Konka Group Co., Ltd. Interim Report 2018 KONKA GROUP CO., LTD. INTERIM REPORT 2018 2018-65 August 2018 1 Konka Group Co., Ltd. Interim Report 2018 Part I Important Notes, Table of Contents and Definitions The Board of Directors (or the “Board”), the Supervisory Committee as well as the directors, supervisors and senior management of Konka Group Co., Ltd. (hereinafter referred to as the “ Company ” ) hereby guarantee the factuality, accuracy and completeness of the contents of this Report and its summary, and shall be jointly and severally liable for any misrepresentations, misleading statements or material omissions therein. Liu Fengxi, the Company’s legal representative, Li Chunlei, the Company’s Chief Financial Officer (CFO), and Feng Junxiu, head of the Company’s financial department (equivalent to financial manager) hereby guarantee that the Financial Statements carried in this Report are factual, accurate and complete. All the Company’s directors have attended the Board meeting for the review of this Report and its summary. Any plans for the future or other forward-looking statements mentioned in this Report and its summary shall NOT be considered as absolute promises of the Company to investors. Therefore, investors are reminded to exercise caution when making investment decisions. The Company has no interim dividend plan, either in the form of cash or stock. This Report and its summary have been prepared in both Chinese and English. Should there be any discrepancies or misunderstandings between the two versions, the Chinese versions shall prevail. 2 Konka Group Co., Ltd. Interim Report 2018 Table of Contents Interim Report 2018...........................................................................................................................1 Part I Important Notes, Table of Contents and Definitions........................................................... 2 Part II Corporate Information and Key Financial Information................................................... 7 Part III Business Summary............................................................................................................. 10 Part IV Operating Performance Discussion and Analysis............................................................13 Part V Significant Events.................................................................................................................28 Part VI Share Changes and Shareholder Information................................................................. 45 Part VII Preferred Shares................................................................................................................50 Part VIII Directors, Supervisors and Senior Management..........................................................51 Part IX Corporate Bonds.................................................................................................................52 Part X Financial Statements............................................................................................................53 Part XI Documents Available for Reference................................................................................ 266 3 Konka Group Co., Ltd. Interim Report 2018 Definitions Term Definition The “Company”, the “Group”, “Konka Group” Konka Group Co., Ltd. and its consolidated subsidiaries, except where the or “we” context otherwise requires Telecommunication Technology Shenzhen Konka Telecommunications Technology Co., Ltd. Konka Electrical Appliances Shenzhen Konka Electrical Appliances Co., Ltd. Plastic Products Shenzhen Konka Plastic Products Co., Ltd. Electrical Appliances Shenzhen Konka Electrical Appliances Co., Ltd. Fittings Technology Shenzhen Konka Electronic Fittings Technology Co., Ltd. Mudanjiang Appliances Mudanjiang Arctic Ocean Appliances Co., Ltd. Chongqing Qingjia Chongqing Qingjia Electronics Co., Ltd. Anhui Konka Anhui Konka Electronic Co., Ltd. Dongguan Konka Dongguan Konka Electronic Co., Ltd. Dongguan Packing Dongguan Konka Packing Materials Co., Ltd. Boluo Konka Boluo Konka PCB Co., Ltd. Boluo Konka Precision Boluo Konka Precision Technology Co., Ltd. Hong Kong Konka Hong Kong Konka Co., Ltd. Konka Electrical Appliances Investment Konka Electrical Appliances Investment & Development Co., Ltd. Konka Electrical Appliances International Trading Konka Electrical Appliances International Trading Co., Ltd. Konka Europe Konka (Europe) Co., Ltd. Konka Factoring Konka Factoring (Shenzhen) Co., Ltd. Wankaida Shenzhen Wankaida Science and Technology Co., Ltd. Kunshan Kangsheng Kunshan Kangsheng Investment Development Co., Ltd. Anhui Tongchuang Anhui Konka Tongchuang Electrical Appliances Co., Ltd. Shushida Logistics Shenzhen Shushida Logistics Service Co., Ltd. Beijing Konka Electronic Beijing Konka Electronic Co., Ltd. Konka E-display Shenzhen Konka E-display Co., Ltd. E-display Service Shenzhen E-display Service Co., Ltd. Xiamen Dalong Xiamen Dalong Trading Co., Ltd. Youshi Kangrong Youshi Kangrong Culture Communication Co., Ltd. Konka SmartTech Konka SmartTech Limited Kaikai Shijie Anhui Kaikai Shijie E-commerce Co., Ltd. E2info Shenzhen E2info Network Technology Co., Ltd. Mobile Interconnection Shenzhen Konka Mobile Interconnection Technology Co., Ltd. 4 Konka Group Co., Ltd. Interim Report 2018 Commercial System Technology Shenzhen Konka Commercial System Technology Co., Ltd. Chain Kingdom Chain Kingdom Co., Limited Kangqiao Easy Chain Shenzhen Kangqiao Easy Chain Technology Co., Ltd. E3info E3info (Hainan) Technology Co., Ltd. Chuzhou Konka TID Chuzhou Konka Technology & Industry Development Co., Ltd. Konka Ventures Konka Ventures Development (Shenzhen) Co., Ltd. Konka Pengrun Shenzhen Konka Pengrun Technology & Industry Co., Ltd. Konka Unifortune Shenzhen Konka Unifortune Supply Chain Management Co., Ltd. Konka Investment Shenzhen Konka Investment Holding Co., Ltd. Kangzhi Trade Anhui Kangzhi Trade Co., Ltd. Konka Material Hainan Konka Material Technology Co., Ltd. Konka Leasing Tianjin Konka Leasing Co., Ltd. Yantai Konka Yantai Konka Healthcare Enterprise Service Co., Ltd. Konka Capital Shenzhen Konka Capital Equity Investment Management Co., Ltd. Chain Kingdom Shenzhen Chain Kingdom (Shenzhen) Co., Ltd. Electronics Technology Shenzhen Konka Electronics Technology Co., Ltd. Sichuan Konka Sichuan Konka Smart terminal Technology Co., Ltd Jiaxin Technology Jiaxin Technology Co., Ltd. Kangjietong Kangjietong (Hong Kong) Limited Sichuan Kangjiatong Sichuan Kangjiatong Supply Chain Management Co., Ltd. Konka Huanjia Konka Huanjia (Dalian) Environmental Technology Co., Ltd. Chengdu Konka Chengdu Konka Incubator Management Co., Ltd. Yibin Konka Yibin Konka Technology Park Operation Co., Ltd. Konka Suiyong Konka Suiyong Investment (Shenzhen) Co., Ltd. Electrical Appliance Technology Anhui Konka Electrical Appliance Technology Co., Ltd. Jiali International Jiali International (Hong Kong) Limited XingDa HongYe GuangDong XingDa HongYe Electronic Co., Ltd. Xinfeng Zhuoqun Shanghai Xinfeng Zhuoqun PCB Co., Ltd. Zewei Kechuang Zhongshan Zewei Kechuang Investment Management Co., Ltd. Econ Technology Shandong Econ Technology Co., Ltd. Beijing Econ Beijing Econ Runfeng Technology Co., Ltd. Shanghai Jiyi Shanghai Jiyi Environmental Technology Co., Ltd. Binzhou Econ Binzhou Econ Zhongke Environmental Technology Co., Ltd. Lairun Holdings Laizhou Lairun Holdings Co., Ltd. 5 Konka Group Co., Ltd. Interim Report 2018 Econ Environmental Engineering Econ Environmental Engineering Co., Ltd. Rushan Yike Rushan Yike Water Treatment Co., Ltd. Binzhou Weiyijie Binzhou Weiyijie Environmental Technology Co., Ltd. Yantai Chunzhiran Yantai Chunzhiran Environmental Technology Co., Ltd. Rushan Econ Rushan Econ Beike Technology Incubator Co., Ltd. Fujian Econ Fujian Econ Changrun Environmental Protection Co., Ltd. Lairun Huayang Laizhou Lairun Huayang Heating Co., Ltd. Lairun Heating Laizhou Lairun Heating Co., Ltd. Lairun Green Energy Laizhou Lairun Green Energy Co., Ltd. Beihai Jingmai Binzhou Beihai Jingmai Industrial Development Co., Ltd. Huanhai Xinze Yantai Huanhai Xinze Enterprise Management Co., Ltd. Binzhou Weinengda Binzhou Weinengda Transport Co., Ltd. Binhai Sewage Treatment Laizhou Binhai Sewage Treatment Co., Ltd. Lairun Environmental Protection Laizhou Lairun Environmental Protection Co., Ltd. CSRC The China Securities Regulatory Commission SZSE The Shenzhen Stock Exchange CSRC Shenzhen The Shenzhen Bureau of the China Securities Regulatory Commission Expressed in the Chinese currency of Renminbi, expressed in tens of thousands RMB, RMB’0,000, RMB’00,000,000 of Renminbi, expressed in hundreds of millions of Renminbi 6 Konka Group Co., Ltd. Interim Report 2018 Part II Corporate Information and Key Financial Information I Corporate Information Stock name Konka Group-A, Konka Group-B Stock code 000016, 200016 Changed stock name (if any) N/A Stock exchange for stock listing Shenzhen Stock Exchange Company name in Chinese 康佳集团股份有限公司 Abbr. (if any) 康佳集团 Company name in English (if any) KONKA GROUP CO., LTD. Abbr. (if any) KONKA GROUP Legal representative Liu Fengxi II Contact Information Board Secretary Securities Representative Name Wu Yongjun Miao Leiqiang Board Secretariat, 24/F, Konka R&D Centre, 28 Keji Board Secretariat, 24/F, Konka R&D Centre, 28 Keji South Twelfth Road, Science and Technology Park, South Twelfth Road, Science and Technology Park, Address Yuehai Street, Nanshan District, Shenzhen, Guangdong Yuehai Street, Nanshan District, Shenzhen, Guangdong Province, China Province, China Tel. 0755-26609138 0755-26609138 Fax 0755-26601139 0755-26601139 Email szkonka@konka.com szkonka@konka.com address III Other Information 1. Contact Information of the Company Indicate by tick mark whether any change occurred to the registered address, office address and their zip codes, website address and email address of the Company in the Reporting Period. □ Applicable √ Not applicable No change occurred to the said information in the Reporting Period, which can be found in the 2017 Annual Report. 7 Konka Group Co., Ltd. Interim Report 2018 2. Media for Information Disclosure and Place where this Report is Kept Indicate by tick mark whether any change occurred to the information disclosure media and the place for keeping the Company’s periodic reports in the Reporting Period. □ Applicable √ Not applicable The newspapers designated by the Company for information disclosure, the website designated by the CSRC for disclosing the Company’s periodic reports and the place for keeping such reports did not change in the Reporting Period. The said information can be found in the 2017 Annual Report. IV Key Financial Information Indicate by tick mark whether there is any retrospectively restated datum in the table below. □ Yes √ No H1 2018 H1 2017 Change (%) Operating revenue (RMB) 17,625,414,769.82 11,405,965,979.43 54.53% Net profit attributable to the listed 341,793,039.03 30,871,267.86 1007.16% company’s shareholders (RMB) Net profit attributable to the listed company ’ s shareholders before -300,870,612.80 -44,456,212.17 -576.78% exceptional items (RMB) Net cash generated from/used in -1,838,158,705.86 -2,264,014,704.88 18.81% operating activities (RMB) Basic earnings per share (RMB/share) 0.1419 0.0128 1008.59% Diluted earnings per share (RMB/share) 0.1419 0.0128 1008.59% Weighted average return on equity (%) 4.19% 1.06% 3.13% 30 June 2018 31 December 2017 Change (%) Total assets (RMB) 28,134,003,876.94 23,558,735,469.78 19.42% Equity attributable to the listed 7,940,999,540.26 7,994,145,476.61 -0.66% company’s shareholders (RMB) V Accounting Data Differences under China’s Accounting Standards for Business Enterprises (CAS) and International Financial Reporting Standards (IFRS) and Foreign Accounting Standards 1. Net Profit and Equity Differences under CAS and IFRS □ Applicable √ Not applicable 8 Konka Group Co., Ltd. Interim Report 2018 No such differences for the Reporting Period. 2. Net Profit and Equity Differences under CAS and Foreign Accounting Standards □ Applicable √ Not applicable No such differences for the Reporting Period. XI Exceptional Gains and Losses √ Applicable □ Not applicable Unit: RMB Item Reporting Period Note Gain or loss on disposal of non-current assets (inclusive of impairment allowance write-offs) 109,176,724.28 Government subsidies charged to current profit or loss (exclusive of government subsidies given in the Company ’ s ordinary course of business at fixed quotas or amounts as per 95,673,059.56 government’s uniform standards) Gain or loss on investments or assets entrusted to other entities for management 83,860,015.29 Gain or loss on fair-value changes in trading financial assets and liabilities & investment income from disposal of trading financial assets and liabilities and available-for-sale financial -5,196,666.98 assets (exclusive of effective portion of hedges that arise in the Company’s ordinary course of business) Gain or loss on loan entrustments 599,186.29 Non-operating income and expense other than above 14,941,575.60 Other gains and losses that meet definition of exceptional gain/loss 445,568,627.45 Less: Income tax effects 38,310,511.85 Non-controlling interests effects (net of tax) 63,648,357.81 Total 642,663,651.83 -- Explanation of why the Company reclassifies as recurrent an exceptional gain/loss item defined or listed in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Exceptional Gain/Loss Items: √ Applicable □ Not applicable Item Amount (RMB) Reason Tax rebates Recurrent government subsidies given in the Company’s ordinary course of business at 34,848,961.96 on software fixed quotas or amounts as per government’s uniform standards 9 Konka Group Co., Ltd. Interim Report 2018 Part III Business Summary I Core Business Scope of the Company in Reporting Period Is the Company subject to any disclosure requirements for special industries? No. Currently, the Company consists of three major business divisions, namely, the consumer electronic division, the supply chain management division and the environmental protection division, which are detailed as follows: (I) The Consumer Electronic Division This division primarily comprises the multimedia sub-division, the white goods sub-division and the mobile phone sub-division, with details as follows: 1. The Multimedia Sub-Division The Company provides multimedia products and services, including colour TVs and Internet TV services, for both domestic and overseas markets. The domestic sales of the Company ’ s colour TVs are realized mainly through B2B (Business-to-Business) and B2C (Business-to-Consumer), with its branch companies, business departments and after-sales maintenance points operating across the country. And the Company profits from the margins between the costs and the selling prices of its colour TVs. As for selling its colour TVs abroad, the Company mainly relies on B2B. Its colour TVs are sold to Asia Pacific, Middle East, Central & South America, East Europe, etc. And operating profit source is also the differences between the costs and the selling prices of its colour TVs. The Company offers Internet TV services based on the smart TVs it has sold to end users. Firstly, it works with other Internet companies to provide end users with, among other content, video, educational, music, medical and game content to generate earnings. Secondly, it analyses user behaviours and offer certain free, interactive services to increase attractiveness to users, promote its brand and stimulate desire for its hardware products. Finally, it is trying to build an Internet TV platform with tens of millions of users, on which it will profit through commercial and application distribution. This Internet TV business is key to the Company’s Internet-oriented transformation and upgrade to a development model of “hardware + software” and “smart TV + end users”. 2. The White Goods Sub-Division The white goods produced by the Company mainly include refrigerators, washing machines, air conditioners, freezers, etc., which are sold through B2B and B2C mainly to the domestic market. And the Company profits from the margins between the costs and the selling prices of its white goods. 10 Konka Group Co., Ltd. Interim Report 2018 3. The Mobile Phone Sub-Division The mobile phones of the Company are sold to both the domestic and overseas markets. The overseas sales mainly rely on B2B and the profit comes from the margins between the costs and the selling prices of the mobile phones. As for the domestic sales of its mobile phones, the Company relies on B2B and B2C, and profits mainly from the costs and the selling prices of its products and slightly from the related value added services. (II) The Supply Chain Management Division In this business, relying on the advantages of the raw material procurement channels, distribution systems and terminal networks of its consumer electronic business, the Company helps upstream and downstream enterprises of the supply chain solve channel problems caused by asymmetric information and improve efficiency. At present, this business runs on two models. In the procurement and distribution supply chain model, the Company benefits from purchasing IC chips, LCD screens, etc. from upstream suppliers and selling them to downstream customers through the supply chain of its traditional core business. Supply chain services are another model. Capitalizing on its years of experience in product quality control, outsourcing partner assessment and international trade, the Company is able to help improve the client’s supply chain in efficiency and cost through the provision of services including product quality control, warehousing and logistics, customs clearance of imports and exports, documentation, tax handling, outsourcing partner selection, etc. Profit comes from service charges. Additionally, the supply chain management business can help the Company establish good relationships with its upstream suppliers and downstream customers, and keep it informed of prices of the materials used in its production for better cost control over its existing products. (III) The Environmental Protection Division Currently, this business focuses on water treatment and recycling of renewable resources. Water engineering PPP (Public-Private Partnership) projects are undertaken under BOT (Build-Operate-Transfer) or EPC (Energy Performance Contracting) models. And renewable resources are collected, sorted, processed, distributed and sold. II Material Changes in Major Assets 1. Material Changes in Major Assets Major assets Main reason for material changes Long-term equity investments rose 65.72% at the end of the Reporting Period compared to the beginning amount, primarily driven by the shift of Anhui Kaikai Shijie Equity assets E-commerce Co., Ltd. from a consolidated subsidiary to a long-term equity investment measured at the equity method, as well as by new equity investments in associates. 11 Konka Group Co., Ltd. Interim Report 2018 Fixed assets No material change Up 101.09% at the end of the Reporting Period compared to the beginning amount, primarily driven by the consolidated intangible assets (land use rights, franchise rights, Intangible assets etc., at their carrying amounts) of acquirees Shandong Econ Technology Co., Ltd. and GuangDong XingDa HongYe Electronic Co., Ltd. in the Current Period Construction in progress No material change Up 13965.55% at the end of the Reporting Period compared to the beginning amount, primarily driven by the Company ’s acquisitions of a 51% interest in both Shandong Goodwill Econ Technology Co., Ltd. and GuangDong XingDa HongYe Electronic Co., Ltd. in the Current Period 2. Major Assets Overseas □ Applicable √ Not applicable III Core Competitiveness Analysis Is the Company subject to any disclosure requirements for special industries? No. The Company’s core competitiveness lies in its R&D ability, brand, marketing network and human resources. It has developed a three-level R&D system of “ Konka Research Institute-Multimedia R&D Centre-specialized design institutes”, with close to 100 core technologies and approximately 2,000 R&D personnel. It also boasts a strong brand presence among consumers, as well as among banks and other financing channels. Additionally, its domestic marketing and service network, including 67 branch companies, over 200 offices and about 3,300 after-sales service stations across the country, directly connect to around 3,000 retail terminals, along with a well-established overseas marketing network. Meanwhile, it has high-level personnel with years of rich management and industry experience, as well as a high-quality team with strong execution capabilities. 12 Konka Group Co., Ltd. Interim Report 2018 Part IV Operating Performance Discussion and Analysis I Overview (I) In the Reporting Period, in order for faster transformation and upgrade and leapfrog growth, the Company has formulated a strategic plan for its medium- and long-term development, that is, “One Centric Orientation, Two Development Paths, Three Development Strategies and Four Business Divisions”. With the centric orientation to become a platform driven by technological innovation, as well as with industrial products as the basis supported by the composite capabilities of “Technology + Holding”, the Company will upgrade towards strategic emerging industries, expand its technology park business, and extend its Internet and supply chain service business, so as to formulate four major collaborating business divisions—the technology park division, the industrial product division, the platform service division and the investment & finance division. Focused on its strategic plan, the Company made the following achievements in the Reporting Period: 1. The mixed ownership reform was carried forward for stronger competitiveness in the multimedia business. Shenzhen Konka Electronics Technology Co., Ltd. has been set up in the Reporting Period to run the Company ’ s colour TV and other multimedia businesses, which will accelerate the Company’s platform transformation, and enable a mixed ownership reform on the said business at a proper timing for better competitiveness. Anhui Kaikai Shijie E-commerce Co., Ltd. (“Kaikai Shijie”), one of the Company’s majority-owned subsidiary, is responsible for operations under the Company’s online colour TV brand—KKTV. In order to make up its lack of digital contents and shift from a hardware provider to an Internet company featuring “ digital contents + hardware + operation ” , Kaikai Shijie has introduced Guangdong South Aishi Entertainment Technology Co., Ltd. (“South Aishi”) as a 10% shareholder. South Aishi is a professional Internet company offering Internet TV entertainment services, with fully-licensed joint operation rights, rich digital contents and years of OTT experience. 2. The technology park, environmental protection and other businesses have gradually taken shape. In terms of the technology park business, in addition to carrying forward the existing projects including Phase I of the Konka Chuzhou Technological Innovation Centre and the Yibin Konka Smart Terminals Industrial Park, the Company has also newly launched the Konka Belt and Road Headquarters, Phase II of the Konka Chuzhou Technological Innovation Centre, the Zibo High-End Equipment Industrial Park, the Nanjing K-Star Cloud Network Headquarters, etc. Meanwhile, talks are underway for the Konka Smart Appliances and Equipment Industrial Park, the Ankang Smart Plant, Minghu K-Care Town and so on. 13 Konka Group Co., Ltd. Interim Report 2018 In the environmental protection business, the Company acquired a 51% interest in Shandong Econ Technology Co., Ltd. (“Econ Technology”), which specializes in water treatment. Recently, one of Econ Technology’s affiliates has won the bids for the RMB1.299 billion urban river comprehensive treatment PPP project for the Donggang city, as well as for the RMB2.849 billion city centre comprehensive improvement project for the Weifang Binhai Economic and Technological Development Zone. Additionally, the Company has recently acquired a 51% stake in Jiujiang Golden Phoenix Decoration Material Co., Ltd. (“Golden Phoenix”), which produces glass ceramic materials, a new green material. This acquisition has great significance for the Company’s plan in the new material sector. 3. During the Reporting Period, Anhui Konka Electrical Appliance Technology Co., Ltd., a 51% indirectly controlled subsidiary of the Company, won the bid of RMB455 million for the 100% interests of Henan Frestec Electrical Appliances Co., Ltd., Henan Frestec Refrigeration Appliance Co., Ltd. and Henan Frestec Household Appliances Co., Ltd. (The above three companies are collectively referred to as “ Frestec Company ” , the asset pool of which mainly includes Frestec brand, patents and related fixed assets).So far Frestec Company has completed the industrial and commercial registration of changes and gradually resumes production.This acquisition can help the Company quickly expand its white goods business under the two collaborating brands of “Konka” and “Frestec” for better profitability. 4. During the Reporting Period, four business sub-divisions based on the Internet ecology had taken shape in the Company ’ s Internet operation business, including the cross-device user operation sub-division based on Konka’s smart terminal user operation platform, the IoT (Internet of Things) operation sub-division based on Konka ’ s smart terminal hardware, as well as the other two sub-divisions in planning — the comprehensive healthcare business based on Konka ’ s comprehensive healthcare user operation platform and the smart town business based on Konka ’s smart town operation platform, so as to build a complete household smart healthcare ecosystem. The Internet operation business was running well in the Reporting Period, with a new high in income. (II) Due to the rapid growth in the new businesses, the Company is expected to achieve operating revenue of approximately RMB17.625 billion for H1 2018, up around 54.53% compared to H1 2017. (III) Exceptional income was RMB643 million for the Reporting Period, which primarily came from the sale of certain interests in Kaikai Shijie for the mixed ownership reform. II Analysis of Core Businesses See “I Overview” above. 