co., Ltd 2. Tax preference The company obtained the qualification of high and new technology enterprises at 29 34 Wa Fangdian Bearing Co., Ltd 2018 Annual Report November, 2017.The Certificate No is GR201721200199, and the validity duration is three years. The subsidiary of the Company, Wazhou Liaoyang Bearing construction Co.,Ltd obtained the qualification of high and new technology enterprises at 17 November, 2017. The Certificate No is GR201721000633 and the validity duration is three years. According to the tax law, the company can be granted for the preferential tax policy of enterprise income tax rate of 15% in three years. VI. Notes to Consolidated Financial Statements The following disclosure date on this financial statement without special indication, ―opening‖ refers to January 1, 2018; ―closing‖ refers to December 31, 2018; ―current period‖ refers to the period from January 1, 2018 to December 31, 2018; and ―last period‖ refers to the period from January 1, 201 7 to December 31, 2017; with the currency unit RMB. 1. Cash and cash in bank Item Closing Balance Opening Balance Cash on hand 55,974.98 39,497.23 Cash in bank 188,375,830.25 58,004,000.31 Other cash and cash equivalents 58,798,055.76 24,817,277.29 Total 247,229,860.99 82,860,774.83 Including: sum of deposits overseas - - Notes: at year end, other cash and cash equivalents are all security deposits for bank acceptance notes. Because of the liquidity limitation, this will be deducted from the closing balance of cash and cash equivalents. 2. Financial asset of fair value through income statement Item Closing Balance Opening Balance Tradable asset 298,925.16 Debt instrument investment Equity instrument investment Derivate Others 298,925.16 Assigned as FV through income statement Debt instrument investment Equity instrument investment Others Total 298,925.16 3. Notes receivable and account receivable 35 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Items Closing Balance Opening Balance Notes receivable 93,624,563.82 209,923,835.91 Account receivable 1,141,632,991.76 1,128,338,013.69 Total 1,235,257,555.58 1,338,261,849.60 3. 1Notes receivable (1)Category of notes receivable Items Closing Balance Opening Balance Bank acceptance notes 21,875,785.60 113,596,871.36 Trade acceptance notes 71,748,778.22 96,326,964.55 Total 93,624,563.82 209,923,835.91 (2)Notes receivable endorsed or discounted but not mature at the end of year Item Closing amount Closing amount still derecognized recognized Bank acceptance notes 643,048,794.20 Trade acceptance notes 182,134,807.41 Total 825,183,601.61 3. 2Accounts receivable (1) Category of accounts receivable Closing balance Items Booking balance Provision Booking balance Amount % Amount % Accounts receivable with significant 5,092,669.00 0.42 5,092,669.00 100.00 individual amount and separate bad debt provision Accounts receivable with bad debt provision 1,181,015,551.36 97.03 39,932,559.60 3.38 1,141,082,991.76 based on the characters of credit risk portfolio Accounting 900,290,391.06 73.97 39,932,559.60 4.44 860,357,831.46 receivable age 36 Wa Fangdian Bearing Co., Ltd 2018 Annual Report recombination Related party 280,725,160.30 23.06 280,725,160.30 Accounts receivable with insignificant 31,074,826.42 2.55 30,524,826.42 98.23 550,000.00 individual amount and separate bad debt provision Total 1,217,183,046.78 100.00 75,550,055.02 - 1,141,632,991.76 (Continued) Opening Balance Items Booking balance Provision Booking balance Amount % Amount % Accounts receivable with significant individual amount 5,092,669.00 0.42 5,092,669.00 100.00 - and separate bad debt provision Accounts receivable with bad debt provision based on 1,170,649,399.63 97.29 42,311,385.94 3.61 1,128,338,013.69 the characters of credit risk portfolio Accounting receivable age 882,463,038.56 73.34 42,311,385.94 4.79 840,151,652.62 recombination Related party 288,186,361.07 23.95 - - 288,186,361.07 Accounts receivable with insignificant individual amount 27,541,279.51 2.29 27,541,279.51 100.00 - and separate bad debt provision Total 1,203,283,348.14 100.00 74,945,334.45 - 1,128,338,013.69 1) Accounts receivable with significant individual amount and separate bad debt provision at the end of year Debtors name Closing Balance Proportion Reasons for provision 37 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Provision (%) Accounts for bad receivable debts Company 1 5,092,669.00 5,092,669.00 100.00 Bankrupt 2) Accounts receivable with the bad debt provisions under accounting aging analysis method Closing Balance Aging Accounts Provision for Proportion receivable bad debts (%) Within1 year 705,997,799.29 7,059,977.98 1. 1 to 2 years 120,928,440.41 6,046,422.02 2 2 to 3 years 32,853,053.62 6,570,610.73 20 Over 3 years 40,511,097.74 20,255,548.87 50 Total 900,290,391.06 39,932,559.60 — (2)Bad debt provision accrued and written-off (withdraw) Bad debt provision has been accrued at the amount of 1,443,218.21Yuan and bad debt reversal or withdrawn of 12,786.85Yuan incurred during the year. (3) Accounts receivable written off in current period Item Written-off Amount Accounts receivable written off 162,813.26 Significant amount written off Caused by Nature of Procedure to Company name amount reason related receivable be performed party Company2 Agreement to Internal trade 88,183.57 N exemption approval Total (4) The top five significant accounts receivable categorized by debtors The total amount of top five significant accounts receivable categorized by debtors is 273,265,314.83Yuan, representing 22.45% of the closing balance of accounts receivable. The bad debt provision of 468,310.23 Yuan is provided respectively. 4. Advances to suppliers 38 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (1) Aging of advances to suppliers Closing Balance Opening Balance Items Amount Percentage Amount Percentage (%) (%) Within 1 year 16,544,941.90 75.60 36,499,031.46 91.56 1 to 2 years 2,983,581.73 13.63 3,085,092.20 7.74 2 to 3 years 2,357,332.82 10.77 205,543.10 0.52 Over 3 years - - 73,909.77 0.18 Total 21,885,856.45 100.00 39,863,576.53 100.00 (2) The top five significant advances to suppliers categorized by debtors The total amount of top five significant advances to suppliers categorized by debtors is 14,295,615.73 Yuan, representing 65.32% of the closing balance of advances to suppliers. 5. Other receivables Items Closing Balance Opening Balance Interest receivable Dividend receivable 1,250,000.00 - Other receivable 91,005,736.14 21,895,381.98 Total 92,255,736.14 21,895,381.98 5. 1 Dividend receivable Company Closing Balance Opening Balance Shanghai ME Mechanical & Electrical Equipment Chain Co., 1,250,000.00 Ltd Total 1,250,000.00 5. 2 Other receivable (1) The categories of other receivable Closing Balance Items Booking balance Provision Booking balance Amount % Amount % Other receivables with significant individual amount and separate bad debt provision Other receivables 93,109,161.09 93.94 2,103,424.95 2.26 91,005,736.14 39 Wa Fangdian Bearing Co., Ltd 2018 Annual Report identified bad debt provision based on the characters of credit risk portfolio Account receivable age 11,140,103.39 11.24 1,324,474.30 11.89 9,815,629.09 combination Risk-free portfolio 81,190,107.05 81.91 81,190,107.05 Related party 778,950.65 0.79 778,950.65 100.00 Other receivables with significant individual 6,010,285.50 6.06 6,010,285.50 100.00 amount and separate bad debt provision Total 99,119,446.59 100.00 8,113,710.45 - 91,005,736.14 (Continued) Opening Balance Items Booking balance Provision Booking balance Amount % Amount % Other receivables with significant individual amount - - - - - and separate bad debt provision Other receivables identified bad debt provision based on 23,164,214.87 80.78 1,268,832.89 5.48 21,895,381.98 the characters of credit risk portfolio Account receivable 13,674,486.90 47.69 1,268,832.89 9.28 12,405,654.01 age combination Risk-free portfolio 9,489,727.97 33.09 - - 9,489,727.97 Related party - - - - - Other receivables with significant individual amount 5,513,140.92 19.22 5,513,140.92 100.00 - and separate bad debt provision Total 28,677,355.79 100.00 6,781,973.81 - 21,895,381.98 40 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 1) Other receivables accrued the bad debt provisions under accounting aging analysis method Closing Balance Aging Proportion Other receivables Provision for bad debts (%) Within 1 year 7,196,270.61 71,962.71 1 1-2 years 922,327.08 46,116.35 5 2-3 years 1,014,525.40 202,905.08 20 Over 3 years 2,006,980.30 1,003,490.16 50 Total 11,140,103.39 1,324,474.30 — 2) Risk –free portfolio of other receivable has not been accrued for bad debts Closing Balance Aging Provision for Proportion Other receivables bad debts (%) Prepaid electricity bill 4,233,192.02 Deposit 6,000.00 Others 76,950,915.03 Total 81,190,107.05 Note: others is the compensation receivable for Liaoyang Bearing construction Co.,Ltd old factory demolishment at amount of 76,063,710.00Yuan (2) Bad debt provision accrued or reversed During the report period, bad debts are accrued at amounts of 1,331,736.64 Yuan and no bad debt reversal or withdrawn incurred. (3) No other receivables were actually written off for the year (4) Other receivables categorized by nature Nature Closing Balance Opening Balance Security deposit 5,289,305.79 4,226,867.84 Deposit 289,925.00 229,863.75 Personal petty cash 1,060,998.27 1,646,497.60 Others 92,479,217.53 22,574,126.60 Total 99,119,446.59 28,677,355.79 (5)Other receivables from the top 5 debtors 41 Wa Fangdian Bearing Co., Ltd 2018 Annual Report % of Closing Closing Name Category Aging the total Balance of Balance OR Provision Compensation Company A for plant 76,063,710.00 Within 1 year 76.74 moving Company B Electricity bill 4,180,470.47 Within 1 year 4.22 Materials Company C 2,341,773.02 Over 3 years 2.36 2,341,773.02 payments Company D Heating fees 726,061.48 Within 1 year 0.73 Materials Company E 490,288.89 Over 3 years 0.49 245,144.45 payments Total —— 83,802,303.86 — 84.54 2,586,917.45 6. Inventories (1) Categories of inventories Closing Balance Item Book value Provision for decline Net book value Raw materials 84,610,034.58 84,610,034.58 Finished goods 524,035,778.65 19,122,663.13 504,913,115.52 Semi-finished goods 149,030,115.58 149,030,115.58 Low-value 8,957,789.07 8,957,789.07 consumable Total 766,633,717.88 19,122,663.13 747,511,054.75 (Continue) Opening Balance Item Book value Provision for decline Net book value Raw materials 56,740,605.63 910,648.85 55,829,956.78 Finished goods 512,690,931.09 36,265,289.07 476,425,642.02 Semi-finished goods 155,827,415.78 - 155,827,415.78 Low-value 5,753,413.97 - 5,753,413.97 consumable Total 37,175,937.92 693,836,428.55 731,012,366.47 (2) Provision for decline in the value of inventories Increase Decrease Opening Closing Item Balance Reverse/ Others Balance Accrual Other Written- off transferred Raw 910,648.85 - - 910,648.85 - - materials 42 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Increase Decrease Opening Closing Item Balance Reverse/ Others Balance Accrual Other Written- off transferred Finished 36,265,289.07 3,150,916.16 - 20,293,542.10 - 19,122,663.13 goods Total 37,175,937.92 3,150,916.16 - 21,204,190.95 - 19,122,663.13 7. Other current assets Item Closing Balance Opening Balance Nature VAT to be deducted 14,184,383.36 3,531,136.36 Input VAT Prepaid income tax 1,855,337.56 Company Income Tax Total 14,184,383.36 5,386,473.92 — 8. Available-for-sale financial assets (1) Available-for-sale financial assets Item Closing Balance Opening Balance Booking Booking Provision Book value Provision Book value balance balance Available-for-sal 2,000,000.0 e equity - 2,000,000.00 2,000,000.00 - 2,000,000.00 0 instruments Measured as cost 2,000,000.0 - 2,000,000.00 2,000,000.00 - 2,000,000.00 method 0 2,000,000.0 Total - 2,000,000.00 2,000,000.00 - 2,000,000.00 0 (2) Available-for-sale financial assets measured at cost method Proportion Cash Booking Balance Provision (%) dividend Name Opening Closing Opening Closing Increase Decrease Increase Decrease Balance Balance Balance Balance Shanghai ME Mechanical & Electrical 2,000,000.00 - 2,000,000.00 - - - - 4.76 1,250,000.00 Equipment Chain Co., Ltd 43 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Proportion Cash Booking Balance Provision (%) dividend Name Opening Closing Opening Closing Increase Decrease Increase Decrease Balance Balance Balance Balance Total 2,000,000.00 - 2,000,000.00 - - - - 4.76 1,250,000.00 (3)Provision for available for sale asset impairment: None 9. Investment property (1) Investment property measured as cost method Item Property Land use right Total I. Initial Cost 1. Opening Balance 173,119,534.89 51,969,186.22 225,088,721.11 2. Increase 216,974.45 216,974.45 (1) Purchase (2) Transferred from FA 216,974.45 216,974.45 3. Decrease (1) Disposal (2)Transfer to others 4. Closing Balance 173,336,509.34 51,969,186.22 225,305,695.56 II. Accumulated Depreciation 1. Opening Balance 75,125,524.13 13,089,088.93 88,214,613.06 2. Increase 5,222,156.17 2,598,427.67 7,820,583.84 (1)Accrued 5,222,156.17 2,598,427.67 7,820,583.84 3. Decrease (1) Disposal (2)Transfer to others 4. Closing Balance 80,347,680.30 15,687,516.60 96,035,196.90 III. Impairment Reserve 1. Opening Balance 2. Increase 3. Decrease (1) Disposal (2)Transfer to others 4. Closing Balance IV. Book Value 1. Closing book value 92,988,829.04 36,281,669.62 129,270,498.66 44 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Property Land use right Total 2. Opening book value 97,994,010.76 38,880,097.29 136,874,108.05 (2) Investment property without owner‘s certificates Items Book value Reasons Land certificate will be Auto Bearing Western handled by the Group Industrial Zone workshop 34,429,644.71 because the land belongs (cone) to the Group Land certificate will be Auto Bearing Western handled by the Group Industrial Zone workshop 17,975,430.55 because the land belongs (column) to the Group Liaoyang Bearing‘s Main In the process of fire workshop 6,345,870.41 protection Liaoyang Bearing‘s Office In the process of fire building 912,351.32 protection 10. Fixed assets Item Closing Balance Opening Balance Fixed assets 661,598,663.85 710,247,969.72 Fixed assets disposal Total 661,598,663.85 710,247,969.72 10.1 Fixed assets (1) Fixed assets detail Machinery Transportation Electronic Other Item Property Device Equipment Total Equipment Equipment I. Initial Cost —— —— —— —— —— —— 1. Opening Balance 253,663,547.33 1,164,347,666.68 17,533,982.52 72,037,141.35 199,245,477.06 1,706,827,814.94 2. Increase 768,735.93 26,196,893.39 520,887.16 2,925,231.55 18,008,741.87 48,420,489.90 (1) Purchase 31,263.25 1,490,261.69 63,491.34 665,534.23 21,764.10 2,272,314.61 (2) Transferred from 737,472.68 24,706,631.70 457,395.82 2,259,697.32 17,986,977.77 46,148,175.29 construction-in-progress (3) Acquired from business combination 3. Decrease 863,221.00 1,528,338.12 323,582.96 3,093,227.26 1,269,230.77 7,077,600.11 (1) Disposal 863,221.00 1,528,338.12 323,582.96 3,093,227.26 1,269,230.77 7,077,600.11 (2) Others 4. Closing Balance 253,569,062.26 1,189,016,221.95 17,731,286.72 71,869,145.64 215,984,988.16 1,748,170,704.73 II. Accumulated —— —— —— —— —— —— 45 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Machinery Transportation Electronic Other Item Property Device Equipment Total Equipment Equipment Depreciation 1. Opening Balance 146,076,825.72 644,284,826.15 13,394,879.03 53,181,861.81 139,385,508.19 996,323,900.90 2. Increase 8,571,552.88 67,202,511.06 1,128,225.06 4,031,375.07 13,520,119.98 94,453,784.05 (1)Accrued 8,571,552.88 67,202,511.06 1,128,225.06 4,031,375.07 13,520,119.98 94,453,784.05 (2) Other transfer 3. Decrease 660,500.52 1,369,133.95 296,777.11 865,946.04 1,269,230.77 4,461,588.39 (1) Disposal 660,500.52 1,369,133.95 296,777.11 865,946.04 1,269,230.77 4,461,588.39 (2) Other transfer 4. Closing Balance 153,987,878.08 710,118,203.26 14,226,326.98 56,347,290.84 151,636,397.40 1,086,316,096.56 III. Impairment —— —— —— —— —— —— Reserve 1. Opening Balance - 255,944.32 - - - 255,944.32 2. Increase 3. Decrease (1) Disposal 4. Closing Balance 255,944.32 - - - 255,944.32 IV. Book Value —— —— —— —— —— —— 1. Closing book value 99,581,184.18 478,642,074.37 3,504,959.74 15,521,854.80 64,348,590.76 661,598,663.85 2. Opening book value 107,586,721.61 519,806,896.21 4,139,103.49 18,855,279.54 59,859,968.87 710,247,969.72 (2) Temporary idle fixed assets Accumulated Book Item Initial Cost Provision Memo Deprecation Value Plant and 9,932,063.10 9,401,856.17 229,671.00 300,535.93 machinery Total 9,932,063.10 9,401,856.17 229,671.00 300,535.93 (3) Fixed assets leases out under operating lease Item Book Value Machinery 134,403,665.77 Total 134,403,665.77 (4) Fixed assets as pending certificate of ownership Book value Reason for Pending Item Dalian machine industry area bearing 37,961,095.4 Land certificate is in the process factory In the process of fire Liaoyang Bearing‘s Main workshop 8,980,164.03 46 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Book value Reason for Pending Item Dalian machine industry area bearing 37,961,095.4 Land certificate is in the process factory protection In the process of fire Liaoyang Bearing‘s Office building 3,467,892.31 protection In the process of fire Liaoyang Bearing‘s Processing workshop 1,321,869.07 protection In the process of fire Liaoyang Bearing‘s Staff canteen 892,486.21 protection 11. Construction-in-progress Item Closing Balance Opening Balance Construction in progress 48,159,927.20 82,689,318.94 Construction materials Total 48,159,927.20 82,689,318.94 11.1 Construction-in-progress (1) Construction in progress details Closing Balance Opening Balance Item Book Book Provision Book Value Provision Book Value Balance Balance Improvement 10,922,235.97 - 10,922,235.97 10,195,223.88 - 10,195,223.88 of railway Improvement of 7,193,865.18 - 7,193,865.18 30,689,629.52 - 30,689,629.52 seven-finished products Improvement of precision 7,028,576.54 - 7,028,576.54 11,340,473.99 - 11,340,473.99 roller branch Improvement of precision 3,960,724.13 - 3,960,724.13 bearing plant Improvement 2,553,930.59 - 2,553,930.59 3,703,419.57 - 3,703,419.57 of plant Dalian 1,922,211.42 - 1,922,211.42 1,922,211.42 - 1,922,211.42 47 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Closing Balance Opening Balance Item Book Book Provision Book Value Provision Book Value Balance Balance industry park project Grinding 1,807,569.95 - 1,807,569.95 1,960,571.95 - 1,960,571.95 product line Epson multi-purpose 832,500.00 - 832,500.00 832,500.00 - 832,500.00 furnace innovation Installation of Super 802,912.80 - 802,912.80 1,291,421.97 - 1,291,421.97 finishing Machine Improvement of grinding 376,403.13 - 376,403.13 414,391.36 - 414,391.36 machine Crane Project 331,423.18 - 331,423.18 2,734,957.91 - 2,734,957.91 Computer 321,293.28 - 321,293.28 2,081,977.04 - 2,081,977.04 Project Improvement of 277,094.01 - 277,094.01 1,483,761.06 - 1,483,761.06 second-finishe d products Improvement 236,621.46 - 236,621.46 1,016,610.51 - 1,016,610.51 of Auto Overhaul factory 225,772.70 - 225,772.70 472,585.86 - 472,585.86 reconstruction Ring-oven heat treatment product line 194,358.80 - 194,358.80 Fume purification system G17-16-01 Eco-Friendly 153,153.15 - 153,153.15 153,153.15 - 153,153.15 Project Improvement of axial clearance 145,299.15 - 145,299.15 - - - automatic detection G17-16-03 130,630.63 - 130,630.63 130,630.63 - 130,630.63 Mew plant Improvement of special 112,644.05 - 112,644.05 2,220,662.31 - 2,220,662.31 large branch Sewage Treatment 94,017.09 - 94,017.09 94,017.09 - 94,017.09 Equipment Improvement 38,578.50 - 38,578.50 92,820.85 - 92,820.85 48 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Closing Balance Opening Balance Item Book Book Provision Book Value Provision Book Value Balance Balance of one-finished products G17-15-07 bear Vibration 31,384.62 - 31,384.62 31,384.62 - 31,384.62 detector. Rockwell 5,862.07 - 5,862.07 apparatus Heat treatment - - - 160,551.84 - 160,551.84 product line Cool drying - - - 7,863.25 - 7,863.25 System Folklift 3t - - - 192,307.70 - 192,307.70 low voltage - - - 59,829.06 - 59,829.06 switch board Overhaul Bainite - - - 846,153.80 - 846,153.80 furnace Heat treatment product line - - - 140,000.00 - 140,000.00 innovation Others 8,460,864.80 - 8,460,864.80 8,420,208.60 - 8,420,208.60 Total 48,159,927.20 - 48,159,927.20 82,689,318.94 - 82,689,318.94 (2) Change in the significant construction in progress Decrease Opening Transfer Closing Name Increase Other Balance to fixed Balance decrease assets Improvement of 10,195,223.88 2,729,429.78 2,002,417.69 10,922,235.97 railway Improvement of seven-finished 30,689,629.52 1,959,730.11 11,590,177.57 13,865,316.88 7,193,865.18 products Improvement of precision roller 11,340,473.99 3,593,948.74 717,948.71 7,028,576.54 branch Improvement of precision bearing 3,960,724.13 3,960,724.13 plant Improvement of 3,703,419.57 692,499.26 456,989.72 2,553,930.59 plant Dalian industry park 1,922,211.42 1,922,211.42 project Grinding product 1,960,571.95 153,002.00 1,807,569.95 line 49 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Decrease Opening Transfer Closing Name Increase Other Balance to fixed Balance decrease assets Installation of SuperfinishingMach 1,291,421.97 172.72 488,681.89 802,912.80 ine Crane Project 2,734,957.91 2,403,534.73 331,423.18 Computer Project 2,081,977.04 1,760,683.76 321,293.28 Improvement of second-finished 1,483,761.06 1,206,667.05 277,094.01 products Improvement of 1,016,610.51 779,989.05 236,621.46 Auto Special large project 2,220,662.31 2,108,018.26 112,644.05 improvemetn Total 70,640,921.13 8,650,056.74 26,779,620.00 15,040,255.31 37,471,102.56 (Continued) Percent of Including: Interest Accumulated investment Accumulated capitaliz Source of Name Budget progress capitalized against capitalized ation funds interest budget(%) interest rate (%) Improvement of Loan/Self 14,472,691.67 96.03 96.03 90,837.36 - - railway financing Improvement of Loan/Self seven-finished 107,106,101.50 53.82 53.82 656,478.24 - - products financing Improvement of Loan/Self precision roller 27,209,771.00 50.10 50.10 1,203,099.87 - - branch financing Improvement of Loan/Self precision bearing 4,197,044.00 94.37 94.37 - - - plant financing Improvement of Loan/Self 5,019,050.70 74.21 74.21 387,121.55 - - plant financing Dalian industry Loan/Self 39,164,803.61 21.04 21.04 35,839.06 - - park project financing Grinding product Loan/Self 21,862,000.00 13.56 13.56 96,502.35 - - line financing Installation of Loan/Self SuperfinishingMa 4,120,996.00 31.34 31.34 293,535.85 - - chine financing Loan/Self Crane Project 3,041,975.00 94.23 94.23 145,031.18 - - financing Loan/Self Computer Project 4,843,610.00 42.98 42.98 28,152.78 - - financing Improvement of Loan/Self second-finished 19,630,400.00 3.78 3.78 17,042.64 - - products financing 50 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Percent of Including: Interest Accumulated investment Accumulated capitaliz Source of Name Budget progress capitalized against capitalized ation funds interest budget(%) interest rate (%) Improvement of Loan/Self 5,678,872.00 39.06 39.06 36,279.86 - - Auto financing Special large Loan/Self project 8,349,300.00 27.10 27.10 33,034.11 improvemetn financing Total 264,696,615.48 — — 3,022,954.85 — 12. Intangible assets (1) Intangible assets list Item Land use right ERP software Total I. Initial cost 1). Opening balance 124,220,541.52 6,272,685.89 130,493,227.41 2).Increase 97,087.38 97,087.38 (1) Purchase 97,087.38 97,087.38 (2) Internal development - - - (3) Acquired by company - - - combination 3). Decrease 4). Closing balance 124,220,541.52 6,369,773.27 130,590,314.79 II. Amortization 1). Opening balance 36,823,081.84 6,140,023.31 42,963,105.15 2).Increase 1,839,045.41 121,078.37 1,960,123.78 (1)Accrual 1,839,045.41 121,078.37 1,960,123.78 3). Decrease disposal 4). Closing balance 38,662,127.25 6,261,101.68 44,923,228.93 III. Provision —— —— —— for impairment 1). Opening balance - - - 2).Increase - - - accrual 3). Decrease - - - disposal 4). Closing balance - - - IV. Book value —— —— —— 1.Closing Book value 85,558,414.27 108,671.59 85,667,085.86 51 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Land use right ERP software Total 2.Opening Book value 87,397,459.68 132,662.58 87,530,122.26 (2) At the end of reporting period, there is no intangible asset established by internal development. 