2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. ZHEJIANG DAHUA TECHNOLOGY CO., LTD. 2018 Annual Report Stock code: 002236 Stock Abbreviation: Dahua Date of Disclosure: March 2019 1 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section I Important Notes, Contents and Definitions The Board of Directors, Board of Supervisors, Directors, Supervisors and Senior Management of Zhejiang Dahua Technology Co., Ltd. (hereinafter referred to as the "Company") hereby guarantee that the information presented in this report shall be authentic, accurate and complete and free of any false records, misleading statements or material omissions, and they will bear joint and several liability for such information. Fu Liquan, the Company's legal representative, Wei Meizhong, chief accountant, and Xu Qiaofen, person in charge of accounting institution (Accounting Officer) hereby declare and warrant that the financial statements in the annual report are authentic, accurate and complete. All directors attended the meeting of the Board of Directors for deliberation of this annual report. The Company invites each investor to carefully read the annual report and pay particular attention to the following risk factors: 1. Risk of technology upgrade The video surveillance industry is a typical technology-intensive industry, which is changing extremely fast. The Company has always attached importance to technical innovation and R&D of new products, with a strong ability of continuous innovation. If the Company is unable to keep up with development trends in the industry's technology, to pay full attention to customers' diversified individual needs, and to be followed by sufficient R&D investments, it will still face the risk of losing market competitiveness due to discontinuous innovation. 2. Risk of business model transformation With the development of network communications, cloud computing, and big data, as well as the popularity of smart phones, the business model in the IoT era may have an impact on the traditional industry development model. If an enterprise cannot timely grasp opportunities brought about by the business model transformation, it may face the risk that the original market structure becomes broken. 2 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 3. Risk of product information security The Company attaches great importance to and continuously strengthens resource investment to ensure safe and reliable operations of the security system so as to respond to the product information security risks on the Internet. However, there may still exist hackers, computer viruses, physical security vulnerabilities, natural disasters, accidents, power interruptions, telecommunications failures, and other terrorism or warfare events, which exert influences such as security vulnerabilities, system failures, or service interruptions. 4. Risk of intellectual property rights The acceleration of the Company's globalization and self-owned brand strategy will likely bring intellectual property risks such as IP rights protection and patent infringement. Preventions of and responses to the above risk such as rights claims or lawsuits, whether active or passive, all feature high costs, long cycles and high uncertainty, and may bring about risks such as fluctuations in business relations and public opinions environment, increased legal litigations and rising costs. 5. Risk of exchange rate The Company's export transactions are mostly settled in United States Dollars ("USD"), while overseas sales have increased continuously. Therefore, fluctuations in the foreign exchange rate have the potential to affect the profits of the Company. 6. Risk of decline in local fiscal spending power At present, local fiscal revenues are declining, while the debt is relatively high. If the local fiscal paying capacity is reduced, it may lead to the slowdown in the growth of some industry demands, extensions of project time, longer periods for companies to withdraw capital, and customers' payment delay. 7. Risk of international operation The Company's products and solutions cover many overseas countries and regions. International business operation may face trade protection, political conflict, debt problem, and localized operation compliance in the countries where they operate, which may bring negative impact on the Company's local business development. 3 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. The above points might not be all-inclusive of all other potential risks, please pay attention to the potential investment risk. The profit distribution proposal passed upon deliberation at the meeting of the Board of Directors is: to take 2,997,621,930 as a base, to distribute to all shareholders cash dividends of RMB 1.00 (tax inclusive) each per 10 shares, and 0 bonus share, and not to convert capital reserves to share capital. 4 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Contents Section I Important Notes, Contents and Definitions ..............................................................................................................................2 Section II Company Profile and Main Financial Indicators ...................................................................................................................10 Section III Corporate Business Overview..............................................................................................................................................13 Section IV Discussion and Analysis on Business Circumstance............................................................................................................36 Section V Significant Events .................................................................................................................................................................56 Section VI Changes in Shares and Information about Shareholders ......................................................................................................75 Section VII Information of Preferred Shares .........................................................................................................................................84 Section VIII Information about Directors, Supervisors, Senior Management and Employees ..............................................................85 Section IX Corporate Governance .......................................................................................................................................................100 Section X Situation on Corporate Bonds .............................................................................................................................................107 Section XI Financial Reports ...............................................................................................................................................................108 Section XII Documents Available for Reference .................................................................................................................................251 5 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Definitions Item Refers To Definitions From January 1, 2018 to December 31, Refers To Reporting Period 2018 Zhejiang Dahua Technology Co., Ltd. Refers To Dahua, Dahua Technology, Company, this Company Dahua System Engineering, System Refers To Zhejiang Dahua System Engineering Co., Ltd. Engineering Company Dahua Vision Technology Refers To Zhejiang Dahua Vision Technology Co., Ltd. Dahua Security Network, Operation Refers To Zhejiang Dahua Security Network Operation Service Co., Ltd. Company Dahua Ju'an Refers To Zhejiang Dahua Ju'an Technology Co., Ltd. Guangxi Dahua Information Refers To Guangxi Dahua Information Technology Co., Ltd. Dahua Security Refers To Zhejiang Dahua Security Service Co., Ltd. Wuxi Ruide, Wuxi Dahua Refers To Wuxi Dahua Ruide Electronic Technology Co., Ltd. Guangxi Security Refers To Guangxi Dahua Security Service Co., Ltd. Huatu Microchip Refers To Zhejiang Huatu Microchip Technology Co., Ltd. Xiaohua Technology, Hangzhou Xiaohua Refers To Hangzhou Xiaohua Technology CO., LTD. Dahua Zhilian Refers To Zhejiang Dahua Zhilian Co., Ltd. Tecomore Technology Refers To Hangzhou Tecomore Technology Co., Ltd. Dahua Investment Refers To Zhejiang Dahua Investment Management Co., Ltd. South North United Refers To South North United Information Technology Co., Ltd. Guangxi Zhicheng, Dahua Zhicheng Refers To Guangxi Dahua Zhicheng Co., Ltd. Hangzhou Huacheng, Huacheng Network Refers To Hangzhou Huacheng Network Technology Co., Ltd. Xinjiang Information Refers To Xinjiang Dahua Zhixin Information Technology Co., Ltd. HuaRay Technology Refers To Zhejiang HuaRay Technology Co., Ltd. Fuyang Hua'ao Refers To Hangzhou Fuyang Hua'ao Technology Co., Ltd. Huafei Intelligent Refers To Zhejiang Huafei Intelligent Technology CO., LTD. Huachuang Vision Refers To Zhejiang Huachuang Vision Technology Co., Ltd. Guizhou Huayi Refers To Guizhou Huayi Shixin Technology Co., Ltd. Hunan System Technology Refers To Hunan Dahua System Technology Co., Ltd. Xinjiang Dahua Information Refers To Xinjiang Dahua Information Technology Co., Ltd. 6 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Xinjiang Intelligence Refers To Xinjiang Dahua Intelligence Technology Co., Ltd. Guizhou Intelligence Refers To Guizhou Dahua Intelligence Technology Co., Ltd. Xinjiang Zhihe Refers To Xinjiang Dahua Zhihe Information Technology Co., Ltd. China Standard Intelligent Security Refers To China Standard Intelligent Security Technology Co., Ltd. Guangxi Huacheng Refers To Guangxi Huacheng Technology Co., Ltd. Meitan Dahua Technology Refers To Guizhou Meitan Dahua Information Technology Co., Ltd. Inner Mongolia Zhimeng Refers To Inner Mongolia Dahua Zhimeng Information Technology Co., Ltd. Xinjiang Zhitian Refers To Xinjiang Dahua Zhitian Information Technology Co., Ltd. Xinjiang Xinzhi Refers To Xinjiang Dahua Xinzhi Information Technology Co., Ltd. Xinjiang Huayue Refers To Xinjiang Dahua Huayue Information Technology Co., Ltd. Tianjin Dahua Refers To Tianjin Dahua Information Technology Co., Ltd. Dahua Zhilong Refers To Hunan Dahua Zhilong Information Technology Co., Ltd. Vision Technology Refers To Zhejiang Fengshi Technology Co., Ltd. Zhongcheng Technology Refers To Dahua Zhongcheng (Beijing) Technology Co., Ltd. Huaxiao Technology Refers To Zhejiang Huaxiao Technology Co., Ltd. Xi'an Dahua Refers To Xi'an Dahua Zhilian Technology Co., Ltd. Wuxi Ruipin Refers To Wuxi Dahua Ruipin Technology Co., Ltd. Dahua Robot Refers To Zhejiang Dahua Robot Technology Co., Ltd. Beijing Huayue Refers To Beijing Huayue Shangcheng Information Technology Service Co., Ltd. Shanghai Huashang Chengyue Information Technology Service Co., Shanghai Huashang Refers To Ltd. Dahua Jinzhi Refers To Zhejiang Dahua Jinzhi Technology Co., Ltd. Dahua Guangxun Refers To Sichuan Dahua Guangxun Photoelectric Technology Co., Ltd. Huajuan Technology Refers To Hangzhou Huajuan Technology Co., Ltd. Dahua HK Refers To Dahua Technology (HK) Limited Dahua USA Refers To Dahua Technology USA Inc. Dahua Europe Refers To Dahua Europe B.V. Dahua Middle East Refers To Dahua Technology Middle East FZE Dahua Mexico Refers To Dahua Technology Mexico S.A. DE C.V Dahua Chile Refers To Dahua Technology Chile SpA Dahua Colombia Refers To Dahua Technology Colombia S.A.S Dahua Australia Refers To Dahua Technology Australia PTY LTD Dahua Singapore Refers To Dahua Technology Singapore Pte. Ltd. Dahua South Africa Refers To Dahua Technology South Africa Proprietary Limited 7 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Dahua Peru Refers To Dahua Technology PerúS.A.C DAHUA TECHNOLOGY BRASIL COMRCIO E SERVIOS EM Dahua Brazil Refers To SEGURANA ELETRNICA LTDA Dahua Russia Refers To Dahua Technology Rus Limited Liability Company Dahua Canada Refers To Dahua Technology Canada INC. Dahua Panama Refers To Dahua Technology Panama S.A. Dahua Hungary Refers To Dahua Technology Hungary Kft Dahua Poland Refers To Dahua Technology Poland Sp. z o.o. Dahua Italy Refers To Dahua Italy S.R.L. Dahua Tunisia Refers To Dahua Technology Tunisia Dahua Kenya Refers To Dahua Technology Kenya Limited Dahua UK Refers To Dahua Technology UK Limited Dahua Bulgaria Refers To Dahua Technology Bulgaria EOOD Dahua Serbia Refers To Dahua Technology SRB d.o.o. Dahua Germany Refers To Dahua Technology GmbH Dahua Malaysia Refers To Dahua Security Malaysia SDN. BHD. Dahua Korea Refers To Dahua Technology Korea Company Limited Dahua Indonesia Refers To PT. Dahua Vision Technology Indonesia Dahua India Refers To Dahua Technology India Private Limited Dahua Turkey Refers To Dahua Guvenlik Teknolojileri Sanayi ve Ticaret A.S. Dahua Czech Refers To Dahua Technology Czech s.r.o. Dahua Argentina Refers To Dahua Argentina S.A. Dahua Spain Refers To Dahua Iberia, S.L. Dahua Kazakhstan Refers To Dahua Technology Kazakhstan LLP Dahua Denmark Refers To Dahua Technology Denmark Aps. Dahua France Refers To Dahua Technology France American Lechange Refers To Lorex corporation Dahua Technology Holdings Refers To Dahua Technology Holdings Limited Dahua Morocco Refers To Dahua Technology Morocco SARL Dahua Technology Italy Refers To Dahua Technology Italy S.R.L. Dahua Uzbekistan Refers To Dahua Vision LLC Dahua Netherlands Refers To Dahua Technology Netherlands B.V. Dahua Sri Lanka Refers To Dahua Technology China (Pvt) LTD Dahua Lorex Refers To Lorex Technology Inc 8 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Dahua Pakistan Refers To Dahua Technology Pakistan (private) Limited Dahua New Zealand Refers To Dahua Technology New Zealand Limited Dahua Thailand Refers To Dahua Technology(Thailand) Co.,LTD. Dahua Romania Refers To Dahua Technology SRL 9 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section II Company Profile and Main Financial Indicators I. Company Information Stock Abbreviation Dahua Stock Code 002236 Stock Exchange Shenzhen Stock Exchange Company Name in Chinese 浙江大华技术股份有限公司 Abbr. of the Company Name in 大华股份 Chinese Company Name in English (if any) ZHEJIANG DAHUA TECHNOLOGY CO., LTD. Legal Representative Fu Liquan Registered Address No. 1187, Bin'an Road, Binjiang District, Hangzhou City, Zhejiang Province Postal Code of the Registered Address 310053 Office Address No. 1199, Bin'an Road, Binjiang District, Hangzhou City, Zhejiang Province Postal Code of the Office Address 310053 Company Website www.dahuatech.com E-mail zqsw@dahuatech.com II. Contacts and Contact Information Secretary of the Board Representative of Securities Affairs Name Wu Jian Lou Qiongyu No. 1199, Bin'an Road, Binjiang District, No. 1199, Bin'an Road, Binjiang District, Address Hangzhou City, Zhejiang Province Hangzhou City, Zhejiang Province Tel. 0571-28939522 0571-28939522 Fax 0571-28051737 0571-28051737 E-mail zqsw@dahuatech.com zqsw@dahuatech.com III. Information Disclosure and Place for Report Preparation News media designated by the Company for information disclosure Securities Times Website specified by CSRC for the release of the Annual Report http://www.cninfo.com.cn Place for Annual Report preparation Securities Investment Department 10 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. IV. Changes in Company Registration Organization Code 91330000727215176K Changes in Main Businesses since the Company was Listed (if any) None Changes in Controlling Shareholders of the Company (if any) None V. Other Relevant Information Accounting firm engaged by the company Accounting Firm Name BDO China Shu Lun Pan Certified Public Accountants LLP Office Address of the Accounting Firm 4F, New Huangpu Financial Plaza, No. 61, Nanjing East Road, Shanghai Name of Signed Accountants Li Huifeng, Du Na Sponsors engaged by the Company to continuously perform their supervisory functions during the reporting period □ Applicable √ Not applicable Financial advisors engaged by the Company to continuously perform their supervisory functions during the reporting period □ Applicable √ Not applicable VI. Key Accounting Data and Financial Indicators Whether the Company needs performed retroactive adjustment or restatement of accounting data in prior years or not □ Yes √ No 2018 2017 YoY Change (%) 2016 Operating Revenue (RMB) 23,665,688,106.22 18,844,458,053.78 25.58% 13,329,094,010.82 Net Profit Attributable to Shareholders of the 2,529,426,468.61 2,378,726,820.22 6.34% 1,825,199,447.95 Listed Company (RMB) Net Profit Attributable to Shareholders of the Listed Company after Deducting 2,495,121,029.76 2,340,407,357.44 6.61% 1,719,172,124.08 Non-recurring Gains and Losses (RMB) Net Cash Flow Generated by Operational 955,315,978.17 914,231,360.01 4.49% 470,737,105.34 Activities (RMB) Basic Earnings per Share (RMB/Share) 0.87 0.82 6.10% 0.63 Diluted Earnings per Share (RMB/Share) 0.87 0.82 6.10% 0.63 Weighted Average ROE 22.16% 25.47% -3.31% 24.80% End of 2018 End of 2017 YoY Change (%) End of 2016 Total Assets (RMB) 26,350,599,778.15 21,333,478,563.97 23.52% 15,366,397,939.88 Net Assets Attributable to Shareholders of 12,618,758,918.48 10,466,434,375.19 20.56% 8,237,011,399.80 the Listed Company (RMB) 11 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. VII. Differences in Accounting Data between Domestic and Overseas Accounting Standards 1. Differences of net profits and net assets in the financial reports disclosed according to the international accounting standards and Chinese accounting standards □ Applicable √ Not applicable 2. Differences of net profits and net assets in the financial reports disclosed according to the overseas accounting standards and Chinese accounting standards □ Applicable √ Not applicable There are no differences of net profits and net assets in the financial reports disclosed according to the overseas accounting standards and Chinese accounting standards during the reporting period. VIII. Key Quarterly Financial Indicators Unit: RMB 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Operating Revenue 3,617,652,691.40 6,196,388,661.08 5,216,687,713.72 8,634,959,040.02 Net Profit Attributable to Shareholders of the Listed 295,523,140.67 786,393,745.85 481,764,501.06 965,745,081.03 Company Net Profit Attributable to Shareholders of the Listed 290,656,854.31 816,827,534.69 515,756,982.03 871,879,658.73 Company after Deducting Non-recurring Gains and Losses Net Cash Flow Generated by -1,286,295,160.14 189,938,323.14 -570,615,032.53 2,622,287,847.70 Operational Activities Whether there are significant differences between above financial indicators (or sum of them) and relevant financial indicators disclosed in the Company’s quarterly report and semi-annual report □ Yes √ No IX. Non-recurring Gains and Losses Items and Their Amounts √ Applicable □ Not applicable Unit: RMB Descrip Item 2018 2017 2016 tion Profits or losses from disposal of non-current assets (including the -257,185.57 -8,066,035.13 1,407,453.81 write-off for the accrued impairment of assets) The government subsidies included in the current profits and losses 78,342,817.78 44,055,931.15 101,679,403.18 (excluding the government subsidies closely related to regular 12 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. businesses of the Company and issued in the quota or quantity based on the national standards) Profits and losses resulting from the changes in fair value for holding trading financial assets and trading financial liabilities, and investment income from disposal of trading financial assets, trading -83,285,344.55 6,841,311.77 21,720,856.17 financial liabilities, and financial assets available for trading, excluding the effective hedging businesses related to the regular business operation of the Company Profits and losses from the externally entrusted loans 853,418.80 Non-operating income and expenses other than the above 68,947,139.26 4,327,600.51 1,816,484.30 Other gains and losses items that fit the definition of non-recurring 733,001.58 725,549.00 121,205.21 gains and losses Less: Impact of income tax 13,376,532.24 7,282,387.96 21,481,784.64 Impact of minority equity (after tax) 16,798,457.41 2,282,506.56 89,712.96 Total 34,305,438.85 38,319,462.78 106,027,323.87 -- Companies Offering Their Securities to Public - Non-recurring Gains and Losses, or non-recurring gains and losses items listed in the said document defined as recurring ones, please specify the reasons. □ Applicable √ Not applicable In the reporting period, the Company did not define any non-recurring gains and losses items defined and listed in the No. 1 Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to Public - Non-recurring Gains and Losses, as recurring gains and losses items. Section III Corporate Business Overview I. The Principal Business of the Company during the Reporting Period I. Main businesses and products 1. Main businesses The Company is a world-leading video-centric smart IoT solution and service provider. In 2018, based on the in-depth insight into the future trend, Dahua launched "Dahua HOC (Heart of City)" strategy. Supported by the concept of "Full Sensing, Full Intelligence, Full Computing and Full Ecosystem (4 Full) capabilities", Dahua provides practical solutions and products for application at the city, industry and commercial level. With the customer demands as orientation, customer success as the goal, and constantly looking into and understanding customers' businesses as the basis, the Company will continue to enrich the cooperative ecosystem and create values in city operation, enterprise management, as well as consumer life. Based on the Company's leading position in technological innovation, industry experience, and customer base, the Company has built a video-centric smart IoT ecosystem to help partners and customers, enabling 13 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. a safer society and smarter living. 2. Solutions and products The Company provides customers with video-centric smart IoT solutions and products. Based on the in-depth understanding of the market and customer demands, the Company has launched a series of industrial solutions and core products targeting at different industrial features and application scenarios. (1) Solutions Centering on the demand of scenario construction, based on the "Dahua HOC" structure and supported by the concept of "Full Sensing, Full Intelligence, Full Computing and Full Ecosystem (4 Full) capabilities", the Company provides all-round solutions at the city, industry and commercial level, and creates values for city operation, enterprise management and individual consumers. For city-level and industry-level customers, the Company conducts deepened designs for scenario-based demands of customers in fields of safe city, smart traffic, smart transportation, smart banking & finance, smart building, smart retail, and others, to form more abundant and refined scenario-based solutions. Meanwhile, the Company has also expanded and incubated new solutions for emergency commanding, smart manufacturing, etc. For small and micro-sized business users, the Company takes Imou Cloud as its basis to build the three-in-one business ecosystem and design multiple household and store scenario applications, and the Company opens up its cloud capabilities to provide more intelligent, convenient and safe solutions for end users and partners. A. City-level business solutions With focus on the video-centric IoT strategy and deep commitment to the city-level markets, the Company has innovatively put forward the overall framework for Dahua HOC, which is structured on the framework of "One Platform - City Big Data Platform, Two Centers - City Operations and Management Center and City Security Center and N Applications" (abbreviated as 1+2+N). It focuses on the closed-loop data value chain and the new value generated from data mining, and lays emphasis on the close connection between the platform and businesses, aiming for "improved efficiency, increased benefit and optimized experience". The Company is collaborating with the whole industry chain ecological partners to provide systematic smart city solutions and operational services and facilitate urban digital transformation and sustainable development. City Big Data Platform: Uses targeted collection and acquisition of urban operations model data to achieve a closed loop data value chain and enable data as business services which engage in sensing within needed scenarios, logically deploy computing power and storage, and realize business and data modeling required for urban operations. Operation Management Center: Provides comprehensive supervision, decision-making aid, command and dispatch services for urban operators to achieve centralized and efficient city management operations. City Security Center: Encompasses all levels of security, including client security, network security, and data security to enable three-dimensional comprehensive protection and serve as protection for smart city applications, transforming network security from "passive protection" to "active sensing." In 2018, as a council member of the National Standardization General Meeting on Smart Cities, the Company participated in the establishment of 3 important standards on smart cities, the top-level design of smart cities for 15 regions, covering provincial capitals, 14 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. prefecture-level cities, county-level cities and scientific parks and 6 national research projects and their application, won 13 important awards for smart cities, covering big data, AI, and other innovative applications of advanced technologies and top-level designs, smart city solutions, etc., and established an ecosphere with more than 150 partners. Taking the smart city construction in Shuangpai, Hunan Province as an example, centering on building a "smart Shuangpai" and "demonstration county providing whole-region tourism", based on the concept of "one platform, two centers and four smart applications" HOC new smart city structure, Dahua satisfies the multi-level, all-round social demands of the locality to build businesses in a multi-dimensional manner. Through establishing a visual, three-dimensional and integrated AI smart management system, it serves the construction of "efficient Shuangpai" and "safe Shuangpai" and promotes the refined government management and modernized governance; through building a unified city big data platform, it breaks the data barriers, realizes cross-sectoral data integration, and serves the construction of "Internet+ government administration", so as to realize "one website for all affairs, and one affair done in no more than one time" and play a guiding and demonstration role. 15 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. B. Industry-level business solutions 1) Smart policing solution Based on typical business scenarios, by looking into the businesses of all police combat units and targeting at multi-dimensional pain points of multiple businesses of customers, Dahua HOC smart policing solution is created. Learning experience from hundreds of actual police affair projects, Dahua HOC smart policing solution has summarized and extracted three key points, i.e. "sensing online, data computing and taking actions", to form a new mode, "Online Police", realize police resources going online, police objects going online and affair handling going online and help with the reform of the police organization and police mechanism. It focuses on enhancing the prediction, warning and prevention abilities, targeted crime fighting and dynamic management abilities and comprehensively enhancing the ability to realize informatization in everyday practice and the work efficiency of the police. Taking the police station in Jianggan District, Hangzhou City as example, Dahua established a whole set of platforms based on the "Dahua HOC smart policing" structure for Jianggan Police. Supported by IoT multi-dimensional sensing, big data, cloud computing, AI and other technologies, carried by the smart application platform, it's established through analysis of 5000 scenarios and 46 practical application models. It's a powerful backup force for fighting against crimes, finding missing personnel and predicting mass incidents. 2) Smart traffic control solution With the concept of "full sensing, accurate computing and implementation of services" as the principle for top-level designs and "scenario-based, standardized and case-oriented" as the guidance for deepened designs, Dahua HOC smart traffic control solution provides support to the construction and development of modern smart traffic control. Always thinking from the perspective of customers, the Company has enhanced the actual capacity for traffic control, making traffic control more precise and efficient. Based on data, network and business work flow, Dahua has established management center and transportation security center with intelligence, command, control and supervision functions integrated to conduct six businesses, including traffic monitoring, traffic 16 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. organization and control, and traffic guidance, help the traffic control authority "guard safety, facilitate smoothness and increase efficiency", help traffic control departments to establish data ecosystem and partner ecosystem required for continuous development, and create new modes and systems for smart city traffic governance. 3) Smart transportation solution Centering on the production safety, operation service enhancement and public travel convenience in various sectors of transportation, Dahua HOC smart transportation solution has established a comprehensive sensing system for traffic data and an accurate operation system for safety assurance, and a smart data analysis and decision-making system, to comprehensively enhance the ability to ensure traffic safety and provide quality public services. Smart airport solution: targeting at different airport scenarios, it provides a series of scenario-based solutions, such as the landside, terminals and aircraft movement areas. Centering on core businesses in airports, based on the traditional video networking, it adopts the core algorithm and smart front-end and back-end platforms of Dahua, to continuously enhance the value of massive video data and make the airport services more flexible, safer and more efficient. Taking Guangzhou Baiyun Airport as an example, Dahua's airport safety management solution is comprehensively used in the construction of "safe airport" project in Guangzhou Baiyun Airport, to ensure the safety of terminals, roads on the landside and other areas under the administration of the airport. Smart metro solution: urban railway transport system which involves multiple fields and types of work has many business problems, such as the management of large amount of devices and data. Based on the advanced video cloud architecture technology, Dahua smart metro solution has solved the problems of big data access, storage, gathering, fault tolerance under the scenario of urban railway transport, realized unified management of sub-systems, made the urban railway transport be resource pool based, data be intelligent and businesses handled on platforms, so as to satisfy the demands under the railway transport scenario. Taking Beijing Metro as an example, Dahua metro cloud storage system solution is fully applied to Beijing New Airport metro line and TCC metro command center, which boasts the first metro cloud storage system project in China. Smart security check solution: targeting at the three chronic problems of "low efficiency, false safety and tendency to congestion", it satisfies the business demand of the customers in security check under multiple scenarios, and makes the smart 17 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. investigation and arrest more accurate, the network control more scientific, passenger flow control more efficient and cost of operation lower. Smart on-vehicle solution: by integrating mobile communication, IoT, ADAS and other technologies, it makes the operation of vehicles safer. Meanwhile, via the back-end big data processing and AI analysis, the application value of vehicles' travel data is largely improved, which can satisfy the demands of transportation enterprises and industrial regulators. 4) Smart fire control solution Dahua HOC smart fire control solution goes deeply into the independent management of units, fire control supervision, fire extinction and other business points. Targeting at the application scenarios of fire control, the "full coverage with zero blind area" fire safety management is realized to make entities perform their duties and strengthen the supervision on fire control. Through the front-end smart collection of multi-dimensional data, analysis on city-level big data and commanding and dispatching applications at war, it can realize the precognition, prediction and prejudgment of fire, help with the decision-making in fire control management, enhance the efficiency of actual commanding and reduce property loss. In terms of fire extinction, Dahua has innovatively developed the second-generation smart firefighting and rescue robots to solve the fire problems in areas that "human cannot reach, get access to, or be rescued", realize the replacement of human by robots and ensure the life security of fire fighters. It can seamlessly connect with the fire emergency commanding platform, to transmit real-time information of the fire scene and realize the visualization of the rescue process and intelligence of back-stage commanding. 5) Smart finance solution Dahua HOC smart finance solution has been refined continuously on the basis of the previous video networking solution. It has loaded various AI technologies, IoT sensing technologies and big data technical applications, and integrated into the physical scenarios of the financial industry, and solved more than 40 targeted business demands and pain points. Meanwhile, the Company continues to expand from the security field to the operational field, and actively increase the width and depth of businesses into the financial field. Currently, the construction of pilot branches for smart finance upgrading has been spread among state-owned banks, 18 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. stockholding banks, city commercial banks and some other financial institutions. Taking the security field as an example, the solution has further enhanced the accuracy of warning triggering, reduced omitted and wrong warning and released human resources; it has realized visualized management of business data in the security field, enhanced the speed of response to decision-making and the emergency commanding ability; it has also enhanced rapid processing of early warnings and efficient management of businesses. 6) Smart judicature solution Dahua HOC intelligent judicature solution, on the basis of the information-centric development planning, construction and application requirements, meets the construction requirements of the intelligent modern civilized judicial system, and based on the actual application scenarios and by use of intelligent management methods, to realize the digital and visual law enforcement for more accuracy and impartiality and facilitate the upgrading, transformation and development of core judicial business. Dahua judicature solution satisfies the requirements of video confidentiality, storage safety, regulated law enforcement, abnormal warning, etc., in judicial case handling and execution of punishment. The product design complies with the industrial standards. 7) Smart community solution Dahua HOC smart community solution targets at smart management design of communities and creates comprehensive solutions for smart communities. Meanwhile, via AI, visual face-to-face communication can be realized. The deep integration of multiple systems further realizes information sharing and synergy among systems and the smart application of systems, and provides proprietors with safe living environment and convenient way of access. At present, the Company has entered into the long-term strategic partnership or various project cooperation with many mainstream real estate customers. Meanwhile, the Company is committed to the development and integration of peripheral sensing products for communities, providing more valuable structured data for community management, connecting upstream and downstream business partners, establishing advanced and practical IoT business ecosystem for smart communities, building cloud platforms for communities, realizing the integration of the community's property management system and security system, providing convenient one-stop APP services and providing property management with data operation support to help real estate customers enhance the value of their premises and build high-quality premises. 19 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 8) Smart park solution In 2018, Dahua HOC smart park solution expanded the business application to all business scenarios in application parks, such as production parks, office parks, education parks, industrial parks, logistics parks, medical parks and so on, and satisfied the demands of managing enterprise personnel, vehicles and objects. The solution focuses on upgrading of intelligent capabilities and park security level to deliver the face-recognition access management for a better user experience. Moreover, the Company has established strategic cooperation ecosphere to upward support the innovative application development of partners in the ecosystem and realize "fully integrated data, fully visible statuses, fully manageable businesses, and fully controllable events" in various parks, to help the smart digital transformation of the parks. 9) Smart retail solution Dahua HOC smart retail solution is designed to meet three core business demands under the retail scenario, i.e. safety and loss 20 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. prevention, store management and targeted marketing. Through smart sensing and peripheral integration of cloud, the scheme has realized the insights into the data related to "persons, goods and sites", connecting data islands and gathering data to form a data brain, to provide data support for the development, manufacturing and marketing of products. On this basis, it can help retail customers reduce the loss of commodities, enhance the efficiency of operation management, and reduce labor cost. Meanwhile, based on the collection and analysis on offline data, it helps the merchants realize targeted marketing, reduce operation cost, increase sales revenue, and upgrade the shopping experience of consumers, so as to help with the digital transformation of physical retail. 10) Smart logistics solution The Dahua HOC smart logistics solution applies the IoT technologies, machine vision, AI, smart control to the logistics industry. Through collecting the front-end data of persons, vehicles and objects, it deploys smart robots, enhances the safety management and prevention abilities in logistics operations and processes, reduces labor cost, and increases the efficiency of logistics operations and the distribution centers. Meanwhile, it also effectively supports the business process optimization and operation management of the customers in logistics. Taking express delivery and transportation as an example, the Company has deployed video monitoring networking platforms for multiple customers. The number of connected video channels has exceeded 100,000. In logistics parks or distribution centers, machine vision code reading technology is used instead of manual code scanning. For example, the DWS multi-function sorting solution introduced for the logistics industry can realize package measuring and sorting at the same time for better transportation and management efficiency; The vehicle guidance system can improve the efficiency of the vehicles' passing through the park's entrance and exit; The platform visual management platform can enhance the operation efficiency, leading to efficiency enhancement of logistics park operation. 21 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 11) Smart energy solution Dahua HOC energy solution serves industrial process type (electric power, petrifaction, mining, iron and steel) energy enterprises. The Company has launched smart transformer substations, digital petrochemical and other solutions to help the energy industry solve problems in emergency commanding, equipment maintenance, personnel management, operation control, production quality inspection, and other core businesses. The Company provides smart patrol robots, thermal imaging, smart patrol servers, machine vision, RFID/ROLA/UWB, big data, video cloud and other core products and technologies. Massive instruments, switches, indicator lights and other objects are transformed into structured data. Through the analysis and computation on big data, the healthy status of equipment can be comprehensively researched and determined, thus providing powerful guarantee for the production safety of energy enterprises. 12) Smart education solution Dahua HOC smart education centers on business scenarios in campuses. Through multi-dimensional sensing and collection, fully smart analysis and comprehensive analysis and computing, it can realize the integration of businesses in smart scenarios and multiple ecosystems. On this basis, the safety protection solution is provided centering on "persons, vehicles and objects" to enhance the security protection efficiency and guarantee the safety of teachers and students; the logistics management solution is provided centering on "eating, living and traveling" to enhance the management efficiency and service quality; the smart classroom solution is provided centering on "teaching resources, management of teaching affairs, and teaching environment", to support new teaching methods and promote the construction of information-based education. 22 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. C. Commercial-level business solutions In 2018, Dahua consumer business department launched a new brand strategy and took Imou as the new brand image for Lechange. New definition is given to Imou: Intelligent Moments of Happiness - smart technologies guard every moment in life and to create happiness for customers is Imou's eternal pursuit. Imou is oriented towards the consumer business which is an important part in the "Dahua HOC" strategy. The Company, based on Imou for the "three-in-one" business ecosystem of intelligent hardware, intelligent technology and video cloud, puts forward the application solutions of household care, household security and store security management, etc., which provide smart scenario-based IoT services for households, stores and small and micro-sized business users. The Company opens up its cloud capabilities to facilitate third-party developers in their development of feature-rich scenario applications and provide convenient, easy-to-use, safe and customizable services for end users and partners for an intelligent Internet of Things ecosystem. In 2018, Imou launched multiple products for families and shops using AI technologies, including face detection camera, sound and light alarming camera, POE camera series, wireless NVR, fire control alarm, and the smart video lock, which enables more users to enjoy the achievements of new technologies and get their life quality enhanced. Imou will be built as a global brand. Through the global marketing service network, the products and services of Imou will be brought to each corner of the world. People of different cultures, languages and skin colors can be protected by smart technologies. (2) Core products and technologies The company, based on the "Dahua HOC" strategy, intensified core technical and products layout at the aspect of "Full Sensing, Full Intelligence, Full Computing, and Full Ecosystem (4 Full) capabilities" in 2018. By sensing environments, scenarios and content, combining edge computing and integrating its edge node business, the company has enriched intelligent front-end sensing devices, giving full play to the agile response capabilities of front-end intelligence. By connecting data links, exploring business applications, combining cloud computing and integrating intelligent algorithms and spatio-temporal data, the Company has promoted intelligent analysis and mining capabilities of big data. 23 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. To fully promote the implementation of AI technology for full range of smart products, the Company aimed at customers' demands in front-end, storage and center service to seek innovation and launched intelligent products. By combining with cloud computing and big data and relying on intelligent algorithms and chip technology, the Company has optimized products and solutions, enhanced customer value and innovative business modes. 1) Front-end products In 2018, more front-end products were developed to enrich the series with ever more established integration of new technology and new products. Relying on intelligent algorithms and new technology, the Company launched series of cameras including "Deep Sense", "Aurora", "Hunter", "Eyeball", and "Watchman", applying advanced technologies such as facial recognition, structured pedestrian, non-motor and motor vehicle, live detection, multi-channel HD definition video splicing, dual-vision fusion, dual-vision depth information analysis, integration of thermal imaging and visible light and smart IoT to products according to practical needs to realize intelligent monitoring and multi-dimensional sensing in multiple scenarios. 24 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Smart camera series: Dahua self-developed chips and deep learning algorithm are applied to the facial recognition network camera series, to realize the priority of facial snapshot, extraction of facial features, classification and tracking of targets. An 8-inch fully smart dome camera was launched, realizing the extraction of fully structured properties, classification of targets, flow statistics for "pedestrians, vehicles and non-motor vehicles". The 40-time optical zoom and super long focal distance design is adopted for capturing details of targets within long distance. A four-sensor camera integrated with a tracking ball was launched, which is a pioneer product in this industry. The panorama camera is responsible for overall target detection and other cameras rapidly capture details rapidly. A 4K resolution panorama image will be output to realize the coverage of 180 degree, which is 4 times of that of ordinary cameras. A dual-camera behavior analyzing product was launched. Dahua self-developed algorithm is adopted to realize deep analysis of images captured by the two cameras, supporting accurate passenger flow statistics and warning against to persons approaching, violent movement, falling, retention and abnormal number of persons and other abnormal behaviors. Intelligent traffic camera series: the Company launched the eco-camera that can capture traffic violations of "pedestrians, vehicles, non-motor vehicles", monitor roads, collect traffic information and detect traffic accidents, as well as effectively solve light pollution from white light flashing. The series won the Best Product award for "2018 China Highway 30 Years Informationization Award", the Innovative Product award of the 10th China International Road Traffic Safety Products Expo and other awards. The Company also launched the AI entrance & exit snapshot camera that is integrated with the self-developed AI chip and can support industry-leading recognition of vehicles without a license plate and multiple-in multiple-out of vehicles. The series won "Comprehensive Strength Award" at the 2018 Urban Static Traffic and Intelligent Parking Forum". Panoramic multi-vision camera series: The Watchman series of panoramic AR products adopt multi-channel video splicing technology to allow the display of UHD 180°and 360°panoramic images, supporting soft splicing, simultaneous output of initial data, multi-vision splicing, along with smart large-scenario analysis on people and vehicles status. Meanwhile, the Company optimized multi-dimensional sensing capability of the video surveillance products. The "Jumbo" all-in-one camera can obtain sensing information from facial detection, license plate recognition, vehicle, non-motor vehicle and pedestrian detection/capture, collection of mobile MAC information, GPS/Beidou positioning, RFID data collection, etc., Such as thermal camera series, which can realize multi-dimensional data collection like fire information, and object temperature. "Dahua Blue Sky Guardian Comprehensive Solution for Straw Burning Monitoring" based on its thermal products won the award of A&S TOP 10 system solution in 2018. 25 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2) Storage products In 2018, the Company launched several new products including the "Smart" NVR, "Smart" IVSS and HD-over-Coax DVR based on the deep learning technology, the vehicle-mounted travel data recorder MDJ7100 based on the HDCVI technology and launched an indoor 55-inch vertical facial recognition attendance machine. The "Smart" NVR product adopts deep learning-based facial recognition technology, supporting face access control, face control, image search by image and other functions. Its perimeter detection function can identify people/vehicle-triggered alarms and effectively filter shadows of small animals and leaves to improve the alarm accuracy, and also can support quick retrieval and playback according to face, body, license plate, vehicle model and other properties for greater video searching efficiency. With continuous algorithm optimization and improvement of detection and recognition accuracy in "Smart" IVSS product, the Company deeply analyzed needs in retail, finance, energy, logistics, buildings, education, government and enterprises and other industries, thus delivering industrial smart business solutions implemented in projects. HD-over-Coax DVR, based on HDCVI4.0 technology, realizes coaxial transmission of high definition image with the maximum resolution up to 4K, digital audio with broadcast audio effect, and control signal. The vehicle-mounted product features new structure design with a small built-in HDD damping system and an intelligent cooling system to satisfy the requirements of vehicles under various complex working conditions. Smart cloud information terminal product features an integrated structure with built-in facial recognition collection module, supporting attendance by facial recognition, accurate advertising by facial recognition, live detection and other functions. 26 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 3) Central products With deployment of the central products on four intelligent fields including face, structured video, vehicle and behavior, the Company launched S2 series of facial recognition server, "Smart" structured video server, vehicle secondary analysis server, passenger flow statistics server and other series of intelligent servers. The product development adopts super comparison algorithms, further promoting product comparison analytical performance and playing a leading role in the industry. Meanwhile, the Company initiated "one file for one person" function in the industry to give full play to the market competitiveness of products. 4) Cloud computing and big data products and services For urban operation management, we have created an established video cloud product system, delivered services such as cloud storage, cloud database, container cloud, intelligent cloud, and bid data platform, covering complete data processing links by combining with the industrial features to satisfy clients' computing and storage needs in different scenarios of the whole network. For smart policing, smart traffic, smart judiciary, emergency command and other features in business scenarios, we have provided comprehensive and targeted platform product services based on new technologies such as cloud computing, big data, IoT, and artificial intelligence. For enterprise management, we have created a common product system at enterprise level and launched AI-based industry platforms, improving operation and management efficiency and fixing the pain points for the clients from enterprise parks, education, energy, finance and other sectors. We have also gradually launched the industry cloud platform in retail, community, parking, and 27 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. house renting and other fields to provide services to more industry clients. As for small and micro enterprises and individuals, LeChange cloud platform has been established for providing cloud storage, cloud sharing, cloud warning, cloud analysis and other cloud intelligence. An operation data analysis visualized platform supporting big data analysis and statistical analysis has been established to provide users with real, superior and intelligent product experience. For the video-centric ecosystem, we have built an open industry-level platform to support third-party algorithm execution and third-party equipment and platform access. We have also provided basic video and AI capabilities. Industry partners were enabled through open interface and we could involve in the partner ecosystem through extensible technical framework, so as to promote implementation of the end-to-end solution from front-end perception and intelligent analysis to back-end cloud platform and industry applications. Meanwhile, an open network platform has been established for different application scenarios of industries. The Lechange cloud SaaS and PaaS solutions were delivered to help partners get their own cloud video capacity with faster speed and lower cost and jointly create value with partners for win-win result. As at the end of 2018, there have been over 20,000 developers for LeChange cloud. 5) Intelligent building products The Company launched a whole series of facial recognition access control machines. The integrated access control machine, turnstile and door phones are equipped with the wide dynamic visible light for facial recognition technology with fast recognition speed, strong biometric false prevention and large database capacity. It is widely applied in places such as commercial buildings, residence communities, recreation and stadiums, plants and other sites. Meanwhile, Dahua facial recognition access control products can offer various authentication methods like fingerprint, password, QR code, ID card, IC card, Bluetooth, and App according to customer needs, with wide adaptability and usability. In 2018, Dahua applied for almost 30 patents for inventions, utility models and design patents for smart building products in terms of facial false prevention, visitor management, structural technology, wireless communication and appearance design, which further facilitate the research and development on new technologies and products. 6) AI algorithms In 2018, the Company continued invested in AI to build a super large-scale computing center and data center for algorithm training and focused on researching and commercializing algorithms in multiple fields. As its core strategy, the Company has developed the AI algorithms and has bolstered the core competitiveness. At present, the Company mainly focuses on six AI application fields - smart traffic, facial and behavior analysis, object recognition, robots and multi-sensor fusion. The Company can provide end-to-end AI solutions and products according to various scenarios of different industries, with the technical strength in quickly improving algorithm functions and performance. The Company topped the list in over 10 global algorithm competitions in 2018, including 2D/3D detection, tracking, image segmentation, scene recognition, human weight recognition, and image search by image among other technical fields of AI. The Company has made achievements in the six AI application fields as follows: Smart traffic field: Dahua has focused on the field of smart traffic application since 2006. At present, its products and 28 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. solutions include electronic stations, electronic police, entrances and exits, recognition of domestic and overseas license plates, big data of vehicles, and other application scenarios. The Company has launched "Smart" series of AI entrance & exit snapshot cameras TianQing" series of vehicle secondary analysis servers, servers for vehicle image search by image, and other products and solutions. The smart traffic solution realizes the detection, recognition and property analysis of "pedestrians, vehicles and non-motor vehicles" and recognition of domestic and overseas license plates in traffic scenario, as well as recognition and analysis of traffic violations of all "pedestrians, vehicles and non-motor vehicles" in road scenario. When combined with the back-end big data analysis server, the solution can realize the multi-dimensional data collision, comparison, searching, and image search by image of vehicles. Face recognition field: the complete facial end-to-end intelligent algorithm link has already been formed in the field of facial analysis, including face detection, tracking, property, recognition, live detection, etc., with all mainstream products launched with industry-leading performance. In practical application, the face intelligent solution can well satisfy differentiated demands on all scenarios, help the upgrade of technical method for smart police affairs, and facilitate implementation of "customer portrait" in smart retail, "facial authentication" in intelligent park and other projects. Behavior analysis field: behavior analysis is mainly applied in analyzing contents of videos in different industries, such as body behaviors, situation analysis, image search by image and other applications. At present, the Company launched all series of intelligent front-end products, intelligent NVRs and intelligent servers. With fully technical upgrading of the traditional solutions, the Company put an emphasis on introducing video structured analysis, behavior analysis, perimeter management, flow statistics, situation analysis and other solutions. Object recognition field: intelligent analysis on all kinds of objects can be carried out in the field of object recognition. It is applied in security check, power supply, water supply, retail, logistics and other industry solutions, enhancing the business operation efficiency and management quality. Robots field: robots solution is designed for manufacturing, logistics, energy and other industries. At present, multiple AGV cluster dispatching, simultaneous positioning and map building, vision navigation and scenario understanding and other technologies have been developed and applied in AGV for handling, storage and sorting, indoor/outdoor power inspection robots, intelligent drones and other products. Multi-sensor fusion field: in the field of Multi-sensor fusion, the multi-vision fusion, millimeter wave radar, infrared thermal imaging, 3D building, laser and vision fusion, audio processing and other core technologies have been realized and applied in "Watchman" series of panoramic cameras, AR panoramic fusion, radar and dome linkage, dual-vision temperature detection, robot and other products and solutions. 7) Chip technology In 2018, the Company's AI chip technology, HDCVI chip technology and digital-analog hybrid chip technology have got constant investment and achieved good results: AI chip technology: Based on the self-developed AI chip, the Company successfully launched "Deep Sense" series of economical face detection cameras, "Smart" series of AI entrance and exit snapshot cameras. In 2018, AI chip research and development project obtained support of the national science and technology major project of the Ministry of 29 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Industry and Information Technology and Hangzhou integrated circuit industry development project, laying a solid foundation for future development. HDCVI chip technology: The scheme integrating HDCVI with front-end and back-end AI technology has been successfully realized, which greatly improves the competitiveness of the HDCVI scheme. The 4K real-time front-end and back-end chip products are successfully launched. The Company maintained it leadership in the coaxial analog high-definition field and successfully developed the HDCVI5.0 technology based on the new-generation transmission technology, which realized the lossless transmission of mixed information via multiple media and surpasses the existing coaxial transmission technologies in the market. Digital-analog hybrid chip technology: With the mass production of the self-developed PoE front-end and back-end control chips, the Company has become the first national chip manufacturer to provide the comprehensive PoE solution, which greatly improves the competitiveness of NVR, switch, IPC and other products of the Company. Meanwhile, the Company increased investment in independent IP research and development, and broke through technical bottlenecks on high-complexity IP technologies such as high-speed ADC and DAC, optimizing the digital-analog hybrid chip technology. 8) Video IoT innovative business and products Machine vision products In 2018, Huaray Technology, a holding subsidiary of the Company, has four series of products: railway carriage and container scanner, intelligent 3D camera, visual controller and intelligent RFID reader. HuaRay Technology also improves smart logistics solution, applying the video AI technology in parcel smart sensing, smart sorting and other application scenarios. Relying on the new generation of pentagonal code reading DWS system, content smart sensing system, and big data smart tracking system for parcels, the solution realizes deep mining of parcel data, full flow tracing, management and efficient sorting of parcels. Huachuang Vision collaborative products In 2018, Huachuang Video, a holding subsidiary of the Company, introduced universal-type integrated terminal for grass-roots organizations, integrated terminal for small conference rooms, split-type terminal for medium and large conference rooms, 10-fold optical varifocal USB camera, digital omnidirectional microphone and the industry-leading conference Multi-Point Control Units which support H.265+4K encoding and decoding protocols, among which universal-type integrated terminals has been granted the IF Award, the highest international honor in the design field. Currently, Huachuang's products can be applied in various scenarios and meet customer demands and gained wide recognition through the highly-integrated terminal and other advantageous products. Other smart IoT products Up to now, the Company has developed four types of aerial vehicles, about 20 kinds of mounting and matching remote controls, ground station and UAV management platform, which, combined with the promotion of industrial solutions, have been applied in emergency command, police surveillance, forest fire prevention, power line patrol, road patrol, environmental monitoring and other fields. The Company, based on wireless access, data transmission and positioning technology, continuously promotes the R&D and 30 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. application of radio frequency identification technology and launches a series of products such as RFID reader, intelligent mobile, electronic tag, etc., providing IoT solutions and products for industry applications such as in enterprises, governments, buildings and for environmental protection, education, judicature., etc. The Company launched a comprehensive security protection solution including terminal security, access security, network security, data security, and security operation center, and released a series of access control gateways, IoT trend sensing products, video surveillance bastion hosts and video encryption servers that fix the security pain points in the video surveillance; Robot Technology, a newly established holding subsidiary of the Company, focuses on three business scenarios, namely AGV handling, industrial patrol and security patrol. It has launched intelligent patrol solution for substation equipment, warehousing logistics solutions and in-plant logistics solutions. 3 Major sales model and performance driving factors With global sales and service network, the Company builds a diversified customer system of different levels based on different customer properties and business values. With subsidiaries and representative offices across many countries and regions, the Company offers products and solutions to different end users including governments, enterprises, and consumers. Major performance driving factors include: The Company has a wide user base at the city, industry and commercial level, and can provide different customers with multi-level solutions. Focusing on customer demands, the Company positively follows the industry trend, with transformation of business model from a single product, comprehensive solutions to comprehensive smart operating service for cities. Dahua Heart of City (HOC) is a smart city development engine supported by "Full Sensing, Full Intelligence, Full Computing, and Full Ecosystem (4 Full) capabilities". It realizes the construction of a "1 platform, 2 centers, N applications" (1+2+N) new smart city framework for application at the city, industry, and commercial level. Dahua HOC highlights the application of AI technology in products, which satisfies needs of the next generation of smart city, helps the Company transform from a product supplier to a comprehensive solution and service provider for a wide growth space for future development of the Company. After years of development in overseas markets, the Company has established a global sales and service network, contributing to increasing brand recognition and product reputation. The Company always adheres to open, transparent and cooperative attitude with active communication. The Company sticks to the strategy of internalization development, while the continuous increase in overseas market is one of the vital factors for future revenue increase. II. Industry development trends and the industry position In 2018, although the Company is affected by domestic economic deleveraging and foreign trade frictions and the pace of industry growth has slowed down in the short term, the Company has maintained the overall growth trend. As for the changes in customer demands in the market, the granularity of projects has become larger and the decision-making level has been lifted. Meanwhile, with the rise of intelligence, customers gradually hope that enterprises can provide overall solutions and professional advises instead of merely selling products. The future smart city should rely on AI, deep learning, IoT and other new technologies to realize active sensing of the city development, finally achieving "accuracy, innovation, coordination, sharing, 31 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. openness" for city governance. The connotations and denotations of video IoT - based security industry have been redefined, with barriers overcame to open up more room for growth. Meanwhile, a higher requirement on the comprehensive ability of manufacturers is raised. The Company is a world-leading video-centric smart IoT solution and service provider, offering end-to-end video surveillance solutions, systems and services based on the technological innovation, to create value for urban operation, enterprise management and individual life. Following the industry development trend, the Company has put forward the "Dahua Heart of City (HOC)" strategy to make overall plan for full process capability in technological innovation, top-level design, business structure, emergency alarm and operation service and has built a complete closed loop from development to application for AI, deep learning, IoT and other technologies in all fields of smart city, to facilitate the development of smart city. According to the global video surveillance market report released in July 2018 by IHS Markit, Dahua has been the second largest video surveillance company in the industry for many years, with 12% of the global market share (based on 2017 data). II. Material Changes to Major Assets 1. Major changes in main assets Major Assets Explanation Of Material Changes Increased by 203.35% compared with that of the beginning of the year, mainly due to the Equity assets recognition of the equities of the shareholding companies. Fixed Assets No major changes. Increased by 47.01% compared with that of the beginning of the year, mainly due to Intangible Assets increase of land use rights during this period. Increased by 284.82% compared with that of the beginning of the year, mainly due to Projects under Construction increase of investment in the Dahua smart security surveillance (IoT) production base. Increased by 57.56% compared with that of the beginning of the year, mainly due to Non-current Assets Due within 1 Year increase of long-term receivables due within one year. Increased by 91.57% compared with that of the beginning of the year, mainly due to Investment Property increase of rental fees of private commodity houses. Increased by 54.39% compared with that of the beginning of the year, mainly due to Goodwill acquisitions of business under non-identical control. Increased by 69.14% compared with that of the beginning of the year, mainly due to Deferred Income Tax Assets increase of deductible temporary difference. 