14 Konka Group Co., Ltd. Interim Report 2018 Year-on-year changes in key financial data: Unit: RMB Change H1 2018 H1 2017 Main reason for change (%) Operating revenue 17,625,414,769.82 11,405,965,979.43 54.53% Growth in the supply chain management business Cost of sales 16,442,256,445.26 10,110,191,258.07 62.63% Selling expense 1,103,181,074.51 974,003,306.54 13.26% A rise in R&D and trial Administrative expense 364,827,669.33 264,108,100.97 38.14% production expense A rise in exchange gains due Finance costs 36,292,909.41 110,882,895.46 -67.27% to exchange rate fluctuations Income tax expense -17,446,049.13 -3,838,772.97 -354.47% R&D expense 137,008,896.76 96,753,027.87 41.61% Net cash generated from/used in -1,838,158,705.86 -2,264,014,704.88 18.81% operating activities A decline in cash payments Net cash generated from/used in -343,094,565.17 -1,580,867,932.13 78.30% for wealth management investing activities products A decline in net cash Net cash generated from/used in 2,880,630,318.57 4,161,145,047.39 -30.77% generated from/used in financing activities borrowings Net increase in cash and cash 664,088,931.90 305,883,134.09 117.11% equivalents Material changes to the profit structure or sources of the Company in the Reporting Period: √ Applicable □ Not applicable Exceptional income was RMB643 million for the Reporting Period, which primarily came from the gain of RMB445.5686 million from remeasuring the remaining 46% interest in Anhui Kaikai Shijie E-commerce Co., Ltd. (formerly measured at the equity method) at the fair value method after the cease of the Company’s control over Kaikai Shijie upon the sale of some interests in it for the mixed ownership reform. Breakdown of core businesses: Unit: RMB Gross YoY change in YoY change in YoY change in Operating revenue Cost of sales profit operating revenue gross profit margin cost of sales (%) margin (%) (%) By operating division 15 Konka Group Co., Ltd. Interim Report 2018 Electronics 6,716,672,638.19 5,811,221,512.70 13.48% -1.35% 2.07% -2.90% Supply chain 10,008,880,630.62 9,925,786,697.58 0.83% 132.37% 133.68% -0.56% management Environmental 77,951,411.92 52,515,288.25 32.63% protection By product category Colour TVs 4,963,088,596.70 4,352,820,070.48 12.30% -6.18% -1.78% -3.93% White goods 1,084,381,984.51 892,338,557.03 17.71% 21.58% 22.90% -0.89% Supply chain 10,008,880,630.62 9,925,786,697.58 0.83% 132.37% 133.68% -0.56% management Environmental 77,951,411.92 52,515,288.25 32.63% protection Other 669,202,056.98 566,062,885.19 15.41% 6.74% 5.68% 0.85% By operating segment Domestic 4,672,082,285.24 3,847,140,507.59 17.66% -36.38% -39.07% 3.64% Overseas 12,131,422,395.49 11,942,382,990.94 1.56% 221.57% 229.28% -2.31% III Analysis of Non-Core Businesses √ Applicable □ Not applicable Unit: RMB As % of total Amount Source/Reason Exceptional or recurrent profit The gain from remeasuring the remaining interest in Anhui Kaikai Investment Shijie E-commerce Co., Ltd. at the 531,758,571.71 135.90% Exceptional income fair value method after the cease of the Company’s control over Kaikai Shijie Gain/loss on Assessed gains/losses on fair-value changes in 59,855,412.48 15.30% fluctuations of deliverable forward Exceptional fair value contracts Asset 59,552,100.41 15.22% Exceptional impairments Non-operatin 27,217,492.97 6.96% Exceptional g income Non-operatin 5,951,749.57 1.52% Exceptional g expense 16 Konka Group Co., Ltd. Interim Report 2018 IV Analysis of Assets and Liabilities 1. Material Changes in Asset Composition Unit: RMB 30 June 2018 30 June 2017 Change in As % of As % Reason for material percentage Amount total Amount of total change (%) assets assets Monetary 3,911,820,154.60 13.90% 2,490,079,604.07 12.05% 1.85% assets Accounts 4,428,390,613.21 15.74% 1,966,918,540.02 9.52% 6.22% receivable Inventories 4,854,235,062.74 17.25% 6,374,483,463.58 30.85% -13.60% Investment 213,639,992.84 0.76% 219,271,267.11 1.06% -0.30% property Long-term equity 2,187,539,867.00 7.78% 629,257,019.68 3.04% 4.74% investments Fixed assets 1,789,101,811.32 6.36% 1,544,239,052.29 7.47% -1.11% Construction in 120,644,724.53 0.43% 404,450,172.08 1.96% -1.53% progress Short-term 10,397,447,703.32 36.96% 10,744,965,110.13 51.99% -15.03% borrowings Long-term 501,000,000.00 1.78% 70,000,000.00 0.34% 1.44% borrowings 2. Assets and Liabilities at Fair Value √ Applicable □ Not applicable Unit: RMB Gain/loss on Impairment Purchase fair-value Cumulative Sold in allowance for d in Item Beginning amount changes in fair-value changes Reportin Ending amount Reporting Reportin Reporting charged to equity g Period Period g Period Period Financial assets 1. Financial assets at fair value through 296,799.53 14,497,221.94 profit or loss (exclusive of 17 Konka Group Co., Ltd. Interim Report 2018 derivatives) 3. Available-for-sale 712,170,399.09 20,058,1 692,112,236.33 financial assets 62.76 Subtotal of financial 712,467,198.62 20,058,1 706,609,458.27 assets 62.76 Total of above 712,467,198.62 20,058,1 706,609,458.27 62.76 Financial liabilities 47,482,470.50 1,827,480.43 Material changes in the measurement attributes of the major assets in the Reporting Period: □ Yes √ No 3. Restricted Asset Rights as at Period-End Ending carrying Item Reason for restriction amount Monetary 149,831,518.94 Various security deposits where access on demand is not allowed assets ① Up to 30 June 2018, the Company had put RMB1,414,894,166.20 (carrying amount) of bank acceptance bills in pledge for various financing activities including bank acceptance bills, letters of credit, letters of guarantee and trade financings. ② Up to 30 Notes 1,666,718,524.73 June 2018, a trade acceptance bill of RMB241,824,358.53 (carrying amount) had been receivable discounted by a bank with recourse for a short-term loan of RMB227,979,976.51, and another trade acceptance bill of RMB10,000,000.00 (carrying amount) had been discounted by a bank with recourse for a short-term loan of RMB9,545,000.00. 5,807,674.32 Property preservation under a lawsuit Fixed assets 60,288,708.63 Up to 30 June 2018, subsidiary GuangDong XingDa HongYe Electronic Co., Ltd. ( “ XingDa HongYe ” ) had put up building properties of RMB60,288,708.63 (carrying Intangible 38,617,359.68 amount) and land use rights of RMB38,617,359.68 (carrying amount) as collateral in assets order to get a loan of RMB210,700,000.00. Total 1,921,263,786.30 18 Konka Group Co., Ltd. Interim Report 2018 V Investments Made 1. Total Investment Amount √ Applicable □ Not applicable Total investment amount in Reporting Total investment amount in same period Change (%) Period (RMB) of last year (RMB) 198,399,656.00 326,090,459.58 -39.16% 2. Significant Equity Investments Made in Reporting Period □ Applicable √ Not applicable 3. Significant Non-Equity Investments Ongoing in Reporting Period √ Applicable □ Not applicable Unit: RMB Reason Total for falling Way Investm actual Total Investm Fundi Proje Expect behind Index to of ent in investme income as Disclosure Industr ent in ng ct ed schedule disclosed Project inve fixed nt as of of end of date (if y Reportin sourc progr incom or not informatio stme assets end of Reporting any) g Period e ess e achieving n (if any) nt or not Reporting Period expected Period income Self-f Konka unde Built Technolog d, by ical inclu To be the Electro 2,612,26 79,270,07 17.6 30 Decem Innovation Yes ding estim 0 N/A Com nics 3.42 7.92 2% ber 2016 Centre custo ated pany one phase mer itself project paym ents www.cnin Built fo.com.cn New plant by Self-f To be in the Electro 11 March Yes 0 0 unde 0% estim 0 N/A Dongguan Com nics 2017 d ated city pany itself Yibin Built Self-f To be Electro 18,000,0 18,000,00 4.86 22 May 2 Smart by Yes unde estim 0 N/A nics 00 0 % 018 Terminal the d ated 19 Konka Group Co., Ltd. Interim Report 2018 High-Tech Com Park pany itself Built Chengdu by Belt and Self-f To be the Electro 27 June 2 Road Yes 0 0 unde 0% estim 0 N/A Com nics 018 Headquart d ated pany ers itself 20,612,2 97,270,07 Total -- -- -- -- -- 0 -- -- -- 63.42 7.92 Notes: (1) In regard to the Konka Technological Innovation Centre one phase project ,the land use right transfer agreement has been signed, the general plan and the landscaping plan are being approved, and the construction design for Phase I has been completed and is being optimized. (2) Concerning the Dongguan city’s new plant, preparations are underway and the Company is waiting for the local government to put out the project target land for bids. (3) With respect to the yibin smart terminal high-tech park, the land use right transfer agreement has been signed and the general plan is underway. (4) As for the Chengdu Belt and Road Headquarters, preparations are underway and the Company is waiting for the local government to put out the project target land for bids. 4. Financial Investments (1) Securities Investments √ Applicable □ Not applicable Gain/L Initial oss on Purc Fundi Accumulat Endin Secur fair-val hase Gain/lo Beginni ed Sold in g Securit Securit invest Measur ue d in ss in Accountin ng ng fair-value Reporti carryi ity ement change Repo Reporti y type y code ment carrying changes ng ng g title sourc method s in rting ng name amount charged to Period amou Reporti Perio Period cost equity nt e ng d Period Domes New tically/ Available-f stock Overse ZXF 1,459.6 Fair 7,988.1 8,353.6 6,893.9 or-sale 002915 value 0.00 0.00 0.00 0.00 subsc as C 1 3 0 9 financial method riptio listed assets n stock KCX 1,513.1 7,520.5 8,282.5 6,769.4 Ditto 300730 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto X 6 5 6 0 20 Konka Group Co., Ltd. Interim Report 2018 DSX 12,537. 24,025. 26,420. 13,882. Ditto 002920 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto W 88 82 42 54 MCJ 1,406.7 3,949.1 4,715.2 3,308.4 Ditto 002919 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto K 2 2 0 8 3,462.3 4,985.7 9,466.4 6,004.0 Ditto 002922 YGE Ditto 0.00 0.00 0.00 0.00 Ditto Ditto 9 3 7 8 GHK 5,064.9 7,295.7 14,767. 9,702.9 Ditto 300735 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto J 3 3 84 1 PYH 5,026.0 5,02 13,668. 8,642.8 Ditto 300664 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto B 8 6.08 90 2 RDG 3,129.8 3,12 8,780.4 5,650.6 Ditto 002923 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto F 4 9.84 8 4 1,376.0 2,397.6 9,683.6 8,307.6 Ditto 300684 ZSKJ Ditto 0.00 0.00 0.00 0.00 Ditto Ditto 0 8 0 0 XLD 5,160.0 5,16 12,000. 6,840.0 Ditto 300733 Ditto 0.00 0.00 0.00 0.00 Ditto Ditto L 0 0.00 00 0 13,0 YQK 13,095. 47,724. 34,629. Ditto 002925 Ditto 0.00 0.00 0.00 95.0 0.00 Ditto Ditto J 00 00 00 0 Other securities investments 0.00 -- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -- -- held at period-end 26,4 53,231. 58,162. 163,86 110,63 Total -- 0.00 0.00 10.9 0.00 -- -- 61 76 3.07 1.46 2 Disclosure date of announcement on Board’s consent for securities investments N/A Disclosure date of announcement on general meeting’s consent for securities investments N/A (if any) (2) Investments in Derivative Financial Instruments √ Applicable □ Not applicable Unit: RMB’0,000 Funding source for derivative investment U.S. dollar financings Legal matters involved (if applicable) N/A Disclosure date of board announcement 24 May 2014 approving derivative investment (if any) Disclosure date of shareholders ’ meeting announcement approving derivative investment 10 June 2014 (if any) 21 Konka Group Co., Ltd. Interim Report 2018 We engage in forward forex transactions to reduce the currency risk when securing foreign-currency financing. This is very needed in our routine Analysis of risks and control measures operation and is in compliance with the applicable laws and regulations. We associated with derivative investments held in have formulated the Management Rules of Konka Group Co., Ltd. for Reporting Period (including but not limited to Investment In Derivative Financial Instruments, making clear the relevant market risk, liquidity risk, credit risk, consideration and approval procedure, risk control, etc.. We always sign operational risk, legal risk, etc.) forward forex contracts with large banks such as the Bank of China, which operate steadily and have good credit standing, which could help prevent loss on forward forex contracts due to bank failure. How we usually measure the fair value of derivative financial instruments: Based on the forward forex sales and purchase contracts that are signed Changes in market prices or fair value of between the Company and banks and have not expired in a Reporting Period, derivative investments in Reporting Period we recognize the differences between the quotations for these contracts on the (fair value analysis should include balance sheet dates provided by the banks and the contractual prices as measurement method and related assumptions transactional financial assets or liabilities, and the profit/loss on fair value and parameters) changes is recognized accordingly. Because these contracts have locked in exchange rates, no changes will occur when comparing the fair value on signing dates with that on delivery dates. Material changes in accounting policies and specific accounting principles adopted for No material changes derivative investments in Reporting Period compared to last reporting period It is considered necessary for the Company to lock in foreign-currency financing costs through financial instruments, because it could effectively Opinion of independent directors on derivative reduce the currency risk when securing foreign-currency financing. The investments and risk control Company has formulated the internal control mechanism for investment in derivative financial instruments, and the relevant risk control measures that the Company has taken are considered effective. Unit: RMB’0,000 Type of derivative Opening Closing Gain/loss in Closing investment amount as a percentage of financial contractual contractual Reporting Period the Company’s closing net asset value instrument amount amount Forward forex 224,712.77 74,021.85 -2,255.71 9.32% contract VI Sale of Major Assets and Equity Investments 1. Sale of Major Assets □ Applicable √ Not applicable No such cases in the Reporting Period. 22 Konka Group Co., Ltd. Interim Report 2018 2. Sale of Major Equity Investments √ Applicable □ Not applicable Amoun t Amoun contrib t uted by contrib the uted by equity the sale Relatio Executed interest to net nship as Index s to net Effect income Owners betwee scheduled to Selling income of the of the Related hip Equity Pricing n or not, if Disclo discl Counte Date of price of the sale on Compa transact fully interest principl counter not, state sure osed rparty sale (RMB’ Compa the ny as a ion or transfer s sold e party reason date infor 0,000) ny Compa percent not red or and the and matio from ny age of not Compa actions n period- the ny taken beginni Compa ng to ny’s date of net sale income (RMB’ (%) 0,000) Suzhou Optimi Anze zing 6% Fuxing the interest Venture Compa in Capital ny’s Shenzh Centre allocati en (Limite on of Qianha d assets, i Partner generat Qingso www ship) 29 ing 31 ng Market Not .cninf and March 3,725 0 cash 5.04% Not Yes N/A March Venture price related o.co Gongqi 2018 inflows 2018 Capital m.cn ngchen , Fund g Little increasi Compa Cherry ng ny Invest assets’ (Limite ment liquidit d Manag y and Partner ement improv ship) Partner ing the ship Compa 23 Konka Group Co., Ltd. Interim Report 2018 Compa ny’s ny earning (Limite s d Partner ship) VII Major Majority- and Minority-Owned Subsidiaries √ Applicable □ Not applicable Major majority-owned subsidiaries and those minority-owned subsidiaries with an over 10% effect on the Company’s net profit: Unit: RMB Relationship Core Registered Operating Operating Name with the Total assets Net assets Net profit business capital revenue profit Company Shenzhen Software Wankaida technology RMB1000 Science and Subsidiary development 121,816,00 85,962,617 30,150,200 28,889,8 23,898,735.6 0000 Technology and 2.76 .71 .00 74.28 0 Co., Ltd. maintenance Production and sale of Anhui Konka refrigerators, Tongchuang washing RMB5020 Household Subsidiary 1,227,510, 160,106,40 1,260,194, 18,893,7 19,115,133.1 machines and 00000 Appliances 711.48 4.80 032.54 64.29 1 other Co., Ltd. household appliances Production Anhui Konka and sale of RMB1400 Electronic Subsidiary 1,406,749, 364,561,79 1,732,222, -10,344, -8,851,847.7 multimedia 00000 Co., Ltd. 963.99 1.99 387.44 768.50 1 products Shenzhen Production Konka and sale of Telecommuni RMB4000 Subsidiary mobile 456,589,04 114,374,94 236,912,37 -7,444,5 cations 00000 2,831,121.04 communicati 0.42 9.05 4.91 01.78 Technology on products Co., Ltd. Dongguan Subsidiary Production RMB2666 24 Konka Group Co., Ltd. Interim Report 2018 Konka and sale of 70000 763,041,66 652,719,53 220,128,01 3,896,08 3,218,716.32 Electronic multimedia 9.55 9.46 3.35 3.70 Co., Ltd. products Export & Hong Kong import of HKD5000 Konka Co., Subsidiary electromecha 2,062,112, 157,194,76 1,902,698, 4,793,55 00 4,851,113.34 Ltd. nical and 708.48 5.99 072.57 4.89 electronics Chain Supply chain USD15000 Kingdom Subsidiary 1,405,717, 57,597,008 3,256,025, 33,878,6 28,291,883.6 management 00 Co., Limited 090.58 .22 071.58 17.65 8 Konka Export & Electrical import of HKD5000 1,500,797, -221,045,1 4,071,108, 16,955,3 16,955,358.1 Appliances Subsidiary electromecha 00 452.01 57.93 379.48 58.10 0 Internation nical and al Trading. electronics Subsidiaries obtained or disposed in the Reporting Period: √ Applicable □ Not applicable How subsidiary was obtained or Effects on overall production and Subsidiary disposed in Reporting Period operating results After the loss of control over Anhui Kaikaijie E-commerce Co., Ltd., the Anhui Kaikai Shijie E-commerce Co., A 5% interest in this subsidiary was surplus shares were re-measured at fair Ltd. transferred value, resulting in a large amount of profits. Kangjietong (Hong Kong) Limited Incorporated by investment No significant effects Yibin Konka Technology Park Operation Incorporated by investment No significant effects Co., Ltd. Shenzhen Konka Electronics Technology Incorporated by investment No significant effects Co., Ltd. Jiaxin Technology Co., Ltd. Incorporated by investment No significant effects Jiali International (Hong Kong) Limited Incorporated by investment No significant effects Chengdu Konka Incubator Management Incorporated by investment No significant effects Co., Ltd. Sichuan Konka Smart terminal Incorporated by investment No significant effects Technology Co., Ltd Sichuan Kangjiatong Supply Chain Incorporated by investment No significant effects Management Co., Ltd. Konka Suiyong Investment (Shenzhen) Incorporated by investment No significant effects Co., Ltd. 25 Konka Group Co., Ltd. Interim Report 2018 Konka Huanjia (Dalian) Environmental Incorporated by investment No significant effects Technology Co., Ltd. Anhui Konka Electrical Appliance Incorporated by investment No significant effects Technology Co., Ltd. Shandong Econ Technology Co., Ltd. and its subsidiaries, including Beijing Econ Runfeng Technology Co., Ltd., Shanghai Jiyi Environmental Technology Co., Ltd., Binzhou Econ Zhongke Environmental Technology Co., Ltd., Laizhou Lairun Holdings Co., Ltd., Econ Environmental Engineering Co., Ltd., Rushan Yike Water Treatment Co., Ltd., Binzhou Weiyijie Environmental Technology Co., Ltd., Yantai Chunzhiran Environmental Technology Co., Ltd., Rushan Econ A 51% interest in Shandong Econ No significant effects Beike Technology Incubator Co., Ltd., Technology Co., Ltd. was acquired Fujian Econ Changrun Environmental Protection Co., Ltd., Laizhou Lairun Huayang Heating Co., Ltd., Laizhou Lairun Heating Co., Ltd., Laizhou Lairun Green Energy Co., Ltd., Binzhou Beihai Jingmai Industrial Development Co., Ltd., Yantai Huanhai Xinze Enterprise Management Co., Ltd., Binzhou Weinengda Transport Co., Ltd., Laizhou Binhai Sewage Treatment Co., Ltd. and Laizhou Lairun Environmental Protection Co., Ltd. GuangDong XingDa HongYe Electronic Co., Ltd. and its subsidiaries, including A 51% interest in GuangDong XingDa Shanghai Xinfeng Zhuoqun PCB Co., HongYe Electronic Co., Ltd. was No significant effects Ltd. and Zhongshan Zewei Kechuang acquired Investment Management Co., Ltd. Information about the major majority- and minority-owned subsidiaries: None. VIII Structured Bodies Controlled by the Company □ Applicable √ Not applicable 26 Konka Group Co., Ltd. Interim Report 2018 IX Performance Forecast for January-September 2018 Warning of forecast negative net profit for January-September 2018 or considerable YoY change therein, as well as the reasons: □ Applicable √ Not applicable X Risks Facing the Company and Countermeasures The Company’s consumer electronics business is seeing a decreased gross profit margin caused by slow growth in demand and increasingly fierce competition in the color TV, white goods and mobile phone markets. In response, the Company will adopt measures including adjusting the hardware product mix, strengthening product competitiveness, enhancing professionalism in user operation, improving Internet operations, and improving internal management. As for the environmental protection business, the Company is a new comer in this sector. It still needs some time for the newly acquired and invested enterprises to integrate with the Company in operational and management mechanism, resource and corporate culture. And a great number of reserve projects in this business is making more requirements for human resources. Therefore, the Company has started to work on the relevant operational mechanism, improve its monitoring of the majority-owned subsidiaries ’ operations, and bring in various resources so as to strengthen its operational capabilities in this respect. 27 Konka Group Co., Ltd. Interim Report 2018 Part V Significant Events I Annual and Extraordinary General Meetings Convened during Reporting Period 1. General Meetings Convened during Reporting Period Investor Index to Date of resolution Meeting Type participati Convened date disclosed disclosure on ratio resolutions 2017 Annual General Meeting Annual 32.80% 23 April 2018 24 April 2018 The 1st Extraordinary General Extraordinary 2.52% 3 May 2018 4 May 2018 www.cninfo.c Meeting of 2018 om.cn The 2nd Extraordinary General Extraordinary 32.85% 7 June 2018 8 June 2018 Meeting of 2018 2. Extraordinary General Meetings Convened at Request of Preferred Shareholders with Resumed Voting Rights □ Applicable √ Not applicable II Interim Dividend Plan □ Applicable √ Not applicable The Company has no interim dividend plan, either in the form of cash or stock. III Commitments of the Company ’ s Actual Controller, Shareholders, Related Parties and Acquirers, as well as the Company Itself and Other Entities Fulfilled in Reporting Period or Ongoing at Period-End □ Applicable √ Not applicable No such cases in the Reporting Period. IV Engagement and Disengagement of Independent Auditor Are the interim financial statements audited? □Yes √ No The interim financial statements are unaudited. 28 Konka Group Co., Ltd. Interim Report 2018 V Explanations Given by Board of Directors and Supervisory Committee Regarding Independent Auditor's “Modified Opinion” for Reporting Period □ Applicable √ Not applicable VI Explanations Given by Board of Directors Regarding Independent Auditor's “ Modified Opinion” for Last Year □ Applicable √ Not applicable VII Insolvency and Reorganization □ Applicable √ Not applicable No such cases in the Reporting Period. VIII Legal Matters Material lawsuits or arbitrations: √ Applicable □ Not applicable Involved Index to General amount Decisions and Execution of Disclosure disclosed Provision Progress information (RMB’ effects decisions date informati 0,000) on As for the details, please refer to the Notes 2. Description of the Contingencies of the Commitments and the Contingencies of Chapter XII of the Notes to the Financial Report. Because the involved amount was small, there was no need to fulfil the obligation of information disclosure. Other legal matters: □ Applicable √ Not applicable IX Punishments and Rectifications □ Applicable √ Not applicable No such cases in the Reporting Period. X Credit Quality of the Company as well as Its Controlling Shareholder and Actual Controller □ Applicable √ Not applicable XI Equity Incentive Plans, Employee Stock Ownership Plans or Other Incentive Measures for Employees □ Applicable √ Not applicable 29 Konka Group Co., Ltd. Interim Report 2018 No such cases in the Reporting Period. XII Major Related-Party Transactions 1. Continuing Related-Party Transactions √ Applicable □ Not applicable Obt aina As % ble Appro Ove of mar Index Total ved r Met Spe Pric Tra total ket to Relations Type value transac app hod Disc cific ing nsac value pric disclo hip with of (RM tion rov of losu Related party tran prin tion of all e for sed the transa B’ line ed settl re sact cipl pric same- sam infor Company ction 0,000 (RMB line eme date ion e e type e-ty matio ) ’ or nt transa pe n 0,000) not ctions tran sacti ons Pur Purch Neg OCT Under the chas Mar Not ase of otia Enterprises Co., same e of ket 1,349. appl com ted 0.31% 2,500 No Cash Ltd and its actual mat pric 46 icab modit pric subsidiaries controller erial e le ies e s 31 www. Sales Mar cninf of ch o.co goods Neg 201 OCT Sale Mar Not m.cn Under the otia 8 and Enterprises same s of ket appl servic ted 570.14 0.11% 3,000 No Cash Co., Ltd and actual LC pric icab es pric its subsidiaries controller D e le e 1,919. Total -- -- -- 5,500 -- -- -- -- 60 Details of large amount of sales returns N/A As for the prediction on the total amount of The Company has published the Forecasting Public Notice on Routine Related routine related-party transactions to be Transaction for Y2018 on Securities Times, Shanghai Securities News, China occurred in the Reporting Period by relevant Securities Journal and Hong Kong Ta Kung Pao as well as the Internet website types, the actual performance in the Reporting designated by CSRC http://www.cninfo.com.cn on 31 March 2018. In the Period (if any) Reporting Period, the basis for pricing, transaction price, transaction amount 30 Konka Group Co., Ltd. Interim Report 2018 and settlement methods of raw materials purchased by the Company were basically in accordance with the forecast. The total amount was RMB19.1960million. Reason for major difference between transaction price and reference market price N/A (if applicable) 2. Related-Party Transactions Regarding Purchases or Sales of Assets or Equity Interests √ Applicable □ Not applicable The related-party transactions regarding purchases or sales of assets or equity interests during the R eporting Period are shown below. 3. Related-Party Transactions Regarding Joint Investments in Third Parties √ Applicable □ Not applicable The related-party transactions regarding joint investments in third parties during the Reporting Perio d are shown below. 4. Credits and Liabilities with Related Parties √ Applicable □ Not applicable Whether there is non-operating credits and liabilities with related parties √ Applicable □ Not applicable Credits of parties related to account receivable Whether Amount Amount there is newly Ending Beginning recovered Current Relation Formati non-opera added in balance Related balance in current Interest interest with the on ting current party (RMB’ period rate (RMB’ Company reason capital period (RMB’ 0,000) (RMB’ 0,000) occupatio (RMB’ 0,000) 0,000) n 0,000) Naught Naught Naught No 0 0 0 0 0 0 Impact of related credits on the company's operation result and financial Naught condition Liabilities of parties related to account payable Relat Amount Ending ion Beginning Amount newly returned in Current balance with Formation balance added in current Interest interest Related party the reason current period period rate (RMB’ Com (RMB’ (RMB’0,000) (RMB’ 0,000) (RMB’ pany 0,000) 0,000) 0,000) OCT Enterprises Contr The 0 50,000 50,000 4.35% 151 0 Co., Ltd ollin company g applies OCT Enterprises share entrusted 0 50,000 0 6.00% 342 50,000 31 Konka Group Co., Ltd. Interim Report 2018 Co., Ltd holde loan to it r OCT Enterprises Co., Ltd 0 140,000 0 6.00% 1,120 140,000 OCT Enterprises 0 10,000 0 5.40% 26 10,000 Co., Ltd Impact of related liabilities on the The company applies entrusted loan from OCT Enterprises Co., LTD which meets the needs of the company's operation result company's existing business development and reduces the financing cost. and financial condition 5. Other Major Related-Party Transactions √ Applicable □ Not applicable (1) The Project of Capital Increase to Yibin OCT Sanjiang Real Estate Co., Ltd.: On 3 May 2018, the 1st Extraordinary General Meeting of 2018 passed the Proposal on Capital Increase to Yibin OCT Sanjiang Real Estate Co., Ltd. by voting, and decided to take Shenzhen Konka Telecommunications Technology Co., Ltd., a wholly-owned subsidiary as the main body to contribute RMB80 million to increase capital to Yibin OCT Sanjiang Real Estate Co., Ltd. according to shareholding ratio. (2) The Project of Transferring Equity of Kunshan Kangsheng Investment Development Co., Ltd.: On 14 June 2018, the 44th Meeting of the 8th Board of Directors of the Company deliberated and passed Proposal on Transferring 51% Equity of Kunshan Kangsheng Investment Development Co., and decided that the Company transferred 51% equity of Kunshan Kangsheng Investment Development Co., Ltd. to Taizhou Overseas Chinese Town Co., Ltd., with the transfer price of RMB280,680,300. At present, the Company has received the 50% equity transfer fund from Taizhou Overseas Chinese Town Co., Ltd., and Kunshan Kangsheng Investment Development Co., Ltd. has completed industrial and commercial registration of changes. (3)Project regarding venture capital platform service: Konka Ventures Development (Shenzhen) Co., Ltd., the majority-owned subsidiary of the Company, signed an agreement with OCT Group and provided venture capital platform service for the latter. OCT Group has paid the service charge of RMB20 million to Konka Ventures Development (Shenzhen) Co., Ltd. The income confirmed by Konka Ventures Development (Shenzhen) Co., Ltd. during the Reporting Period was RMB12,944,983.86. Index to the public announcements about the said related-party transactions disclosed Title of public announcement Disclosure date Disclosure website Announcement about Capital Increase in Sanjiang Real 18 April 2018 Estate and Related-party Transactions www.cninfo.com.cn Announcement about the Transfer of 51% Equities of 16 June 2018 Kunshan Kangsheng and Related-party Transactions 32 Konka Group Co., Ltd. Interim Report 2018 Announcement about the Progress of the Transfer of 3 July 2018 51% Equities of Kunshan Kangsheng XIII Occupation of the Company’s Capital by Controlling Shareholder or Its Related Parties for Non-Operating Purposes □ Applicable √ Not applicable No such cases in the Reporting Period. XIV Major Contracts and Their Execution 1. Entrustment, Contracting and Leases (1) Entrustment □ Applicable √ Not applicable No such cases in the Reporting Period. (2) Contracting □ Applicable √ Not applicable No such cases in the Reporting Period. (3) Leases □ Applicable √ Not applicable No such cases in the Reporting Period. 