13. Long-term repayments Item Opening Other Closing Increase Amortization Balance Decrease Balance Decoration fees for estate 700,228.04 197,572.00 133,559.14 - 764,240.90 used as office New industry area plant - 456,989.72 12,694.16 - 444,295.56 coating repari Total 700,228.04 654,561.72 146,253.30 - 1,208,536.46 14. Deferred tax assets and deferred tax liabilities (1) Deferred tax assets before offsetting Item Closing Balance Opening Balance Deductible Deferred tax Deductible Deferred tax temporary assets temporary assets difference difference Provision for 74,156,992.13 11,639,248.03 74,103,756.75 11,625,939.19 impairment of assets Difference due to depreciation of fixed - - assets Total 74,156,992.13 11,639,248.03 74,103,756.75 11,625,939.19 (2) Deferred tax liabilities before offsetting Item Closing Balance Opening Balance Taxable Deferred tax Taxable Deferred tax temporary liabilities temporary liabilities difference difference Asset evaluation increment in business 5,579,147.69 836,872.15 5,920,560.37 888,084.06 combination without the same control Total 5,579,147.69 836,872.15 5,920,560.37 888,084.06 (3) Unrecognized deferred tax assets details Item Closing Balance Opening Balance Deductible temporary difference 64,171,626.53 54,077,973.39 52 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Closing Balance Opening Balance Deductible loss 459,466,293.85 397,192,964.20 Total 523,637,920.38 451,270,937.59 (4) Unrecognized deductible loss of deferred tax assets expired next period Year Closing Balance Opening Balance Memo 2018 37,140,575.91 2019 165,776,239.43 167,843,583.34 2020 82,895,762.79 98,073,685.92 2021 2,537,711.73 4,295,275.09 2022 90,683,086.40 89,839,843.94 2023 117,573,493.50 Total 459,466,293.85 397,192,964.20 15. Short-term loan Loan category Closing Balance Opening Balance Credit loan 620,000,000.00 648,000,000.00 Total 620,000,000.00 648,000,000.00 16. Payable and notes payable Item Closing Balance Opening Balance Notes payable 343,636,065.16 299,483,279.00 payable 714,437,792.49 630,832,287.45 Total 1,058,073,857.65 930,315,566.45 16.1 Notes payable Notes category Closing Balance Opening Balance Bank acceptance notes 311,880,000.00 295,396,000.00 Trade acceptance notes 31,756,065.16 4,087,279.00 Total 343,636,065.16 299,483,279.00 There is no unpaid expired notes payable by the end of the accounting period. 16.2 Accounts payable (1) Accounts payable Item Closing Balance Opening Balance Goods payments 639,858,663.29 559,579,919.87 53 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Closing Balance Opening Balance Project payments 44,726,806.40 50,109,631.21 Others 29,852,322.80 21,142,736.37 Total 714,437,792.49 630,832,287.45 (2) Accounts payable with age over 1 year Company name Closing Balance Unsettle reason Supplier A 14,227,757.35 undue Supplier B 14,192,759.85 undue Supplier C 11,637,409.03 undue Supplier D 9,946,862.07 undue Supplier E 4,934,492.85 undue Total 54,939,281.15 — 17. Received in advance Item Closing Balance Opening Balance Goods payment 21,286,971.52 31,634,532.72 Total 21,286,971.52 31,634,532.72 18.Employee‘s payable (1) Category of employee‘s payables Item Opening Increase Decrease Closing Balance Balance Short-term employee‘s 7,313,818.35 211,684,701.71 212,854,406.70 6,144,113.36 payable Post-employment benefit 9,346,330.29 28,020,734.18 31,262,849.90 6,104,214.57 –defined contribution plan Total 16,660,148.64 239,705,435.89 244,117,256.60 12,248,327.93 (2) Short-term employee‘s payables Item Opening Increase Decrease Closing Balance Balance Salaries, bonus, allowance, and 204,820.34 161,019,018.16 160,962,316.81 261,521.69 subsidy Welfare 3,200.00 15,940,475.72 15,943,675.72 Social insurance 595,786.05 18,332,788.63 18,871,999.12 56,575.56 Include: Medical 306,854.19 14,215,204.12 14,465,482.75 56,575.56 54 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Opening Increase Decrease Closing Balance Balance insurance On-duty injury 218,079.54 2,313,192.60 2,531,272.14 insurance Maternity 70,852.32 1,804,391.91 1,875,244.23 insurance Housing funds 2,267,654.57 14,830,662.52 14,763,399.01 2,334,918.08 Labour union and 4,242,357.39 1,561,756.68 2,313,016.04 3,491,098.03 training expense Total 7,313,818.35 211,684,701.71 212,854,406.70 6,144,113.36 (3) Defined contribution plan Item Opening Increase Decrease Closing Balance Balance Pension 9,010,407.61 27,449,670.72 30,425,917.38 6,034,160.95 Unemployment 335,922.68 571,063.46 836,932.52 70,053.62 insurance Total 9,346,330.29 28,020,734.18 31,262,849.90 6,104,214.57 19. Tax payable Item Closing Balance Opening Balance Value-added tax 4,995,740.52 11,018,297.67 Individual income tax 66,493.10 140,904.05 City maintenance and construction tax 704,795.92 982,277.76 Real estate tax 301,009.33 294,515.16 Land use tax 193,448.39 204,027.14 Stamp duty 84,369.16 109,592.56 Education surcharge 523,013.95 728,270.43 Others 373,136.09 372,087.55 Total 7,242,006.46 13,849,972.32 Note: others is river maintenance fee of 371,571.37 20. Other payables Items Closing Balance Opening Balance Interest payable 748,135.28 1,190,100.00 55 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Items Closing Balance Opening Balance Dividend payable 360,000.00 - Other payable 130,746,519.11 92,123,093.92 Total 131,854,654.39 93,313,193.92 20.1 Interest payable (1) Category of interest payable Item Closing Balance Opening Balance Interest for long-term loan with 65,300.00 instalments Interest for short-term loan 748,135.28 1,124,800.00 Total 748,135.28 1,190,100.00 (2) Significant overdue unsettled interest:None 20.2 Dividend payable Item Closing Balance Opening Balance Ordinary share dividend 360,000.00 Total 360,000.00 20.3 Other accounts payable (1) Other payables categorized by payments nature Payments nature Closing Balance Opening Balance Bid security deposits 1,205,409.62 1,118,409.62 Risk deposits from branch manager 259,777.75 259,777.75 Trademark fees 16,552,853.80 10,777,573.08 Others 112,728,477.94 79,967,333.47 Total 130,746,519.11 92,123,093.92 Note: others is mainly the payable to Liaoyang Baolin Estate Development Co.,Ltd for old plant moving compensation of 63,309,263. 70Yuan, and payable to Wafangdian Bearing Group Co.,Ltd for old plant moving compensation of 12million Yuan, deposit of distributor 10,121,526.78Yuan, freight of7,090,822.28Yuan, intercourse 6,915,811.73Yuan,. (2) Significant other payables with age over 1 year Name of company Closing Reason of unpaid or Balance not carried forward In the progress of other payables company A 32,000,000.00 settlement 56 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Name of company Closing Reason of unpaid or Balance not carried forward other payables company B 2,869,025.48 undue other payables company C 952,000.00 undue other payables company D 788,057.42 undue other payables company E 735,916.46 undue Total 37,344,999.36 21.Non-current liabilities due within one year Item Closing Balance Opening Balance Long-term loan due within one year 50,000,000.00 Total 50,000,000.00 22. Other current liabilities (1) Category of other current liabilities Item Closing Balance Opening Balance Government subsidy 3,967,022.53 3,967,022.53 Compensation for land removal 953,225.59 Total 4,920,248.12 3,967,022.53 (2) Government subsidy Recorded Related Opening into non Other Closing Project Increase with Balance -operation Change Balance asset/equity income Dalian sub-factory 2,704,235.83 - 2,704,235.83 2,704,235.83 2,704,235.83 asset remove subsidy High-end bearing improvement 472,320.00 - 472,320.00 472,320.00 472,320.00 asset project Intelligent equipment manufacturing 400,000.00 - 400,000.00 400,000.00 400,000.00 asset development specific subsidy 57 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Recorded Related Opening into non Other Closing Project Increase with Balance -operation Change Balance asset/equity income Overhaul bearing project discounting 240,000.00 240,000.00 240,000.00 240,000.00 asset interest subsidy Liaoyang Bearing 97,548.00 - 97,548.00 97,548.00 97,548.00 asset Industry subsidy Technical master studio development 52,918.70 52,918.70 52,918.70 52,918.70 asset subsidy Total 3,967,022.53 - 3,967,022.53 3,967,022.53 3,967,022.53 —— ―Other Change‖: the expected amortization occurred during the next year will be re-categorized from deferred income to other current liabilities. 23.Long-term payables Type Closing Balance Opening Balance Long-term payables 100,000.00 1,597,305.72 Special payables 296,698.98 296,698.98 Total 396,698.98 1,894,004.70 23.1 Long-term payables Payments nature Closing Balance Opening Balance Equipment payments 100,000.00 100,000.00 Housing subsidy 1,497,305.72 Total 100,000.0 1,597,305.72 23.2 Special payables Items Opening Increase Decre Closing Formation Basis Balance ase Balance Granted by Wafangdian Bureau of Finance and Special Wafangdian Bureau of pollution 221,698.98 - - 221,698.98 Environment Protection with treatment approval with ―WaCaiZhi Qi No.[2004]217‖ Informatization Dalian Financial Bureau and 75,000.00 - - 75,000.00 Construction Municipal Office of 58 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Economic and Information Technology Committee with approval with ―Da CaiZhi Qi No. [2012]917‖ and ―Da Jing Xin Fa No. [2012]199‖ Total 296,698.98 - - 296,698.98 24. Deferred income (1) Category of deferred income Item Opening Increase Decrease Closing Formation Balance Balance Basis Grant Government 37,754,771.56 - 3,985,797.79 33,768,973.77 from subsidy governme nt Old factory removal and new factory Compensation and land for land - 28,468,902.56 953,225.59 27,515,676.97 compensation removal for Liaoyang Bearing construction Co.,Ltd Total 37,754,771.56 28,468,902.56 4,939,023.38 61,284,650.74 — (2) Government subsidy project 59 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Recorded Related Opening into non Other Closing with Government Increase Note subsidy item Balance -operation Change Balance asset/equ income ity Compensation for plants 27,042,358.18 2,704,235.88 24,338,122.30 asset A moving Liaoyang Bearing 4,194,564.00 97,548.00 4,097,016.00 asset B Industry subsidy Development of intelligent manufacturing 2,400,000.00 400,000.00 2,000,000.00 asset C equipment subsidies Improvement of high-end bearing 1,889,280.00 472,320.00 1,416,960.00 asset D production subsidies Overhaul bearing project 1,660,000.00 240,000.00 1,420,000.00 asset E discounting interest subsidy Technical master studio 568,569.38 18,775.21 52,918.70 496,875.47 asset F development subsidy Total 37,754,771.56 18,775.21 3,967,022.58 33,768,973.77 - (1) A: Deferred income: the compensation for plants moving is RMB 59,820,000.00 granted from Dalian government-owned assets investment and operating Co., Ltd in 2011. And the amount of making up for the removal loss of the current period is RMB 11,143,755.05;The rest of 48,676,244.95 are recognized as the removal compensation related with assets, which is amortized 18 years, according to the new fixed assets formed after the Dalian branch removal. (2) B: Deferred income: the RMB 4,877,400.00 of ―Industry development subsidies‖ is distributed by the Liaoyang Economic and Development district Bureau of Finance in 2013. The grant is related to land and amortized over 50 years in accordance with land amortization criteria. 