2. Major overseas assets □ Applicable √ Not applicable 32 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. III. Core Competitiveness Analysis I. Center on core technology and maintain high R&D investment to build strong capacities in technical innovation Innovation is an important source of power and core competitive advantage for the development of the Company. The Company possesses a national post-doctoral research station, a nationally certified enterprise technology center and nationally innovative pilot enterprise, and has five research institutes for advanced technology, central, big data, chip and network security. In 2018, the company's R&D investment accounts for 9.65% of the annual sales revenue, which are focused on artificial intelligence, cloud computing, big data, chips and other future-oriented core technologies to enhance R&D capabilities and accelerate the technology commercialization. The Company makes use of the industry-leading innovative capabilities to pursue and grasp new development opportunities, opening up new growth space. (1) Artificial Intelligence The year of 2018 is one of rapid development for AI algorithm and application. The Company's deep learning-based video structuring technology can detect people, vehicles and objects in video footage and extract various attributes, with many performance indicators reaching world-class level and supporting more than 40 functions; At the same time, the Company enhances the layout of industry algorithms to vigorously improve the performance of algorithms for various sub-industries. With the vehicle big data technology of the Company, nearly 300 vehicle brands and more than 5000 vehicle models can be identified along with industry-leading recognition of wide-angle license plate. The number of overseas countries whose license plates can be identified has been largely increased. In the smart security check sector, the X-ray automatic detection scheme for hazardous article was launched at first with multiple indicators of the detection rate constantly enhanced to maintain its leading superiority. In 2018, the Company ranked first in 13 lists in respect of 2D human body detection, 2D/3D vehicle detection, scene flow, optical flow, road segmentation in drivable areas, segmentation cases (cases with vehicles, pedestrians, and so on), multiple object tracking (vehicles, human bodies), PRCV 2018 competition for large-scale searching of pedestrians (image, system test) for KITTI VISION respectively. The facial recognition algorithm ranked first among domestic manufactures in 2018 NIST facial recognition competition for natural scenarios. In the "AI Recognition Competition for Image Characteristics of Vehicles on Road" hosted by the Ministry of Public Security, the Company ranked first in the detection of characteristics of muck trucks and facial recognition for drivers, ranked second in event detection through videos, and ranked third in detection of passengers in a vehicle. (2) Cloud computing and big data The Company has constantly enhanced services in cloud storage, cloud database, smart analysis, stream media and formed a comprehensive video cloud technology system. The actual intelligent application based on video & image intelligence and data intelligence allows the access to IoT equipment, data of business platform and third-party data sources. The types of data include 6 sensing objects, 34 sensing scenarios and 43 sensing devices. According to evolution of the scenarios and loading of multiple smart algorithms for persons, vehicles and objects to support the integrated application, and based on the integration of edge intelligence and cloud intelligence, a unified pool for intelligent resources is built for deploying of intelligent resources according to the complex demands of business. The full-network installation and deployment of smart algorithms and computing power will be further realized 33 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. according to demands of smart cities. (3) Chip technology The first AI chip independently developed by the Company has been applied to multiple intelligent products and solutions, which greatly facilitates the extension of the Company's solutions and products. Meanwhile, according to the industry development characteristics, the Company designs and develops two AI chips by way of customization, professionalism and differentiation, which will be used in many fields such as camera, storage, intelligent server and industrial robot, etc. II. Have deep insight into customer demands to deliver comprehensive solutions and build operation service capacity Focusing on customer demands, the Company has constantly expanded and upgraded its business modes, so as to independently offer comprehensive solutions and operation services in entire industrial chain of video surveillance. Meanwhile, the Company has always established sensing systems centering on customers' scenarios and has constantly enhanced the networking capacity of computation and intelligence in products and solutions, so as to maximize customer value. In 2018, the Company further streamlined the standardized solutions and provided tailored solutions for safe city, smart traffic, smart retail and other key industries. It also launched a series of smart front-end and server products to satisfy the smart application scenarios of the next generation, and comprehensively support the implementation of Dahua HOC. Dahua Heart of City (HOC) is a smart city development engine supported by Full Sensing, Full Intelligence, Full Computing, and Full Ecosystem (4 Full) capabilities. It realizes the construction of a "1 platform, 2 centers, N applications" (1+2+N) new smart city framework for application at the city, industry, and commercial level. Dahua HOC not only pays attention to "4 Full" capabilities of products and solutions, but also endows network with "4 Full" capabilities from a global perspective, thus driving professional, efficient and intelligent operation. III. Deepen the globalized marketing system, and establish a global marketing and service network The Company has a global marketing and service network with more than 200 offices in 32 provinces and municipalities in China and 54 subsidiaries and representative offices. The products and solutions are applied in over 180 countries and regions in the world, and the supply chain center set up in Europe can provide fast and high-quality end-to-end services for customers. For the domestic market, the Company is oriented toward the city-level and industry-level markets with focus on value industries and scenarios, providing solutions more centered around customer business scenarios; For the channel markets, the Company maintains close cooperation with many channel partners to facilitate the healthy and benign market environment and constantly promote channel development and refined channel management. As for the overseas market, through cultivating an international marketing and management team and building localized marketing and services centers and opening Dahua brand image stores and Dahua element stores, the Company will further enhance the brand coverage of Dahua abroad and seize the international market. IV. The "dedicated to success" corporate culture in support of the Company's long-term sustainable development "Customer-centered and dedicated to success" is placed at the core of the corporate culture. The Company, through customer-oriented business processes and organization construction, regards creation of customer value as the work guidance and 34 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. performance evaluation criteria for every employee. Meanwhile, the Company adheres to the value orientation of "dedicated to success" for continuous optimization of the performance evaluation and salary distribution system and promotes diversified short-term and long-term incentive packages to award high-performance staff with sustainable salary and moral encouragement. The Company has a management team with a strong sense of mission and global strategic vision, and boasts of a strong talent team in the core technology fields of AI, big data, chips, etc. On March 6, 2018, the company's first interim shareholders' general meeting in 2018 approved the "Management Methods for Business Startup and Investment of Core Staff (draft)" that the Company implemented the investment plan for startup businesses by core staff to share benefits and risks and encourage the entrepreneurial spirit and innovation capabilities of core employees. On September 14, 2018, the Company's fourth interim shareholders' general meeting approved the "Proposal on 'the Company's Restricted Stock Incentive Plan for 2018 (Draft) and its Abstracts". On November 1, 2018, the seventeenth meeting of the Company’s sixth board of directors approved the “Proposal on Granting Restricted Stocks to the Incentive Objects”, by which 3145 incentive objects have been awarded, greatly enhancing the staff cohesion and stability and playing a positive role in the long-term stable development of the Company in the future. 35 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section IV Discussion and Analysis on Business Circumstance I. Overview Against the highly volatile international situation in 2018, the video-centric IoT industry has slowed down in its growth rate in the short term due to multiple factors such as domestic economic transformation and overseas uncertainty, etc. Supported by AI, IoT, cloud computing, big data and other technologies, the value of intelligent products and solutions is quickly improved. The market space for the video-centric smart IoT field grows further. The Company, from an overall perspective, introduced the "Dahua HOC" strategy to coordinate the abilities in all processes such as technological innovation, top-level design, business structure, emergency alarm and operation service, facilitate intelligent transformation of various cities and the industry, and help with the cooperative, open, safe and sustainable development of various cities and the industry. During the reporting period, the Company has achieved RMB 23.666 billion in operating income, representing an increase of 25.58% on a year-on-year basis; net profit attributable to the shareholders of listed companies was RMB 2.529 billion, representing an increase of 6.34% on a year-on-year basis.The profitability of the Company continued to rise. Main business strategies of the Company include: (1) Stepping up the targeted R&D investment to continuously improve the core technological capability and build a differentiated technology framework oriented towards "Full Intelligence, Full Computing, Full Sensing and Full Ecosystem (4 Full)" The Company is committed to taking technological innovation as the core, and investing heavily in R&D. The investment to R&D in 2018 was RMB 2.284 billion, representing an increase of 27.67% on a year-on-year basis, and accounting for 9.65% of the operating income. The company kept a greater focus on advanced technical fields, such as AI, cloud computing and big data, chip, machine vision and robot to realize rapid implementation and iteration for meeting customers' demands. The Company pays much attention on customers' data security and privacy protection, so it has established a network security research institute to carry out research on device, network and system security technologies and fully implement product security development processes. Its IP video product has got the first TV Rheinland GDPR certification in the industry. The Company has provided insights into the industrial and technical trends and constructed a differential technology system oriented toward "Full Sensing, Full Intelligence, Full Computing and Full Ecosystem (4 Full)", with the aim to improve the capability to come up with comprehensive end-to-end solutions oriented to the pain points of customers and build application solutions for particular scenarios, supporting a new round of quick intelligence implementation in the industry. (2) Having in-depth understanding of customers' businesses, enriching the customer interface and supporting the success of customers Continuously guided by customer demands, the Company has explored the demands of the market and customers in an in-depth 36 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. manner. Based on the properties and business demands of different customers, the Company has established and improved the tiered customer management strategy and refined customer management mechanism. By getting closer to customers, the Company has provided targeted solutions and products, to firmly realize the values of customers' businesses, so as to make them successful. In the industry market, the Company provides solutions oriented toward customers by focusing on valuable regions, valuable industries, valuable scenarios, and going deeply into various segmented industries. As to the applications in cross-industry scenarios, the Company provides comprehensive solutions through the cooperation in the ecosystem. Building on industry development and market insight, the marketing strategies for various segmented industries are gradually formed; the industry market has been expanded and deepened with the operation capabilities in major projects improved. In terms of channel management, the Company has enhanced the integration of online and offline channels, made channels sink deeper, continuously promoted the establishment of new channels and established a tiered channel customer management system. (3) Steadily promoting overseas market development while exploring the domestic market in an in-depth manner The domestic market is the foundation for our business development. The Company has a wide user base at the city, industry and commercial level, and can provide different customers with multi-level solutions. As to the overseas market, the Company has gradually enhanced the driving force of overseas subsidiaries in localized operations through cultivating international marketing and management teams, establishing local marketing and service centers. It has continuously optimized the revenue structure and gradually realized the expansion in the global market and the upgrading of businesses. (4) Continuously increasing investment in innovative businesses to promote business growth Based on the in-depth understanding of customers' diversified demands, and the multi-dimensional sensing technology, the Company continues to develop the machine vision, robots, smart fire control, video conference system, professional drones and other emerging businesses. Machine vision business: guided by the wave of intelligent manufacturing, machine vision business offers omnidirectional vision products to the manufacturing automation field based on more than a decade of video and intelligent technological accumulation of the Company in the video monitoring field. Video conference system business: based on the in-depth understanding of the market, the Company has further enlarged product lines. The Company's video conference system has been widely used in the comprehensive urban smart solutions. Smart fire control business: in the comprehensive application field of smart fire control, the Company has accomplished the R&D and practical application of Dahua HOC smart fire control solutions and realized the top-level planning and deepened design of smart fire control for units, subdistricts, districts/counties and the entire city, to provide customers with guarantee in smart security warning and enhance the informatization and intelligence level of fire control. Professional drone business: currently, professional drones are widely used in emergency commanding, police surveillance, forest fire control, power line patrol, environment monitoring and other fields. The data from drones can be connected with the data of the police system, city administration system, forestry and other industries. Meanwhile, through smart analysis and application, the Company has realized facial recognition, license plate recognition, structural data extraction, and so on. 37 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Robot business: the Company has organized a core talent team, successively made breakthroughs in movement control, movement navigation, centralized dispatching, task assignment and other core technologies, which have been widely applied in logistics, fire control, police affairs and other fields. (5) Promoting global layout and establishing R&D sub-centers and supply chain sub-centers The Company has a global business layout, and a wide marketing network and business coverage both in domestic and overseas markets. In 2018, the company had plans to set up an intelligence base and R&D center in the West for the layout of core technical personnel in artificial intelligence, big data and cloud computing, etc. to meet the Company's growing business needs; The Company continuously optimizes supply chain management, improves product delivery capacity, and speeds up product iteration; And the establishment of the European Supply Center, as one of the important measures to accelerate the "globalization + localization" strategy, we aim to provide faster delivery experience and better customer service to European markets through local assembly and centralized logistics services, and to provide better products and services to global partners and users. (6) Continuously enhancing refined management capabilities, and realizing high-quality development The Company continues to carry out systematic business reform and management optimization, strengthen the customer management abilities and enhance the capabilities for providing solutions and operation services. Centering on customers, the Company continues to optimize the LTC/IPD/ISD/ITR and other processes, establish process-based organizations, with a focus on solving pain points in the processes, realizing the smoothness of end-to-end processes and enhancing the speed of response to customers. II. Main Business Analysis 1. Overview See "I. Overview" in "Discussion and Analysis on Business Circumstance". 2. Income and Costs (1) Operating income structure Unit: RMB 2018 2017 Proportion to Proportion to YoY Change (%) Amount Amount Operating Revenue Operating Revenue Total Operating 23,665,688,106.2 100% 18,844,458,053.78 100% 25.58% Revenue 2 Classified by Industry Security Industry 23,665,688,106.2 100.00% 18,844,458,053.78 100.00% 25.58% 38 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2 Classified by Product 12,214,951,613.1 Solutions 51.62% 9,835,663,501.07 52.20% 24.19% 6 Product 9,762,853,684.85 41.25% 7,593,336,542.79 40.29% 28.57% Other 1,687,882,808.21 7.13% 1,415,458,009.92 7.51% 19.25% Classified by Region 15,087,657,708.7 Domestic 63.75% 12,037,252,733.24 63.88% 25.34% 5 Overseas 8,578,030,397.47 36.25% 6,807,205,320.54 36.12% 26.01% (2) The industry, product, or region that accounts for over 10% of the Company's operating revenue or profit √ Applicable □ Not applicable Unit: RMB Increase or Increase or Increase or Decrease of Decrease of Decrease of Operating Operating Cost Gross Profit over Gross Profit Operating Revenue Operating Cost Revenue over the over the the Margin Corresponding Corresponding Corresponding Period of the Period of the Last Period of the Last Last Year Year Year Classified by Industry Security 23,665,688,106.22 14,871,181,066.69 37.16% 25.58% 27.76% -1.07% Industry Classified by Product Solutions 12,214,951,613.16 7,201,889,474.98 41.04% 24.19% 28.89% -2.15% Product 9,762,853,684.85 6,128,694,957.17 37.22% 28.57% 28.54% 0.01% Classified by Region Domestic 15,087,657,708.75 9,822,914,231.08 34.89% 25.34% 29.47% -2.08% Overseas 8,578,030,397.47 5,048,266,835.61 41.15% 26.01% 24.57% 0.68% When the statistical caliber of the company's main business data is adjusted in the reporting period, the company's main business data should be subject to the one after the statistical caliber at the end of the reporting period is adjusted in the most recent year. □ Applicable √ Not applicable (3) Is the company's physical sales income greater than the labor income? √ Yes □ No 39 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Industry Year-on-year Item Name Unit 2018 2017 Classification increase or decrease Sales volume Unit/set 54,750,353 44,333,106 23.50% Security industry Production output Unit/set 57,109,913 46,876,080 21.83% Reasons for over 30% changes in related data on year-on-year basis □ Applicable √ Not applicable (4) Performance of major sales contracts signed by the Company as of the reporting period □ Applicable √ Not applicable (5) Operating Cost Structure Industry and Product Classification Unit: RMB 2018 2017 Year-on-year Industry Item Name Proportion to Proportion to increase or Classification Amount Amount Operating Cost Operating Cost decrease Security Operating Cost 14,871,181,066.69 100.00% 11,639,494,423.21 100.00% 27.76% industry Unit: RMB 2018 2017 Year-on-year Product Item Name Proportion to Proportion to increase or Classification Amount Amount Operating Cost Operating Cost decrease Solutions Operating Cost 7,201,889,474.98 48.43% 5,587,449,096.24 48.01% 28.89% Product Operating Cost 6,128,694,957.17 41.21% 4,767,931,685.71 40.96% 28.54% Others Operating Cost 1,540,596,634.54 10.36% 1,284,113,641.26 11.03% 19.97% Has the scope of consolidation changed during the reporting period? √ Yes □ No a) The Company invested to establish 12 domestic subsidiaries including Zhejiang Vision Technology Co., Ltd., Dahua Zhongcheng (Beijing) Technology Co., Ltd., Zhejiang Huaxiao Technology Co., Ltd., Xi'an Dahua Zhilian Technology Co., Ltd., Tianjin Dahua Information Technology Co., Ltd., Hunan Dahua Zhilong Information Technology Co., Ltd., Zhejiang Dahua Robot Technology Co., Ltd., Beijing Huayue Shangcheng Information Technology Service Co., Ltd., Zhejiang Dahua Jinzhi Technology Co., Ltd., Shanghai Huashang Chengyue Information Technology Service Co., Ltd., Wuxi Dahua Ruipin Technology Co., Ltd., Hangzhou Huajuan Technology Co., Ltd. and 9 overseas subsidiaries including Dahua Technology Netherlands BV, Dahua Technology Morocco SARL, Dahua Technology S.R.L, DAHUA VISION LLC, Dahua Technology New Zealand Limited, 1151551 B.C.Ltd., DAHUA TECHNOLOGY CHINA (PVT) LTD, Dahua Technology Pakistan (private) Limited, DAHUA TECHNOLOGY (THAILAND) CO., LTD. The above subsidiaries have been incorporated in the consolidation scope since the date of establishment. 40 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. b) In February 2018, the Company completed the shareholding merger of Lorex Technology Inc and Dahua Technology Italy SRL, owning 100% stake of them and having substantial control over it, so they were incorporated in the consolidation scope. In November 2018, the Company completed the shareholding merger of Sichuan Dahua Guangxun Photoelectric Technology Co., Ltd., owning 100% stake of them and having substantial control over it, so they were incorporated in the consolidation scope. c) This year, Guangxi Dahua Zhongzhi Technology Co., Ltd., Yancheng Zhongchuang Dahua IOT Technology Co., Ltd., Jiangsu Dahua Zhiyun Information Technology Co., Ltd. And 1151551 B.C.Ltd. were canceled, without being incorporated in the consolidation scope since the date of cancellation. (7) Major changes or adjustments to the company's business, products, or services during the reporting period □ Applicable √ Not applicable (8) Major Clients and Suppliers The Company's Major Clients Total sales amount of the top five customers 1,875,901,281.59 Proportion of the total sales amount of the top five customers to 7.93% the total annual sales Proportion of the total sales amount of the related parties in the 0.00% top five customers to the total annual sales Profiles of the Company's top five customers No. Name of Customer Sales Amount (RMB) Proportion to the annual sales 1 Company 1 649,872,001.87 2.75% 2 Company 2 416,431,918.63 1.76% 3 Company 3 354,060,992.03 1.50% 4 Company 4 235,293,800.70 0.99% 5 Company 5 220,242,568.36 0.93% Total -- 1,875,901,281.59 7.93% Other Information Notes for Major Clients □ Applicable √ Not applicable (8) Major suppliers Total Purchase Amount of Top Five Suppliers (RMB) 3,079,872,506.40 Proportion of the total purchase amount of top five suppliers to the 21.26% total annual purchase amount Proportion of the total purchase amount of the related parties in top 0.00% five suppliers to the total annual purchase amount Profiles of the Company's top five suppliers No. Supplier Name Purchase Amount (RMB) Proportion to the Total Annual Purchase 41 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Amount 1 Company 1 1,431,895,445.67 9.88% 2 Company 2 435,544,917.09 3.01% 3 Company 3 423,340,474.10 2.92% 4 Company 4 397,174,139.65 2.74% 5 Company 5 391,917,529.89 2.71% Total -- 3,079,872,506.40 21.26% Other Information Notes for Major Suppliers □ Applicable √ Not applicable 3. Expenses Unit: RMB Year-on-year Increase 2018 2017 Statement on Significant Changes or Decrease Mainly due to the expansion of the Sales Expenses 3,365,380,947.78 2,416,699,706.00 39.26% company's sales volume and the market. Administration Expenses 632,968,594.64 519,518,000.34 21.84% Mainly due to the increase in exchange Financial Expenses -123,167,962.74 167,431,921.69 -173.56% gains Research and 2,283,872,502.53 1,788,888,879.43 27.67% Development Expense 4. R&D Investment √ Applicable □ Not applicable Company's R&D investment 2018 2017 Change Ratio Number of R&D personnel 6,880 6,267 9.78% Percentage of R&D personnel 50.56% 53.15% -2.59% R&D investment (RMB) 2,283,872,502.53 1,788,888,879.43 27.67% The proportion of R&D investment to 9.65% 9.49% 0.16% operating income Capitalized R&D investment 0.00 0.00 0.00% Proportion of capitalized R&D 0.00% 0.00% 0.00% investment to R&D investment The reason for the significant change in the proportion of the total amount of R&D investment to operating income compared with last year 42 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. □ Applicable √ Not applicable Reasons and rational explanations on the substantial change in capitalization rate of R&D investment □ Applicable √ Not applicable 5. Cash Flow Unit: RMB Year-on-year Item Name 2018 2017 Increase or Decrease Subtotal of Cash Inflow from Operating Activities 23,648,130,137.58 17,873,518,699.53 32.31% Subtotal of Cash Outflow from Operating Activities 22,692,814,159.41 16,959,287,339.52 33.81% Net Cash Flow Generated by Operating Activities 955,315,978.17 914,231,360.01 4.49% Subtotal of Cash Inflow from Investment Activities 170,142,702.70 117,691,286.89 44.57% Subtotal of Cash Outflow from Investment Activities 916,786,739.20 412,603,885.09 122.20% Net Amount of Cash Flow Generated by Investment Activities -746,644,036.50 -294,912,598.20 153.17% Subtotal of Cash Inflow from Financing Activities 8,800,798,371.20 5,310,239,934.34 65.73% Subtotal of Cash Outflow from Financing Activitiess 8,424,286,645.98 4,865,390,334.24 73.15% Net Cash Flow Generated by Financing Activities 376,511,725.22 444,849,600.10 -15.36% Net additions to Balance of Equivalents 639,604,809.66 987,502,208.32 -35.23% Description of the main factors affecting the significant changes in related data over the same period of last year √ Applicable □ Not applicable 1. Cash inflow from operating activities saw a year-on-year rise of 32.31%, which is mainly due to the expansion of company sales and increase in received payment. 2. Cash outflow from operating activities saw a year-on-year rise of 33.81%, which is mainly due to the expansion of company sales and the increase in the corresponding expenditure. 3. Cash inflow from investment activities saw year-on-year rise of 44.57%, which is mainly due to the increase in investment recovered from the reverse repurchase of treasury bonds in the current period. 4. Cash outflow from investment activities saw year-on-year rise of 122.20%, which is mainly due to the increase in investment to construction in progress, asset and equity acquisition in the current period. 5. Cash inflow from funding activities saw a year-on-year rise of 65.73%, which is mainly due to increased borrowings in the current period. 6. Cash outflow from funding activities saw a year-on-year rise of 73.15%, which is mainly due increased refunds in the current period. Reasons for the significant difference between the net cash flow generated by the company's operating activities in the reporting period and the net profit in the current year □ Applicable √ Not applicable 43 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. III. Non-main Business Analysis □ Applicable √ Not applicable IV. Analysis of Assets and Liabilities 1. Significant changes in assets composition Unit: RMB End of 2018 End of 2017 Proportion Proportion Proportion Increase Statement on Significant Changes Amount To Total Amount To Total and Assets Assets Decrease Cash and Bank 4,160,153,847.06 15.79% 3,612,937,164.14 16.94% -1.15% No Significant Change Balances Accounts Mainly due to the expansion of 10,191,372,777.38 38.68% 7,539,944,756.69 35.34% 3.34% Receivable Company sales Inventory 3,035,579,709.14 11.52% 2,806,142,598.65 13.15% -1.63% No Significant Change Investment Main due to self-owned property 346,831,376.55 1.32% 181,050,142.29 0.85% 0.47% Property rental Mainly due to the rights and Long-term Equity 185,872,021.58 0.71% 61,272,885.41 0.29% 0.42% interests confirmation for joint Investment stock companies Fixed Assets 1,407,471,330.83 5.34% 1,248,305,165.77 5.85% -0.51% No Significant Change Mainly due to increased Projects under investment in Dahua Smart 226,191,587.11 0.86% 58,779,225.41 0.28% 0.58% Construction Security (IOT) Manufacturing Base Short-term Loan 1,851,709,561.83 7.03% 1,770,924,255.90 8.30% -1.27% No Significant Change Long-term Loan 179,000,000.00 0.68% 230,000,000.00 1.08% -0.40% No Significant Change 2. Assets and liabilities measured at fair value √ Applicable □ Not applicable Unit: RMB Purchase At the Changes in Fair Impairment Cumulative Fair Amount of Sales Amount of At the End of Item Beginning of the Value Gains and Loss of the Value Changes in the the Reporting the Reporting Name Reporting Losses in the Reporting Equity Reporting Period Period Period Current Period Period Period 44 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Financial 62,450,000.00 38,602,602.30 62,450,000.00 38,602,602.30 Liabilities Are there any significant changes in the measurement attributes of the company's main assets during the reporting period? □ Yes √ No 3. Restrictions on asset rights as of the end of the reporting period As of December 31, 2018, the Company pledged monetary funds of RMB 469,159,816.01 for bank loans, issuing letters of guarantee and commercial acceptance bills; pledged notes receivable of RMB 1,606,595,655.43 for issuing bank acceptance bills; pledged long-term accounts receivable of RMB 333,613,018.77 for long-term loans of bank. V. Investment analysis 1. Overview √ Applicable □ Not applicable Investment In The Reporting Period (RMB) Investment Over The Corresponding Period Of Last Year Rate Of Change 573,964,874.71 1,113,976,115.63 -48.48% 2. Significant equity investments acquired during the reporting period □ Applicable √ Not applicable 3. Major non-equity investments underway during the reporting period √ Applicable □ Not applicable Unit: RMB Reasons Involv Cumulat For The ed ive Unreach Investm Amount Anti Disclo industr Cumulative Actual Income ed Invest ent In Invested In The Capita Item cipat sing Disclosi Item y in Investment As Of As Of Planned ment The Current l Name ed Date ng Index Name invest The End Of The End Progress Mode Fixed Reporting Source Progress Inco (If (If Any) ment Reporting Period Of The And Assets Period me Any) project Reportin Anticipa Or Not s g Period ted Revenue Juchao Dahua Video Informat Intelligen Self-c surveil Self-ra Decem ion ce (IoT) onstru Yes lance 193,537,262.06 1,011,578,841.90 ised 50.58% N/A ber 02, Website Industrial ction industr funds 2014 http://cni Park y nfo.com. 45 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. cn/ Dahua Juchao West Video Informat Smart Self-c surveil Self-ra July ion Base and onstru Yes lance 50,943,152.09 50,943,152.09 ised 5.09% N/A 16, Website Dahua ction industr funds 2018 http://cni West y nfo.com. R&D cn/ Center Dahua Smart Video Security Self-c surveil Self-ra (IOT) onstru Yes lance 102,115,375.87 110,183,237.44 ised 13.77% N/A Manufact ction industr funds uring y Base Total -- -- -- 346,595,790.02 1,172,705,231.43 -- -- 0.00 0.00 -- -- -- 4. Financial assets at fair value □ Applicable √ Not applicable 5. Utilization of raised funds □ Applicable √ Not applicable No use of funds in the reporting period of the Company VI. Major Assets and Equity Sales 1. Major assets sales □ Applicable √ Not applicable No major assets sales in the reporting period of the Company 2. Major equity sales □ Applicable √ Not applicable VII. Analysis of Major Subsidiaries and Investees √ Applicable □ Not applicable Major subsidiaries and joint-stock companies with a net profit impact of over 10%. Unit: RMB 46 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Comp Com Main Registered Operating any pany Total Assets Net Assets Operating Income Net Profit Business Capital Profit Name Type The development , production, installation and sales of electronic and communicat Dahua Subs ion Syste idiar products; the m y design, 500,000,000.00 3,806,285,042.13 1,231,086,785.21 1,733,294,029.23 20,275,392.33 27,584,975.67 Engin Com construction eering pany and installation of computer system integration and automated control engineering The development , sales, and technical services related to computer Subs software, as Dahua idiar well as the Vision 18,991,040,578.2 319,563,148.1 239,719,169.4 y design, 646,810,000.00 1,004,392,739.83 20,535,514,855.52 Techn 5 8 4 Com development ology pany , production and sales of security equipment, electronic products and communicat ions 47 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. products Production and sales of electronic products and auxiliary equipment; technologica l development , technical consultation and services, achievement Subs transference Dahua idiar of computer 1,110,000,000.0 Zhilia y software, 4,333,344,310.38 1,009,658,111.72 2,375,777,103.45 62,545,434.99 46,928,649.30 0 n Com electronic pany products, communicat ions products, and digital security products; self-owned house lease; catering service; import and export of goods. Acquisition and disposal of subsidiaries during the reporting period √ Applicable □ Not applicable Method of Acquisition and Disposal of Impact on Overall Production Management Company Name Subsidiaries during the Reporting Period and Performance No significant impact on overall Tianjin Dahua Established with investment production, operation and performance No significant impact on overall Dahua Zhilong Established with investment production, operation and performance No significant impact on overall Vision Technology Established with investment production, operation and performance 48 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. No significant impact on overall Zhongcheng Technology Established with investment production, operation and performance No significant impact on overall Huaxiao Technology Established with investment production, operation and performance No significant impact on overall Xi'an Dahua Established with investment production, operation and performance No significant impact on overall Wuxi Ruipin Established with investment production, operation and performance No significant impact on overall Dahua Robot Established with investment production, operation and performance No significant impact on overall Beijing Huayue Established with investment production, operation and performance No significant impact on overall Shanghai Huashang Established with investment production, operation and performance No significant impact on overall Dahua Jinzhi Established with investment production, operation and performance No significant impact on overall Huajuan Technology Established with investment production, operation and performance No significant impact on overall Dahua Morocco Established with investment production, operation and performance No significant impact on overall Dahua Uzbekistan Established with investment production, operation and performance No significant impact on overall Dahua Netherlands Established with investment production, operation and performance No significant impact on overall Dahua Sri Lanka Established with investment production, operation and performance No significant impact on overall Dahua Pakistan Established with investment production, operation and performance No significant impact on overall Dahua New Zealand Established with investment production, operation and performance No significant impact on overall Dahua Thailand Established with investment production, operation and performance No significant impact on overall Dahua Romania Established with investment production, operation and performance No significant impact on overall 1151551 B.C.Ltd Invest to establish/cancel production, operation and performance Guangxi Dahua Zhongzhi Technology Co., No significant impact on overall Deregistration Ltd. production, operation and performance 49 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Yancheng Zhongchuang Dahua IoT No significant impact on overall Deregistration Technology Co., Ltd. production, operation and performance Jiangsu Dahua Zhiyun Information No significant impact on overall Deregistration Technology Co., Ltd. production, operation and performance Major holding companies and joint stock companies No significant holding companies and joint stock companies information should be disclosed during the reporting period. VIII. The structured entity controlled by the Company □ Applicable √ Not applicable IX. Prospects for the Future Development of the Company A. Company Development Strategy The Company is the world's leading provider of video-centric smart IoT solutions and operation services. Based on technological innovations, with customer demands as orientation and customer success as the goal, the Company creates values in city operation, enterprise management, as well as consumer life. Based on the Company's leading position in technical innovation, industry experience, and customer base, we aim to create a video ecosystem centered on smart IoT information services to make society safer and life smarter. Based on the insights into the future trend, the Company introduced the "Dahua HOC" strategy in 2018 to facilitate intelligent transformation of various cities and the industry, and help with the cooperative, open, safe and sustainable development of various cities and the industry. B. Prospects for Future Strategy 1. Improving the capability to come up with comprehensive end-to-end solutions oriented to the pain points of customers based on the HOC structure The Company will construct a differential technology system oriented toward "full sensing, full intelligence, full computing and full ecology" and improve the capability to come up with comprehensive end-to-end solutions oriented to the pain points of customers based on the HOC structure. The Company will follow the market trend of "customer demands as orientation, customer success as the goal", so as to create a project-driven organization with strong matrix, open up solution marketing, R&D and delivery functions, and cultivate the capability to come up with differential solutions oriented toward customers' scenarios. The Company will gradually realize the two-way opening-up and synergy of solutions and products, to promote the integration of solutions and products. 2. Continuously increasing investment in R&D and facilitating technical innovation The Company will further explore insights into the industrial and technical trends and increase the investment in advanced technologies, such as AI, cloud computing and big data, chip and other future core technologies to enhance R&D capabilities. By 50 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. virtue of the leading technologies in the industry and the market scale, the Company will accelerate the commercialization of technologies, maintain its leading position in video technology, multi-dimensional sensing, AI, big data analysis and other core technical fields, and develop more solutions and products oriented toward customer demands. 3. Continuously enriching the customer interface to enhance the ability to create values for customers The Company will build a tiered customer sand table, establish a three-dimensional customer relationship management system and improve the systematic marketing abilities based on the matching with customer values, to continuously enrich the customer interface. In the industry market, the Company will focus on valuable industries and enhance the expansion and deepening in the industry market. In addition, the Company will build a cooperative ecosystem to provide integrated solutions that create values for customers. In terms of channel management, we will strengthen channel sinking and channel relationship management, establish a tiered channel customer management system, and enhance the development and operation of new channels. 4. Exploring the domestic market in an in-depth manner while promoting overseas business localization and optimizing revenue structure The Company will continue to optimize the construction of global marketing network, expand the overseas market on the basis of the exploration in the domestic market, proceed orderly with the construction of overseas branches, and improve the localized operation capabilities. The Company will enrich the product lines for overseas market, speed up the update and iteration of overseas products, promote continuous breakthrough in project market, and gradually increase the proportion of its revenue in overseas market revenue. 5. Building systematic delivery and service capabilities oriented toward the global market The Company will, based on the integration plan, build a high-efficiency and low-cost supply system oriented toward the global market to realize flexible supply and improved quality. For the front-line businesses, the Company will build delivery and service capabilities in domestic provinces/overseas regions, create a professional and efficient delivery platform, and enhance delivery efficiency and customer satisfaction. 6. Taking video capabilities as the core and increasing the investment in innovative businesses to cultivate new growth points Centering on the video business, the Company has incubated machine vision, robots, smart fire control, video conference system, industry-level drones and other emerging video IoT businesses. The Company will continue to integrate resources such as AI, cloud computing and big data, IoT, etc., and explore the application of those resources in the video IoT field. In the future, the Company will continue to explore different business models around video services and tap new growth points from its innovative business. 7. Focusing on the pain points in businesses and processes to strengthen management improvement, improving operational efficiency, and enhancing the ability to continuously create values for customers The Company will continue to advance the business transformation and management optimization aiming at creating values for customers, and gradually open up the LTC\IPD\ISD\ITR process to achieve the efficient operation of the end-to-end process system. The Company will open up the LTC business process to the front-line businesses, strengthen the management of channels and 51 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. projects and enhance efficiency and benefit. Through IPD, the Company will strengthen market insight targeting at typical customers and scenarios, solidify demand management, and enhance accuracy of product investment and effectiveness of R&D. Through ISD, the Company will enhance the customer delivery and service ability and further enhance the overall delivery efficiency. Through establishing the end-to-end ITR management system, the Company will connect the technical service organizations of all levels to clarify the solution procedures for domestic and overseas pre-sales/in-sales/after-sales problems. 8. Further improving the incentive system for talents and the development of corporate culture The company will adhere to the corporate culture of "customer-centered and strive-oriented" to build the core power of enterprise development. The Company always adheres to the value orientation of "Striver-oriented and win-win with fighters", continuously optimizes the performance evaluation and salary distribution system, and promotes diversified incentive measures including both short term and long term ones to provide high-performance talents with sustainable salary and spiritual incentive. X. Reception of research, communication, interviews and other activities 1. Registration Form for reception of research, communication, interviews and other activities during the reporting period √ Applicable □ Not applicable Reception Time Reception Method Reception target type Index of the basic information of research For more information, please see the investor relations activity January 10, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity January 11, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity 26 January 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity January 29, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity January 30, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity March 14, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity March 15, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity March 19, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity March 21, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity March 26, 2018 Field Investigation Institution list in http://www.cninfo.com.cn 52 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. For more information, please see the investor relations activity 27 April 2018 Field Investigation Institution, individual list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 08, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 09, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 10, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 11, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 17, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 18, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity May 30, 2018 Field Investigation Institution list in http://www.cninfo.com.cn Field investigation, For more information, please see the investor relations activity May 31, 2018 telephone Institution list in http://www.cninfo.com.cn communication For more information, please see the investor relations activity June 06, 2018 Field Investigation Institution list in http://www.cninfo.com.cn Field investigation, For more information, please see the investor relations activity June 07, 2018 telephone Institution list in http://www.cninfo.com.cn communication For more information, please see the investor relations activity June 19, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity June 20, 2018 Field Investigation Institution list in http://www.cninfo.com.cn Field investigation, For more information, please see the investor relations activity June 26, 2018 telephone Institution list in http://www.cninfo.com.cn communication Telephone For more information, please see the investor relations activity June 27, 2018 Institution communication list in http://www.cninfo.com.cn For more information, please see the investor relations activity July 02, 2018 Field Investigation Institution list in http://www.cninfo.com.cn Telephone For more information, please see the investor relations activity July 08, 2018 Institution, individual communication list in http://www.cninfo.com.cn For more information, please see the investor relations activity July 17, 2018 Field Investigation Institution list in http://www.cninfo.com.cn 53 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. For more information, please see the investor relations activity July 18, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity August 23, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity August 29, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity August 30, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 06, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 07, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 12, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 13, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 14, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 18, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 19, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 20, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 26, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity September 27, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity October 26, 2018 Field Investigation Institution, individual list in http://www.cninfo.com.cn For more information, please see the investor relations activity October 31, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity November 01, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity November 19, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity November 20, 2018 Field Investigation Institution list in http://www.cninfo.com.cn 54 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. For more information, please see the investor relations activity November 21, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity November 29, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity November 30, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 03, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 10, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 11, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 12, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 17, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 18, 2018 Field Investigation Institution list in http://www.cninfo.com.cn For more information, please see the investor relations activity December 19, 2018 Field Investigation Institution list in http://www.cninfo.com.cn 55 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section V Significant Events I. Distribution of Common Stock Profits of the Company and Capitalization of Capital Reserves Distribution policies of the common stock profits during the reporting period, especially the formulation, implementation or adjustment of the cash dividend policies √ Applicable □ Not applicable On April 27, 2018, the Company's 2017 Annual General Meeting of Shareholders reviewed and approved the Shareholder Return Planning for the Next Three Years (2018-2020), which clearly stipulates the decision-making procedures for dividend standards, proportions and profit distribution policies that will be executed in strict rotation, guaranteeing the continuity and stability of the profit distribution policies and adequately protecting the legitimate rights and interests of small and medium investors. Special notes on cash dividend policies Whether they comply with the requirements of the Company's articles of incorporation Yes or the resolutions of the General Meeting of Shareholders: Whether the dividend standards and proportions are distinct and clear: Yes Whether the relevant decision-making procedures and mechanisms are complete: Yes Whether the independent directors performed their duties and played their due role: Yes Whether the minority shareholders have the opportunity to fully express their opinions Yes and appeals, and whether their legitimate rights and interests have been fully protected: Whether relevant conditions and procedures are compliant and transparent when the No adjustments or changes on cash cash dividend policies are being adjusted or changed: dividend policies The Company's common stock dividends distribution plan (preplan) and capital reserve capitalization plan (preplan) in the past three years (including this reporting period) 1. The profit distribution preplan of the Company in 2016 is: taking the 2,899,411,405 total capital shares by December 31, 2016 as the basis, cash dividend of RMB 1.00 (tax included) for each 10 shares was distributed to all shareholders, with a total amount of RMB 289,941,140.50, and no bonus share sent and no capitalization of capital reserves. 2. The profit distribution preplan of the Company in 2017 is: taking the 2,898,756,130 total capital shares by December 31, 2017 as the basis, cash dividend of RMB 2.00 (tax included) for each 10 shares was distributed to all shareholders, with a total amount of RMB 579,751,226.00, and no bonus share sent and no capitalization of capital reserves. 3. The profit distribution preplan of the Company in 2018 is: taking the 2,997,621,930 total capital shares by December 31, 2018 as the basis, cash dividend of RMB 1.00 (tax included) for each 10 shares was distributed to all shareholders, with a total amount of RMB 299,762,193.00, and no bonus share sent and no capitalization of capital reserves. The Company's cash dividends for common stocks in the past three years (including this reporting period) Unit: RMB Net profit The ratio of The Amount The Proportion Total Amount The Ratio of Cash Dividend Attributable to Cash Dividends of Cash of Cash of Cash Total Amount Year Amount (tax Common Stock to the Net Profit Dividends in Dividends in Dividends of Cash included) Shareholders of Attributable to Other Ways Other Ways the (including Dividends 56 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Listed Companies Ordinary (such as Net Profit other ways) (including in the Shareholders of share Attributable to other ways) to Consolidated Listed repurchase) Ordinary the Net Profit Financial Companies in Shareholders of Attributable to Statement of the the Consolidated Listed Ordinary Year for Dividend Statements Companies in Shareholders of Distribution the Listed Consolidated Companies in Statements the Consolidated Statements 2018 299,762,193.00 2,529,426,468.61 11.85% 0.00 0.00% 299,762,193.00 11.85% 2017 579,751,226.00 2,378,726,820.22 24.37% 0.00 0.00% 579,751,226.00 24.37% 2016 289,941,140.50 1,825,199,447.95 15.89% 0.00 0.00% 289,941,140.50 15.89% The Company's profits during the reporting period and the parent company's distribution of common stock shareholders' profits are positive but a cash dividend distribution preplan for common stock is not proposed. □ Applicable √ Not applicable II. Preplans on Profit Distribution and Capitalization of Capital Reserves during this Reporting Period √ Applicable □ Not applicable Number of bonus shares per 10 shares (shares) 0 Number of dividend payout per 10 shares (RMB) (tax included) 1.00 Number of capitalized shares per 10 shares (shares) 0 Equity base in the distribution preplan (shares) 2997621930 The amount of cash dividends (RMB) (including tax) 299,762,193.00 The amount of cash dividends (RMB) in other ways (such as 0.00 share repurchase) The total amount of cash dividends (including in other ways) 299,762,193.00 (RMB) Distributable profits (RMB) 7,670,983,116.33 The ratio of the total amount of cash dividends (including in 100 other ways) to the total amount of profit distribution Latest cash dividend If the Company's development stage is not easy to define but there are significant capital expenditure arrangements, when the profits are being distributed, the proportion of the cash dividends in this profit distribution should be at least 20% Details of the preplans on profit distribution or capitalization of capital reserves As audited and confirmed by BDO China Shu Lun Pan Certified Public Accountants LLP, the net profit attributable to 57 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. shareholders of the parent company in 2018 was RMB 2,529,426,468.61. According to the Articles of Incorporation, the statutory surplus reserve transferred was RMB 274,822,162.55; as of December 31, 2018, the profit actually available for distribution to shareholders by the Company is RMB 7,670,983,116.33, and the profit actually available for distribution to shareholders from the parent company is RMB 7,930,928,526.31. The Company's profit distribution preplan for the year of 2018 is: on the basis of the Company's 2,997,621,930 shares in total capital by December 31, 2018, all shareholders will be distributed 1 yuan in cash (including tax) for each 10 shares, and the total amount of cash dividends is 299,762,193.00 yuan, with no bonus shares and no capitalization of capital reserves. The remaining undistributed profit after the distribution of dividends will be carried forward to the next year. III. Performance of Commitments 1. Commitments made by the Company's controlling shareholders, shareholders, related parties, purchasers and purchasing companies and have been fulfilled during the reporting period and those that have not been fulfilled by the end of the reporting period √ Applicable □ Not applicable Party Commit Commitm making ment Content Time Term Performance ents commitme Type nts As of the Commitm disclosure The number of shares transferred each year during ents made date of this Fu Liquan, his/her term of service shall not exceed 25 percent of during announcement Zhu Commit the total number of shares he/she holds in the Company; initial , the Jiangming ment on he/she shall not transfer his/her shares in the Company Long-ter public 15 July 2007 aforementione , Chen restricte within half a year after he/she leaves the Company; m offerings d Ailing, d shares within the next twelve months, the number of shares or commitments Wu Jun sold through the stock exchange listing transactions refinancin are still in shall not exceed 50% of the total shares he/she holds. g strict execution. As of the (1) He/she will not directly engage in operational disclosure activities that constitute horizontal competition with the Other date of this Commit stock company's business; (2) for companies he/she commitme announcement ment on held or indirectly held, he/she will fulfill the obligations nts to Fu Liquan, , the horizont under this commitment through agencies and personnel Long-ter minority Chen 30 June 2007 aforementione al (including but not limited to directors and managers); m shareholde Ailing d competit (3) if the stock company further expands its range of rs of the commitments ion products and business scope, he/she and the company Company are still in held by him/her will not compete with the expanded strict range of products or businesses of the stock company. execution. Whether Yes 58 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. the commitme nt is fulfilled on time 2. If there is a profit forecast for the Company's assets or projects, and the reporting period is still within the profit forecast period, the Company shall make an explanation on the fulfillment and its reasons □ Applicable √ Not applicable IV. Non-operational Capital Occupation over Listed Companies by Controlling Shareholders and Their Related Parties □ Applicable √ Not applicable During the reporting period, there is no non-operational capital occupation over listed companies by controlling shareholders and their related parties. V. Explanations Made by the Board of Directors, the Board of Supervisors and Independent Directors (If Any) on the "Non-standard Audit Report" from the Accounting Firm during the Reporting Period □ Applicable √ Not applicable VI. Changes in Accounting Policies, Accounting Estimates and Accounting Methods Compared with the Previous Year's Financial Report □ Applicable √ Not applicable During the reporting period, there are no changes in accounting policies, accounting estimating and accounting methods. VII. Explanations on the Retroactive Restatement of Any Significant Accounting Errors during the Reporting Period □ Applicable √ Not applicable During the reporting period, there are no significant accounting error corrections that need to be retrospectively restated. VIII. Changes in the Scope of Consolidated Financial Statements Compared with the Previous Year's Financial Report √ Applicable □ Not applicable a) The Company invested to establish 12 domestic subsidiaries including Zhejiang Vision Technology Co., Ltd., Dahua Zhongcheng (Beijing) Technology Co., Ltd., Zhejiang Huaxiao Technology Co., Ltd., Xi'an Dahua Zhilian Technology Co., Ltd., Tianjin Dahua Information Technology Co., Ltd., Hunan Dahua Zhilong Information Technology Co., Ltd., Zhejiang Dahua Robot Technology Co., Ltd., Beijing Huayue Shangcheng Information Technology Service Co., Ltd., Zhejiang Dahua Jinzhi Technology 59 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Co., Ltd., Shanghai Huashang Chengyue Information Technology Service Co., Ltd., Wuxi Dahua Ruipin Technology Co., Ltd., Hangzhou Huajuan Technology Co., Ltd. and 9 overseas subsidiaries including Dahua Technology Netherlands BV, Dahua Technology Morocco SARL, Dahua Technology S.R.L, DAHUA VISION LLC, Dahua Technology New Zealand Limited, 1151551 B.C.Ltd., DAHUA TECHNOLOGY CHINA (PVT) LTD, Dahua Technology Pakistan (private) Limited, DAHUA TECHNOLOGY (THAILAND) CO., LTD. The above subsidiaries have been incorporated in the consolidation scope since the date of establishment. b) In February 2018, the Company completed the shareholding merger of Lorex Technology Inc and Dahua Technology Italy SRL, owning 100% stake of them and having substantial control over it, so they were incorporated in the consolidation scope. In November 2018, the Company completed the shareholding merger of Sichuan Dahua Guangxun Photoelectric Technology Co., Ltd., owning 100% stake of them and having substantial control over it, so they were incorporated in the consolidation scope. c) This year, Guangxi Dahua Zhongzhi Technology Co., Ltd., Yancheng Zhongchuang Dahua IOT Technology Co., Ltd., Jiangsu Dahua Zhiyun Information Technology Co., Ltd. And 1151551 B.C.Ltd. were canceled, without being incorporated in the consolidation scope since the date of cancellation. IX. Appointment and Dismissal of Accounting Firms Currently appointed accounting firms Names of domestic accounting firms BDO China Shu Lun Pan CPAs (special general partnership) Remuneration to domestic accounting firms (Unit: ten thousand 130 RMB) Years of continuous audit service of domestic accounting firms 15 Names of Certified Public Accountants from domestic accounting Zhong Jiandong, Du Na firms The continuous period of audit service for certified public One year of continuous service for Zhong Jiandong and four accountants in domestic accounting firms years of continuous service for Du Na Whether to reappoint accounting firms for current period □ Yes √ No Appointment of accounting firms, financial advisers or sponsors for internal control auditing □ Applicable √ Not applicable X. Suspension of Listing and Termination of Listing after Disclosure of the Annual Report □ Applicable √ Not applicable XI. Bankruptcy and restructuring □ Applicable √ Not applicable No such case as bankruptcy and reorganization related event during the reporting period. 