2. Major Guarantees √ Applicable □ Not applicable (1) Guarantees Unit: RMB'0,000 Guarantees provided by the Company and its subsidiaries for external parties (excluding those for subsidiaries) Amou Type Perio Guarante Actual Guarantee Disclosure date of nt for Actual occurrence date of d of Executed e for a guarantee d party relevant announcement guara (date of agreement) guara guar or not related-pa amount ntee ntee antee rty or not Naug Naught Naught 0 Naught 0 0 Naught Naught ht Total external guarantee line approved during 100,000 Total actual occurred amount of external 0 33 Konka Group Co., Ltd. Interim Report 2018 the Reporting Period (A1) guarantee during the Reporting Period (A2) Total external guarantee line that has been Total actual external guarantee balance at the end approved at the end of the Reporting Period 113,000 0 of the Reporting Period (A4) (A3) Guarantees provided by the Company for its subsidiaries Guaran Actual Period tee for Disclosure date of Amount Actual occurrence Execu Guarantee guarant Type of of a relevant for date (date of ted or d party ee guarantee guara related announcement guarantee agreement) not amount ntee party or not 24 October 2017 6,000 Joint liability 1 year No No Anhui Tongchua 70,000 9 May 2018 4,500 Joint liability 1 year No No ng 19 June 2018 3,000 Joint liability 1 year No No Communi cation 50,000 5 February 2018 50,000 Joint liability 1 year No No technolog y Anhui 2 May 2018 20,000 Joint liability 1 year No No 110,000 Konka 31 March 2017 and 1 June 2018 8,000 Joint liability 1 year No No 31 March 2018 E-display 8,000 20 July 2017 2,000 Joint liability 1 year No No 28 August 2017 7,056 Joint liability 1 year No No Hong 27 September 2017 3,207 Joint liability 1 year No No Kong 355,000 13 October 2017 22,450 Joint liability 1 year No No Konka 31 May 2018 19,243 Joint liability 1 year No No 17 October 2017 50,000 Joint liability 1 year No No Konka 300,000 24 October 2017 20,000 Joint liability 1 year No No Factoring 27 June 2018 14,000 Joint liability 1 year No No Total actual occurred amount of guarantee Total guarantee line approved for the subsidiaries 173,200 for the subsidiaries during the Reporting 118,743 during the Reporting Period (B1) Period (B2) Total actual guarantee balance for the Total guarantee line that has been approved for the 1,118,000 subsidiaries at the end of the Reporting 229,456 subsidiaries at the end of the Reporting Period (B3) Period (B4) Guarantees provided by the subsidiaries for their subsidiaries 34 Konka Group Co., Ltd. Interim Report 2018 Amount Actual Period Disclosure date of Actual Type of Guarantee Guarantee for occurrence date of Executed relevant guarantee guarante for a related d party guarant (date of guarant or not announcement amount e party or not ee agreement) ee Sichuan Joint 30 May 2018 14,000 28 May 2018 14,000 7 years No No Konka liability Rushan Joint 29,000 29 Dec 2016 29,000 10years No No Econ liability Total guarantee line approved for the subsidiaries Total actual occurred amount of guarantee for the 14,000 14,000 during the Reporting Period (C1) subsidiaries during the Reporting Period (C2) Total guarantee line that has been approved for the Total actual guarantee balance for the subsidiaries 43,000 43,000 subsidiaries at the end of the Reporting Period (C3) at the end of the Reporting Period (C4) Total guarantee amount provided by the Company (total of the above-mentioned three kinds of guarantees) Total guarantee line approved during the Total actual occurred amount of guarantee 287,200 132,743 Reporting Period (A1+B1+C1) during the Reporting Period (A2+B2+C2) Total guarantee line that has been approved at Total actual guarantee balance at the end of the 1,274,000 272,456 the end of the Reporting Period (A3+B3+C3) Reporting Period (A4+B4+C4) Proportion of total guarantee amount (A4+B4+C4) to the net 34.31% assets of the Company Of which: Amount of debt guarantee provided for shareholders, actual controller and the related-party 0 (D) Amount of debt guarantee provided for the guaranteed party whose asset-liability ratio is not 272,456 less than 70% directly or indirectly (E) Total guarantee amount exceeded 50% of the net assets (F) 0 Total amount of the above three guarantees (D+E+F) 272,456 Explanation on the occurred warranty liability or possible bearing joint responsibility of N/A liquidation due to immature guarantee (if any) Explanation on provision of guarantees for external parties in violation of the prescribed N/A procedure (if any) Note: Shandong Econ Technology Co., Ltd., acquired by the Company during the Reporting Period, provided a joint-liability guarantee for the RMB0.29 billion project loan for its majority-owned sub sidiary Rushan Yike Water Treatment Co., Ltd. on 27 December 2016. Explanation on guarantee that adopts complex method N/A 35 Konka Group Co., Ltd. Interim Report 2018 (2) Illegal Provision of Guarantees for External Parties □ Applicable √ Not applicable No such cases in the Reporting Period. 3. Other Major Contracts □ Applicable √ Not applicable No such cases in the Reporting Period. XV Corporate Social Responsibility (CSR) 1. Material Environmental Issues Is the Company or any of its subsidiaries is identified as a major polluter by the environmental protection authorities? Yes Name of Distribut Excessi Main Quanti Total Name of ion Executed Approved ve Pollutant Dischar ty of Weight Company Informat Emission Emission Total Emissi and ge Emissi of or ion of Concentration Standard of Weight of on Distinctiv Method on Emissio subsidiary Emissio Pollutant Emission Conditi e Outlet n n Outlet on Pollutant Pollution Table 1 in sources of Dischar Total PH6-9; copper≤ Emission COD27.9 waste Annual ge outlet of 0.5mg/L; COD≤ standard of t/year; water: waste directly waste 80mg/L; electroplating ammonia PH, 1 water: Naught (to water ammonia water nitrogen Copper, 448,500 Fusha treatmen nitrogen≤ pollutants 6.727t/ye COD, and t/year Guangdo Surge) t station 15mg/L DB44/1597-20 ar Ammonia ng 15 nitrogen Xingda Waste gas 3 outlets sulfuric acid Emission 2,953,000 Hongye pollutants on the mist<30mg/m3; limits of air ,000m3/y Electronic : sulfuric Dischar roof of NOx< pollutants ear in Co., Ltd acid mist, ge of the No. 200mg/m3; Table 5 in Pollutant 3,027,36 chlorine fixed 1 chlorine hydride Emission s 14 0,000m3 Naught hydride, pollutio factory, <30mg/m3; standard of Discharg /year Formalde n 10 VOCS< electroplating e License hyde, sources outlets 90mg/m3; pollutants of 2017, hydrogen on the benzene< GB21900-200 no cyanide, roof of 12mg/m3; 8, the second specific 36 Konka Group Co., Ltd. Interim Report 2018 NOx, the No. methylbenzene level standard details in Ammonia 2 <40mg/m3; in phase 2 of the latest , benzene, factory, xylene< Emission National methylbe and 1 70mg/m3; standard of Air Pollutant nzene, outlet on Pollutants in s xylene, the roof Guangdong Discharg and of the DB44/27-2001 e License VOCs canteen , and standard of 2018 in Table 2 in Emission standard of Stink Pollutants (GB 14554-1993) (1) The Construction of Anti-pollution Facilities and Its Operation Situation All production equipment of the Company shall be set up with supporting environmental protection facilities according to the requirements of environmental impact assessment. The discharge of wastewater, waste gas and noise in the Company all met with the standards, as well as the dispose of all solid wastes, during the reporting period. The Investment of Guangdong Xingda Hongye Electronics Co., Ltd.: The sewage treatment centre with an investment of about RMB15 million was formally put into production in June 2007, and the treatment capacity of the sewage treatment facility was 2566 tons/day. The wastewater environmental protection facilities have been operated well with the discharge of main pollutants meeting with the acceptance criteria, during the reporting period. (2) Environmental Impact Assessment and Other Environmental Protection Administrative Licenses of the Construction Project The technical innovation and expansion projects of Guangdong Xingda Hongye Electronics Co., Ltd. have been approved by Zhongshan Environmental Protection Bureau, Guangdong on 31 December 2012 (Zhongshan Environmental Protection Bureau Construction Notice [2012] No. 115), and have been checked and accepted by Zhongshan Environmental Protection Bureau, Guangdong on 21 December 2012. (Zhongshan Environmental Protection Bureau Acceptance Report [2012] No. 000092), with a sewage permit, certificate No.: 91442000768405216J001P. (3) Contingency Plan for Emergent Environmental Incident Guangdong Xingda Hongye Electronics Co., Ltd. has formulated the Contingency Plan for Emergent Environmental Incident strictly abided by requirements of laws and regulations, such as Law of the People's Republic of China on Emergency Response and Interim Measures on Environmental Emergency Response Plan, and put on records at Zhongshan Environmental Protection Bureau, Guangdong. 37 Konka Group Co., Ltd. Interim Report 2018 (4) Environmental Self-Monitoring Plan According to the requirements of the Environmental Protection Administration, Guangdong Xingda Hongye Electronics Co., Ltd. pays high attention to environmental monitoring management, so as to formulate the Environmental Self-Monitoring Plan and report to the municipal environmental protection bureau for approval and record. It implements online monitoring for the PH, COD and ammonia nitrogen pollutants discharged in wastewater with the automatic frequency of every 2 hours and entrusts the qualified third-party institute to carry out regular maintenance on automatic monitoring equipment and monitoring data networking equipment. The self-monitoring results will be reported daily to the public on the national pollution source monitoring information management and sharing platform and monitored by the public. (5) Other Environmental Information That Should Be Disclosed The environmental protection investment of Guangdong Xingda Hongye Electronics Co., Ltd. was about RMB6.28 million in the first half of 2018, mainly used as the environmental engineering investment (about RMB3.5 million) and the operation of environmental protection equipment (about RMB2.78 million). (6) Other Environmental Information According to the examination by the Company, the Company and its other holding subsidiaries are not key pollutant units. All have faithfully implemented the laws and regulations related to environmental protection, such as Environmental Protection Law of the People's Republic of China, Water Pollution Prevention and Control Law of the People's Republic of China, Law of the People's Republic of China on the Prevention and Control of Atmospheric Pollution, Law of the People's Republic of China on Prevention and Control of Pollution From Environmental Noise, Law of the People's Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste in the daily production and operation, without being punished for violations of laws and regulations during the reporting period. 2. Measures Taken for Targeted Poverty Alleviation (1) Plan for Targeted Measures The Company and the China Youth Development Foundation (CYDF) have jointly held the large public benefit activity “Heart Journey” since 2013. Five sessions of activities have been held until now. In 2013, we helped thousands of migrant workers to go home. In 2014, we planted tens of thousands of trees nationwide and improved the living conditions of 5,000 needy families by planting the economic and ecological trees. In 2015, we donated nearly 100 music classrooms to the remote regions of China by carrying out “Happy Music Classroom” Project with CYDF. In 2016, we sponsored the professional training of 100 music teachers in remote areas to promote the construction of teaching staff in poverty-stricken areas. In 2017, the activities of “Heart Journey” focused on affectionate care for families of left-behind children in poverty-stricken areas. We 38 Konka Group Co., Ltd. Interim Report 2018 helped 100 left-behind children to come to cities to reunite with their parents during the summer vacation, and donated houses named Konka Heart Journey Family in schools in western areas. (2) Outline of Targeted Measures in the Reporting Period In the first half year of 2018, the activity of “Heart Journey” is still in the planning, and not carried out officially. (3) Results of Targeted Measures Naught (4) Subsequent Targeted Measure Plans The Company and the China Youth Development Foundation (CYDF) will continue to hold a series of public benefit activity “Heart Journey”. XVI. Other Significant Events √ Applicable □ Not applicable (1) Project regarding founding a company for multimedia business: On 17 November 2017, the 37th Meeting of the 8th Board of Directors of the Company reviewed and approved the Proposal on Founding a Company for Multimedia Business of Konka. So far, Shenzhen Konka Electronics Technology Co., Ltd. has been formally established and going into operation. The Company is in the process of business switching and asset introduction. (2) The Project of Working with China Orient Asset Management (International) Holding Limited to Plan to Establish an Industrial Fund and Conduct Strategic Cooperation: On 16 April 2018, the 41st Meeting of the 8th Board of Directors of the Company deliberated and passed the Proposal on Launching the Establishment of China Orient Konka Industry M&A Fund, and the fund is currently in the process of filing. (3) The Project of Listing Transfer of Shanghai Real Estate: On 23 August 2017, the 34th Meeting of the 8th Board of Directors of the Company deliberated and passed the Proposal on Listing Transfer of Part Real Estate on the. At present, the Shanghai Real Estate to be listed for transfer has been officially listed, and is currently in the publicity period. (4) Signed a Strategic Cooperation Agreement with the Chuzhou Municipal Government: On 27 June 2018, the 45th Meeting of the 8th Board of Directors of the Company deliberated and passed the Proposal on Investment in the Construction of the Second Phase of Konka Science and Technology Innovation Centre in Chuzhou. At present, the second phase of the Science and Technology Centre project has won the bid for the project land and other projects are still under negotiation. Announ Link cement Date Title Page on newspaper No. Link on http://www.cninfo.com.cn 3 January Announcement on Receiving the Securities Times B5, http://www.cninfo.com.cn/finalpage/20 2018-01 2018 Grants of Zombie Enterprises Ta Kung Pao B1 18-01-03/1204299322.PDF 39 Konka Group Co., Ltd. Interim Report 2018 Announcement on Restructuring and Securities Times 4 January Renaming of Controlling Shareholders http://www.cninfo.com.cn/finalpage/20 2018-02 B44, Ta Kung Pao 2018 and the Changes of Relevant of 18-01-04/1204302079.PDF A20 Business Registration Events Securities Times 4 January Announcement on Recognition of http://www.cninfo.com.cn/finalpage/20 2018-03 B44, Ta Kung Pao 2018 Disclosure Fee 18-01-04/1204302080.PDF A20 Announcement on Majority-owned Securities Times 4 January http://www.cninfo.com.cn/finalpage/20 2018-04 Subsidiary’ receiving of the B44, Ta Kung Pao 2018 18-01-04/1204302081.PDF Government Subsidies A20 Announcement on the Planned Listing Securities Times 19 January http://www.cninfo.com.cn/finalpage/20 2018-05 to Transfer the Shares of Qingsong B148, Ta Kung Pao 2018 18-01-19/1204342883.PDF Venture Investment Fund B2 Announcement on the Changes of Securities Times 25 January http://www.cninfo.com.cn/finalpage/20 2018-06 Consulting Telephone of the Company’ B28, Ta Kung Pao 2018 18-01-25/1204358631.PDF s Investors B1 Securities Times 26 January Announcement on the 2017 Earnings http://www.cninfo.com.cn/finalpage/20 2018-07 B25, Ta Kung Pao 2018 Forecasts 18-01-26/1204362267.PDF B5 Announcement about the Progress of Securities Times 20 March the Planned Listing to Transfer the http://www.cninfo.com.cn/finalpage/20 2018-08 B40, Ta Kung Pao 2018 Shares of Qingsong Venture 18-03-20/1204488812.PDF B3 Investment Fund Securities Times 24 March Announcement on Receiving the Tax http://www.cninfo.com.cn/finalpage/20 2018-09 B177, Ta Kung Pao 2018 Reimbursement Events 18-03-24/1204510528.PDF B1 31 March Announcement on the 2017 Annual http://www.cninfo.com.cn/finalpage/20 2018-10 2018 Report 18-03-31/1204553590.PDF Securities Times 31 March Announcement on the Abstract of the http://www.cninfo.com.cn/finalpage/20 2018-11 B253, Ta Kung Pao 2018 2017 Annual Report 18-03-31/1204553579.PDF A18 Announcement on the Resolution of the Securities Times 31 March http://www.cninfo.com.cn/finalpage/20 2018-12 40 Meeting of the 8 Board of th th B253, Ta Kung Pao 2018 18-03-31/1204553581.PDF Directors A18 Announcement on the Resolution of the Securities Times 31 March http://www.cninfo.com.cn/finalpage/20 2018-13 17 Meeting of the 8 Supervisory th th B253, Ta Kung Pao 2018 18-03-31/1204553582.PDF Committee A18 31 March Announcement on the Expectation of Securities Times http://www.cninfo.com.cn/finalpage/20 2018-14 2018 the 2018 Routine Related Transaction B253, Ta Kung Pao 18-03-31/1204553583.PDF 40 Konka Group Co., Ltd. Interim Report 2018 A18 Securities Times 31 March Announcement about the External http://www.cninfo.com.cn/finalpage/20 2018-15 B253, Ta Kung Pao 2018 Guarantee of Konka Group Co., Ltd. 18-03-31/1204553584.PDF A18 Securities Times 31 March Announcement on the Changes of Part http://www.cninfo.com.cn/finalpage/20 2018-16 B254, Ta Kung Pao 2018 of Accounting Policies 18-03-31/1204553585.PDF A18 Announcement about Offering Securities Times 31 March http://www.cninfo.com.cn/finalpage/20 2018-17 Entrusted Loans to Majority-owned B254, Ta Kung Pao 2018 18-03-31/1204553586.PDF Subsidiary A18 Securities Times 31 March Notice on Convening the 2017 Annual http://www.cninfo.com.cn/finalpage/20 2018-18 B254, Ta Kung Pao 2018 General Meeting 18-03-31/1204553580.PDF A19 Announcement on the Completion of Securities Times 31 March Industrial and Commercial Registration http://www.cninfo.com.cn/finalpage/20 2018-19 B254, Ta Kung Pao 2018 of Changes of Transferring the Shares 18-03-31/1204553587.PDF A19 of Qingsong Venture Investment Fund Announcement on Majority-owned Securities Times 10 April http://www.cninfo.com.cn/finalpage/20 2018-20 Subsidiary’ receiving of the B40, Ta Kung Pao 2018 18-04-10/1204593954.PDF Government Subsidies B6 Securities Times 14 April Announcement on the 2018 First http://www.cninfo.com.cn/finalpage/20 2018-21 B48, Ta Kung Pao 2018 Quarter Earnings Forecasts 18-04-14/1204624897.PDF B3 Announcement on the Resolution of the Securities Times 18 April http://www.cninfo.com.cn/finalpage/20 2018-22 41st Meeting of the 8th Board of B37, Ta Kung Pao 2018 18-04-18/1204646424.PDF Directors B9 Securities Times 18 April Notice on Convening the 1st http://www.cninfo.com.cn/finalpage/20 2018-23 B37, Ta Kung Pao 2018 Extraordinary General Meeting of 2018 18-04-18/1204646425.PDF B9 Announcement about Capital Increase Securities Times 18 April http://www.cninfo.com.cn/finalpage/20 2018-24 in Sanjiang Real Estate and B37, Ta Kung Pao 2018 18-04-18/1204646430.PDF Related-party Transactions B9 Announcement on Sponsoring the Securities Times 18 April http://www.cninfo.com.cn/finalpage/20 2018-25 Establishment of Industrial Buyout B37, Ta Kung Pao 2018 18-04-18/1204646426.PDF Fund B9 Securities Times 24 April Announcement on the Resolution of the http://www.cninfo.com.cn/finalpage/20 2018-26 B189, Ta Kung Pao 2018 2017 Annual General Meeting 18-04-24/1204700352.PDF B5 41 Konka Group Co., Ltd. Interim Report 2018 28 April http://www.cninfo.com.cn/finalpage/20 2018-27 2018 First Quarter Report 2018 18-04-28/1204821265.PDF Securities Times 28 April http://www.cninfo.com.cn/finalpage/20 2018-28 Text of the 2018 First Quarter Report B44, Ta Kung Pao 2018 18-04-28/1204821263.PDF B14 Announcement on the Resolution of the Securities Times 4 May http://www.cninfo.com.cn/finalpage/20 2018-29 1 Extraordinary General Meeting of st B16, Ta Kung Pao 2018 18-05-04/1204906066.PDF 2018 B5 Securities Times 8 May Announcement about the Progress of http://www.cninfo.com.cn/finalpage/20 2018-30 B28, Ta Kung Pao 2018 External Guarantee 18-05-08/1204918242.PDF B6 Announcement on Signing the Strategic Securities Times 22 May http://www.cninfo.com.cn/finalpage/20 2018-31 Cooperation Agreement with Chuzhou B25, Ta Kung Pao 2018 18-05-22/1204979369.PDF Municipal Government A17 Securities Times 22 May Outline of Medium and Long-term http://www.cninfo.com.cn/finalpage/20 2018-32 B25, Ta Kung Pao 2018 Development Strategy Programming 18-05-22/1204979370.PDF A17 Announcement on the Resolution of the Securities Times 23 May http://www.cninfo.com.cn/finalpage/20 2018-33 43rd Meeting of the 8th Board of B17, Ta Kung Pao 2018 18-05-23/1204981920.PDF Directors B4 Securities Times 23 May Announcement on Offering Guarantee http://www.cninfo.com.cn/finalpage/20 2018-34 B17, Ta Kung Pao 2018 Limit to the Wholly-owned Subsidiary 18-05-23/1204981921.PDF B4 Announcement on the Private Securities Times 23 May http://www.cninfo.com.cn/finalpage/20 2018-35 Placement of Corporate Bond B17, Ta Kung Pao 2018 18-05-23/1204981927.PDF Programming by the Company B4 Announcement on Carrying out the Securities Times 23 May Business of Asset Securitization of http://www.cninfo.com.cn/finalpage/20 2018-36 B17, Ta Kung Pao 2018 Business Factoring by the 18-05-23/1204981922.PDF B4 wholly-owned Subsidiary Announcement on Carrying out the Securities Times 23 May http://www.cninfo.com.cn/finalpage/20 2018-37 Business of Asset Securitization of B17, Ta Kung Pao 2018 18-05-23/1204981923.PDF Accounts Receivable B4 Securities Times 23 May Notice on Convening the 2nd http://www.cninfo.com.cn/finalpage/20 2018-38 B17, Ta Kung Pao 2018 Extraordinary General Meeting of 2018 18-05-23/1204981924.PDF B4 Announcement on Signing the Strategic Securities Times 25 May http://www.cninfo.com.cn/finalpage/20 2018-39 Cooperation Agreement with CMS B32, Ta Kung Pao 2018 18-05-25/1204999668.PDF Zhiyuan Capital B8 42 Konka Group Co., Ltd. Interim Report 2018 Securities Times 29 May Announcement on the Implementation http://www.cninfo.com.cn/finalpage/20 2018-40 B114, Ta Kung Pao 2018 of Dividend Plan of 2017 18-05-30/1205014254.PDF B14 Announcement on the wholly-owned Securities Times 29 May http://www.cninfo.com.cn/finalpage/20 2018-41 subsidiary’s Offering Guarantee to B114, Ta Kung Pao 2018 18-05-30/1205014255.PDF Majority-owned Subsidiary B14 Announcement on the Controlling Securities Times 31 May Shareholders’ Planning of Providing http://www.cninfo.com.cn/finalpage/20 2018-42 B100, Ta Kung Pao 2018 the Business of Asset Securitization of 18-06-01/1205021832.PDF B5 Business Factoring with the Difference Announcement on the Resolution of the Securities Times 8 June http://www.cninfo.com.cn/finalpage/20 2018-43 2 Extraordinary General Meeting of nd B40, Ta Kung Pao 2018 18-06-08/1205044244.PDF 2018 B5 Announcement on Offering Overseas Securities Times 14 June http://www.cninfo.com.cn/finalpage/20 2018-44 Loan under Domestic Guarantee to B36, Ta Kung Pao 2018 18-06-14/1205057941.PDF Foreign Wholly-owned Subsidiary B2 Announcement on the Resolution of the Securities Times 16 June http://www.cninfo.com.cn/finalpage/20 2018-45 44 Meeting of the 8 Board of th th B29, Ta Kung Pao 2018 18-06-16/1205062957.PDF Directors B6 Announcement about the Transfer of Securities Times 16 June http://www.cninfo.com.cn/finalpage/20 2018-46 51% Equities of Kunshan Kangsheng B29, Ta Kung Pao 2018 18-06-16/1205062958.PDF and Related-party Transactions B6 Indicative Announcement on the 16 June Securities Times B4, http://www.cninfo.com.cn/finalpage/20 2018-47 Expectation of Winning the Bid of the 2018 Ta Kung Pao B6 18-06-16/1205064576.PDF Project Announcement about the Progress of Securities Times 20 June http://www.cninfo.com.cn/finalpage/20 2018-48 Offering Guarantees to the B52, Ta Kung Pao 2018 18-06-21/1205077958.PDF wholly-owned subsidiary B1 Announcement about the Progress of Securities Times 22 June http://www.cninfo.com.cn/finalpage/20 2018-49 Offering Guarantees to the B29, Ta Kung Pao 2018 18-06-22/1205079784.PDF Majority-owned Subsidiary B6 Announcement on the Resolution of the Securities Times 28 June http://www.cninfo.com.cn/finalpage/20 2018-50 45 Meeting of the 8 Board of th th B44, Ta Kung Pao 2018 18-06-28/1205099880.PDF Directors B7 Announcement on the Investment and Securities Times 28 June Establishment of Headquarter Base http://www.cninfo.com.cn/finalpage/20 2018-51 B44, Ta Kung Pao 2018 of Konka One Belt and One Road in 18-06-28/1205099881.PDF B7 Chengdu 2018-52 28 June Announcement on Information Securities Times http://www.cninfo.com.cn/finalpage/20 43 Konka Group Co., Ltd. Interim Report 2018 2018 Disclosure of Voluntariness of B44, Ta Kung Pao 18-06-28/1205099882.PDF Receiving Letter of Acceptance B7 XVII. Significant Events of Subsidiaries □ Applicable √ Not applicable 44 Konka Group Co., Ltd. Interim Report 2018 Part VI Share Changes and Shareholder Information I Share Changes 1. Share Changes Unit: share Before Increase/decrease in Reporting Period (+/-) After Shares Share as s as dividen divid d New Perce Percent end convert Shares issue Other Subtotal Shares ntage age (%) conv ed s (%) erted from from capital profit reserve s 1. Restricted shares 19,500 0.00% 19,500 0.00% 1.3 Shares held by other domestic 19,500 0.00% 19,500 0.00% investors Among which: Shares held by domestic legal persons Shares held by domestic 19,500 0.00% 19,500 0.00% natural persons 2. Unrestricted shares 2,407,925,908 100% 2,407,925,908 100% 2.1 RMB-denominated 1,596,574,300 66.31% 1,596,574,300 66.31% ordinary shares 2.2 Domestically 811,351,608 33.69% 811,351,608 33.69% listed foreign shares 3. Total shares 2,407,945,408 100% 2,407,945,408 100% Reasons for share changes: □ Applicable √ Not applicable Approval of share changes: □ Applicable √ Not applicable 45 Konka Group Co., Ltd. Interim Report 2018 Transfer of share ownership: □ Applicable √ Not applicable Effects of share changes on the basic earnings per share, diluted earnings per share, equity per share attributable to the Company’s ordinary shareholders and other financial indicators of the prior year and the prior accounting period, respectively: □ Applicable √ Not applicable Other information that the Company considers necessary or is required by the securities regulator to be disclosed: □ Applicable √ Not applicable 2. Changes in Restricted Shares □ Applicable √ Not applicable II Issuance and Listing of Securities □ Applicable √ Not applicable III Shareholders and Their Holdings at Period-End Unit: share Number of ordinary Number of preferred shareholders with resumed voting rights (if 87,774 0 shareholders any) (see note 8) 5% or greater ordinary shareholders or top 10 ordinary shareholders Increase/ Restric Shares in Shareh decrease ted Unrestricted pledge or Nature of olding Ordinary Name of shareholder in ordinar ordinary frozen shareholder percent shares Reporting y shares