60 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (3) C: Deferred income: the RMB 4,000,000.00 of development of intelligent manufacturing equipment subsidy is distributed by Dalian City Finance Bureau in 2012.The subsidies are used in the project ―Grinding vehicle integration and processing digitalization‖. Currently, the equipment has been used for production manufacturing and grant is amortized over 10 years. (4) D: Deferred income: the RMB 4,723,200 interest subsidy of ―Improvement of bearing base in high-end equipment sector‖ is distributed by Wafangdian Finance Bureau in 2013 for the year of 2011. The subsidy is specially used to improve the project of improvement of bearing base in high-end equipment sector. The item is amortized within 10 years. (5) E: Deferred income: the RMB 2,400,000.00 interest subsidy of ―Axle box and bearing technology improvement of grand axle load railway carriages‖ is granted by Wafangdian Finance Bureau in 2014. The subsidy is now in processing the project ―Axle box and bearing technology improvement of grand axle load railway carriages‖. Now the equipment has been put into production, the government subsidy is amortized according to the depreciation years of 10 years. (6) F: Deferred income: the 700,000.00 RMB of the construction of workshop for technology masters subsidy is granted by Dalian Finance Bureau in 2014 according to ―Da Cai She (Zhuan) No. [2013]26‖, ―Da Cai She (Zhuan) No. [2013]37‖, ―Da Cai She (Zhuan) No. [2013]45‖, ―Da Cai She (Zhuan) No. [2014]27‖, and ―Da Cai She (Zhuan) No. [2014]32‖. The workingshop equipment has been transferred into fixed asset in December 2016 and being amortised for 12 years, expense related parts are being put into non-operating income directly. 25.Share capital Opening Balance Change for current period Closing Balanc Shareholders’ Issuing Transferring name/category Distributing Amounts % new capital reserves to Others Subtotal Amounts shares shares share capital Shares under —— —— —— —— —— — — —— — restriction for sale Domestically legal 244,000,000.00 60.61 - - - - - 244,000,000.00 person shares Total shares under restriction 244,000,000.00 60.61 - - - - - 244,000,000.00 for sale Shares without —— —— —— —— —— — — —— — restriction for sale Domestically listed 158,600,000.00 39.39 - - - - - 158,600,000.00 foreign shares 61 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Total shares without restriction 158,600,000.00 39.39 - - - - - 158,600,000.00 for sale Total shares 402,600,000.00 100.00 - - - - - 402,600,000.00 1 26. Capital reserves Items Opening Balance Increase Decrease Closing Balance Share premium 201,956,446.52 - - 201,956,446.52 Other capital reserves 283,734,603.95 - - 283,734,603.95 Total 485,691,050.47 - - 485,691,050.47 27.Surplus reserves Item Opening Balance Increase Decrease Closing Balance Statutory surplus reserve 113,687,908.35 2,491,863.75 116,179,772.10 Discretionary surplus reserve 20,590,618.91 20,590,618.91 Total 134,278,527.26 2,491,863.75 136,770,391.01 28. Undistributed profits Item current year prior year Closing balance of prior year 362,925,296.98 359,603,965.97 Add: Adjustments to the opening balance of - undistributed profits Including: additional retrospective adjustments according to the new accounting - standards Change on accounting policy - Correction of prior period significant errors - Change on combination scope under same - control Other factors - Opening balance of current year 362,925,296.98 359,603,965.97 Add: net profit attributable to shareholders of 10,632,169.84 10,182,949.16 parent company in the year Less: Provision for statutory surplus reserves 2,491,863.75 2,835,618.15 Provision for any surplus reserves - Provision of general risk - Dividends payable for common shares 16,104,000.00 4,026,000.00 62 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Share dividends - Closing balance of current year 354,961,603.07 362,925,296.98 29. Operating revenue and cost Items current year prior year Sales revenue Cost of sales Sales revenue Cost of sales Revenue from principle 1,937,143,427.59 1,676,581,611.55 1,922,479,056.76 1,641,975,889.28 operation Revenue from 231,255,229.24 214,446,067.98 267,932,995.29 244,638,709.17 other operation Total 2,168,398,656.83 1,891,027,679.53 2,190,412,052.05 1,886,614,598.45 (1) Principle operation - classified according to products or operation current year prior year Items Sales revenue Cost of sales Sales revenue Cost of sales Export 293,027,890.14 262,654,137.84 234,072,205.39 205,467,061.62 Domestic 1,524,108,221.72 1,287,121,006.95 1,590,314,193.44 1,337,998,110.43 Including: Transportation 456,109,746.33 412,643,553.04 528,390,448.84 453,145,292.04 vehicle bearings Special use 451,495,303.58 391,695,074.06 498,257,042.55 429,351,698.43 bearings General use 616,503,171.81 482,782,379.85 563,666,702.05 455,501,119.96 bearings Industrial 120,007,315.73 126,806,466.76 98,092,657.93 98,510,717.23 Operations Total 1,937,143,427.59 1,676,581,611.55 1,922,479,056.76 1,641,975,889.28 30. Taxes and surcharges Items current year prior year City construction tax 5,944,668.46 6,680,119.43 Education surcharge 4,265,085.13 4,786,520.63 Stamp duty 1,037,222.54 1,371,160.98 Property tax 3,925,322.92 3,888,209.25 Tax on land use 2,459,673.48 2,599,596.72 Others -1,329,429.68 92,476.11 63 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Total 16,302,542.85 19,418,083.12 Others: is the refund of overpaid business tax of 1,348,718.43 Yuan in the prior year. 31. Selling expenses Items current year prior year Employee benefit 47,563,505.33 45,704,507.04 Transportation expense 33,091,327.33 38,403,392.31 Travel expense 21,118,625.84 18,920,889.67 International freight 15,242,177.33 12,851,643.01 Trademark use fee 8,159,058.01 8,125,516.72 Conference expense 5,990,002.25 5,659,715.52 Others 34,379,146.47 28,056,085.96 Total 165,543,842.56 157,721,750.23 Note: others are the business activity fees of 10,467,132.32Yuan, and lease premium of 6,489,392.57Yuan. 32. Administrative expenses Items current year prior year Employee benefit 39,464,063.42 36,719,302.57 Intangible assets amortization 4,558,551.45 4,603,575.71 Guide and fire fighting expense 2,132,641.51 2,133,591.34 Depreciation expense 1,905,753.03 2,255,327.94 Travel expense 1,078,372.05 906,130.58 Business entertaining expense 652,659.54 811,447.20 Other expense 7,874,012.69 9,915,875.02 Total 57,666,053.69 57,345,250.36 33. R&D Items current year prior year R&D in technology 5,922,083.68 4,065,054.17 Total 5,922,083.68 4,065,054.17 34. Financial expenses 64 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Items current year prior year Interest expenses 44,744,788.35 49,123,067.63 Less: Interest income 531,265.45 655,727.60 Add: Exchange loss -4,934,814.03 1,395,736.41 Add: Others expenditure 1,748,678.01 834,733.56 Total 41,027,386.88 50,697,810.00 35. Assets impairment losses Items current year prior year Loss of bad debts 2,774,954.85 14,619,488.31 Provision for inventory impairment 2,240,267.31 15,619,605.43 Provision for fixed assets impairment 229,671.00 Total 5,015,222.16 30,468,764.74 36. Other income Items current year prior year Dalian sub-factory relocation subsidy 2,704,235.83 2,704,235.83 Railway high power locomotive bearing project subsidy 2,000,000.00 Job stabilization subsidy 1,062,193.38 1,001,853.90 Special fund as overseas trade 2016 incentive 600,000.00 Improvement of high-end bearing production subsidies 472,320.00 472,320.00 Development of intelligent manufacturing equipment subsidies 400,000.00 400,000.00 Export show subsidy(Dalian Commercial Bureau ) 300,000.00 High-tech enterprise subsidies 300,000.00 Overhaul bearing project discounting interest subsidy 240,000.00 240,000.00 Liaoyang Bearing Industry Development fund 97,548.00 97,548.00 Technical master studio development subsidy 71,693.91 113,536.37 Transformation and upgrade allowance 50,000.00 Personal tax handling charge refund of 2017 20,550.21 Export credit insurance fostered fund 18,600.00 Insurance premium subsidy for the 1st important technical equipment 1,460,000.00 Technology innovation subsidy in Liaoniing 736,999.97 International market development subsidy from Foreign Trade bureau 65 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 406,000.00 Technology research and development Fund 209,500.00 Labour union subsidy 15,000.00 Total 8,337,141.38 7,856,994.07 37. Investment income Items current year prior year Available-for-sale financial assets in holding 12,500,000.00 500,000.00 Total 12,500,000.00 500,000.00 38. Gain /loss on FV movement Items current year prior year Financial asset measured at FV and any change -49,309.20 recognized in the income statement Including: FV change on derivative Financial liability measured at FV and any change recognized in the income statement Investment property measured at FV Total -49,309.20 39.Gain on assets disposal(loss listed ―-―) Amounts recognized into current Item current year prior year non-recurring profit or loss Gain on disposal group classified as held for sale Gain on non-current assets disposal 1,789,718.35 -728,247.65 1,789,718.35 Gain on non-current assets disposal classified as Held for sale Gain on fixed assets disposal Gain on intangible assets disposal Gain on non-current assets disposal 1,789,718.35 -728,247.65 1,789,718.35 not classified as Held for sale Gain on fixed assets disposal 1,789,718.35 -728,247.65 1,789,718.35 Gain on intangible assets disposal 66 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Gain on nonmonetary asset exchange Gain on disposal of non-current asset in the debt restruction Total 1,789,718.35 -728,247.65 1,789,718.35 40. Non-operating income (1) Non-operating income list Amounts recognized into Item current year prior year current non-recurring profit or loss Gain from debt restructuring 5,473,572.92 5,304,472.04 5,473,572.92 Penalty income 1,717,189.78 11,167,313.00 1,717,189.78 Others 7,301,125.42 2,537,287.40 7,301,125.42 Total 14,491,888.12 19,009,072.44 14,491,888.12 Note: others are the compensation of 76.06million Yuan for Wazhou Liaoyang Bearing construction Co.,Ltd factory land removal, after new factory construction cost of 28.47millionYuan deduction and 12million Yuan payable to Baolin Estate as compensation for land, the remaining balance of 4.3875million Yuan is accounted as non-operating income. 