60 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. XII. Significant Lawsuits and Arbitrations During this reporting period, the Company has no major lawsuits or arbitrations. Other lawsuits that do not meet the criteria of disclosure for major lawsuits are as follows: The subsidiary company, Zhejiang Dahua Technology Co., Ltd, signed a sales contract with Hangzhou Sailidi Import & Export Co., Ltd (hereinafter referred to as "Sailidi Company") that Sailidi Company purchased products from Dahua Technology. Up to December 31, 2018, there are still 66,920,644.38 yuan in accounts payable. In August 2018, Dahua Technology filed a lawsuit to the People's Court of Binjiang District in Hangzhou, requesting Sailidi Company to pay the remaining amount and the liquidated damages for overdue payment and interests. In September 2018, Dahua Technology applied to the People's Court of Binjiang District for property preservation, requesting to freeze the bank deposit of 50 million yuan from Sailidi Company's legal representative Zhu Yuequan, or to seal up or seize property of corresponding value and provide guarantee. The People's Court of Binjiang District granted the application for property preservation. On January 11, 2019, the People's Court of Binjiang District in Hangzhou conducted a public hearing and on January 17, 2019, it issued a court verdict of (2018) Zhejiang 0108 Minchu No. 4451 that requested Sailidi Company to pay Dahua Technology the overdue payment of 27,878,975.60 yuan and corresponding interest loss of 1,021,088.16 yuan (calculated until the date of December 31, 2018) after the verdict came into effect, with Zhu Yuequan assuming joint and several liability. Until the financial reporting date, this case was still in the execution stage. According to the inventory of seized property, the Company's estimated recoverable amount is 10 million yuan. The net realizable value of other seized property is of significant uncertainty, thus the Company makes provision for bad debts of 56,920,644.38 yuan based on the difference between the present value of estimated future cash flow and its book value. XIII. Penalties and Rectification □ Applicable √ Not applicable No such case as penalty and rectification during the reporting period. XIV. Integrity of the Company, Its Controlling Shareholder and Actual Controller □ Applicable √ Not applicable XV. Implementation of the Company's Equity Incentive Plan, Employee Stock Ownership Plan or Other Employee Incentive Measures √ Applicable □ Not applicable 1. On May 16, 2017, the Company's 2016 Annual General Meeting of Shareholders reviewed and approved the Zhejiang Dahua Technology Co., Ltd. Phase III Employee Stock Ownership Plan (Draft) and its summary, and decided to implement the Phase III Employee Stock Ownership Plan. On June 1, 2017, the Company's third employee stock ownership plan completed the stock purchase through the "DAHUA No. 3 Directional Asset Management Plan of Caitong Securities Asset Management", with an average purchase price of 16.83 yuan per share and total purchase amount of 47,000,000 shares. 2. On November 12, 2018, the Company's 18th meeting of the 6th Board of Directors reviewed and approved "the Suggestive Proposal on Extension of the Impending Expiration of the Company's Third Employee Stock Ownership Plan Duration". The Board of Directors agreed to extend the Company's third employee stock ownership plan for one year according to the voting results of the shareholders' meeting. That is, the duration was extended for one additional year on the basis of the original termination date, until May 15, 2020. 3. On August 28, 2018, the Company's 15th meeting of the 6th Board of Directors of the company reviewed and approved "the 61 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Restricted Stock Incentive Plan (Draft) of Zhejiang Dahua Technology Co., Ltd in 2018" and its summary, which intends to use the method of private placements to grant for the first time 109,574,100 restricted stocks at the price of 8.17 yuan per share to 3,423 employees, including part of the Company's directors, senior executives and other managers and key staff, and reserve 12,174,900 shares for reserved incentive objects at the same time. 4. On September 14, 2018, the Company's 4th interim shareholders' meeting in 2018 reviewed and approved "the Restricted Stock Incentive Plan (Draft) of Zhejiang Dahua Technology Co., Ltd in 2018" and its summary, authorizing the Board of Directors to handle relevant matters on the Company's stock incentive plan。 5. On November 1, 2018, the Company's 17th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Related Issues of Adjusting the Restricted Stock Incentive Plan of 2018" and the "Proposal on Granting Restricted Stocks to Incentive Targets". In view that some of the original incentive targets no longer met the incentive conditions due to dimission, and some of them waived the restricted stocks that the company intended to grant for personal reasons, the Board of Directors adjusted the number of incentive targets and the quantity of stocks to be granted. The number of incentive targets was adjusted from 3,423 to 3,237, and the total number of restricted stocks to be granted was adjusted from 121,749,000 shares to 117,468,100 shares. At the same time, the Board of Directors confirmed the granting conditions and concluded that the conditions had been reached and decided to grant restricted stocks to the incentive targets for the first time. The granting date was November 1, 2018. On November 29, 2018, the Company published the "Announcement on the Completion of Restricted Stocks Granting in 2018". In view that some of the original incentive targets no longer met the incentive conditions due to their dimission, and some of them waived the restricted stocks that the company intended to grant for personal reasons, the Company adjusted the number of incentive targets and the quantity of stocks to be granted. The number of incentive targets was adjusted from 3,237 to 3,145, and the total number of restricted stocks to grant was adjusted from 105,293,200 shares to 98,865,800 shares, and the quantity of 12,174,900 shares of reserved restricted stocks remained unchanged. The 98,865,800 shares that the Company has granted to 3,145 people for the first time through the restricted stock incentive plan in 2018 have been issued in Shenzhen Stock Exchange on November 30, 2018. 7. On December 27, 2018, the Company's 5th interim shareholders' meeting in 2018 reviewed and approved the "Proposal on Buy-back and Cancellation of Some Granted but Unlocked Restricted Stocks" and agreed to buy back and cancel restricted shares held by the incentive targets who have left the Company and one deceased personnel. The buy-back price was 8.17 yuan per share, the same as the granting price, and the registered capital was reduced accordingly. The above buy-back and cancellation was completed on March 4, 2019, and the modification procedures at the Bureau of Industry and Commerce are still in progress. XVI. Significant Related-party Transactions 1. Related transactions relevant to daily operations □ Applicable √ Not applicable No such case as significant related-party transactions connected with daily operations. 2. Related transactions in acquisition or sale of assets or equities □ Applicable √ Not applicable No such case as related-party transactions arising from the acquisition or sale of assets or equity. 3. Significant related-party transactions arising from joint investments on external parties √ Applicable □ Not applicable 62 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. For details, see "5. Other Significant Related-party Transactions" in this section. 4. Related-party creditor's rights and debts □ Applicable √ Not applicable No such case as significant related credits and debts during the reporting period. 5. Other major related transactions √ Applicable □ Not applicable 1. On January 25, 2018, the Company's 5th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Adjusting the Joint Investment Plan with Related Parties and Related Transactions (I)", which agreed to adjust the capital contribution to Zhejiang Huaan Technology Co., Ltd (tentative name) with the related legal person of Zhejiang Huashi Investment Management Co., Ltd, the related natural person of Wei Meizhong and 15 unrelated natural persons. After the adjustment, the Company will contribute RMB 25.5 million with its own funds, accounted for 51% of the registered capital. In March 2018, this company was established and the approved company name by the Bureau of Industry and Commerce was Zhejiang Huaxiao Technology Co., Ltd. 2. On January 25, 2018, the Company's 5th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Adjusting the Joint Investment Plan and Related Transactions with Related Parties (II)", which agreed to adjust the capital contribution to Zhejiang Huazhi Technology Co., Ltd (now renamed Zhejiang Dahua Robotics Technology Co., Ltd) with the related legal person of Zhejiang Huashi Investment Management Co., Ltd and the unrelated persons. After the adjustment, the Company invested 25.5 million yuan with its own funds, accounting for 51% of the registered capital; Huashi Investment contributed 24.5 million yuan in cash, accounting for 49% of the registered capital. In August 2018, this company was established. 3. On January 25, 2018, the Company's 5th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Waiving the Right of Proportional Capital Increase and Related Transactions with Joint Stock Companies", which agreed to waive the right of proportional capital increase of eight investors, including Ningbo Jinghang Equity Investment Partnership, Ningbo Gulin Equity Investment Partnership and Hangzhou Yixun Investment Management Partnership, to Zhejiang Leap Technology Co., Ltd, and the amount of related transactions for waiving the right of proportional capital increase was 41,483,000 yuan. The modification procedures at the Bureau of Industry and Commerce for the above matters were completed in March 2018. 4. On April 17, 2018, the Company's 8th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Capital Increase and Related Transactions with Holding Subsidiary Companies" that the Company and the related person, Mr. Fu Liquan, increased proportional capital contributions to the holding subsidiary of Hangzhou Huacheng Network Technology Co., Ltd. Among them, the Company increased capital by 20.4 million yuan with its own funds, and the Company's controlling shareholder, Fu Liquan, increased capital by 19.6 million yuan. After the capital increase, the registered capital of Huacheng Network will increase from 10 million yuan to 50 million yuan. The modification procedures at the Bureau of Industry and Commerce for the above matters were completed in April 2018. 5. On May 31, 2018, the Company's 11th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Accepting assignment of Part Equities of Subsidiary Companies and Waiving Priority of Assignment and Related Transactions", which agreed to: (1) Being assigned 6% of the equities of Huarui Technology held by the related legal person of Zhejiang Huashi Investment Management Co., Ltd and waiving the priority of assignment of 49% of equities of Huarui Technology transferred from the related legal person of Huashi Investment, the related natural person of Zhang Xingming and other related persons to the related legal person and core employees' business startup and investment shareholding platform of Ningbo Huayu Investment Management Partnership (hereinafter referred to as "Ningbo Huayu"); (2) Waiving the priority of assignment of 49% of equities of Zhejiang Huachuang Video Technology Co., Ltd transferred from the related legal person of Huashi Investment and other unrelated natural 63 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. persons to Ningbo Huayu; (3) Waiving the priority of assignment of 49% of equities of Zhejiang Dahua Security Networking Operation Service Co., Ltd which were intended to be transferred from the related legal person of Huashi Investment and the related natural person of Wu Jun and other unrelated persons to Ningbo Huayu. In July 2018, matters related with transferring the above three kinds of equities were all completed. 6. On May 31, 2018, the Company's 11th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Joint Investment and Related Transactions with Related Parties", which agreed to establish Wuxi Dahua Ruipin Technology Co., Ltd with joint contribution with the related legal person of Huashi Investment. Among them, the Company invested 25.5 million yuan with its own funds, accounting for 51% of the registered capital, while Huashi Investment invested 24.5 million yuan in cash, accounting for 49% of the registered capital. In June 2018, the company was established. 7. On June 21, 2018, the Company's 12th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Waiving the Priority of Assignment and Related Transactions", which agreed to waive the priority of assignment of 49% of equities of Hangzhou Huacheng Network Technology Co., Ltd transferred from the Company's controlling shareholder, Fu Liquan, to the related legal person and core employees' business startup and investment shareholding platform of Ningbo Huayu. In July 2018, matters regarding such equity transfer were completed. 8. On November 12, 2018, the Company's 18th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Waiving the Right of Proportional Capital Increase and Related Transactions in Shareholding Companies", which agreed to waive the right of proportional capital increase of seven investors, namely, Shanghai Electric, Industrial Securities Investment Management, Everfront Phoenix Mountain Ltd, Ningbo Sequoia Jiesheng Equity Investment Partnership (Limited Partnership), Ningbo Hualing Investment Management Partnership (Limited Partnership), Hangzhou Xintu Technology Co., Ltd and Chen Jinxia, to Zhejiang Leap Technology Co., Ltd. The amount of related transactions for waiving the right of proportional capital increase was 139,947,900 yuan. The modification procedures at the Bureau of Industry and Commerce for the above matters were completed in November 2018. Website for disclosing the interim report on significant related-party transactions Announcement Name Disclosure Date Website for the Disclosure Announcement on Adjusting the Joint Investment Plan and Related Transactions with Related Parties (I), Announcement on Adjusting the Joint Investment Plan and Related Transactions with Related 26 January 2018 http://www.cninfo.com.cn Parties (II), Announcement on Waiving the Right of Proportional Capital Increase and Related Transactions with Joint Stock Companies Announcement On Increasing Capital In Holding Subsidiaries And 18 April 2018 http://www.cninfo.com.cn Related-party Transactions Announcement on Accepting Assignment of Part Equities of Subsidiary Companies and Waiving the Priority of Assignment and June 01, 2018 http://www.cninfo.com.cn Related Transactions, Announcement on the Joint Investment with Related Persons and Related Transactions Announcement on Giving up the Priority to Accept Transfer and 22 June 2018 http://www.cninfo.com.cn Related-party Transactions Announcement On Giving Up The Shareholding Company's Right To Increase Capital With The Same Percentage And Related-party November 13, 2018 http://www.cninfo.com.cn Transactions 64 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. XVII. Significant Contracts and Performance 1. Matters on trusteeship, contracting, and leasehold (1) Matters on trusteeship □ Applicable √ Not applicable No such case as custody during the reporting period. (2) Contracting □ Applicable √ Not applicable No such case as contracting during the reporting period. (3) Leasing √ Applicable □ Not applicable Explanations on leases During the reporting period, some of the Company's own real estate properties were used for rental, and the leased real estate property was used for office, warehouse and production workshops. There were no other major real estate leasing. Cases that brought the profit and loss accounted for more than 10% of the Company's total profit during the reporting period □ Applicable √ Not applicable No such leases that brought the profit and loss accounted for more than 10% of the Company's total profit during the reporting period. 2. Significant guarantees √ Applicable □ Not applicable (1) Guarantees Unit: ten thousand RMB External Guarantees from the Company and its Subsidiaries (excluding guarantees to the subsidiaries) Announcement Guarantee date of Actual Due for Guaranteed Guarantee Actual occurrence Type of disclosure of guarantee Term of guarantee or related party amount date guarantee the guarantee amount not parties or cap not Company's guarantees to subsidiaries Announcement Guarantee Actual Due Guaranteed date of Guarantee Actual occurrence Type of for guarantee Term of guarantee or party disclosure of amount date guarantee related amount not the guarantee parties or 65 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. cap not Zhejiang Joint liability 2016.06.06-2020.03.30 No Yes 6/6/2016 10,000.00 Dahua guarantee August 21, System 50,000.00 Joint liability Two years after the No Yes 2018 Engineering 10/10/2017 6,000.00 guarantee maturity of the debts in Co., Ltd. the master contract Joint liability Two years after the Yes Yes 05/17/201705/18/2017 30,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the Yes Yes 5/23/2017 20,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the Yes Yes 7/9/2017 10,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the Yes Yes 7/21/2017 8,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the Yes Yes 11/24/2017 30,000.00 guarantee maturity of the debts in the master contract Zhejiang Joint liability Two years after the Yes Yes Dahua August 21, 11/28/2017 5,000.00 guarantee maturity of the debts in Vision 600,000.00 2018 the master contract Technology Joint liability Three years after the Yes Yes Co., Ltd. 11/30/2017 20,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the Yes Yes 11/30/2017 50,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the Yes Yes 12/4/2017 30,000.00 guarantee maturity of the debts in the master contract Joint liability 2016.06.06-2020.01.15 No Yes 6/6/2016 29,000.00 guarantee Joint liability Two years after the No Yes 8/10/2017 60,000.00 guarantee maturity of the debts in the master contract Joint liability Two years after the No Yes 10/13/2017 22,000.00 guarantee maturity of the debts in 66 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. the master contract Joint liability Two years after the No Yes 1/15/2018 11,000.00 guarantee maturity of the debts in the master contract Joint liability 2018.3.20-2021.3.19 No Yes 3/27/2018 50,000.00 guarantee Joint liability 2018.4.13-2020.4.12 No Yes 4/13/2018 24,000.00 guarantee Joint liability 2018.5.4-2019.4.16 No Yes 5/4/2018 30,000.00 guarantee Joint liability Three years after the No Yes 7/25/2018 10,000.00 guarantee maturity of the debts in the master contract Joint liability Three years after the No Yes 8/1/2018 20,000.00 guarantee maturity of the debts in the master contract Joint liability Three years after the No Yes 8/2/2018 2,000.00 guarantee maturity of the debts in the master contract Joint liability Three years after the No Yes 8/21/2018 10,000.00 guarantee maturity of the debts in the master contract Joint liability Three years after the No Yes 9/3/2018 10,000.00 guarantee maturity of the debts in the master contract 27,452.80 Joint liability Two years after the No Yes 9/21/2018 (40 million guarantee maturity of the debts in US dollars) the master contract Joint liability 2018.11.26-2020.11.26 No Yes 11/26/2018 22,000.00 guarantee Joint liability 2016.06.06-2020.06.30 No Yes 6/6/2016 20,000.00 Zhejiang guarantee Dahua August 21, Joint liability 2018.09.01-2020.09.01 No Yes 100,000.00 9/1/2018 50,000.00 Zhilian Co., 2018 guarantee Ltd. Joint liability 2018.10.12-2021.10.12 No Yes 10/12/2018 30,000.00 guarantee Dahua Joint liability Two years after the Yes Yes August 21, Technology 200,000.00 8/24/2017 20,000.00 guarantee maturity of the debts in 2018 (HK) the master contract 67 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Limited 34,316.00 Joint liability 2017.12.15-2020.12.15 No Yes 15 December 2017 (50 million guarantee US dollars) Joint liability Two years after the No Yes 4/9/2018 20,000.00 guarantee maturity of the debts in the master contract Guangxi Dahua August 21, Information 10,000.00 No such case during the reporting period 2018 Technology Co., Ltd. Dahua August 21, Technology 350.00 No such case during the reporting period 2018 USA Inc. DAHUA August 21, EUROPE 10,000.00 No such case during the reporting period 2018 B.V Dahua Technology August 21, 500.00 No such case during the reporting period Singapore 2018 Pte.Ltd. Dahua August 21, Technology 200.00 No such case during the reporting period 2018 UK Limited Dahua Technology August 21, 1,600.00 No such case during the reporting period Poland 2018 sp.zo.o. Dahua Technology August 21, 1,600.00 No such case during the reporting period Hungary 2018 Kft. Dahua Technology August 21, 3,500.00 No such case during the reporting period India Private 2018 Limited Dahua Technology August 21, Brasil 1,000.00 No such case during the reporting period 2018 Comercio Serv Em 68 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Seguranca Elertonica Ltda Dahua Italy August 21, 800.00 No such case during the reporting period s.r.l. 2018 Dahua Technology August 21, 350.00 No such case during the reporting period Middle East 2018 Fze Dahua technology August 21, 4,000.00 No such case during the reporting period mexico.s.a. 2018 De c.v. Dahua August 21, Technology 4,000.00 No such case during the reporting period 2018 Peru S.A.C. Dahua August 21, Technology 1,000.00 No such case during the reporting period 2018 Rus Ltd Dahua Technology August 21, 500.00 No such case during the reporting period Australia 2018 Pty Ltd Dahua Technology August 21, South Africa 500.00 No such case during the reporting period 2018 Proprietary Limited Dahua August 21, Technology 100.00 No such case during the reporting period 2018 Canada Inc. Dahua Guvenlik Teknolojileri August 21, Sanayi Ve 200.00 No such case during the reporting period 2018 Ticaret Anonim Sirketi Dahua August 21, Technology 300.00 No such case during the reporting period 2018 SRB d.o.o. 69 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Dahua Technology August 21, 100.00 No such case during the reporting period Bulgaria 2018 Eood Dahua August 21, Iberia 200.00 No such case during the reporting period 2018 S.L.(U.) Dahua Security August 21, 200.00 No such case during the reporting period Malaysia 2018 Sdn. Bhd Dahua Technology August 21, 200.00 No such case during the reporting period Kazakhstan 2018 LLP Pt. Dahua Vision August 21, 300.00 No such case during the reporting period Technology 2018 Indonesia Dahua Technology August 21, Korea 350.00 No such case during the reporting period 2018 Company Linited Dahua August 21, Technology 200.00 No such case during the reporting period 2018 S.R.L. Dahua August 21, technology 100.00 No such case during the reporting period 2018 France Sas LOREX August 21, 350.00 No such case during the reporting period Corporation 2018 "Dahua August 21, 100.00 No such case during the reporting period Vision" LLC 2018 Dahua Technology August 21, New 200.00 No such case during the reporting period 2018 Zealand Limited Total amount of guarantees Total amount of guarantees 992,800.00 316,452.80 to subsidiaries approved to subsidiaries actually 70 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. during the reporting period occurred during the (B1) reporting period (B2) Total amount of guarantees Total balance of guarantees to subsidiaries approved by actually paid to subsidiaries 992,800.00 497,768.80 the end of the reporting at the end of the reporting period (B3) period (B4) Subsidiaries' guarantees to subsidiaries Total amount of guarantees Total amount of guarantees approved during the actually occurred during the 992,800.00 316,452.80 reporting period reporting period (A1+B1+C1) (A2+B2+C2) Total amount of guarantees Total balance of guarantees approved by the end of the actually paid at the end of 992,800.00 497,768.80 reporting period the reporting period (A3+B3+C3) (A4+B4+C4) Total amount of actual guarantees (A4+B4+C4) as a percentage 39.45% of the Company's net assets Including: Balance of guarantees to the shareholders, actual controllers and their related parties (D) Balance of debt guarantees directly or indirectly offered to 481,768.80 guaranteed objects with asset-liability ratio exceeding 70% (E) Amount of the guarantees with the total volume exceeding 50% of the net assets (F) Total amount of the above three guarantees (D+E+F) 481,768.80 Notes on unexpired guarantees with guarantee responsibilities occurred or possible joint liabilities within the reporting period (if any) Notes on providing external guarantees in violation of specified procedures (if any) (2) Illegal external guarantees □ Applicable √ Not applicable No illegal external guarantees during the reporting period. 3. Entrusting Others to Manage Cash Assets (1) Entrusted Financing √ Applicable □ Not applicable 71 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Entrusted financing during the reporting period Unit: ten thousand RMB Overdue Outstanding Specific Type Funding Source Entrusted Amount Unexpired Balance Amount Bank financial products Equity Fund 3,900 Total 3,900 Specific matters on high-risk entrusted capital management with a large amount for a single item, or with low security, poor liquidity and no capital preservation guarantee. □ Applicable √ Not applicable Cases of entrusted financing expected to be unable to recover the principal or cases that may result in impairment □ Applicable √ Not applicable (2) Entrusted Loans □ Applicable √ Not applicable No such case as entrusted loan during the reporting period. 4. Other Significant Contracts □ Applicable √ Not applicable No such case as other significant contract during the reporting period. XVIII. Social Responsibilities 1. Fulfillment of Social Responsibilities The Company adheres to the core concept of "customer-centered and striver-oriented" and the values of "integrity, dedication, responsibility, innovation, cooperation and openness" to pursue economic benefits and protect shareholders' interests; Meanwhile the Company actively creates value for its employees and gets engaged in environmental protection and other public welfare endeavors to promote the harmonious integration between the Company, the society, interested parties and the environment. For details of the Company's social responsibility fulfillment during the reporting period, please refer to the "2018 Social Responsibility Report" published on www.cninfo.com.cn on the same day. 2. Social responsibility fulfillment regarding targeted poverty alleviation In the reporting year of the Company, there has been no targeted poverty alleviation activity, or follow-up targeted poverty alleviation plan. 3.Environmental Protection-related Matters Whether the listed company and its subsidiaries belong to the key pollutant discharging units announced by the environmental protection department No 72 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. The Company does not belong to the key pollutant discharging units announced by the environmental protection department. For details, please refer to Chapter 6 Going Green and Environmental Protection of 2018 Social Responsibility Report published on www.cninfo.com.cn on the same day. XIX. Explanations on Other Significant Matters √ Applicable □ Not applicable 1. On January 24, 2017, the Company's holding sub-subsidiary, Nanbei United Information Technology Co., Ltd. and its wholly-owned subsidiary, Zhejiang Dahua System Engineering Co., Ltd. signed a Cooperation Agreement on PPP Investment in Safe City Project of Shache County with the People's Government of Shache County in Kashgar, Xinjiang, which is just a framework agreement on the PPP project. The agreement stipulates that the service content is the pre-feasibility study of the project and the design of the project, etc. For the implementation of the specific project, it still needs to fulfill related decision-making and approval procedures, such as government procurement. On July 21, 2017, the Company received the Notification of Award issued by the project purchasing unit, which confirmed that the wholly-owned subsidiary Zhejiang Dahua System Engineering Co., Ltd. (the consortium leader), with the holding sub-subsidiary Nanbei United Information Technology Co., Ltd. (member of the consortium) is the winning bidder for the Safe City Construction Project (PPP) in Shache County. The winning bid amount of the project is RMB 4.31479 billion (the final amount is based on the signed contract), which is the total amount for construction and operation within 10-year project cooperation period. On August 4, 2017, the Company's 34th session of the 5th Board of Directors' meeting reviewed and approved the Proposal on Investing to Establish a PPP Project Company in Shache County, Xinjiang, and the Company submitted a bid based on the requirements for the Shache County City Construction Project (PPP), and the winning consortium jointly funded the establishment of the project company, with a registered capital of RMB 335,567,200. Among them, Zhejiang Dahua System Engineering Co., Ltd. contributed RMB 234,897,040, accounted for 70% of the total contribution; Nanbei United Information Technology Co., Ltd. contributed RMB 100,670,160, accounted for 30%. In August 2017, the project company was established and the name of the company approved by the industrial and commercial bureau was Xinjiang Dahua Xinzhi Information Technology Co., Ltd. On April 18, 2018, the project winning bidder received the request from the Public Security Bureau of Shache County to stop the implementation of the "Safe City Construction (PPP) Project of Shache County". Near a half of the construction progress in the project construction period has been completed, but no expenses for subsequent equipment replacement, operation and maintenance have been incurred. The actual investment in the construction period will be further accounted and confirmed with the government. The bid winner's project participation and construction is in compliance with the requirements of relevant laws and regulations of PPP, but there exists the risk that the project will not be able to proceed on and lead to the decrease of the Company's future certifiable income. The Company will actively cooperate with relevant government departments in their work, and timely perform the obligation of information disclosure in accordance with the subsequent progress of the project and the provisions in relevant laws and regulations and the Articles of Association. 2. On February 24, 2018, the Company disclosed the Announcement on Subsidiary's Release of External Guarantees. The Company's subsidiaries, System Engineering, Dahua Zhicheng and Yunnan International Trust Co., Ltd. signed the Pledge Contract on December 6, 2017. The System Engineering and Dahua Zhicheng as a pledger provided a pledge guarantee for the debt under the Trust Loan Contract signed between Guangxi Baixing Holdings Co., Ltd. as a debtor and Yunnan International Trust Co., Ltd. as a creditor (with the trust loan principal of RMB 0.23 billion). The collateral in this guarantee was System Engineering and Dahua Zhicheng's accounts receivable income rights. This guarantee responsibility was released on February 22, 2018. 3. On March 6, 2018, the Company's first interim shareholders' meeting in 2018 reviewed and approved the "Management Methods for Business Startup of Core Employees (Draft)" that the Company decided to implement the business investment plan for startup business by the Company's core employees. 4. On May 17, 2017, the Company's 31st session of the 5th Board of Director's meeting reviewed and approved the Proposal on 73 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Increasing Investment in Holding Subsidiaries, and it's agreed that the Company will increase its investment in Dahua Zhilian by RMB 610 million with its own funds. In this time of investment increase, China Development Bank Development Fund Co., Ltd. gives up the right to increase the investment in the same proportion. When the increment is accomplished, the registered capital of Dahua Zhilian will increase from RMB 500 million to 1.11 billion. The proportion of equities held by the Company will be 90.09%. Matters regarding capital increase were completed on June 26, 2018. On July 16, 2018, the Company's 13th meeting of the 6th Board of Directors reviewed and approved the "Proposal on the Construction of 'Dahua Western Smart Base and Dahua Western R&D Center" in Xi'an" which agreed that the company would invest about 800 million yuan in the project which covers an area of about 133.64 acres and mainly focuses on construction research and development, office space and supporting facilities, etc. The overall construction period of the project is about 42 months. XX. Significant Events of the Company's Subsidiaries □ Applicable √ Not applicable 74 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section VI Changes in Shares and Information about Shareholders I. Changes in Shares 1. Changes in shares Unit: share Before the Change Increase or Decrease in the Change (+, -) After the Change Shares converte Percenta Shares Bonus Percenta Number d from Others Subtotal Number ge newly issued shares ge capital reserves I. Shares with limited 1,196,864,751 41.29% 98,865,800 -126,267,771 -27,401,971 1,169,462,780 39.01% sales condition 3. Other domestic 1,196,864,751 41.29% 98,813,800 -126,267,771 -27,453,971 1,169,410,780 39.01% shares Shares held by domestic natural 1,196,864,751 41.29% 98,813,800 -126,267,771 -27,453,971 1,169,410,780 39.01% persons 4. Foreign shares 52,000 52,000 52,000 0.00% Shares held by foreign natural 52,000 52,000 52,000 0.00% persons II. Shares without 1,701,891,379 58.71% 126,267,771 126,267,771 1,828,159,150 60.99% restrictions 1. RMB ordinary 1,701,891,379 58.71% 126,267,771 126,267,771 1,828,159,150 60.99% shares III. Total 2,898,756,130 100.00% 98,865,800 98,865,800 2,997,621,930 100.00% Reasons for changes in shares √ Applicable □ Not applicable 1. At the beginning of each year, the number of shares locked by executives of the Company shall be reverified according to 75% of the total number of shares held by executives. 2. On November 30, 2018, the 98,865,800 shares of restricted stocks granted by the Company to 3,145 incentive targets in the form of private placements were publicly listed in Shenzhen Stock Exchange. Approval for changes in shares √ Applicable □ Not applicable 1. On September 14, 2018, the Company's 4th interim shareholders' meeting in 2018 reviewed and approved "Restricted Stock 75 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Incentive Plan of Zhejiang Dahua Technology Co., Ltd in 2018 (Draft)" and its summary which authorized the Board of Directors to handle relevant matters on the Company's stock incentive plan. 2. On November 1, 2018, the Company's 17th meeting of the 6th Board of Directors reviewed and approved the "Proposal on Adjusting Related Issues of the Restricted Stock Incentive Plan of 2018" and the "Proposal on Granting Restricted Stocks to Incentive Targets". In view that some of the original incentive targets no longer met the incentive conditions due to dimission, and some of them waived the restricted stocks that the company intended to grant for personal reasons, the Board of Directors adjusted the number of incentive targets and the quantity of stocks to be granted. The number of incentive targets was adjusted from 3,423 to 3,237, and the total number of restricted stocks to be granted was adjusted from 121,749,000 shares to 117,468,100 shares. At the same time, the Board of Directors confirmed the granting conditions and concluded that the conditions had been reached and decided to grant restricted stocks to the incentive targets for the first time. The granting date was November 1, 2018. 3. On November 29, 2018, the Company published the "Announcement on the Completion of Restricted Stock Granting in 2018". In view that some of the original incentive targets no longer met the incentive conditions due to their dimission, and some of them waived the restricted stocks that the company intended to grant for personal reasons, the Company adjusted the number of incentive targets and shares. The number of incentive targets was adjusted from 3,237 to 3,145, and the total number of restricted stocks to be granted in the first batch was adjusted from 105,293,200 shares to 98,865,800 shares, and the 12,174,900 shares of reserved restricted stocks remained unchanged. The 98,865,800 shares that the Company has granted to 3,145 people for the first time through the restricted stock incentive plan in 2018 have been issued in Shenzhen Stock Exchange on November 30, 2018. Transfer for changes in shares √ Applicable □ Not applicable On November 30, 2018, the first granted shares of the Company's restricted stocks incentive plan in 2018 went to public in Shenzhen Stock Exchange. The progress on share buy-back □ Applicable √ Not applicable The progress on reduction of re-purchase shares by means of centralized bidding □ Applicable √ Not applicable Effects of changes in shares on the basic earnings per share ("EPS"), diluted EPS, net assets per share, attributable to common shareholders of the Company, and other financial indexes over the last year and last period □ Applicable √ Not applicable Other contents that the Company considers necessary or are required by the securities regulatory authorities to disclose □ Applicable √ Not applicable 2. Changes in restricted stocks √ Applicable □ Not applicable Unit: share Number Of Number of Number of Number of Shares With Increased Shares with Name of Unlocked Shares Limited Sales Shares with Limited Sales Reasons for Limited Sharehold with Limited Sales Date of Unlocking Condition At Limited Sales Condition at the Sales er Condition in Current The Beginning Condition in End of the Period Of The Period Current Period Period Fu Liquan 919,748,180 77,786,195 0 841,961,985 According to the According to the 76 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. relevant provisions of relevant provisions of executives shares executives shares management management Per relevant Per relevant management management Wu Jun 54,267,937 2,264,773 0 52,003,164 regulations of equity regulations of equity incentives and senior incentives and senior managers' shares managers' shares According to the According to the Zhu relevant provisions of relevant provisions of 145,096,117 28,425,000 0 116,671,117 Jiangming executives shares executives shares management management Per relevant Per relevant management management Li Ke 0 0 2,015,000 2,015,000 regulations of equity regulations of equity incentives and senior incentives and senior managers' shares managers' shares According to the According to the Chen relevant provisions of relevant provisions of 71,262,376 17,815,266 53,447,110 Ailing executives shares executives shares management management Per relevant Per relevant management management Chen 1,181,963 0 260,000 1,441,963 regulations of equity regulations of equity Yuqing incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Wu Jian 999,250 0 280,251 1,279,501 regulations of equity regulations of equity incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Wei 1,078,351 0 156,649 1,235,000 regulations of equity regulations of equity Meizhong incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Wu 496,710 0 140,000 636,710 regulations of equity regulations of equity Yunlong incentives and senior incentives and senior managers' shares managers' shares 77 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Per relevant Per relevant management management Xu 0 0 530,000 530,000 regulations of equity regulations of equity Zhicheng incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Yan Gang 276,262 0 261,000 537,262 regulations of equity regulations of equity incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Ying Yong 999,250 0 420,187 1,419,437 regulations of equity regulations of equity incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Zhu 0 0 715,169 715,169 regulations of equity regulations of equity Jiantang incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Zhang Wei 140,625 0 740,000 880,625 regulations of equity regulations of equity incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Zhang 938,560 0 650,000 1,588,560 regulations of equity regulations of equity Xingming incentives and senior incentives and senior managers' shares managers' shares Per relevant Per relevant management management Zhao 0 0 740,000 740,000 regulations of equity regulations of equity Yuning incentives and senior incentives and senior managers' shares managers' shares Other Per regulations on Per regulations on incentive 0 0 92,075,800 92,075,800 equity incentives equity incentives targets Total 1,196,485,581 126,291,234 98,984,056 1,169,178,403 -- -- 78 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. II. Issuance and listing of securities 1. Securities (excluding preferred share) issued in reporting period √ Applicable □ Not applicable Name of the Issuance Price Number of Transaction Stock and Its Quantity of Issue Date (or Interest Listing Date Approved Listed Termination Derivative Issuance Rate) Transactions Date Securities Stocks DAHUA November 01, 2018 8.17 98,865,800 November 30, 2018 98,865,800 Description of the issuance of securities (not including preferred stocks) during the reporting period According to the "Restricted Stock Incentive Plan of Zhejiang Dahua Technology Co., Ltd in 2018(Draft)" and its summary, which has been reviewed and approved at the 4th interim shareholders' meeting of the Company in 2018, the "Proposal on Adjusting Related Issues of the Restricted Stock Incentive Plan of 2018" and the "Proposal on Granting Restricted Stocks to Incentive Targets" which have been reviewed and approved at the 17th meeting of the 6th Board of Directors. In November 2018, the Company granted 98,865,800 shares of restricted stocks to 3,145 incentive targets, with a subscription price of 8.17 yuan per share. These stocks were listed on Shenzhen Stock Exchange on November 30, 2018. 2. Explanation on changes in total number of the Company's shares & the structure of shareholders and the structure of assets and liabilities √ Applicable □ Not applicable In November 2018, the Company granted 98,865,800 shares of restricted stocks to 3,145 incentive targets. On November 30, 2018, the above restricted stocks were listed on Shenzhen Stock Exchange. The Company's general capital was changed from 2,898,756,130 shares to 2,997,621,930 shares. 3. Existing shares held by internal staff of the Company □ Applicable √ Not applicable III. Particulars about the shareholders and actual controller 1. Total number of shareholders and their shareholdings Unit: share Total number of Total Number of Total Number Total number of preferred common Preferred Shareholders Of Common shareholders (if any) (refer to shareholders at the (If Any) (Refer to Note Shareholders Note 8) with resumed voting 124,431 end of previous 114,076 8) Whose Voting Rights 0 0 At The End Of rights at the end of previous month before the have been Recovered at The Reporting month before the disclosure disclosure date of the End of the Reporting Period date of the annual report the annual report Period 79 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Shareholding list of shareholders with over 5% shares or top ten shareholders Number of Number of Number of Pledges or freezings Changes Shareholdi shares held at shares held shares held Name of Nature of in the ng the end of the with limited without Shareholder Shareholder reporting State Of Shares Number Percentage reporting sales limited sales period period conditions condition Domestic Fu Liquan Natural 37.13% 1,112,981,880 -9634100 841,961,985 271,019,895 Pledge 130,942,000 Person Domestic Zhu Jiangming Natural 5.19% 155,561,490 0 116,671,117 38,890,373 Pledge 24,154,000 Person Hong Kong Overseas Securities Clearing Legal 2.80% 84,036,071 52745799 0 84,036,071 Co. Ltd. Person Domestic Chen Ailing Natural 2.38% 71,262,813 0 53,447,110 17,815,703 Pledge 11,170,000 Person Domestic Wu Jun Natural 2.31% 69,250,886 8460000 52,003,164 17,247,722 Person Domestic China Securities Non-state-o 1.32% 39,611,241 4061284 0 39,611,241 Finance Co., Ltd. wned Legal Person Central Huijin Asset State-owned Management Co., Legal 1.05% 31,448,750 0 0 31,448,750 Ltd. Person Zhejiang Dahua Technology Co., Ltd. - Phase III Others 0.88% 26,247,928 -20752072 0 26,247,928 Employee Stock Ownership Plan Overseas GIC PRIVATE Legal 0.74% 22,308,251 16748237 0 22,308,251 LIMITED Person BOC - Core Growth Stock Type Security Investment Fund of Others 0.60% 17,844,249 729935 0 17,844,249 China International Fund Management 80 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Description of the association Mr. Fu Liquan And Ms. Chen Ailing Are Husband And Wife. The Company Is Unaware Of relationship or concerted action of Whether Other Shareholders Have Associated Relationship Or Are Persons Acting In Concert. above-mentioned shareholders Shareholding list of top ten shareholders without limited sales condition Number of shares held without limited sales condition at the end Type of shares Name of Shareholder of the reporting period Type of shares Number RMB common Fu Liquan 271,019,895 271,019,895 stock Hong Kong Securities Clearing RMB common 84,036,071 84,036,071 Co. Ltd. stock RMB common China Securities Finance Co., Ltd. 39,611,241 39,611,241 stock RMB common Zhu Jiangming 38,890,373 38,890,373 stock Central Huijin Asset Management RMB common 31,448,750 31,448,750 Co., Ltd. stock Zhejiang Dahua Technology Co., RMB common Ltd. - Phase III Employee Stock 26,247,928 26,247,928 stock Ownership Plan RMB common GIC PRIVATE LIMITED 22,308,251 22,308,251 stock BOC - Core Growth Stock Type Security Investment Fund of RMB common 17,844,249 17,844,249 China International Fund stock Management RMB common Chen Ailing 17,815,703 17,815,703 stock RMB common Wu Jun 17,247,722 17,247,722 stock Explanation on associated relationship or persons acting in concert among top ten Mr. Fu Liquan And Ms. Chen Ailing Are Husband And Wife. The Company Is Unaware Of shareholders without limited Whether Other Shareholders Have Associated Relationship Or Are Persons Acting In Concert. shares, and between top ten shareholders without limited shares and top ten shareholders Whether the Company's top ten common shareholders or top ten common shareholders without limited shares agree on any repurchase transaction in the reporting period □ Yes √ No None of the Company's top ten common shareholders or top ten common shareholders without limited shares agreed on repurchase in 81 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. the reporting period. 2. Particulars about the controlling shareholder Nature of the controlling shareholder: Natural person-owned Type of the controlling shareholder: Natural person Whether he/she has obtained the right of Name of the controlling shareholder Nationality residence in another country or region Fu Liquan China Yes In the recent five years, Mr. Fu Liquan has acted as the chairman Main occupation and title and president of the Company and is currently the chairman of the Company. Shares held in other listed companies by controlling or holding N/A in the reporting period Change of the controlling shareholders in the reporting period □ Applicable √ Not applicable No change has happened to the controlling shareholder in the reporting period of the Company 3. The actual controller of the Company and persons acting in concert Nature of the actual controller: Domestic natural person Type of the actual controller: Natural person Whether he/she has obtained the right Name of the actual controller Relationship with the actual controller Nationality of residence in another country or region Fu Liquan Himself China Yes Acting in concert (including agreement, Chen Ailing China Yes relatives, under same control) In the recent five years, Mr. Fu Liquan has acted as the chairman and president of Main occupation and title the Company and is currently the chairman of the Company; Ms. Chen Ailing is director of the Company. Information about other listed companies at home and abroad controlled in the last ten N/A years Change of the actual controller in the reporting period □ Applicable √ Not applicable No change has happened to the actual controller in the reporting period Block Digram for Property Right and Control Relationship between the Company and Actual Controllers 82 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. The actual controller controls the Company via trust or other ways of asset management □ Applicable √ Not applicable 4. Particulars about other corporate shareholders with shareholding proportion over 10% □ Applicable √ Not applicable 5. Particulars on share reduction restricted for controlling shareholders, actual controller, restructuring party or other commitment entities □ Applicable √ Not applicable 83 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section VII Information of Preferred Shares □ Applicable √ Not applicable There are no preferred shares in the reporting period. 84 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section VIII Information about Directors, Supervisors, Senior Management and Employees I. Shareholding Changes of Directors, Supervisors and Senior Management Number Number of Number of of Shares Number of Positio Starting Terminatio Shares Held at Shares Other Decrease Shares Held at Name Post n Gender Age Date of n Date of the Beginning of Increased in Changes d in the the End of the Status Tenure Tenure the Period the period (share) Period Period (share) (share) (share) Chairma Incum April 01, August 23, Fu Liquan Male 52 1,122,615,980 9,634,100 0 1,112,981,880 n bent 2005 2020 Vice Chairma Incum April 01, August 23, Wu Jun Male 47 60,790,886 8,200,000 260,000 69,250,886 n, Vice bent 2005 2020 President Director, Incum May 03, August 23, Li Ke Male 47 0 1,620,000 800,000 2,420,000 President bent 2017 2020 Director, Zhu Executiv Incum April 01, August 23, Male 52 155,561,490 0 155,561,490 Jiangming e Vice bent 2005 2020 President Chen Incum April 01, August 23, Director Female 52 71,262,813 0 71,262,813 Ailing bent 2005 2020 Independ Incum January August 23, He Chao ent Male 60 0 0 0 bent 07, 2014 2020 Director Independ Wang Incum January August 23, ent Female 54 0 0 0 Zexia bent 07, 2014 2020 Director Independ Huang Incum May 22, August 23, ent Female 41 0 0 0 Siying bent 2017 2020 Director Song Supervis Incum April 03, August 23, Female 37 0 0 0 Maoyuan or bent 2008 2020 Song Ke Supervis Incum Male 41 August August 23, 0 0 0 85 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. or bent 07, 2015 2020 Zuo Supervis Incum April 03, August 23, Female 41 0 0 0 Pengfei or bent 2008 2020 Chen Vice Incum May 20, August 23, Male 45 1,575,951 260,000 1,835,951 Yuqing President bent 2010 2020 Secretary of the Decemb Incum August 23, Wu Jian Board, Male 45 er 01, 999,335 530,000 1,529,335 bent 2020 Vice 2005 President CFO, Novemb Wei Incum August 23, Vice Male 48 er 01, 1,300,000 50,000 260,000 1,510,000 Meizhong bent 2020 President 2007 Wu Vice Incum May 20, August 23, Male 63 502,280 260,000 762,280 Yunlong President bent 2010 2020 22 Xu Vice Incum August 23, Male 53 March 0 530,000 530,000 Zhicheng President bent 2020 2018 Decemb Vice Incum May 20, Yan Gang Male 50 er 06, 276,349 330,000 606,349 President bent 2010 2012 Ying Vice Incum May 20, August 23, Male 50 999,250 670,000 1,669,250 Yong President bent 2010 2020 22 Zhu Vice Incum August 23, Male 37 March 60,225 670,000 730,225 Jiantang President bent 2020 2018 Decemb Zhang Vice Incum August 23, Male 48 er 06, 187,500 740,000 927,500 Wei President bent 2020 2012 Zhang Vice Incum May 20, August 23, Male 42 1,131,413 190,000 740,000 1,681,413 Xingming President bent 2010 2020 22 Zhao Vice Incum August 23, Male 42 March 0 740,000 740,000 Yuning President bent 2020 2018 Shen Vice Resign May 20, 01/25/201 Male 58 379,170 150,000 529,170 Huiliang President ed 2010 8 Total -- -- -- -- -- -- 1,417,642,642 9,820,000 9,874,100 6,940,000 1,424,528,542 86 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. II. Changes of Directors, Supervisors and Senior Management √ Applicable □ Not applicable Name Title Type Date Causes Appointment Xu Zhicheng Vice President 22 March 2018 Appointed As Vice President and dismissal Appointment Zhao Yuning Vice President 22 March 2018 Appointed As Vice President and dismissal Appointment Zhu Jiantang Vice President 22 March 2018 Appointed As Vice President and dismissal Resigned voluntarily as vice president but still undertook Shen Huiliang Vice President Resigned 25 January 2018 work in management of the Company III. Positions Professional backgrounds, major work experiences and current main responsibilities in the Company for incumbent directors, supervisors and senior management of the Company Mr. Fu Liquan, Chinese nationality, has the right of permanent residence in Cyprus, was born in 1967, and holds master degree in Business Administration of Zhejiang University. As one of the main founders of the Company, he served as chairman and president of the Company. In 2018, his employment was renewed by China Security Association as an expert of the Expert Committee of China Security & Protection Industry Association. He is currently the chairman of the Company and director of China Information Technology Industry Federation. He has won the honors of Advanced Individual in Scientific Research and Standardization of Zhejiang Security Technology Protection Industry, Outstanding Figure Award of China Security - Tribute to the 40 Years Anniversary of Reform and Opening Up, Top Ten Influential Zhejiang Entrepreneurs, Model Worker of Hangzhou, One of the 40 Figures of Industry Innovative Development of Zhejiang for the 40 years Anniversary of Reform and Opening Up, Excellent Enterprise Operator with Outstanding Contributions to the Information Economy, Excellent Constructer of Socialism with Chinese Characteristics in the New Era of Non-Public Economy in Zhejiang Province, Outstanding Contributions Award in "Ingenuity for a Safe China", Global Security Contribution Award, Top Ten Figures in Security and Protection Industry, and the Best CEO of listed companies of Forbes, etc. He is the controlling shareholder and actual controller of the Company. Mr. Wu Jun, Chinese nationality, born in 1972, with a bachelor's degree, engineer, served as vice chairman and vice president of the Company and general manager of Zhejiang Dahua System Engineering Co., Ltd. in the recent five years. He now serves as vice chairman and vice president of the Company and executive director of Zhejiang Dahua System Engineering Co., Ltd. Mr. Li Ke, Chinese nationality, born in 1972, with degree of master degree in engineering of University of Electronic Science and Technology of China, served as R&D engineer, general manager for product solution department, marketing vice president, and regional president of Huawei Technologies Co., Ltd. from June 1996 to January 2017, and now serves as director and president of the Company. Mr. Zhu Jiangming, Chinese nationality, born in 1967, has the right of permanent residence in Cyprus, holds bachelor degree and works as an engineer. As one of the main founders of the Company, he served as vice chairman of the Company and business operations director and general manager of Hangzhou Motorola Technologies Co., Ltd., and now serves as director and executive vice president of the Company, executive director of Zhejiang Huatu Microchip Technology Co., Ltd. and chairman of Zhejiang Leap Technology Co., Ltd. He was awarded the title of advanced technology worker in Hangzhou in 2003-2004, and employed as "Zhejiang Provincial Security Technology Protection Industry Expert" by Zhejiang Provincial Security Technology Protection Industry Association in 2006. 87 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Ms. Chen Ailing, Chinese nationality, born in 1967, has the right of permanent residence in Cyprus, and holds bachelor degree. As one of the main founders of the Company, she served as director and CFO of the Company, and now serves as director of the Company. She is the spouse of Mr. Fu Liquan, the controlling shareholder and actual controller of the Company. Mr. He Chao, Chinese nationality, born in 1959, holds postgraduate degree. He once served as President of Sir Run Run Shaw Hospital of School of Medicine in Zhejiang University, its Secretary of the Party Committee and Vice President. He is currently a professor and doctoral supervisor of Zhejiang University, Senior Vice President of Guahao (Hangzhou) Technology Co., Ltd, and independent director of the Company. He was awarded "Outstanding Professor of American TCM Association" in 2010, was listed into "Young and Middle-Aged Outstanding Contribution Experts of Zhejiang Province" in 2011 by Zhejiang Provincial People's Government, and won special allowance of the State Council in 2015. Ms. Wang Zexia, Chinese nationality, born in 1965, holds doctoral degree and now works as a professor. She once served as head of the accounting department of Hangzhou Dianzi University, vice-president and president of the School of Finance and Economics, president of the School of Accounting. She is currently part-time director of Accounting Society of China, vice director of the Auditing Professional Committee, president of the Higher Education Branch of Accounting Society of China, vice chairman of the Accounting Society of Zhejiang Province, Executive Director of the Zhejiang Auditing Society, Independent Director of Zhejiang Weiming Environmental Protection Co., Ltd, Zhejiang Kaier New Materials Co., Ltd, and Independent Director of the Company. Ms. Wong Sze Wing, Hong Kong of China, born in 1978, obtained the degree of MBA from Hong Kong University and degree of EMBA (Executive Master of Business Administration) from China Europe International Business School. She is the certified public accountant and senior member of Hong Kong Institute of Certified Public Accountants. She has been serving as the Chief Financial Officer of Yingde Gases Group Co., Ltd since July, 2010. She once served as vice Chief Financial Officer of Yingde Gases Group Co., Ltd and Secretary of Joint Company, Chief Financial Officer of Chengtian Entertainment Group (International) Holdings Limited and Aihui Music Video Production (China) Co., Ltd., Manager of PricewaterhouseCoopers Ltd; She Currently serves as independent director of Chengtian Jiahe Entertainment Group (International) Holdings Limited, Rich Healthcare Holdings Co., Ltd, Wangsu Science and Technology Co., Ltd and Jiangxi Ganfeng Lithium Industry Co., Ltd, and independent director of the Company. Ms. Song Maoyuan, Chinese nationality, was born in 1982and graduated from university. She has served as supervisor and secretary to president of the Company in the recent five years. She now serves as chairman of the Board of Supervisors and secretary to president of the Company. Mr. Song Ke, Chinese nationality, born in 1978, holds a master degree, served as manager of IT Department of Hangzhou H3C Co., Ltd. He now serves as supervisor and general manager of IT Center of the Company. Ms. Zuo Pengfei, Chinese nationality, born in 1978, holds a bachelor degree, has served as supervisor and chairman of the labor union of the Company, and assistant to general manager of Zhejiang Dahua Zhiwang Technology Co., Ltd. In the recent five years. She is currently the supervisor of the Company, the chairman of the labor union, the director of human resources employee relations, and the supervisor of Hangzhou Xiaohua Technology Co., Ltd. Mr. Wu Jian, Chinese nationality, born in 1978, holds master degree, served as secretary of the Board of Directors and vice president of the Company in the recent five years, and now serves as secretary of the Board of Directors and vice president of the Company, member of China Software Industry Association and vice chairman of Zhejiang Software Industry Association. Mr. Wei Meizhong, Chinese nationality, born in 1971, holds MBA degree of Central South University, is an International Certified Internal Auditor, Certified Tax Agent, Certified Public Valuer and Certified Public Accountant. He has served as CFO and vice president of the Company in the recent five years and now serves as CFO and vice president of the Company. Mr. Chen Yuqing, Chinese nationality, born in 1974, with MBA degree, engineer, has served as vice president and general manager of Overseas Marketing Center of the Company in the recent five years. He is currently the vice president of the Company and the general manager of Zhejiang Dahua Technology Co., Ltd. Mr. Wu Yunlong, Chinese nationality, born in 1956, has obtained bachelor degree from Xiamen University and EMBA degree from Zhongnan University of Economics and Law, and he is a professor-level senior engineer. He is appointed by China Security Association as an expert of the Expert Committee of China Security and Protection Industry Association; He serves as vice 88 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. secretary-general of Zhejiang Security Technology Protection Industry Association and director of its Expert Committee, Executive Director of China Security Association, Vice President and Expert of Zhejiang Security Association, Director of the Security and Technical Defense Committee, Vice President of Hangzhou Security Association and Distinguished Professor of Zhejiang Police Officer Vocational College. He has served as vice president of the Company and general manager of Zhejiang Dahua Security Connected Operation Services Co., Ltd. in the recent five years. He now serves as vice president of the Company and general manager of Zhejiang Dahua Security Connected Operation Services Co., Ltd. Mr. Xu Zhicheng, Chinese nationality, was born in 1966. From September 2013 to June 2015, he has successively served as deputy general manager of marketing, general manager and supervisor of the Company. Since June 2015, he has been the general manager of the Company's Internal Audit Department. He is currently the vice president of the Company and the general manager of the Internal Audit Department. Mr. Yan Gang, Chinese nationality, born in 1969, with master degree, has served as vice president, general manager of Quality and Customer Service Department and general manager of Production Guarantee Department of the Company in the recent five years. He now serves as vice president and general manager of Quality and Customer Service Center of the Company. Mr. Ying Yong, Chinese nationality, born in 1969, with MBA degree, has served as vice president, general manager of Domestic Marketing Center and general manager of Human Resources Department of the Company in the recent five years, and now serves as vice president and general manager of Human Resources Department of the Company. Mr. Zhu Jiantang, Chinese nationality, was born in 1982 and graduated from college with the bachelor degree. From March 2012 to January 2015, he has successively served as Product Director of R&D and Deputy General Manager of R&D Center. Since January 2015, he has been the general manager of the Company's Supply Chain Management Center. He is currently the vice president of the Company and the general manager of the Supply Chain Management Center. Mr. Zhang Wei, Chinese nationality, born in 1971, served as president of Monitoring Product Department of Wuhan Jinglun Electronics Co., Ltd., product and marketing director of BOCOM Security (China) Co., Ltd., product director of Vimicro, general manager of Internet of Things Application Business Unit of Vimicro, and supervisor of the Fourth Board of Supervisors of Zhejiang Dahua Technology Co., Ltd. He is currently the vice president of the Company. Mr. Zhang Xingming, Chinese nationality, born in 1977, holds master degree, has served as vice president and general manager of R&D Center of the Company in the recent five years. He is currently the vice president of the Company and the general manager of the R&D center and the general manager of Zhejiang Huatu Microchip Technology Co., Ltd. Mr. Zhao Yuning, Chinese nationality, was born in 1977 and graduated from National University of Singapore with a master degree in science. From July 2000 to June 2017, he has successively served as technical engineer, regional sales manager, national general manager, vice president and president of regional sales department of Huawei Technologies Co., Ltd. He now serves as vice president of the Company and general manager of overseas marketing center Position held in shareholders entities □ Applicable √ Not applicable Position held in other entities √ Applicable □ Not applicable Position Held in Other Renumeration Received from Name Name of Other Entity Entities Other Entity or Not Fu Liquan Zhejiang Dahua Vision Technology Co., Ltd. Executive Director No Fu Liquan Zhejiang Dahua Security Service Co., Ltd. Director No Fu Liquan Hangzhou Huacheng Network Technology Co., Ltd. Chairman No Executive Director and Fu Liquan Zhejiang Dahua Investment Management Co., Ltd. No General Manager 89 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Fu Liquan Leapmotor Automobile Co., Ltd. Director No Fu Liquan Xinjiang Dahua Xinzhi Information Technology Co., Ltd. Chairman No Inner Mongolia Dahua Zhimeng Information Technology Fu Liquan Chairman No Co., Ltd. Fu Liquan Zhejiang Huafei Intelligent Technology CO., LTD. Chairman No Fu Liquan Hangzhou Xiaohua Technology CO., LTD. Executive Director No Fu Liquan Guangxi Dahua Zhicheng Co., Ltd. Chairman No Fu Liquan Guizhou Huayi Shixin Technology Co., Ltd. Director No Fu Liquan Xinjiang Dahua Huayue Information Technology Co., Ltd. Chairman No Fu Liquan Zhejiang Huashi Investment Management Co., Ltd. Executive Director No Fu Liquan Xinjiang Dahua Zhixin Information Technology Co., Ltd. Chairman No Fu Liquan Zhejiang Leapmotor Technology Co., Ltd. Director No Executive Director and Fu Liquan Zhejiang Dahua Zhilian Co., Ltd. Yes General Manager Fu Liquan Zhejiang HuaRay Technology Co., Ltd. Chairman No Fu Liquan Xinjiang Dahua Zhihe Information Technology Co., Ltd. Chairman No Fu Liquan Xinjiang Dahua Information Technology Co., Ltd. Executive Director No Fu Liquan Guangxi Huacheng Technology Co., Ltd. Chairman No Fu Liquan Zhejiang Huachuang Vision Technology Co., Ltd. Chairman No Fu Liquan Guizhou Meitan Dahua Information Technology Co., Ltd. Executive Director No Zhejiang Dahua Security Network Operation Service Co., Fu Liquan Chairman No Ltd. Ningbo Huayang Investment Management Partnership Fu Liquan Executive Partner No Enterprise (Limited Partnership) Hangzhou Gulin Equity Investment Partnership (limited Fu Liquan Executive Partner No partnership) Ningbo Huaqi Investment Management Partnership Fu Liquan Executive Partner No (Limited Partnership) Fu Liquan Zhejiang Dahua Robot Technology Co., Ltd. Executive Director No Fu Liquan Wuxi Dahua Ruipin Technology Co., Ltd. Director No Executive Director and Fu Liquan Hangzhou Huajuan Technology Co., Ltd. No General Manager Fu Liquan Xinjiang Dahua Intelligence Technology Co., Ltd. Supervisor No Beijing Huayue Shangcheng Information Technology Fu Liquan Executive Director No Service Co., Ltd. Fu Liquan Shanghai Huashang Chengyue Information Technology Executive Director No 90 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Service Co., Ltd. Fu Liquan Zhejiang Fengshi Technology Co., Ltd. Executive Director No Fu Liquan Xi'an Dahua Zhilian Technology Co., Ltd. Executive Director No Wu Jun Guangdong Dahua Zhishi Technology Co., Ltd. Director No Wu Jun Zhejiang Dahua System Engineering Co., Ltd. Executive Director Yes Wu Jun Hangzhou Yuneng Technology Co., Ltd. Executive Director No Wu Jun Zhejiang Dahua Security Service Co., Ltd. Director No Ningbo Huakun Investment Management Partnership Wu Jun Executive Partner No (Limited Partnership) Li Ke Leapmotor Automobile Co., Ltd. Director No Li Ke Zhejiang Leapmotor Technology Co., Ltd. Director No Li Ke Zhejiang Huaxiao