Shar age Status Period shares es OVERSEAS CHINESE State-owned TOWN ENTERPRISES 21.75% 523,746,932 0 0 523,746,932 legal person CO., LTD CITIC SECURITIES Foreign BROKERAGE (HONG 7.56% 182,100,202 0 0 182,100,202 legal person KONG) CO., LTD. HOLY TIME GROUP Foreign 2.33% 56,039,500 -10,324 0 56,039,500 LIMITED legal person GUOYUAN Foreign SECURITIES BROKER 2.25% 54,203,779 -551,366 0 54,203,779 legal person (HK) CO., LTD. GAOLING FUND,L.P. Foreign 2.19% 52,801,250 0 0 52,801,250 46 Konka Group Co., Ltd. Interim Report 2018 legal person Domestic -9,394,54 WANG LEI natural 1.52% 36,715,300 0 36,715,300 1 person CHINA MERCHANTS State-owned SECURITIES (HK) 0.94% 22,665,024 833,004 0 22,665,024 legal person LIMITED Domestic NAM NGAI natural 0.90% 21,712,140 -307,900 0 21,712,140 person YUNNAN INTERNATIONAL TRUST CO., LTD-JULI Other 0.88% 21,145,380 928,520 0 21,145,380 NO. 48 SINGLE CAPITAL TRUST Domestic 20,476,61 ZHANG XIAOYU natural 0.85% 20,476,618 0 20,476,618 8 person Strategic investor or general legal person becoming top-10 ordinary shareholder due to N/A rights issue (if any) (see note 3) Jialong Investment Limited, a wholly-funded subsidiary of the Company ’ s first majority shareholder Overseas Chinese Town Enterprises Co. ( “ OCT Group” for short), holds 180,001,110 and 18,360,000 ordinary shares in the Related or acting-in-concert parties among Company respectively through CITIC Securities Brokerage (Hong Kong) Co., shareholders above Ltd. and China Merchants Securities (HK) Limited. Jialong Investment Limited and Overseas Chinese Town Enterprises Co. are parties acting in concert. Other than that, it is unknown whether the other shareholders are related parties or acting-in-concert parties or not. Top 10 unrestricted ordinary shareholders Unrestricted ordinary Type of shares Name of shareholder shares Type Shares RMB-denominate OVERSEAS CHINESE TOWN ENTERPRISES CO., LTD 523,746,932 523,746,932 d ordinary stock Domestically CITIC SECURITIES BROKERAGE (HONG KONG) CO., 182,100,202 listed foreign 182,100,202 LTD. stock Domestically HOLY TIME GROUP LIMITED 56,039,500 listed foreign 56,039,500 stock 47 Konka Group Co., Ltd. Interim Report 2018 Domestically GUOYUAN SECURITIES BROKER (HK) CO., LTD. 54,203,779 listed foreign 54,203,779 stock Domestically GAOLING FUND, L.P. 52,801,250 listed foreign 52,801,250 stock RMB-denominate WANG LEI 36,715,300 36,715,300 d ordinary stock Domestically CHINA MERCHANTS SECURITIES (HK) LIMITED 22,665,024 listed foreign 22,665,024 stock Domestically NAM NGAI 21,712,140 listed foreign 21,712,140 stock YUNNAN INTERNATIONAL TRUST CO., LTD-JULI NO. RMB-denominate 21,145,380 21,145,380 48 SINGLE CAPITAL TRUST d ordinary stock RMB-denominate ZHANG XIAOYU 20,476,618 20,476,618 d ordinary stock Jialong Investment Limited, a wholly-funded subsidiary of the Company ’ s first majority shareholder Overseas Chinese Town Enterprises Co. ( “ OCT Group ” for Related or acting-in-concert parties short), holds 180,001,110 and 18,360,000 common shares in the Company among top 10 unrestricted ordinary respectively through CITIC Securities Brokerage (Hong Kong) Co., Ltd. and China shareholders, as well as between top 10 Merchants Securities (HK) Limited. Jialong Investment Limited and Overseas unrestricted ordinary shareholders and Chinese Town Enterprises Co. are parties acting in concert. Other than that, it is top 10 ordinary shareholders unknown whether the other shareholders are related parties or acting-in-concert parties or not. Wang Lei holds 36,715,300 A-shares in the Company through his account of collateral Top 10 ordinary shareholders securities for margin trading in GF Securities Co., Ltd. Zhang Xiaoyu holds conducting securities margin trading (if 20,476,618 A-shares in the Company through her account of collateral securities for any) (see note 4) margin trading in Huaxi Securities Co., Ltd. Indicate by tick mark whether any of the top ten common shareholders or the top ten non-restricted common shareholders of the Company conducted any promissory report during this Reporting Period. □ Yea √ No No such cases in this Reporting Period. IV Change of Controlling Shareholder or Actual Controller in Reporting Period Change of the controlling shareholder in the Reporting Period: 48 Konka Group Co., Ltd. Interim Report 2018 □ Applicable √ Not applicable The controlling shareholder remained the same in the Reporting Period. Change of the actual controller in the Reporting Period: □ Applicable √ Not applicable The actual controller remained the same in the Reporting Period. 49 Konka Group Co., Ltd. Interim Report 2018 Part VII Preferred Shares □ Applicable √ Not applicable No preferred shares in the Reporting Period. 50 Konka Group Co., Ltd. Interim Report 2018 Part VIII Directors, Supervisors and Senior Management I Changes in Shareholdings of Directors, Supervisors and Senior Management □ Applicable √ Not applicable There was no change in shareholding of Directors, Supervisors, Senior Management Staffs and Employees, for details, please refer to 2017 Annual Report II Change of Directors, Supervisors and Senior Management □ Applicable √ Not applicable There was no change in Directors, Supervisors, Senior Management Staffs and Employees, for details, please refer to 2017 Annual Report 51 Konka Group Co., Ltd. Interim Report 2018 Part IX Corporate Bonds Does the Company have any corporate bonds publicly offered on the stock exchange, which were undue before the date of this Report’s approval or were due but could not be redeemed in full? No. 52 Konka Group Co., Ltd. Interim Report 2018 Part X Financial Statements I Independent Auditor’s Report Is this interim financial report audited by an independent auditor? □Yes √ No This interim financial report is unaudited by such an auditor. II Financial Statements Currency unit for the financial statements and the notes thereto: RMB 1. Consolidated Balance Sheet Prepared by Konka Group Co., Ltd. 30 June 2018 Unit: RMB Item 30 June 2018 31 December 2017 Current assets: Monetary assets 3,911,820,154.60 3,212,044,851.08 Settlement reserve Interbank loans granted Financial assets at fair value through profit or loss 14,497,221.94 296,799.53 Derivative financial assets Notes receivable 4,615,251,240.57 5,178,668,988.23 Accounts receivable 4,428,390,613.21 3,443,095,947.26 Prepayments 901,453,498.53 467,123,091.74 Premiums receivable Reinsurance receivables Receivable reinsurance contract reserve Interest receivable 5,717,301.31 1,813,256.77 Dividends receivable Other receivables 602,976,440.35 182,405,099.39 Financial assets purchased under resale agreements Inventories 4,854,235,062.74 4,690,363,565.53 Assets classified as held for sale Current portion of non-current assets 53 Konka Group Co., Ltd. Interim Report 2018 Other current assets 1,845,595,871.52 1,715,326,868.81 Total current assets 21,179,937,404.77 18,891,138,468.34 Non-current assets: Loans and advances to customers Available-for-sale financial assets 692,112,236.33 712,170,399.09 Held-to-maturity investments Long-term receivables 345,206,723.50 Long-term equity investments 2,187,539,867.00 1,319,987,343.74 Investment property 213,639,992.84 216,455,629.99 Fixed assets 1,789,101,811.32 1,587,170,348.35 Construction in progress 120,644,724.53 135,863,821.01 Engineering materials Proceeds from disposal of fixed assets Productive living assets Oil and gas assets Intangible assets 412,349,807.84 205,057,773.69 R&D expense Goodwill 506,030,181.63 3,597,657.15 Long-term prepaid expense 168,727,536.93 150,060,937.30 Deferred income tax assets 447,191,781.88 307,942,263.12 Other non-current assets 71,521,808.37 29,290,828.00 Total non-current assets 6,954,066,472.17 4,667,597,001.44 Total assets 28,134,003,876.94 23,558,735,469.78 Current liabilities: Short-term borrowings 10,397,447,703.32 6,927,472,037.35 Borrowings from central bank Customer deposits and deposits from banks and other financial institutions Interbank loans obtained Financial liabilities at fair value through profit or loss 1,827,480.43 47,482,470.50 Derivative financial liabilities Notes payable 926,402,659.29 541,175,312.09 Accounts payable 3,698,545,344.05 3,612,216,266.59 Advances from customers 936,672,416.32 640,510,784.17 Financial assets sold under repurchase agreements 54 Konka Group Co., Ltd. Interim Report 2018 Handling charges and commissions payable Payroll payable 197,104,499.84 291,370,297.67 Taxes payable 198,493,151.37 1,326,569,094.53 Interest payable 44,957,010.99 35,723,963.94 Dividends payable Other payables 2,374,301,159.44 1,608,359,305.87 Reinsurance payables Insurance contract reserve Payables for acting trading of securities Payables for underwriting of securities Liabilities directly associated with assets classified as held for sale Current portion of non-current liabilities 10,165,596.84 374,358.99 Other current liabilities Total current liabilities 18,785,917,021.89 15,031,253,891.70 Non-current liabilities: Long-term borrowings 501,000,000.00 167,000,000.00 Bonds payable Including: Preferred shares Perpetual bonds Long-term payables 11,631,339.65 61,538.46 Long-term payroll payable 11,440,243.54 13,361,821.86 Specific payables Provisions 1,552,310.49 6,181,865.10 Deferred income 130,861,490.43 130,049,911.87 Deferred income tax liabilities 64,138,889.89 12,636,633.40 Other non-current liabilities Total non-current liabilities 720,624,274.00 329,291,770.69 Total liabilities 19,506,541,295.89 15,360,545,662.39 Owners’ equity: Share capital 2,407,945,408.00 2,407,945,408.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 104,732,242.30 104,732,242.30 55 Konka Group Co., Ltd. Interim Report 2018 Less: Treasury shares Other comprehensive income -1,154,381.79 3,697,458.95 Specific reserve Surplus reserves 1,217,644,874.79 1,217,644,874.79 General reserve Retained earnings 4,211,831,396.96 4,260,125,492.57 Total equity attributable to owners of the Company as the 7,940,999,540.26 7,994,145,476.61 parent Non-controlling interests 686,463,040.79 204,044,330.78 Total owners’ equity 8,627,462,581.05 8,198,189,807.39 Total liabilities and owners’ equity 28,134,003,876.94 23,558,735,469.78 Legal representative: Liu Fengxi CFO: Li Chunlei Head of the financial department: Feng Junxiu 2. Balance Sheet of the Company as the Parent Unit: RMB Item 30 June 2018 31 December 2017 Current assets: Monetary assets 1,745,554,700.43 1,760,838,390.83 Financial assets at fair value through profit or loss 14,497,221.94 296,799.53 Derivative financial assets Notes receivable 2,497,170,749.31 2,864,064,309.99 Accounts receivable 4,511,624,049.28 4,732,153,992.25 Prepayments 1,646,569,512.18 1,066,260,182.37 Interest receivable 2,606,829.77 23,894,771.88 Dividends receivable 2,690,276.72 Other receivables 3,487,600,787.78 4,314,882,334.26 Inventories 1,584,221,574.12 2,090,697,937.23 Assets classified as held for sale Current portion of non-current assets 100,000,000.00 Other current assets 1,382,920,586.50 1,547,454,872.74 Total current assets 16,872,766,011.31 18,503,233,867.80 Non-current assets: Available-for-sale financial assets 562,612,236.33 562,612,236.33 Held-to-maturity investments Long-term receivables 56 Konka Group Co., Ltd. Interim Report 2018 Long-term equity investments 4,617,530,028.77 2,649,074,424.45 Investment property 213,639,992.84 216,455,629.99 Fixed assets 471,773,144.33 482,020,892.58 Construction in progress 88,654,150.01 79,927,345.88 Engineering materials Proceeds from disposal of fixed assets Productive living assets Oil and gas assets Intangible assets 90,186,303.05 91,718,400.70 R&D expense Goodwill Long-term prepaid expense 79,293,494.84 78,305,555.97 Deferred income tax assets 393,296,375.06 279,324,511.96 Other non-current assets 20,000,000.00 20,000,000.00 Total non-current assets 6,536,985,725.23 4,459,438,997.86 Total assets 23,409,751,736.54 22,962,672,865.66 Current liabilities: Short-term borrowings 5,083,795,772.39 3,269,730,888.60 Financial liabilities at fair value through profit or loss 1,827,480.43 47,482,470.50 Derivative financial liabilities Notes payable 2,960,886,821.61 2,394,426,158.76 Accounts payable 5,114,630,069.06 6,167,204,323.22 Advances from customers 246,705,278.32 601,036,147.76 Payroll payable 103,682,253.17 163,066,135.71 Taxes payable 10,460,012.97 1,070,771,570.12 Interest payable 32,598,284.85 50,336,913.53 Dividends payable Other payables 2,061,843,680.86 1,868,073,013.59 Liabilities directly associated with assets classified as held for sale Current portion of non-current liabilities Other current liabilities Total current liabilities 15,616,429,653.66 15,632,127,621.79 Non-current liabilities: Long-term borrowings 266,000,000.00 167,000,000.00 57 Konka Group Co., Ltd. Interim Report 2018 Bonds payable Including: Preferred shares Perpetual bonds Long-term payables Long-term payroll payable Specific payables Provisions 1,552,310.49 6,181,865.10 Deferred income 88,209,431.31 94,590,560.82 Deferred income tax liabilities 27,308,921.77 Other non-current liabilities Total non-current liabilities 383,070,663.57 267,772,425.92 Total liabilities 15,999,500,317.23 15,899,900,047.71 Owners’ equity: Share capital 2,407,945,408.00 2,407,945,408.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 111,525,163.22 111,525,163.22 Less: Treasury shares Other comprehensive income -1,646,283.60 -1,970,304.62 Specific reserve Surplus reserves 1,217,644,874.79 1,217,644,874.79 Retained earnings 3,674,782,256.90 3,327,627,676.56 Total owners’ equity 7,410,251,419.31 7,062,772,817.95 Total liabilities and owners’ equity 23,409,751,736.54 22,962,672,865.66 3. Consolidated Income Statement Unit: RMB Item H1 2018 H1 2017 1. Revenue 17,625,414,769.82 11,405,965,979.43 Including: Operating revenue 17,625,414,769.82 11,405,965,979.43 Interest income Premium income Handling charge and commission income 2. Operating costs and expenses 18,033,756,773.54 11,495,886,195.84 58 Konka Group Co., Ltd. Interim Report 2018 Including: Cost of sales 16,442,256,445.26 10,110,191,258.07 Interest expense Handling charge and commission expense Surrenders Net claims paid Net amount provided as insurance contract reserve Expenditure on policy dividends Reinsurance premium expense Taxes and surtaxes 27,646,574.62 34,429,592.04 Selling expense 1,103,181,074.51 974,003,306.54 Administrative expense 364,827,669.33 264,108,100.97 Finance costs 36,292,909.41 110,882,895.46 Asset impairment loss 59,552,100.41 2,271,042.76 Add: Gain on changes in fair value (“-” for loss) 59,855,412.48 -103,077,757.73 Investment income (“-” for loss) 531,758,571.71 67,005,572.06 Including: Share of profit or loss of joint ventures and 6,075,182.59 -4,574,294.19 associates Foreign exchange gain (“-” for loss) Asset disposal income (“-” for loss) 63,722,105.38 Other income 123,026,283.50 36,838,391.51 3. Operating profit (“-” for loss) 370,020,369.35 -89,154,010.57 Add: Non-operating income 27,217,492.97 123,347,108.29 Less: Non-operating expense 5,951,749.57 3,635,538.11 4. Profit before taxation (“-” for loss) 391,286,112.75 30,557,559.61 Less: Income tax expense -17,446,049.13 -3,838,772.97 5. Net profit (“-” for net loss) 408,732,161.88 34,396,332.58 5.1 Net profit from continuing operations ( “ - ” for net loss) 5.2 Net profit from discontinued operations (“-” for net loss) Net profit attributable to owners of the Company as the 341,793,039.03 30,871,267.86 parent Net profit attributable to non-controlling interests 66,939,122.85 3,525,064.72 6. Other comprehensive income, net of tax -4,400,958.71 -2,226,560.59 Attributable to owners of the Company as the parent -4,851,840.74 -2,249,706.48 59 Konka Group Co., Ltd. Interim Report 2018 6.1 Items that will not be reclassified to profit or loss 6.1.1 Changes in net liabilities or assets caused by remeasurements on defined benefit pension schemes 6.1.2 Share of other comprehensive income of investees that will not be reclassified to profit or loss under equity method 6.2 Items that may subsequently be reclassified to -4,851,840.74 -2,249,706.48 profit or loss 6.2.1 Share of other comprehensive income of investees that will be reclassified to profit or loss under equity method 6.2.2 Gain/Loss on changes in fair value of -31,342.08 -11,347,998.58 available-for-sale financial assets 6.2.3 Gain/Loss arising from reclassification of held-to-maturity investments to available-for-sale financial assets 6.2.4 Effective gain/loss on cash flow hedges 6.2.5 Differences arising from translation of foreign -4,820,498.66 9,098,292.10 currency-denominated financial statements 6.2.6 Other Attributable to non-controlling interests 450,882.03 23,145.89 7. Total comprehensive income 404,331,203.17 32,169,771.99 Attributable to owners of the Company as the parent 336,941,198.29 28,621,561.38 Attributable to non-controlling interests 67,390,004.88 3,548,210.61 8. Earnings per share 8.1 Basic earnings per share 0.1419 0.0128 8.2 Diluted earnings per share 0.1419 0.0128 Legal representative: Liu Fengxi CFO: Li Chunlei Head of the financial department: Feng Junxiu 4. Income Statement of the Company as the Parent Unit: RMB Item H1 2018 H1 2017 1. Operating revenue 6,556,568,515.30 6,272,712,644.73 Less: Cost of sales 5,958,024,932.71 5,443,839,907.56 Taxes and surtaxes 10,295,805.36 10,868,803.46 Selling expense 796,586,717.96 711,874,597.16 Administrative expense 227,760,646.63 188,310,629.91 Finance costs 146,845,768.60 127,560,085.67 60 Konka Group Co., Ltd. Interim Report 2018 Asset impairment loss 36,873,991.62 2,244,928.43 Add: Gain on changes in fair value (“-” for loss) 59,855,412.48 -63,255,380.36 Investment income (“-” for loss) 1,159,447,278.28 77,763,929.57 Including: Share of profit or loss of joint ventures 13,240,183.30 -6,495,694.18 and associates Asset disposal income (“-” for loss) 18,949.32 Other income 42,392,110.12 26,416,590.40 2. Operating profit (“-” for loss) 641,894,402.62 -171,061,167.85 Add: Non-operating income 13,874,505.45 46,954,770.89 Less: Non-operating expense 5,440,364.14 2,589,238.41 3. Profit before taxation (“-” for loss) 650,328,543.93 -126,695,635.37 Less: Income tax expense -86,913,171.05 -38,114,239.37 4. Net profit (“-” for net loss) 737,241,714.98 -88,581,396.00 4.1 Net profit from continuing operations ( “ - ” for net loss) 4.2 Net profit from discontinued operations (“-” for net loss) 5. Other comprehensive income, net of tax 324,021.02 -11,808,114.04 5.1 Items that will not be reclassified to profit or loss 5.1.1 Changes in net liabilities or assets caused by remeasurements on defined benefit pension schemes 5.1.2 Share of other comprehensive income of investees that will not be reclassified into profit or loss under equity method 5.2 Items that may subsequently be reclassified to profit 324,021.02 -11,808,114.04 or loss 5.2.1 Share of other comprehensive income of investees that will be reclassified into profit or loss under equity method 5.2.2 Gain/Loss on changes in fair value of -11,358,312.00 available-for-sale financial assets 5.2.3 Gain/Loss arising from reclassification of held-to-maturity investments to available-for-sale financial assets 5.2.4 Effective gain/loss on cash flow hedges 5.2.5 Differences arising from translation of foreign 324,021.02 -449,802.04 currency-denominated financial statements 5.2.6 Other 6. Total comprehensive income 737,565,736.00 -100,389,510.04 61 Konka Group Co., Ltd. Interim Report 2018 7. Earnings per share 7.1 Basic earnings per share 7.2 Diluted earnings per share 5. Consolidated Cash Flow Statement Unit: RMB Item H1 2018 H1 2017 1. Cash flows from operating activities: Proceeds from sale of commodities and rendering of 17,548,318,013.29 10,702,542,891.56 services Net increase in customer deposits and deposits from banks and other financial institutions Net increase in loans from central bank Net increase in loans from other financial institutions Premiums received on original insurance contracts Net proceeds from reinsurance Net increase in deposits and investments of policy holders Net increase in proceeds from disposal of financial assets at fair value through profit or loss Interest, handling charges and commissions received Net increase in interbank loans obtained Net increase in proceeds from repurchase transactions Tax rebates 234,219,656.63 153,594,635.95 Cash generated from other operating activities 1,477,259,476.38 242,504,590.42 Subtotal of cash generated from operating activities 19,259,797,146.30 11,098,642,117.93 Payments for commodities and services 16,457,966,672.41 11,531,432,202.90 Net increase in loans and advances to customers Net increase in deposits in central bank and in interbank loans granted Payments for claims on original insurance contracts Interest, handling charges and commissions paid Policy dividends paid Cash paid to and for employees 830,723,675.14 810,851,488.87 Taxes paid 1,461,811,434.09 264,698,689.66 Cash used in other operating activities 2,347,454,070.52 755,674,441.38 Subtotal of cash used in operating activities 21,097,955,852.16 13,362,656,822.81 62 Konka Group Co., Ltd. Interim Report 2018 Net cash generated from/used in operating activities -1,838,158,705.86 -2,264,014,704.88 2. Cash flows from investing activities: Proceeds from disinvestment 42,903,231.61 9,766,980.30 Investment income 72,250,837.30 78,957,443.99 Net proceeds from disposal of fixed assets, intangible 1,682,604.46 78,716,573.22 assets and other long-lived assets Net proceeds from disposal of subsidiaries or other 42,511,059.22 business units Cash generated from other investing activities 942,900,000.00 857,901,449.68 Subtotal of cash generated from investing activities 1,102,247,732.59 1,025,342,447.19 Payments for acquisition of fixed assets, intangible 140,086,476.23 124,051,006.64 assets and other long-lived assets Payments for investments 198,399,656.00 326,090,459.58 Net increase in pledged loans granted Net payments for acquisition of subsidiaries and other 232,126,165.53 business units Cash used in other investing activities 874,730,000.00 2,156,068,913.10 Subtotal of cash used in investing activities 1,445,342,297.76 2,606,210,379.32 Net cash generated from/used in investing activities -343,094,565.17 -1,580,867,932.13 3. Cash flows from financing activities: Capital contributions received 115,980,594.60 265,000.00 Including: Capital contributions by non-controlling 115,980,594.60 265,000.00 interests to subsidiaries Increase in borrowings obtained 6,725,691,416.47 5,023,816,944.90 Net proceeds from issuance of bonds Cash generated from other financing activities 1,023,076.93 444,475,802.89 Subtotal of cash generated from financing activities 6,842,695,088.00 5,468,557,747.79 Repayment of borrowings 3,377,017,426.30 1,143,869,292.69 Payments for interest and dividends 562,435,220.65 162,968,902.94 Including: Dividends paid by subsidiaries to 746,714.88 non-controlling interests Cash used in other financing activities 22,612,122.48 574,504.77 Subtotal of cash used in financing activities 3,962,064,769.43 1,307,412,700.40 Net cash generated from/used in financing activities 2,880,630,318.57 4,161,145,047.39 4. Effect of foreign exchange rate changes on cash and cash -35,288,115.64 -10,379,276.29 equivalents 5. Net increase in cash and cash equivalents 664,088,931.90 305,883,134.09 63 Konka Group Co., Ltd. Interim Report 2018 Add: Cash and cash equivalents, beginning of the period 3,097,899,703.76 2,020,902,945.13 6. Cash and cash equivalents, end of the period 3,761,988,635.66 2,326,786,079.22 6. Cash Flow Statement of the Company as the Parent Unit: RMB Item H1 2018 H1 2017 1. Cash flows from operating activities: Proceeds from sale of commodities and rendering of 8,900,547,132.50 7,169,804,450.63 services Tax rebates 80,805,268.47 45,615,145.13 Cash generated from other operating activities 1,231,787,065.42 1,557,443,931.45 Subtotal of cash generated from operating activities 10,213,139,466.39 8,772,863,527.21 Payments for commodities and services 6,889,739,101.21 6,398,479,799.13 Cash paid to and for employees 508,124,450.52 490,539,972.72 Taxes paid 1,139,215,454.64 74,454,460.84 Cash used in other operating activities 1,847,843,398.55 2,206,102,049.40 Subtotal of cash used in operating activities 10,384,922,404.92 9,169,576,282.09 Net cash generated from/used in operating activities -171,782,938.53 -396,712,754.88 2. Cash flows from investing activities: Proceeds from disinvestment 55,600,000.00 Investment income 77,823,977.16 90,904,415.99 Net proceeds from disposal of fixed assets, intangible 28,777.00 157,331.75 assets and other long-lived assets Net proceeds from disposal of subsidiaries or other business units Cash generated from other investing activities 1,115,044,083.79 857,000,000.00 Subtotal of cash generated from investing activities 1,248,496,837.95 948,061,747.74 Payments for acquisition of fixed assets, intangible 54,103,982.64 25,893,599.53 assets and other long-lived assets Payments for investments 1,222,391,400.00 361,799,598.00 Net payments for acquisition of subsidiaries and other business units Cash used in other investing activities 861,154,315.32 2,229,985,587.07 Subtotal of cash used in investing activities 2,137,649,697.96 2,617,678,784.60 Net cash generated from/used in investing activities -889,152,860.01 -1,669,617,036.86 3. Cash flows from financing activities: Capital contributions received 64 Konka Group Co., Ltd. Interim Report 2018 Increase in borrowings obtained 3,216,716,364.16 2,676,935,367.72 Net proceeds from issuance of bonds Cash generated from other financing activities 141,159,174.39 Subtotal of cash generated from financing activities 3,216,716,364.16 2,818,094,542.11 Repayment of borrowings 1,207,765,069.15 303,221,456.06 Payments for interest and dividends 552,129,671.31 155,399,679.20 Cash used in other financing activities 335,984,291.92 574,504.77 Sub-total of cash used in financing activities 2,095,879,032.38 459,195,640.03 Net cash generated from/used in financing activities 1,120,837,331.78 2,358,898,902.08 4. Effect of foreign exchange rate changes on cash and cash -75,185,223.64 2,847,903.92 equivalents 5. Net increase in cash and cash equivalents -15,283,690.40 295,417,014.26 Add: Cash and cash equivalents, beginning of the period 1,743,269,944.67 973,613,753.40 6. Cash and cash equivalents, end of the period 1,727,986,254.27 1,269,030,767.66 65 Konka Group Co., Ltd. Interim Report 2018 7. Consolidated Statements of Changes in Owners’ Equity H1 2018 Unit: RMB H1 2018 Equity attributable to owners of the Company as the parent Other equity instruments Item Other Non-controlling Less: Treasury Specific General Total owners’ equity Share capital Capital reserves comprehensive Surplus reserves Retained earnings interests Preferred Perpetual shares reserve reserve Other income shares bonds 1. Balances as of end of prior year 2,407,945,408.00 104,732,242.30 3,697,458.95 1,217,644,874.79 4,260,125,492.57 204,044,330.78 8,198,189,807.39 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Adjustments for business combinations under common control Other adjustments 2. Balances as of beginning of the year 2,407,945,408.00 104,732,242.30 3,697,458.95 1,217,644,874.79 4,260,125,492.57 204,044,330.78 8,198,189,807.39 3. Increase/ decrease in the period ( “ - ” for -4,851,840.74 -48,294,095.61 482,418,710.01 429,272,773.66 decrease) comprehensive income 3.1 Total -4,851,840.74 341,793,039.03 67,390,004.88 404,331,203.17 3.2 Capital increased and reduced by owners 415,028,705.13 415,028,705.13 3.2.1 Ordinary shares increased by 415,028,705.13 415,028,705.13 shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit distribution -390,087,134.64 -390,087,134.64 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to general reserve 66 Konka Group Co., Ltd. Interim Report 2018 3.3.3 Appropriation to owners (or -390,087,134.64 -390,087,134.64 shareholders) 3.3.4 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 4. Balances as of end of the period 2,407,945,408.00 104,732,242.30 -1,154,381.79 1,217,644,874.79 4,211,831,396.96 686,463,040.79 8,627,462,581.05 H1 2017 Unit: RMB H1 2017 Equity attributable to owners of the Company as the parent Other equity instruments Less: Other Item Non-controlling Specific General