41. Non-operating expenses Amounts recognized into Item current year prior year non-recurring profit or loss for the year Loss on disposal of 75,526.04 75,526.04 non-current asset scrapped Debt restruction 1,294,685.13 1,294,685.13 Penalty loss 37,206.68 227,845.64 37,206.68 Others 17,644.00 355,815.79 17,644.00 Total 1,425,061.85 583,661.43 1,425,061.85 42. Income tax expenses (1) Income tax expenses Items current year prior year Current income tax expenses -279,426.81 - 67 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Deferred income tax expenses -64,520.75 -48,050.75 Total -343,947.56 -48,050.75 (2) Accounting profit to income tax expense adjustment Items Current year Consolidated total profit this year 10,288,222.28 Income tax expenses at applicable tax rate 1,543,233.34 Effect on subsidiary applied to different tax rate -1,576,016.03 Effect on prior period income tax -279,426.81 Effect on non-taxable income -762,013.83 Effect on non-deductible cost ,expense and loss 998,138.64 Effect on use of deductible loss from unrecognized deferred tax assets in -4,613,400.92 the prior period Effect on temporary difference or deductible loss from unrecognised 20,600,695.06 deferred tax assets this year Accelerated R&D expense and disables salary -16,255,157.01 Income tax expense -343,947.56 43. Notes to cash flow statement (1) Cash receipt/payment of other operating/investing/financing activities 1) Other cash received relating to operating activities Items current year prior year Interest income 531,265.45 544,059.82 Government subsidy 4,980,823.54 3,111,967.97 AR or AP 7,350,194.95 4,432,799.24 Return of reserve fund, deposit etc. 310,964.37 318,789.49 Others 24,873,177.82 28,868,096.45 Total 38,046,426.13 37,275,712.97 2) Other cash paid relating to operating activities Items current year prior year Travel expenses 22,164,193.50 18,692,697.87 Conference expense 5,581,529.84 2,164,337.17 Advertising expense 142,577.19 60,660.00 Rent expense 5,856,403.64 3,369,060.08 Business promotion expense 13,948,129.48 12,770,680.62 Office expense 2,838,006.60 2,491,567.85 Collection and payment for others 15,885,908.70 11,791,443.11 Other expense 17,487,480.33 32,641,752.86 68 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Security deposit transfer 33,980,570.14 27,477,011.70 Total 117,904,178.47 111,459,211.26 3) Others cash received relating to financing activities Items current year prior year Borrowings by presenting received order and 521,431,915.89 other borrowing Notes discount 528,584,751.74 Total 528,584,751.74 521,431,915.89 4) Others cash paid relating to financing activities Items current year prior year Repayment of borrowings 15,838,675.45 563,166,532.83 Notes is due and cashed 467,704,964.42 Total 483,543,639.87 563,166,532.83 (2) Supplementary information of consolidated cash flow statement Items current year prior year 1. Adjusting net profit into cash flows of operating —— —— activities: Net profit 10,632,169.84 10,182,949.16 Add: Provision for impairment of assets 5,028,009.01 30,468,764.74 Depreciation of fixed assets,Amortization ofmineral 99,675,940.23 98,002,793.91 resources, and biological assets Amortization of intangible assets 4,558,551.45 4,603,575.71 Amortization of long-term deferred expenses 146,253.30 100,412.91 Losses on disposal of fixed assets, intangible assets, and -1,789,718.35 728,247.65 long-term assets (income listed with‖-‖) Losses on write-off of fixed assets (income listed 75,526.04 - with‖-‖) Change of fair value profit or loss 49,309.20 - Financial expense (income listed with‖-‖) 44,990,727.08 45,754,969.49 Investment loss (income listed with‖-‖) -1,250,000.00 -500,000.00 Decrease of deferred tax assets(increase listed -13,308.84 3,161.15 with‖-‖) Increase of deferred tax liabilities(decrease -51,211.91 -51,211.90 listed with‖-‖) Decrease of inventories (increase listed with‖-‖) -54,562,502.07 132,973,248.94 69 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Decrease of operating receivables (increase listed -323,850,128.27 -18,431,088.69 with‖-‖) Increase of operating payables (decrease listed 444,964,277.27 -305,945,642.74 with‖-‖) Others -15,000.00 Net cash flows arising from operating activities 228,603,893.98 -2,124,819.67 2. Significant investment and financing activities unrelated to cash income and expenses Liabilities transferred to capital Convertible bonds within 1 year Financing leased fixed assets 3. Net increase (decrease) of cash and cash equivalent Closing balance of cash 188,431,805.23 58,043,497.54 Less: Opening balance of cash 58,043,497.54 142,233,376.52 Add: Closing balance of cash equivalent Less: Opening balance of cash equivalent Net increase of cash and cash equivalent 130,388,307.69 -84,189,878.98 (3) Cash and cash equivalents Items Closing Opening balance balance Cash 188,431,805.23 58,043,497.54 Including: Cash on hand 55,974.98 39,497.23 Bank deposit used for paying at any moment 188,375,830.25 58,004,000.31 Other monetary fund for paying at any moment Cash equivalent Including: bonds investment with maturity in 3 months Closing balance of cash and cash equivalents 188,431,805.2 58,043,497.54 Cash and cash equivalents restricted in the parent company or subsidiary Note: The difference between cash and cash equivalent and cash at the end of this year refers to the notes to the financial statementsVI.1. 44.Monetary category of foreign currency (1) Monetary category of foreign currency 70 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Closing Balance Exchange Closing Balance (foreign currency) Rate (RMB) Cash 9,352,369.50 Including:USD 1,174,794.45 6.6832 7,851,386.27 EURO 191,273.84 7.8473 1,500,983.20 HKD 0.03 0.88 0.03 Accounts receivable 120,791,655.49 Including: USD 8,312,973.09 6.6832 55,557,261.76 EURO 8,312,973.09 7.8473 65,234,393.73 Accounts payable 5,488,808.03 Including: USD 379,965.85 6.6832 2,539,387.77 EURO 375,851.60 7.8473 2,949,420.26 45. Government grant (1)Details amount Presented as Recorded into Item income statement Compensation for plants moving 2,704,235.88 Other income 2,704,235.88 Railway high power locomotive 2,000,000.00 Other income 2,000,000.00 bearing project subsidy Job stabilization subsidy 1,062,193.38 Other income 1,062,193.38 2016 encouragement of foreign trade 600,000.00 Other income 600,000.00 development special fund Improvement of high-end bearing 472,320.00 Other income 472,320.00 production subsidies Special project subsidy for intelligent 400,000.00 Other income 400,000.00 manufacture equipment development Export show subsidy ( Dalian 300,000.00 Other income 300,000.00 Commercial Bureau ) Subsidy for high tech company 300,000.00 Other income 300,000.00 Overhaul bearing project subsidy on 240,000.00 Other income 240,000.00 interest payment Liaoyang bearing industry development 97,548.00 Other income 97,548.00 fund Skill master studio subsidy 71,693.91 Other income 71,693.91 Transformation and upgrade allowance 50,000.00 Other income 50,000.00 Personal tax handling charge refund of 20,550.21 Other income 20,550.21 2017 71 Wa Fangdian Bearing Co., Ltd 2018 Annual Report amount Presented as Recorded into Item income statement Export credit insurance fostered fund 18,600.00 Other income 18,600.00 Total 8,337,141.38 Other income 8,337,141.38 VII. Change of Consolidation Scope No change VIII. Interest in other entity 1. Equity of subsidiaries (1) Organization structure of group company Name of Nature of Share(%) Location Registered Location Method subsidiary operation Direct Indirect Wazhou Liaoyang Manufacturing Liaoyang Baita Bearing and selling Wafangdian District Weiguo Rd 100 acquisition construction bearing and No.61 Co.,Ltd machines Dalian Wazhou Dalian Free Trade Manufacturing Precision Motor Zone and selling Wafangdian 100 investment Car Bearing SanshiliYongsheng Rd bearing and Company Limited No.12 machines Wazhou Precision Manufacturing of Spherical Wafangdian Beigongji and selling Roller Wafangdian 100 acquisition St No.1 bearing and Bearings(Wafangd machines ian)Co., Ltd 2. No subsidiary with shareholding percentage change still within control this year. IX. Risk Related to Financial Instruments The main financial instruments held by the group company include borrowing, accounts receivable, and accounts payable, tradable financial assets, tradable financial liability etc. The details introduction about each financial instrument is referred to this notes No.VI above. The related risks of these financial instruments and the risk management policy conducted to reduce these risks by the group company are introduced as below. The Group management conducts to manage and monitor these risks exposure and control these risks under certain risk level. 1. Objectives and policies of each risk management 72 Wa Fangdian Bearing Co., Ltd 2018 Annual Report The objectives of risk management conducted by the group company are to reach the balance between risk and profit return by reducing the negative influence to operating performance to the minimum level as well as maximising the shareholders‘ and other investors‘ profits. Based on these objectives, the basic risk management policy is to recognize and analyse all sorts of risk that the group company faced with, to set up the proper risk tolerance bottom line conducting risk management, as well as to monitor these risks in a timely and effective manner, and to ensure these risks under the limit level. (1) Market risk 1) Currency risk The currency risk is referred as the risk caused by the fluctuation of exchange rate. The main currency risk that the company faced with is related to the USD since the main export business is settled by USD. Other than the balance of foreign currency presented in Note VI. 44, all assets and liabilities of company are presented in RMB On December 31, 2018.The balance in foreign currency of assets and liabilities may cause currency risk with influence to operating performance. 2) Interest risk The main potential interest risk which is caused by the fluctuation of the cash flow of financial instruments is related to the floating rate of bank loan. The policy that adopted by the Group is to maintain the floating rate of loan. (2) Credit risk On 31 December, 2018, the Group‘s most probable credit risk exposure is from the financial loss primarily due to the failure of fulfilling the obligation by one party of the contract. The impairment losses of company‘s financial assets are including: Among the book value of recognized financial assets in the consolidated statement of financial position, for the financial instruments measured at fair value, their book values reflect the risk exposure, however, not maximum risk level; the level is changing along with the fair value. As the aim to reduce the credit risk, the Group sets up the credit department to ensure the credit limit, to examine and approve the credit application, and to carry out monitor procedures to claim expired creditor‘s right. In addition, at each of balance sheet date, the Group checks with every single process of receipt of receivable to ensure the sufficiency of provision of bad debt. Therefore, the management of the Group believed the credit risk had 73 Wa Fangdian Bearing Co., Ltd 2018 Annual Report been minimized significantly. The working capital has low level of credit risk since the cash is deposited in the banks with high credit reputation. (3) Liquidity risk As the management of liquidity risk, the Group‘s policy is to regularly monitor the sufficiency of cash and cash equivalent, the liquidity requirements to ensure the normal operations, and the fluctuation of cash flow. The bank loan activities are under monitoring by management to make sure to comply with the loan agreement. The liquidity risk is referred as the Group failed to fulfil its financial obligations by the due date. The Group manages the liquidity risk by the maintain sufficiency of working capital to cover the expired debt to avoid the unacceptable losses or the damage of Group‘s reputation. The Group analyses the debt structure and due time periodically to ensure the sufficiency of available cash flow. The bank loan activities are under monitoring by management to make sure to comply with the loan agreement. At the same, the Group has consultation with financial organizations about the financing activities to maintain the credit level and to reduce the credit risk. The Group‘s main financial resources come from bank loan. By the date of 31 December, 2018, the unencumbered bank loan credit is 1.336 billion Yuan. X. Disclosure of Fair Value 1. There is no asset or liability measured by fair value at the end of report period. FV at the year end Items 1st Level FV 2nd Level FV 3rd Level FV Total Measuremen Measurement Measurement t I、Continuously measured at FV (I)financial asset measured at FV and any change recognized in income statement 74 Wa Fangdian Bearing Co., Ltd 2018 Annual Report FV at the year end Items 1st Level FV 2nd Level FV 3rd Level FV Total Measuremen Measurement Measurement t 1.tradable financial asset (1) equity instrument 298,925.16 298,925.16 investment 2.assigned as financial asset measured at FV and any change recognized in income statement (II)financial asset available for sale Total of continuously 298,925.16 298,925.16 measured at FV 2. Market value determination for 1st Level FV Measurement item The group measured the part of equity instrument investment included in the tradable financial asset at unadjusted closing price in the open market on December 28th,2018. 