Technology Co., Ltd. Executive Director No Zhejiang Dahua Security Network Operation Service Co., Li Ke Director No Ltd. Li Ke Hangzhou Huacheng Network Technology Co., Ltd. Director No Li Ke Zhejiang Huachuang Vision Technology Co., Ltd. Director No Li Ke Wuxi Dahua Ruipin Technology Co., Ltd. Director No Li Ke Zhejiang HuaRay Technology Co., Ltd. Director No Li Ke Xi'an Dahua Zhilian Technology Co., Ltd. Manager No Zhu Zhejiang Dahua Vision Technology Co., Ltd. Supervisor No Jiangming Zhu Zhejiang Dahua Security Service Co., Ltd. Director No Jiangming Zhu Executive Director and Hangzhou Xintu Technology Co., Ltd. No Jiangming General Manager Zhu South North United Information Technology Co., Ltd. Director No Jiangming Zhu Zhejiang Huatu Microchip Technology Co., Ltd. Executive Director No Jiangming Zhu Zhejiang Lancable Technology Co., Ltd. Chairman No Jiangming Zhu Leapmotor Automobile Co., Ltd. Chairman No Jiangming Zhu Zhejiang Huafei Intelligent Technology CO., LTD. Director No Jiangming Zhu Hangzhou Menghao Investment Management Partnership Executive Partner No Jiangming (Limited Partnership) 91 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Zhu Hangzhou Xunwei Robotics Technology Co., Ltd. Director No Jiangming Zhu Zhejiang Leapmotor Technology Co., Ltd. Chairman No Jiangming Zhu Ningbo Jinghang Equity Investment Partnership (Limited Executive Partner No Jiangming Partnership) Chen Zhejiang Lancable Technology Co., Ltd. Director No Ailing Chen Zhejiang Huashi Investment Management Co., Ltd. General Manager No Ailing Chen Zhejiang Huanuokang Technology Co., Ltd. Executive Director No Ailing Chen Ningbo Huali Investment Management Partnership Executive Partner No Ailing (Limited Partnership) Chen Ningbo Huayan Investment Management Partnership Executive Partner No Ailing (Limited Partnership) Chen Ningbo Huadi Investment Management Partnership Executive Partner No Ailing (Limited Partnership) Chen Ningbo Huaqian Investment Management Partnership Executive Partner No Ailing (Limited Partnership) Chen Ningbo Hualing Investment Management Partnership Executive Partner No Ailing (Limited Partnership) He Chao Guahao (Hangzhou) Technology Co., Ltd. Senior Vice President Yes He Chao WeDoctor (Hainan) Health Industry Development Co., Ltd. Supervisor No Shanghai Rensheng Medical Cosmetology Outpatient Co., He Chao Chairman No Ltd. He Chao Hangzhou Xiaoshan Weiyi Outpatient Co., Ltd. Director No He Chao Beijing Weyi General Clinic Co., Ltd. Director No He Chao Lingkang Pharmaceutical Group Co., Ltd. Independent Director Yes Wang Chairman and General Hangzhou Mingze Cloud Software Co., Ltd. No Zexia Manager Wang Zhejiang Weiming Environment Co., Ltd. Independent Director Yes Zexia Wang Zhejiang Kaier New Materials Co., Ltd. Independent Director Yes Zexia Huang Wangsu Technology Co., Ltd. Independent Director Yes Siying Huang Orange Sky Golden Harvest Entertainment (Holdings) Independent Director Yes 92 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Siying Limited Huang Rich Healthcare Holdings Limited Independent Director Yes Siying Huang Jiangxi Ganfeng Lithium Co., Ltd. Independent Director Yes Siying Huang Yingde Gases Group Company Limited CFO No Siying Huang Yingde Investment (Shanghai) Co., Ltd. Supervisor Yes Siying Song Chairman of the Board of China Standard Intelligent Security Technology Co., Ltd. No Maoyuan Supervisors Song Zhejiang Dahua System Engineering Co., Ltd. Supervisor No Maoyuan Song Guangdong Dahua Zhishi Technology Co., Ltd. Supervisor No Maoyuan Song Zhejiang Dahua Investment Management Co., Ltd. Supervisor No Maoyuan Song Guizhou Huayi Shixin Technology Co., Ltd. Supervisor No Maoyuan Song Hangzhou Maycur Technology Co., Ltd. Supervisor No Maoyuan Song Hangzhou Huajuan Technology Co., Ltd. Supervisor No Maoyuan Song Xi'an Dahua Zhilian Technology Co., Ltd. Supervisor No Maoyuan Zuo Hangzhou Xiaohua Technology CO., LTD. Supervisor No Pengfei Chen Zhejiang Dahua Vision Technology Co., Ltd. General Manager No Yuqing Wei Cein Biological Technology (Beijing) Co., Ltd. Director No Meizhong Wei South North United Information Technology Co., Ltd. Chairman No Meizhong Wei Shenzhen Conwin Security Electronics CO., Ltd. Director No Meizhong Wei Hangzhou Qianhudao Meixin Investment Management Executive Director and No Meizhong Co., Ltd. General Manager Wei Hangzhou Wanpuhua Internet Financial Services Co., Ltd. Director No Meizhong 93 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Wei Hangzhou Weixing Enterprise Management and Consulting Executive Director and No Meizhong Co., Ltd. General Manager Wei Hangzhou Tecomore Technology Co., Ltd. Executive Director No Meizhong Wei Zhejiang Dahua Ju'an Technology Co., Ltd. Executive Director No Meizhong Wei China Standard Intelligent Security Technology Co., Ltd. Vice Chairman No Meizhong Wei Hangzhou Thermal Power Group Co., Ltd. Director No Meizhong Wei Sunyard System Engineering Co., Ltd. Independent Director Yes Meizhong Wei Hangzhou Hexing Electrical Co., Ltd. Independent Director Yes Meizhong Wei Shanghai Yanhua Intelligent Technology (Group) Co., Ltd. Independent Director Yes Meizhong Wu Shaoxing Dahua Security Services Co., Ltd. Director No Yunlong Wu Zhejiang Dahua Security Service Co., Ltd. Chairman No Yunlong Wu Zhoushan Dahua Technology Co., Ltd. Director No Yunlong Wu Lishui Dahua Intelligent Technology Co., Ltd. Director No Yunlong Wu Taizhou Dahua Security Services Co., Ltd. Director No Yunlong Wu Ningbo Dahua Anbang Security Services Co., Ltd. Director No Yunlong Wu Wenzhou Dahua Security Services Co., Ltd. Director No Yunlong Wu Zhejiang Dahua Security Network Operation Service Co., General Manager No Yunlong Ltd. Xu Hangzhou Fuyang Hua'ao Technology Co., Ltd. Chairman No Zhicheng Zhejiang Dahua Security Network Operation Service Co., Ying Yong Director No Ltd. Ying Yong Hangzhou Huacheng Network Technology Co., Ltd. Director No Ying Yong Zhejiang Huachuang Vision Technology Co., Ltd. Director No 94 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Ying Yong Zhejiang HuaRay Technology Co., Ltd. Director No Zhang Wei Guizhou Huayi Shixin Technology Co., Ltd. Director No Zhang Wei China Standard Intelligent Security Technology Co., Ltd. Director No Zhang Wei Guizhou Dahua Intelligence Technology Co., Ltd. Executive Director No Zhang Wei Guangzhou Zhizhen Business Service Co., Ltd. Supervisor No Zhang Zhejiang Huatu Microchip Technology Co., Ltd. General Manager No Xingming Zhang Hangzhou Jingbo Equity Investment Partnership (Limited Executive Partner No Xingming Partnership) Positions held in N/A other companies Incumbent or outgoing directors, supervisors and senior management in the reporting period that have been imposed administrative penalties by CSRC in the last three years □ Applicable √ Not applicable IV. Remuneration of Directors, Supervisors and Senior Management The following describes the decision-making program, determination basis and actual payment of remuneration for directors, supervisors and senior management. Top management of the Company shall be evaluated by the performance commitments of senior management and the department managers and those above shall be evaluated by their work report at the end of the year. The managers have made business goal responsibility system in their term of office, and set up the evaluation approach combining KPI index commitments at the level of the Company and individual performance commitments. They have achieved qualified evaluation indices, meaning that they can complete their respective tasks in the latest term of office. The Company will increase their remuneration or adopt other incentive measures, as appropriate, based on their completion of goals. Remuneration of directors, supervisors and senior management in the reporting period of the Company Unit: ten thousand RMB Whether to Receive Gend Position Total Remuneration from the Name Post Age Remuneration From Related er Status Company before Tax Parties or Not Fu Chairman Male 52 Incumbent 88.51 No Liquan Vice Chairman, Vice Wu Jun Male 47 Incumbent 94.76 No President Li Ke Director, President Male 47 Incumbent 190.64 No Zhu Director, Executive Vice Jiangmi Male 52 Incumbent 88.51 No President ng 95 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Chen Femal Director 52 Incumbent 0 No Ailing e He Chao Independent Director Male 60 Incumbent 20 No Wang Femal Independent Director 54 Incumbent 20 No Zexia e Huang Femal Independent Director 41 Incumbent 20 No Siying e Song Femal Maoyua Supervisor 37 Incumbent 42.54 No e n Song Ke Supervisor Male 41 Incumbent 108.06 No Zuo Femal Supervisor 41 Incumbent 49.83 No Pengfei e Secretary of the Board, Wu Jian Male 45 Incumbent 127.91 No Vice President Wei Meizhon CFO, Vice President Male 48 Incumbent 107.91 No g Chen Vice President Male 45 Incumbent 157.91 No Yuqing Wu Vice President Male 63 Incumbent 90.41 No Yunlong Xu Zhichen Vice President Male 53 Incumbent 127.91 No g Yan Vice President Male 50 Incumbent 107.88 No Gang Ying Vice President Male 50 Incumbent 128.03 No Yong Zhu Vice President Male 37 Incumbent 127.88 No Jiantang Zhang Vice President Male 48 Incumbent 160.23 No Wei Zhang Xingmin Vice President Male 42 Incumbent 157.96 No g Zhao Vice President Male 42 Incumbent 160.64 No Yuning Shen Vice President Male 58 Resigned 91.77 No 96 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Huiliang Total -- -- -- -- 2,269.29 -- Share incentives for the Company's directors, supervisors and senior executives in the reporting period √ Applicable □ Not applicable Unit: share The exercise Number of Market Number of The Number of Number of price of restricted Number of price at the restricted granting vesting vested the vested Number of stocks restricted end of the stocks held price of shares shares shares unlocked newly stocks held Name Post reporting at the restricted during the during the during the shares in granted at the end period beginning stocks reporting reporting reporting this period during the of the (yuan/shar of the (yuan/shar period period period reporting period e) period e) (yuan/shar period e) Director, Li Ke 0 0 0 11.46 0 0 800,000 8.17 800,000 President Vice Chairman, Wu Jun 0 0 0 11.46 0 0 260,000 8.17 260,000 Vice President Secretary of the Board, Wu Jian 0 0 0 11.46 0 0 530,000 8.17 530,000 Vice President Wei CFO, Vice Meizhon 0 0 0 11.46 0 0 260,000 8.17 260,000 President g Chen Vice 0 0 0 11.46 0 0 260,000 8.17 260,000 Yuqing President Wu Vice 0 0 0 11.46 0 0 260,000 8.17 260,000 Yunlong President Xu Vice Zhichen 0 0 0 11.46 0 0 530,000 8.17 530,000 President g Yan Vice 0 0 0 11.46 0 0 330,000 8.17 330,000 Gang President Ying Vice 0 0 0 11.46 0 0 670,000 8.17 670,000 Yong President Zhang Vice 0 0 0 11.46 0 0 740,000 8.17 740,000 97 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Wei President Zhang Vice Xingmin 0 0 0 11.46 0 0 740,000 8.17 740,000 President g Zhao Vice 0 0 0 11.46 0 0 740,000 8.17 740,000 Yuning President Zhu Vice 0 0 0 11.46 0 0 670,000 8.17 670,000 Jiantang President Total -- 0 0 -- -- 0 0 6,790,000 -- 6,790,000 V. Employees in the Company 1. Number, profession composition and educational background of the employees Number of incumbent employees in the parent company (person) 10,033 Number of incumbent employees in major subsidiaries (person) 3,575 Total number of incumbent employees (person) 13,608 Number of employees receiving salaries in current period 13,608 (person) Number of retired employees requiring the parent company and 4 major subsidiaries to bear their costs Profession composition Type of profession composition Number of employees for profession composition (person) R&D staff 6,880 Sales 2,629 Supply chain 2,461 Administrative staff 311 Professional support staff 1,327 Total 13,608 Educational background Type of educational background Number of employees (person) Master and above 2,079 Bachelor 7,530 College, technical secondary school 2,172 Others 1,827 Total 13,608 98 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2. Remuneration policies The Company has established complete remuneration management systems and incentive mechanisms to provide the employees with competitive remunerations in strict accordance with Labor Law, Labor Contract Law and other relevant laws and regulations, departmental rules and normative documents. The Company links its remuneration system and performance appraisal system with the business performance of the Company, which fully arouses the enthusiasm of the employees and effectively improves the executive force and responsibility consciousness of employees, thus better attracting and retaining talents and providing guarantee for sustainable, stable development of the Company in respect of human resources. 3. Training plan The Company has been dedicated to the building of employee education and training system, established the internal lecturer management measures including new employee training and in-service employee training, implemented training credits management system, improved the comprehensive quality of the Company's employees, created good leaning atmosphere, established learning organization and comprehensively helped employees to improve their ability to meet challenges and reforms in the future, thus providing powerful talent guarantee and intellectual support for sustainable, fast growth of the Company and achieving joint development of employees and the Company. 4. Labor outsourcing □ Applicable √ Not applicable 99 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section IX Corporate Governance I. Basic Situation on Corporate Governance During the reporting period, the Company strictly followed the provisions of "Company Law", "Securities Law", "Governance Guidelines for Listed Companies", "Stock Listing Rules of Shenzhen Stock Exchange", "Standard Operation Guidelines for SME Board Listed Companies of Shenzhen Stock Exchange" and other relevant laws and regulations and regulatory documents, constantly improved corporate governance structure, established and improved internal control system, and strived to improve the Company's standardized operation level. At present, the overall operation of the company is considerably standardized and independent with rule-based information disclosure. The actual state of corporate governance is generally in line with the regulatory documents issued by the China Securities Regulatory Commission regarding the governance of listed companies. IShareholdersandshareholdersmeeting:Thecompanystandardizesthecalling,convening,andvotingproceduresasrequire dbytheregulationsandrequirementsoftheStandardsontheShareholders'GeneralMeetingofListedCompanies,theArticles fCorporationandtheRulesofProceduresoftheShareholders'GeneralMeeting,accordingtowhichtheassociatedshareholders hallavoidvotingwhentherelevantissuesarebeingdiscussedintheshareholdersmeetingandconnectedtransactionshavebeen airandreasonablewithouthurtingtheinterestsofshareholders. Treat all shareholders equally to ensure that shareholders, especially small and medium-sized shareholders, can fully exercise their rights. Thegeneralmeetingsofshareholdershave all beenconvenedbythecompany'sboardofdirectorsandwitnessedbythelawyer. IIThecompanyandthecontrollingshareholders:Thecompanyisindependentfromthecontrollingshareholdersintermsof business,personnel,assets,financeandorganizations.Thecompany'sboardofdirectors,boardofsupervisorsandotherinternal genciesoperateindependently. The controlling shareholders of the Company were able to strictly regulate his own behaviors, and there was no behavior that directly or indirectly interfered with the Company's decision-making and business activities outside of the shareholders' general meeting, and there was no non-operational behavior of appropriation of the capital of listed companies. III Directors and Board of Directors: The company currently has eight directors, including three independent directors, all of whom are experts in corporate management, financial accounting and other fields; the number and composition of the board of directors meet the requirements of laws and regulations and the Articles of Corporation. The Board of Directors convened board meetings and implemented the resolutions of the shareholders' meeting in strict accordance with "Articles of Association" and "Rules of Procedure of the Board of Directors"; All the directors were able to perform their due duties and conscientiously attended the Board meetings and shareholders' meetings to safeguard the legitimate rights and interests of the Company and shareholders. IV Supervisors and Board of Supervisors: The company currently has three supervisors, including one employee supervisor. The number and composition of the supervisory board meet the requirements of laws and regulations and the Articles of Corporation. The Board of Supervisors convened supervisor meetings in strict accordance with the provisions of "Articles of Association" and "Rules of Procedure of the Board of Supervisors"; All the supervisors performed their duties conscientiously, and with integrity, diligence and conscientiousness, they effectively supervised and expressed independent opinions on company finance as well as the legitimacy and compliance of the performance of job duties for directors and senior managers to safeguard the legitimate rights and interests of the Company and shareholders. VPerformanceAppraisalandIncentiveandConstraintMechanisms:Tofurtherestablishandimprovethecompany'sincentiv emechanismandstrengthenthecompany'sphilosophyofsustainabledevelopmentof bothmanagementandcoreemployees,thecompanyimplementsarestrictedstockincentiveplanandemployeestockownership plan which reinforce theinterestsharing andrestraintmechanisms applied to shareholdersandcorebusinesspersonnel. It hasmaintainedthestabilityofmanagementteamsandbusinessleaders, guaranteedtherealization of the company'sdevelopmentstrategyandbusinessobjectives,andensuredthecompany's soundlong-termdevelopment. The 100 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. appointment of company executives is open, transparent and complies with laws and regulations. VI Stakeholders: The company fully respects and safeguards the legitimate rights and interests of relevant stakeholders. While striving to achieve a steady growth of the company's performance, the company also effectively treats and protects the legitimate rights and interests of all stakeholders and continuously improves product quality, protects the environment, implements energy-saving and emission-reduction programs, etc. The company actively participates in social charity and philanthropy to realize the balance of interests among shareholders, employees, society, etc., in order to promote sustainable, stable and healthy development of the company. VII Information Disclosure and Transparency: The company continuously increases the level of information disclosure in accordance with the relevant laws and regulations and the company's Information Disclosure Management System, and designates Securities Times and http://www.cninfo.com as the media channels for such disclosure in order to perform obligations for truthful, accurate, timely, and complete information disclosure ; the company strictly enforces the confidentiality of undisclosed information. According to the company's Inside Information Confidentiality System, registering and filing internal information insiders has been done properly. The internal information insider filing system has been established and submitted to the regulatory authorities for record in time as required, and the behavior of submitting company information to external information users has been strictly regulated. In the process of receiving specific visitors, the company has strictly followed the relevant requirements, and performed careful reception. It also asks visitors to sign the Commitment Letter and promptly uploads relevant research records to the Shenzhen Stock Exchange "Interaction Easy" for disclosure after the visits. During the reporting period, no incidence of stock trading based on insider information has occurred. At the same time, the company has opened an investor hotline and investor relations management column, and designated the person responsible for timely communication with investors. In addition, the company also maintains active and timely contact and communication with the regulatory authorities to report on the company's related issues, in order to accurately grasp the regulatory requirements of information disclosure, and further improve the company's transparency and quality of information disclosure. In strict accordance with the relevant requirements regarding content and format, the Company disclosed information in an authentic, accurate, complete and timely manner to ensure that all shareholders have equal access to information. Whether the actual status of corporate governance significantly deviates from the regulatory documents issued by the China Securities Regulatory Commission regarding the governance of listed companies. □ Yes √ No There is no significant difference between the actual situation of corporate governance and the regulatory documents on the governance of listed companies issued by China Securities Regulatory Commission. II. The company's independence from the controlling shareholders in business, personnel, assets, organization, finance, etc. The company and the controlling shareholders are completely separated in terms of business, personnel, assets, organization, and finance, and has independent and complete businesses and capabilities of independent operation. 1. Business independence The company's business is independent of the controlling shareholders, actual controllers and other enterprises under their control, and has an independent and complete R&D, production, procurement, and sales system; the technology required for production and operation is legal, independently owned, or licensed for use by the company with no asset disputes. The company has signed all external contracts independently, and has the ability to independently make production and operation decisions and engage in production and business activities. The company has independent spaces for production and operation and offices. 2. Staff independence The company's personnel are independent from the controlling shareholders, actual controllers and other companies controlled by them. The company has an independent human resources department responsible for labor, personnel and payroll management. The company has established an independent labor, personnel, and salary management system. The production, operation, and 101 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. administration are independent of the controlling shareholders, actual controllers, and other companies controlled by them; the recommendation, election, and appointment of directors, supervisors, and senior managers of the company have all been conducted legally and independently; senior management personnel such as the president, vice president, board secretary, and finance director did not hold positions other than directors and supervisors for controlling shareholders, actual controllers, and other companies controlled by them or receive salaries from them; the company's financial staff do not have a part-time job with the controlling shareholders, actual controllers, and other companies controlled by them. 3. Asset independence The company's assets are independent from the controlling shareholders, actual controllers and other companies controlled by them. The company's main assets include the ownership and use rights of complete land, plants, machinery and equipment, trademarks, patents, non-patented technology required for the main business, and an independent raw material procurement and product sales system. The property rights of the above assets are clear and completely independent of the controlling shareholders and major shareholders. There was misappropriation of the company's assets by the controlling shareholders and major shareholders. 4. Institutional independence The company's organizations are independent from the controlling shareholders, actual controllers and other companies controlled by them. The company has established shareholders' meeting, board of directors and board of supervisors, and other decision-making, implementation and supervision agencies. It has also appointed senior managers such as president, vice president, board secretary, and chief financial officer; the company has set up specialized departments equipped with the necessary personnel independently responsible for domestic/overseas sales, R&D, supply chain, quality and service, finance, legal affairs, securities, human resources, administration, IT, and other functions. The internal organizations perform their respective operational management responsibilities under the leadership of the board of directors and the president in accordance with the rules and regulations; There have been no cases in which the controlling shareholders, actual controllers, and other companies controlled by them are confused with their identities and duties; there has been no incidence of the controlling shareholders or actual controllers intervening in the establishment of the company's organizational setup. 5. Financial independence The company's finance is independent from the controlling shareholders, actual controllers and other companies controlled by them. The company has established an independent financial department with full-time financial accounting personnel, and has established an independent financial accounting system for independent financial decisions. It has a standardized financial accounting system and financial management system for subsidiaries; the company has independently opened a basic deposit account so that there is no sharing of bank accounts with actual controllers, controlling shareholders, and other companies controlled by it; the company handled tax registrations with the Zhejiang Provincial State Tax Bureau and the Zhejiang Provincial Local Tax Bureau and paid taxes independently as required by law. III Horizontal competition □ Applicable √ Not applicable IV. Relevant Situation of the Annual General Meeting of Shareholders and the Extraordinary General Meeting of Shareholders Held in the Reporting Period 1. The shareholders' meetings for this reporting period Conference Percentage of Conference Session Date of Conference Date of Disclosure Disclosure Index Type Investors Involved First Extraordinary Extraordinary 45.25% 06 March 2018 07 March 2018 CNINFO: 102 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. General Meeting in General http://www.cninfo.com.cn 2018 Meeting Shareholders' Annual General CNINFO: General Meeting in 49.53% 27 April 2018 28 April 2018 Meeting http://www.cninfo.com.cn 2017 The second interim Extraordinary CNINFO: shareholders' general General 42.05% 28 May 2018 29 May 2018 http://www.cninfo.com.cn meeting in 2018 Meeting Third Extraordinary Extraordinary CNINFO: General Meeting of General 42.53% September 07, 2018 September 08, 2018 http://www.cninfo.com.cn Shareholders in 2018 Meeting The fourth interim Extraordinary CNINFO: shareholders' general General 52.51% September 14, 2018 September 15, 2018 http://www.cninfo.com.cn meeting in 2018 Meeting The fifth interim Extraordinary CNINFO: shareholders' general General 42.57% December 27, 2018 December 28, 2018 http://www.cninfo.com.cn meeting in 2018 Meeting 2. Convening of the interim shareholders' general meetings upon request of the preferred stockholders whose voting rights are restored □ Applicable √ Not applicable V. The performance of the duties of independent directors during the reporting period 1. Attendance of independent directors in the board of directors and shareholders' meeting Attendance of independent directors at the BOD meeting and shareholders' general meetings Number of Number of Number of Number of Number of attendance of Number of Whether absent from Name of board meetings on-site attendance attendance of board meetings by absence at board meetings in independe to attend during attendance of board shareholders' means of board person for two nt director the reporting of board meetings by general telecommunicatio meetings consecutive times period meetings entrustees meetings ns He Chao 15 3 12 0 0 No 1 Wang 15 6 9 0 0 No 3 Zexia Huang 15 2 13 0 0 No 2 Siying 103 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2. Objections of independent directors to related issues of the company Whether the independent directors challenge the company's related issues? □ Yes √ No During the reporting period, independent directors did not raise objections to the company's related matters. 3. Other information on independent directors' performance of duties Whether independent director's proposals on the company issues are accepted √ Yes □ No Note on the acceptance or rejection of independent director's proposals on company issues. During the reporting period, according to the provisions of "Company Law", "Guiding Opinions on Establishing Independent Directors in Listed Companies", "Standard Operation Guidelines for SME Board Listed Companies of Shenzhen Stock Exchange", "Articles of Association" and "Working Rules of Independent Directors" and relevant laws and regulations, the independent directors made full use of their professional advantages to pay close attention to the Company's business condition, and took the opportunity of board meetings, shareholders' meetings and other time to look into the Company's production, operation and management conditions and actively communicate with other directors, supervisors and administrative staff to keep abreast of the Company's business dynamics, discuss the industry competition structure and overall development strategy faced by the Company and potential risks. Independent directors offered reasonable ideas and suggestions for the Company's business development from their respective professional perspectives, and issued their independent and just opinions on matters such as related transactions, profit distribution, restricted stock incentive plan, and foreign investment that require independent directors' opinions during the reporting period. They played a due role in safeguarding the interests of the Company and shareholders, especially the public shareholders. The company has adopted the opinions of independent directors. VI. Performance of duties of the special committee under the board of directors during the reporting period 1. Strategy Committee In 2018, the Strategy Committee strictly complied with the requirements of the system, discussed the industry's competitive landscape, corporate strategy, future development plans, the deepening of innovation and transformation, and globalized layout, timely analyzed the market conditions and made corresponding adjustments. They proposed constructive suggestions on the company's business strategy and annual work, ensured the scientific nature of the company's development planning and strategic decision-making, and provided strategic support for the company's sustained and steady development. 2. Nomination Committee In 2018, the Nomination Committee actively carried out its work in accordance with the Working System of the Nomination Committee of the Board of Directors and other relevant regulations and fulfilled its duties earnestly. The Nomination Committee has selected candidates for the company's directors and senior managers, selection criteria and procedures and made recommendations. 3. Audit Committee In 2018, the Audit Committee fully implemented its supervisory role and maintained the independence of auditing in accordance with the principle of due diligence. During the reporting period, the Audit Committee heard the management's report on business situation, financial status and other major issues during the year. During the reporting period, the Audit Committee held meetings as required to discuss the company's periodic reports, various audit reports submitted by the internal audit department, internal controls, and the reappointment of accounting organizations, expressed opinions, and supervised the auditing work of the accounting firms. 4. Remuneration and Appraisal Committee 104 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. In 2018, the Remuneration and Appraisal Committee, based on the company's performance and industry standards, carried out a review of the ranking of staff positions and assessment standards, and reviewed and confirmed the company's remuneration for directors, supervisors and senior management in 2017 and other issues. VII. Work of the Supervisory Committee Has the supervisory board discovered any risk in the company during the supervision in the reporting period □ Yes √ No The supervisory board had no objection to the supervisory matters in the report period. VIII. Evaluation and Incentive Mechanisms for Senior Management The company has established a complete assessment and incentive system for senior management personnel, formulated a complete senior management personnel selection, evaluation, incentive and restraint mechanism, and assessed fulfillment of their duties and annual performance. At present, the assessment of the company's senior staff mainly involves promised performance-based evaluation for senior executives and the year-end performance debriefing of staff higher than department managers. At the manager level, the operation goal-driven responsibility system during the term and the assessment approach which combines company-level KPIs with personal performance commitment have been set up. Those who pass the assessment and can properly complete the respective tasks in the recent term will have salary raise or other incentive-based rewards by the company according to the degree of goal completion. In the future, the company will adopt a multi-level comprehensive incentive system to effectively mobilize the management personnel, attract, and stabilize outstanding management talents and the backbone of technology and business. During the reporting period, the Company implemented the Restricted Stock Incentive Plan in 2018, which further improved the incentive and constraint mechanism for senior executives and other key employees of the Company and established and improved the middle and long term incentive and constraint mechanism, which fully mobilized and facilitated the enthusiasm and creativity of the incentive objects and effectively aligned the interests of shareholders, the Company with the employees to continuously promote the Company's performance, bring the benefits of the Company's development to all employees for the shared development. IX. Internal Control Assessment Report 1. Details of material weakness in internal control found during the reporting period □ Yes √ No 2. Internal control self-evaluation report Date of full-text disclosure for March 19, 2019 internal control assessment report Full-text disclosure index for internal http://www.cninfo.com.cn control assessment report Percentage of total asset from units included in the assessment out of the 100.00% total asset from the company's 105 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. consolidated financial statements The proportion of operating income of parties included in the assessment to the operating income from the 100.00% Company's consolidated financial statements Defect identification criteria Category Financial Report Non-financial reports The identification of non-financial report defects is Signs of material weakness in financial mainly determined by the extent of their influence Qualitative standards reporting include: on validity of business process and the probability of occurrence. Losses which have been or may be incurred due to internal control The quantitative criteria is based on operating deficiencies and are related to the profit income and total assets. Losses which have been or statement should be measured by the may be incurred due to internal control deficiencies operating income indicators. If the and are related to the profit statement should be misreporting amount in the financial measured by the operating income indicators If the statement, which may be incurred by misreporting amount in the financial statement, the deficiencies alone or together with which may be incurred by the deficiencies alone or Quantitative standards other deficiencies, is less than 0.5% of together with other deficiencies, is less than 0.5% the operating income, it is considered of the operating income, it is considered as a as a general deficiency; If it exceeds general deficiency; If it exceeds 0.5% of the 0.5% of the operating income but is operating income but is less than 1%, then it is an less than 1%, then it is an important important deficiency; If it exceeds 1% of the deficiency; If it exceeds 1% of the operating income, then it is considered as a major operating income, then it is considered deficiency. as a major deficiency. Number of material weakness in 0 financial reports Number of material weakness in 0 non-financial reports Number of significant deficiency in 0 financial reports Number of significant deficiency in 0 non-financial report X. Internal Control Audit Report or Assurance Report Not applicable. 106 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section X Situation on Corporate Bonds Whether the Company has corporate bonds which have been publicly issued and listed on the stock exchange and have not matured or are not fully redeemed at the approval date of annual report No 107 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section XI Financial Reports I. Audit Reports Audit opinion type Standard Unqualified Opinion Signature Date of audit report March 18, 2019 Name of audit institution BDO China Shu Lun Pan CPAs (special general partnership) Audit report ref. Xin Kuai Shi Bao Zi [2019] No.ZF10073 Name of Certified Public Accountant Zhong Jiandong, Du Na Audit Report Text To the shareholders of Zhejiang Dahua Technology Co., Ltd.: I. Opinion We have audited the financial statements of Zhejiang Dahua Technology Co., Ltd. (hereinafter referred to as the Company), which comprise the parent company's and the consolidated balance sheet dated December 31, 2018, the parent company's and the consolidated income statement, the parent company's and the consolidated cash flow statement and the parent company's and the consolidated statement of changes in owners' equity in 2018, as well as the notes to relevant financial statements. In our opinion, the attached financial statements are prepared, in all material respects, in accordance with Accounting Standards for Business Enterprises and present fairly the financial position of the merged companies and the parent company as at December 31, 2018 and the operating results and cash flows of the merger and the parent company in 2018. II. Basis for Our Opinion We conducted our audit in accordance with the Auditing Standards for Certified Public Accountants in China. Our responsibilities under those standards are further described in the CPA's Responsibilities for the Audit of the Financial Statements section of our report. According to the Code of Ethics for Chinese Certified Public Accountants, we are independent of the Company and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. III. Key Audit Matters Key audit matters are those matters that, 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 opinion thereon, and we do not provide a separate opinion on these matters. We have confirmed that the following matters are the key audit matters that need to be communicated in the audit report. Key Audit Matters How the matter was addressed in the audit A. Recognition of revenue The revenue of Dahua in 2018 is RMB 23,665,688,106.22, The main audit procedures implemented for the above key audit which is an important part of its income statement. We matter include: 1. Understand the internal control system in relation to recognize the revenue as a key audit matter. Based on the revenue recognition and the design and implementation of the accounting policy of Dahua, the Company's main products financial accounting system, and test the effectiveness of its operation; 108 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. include security standard products, system integration and 2. Check the agreements of relevant contracts for different sales types other labor services. Among them, the security standard in accordance with the actual situation of the specific businesses, and products for domestic market were delivered to customers evaluate whether the revenue recognition meets the requirements of or picked up by customers based on the contractual terms in Accounting Standards for Business Enterprises; perform an analytical the sales contract. The revenue was recognized after procedures to judge the reasonableness of the changes in sales revenue customers received and accepted the goods and the and gross profit margin; 3. Perform confirmation procedures: send Company obtained the evidence proving the customers' confirmation to customers for the annual sales amount and the receipt of goods; for the security standard products outstanding at the end of the year, and the export sales income shall be exported by domestic companies, the revenue was certified by the customs. 4. Different types of income samples shall be recognized after the goods were declared and exported, and tested: for standard products for domestic market and overseas sales for the security standard products sold overseas by overseas of overseas subsidiaries, sample the out-of-stock records, shipping subsidiaries, the revenue was recognized after the customer orders, customer countersign records, received payment records, etc.; received and accepted the goods; the revenue from the for standard products exported by domestic companies, check the system integration sales was recognized after the out-of-stock records, customs declaration, bill of lading, and received acceptance of goods by customers; the revenue from the payment records; for system integration sales, check the product labor services sales was recognized when relevant labor delivery records, shipping list and contract list, unpacking acceptance services were provided. See Notes III (24) for details. report, acceptance report for the completion of installation and commissioning, received payment records, etc. 5. Sample the transactions made before or after the balance sheet date and check their out-of-stock records, customs declaration, and other relevant supportive documents to confirm whether the revenues have been recognized in an appropriate accounting period. B. Recoverability of accounts receivable Dahua's original accounts receivable was RMB We evaluated the recoverability of accounts receivable by the 11,275,367,656.81 in total as of the end of 2018. The following procedures: 1. Understand the management and the internal balance of bad debt provision was RMB 1,083,994,879.43. control of key financial reporting related to credit control, account The management needs to make significant judgments recovery and assessment of impairment provision for receivables, and about the identification of accounts receivable impairment evaluate the effectiveness of the design and operation of the internal accounts, the likelihood of inward cash flows of future control; 2. Understand the company's management procedures for customers and the realization of the amount guaranteed. customers' credit and the collection measures for overdue debts; 3. The management's estimates and assumptions are uncertain. Evaluate whether the aging interval of accounts receivable with bad Since the amount of accounts receivable is significant to the debt set aside according to aging portfolios is appropriate, and financial statements as a whole and the recoverability comprehensively evaluate the recoverability of accounts receivable involves the estimation and judgment of future cash flows, based on customer size, credit status, historical default evidence, and 109 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. we recognize the recoverability of accounts receivable as a historical payment status. Check the nature of receivables with long key audit matter. account-age and if there are litigations; 4. Test the payment received after the balance sheet date; 5. Perform the correspondence-based confirmation procedure and check whether the confirmation results are consistent; 6. Analyze whether there are amounts of accounts receivable that cannot be recovered and need to be written off. IV. Other Information The management of the Company (hereinafter referred to as the Management) is responsible for the other information. The other information comprises information of the Company's annual report in 2018, but excludes the financial statements and our audit report. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In combination 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 this other information, we are required to report that fact. We have nothing to report in this regard. V. Responsibilities of Management and Those Charged with Governance for the Financial Statements The Management is responsible for preparing the financial statements in accordance with the requirements of Accounting Standards for Business Enterprises to achieve a fair presentation, and for designing, implementing and maintaining necessary internal control to ensure that the financial statements are free from material misstatements, whether due to frauds or errors. In preparing the financial statements, the Management is responsible for assessing the Company's ability to continue as a going concern, disclosing matters related to going concern (if applicable) and using the going concern basis of accounting unless the Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. VI. CPA'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 audit 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 the audit standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. As part of an audit in accordance with the audit standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (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 opinion. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (2) Obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. (3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related 110 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. disclosures made by the Management. (4) Conclude on the appropriateness of using the going concern assumption by the Management. Meanwhile, conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the 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 audit report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the information available up to the date of our audit report. However, future events or conditions may cause the 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 whether the financial statements represent the relevant transactions and events in a manner that achieves fair presentation. (6) Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for guiding, supervising and implementing the group audit, and remain solely responsible for our audit opinion. We have communicated with those charged with governance on such matters as the scope of audit as planned, the schedule and material audit findings, including the defects in the internal control that are worth paying attention to found in this audit. We have also provided those charged with governance with a statement on observing the professional ethics related to independence, and communicated with those charged with governance on all the relationships and other matters that might be reasonably deemed to affect our independence, and relevant preventative measures. 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 audit report unless law or regulation precludes public disclosure about the matter or when, in extremely 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. BDO China Shu Lun Pan Certified Public Accountants LLP ((Special general partnership)) Chinese CPA: Zhong Jiandong (project partner) Chinese CPA: Du Na Shanghai, China March 18, 2019 111 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. II. Financial Statements Units of financial reports in the notes: RMB 1. Consolidated Balance Sheet Prepared by: Zhejiang Dahua Technology Co., Ltd. December 31, 2018 Unit: RMB Balance at the Commencement Item Name Balance at the End of the Period of the Period Current Assets: Cash and Bank Balances 4,160,153,847.06 3,612,937,164.14 Deposit Reservation for Balance Loans to Banks and Other Financial Institutions Financial liabilities at fair value through profit or loss Derivative Financial Assets Notes receivable and accounts receivable 12,577,066,194.44 9,971,240,927.27 Including: notes receivable 2,385,693,417.06 2,431,296,170.58 Accounts receivable 10,191,372,777.38 7,539,944,756.69 Prepayments 126,891,259.00 154,357,171.13 Premium Receivable Reinsurance Accounts Receivable Reinsurance Contract Reserves Receivable Other Receivables 398,170,769.40 292,278,208.02 Including: interest receivable 6,754,941.00 9,219,422.61 Dividends Receivable Buying Back the Sale of Financial Assets Inventory 3,035,579,709.14 2,806,142,598.65 Holding for-sale assets Non-current Assets Due within 1 Year 578,733,057.27 367,302,811.80 Other Current Assets 402,255,078.05 352,055,656.65 Subtotal of Current Assets 21,278,849,914.36 17,556,314,537.66 Non-current Assets: Granting of loans and advances Financial Assets Available for Sale 82,970,227.00 77,970,227.00 112 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Held-to-maturity Investments Long-term Receivables 1,861,485,568.28 1,480,947,137.80 Long-term Equity Investment 185,872,021.58 61,272,885.41 Investment Property 346,831,376.55 181,050,142.29 Fixed Assets 1,407,471,330.83 1,248,305,165.77 Projects under Construction 226,191,587.11 58,779,225.41 Productive Biological Assets Oil and gas assets Intangible Assets 372,467,409.09 253,357,254.66 Development Expenditure Goodwill 109,745,412.21 71,083,281.09 Long-term Prepaid Expenses 37,117,918.55 Deferred Income Tax Assets 425,319,406.98 251,453,971.05 Other Non-current Assets 16,277,605.61 92,944,735.83 Subtotal of Non-current Assets 5,071,749,863.79 3,777,164,026.31 Total Assets 26,350,599,778.15 21,333,478,563.97 Current Liabilities: Short-term loan 1,851,709,561.83 1,770,924,255.90 Borrowings from the Central Bank Deposit Taking and Interbank Deposit Borrowings from Banks and Other Financial Institutions Financial Liabilities Measured in Fair Value with 38,602,602.30 62,450,000.00 Changes Recorded into Current Profit and Loss Derivative Financial Liabilities Notes payable and accounts payable 7,461,315,698.99 6,136,607,389.03 Received Prepayments 343,297,891.20 461,715,422.38 Financial Assets Sold for Repurchase Service Charge and Commission Payable Payroll payable 1,124,358,611.94 851,146,379.97 Tax Payable 599,478,049.81 479,536,571.45 Other Payables 1,051,537,094.97 107,991,640.10 Including: interest payable 4,745,203.31 3,694,476.25 Dividends Payable Reinsurance Accounts Payable 113 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Insurance Contract Reserves Receiving from Vicariously Traded Securities Receiving from Vicariously Sold Securities Holding for-sale liabilities Non-current Liabilities Due within 1 Year 25,500,000.00 Other Current Liabilities 70,845,639.51 45,941,962.85 Subtotal of Current Liabilities 12,566,645,150.55 9,916,313,621.68 Non-current Liabilities: Long-term loan 179,000,000.00 230,000,000.00 Bonds Payable Including: Preferred Stocks Perpetual Bonds Long-term Payables Long-term payroll payable Expected Liabilities 193,761,170.12 127,998,889.61 Deferred Income 58,693,533.40 61,866,156.88 Deferred Income Tax Liabilities 50,137,969.76 45,468,946.77 Other Non-current Liabilities 399,096,280.89 358,600,936.54 Subtotal of Non-current Liabilities 880,688,954.17 823,934,929.80 Total Liabilities 13,447,334,104.72 10,740,248,551.48 Shareholders' Equity: Share Capital 2,997,621,930.00 2,898,756,130.00 Other Equity Instruments Including: Preferred Stocks Perpetual Bonds Capital Reserves 1,501,180,862.83 593,340,751.52 Less: Treasury Share 807,733,586.00 Other Comprehensive Incomes 10,337,164.41 6,660,189.04 Special Reserves Surplus Reserves 1,246,369,430.91 971,547,268.36 General Risk Reserves Undistributed Profits 7,670,983,116.33 5,996,130,036.27 Total Shareholders' Equity Attributable to the Parent 12,618,758,918.48 10,466,434,375.19 Company 114 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Minority Shareholders' Equity 284,506,754.95 126,795,637.30 Total Shareholders' Equity 12,903,265,673.43 10,593,230,012.49 Total Liabilities and Shareholders' Equity 26,350,599,778.15 21,333,478,563.97 Legal representative: Fu Liquan Person in charge of accounting: Wei Meizhong Person in charge of the accounting institution: Xu Qiaofen 2. Balance Sheet of the Parent Company Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Current Assets: Cash and Bank Balances 611,190,236.01 528,918,086.71 Financial liabilities at fair value through profit or loss Derivative Financial Assets Notes receivable and accounts receivable 5,551,148,625.96 5,961,186,747.25 Including: notes receivable 952,572,702.92 28,625,396.43 Accounts receivable 4,598,575,923.04 5,932,561,350.82 Prepayments 26,772,044.53 60,553,036.53 Other Receivables 6,954,655,863.03 2,745,958,536.36 Including: interest receivable 42,500.00 171,583.35 Dividends Receivable Inventory 120,181,267.85 155,981,228.49 Holding for-sale assets Non-current Assets Due within 1 Year 50,793,137.80 721,747.17 Other Current Assets 24,858,982.78 613,008.35 Subtotal of Current Assets 13,339,600,157.96 9,453,932,390.86 Non-current Assets: Financial Assets Available for Sale 80,496,000.00 75,496,000.00 Held-to-maturity Investments Long-term Receivables 160,299,143.83 2,900,649.67 Long-term Equity Investment 3,001,639,428.55 2,492,439,607.09 Investment Property 183,321,198.72 188,865,490.54 Fixed Assets 496,363,638.38 457,103,573.22 Projects under Construction 151,072,585.67 32,179,351.04 Productive Biological Assets 115 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Oil and gas assets Intangible Assets 170,879,747.04 183,721,662.56 Development Expenditure Goodwill Long-term Prepaid Expenses 28,927,258.54 Deferred Income Tax Assets 40,821,902.57 36,986,523.59 Other Non-current Assets 929,380.00 3,611,195.07 Subtotal of Non-current Assets 4,314,750,283.30 3,473,304,052.78 Total Assets 17,654,350,441.26 12,927,236,443.64 Current Liabilities: Short-term loan 1,380,000,000.00 700,000,000.00 Financial Liabilities Measured in Fair Value with Changes Recorded into Current Profit and Loss Derivative Financial Liabilities Notes payable and accounts payable 1,065,528,900.01 524,188,372.26 Received Prepayments 80,361,211.04 87,898,434.50 Payroll payable 817,723,936.19 632,166,128.79 Tax Payable 351,294,836.50 346,992,152.22 Other Payables 1,060,909,330.56 137,023,150.55 Including: interest payable 2,416,340.30 678,835.62 Dividends Payable Holding for-sale liabilities Non-current Liabilities Due within 1 Year Other Current Liabilities 6,464,333.12 67,347.75 Subtotal of Current Liabilities 4,762,282,547.42 2,428,335,586.07 Non-current Liabilities: Long-term loan Bonds Payable Including: Preferred Stocks Perpetual Bonds Long-term Payables Long-term payroll payable Expected Liabilities 3,396,100.00 925,500.00 Deferred Income 116 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Deferred Income Tax Liabilities 43,435.80 Other Non-current Liabilities 23,684,423.74 452,397.55 Subtotal of Non-current Liabilities 27,080,523.74 1,421,333.35 Total Liabilities 4,789,363,071.16 2,429,756,919.42 Shareholders' Equity: Share Capital 2,997,621,930.00 2,898,756,130.00 Other Equity Instruments Including: Preferred Stocks Perpetual Bonds Capital Reserves 1,497,801,068.88 589,895,836.49 Less: Treasury Share 807,733,586.00 Other Comprehensive Incomes Special Reserves Surplus Reserves 1,246,369,430.91 971,547,268.36 Undistributed Profits 7,930,928,526.31 6,037,280,289.37 Total Shareholders' Equity 12,864,987,370.10 10,497,479,524.22 Total Liabilities and Shareholders' Equity 17,654,350,441.26 12,927,236,443.64 3. Consolidated Income Statement Unit: RMB This Period's Amount of Previous Period's Amount of Item Name Occurrence Occurrence I. Total Operating Revenue 23,665,688,106.22 18,844,458,053.78 Including: Operating Revenue 23,665,688,106.22 18,844,458,053.78 Interest Income Earned Premiums Service Charge and Commission Income II. Total Operating Cost 21,581,614,670.44 16,919,172,999.60 Including: Operating Cost 14,871,181,066.69 11,639,494,423.21 Interest Expenditures Service Charge and Commission Expenses Surrender Value Net Claims Paid Net Amount Withdrawn for Insurance 117 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Contract Reserves Policyholder Dividend Expense Reinsurance Cost Taxes and Surcharges 192,381,330.58 141,633,153.19 Sales Expenses 3,365,380,947.78 2,416,699,706.00 Administration expenses 632,968,594.64 519,518,000.34 Research and development expense 2,283,872,502.53 1,788,888,879.43 Financial Expenses -123,167,962.74 167,431,921.69 Including: interest expenses 114,335,785.04 73,301,999.99 Interest Income 113,966,942.24 54,757,215.68 Losses on Assets Impairment 358,998,190.96 245,506,915.74 Add: Other income 733,874,699.13 735,716,476.52 Investment Income (Mark "-" for Loss) -79,293,077.01 -29,510,653.15 Including: Investment Income from Affiliates -36,049,906.26 -37,464,812.35 and Joint Ventures Incomes from changes in fair value (losses -38,602,602.30 marked with "-") Exchange Gains (Mark "-" for Losses) Asset Disposal Income (Mark "-" for Loss) 17,535.97 774,332.50 III. Operating Profit (Mark "-" for Loss) 2,700,069,991.57 2,632,265,210.05 Add: Non-operating Revenues 77,197,481.30 22,631,016.54 Less: Non-operating Expenses 4,112,201.74 12,688,370.45 IV. Total Profit (Mark "-" for Total Loss) 2,773,155,271.13 2,642,207,856.14 Less: Income Tax Expense 178,562,590.79 265,421,510.04 V. Net Profit (Mark "-" for Net Loss) 2,594,592,680.34 2,376,786,346.10 (I) Net Profit as a Going Concern (Mark "-" for Net 2,594,592,680.34 2,376,786,346.10 Loss) (II) Net Profit of Discontinued Operation (Mark "-" for Net Loss) Net Profit Attributable to the Parent Company's 2,529,426,468.61 2,378,726,820.22 Owner Minority Shareholders' Profit and Loss 65,166,211.73 -1,940,474.12 VI. Net Amount of Other Comprehensive Incomes after 3,676,975.37 4,365,067.32 Tax Net Amount of Other Comprehensive Incomes after 3,676,975.37 4,365,067.32 Tax Attributable to the Parent Company's Owner 118 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (1) Other comprehensive income that cannot be reclassified as P/L 1. Re-measure the variation of the defined benefit plan 2. Other comprehensive income that cannot be transferred to P/L under the equity method (2) Other comprehensive income that will be 3,676,975.37 4,365,067.32 reclassified as P/L 1. Other comprehensive income that can be transferred to P/L under the equity method 2. Profit or Loss Arising from Changes in the Fair Value of Financial Assets Available for Sale 3. Profit or Loss Arising from Reclassifying Investments Held to Maturity as Financial Assets Available for Sale 4. Effective Part of Profit or Loss From Cash Flow Hedging 5. Currency Translation Difference 3,676,975.37 4,365,067.32 6. Others Net Amount of Other Comprehensive Incomes After Tax Attributable to Minority Shareholders VII. Total Comprehensive Income 2,598,269,655.71 2,381,151,413.42 Total Comprehensive Income Attributable to the 2,533,103,443.98 2,383,091,887.54 Parent Company's Owner Total Comprehensive Income Attributable to 65,166,211.73 -1,940,474.12 Minority Shareholders VIII. Earnings per Share: (I) Basic Earnings per Share 0.87 0.82 (II) Diluted Earnings per Share 0.87 0.82 In the case of enterprise consolidation under the same control during this period, the net profit realized by consolidated party before consolidation is: RMB. The net profit realized by the consolidated party during previous period is: RMB. Legal representative: Fu Liquan Person in charge of accounting: Wei Meizhong Person in charge of the accounting institution: Xu Qiaofen 4. Income Statement of the Parent Company Unit: RMB Item Name This Period's Amount of Previous Period's Amount of 119 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Occurrence Occurrence I. Operating Revenue 8,333,563,115.08 6,547,583,570.54 Less: Operating Cost 1,762,464,907.26 815,064,636.33 Taxes and Surcharges 114,691,360.49 102,895,042.06 Sales Expenses 1,826,106,099.37 1,529,259,610.81 Administration expenses 332,931,605.32 307,009,140.36 Research and development expense 2,000,658,797.75 1,593,069,751.80 Financial Expenses 29,935,660.08 20,631,688.15 Including: interest expenses 41,278,053.23 25,520,964.94 Interest Income 15,006,188.38 7,919,337.33 Losses on Assets Impairment 16,183,524.43 64,116,170.81 Add: Other income 676,054,269.34 703,670,185.76 Investment Income (Mark "-" for Loss) -35,043,814.25 -26,479,223.27 Including: Investment Income from Affiliates -37,135,560.20 -36,550,868.57 and Joint Ventures Incomes from changes in fair value (losses marked with "-") Asset Disposal Income (Mark "-" for Loss) 8,194.76 689,271.65 II. Operating Profit (Mark "-" for Loss) 2,891,609,810.23 2,793,417,764.36 Add: Non-operating Revenues 7,089,018.48 13,959,080.17 Less: Non-operating Expenses 820,867.93 10,196,741.66 III. Total Profit (Mark "-" for Total Loss) 2,897,877,960.78 2,797,180,102.87 Less: Income Tax Expense 149,656,335.29 258,780,739.04 IV. Net Profit (Mark "-" for Net Loss) 2,748,221,625.49 2,538,399,363.83 (I) Net Profit as a Going Concern (Mark "-" for Net 2,748,221,625.49 2,538,399,363.83 Loss) (II) Net Profit of Discontinued Operation (Mark "-" for Net Loss) V. Net Amount of Other Comprehensive Incomes After Tax (1) Other comprehensive income that cannot be reclassified as P/L 1. Re-measure the variation of the defined benefit plan 2. Other comprehensive income that cannot be transferred to P/L under the equity method 120 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Other comprehensive income that will be reclassified as P/L 1. Other comprehensive income that can be transferred to P/L under the equity method 2. Profit or Loss Arising from Changes in the Fair Value of Financial Assets Available for Sale 3. Profit or Loss Arising from Reclassifying Investments Held to Maturity as Financial Assets Available for Sale 4. Effective Part of Profit or Loss From Cash Flow Hedging 5. Currency Translation Difference 6. Others VI. Total Comprehensive Income 2,748,221,625.49 2,538,399,363.83 VII. Earnings per Share: (I) Basic Earnings per Share 0.95 0.88 (II) Diluted Earnings per Share 0.94 0.88 5. Consolidated Cash Flow Statement Unit: RMB This Period's Amount of Previous Period's Item Name Occurrence Amount of Occurrence I. Cash Flow Generated by Operational Activities: Cash from Sales of Merchandise and Provision of Services 21,710,486,123.09 16,125,642,536.81 Net Increase in Customer's Bank Deposits and Interbank Deposits Net Increase in Borrowings from the Central Bank Net Increase in Borrowings from Other Financial Institutions Cash Arising from Receiving Premiums for the Original Insurance Contract Net Amount Arising from Reinsurance Business Net Increase in Deposits and Investments from Policyholders Net additions to financial assets from disposal at fair value measurement and its inclusion in current profit or loss Cash Arising from Interests, Service Charges and Commissions Net Increase in Borrowings from Banks and Other Financial Institutions Net Increase in Repurchase Business Funds 121 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Tax Refund 1,613,409,298.19 1,524,698,109.73 Other Received Cashes Related to Operational Activities 324,234,716.30 223,178,052.99 Subtotal of Cash Inflow from operational activities 23,648,130,137.58 17,873,518,699.53 Cash Paid for Merchandise and Services 14,872,235,902.05 10,542,785,834.76 Net Increase in Loans and Advances to Customers Net Increase in Deposits with Central Bank and Other Financial Institutions Cash Paid for Original Insurance Contract Claims Cash Paid for Interests, Service Charges and Commissions Cash Paid for Policy Dividends Cash Paid to and for Employees 4,224,457,856.42 3,150,935,592.99 Cash Paid for Taxes and Surcharges 1,631,045,797.74 1,389,349,414.63 Other Paid Cashes Related to Operational Activities 1,965,074,603.20 1,876,216,497.14 Subtotal of Cash Outflow from operational activities 22,692,814,159.41 16,959,287,339.52 Net Cash Flow Generated by operating activities 955,315,978.17 914,231,360.01 II. Cash Flow from Investment Activities: Cash Arising from Disposal of Investments 154,883,001.58 73,662,025.45 Cash Arising from Investment Incomes 1,005,008.70 5,543,861.26 Net Cash Arising from Disposal of Fixed Assets, Intangible Assets and 6,708,368.55 2,547,995.10 Other Long-term Assets Net Cash Arising from Disposal of Subsidiaries and Other Business Units Other Received Cashes Related to Investment Activities 7,546,323.87 35,937,405.08 Subtotal of Cash Inflow from investment activities 170,142,702.70 117,691,286.89 Cash Paid for Purchase and Construction of Fixed Assets, Intangible 552,121,341.01 287,810,123.74 Assets and Other Long-term Assets Cash Paid for Investments 144,300,000.00 123,796,449.00 Net Increase in Pledge Loans Net Cash Paid for Acquisition of Subsidiaries and Other Business Units 80,777,002.35 Other Paid Cashes Related to Investment Activities 139,588,395.84 997,312.35 Subtotal of Cash Outflow from investment activities 916,786,739.20 412,603,885.09 Net Amount of Cash Flow Generated by investment activities -746,644,036.50 -294,912,598.20 III. Cash Flow from Financing Activities: Cash Arising from Absorbing Investments 902,573,370.84 40,773,116.00 Including: Cash Arising from Subsidiaries Absorbing Investments by 94,839,784.84 40,773,116.00 122 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Minority Shareholders Cash Arising from Borrowings 6,623,290,520.36 4,857,362,598.34 Cash Arising from Bonds Issue Other Received Cashes Related to Financing Activities 1,274,934,480.00 412,104,220.00 Subtotal of Cash Inflow from Financing Activities 8,800,798,371.20 5,310,239,934.34 Cash Paid for Debts Repayment 6,579,048,362.00 3,847,629,805.60 Cash Paid for Distribution of Dividends and Profits or Payment of 693,036,283.98 356,585,882.44 Interests Including: Dividends and Profits Paid to Minority Shareholders by Subsidiaries Other Paid Cashes Related to Financing Activities 1,152,202,000.00 661,174,646.20 Subtotal of Cash Outflow from Financing Activities 8,424,286,645.98 4,865,390,334.24 Net Cash Flow Generated by Financing Activities 376,511,725.22 444,849,600.10 IV. Impact of Fluctuation in Exchange Rate on Cash and Cash Equivalents 54,421,142.77 -76,666,153.59 V. Net Increase in Cash and Cash Equivalents 639,604,809.66 987,502,208.32 Add: Cash and Cash Equivalents at the Commencement of the Period 3,062,678,993.88 2,075,176,785.56 VI. Cash and Cash Equivalents at the End of the Period 3,702,283,803.54 3,062,678,993.88 