Total owners’ equity Share capital Capital reserves Treasury comprehensive Surplus reserves Retained earnings interests Preferred Perpetual reserve reserve Other shares income shares bonds 1. Balances as of end of prior year 2,407,945,408.00 79,723,092.04 -6,932,104.65 847,908,466.28 -427,163,254.63 417,017,287.63 3,318,498,894.67 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Adjustments for business combinations under common control Other adjustments 2. Balances as of beginning of the year 2,407,945,408.00 79,723,092.04 -6,932,104.65 847,908,466.28 -427,163,254.63 417,017,287.63 3,318,498,894.67 3. Increase/ decrease in the period (“-” for decrease) 25,009,150.26 10,629,563.60 369,736,408.51 4,687,288,747.20 -212,972,956.85 4,879,690,912.72 67 Konka Group Co., Ltd. Interim Report 2018 3.1 Total comprehensive income 10,629,563.60 5,057,025,155.71 29,636,931.01 5,097,291,650.32 3.2 Capital increased and reduced by owners -241,190,603.80 -241,190,603.80 3.2.1 Ordinary shares increased by shareholders -235,037,235.08 -235,037,235.08 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other -6,153,368.72 -6,153,368.72 3.3 Profit distribution 369,736,408.51 -369,736,408.51 -1,419,284.06 -1,419,284.06 3.3.1 Appropriation to surplus reserves 369,736,408.51 -369,736,408.51 3.3.2 Appropriation to general reserve 3.3.3 Appropriation to owners (or shareholders) -1,419,284.06 -1,419,284.06 3.3.4 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 25,009,150.26 25,009,150.26 4. Balances as of end of the period 2,407,945,408.00 104,732,242.30 3,697,458.95 1,217,644,874.79 4,260,125,492.57 204,044,330.78 8,198,189,807.39 8. Statements of Changes in Owners’ Equity of the Company as the Parent H1 2018 Unit: RMB H1 2018 Item Other equity instruments Less: Treasury Other Specific Share capital Capital reserves Surplus reserves Retained earnings Total owners’ equity Preferred Perpetual Other shares comprehensive reserve 1. Balances as of end of prior year 2,407,945,408.00 111,525,163.22 -1,970,304.62 1,217,644,874.79 3,327,627,676.56 7,062,772,817.95 68 Konka Group Co., Ltd. Interim Report 2018 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Other adjustments 2. Balances as of beginning of the year 2,407,945,408.00 111,525,163.22 -1,970,304.62 1,217,644,874.79 3,327,627,676.56 7,062,772,817.95 3. Increase/ decrease in the period (“-” for decrease) 324,021.02 347,154,580.34 347,478,601.36 3.1 Total comprehensive income 324,021.02 737,241,714.98 737,565,736.00 3.2 Capital increased and reduced by owners 3.2.1 Ordinary shares increased by shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit distribution -390,087,134.64 -390,087,134.64 3.3.1 Appropriation to surplus reserves 3.3.2 Appropriation to owners (or shareholders) -390,087,134.64 -390,087,134.64 3.3.3 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 4. Balances as of end of the period 2,407,945,408.00 111,525,163.22 -1,646,283.60 1,217,644,874.79 3,674,782,256.90 7,410,251,419.31 H1 2017 Unit: RMB H1 2017 Item Other equity instruments Less: Other Specific Share capital Capital reserves Surplus reserves Retained earnings Total owners’ equity Preferred Perpetual Other Treasury comprehensive reserve 1. Balances as of end of prior year 2,407,945,408.00 64,794,108.39 6,714,437.62 847,908,466.28 -589,696,203.91 2,737,666,216.38 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors 69 Konka Group Co., Ltd. Interim Report 2018 Other adjustments 7,350,000.00 -25,347,306.92 -17,997,306.92 2. Balances as of beginning of the year 2,407,945,408.00 72,144,108.39 6,714,437.62 847,908,466.28 -615,043,510.83 2,719,668,909.46 3. Increase/ decrease in the period (“-” for decrease) 39,381,054.83 -8,684,742.24 369,736,408.51 3,942,671,187.39 4,343,103,908.49 3.1 Total comprehensive income -8,684,742.24 4,312,407,595.90 4,303,722,853.66 3.2 Capital increased and reduced by owners 3.2.1 Ordinary shares increased by shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 3.3 Profit distribution 369,736,408.51 -369,736,408.51 3.3.1 Appropriation to surplus reserves 369,736,408.51 -369,736,408.51 3.3.2 Appropriation to owners (or shareholders) 3.3.3 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 39,381,054.83 39,381,054.83 4. Balances as of end of the period 2,407,945,408.00 111,525,163.22 -1,970,304.62 1,217,644,874.79 3,327,627,676.56 7,062,772,817.95 70 Konka Group Co., Ltd. Interim Report 2018 Konka Group Co., Ltd. Notes to Financial Statements for H1 2018 (All amounts are expressed, unless otherwise stated, in Renminbi (RMB).) I. Company Profile 1. Establishment Konka Group Co., Ltd. (hereinafter referred to as “ Company ” or “ the Company ” ), is a joint-stock limited company reorganized from the former Shenzhen Konka Electronic Co., Ltd. in August 1991 upon approval of the People’s Government of Shenzhen Municipality, and has its ordinary shares (A-share and B-share) listed on Shenzhen Stock Exchange with prior consent from the People’s Bank of China Shenzhen Special Economic Zone Branch. On 29 August 1995, the Company was renamed to “Konka Group Co., Ltd.” (Credibility code: 914403006188155783) with its main business falling into electronic industry. And now the headquarters locates in No. 28 of No. 12 of Keji South Rd., Science & Technology Park, Yuehai Street, Nanshan District, Shenzhen, Guangdong Province. 2. Share Capital Changes upon Establishment On 27 November 1991, with approval from the SRYFZ No. 102 [1991] document as issued by the People’s Bank of China Shenzhen Special Economic Zone Branch, Shenzhen Konka Electronic Co., Ltd., during 8 December 1991—31 December 1991, has issued 128,869,000 RMB ordinary shares (A-share) at a par value of RMB1.00 per share, of which the original net assets were converted into 98,719,000 state-owned institutional shares, 30,150,000 new shares were issued, including 26,500,000 circulating shares issued to the public and 3,650,000 staff shares issued to the staff of the Company. On 29 January 1992, with approval from the SRYFZ No. 106 [1991] document as issued by the People ’ s Bank of China Shenzhen Special Economic Zone Branch, Shenzhen Konka Electronic Co., Ltd., during 20 December 1991— 31 January 1992, has issued to investors abroad 58,372,300 RMB special shares (B-share) at a par value of RMB1.00 per share, of which 48,372,300 shares held by the former foreign investor and founder — Hong Kong Ganghua Electronic Group Co., Ltd. are converted into foreign legal person ’s shares, and 10,000,000 B-shares are issued additionally. On 10 April 1993, the Proposal on Profit Distribution and Dividend Payout 1992 was adopted at the second general meeting of shareholders of the Company. With approval from the SZBF No. 2 [1993] document as issued by Shenzhen Securities Regulatory Office, the Company began to perform dividend policy for FY 1992 as of 30 April 1993: distributing 71 Konka Group Co., Ltd. Interim Report 2018 RMB 0.90 in cash plus 3.5 bonus shares for every 10 shares to all shareholders. The total capital stock reached 187,473,150 shares after this distribution. On 18 April 1994, the Proposal on Profit Distribution and Dividend Payout 1993 was adopted at the third general meeting of shareholders of the Company. With approval from the SZBF No. 115 [1994] document as issued by Shenzhen Securities Regulatory Office, the Company began to perform dividend policy for FY1993 as of 10 June 1994: distributing RMB 1.10 in cash plus 5 bonus shares (including 4.4 profit bonus shares and 0.6 bonus share capitalized from capital public reserve) for every 10 shares to all shareholders. The total capital stock reached 281,209,724 shares after this distribution and capitalization from capital public reserve. On 2 June 1994, in accordance with the provisions that “staff shares could go public and be transferred six months after listing ” , as jointly promulgated by the State Commission for Restructuring the Economic System and the State Council’s Securities Commission, the staff shares of the Company was planned to be listed on the flow on 6 June 1994, with the prior consent of Shenzhen Securities Regulatory Office and Shenzhen Stock Exchange. On 8 October 1994, the Proposal on Negotiable Bonus Shares of B-Share Corporate Shareholders 1992 was adopted at the interim general meeting of shareholders of the Company. With approval from the SZBF No. 224 [1994] document as issued by Shenzhen Securities Regulatory Office, the 16,930,305.00 bonus shares for FY 1992 granted to foreign legal persons were listed and negotiated at B-share market on 26 October 1994. On 6 February 1996, the Proposal on Share Allotment Modes 1996 was adopted at the interim general metering of shareholders of the Company. With approval from the SZBF No. 5 [1996] document as issued by Shenzhen Securities Regulatory Office, and re-examination from the ZJPSZ No. 16 [1996] document and ZJGZ No. 2 [1996] document as issued by China Securities Regulatory Commission, on 16 July 1996 and 29 October 1996, all shareholders were respectively allotted three shares for every ten existing shares held at RMB6.28/A-share and HKD5.85/B-share. Corporate shareholders took their respective existing shares as bases for full subscription of the allocable shares. The total capital stock reached 365,572,641.00 shares after this allotment. On 25 January 1998, the Plan on Share Allotment 1998 was adopted at the interim general meeting of shareholders of the Company. With approval from the ZZBZ No. 29 [1998] document as issued by Shenzhen Securities Regulatory Office, and ZJSZ No.64 [1998] document as issued by China Securities Regulatory Commission, on 15 July 1998, negotiable 72 Konka Group Co., Ltd. Interim Report 2018 A-shares were allotted in proportion of 3:10 at RMB10.50/A-share. For such reasons as continued weakness in B-share secondary market (lower than share allotment price), B-share negotiation and allotment plan was cancelled, and the corporate shareholders of the Company waived the preemptive right. The total capital stock reached 389,383,603 shares after this allotment. On 30 June 1999, the Proposal on Profit Distribution and Capitalization from Capital Public Reserve 1998 was adopted at the eighth general meeting of shareholders of the Company. On 20 August 1999, the profit distribution for FY 1998 was carried out: all shareholders were presented RMB3.00 in cash for every 10 shares, plus 2 shares capitalized from capital public reserve. The total capital stock reached 467,260,323.00 shares after this capitalization. On 30 June 1999, the Plan on A-Share Issue for Capital Increase was adopted at the eighth general meeting of shareholders of the Company. With approval from the ZJFXZ No.140 [1999] document as issued by China Securities Regulatory Commission, on 1 November 1999, 80,000,000.00 A-shares were additionally issued to the public at RMB15.50/share. The total capital stock reached 547,260,323.00 shares after this additional issue. On 30 May 2000, the Plan on Profit Distribution and Dividend Payout 1999 was adopted at the ninth general meeting of shareholders of the Company. On 25 July 2000, the profit distribution for FY 1999 was carried out: all shareholders were distributed RMB4.00 in cash plus 1 bonus shares for every 10 shares. The total capital stock reached 601,986,352.00 shares after this distribution. On 26 May 2008, the 2017 general meeting of shareholders s was convened, during which the following resolutions were discussed and adopted: based on the total capital stock of 601,986,352.00 shares for the year ended 31 December 2007, capitalization from capital public reserve was made to all shareholders at a proportion of 1:1, namely 10 new shares for every 10 existing shares. On 16 December 2008, with approval from the SMGZF No. 2662 [2008] document as issued by Shenzhen Bureau of Trade and Industry, the Company was agreed to increase its share capital, and went through the formalities for registration of changes with the administration for industry and commerce on 10 April 2009. The total capital stock reached 1,203,972,704.00 shares after change. According to the regulations of the 2015 1st Extraordinary General Meeting and the revised articles of the Company, the Company applied to increase the registered capital of RMB1,203,972,704.00, which totally turned into capital reserve with the altered registered capital of RMB2,407,945,408.00 and managed the industrial and commercial alternation 73 Konka Group Co., Ltd. Interim Report 2018 registration on 28 January 2016 with the altered share capital of 2,407,945,408.00 shares. 3. Approved business scope: research and development, production and operation of such intelligent household electric appliances as televisions, refrigerators, washing machines, and personal electronic appliances, and kitchen and bathroom electronic appliances; manufacturing and application of home AV, IPTV set-top boxes, OTT terminal products, digital TV receivers (including ground receiving equipment of satellite television broadcasting), digital products, intelligent wearable products, intelligent health products, intelligent electric products, intelligent switch plug, power bank, mobile communication equipments and terminal products, daily-use electronic products, automotive electronic products, satellite navigation systems, intelligent transportation systems, fire-fighting and security systems, office equipments, computers, displays, large screen display systems; LED (OLED) back light, illumination, light-emitting devices, and packaging thereof; Touch TV AIO, wireless broadcasting television transiting equipment; emergency broadcast system equipment, electronic parts and components, moulds, plastic and rubber products, and packing materials, design and in-door installation security products, monitoring products, wireless and cable digital television system and system integration, and technical consultancy and after-sale paid services of related products (except mobile phone, the other products in the above business scope are manufactured in other places outside Shenzhen); Wholesale, retail, import & export and relevant support services of the aforesaid products (including spare parts) (Commodities subject to state trading management are not involved. Products involved in quota, license management and other specified management shall be subject to the relevant state provisions.); sale of self-developed technological achievements; provision of maintenance services, technical consultant service for electronic products; ordinary cargo transportation, domestic freight forwarding, international freight forwarding, and warehousing services; management of supply chain, consultancy on enterprise management; and self-owned property leasing and management services, recovery of waste electrical appliances and electronic products (excluding dissembling) (operated by branch offices); and outsourcing services of information technology and business procedures by means of undertaking services in the way of outsourcing, including management and maintenance of system application, management of information technology, bank background service, financial settlement, human resource service, software development, call centre, and data processing. Import & export business: domestic trade; international trade (excluding monopoly, exclusive control, and monopolized commodities); selling security products, intelligent household products, door lock, and hardware; doing various business entrusted by (Mobile, Unicom, Telecom, and BC&TV) 74 Konka Group Co., Ltd. Interim Report 2018 4. The Company and its subsidiaries are mainly engaged in the production and sales of colour TVs, white goods, mobile phones, etc.; trade business; environmental protection business; real estate development and marketing; commercial factoring, and etc. 5. The financial statements contained herein have been approved for issue by the Board of Directors of the Company on 29 August 2018. 6. There were 77 subsidiaries included in the consolidation scope of 2018 of the Company, and please refer to the Notes VIII. “Equities among other entities” for details. There were 33 subsidiaries increased and 1 decreased in the consolidation scope of the Reporting Period over the last period of the Company, for details, see the Notes VII. “ Changes of the consolidation scope”. 7. A check list of corporate names and their abbreviations mentioned in this Report Corporate name Abbreviation Shenzhen Konka Telecommunications Technology Co., Ltd. Telecommunication Technology Shenzhen Konka Electrical Appliances Co., Ltd. Konka Electrical Appliances Shenzhen Konka Plastic Products Co., Ltd. Plastic Products Shenzhen Konka Electrical Appliances Co., Ltd. Electrical Appliances Shenzhen Konka Electronic Fittings Technology Co., Ltd. Fittings Technology Mudanjiang Arctic Ocean Appliances Co., Ltd. Mudanjiang Appliances Chongqing Qingjia Electronics Co., Ltd. Chongqing Qingjia Anhui Konka Electronic Co., Ltd. Anhui Konka Dongguan Konka Electronic Co., Ltd. Dongguan Konka Dongguan Konka Packing Materials Co., Ltd. Dongguan Packing Boluo Konka PCB Co., Ltd. Boluo Konka Boluo Konka Precision Technology Co., Ltd. Boluo Konka Precision Hong Kong Konka Co., Ltd. Hong Kong Konka Konka Household Appliances Konka Household Appliances Investment & Development Co., Ltd. Investment Konka Household Appliances Konka Household Appliances International Trading Co., Ltd. International Trading Konka (Europe) Co., Ltd. Konka Europe 75 Konka Group Co., Ltd. Interim Report 2018 Corporate name Abbreviation Konka Factoring (Shenzhen) Co., Ltd. Konka Factoring Shenzhen Wankaida Science and Technology Co., Ltd. Wankaida Kunshan Kangsheng Investment Development Co., Ltd. Kunshan Kangsheng Anhui Konka Tongchuang Household Appliances Co., Ltd. Anhui Tongchuang Shenzhen Shushida Logistics Service Co., Ltd. Shushida Logistics Beijing Konka Electronic Co., Ltd. Beijing Konka Electronic Shenzhen Konka E-display Co., Ltd. Konka E-display Shenzhen E-display Service Co., Ltd. E-display Service Xiamen Dalong Trading Co., Ltd. Xiamen Dalong Youshi Kangrong Culture Communication Co., Ltd. Youshi Kangrong Konka SmartTech Limited Konka SmartTech Anhui Kaikai Shijie E-commerce Co., Ltd. Kaikai Shijie Shenzhen E2info Network Technology Co., Ltd. E2info Shenzhen Konka Mobile Interconnection Technology Co., Ltd. Mobile Interconnection Shenzhen Konka Commercial System Technology Co., Ltd. Commercial System Technology Chain Kingdom Co., Limited Chain Kingdom Shenzhen Kangqiao Easy Chain Technology Co., Ltd. Kangqiao Easy Chain E3info (Hainan) Technology Co., Ltd. E3info Chuzhou Konka Technology & Industry Development Co., Ltd. Chuzhou Konka TID Konka Ventures Development (Shenzhen) Co., Ltd. Konka Ventures Shenzhen Konka Pengrun Technology & Industry Co., Ltd. Konka Pengrun Shenzhen Konka Unifortune Supply Chain Management Co., Ltd. Konka Unifortune Shenzhen Konka Investment Holding Co., Ltd. Konka Investment Anhui Kangzhi Trade Co., Ltd. Kangzhi Trade Hainan Konka Material Technology Co., Ltd. Konka Material Tianjin Konka Leasing Co., Ltd. Konka Leasing Yantai Konka Healthcare Enterprise Service Co., Ltd. Yantai Konka Shenzhen Konka Capital Equity Investment Management Co., Ltd. Konka Capital 76 Konka Group Co., Ltd. Interim Report 2018 Corporate name Abbreviation Chain Kingdom (Shenzhen) Co., Ltd. Chain Kingdom Shenzhen Shenzhen Konka Electronics Technology Co., Ltd. Electronics Technology Sichuan Konka Smart terminal Technology Co., Ltd Sichuan Konka Jiaxin Technology Co., Ltd. Jiaxin Technology Kangjietong (Hong Kong) Limited Kangjietong Sichuan Kangjiatong Supply Chain Management Co., Ltd. Sichuan Kangjiatong Konka Huanjia (Dalian) Environmental Technology Co., Ltd. Konka Huanjia Chengdu Konka Incubator Management Co., Ltd. Chengdu Konka Yibin Konka Technology Park Operation Co., Ltd. Yibin Konka Konka Suiyong Investment (Shenzhen) Co., Ltd. Konka Suiyong Anhui Konka Electrical Appliance Technology Co., Ltd. Electrical Appliance Technology Jiali International (Hong Kong) Limited Jiali International GuangDong XingDa HongYe Electronic Co., Ltd. XingDa HongYe Shanghai Xinfeng Zhuoqun PCB Co., Ltd. Xinfeng Zhuoqun Zhongshan Zewei Kechuang Investment Management Co., Ltd. Zewei Kechuang Shandong Econ Technology Co., Ltd. Econ Technology Beijing Econ Runfeng Technology Co., Ltd. Beijing Econ Shanghai Jiyi Environmental Technology Co., Ltd. Shanghai Jiyi Binzhou Econ Zhongke Environmental Technology Co., Ltd. Binzhou Econ Laizhou Lairun Holdings Co., Ltd. Lairun Holdings Econ Environmental Engineering Co., Ltd. Econ Environmental Engineering Rushan Yike Water Treatment Co., Ltd. Rushan Yike Binzhou Weiyijie Environmental Technology Co., Ltd. Binzhou Weiyijie Yantai Chunzhiran Environmental Technology Co., Ltd. Yantai Chunzhiran Rushan Econ Beike Technology Incubator Co., Ltd. Rushan Econ Fujian Econ Changrun Environmental Protection Co., Ltd. Fujian Econ Laizhou Lairun Huayang Heating Co., Ltd. Lairun Huayang Laizhou Lairun Heating Co., Ltd. Lairun Heating Laizhou Lairun Green Energy Co., Ltd. Lairun Green Energy Binzhou Beihai Jingmai Industrial Development Co., Ltd. Beihai Jingmai Yantai Huanhai Xinze Enterprise Management Co., Ltd. Huanhai Xinze Binzhou Weinengda Transport Co., Ltd. Binzhou Weinengda Laizhou Binhai Sewage Treatment Co., Ltd. Binhai Sewage Treatment 77 Konka Group Co., Ltd. Interim Report 2018 Corporate name Abbreviation Laizhou Lairun Environmental Protection Co., Ltd. Lairun Environmental Protection II. Basis for the Preparation of Financial Statements With the going-concern assumption as the basis and based on transactions and other events that actually occurred, the Group prepared financial statements in accordance with The Accounting Standards for Business Enterprises — Basic Standard issued by the Ministry of Finance with Decree No. 33 and revised with Decree No. 76, the 42 specific accounting standards, the Application Guidance of Accounting Standards for Business Enterprises, the Interpretation of Accounting Standards for Business Enterprises and other regulations issued and revised from February15, 2006 onwards (hereinafter jointly referred to as the Accounting Standards for Business Enterprises, China Accounting Standards or “CAS”), as well as the Rules for Preparation Convention of Disclosure of Public Offering Companies No.15 – General Regulations for Financial Reporting (revised in 2014) by China Securities Regulatory Commission. In accordance with relevant provisions of the Accounting Standards for Business Enterprises, the Group adopted the accrual basis in accounting. Except for some financial instruments and investment properties, the financial statements are based on historic costs to measure. Non-current assets held for sale is priced by the lower amount between the amounts that fair value minus estimated amount and the original book value that meets the held for sale requirement. Where impairment occurred on an asset, an impairment reserve was withdrawn accordingly pursuant to relevant requirements. III. Statement of Compliance with the Accounting Standards for Business Enterprises The financial statements prepared by the Group are in compliance with in compliance with the Accounting Standards for Business Enterprises, which factually and completely present the Company’s financial positions as at 30 June 2018, business results and cash flows for the first half year of 2018, and other relevant information. In addition, the Company ’s and the Group ’s financial statements meet the requirements of disclosing financial statements and notes thereto stated in the Rules for Preparation Convention of Disclosure of Public Offering Companies No.15 – General Regulations for Financial Reporting (revised in 2014) by China Securities Regulatory Commission. 78 Konka Group Co., Ltd. Interim Report 2018 IV. Important Accounting Policies and Estimations The Company and its subsidiaries formulated certain specific accounting policies and accounting estimates according to the actual production and operation characteristics and the regulations of the relevant ASBE on the transactions and events of the revenues recognition. For the details, please refer to each description of Notes IV. 23 “Revenues”. For the notes of the significant accounting judgment and estimations made by the management layer, please refer to Notes IV. 29 “Significant accounting judgment and estimations”. 1. Fiscal Period The Group ’s fiscal periods include fiscal years and fiscal periods shorter than a complete fiscal year. The Group ’s fiscal year starts on January 1 and ends on December 31 of every year according to the Gregorian calendar. 2. Operating Cycle A normal operating cycle refers to a period from the Group purchasing assets for processing to realizing cash or cash equivalents. An operating cycle for the Group is 12 months, which is also the classification criterion for the liquidity of its assets and liabilities. 3. Recording Currency Renminbi is the dominant currency used in the economic circumstances where the Group and its domestic subsidiaries are involved. Therefore, the Group and its domestic subsidiaries use Renminbi as their bookkeeping base currency.The Company and its overseas subsidiary-European Konka use Euro as their bookkeeping base currency according to their currency used in the economic circumstances. Subsidiaries such as Hong Kong Konka, Konka Household Appliances Investment, Konka Household Appliances International Trading, Konka Zhisheng, Chain Kingdom, Kangjietong, and Jiaxin Technology and Jiali International use HK Dollar as their recording currency. And the Group adopted Renminbi as the bookkeeping base currency when preparing the financial statements for the Reporting Year. 4. Accounting Treatment Methods for Business Combinations under the Same Control or not under the Same Control Business combinations, it is refer to two or more separate enterprises merge to form a 79 Konka Group Co., Ltd. Interim Report 2018 reporting entity transactions or events. Business combination is divided into under the same control and those non under the same control. (1) Business combinations under the same control A business combination under the same control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or the same parties both before and after the business combination and on which the control is not temporary. In a business combination under the same control, the party which obtains control of other combining enterprise(s) on the combining date is the combining party, the other combining enterprise(s) is (are) the combined party. The “combining date” refers to the date on which the combining party actually obtains control on the combined party. The assets and liabilities that the combining party obtains in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it (or the total par value of the shares issued), the additional paid-in capital (share premium) shall be adjusted. If the additional paid-in capital (share premium) is not sufficient to be offset, the retained earnings shall be adjusted. The direct cost for the business combination of the combining party shall be recorded into the profits and losses at the current period. (2) Business combinations not under the same control A business combination not under the same control is a business combination in which the combining enterprises are not ultimately controlled by the same party or the same parties both before and after the business combination. In a business combination not under the same control, the party which obtains the control on other combining enterprise(s) on the purchase date is the acquirer, and other combining enterprise(s) is (are) the acquiree. For a business combination not under the same control, the combination costs shall include the fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the equity securities issued by the acquirer in exchange for the control on the acquiree, the expenses for audit, legal services and assessment, and other administrative expenses, which are recorded into the profits and losses in the current period. The trading expenses for 80 Konka Group Co., Ltd. Interim Report 2018 the equity securities or debt securities issued by the acquirer as the combination consideration shall be recorded into the amount of initial measurement of the equity securities or debt securities. The involved contingent consideration shall be recorded into the combination costs at its fair value on the acquiring date. Where new or further evidences emerge, within 12 months since the acquiring date, against the existing circumstances on the acquiring date and the contingent consideration thus needs to be adjusted, the combined goodwill shall be adjusted accordingly. The combination costs of the acquirer and the identifiable net assets obtained by it in the combination shall be measured according to their fair values at the acquiring date. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. Where the combination costs are less then the fair value of the identifiable net assets it obtains from the acquiree, the acquirer shall re-examine the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquiree as well as the combination costs. If, after the re-examination, the combination costs are still less than the fair value of the identifiable net assets it obtains from the acquiree, the acquirer shall record the balance into the profits and losses of the current period. As for the deductible temporary differences the acquirer obtains from the acquiree which are not recognized into deferred income tax liabilities due to their not meeting the recognition standards, if new or further information shows that the relevant situation has existed on the acquiring date and the economic benefits brought by the deductible temporary differences the acquirer obtains from the acquiree on the acquiring date can be realized, they shall be recognized into deferred income tax assets and the relevant goodwill shall be reduced. Where the goodwill is not sufficient to be offset, the difference shall be recognized into the profits and losses in the current period. In other circumstances than the above, where the deductible temporary differences are recognized into deferred income tax assets on the acquiring date, they shall be recorded into the profits and losses in the current period. In a business combination not under same control realized by two or more transactions of exchange, according to about the No. 5 Notice about the Treasury Issuing the Accounting Standards for Enterprises (Finance accounting) [2012] No. 19 and the Article 51 of Accounting Standards for Enterprises No. 33—Consolidated Financial Statements Criterion about the “package deal” (see Note IV, 5 (2)), Whether the deals are “package deal” or not, 81 Konka Group Co., Ltd. Interim Report 2018 belong to the “package deal”, see the previous paragraphs described in this section and Note IV, 13 “long term equity investment” and conduct accounting treatment, those not belong to the “ package deal ” distinguish between the individual financial statements and the consolidated financial statements and conduct relevant accounting treatment. In the individual financial statements, the sum of the book value and new investment cost of the Group holds in the acquiree before the acquiring date shall be considered as initial cost of the investment. Other related comprehensive gains in relation to the equity interests that the Group holds in the acquiree before the acquiring date shall be treated on the same basis as the acquiree directly disposes the related assets or liabilities when disposing the investment (that is, except for the corresponding share in the changes in the net liabilities or assets with a defined benefit plan measured at the equity method arising from the acquiree ’ s re-measurement, the others shall be transferred into current investment gains). In the Group ’ s consolidated financial statements, as for the equity interests that the Group holds in the acquiree before the acquiring date, they shall be re-measured according to their fair values at the acquiring date; the positive difference between their fair values and carrying amounts shall be recorded into the investment gains for the period including the acquiring date. Other related comprehensive gains in relation to the equity interests that the Group holds in the acquiree before the acquiring date shall be treated on the same basis as the acquiree directly disposes the related assets or liabilities when disposing the investment (that is, except for the corresponding share in the changes in the net liabilities or assets with a defined benefit plan measured at the equity method arising from the acquiree ’ s re-measurement, the others shall be transferred into current investment gains on the acquiring date). 5. Methods for Preparing Consolidated Financial Statements (1) Principle for determining the consolidation scope The consolidation scope for financial statements is determined on the basis of control. The term “control” is the power of the Group upon an investee, with which it can take part in relevant activities of the investee to obtain variable returns and is able to influence the amount of returns. The scope of consolidation includes the Company and its all subsidiaries. A subsidiary is an enterprise or entity controlled by the Group. Once any changes in the relevant facts or situations resulted in any changes in the elements 82 Konka Group Co., Ltd. Interim Report 2018 involved in the aforesaid definition of “ control ” , the Company shall carry out a reassessment. (2) Methods for preparing the consolidated financial statements Subsidiaries are fully consolidated from the date on which the Group obtains control on their net assets and operation decision-making and are de-consolidated from the date when such control ceases. As for a disposed subsidiary, its operating results and cash flows before the disposal date has been appropriately included in the consolidated income statement and cash flow statement; and as for subsidiaries disposed in the current period, the opening items in the consolidated balance sheet are not adjusted. For a subsidiary acquired in a business combination not under the same control, its operating results and cash flows after the acquiring date have been appropriately included in the consolidated income statement and cash flow statement, and the opening items and comparative items in the consolidated financial statements are not adjusted. For a subsidiary acquired in a business combination under the same control or a combined party obtained in a takeover, its operating results and cash flows from the beginning of the Reporting Period of the combination to the combination date have been appropriately included in the consolidated income statement and cash flow statement, and the comparative items in the consolidated financial statements are adjusted at the same time. The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Group during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Group and subsidiaries. For a subsidiary acquired from a business combination not under the same control, the individual financial statements of the subsidiary are adjusted based on the fair value of the identifiable net assets at the acquisition date. All significant inter-group balances, transactions and unrealized profits are offset in the consolidated financial statements. The portion of a subsidiary ’ s shareholders ’ equity and the portion of a subsidiary ’ s net profits and losses for the period not held by the Group are recognized as minority interests and minority shareholder profits and losses respectively and presented separately under shareholders’ equity and net profits in the consolidation financial statements. The portion of a subsidiary ’ s net profits and losses for the period that belong to minority interests is 83 Konka Group Co., Ltd. Interim Report 2018 presented as the item of “minority shareholder profits and losses” under the bigger item of net profits in the consolidated financial statements. Where the loss of a subsidiary shared by minority shareholders exceeds the portion enjoyed by minority shareholders in the subsidiary’s opening owners’ equity, minority interests are offset. Where the Group losses control on its original subsidiaries due to disposal of some equity investments or other reasons, the residual equity interests are re-measured according to the fair value on the date when such control ceases. The summation of the consideration obtained from the disposal of equity interests and the fair value of the residual equity interests, minus the portion in the original subsidiary ’s net assets measured on a continuous basis from the acquisition date that is enjoyable by the Group according to the original shareholding percentage in the subsidiary, is recorded in investment gains for the period when the Group’s control on the subsidiary ceases. Other comprehensive incomes in relation to the equity investment in the original subsidiary are treated on the same accounting basis as the acquiree directly disposes the relevant assets or liabilities (that is, except for the changes in the net liabilities or assets with a defined benefit plan resulted from re-measurement of the original subsidiary, the rest shall all be transferred into current investment gains) when such control ceases. And subsequent measurement is conducted on the residual equity interests according to the No. 2 Accounting Standard for Business Enterprises —Long-term Equity Investments or the No. 22 Accounting Standard for Business Enterprises—Recognition and Measurement of Financial Instruments. For details, see Note IV. 13 “long term equity investment” or Note IV. 9 “financial instruments”. Where the Group losses control on its original subsidiaries due to step by step disposal of equity investments through multiple transactions, it need to distinguish the Group losses control on its subsidiaries due to disposal of equity investments whether belongs to a package deal. All the transaction terms, conditions and economic impact of the disposal of subsidiaries ’ equity investment are in accordance with one or more of the following conditions, which usually indicate the multiple transactions, should be considered as a package deal for accounting treatment. ① These deals are at the same time or under the condition of considering the influence of each other to concluded; ② These transactions only be as a whole can achieve a complete business result; ③ The occurrence of a deal depends on at least one other transactions ; ④ A deal alone is not economical, it is economical with other trading together. Those not belong to a package deal, each of them a deal depends on circumstances respectively conduct accounting treatment in accordance with 84 Konka Group Co., Ltd. Interim Report 2018 the applicable principles of “ part disposal of subsidiaries of a long-term equity investment under the condition of not losing control on its subsidiaries” (see Note IV. 13. (2) ④) and “Where the Group losses control on its original subsidiaries due to disposal of some equity investments or other reasons ” (See the front paragraph) relevant transactions of the Group losses control on its subsidiaries due to disposal of equity investments belonging to a package deal, considered as a transaction and conduct accounting treatment. However, Before losing control, every disposal cost and corresponding net assets balance of subsidiary of disposal investment are confirmed as other comprehensive income in consolidated financial statements, which together transferred into the current profits and losses in the loss of control , when the Group losing control on its subsidiary. 6. Classification of Joint Arrangements and Accounting Treatment of Joint Operations A joint arrangement refers to an arrangement jointly controlled by two participants or above. The Group classifies joint arrangements into joint operations and joint ventures according to its rights and duties in the joint arrangements. A joint operation refers to a joint arrangement where the Group enjoys assets and has to bear liabilities related to the arrangement. A joint venture refers to a joint arrangement where the Group is only entitled to the net assets of the arrangement. The Group ’ s investments in joint ventures are measured at the equity method according to the accounting policies mentioned in Note IV. 13 (2) ② “ Long-term equity investments measured at the equity method”. For a joint operation, the Group, as a joint operator, recognizes the assets and liabilities that it holds and bears in the joint operation, and recognizes the jointly-held assets and jointly-borne liabilities according to the Group’s stake in the joint operation; recognizes the income from sale of the Group’s share in the output of the joint operation; recognizes the income from sale of the joint operation ’ s outputs according to the Group ’ s stake in it; and recognizes the expense solely incurred to the Group and the expense incurred to the joint operation according to the Group’s stake in it. When the Group, as a joint operator, transfers or sells assets (the assets not constituting business, the same below) to the joint operation, or purchases assets from the joint operation, before the assets are sold to a third party, the Group only recognizes the share of the other joint operators in the gains and losses arising from the sale. Where impairment occurs to the 85 Konka Group Co., Ltd. Interim Report 2018 assets as prescribed in The Accounting Standard No. 8 for Business Enterprises — Asset Impairment, the Group shall fully recognizes the loss for a transfer or sale of assets to a joint operation; and shall recognize the loss according to its stake in the joint operation for a purchase of assets from the joint operation. 7. Recognition Standard for Cash and Cash Equivalents In the Group’s understanding, cash and cash equivalents include cash on hand, any deposit that can be used for cover, and short-term (usually due within 3 months since the day of purchase) and high circulating investments, which are easily convertible into known amount of cash and whose risks in change of value are minimal. 8. Foreign Currency Businesses and Translation of Foreign Currency Financial Statements (1) Accounting treatments for translation of foreign currency transactions As for a foreign currency transaction, the Company shall convert the amount in a foreign currency into amount in its bookkeeping base at the spot exchange rate (usually referring to the central parity rate that day announced by the People’s Bank of China, the same below) of the transaction date, while as for such transactions as foreign exchange or involving in foreign exchange, the Company shall converted into amount in the bookkeeping base currency at actual exchange rate the transaction is occurred. (2) Accounting treatments for translation of foreign currency monetary items and non-monetary items On the balance sheet date, the foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. The exchange difference arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or prior to the balance sheet date shall be recorded in the profits and losses in the current period, excluding the following situations: ① the exchange difference arising from foreign currency loans related to acquisition of fixed assets shall be treated at the principle of capitalization of borrowing costs; ② the exchange difference arising from the hedging instruments used for effective hedging of net overseas operation investments shall be recorded into other comprehensive incomes, and shall be recognized 86 Konka Group Co., Ltd. Interim Report 2018 into current gains and losses when the net investments are disposed; and ③ the exchange difference arising from change in the book balance of foreign currency monetary items available for sale except the amortized costs shall be recorded into other comprehensive gains and losses. When it involves overseas business in preparing the consolidated financial statement, for the translation difference of foreign currency monetary items of net investment in overseas business arising from the change in exchange rate, it shall be recorded into the other comprehensive income; and be recorded into disposal gains and losses at current period when disposing overseas business. A foreign currency non-monetary item measured at the historical costs shall still be translated at the spot exchange rate on the transaction date. Where the foreign non-monetary items measured at the fair value shall be converted into amount in its bookkeeping base currency at spot exchange rate, the exchange gains and losses arising thereof shall be treated as change in fair value, and recorded into the current period gains and losses or as other comprehensive incomes. (3) Translation of foreign currency financial statements When it involves overseas business in preparing the consolidated financial statement, for the translation difference of foreign currency monetary items of net investment in overseas business arising from the change in exchange rate, it shall be recorded into the item of “difference of foreign currency financial statement translation ” under the owners ’ equity; and be recorded into disposal gains and losses at current period when disposing overseas business. The foreign currency financial statement of overseas business should be translated in to RMB financial statement by the following methods: The asset and liability items in the balance sheets shall be translated at a spot exchange rate on the balance sheet date. Among the owner ’ s equity items, except for the items as “ undistributed profits ” , other items shall be translated at the spot exchange rate at the time when they are incurred. The income and expense items in the profit statements shall be translated at the spot exchange rate of the transaction date. The undistributed profits at year-begin is the undistributed profits at the end of last year after the translation; undistributed profits at year-end shall be listed as various distribution items after the translation; after the translation, the balance between assets and 87 Konka Group Co., Ltd. Interim Report 2018 the sum of liabilities and owners’ equities shall be recorded into other comprehensive gains and losses as difference of foreign currency translation. Where an enterprise disposes of an overseas business without the control right, it shall shift the differences, which is presented under the items of the owner ’ s equities in the balance sheet and which arises from the translation of foreign currency financial statements relating to this overseas business, into the disposal profits and losses of the current period by all or proportion of the disposed overseas business. Foreign cash flow shall be translated at the spot exchange rate of the current period of the date of cash flow incurred. The influence of exchange rate on the cash flow shall be adjustment item and individually listed in the cash flow statement. And the opening balance and the actual balance of last year shall be listed at the amounts after translation of foreign currency financial statement in last year. Where the control of the Group over an overseas operation ceases due to disposal of all or some of the Group ’ s owner ’ s equity in the overseas operation or other reasons, the foreign-currency statement translation difference belonging to the parent company’s owner’s equity in relation to the overseas operation which is stated under the owner ’s equity in the balance sheet shall be all restated as gains and losses of the disposal period. Where the Group’s equity in an overseas operation decreases due to disposal of some equity investment or other reasons but the Group still has control over the overseas operation, the foreign-currency statement translation difference in relation to the disposed part of the overseas operation shall be recorded into minority interests instead of current gains and losses. If what’s disposed is some equity in an overseas associated enterprise or joint venture, the foreign-currency statement translation difference related to the overseas operation shall be recorded into the gains and losses of the current period of the disposal according to the disposal ratio. 9. Financial Instruments The Group recognizes a financial asset or liability when it becomes a party of the relevant financial instrument contract. Financial assets and liabilities are measured at fair value in initial recognition. As for the financial assets and liabilities measured at fair value of which changes are recorded into current gains and losses, the relevant dealing expenses are directly 88 Konka Group Co., Ltd. Interim Report 2018 recorded into gains and losses; and the dealing expenses on other kinds of financial assets and liabilities are included in the amounts initially recognized. (1) Determination of the fair value of main financial assets and financial liabilities Fair value refers to the price that a market participant shall receive for selling an asset or shall pay for transferring a liability in an orderly transaction on the measurement date. As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. The quoted prices in the active market refers to the prices available from stock exchange, broker ’ s agencies, guilds, pricing organization and etc., which represent the actual trading price under equal transaction. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques, including the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc., to determine its fair value. (2) Classification, recognition and measurement of financial assets The purchase and sale of financial assets under the normal ways shall be recognized and stopped to be recognized respectively at the price of transaction date. Financial assets shall be classified into the following four categories when they are initially recognized: (a) the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, (b) the investments which will be held to their maturity; (c) loans and the account receivables; and (d) financial assets available for sale. ① The financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period Including transactional financial assets and the financial assets which are designated to be measured at their fair value when they are initially recognized and of which the variation is recorded into the profits and losses of the current period; The financial assets meeting any of the following requirements shall be classified as transactional financial assets:A. The purpose to acquire the said financial assets is mainly for 89 Konka Group Co., Ltd. Interim Report 2018 selling them in the near future; B. Forming a part of the identifiable combination of financial instruments which are managed in a centralized way and for which there are objective evidences proving that the enterprise may manage the combination by way of short-term profit making in the near future; C. Being a derivative instrument, excluding the designated derivative instruments which are effective hedging instruments, or derivative instruments to financial guarantee contracts, and the derivative instruments which are connected with the equity instrument investments for which there is no quoted price in the active market, whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instruments. The financial assets meeting any of the following requirements shall be designated as financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period for initial recognition: A. the designation can eliminate or significantly reduce the difference of relevant gains and losses between recognition and measurement causing from different bases for measurement of financial assets; B. The official written documents for risk management and investment strategies of the enterprise have clearly stated that it shall ,manage, evaluate and report to important management personnel based on the fair value, about the financial assets group or the group of financial assets & liabilities which the financial assets are belong to. For the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period shall continue to be measured by fair value, gains and losses of change in fair value, dividends and interest related with these financial assets should be recorded into gains and losses of current period. ② Held-to-maturity investment The term “ held-to-maturity investment ” refers to a non-derivative financial asset with a fixed date of maturity, a fixed or determinable amount of repo price and which the enterprise holds for a definite purpose or the enterprise is able to hold until its maturity. For the held-to-maturity investment adopting actual interest rate method, which is measured at the post-amortization costs, the profits and losses that arise when such financial assets or financial liabilities are terminated from recognition, or are impaired or amortized, shall be recorded into the profits and losses of the current period. 90 Konka Group Co., Ltd. Interim Report 2018 The actual interest rate method refers to the method by which the post-amortization costs and the interest incomes of different instalments or interest expenses are calculated in light of the actual interest rates of the financial assets or financial liabilities (including a set of financial assets or financial liabilities). The actual interest rate refers to the interest rate adopted to cash the future cash flow of a financial asset or financial liability within the predicted term of existence or within a shorter applicable term into the current carrying amount of the financial asset or financial liability. When the actual interest rate is determined, the future cash flow shall be predicted on the basis of taking into account all the contractual provisions concerning the financial asset or financial liability (the future credit losses shall not be taken into account).and also the various fee charges, trading expenses, premiums or reduced values, etc., which are paid or collected by the parties to a financial asset or financial liability contract and which form a part of the actual interest rate. ③ Loans and the accounts receivables Loans and the accounts receivables refer to non-derivative financial assets, which there is no quotation in the active market, with fixed recovery cost or recognizable. Financial assets that are defined as loans and the accounts receivables by the Group including notes receivables, accounts receivables, interest receivable, dividends receivable and other receivables etc.. Loans and the accounts receivables are made follow-up measurement on the basis of post-amortization costs employing the effective interest method. Gains or loss arising from the termination recognition, impairment occurs or amortization shall be recorded into the profits and losses of the current period. ④ Assets available for sales Assets available for sales including non-derivative financial asset that has been assigned as assets available for sales on the initial recognition and financial assets excluded those measured at fair value and of which the variation into profits and losses of the current period, they are some financial assets, loans and accounts receivables, held-to-maturity investment. The cost at the period-end of the available-for-sale liabilities instruments should be confirmed according to its amortized cost method, that is the initially recognized amount 91 Konka Group Co., Ltd. Interim Report 2018 which deduct the principal that had been repaid, to plus or minus the accumulative amortization amount formed by the amortization between the difference of the initially recognized amount and the amount on the due date that adopted the actual interest rate method, and at the same time deduct the amount after the impairment loss happened. The cost at the period-end of the available-for-sale liabilities instruments is its initial cost. Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from changes in the fair value are recognized as other comprehensive income, and be carried forward when the said financial assets stopped recognition, then it shall be recorded into the profits and losses of the current period. But, the equity instrument investment which neither have quotation in the active market nor its fair value could not be reliable measured, as well as the derivative financial assets that concern with the equity instruments and should be settled through handing over to its equity instruments, should take the follow-up measurement according to the cost. Interest receive during the holding of assets available for sales and cash dividends with distribution announcement by invested companies, it shall be recorded into the profits and losses of the current period. (3) Impairment of financial assets The Group assesses at the balance sheet date the carrying amount of every financial asset except for the financial assets that measured by the fair value. If there is objective evidence indicating a financial asset may be impaired, a provision is provided for the impairment. The Group carries out a separate impairment test for every financial asset which is individually significant. As for a financial asset which is individually insignificant, an impairment test is carried out separately or in the financial asset group with similar credit risk. Where the financial asset (individually significant or insignificant) is found not impaired after the separate impairment test, it is included in the financial asset group with similar credit risk and tested again on the group basis. Where the impairment loss is recognized for an individual financial asset, it is not included in the financial asset group with similar credit risk for an impairment test. ① Impairment on held-to maturity investment, loans and receivables 92 Konka Group Co., Ltd. Interim Report 2018 The financial assets measured by cost or amortized cost write down their carrying value by the estimated present value of future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate the recovery of value of financial assets after impairment, and it is related with subsequent event after recognition of loss, the impairment loss recorded originally can be reversed. The carrying value of financial assets after impairment loss reversed shall not exceed the amortized cost of the financial assets without provisions of impairment loss on the reserving date. ② Impairment of available-for-sale financial assets When it judged that the decrease of fair value of the available-for-sale equity instrument investment is serious and not temporarily after comprehensive considering relevant factors, it reflected that the available-for-sale equity instrument investment occurred impairment. Of which, the “serious decline” refers to the accumulative decline range of the fair value over 20%; while the “non-temporary decline” refers to the consecutive decline time of the fair value over 12 months. Where an available-for-sale financial asset is impaired, the accumulative losses arising from the decrease of the fair value of the capital reserve which is directly included are transferred out and recorded in the profits and losses for the current period. The accumulative losses transferred out are the balance obtained from the initially obtained cost of the said financial asset after deducting the principals as taken back, the amortized amount, the current fair value and the impairment loss originally recorded in the profits and losses. Where the impairment loss has been recognized for an available-for-sale financial asset, if, within the accounting periods thereafter, there is any objective evidence proving that the value of the said financial asset has been restored and the restoration is objectively related to the events that occur after the impairment loss was recognized, the originally recognized impairment loss is reversed. The impairment losses on the available-for-sale equity instrument investments are reversed and recognized as other comprehensive incomes, and the impairment losses on the available-for-sale liability instruments are reversed and recorded in the profits and losses for the current period. The impairment loss incurred to an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or incurred to a 93 Konka Group Co., Ltd. Interim Report 2018 derivative financial asset which is connected with the said equity instrument investment and which must be settled by delivering the said equity investment, is not reversed. (4) Recognition and measurement of financial asset transfers Where a financial asset satisfies any of the following requirements, the recognition of it is terminated: ① The contractual rights for collecting the cash flow of the said financial asset are terminated; ② The said financial asset has been transferred and nearly all of the risks and rewards related to the ownership of the financial asset to the transferee; or ③ The said financial asset has been transferred. And the Group has ceased its control on the said financial asset though it neither transfers nor retains nearly all of the risks and rewards related to the ownership of the financial asset. Where the Group neither transfers nor retains nearly all of the risks and rewards related to the ownership of a financial asset, and it does not cease its control on the said financial asset, it recognizes the relevant financial asset and liability accordingly according to the extent of its continuous involvement in the transferred financial asset. The term "continuous involvement in the transferred financial asset" refers to the risk level that the enterprise faces resulting from the change of the value of the financial asset. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following 2 items is recorded in the profits and losses of the current period: (1) The book value of the transferred financial asset; and (2) The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in other comprehensive incomes. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the book value of the transferred financial asset is apportioned between the portion whose recognition has been stopped and the portion whose recognition has not been stopped according to their respective relative fair value, and the difference between the amounts of the following 2 items is included into the profits and losses of the current period: (1) The summation of the consideration received from the transfer and the portion of the accumulative amount of changes in the fair value originally recorded in other comprehensive incomes which corresponds to the portion whose recognition has been stopped; and (2) The amortized carrying amounts of the aforesaid amounts. 94 Konka Group Co., Ltd. Interim Report 2018 In respect of the assets using recourse to sell or using endorsement to transfer, the Group needs to determine whether almost all of the risks and rewards of the financial asset ownership are transferred. If almost all of the risks and rewards of the financial asset ownership had been transferred to the transferee, derecognize the financial assets. For almost all of the risks and rewards of the financial asset ownership retained, do not end to recognize the financial assets. For which neither transfer or retain almost all of the risks and rewards of the financial asset ownership, continuously judge whether the Company retain the control of the assets, and conduct accounting treatment according to the principle of mentioned in the previous paragraphs. (5) Classification and measurement of financial liabilities In the initial recognition, financial liabilities are divided into the financial liabilities measured at fair values and whose changes are recorded in current gains and losses and other financial liabilities. Financial liabilities are initially recognized at their fair values. As for a financial liability measured at fair value and whose changes are recorded in current gains and losses, the relevant trading expense is directly recorded in the profits and losses for the current period. As for other financial liabilities, the relevant trading expenses are recorded in the initially recognized amounts. ① Financial liabilities measured at fair values and whose changes are recorded in current gains and losses Such financial liabilities are divided into transactional financial liabilities and financial liabilities designated to be measured at fair values and whose changes are recorded in current gains and losses in the initial recognition under the same conditions where such financial assets are divided into transactional financial assets and financial assets designated to be measured at fair values and whose changes are recorded in current gains and losses in the initial recognition. Financial liabilities measured at fair values and whose changes are recorded in current gains and losses are subsequently measured at their fair values. Gains or losses arising from the fair value changes, as well as the dividend and interest expenses in relation to the said financial liabilities, are recorded in the profits and losses for the current period. ② Other financial liabilities 95 Konka Group Co., Ltd. Interim Report 2018 As for a derivative financial liability connected to an equity instrument for which there is not quoted price in an active market and whose fair value cannot be reliably measured and which must be settled by delivering the equity instrument, it is subsequently measured on the basis of costs. Other financial liabilities are subsequently measured according to the amortized cost using the actual interest rate method. Gains or losses arising from de-recognition or amortization of the said financial liabilities is recorded in the profits and losses for the current period. ③ Financial guarantee contract and loan commitment For the financial guarantee contracts which are not designated as a financial liability measured at its fair value and the variation thereof is recorded into the profits and losses of the current period, or the loan commitment which is not designated as a financial liability measured at its fair value and the variation thereof is recorded into the gains and losses that will be loaned lower than the market interest rate, which shall be initially recognized by fair value, and the subsequent measurement shall be made after they are initially recognized according to the higher one of the following: a. the amount as determined according to the Accounting Standards for Enterprises No. 13 – Contingencies; b. the surplus after accumulative amortization as determined according to the principles of the Accounting Standards for Enterprises No. 14 - Revenues is subtracted from the initially recognized amount. (6) De-recognition of financial liabilities Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the financial liability be terminated in all or partly. Where the Group (debtor) enters into an agreement with a creditor so as to substitute the existing financial liabilities by way of any new financial liability, and if the contractual stipulations regarding the new financial liability is substantially different from that regarding the existing financial liability, it terminates the recognition of the existing financial liability, and at the same time recognizes the new financial liability. Where the recognition of a financial liability is totally or partially terminated, the enterprise concerned shall include into the profits and losses of the current period for the gap between the book value which has been terminated from recognition and the considerations it has paid 96 Konka Group Co., Ltd. Interim Report 2018 (including the non-cash assets it has transferred out and the new financial liabilities it has assumed) (7) Derivatives and embedded derivatives Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are substantially re-measured at fair value. The resulting gain and loss is recognized in profit or loss. An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; and (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Company is unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss. (8) Offsetting financial assets and financial liabilities When the Group has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. (9) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The Group issues (including refinancing), re-purchases, sells or written-offs the equity instrument as the disposing of the changes of the equity. The Group not recognized the changes of the fair value of the equity instrument. The transaction expenses related to the equity transaction would be deducted from the equity. All types of distribution (excluding stock dividends) made by the Group to holders of equity instruments are deducted from shareholders ’ equity. The Group does not recognize any 97 Konka Group Co., Ltd. Interim Report 2018 changes in the fair value of equity instruments. 10. Receivables Receivables include account receivables and other accounts receivables. (1) Recognition of provision for bad debts: The Group shall test the carrying amount of receivables on the balance sheet date. Where there is any objective evidence proving that such receivables have been impaired, an impairment provision shall be made. ① Debtor has serious financial difficult; ② Debtor goes against the contract clause (for instance, breach of faith or overdue paying interests or principal); ③ Debtors have a great probability of bankruptcy or other financial reorganization; ④ Other objective evidence proving such accounts receivable has been impaired; (2) Withdraw method of provision for bad debts ① The recognition criteria and method of individual provision for bad debts of receivables that are individually significant The Group recognized the receivables with amount above RMB20 million and other receivables above RMB10 million as receivables with significant single amounts and withdrawn the provision for bad debts. The Group made an independent impairment test on receivables with significant single amounts; the financial assets without impairment by independent impairment test should be included in financial assets portfolio with similar credit risk to take the impairment test. Receivables was recognized with impairment should no longer be included in receivables portfolio with similar credit risk to take the impairment test. ② The recognition and method of provision for bad debts of receivables by credit risk portfolio 98 Konka Group Co., Ltd. Interim Report 2018 A. Recognition of credit risk group Receivables that not individually significant and individually significant but without impairment by independent impairment test, are grouped on the basis of similarity and relevance of credit risk. This credit risk usually reflects the debtor’s ability to repay all the due accounts in accordance with contract for such assets, which also are related with the measurement on future cash flow of the examined assets. Recognition basic of different groups: Item Basic Divide the groups according to the credit risks characteristics of the accounts Group 1: Aging group receivable Group 2: Internal related party groups Divide the groups according to the credit risks characteristics of whether the in the scope of consolidation of the creditor is the internal related party in the scope of consolidation of the Company Company B. Withdrawal method of provision for bad debts recognized by credit risk group For the impairment test implemented by groups, the amount of provision for bad debts was appraised and recognized in accordance with the structure of accounts receivable group and similar characteristics of credit risk (the debtor ’s ability to pay off the loans in accordance with the provisions of contract), experience of losses, current economic status and the predicted losses in the accounts receivable group. Methods of making provisions for bad debt in different groups: Item Withdrawal method Group 1: Aging group Aging analysis method Group 2: Internal related party groups in the To make an independent impairment test and if there was no scope of consolidation of the Company impairment, should not withdraw the bad debts provision. In the group 1, adopting aging analysis method to withdraw bad debt provision: Withdrawal proportion for accounts Withdrawal proportion for other Age receivable (%) accounts receivable (%) Within 1 year (including 1 year, similarly 2-5 2-5 hereinafter) 1-2 years 5-10 5-10 99 Konka Group Co., Ltd. Interim Report 2018 Withdrawal proportion for accounts Withdrawal proportion for other Age receivable (%) accounts receivable (%) 2-3 years 20-30 20-30 3-4 years 50 50 4-5 years 50-80 50-80 Over 5 years 100 100 ③ Receivables with insignificant amount but being individually withdrawn the provision for bad debts The Group made independent impairment test on receivables with insignificant amount but with the following characteristics, if any objective evidence shows that the accounts receivable has been impaired, impairment loss shall be recognized on the basis of the gap between the current values of the future cash flow lower than its book value so as to withdraw provision for bad debts: A. Receivables have dispute with the other parties or involving lawsuit and arbitration; B. Receivables have obvious indication showing that the debtors are likely to fail to perform the duty of repayment, etc. C. There is other evidence of impairment and the impairment amount can estimated reliably. (3) Reversal of provision for bad debts If there is any objective evidence proving that the value of the said receivables has been restored, and it is objectively related to the events occurred after such loss is recognized, the impairment-related losses as originally recognized shall be reversed and be recorded into the profits and losses of the current period. However, the reversed carrying amount shall not be any more than the post-amortization costs of the said accounts receivable on the day of reverse under the assumption that no provision is made for the impairment. 11. Inventory (1) Classification The Group’s inventories are classified as non-property inventories and property inventories. And the non-property inventories include raw materials, goods in process; merchandise on hand, goods delivered, circulating materials, and engineering constructions, etc; while the 100 Konka Group Co., Ltd. Interim Report 2018 property inventories include property in process and finished property, etc. ① The finished property refers to the finished and held-for-sale property. ② The property in process (development costs) refers to the unfinished property with the development purpose for sale. (2) Pricing method for outgoing inventories The inventories shall be measured in light of their cost when obtained. The cost of inventory consists of purchase costs, processing costs and other costs. Inventory is accounted by weight average method upon receiving and giving. For merchandise on hand shall be accounted by planned cost, if the difference between planned cost of and actual cost of raw materials is accounted through the cost variance item, and the planned cost is adjusted to the actual cost according to the cost difference which the carryover and given-out inventory should shoulder in the period. The construction contracts shall be measured at actual cost, including all direct and indirect costs related to the execution of the contract from the time signing the contract to completing the contract. The expenses such as travel expenses and bidding fees incurred for the purpose of signing the contract, which can be separately and reliably measured and the contract is likely to be concluded, are included in the contract cost when the contract is obtained; if the above conditions are not met, they are included in the current profit and loss. The accumulated costs incurred in the contract in progress, the accumulated recognized gross profit (loss) and the settled price are stated in the balance sheet as net offset. The part of the sum of the accumulated costs incurred in the contract in progress and the accumulated recognized gross profit (loss) that exceeds the settled price is stated as the inventory; the part of the settlement costs of the contract in progress that exceeds the sum of the accumulated costs incurred and the accumulated recognized gross profit (loss) are stated as account collected in advance. The property inventories are initially measured at the costs, and the costs of the developed property include the land premium, expenditures for supporting infrastructures, expenditures for construction and installation projects, the borrowing costs before the completion of the developed project and other expenses occurred during the development process. ① The public supporting facilities recorded the development costs at the actual costs, the amortization upon completion was transferred to the costs of houses and other 101 Konka Group Co., Ltd. Interim Report 2018 available-for-sale property, while as for the supporting facilities with operating value and beneficiary rights owned by the Group as well as available for individual sale and measurement, which shall be recorded into the “investment property” ② For the accounting policies on borrowing costs occurred for developing property, please refer to Note IV. 17 Pricing of “Borrowing Costs”. (3) Recognition basis of net realizable value and withdrawal method of depreciation reserves for inventories The net realizable value refers, in the ordinary course of business, to the account after deducting the estimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price of inventories. The net realizable value of inventories shall be fixed on the basis of valid evidence as well as under consideration of purpose of inventories and the effect of events after balance-sheet-date. On the balance sheet date, the inventories shall be measured according to the cost or the net realizable value, whichever is lower. If the net realizable value is lower than the cost, it shall withdraw the depreciation reserves for inventories, which was withdrawn in accordance with the balance that the cost of individual inventory item exceeding the net realizable value. The inventories with various numbers and low unit price shall be made provisions for depreciation reserves of inventories according to the category of inventories. After withdrawing the depreciation reserves for inventories, if the factors, which cause any write-down of the inventories, have disappeared, causing the net realizable value of inventories is higher than its carrying amount; the amount of write-down shall be reversed from the original amount of depreciation reserve for inventories. The reversed amount shall be included in the profits and losses of the current period. (4) The perpetual inventory system is maintained for stock system. (5) Amortization method of the low-value consumption goods and packing articles The low-value consumption goods should be amortized by one time amortization when acquiring and the packing articles are amortized by one time amortization when acquiring. 12. Assets Held for Sale and Disposal Group When a company relies mainly on selling (including the exchanges of non-monetary assets with commercial substance, similarly hereinafter) instead of continuing to use a non-current 102 Konka Group Co., Ltd. Interim Report 2018 asset or disposal group to recover its book value, then the non-current asset or disposal group is classified as assets held for sale. The specific standards are simultaneously meeting the following conditions: assets or disposal groups can be sold immediately under current conditions based on the practice of selling such assets or disposal groups in similar transactions; the Company has already made a resolution on the sale plan and obtained a certain purchase commitment, and the sale is expected to be completed within one year. A disposal group refers to a group of assets that are disposed of together as a whole by sale or other means in a transaction and the liabilities directly related to these assets transferred in the transaction. Where the asset group or combination of asset groups to which a disposal group belongs apportions the goodwill acquired in the business combination in accordance with the Accounting Standards for Enterprises No. 8 - Asset Impairment, the disposal group shall include the goodwill allocated to it. If there are non-current assets or disposal groups held for sale during initial measurement or on the balance sheet day based on remeasurement of this Company, if the book value is higher than the net amount by deducting the selling expenses with the fair value, the book value shall be written down and be equal to the net amount by deducting the selling expenses with the fair value. The write-down amount shall be confirmed as the loss of depreciation of assets and shall be included into the profits and losses of the current period. At the same time, prepare to calculate and withdraw the assets purchased and under agreements to resell. For the disposal group, deduct the book value of the goodwill in the disposal group with the asset depreciation losses confirmed, then deduct the book value of each non-current asset in the disposal group conforming to the measurement regulations of Accounting Standards for Business Enterprises No. 42-non-current Assets Purchased and under Agreements to Resell, Disposal Group and Operation Termination (herein after referred to as "the Standard for Assets Purchased and under Agreements to Resell"). If the net amount by deducting the selling expenses with the fair value of the disposal group purchased and under agreements to resell on the subsequent balance sheet date, the previous write-down amount shall be recovered and shall be reversed within the asset depreciation losses amount of the non-current confirmed as per regulation of the Standard for Assets Purchased and under Agreements to Resell after being classified into the category purchased and under agreements to resell. The reverse amount shall be included into the current profits and losses, and the book value shall be added as per the proportion of the book value of each non-current asset in 103 Konka Group Co., Ltd. Interim Report 2018 the disposal group applicable to the Standard for Assets Purchased and under Agreements to Resell except for the goodwill; The goodwill book value deducted and the asset depreciation losses of the non-current assets applicable to the measurement regulations of the Standard for Assets Purchased and under Agreements to Resell before its confirmation of being classified into the category purchased and under agreements to resell shall not be reversed. Depreciation or amortization in the non-current assets held for sale or the non-current assets in the disposal group shall not be calculated or withdrawn. Interests of liabilities and other expenses in the disposal group purchased and under agreements to resell shall be confirmed continuously. When a non-current asset or disposal group fail to meet the classification conditions for the category of held-for-sale, the Company will no longer classify a non-current asset or disposal group as held-for-sale or remove out a non-current asset from the held-for-sale disposal group, and it will be measured by one of the followings whichever is lower: (1) The book value before being classified as held for sale will be adjusted according to the depreciation, amortization or impairment that would have been recognized under the assumption that it was not classified as held for sale; (2) The recoverable amount. 