3. Qualitative and quantitative information on the valuation techniques and important parameters used for 2nd Level FV Measurement None 4. Qualitative and quantitative information on the valuation techniques and important parameters used for 3rd Level FV Measurement None 5. Adjustment information and sensitivity analysis of unobservable parameters between the fair value at the beginning of the year and the end of the year for 3rd Level continuously measured at FV Measurement None 6. Continuously measured at FV, swap between any level None 75 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 7. Valuation techniques change and reason for change None 8. Asset and liability not measured at FV but disclosed as FV None XI. Related Parties Relationship and Transactions 1. Related parties relationship (1) Parent company and ultimate controller 1) Parent company and ultimate controller Parent Registered Business Registered Shareholding Voting company address nature capital percentage power (%) percentage (%) Manufacture No. 1 North and sales of Wazhou Gongji Street, bearing and 47,025,7400.00 60.61 60.61 Group Wafangdian other City, Dalian equipments 2) Registered capital and its movement of parent company Parent Opening Balance Increase Decrease Closing Balance company Wazhou Group 413,793,100.00 56,464,300.00 - 47,025,7400.00 3) Share held and its movement of parent company Parent company Amount Share holding (%) Closing Balance Opening Balance Closing Opening Balance Balance Wazhou Group 244,000,000.00 244,000,000.00 60.61 60.61 (2). Subsidiaries Referring to the content in NoteVIII. 1. (1) Organization structure of group company (3).Other related parties Name of related party Related party relationship Dalian Wazhou Bearing Manufacturing Other entity controlled by the same parent 76 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Name of related party Related party relationship Equipment Co., Ltd company and ultimate controlling party Other entity controlled by the same parent Wazhou Precision Steel Ball Company company and ultimate controlling party Other entity controlled by the same parent Wazhou Exact Forge Ltd., company and ultimate controlling party Other entity controlled by the same parent Wazhou Group Precision Turnplate Bearing Ltd company and ultimate controlling party Wazhou Group Exact Transmission Bearing Other entity controlled by the same parent Co., Ltd company and ultimate controlling party Wazhou Group Equipment Technology Project Other entity controlled by the same parent Co., Ltd. company and ultimate controlling party Wazhou Group Special Precision Bearing Co., Other entity controlled by the same parent Ltd. company and ultimate controlling party Dalian North Metal Materials Supply Chain Other entity controlled by the same parent Co., Ltd company and ultimate controlling party Other entity controlled by the same parent Wazhou Group (USA) Bearing CO., Ltd. company and ultimate controlling party Wazhou Group high-end auto bearing limited Other entity controlled by the same parent company company and ultimate controlling party Wazhou Group Precision Roller limited Other entity controlled by the same parent companu company and ultimate controlling party Wazhou Group Precision Retainer Limited Other entity controlled by the same parent Company company and ultimate controlling party Other entity controlled by the same parent Kugel- und Rollenlagerwerk Leipzig GmbH company and ultimate controlling party Other entity controlled by the same parent Wafangdian bearing Power Limited Company company and ultimate controlling party Wazhou Group National Bearing Engineering Other entity controlled by the same parent Technology Research Centre limited company company and ultimate controlling party Other entity controlled by the same parent Wazhou Group Special Steel limited Company company and ultimate controlling party Wazhou Group Precision turntable bearing Other entity controlled by the same parent limited Company company and ultimate controlling party Other entity controlled by the same parent Dalian North Metal materials trading center company and ultimate controlling party Dalian GONA Wazhou Auto Bearings Co., Ltd Other related party Dalian Wazhou Jinzhou Machinery Co., Ltd Other related party Wafangdian Tongda Bearing Manufacturing Other related party Co., Ltd Dalian WazhouFengyuan Machinery Co., Ltd Other related party Wafangdian Bearing Products Co.,Ltd Other related party ZWZ Bearing Europe GmbH Other related party 2. Related party transactions (1) Purchase of goods, provide, and receive labour services 1) Purchase of goods/receive labour services 77 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Related party Content current year prior year Purchase of Wazhou Exact Forge Ltd. 223,976,694.85 187,065,639.93 goods Wazhou Group Precision Roller Purchase of 154,114,836.97 90,287,076.68 limited company goods Wazhou Group Exact Transmission Purchase of 107,781,617.92 81,440,723.44 Bearing Co., Ltd goods Purchase of Wazhou Group 103,961,684.96 266,779.20 goods Wazhou Group high-end auto bearing Purchase of 101,590,110.70 118,758,305.88 limited company goods Wafangdian Tongda Bearing Purchase of 94,789,155.63 68,696,140.50 Manufacturing Co., Ltd. goods Dalian Wazhou Fengyuan Machinery Purchase of 79,242,605.07 86,387,591.06 Co., Ltd goods Wazhou Group Precision Retainer Purchase of 53,443,678.69 55,705,613.57 Limited Company goods Dalian Wazhou Jinzhou Machinery Purchase of 21,849,487.68 47,867,435.30 Co., Ltd goods Wafangdian bearing Power Limited Purchase of 19,110,647.52 19,006,483.17 Company goods Purchase of Dalian Wazhou Bearing goods and 14,438,539.83 27,596,614.20 Manufacturing Equipment Co., Ltd equipment Wazhou Group Precision Turnplate Purchase of 7,692,902.70 122,374,845.58 Bearing Ltd goods Wazhou Precision Steel Ball Purchase of 4,121,347.17 3,988,012.34 Company goods Wazhou Group Equipment Purchase of 3,579,237.62 8,132,974.32 Technology Project Co., Ltd. goods Wazhou Group Special Precision Purchase of 571,835.10 413,100.98 Bearing Co., Ltd. goods Wafangdian bearing Power Limited Purchase of 227,908.56 Company equipments Wazhou Group National Bearing Engineering Technology Research Service accepted 11,239,951.70 1,683,511.01 Centre limited company Total 1,001,732,242.67 919,670,847.16 2) Sales of goods/provide labour services Related party Content current year prior year Wazhou Exact Forge Ltd., Sales of goods 92,623,855.69 121,857,408.99 Wazhou Group Precision Roller limited Sales of goods 83,460,631.18 27,233,293.73 company Wazhou Group high-end auto bearing Sales of goods 63,616,613.02 232,661,648.00 limited company 78 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Wazhou Group (USA) Bearing CO., Ltd. Sales of goods 55,065,708.87 61,217,743.01 Wazhou Group Exact Transmission Sales of goods 45,480,787.08 39,309,590.59 Bearing Co., Ltd Wazhou Group Precision Turnplate Sales of goods 14,333,650.12 42,871,375.77 Bearing Ltd Kugel- und Rollenlagerwerk Leipzig Sales of goods 7,273,332.52 5,146,019.15 GmbH Wazhou Group Sales of goods 4,176,788.39 165,924.39 Wafangdian Tongda Bearing Sales of goods 1,407,222.04 8,985,145.59 Manufacturing Co., Ltd. Wazhou Group Special Precision Sales of goods 685,932.16 783,624.25 Bearing Co., Ltd. zwz Bearing Europe GmbH Sales of goods 279,573.01 Dalian Wazhou Manufacturing Sales of goods 182,692.23 661,678.65 Equipment Co., Ltd Wazhou Group Precision Retainer Sales of goods 89,336.28 17,742,369.18 Limited Company Wazhou Precision Steel Ball Company Sales of goods 88,890.31 1,115,473.34 Dalian Wazhou Jinzhou Machinery Co., Sales of goods 6,223.70 45,941.56 Ltd Wazhou Group Precision Roller limited provide labour 13,459,987.43 14,380,398.00 company services provide labour Wazhou Precision Steel Ball Company 1,270,702.50 1,322,406.71 services Wazhou Group Special Precision provide labour 510,970.30 688,836.19 Bearing Co., Ltd. services Dalian Wazhou Bearing Manufacturing provide labour 356,113.62 507,477.05 Equipment Co., Ltd services Dalian Wazhou Jinzhou Machinery Co., provide labour 241,207.61 132,357.19 Ltd services Wazhou Group high-end auto bearing provide labour 195,477.99 4,446,741.5 limited company-Liaoyang subsidiary services Wafangdian Tongda Bearing provide labour 24,277.47 49,991.80 Manufacturing Co., Ltd. services Wazhou Group Exact Transmission provide labour 68,919.97 Bearing Co., Ltd services Wazhou Group Precision Rentainer provide labour 106.28 Limited Company services Total 384,829,973.52 581,394,470.89 (2) Assets rent 79 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 1) Assets rent out Category of assets current year prior year Lessor Lessee rent out Profits Profits Land (located in No.1, Phrase1, The Wazhou Exact Forge North Gongji Street, 434,000.00 433,987.38 Company Ltd. with area of 48,220.82 m). The Wazhou Group Land (located in Company Precision Retainer No.1, Phrase1, Limited Company North Gongji Street, 263,925.00 263,148.30 with area of 17,543.33m Land located in The Wazhou Exact Forge No.1, Phrase1, 206,670.00 206,670.00 Company Ltd. North Gongji Street, steel warehouse The Wazhou Group Land (located in Company Precision Roller No.1, Phrase1, Limited Company North Gongji Street, 205,687.00 205,700.00 with area of 13,712.49m Land (located in No.1, Phrase1, The Wazhou Precision North Gongji Street, 197,565.00 197,565.00 Company Steel Ball Company with area of 13,171 m). Land (located in No.1, Phrase1, The Wazhou Exact Forge North Gongji Street, 118,215.00 118,215.00 Company Ltd. with area of 7,881 m). Land (located in Wazhou Group Special No.1, Phrase1, The Precision Bearing Co., North Gongji Street, 88,000.00 87,966.00 Company Ltd with area of 5,864 .40m). Wazhou Group The high-end auto bearing Buildings 6,179,851.20 5,579,451.20 Company limited company The Wazhou Exact Forge Buildings 1,035,620.00 1,035,620.00 Company Ltd. Dalian Wazhou The Jinzhou Machinery Buildings 803,160.00 803,160.00 Company Co., Ltd The Wazhou Group Buildings 768,500.00 764,023.20 Company Precision Retainer Wazhou Group Special The Precision Bearing Co., Buildings 514,300.00 514,300.00 Company Ltd The Wazhou Group Buildings 490,313.00 489,300.00 80 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Category of assets current year prior year Lessor Lessee rent out Profits Profits Company Precision Roller Limited Company Dalian The WazhouFengyuan Buildings 107,460.00 107,460.00 Company Machinery Co., Ltd The Wazhou Group Buildings - 600,400.00 Company Wazhou Group The high-end auto bearing Equipments 10,223,762.43 9,436,439.09 Company limited company Wazhou Group The Precision Roller Equipments 9,836,420.55 9,836,420.55 Company Limited Company The Wazhou Group Equipments 2,481,819.35 2,374,585.77 Company Precision Retainer Wazhou Group Special The Precision Bearing Co., Equipments 38,497.13 30,011.97 Company Ltd. 2) Assets under lease Category of current year prior year Lessor Lessee assets rent in Lease fees Lease fees Land (located in The railway bearing No.3 west Wazhou Group company of the industrial park 2,182,200.00 2,182,200.00 Company with area of 18,185.00 m). Land (located in Precision bearing Wazhou Group Wazhou Group branch of the industrial park, 455,700.00 455,700.00 Company with area of 30,380.00 m). The precision rolling Land (No.2, West company Industry Park Wazhou Group 449,000.00 449,000.00 (Wafangdian) of the with area of Company 29930m Land (located in Special large branch west industrial Wazhou Group 441,900.00 441,900.00 of the Company park, with area of 29,460.00 m). Dalian Wazhou Land (Shishanli, Wazhou Group Precision Motor Jinzhou with