6. Cash Flow Statement of the Parent Company Unit: RMB This Period's Amount Previous Period's Item Name of Occurrence Amount of Occurrence I. Cash Flow Generated by Operational Activities: Cash from Sales of Merchandise and Provision of Services 9,535,966,439.28 6,967,013,848.33 Tax Refund 625,791,603.06 681,551,016.44 Other Received Cashes Related to Operational Activities 80,259,840.35 119,876,487.44 Subtotal of Cash Inflow from Operational Activities 10,242,017,882.69 7,768,441,352.21 Cash Paid for Merchandise and Services 1,600,482,018.59 62,579,595.07 Cash Paid to and for Employees 2,621,021,358.25 2,092,506,819.43 Cash Paid for Taxes and Surcharges 1,136,429,938.25 1,128,448,324.81 Other Paid Cashes Related to Operational Activities 1,148,233,582.00 1,212,919,232.03 Subtotal of Cash Inflow from Operational Activities 6,506,166,897.09 4,496,453,971.34 Net Cash flow Generated by Operating Activities 3,735,850,985.60 3,271,987,380.87 II. Cash Flow from Investment Activities: Cash Arising from Disposal of Investments 108,330,167.33 53,172,014.49 123 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Cash Arising from Investment Incomes 1,005,008.70 5,543,861.26 Net Cash Arising from Disposal of Fixed Assets, Intangible Assets and Other 66,931,904.09 58,161,679.41 Long-term Assets Net Cash Arising from Disposal of Subsidiaries and Other Business Units Other Received Cashes Related to Investment Activities 3,559,123.87 1,982,642.22 Subtotal of Cash Inflow from Investment Activities 179,826,203.99 118,860,197.38 Cash Paid for Purchase and Construction of Fixed Assets, Intangible Assets 141,168,885.59 142,334,274.59 and Other Long-term Assets Cash Paid for Investments 484,916,250.00 746,185,000.00 Net Cash Paid for Acquisition of Subsidiaries and Other Business Units Other Paid Cashes Related to Investment Activities Subtotal of Cash Outflow from Investment Activities 626,085,135.59 888,519,274.59 Net Amount of Cash Flow Generated by Investment Activities -446,258,931.60 -769,659,077.21 III. Cash Flow from Financing Activities: Cash Arising from Absorbing Investments 807,733,586.00 Cash Arising from Borrowings 2,958,285,400.61 1,190,000,000.00 Cash Arising from Bonds Issue Other Received Cashes Related to Financing Activities 238,356,205.21 56,945,471.12 Subtotal of Cash Inflow from Financing Activities 4,004,375,191.82 1,246,945,471.12 Cash Paid for Debts Repayment 2,278,285,400.61 1,190,000,000.00 Cash Paid for Distribution of Dividends and Profits or Payment of Interests 619,291,774.55 317,759,075.18 Other Paid Cashes Related to Financing Activities 4,317,544,339.28 2,508,910,059.87 Subtotal of Cash Outflow from Financing Activities 7,215,121,514.44 4,016,669,135.05 Net Cash Flow Generated by Financing Activities -3,210,746,322.62 -2,769,723,663.93 IV. Impact of Fluctuation in Exchange Rate on Cash and Cash Equivalents -86,334.64 -160,371.60 V. Net Increase in Cash and Cash Equivalents 78,759,396.74 -267,555,731.87 Add: Cash and Cash Equivalents at the Commencement of the Period 524,670,812.68 792,226,544.55 VI. Cash and Cash Equivalents at the End of the Period 603,430,209.42 524,670,812.68 124 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 7. Consolidated Statement of Changes in Owners' Equity Amount of This Period Unit: RMB Current Period Shareholders' Equity Attributable to the Parent Company's Owner Other Equity Speci General Minority Item Name Instruments Other Total Shareholders' Less: Treasury al Risk Undistributed Shareholders' Share Capital Perpetu Capital Reserves Comprehensiv Surplus Reserves Equity Preferre Other Share Reser Reserve Profits Equity al e Incomes d Stocks s ves s Bonds I. Balance at the End of 2,898,756,130.00 593,340,751.52 6,660,189.04 971,547,268.36 5,996,130,036.27 126,795,637.30 10,593,230,012.49 Last Year Add: Changes in Accounting Policies Correction of Errors in the Previous Period Consolidated under the Same Control Others II. Balance at the Start of 2,898,756,130.00 593,340,751.52 6,660,189.04 971,547,268.36 5,996,130,036.27 126,795,637.30 10,593,230,012.49 This Year III. Increases or Decreases in This Period (Mark "-" 98,865,800.00 907,840,111.31 807,733,586.00 3,676,975.37 274,822,162.55 1,674,853,080.06 157,711,117.65 2,310,035,660.94 for Decreases) (I) Total Comprehensive 3,676,975.37 2,529,426,468.61 65,166,211.73 2,598,269,655.71 Income 125 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (II) Shareholders' Contribution and 98,865,800.00 740,312,759.88 807,733,586.00 92,479,784.84 123,924,758.72 Reduction in Capital 1. Common stock 98,865,800.00 708,867,786.00 807,733,586.00 92,479,784.84 92,479,784.84 invested by the owner 2. Capital Invested by Holders of Other Equity Instruments 3. Amount of Share-based Payments 31,444,973.88 31,444,973.88 Recorded into Shareholders' Equity 4. Others (III) Profit Distribution 274,822,162.55 -854,573,388.55 -579,751,226.00 1. Appropriation of 274,822,162.55 -274,822,162.55 Surplus Reserves 2. Appropriation of General Risk Reserves 3. Distribution to Owners -579,751,226.00 -579,751,226.00 (or Shareholders) 4. Others (IV) Internal Carry-forward of Shareholders' Equity 1. Capital Reserves Transferred into Capital (or Share Capital) 2. Surplus Reserves Transferred into Capital 126 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (or Share Capital) 3. Surplus Reserves Covering Losses 4. Carry-forward Retained Earnings of the Variation of the Defined Benefit Plan 5. Others (V) Special Reserves 1. Withdrawal in This Period 2. Used in This Period (VI) Others 167,527,351.43 65,121.08 167,592,472.51 IV. Balance at the End of 2,997,621,930.00 1,501,180,862.83 807,733,586.00 10,337,164.41 1,246,369,430.91 7,670,983,116.33 284,506,754.95 12,903,265,673.43 This Period 127 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Amount of Previous Period Unit: RMB Previous Period Minority Total Shareholders' Shareholders' Equity Attributable to the Parent Company's Owner Shareholders' Equity Equity Item Name Other Equity Instruments Speci Other General Perpetu Less: Treasury al Undistributed Share Capital Preferred Other Capital Reserves Comprehensive Surplus Reserves Risk al Share Reser Profits Stocks s Incomes Reserves Bonds ves I. Balance at the End of 2,899,411,405.00 589,582,012.29 133,001,534.15 2,295,121.72 717,707,331.98 4,161,017,062.96 188,773,235.48 8,425,784,635.28 Last Year Add: Changes in Accounting Policies Correction of Errors in the Previous Period Consolidated under the Same Control Others II. Balance at the Start of 2,899,411,405.00 589,582,012.29 133,001,534.15 2,295,121.72 717,707,331.98 4,161,017,062.96 188,773,235.48 8,425,784,635.28 This Year III. Increases or Decreases in This Period (Mark "-" -655,275.00 3,758,739.23 -133,001,534.15 4,365,067.32 253,839,936.38 1,835,112,973.31 -61,977,598.18 2,167,445,377.21 for Decreases) (I) Total Comprehensive 4,365,067.32 2,378,726,820.22 -1,940,474.12 2,381,151,413.42 Income 128 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (II) Shareholders' Contribution and -655,275.00 7,418,499.17 -133,001,534.15 -63,696,884.00 76,067,874.32 Reduction in Capital 1. Common stock -655,275.00 -4,697,011.20 -133,001,534.15 -63,696,884.00 63,952,363.95 invested by the owner 2. Capital Invested by Holders of Other Equity Instruments 3. Amount of Share-based Payments 12,115,510.37 12,115,510.37 Recorded into Shareholders' Equity 4. Others (III) Profit Distribution 253,839,936.38 -543,613,846.91 -289,773,910.53 1. Appropriation of 253,839,936.38 -253,839,936.38 Surplus Reserves 2. Appropriation of General Risk Reserves 3. Distribution to Owners -289,773,910.53 -289,773,910.53 (or Shareholders) 4. Others (IV) Internal Carry-forward of Shareholders' Equity 1. Capital Reserves Transferred into Capital (or Share Capital) 129 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2. Surplus Reserves Transferred into Capital (or Share Capital) 3. Surplus Reserves Covering Losses 4. Carry-forward Retained Earnings of the Variation of the Defined Benefit Plan 5. Others (V) Special Reserves 1. Withdrawal in This Period 2. Used in This Period (VI) Others -3,659,759.94 3,659,759.94 IV. Balance at the End of 2,898,756,130.00 593,340,751.52 6,660,189.04 971,547,268.36 5,996,130,036.27 126,795,637.30 10,593,230,012.49 This Period 8. Statement of Changes in Owners' Equity of the Parent Company Amount of This Period Unit: RMB Current Period Other Equity Instruments Other Compre Item Name Perpetu Less: Treasury Total Shareholders' Share Capital Preferred Other Capital Reserves hensive Special Reserves Surplus Reserves Undistributed Profits al Share Equity Stocks s Income Bonds s 130 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. I. Balance at the End of Last Year 2,898,756,130.00 589,895,836.49 971,547,268.36 6,037,280,289.37 10,497,479,524.22 Add: Changes in Accounting Policies Correction of Errors in the Previous Period Others II. Balance at the Start of This Year 2,898,756,130.00 589,895,836.49 971,547,268.36 6,037,280,289.37 10,497,479,524.22 III. Increases or Decreases in This 98,865,800.00 907,905,232.39 807,733,586.00 274,822,162.55 1,893,648,236.94 2,367,507,845.88 Period (Mark "-" for Decreases) (I) Total Comprehensive Income 2,748,221,625.49 2,748,221,625.49 (II) Shareholders' Contribution and 98,865,800.00 740,312,759.88 807,733,586.00 31,444,973.88 Reduction in Capital 1. Common stock invested by the 98,865,800.00 708,867,786.00 807,733,586.00 owner 2. Capital Invested by Holders of Other Equity Instruments 3. Amount of Share-based Payments 31,444,973.88 31,444,973.88 Recorded into Shareholders' Equity 4. Others (III) Profit Distribution 274,822,162.55 -854,573,388.55 -579,751,226.00 1. Appropriation of Surplus Reserves 274,822,162.55 -274,822,162.55 2. Distribution to Owners (or -579,751,226.00 -579,751,226.00 Shareholders) 3. Others 131 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (IV) Internal Carry-forward of Shareholders' Equity 1. Capital Reserves Transferred into Capital (or Share Capital) 2. Surplus Reserves Transferred into Capital (or Share Capital) 3. Surplus Reserves Covering Losses 4. Carry-forward Retained Earnings of the Variation of the Defined Benefit Plan 5. Others (V) Special Reserves 1. Withdrawal in This Period 2. Used in This Period (VI) Others 167,592,472.51 167,592,472.51 IV. Balance at the End of This Period 2,997,621,930.00 1,497,801,068.88 807,733,586.00 1,246,369,430.91 7,930,928,526.31 12,864,987,370.10 132 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Amount of Previous Period Unit: RMB Previous Period Other Equity Instruments Other Speci Compre Item Name Less: Treasury al Total Shareholders' Perpetu Share Capital Preferred Capital Reserves hensive Surplus Reserves Undistributed Profits al Others Share Reser Equity Stocks Income Bonds ves s I. Balance at the End of Last Year 2,899,411,405.00 584,959,799.88 133,001,534.15 717,707,331.98 4,042,494,772.45 8,111,571,775.16 Add: Changes in Accounting Policies Correction of Errors in the Previous Period Others II. Balance at the Start of This Year 2,899,411,405.00 584,959,799.88 133,001,534.15 717,707,331.98 4,042,494,772.45 8,111,571,775.16 III. Increases or Decreases in This Period (Mark -655,275.00 4,936,036.61 -133,001,534.15 253,839,936.38 1,994,785,516.92 2,385,907,749.06 "-" for Decreases) (I) Total Comprehensive Income 2,538,399,363.83 2,538,399,363.83 (II) Shareholders' Contribution and Reduction in -655,275.00 4,936,036.61 -133,001,534.15 137,282,295.76 Capital 1. Common stock invested by the owner -655,275.00 -4,697,011.20 -133,001,534.15 127,649,247.95 2. Capital Invested by Holders of Other Equity Instruments 133 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 3. Amount of Share-based Payments Recorded 9,633,047.81 9,633,047.81 into Shareholders' Equity 4. Others (III) Profit Distribution 253,839,936.38 -543,613,846.91 -289,773,910.53 1. Appropriation of Surplus Reserves 253,839,936.38 -253,839,936.38 2. Distribution to Owners (or Shareholders) -289,773,910.53 -289,773,910.53 3. Others (IV) Internal Carry-forward of Shareholders' Equity 1. Capital Reserves Transferred into Capital (or Share Capital) 2. Surplus Reserves Transferred into Capital (or Share Capital) 3. Surplus Reserves Covering Losses 4. Carry-forward Retained Earnings of the Variation of the Defined Benefit Plan 5. Others (V) Special Reserves 1. Withdrawal in This Period 2. Used in This Period (VI) Others 134 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. IV. Balance at the End of This Period 2,898,756,130.00 589,895,836.49 971,547,268.36 6,037,280,289.37 10,497,479,524.22 135 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. III. Basic Information about the Company Zhejiang Dahua Technology Co., Ltd. (hereinafter referred to as "Company" or "the Company") was incorporated under the official approval document No. 18 [2002] Zhejiang Enterprise Listing by Zhejiang Provincial People's Government Work Leading Group for Enterprise Listing in June 2002, and on the basis of overall change of the previous Hangzhou Dahua Information Technology Co., Ltd. It was an incorporated company initiated and established jointly by five natural persons, Fu Liquan, Chen Ailing, Zhu Jiangming, Liu Yunzhen and Chen Jianfeng as initiators. The Company's business license registration number as Legal Entity is 330000000024078. On April 22, 2008, the Company issued 16.8 million shares of common stock in RMB to the general public for the first time under the approval document No. 573 [2008] Securities Regulatory Issuance, issued by China Securities Regulatory Commission ("CSRC"). It was listed on Shenzhen Stock Exchange on May 20, 2008 with a registered capital of RMB 66.8 million and the change registration filed with Administration for Industry and Commerce was completed on May 23, 2008. The Company's unified social credit code is 91330000727215176K. The Company falls within the security video surveillance industry. As at December 31, 2018, the Company has issued a total of 2,997,621,930 shares, with a registered capital of RMB 2,997,621,930. The registered address is No.1187, Bin'an Road, Binjiang District, Hangzhou, and the headquarters address is No.1199, Bin'an Road, Binjiang District, Hangzhou. The Company's main operational activities include the development, services & sales of computer software, the design, development, production, installation & sales of electronic products and communication products, the development, system integration & sales of network products, the design & installation of electronic engineering products, import & export businesses, etc. The actual controllers of the Company are Fu Liquan and Chen Ailing. This financial statement has been approved by Board of Directors on March 18, 2019. As of December 31, 2018, the subsidiaries within the scope of the consolidated financial statement of the Company are as follows: Name of Subsidiaries Zhejiang Dahua System Engineering Co., Ltd. (hereinafter referred to as Dahua System Engineering) Zhejiang Dahua Technology Co., Ltd (hereinafter referred to as Dahua Technology) Zhejiang Dahua Security Network Operation Service Co., Ltd. (hereinafter referred to as Dahua Security Network) Zhejiang Dahua Ju'an Technology Co., Ltd. (hereinafter referred to as Dahua Ju'an) Guangxi Dahua Information Technology Co., Ltd. (hereinafter referred to as Guangxi Dahua Information) Zhejiang Dahua Security Service Co., Ltd. (hereinafter referred to as Dahua Security) Wuxi Dahua Ruide Electronic Technology Co., Ltd. (hereinafter referred to as Wuxi Ruide) Guangxi Dahua Security Service Co., Ltd. (hereinafter referred to as Guangxi Security) Zhejiang Huatu Microchip Technology Co., Ltd. (hereinafter referred to as Huatu Microchip) Hangzhou Xiaohua Technology Co., Ltd. (hereinafter referred to as Xiaohua Technology) Zhejiang Dahua Zhilian Co., Ltd. (hereinafter referred to as Dahua Zhilian) Hangzhou Tecomore Technology Co., Ltd. (hereinafter referred to as Tecomore Technology) Zhejiang Dahua Investment Management Co., Ltd. (hereinafter referred to as Dahua Investment) South North United Information Technology Co., Ltd. (hereinafter referred to as South North United) Guangxi Dahua Zhicheng Co., Ltd. (hereinafter referred to as Guangxi Zhicheng) 136 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Hangzhou Huacheng Network Technology Co., Ltd. (hereinafter referred to as Hangzhou Huacheng) Xinjiang Dahua Zhixin Information Technology Co., Ltd. (hereinafter referred to as Xinjiang Information) Zhejiang HuaRay Technology Co., Ltd. (hereinafter referred to as HuaRay Technology) Hangzhou Fuyang Hua'ao Technology Co., Ltd. (hereinafter referred to as Fuyang Hua'ao) Zhejiang Huafei Intelligent Technology Co., Ltd. (hereinafter referred to as Huafei Intelligent) Zhejiang Huachuang Vision Technology Co., Ltd. (hereinafter referred to as Huachuang Vision) Guizhou Huayi Shixin Technology Co., Ltd. (hereinafter referred to as Guizhou Huayi) Hunan Dahua System Technology Co., Ltd. (hereinafter referred to as Hunan System Technology) Xinjiang Dahua Information Technology Co., Ltd. (hereinafter referred to as Xinjiang Dahua Information) Xinjiang Dahua Intelligence Technology Co., Ltd. (hereinafter referred to as Xinjiang Intelligence) Guizhou Dahua Intelligence Technology Co., Ltd. (hereinafter referred to as Guizhou Intelligence) Xinjiang Dahua Zhihe Information Technology Co., Ltd. (hereinafter referred to as Xinjiang Zhihe) China Standard Intelligent Security Technology Co., Ltd. (hereinafter referred to as China Standard Intelligent Security) Guangxi Huacheng Technology Co., Ltd. (hereinafter referred to as Guangxi Huacheng) Guizhou Meitan Dahua Information Technology Co., Ltd. (hereinafter referred to as Meitan Dahua Technology) Inner Mongolia Dahua Zhimeng Information Technology Co., Ltd. (hereinafter referred to as Inner Mongolia Zhimeng) Xinjiang Dahua Zhitian Information Technology Co., Ltd. (hereinafter referred to as Xinjiang Zhitian) Xinjiang Dahua Xinzhi Information Technology Co., Ltd. (hereinafter referred to as Xinjiang Xinzhi) Xinjiang Dahua Huayue Information Technology Co., Ltd. (hereinafter referred to as Xinjiang Huayue) Tianjin Dahua Information Technology Co., Ltd. (hereinafter referred to as Tianjin Dahua Information) Hunan Dahua Zhilong Information Technology Co., Ltd. (hereinafter referred to as Dahua Zhilong) Zhejiang Vision Technology Co., Ltd. (hereinafter referred to as Vision Technology) Dahua Zhongcheng (Beijing) Technology Co., Ltd. (hereinafter referred to as Zhongcheng Technology) Zhejiang Huaxiao Technology Co., Ltd. (hereinafter referred to as Huaxiao Technology) Xi'an Dahua Zhilian Technology Co., Ltd. (hereinafter referred to as Xi'an Dahua) Wuxi Dahua Ruipin Technology Co., Ltd. (hereinafter referred to as Wuxi Ruipin) Zhejiang Dahua Robot Technology Co., Ltd. (hereinafter referred to as Dahua Robot) Beijing Huayue Shangcheng Information Technology Service Co., Ltd. (hereinafter referred to as Beijing Huayue) Shanghai Huashang Chengyue Information Technology Service Co., Ltd. (hereinafter referred to as Shanghai Huashang) Zhejiang Dahua Jinzhi Technology Co., Ltd. (hereinafter referred to as Dahua Jinzhi) Sichuan Dahua Guangxun Photoelectric Technology Co., Ltd. (hereinafter referred to as Dahua Guangxun) Hangzhou Huajun Technology Co., Ltd. (hereinafter referred to as Huajun Technology) 137 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Dahua Technology (Hong Kong) Co., Ltd. (hereinafter referred to as Dahua HK) Dahua Technology USA Inc. (hereinafter referred to as Dahua USA) Dahua Europe B.V. (hereinafter referred to as Dahua Europe) Dahua Technology Middle East FZE (hereinafter referred to as Dahua Middle East) Dahua Technology Mexico S.A. DE C.V (hereinafter referred to as Dahua Mexico) Dahua Technology Chile SpA (hereinafter referred to as Dahua Chile) Dahua Technology Colombia S.A.S (hereinafter referred to as Dahua Colombia) Dahua Technology Australia PTY LTD (hereinafter referred to as Dahua Australia) Dahua Technology Singapore Pte. Ltd. (hereinafter referred to as Dahua Singapore) Dahua Technology South Africa Proprietary Limited (hereinafter referred to as Dahua South Africa) Dahua Technology PerúS.A.C (hereinafter referred to as Dahua Peru) DAHUA TECHNOLOGY BRASIL COMRCIO E SERVIOS EM SEGURANA ELETRNICA LTDA (hereinafter referred to as Dahua Brazil) Dahua Technology Rus Limited Liability Company (hereinafter referred to as Dahua Russia) Dahua Technology Canada INC. (hereinafter referred to as Dahua Canada) Dahua Technology Panama S.A. (hereinafter referred to as Dahua Panama) Dahua Technology Hungary Kft (hereinafter referred to as Dahua Hungary) Dahua Technology Poland Sp. z o.o. (hereinafter referred to as Dahua Poland) Dahua Italy S.R.L. (hereinafter referred to as Dahua Italy) Dahua Technology Tunisia (hereinafter referred to as Dahua Tunisia) Dahua Technology Kenya Limited (hereinafter referred to as Dahua Kenya) Dahua Technology UK Limited (hereinafter referred to as Dahua UK) Dahua Technology Bulgaria EOOD (hereinafter referred to as Dahua Bulgaria) Dahua Technology SRB d.o.o. (hereinafter referred to as Dahua Serbia) Dahua Technology GmbH (hereinafter referred to as Dahua Germany) Dahua Security Malaysia SDN. BHD. (hereinafter referred to as Dahua Malaysia) Dahua Technology Korea Company Limited (hereinafter referred to as Dahua Korea) PT. Dahua Vision Technology Indonesia (hereinafter referred to as Dahua Indonesia) Dahua Technology India Private Limited (hereinafter referred to as Dahua India) Dahua Guvenlik Teknolojileri Sanayi ve Ticaret A.S. (hereinafter referred to as Dahua Turkey) Dahua Technology Czech s.r.o. (hereinafter referred to as Dahua Czech) Dahua Argentina S.A. (hereinafter referred to as Dahua Argentina) 138 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Dahua Iberia, S.L. (hereinafter referred to as Dahua Spain) Dahua Technology Kazakhstan LLP (hereinafter referred to as Dahua Kazakhstan) Dahua Technology Denmark Aps. (hereinafter referred to as Dahua Denmark) Dahua Technology France (hereinafter referred to as Dahua France) Lorex corporation (hereinafter referred to as American Lechange) Dahua Technology Holdings Limited (hereinafter referred to as Dahua Technology Holdings) Dahua Technology Morocco SARL (hereinafter referred to as Dahua Morocco) Dahua Technology Italy S.R.L. (hereinafter referred to as Dahua Italy) Dahua Vision LLC (hereinafter referred to as Dahua Uzbekistan) Dahua Technology Netherlands B.V. (hereinafter referred to as Dahua Netherlands) Dahua Technology China (hereinafter referred to as Pvt) LTD (hereinafter referred to as Dahua Sri Lanka) Lorex Technology Inc (hereinafter referred to as Dahua Lorex) Dahua Technology Pakistan (hereinafter referred to as private) Limited (hereinafter referred to as Dahua Pakistan) Dahua Technology New Zealand Limited (hereinafter referred to as Dahua New Zealand) Dahua Technology(hereinafter referred to as Thailand) Co.,LTD. (hereinafter referred to as Dahua Thailand) Dahua Technology SRL (hereinafter referred to as Dahua SRL) For details of the scope and changes of the consolidated financial statement for the current period, refer to "Notes VIII Changes in the Scope of Consolidation" and "Notes IX Equity in Other Entities". IV. Basis for Preparing the Financial Statement 1. Basis for the preparation The Company prepares the financial statement, as a going concern, based on transactions and matters that have actually occurred, in accordance with Accounting Standards for Business Enterprises - Basic Standards issued by the Ministry of Finance and all specific accounting standards, application guidelines for accounting standards for business enterprises, explanations on the accounting standards for business enterprises and other related regulations (hereinafter referred to as "Accounting Standards for Business Enterprises" collectively), and the disclosure provisions in the Preparation Rules for Information Disclosures by Companies Offering Securities to the Public No. 15 - General Provisions on Financial Reports issued by CSRC. 2. Going concern The Company has the capability to continue as a going concern for at least 12 months as of the end of current reporting period, without any significant item affecting the capability for continuing as a going concern. 139 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. V. Significant Accounting Polices and Accounting Estimates Notes to specific accounting policies and accounting estimates: The following disclosures cover the specific accounting policies and accounting estimates formulated by the Company according to the characteristics of its production and operation. 1. Statement on compliance with Accounting Standards for Business Enterprises The financial statements have been prepared by the Company in conformity with Chinese Accounting Standards for Business Enterprises, and present truly and completely the Company's financial position, operating results and cash flow, and other related information in the reporting period. 2. Accounting period The accounting period of the Company is from 1 January to 31 December of each calendar year. 3. Operating cycle The Company's operating cycle is 12 months. 4. Functional currency For the domestic operating entities of the Company and its overseas operating entity Dahua Technology (HK) Limited, the reporting currency is Renminbi ("RMB"). The remaining offshore operating entities use the local currency as the reporting currency. 5. The accounting treatment of business combinations involving enterprises under common control and business combinations not involving enterprises under common control Business combinations involving entities under common control: The assets and liabilities acquired by the Company in business combination shall be measured at the carrying value of the assets, liabilities of the acquiree (including goodwill incurred in the acquisition of the acquiree by ultimate controlling party) in the consolidated financial statements of the ultimate controlling party on the date of combination. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or total nominal value of the issued shares) is adjusted to capital premium in capital reserve. Adjustments shall be made to retained earnings in the event that the share premiums in the capital reserves are not sufficient for write-down. Business combinations involving entities not under common control: The assets paid and liabilities incurred or committed as a consideration of business combination by the Company were measured at fair value on the date of acquisition and the difference between the fair value and its carrying value shall be charged to the profit or loss for the period. Where the cost of combination is higher than the fair value of the identifiable net assets acquired from the acquire in business combination, the Company shall recognize such difference as goodwill; where the cost of combination is less than the fair value of the identifiable net assets acquired from the acquiree in business combination, such difference shall be charged to the profit or loss for the current period. The agency fee such as audit, legal service and evaluation consultation and other fees which are directly related to the above matters shall be recognized as the profit or loss in the period when the costs are incurred; the transaction costs for the equity securities issued for corporate combination shall be written-off against equity. 140 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 6. Preparation method of consolidated financial statements The scope of consolidation of the consolidated financial statements of the Company is based on controlling interests, and all the subsidiaries (including separate entities of the investee controlled by the Company) are included in the consolidated financial statements. The consolidated financial statements are prepared by the Company based on the financial statements of the Company and its subsidiaries and in accordance with the other relevant information. In preparation of the Company's consolidated financial statements, the Company will treat the enterprise group as a single accounting entity. The Group's overall financial position, operating results and cash flow are reflected based on the relevant accounting standards, measurement and presentation requirements and in accordance with the unified accounting policy. The subsidiaries that are within the scope of the consolidation shall have the same accounting policies and the accounting periods with those of the Company. In preparing the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries, the financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company. For subsidiaries acquired from a business combination involving entities not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets on the date of acquisition. For subsidiaries acquired from a business combination involving entities under common control, the individual financial statements of the subsidiaries are adjusted based on the carrying value of the assets, liabilities of the acquiree (including goodwill incurred in the acquisition of the acquiree by ultimate controlling party) in the financial statements of the ultimate controlling party. The owner's equity, the net profit or loss and the comprehensive income attributable to minority shareholders of a subsidiary of the current period are presented separately under the owners' equity in the consolidated balance sheet, the net profit and the total comprehensive income in the consolidated income statement respectively. Where losses attributable to the minority shareholders of a subsidiary of the current period exceed the minority shareholders' interest entitled in the shareholders' equity of the subsidiary at the beginning of the period, the excess is allocated against the minority shareholders interest. (1) Acquisition of subsidiaries or business For acquisition of subsidiaries or business due to business combination involving entities under common control during the reporting period, the opening balance of the consolidated balance sheet shall be adjusted; the revenue, expense and profit of such subsidiaries or business from the beginning to the end of the reporting period when the merger occurs are included in the consolidated income statement; the cash flows of such subsidiaries or business from the beginning to the end of the reporting period when the merger occurs are included in the consolidated cash flow statement, and the comparative figures of the financial statements should be adjusted simultaneously as if the consolidated reporting entity has been in existence since the beginning of the control by the ultimate controlling party. An investor that may impose control over the investee under joint control due to additional investment shall be deemed a party participating in the combination, and shall be adjusted at current status when the ultimate controlling party begins the control. The equity investment held before gaining the control of the combined party is recognized as relevant profit or loss, other comprehensive income and changes in other net assets at the later of the date of acquisition of the original equity and the date when the combining and the combined parties are under joint control, and shall be written down to the opening balance retained earnings or current profit or loss in the comparative reporting period. For acquisition of subsidiaries due to business combination involving entities not under common control during the reporting period, the opening balance of consolidated balance sheet needs not be adjusted; the revenue, expense and profit of such subsidiaries or business from the date of acquisition to the end of the reporting period are included in the consolidated income statement; the cash flows of such subsidiaries or business from the date of acquisition to the end of the reporting period are included in the consolidated cash flow statement. In connection with imposing control over the investee not under joint control due to additional investment and other reasons, the 141 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. equity of acquiree held before acquisition date shall be remeasured by the Company at the fair value of such equity on the acquisition date and the difference between fair value and carrying amount shall be recognized as investment income in current period. If the acquiree's equity held before the acquiring date contains other comprehensive income and the other changes of owner's equity except for net profits and losses, other comprehensive income and profit distributions under the equity method, the related other comprehensive income and changes in other owner's equity shall be transferred to investment gains or losses on the date of acquisition, excluding the other comprehensive income derived from changes of net liabilities or net assets due to re-measurement on defined benefit plan by the investee. (2) Disposal of subsidiaries or business ① General treatment For disposal of subsidiaries or business during the reporting period, the revenue, expense and profit of such subsidiaries or business from the beginning of the period to the date of disposal are included in the consolidated income statement; the cash flows of such subsidiaries or business from the beginning of the period to the date of disposal are included in the consolidated cash flow statement. When losing control of the investee due to partial disposal of the equity investment, or any other reasons, the remaining equity investment is remeasured at fair value at the date in which control is lost. The sum of consideration received from disposal of equity investment and the fair value of the remaining equity investment, net of the difference between the sum of the Company's previous share of the subsidiary's net assets recorded from the acquisition date or combination date and the sum of goodwill, is recognized in investment income in the period in which control is lost. Other comprehensive income or net profit and loss related to the previous equity investment in the subsidiary, changes in equity except the other comprehensive income and profit distribution, are transferred to investment income of the current period when losing control, except the other comprehensive income as a result of the changes arising from the remeasurement of the net assets and net liabilities of the investee's defined benefit plan. In the event of losing control due to a decrease in the proportion of shares held by the Company as the capital increase in subsidiaries by other investors, the accounting treatment shall be conducted in accordance with the above principles. ② Disposal of subsidiary achieved by stages When disposal of equity interests of subsidiaries through multiple transaction until the control is lost, generally transactions in stages are treatment as a package deal in accounting if the transaction terms, conditions, and economic impact of disposal of the subsidiary's equity interests comply with one or more of the following: ⅰ. These transactions are achieved at the same time or the mutual effects on each other are considered; ⅱ. A complete set of commercial results can be achieved with reference to the series of transactions as a whole; ⅲ. Achieving a transaction depends on at least achieving of one of the other transaction; ⅳ. One transaction recognized separately is not economical, but it is economical when considered together with other transactions. When losing control of a subsidiary in disposal of equity interests through multiple transactions is recognized as a package deals, these transactions shall be in accounting treated as loss control of a subsidiary in disposal of equity interests achieved. However, the differences between price on each disposal and disposal of investment on the subsidiary's net assets shall be recognized in other comprehensive income in the consolidated financial statements, and included in profit or loss for the period when the control is lost. If all transactions in disposal of equity interests of subsidiaries until losing control are not a package deals, accounting treatment for partial disposal of equity investments of subsidiary without losing control shall be applied before control is lost. When the control is lost, general accounting treatment for disposal of a subsidiary shall be used. (3) Acquisition of minority interest of subsidiaries The Company shall adjust the share premium in the capital reserve of the consolidated balance sheet with respect to any difference between the long-term equity investment arising from the purchase of minority interest and the net assets attributing to the parent company continuously calculated on the basis of the newly increased share proportion as of the acquisition date (or date of combination) or, adjust the retained earnings if the share premium in the capital reserve is insufficient for write-down. 142 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (4) Partial disposal of equity investment in subsidiaries without losing control The difference between disposal consideration of long-term equity investment in subsidiaries partially disposed without losing control and the share of net assets calculated from the date of acquisition or combination date shall be adjusted to share premium in the capital reserve in the consolidated balance sheet. Adjustments shall be made to retained earnings in the event that the share premiums in the capital reserves are not sufficient for write-down. 7. Recognition criteria of cash and cash equivalents In preparing the cash flow statement, the cash on hand and deposits that are available for payment at any time of the Company are recognized as cash. The short-term (due within 3 months of the date of purchase) and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of value change are recognized as cash equivalents. 8. Conversion of transactions and financial statements denominated in foreign currencies (1) Foreign currency transactions Foreign currency transactions shall be translated into RMB at the spot exchange rate on the day when the transactions occurred. Balance sheet date foreign currency monetary items shall be translated using the spot exchange rate at the balance sheet date. The resulting exchange differences are recognized in profit or loss for the current period, except for those differences related to the principal and interest on a specific-purpose borrowing denominated in foreign currency for acquisitions, construction or production of the qualified assets, which should be capitalized as cost of the assets. 2. Translation of foreign currency financial statements All assets and liabilities items in balance sheet are translated based on spot exchange rate on the balance sheet date; owners' equity items other than "undistributed profit" are translated at a spot exchange rate when accrued. Revenue and expense items in the income statement are translated at a spot exchange rate at the transaction occurrence date. For disposal of overseas operation, the translation difference as stated in the foreign currency financial statements relating to overseas operation is accounted for in the profit and loss account in the current period from owners' equity items. 9. Financial instruments Financial instruments include financial assets, financial liabilities and equity instruments. (1) Classification of the financial instruments The financial instruments was classified at the time of initial recognition as: financial assets or financial liabilities carried at fair value through profit or loss for the current period, including financial assets or liabilities for trading and financial assets or financial liabilities directly designated as measured at fair value and its changes are included in the profit or loss for the current period; held-to-maturity investments; accounts receivable; available-for-sale financial assets and other financial liabilities. (2) Recognition and measurement of financial instruments ① Financial assets or financial liabilities carried at fair value through profit or loss for the current period When obtained, the financial assets or financial liabilities shall be initially measured at their fair value (except for cash dividends which are declared but not distributed or interests on bonds of which the maturity interest is not drawn), its transaction costs are included in the profit or loss for the period. The interest or cash dividend gained in the period are recognized as investment income. At the end of the period, the variation in the fair value of the financial asset or financial liability shall be included in the profit or loss for the period. When being disposed, the difference between the fair value and the amount of initial recognition shall be recognized as investment income; meanwhile, the profits and losses arising from the variation in fair value shall be adjusted. 143 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. ② Held-to-maturity investments Held-to-maturity investments are initially measured at fair value when obtained (except for interests on bonds of which the maturity interest is not drawn) plus relevant transaction costs. Interest income is calculated according to the amortized cost and effective interest rate and recorded into investment income. The effective interest rate, ascertained when initially obtained, shall remain unchanged within the predicted term of existence or within a shorter applicable term. When being disposed, the difference between the consideration obtained and the carrying amount of the investment shall be recorded into investment income. ③ Accounts receivable The receivables that are formed in sale of goods or rendering of services to external parties, and the receivables, except for the debt instruments quoted in an active market, due to the Company from other entities, including accounts receivable, other receivables, etc., are initially recognized at the consideration of the contract or agreement to be received from the buyers. Accounts receivable that are of a financing nature are initially recognized at their present value. Upon recovery or disposal of accounts receivable, the difference between the consideration obtained and the carrying amount is charged to profit or loss for the period. ④ Available-for-sale financial assets Available-for-sale financial assets are initially measured at fair value when obtained (except for cash dividends which are declared but not distributed or interests on bonds of which the maturity interest is not drawn) plus relevant transaction costs. The interests or cash dividends to be obtained during the period the available-for-sale financial assets are held shall be recorded into investment income. By the end of the reporting period, financial assets are measured at fair value, and the change in fair value shall be recorded into other comprehensive income. However, measurement at cost shall be used when there is no quoted price in an active market and the fair value of investments in equity instruments cannot be reliably measured and derivative financial assets is linked to equity instruments where equity instrument shall be settled by delivery. When being disposed, the difference between the consideration obtained and the carrying amount of the financial assets shall be recorded into investment income; meanwhile, the corresponding portion of accumulated change in fair value previously recorded into other comprehensive income shall be transferred to profit or loss. ⑤ Other financial liabilities Other financial liabilities are initially measured at fair value plus relevant transaction costs, and subsequently measured at amortized cost. (3) Recognition basis and measurement of transfer of financial assets Financial asset recognition shall be terminated while the Company has transferred nearly all the risks and rewards related to the ownership of the financial asset to the transferee, and it shall not be terminated if the Company has retained nearly all the risks and rewards related to the ownerships of the financial asset. The substance-over-form principle shall be adopted while making judgment on whether the transfer of financial assets satisfies the above conditions for termination of recognition. The transfer of financial assets can be classified into entire transfer and partial transfer. If the transfer of an entire financial asset satisfies the conditions for termination of recognition, the difference between the two amounts below shall be recorded into profit or loss for the period: ① The carrying amount of the financial asset transferred; ② The consideration received as a result of the transfer, plus the accumulative amount of the change in fair value previously recorded into the owners' equities (in cases where the transferred financial asset is available-for-sale financial asset). If the partial transfer of financial assets satisfies the conditions for termination of recognition, the overall carrying amount of the transferred financial asset shall be apportioned according to their respective relative fair value between the recognition terminated part and the remaining part, and the difference between the two amounts below shall be recorded into profit or loss for the current period: 144 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. ① The carrying amount of the recognition terminated portion; ② The sum of consideration of the recognition terminated portion and the corresponding portion of accumulated change in fair value previously recorded into owners' equity (in cases where the transferred financial assets are available for-sale financial assets). Financial assets will still be recognized if they fail to satisfy the conditions for termination of recognition, with the consideration received recognized as a financial liability. (4) Recognition conditions for termination of financial liabilities When the current obligation under a financial liability is completely or partially discharged, the recognition of the whole or relevant portion of the liability is terminated; an agreement is entered between the Company and a creditor to replace the original financial liabilities with new financial liabilities with substantially different terms, terminate the recognition of the original financial liabilities as well as recognize the new financial liabilities. If all or part of the contract terms of the original financial liabilities is substantially amended, the recognition of the original financial liabilities will be terminated in full or in part, and the financial liabilities whose terms have been amended shall be recognized as a new financial liability. When recognition of financial liabilities is terminated in full or in part, the difference between the carrying amount of the financial liabilities terminated and the consideration paid (including transferred non-cash assets or new financial liability) is recognized in profit or loss for the current period. Where the Company repurchases part of its financial liabilities, the carrying amount of such financial liabilities will be allocated according to the relative fair value between the continued recognized part and terminated part on the repurchase date. The difference between the carrying amount of the financial liabilities terminated and the consideration paid (including transferred non-cash assets or new financial liability) is recognized in profit or loss for the current period. (5) Method of determining the fair values of financial assets and liabilities The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument that is not traded in an active market is determined by using a valuation technique. The Company uses the valuation technique when it is applicable under current conditions and there are enough available data and other information to support and the technique should maximize the use of relevant observable. It chooses the inputs which are consistent with the asset or liability's characteristics considered by market participants in the transaction of the relevant asset or liability and makes the maximum use of relevant observable inputs. Unobservable inputs are used under the circumstance that the relevant observable inputs cannot be obtained or not feasible. (6) Testing methodology and accounting treatment for impairment of financial assets (excluding accounts receivable) The Company shall assess the carrying amount of financial assets other than those at fair value through profit or loss at the balance sheet date. If there is objective evidence that the financial asset is impaired, the Company shall make provision of any impairment. ① Impairment provision for available-for-sale financial asset: While the fair value of available-for-sale financial asset falls significantly, or judged by the Company that descending trend is not temporary after taking into account related data comprehensively at the end of the period, they will be recognized as impaired, the cumulative loss arising from decline in fair value that had been recognized directly in the owners' equity shall be removed from the shareholders' equity and recognized as impairment loss. If, after an impairment loss has been recognized on an available-for-sale debt instrument, the fair value of the debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the original impairment loss was recognized, the impairment loss shall be reversed, with the amount of the reversal recognized in the profit or loss for the current period. Impairment losses recognized for an investment in an available-for-sale equity instrument shall not be reversed through profit or loss. ② Impairment provision for held-to-maturity investments: 145 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. The impairment losses of held-to-maturity investments shall be measured according to the method for measuring impairment losses of accounts receivable. 10. Notes Receivable and Accounts Receivable (1) Accounts receivable which are individually insignificant but subject to separate bad debt provision Bases for Making Judgment and Standard for Calculation the Amount for the Accounts Within top five accounts receivable balances Receivable That Are Individually Significant When assessing provision for bad debts separately, if the objective evidence shows that the accounts receivable has been impaired, the provision for bad Recognition of Receivables with Amounts that are debts will be made according to the difference of the present value of the Individually Significant and Subject to Separate expected future cash flow below its book value. When separately assessing the Assessment for Provision for Bad Debts accounts receivable that have not been devalued, it is classified into the corresponding combinations for bad debt provision. (2) Accounts receivable for which provision of bad debts made by portfolio of credit risk characteristics Portfolio Name Method of Provision of Bad Debts Related party accounts receivable within the scope of the Portfolio 1: Related Parties Portfolio portfolio are not provided for bad debts Portfolio 2: Aging Analysis Portfolio Aging analysis In this portfolio, the aging analysis method is used to make provision for bad debts: √ Applicable □ Not applicable Provision Percentage for Account Provision Percentage for Other Aging Receivables Receivables Within 1 year (including 1 year) 5.00% 5.00% 1-2 years 10.00% 10.00% 2-3 years 30.00% 30.00% 3-4 years 50.00% 50.00% 4-5 years 80.00% 80.00% 5 years or above 100.00% 100.00% In this portfolio, the balance percentage method is used to make provision for bad debts: □ Applicable √ Not applicable In this portfolio, other methods are used to make provision for bad debts: □ Applicable √ Not applicable 146 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (3) Accounts receivable that are individually insignificant but are provided for bad debt on individual basis Reason for Making Bad Debt Long aging, with objective evidence of impairment Provision Individually Impairment loss is recognized and bad debt provision is made by using the difference between the Method for Bad Debt Provision present value of estimated future cash flows and the book value of receivables 11. Inventories (1) Category of inventory Inventories are classified as raw materials, turnover materials, commodity stocks, products in progress and materials commissioned for processing. (2) Determination of cost Cost of inventories is determined using the weighted average method. (3) Basis for the determination of net realizable value and different type of inventories Net realizable value of held-for-sale commodity stocks, such as finished goods, goods-in-stock, and held-for-sale raw materials, during the normal course of production and operation, shall be determined by their estimated sales less the related selling expenses and taxes; the net realizable value of material inventories, which need to be processed, during the normal course of production and operation, shall be determined by the amount after deducting the estimated cost of completion, estimated selling expenses and relevant taxes from the estimated selling price of finished goods; the net realizable value of inventories held for execution of sales contracts or labor contracts shall be calculated on the ground of the contracted price. If an enterprise holds more inventories than the quantity stipulated in the sales contract, the net realizable value of the exceeding part shall be calculated on the ground of general selling price. Decline in value of inventories is made on an item-by item basis at the end of the period. For large quantity and low value items of inventories, provision may be made based on categories of inventories; for items of inventories relating to a product line that is produced and marketed in the same geographical area and with the same or similar end uses or purposes, which cannot be practicable evaluated separately from other items in that product line, provision for decline in value of inventories may be determined on an aggregate basis. Unless the evidence clearly shows that abnormality in market price exists as of the balance sheet date, the net realizable value of inventories is determined based on the market price as of the balance sheet date. The net realizable value of inventories at the end of current period is determined based on the market price of the balance sheet date. (4) Inventory system The perpetual inventory system is adopted. (5) Amortization of low-value consumables and packaging materials ① Low-value consumables are amortized using the immediate write-off method; ② Packaging materials are amortized using the immediate write-off method. 12. Holding for-sale assets A non-current asset or disposed group is classified by the Company as holding for sale if it meets the following criteria at the same time: (1) Immediate sale could be made under the current circumstances in accordance with the convention of selling such kind of assets or disposal groups in similar transactions; 147 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Selling is extremely likely to occur, i.e. the Company has made a resolution on a selling plan and obtained confirmed purchase commitments, and the selling is predicted to be completed within 1 year. If required by relevant provisions that selling shall only be made after approved by the relevant competent authority or supervision department of the Company, such approval should have been obtained. 13. Long-term equity investments (1) Joint control or significant influence criterion Joint control is the contractually agreed sharing of control of an arrangement, and exists only when requiring the unanimous consent of the parties sharing control before making decisions about the relevant activities of the arrangement. The Company together with the other joint venture parties can jointly control over the investee and are entitled to the right of the net assets of the investee, as the investee is joint venture of the Company. Significant influence refers to the power to participate in making decisions on the financial and operating policies of an enterprise, but not the power to control, or jointly control, the formulation of such policies with other parties. Where the Company can exercise significant influence over the investee, the investee is an associate of the Company. (2) Determination of initial investment cost ① Long-term equity investments formed through business combination of entities For business combinations involving entities under common control: where the Company pays cash, transfers non-cash assets, bears debts or issues equity securities as consideration of combinations, the initial investment cost of long-term equity investments are the share with reference to the book value of the shareholders' equity of the combined party in the consolidated financial statements of the ultimate controlling party on the date of combinations. In connection with imposing control over the investee under joint control as a result of additional investment and other reasons, on the combination date, the initial cost of long-term equity investments shall be determined based on share of carrying amounts in the consolidated financial statement of the ultimate controlling party by net assets of the combined party after the combination. The difference between initial investment cost and the carrying value of long term equity investment before combination and the sum of carrying value of newly paid consideration for additional shares acquired on the date of combination is to adjust share premium. If the balance of share premium is insufficient, any excess is adjusted to retained earnings. Business combinations involving entities not under common control: the cost of the combination ascertained on the date of acquisition shall be taken as the initial investment cost of the long-term equity investments. In connection with imposing control over the investee not under joint control as a result of additional investment and other reasons, the initial investment cost when changing to the cost method shall be the sum of the carrying value of the equity investment originally held and the newly increased initial investment cost. ② Long-term equity investments acquired by other means The initial cost of a long-term equity investment obtained by cash payment shall be the purchase costs actually paid. The initial cost of investment of a long-term equity investment obtained by means of issuance of equity securities shall be the fair value of the equity securities issued. If the non-monetary assets transaction is commercial in nature and the fair value of the assets received or surrendered can be reliably measured, the initial cost of investment of a long-term equity investment received the non-monetary assets transaction, shall be determined on the basis of the fair value of the assets surrendered and the related tax payable, unless there are concrete evidences that the fair value of the assets received is more reliable; For non-monetary assets transaction which does not meet the above conditions, the initial cost of a long-term equity investment received shall be the book value of the assets surrendered and the relevant taxes payable. The initial cost of a long-term equity investment through debt restructuring shall be ascertained based on their fair value. (3) Subsequent measurement and recognition of profit or loss 148 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. ① Long-term equity investment calculated by cost method Long-term equity investment in subsidiaries of the Company is calculated by cost method, except for the actual consideration paid for the acquisition of investment or the declared but not yet distributed cash dividends or profits which are included in the consideration, investment gains are recognized as the Company' shares of the cash dividends or profits declared by the investee. ② Long-term equity investment accounted for by equity method Long-term equity investments of associates and jointly controlled entities are calculated using equity method. Where the initial investment cost of a long-term equity investment exceeds the investor's interest in the fair value of the investee's identifiable net assets at the acquisition date, no adjustment shall be made to the initial investment cost; where the initial investment cost is less than the investor's interest in the fair value of the investee's identifiable net assets at the acquisition date, the difference shall be charged to profit or loss for the current period. The Company recognizes the investment income and other comprehensive income according to the shares of net profit or loss and other comprehensive income realized by the investee which it shall be entitled or shared respectively, and simultaneously makes adjustment to the carrying value of long-term equity investments; The carrying value of long-term equity investment shall be reduced by attributable share of the profit or cash dividends for distribution declared by the investee. In relation to other changes of owner's equity except for net profits and losses, other comprehensive income and profit distributions of the investee, the carrying value of long-term equity investments shall be adjusted and included in owner's equity. When determining the amount of proportion of net profit or loss in the investee which it entitles, fair value of each identifiable assets of the investee at the time when the investment is obtained shall be used as basis, and according to the accounting policies and accounting period of the Company, adjustment shall be made to the net profit of the investee. During the period of holding investments, when preparing consolidated financial statements by the investee, the accounting shall be based on the amounts attributable to the investee in the net profit, other comprehensive income and other changes of the owner's equity in the consolidated financial statements. The unrealized profit or loss resulting from transactions between the Company and its associates or joint venture shall be eliminated in portion to the investor's equity interest of investee, based on which investment income or loss shall be recognized. Any losses resulting from transactions, which are attributable to impairment of assets, shall be fully recognized. Where transactions of investing or selling the assets occur between the Company and the associated enterprises or joint ventures and that the assets constitute a business, account processing shall be conducted in accordance with the relevant policies disclosed in "Section XI Financial Reports, V. Significant Accounting Polices and Accounting Estimates, 5. The accounting treatment of business combinations involving enterprises under common control and business combinations involving enterprises under common control" and "Section XI Financial Reports, V. Significant Accounting Polices and Accounting Estimates, 6. Method of preparation of consolidated financial statements". In recognition of share of losses in the investee, the Company treats it in the following order: Firstly, the Company will write off the carrying value of long-term equity investments. Secondly, in the event the aforesaid carrying value is insufficient for offset, the investment losses shall continue to be confirmed with the limit of the carrying amount of long-term equity which substantially constitutes the net investment in the investee, to offset the carrying amount of long-term receivable. Finally, after the above treatment, for the additional obligations which shall be still assumed by entities according to investment contract or agreement, the estimated liabilities shall be recognized based on the obligations which are expected to assume and included in the investment loss for the current period. ③ Disposal of long-term equity investments For disposal of long-term equity investment, the difference between the book value and the consideration actually received shall be included in the current profit or loss. For the long-term equity investment under the equity method, when disposing of such investment, part of amounts that shall be originally included in other comprehensive income shall be accounted for in proportion by using the same basis as the investee used for direct disposal of relevant assets or liabilities. The owner's equity which is recognized due to other changes of owner's equity 149 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. except for net profits and losses, other comprehensive income and profit distributions shall be transferred in proportion into the current profit or loss, excluding the other comprehensive income derived from changes of net liabilities or net assets due to re-measurement on defined benefit plan by the investee. When losing the controls or material influence over the investee due to partially disposal of equity investment and other reasons, the remaining equities shall be accounted for in accordance with the standards on recognition and measurement of financial instruments, and the difference between the fair value and the carrying value at the date of losing control or material influence shall be included in current profit or loss. For other comprehensive income recognized in the original equity investment due to the equity method is adopted, it shall be treated using the same accounting basis as the investee used for direct disposal of relevant assets or liabilities when ceasing to use the equity method. All owner's equities which are recognized due to other changes of owner's equity except for net profits and losses, other comprehensive income and profit distributions shall be transferred into the current profit or loss when ceasing to use the equity method. When losing the controls over the investee due to partially disposal of equity investment and other reasons, the remaining equities after disposal shall be accounted for under equity method in preparation of individual financial statements provided that common control or material influence over the investee can be imposed, and shall be adjusted as if such remaining equities has been accounted for under the equity method since they are obtained. Where the remaining equities after disposal cannot impose common control or material influence over the investee, it shall be accounted for according to relevant provisions of the standards on recognition and measurement of financial instruments, and the difference between fair value and the carrying value on the date of losing control shall be included in the current profit or loss. The disposed equity interest was acquired in a business combination as resulted from such as making additional investment, the remaining equity interest after disposal will be accounted for using cost method or equity method when preparing the separate financial statements. Other comprehensive income and other owners' equity recognized when the equity interests held on the acquisition date is accounted for using equity method and shall be transferred proportionally; For the remaining equity interest after disposal accounted for using the recognition and measurement standard of financial instruments, other comprehensive income and other owners' equity shall be fully transferred. 14. Investment property Investment property refers to the real estate held to generate rental income or capital appreciation, or both, including leased land use rights, land use rights held for transfer after appreciation, and leased buildings (including buildings that are leased after completion of self-construction or development activities and buildings in construction or development that are used for rental in the future). The Company adopts the cost mode to measure the existing investment property. Investment property measured at cost - buildings held for leasing shall adopt the same depreciation policy for fixed assets of the company, land use rights held for leasing shall adopt the same amortization policy for the intangible assets. 15. Fixed assets (1) Conditions for recognition of fixed assets Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and have a service life of more than one accounting year. Fixed asset is recognized when it meets the following conditions: ① It is probable that the economic benefits associated with the fixed asset will flow to the enterprise; ② Its cost can be reliably measured. 150 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Methods for depreciation Useful lives of Annual Depreciation Category Depreciation Method Residual Ratio depreciation Rate Housing and building Straight-line method 20 5% 4.75% Machinery and Straight-line method 5-10 5% 19.00%-9.50% equipment Means of transport Straight-line method 4-8 5% 23.75%-11.88% Electronic and other Straight-line method 3-5 5% 31.67%-19.00% equipment Fixed assets are depreciated by categories using the straight-line method, and the annual depreciation rates are determined by categories based upon their estimated useful lives and their estimated residual values. Where the parts of a fixed asset have different useful lives or cause economic benefits for the enterprise in different ways, different depreciation rates or depreciation methods shall apply, and each part is depreciated separately. For fixed assets leased under finance lease, if it can be reasonably determined that the ownership of the leased asset can be acquired upon the expiry of the lease term, depreciation policies in line with the fixed assets will be adopted for depreciation during the remaining service life of the leased asset. If it cannot be reasonably determined that the ownership of the leased asset can be acquired upon the expiry of the lease term, depreciation policies in line with the fixed assets will be adopted for depreciation during the shorter of the lease term and the remaining service life of the leased asset. (3) Recognition bases and measurement methods of fixed assets under finance lease Where any one of the following conditions is provided in the lease agreement between the Company and the lessee, the leased assets can be recognized as fixed assets acquired under finance leases: ① The ownership of the leased assets after the expiration of the tenancy is attributable to the Company; ② The Company has the option to purchase the leased asset, the purchase consideration entered into is expected to be far less than the fair value of the leased asset upon the exercise of the option; ③ The lease term accounts for the majority of the service life of the leased asset; ④ There is no great difference between the minimum present lease value on the lease commencement date and the fair value of the assets. On the commencement of the lease, the leased asset shall be recorded at an amount equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments, and the minimum lease payments shall be recorded as the carrying amount of long-term payables. The difference between the recorded amount of the leased asset and the minimum lease payments shall be accounted for as unrecognized finance charge. 16. Construction in progress Criteria and time point for construction in progress being transferred to the fixed asset Construction in progress is measured at all the expenditures incurred to bring the fixed assets ready for their intended use. If the construction in progress of fixed assets constructed are ready for their intended use but the final account of completed project has not been issued, it should be transferred to fixed assets at an estimated cost according to the construction budget, construction price or actual cost, and depreciation should be provided according to deprecation policy for fixed assets from the date when the assets are ready for their intended use. When the final account of completed project is issued, the estimated cost will be adjusted according to the actual cost, while the original depreciation charge will not be adjusted. 151 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 17. Borrowing costs (1) Criteria for recognition of capitalized borrowing costs Borrowing costs refers to the borrowing interests, amortization of discounts or premiums, ancillary costs and exchange differences arising from foreign currency borrowings, etc. For borrowing costs incurred by the Company that are directly attributable to the acquisition, construction or production of assets qualified for capitalization, the costs will be capitalized and included in the costs of the related assets. Other borrowing costs shall be recognized as expense in the period in which they are incurred and included in profit or loss for the current period. Assets qualified for capitalization are assets (fixed assets, investment property, inventories, etc.) that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale. Capitalization of borrowing costs begins when the following three conditions are fully satisfied: ① expenditures for the assets (including cash paid, transferred non-currency assets or expenditure for holding debt liability for the acquisition, construction or production of assets qualified for capitalization) have been incurred; ② borrowing costs have been incurred; ③ acquisition, construction or production that are necessary to enable the asset reach its intended usable or salable condition have commenced. (2) Capitalization period of borrowing costs The capitalization period shall refer to the period between the commencement and the cessation of capitalization of borrowing costs, excluding the period in which capitalization of borrowing costs is temporarily suspended. Capitalization of borrowing costs shall be suspended during periods in which the qualifying asset under acquisition and construction or production ready for the intended use or sale. If part of an asset being acquired, constructed or produced has been completed respectively and put into use individually, capitalization of borrowing costs should be suspended. If different parts of the assets acquired, constructed or produced are completed separately, but such asset will not be ready for the intended use or sale until all parts have been completed, then the borrowing costs will be capitalized until the completion of all parts of the said asset. (3) Suspension of capitalization period Capitalization of borrowing costs shall be suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period of more than 3 months; if the interruption is a necessary step for making the qualifying asset under acquisition and construction or production ready for the intended use or sale, the capitalization of the borrowing costs shall continue. The borrowing costs incurred during such period shall be recognized as profits and losses of the current period. When the acquisition and construction or production of the asset resumes, the capitalization of borrowing costs commences. (4) Calculation of capitalization rate and amount of borrowing costs Specific borrowings for the acquisition, construction or production of assets qualified for capitalization, borrowing costs of the specific borrowings actually incurred in the current period minus the interest income earned on the unused borrowing loans as a deposit in the bank or as investment income earned from temporary investment will be used to determine the amount of borrowing costs for capitalization. General borrowings for the acquisition, construction or production of assets qualified for capitalization, the to-be-capitalized amount of interests on the general borrowing shall be calculated and determined by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the specifically borrowed loans by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined according to the weighted average interest rate of the general borrowing. 152 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 18. Intangible Assets (1) Valuation method, service life, impairment test ①Valuation method Intangible assets are initially measured at cost upon acquisition; The costs of an externally purchased intangible asset include the purchase price, relevant taxes and expenses paid, and other expenditures directly attributable to putting the asset into condition for its intended use. If the payment for an intangible asset is delayed beyond the normal credit conditions and it is of financing nature in effect, the cost of the intangible assets shall be ascertained based on the present value of the purchase price. The amount of intangible assets acquired from debt restructuring should be recorded at the fair value of such intangible assets, and the difference between the carrying amount of the restructured debt and the fair value of the intangible assets acquired from debt restructuring should be included in the profit or loss for the current period. If the non-monetary assets transaction is commercial in nature and the fair value of the assets received or surrendered can be reliably measured, the intangible assets received in the non monetary assets transaction, shall be measured on the basis of the fair value of the assets surrendered, unless there are concrete evidence that the fair value of the assets received is more reliable; For non-monetary assets transaction which does not meet the above conditions, the cost of intangible assets received shall be the book value of the assets surrendered and the relevant taxes and expenses payable, and the profit or loss will not be recognized. Subsequent measurement The service life of intangible assets shall be analyzed and judged upon acquisition. As for intangible assets with a finite service life, they are amortized using the straight-line method over the term in which economic benefits are brought to the firm; If the term in which economic benefits are brought to the firm by an intangible asset cannot be estimated, the intangible asset shall be taken as an intangible asset with indefinite service life, and shall not be amortized. Estimated useful lives for the intangible assets with finite service life: Item Name Estimated Useful Lives Basis Land use rights 50 years Land use certificate Non-patented technology 5-10 years Expected benefited period Softwares 2-5 years Expected benefited period Trademark rights 6 years Expected benefited period Software copyright 10 years Expected benefited period For an intangible asset with a finite service life, review on its service life and amortization method is performed at the end of each end. Upon review, service life and amortization method for the intangible assets are the same with the previous estimate at the end of this period. The basis for the judgment of intangible assets with uncertain service life and the procedure for reviewing their service life As at the balance sheet date, the Company has no intangible assets with uncertain service life. (2) Accounting policy for internal R&D expenditure Specific criteria for the division of research phase and development phase The expenses for internal research and development projects of the Company are divided into expenses in the research phase and expenses in the development phase. 153 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Research phase: Scheduled innovative investigations and research activities to obtain and understand scientific or technological knowledge. Development phase: Apply the research outcomes or other knowledge to a plan or design prior to a commercial production or use in order to produce new or essentially-improved materials, devices, products, etc. Specific condition for capitalizing expenditure during the development phase The expenses in the development phase for internal R&D are recognized as intangible assets if the following conditions are fulfilled: ① It is technically feasible to complete such intangible asset so that it will be available for use or for sale; ② There is intention to complete the intangible asset for use or sale; ③ The intangible asset can produce economic benefits, including there is evidence that the products produced using the intangible asset has a market or the intangible asset itself has a market; if the intangible asset is for internal use, there is evidence that there exists usage for the intangible asset; ④ There is sufficient support in terms of technology, financial resources and other resources in order to complete the development of the intangible asset, and there is capability to use or sell the intangible asset; ⑤ The expenses attributable to the development stage of the intangible asset can be measured reliably. If the expenses in the development phase do not meet the above conditions, it shall be included in the profits and losses for the current period at the time of occurrence. Expenses in the research phase are recorded into the profits and losses for the current period when they occur. 19. Impairment of long-term assets Long-term assets, such as long-term equity investment, investment properties, fixed assets, construction in progress, intangible assets that measured at cost are tested for impairment if there is any indication that an asset may be impaired at the balance sheet date. If the result of the impairment test indicates that the recoverable amount of the asset is less than its carrying amount, a provision for impairment and an impairment loss are recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognized on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs to is determined. A group of assets is the smallest group of assets that is able to generate cash inflows independently. Impairment test to goodwill and the intangible assets whose using life is not certain shall be carried out at least at the end of each year. When the Company carry out impairment test to goodwill, the Company shall, as of the purchasing day, allocate on a reasonable basis the carrying value of the goodwill formed by merger of enterprises to the relevant asset groups, or if there is a difficulty in allocation, to allocate it to the sets of asset groups. When the carrying value of goodwill is allocated to the related asset group or sets of asset group, the allocation shall be made based on the proportion of the fair value of each asset groups or sets of asset groups to the total fair value of the relevant assets groups or sets of asset group. If there is difficulty for the fair value to be reliably measured, the allocation shall be made based on the proportion of the carrying value of each asset groups or sets of asset groups to the total carrying value of the relevant assets groups or sets of asset groups. For the purpose of impairment test on the relevant asset groups or the sets of asset groups containing goodwill, if any evidence shows that the impairment of asset groups or sets of asset groups related to goodwill is possible, an impairment test will be made first on the asset groups or sets of asset groups not containing goodwill, thus calculating the recoverable amount and comparing it with the relevant carrying value so as to recognize the corresponding impairment loss. Then an impairment test will be made on the asset groups or sets of asset groups containing goodwill, and compare the carrying value of these asset groups or sets of asset groups 154 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (including the carrying value of the goodwill allocated thereto) with the recoverable amount. Where the recoverable amount of the relevant assets or sets of the asset groups is lower than the carrying value thereof, it shall recognize the impairment loss of the goodwill. Once the above asset impairment loss is recognized, it will not be reversed in the subsequent accounting periods. 20. Long-term prepaid expenses Long-term prepaid expenses are expenses which have occurred but will benefit over 1 year and shall be amortized over the current period and subsequent periods. The long-term unamortized expenses of the Company include housing rental fees and expenditures paid for improvement of fixed assets under operating lease. (1) Amortization method Long-term prepaid expenses are amortized evenly over the estimated benefit period (2) Amortization period Expenditures paid for improvement of fixed assets under operating lease, amortized evenly over the lease term or remaining service life of the asset, whichever is shorter. 21. Employee compensation (1) Accountant arrangement method of short-term remuneration During the accounting period when the staff provides service, the Company will recognize the short-term remuneration actually incurred as liabilities, and the liabilities would be charged into current profits and loss or costs of assets. The Company will pay social insurance and housing funds, and will make provision of trade union funds and staff education costs in accordance with the requirements. During the accounting period when the staff provides service, the Company will determine the relevant amount of employee benefits in accordance with the required provision basis and provision ratios. Non-currency employee benefits will be accounted for in accordance with their fair value if they can be measured reliably. (2) Accountant arrangement method of retirement benefit plan ① Defined contribution scheme The Company will pay basic pension insurance and unemployment insurance in accordance with the relevant provisions of the local government for the staff. During the accounting period when the staff provides service, the Company will calculate the amount payable in accordance with the local stipulated basis and proportions which will be recognized as liabilities, and the liabilities would be charged into current profits and loss or costs of assets. In addition to the basic pension insurance, the Company has also established an enterprise annuity payment system (supplementary pension insurance)/enterprise annuity plan based on the relevant policies of the national enterprise annuity system. The Company conducts payment/payment of annuity plan to local social insurance institutions according to certain proportion of employees' wages and corresponding expenditures are included in profit or loss for the period or relevant asset costs. ② Defined benefit scheme The welfare responsibilities generated from defined benefit scheme based on the formula determined by projected unit credit method would be vested to the service period of the staff and charged into current profits and loss or costs of assets. 155 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (3) Accountant arrangement method of termination benefits The Company will pay termination benefits when the group can no longer withdraw the offer of termination plan or layoff proposal or when the Group recognizes costs for restructuring which involving the payment of termination benefits (whichever the earliest). The remuneration incurred by the termination benefits will be recognized as liabilities which would be charged into current profits and loss. (4) Accountant arrangement method of other long-term employee benefits 22. Estimated Liabilities Where the Company is involved in litigations, guarantees provided to debts, loss-making contracts, restructuring and after-sale maintenance cost, and if such matters are likely to require future assets delivery or the provision of labor services, the amount of which can be reliably measured, such items shall be recognized as estimated liabilities. (1) Recognition criteria for estimated liabilities The Company shall recognize the obligations related to contingencies involving litigations, guarantees provided to debts, loss-making contracts, and restructuring as estimated liabilities, when all of the following conditions are satisfied: ① the obligation is a present obligation of the group; ② it is probable that an outflow of economic benefits will be required to settle the obligation; ③ the amount of the obligation can be measured reliably. (2) Method of measuring the various estimated liabilities Estimated liabilities shall be initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors pertaining to a contingency such as risk, uncertainties, and time value of money shall be taken into account as a whole in reaching the best estimate. Where the effect of the time value of money is material, the best estimate shall be determined by discounting the related future cash outflow. The best estimate will be dealt with separately in the following circumstances: The expenses required have a successive range (or band), in which the possibilities of occurrence of each result are the same, and the best estimate should be determined as the middle value for the range, i.e. the average of the upper and lower limit. The expenses required does not have a successive range (or band), or although there is a successive range (or band), the possibilities of occurrence of each result are different, if the contingency is related to individual item, the best estimate should be determined as the most likely amount; where the contingency is related to a number of items, the best estimate should be calculated and determined according to the possible results and the relevant possibilities. Where some or all of the expenditure required to settle an estimated liability is expected to be reimbursed by a third party, the reimbursement is separately recognized as an asset when it is virtually certain that the reimbursement will be received. The amount recognized for the reimbursement is limited to the carrying amount of the estimated liability. 23. Share-based payment The Company's share-based payment refers to a transaction in which an enterprise determines the liabilities on the basis of equity instruments granting or bearing for the acquisition of service from its employees [or other parties]. The Company's share-based payment is equity-settled. Equity-settled share-based payment and equity instrument: 156 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. As to an equity-settled share-based payment in return for services of employees, calculation will be based on the fair value of the equity instrument granted to the employees. If the Company make the share-based payment by restricted shares, employees will subscribe the share but those shares shall not be listed on the market or transferred before it fulfill the unlocking condition and unlocked. If the unlocking conditions stipulated in the equity incentive scheme cannot be fulfilled eventually, the Company will repurchase those shares based on the predetermined price. Upon obtaining the payment for subscribing restricted shares made by the employees, the Company will recognized the share capital and capital reserve (share capital premium) according to the payment it received, while fully recognize a liability for its repurchasing obligation as well as its treasury shares. On each balance sheet date within the vesting period, the Company will make the best estimation of the number of vested equity instruments based on the subsequent information such as the updated changes in the number of executives and the achievement of performance standard. Based on the above results, the services received in the current period will be included in the relevant cost or expense based on the fair value on the date of grant, and the capital reserve will be increased accordingly. The recognized cost or expense and owners' interest will not be adjusted after the vesting date. However, equity instruments vested immediately after the date of grant will be included in the relevant cost or expense based on its fair value on the date of grant, and the capital reserve will be increased accordingly. For the share-based payments that are not vested eventually, no cost or expense will be recognized, except the vesting condition is market condition or non-exercisable condition. Under such circumstances, no matter whether the market condition or non-exercisable condition can be fulfilled, the share-based payment will be deemed as vested as long as all the non-market conditions in the vesting condition are fulfilled. If the terms of the equity-settled share-based payment are amended, the Company shall recognize the services received at least based on the situation before the amendment was made. In addition, any amendment resulting in the increase of the fair value of the equity instrument granted or changes that are beneficial to the staff on the amendment date, will be recognized as an increase in the service received. If the equity-settled share-based payment is canceled, it will be accounted for as accelerated exercise on the cancellation date and the unrecognized amount will be recognized immediately. Employees and other parties are able to satisfy the non-vesting conditions. If the conditions are not fulfilled during the vesting period, the equity settled share-based payment will be deemed as canceled. However, if new equity instruments are vested and they are verified at the vesting date of new equity instrument as alternatives vested to canceled equity instruments, the treatment on the new equity instrument is in conformity with the modified treatment on disposal of equity instrument. 24. Revenue (1) General principles for the recognition of revenue from commodity sales ① Revenue from the sale of goods is recognized when all the significant risks and rewards of ownership of the goods have been transferred to the buyer; ② The Company does not retain either continuing managerial involvement to the degree usually associated with ownership or effective control over the sold goods; ③ The amount of revenue can be reliably measured; ④ It is probable that the economic benefits associated will flow to the Company; ⑤ The relevant amount of costs incurred or to be incurred can be measured reliably. (2) Specific principles ①Principle for recognizing revenue from the domestic sales of standard products: The Company's security standard products are sold, through both direct sale and distribution, to the project clients, dealers and other customers. The Company and customers sign sales contracts and send the goods to customers according to the contractual terms of delivery, or the customers pick up goods. The 157 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. revenue is recognized after the customer receives and accepts the goods and the Company obtains the evidence proving the client's receipt of goods. ②Principle for recognizing revenue from the overseas sales of standard products: If the domestic company makes direct export, the FOB and CIF terms are generally adopted and the Company recognizes the sale income after the product is declared and exported. If a foreign subsidiary sells the goods abroad, the goods will be sent to the customer or the customer will collect the goods according to the delivery method agreed with the customer, and the income will be recognized when the customer receives and accepts the goods. ③ Principle for recognizing system-integrated sales revenue: The sales of the system-integrated products of the Company include providing the supporting services such as plan design, supporting products, installation, debugging and system trial operation. The sales income will be recognized upon acceptance. ④ Principle for recognizing the income from labor services: The income is recognized when the labor service is provided. 25. Government subsidies (1) Type Government grants are monetary assets and non-monetary assets acquired by the Company from the government free of charge. Government grants are classified into government grants related to assets and government grants related to revenue. Government grants related to assets refer to government grants acquired by the Company for the purpose of purchasing or constructing or otherwise forming long-term assets. Government grants related to revenue refer to the government grants other than those related to assets. (2) Confirmation of time point Government grants related to assets will be measured at the actual amount of money received at the time of receipt. The assets (bank deposits) and deferred income shall be period by period included in the profits and losses of the current period in a reasonable and systematic manner from the time the assets are available for use (those related to the Company's daily activities shall be included in other income; those unrelated to the Company's daily activities shall be recognized as non-operating income). When the relevant assets are disposed of (sold, transferred, scrapped, etc.) at or before the end of their service life, the balance of the deferred income that has not yet been apportioned will be transferred to the current-period income from the disposal of the assets on an one-time manner, and will not be deferred. For government grants related to revenue, it will be recognized as non-Operating Revenue according to the amount receivable for government subsidies obtained under fixed quota standards; otherwise it will be recognized as non-Operating Revenue when it is actually received. (3) Accounting treatment Government grants related to assets shall write off the book value of relevant assets or be recognized as deferred income. When recognized as deferred income, the government grant related to assets will be period by period credited to the profits and losses of the current period in a reasonable and systematic manner within the service life of relevant assets (those related to the Company's daily activities shall be recognized as other income; those unrelated to the Company's daily activities shall be recognized as non-operating income). The revenue-related government grants shall be recognized as deferred income if they are used to compensate relevant expenses or losses in subsequent periods, and they shall be included in profit and loss of the current period (those related to Company's routine activities shall be included in other income; those unrelated to the Company's routine activities shall be included in non-operating income) or used to offset relevant expenses or losses during the recognition of related expenses or losses; the grants used to compensate related expenses or losses incurred shall be included in profit and loss of the current period (those related to Company's routine activities shall be included in other income; those unrelated to the Company's routine activities shall be included in 158 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. non-operating income) or used to offset relevant expenses or losses. 26. Deferred Income Tax Assets/Liabilities Deferred income tax assets are recognized to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilized. For deductible losses and tax credits that can be reversed in the future period, deferred tax assets shall be recognized to the extent that it is probable that taxable profit will be available in the future to offset the deductible losses and tax credits. Save as the exceptions, deferred income tax liabilities shall be recognized for the taxable temporary difference. The exceptions for not recognition of deferred income tax assets and liabilities include: the initial recognition of the goodwill; other transactions or matters other than business combinations in which neither profit nor taxable income (or deductible loss) will be affected when transactions occur. After granted the legal rights of net settlement and with the intention to use net settlement or obtain assets and repay debt at the same time, the net amount after offsetting its current income tax assets and current income tax liabilities shall be recorded. When the Company was granted the legal rights of net settlement of current income tax assets and current income tax liabilities, and deferred income tax assets and deferred income tax liabilities are related to income tax to be paid by the same entity liable to pay tax to the same tax collection and management authority or related to different entities liable to pay tax, but the relevant entity liable to pay tax is intended to apply net settlement of current income tax assets and liabilities or, at the same time, obtain assets, repay debt whenever every deferred income tax assets and liabilities with importance would be reversed in the future, the Company records the net amount after offsetting its current income tax assets and current income tax liabilities. 27. Leases (1) Accounting of operating lease ① As the lessee of operating leases, rental payments under operating leases are recognized as costs or expenses on a straight line basis over the lease term (including rent free periods). Initial direct costs that are attributable to an operating lease incurred by the Company are charged to current profit and loss. When the lesser bears the lease related expenses which should be undertaken by the Company, the Company shall deduct this part of expense from the rent and amortize the net amount over the lease term. ② Leasing charges received by the Company for the assets leased out shall be amortized in a straight-line basis over the lease term without deducting the rent-free periods, and recognized as leasing income. The initial direct fee related to the leasing transactions paid by the Company shall be charged to current expenses; if the mount is significant, it shall be capitalized and charged to current income evenly on the same basis as the leasing income is recognized over the lease term. When the Company bears the lease related expenses which should be undertaken by the lessee, the Company shall deduct this part of expense from the rent income, and amortize the net amount over the lease term. (2) Accounting of finance lease ① Assets acquired under finance leases: At the initiation date of the lessee, the leased asset is recorded at the amounts equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments. The balance is accounted for as unrecognized finance charge and is amortized using the effective interest method over the period of the lease. The Company, by means of the real interest method, amortizes the unacknowledged financial charges during the lease term of the assets and includes them into financing expenses. Initial direct cost incurred by the Company will be included in the assets acquired under finance leases. 159 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. ② Assets acquired under finance rents: At the initiation date of the lessee, the difference between the recorded amount of the leased asset and the minimum lease receivables is accounted for as unrecognized finance income and is recognized as rental income over the period of the lease. Initial direct costs shall be included in the initial accounting of the lease payment receivables and deduct by the revenue recognized over the lease term. 28. Other significant accounting policies and accounting estimates (1) Termination of operation Termination of business is a separately distinguishable constituent part that satisfies one of the following conditions and that has been disposed of or classified by the Company as held for sale: ①This constituent part represents an independent primary business or a separate principal operating area; ②This constituent part is part of an associated plan to dispose of for an independent primary business or a separate principal operating area; ③This constituent part is a subsidiary acquired for resale. (2) Repurchase of the Company's shares The Company's shares repurchased by the Company for reducing the registered capital or rewarding employees shall be treated as the treasury shares based on the actual amount paid, and shall be checked and registered at the same time. If the repurchased shares are canceled, the difference between the actual amount paid for the repurchase and the total par value of shares calculated by the par value of the canceled shares and the number of canceled shares will write off the capital reserve. If the capital reserve is insufficient, the retained income will be written off; if the repurchased shares are awarded to the employees of the Company, it shall be categorized as equity-settled share-based payment. When the Company receives the payment made by employees who exercise their rights to purchase such shares, the amount shall be used to write off the cost of treasury shares delivered to employees and the capital reserve in the waiting period and meanwhile, the capital reserve (stock premium) shall be adjusted according to the difference. 29. Change in Significant Accounting Policies and Accounting Estimates (1) Changes in significant accounting policies √ Applicable □ Not applicable Content and Reasons for Change in Accounting Policies Notes The "Notes receivable" and "Accounts receivable" are listed as (1) The "Notes receivable" and "Accounts receivable" in the "Notes receivable and accounts receivable", the amount for the balance sheet are listed as "Notes receivable and accounts current period is RMB 12,577,066,194.44, and the amount for the receivable"; "Notes payable and "Accounts payable" are previous period was RMB 9,971,240,927.27; the "Notes payable" and listed as "Notes payable and accounts payable"; "Interest "Accounts payable" are listed as "Notes payable and accounts receivable " and "Dividends receivable" are included in payable", the amount for the current period is RMB "Other receivables"; "Interest payable " and "dividend 7,461,315,698.99, and the amount for the previous period was RMB payable" are included in "Other payables"; "Disposal of fixed 6,136,607,389.03; the amount of "Other receivables" for the current assets" is included in "Fixed assets"; "Engineering materials" period is increased by RMB 6,754,941.00, and the amount for the is included in "Construction in progress"; "Special payables" previous period was RMB 9,219,422.61; the amount of "Other is included in "Long-term payables". Comparative data will payables" for the current period is increased by RMB 4,745,203.31, be adjusted accordingly. and the amount for the previous period was RMB 3,694,476.25. (2) The item "R&D expenses" is added to the income The amount of "Administration expenses" for the current period is 160 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. statement, and the "R&D expenses" in the original reduced by RMB 2,283,872,502.53, and the amount for the previous "Administration expenses" is reclassified as "R&D Expenses" period was RMB 1,788,888,879.43. The reduced amount is separately; The items "Including: interest expenses" and reclassified to "R&D expenses". "Interest income" are added to the financial expenses in the income statement. Comparative data will be adjusted accordingly. (3) In the table of changes in owner's equity, the item "Carry-forward retained earnings of the variation of the N/A defined benefit plan" is added. Comparative data will be adjusted accordingly. On June 15, 2018, the Ministry of Finance issued the Notice of the Ministry of Finance on Revising the Format of 2018 General Enterprise Financial Statements (Finance (2018) No.15), and revised the financial statement format of general enterprises. (2) Changes in significant accounting estimates □ Applicable √ Not applicable Ⅵ. Taxes 1. Major categories of taxes and tax rates Tax Type Taxation basis Tax Rate According to the provisions of the tax law, the sales tax shall be calculated on the basis of the income by selling goods and taxable 17%、16%、11%、10%、6%, simple VAT services. After deducting the input tax that is allowed to be deducted collection rate of 5% and simple from the sales tax in the current period, the difference shall be the value collection rate of 3% added tax Urban Calculated based on the deduction free amount, actual business tax, Maintenance and 7%, 5% VAT, and consumption tax Construction Tax Enterprise Income Calculated based on the taxable income 15%, 25% Tax Education Calculated based on the deduction free amount, actual business tax, 3% Surcharges VAT, and consumption tax Local Education Calculated based on the deduction free amount, actual business tax, 2% Surcharges VAT, and consumption tax If there are multiple taxpayers with different enterprise income tax rates, specify the situation Name of Taxpayer Income Tax Rate Our Company 15% Dahua System Engineering 15% Dahua Security Network 15% 161 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. South North United 15% Huatu Microchip 15% Tecomore Technology 15% HuaRay Technology 15% Huachuang Vision 15% Dahua HK 16.5% Other domestic companies 25% Other overseas companies Applicable to local tax rate 2. Preferential tax rate (1) According to CaiShui [2011] No. 100 jointly issued by the Ministry of Finance (MOC) and the State Administration of Taxation (SAT), our software sales is firstly taxed at the rate of 17%, and the actual tax burden of more than 3% is subject to the policy of immediate refund right after collection after being reviewed and approved by the competent tax authorities. The policy of "tax exemption, offset and refund" is valid for the value-added tax (VAT) on our export goods, with the tax refund rate of 17%. According to CaiShui [2018] No. 32 issued by MOC and SAT, the tax rates for VAT taxable sales or imported goods by the taxpayer are reduced from 17% to 16%, and 11% to 10%, respectively. (2) According to the "Reply on the Filing of the First Batch of High-tech Enterprises in Zhejiang Province in 2017" (Guo Ke Huo Zi [2017] No. 201) issued by the Office for the Administration of the Certification of National High-tech Enterprises on December 15, 2017, the Company was certified as a high-tech enterprise, valid for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (3) According to the "Reply on the Filing of the First Batch of High-tech Enterprises in Zhejiang Province in 2015" (Guo Ke Huo Zi [2015] No. 256) issued by the Office for the Administration of the Certification of National High-tech Enterprises on November 23, 2015, our subsidiary Zhejiang Dahua System Engineering Co., Ltd. was certified as a high-tech enterprise with the validation for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (4) According to the "Reply on the Filing of the First Batch of High-tech Enterprises in Zhejiang Province in 2017" (Guo Ke Huo Zi [2017] No. 201) issued by the Office for the Administration of the Certification of National High-tech Enterprises on December 15, 2017, our subsidiary Zhejiang Dahua Security Network Operations Services Co., Ltd. was certified as a high-tech enterprise with the validation for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (5) According to the "Reply on the Filing of the First Batch of High-tech Enterprises in Zhejiang Province in 2017" (Guo Ke Huo Zi [2017] No. 201) issued by the Office for the Administration of the Certification of National High-tech Enterprises on December 15, 2017, our subsidiary South-North United Information Technology Co., Ltd. was certified as a high-tech enterprise, valid for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (6) According to the "Notice on Publicizing Zhejiang Province's List of Proposed High-tech Enterprises in 2018" issued by the Office for the Administration of the Certification of National High-tech Enterprises on November 30, 2018, our subsidiary Zhejiang Huatu Microchip Technology Co., Ltd. was preliminarily certified as a high-tech enterprise with the validation for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (7) According to the "Notice on Publicizing Zhejiang Province's List of Proposed High-tech Enterprises in 2018" issued by the Office for the Administration of the Certification of National High-tech Enterprises on November 30, 2018, our subsidiary Hangzhou Teconmore Technology Co., Ltd. was preliminarily certified as a high-tech enterprise with the validation for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (8) According to the "Notice on Publicizing Zhejiang Province's List of Proposed High-tech Enterprises in 2018" issued by the 162 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Office for the Administration of the Certification of National High-tech Enterprises on November 30, 2018, our subsidiary Zhejiang HuaRay Technology Co., Ltd. was preliminarily certified as a high-tech enterprise with the validation for 3 years. The corporate income tax for this year was reduced at a rate of 15%. (9) According to the "Notice on Publicizing Zhejiang Province's List of Proposed High-tech Enterprises in 2018" issued by the Office for the Administration of the Certification of National High-tech Enterprises on November 30, 2018, our subsidiary Zhejiang Dahua Vision Technology Co., Ltd. was preliminarily certified as a high-tech enterprise with the validation for 3 years. The corporate income tax for this year was reduced at a rate of 15%. 3. Other events Ⅶ. Notes to the Items in the Consolidated Financial Statement 1. Cash and bank balances Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Cash on Hand 3,981.79 167,745.54 Bank Balance 3,547,354,923.39 2,926,061,578.72 Other Cash and Bank Balances 612,794,941.88 686,707,839.88 Total 4,160,153,847.06 3,612,937,164.14 Including: Total Amount Deposited in 838,640,436.81 714,069,191.59 Overseas Banks Other notes Item Name Balance at the End of the Period Balance at the beginning of the year Documentary Credit Deposit 308,844,000.00 514,241,540.00 Bid/performance bond 60,315,816.01 37,320,090.08 Commercial acceptance bill discount deposit 100,000,000.00 Total 469,159,816.01 551,561,630.08 2. Notes receivable and accounts receivable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Notes receivable 2,385,693,417.06 2,431,296,170.58 Accounts receivable 10,191,372,777.38 7,539,944,756.69 Total 12,577,066,194.44 9,971,240,927.27 163 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (1) Notes receivable 1) Disclosure of notes receivable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Bank Acceptance Notes 2,385,693,417.06 2,431,296,170.58 Total 2,385,693,417.06 2,431,296,170.58 2) Notes receivable that the company has pledged at the end of the period Unit: RMB Item Name Pledged amount by the end of period Bank Acceptance Notes 1,606,595,655.43 Total 1,606,595,655.43 3) Notes receivable that the company has endorsed or discounted at the end of the period and that have not yet expired on the balance sheet date Unit: RMB Not derecognized amount at the end of Item Name Derecognized amount at the end of period period Bank Acceptance Notes 583,145,991.20 Total 583,145,991.20 (2) Accounts receivable 1) Disclosure of accounts receivable Unit: RMB Balance at the End of the Period Balance at the Start of the Period Book balance Bad debt provision Book balance Bad debt provision Categor Accrue Accru y d Book Value ed Book Value Percen Percen Amount Amount Amount Amount tage proport tage propo ion rtion Portfolio 2: Aging 10,181,372,777.3 100.00 11,197,400,451.31 99.31% 1,016,027,673.93 9.07% 8,293,930,926.78 753,986,170.09 9.09% 7,539,944,756.69 Analysis 8 % Portfolio 164 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Account s receivab le with insignifi cant single amount 77,967,205.50 0.69% 67,967,205.50 87.17% 10,000,000.00 but accrued for separate provisio n of bad debt 10,191,372,777.3 100.00 Total 11,275,367,656.81 100.00% 1,083,994,879.43 8,293,930,926.78 753,986,170.09 7,539,944,756.69 8 % Accounts receivables with individual items significant in amount and the bad debts provision accrued individually at the end of period: □ Applicable √ Not applicable In the combination, the accounts receivables with the bad debt provision accrued according to the aging analysis method: √ Applicable □ Not applicable Unit: RMB Balance at the End of the Period Aging Accounts receivable Bad debt provision Accrued proportion Aging within 1 year Within 1 year (inclusive) 9,488,921,706.97 474,446,085.35 5.00% Subtotal within 1 year 9,488,921,706.97 474,446,085.35 5.00% 1 to 2 years 811,282,951.64 81,128,295.16 10.00% 2 to 3 years 361,935,926.96 108,580,778.09 30.00% 3 to 4 years 325,382,863.05 162,691,431.53 50.00% 4 to 5 years 103,479,594.46 82,783,675.57 80.00% 5 years or above 106,397,408.23 106,397,408.23 100.00% Total 11,197,400,451.31 1,016,027,673.93 Notes on the basis to determine the combination: In the combination, the accounts receivables with the bad debt provision accrued according to the percentage method: □ Applicable √ Not applicable In the combination, the accounts receivables with the bad debt provision accrued according to other methods: 2) Provision for bad debts accrued, recovered or reversed in this period 165 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. In this period, bad debt provision accrued amounts to (RMB); the recovered or reversed bad debt provision amounts to (RMB). Significant amount of recovered or reversed bad debt provision in this period: In this period, the provision for bad debts accrued was RMB 320,695,219.29; the provision for bad debts derived from the translation of foreign currency statements was RMB 122,885.56; and the provision for bad debts derived from business merger and other matters not under the same control was RMB 14,294,671.59. 3) Accounts receivable actually written off in this period Accounts receivable write-off statement: accounts receivable actually written off in this period was RMB 5,104,067.10. 4) Accounts receivable of the top five closing balances collected by the arrears The accounts receivable of the top five closing balances collected by the arrears was summed up to RMB 1,246,385,349.58, accounting for 11.05% of the total closing balance of accounts receivable, and the ending balance of the provision for bad debts accrued was RMB 127,350,257.93 accordingly. 5) Accounts receivable that are derecognized due to the transfer of financial assets In accordance with the non-recourse purchase agreement on accounts receivables signed between the Company and BNP Paribas in this period, the Company transferred the accounts receivables of USD 46,475,691.60 under the export credit insurance to BNP Paribas, amount to RMB 318,971,966.59. The amount of accounts receivables was derecognized after the transfer. 3. Prepayments (1) Aging analysis of prepayments is as follows Unit: RMB Balance at the End of the Period Balance at the Start of the Period Aging Amount Percentage Amount Percentage Within 1 year 121,980,125.12 96.13% 151,610,645.14 98.22% 1 to 2 years 2,958,954.04 2.33% 2,210,892.79 1.43% 2 to 3 years 1,465,346.63 1.16% 36,743.12 0.03% 3 years or above 486,833.21 0.38% 498,890.08 0.32% Total 126,891,259.00 -- 154,357,171.13 -- Notes on reasons for prepayments with aging over 1 year and significant amount not settled timely: There are no prepayments with aging over 1 year and significant amount not settled timely. (2) Advance payment of the top five closing balances by prepayment parties The advance payment of the top five closing balances by the concentration of prepayment parties was summed up to RMB 86,278,157.08, accounting for 67.99% of the total closing balance of the advance payment. 4. Other receivables Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period 166 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Interest Receivable 6,754,941.00 9,219,422.61 Other Receivables 391,415,828.40 283,058,785.41 Total 398,170,769.40 292,278,208.02 (1) Interests receivable (1) Category of interests receivable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Fixed term deposit 6,754,941.00 9,219,422.61 Total 6,754,941.00 9,219,422.61 (2) Other receivables 1. Disclosure of other receivables Unit: RMB Balance at the End of the Period Balance at the Start of the Period Book balance Bad debt provision Book balance Bad debt provision Category Accru Accru Percen ed Book Value Perce ed Book Value Amount Amount Amount Amount tage propor ntage propor tion tion Portfolio 2: Aging 100.00 391,415,828.4 100.00 433,950,846.32 42,535,017.92 9.80% 310,353,894.34 27,295,108.93 8.79% 283,058,785.41 Analysis % 0 % Portfolio 100.00 391,415,828.4 100.00 Total 433,950,846.32 42,535,017.92 9.80% 310,353,894.34 27,295,108.93 8.79% 283,058,785.41 % 0 % Other receivables with individual items significant in amount and the bad debts provision accrued individually at the end of period: □ Applicable √ Not applicable In the combination, other receivables with the bad debt provision accrued according to the aging analysis method: √ Applicable □ Not applicable Unit: RMB Balance at the End of the Period Aging Other Receivables Bad debt provision Accrued proportion Aging within 1 year Within 1 year (inclusive) 283,132,371.08 14,156,618.55 5.00% Subtotal within 1 year 283,132,371.08 14,156,618.55 5.00% 167 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 1 to 2 years 104,394,814.85 10,439,481.48 10.00% 2 to 3 years 29,369,871.93 8,810,961.58 30.00% 3 to 4 years 15,648,900.17 7,824,450.09 50.00% 4 to 5 years 506,910.33 405,528.26 80.00% 5 years or above 897,977.96 897,977.96 100.00% Total 433,950,846.32 42,535,017.92 Notes on the basis to determine the combination: In the combination, other receivables with the bad debt provision accrued according to the percentage method: □ Applicable √ Not applicable In the combination, other receivables with the bad debt provision accrued according to other method: □ Applicable √ Not applicable 2) Provision for bad debts accrued, recovered or reversed in this period In this period, bad debt provision accrued amounts to (RMB); the recovered or reversed bad debt provision amounts to (RMB). Significant amount of recovered or reversed bad debt provision in this period: In this period, the provision for bad debts accrued was RMB 14,717,677.83; the provision for bad debts derived from the translation of foreign currency statements was RMB 56,877.04; and the provision for bad debts derived from business merger and other matters not under the same control was RMB 465,354.12. 3) Other receivables categorized by the nature of the funds Unit: RMB Nature of the Funds Closing Balance Opening Balance Deposits 133,533,949.06 123,678,597.71 Prepaid or advance expense 114,908,097.29 71,686,744.59 Export refunds 36,092,616.35 102,690.84 Employee home loan 130,870,460.98 110,473,899.98 Alipay and e-wallet 11,289,772.49 1,303,459.82 Others 7,255,950.15 3,108,501.40 Total 433,950,846.32 310,353,894.34 4) Other receivables of the top five closing balances collected by the arrears Unit: RMB As a Percentage of Bad Debt Provision Name of Balance at the End Total Other Nature of the Funds Aging at the End of the Unit of the Period Receivables at the Period End of the Period Company 1 Export refunds 36,092,616.35 Within 1 year 8.32% 1,804,630.82 RMB 11,153,133.39 within 1 Prepaid or advance Company 2 20,071,344.25 year 4.62% 1,449,477.76 expense RMB 8,918,210.86 in 1-2 168 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. years Prepaid or advance Company 3 17,617,416.10 Within 1 year 4.06% 880,870.81 expense Company 4 Deposits 12,000,000.00 1-2 years 2.77% 1,200,000.00 Company 5 Alipay and e-wallet 11,182,346.52 Within 1 year 2.57% 559,117.33 Total -- 96,963,723.22 -- 22.34% 5,894,096.72 5. Inventories (1) Categories of inventories Unit: RMB Balance at the End of the Period Balance at the Start of the Period Item Name Provision for Provision for Book balance Book Value Book balance Book Value decline in price decline in price Raw Materials 641,393,743.67 641,393,743.67 822,509,588.98 822,509,588.98 Work-in-progress 1,068,330,542.75 4,168,637.69 1,064,161,905.06 1,037,927,237.89 38,652,726.64 999,274,511.25 Finished Goods 1,347,394,898.29 72,990,967.51 1,274,403,930.78 915,949,813.93 915,949,813.93 Outsourced 55,620,129.63 55,620,129.63 68,408,684.49 68,408,684.49 Work-in-progress Total 3,112,739,314.34 77,159,605.20 3,035,579,709.14 2,844,795,325.29 38,652,726.64 2,806,142,598.65 (2) Provision for decline in value of inventories Unit: RMB Balance at the Increased in the current period Decreased in the current period Balance at the Item Name Start of the Reversals or Accrued Others Others End of the Period Period write-offs Work-in-progress 38,652,726.64 832,930.71 35,317,019.66 4,168,637.69 Finished Goods 22,752,363.13 83,616,689.30 33,378,084.92 72,990,967.51 Total 38,652,726.64 23,585,293.84 83,616,689.30 68,695,104.58 77,159,605.20 The basis for determining the net value realizable is: the estimated selling price minus the estimated cost of completion and the estimated compulsory cost of the sales; The reason for the write-off of inventory depreciation reserve in this period is: inventory use or sales. (3) Notes on the closing balance of the inventories containing capitalized amount of the borrowing expense N/A 169 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (4) Information about the completed but unsettled assets generated by construction contracts at the end of period N/A 6. Non-current assets due within 1 year Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Long-term accounts receivables due within 578,733,057.27 367,302,811.80 1 year Total 578,733,057.27 367,302,811.80 7. Other current assets Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Not deducted input tax 250,985,405.70 285,105,032.99 Deductible input tax 116,325,653.23 51,815,451.18 Identifiable input tax 216,974.55 3,488,460.65 Prepaid enterprise income tax 34,727,044.57 9,989,313.35 Prepaid overseas miscellaneous taxes and 1,657,398.48 dues Total 402,255,078.05 352,055,656.65 8. Available-for-sale financial assets (1) Available-for-sale financial assets Unit: RMB Balance at the End of the Period Balance at the Start of the Period Item Name Provision for Provision for Book balance Book Value Book balance Book Value decline in value decline in value Available-for-sale equity 97,970,227.00 15,000,000.00 82,970,227.00 92,970,227.00 15,000,000.00 77,970,227.00 instruments: By cost method 97,970,227.00 15,000,000.00 82,970,227.00 92,970,227.00 15,000,000.00 77,970,227.00 Total 97,970,227.00 15,000,000.00 82,970,227.00 92,970,227.00 15,000,000.00 77,970,227.00 170 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Available-for-sale financial assets measured by cost at the end of the period Unit: RMB Book Balance Provision for Decline in Value Decre Increas Decre Percentage Cash ased The ed in ased of Shares Dividend At the Start Increased in in the Invested At the End of At the Start of the in the At the End held in the in the of the the Current Curre Entity the Period the Period Curren Curre of the Period Invested Current Period Period nt t nt Entity Period Perio Period Period d Shanghai Xianghe Equity Investment 10,000,000.00 10,000,000.00 1.43% 260,229.59 Partnership (limited partnership) Shanghai Xianghe Hongan Equity 10,000,000.00 10,000,000.00 0.77% 744,779.11 Investment Partnership (limited partnership) Xinjiang Fangyuan Huirong 30,000,000.00 30,000,000.00 6.98% Investment Partnership Shanghai Xianghe Yongan Equity 10,000,000.00 10,000,000.00 1.00% Investment Partnership (limited partnership) Shandong Zhongan 8,000,000.00 8,000,000.00 1.76% Technology 171 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Co., Ltd. Hangzhou Xichuang Equity Investment 5,000,000.00 5,000,000.00 10,000,000.00 11.30% Partnership (limited partnership) Zhejiang Xinmenhai 2,416,000.00 2,416,000.00 5.00% Technology Co., Ltd. Hangzhou Chuangchao Investment 80,000.00 80,000.00 4.00% Managemen t Co., Ltd. Ningxia Electronic 15,000,000.00 15,000,000.00 15,000,000.00 15,000,000.00 19.99% Technology Co., Ltd. Hangzhou Maycur 2,474,227.00 2,474,227.00 2.43% Technology Co., Ltd. Total 92,970,227.00 5,000,000.00 97,970,227.00 15,000,000.00 15,000,000.00 -- 1,005,008.70 (3) The decline in value of the available-for-sale financial assets during the reporting period Unit: RMB Categories of the Available-for-sale Equity Available-for-sale Debt Available-for-sale Total Instrument Instrument Financial Assets Balance of the Impairment after the 15,000,000.00 15,000,000.00 Accrual at the Beginning of Period Balance of the Impairment after the 15,000,000.00 15,000,000.00 Accrual at the end of Period 172 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 9. Long-term receivables (1) Long-term receivables Unit: RMB Balance at the End of the Period Balance at the Start of the Period Range of Item Name Bad Debt Bad Debt Discount Book Balance Book Value Book Balance Book Value Provision Provision Rate Installment Payment for 1,861,485,568.28 1,861,485,568.28 1,480,947,137.80 1,480,947,137.80 Selling Products Including: Unrealized 364,590,421.98 364,590,421.98 307,410,501.65 307,410,501.65 3.03-7.05 Financing Income Total 1,861,485,568.28 1,861,485,568.28 1,480,947,137.80 1,480,947,137.80 -- (2) Long-term receivables derecognised due to transfer of financial assets There are no long-term receivables derecognised due to transfer of financial assets. (3) Assets/liabilities generated due to transferred long-term receivables that the Company still keeps recourse or retains part of corresponding rights or interests There are no assets/liabilities generated due to transferred long-term receivables that the Company still keeps recourse or retains part of corresponding rights or interests. The amount of long-term receivables pledged by the Company at the end of the period was RMB 292,229,615.24. See Note XIV (I) for details. 10. Long-term equity investment Unit: RMB Decrease/Increase in the Current Period Closin Adjust g Investment ment Balan Cash Provis Profit and on ce of The Balance at Invest Investme Dividends ion for Balance at the Loss Other Provis Invested the Start of ments nt Other Changes or Profit Impair End of the Recognize Compr Others ion Entity the Period Increas Decrease in Equity Declared ment Period d under the ehensi for ed d to Accru Equity ve Decli Distribute ed Method Incom ne in e Value Ⅰ. Joint ventures 173 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Ⅱ. Affiliates Wenzhou Dahua Security 672,907.47 61,358.00 734,265.47 Services Co., Ltd. Taizhou Dahua Security 315,827.85 29,995.36 345,823.21 Services Co., Ltd. Ningbo Dahua Anbang 1,287,212.43 -129,789.42 1,157,423.01 Security Services Co., Ltd. Lishui Dahua Intelligent 75,748.24 1,074.63 76,822.87 Technolo gy Co., Ltd. Zhoushan Dahua Technolo 541,197.78 164,285.17 705,482.95 gy Co., Ltd. Shaoxing Dahua Security 549,538.49 -2,099.19 547,439.30 Services Co., Ltd. Beijing Ankang Jianxing Emergenc 7,580,935.1 y 7,651,907.75 -70,972.57 8 Education Technolo gy Co., Ltd. 174 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Zhejiang Leapmoto r -36,803,547. 36,803,547.78 168,229,977.61 168,229,977.61 Technolo 78 gy Co., Ltd. Shenzhen Conwin Security 10,756,555.03 1,011,641.73 11,768,196.76 Electronic s CO., Ltd. Zhejiang Dahua Zhian Internet 2,751,589.84 -50,812.34 2,700,777.50 of Things Technolo gy Co., Ltd. Guangdo ng Dahua Zhishi -133,147.25 -261,039.85 -394,187.10 Technolo gy Co., Ltd. 7,580,935.1 -36,049,906. Subtotal 61,272,885.41 168,229,977.61 185,872,021.58 8 26 7,580,935.1 -36,049,906. Total 61,272,885.41 168,229,977.61 185,872,021.58 8 26 11. Investment properties (1) Investment properties measured by cost method √ Applicable □ Not applicable Unit: RMB Buildings and Projects under Item Name Land Use Rights Total Constructions Construction Ⅰ. Original Book Value 1. Opening Balance 182,786,539.11 7,787,655.39 190,574,194.50 175 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2. Increased in the 175,978,800.67 1,091,639.56 177,070,440.23 Current Period (1) Purchase (2) Transfer of Fixed Assets\Intangible 175,978,800.67 1,091,639.56 177,070,440.23 Assets\Construction in Progress (3) Acquisition 3. Decreased in the Current Period (1) Disposal (2) Other Transfer-out 4. Closing Balance 358,765,339.78 8,879,294.95 367,644,634.73 Ⅱ. Accumulated Depreciation and Amortization 1. Opening Balance 8,641,451.19 882,601.02 9,524,052.21 2. Increased in the 11,016,872.70 272,333.27 11,289,205.97 Current Period (1) Accrual or 10,863,487.30 224,432.67 11,087,919.97 Amortization (2) Transfer of Fixed 153,385.40 47,900.60 201,286.00 Assets\Intangible Assets 3. Decreased in the Current Period (1) Disposal (2) Other Transfer-out 4. Closing Balance 19,658,323.89 1,154,934.29 20,813,258.18 Ⅲ. Provision for Impairment 1. Opening Balance 2. Increased in the Current Period (1) Accrual 3. Decreased in the Current Period (1) Disposal (2) Other Transfer-out 176 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 4. Closing Balance Ⅳ. Book Value 1. Closing Balance on 339,107,015.89 7,724,360.66 346,831,376.55 Book Value 2. Opening Balance on 174,145,087.92 6,905,054.37 181,050,142.29 Book Value (2) Investment properties with certificates of title not granted Unit: RMB Reasons for Certificates of Title not Item Name Book Value Granted In the process of obtaining the real estate Nanning marketable housing 162,512,222.80 certificates 12. Fixed assets Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Fixed Assets 1,407,471,330.83 1,248,305,165.77 Total 1,407,471,330.83 1,248,305,165.77 (1) Fixed assets Unit: RMB Housing and Machinery and Electronic and Item Name Means of transport Total building equipment other equipment Ⅰ. Original book value: 1. Opening Balance 1,037,396,613.16 139,396,762.19 37,598,995.15 514,518,515.12 1,728,910,885.62 2. Increased in the 58,347,644.68 95,664,384.27 4,255,880.15 211,744,418.39 370,012,327.49 Current Period (1) Purchase 968,204.62 61,173,097.75 4,028,488.93 203,956,655.84 270,126,447.14 (2) Transferred From 51,827,721.96 84,764,725.62 32,937,003.66 Construction in Progress (3) Acquisition 5,551,718.10 1,554,282.86 227,391.22 7,787,762.55 15,121,154.73 3. Decreased in the 10,406,913.95 244,525.88 419,306.20 54,164,548.88 65,235,294.91 Current Period (1) Disposal or 244,525.88 419,306.20 54,164,548.88 54,828,380.96 Scrapping 177 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Transfer to 10,406,913.95 10,406,913.95 investment real estate 4. Currency 10,123.50 7,321.04 -75,139.77 -552,006.67 -609,701.90 Translation Difference 5. Closing Balance 1,085,347,467.39 234,823,941.62 41,360,429.33 671,546,377.96 2,033,078,216.30 II. Accumulated depreciation 1. Opening Balance 121,806,114.10 30,400,919.75 26,341,709.20 302,056,976.80 480,605,719.85 2. Increased in the 49,664,362.25 16,330,648.41 4,369,153.24 123,127,795.04 193,491,958.94 Current Period (1) Accrual 49,431,468.15 14,836,670.30 4,282,221.21 117,853,677.86 186,404,037.52 (2) Acquisition 232,894.10 1,493,978.11 86,932.03 5,274,117.18 7,087,921.42 3. Decreased in the 153,385.40 60,010.01 284,881.54 47,912,518.82 48,410,795.77 Current Period (1) Disposal or 60,010.01 284,881.54 47,912,518.82 48,257,410.37 Scrapping (2) Transfer to 153,385.40 153,385.40 investment real estate 4. Currency 7,990.82 -87,988.37 -79,997.55 Translation Difference 5. Closing Balance 171,317,090.95 46,671,558.15 30,433,971.72 377,184,264.65 625,606,885.47 Ⅲ. Provision for Impairment 1. Opening Balance 2. Increased in the Current Period (1) Accrual 3. Decreased in the Current Period (1) Disposal or Scrapping 4. Closing Balance Ⅳ. Book Value 1. Closing Balance on 914,030,376.44 188,152,383.47 10,926,457.61 294,362,113.31 1,407,471,330.83 Book Value 2. Opening Balance 915,590,499.06 108,995,842.44 11,257,285.95 212,461,538.32 1,248,305,165.77 on Book Value 178 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Fixed assets with certificates of title not granted Unit: RMB Item Name Book Value Reasons for certificates of title not granted In the process of obtaining the real estate Urumqi marketable housing 16,972,113.94 certificates 13. Construction in progress Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Projects under 226,191,587.11 58,779,225.41 Construction Total 226,191,587.11 58,779,225.41 (1) Details of construction in progress Unit: RMB Balance at the End of the Period Balance at the Start of the Period Provision Provision Item Name Book balance for decline Book Value Book balance for decline Book Value in value in value ORACLE System 5,045,690.84 5,045,690.84 Equipment engineering 1,382,497.31 1,382,497.31 26,036,020.95 26,036,020.95 Commercial building under 55,859,895.45 55,859,895.45 16,485,759.23 16,485,759.23 decoration Dahua Smart Security (IOT) 110,183,237.44 110,183,237.44 8,067,861.57 8,067,861.57 Manufacturing Base Phase II, Dahua Intelligent (IoT) 7,313,380.68 7,313,380.68 Industrial Park Construction Project Dahua Auxiliary and R&D Experimental Building Renovation 33,893,914.76 33,893,914.76 886,173.80 886,173.80 Project Phase I, Urban Intelligent Information Industry Construction 9,090,975.91 9,090,975.91 Project Dahua West Smart Base and Dahua 1,472,252.09 1,472,252.09 West R&D Center Others 6,995,433.47 6,995,433.47 2,257,719.02 2,257,719.02 179 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Total 226,191,587.11 226,191,587.11 58,779,225.41 58,779,225.41 (2) Changes in significant construction in progress Unit: RMB Capi taliz Othe Project ation Transfer r Accu Includin accum rate amounts of amo mulate g: ulative of fixed unts d capitaliz Balance at invest the Capit Increased in assets/intang decr Balance at Project capital ed the Start ment inter al Item Name Budget the current ible ease the End of Progre ized interest of the as a est Sourc period assets/invest d in the Period ss interes amount Period percen in e ment real curr t in the tage of the estate in this ent amoun current the curr period peri t period budget ent od peri od ORACLE 100.00 Comple Equity 0.00 5,045,690.84 1,600,527.41 6,646,218.25 System % ted Fund Dahua Smart Equity Security (IOT) 800,000,000.0 Fund 8,067,861.57 102,115,375.87 110,183,237.44 13.77% 13.77% Manufacturing 0 Base Phase II, Equity Dahua Fund Intelligent 600,000,000.0 (IoT) 7,313,380.68 7,313,380.68 1.22% 1.22% 0 Industrial Park Construction Project Dahua Equity Auxiliary and Fund R&D Experimental 90,000,000.00 886,173.80 33,007,740.96 33,893,914.76 37.66% 37.66% Building Renovation Project Phase I, Urban Equity Intelligent 50,000,000.00 134,622.65 8,956,353.26 9,090,975.91 18.18% 18.18% Fund Information 180 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Industry Construction Project Dahua West Equity Smart Base Fund 1,000,000,000. and Dahua 1,472,252.09 1,472,252.09 0.15% 0.15% 00 West R&D Center Commercial Equity 16,485,759.2 220,884,430.1 181,510,293.9 building under 0.00 55,859,895.45 75.65% 75.65% Fund 3 3 1 decoration 2,540,000,000. 