area 404,110.86 253,900.00 Bering Co.,Ltd of 28210m Land (located in The railway bearing No.5 west Wazhou Group company of the 389,471.00 389,470.80 industrial park Company with area of 81 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Category of current year prior year Lessor Lessee assets rent in Lease fees Lease fees 3,245.59 m). Land (located in Wazhou Group Special large branch Wazhou Group industrial park, 291,000.00 291,000.00 of the Company with area of 19,401.24 m). Land (located in Wazhou Group Two finished branch Wazhou Group industrial park, 211,700.00 211,700.00 of the Company with area of 14,112.57 m). Land (located in Wazhou Group Special large branch Wazhou Group industrial park, 184,300.00 184,300.00 of the Company with area of 12,286.33 m). Land (Wazhou Wafangdian Bearing Group Industry Wazhou Group Co., Ltd(logistic 174,600.00 174,600.00 Park with area of department) 11637m Wafangdian Bearing Land (No.2 Plant Co.,Ltd spare part West Industry Wazhou Group 169,400.00 169,400.00 manufacturing Park with area of branch 11290m Land (located in No.5 west Special large branch Wazhou Group industrial park 84,150.00 84,150.00 of the Company with area of 5,610.00 m). Land (Wazhou Group Industry Wafangdian Bearing Park material Wazhou Group Co., Ltd(logistic 17,680.50 17,899.00 warehouse with department) area of 4,773.15m Land(No1-1 previous Anji Wafangdian Bearing Wazhou Group Office building 8,759.00 Co., Ltd with area of 331.85m Wafangdian Bearing Land (Wazhou Co., Ltd(supply Group Industry Wazhou Group 3,763.00 3,763.05 chain management Park with area of department) 250.87m Land (Wazhou Wafangdian Bearing Group Industry Wazhou Group Co., Ltd(logistic 2,800.00 32,800.00 Park with area of department) 187.04m The Land (located in Wazhou Group 5,000.00 company(logistic No.1, Phrase1, 82 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Category of current year prior year Lessor Lessee assets rent in Lease fees Lease fees department ) North Gongji Street, with area of 331.84 m). The precision rolling company Wazhou Group Buildings 2,259,400.00 2,259,400.00 (Wafangdian) of the Company Precision bearing Wazhou Group branch of the Buildings 2,339,304.00 2,339,300.00 Company Special large branch Wazhou Group Buildings 1,653,800.00 1,653,800.00 of the Company Two finished branch Wazhou Group Buildings 1,118,000.00 1,118,000.00 of the Company Special large branch Wazhou Group Buildings 1,006,800.00 1,006,800.00 of the Company Wafangdian Bearing Co.,Ltd spare part Wazhou Group Buildings 783,700.00 783,700.00 manufacturing branch Wafangdian Bearing Wazhou Group Co., Ltd(logistic Building 474,500.00 474,500.00 department) Wazhou Group The company Buildings 173,241.00 119,400.00 Wafangdian Bearing Wazhou Group Co., Ltd(logistic Building 51,973.00 25,190.00 department) Wafangdian Bearing Co., Ltd(supply Wazhou Group Buildings 40,246.00 400,245.60 chain management department) Wafangdian Bearing Wazhou Group Co., Ltd(logistic Building 30,000.00 30,000.00 department) The railway bearing Wazhou Group company of the Equipment 970,322.67 930,088.50 Company The precision rolling company Wazhou Group Equipment 949,506.24 962,882.89 (Wafangdian) of the Company Special large branch Wazhou Group Equipment 338,049.37 338,049.44 of the Company Two finished branch Wazhou Group Equipment 249,773.89 225,773.68 of the Company Wafangdian Bearing Co.,Ltd spare part Wazhou Group Equipment 121,379.85 123,752.25 manufacturing branch 83 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Category of current year prior year Lessor Lessee assets rent in Lease fees Lease fees Precision bearing Wazhou Group branch of the Equipment 23,261.52 - Company (3) Warranty provided by related parties Whether the Amounts Inception of Maturity of warranty Warrantor Warrantee warranted warranty warranty finished (Y or N) Wazhou The Company 50,000,000.00 17 Mar,2016 17 Mar, 2018 Y Group The warranty is Wazhou Group guarantying for the Company‘s loan from Import and Export Bank with the amount of zero until Dec 31, 2018. (4) Related party assets transfer and debt structure reconstruction Related party Type of transaction current year prior year Wazhou Group Precision Turnplate Debtor transfer 43,740,529.56 Bearing Ltd Loss on debt Wazhou Exact Forge Ltd., restructuring 663,288.89 Wazhou Group high-end auto Loss on debt bearing limited company restructuring 50,000.00 Gain on debt Wazhou Exact Forge Ltd., restructuring 1,350,000.00 Wafangdian Tongda Bearing Gain on debt restructuring 1,000,000.00 Manufacturing Co., Ltd. Wazhou Group Precision Turnplate Gain on debt restructuring 360,800.00 Bearing Ltd Wazhou Group Precision Roller Gain on debt restructuring 159,400.00 529,396.22 Limited Company Wazhou Group Precision Retainer Gain on debt restructuring 139,667.92 617,641.50 Limited Company Dalian Wazhou Bearing Gain on debt restructuring 79,725.00 Manufacturing Equipment Co., Ltd Wazhou Group Equipment Gain on debt restructuring 53,514.18 151,886.78 Technology Project Co., Ltd. Wazhou Group Exact Transmission Gain on debt 40,000.00 84 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Related party Type of transaction current year prior year Bearing Co., Ltd restructuring National Bearing Engineering Gain on debt Technology Research Centre of 20,000.00 restructuring Wazhou Group Wazhou Group high-end auto Gain on debt restructuring 106,075.91 bearing limited company Dalian Wazhou Jinzhou Machinery Gain on debt restructuring 7,478.33 Co., Ltd (5) Management remuneration Item current year prior year Total 735,876.00 618,000.00 (6) Use of trademark According to the Trade Mark License contract‘ signed between the Company and the Group on January 1, 2018, within the valid period up to December 31, 2018, the Company shall pay license fees to the Group at 0.5% of net sales by using the trade mark of Wazhou Group for self-manufactured stock. In 2018, the Company shall pay license fees of 8,159,058.01Yuan (excl VAT). (7) Acceptance of comprehensive service Other expenses paid to the Group and overseas subsidiary during the year Item current year prior year Firelight and security 2,260,600.00 2,260,600.00 Technology development 1,459,652.03 3,611,000.00 Total 3,720,252.03 5,871,600.00 R&D paid to Kugel- und Rollenlagerwerk Leipzig GmbH is 1,222,187.72Yuan and to ZWZ Bearing Europe GmbH is 237,464.31Yuan. 3. Balances with related parties (1) Accounts receivable due from related parties Closing Balance Opening Balance Item Related party Book Balance Provision Book Balance Provision Wazhou Group Accounts high-end auto bearing 87,601,132.04 - 157,299,071.76 receivable limited company 85 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Closing Balance Opening Balance Item Related party Book Balance Provision Book Balance Provision Wazhou Group Accounts Precision Roller 72,177,772.27 - 68,353,382.34 - receivable Limited Company Accounts Wazhou Exact Forge 38,273,870.86 - 9,357,030.29 - receivable Ltd., Wazhou Group Accounts Precision Turnplate 32,125,382.52 receivable Bearing Ltd Wazhou Group Accounts Precision Retainer 20,041,392.01 - 24,191,042.68 - receivable Limited Company Accounts Wazhou Group (USA) 16,435,858.12 - 13,686,294.41 - receivable Bearing CO., Ltd. - Accounts Wazhou Group receivable 4,786,043.58 - 2,255,928.31 Limited Company Wazhou Group Special Accounts Precision Bearing Co., 3,861,909.04 - 4,724,144.07 - receivable Ltd. Accounts Wazhou Special Steel receivable 2,603,123.42 - 1,127,180.69 Ball Company Dalian Wazhou Accounts receivable Jinzhou Machinery 1,257,377.62 - 484,891.17 Co., Ltd Wazhou Group Exact Accounts - Transmission Bearing 828,573.88 - 3,714,337.85 receivable Co., Ltd Kugel- und Accounts receivable Rollenlagerwerk 543,394.31 - 2,843,173.17 Leipzig GmbH Wafangdian Tongda Accounts Bearing receivable 102,449.31 - 149,884.33 Manufacturing Co., Ltd. Accounts ZWZ Bearing Europe receivable 86,881.32 GmbH 86 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Closing Balance Opening Balance Item Related party Book Balance Provision Book Balance Provision Kugel- und Prepaid Rollenlagerwerk 3,027,719.30 - 3,368,086.16 Leipzig GmbH Wazhou bearing Power Prepaid 1,257,851.50 - 1,340,370.00 limited Company Dalian Wazhou Bearing Prepaid 850,000.00 Manufacturing Equipment Co., Ltd Other Wazhou Group receivable 778,950.65 778,950.65 Lanzhou sales office (1) Accounts payable due from related parties Item Related party Closing Balance Opening Balance Accounts payable Wazhou Group limited company 144,902,525.95 3,552,228.26 Accounts payable Wazhou Exact Forge Ltd., 87,613,324.79 12,760,327.17 Wafangdian Tongda Bearing Accounts payable 41,300,178.91 20,874,853.98 Manufacturing Co., Ltd. Wazhou Group Exact Accounts payable 18,557,702.42 21,020,328.46 Transmission Bearing Co., Ltd Wazhou Group Equipment Accounts payable 14,135,406.77 17,010,528.77 Technology Project Co., Ltd. Dalian Wazhou Fengyuan Accounts payable 13,017,152.89 25,856,222.75 Machinery Co., Ltd Wazhou Precision Steel Ball Accounts payable 6,933,550.63 3,486,892.33 Company Dalian Wazhou Bearing Accounts payable Manufacturing Equipment Co., 6,279,078.46 8,447,383.10 Ltd Wazhou Group Precision Retainer Accounts payable 4,981,390.50 6,692,821.86 Limited Company Dalian Wazhou Jinzhou Accounts payable 4,545,696.39 6,757,162.31 Machinery Co., Ltd Wazhou Group Precision Roller Accounts payable 3,744,410.46 3,403,327.15 Limited Company 87 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Item Related party Closing Balance Opening Balance National Bearing Engineering Accounts payable Technology Research Centre of 3,736,023.76 2,833,243.49 Wazhou Group Kugel- und Rollenlagerwerk Accounts payable 3,031,293.47 Leipzig GmbH Wazhou Group high-end auto Accounts payable bearing limited company 2,373,049.93 Liaoyang branch Wazhou Group Special Precision Accounts payable 799,055.87 Bearing Co., Ltd. Wazhou bearing power limited Accounts payable 326,838.97 311,333.62 company Wazhou Group Precision Accounts payable 11,000.00 56,086,707.09 Turnplate Bearing Ltd Wazhou Group (USA) Bearing Accounts payable - 147,968.25 CO., Ltd. Other payables Wazhou Group limited company 26,070,866.05 12,295,652.49 Wazhou Group Equipment Other payables 952,000.00 953,000.00 Technology Project Co., Ltd. Dalian Wazhou Bearing Other payables Manufacturing Equipment Co., 431,088.45 431,088.45 Ltd Wazhou bearing power limited Prepaid 157,745.89 company XII. Contingency There is no contingency occurred in the report period. .XIII.Commitment Until 31 December, 2018, the Group does not have any other significant commitments. XIV. Events after the Balance Sheet Date Until the financial report date, there is no significant post balance sheet event for disclosure. XV. Other Significant Events Debt restructuring In 2018, the Company has signed the Debt Restructuring Agreement‘ with the creditors, 88 Wa Fangdian Bearing Co., Ltd 2018 Annual Report through cash or bank notes settlement below the debt carrying value, and implemented the restructuring, which results in the debt restructuring income RMB 5,473,572.92 Yuan and were recognized as non-operating revenue. In 2018, the Company gave up some of receivables and has signed the Debt Restructuring Agreement‘ with the debtors, through cash or bank notes settlement below the debt carrying value, and implemented the restructuring, which results in the debt restructuring income RMB 1,294,685.13 Yuan and were recognized as non-operating expense. XVI. Notes to the Main Items of the Financial Statements of Parent Company 1. Notes receivable and account receivable Items Closing Balance Opening Balance Notes receivable 89,620,372.80 203,511,631.58 Account receivable 1,209,757,673.66 1,113,118,255.50 Total 1,299,378,046.46 1,316,629,887.08 1.1 Notes receivable (1)Category of notes receivable Items Closing Balance Opening Balance Bank acceptance notes 17,871,594.58 107,184,667.03 