30,620,108.0 375,350,060.4 188,156,512.1 217,813,656.3 Total -- -- -- 00 9 0 6 3 14. Intangible assets (1) Details of intangible assets Unit: RMB Non-patented Trademark Software Item Name Land use rights Softwares Total technology rights copyright Ⅰ. Original book value 1. Opening Balance 200,738,970.56 58,346,510.59 63,638,856.89 2,324,000.00 6,381,122.62 331,429,460.66 2. Increased in the 106,446,745.00 4,530,000.00 43,155,360.18 375,446.40 154,507,551.58 Current Period (1) Purchase 106,055,655.00 29,304,144.44 135,359,799.44 (2) Transferred From Construction in 13,193,496.33 13,193,496.33 Progress (3) Acquisition 391,090.00 4,530,000.00 657,719.41 375,446.40 5,954,255.81 3. Decreased in the 1,091,639.56 1,110,883.15 2,202,522.71 Current Period (1) Disposal 1,110,883.15 1,110,883.15 (2) Transfer to 1,091,639.56 1,091,639.56 investment real estate 4. Currency 1,275.00 27.55 1,224.00 2,526.55 Translation Difference 5. Closing Balance 306,095,351.00 62,876,510.59 105,683,361.47 2,700,670.40 6,381,122.62 483,737,016.08 181 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Ⅱ. Accumulated amortization 1. Opening Balance 8,626,094.88 29,466,322.41 34,045,431.21 1,824,800.00 4,109,557.50 78,072,206.00 2. Increased in the 5,373,133.57 5,673,298.23 20,265,230.09 625,046.42 1,319,116.12 33,255,824.43 Current Period (1) Accrual 5,373,133.57 5,673,298.23 19,731,852.18 249,600.02 1,319,116.12 32,347,000.12 (2) Acquisition 533,377.91 375,446.40 908,824.31 3. Decreased in the 47,900.60 9,729.70 57,630.30 Current Period (1) Disposal 9,729.70 9,729.70 (2) Transfer to 47,900.60 47,900.60 investment real estate 4. Currency 6,723.36 -8,740.50 1,224.00 -793.14 Translation Difference 5. Closing Balance 13,958,051.21 35,139,620.64 54,292,191.10 2,451,070.42 5,428,673.62 111,269,606.99 Ⅲ. Provision for Impairment 1. Opening Balance 2. Increased in the Current Period (1) Accrual 3. Decreased in the Current Period (1) Disposal 4. Closing Balance Ⅳ. Book Value 1. Closing Balance on 292,137,299.79 27,736,889.95 51,391,170.37 249,599.98 952,449.00 372,467,409.09 Book Value 2. Opening Balance 192,112,875.68 28,880,188.18 29,593,425.68 499,200.00 2,271,565.12 253,357,254.66 on Book Value 15. Goodwill (1) Original book value of goodwill Unit: RMB The invested entity or Balance at the Increased in the current Decreased in the Balance at the End of the Period matters which formed Start of the Period period current period 182 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. goodwill Generated from business Disposal combination South North United Information Technology 71,083,281.09 71,083,281.09 Co., Ltd. Dahua Technology Italy 2,591,935.00 2,591,935.00 S.R.L. Lorex Technology Inc. 36,070,196.12 36,070,196.12 Total 71,083,281.09 38,662,131.12 109,745,412.21 (2) Provision of impairment in goodwill Unit: RMB Balance at The invested entity or matters which Balance at the Start of the Increased in the current Decreased in the current the End of formed goodwill Period period period the Period South North United Information Technology Co., Ltd. Dahua Technology Italy S.R.L. Lorex Technology Inc. Information about the asset group or asset group combination where the goodwill is located The invested entity or matters Amount of goodwill Information about the asset group or asset group combination where it is located which formed goodwill The asset group relating to the goodwill generated for the acquisition of the South North United South-North United Information Technology Co., Ltd., that is, the assets and Information Technology Co., 71,083,281.09 liabilities of the asset group formed for South-North United Information Ltd. Technology Co., Ltd. on December 31, 2018. The asset group relating to the goodwill generated for the acquisition of the Dahua Technology Italy 2,591,935.00 Dahua Technology Italy S.R.L., that is, the assets and liabilities of the asset S.R.L. group formed for Dahua Technology Italy S.R.L. on December 31, 2018. The asset group relating to the goodwill generated for the acquisition of the Lorex Technology Inc. 36,070,196.12 Lorex Technology Inc., that is, the assets and liabilities of the asset group formed for Lorex Technology Inc. on December 31, 2018. (4) Explain the goodwill impairment test process, key parameters (e.g. growth rate at forecast period, growth rate at steady period, profit rate, discount rate, forecast period, etc. when the present value of future cash flow is estimated) and the confirmation method of goodwill impairment loss: South-North United Information Technology Co., Ltd.: At the end of the period, the Company recognized the entire South-North United as an asset group, and measured its recoverable amount through estimating the present value of future cash flows. The asset 183 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. group is identical with the one recognized during the goodwill impairment test at the acquisition date and in previous years. Based on the financial budget for the South-North United approved by the management, the Company estimated the cash flows of the next five years and perpetual period, and took the discount rate 13.51% to calculate the present value of future cash flows. The management prepared the above financial budget on the basis of a comprehensive analysis of such factors as annual operating conditions in history, market competition, and estimated annual achievable project revenues after 2019. Dahua Technology Italy S.R.L.: At the end of the period, the Company recognized the entire Dahua Technology Italy S.R.L. as an asset group, and measured its recoverable amount through estimating the present value of future cash flows. The asset group is identical with the one recognized during the goodwill impairment test at the acquisition date and in previous years. Based on the financial budget for the Dahua Technology Italy S.R.L. approved by the management, the Company estimated the cash flows of the next five years and perpetual period, and took the discount rate 13.51% to calculate the present value of future cash flows. The management prepared the above financial budget on the basis of a comprehensive analysis of annual operating conditions in history, market competition and other factors. It estimated that at Dahua Technology Italy S.R.L., the growth rate of the annual sales from 2019 to 2033 will be 5%, and that in 2024 and beyond will be flat with the year of 2023. Lorex Technology Inc.: at the end of the period, the Company recognized the entire Lorex Technology Inc. as an asset group, and measured its recoverable amount through estimating the present value of future cash flows. The asset group is identical with the one recognized during the goodwill impairment test at the acquisition date and in previous years. Based on the financial budget of Lorex Technology Inc. approved by the management, the Company estimated the cash flows of the next five years and perpetual period, and took the discount rate 13.51% to calculate the present value of future cash flows. The management prepared the above financial budget on the basis of a comprehensive analysis of annual operating conditions in history, market competition and other factors. It estimated that at Lorex Technology Inc., the growth rate of the annual sales from 2019 to 2033 will be 5%, and that in 2024 and beyond will be flat with the year of 2023. Result of goodwill impairment test It can be obtained from the test that, the recoverable amounts of the asset groups of South-North United Information Technology Co., Ltd., Dahua Technology Italy S.R.L., and Lorex Technology Inc. were higher than the book value, and no signs of goodwill impairment for the asset groups were found. 16. Long-term deferred expenses Unit: RMB Balance at the Increased in the Prepaid Expenses in Other Amounts Balance at the End Item Name Start of the current period This Period Decreased of the Period Period Housing rent 989,166.01 882,128.72 107,037.29 Improvement expenditure of fixed assets leased by 44,994,693.69 7,983,812.43 37,010,881.26 operating lease Total 45,983,859.70 8,865,941.15 37,117,918.55 17. Deferred income tax assets/deferred income tax liabilities (1) Deferred income tax assets not written off Unit: RMB 184 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Balance at the End of the Period Balance at the Start of the Period Item Name Deductible temporary Deferred Income Tax Deductible temporary Deferred Income Tax difference Assets difference Assets Provision for Impairment 982,203,827.26 193,996,211.23 542,711,860.62 107,607,864.75 of Assets Unrealized Profit from 716,955,234.71 148,900,021.90 324,096,266.40 72,010,655.66 Internal Transactions Deductible Losses 92,044,909.04 16,363,887.53 126,225,882.24 30,425,699.26 Expected Liabilities 172,287,233.54 28,619,808.17 113,848,081.74 17,680,464.33 Payroll payable 138,626,628.92 22,872,593.43 100,118,528.01 16,566,607.55 Equity incentive expense 27,235,019.84 4,337,560.56 Costs from Tax Increase Due to Absence of 41,376,609.34 9,172,826.12 32,963,690.12 6,856,453.98 Invoice Amortization of 976,371.23 146,455.68 2,041,503.49 306,225.52 Intangible Assets Changes in fair value 3,640,169.45 910,042.36 gains and losses Total 2,175,346,003.33 425,319,406.98 1,242,005,812.62 251,453,971.05 (2) Deferred income tax liabilities not written off Unit: RMB Balance at the End of the Period Balance at the Start of the Period Item Name Taxable temporary Deferred Income Tax Taxable temporary Deferred Income Tax difference Liabilities difference Liabilities The gross profit of sales by 256,706,108.82 50,137,969.76 270,358,534.08 45,468,946.77 installments Total 256,706,108.82 50,137,969.76 270,358,534.08 45,468,946.77 (3) Deferred Income Tax Assets or Liabilities Listed by Net Amount after Offset Unit: RMB Amount of Deferred Amount of Deferred Balance of Deferred Balance of Deferred Income Tax Assets Income Tax Assets Income Tax Assets or Income Tax Assets or Item Name Offset against Offset against Liabilities Liabilities after Offset at Liabilities after Offset at Liabilities at the Start at the End of the Period the End of the Period the Start of the Period of the Period Deferred Income Tax Assets 425,319,406.98 251,453,971.05 185 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Deferred Income Tax 50,137,969.76 45,468,946.77 Liabilities (4) Deferred income tax assets or liabilities listed by net amount after offset Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Provision for Impairment of Assets 221,485,675.29 277,222,145.04 Deductible Losses 172,253,137.74 118,796,525.71 Equity incentive expense 4,209,954.04 Expected Liabilities 21,473,936.58 14,150,807.87 Total 419,422,703.65 410,169,478.62 (5) Details of unrecognized deferred income tax assets Unit: RMB Year Amount at the end of the period Opening Balance Notes 2018 2,098,124.64 Losses in 2013 and due in 2018 2019 3,970,432.34 5,566,595.76 Losses in 2014 and due in 2019 2020 11,057,227.29 25,369,075.20 Losses in 2015 and due in 2020 2021 18,784,799.88 28,287,841.72 Losses in 2016 and due in 2021 2022 40,598,242.37 57,474,888.39 Losses in 2017 and due in 2022 2023 97,842,435.86 Losses in 2018 and due in 2023 Total 172,253,137.74 118,796,525.71 -- 18. Other non-current assets Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Prepayments for purchase of engineering 5,627,812.52 9,057,335.83 equipments Prepayments for acquisition of real estate 10,649,793.09 83,887,400.00 Total 16,277,605.61 92,944,735.83 19. Short-term loans (1) Categories of short-term loan Unit: RMB 186 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Item Name Balance at the End of the Period Balance at the Start of the Period Fiduciary loans 1,380,000,000.00 700,000,000.00 Pledged loans 270,924,255.90 Pledged, guaranteed loans 71,709,561.83 600,000,000.00 Guaranteed loans 400,000,000.00 200,000,000.00 Total 1,851,709,561.83 1,770,924,255.90 20. Financial liabilities measured at fair value through profit or loss in this period Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Transactional financial liabilities 38,602,602.30 Derivative Financial Liabilities 38,602,602.30 A contractual obligation due to acquisition 62,450,000.00 of a subsidiary's contingent consideration Total 38,602,602.30 62,450,000.00 21. Notes payable and accounts payable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Notes Payable 3,671,586,104.79 3,434,822,334.46 Accounts Payable 3,789,729,594.20 2,701,785,054.57 Total 7,461,315,698.99 6,136,607,389.03 (1) Disclosure of notes payable Unit: RMB Types Balance at the End of the Period Balance at the Start of the Period Bank acceptance bill 2,266,008,177.19 2,407,766,588.82 Commercial acceptance bill 1,405,577,927.60 1,027,055,745.64 Total 3,671,586,104.79 3,434,822,334.46 (2) Details of accounts payables Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Payment for purchase of materials 3,586,524,616.43 2,517,661,622.60 187 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Payment for engineering equipments 203,204,977.77 184,123,431.97 Total 3,789,729,594.20 2,701,785,054.57 (3) Significant accounts payable with aging over 1 year There are no significant advance receipts aged over one year. 22. Advance receipts (1) Details of received pre-payments Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Payments for sales of goods 200,172,889.06 316,554,403.77 Pre-payments from construction projects 143,125,002.14 145,161,018.61 Total 343,297,891.20 461,715,422.38 23. Payroll payable (1) Details of payroll payable Unit: RMB Balance at the Start Increased in the current Decreased in the current Balance at the End of Item Name of the Period period period the Period Ⅰ. Short-term remuneration 845,292,407.50 4,291,124,537.50 4,034,373,487.22 1,102,043,457.78 Ⅱ. Dimission benefits - defined 5,853,972.47 196,215,031.05 179,753,849.36 22,315,154.16 contribution scheme Ⅲ. Dismissal welfare 10,330,519.84 10,330,519.84 Others 31,444,973.88 31,444,973.88 Total 851,146,379.97 4,529,115,062.27 4,255,902,830.30 1,124,358,611.94 (2) List of short-term remuneration Unit: RMB Balance at the Start of the Increased in the Decreased in the Balance at the End Item Name Period current period current period of the Period 1. Wages or salaries, bonuses, 733,044,267.35 3,724,256,047.65 3,535,572,290.95 921,728,024.05 allowances and subsidies 2. Staff welfare 150,496,931.20 150,496,931.20 188 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 3. Social insurance contributions 9,209,443.48 122,453,144.61 113,562,296.04 18,100,292.05 Including: medical insurance 8,573,930.92 105,607,708.29 98,379,163.62 15,802,475.59 Work injury insurance 174,814.60 4,959,196.77 4,457,743.59 676,267.78 premium Maternity insurance 460,697.96 11,886,239.55 10,725,388.83 1,621,548.68 premium 4. Housing funds 136,310.74 202,953,455.47 202,877,719.24 212,046.97 5. Labor union and education funds 102,902,385.93 90,964,958.57 31,864,249.79 162,003,094.71 Total 845,292,407.50 4,291,124,537.50 4,034,373,487.22 1,102,043,457.78 (3) Defined contribution scheme (Note) Unit: RMB Balance at the Start of Increased in the current Decreased in the current Balance at the End of the Item Name the Period period period Period 1. Basic pension 5,314,945.62 188,590,503.30 172,621,841.50 21,283,607.42 insurance 2. Unemployment 539,026.85 7,624,527.75 7,132,007.86 1,031,546.74 insurance Total 5,853,972.47 196,215,031.05 179,753,849.36 22,315,154.16 24. Taxes payable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period VAT 280,098,796.36 204,313,190.07 Enterprise Income Tax 258,232,990.39 236,139,791.09 Individual income tax 12,298,554.78 12,517,616.31 Urban Maintenance and Construction Tax 18,878,589.21 12,124,330.32 House property tax 5,757,911.72 2,289,512.95 Sales tax 5,114,791.97 Education surcharges (including local 13,462,512.05 8,660,325.87 education surcharges) Land usage tax 2,099,648.89 999,198.00 Stamp duty 1,939,872.86 1,596,025.78 Disabled security fund 661,501.37 722,165.12 Others 932,880.21 174,415.94 189 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Total 599,478,049.81 479,536,571.45 25. Other payables Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Interest Payable 4,745,203.31 3,694,476.25 Other Payables 1,046,791,891.66 104,297,163.85 Total 1,051,537,094.97 107,991,640.10 (1) Interests payable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Interest payable for short-term loan 3,046,260.22 1,870,583.16 Long-term loan interest 991,276.43 1,116,226.43 Interest payable for national development 707,666.66 707,666.66 fund Total 4,745,203.31 3,694,476.25 Details on significant overdue interests: There is no significant interest that has been overdue. (2) Other payables 1) Other payables listed by nature of funds Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Deposits 34,384,749.18 20,265,869.53 Temporarily borrowed and advance 164,250,303.45 72,780,836.70 payments Special fund for talent incentive 30,097,503.00 9,860,718.00 Restricted share repurchase obligations 807,733,586.00 Others 10,325,750.03 1,389,739.62 Total 1,046,791,891.66 104,297,163.85 26. Non-current liabilities due within 1 year Unit: RMB 190 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Item Name Balance at the End of the Period Balance at the Start of the Period Long-term debt due within one year 25,500,000.00 Total 25,500,000.00 27. Other current liabilities Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period To-be-transferred sales taxes in 70,845,639.51 45,941,962.85 installments Total 70,845,639.51 45,941,962.85 28. Long-term loans (1) Categories of long-term loans Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Pledged loans 179,000,000.00 230,000,000.00 Total 179,000,000.00 230,000,000.00 29. Estimated liabilities Unit: RMB Balance at the Start of the Item Name Balance at the End of the Period Causes Period Product quality assurance 193,761,170.12 127,998,889.61 After-sales maintenance Total 193,761,170.12 127,998,889.61 -- 30. Deferred income Unit: RMB Balance at the Increased in the Decreased in the Balance at the End of Item Name Start of the Causes current period current period the Period Period Government Received government subsidies 61,866,156.88 3,172,623.48 58,693,533.40 subsidies related to assets Total 61,866,156.88 3,172,623.48 58,693,533.40 -- Projects related to government subsidies: 191 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Unit: RMB The Amount The Amount amount of The Amount Balance at the recorded as Recorded as Balance at the Related to new Written off Other Liabilities Start of the non-operating Other Income End of the assets/related subsidies Costs in This variations Period revenue in this in This Period to income in this Period period Period period Special award for Related to 61,866,156.88 3,172,623.48 58,693,533.40 industrial assets park projects Total 61,866,156.88 3,172,623.48 58,693,533.40 Other notes: According to the FuJingGuan [2017] No.35 document issued by Economic Development Zone Management Committee and the FuCaiQi [2017] No.506 document issued by Hangzhou Fuyang District Finance Bureau, s, the Company received the special subsidies for the Fuyang Dahua Intelligent (IoT) Industrial Park in 2015 and 2017, respectively, RMB 31.66 million each time, totaling RMB 63.32 million. As the government grant related to assets, it is recognized as deferred income and will be recognized as other income in installments based on the estimated service life of the asset (20 years). 31. Other non-current liabilities Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period To-be-transferred sales taxes in 289,096,280.89 248,600,936.54 installments Other loans 110,000,000.00 110,000,000.00 Total 399,096,280.89 358,600,936.54 32. Share capital Unit: RMB Increased or decreased amount in this period (+/-) Balance at the Shares Balance at the Shares newly Start of the Period Bonus shares converted from Others Subtotal End of the Period issued capital reserves Total 2,898,756,130.00 98,865,800.00 98,865,800.00 2,997,621,930.00 shares According to the 2018 Restricted Stock Incentive Plan (Draft) reviewed and approved at the 4th Extraordinary General Meeting of Shareholders held by the Company on September 14, 2018, and the decisions at the 17th Session of the 6th Board of Directors held by the Company on November 1, 2018, the restricted stocks were subscribed by 3,145 restricted stock incentive targets, with the registered capital increased by RMB 98,865,800, and up to RMB 299,76,219,300. The above-mentioned capital contribution has 192 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. been verified through Xin Kuai Shi Bao [2018] No.10688 Verification Report issued by BDO China Shu Lun Pan CPAs (special general partnership). 33. Capital reserve Unit: RMB Balance at the Start of Increased in the current Decreased in the current Balance at the End of the Item Name the Period period period Period Capital premium (capital 592,695,795.94 708,867,786.00 1,301,563,581.94 share premium) Other capital reserves 644,955.58 199,674,951.49 702,626.18 199,617,280.89 Total 593,340,751.52 908,542,737.49 702,626.18 1,501,180,862.83 Other notes, including increases or decreases in this period and their reasons: 1. According to the 2018 Restricted Stock Incentive Plan (Draft) reviewed and approved at the 4th Extraordinary General Meeting of Shareholders held by the Company on September 14, 2018, and the decisions at the 17th Session of the 6th Board of Directors held by the Company on November 1, 2018, 98,865,800 restricted stocks were subscribed by 3,145 restricted stock incentive targets. The actual subscription amount paid by the restricted stock incentive targets was RMB 807,733,586.00, which was recorded in the capital reserve (share premium) as RMB 708,867,786.00. The matter is a share-based payment settled by equity. The amount of employee service exchanged by the share-based payment for this period was RMB 31,444,973.88. Other capital reserve was increased by RMB 31,444,973.88. 2. The capital reserve was reduced in total by RMB 65,121.08 in this period due to the acquisition and disposal of minority interests of the subsidiaries. See Note IX. (II) for details. 3. The equities of Beijing Ankang Jianxing Emergency Education Technology Co., Ltd. were disposed in this period. The impact of changes in other owners' equity that the Company should enjoy was transferred to the current PL at the time of disposal, reducing the Capital Reserves - Other Capital Reserves RMB 637,505.10. 4. The impact of changes in other owners' equity of Zhejiang Leap Motor Technology Co., Ltd. that the Company should enjoy under the Equity Method was recognized as the Capital Reserves - Other Capital Reserves RMB 168,229,977.61. 34. Treasury stock Unit: RMB Balance at the Start of Increased in the current Decreased in the current Balance at the End of the Item Name the Period period period Period Restricted shares 807,733,586.00 807,733,586.00 Total 807,733,586.00 807,733,586.00 Other notes, including increases or decreases in this period and their reasons: The Company gave share-based payment with restricted stock. In this period, 98,865,800 stocks were granted to employees at the rate of RMB 8.17 per share. The actual subscription amount paid by the restricted stock incentive targets was RMB 807,733,586.00. When the Company obtained the payment from the employees for the subscription of the restricted stock, the share capital was confirmed to be RMB 98,865,800.00, capital reserve (share premium) RMB 708,867,786.00. Meantime, the liabilities and the 193 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. treasury stocks were confirmed in full amount regarding the buy-back obligations. 35. Other comprehensive income Unit: RMB This Period's Amount of Occurrence Less: recorded Attributa into other ble to Balance at the comprehensive Less: Before tax Attributable to the Balance at the End Item Name Start of the incomes in Income balance in this the Company minority of the Period Period previous period Tax period after tax sharehol and transferred Expense ders to P/L in current after tax period II. Other comprehensive income that will be 6,660,189.04 3,676,975.37 3,676,975.37 10,337,164.41 reclassified into P/L Currency 6,660,189.04 3,676,975.37 3,676,975.37 10,337,164.41 conversion difference Other comprehensive 6,660,189.04 3,676,975.37 3,676,975.37 10,337,164.41 incomes in total 36. Surplus reserve Unit: RMB Balance at the Start of Increased in the current Decreased in the current Balance at the End of the Item Name the Period period period Period Statutory surplus reserve 971,547,268.36 274,822,162.55 1,246,369,430.91 Total 971,547,268.36 274,822,162.55 1,246,369,430.91 Notes on the surplus reserve, including increases or decreases in this period and their reasons: According to the regulations of the Company Law and the Company's Articles of Association, the Company took the statutory surplus reserve at 10% of the net profit of the parent company. 37. Undistributed profits Unit: RMB Item Name Current Period Previous Period Undistributed Profit before Adjustment at the End 5,996,130,036.27 4,161,017,062.96 of Previous Period Undistributed Profit after Adjustment at the Start 5,996,130,036.27 4,161,017,062.96 of the Period 194 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Add: net profit attributable to parent company's 2,529,426,468.61 2,378,726,820.22 owner in current period Less: withdrawal for statutory surplus reserve 274,822,162.55 253,839,936.38 Payable dividends on ordinary shares 579,751,226.00 289,773,910.53 Undistributed Profit at the End of the Period 7,670,983,116.33 5,996,130,036.27 Note 1: in accordance with relevant Company Law, the Company is required to transfer 10% of its net profit reported in its financial statements to statutory surplus reserve. Note 2: According to the resolution of the 2017 Annual General Meeting of Shareholders on April 27, 2018, based on the total share capital of the Company on December 31, 2017, a total of RMB 579,751,226.00 cash dividend was distributed to all shareholders, with RMB 2.00 (including tax) for every 10 shares. 38. Operating income and operating costs Unit: RMB This Period's Amount of Occurrence Previous Period's Amount of Occurrence Item Name Income Cost Income Cost Main Business 23,191,615,559.35 14,470,491,985.75 18,423,482,303.75 11,277,408,143.95 Other businesses 474,072,546.87 400,689,080.94 420,975,750.03 362,086,279.26 Total 23,665,688,106.22 14,871,181,066.69 18,844,458,053.78 11,639,494,423.21 39. Taxes and surcharges Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Urban Maintenance and Construction Tax 97,207,644.92 70,327,853.31 Education Surcharges 69,434,971.62 50,231,212.58 House property tax 11,836,830.04 9,360,553.41 Land usage tax 3,188,528.47 2,969,689.60 Vehicle and vessel use tax 89,710.39 75,522.54 Stamp duty 10,206,314.47 8,227,352.17 Business tax 417,330.67 9,311.87 Others 431,657.71 Total 192,381,330.58 141,633,153.19 40. Sales expenses Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence 195 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Labor cost 1,629,543,927.81 1,201,754,107.11 Business entertainment 209,983,842.65 162,071,695.55 Traveling expense 284,309,308.39 232,469,819.06 Marketing expense 334,418,534.17 213,670,567.18 Shipping expenses 290,085,985.98 199,826,187.07 After-sales service expense 224,209,671.79 143,264,423.61 Office expense 158,307,770.03 109,526,953.36 Depreciation cost and asset amortization 18,452,085.97 13,658,666.28 Communication expense 38,273,229.13 27,282,411.04 Others 177,796,591.86 113,174,875.74 Total 3,365,380,947.78 2,416,699,706.00 41. Administration expenses Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Labor cost 363,927,940.64 311,613,463.30 Office expense 38,308,283.42 25,155,698.05 Business entertainment 14,950,790.29 13,966,250.60 Taxation and insurance expense 8,198,001.61 6,786,400.82 Traveling expense 10,790,701.94 9,930,462.02 Depreciation cost and asset amortization 66,357,497.12 53,648,854.70 Administrative property cost 54,117,301.05 45,994,528.39 Knowledge resource fee 34,427,472.19 31,661,155.11 Others 41,890,606.38 20,761,187.35 Total 632,968,594.64 519,518,000.34 42. R&D expenses Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Labor cost 1,934,011,719.44 1,457,543,233.96 Consumables and service fees 101,311,129.73 108,082,095.04 Research and development consumption 91,271,559.00 85,538,232.50 and external inspection fee Traveling expense 68,476,970.51 59,376,221.44 196 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Depreciation cost and asset amortization 39,157,143.81 34,412,495.10 Communication expense 13,622,482.14 10,340,596.69 Others 36,021,497.90 33,596,004.70 Total 2,283,872,502.53 1,788,888,879.43 43. Financial expenses Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Interest expense 114,335,785.04 73,301,999.99 Less: interest income 113,966,942.24 54,757,215.68 P/L on foreign exchange -152,398,515.34 140,569,791.31 Others 28,861,709.80 8,317,346.07 Total -123,167,962.74 167,431,921.69 44. Impairment losses of assets Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Ⅰ. Losses on bad debts 335,412,897.12 191,854,189.10 Ⅱ. Losses on decline in price of 23,585,293.84 38,652,726.64 inventories Ⅲ. Losses on the impairment of 15,000,000.00 available-for-sale financial assets Total 358,998,190.96 245,506,915.74 45. Other income Unit: RMB Sources of other incomes This Period's Amount of Occurrence Previous Period's Amount of Occurrence Special award for industrial park projects 3,172,623.48 1,453,843.12 VAT refund 660,676,927.40 706,770,201.91 Financial subsidy for science and 21,265,400.00 technology R&D plan projects Foreign trade incremental subsidies for 15,164,400.00 4,489,800.00 Binjiang District Core Electronics, High-End 13,900,000.00 General-Purpose Chips and Basic Software 197 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Products special fund Special funds for foreign trade and 5,217,148.00 6,062,000.00 economic development Tax refund 4,345,816.85 8,239,609.35 Subsidies for stable positions 2,168,664.05 2,818,712.14 Patent subsidies 1,529,200.00 947,400.00 Foreign trade export increment and 3,000,000.00 premium subsidy Rent subsidy 1,107,900.00 Export credit insurance premium subsidies 790,700.00 658,000.00 Science and technology innovation award 400,000.00 funding Intellectual Property award funding 350,000.00 Project grant from the Research Institute, 290,000.00 Ministry of Public Security Subsidies for undergraduate practical 275,919.35 920,710.00 training Key R&D of industrial Internet 220,000.00 Subsidies for IP License 2,250,000.00 Service outsourcing enterprise 1,106,200.00 development funds Total 733,874,699.13 735,716,476.52 46. Investment income Unit: RMB Previous Period's Amount of Item Name This Period's Amount of Occurrence Occurrence Long-term equity investment income -36,049,906.26 -37,464,812.35 measured by equity method Investment income from disposal of long-term 706,569.92 387,298.43 equity investment Investment income from disposal of financial assets measured in fair value with its changes -45,687,750.95 1,297,450.51 recorded into current profit or loss Investment income from possession of 1,005,008.70 5,543,861.26 available-for-sale financial assets Investment income from treasury bond reverse 380,167.33 259,538.04 198 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. repurchase Investment income from financial products 352,834.25 466,010.96 Total -79,293,077.01 -29,510,653.15 47. Profits from changes in fair values Unit: RMB This Period's Amount of Previous Period's Amount of Source of the income from changes in fair value Occurrence Occurrence Financial Liabilities Measured in Fair Value with Changes -38,602,602.30 Recorded into Current Profit and Loss Total -38,602,602.30 48. Asset disposal income Unit: RMB Sources of the asset disposal income This Period's Amount of Occurrence Previous Period's Amount of Occurrence Income from disposal of fixed assets 17,535.97 774,332.50 49. Non-operating revenue Unit: RMB Amount recorded into This Period's Amount of Previous Period's Amount of Item Name non-recurring profit and loss in Occurrence Occurrence current period Government subsidies 5,145,046.05 15,109,656.54 5,145,046.05 Gains and losses of 563,588.96 873,369.48 563,588.96 non-current asset retirement No payment required 62,450,000.00 62,450,000.00 Others 9,038,846.29 6,647,990.52 9,038,846.29 Total 77,197,481.30 22,631,016.54 77,197,481.30 Government subsidies recorded into current period P/L: Unit: RMB Subsidies Influence This Previous Special Related to Subsidy Distributing Distributing Profit and period's period's Types of Nature Subsidy or assets/related items Entity Reason Loss in the amount of amount of not to income Current Year occurrence occurrence or not 199 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Subsidies received due to engagement in specific Baise industries and Development Municipal trades encouraged 2,890,000.0 Related to Contribution Investment Subsidy Yes No and supported by 0 income Award Promotion the State (obtained Bureau by national policies and regulations) Subsidies received due to engagement in specific Baise industries and Talent Municipal trades encouraged Related to contribution Investment Subsidy Yes No 101,706.00 and supported by income award Promotion the State (obtained Bureau by national policies and regulations) Subsidies received due to engagement in specific Major Finance industries and science and Bureau of trades encouraged 1,000,000.0 Related to technology Binjiang Subsidy Yes No and supported by 0 income innovation District, the State (obtained funding Hangzhou by national policies and regulations) Subsidies received Policy due to engagement support in specific award Wuxi Taihu industries and funding for Town trades encouraged Related to Subsidy Yes No 640,000.00 Intelligent Management and supported by income Transportatio Committee the State (obtained n Industry by national Park policies and regulations) Funding for Finance Subsidies received Related to central Bureau of Subsidy due to engagement Yes No 264,526.13 income service trade Binjiang in specific 200 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. innovation District, industries and development Hangzhou trades encouraged pilot and supported by the State (obtained by national policies and regulations) Subsidies received due to engagement Hangzhou in specific Vocational industries and Other special Skills trades encouraged Related to Subsidy Yes No 18,000.00 subsidies Training and and supported by income Guidance the State (obtained Center by national policies and regulations) Subsidies received due to engagement in specific Finance industries and Bureau of Other special trades encouraged Related to Binjiang Subsidy Yes No 157,313.92 738,600.00 subsidies and supported by income District, the State (obtained Hangzhou by national policies and regulations) Subsidies received due to engagement in specific industries and Hangzhou Other special trades encouraged Related to Finance Subsidy Yes No 73,500.00 100,000.00 subsidies and supported by income Bureau the State (obtained by national policies and regulations) Subsidies received Baise due to engagement Municipal Other special in specific Related to Development Subsidy Yes No 100,000.00 subsidies industries and income and Reform trades encouraged Commission and supported by 201 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. the State (obtained by national policies and regulations) Subsidies received due to engagement in specific Hangzhou industries and Employment Other special trades encouraged Related to Management Subsidy Yes No 18,856.54 subsidies and supported by income Service the State (obtained Bureau by national policies and regulations) Subsidies received due to engagement Zhejiang in specific Human industries and Other special Resources trades encouraged Related to Subsidy Yes No 50,000.00 subsidies and Social and supported by income Security the State (obtained Department by national policies and regulations) Subsidies received Municipal due to engagement subsidies for in specific provincial Finance industries and key Bureau of trades encouraged Related to enterprise Binjiang Subsidy Yes No 4,984,000.00 and supported by income research District, the State (obtained institute Hangzhou by national construction policies and projects regulations) Subsidies received due to engagement Subsidies for Baise in specific economic Municipal industries and Related to development Investment Subsidy trades encouraged Yes No 3,080,000.00 income of Promotion and supported by headquarters Bureau the State (obtained by national policies and 202 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. regulations) Subsidies received due to engagement Market in specific Supervision industries and Industrial Administratio trades encouraged Related to support n of Subsidy Yes No 3,000,000.00 and supported by income subsidies Guanshan the State (obtained Lake District, by national Guiyang City policies and regulations) Subsidies received Financial due to engagement subsidies for in specific Finance 2017 industries and Bureau of provincial trades encouraged Related to Binjiang Subsidy Yes No 1,700,000.00 key research and supported by income District, and the State (obtained Hangzhou development by national projects policies and regulations) Subsidies received due to engagement Subsidies for Third in specific projects of Institute of industries and the ministry Research, the trades encouraged Related to of public Subsidy Yes No 920,000.00 Ministry of and supported by income security's Public the State (obtained research Security by national institution policies and regulations) Subsidy Subsidies received funds for due to engagement innovation in specific chain & Finance industries and industry Bureau of trades encouraged Related to chain major Binjiang Subsidy Yes No 390,200.00 and supported by income science and District, the State (obtained technology Hangzhou by national innovation policies and projects in regulations) Hangzhou Science and Finance Subsidy Subsidies received Yes No 28,000.00 Related to 203 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. technology Bureau of due to engagement income innovation Binjiang in specific award District, industries and Hangzhou trades encouraged and supported by the State (obtained by national policies and regulations) 50. Non-operating expenses Unit: RMB Amount recorded into This Period's Amount of Previous Period's Amount of Item Name non-recurring profit and loss in Occurrence Occurrence current period Donations 630,000.00 1,475,272.21 630,000.00 Gains and losses of non-current 1,544,880.42 10,101,035.54 1,544,880.42 asset retirement Water conservancy fund 25,614.29 266,944.90 Others 1,911,707.03 845,117.80 1,911,707.03 Total 4,112,201.74 12,688,370.45 4,086,587.45 51. Income tax expenses (1) Income tax expenses table Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Current income tax expense 345,147,511.10 303,959,330.80 Deferred income tax expense -166,584,920.31 -38,537,820.76 Total 178,562,590.79 265,421,510.04 (2) Reconciliation of accounting profits and income tax expenses Unit: RMB Item Name This Period's Amount of Occurrence Total Profit 2,773,155,271.13 Income tax expense calculated at the applicable tax rate (15%) 415,973,290.67 Impact by applying different tax rates to subsidiaries -9,190,109.62 204 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Impact of annual income tax before adjustment -102,993,151.49 Impact of additional deduction of the research and development -237,224,748.87 expenses Impact of the non-deductible costs, expenses and losses 29,666,890.84 Others 82,330,419.26 Income tax expense 178,562,590.79 Other notes According to the "Notice on Issues Related to Enterprise Income Tax Preferential Policies for Software and Integrated Circuit Industry" (CaiShui [2016] No.49), the Company was approved by the tax authorities after the 2017 annual audit report, to enjoy that the corporate income tax for 2017 was reduced to 10%. The reduced corporate income tax of RMB 107,781,786.41 in 2017 was recorded in the income tax expense in this period. As of the approval date of this report, the preferential policies for 2018 have not yet been approved, and the enterprise income tax for the year is still calculated at the rate of 15%. 52. Other comprehensive income See notes. 53. Cash Flow Statement items (1) Other cash receipts relating to operating activities Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Interest Income 43,728,828.20 34,424,114.16 Government subsidies 75,170,194.30 34,358,676.23 Tender and performance guarantee deposit 68,951,758.33 64,756,242.28 Incomings and outgoings and advanced 96,065,091.17 77,741,485.52 payments Others 40,318,844.30 11,897,534.80 Total 324,234,716.30 223,178,052.99 (2) Other cash payments relating to operating activities Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Office expense 196,211,736.05 142,667,968.99 Communication expense 55,457,740.91 44,420,833.25 Business entertainment 228,985,751.81 175,110,406.38 205 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Traveling expense 308,771,285.09 292,008,105.40 Marketing expense 339,880,920.34 230,435,488.41 Shipping expenses 292,384,473.18 215,630,545.91 Property fee 84,273,210.58 70,486,836.89 Knowledge resource fee 88,659,768.32 58,975,102.47 Research and development consumption 94,636,031.85 107,497,433.52 and external inspection fee Taxation and insurance expense 30,257,054.94 26,284,739.91 Tender and performance guarantee deposit 50,577,789.33 104,250,303.97 Incomings and outgoings and advanced 114,257,759.78 125,468,549.65 payments Others 80,721,081.02 282,980,182.39 Total 1,965,074,603.20 1,876,216,497.14 (3) Other cash receipts relating to investing activities Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Receipts of cash from forward exchange 3,987,200.00 2,294,762.86 contracts Receipts of loans from non-financial 3,559,123.87 1,982,642.22 institutions Government subsidies related to assets 31,660,000.00 Total 7,546,323.87 35,937,405.08 (4) Other cash payments related to investing activities Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Cash paid for forward exchange contracts 49,674,950.95 997,312.35 Cash paid for asset restructuring and 89,913,444.89 acquisition Total 139,588,395.84 997,312.35 (5) Other cash receipts related to financing activities Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence 206 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Withdrawn documentary credit deposit 1,274,934,480.00 404,080,220.00 Cash received from sales of equity without 8,024,000.00 loss of control Total 1,274,934,480.00 412,104,220.00 (6) Other cash payments related to financing activities Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Paid documentary credit deposit 1,149,842,000.00 653,328,360.00 Cashes for encouraging repurchase of 5,352,286.20 equity Cashes for purchasing minority equity 2,360,000.00 2,494,000.00 Total 1,152,202,000.00 661,174,646.20 54. Supplementary information about the Cash Flow Statement (1) Supplementary information about the Cash Flow Statement Unit: RMB Supplementary Information Amount of This Period Amount of Previous Period 1. Reconciliation of net profit to cash flows from -- -- operational activities: Net Profit 2,594,592,680.34 2,376,786,346.10 Add: provision for impairment of assets 358,998,190.96 245,506,915.74 Depreciation of fixed assets, oil and gas assets, productive 197,491,957.49 134,488,131.80 biological assets Amortization of Intangible Assets 32,347,000.12 27,767,397.35 Amortization of long-term prepaid expenses 8,865,941.15 Losses on disposal of fixed assets, intangible assets and -17,535.97 -774,332.50 other long-term assets (mark "-" for incomes) Losses on scrapping of fixed assets (mark "-" for incomes) 981,291.46 9,227,666.06 Losses on fair value changes (mark "-" for incomes) 38,602,602.30 Financial expenses (mark "-" for incomes) -38,062,730.30 213,871,791.30 Losses on investment (mark "-" for incomes) 79,293,077.01 29,510,653.15 Decrease on deferred income tax assets (mark "-" for -171,253,943.30 -60,088,749.83 increases) Increase on deferred income tax liabilities (mark "-" for 4,669,022.99 21,763,500.72 207 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. decreases) Decrease on inventories (mark "-" for increases) -29,181,801.03 -640,320,122.78 Decrease on operational receivables (mark "-" for -3,523,904,205.02 -4,110,273,418.55 increases) Increase on operational payables (mark "-" for decreases) 1,436,072,079.57 2,668,345,576.97 Others -34,177,649.60 -1,579,995.52 Net Cash Flow Generated by operating activities 955,315,978.17 914,231,360.01 2. Major investing and financing activities not involving -- -- cash receipts and payment: 3. Net changes in cash and cash equivalents: -- -- Closing balance of cash 3,690,994,031.05 3,061,375,534.06 Less: opening balance of cash 3,061,375,534.06 2,075,176,785.56 Add: closing balance of cash equivalents 11,289,772.49 1,303,459.82 Less: opening balance of cash equivalents 1,303,459.82 Net additions to balance of equivalents 639,604,809.66 987,502,208.32 (2) Net cash payments for acquisition of subsidiaries in this period Unit: RMB Amount Cash or cash equivalents used for the acquisition occurred in this 86,251,926.40 period and paid in this period Including: -- Dahua Technology Italy S.R.L 29,306,120.62 Lorex Technology Inc 52,415,805.78 Sichuan Dahua Guangxun Photoelectric Technology Co., Ltd. 4,530,000.00 Less: cash and cash equivalents held by acquired subsidiaries 5,474,924.05 Including: -- Dahua Technology Italy S.R.L 139,015.44 Lorex Technology Inc 5,335,908.61 Including: -- Net cash paid for acquisition of subsidiaries 80,777,002.35 208 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (3) Net cash receipts from disposal of subsidiaries in this period (4) Composition of cash and cash equivalents Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Ⅰ. Cash 3,690,994,031.05 3,061,375,534.06 Including: cash on hand 3,981.79 167,745.54 Bank deposit for payment at any time 3,547,354,923.39 2,926,061,578.72 Other monetary capital for payment 143,635,125.87 135,146,209.80 at any time Ⅱ. Cash equivalents 11,289,772.49 1,303,459.82 Ⅲ. Closing balance of cash and cash 3,702,283,803.54 3,062,678,993.88 equivalents 55. Assets with restricted ownership rights or right to use Unit: RMB Book Value at the end of the Item Name Cause of restrictions period Cash and Bank Balances 469,159,816.01 L/C loan deposit, bond deposit, bill discount deposit Notes receivable 1,606,595,655.43 Bill pledges are used to issue bank acceptance bills Long-term Receivables 292,229,615.24 Pledges to achieve long-term borrowings Non-current Assets Due within 1 Year 41,383,403.53 Pledges to achieve long-term borrowings Total 2,409,368,490.21 -- 56. Monetary items in foreign currencies (1) Monetary items in foreign currencies Unit: RMB Closing Balance in Foreign Closing Balance Converted into Item Name Exchange Rate for Conversion Currencies RMB Cash and Bank Balances -- -- Including: USD 261,613,693.03 6.8632 1,795,507,098.00 EUR 17,583,904.27 7.8473 137,986,171.98 HKD 10,644,455.17 0.8762 9,326,671.62 AED 11,826,190.73 1.8679 22,089,786.88 209 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. PLN 6,742,307.37 1.8271 12,318,734.95 GBP 727,776.00 8.6762 6,314,330.13 THB 23,774,203.38 0.211 5,015,643.69 ZAR 10,085,973.28 0.4735 4,775,781.66 INR 47,651,092.62 0.0979 4,662,825.52 AUD 667,652.80 4.825 3,221,424.76 MXN 7,805,348.24 0.3484 2,719,444.02 HUF 110,578,585.59 0.0244 2,702,569.05 RSD 29,820,524.09 0.0664 1,980,685.28 RUB 19,957,326.83 0.0986 1,967,792.43 KRW 309,466,492.00 0.0061 1,895,427.77 COP 680,565,675.51 0.0021 1,423,825.13 PEN 392,891.66 2.0369 800,288.88 CAD 146,878.28 5.0381 739,987.46 ARS 3,546,438.74 0.1792 635,390.56 CZK 1,945,283.30 0.3042 591,676.16 BRL 275,055.65 1.7718 487,351.85 TND 169,103.91 2.2979 388,580.88 DKK 329,173.20 1.0508 345,879.16 NZD 54,504.46 4.5954 250,469.80 MYR 145,005.98 1.6479 238,956.51 SGD 46,092.86 5.0062 230,750.08 BGN 55,597.99 4.0163 223,296.54 CLP 20,481,027.00 0.0098 201,606.92 TRY 94,217.36 1.2962 122,120.72 UZS 136,723,962.57 0.0008 112,523.98 IDR 140,588,782.73 0.0005 66,356.44 KES 860,313.60 0.0674 58,001.03 MAD 48,241.94 0.7201 34,740.17 RON 19,606.49 1.6857 33,050.05 KZT 404,939.94 0.0182 7,359.37 PKR 2,756.00 0.0491 135.25 Accounts Receivable -- -- Including: USD 398,874,077.73 6.8632 2,737,552,570.28 210 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. EUR 23,734,764.50 7.8473 186,253,817.46 HKD 604,511.00 0.8762 529,672.54 PLN 56,260,869.44 1.8271 102,793,109.34 AUD 10,787,817.54 4.825 52,051,219.63 AED 19,889,019.78 1.8679 37,150,103.38 ZAR 31,193,253.93 0.4735 14,770,232.46 RSD 140,258,178.09 0.0664 9,315,976.72 CAD 837,855.92 5.0381 4,221,201.91 BRL 1,510,868.07 1.7718 2,677,001.37 ARS 14,055,131.79 0.1792 2,518,159.39 SGD 375,073.19 5.0062 1,877,691.40 HUF 64,146,995.81 0.0244 1,567,769.06 KRW 242,707,460.00 0.0061 1,486,540.45 RUB 9,718,016.00 0.0986 958,196.38 GBP 9,531.21 8.6762 82,694.68 Long-term Loan -- -- Including: USD EUR HKD Accounts Payable -- Including: USD 110,990,150.64 6.8632 761,747,601.87 EUR 811,480.38 7.8473 6,367,929.99 AUD 605,718.16 4.825 2,922,590.12 BRL 780,864.03 1.7718 1,383,558.31 AED 287,175.00 1.8679 536,405.57 INR 906,501.00 0.0979 88,704.28 IDR 62,455,454.54 0.0005 29,478.32 RUB 254,772.71 0.0986 25,120.59 TRY 9,166.90 1.2962 11,881.76 HUF 169,244.09 0.0244 4,136.37 COP 1,593,000.00 0.0021 3,332.75 MXN 3,919.58 0.3484 1,365.61 MYR 301.89 1.6479 497.49 211 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (2) Notes on overseas business entities, including that for the important overseas business entities, the overseas main premises, functional currency and selection basis shall be disclosed. If there are changes on its functional currency, the causes for the changes shall be disclosed as well. √ Applicable □ Not applicable Since the Company's overseas business entity, Dahua Technology (HK) Limited, does not have autonomy over its business activities, which are the extension of the Company's business activities, for the part constituting the Company's business activities, RMB shall be used as its functional currency, and for the rest of the overseas entities, local currencies shall be used as its functional currency. 57. Government subsidies (1) Basic information about government subsidies Unit: RMB Types Amount Items reported Amount Taken to Current P&L Special award for industrial 3,172,623.48 Other Incomes 3,172,623.48 park projects VAT refund 660,676,927.40 Other Incomes 660,676,927.40 Financial subsidy for science and technology R&D plan 21,265,400.00 Other Incomes 21,265,400.00 projects Foreign trade incremental 15,164,400.00 Other Incomes 15,164,400.00 subsidies for Binjiang District Core Electronics, High-End General-Purpose Chips and 13,900,000.00 Other Incomes 13,900,000.00 Basic Software Products special fund Special funds for foreign trade 5,217,148.00 Other Incomes 5,217,148.00 and economic development Tax refund 4,345,816.85 Other Incomes 4,345,816.85 Subsidies for stable positions 2,168,664.05 Other Incomes 2,168,664.05 Patent subsidies 1,529,200.00 Other Incomes 1,529,200.00 Foreign trade export increment 3,000,000.00 Other Incomes 3,000,000.00 and premium subsidy Rent subsidy 1,107,900.00 Other Incomes 1,107,900.00 Export credit insurance 790,700.00 Other Incomes 790,700.00 premium subsidies Science and technology 400,000.00 Other Incomes 400,000.00 212 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. innovation award funding Intellectual Property award 350,000.00 Other Incomes 350,000.00 funding Project grant from the Research Institute, Ministry of Public 290,000.00 Other Incomes 290,000.00 Security Subsidies for undergraduate 275,919.35 Other Incomes 275,919.35 practical training Key R&D of industrial Internet 220,000.00 Other Incomes 220,000.00 Development Contribution 2,890,000.00 Non-operating Revenue 2,890,000.00 Award Talent contribution award 101,706.00 Non-operating Revenue 101,706.00 Major science and technology 1,000,000.00 Non-operating Revenue 1,000,000.00 innovation funding Policy support award funding for Intelligent Transportation 640,000.00 Non-operating Revenue 640,000.00 Industry Park Funding for central service trade innovation development 264,526.13 Non-operating Revenue 264,526.13 pilot Other special subsidies 248,813.92 Non-operating Revenue 248,813.92 Total 739,019,745.18 739,019,745.18 (2) Repayment of government subsidies □ Applicable √ Not applicable VIII. Changes in the Scope of Consolidation 1. Consolidation not under the common control (1) Consolidation not under the common control in this period Unit: RMB Income of Net Profit of Time Point Cost for Acquisit Basis for Acquiree from Acquiree from Name of for Equity Percentage Acquisition Equity ion Determining the Acquisition the Acquisition Acquiree Acquisitio Acquired Date Acquisition Method Acquisition Date Date to the End Date to the End n of the Period of the Period Dahua February 29,306,120.62 100.00% Acquisit February 01, The equity transfer 229,100,976.68 14,262,440.67 213 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Technology 01, 2018 ion 2018 payment was made Italy S.R.L. and the asset transfer procedure was completed on February 1, 2018 The equity transfer payment was made Lorex February Acquisit February 06, and the asset Technology 52,415,805.78 100.00% 395,441,522.53 2,333,175.62 06, 2018 ion 2018 transfer procedure Inc was completed on February 6, 2018 Sichuan The equity transfer Dahua payment and the Guangxun November Acquisit November asset transfer 4,530,000.00 100.00% -34,020.00 Photoelectric 05, 2018 ion 05, 2018 procedures were Technology completed on Co., Ltd. November 5, 2018 Other notes: (2) Consolidation costs and goodwill Unit: RMB Sichuan Dahua Guangxun Consolidated Cost Dahua Technology Italy S.R.L. Lorex Technology Inc Optoelectronics Technology Co., Ltd. -- Cash 29,306,120.62 52,415,805.78 4,530,000.00 Total cost of business 29,306,120.62 52,415,805.78 4,530,000.00 combination Less: fair value of identifiable 26,714,185.62 16,345,609.66 4,530,000.00 net assets acquired Negative difference between goodwill/combination cost and 2,591,935.00 36,070,196.12 fair value of identifiable net assets acquired (3) Identifiable assets and liabilities of acquiree at the acquisition date Unit: RMB Sichuan Dahua Guangxun Dahua Technology Italy S.R.L Lorex Technology Inc Optoelectronics Technology Co., Ltd. 214 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Fair Value at Book Value at Fair Value at Book Value at Fair Value at Book Value at Acquisition Date Acquisition Date Acquisition Date Acquisition Date Acquisition Date Acquisition Date Cash and Bank 139,015.44 139,015.44 5,335,908.61 5,335,908.61 Balances Accounts 87,889,305.36 87,889,305.36 36,211,498.72 36,211,498.72 receivable Inventory 111,446,381.94 111,446,381.94 4,578,646.06 4,578,646.06 Fixed Assets 6,915,789.02 4,469,325.52 1,117,444.29 1,117,444.29 Intangible Assets 515,431.50 515,431.50 4,530,000.00 Other Current 1,922,258.90 1,922,258.90 14,406,467.20 14,406,467.20 Assets Deferred Income 2,611,492.63 2,611,492.63 Tax Assets Other Non-current 132,800.95 132,800.95 Assets Loan 348,958.58 348,958.58 Payables 179,983,848.99 179,983,848.99 44,356,227.53 44,356,227.53 Other Current 1,901,221.30 1,901,221.30 Liabilities Long-term 12,768.62 12,768.62 Payables Expected 3,559,620.32 3,559,620.32 Liabilities Net Assets 26,714,185.62 24,267,722.12 16,345,609.66 16,345,609.66 4,530,000.00 Net assets 26,714,185.62 24,267,722.12 16,345,609.66 16,345,609.66 4,530,000.00 acquired (4) Profits or losses from re-measurement of equity held before acquisition date in fair value Is there any transaction that leads to business consolidation achieved through multiple transactions in various stages with control acquired within the reporting period □ Yes √ No (5) Notes on consolidation considerations which cannot be reasonably determined at the acquisition date or at the end of the period of consolidation, or fair values of identifiable assets or liabilities of acquiree (6) Other notes: 1. Business combinations not under the same control in this period 215 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Acquiree Acquisition Acquisition Method Basis for Determining Acquisition Date Date Flir Belgium Bvba (Note 1) 2/6/2018 Acquisition The asset acquisition transfer payment was made and the asset transfer procedure was completed on February 6, 2018 Flir Commercial Systems INC. (Note 2) 2/6/2018 Acquisition The asset acquisition transfer payment was made and the asset transfer procedure was completed on February 6, 2018 Note 1: The Company acquired relevant assets of Flir Belgium Bvba in Belgium through its holding subsidiary Dahua Europe in this period, including debt receivables, inventories and personnel. The Company believed that the above portfolio has the input and output capabilities, and can calculate its cost and income independently. Therefore the acquisition is recognized as a business combination not under the same control. Note 2: The Company acquired the relevant assets of Flir Commercial Systems INC. in USA through its holding subsidiary Lechange Inc. in this period, including debt receivables and inventories. The Company believed that the above portfolio has the input and output capabilities, and can calculate its cost and income independently. Therefore the acquisition is recognized as a business combination not under the same control. 2. Acquisition Cost Flir Belgium Bvba Flir Commercial Systems INC. Acquisition consideration 1,280,017.29 113,068,303.06 Less: cash and cash equivalents held by the acquired assets at 24,434,875.46 the acquisition date Total of actual acquisition cost 1,280,017.29 88,633,427.60 3. Identifiable assets and liabilities of the acquiree at the acquisition date (1) Flir Belgium Bvba Subject Fair Value at Acquisition Date Book Value at Acquisition Date Assets: Notes receivable and accounts receivable 4,852,355.33 4,852,355.33 Inventory 5,851,203.38 5,851,203.38 Liabilities: Other Payables 9,423,541.42 9,423,541.42 Net assets acquired 1,280,017.29 1,280,017.29 (2) Flir Commercial Systems INC. Subject Book Value at Acquisition Date Book Value at Acquisition Date 216 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Assets: Cash and Bank Balances 24,434,875.46 24,434,875.46 Notes receivable and accounts receivable 40,356,778.14 40,356,778.14 Inventory 185,673,676.49 185,673,676.49 Liabilities: Accounts Payable 115,977,676.74 115,977,676.74 Payroll payable 361,029.87 361,029.87 Tax Payable 1,954,060.19 1,954,060.19 Other Payables 16,211,050.59 16,211,050.59 Expected Liabilities 2,893,209.64 2,893,209.64 Net assets acquired 113,068,303.06 113,068,303.06 2. Disposal of subsidiaries Is there any situation where disposal of investment in subsidiaries in a single transaction causes loss of control □ Yes √ No Is there any situation where disposal of investment in subsidiaries is achieved through multiple transactions in various stages, causing loss of control in this period □ Yes √ No 3. Changes in the scope of combination for other reasons Explanations on the changes in the scope of consolidation caused by other reasons (for example, newly established subsidiaries, subsidiaries clearing, etc.) and relevant information: a) The Company invested to establish 12 domestic subsidiaries including Zhejiang Vision Technology Co., Ltd., Dahua Zhongcheng (Beijing) Technology Co., Ltd., Zhejiang Huaxiao Technology Co., Ltd., Xi'an Dahua Zhilian Technology Co., Ltd., Tianjin Dahua Information Technology Co., Ltd., Hunan Dahua Zhilong Information Technology Co., Ltd., Zhejiang Dahua Robot Technology Co., Ltd., Beijing Huayue Shangcheng Information Technology Service Co., Ltd., Zhejiang Dahua Jinzhi Technology Co., Ltd., Shanghai Huashang Chengyue Information Technology Service Co., Ltd., Wuxi Dahua Ruipin Technology Co., Ltd., Hangzhou Huajuan Technology Co., Ltd. and 9 overseas subsidiaries including Dahua Technology Netherlands BV, Dahua Technology Morocco SARL, Dahua Technology S.R.L, DAHUA VISION LLC, Dahua Technology New Zealand Limited, 1151551 B.C.Ltd., DAHUA TECHNOLOGY CHINA (PVT) LTD, Dahua Technology Pakistan (private) Limited, DAHUA TECHNOLOGY (THAILAND) CO., LTD. The above subsidiaries have been incorporated in the consolidation scope since the date of establishment. b) In February 2018, the Company completed the shareholding merger of Lorex Technology Inc and Dahua Technology Italy SRL, owning 100% stake of them and having substantial control over it, so they were incorporated in the consolidation scope. In November 2018, the Company completed the shareholding merger of Sichuan Dahua Guangxun Photoelectric Technology Co., Ltd., owning 100% stake of them and having substantial control over it, so they were incorporated in the consolidation scope. c) This year, Guangxi Dahua Zhongzhi Technology Co., Ltd., Yancheng Zhongchuang Dahua IOT Technology Co., Ltd., Jiangsu 217 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Dahua Zhiyun Information Technology Co., Ltd. And 1151551 B.C.Ltd. were canceled, without being incorporated in the consolidation scope since the date of cancellation. IX. Equity in Other Entities 1. Equity in Subsidiaries (1) Composition of the enterprise group Shareholding Name of Percentage Main Place of Business Registered Address Business Nature Acquisition Method Subsidiaries Indirec Direct t Dahua System Electronics and Binjiang District, Hangzhou Binjiang District, Hangzhou 100% Establishment Engineering information Dahua Vision Electronics and Binjiang District, Hangzhou Binjiang District, Hangzhou 100% Establishment Technology information Dahua Security Electronics and Binjiang District, Hangzhou Binjiang District, Hangzhou 51% Establishment Network information Electronics and Dahua Ju'an Binjiang District, Hangzhou Binjiang District, Hangzhou 51% Establishment information Guangxi Dahua Electronics and Qingxiu District, Nanning Qingxiu District, Nanning 100% Establishment Information information Dahua Security Binjiang District, Hangzhou Binjiang District, Hangzhou Service 100% Establishment Electronics and Wuxi Ruide Wuxi Wuxi 100% Establishment information Guangxi Security Qingxiu District, Nanning Qingxiu District, Nanning Service 100% Establishment Electronics and Huatu Microchip Binjiang District, Hangzhou Binjiang District, Hangzhou 100% Establishment information Electronics and 45% (Note Hangzhou Xiaohua Binjiang District, Hangzhou Binjiang District, Hangzhou Establishment information 1) Electronics and Dahua Zhilian Fuyang District, Hangzhou Fuyang District, Hangzhou Note 2 Establishment information Business combination Tecomore West Lake District, West Lake District, Electronics and 51% not under common Technology Hangzhou Hangzhou information control Investment & Dahua Investment Fuyang District, Hangzhou Fuyang District, Hangzhou 75% Establishment investment management South North United Binjiang District, Hangzhou Binjiang District, Hangzhou Electronics and 51% Business combination 218 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. information not under common control Electronics and Guangxi Zhicheng Youjiang District, Baise Youjiang District, Baise 65% Establishment information Hangzhou Electronics and Binjiang District, Hangzhou Binjiang District, Hangzhou 51% Establishment Huacheng information Xinjiang Electronics and High-tech Zone, Shihezi High-tech Zone, Shihezi 92% Establishment Information information Sci-tech popularization HuaRay Binjiang District, Hangzhou Binjiang District, Hangzhou and application services 51% Establishment Technology industry Electronics and Fuyang Hua'ao Fuyang District, Hangzhou Fuyang District, Hangzhou 51% Establishment information Electronics and 45.50% Huafei Intelligent Binjiang District, Hangzhou Binjiang District, Hangzhou Establishment information (Note 3) Electronics and Huachuang Vision Binjiang District, Hangzhou Binjiang District, Hangzhou 51% Establishment information Guanshanhu District, Guanshanhu District, Electronics and 45% (Note Guizhou Huayi Establishment Guiyang Guiyang information 4) Hunan System Electronics and Hengyang, Hunan Hengyang, Hunan 100% Establishment Technology information Xinjiang Dahua Electronics and Shihezi, Xinjiang Shihezi, Xinjiang 100% Establishment Information information Xinjiang Changji, Changji Prefecture, Changji, Changji Prefecture, Electronics and 100% Establishment Intelligence Xinjiang Xinjiang information Guizhou Electronics and Guiyang, Guizhou Guiyang, Guizhou 100% Establishment Intelligence information Hetian County, Hetian, Hetian County, Hetian, Electronics and Xinjiang Zhihe 97% Establishment Xinjiang Xinjiang information China Standard Electronics and Haidian District, Beijing Haidian District, Beijing 51% Establishment Intelligent Security information Electronics and Guangxi Huacheng Wuzhou, Guangxi Wuzhou, Guangxi 90% Establishment information Meitan Dahua Electronics and Zunyi, Guizhou Zunyi, Guizhou 100% Establishment Technology information New District, Bai County, New District, Bai County, Inner Mongolia Electronics and Chahar Right Wing Back Chahar Right Wing Back 95% Establishment Zhimeng information Banner Banner Xinjiang Zhitian Hetian County, Hetian, Hetian County, Hetian, Electronics and 97% Establishment 219 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Xinjiang Xinjiang information Shache County, Kashgar Shache County, Kashgar Electronics and Xinjiang Xinzhi 100% Establishment District, Xinjiang District, Xinjiang information Electronics and Xinjiang Huayue Kashgar, Xinjiang Kashgar, Xinjiang 100% Establishment information Electronics and Tianjin Dahua Tianjin Binhai New Area Tianjin Binhai New Area 65% Establishment information Shuangpai County, Yongzhou Shuangpai County, Yongzhou Electronics and Dahua Zhilong 90% Establishment City City information Electronics and Vision Technology Fuyang District, Hangzhou Fuyang District, Hangzhou 100% Establishment information Zhongcheng Electronics and Xicheng District, Beijing Xicheng District, Beijing 55% Establishment Technology information Huaxiao Electronics and Fuyang District, Hangzhou Fuyang District, Hangzhou 51% Establishment Technology information Electronics and Xi'an Dahua Xi'an City, Shaanxi Province Xi'an City, Shaanxi Province 100% Establishment information Electronics and Wuxi Ruipin Wuxi City Wuxi City 51% Establishment information Electronics and Dahua Robot Xiaoshan District, Hangzhou Xiaoshan District, Hangzhou 51% Establishment information Electronics and Beijing Huayue Xicheng District, Beijing Xicheng District, Beijing 100% Establishment information Electronics and Shanghai Huashang Putuo District, Shanghai Putuo District, Shanghai 100% Establishment information Wucheng District, Jinhua Wucheng District, Jinhua Electronics and Dahua Jinzhi 100% Establishment City City information Business combination Electronics and Dahua Guangxun Chengdu High-tech Zone Chengdu High-tech Zone 100% not under common information control Huajuan Electronics and Binjiang District, Hangzhou Binjiang District, Hangzhou 100% Establishment Technology information Electronics and Dahua Hong Kong Hong Kong Hong Kong 100% Establishment information Electronics and Dahua USA USA USA 100% Establishment information Electronics and Dahua Europe Netherlands Netherlands 100% Establishment information Dahua Middle East United Arab Emirates United Arab Emirates Electronics and 100% Establishment 220 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. information Electronics and Dahua Mexico Mexico Mexico 100% Establishment information Electronics and Dahua Chile Chile Chile 100% Establishment information Electronics and Dahua Colombia Columbia Columbia 100% Establishment information Electronics and Dahua Australia Australia Australia 100% Establishment information Electronics and Dahua Singapore Singapore Singapore 100% Establishment information Electronics and Dahua South Africa South Africa South Africa 100% Establishment information Electronics and Dahua Peru Peru Peru 100% Establishment information Electronics and Dahua Brazil Brazil Brazil 100% Establishment information Electronics and Dahua Russia Russia Russia 100% Establishment information Electronics and Dahua Canada Canada Canada 100% Establishment information Electronics and Dahua Panama Panama Panama 100% Establishment information Electronics and Dahua Hungary Hungary Hungary 100% Establishment information Electronics and Dahua Poland Poland Poland 100% Establishment information Electronics and Dahua Italy Italy Italy 100% Establishment information Electronics and Dahua Tunisia Tunisia Tunisia 100% Establishment information Electronics and Dahua Kenya Kenya Kenya 100% Establishment information Electronics and Dahua UK UK UK 100% Establishment information Electronics and Dahua Bulgaria Bulgaria Bulgaria 100% Establishment information Electronics and Dahua Serbia Serbia Serbia 100% Establishment information 221 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Electronics and Dahua Germany Germany Germany 100% Establishment information Electronics and Dahua Malaysia Malaysia Malaysia 100% Establishment information Electronics and Dahua Korea South Korea South Korea 100% Establishment information Electronics and Dahua Indonesia Indonesia Indonesia 100% Establishment information Electronics and Dahua India India India 100% Establishment information Electronics and Dahua Turkey Turkey Turkey 100% Establishment information Electronics and Dahua Czech Czech Republic Czech Republic 100% Establishment information Electronics and Dahua Argentina Argentina Argentina 100% Establishment information Electronics and Dahua Spain Spain Spain 100% Establishment information Electronics and Dahua Kazakhstan Kazakhstan Kazakhstan 100% Establishment information Electronics and Dahua Denmark Denmark Denmark 100% Establishment information Electronics and Dahua France France France 100% Establishment information Electronics and American Lechange USA USA 100% Establishment information Dahua Technology Electronics and Hong Kong Hong Kong 100% Establishment Holdings information Electronics and Dahua Morocco Morocco Morocco 100% Establishment information Business combination Dahua Technology Electronics and Italy Italy 100% not under common Italy information control Electronics and Dahua Uzbekistan Uzbekistan Uzbekistan 100% Establishment information Electronics and Dahua Netherlands Netherlands Netherlands 100% Establishment information Electronics and Dahua Sri Lanka Sri Lanka Sri Lanka 100% Establishment information 222 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Business combination Electronics and Dahua Lorex Canada Canada 100% not under common information control Electronics and Dahua Pakistan Pakistan Pakistan 100% Establishment information Dahua New Electronics and New Zealand New Zealand 100% Establishment Zealand information Electronics and Dahua Thailand Thailand Thailand 99.98% Establishment information Electronics and Dahua Romania Romania Romania 100% Establishment information Explanations on the fact that the proportion of the shares held by a subsidiary differs from that of voting rights: (1) The Company directly holds 45% equity in Hangzhou Xiaohua Technology Co., Ltd., and as agreed upon, Zhejiang Huashi Investment Management Co., Ltd. grants its voting rights of 12% to the Company. The Company effectively holds 57% of the voting rights in Hangzhou Xiaohua Technology Co., Ltd., which constitutes working control so as to incorporate it into the scope of consolidation. (2) Based on the industrial and commercial registration data, the CDB Development Fund holds equity in the Company. According to the cooperation agreement between the Company and CDB Development Fund, CDB Development Fund shall not appoint senior management personnel, such as directors and supervisors, to Dahua Zhilian; regarding its investment, the Company shall pay an annual investment profit of 1.2% to CDB Development Fund through dividends, repurchase premiums, etc. In addition, the Company shall redeem the CDB Development Fund's equity in Dahua Zhilian period by period from 2022 to 2024, using its amount of investment as other non-current liabilities. The Company effectively holds 100% voting rights and equity in Dahua Zhilian. (3) The Company directly holds 45.5% equity in Zhejiang Huafei Intelligence Technology Co., Ltd., and as agreed upon, Zhejiang Huashi Investment Management Co., Ltd. grants its voting rights of 16% to the Company. The Company effectively holds 61.50% of the voting rights in Zhejiang Huafei Intelligence Technology Co., Ltd., which constitutes working control so as to incorporate it into the scope of consolidation. (4) The Company directly holds 45% equity in Guizhou Huayi Vision Technology Co., Ltd., and as agreed upon, Guizhou Yiyun Investment Management Co., Ltd. grants its voting rights of 6% to the Company. The Company effectively holds 51% of the voting rights in Guizhou Huayi Vision Technology Co., Ltd., which constitutes working control so as to incorporate it into the scope of consolidation. The basis for holding half (or less) of the voting rights but still can control the invested entities, and holding more than half of the voting rights but cannot control the invested entities: N/A For the essential structured entities included in the scope of consolidation, the basis for control is: N/A The basis to determine whether a company is an agent or a principal: N/A 223 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 2. The transactions that lead to changes in the shareholder's equity in the subsidiaries while still has working control over the subsidiary (1) Explanation of the changes in the shareholder's equity in the subsidiaries Changes in the equity share of HuaRay Technology: The Company held 45% of equity of HuaRay Technology, a subsidiary of the Company. In July 2018, the Company acquired 6% of equity of Zhejiang Huashi Investment Management Co., Ltd., a minority shareholder of HuaRay Technology, at the purchase price of RMB 1.36 million. After the transfer, the equity of HuaRay Technology held by the Company increased from 45% to 51%. Changes in the equity share of Yancheng Zhongchuang: The Company held 51% of equity of Teconmore Technology, a subsidiary of the Company which previously held 70% of equity of Yancheng Zhongchuang. In May 2018, Teconmore Technology acquired 30% of equity of Dongtai Chengdong High-tech Investment Development Co., Ltd., a minority shareholder of Yancheng Zhongchuang, at the purchase price of RMB 1 million. After the transfer, Tecomore's equity in Yancheng Zhongchuang was increased from 70% to 100%. As at December 31, 2018, Yancheng Zhongchuang Dahua IOT Technology Co., Ltd. has been canceled. (2) The effect of the transactions on the equity of the minority shareholders and the shareholder's equity attributable to the parent company Unit: RMB HuaRay Technology Yancheng Zhongchuang Purchase cost/Disposal consideration 1,360,000.00 1,000,000.00 -- Cash 1,360,000.00 1,000,000.00 Purchase cost/ Total disposal consideration 1,360,000.00 1,000,000.00 Less: the share of net assets of the subsidiary calculated 1,362,222.21 932,656.71 based on the ratio of equity obtained/disposed Difference 2,222.21 -67,343.29 Among them: adjust the capital reserve 2,222.21 -67,343.29 3. Equity in joint venture arrangements or affiliates (1) Financial summary of non-essential joint ventures and affiliates Unit: RMB Closing balance / accrual of current Opening Balance / accrual of previous period period Joint ventures: -- -- The total count of the following items based -- -- on the shareholding ratios Affiliates: -- -- Total book value of investments 185,872,021.58 61,272,885.41 224 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. The total count of the following items based -- -- on the shareholding ratios --Net profit -36,049,906.26 -37,464,812.35 --Other comprehensive income 168,229,977.61 --Total comprehensive income 132,180,071.35 -37,464,812.35 X. Risks Relating to Financial Instruments In the business operation, the Company is facing with various financial risks: credit risk, market risk and liquidity risk. The overall objective of the Company's risk management is to formulate risk management policies that can minimize risks without affecting the Company's competitiveness and adaptability to changes too much. (I) Credit Risk The credit risk refers to the risk of one party of a financial instrument suffering financial losses due to that the other party fails to perform its obligations.. The Company is mainly facing with the customer credit risk arising from sales on account. Before signing a new contract, the Company will assess the new customer's credit risk, including external credit rating and the credibility letter from a bank under some circumstances (if such information is available). The Company has set a credit limit for sales on account for each customer. Such limit shall be the maximum amount with no additional approval needed. The Company ensures that the overall credit risk is within the controllable range through quarterly monitoring of credit ratings of existing customers, and monthly review of aging analysis on accounts receivable. When monitoring customers' credit risk, the Company groups them according to their credit characteristics. Customers rated as "high risk" will be placed on the restricted customer list. The Company can provide them with O/A in the future period only when additional approval is obtained. Otherwise they must make relevant payment in advance. (II) Market Risk The market risk of financial instruments refers to the risk of fluctuation in fair value of financial instruments or future cash flows with the change of market prices, including exchange rate risks and interest rate risks. (1) Interest Rate Risk The interest rate risk refers to the risk in which the fair value or future cash flow of financial instruments changes due to the change of market interest rate. The interest rate risk faced with by the Company is mainly from bank loans. The Company's assets and liabilities relating to interest rate are respectively bank deposits and short-term loans, whose interest rate risk is low. (2) Exchange Rate Risk The exchange rate risk refers to the risk in which the fair value or future cash flow of financial instruments changes due to the change of foreign exchange rate. The Company will try its best to match the revenues with the expenses in foreign currency, to lower the exchange rate risk. In addition, the Company may also sign forward foreign exchange contracts or currency swap contracts to avoid exchange rate risks. On December 31, 2018, the amount of the forward contracts that the Company has not delivered was $100.5 million. The exchange rate risk faced with by the Company is mainly from financial assets and liabilities in USD. The amounts of assets and liabilities in foreign currencies and converted into RMB are listed as below: Item Name Balance at the End of the Period Balance at the beginning of the year USD Other foreign Total USD Other foreign Total currencies currencies 225 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Accounts 2,737,552,570.28 418,253,386.17 3,155,805,956.45 2,258,581,367.79 297,004,864.77 2,555,586,232.56 receivable Accounts 761,747,601.87 11,375,001.16 773,122,603.03 509,185,587.55 3,975,690.17 513,161,277.72 Payable Total 3,499,300,172.15 429,628,387.33 3,928,928,559.48 2,767,766,955.34 300,980,554.94 3,068,747,510.28 (III) Liquidity Risk Liquidity risk refers to the risk of a shortage of funds when an enterprise fulfills its obligation of settlement by cash or other financial assets. The Company's policy is to ensure that there is sufficient cash to repay the liabilities due. The liquidity risk is under the concentrated control of the Company's Financial Department. Through monitoring the balance of cash and securities cashable at any time and rolling forecasting the cash flow in the next 12 months, the Financial Department ensures that the Company has sufficient funds to repay its debts under all reasonable predictions. The Company's major financial liabilities are listed by maturity dates as below: Item Name Balance at the End of the Period Balance at the beginning of the year Within 1 year 1 years or above Total Within 1 year 1 years or Total above Short-term 1,851,709,561.83 1,851,709,561.83 1,770,924,255.90 1,770,924,255.90 loan Notes Payable 3,671,586,104.79 3,671,586,104.79 3,434,822,334.46 3,434,822,334.46 Accounts 3,789,729,594.20 3,789,729,594.20 2,701,785,054.57 2,701,785,054.57 Payable Non-current 25,500,000.00 25,500,000.00 Liabilities Due within 1 Year Long-term 179,000,000.00 179,000,000.00 230,000,000.00 230,000,000.00 loan Total 9,338,525,260.82 179,000,000.00 9,517,525,260.82 7,907,531,644.93 230,000,000.00 8,137,531,644.93 XI. Disclosure of Fair Values 1. Fair values of the assets and liabilities at the end of the period Unit: RMB Fair values at period-end Item Name First level measurement at Second level Third level measurement Total fair value measurement at fair value at fair value I. Constant measurement at fair -- -- -- -- value (V) Trading financial liabilities 38,602,602.30 38,602,602.30 226 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Derivative Financial 38,602,602.30 38,602,602.30 Liabilities Total amount of liabilities constantly measured at their fair 38,602,602.30 38,602,602.30 values II. Non-constant measurement at -- -- -- -- fair values XII. Related Parties and Related-party Transactions 1. The Company's Parent Company Names of the actual Relation with related party Share in the Company in % Voting rights in the Company % controllers Fu Liquan The controlling shareholder and 37.13% 37.13% actual controller Chen Ailing The actual controller 2.38% 2.38% The final controllers of the Company are Mr. Fu Liquan and Ms. Chen Ailing. 2. Information about the Company's subsidiaries For details of subsidiaries of the Company, see Note "IX. Equities in other entities". 3. Information about the Company's joint ventures and affiliates For details of significant joint ventures and associates of the Company, see Note "IX. Equities in other entities". Here are the information about other joint ventures and affiliates that have related-party transactions with the Company in the current period or have balance from related-party transactions with the Company in the previous period: Names of joint ventures and affiliates Relationship with the Company Taizhou Dahua Security Services Co., Ltd. Affiliate Ningbo Dahua Anbang Security Services Co., Ltd. Affiliate Lishui Dahua Intelligent Technology Co., Ltd. Affiliate Zhoushan Dahua Technology Co., Ltd. Affiliate Affiliate, and enterprise controlled by the Company's actual Zhejiang Leapmotor Technology Co., Ltd. controller Leapmotor Automobile Co., Ltd. Associates, and subsidiaries controlled by actual controllers Shenzhen Conwin Security Electronics CO., Ltd. Affiliate Zhejiang Dahua Zhian Internet of Things Technology Co., Ltd. Affiliate 227 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Guangdong Dahua Zhishi Technology Co., Ltd. Affiliate Ningbo Dahua-ZhiAn IOT Technology Co., Ltd. Subsidiary of the affiliate Quzhou Dahua Zhian IOT Technology Co., Ltd. Subsidiary of the affiliate Wenzhou Dahua Security Services Co., Ltd. Affiliate 4. Information about other related parties Names of other related parties Relationship between the Company and other related parties Zhu Jiangming Director and senior manager of the Company Zhang Xingming Senior manager of the Company Wu Yunlong Senior manager of the Company Wu Jun Senior manager of the Company Wu Jian Senior manager of the Company Wei Meizhong Senior manager of the Company Zhejiang Huashi Investment Management Co., Ltd. Company controlled by the Company's actual controller Family member with close relationship with the Company's Chen Jianfeng actual controller Zhejiang Lancable Technology Co., Ltd. Enterprise controlled by the senior manager of the Company Hangzhou Xintu Technology Co., Ltd. Enterprise controlled by the senior manager of the Company Ningxia Electronic Technology Co., Ltd. Company with shares held by the Company Ningxia Shendun Security Services Co., Ltd. Subsidiary of a company with shares held by the Company Ningxia Shendzhou Tianwang Security Technology Services Co., Subsidiary of a company with shares held by the Company Ltd. Enterprise significantly influenced by the senior manager of the Hangzhou Xunwei Robotics Technology Co., Ltd. Company Enterprise significantly influenced by the senior manager of the Hangzhou Huayun Technology Co., Ltd. Company Enterprise with an independent director of the Company as the Wangsu Technology Co., Ltd. independent director Enterprise with an independent director of the Company as the Eastcom Co., Ltd. independent director Gansu Aode Electronic Technology Co., Ltd. Subsidiary of a company with shares held by the Company Ningbo Jinghang Equity Investment Partnership (Limited Enterprise controlled by the senior manager of the Company Partnership) Hangzhou Gulin Equity Investment Partnership (limited Enterprise controlled by the senior manager of the Company 228 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. partnership) Ningbo Huayu Investment Management Partnership Enterprise Platform invested by and with shared held by core employees Enterprises with any independent director of the Company being Hangzhou Xiaoshan Weiyi Outpatient Co., Ltd. the director Ningbo Hualing Investment Management Partnership (Limited Enterprise controlled by the senior manager of the Company Partnership) Hangzhou Nuojia Technology Co., Ltd. Enterprise controlled by the senior manager of the Company Other notes: Hangzhou Nuojia Technology Co., Ltd. is a company under the actual control of Xu Zhicheng's spouse. Xu Zhicheng has been engaged as the Company's senior manager since March 2018. Since his inauguration, Hangzhou Nuojia Technology Co., Ltd. has been a company controlled by Company's senior managers. 5. Information about related-party transactions (1) Related-party transactions involving purchase and selling of merchandise and provision and acceptance of labor services Merchandise purchase and acceptance of labor services Unit: RMB Previous Content of the This Period's Over the Approved Period's Related parties Related - party Amount of Transaction Limit or transaction limit Amount of Transaction Occurrence Not Occurrence Zhejiang Lancable Technology Co., Purchase of 2,254,717.95 No 3,231,829.05 Ltd. materials Hangzhou Huayun Technology Co., Purchase of 86,594.83 No Ltd. materials Zhejiang Leapmotor Technology Co., Purchase of 23,965.51 No Ltd. materials Shaoxing Dahua Security Services Purchase of 7,075.47 Co., Ltd. materials Ningxia Shendun Security Services Purchase of 3,899,288.56 Co., Ltd. materials Acceptance of Wangsu Technology Co., Ltd. 462,869.81 No 312,596.70 services Hangzhou Xiaoshan Weiyi Outpatient Acceptance of 1,568.58 No Co., Ltd. services Zhoushan Dahua Technology Co., Acceptance of 3,090.91 No Ltd. services Wenzhou Dahua Security Services Acceptance of 25,182.90 No Co., Ltd. services 229 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Hangzhou Nuojia Technology Co., Acceptance of 33,468.20 No Ltd. services Sales of merchandise and provision of services Unit: RMB Content of the Related This Period's Amount of Previous Period's Amount of Related parties - party Transaction Occurrence Occurrence Ningbo Dahua Anbang Security Services Co., Sales of merchandise 424,949.12 391,347.01 Ltd. Lishui Dahua Intelligent Technology Co., Sales of merchandise 32,812.06 99,211.97 Ltd. Zhoushan Dahua Technology Co., Ltd. Sales of merchandise 81.89 47,419.65 Wenzhou Dahua Security Services Co., Ltd. Sales of merchandise 70,338.15 Zhejiang Leapmotor Technology Co., Ltd. Sales of merchandise 1,000,350.67 1,014,193.46 Hangzhou Xintu Technology Co., Ltd. Sales of merchandise 569,735.39 532,666.16 Taizhou Dahua Security Services Co., Ltd. Sales of merchandise 158,907.33 293,297.42 Shenzhen Conwin Security Electronics CO., Sales of merchandise 1,598,876.61 2,019,339.24 Ltd. Guangdong Dahua Zhishi Technology Co., Sales of merchandise 3,364,854.53 2,679,316.97 Ltd. Zhejiang Dahua Zhian Internet of Things Sales of merchandise 67,160,205.15 Technology Co., Ltd. Ningbo Dahua-ZhiAn IOT Technology Co., Sales of merchandise 28,879.30 3,748,717.95 Ltd. Ningxia Shendzhou Tianwang Security Sales of merchandise 142,962.06 Technology Services Co., Ltd. Hangzhou Xunwei Robotics Technology Co., Sales of merchandise 21,556.45 8,717.94 Ltd. Hangzhou Huayun Technology Co., Ltd. Sales of merchandise 3,633,397.66 263,726.51 Eastcom Co., Ltd. Sales of merchandise 134,629.35 1,398,858.97 Zhejiang Lancable Technology Co., Ltd. Sales of merchandise 843,783.23 Quzhou Dahua Zhian IOT Technology Co., Sales of merchandise 86,206.90 Ltd. Hangzhou Nuojia Technology Co., Ltd. Sales of merchandise 4,574,431.42 Leapmotor Automobile Co., Ltd. Sales of merchandise 1,905,827.85 (2) Related guarantee The Company being the guarantor: 230 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Unit: RMB Guarantee Fulfilled Secured Parties Guarantee Amount Starting Date Maturity Date Completely or Not 100,000,000.00 6/6/2016 3/30/2020 No Two years after the maturity Dahua System Engineering 60,000,000.00 10/10/2017 of the debts in the master No contract Two years after the maturity 300,000,000.00 05/17/201705/18/2017 of the debts in the master Yes contract Two years after the maturity 200,000,000.00 5/23/2017 of the debts in the master Yes contract Two years after the maturity 100,000,000.00 7/9/2017 of the debts in the master Yes contract Two years after the maturity 80,000,000.00 7/21/2017 of the debts in the master Yes contract Two years after the maturity 300,000,000.00 11/24/2017 of the debts in the master Yes contract Two years after the maturity Dahua Vision Technology 50,000,000.00 11/28/2017 of the debts in the master Yes contract Three years after the maturity 200,000,000.00 11/30/2017 of the debts in the master Yes contract Two years after the maturity 500,000,000.00 11/30/2017 of the debts in the master Yes contract Two years after the maturity 300,000,000.00 12/4/2017 of the debts in the master Yes contract 290,000,000.00 6/6/2016 1/15/2020 No Two years after the maturity 600,000,000.00 8/10/2017 of the debts in the master No contract Two years after the maturity 220,000,000.00 10/13/2017 No of the debts in the master 231 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. contract Two years after the maturity 110,000,000.00 1/15/2018 of the debts in the master No contract 500,000,000.00 3/20/2018 3/19/2021 No 240,000,000.00 4/13/2018 4/12/2020 No 300,000,000.00 5/4/2018 4/16/2019 No Three years after the maturity 100,000,000.00 7/25/2018 of the debts in the master No contract Three years after the maturity 200,000,000.00 8/1/2018 of the debts in the master No contract Three years after the maturity 20,000,000.00 8/2/2018 of the debts in the master No contract Three years after the maturity 100,000,000.00 8/21/2018 of the debts in the master No contract Three years after the maturity 100,000,000.00 9/3/2018 of the debts in the master No contract Two years after the maturity US$ 40,000,000 9/21/2018 of the debts in the master No contract 220,000,000.00 11/26/2018 11/26/2020 No 200,000,000.00 6/6/2016 6/30/2020 No Dahua Zhilian 500,000,000.00 9/1/2018 9/1/2020 No 300,000,000.00 10/12/2018 10/12/2021 No Two years after the maturity 200,000,000.00 8/24/2017 of the debts in the master Yes contract Dahua HK US$ 50,000,000 15 December 2017 12/15/2020 No Two years after the maturity 200,000,000.00 4/9/2018 of the debts in the master No contract The Company being the secured party N/A About the related-party guarantee 232 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. (1) Guarantee for Zhejiang Dahua System Engineering Co., Ltd., a wholly-owned subsidiary of the Company As at December 31, 2018, System Engineering issued commercial acceptance bills worthing RMB 5,571,734.44, all of which were provided with a discount guarantee by the parent company under the above guarantee. The System Engineering Company has also issued letters of guarantee amounting to RMB 25,836,471.61 under the aforesaid guarantee. (2) Guarantee for Zhejiang Dahua Technology Co., Ltd., a wholly-owned subsidiary of the Company As at December 31, 2018, Dahua Technology issued commercial acceptance bills worthing RMB 771,486,202.77, of which RMB 290 million was provided with a discount guarantee by the parent company under the above guarantee. Meanwhile, Dahua Technology issued bank acceptance bills amounting to RMB 960,000,000.00, bonds amounting to RMB 70,000,000.00, and short-term loans amounting to RMB 200,000,000.00 under the above guarantees. (3) Guarantee for Dahua Technology (Hong Kong) Co., Ltd., a wholly-owned subsidiary of the Company As at December 31, 2018, UOB Hong Kong lent RMB 200,000,000.00 to Dahua Technology (Hong Kong) under the above mortgage guarantee. (4) Guarantee for Zhejiang Dahua Zhilian Co., Ltd., a wholly-owned subsidiary of the Company As at December 31, 2018, Dahua Zhilian issued commercial acceptance bills worthing RMB 590,898,814.94, all of which were provided with a discount guarantee by the parent company under the above guarantee. (3) Asset transfer and debt restructuring of related parties Unit: RMB Content of the Related - party This Period's Amount of Previous Period's Amount of Related Parties Transaction Occurrence Occurrence Eastcom Co., Ltd. Selling of fixed assets 4,273.50 Zhejiang Leapmotor Selling of fixed assets 272,965.35 Technology Co., Ltd. Zhejiang Leapmotor Equity transfer 33,000,000.00 Technology Co., Ltd. Zhejiang Huashi Investment Equity transfer 1,360,000.00 5,081,800.00 Management Co., Ltd. (4) Remuneration to key management personnel Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Salary of key management personnel 22,692,922.08 17,861,416.01 (5) Other related-party transactions (1) On January 25, 2018, the Fifth Meeting of the Sixth Board of Directors of the Company approved the Proposal (I) on Adjusting the Joint Investment Plan with Related Persons and Related Transactions, which agreed to cooperate with the related legal person Zhejiang Huashi Investment Management Co., Ltd., related natural person Wei Meizhong, and 15 non-related natural persons to adjust their capital contribution to Zhejiang Huaan Technology Co., Ltd. (tentative name). After the adjustment, the Company will contribute RMB 25.5 million with its own funds, accounted for 51% of the registered capital. In March 2018, this company was 233 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. established and the approved company name by the Bureau of Industry and Commerce was Zhejiang Huaxiao Technology Co., Ltd. (2) On January 25, 2018, the Fifth Meeting of the Sixth Board of Directors of the Company approved the Proposal (II) on Adjusting the Joint Investment Plan with Related Persons and Related Transactions, which agreed to cooperate with the related legal person Zhejiang Huashi Investment Management Co., Ltd., and non-related persons to adjust the capital contribution to Zhejiang Huazhi Technology Co., Ltd. (now renamed as Zhejiang Dahua Robotics Co., Ltd.). After the adjustment, the Company contributed RMB 25.5 million with its own funds, accounting for 51% of the registered capital, while Huashi Investment contributed RMB 24.5 million by cash, accounting for 49% of the registered capital. In August 2018, this company was established. (3) On January 25, 2018, the Fifth Meeting of the Sixth Board of Directors of the Company approved the Proposal on Abandoning the Joint Stock Companies' Right of Capital Increase with the Same Proportion and Related Transactions, which agreed to abandon the right of 8 investors (including Ningbo Jinghang Equity Investment Partnership, Ningbo Gulin Equity Investment Partnership, and Hangzhou Yixun Investment Management Partnership) to increase capital in Zhejiang Leap Motor Technology Co., Ltd. with the same proportion, and the related transaction amount involved in such abandoning was RMB 41,948,300. The modification procedures at the Bureau of Industry and Commerce for the above matters were completed in March 2018. On April 17, 2018, the Eighth Meeting of the Sixth Board of Directors of the Company approved the Proposal on Capital Increase in Holding Subsidiaries and Related Transactions, which agreed the Company and related person Mr. Fu Liquan made the capital increase in the holding subsidiary Hangzhou Huacheng Network Technology Co., Ltd. with the same proportion. Among them, the Company increased capital by 20.4 million yuan with its own funds, and the Company's controlling shareholder, Fu Liquan, increased capital by 19.6 million yuan. After the capital increase, the registered capital of Huacheng Network will increase from 10 million yuan to 50 million yuan. The modification procedures at the Bureau of Industry and Commerce for the above matters were completed in April 2018. (5) On May 31, 2018, the 11th Meeting of the Sixth Board of Directors of the Company approved the Proposal on Accepting Part of Equity of Subsidiaries and Abandoning First Refusal Right, and Related Transactions", which agreed: (1) to accept 6% of equity of HuaRay Technology held by the related legal person Zhejiang Huashi Investment Management Co., Ltd., and to abandon the first refusal right for the transfer of 49% of equity of HuaRay Technology from related legal person Huashi Investment, related natural person Zhang Xingming, and other non-related persons to Ningbo Huayu Investment Management Partnership (hereinafter referred to as "Ningbo Huayu"), a related legal person and core employee shareholding platform for venture capital of new business; (2) to abandon the first refusal right of the related legal person Huashi Investment and other non-related natural persons to transfer the 49% equity of Zhejiang Dahua Vision Technology Co., Ltd. to Ningbo Huayu; (3) to abandon the first refusal right of the related legal person Huashi Investment, related natural persons Wu Jun, et al., and other non-related persons for the proposed transfer of the 49% equity of Zhejiang Dahua Security Network Operations Services Co., Ltd. to Ningbo Huayu. In July 2018, matters related with transferring the above three kinds of equities were all completed. (6) On May 31, 2018, the 11th Meeting of the Sixth Board of Directors of the Company approved the Proposal on Joint Investment with Related Parties and Related Transactions, which agreed to jointly invest in and establish Wuxi Dahua Ruipin Technology Co., Ltd. with the related legal person Huashi Investment. Among them, the Company invested 25.5 million yuan with its own funds, accounting for 51% of the registered capital, while Huashi Investment invested 24.5 million yuan in cash, accounting for 49% of the registered capital. In June 2018, the company was established. (7) On June 21, 2018, the 12th Meeting of the Sixth Board of Directors of the Company approved the Proposal on Abandoning First Refusal Right and Related Transactions, which agreed to abandon the first refusal right of the Company's controlling shareholder Fu Liquan for the proposed transfer of the 49% equity of Hangzhou Huacheng Network Technology Co., Ltd. to Ningbo Huayu, a related legal person and core employee shareholding platform for venture capital of new business. In July 2018, matters regarding such equity transfer were completed. (8) On November 12, 2018, the 18th Meeting of the Sixth Board of Directors of the Company approved the Proposal on Abandoning the Joint Stock Companies' Right of Capital Increase with the Same Proportion and Related Transactions, which agreed to abandon the right of capital increase of 7 investors (including Shanghai Electric Hong Kong Co., Ltd., Xingzheng Investment 234 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Management Co., Ltd., Everfront Phoenix Mountain Ltd., Ningbo Hongshan Jiesheng Equity Investment Partnership (Limited Partnership), Ningbo Hualing Investment Management Partnership (Limited Partnership), Hangzhou Xintu Technology Co., Ltd. Company, Chen Jinxia) in Zhejiang Leap Motor Technology Co., Ltd. with the same proportion, and the related transaction amount involved in such abandoning was RMB 139,947,900. The modification procedures at the Bureau of Industry and Commerce for the above matters were completed in November 2018. 6. Receivables and payables of the related parties (1) Receivables Unit: RMB Balance at the End of the Period Balance at the Start of the Period Item Name Related parties Bad Debt Book Balance Book Balance Bad Debt Provision Provision Accounts Zhejiang Dahua Zhian Internet of 100,000.00 10,000.00 22,901,900.00 1,145,095.00 receivable Things Technology Co., Ltd. Accounts Guangdong Dahua Zhishi Technology 3,227,876.00 161,393.80 2,907,406.00 145,370.30 receivable Co., Ltd. Accounts Ningbo Dahua Anbang Security 310,420.00 15,521.00 150,000.00 7,500.00 receivable Services Co., Ltd. Accounts Lishui Dahua Intelligent Technology 82,078.00 4,103.90 receivable Co., Ltd. Accounts Taizhou Dahua Security Services Co., 133,200.00 6,660.00 receivable Ltd. Accounts Zhejiang Leapmotor Technology Co., 445,003.41 22,250.17 135,313.85 6,765.69 receivable Ltd. Accounts Hangzhou Xintu Technology Co., Ltd. 47,676.81 2,383.84 receivable Accounts Zhejiang Lancable Technology Co., 916,688.50 45,834.43 receivable Ltd. Accounts Shenzhen Conwin Security 710,640.00 35,532.00 126,420.00 6,321.00 receivable Electronics CO., Ltd. Accounts Hangzhou Huayun Technology Co., 2,998,896.00 149,944.80 293,800.00 14,690.00 receivable Ltd. Accounts Hangzhou Xunwei Robotics 9,400.00 470.00 10,200.00 510.00 receivable Technology Co., Ltd. Accounts Eastcom Co., Ltd. 191,254.90 11,305.43 557,661.00 27,883.05 receivable Accounts Hangzhou Nuojia Technology Co., 9,031,072.05 4,805,130.40 receivable Ltd. 235 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Accounts Leapmotor Automobile Co., Ltd. 2,198,155.00 109,907.75 receivable (2) Payables Unit: RMB Item Name Related Parties Closing Balance Opening Balance Accounts Payable Zhejiang Lancable Technology Co., Ltd. 866,435.89 Accounts Payable Ningxia Shendun Security Services Co., Ltd. 350,375.00 900,375.00 Accounts Payable Gansu Aode Electronic Technology Co., Ltd. 365,420.00 365,420.00 Accounts Payable Shaoxing Dahua Security Services Co., Ltd. 7,075.47 Accounts Payable Zhejiang Leapmotor Technology Co., Ltd. 27,800.00 Accounts Payable Zhoushan Dahua Technology Co., Ltd. 3,400.00 Accounts Payable Hangzhou Huayun Technology Co., Ltd. 100,450.00 Accounts Payable Wenzhou Dahua Security Services Co., Ltd. 25,182.90 Accounts Payable Hangzhou Nuojia Technology Co., Ltd. 384,222.99 XIII. Share-based payment 1. Overview of share-based payment √ Applicable □ Not applicable Unit: RMB Total amount of equity instruments granted by the Company in current 98,865,800 shares of restricted stock period Total amount of equity instruments exercised by the Company in current N/A period Total amount of equity instruments of the Company invalidated in current N/A period The range of the exercise prices of outstanding stock options issued by Company at the end of the period and the remaining contractual term The Company granted restricted stocks at a price of The range of the exercise prices of other outstanding equity instruments RMB 8.17 at the end of the period. With application, issued by Company at the end of the period and the remaining contractual 40%, 30% and 30%, respectively, of the total granted term restricted stocks can be unlocked after 28 months, 40 months and 52 months from the date of granting. 2. Situation of equity-settled share-based payment √ Applicable □ Not applicable 236 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Unit: RMB The method for determining the fair value of equity instruments on Determined based on the stock price at the grant date and the the day of granting grant cost of the restricted stocks The basis for determining the amount of exercisable equity Estimated according to equity instruments held by the instruments employees Reason for the significant difference between the estimation of N/A current period and the previous period The accumulated amount of equity-settled share-based payment 31,444,973.88 counted into the capital reserve Amount of equity-settled share-based payment confirmed in current 31,444,973.88 period XIV. Commitments and contingencies 1. Significant commitments Important commitments on the balance sheet day As of December 31, 2018, the pledge information of the Company was as follows: (1) On August 19, 2016, the subsidiary Xinjiang Dahua Zhixin Information Technology LLC pledged its future accounts receivable amounting to 351,064,980.00 Yuan incurred from the available service fee under the Franchise Agreement for the Shihezi "Safe Shicheng" PPP Project, and signed the Fixed Assets Loan Contract (total contract amount: 230,000,000.00 Yuan, contract No.: 2016-01) with Shihezi Sub-Branch of the Construction Bank of China, to provide guarantee for the Company's loan (loan contract No.: 2016-01) amounting to 230,000,000.00 Yuan (Term of borrowing: from August, 2016 to August, 2027) . As at December 31, 2018, the pledge receivables amounted to RMB 333,613,018.77 (including the long-term receivable balance was RMB 292,229,615.24, and the balance of the non-current assets mature within one year was RMB 41,383,403.53). The loan balance under the guarantee contract was RMB 204,500,000.00 (where the long-term loan balance was RMB 179,000,000.00, and the balance of non-current liabilities mature within one year was RMB 25,500,000.00). (2) On October 23, 2018, Zhejiang Dahua Technology Co., Ltd. and Hangzhou Branch of Zheshang Bank Co., Ltd. entered into the ZSZCCZ (2018) No. 22518 Asset Pool Pledge and Guarantee Contract (ID No. 33100000), to provide a guarantee for the Notes Pool Business Cooperation Agreement signed by the Company together with the subsidiary Zhejiang Dahua Technology Co., Ltd., the subsidiary Zhejiang Dahua System Engineering Co., Ltd., the subsidiary Guangxi Dahua Information Technology Co., Ltd., Zhejiang Dahua Zhilian Co., Ltd., and Zheshang Bank Co., Ltd. The financing amount for the fund pledge pool cannot be more than RMB 2.5 billion. Under the notes pool business, as at December 31, 2018, RMB 454,198,766.18 undue notes receivable (wherein RMB 450,000,000.00 was related party notes receivable that should be included in the scope of the consolidated financial statements) of the Company, RMB 550,345,302.62 undue notes receivable (where RMB 6,993,724.50 was related party notes receivable that should be included in the scope of the consolidated financial statements) of the subsidiary Zhejiang Dahua Technology Co., Ltd., RMB 5,504,198.40 undue notes receivable of the subsidiary Zhejiang Dahua System Engineering Co., Ltd., RMB 50,000.00 undue notes receivable of the subsidiary Zhejiang Dahua Zhilian Co., Ltd., and RMB 612,953.00 undue notes receivable of the subsidiary Guangxi Dahua Information Technology Co., Ltd. were pledged for the issuance of acceptance bills. Under the pledge, the Company issued RMB 12,509,976.49 bank acceptance bills; the subsidiary Zhejiang Dahua Technology Co., Ltd. issued RMB 590,030,272.18 bank acceptance bills; the subsidiary Zhejiang Dahua System Engineering Co., Ltd. issued RMB 15,702,811.50 bank acceptance bills; the subsidiary Guangxi Dahua Information Technology Co., Ltd. issued RMB 282,461.13 bank acceptance bills; and the subsidiary 237 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Zhejiang Dahua Zhilian Co., Ltd. issued RMB 6,608,133.90 bank acceptance bills. (3) Zhejiang Dahua Technology Co., Ltd. and Hangzhou Branch of China Merchants Bank Co., Ltd. signed the Special Credit Agreement for Notes Pool Business, which promised a special credit line of RMB 2,500,000,000 for the notes pool to be allocated to the subsidiary Zhejiang Dahua Technology Co., Ltd., the subsidiary Zhejiang Dahua System Engineering Co., Ltd., and the subsidiary Zhejiang Dahua Zhilian Co., Ltd. As at December 31, 2018, RMB 492,807,010.59 undue notes receivable (where RMB 480,000,000.00 was related party notes receivable that should be included in the scope of the consolidated financial statements) of the Company, RMB 962,341,321.24 undue notes receivable (where RMB 17,355,404.38 was related party notes receivable that should be included in the scope of the consolidated financial statements) of the subsidiary Zhejiang Dahua Technology Co., Ltd., RMB 3,587,250.00 undue notes receivable of the subsidiary Zhejiang Dahua System Engineering Co., Ltd., RMB 201,497,982.28 undue notes receivable of the subsidiary Zhejiang Dahua Zhilian Co., Ltd. (where RMB 110,000,000.00 was related party notes receivable that should be included in the scope of the consolidated financial statements) were pledged for the issuance of acceptance bills. Under the pledge, the Company issued RMB 12,867,310.24 bank acceptance bills; the subsidiary Zhejiang Dahua Technology Co., Ltd. issued RMB 1,635,258,183.65 bank acceptance bills; the subsidiary Zhejiang Dahua System Engineering Co., Ltd. issued RMB 431,999.65 bank acceptance bills; and the subsidiary Zhejiang Dahua Zhilian Co., Ltd. issued RMB 3,476,249.41 bank acceptance bills. (4) The subsidiary Zhejiang Dahua Technology Co., Ltd. pledged a deposit certificate of US$45 million and signed an Import and Export Bill Contract with Hangzhou Branch of Ningbo Bank Co., Ltd., to provide a guarantee for its documentary bill loan (RMB 71,709,561.83). Till December 31, 2018, the balance of the loan under the Pledge Contract was 71,709,561.83 Yuan. (5) The subsidiary Zhejiang Dahua Technology Co., Ltd. pledged a deposit certificate of RMB 100 million and signed a Maximum Amount Pledge Contract (Subordinate Clause No.: 07100ZA20188039) with Hangzhou Branch of Ningbo Bank Co., Ltd., to provide a guarantee for discounting of the company's commercial acceptance bills. 2. Contingencies (1) Important contingent matters on the balance sheet day Zhejiang Dahua Technology Co., Ltd. signed a sales contract with Hangzhou Sailidi Import & Export Co., Ltd. (hereinafter referred to as "Sailidi"), where Sailidi purchased products from Dahua Technology. As at December 31, 2018, the remaining RMB 66,920,644.38 was not paid. In August 2018, Dahua Technology filed a lawsuit to the People's Court of Binjiang District in Hangzhou, requesting Sailidi Company to pay the remaining amount and the liquidated damages for overdue payment and interests. In September 2018, Dahua Technology applied to the People's Court of Binjiang District for property preservation, requesting to freeze the bank deposit of 50 million yuan from Sailidi Company's legal representative Zhu Yuequan, or to seal up or seize property of corresponding value and provide guarantee. The People's Court of Binjiang District granted the application for property preservation. The Binjiang District People's Court of Hangzhou conducted a public trial on January 11, 2019, and issued (2018) Zhejiang 0108 Min Chu No.4451 judgment on January 17, 2019, requiring Sailidi to pay Dahua Technology the overdue amount RMB 27,878,975.60 and interest loss RMB 1,021,088.16 (temporarily calculated until December 31, 2018) upon the judgment took effect. Zhu Yuequan assumed the joint and several liabilities. Until the financial reporting date, this case was still in the execution stage. According to the inventory of seized property, the Company's estimated recoverable amount is 10 million yuan. The net realizable value of other seized property is of significant uncertainty, thus the Company makes provision for bad debts of 56,920,644.38 yuan based on the difference between the present value of estimated future cash flow and its book value. (2) If no important contingent matter to be disclosed by the Company, it should also be noted accordingly No important contingent matter needs to be disclosed by the Company. 238 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. XV. Events after the Balance Sheet Date 1. Distribution of profits Unit: RMB Profits or dividends to be distributed 299,762,193.00 Profits or dividends reviewed and approved for releasing 299,762,193.00 XVI. Other Significant Events 1. Subsection information (1) Basis for determining the reporting subsection and the accounting policy The Company determines the Operation Subsection according to the internal organization structure, management requirements, internal reporting system, etc. The Operation Subsection of the Company refers to the constituent parts that can fulfill all the following conditions: (1) The constituent part shall have income and expenses in the daily activities; (2) The management can regularly assess such constituent part's business performance, so as to decide resource allocation to it and assess its performance; (3) The constituent part's financial status, business performance, cash flow and other relevant accounting information can be got through analysis. The accounting policy of the reporting subsection is consistent with that of the Company. (2) Financial information of the reporting subsection Regional distribution Unit: RMB Item Name Operating Income Operating Cost Domestic 15,087,657,708.75 9,822,914,231.08 Overseas 8,578,030,397.47 5,048,266,835.61 Total 23,665,688,106.22 14,871,181,066.69 Product distribution Unit: RMB Item Name Operating Income Operating Cost Solutions 12,214,951,613.16 7,201,889,474.98 Product 9,762,853,684.85 6,128,694,957.17 Others 1,687,882,808.21 1,540,596,634.54 239 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Total 23,665,688,106.22 14,871,181,066.69 XVII. Notes to Main Items in the Financial Statements of the Parent Company 1. Notes receivable and accounts receivable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Notes receivable 952,572,702.92 28,625,396.43 Accounts receivable 4,598,575,923.04 5,932,561,350.82 Total 5,551,148,625.96 5,961,186,747.25 (1) Notes receivable 1) Disclosure of notes receivable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Bank Acceptance Notes 952,572,702.92 28,625,396.43 Total 952,572,702.92 28,625,396.43 2) Notes receivable that the company has pledged at the end of the period Unit: RMB Item Name Pledged amount by the end of period Bank Acceptance Notes 947,005,776.77 Total 947,005,776.77 3) Notes receivable that the company has endorsed or discounted at the end of the period and that have not yet expired on the balance sheet date Unit: RMB Not derecognised amount at the end of Item Name Derecognised amount at the end of period period Bank Acceptance Notes 39,870,033.95 Total 39,870,033.95 (2) Accounts receivable 1) Disclosure of accounts receivable Unit: RMB Balance at the End of the Period Balance at the Start of the Period Category Book Balance Bad Debt Provision Book Value Book Balance Bad Debt Book Value 240 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Provision Accr Accrue ued Percen d Percen perc Amount tage Amount percen Amount tage Amount enta (%) tage (%) ge (%) (%) Accounts receivable with significant single amount and accrued for separate provision of bad debt Accounts 4,689,003,520.41 100.00 90,427,597.37 1.93 100.00 80,489,820.08 1.34 Receivable 4,598,575,923. 6,013,051,170. 5,932,561,350.8 with Bad 04 90 2 Debt Provision Accrued Based on Credit Risk Feature Combinations Portfolio 1: 4,111,213,084.49 87.68 92.89 Related 4,111,213,084. 5,585,736,850. 5,585,736,850.5 Parties 49 51 1 Portfolio Portfolio 2: 577,790,435.92 12.32 90,427,597.37 15.65 427,314,320.39 7.11 80,489,820.08 18.84 346,824,500.31 Aging 487,362,838.5 Analysis 5 Portfolio Accounts receivable with insignificant single amount but accrued for separate provision of 241 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. bad debt Total 4,689,003,520.41 100.00 90,427,597.37 100.00 80,489,820.08 4,598,575,923. 6,013,051,170. 5,932,561,350.8 04 90 2 Accounts receivables with individual items significant in amount and the bad debts provision accrued individually at the end of period: □ Applicable √ Not applicable In the combination, the accounts receivables with the bad debt provision accrued according to the aging analysis method: √ Applicable □ Not applicable Unit: RMB Balance at the End of the Period Aging Accounts Receivable Bad Debt Provision Accrued Proportion Aging within 1 year Within 1 year (inclusive) 424,696,030.82 21,234,801.54 5.00% Subtotal within 1 year 424,696,030.82 21,234,801.54 5.00% 1 to 2 years 63,069,919.14 6,306,991.91 10.00% 2 to 3 years 15,552,109.90 4,665,632.97 30.00% 3 to 4 years 25,694,175.46 12,847,087.73 50.00% 4 to 5 years 17,025,586.88 13,620,469.50 80.00% 5 years or above 31,752,613.72 31,752,613.72 100.00% Total 577,790,435.92 90,427,597.37 Notes on the basis to determine the combination: In the combination, the accounts receivables with the bad debt provision accrued according to the percentage method: □ Applicable √ Not applicable In the combination, the accounts receivables with the bad debt provision accrued according to other methods: 2) Provision for bad debts accrued, recovered or reversed in this period In this period, the provision for bad debts was accrued as RMB 9,937,777.29 and the bad debt provision recovered or transferred back was RMB 0.00. 3) Accounts receivable of the top five closing balances collected by the arrears The accounts receivable of the top five closing balances collected by the arrears was summed up to RMB 4,119,309,088.34, accounting for 87.85% of the total closing balance of accounts receivable, and the ending balance for the provision for bad debts accrued was RMB 2,241,990.46 accordingly. 2. Other receivables Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Interest Receivable 42,500.00 171,583.35 242 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Other Receivables 6,954,613,363.03 2,745,786,953.01 Total 6,954,655,863.03 2,745,958,536.36 (1) Interests receivable (1) Category of interests receivable Unit: RMB Item Name Balance at the End of the Period Balance at the Start of the Period Fixed term deposit 42,500.00 171,583.35 Total 42,500.00 171,583.35 2) Significant overdue interest N/A (2) Other receivables 1. Disclosure of other receivables Unit: RMB Balance at the End of the Period Balance at the Start of the Period Bad Debt Book Balance Bad Debt Provision Book Balance Provision Accr Accr Category ued ued Percen Book Value Percen Book Value perc perc Amount tage Amount Amount tage Amount enta enta (%) (%) ge ge (%) (%) Other receivables with significant single amount and accrued for separate provision of bad debt Other 6,974,737,855.56 100.00 20,124,492.53 0.29 6,954,613,363.03 2,759,665,698.40 100.00 13,878,745.39 0.50 2,745,786,953.01 receivables with bad debt provision 243 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. accrued based on credit risk feature combination s Portfolio 1: 6,789,622,721.45 97.35 6,789,622,721.45 2,611,235,228.10 94.62 2,611,235,228.10 Related Parties Portfolio Portfolio 2: 185,115,134.11 2.65 20,124,492.53 10.87 164,990,641.58 148,430,470.30 5.38 13,878,745.39 9.35 134,551,724.91 Aging Analysis Portfolio Other receivables with insignificant single amount but accrued for separate provision of bad debt Total 6,974,737,855.56 100.00 20,124,492.53 6,954,613,363.03 2,759,665,698.40 100.00 13,878,745.39 2,745,786,953.01 Other receivables with individual items significant in amount and the bad debts provision accrued individually at the end of period: □ Applicable √ Not applicable In the combination, other receivables with the bad debt provision accrued according to the aging analysis method: √ Applicable □ Not applicable Unit: RMB Aging Balance at the End of the Period Other Receivables Bad Debt provision Accrued Proportion Aging within 1 year Within 1 year (including 1 110,850,892.69 5,542,544.63 5.00% year) Subtotal within 1 year 110,850,892.69 5,542,544.63 5.00% 1 to 2 years 48,449,372.06 4,844,937.21 10.00% 2 to 3 years 18,754,479.15 5,626,343.75 30.00% 3 to 4 years 5,724,136.08 2,862,068.04 50.00% 244 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. 4 to 5 years 438,276.17 350,620.94 80.00% 5 years or above 897,977.96 897,977.96 100.00% Total 185,115,134.11 20,124,492.53 Notes on the basis to determine the combination: There are no other receivables with insignificant single amount but accrued for separate provision of bad debt at the end of the period. In the combination, other receivables with the bad debt provision accrued according to the percentage method: □ Applicable √ Not applicable In the combination, other receivables with the bad debt provision accrued according to other method: □ Applicable √ Not applicable 2) Provision for bad debts accrued, recovered or reversed in this period In this period, the provision for bad debts was accrued as RMB 6,245,747.14 and the bad debt provision recovered or transferred back was RMB 0.00. 3) Other receivables categorized by the nature of the funds Unit: RMB Nature of the Funds Closing Balance Opening Balance Deposits 40,101,577.35 25,217,308.16 Prepaid or advance expense 37,600,678.55 32,269,628.09 Employee home loan 107,390,998.98 90,737,849.98 Incomings and outgoings 6,789,622,721.45 2,611,235,228.10 Others 12,763.50 201,391.85 Alipay and e-wallet 9,115.73 4,292.22 Total 6,974,737,855.56 2,759,665,698.40 4) Other receivables of the top five closing balances collected by the arrears Unit: RMB As a Percentage of Bad Debt Provision Name of Nature of the Balance at the End of Total Other Aging at the End of the Unit Funds the Period Receivables at the Period End of the Period Incomings and Company 1 4,746,786,765.19 Within 1 year 68.06% outgoings Incomings and Company 2 1,160,658,350.66 Within 1 year 16.64% outgoings RMB 305,544,553.63 within 1 Incomings and Company 3 337,705,016.63 year, 4.84% outgoings RMB 32,160,463.00 in 1-2 years 245 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. RMB 219,267,383.08 within 1 Incomings and Company 4 231,084,309.37 year, 3.31% outgoings RMB 11,816,926.29 in 1-2 years Incomings and Company 5 159,425,382.24 Within 1 year 2.29% outgoings Total -- 6,635,659,824.09 -- 95.14% 5) Receivables relating to government subsidies Unit: RMB Name of Government Balance at the End of Aging at the End of the Expected Time, Amount Name of Unit Subsidy Project the Period Period and Basis for Collection 3. Long-term equity investment Unit: RMB Balance at the End of the Period Balance at the Start of the Period Item Name Provision for Provision for Book Balance Book Value Book Balance Book Value Decline in Value Decline in Value Investment in 2,833,803,638.04 2,833,803,638.04 2,448,117,298.81 2,448,117,298.81 subsidiaries Investment in affiliates and joint 167,835,790.51 167,835,790.51 44,322,308.28 44,322,308.28 ventures Total 3,001,639,428.55 3,001,639,428.55 2,492,439,607.09 2,492,439,607.09 (1) Investment in Subsidiaries Unit: RMB Provision Closing for Decreased Balance of Impairme Balance at the Increased in the in the Balance at the Provision The Invested Entity nt Start of the Period Current Period Current End of the Period for Accrued Period Decline in for This Value Period Zhejiang Dahua System Engineering 507,577,918.10 1,835,380.72 509,413,298.82 Co., Ltd. Zhejiang Dahua Security Network 10,837,589.12 15,407,185.28 26,244,774.40 Operation Service Co., Ltd. Zhejiang Dahua Ju'an Technology Co., 5,100,000.00 5,100,000.00 Ltd. 246 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Guangxi Dahua Information 5,204,609.58 194,810.02 5,399,419.60 Technology Co., Ltd. Zhejiang Dahua Security Service Co., 35,683.66 10,495.88 46,179.54 Ltd. Dahua Technology (HK) Limited 60,000,000.00 202,000,000.00 262,000,000.00 Zhejiang Dahua Vision Technology Co., 648,249,697.44 1,534,625.72 649,784,323.16 Ltd. Wuxi Dahua Ruide Electronic 1,000,000.00 1,000,000.00 Technology Co., Ltd. Guangxi Dahua Security Service Co., 20,002,580.76 20,002,580.76 Ltd. Zhejiang Huatu Microchip Technology 10,000,000.00 34,350.20 10,034,350.20 Co., Ltd. Hangzhou Xiaohua Technology CO., 4,558,896.36 139,945.14 4,698,841.50 LTD. Zhejiang Dahua Zhilian Co., Ltd. 1,000,000,000.00 11,450.06 1,000,011,450.06 Hangzhou Tecomore Technology Co., 5,100,000.00 110,047.78 5,210,047.78 Ltd. Guangxi Dahua Zhicheng Co., Ltd. 71,202,900.00 3,180.58 71,206,080.58 Hangzhou Huacheng Network 510,000.00 25,205,324.72 25,715,324.72 Technology Co., Ltd. Xinjiang Dahua Zhixin Information 2,055.08 2,055.08 Technology Co., Ltd. Zhejiang Dahua Investment 62,175,000.00 62,175,000.00 Management Co., Ltd. Zhejiang Huachuang Vision Technology 10,209,151.33 15,690,892.26 25,900,043.59 Co., Ltd. Zhejiang HuaRay Technology Co., Ltd. 11,289,001.62 14,494,329.86 25,783,331.48 Xinjiang Dahua Intelligence 10,000,000.00 10,000,000.00 Technology Co., Ltd. Hangzhou Fuyang Hua'ao Technology 510,000.00 4,590,000.00 5,100,000.00 Co., Ltd. Zhejiang Huafei Intelligent Technology 4,552,215.76 17,298,751.14 21,850,966.90 CO., LTD. Zhejiang Huaxiao Technology Co., Ltd. 8,050,311.05 8,050,311.05 Xi'an Dahua Zhilian Technology Co., 56,000,000.00 56,000,000.00 Ltd. Wuxi Dahua Ruipin Technology Co., 3,134,743.40 3,134,743.40 247 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Ltd. Zhejiang Dahua Robot Technology Co., 6,908,515.42 6,908,515.42 Ltd. Beijing Huayue Shangcheng Information Technology Service Co., 400,000.00 400,000.00 Ltd. Sichuan Dahua Guangxun Photoelectric 4,530,000.00 4,530,000.00 Technology Co., Ltd. Dahua Technology Holdings Limited 8,102,000.00 8,102,000.00 Total 2,448,117,298.81 385,686,339.23 2,833,803,638.04 (2) Investment in affiliates and joint ventures Unit: RMB Decrease/Increase in the Current Period Closin g Investmen Balan Adjustm Cash Provisi t Profit ce of Balance at Invest ent on Dividends on for Balance at Name of and Loss Provis the Start of ments Investment Other Other Changes or Profit Impair Oth the End of Investees Recognize ion the Period Increa Decreased Compre in Equity Declared ment ers the Period d under for sed hensive to Accru the Equity Decli Income Distribute ed Method ne in Value Ⅰ. Joint ventures Ⅱ. Affiliates Beijing Ankang Jianxing Emergency 7,651,907.75 7,580,935.18 -70,972.57 Education Technology Co., Ltd. Zhejiang Leapmotor -36,803,547. 36,803,547.78 168,229,977.61 168,229,977.61 Technology 78 Co., Ltd. Guangdong Dahua -133,147.25 -261,039.85 -394,187.10 Zhishi Technology 248 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Co., Ltd. -37,135,560. Subtotal 44,322,308.28 7,580,935.18 168,229,977.61 167,835,790.51 20 -37,135,560. Total 44,322,308.28 7,580,935.18 168,229,977.61 167,835,790.51 20 4. Operating income and operating costs Unit: RMB This Period's Amount of Occurrence Previous Period's Amount of Occurrence Item Name Income Cost Income Cost Main Business 8,306,049,467.16 1,743,136,622.36 6,523,938,339.59 795,113,331.00 Other businesses 27,513,647.92 19,328,284.90 23,645,230.95 19,951,305.33 Total 8,333,563,115.08 1,762,464,907.26 6,547,583,570.54 815,064,636.33 5. Investment income Unit: RMB Item Name This Period's Amount of Occurrence Previous Period's Amount of Occurrence Long-term equity investment income -37,135,560.20 -36,550,868.57 measured by equity method Investment income from disposal of 706,569.92 4,268,246.00 long-term equity investment Investment income from possession of 1,005,008.70 5,543,861.26 available-for-sale financial assets Investment income from treasury bond 380,167.33 259,538.04 reverse repurchase Total -35,043,814.25 -26,479,223.27 XVIII. Supplementary Information 1. Breakdown of non-recurring gains and losses for this period √ Applicable □ Not applicable Unit: RMB Item Name Amount Note Gains and losses from disposal of non-current assets -257,185.57 The government subsidies included in the current profits and losses (excluding the government 78,342,817.78 subsidies closely related to regular businesses of the Company and issued in the quota or quantity 249 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. based on the national standards Profits and losses resulting from the changes in fair value for holding trading financial assets and trading financial liabilities, and investment income from disposal of trading financial assets, trading -83,285,344.55 financial liabilities, and financial assets available for trading, excluding the effective hedging businesses related to the regular business operation of the Company Non-Operating Revenue and expenses other than the above 68,947,139.26 Other gains and losses items that fit the definition of non-recurring gains and losses 733,001.58 Less: Impact of income tax 13,376,532.24 Impact of minority equity 16,798,457.41 Total 34,305,438.85 -- For items defined as non-recurring gains and losses according to the No. 1 Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to Public - Non-recurring Gains and Losses, or non-recurring gains and losses items listed in the said document defined as recurring ones, please specify the reasons. □ Applicable √ Not applicable 2. Return on net assets and earnings per share Earnings per share Weighted Profit for the reporting period Basic Earnings per Share Diluted Earnings per Average ROE (RMB/Share) Share (RMB/Share) Net profit attributable to common shareholders of the Company 22.16% 0.87 0.87 Net profit attributable to common shareholders of the Company 21.86% 0.86 0.86 after deducting non-recurring gains and losses 3. Differences in accounting data between domestic and overseas accounting standards (1) Differences of net profits and net assets in the financial reports disclosed according to the international accounting standards and Chinese accounting standards □ Applicable √ Not applicable (2) Differences of net profits and net assets in the financial reports disclosed according to the overseas accounting standards and Chinese accounting standards □ Applicable √ Not applicable (3) Reasons for accounting data differences under domestic and overseas accounting standards. For difference adjustment on the data already audited by an overseas audit institution, name of the audit institution should be noted. 250 2018 Annual Report of Zhejiang Dahua Technology Co., Ltd. Section XII Documents Available for Reference I. The financial statements signed and sealed by Fu Liquan, the Company's legal representative, Wei Meizhong, chief accountant, and Xu Qiaofen, person in charge of accounting institution. II. The original copy of the Audit Report with the seal of the Accounting Firm and signed and stamped by Certified Public Accountants. III. Original copies of all the Company's documents and announcements published on media designated by China Securities Regulatory Commission within the reporting period. IV. Other related materials. The said documents are prepared and placed at the Company's Securities Investment Department Dahua, Dahua Technology, Company, this Company Chairman: Fu Liquan March 19, 2019 251