Trade acceptance notes 71,748,778.22 96,326,964.55 Total 89,620,372.80 203,511,631.58 (2)Notes receivable endorsed or discounted but not mature at the end of year Item Closing amount Closing amount still derecognized recognized Bank acceptance notes 525,058,556.58 Trade acceptance notes 121,448,526.49 Total 646,507,083.07 1.2Accounts receivable (1) Category of accounts receivable Closing balance Items Booking balance Provision Booking balance Amount % Amount % Accounts receivable with significant 89 Wa Fangdian Bearing Co., Ltd 2018 Annual Report individual amount and separate bad debt provision Accounts receivable with bad debt provision 1,248,963,522.37 98.24 39,755,848.71 3.18 1,209,207,673.66 based on the characters of credit risk portfolio Accounting receivable age 898,008,774.93 70.63 39,755,848.71 4.43 858,252,926.22 recombination Related party 350,954,747.44 27.60 350,954,747.44 Accounts receivable with insignificant 22,419,373.94 1.76 21,869,373.94 97.55 550,000.00 individual amount and separate bad debt provision Total 1,271,382,896.31 100.00 61,625,222.65 - 1,209,757,673.66 (Continued) Opening Balance Items Booking balance Provision Booking balance Amount % Amount % Accounts receivable with significant individual amount and separate bad debt provision Accounts receivable with bad debt provision based on 1,155,247,805.56 98.38 42,129,550.06 3.65 1,113,118,255.50 the characters of credit risk portfolio Accounting receivable age 877,541,532.36 74.73 42,129,550.06 4.80 835,411,982.30 recombination Related party 277,706,273.20 23.65 277,706,273.20 90 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Accounts receivable with insignificant individual amount 19,049,504.15 1.62 19,049,504.15 100.00 and separate bad debt provision Total 1,174,297,309.71 100.00 61,179,054.21 - 1,113,118,255.50 Accounts receivable in the portfolio as the bad debt provisions accrued under accounting aging analysis method Closing Balance Aging Provision for bad Proportion Accounts receivable debts (%) Within 1 year 705,052,118.58 7,050,521.18 1.00 1-2 years 119,952,373.06 5,997,618.65 5.00 2-3 years 32,648,109.23 6,529,621.85 20.00 Over 3 years 40,356,174.06 20,178,087.03 50.00 Total 898,008,774.93 39,755,848.71 (2) Bad debt provision accrued and reversed (withdraw) The bad debt provision has been accrued at the amount of 1,282,440.96 Yuan and during the report period bad debt provision of 12,786.85Yuan is reversed or withdrawn. (3) Accounts receivable written off in current period Item Written-off Amount Accounts receivable written off 162,813.26 Important Account Receivables accrued written down situations: Does the account Account Written- off Debtor Written-off Written- off receivable occurs Receivable Application name Amount Reason from related-party feature Procedure transaction Company 2 Exemption The internal Bearing fund 88,183.57 No as agreed approval Total 88,183.57 (4) The top five significant accounts receivable categorized by debtors The total amount of top five significant accounts receivable categorized by debtors is 276,781,471.79Yuan, representing 21.77% of the closing balance of accounts receivable. The bad debt provision of 468,310.23 Yuan is provided respectively. 91 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 2. Other receivables Items Closing Balance Opening Balance Interest receivable Dividend receivable 1,250,000.00 Other receivable 13,713,827.46 20,605,278.47 Total 14,963,827.46 20,605,278.47 2. 1 Dividend receivable Company Closing Balance Opening Balance Shanghai ME Mechanical & Electrical Equipment Chain Co., 1,250,000.00 Ltd Total 1,250,000.00 2. 2Other receivables (1) The categories of other receivable Closing Balance Items Booking balance Provision Booking balance Amount % Amount % Other receivables with significant individual amount and separate bad debt provision Other receivables identified bad debt provision based on the 15,547,554.01 74.73 1,833,726.55 11.79 13,713,827.46 characters of credit risk portfolio Account receivable age 10,588,132.89 50.89 1,054,775.90 9.96 9,533,356.99 combination Risk-free portfolio 4,180,470.47 20.09 4,180,470.47 Related party 778,950.65 3.74 778,950.65 100.00 Other receivables with significant individual 5,257,143.90 25.27 5,257,143.90 100.00 amount and separate bad debt provision Total 20,804,697.91 100.00 7,090,870.45 - 13,713,827.46 92 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (Continued) Opening Balance Items Booking balance Provision Booking balance Amount % Amount % Other receivables with significant individual amount and separate bad debt provision Other receivables identified bad debt provision based on 21,605,385.47 81.06 1,000,107.00 4.63 20,605,278.47 the characters of credit risk portfolio Account receivable 13,075,665.23 49.06 1,000,107.00 7.65 12,075,558.23 age combination Risk-free portfolio Related party 8,529,720.24 32.00 8,529,720.24 Other receivables with significant individual amount 5,048,580.92 18.94 5,048,580.92 100.00 and separate bad debt provision Total 26,653,966.39 100.00 6,048,687.92 - 20,605,278.47 1) Other receivables accrued the bad debt provisions under accounting aging analysis method Closing Balance Aging Proportion Other receivables Provision for bad debts (%) Within 1 year 7,190,121.78 71,901.22 1.00 1-2 years 917,051.68 45,852.58 5.00 2-3 years 1,011,525.40 202,305.08 20.00 Over 3 years 1,469,434.03 734,717.02 50.00 Total 10,588,132.89 1,054,775.90 (2) Bad debt provision accrued or reversed During the report period, bad debts are accrued at amounts of 1,042,182.53 Yuan and no bad debt reversal or withdrawn incurred. 93 Wa Fangdian Bearing Co., Ltd 2018 Annual Report (3) No other receivables were actually written off for the year (4) Other receivables categorized by nature Nature Closing Balance Opening Balance Security deposit 5,289,305.79 4,226,867.84 Deposit 273,925.00 196,163.75 Personal petty cash 930,971.76 1,553,070.20 Electricity bill 4,180,470.47 5,309,720.24 Others 10,130,024.89 15,368,144.36 Total 20,804,697.91 26,653,966.39 (5)Other receivables from the top 5 debtors % of Closing Closing Name Category Aging the total Balance of Balance OR Provision company F Electricity bill 4,180,470.47 within 1 year 20.09 Materials company G 2,341,773.02 Over 3 years 11.26 2,341,773.02 payments Materials company H 723,598.86 Over 3 years 3.48 723,598.86 payments Materials company I 319,694.17 Over 3 years 1.54 319,694.17 payments Materials company G 309,475.10 Over 3 years 1.49 309,475.10 payments Total —— 7,875,011.62 — 37.86 3,694,541.15 94 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 3. Long-term equity investments (1) Category of long-term equity investments Closing Balance Opening Balance Item Closing Balance Provision Book Value Opening Balance Provision Book Value Investment into 211,583,897.67 - 211,583,897.67 211,583,897.67 211,583,897.67 subsidiaries Investment into associates - - - - - Total 211,583,897.67 - 211,583,897.67 211,583,897.67 - 211,583,897.67 (2) Investments into subsidiaries Opening Provision in Closing Balance Subsidiaries names Increase Decrease Closing Balance Balance current period of provision Wazhou Liaoyang Bearing 17,337,259.95 - - 17,337,259.95 Construction Co.,Ltd Dalian Wazhou Precision Motor Car 45,478,956.37 - - 45,478,956.37 Bearing Company Limited Wazhou Precision of Spherical Roller 148,767,681.35 - - 148,767,681.35 Bearings(Wafangdian)Co., Ltd Total 211,583,897.67 211,583,897.67 95 Wa Fangdian Bearing Co., Ltd 2018 Annual Report 4. Operating revenue and cost Item current year prior year Revenue Cost Revenue Cost Revenue from main operation 1,931,553,277.72 1,678,865,180.88 1,880,857,226.54 1,611,146,405.62 Revenue from other operation 230,916,268.79 213,962,047.51 257,872,835.30 236,818,779.21 Total 2,162,469,546.51 1,892,827,228.39 2,138,730,061.84 1,847,965,184.83 (1) Principle operation - classified according to Industries current year prior year Industries Sales revenue Cost of sales Sales revenue Cost of sales Export 293,027,890.14 262,654,137.84 234,072,205.39 206,078,255.48 Domestic 1,480,629,207.08 1,244,304,960.98 1,501,752,983.50 1,259,973,052.58 Including: Transportation 426,181,770.86 378,388,432.62 462,480,458.33 396,526,944.14 vehicle bearings Special use bearings 448,582,621.17 389,579,949.20 498,257,042.55 429,351,698.43 General usese 605,864,815.05 476,336,579.16 541,015,482.62 434,094,410.01 bearings Industrial 157,896,180.50 171,906,082.06 145,032,037.65 145,095,097.56 Operations Total 1,931,553,277.72 1,678,865,180.88 1,880,857,226.54 1,611,146,405.62 5. Investment income Items current year prior year Income from long-term equity investments - - under equity method Income from disposal long-term share - - equity investments Income occurred since the change of value when holding financial assets investments - - measured by fair value Income from disposal financial assets - - investments measured by fair value Income from holding the held-to-maturity - - assets Income from the available-for-sale financial 1,250,000.00 500,000.00 assets held Income from disposal of available-for-sale - - financial assets Income from the recalculation of remain equity capital measured by fair value when - - losing control right 96 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Income from long-term equity investments - - under cost method Total 1,250,000.00 500,000.00 Supplementary Information to the Financial Statements 1. Non-operating profit or loss Based on No.1 on Non-operating Profit or Loss (2008) of Explanation and Announcement of Information Disclosure and Presentation Rules for Companies Making Public Offering issued by China Securities Regulatory Commission, the Group‘s Non-operating profit or loss in 2018 is as follows: Items current year Notes Gain or loss from disposal of See the note to the financial 1,714,192.31 non-current assets statements VI. 39 Government grants recorded into profit See the note to the financial 8,337,141.38 or loss during current period statements VI. 36 See the note to the financial Profit or loss from debts restructuring 4,178,887.79 statements VI. 40. 41 Reversal of provision for impairment See the note to the financial 550,000.00 of receivable separately tested statements VI. 3.2 Others non-operating revenue and See the note to the financial 8,963,464.52 expense besides the above items statements VI. 40. 41 Subtotal 23,743,686.00 Effect on income tax 4,373,692.93 Total 19,369,993.07 2. Return on equity and earnings per share Pursuant to Information Disclosure and Presentation Rules for Companies Making Public Offering No.9 computation and disclosure of Return on net assets and earnings per share (revised in 2010) issued by China Securities Regulatory Commission, the weighted average return on net assets, basic earnings per share and diluted earnings per share of the Group for the financial year of 2018 are as follows: Weighted Earnings per share average (EPS) Profit of report period return on Basic Diluted net assets EPS EPS (%) Net profit attributable to shareholders of parent company 0.76 0.0264 0.0264 Net profit after deducting non-recurring gains and losses -0.63 -0.0217 -0.0217 attributable to shareholders of parent company 97 Wa Fangdian Bearing Co., Ltd 2018 Annual Report Chapter XII. List of reference documents 1. Accounting statements with the signatures and seals of the legal representative, financial controller and the director of the accounting department of the company; 2. The 2018annual audit report and the financial statement with the seal of the Certified Public Accountants and the personal signature and seal of the certified public accountant. 3. The documents and notices of the company disclosed in newspapers designated by the Security Supervisory Committee of China in the report period. Above documents were kept in the Investment and Securities Department of the company 98