13. Long-term Equity Investments The long-term equity investments of this part refer to the long-term equity investments that the Group has control, joint control or significant influence over the investees. The long-term equity investment that the Group does not have control, joint control or significant influence over the investees, should be recognized as available-for-sale financial assets or be measured by fair value with the changes should be included in the financial assets accounting of the current gains and losses, and please refer the details of the accounting policies to Notes IV 9 “Financial Instrument”. Joint control, refers to the control jointly owned according to the relevant agreement on an arrangement by the Group and the relevant activities of the arrangement should be decided only after the participants which share the control right make consensus. Significant influence refers to the power of the Group which could anticipate in the finance and the operation polices of the investees, but could not control or jointly control the formulation of the policies with the other parties. (1) Recognition of investment costs As for long-term equity investments acquired by enterprise merger, if the merger is under the 104 Konka Group Co., Ltd. Interim Report 2018 same control, the share of the book value of the owner’s equity of the merged enterprise, on the date of merger, is regarded as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the book value of the debts borne by the merging party shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. If the consideration of the merging enterprise is that it issues equity securities, it shall, on the date of merger, regard the share of the book value of the shareholder's equity of the merged enterprise on the consolidated financial statement of the ultimate control party as the initial cost of the long-term equity investment. The total face value of the stocks issued shall be regarded as the capital stock, while the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. The equities of the combined party which respectively acquired through multiple transaction under the same control that ultimately form into the combination of the enterprises under the same control, should be disposed according whether belongs to package deal; if belongs to package deal, each transaction would be executed accounting treatment by the Company as a transaction of acquiring the control right. If not belongs to package deal, it shall, on the date of merger, regard the enjoyed share of the book value of the shareholder's equity of the merged enterprise on the consolidated financial statement of the ultimate control party as the initial cost of the long-term equity investment, and as for the difference between the initial investment cost of the long-term equity investment and sum of the book value of the long-term equity investment before the combination and the book value of the consideration of the new payment that further required on the combination date, should adjust the capital reserve; if the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. The equity investment held before the combination date which adopted the equity method for accounting, or the other comprehensive income confirmed for the available-for-sale financial assets, should not have any accounting disposal for the moment. For the long-term investment required from the business combination under different control, the initial investment cost regarded as long-term equity investment on the purchasing date according to the combination cost, the combination costs shall be the sum of the fair values of the assets paid, the liabilities incurred or assumed and the equity securities issued by the 105 Konka Group Co., Ltd. Interim Report 2018 Company. The equities of the acquirees which respectively acquired through multiple transaction that ultimately form into the combination of the enterprises under the different control, should be disposed according whether belongs to package deal; if belongs to package deal, each transaction would be executed accounting treatment by the Company as a transaction of acquiring the control right. If not belongs to package deal, the sum of the book value of the original held equity investment of the acquirees and the newly added investment cost should be regarded as the initial investment cost of the long-term equity investment that changed to be accounted by cost method. If the original held equity is calculated by cost method, the other relevant comprehensive income would not have any accounting disposal for the moment. If the original held equity investment is the financial assets available for sale, its difference between the fair value and the book value as well as the accumulative changes of the fair value that include in the other comprehensive income, should transfer into the current gains and losses. The commission fees for audit, law services, assessment and consultancy services and other relevant expenses occurred in the business combination by the combining party or the purchase party, shall be recorded into current profits and losses upon their occurrence; the transaction expense from the issuance of equity securities or bonds securities which are as consideration for combination by the combining party, should be recorded as the initial amount of equity securities and bonds securities. Besides the long-term equity investments formed by business combination, the other long-term equity investments shall be initially measured by cost, the cost is fixed in accordance with the ways of gaining, such as actual cash payment paid by the Group, the fair value of equity securities issued by the Group, the agreed value of the investment contract or agreement, the fair value or original carrying amount of exchanged assets from non-monetary assets exchange transaction, the fair value of the long-term equity investments, etc. The expenses, taxes and other necessary expenditures directly related with gaining the long-term equity investments shall also be recorded into investment cost. The long-term equity investment cost for those could execute significant influences on the investees because of appending the investment or could execute joint control but not form as control, should be as the sum of the fair value of the original held equity investment and the newly added investment cost recognized according to the No. 22 of Accounting Standards for Business Enterprises—Recognition and Measurement of Financial Instrument. 106 Konka Group Co., Ltd. Interim Report 2018 (2) Subsequent measurement and recognition of gains or losses A long-term equity investment where the investing enterprise has joint control (except for which forms into common operators) or significant influence over the investors should be measured by equity method. Moreover, long-term equity investment adopting the cost method in the financial statements, and which the Company has control on invested entity. ① Long-term equity investment measured by adopting cost method The price of a long-term equity investment measured by adopting the cost method shall be included at its initial investment cost and append as well as withdraw the cost of investing and adjusting the long-term equity investment. The return on investment at current period shall be recognized in accordance with the cash dividend or profit announced to distribute by the invested entity, except the announced but not distributed cash dividend or profit included in the actual payment or consideration upon gaining the investment. ② Long-term equity investment measured by adopting equity method If the initial cost of a long-term equity investment is more than the Company's attributable share of the fair value of the invested entity's identifiable net assets for investment, the initial cost of the long-term equity investment may not be adjusted. If the initial cost of a long-term equity investment is less than the Company's attributable share of the fair value of the invested entity's identifiable net assets for investment, the difference shall be included in the current profits and losses and the cost of the long-term equity investment shall be adjusted simultaneously. When measured by adopting equity method, respectively recognize investment income and other comprehensive income according to the net gains and losses as well as the portion of other comprehensive income which should be enjoyed or be shared, and at the same time adjust the book value of the long-term equity investment; corresponding reduce the book value of the long-term equity investment according to profits which be declared to distribute by the investees or the portion of the calculation of cash dividends which should be enjoyed; for the other changes except for the net gains and losses, other comprehensive income and the owners’ equity except for the profits distribution of the investees, should adjust the book value of the long-term equity investment as well as include in the capital reserve. The investing enterprise shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, recognize the attributable share of the net profits and losses of the invested entity after it adjusts the net profits of the invested entity. If 107 Konka Group Co., Ltd. Interim Report 2018 the accounting policies adopted by the investees are not accord with that of the Group, should be adjusted according to the accounting policies of the Group and the financial statement of the investees during the accounting period and according which to recognize the investment income as well as other comprehensive income. For the transaction happened between the Group and associated enterprises as well as joint ventures, if the assets launched or sold not form into business, the portion of the unrealized gains and losses of the internal transaction, which belongs to the Group according to the calculation of the enjoyed proportion, should recognize the investment gains and losses on the basis. But the losses of the unrealized internal transaction happened between the Group and the investees which belongs to the impairment losses of the transferred assets, should not be neutralized. If the assets launched by this Company to the associated enterprise or joint ventures constitute the business, and the investor obtains the long-term equity investment but fails to obtain the control right, the fair value of business launched is taken as the initial investment cost of newly-increased long-term equity investment, and the difference between initial investment cost and book value of business launched will be included in current profit and loss. If the assets sold by this Company to the associated enterprises or joint ventures constitute the business, the difference between consideration and book value of business will be included in current profit and loss. If this Company's assets purchased from the associated enterprises or joint ventures constitute business, accounting treatment shall be conducted in accordance with the provisions of the Accounting Standards for Business Enterprises No. 20 -- Business Combination, fully recognize the gains or losses related to the transaction. The Group shall recognize the net losses of the invested enterprise until the book value of the long-term equity investment and other long-term rights and interests which substantially from the net investment made to the invested entity are reduced to zero. However, if the Group has the obligation to undertake extra losses, it shall be recognized as the estimated liabilities in accordance with the estimated duties and then recorded into investment losses at current period. If the invested entity realizes any net profits later, the Group shall, after the amount of its attributable share of profits offsets against its attributable share of the un-recognized losses, resume recognizing its attributable share of profits. For the long-term equity investment held by the Group before the first execution of the new accounting criterion of the associated enterprises and joint ventures, if there is debit difference of the equity investment related to the investment, should be included in the current gains and losses according to the amount of the straight-line amortization during the original remained period. 108 Konka Group Co., Ltd. Interim Report 2018 ③ Acquiring shares of minority interest In the preparation for the financial statements, the balance existed between the long-term equity investment increased by acquiring shares of minority interest and the attributable net assets on the subsidiary calculated by the increased shares held since the purchase date (or combination date), the capital reserves shall be adjusted, if the capital reserves are not sufficient to offset, the retained profits shall be adjusted. ④ Disposal of long-term equity investment In the preparation of financial statements, the Company disposed part of the long-term equity investment on subsidiaries without losing its controlling right on them, the balance between the disposed price and attributable net assets of subsidiaries by disposing the long-term equity investment shall be recorded into owners ’ equity; where the Company losses the controlling right by disposing part of long-term equity investment on such subsidiaries, it shall treated in accordance with the relevant accounting policies in Note IV. 5 (2) “Method on preparation of combined financial statements”. For other ways on disposal of long-term equity investment, the balance between the book value of the disposed equity and its actual payment gained shall be recorded into current profits and losses. For the long-term equity investment measured by adopting equity method, if the remained equity after disposal still adopts the equity method for measurement, the other comprehensive income originally recorded into owners’ equity should adopt the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees according to the corresponding proportion. The owners’ equity recognized owning to the changes of the other owners ’ equity except for the net gains and losses, other comprehensive income and the profits distribution of the investees, should be transferred into the current gains and losses according to the proportion. For the long-term equity investment which adopts the cost method of measurement, if the remained equity still adopt the cost method, the other comprehensive income recognized owning to adopting the equity method for measurement or the recognition and measurement standards of financial instrument before acquiring the control of the investees, should adopt the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees and should be carried forward into the current gains and losses according to 109 Konka Group Co., Ltd. Interim Report 2018 the proportion; the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution among the net assets of the investees which recognized by adopting the equity method for measurement, should be carried forward into the current gains and losses according to the proportion. For those the Group lost the control of the investees by disposing part of the equity investment as well as the remained equity after disposal could execute joint control or significant influences on the investees, should change to measure by equity method when compiling the individual financial statement and should adjust the measurement of the remained equity to equity method as adopted since the time acquired; if the remained equity after disposal could not execute joint control or significant influences on the investees, should change the accounting disposal according to the relevant regulations of the recognition and measurement standards of financial instrument, and its difference between the fair value and book value on the date lose the control right should be included in the current gains and losses. For the other comprehensive income recognized by adopting equity method for measurement or the recognition and measurement standards of financial instrument before the Group acquired the control of the investees, should execute the accounting disposal by adopting the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees when lose the control of them, while the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution among the net assets of the investees which recognized by adopting the equity method for measurement, should be carried forward into the current gains and losses according to the proportion. Of which, for the disposed remained equity which adopted the equity method for measurement, the other comprehensive income and the other owners’ equity should be carried forward according to the proportion; for the disposed remained equity which changed to execute the accounting disposal according to the recognition and measurement standards of financial instrument, the other comprehensive income and the other owners’ equity should be carried forward in full amount. For those the Group lost the control of the investees by disposing part of the equity investment, the disposed remained equity should change to calculate according to the recognition and measurement standards of financial instrument, and difference between the fair value and book value on the date lose the control right should be included in the current gains and losses. For the other comprehensive income recognized from the original equity 110 Konka Group Co., Ltd. Interim Report 2018 investment by adopting the equity method, should execute the accounting disposal by adopting the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees when terminate the equity method for measurement, while for the owners’ equity recognized owning to the changes of the other owner’s equity except for the net gains and losses, other comprehensive income and the profits distribution of the investees, should be transferred into the current investment income with full amount when terminate adopting the equity method. The Group respectively disposes the equity investment of the subsidiaries through multiple transactions until lose the control right, if the above transactions belongs to the package deal, should execute the accounting disposal by regarding each transaction as a deal of disposing the equity investment of the subsidiaries until lose the control right, while the difference between each expenses of the disposal and the book value of the long-term equity investment in accord with the disposed equity before losing the control right, should firstly be recognized as other comprehensive income then be transferred into the current gains and losses of losing the control right along until the time when lose it. 14. Investment Real Estates The term “ investment real estate ” refers to the real estate held for generating rent and/or capital appreciation. Investment real estates of the Group include the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. The initial measurement of the investment real estate shall be made at its cost. Subsequent expenditures incurred for an investment real estate is included in the cost of the investment real estate when it is probable that economic benefits associated with the investment real estate will flow to the Group and the cost can be reliably measured, otherwise the expenditure is recognized in profit or loss in the period in which they are incurred. The Group shall make a follow-up measurement to the investment real estate by employing the cost pattern on the date of the balance sheet. An accrual depreciation or amortization shall be made for the investment real estates in the light of the accounting policies of the use right of buildings or lands. For details of impairment test method and withdrawal method of impairment provision of investment real estates, please refer to Note IV. 20. “Long-term assets impairment”. When owner-occupied real estate or inventories are changed into investment real estate or investment real estate is changed into owner-occupied real estate, of which book value prior 111 Konka Group Co., Ltd. Interim Report 2018 to the change shall be the entry value after the change. When an investment real estate is changed to an owner-occupied real estate, it would be transferred to fixed assets or intangible assets at the date of such change. When an owner-occupied real estate is changed to be held to earn rental or for capital appreciation, the fixed asset or intangible asset is transferred to investment real estate at the date of such change. If the fixed asset or intangible asset is changed into investment real estate measured by adopting the cost pattern, whose book value prior to the change shall be the entry value after the change; if the fixed asset or intangible asset is changed into investment real estate measured by adopting the fair value pattern, whose fair value on the date of such change shall be the entry value after the change An investment real estate is derecognized on disposal or when the investment real estate is permanently withdrawn from use and no future economic benefits are expected from its disposal. The amount of proceeds on sale, transfer, retirement or damage of an investment real estate less its carrying amount and related taxes and expenses is recognized in profit or loss in the period in which it is incurred. 15. Fixed Assets (1) Conditions for recognition of fixed assets The term "fixed assets" refers to the tangible assets that simultaneously possess the features as follows: (a) they are held for the sake of producing commodities, rendering labour service, renting or business management; and (b) their useful life is in excess of one fiscal year. The fixed assets are only recognized when the relevant economic benefits probably flow in the Group and its cost could be reliable measured. The fixed assets should take the initial measurement according to the cost and at the same time consider the influences of the factors of the estimated discard expenses. (2) Depreciation methods of each fixed asset The fixed assets should be withdrawn and depreciation by straight-line depreciation within the useful life since the next month when the fixed assets reach the estimated available state. The useful life, estimated net salvage and the yearly discounted rate of each fixed asset are as follows: Expected net Annual Category of fixed assets Method Useful life (Year) salvage value deprecation (%) (%) 112 Konka Group Co., Ltd. Interim Report 2018 Expected net Annual Category of fixed assets Method Useful life (Year) salvage value deprecation (%) (%) Housing and building Straight-line 20-40 5.00-10.00 2.25-4.50 depreciation Machinery equipment Straight-line 5.00-10.00 5-10 9.00-19.00 depreciation Electronic equipment Straight-line 0.00-10.00 3-5 18.00-33.33 depreciation Transportation vehicle Straight-line 5.00-10.00 4-5 18.00-23.75 depreciation Other equipment Straight-line 5-25 5.00-10.00 3.8-19.00 depreciation The “expected net salvage value” refers to the expected amount that the Group may obtain from the current disposal of a fixed asset after deducting the expected disposal expenses at the expiration of its expected useful life. (3) Testing method of impairment and withdrawal method of provision for impairment on fixed assets For details of the testing method of impairment and withdraw method of impairment provision for impairment on fixed assets, please refer to Note IV. 20 “ Long-term assets impairment”. (4) Recognition basis, pricing and depreciation method of fixed assets by finance lease The “finance lease” shall refer to a lease that has transferred in substance all the risks and rewards related to the ownership of an asset. Its ownership may or may not eventually be transferred. The fixed assets by finance lease shall adopt the same depreciation policy for self-owned fixed assets. If it is reasonable to be certain that the lessee will obtain the ownership of the leased asset when the lease term expires, the leased asset shall be fully depreciated over its useful life. If it is not reasonable to be certain that the lessee will obtain the ownership of the leased asset at the expiry of the lease term, the leased asset shall be fully depreciated over the shorter one of the lease term or its useful life. (5) Other explanations 113 Konka Group Co., Ltd. Interim Report 2018 The follow-up expenses related to a fixed asset, if the economic benefits pertinent to this fixed asset are likely to flow into the enterprise and its cost can be reliably measured, shall be recorded into cost of fixed assets and ultimately recognized as the book value of the replaced part; otherwise, they shall be included in the current profits and losses. Terminate to recognize the fixed assets when the fixed assets under the disposing state or be estimated that could not occur any economy benefits through using or disposing. When the Group sells, transfers or discards any fixed assets, or when any fixed assets of the Group is damaged or destroyed, the Group shall deduct the book value of the fixed assets as well as the relevant taxes from the disposal income, and include the amount in the current profits and losses. The Group shall check the useful life, expected net salvage value and depreciation method of the fixed assets at the end of the year at least, if there is any change, it shall be regarded as a change of the accounting estimates. 16. Construction in Progress Construction in process is measured at actual cost. Actual cost comprises construction costs, borrowing costs that are eligible for capitalization before the fixed assets being ready for their intended us and other relevant costs. Construction in process is transferred to fixed assets when the assets are ready for their intended use. For details of the testing method of impairment and withdraw method of impairment provision on construction in progress, please refer to Note IV. 20 “ Long-term assets impairment”. 17. Borrowing Costs The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. When the borrowing costs can be directly attributable to the construction or production of assets eligible for capitalization, and the asset disbursements or the borrowing costs have already incurred, and the construction or production activities which are necessary to prepare the asset for its intended use or sale have already started, the capitalization of borrowing costs begins. When the asset eligible for capitalization under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. Other borrowing costs shall be recognized as expenses when incurred. 114 Konka Group Co., Ltd. Interim Report 2018 The to-be-capitalized amount of interests shall be determined in light of the actual interests incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment; the enterprise shall calculate and determine the to-be-capitalized amount on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. During the period of capitalization, the exchange balance on foreign currency special borrowings shall be capitalized; the exchange balance on foreign currency general borrowings shall be recorded into current profits and losses. The term “assets eligible for capitalization” refers to the fixed assets, investment real estate, inventories and other assets, of which the acquisition and construction or production may take quite a long time to get ready for its intended use or for sale. Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. 18. Intangible Assets (1) Pricing method, useful life and impairment test The term “ intangible asset ” refers to the identifiable non-monetary assets possessed or controlled by enterprises which have no physical shape. The intangible assets shall be initially measured according to its cost. The costs related with the intangible assets, if the economic benefits related to intangible assets are likely to flow into the enterprise and the cost of intangible assets can be measured reliably, shall be recorded into the costs of intangible assets; otherwise, it shall be recorded into current profits and losses upon the occurrence. The use right of land gained is usually measured as intangible assets. For the self-developed and constructed factories and other constructions, the related expenditures on use right of land and construction costs shall be respectively measured as intangible assets and fixed assets. For the purchased houses and buildings, the related payment shall be distributed into the payment for use right of land and the payment for buildings, if it is difficult to be distributed, the whole payment shall be treated as fixed assets. 115 Konka Group Co., Ltd. Interim Report 2018 For intangible assets with a finite service life, from the time when it is available for use, the cost after deducting the sum of the expected salvage value and the accumulated impairment provision shall be amortized by straight line method during the service life. While the intangible assets without certain service life shall not be amortized. At the end of period, the Group shall check the service life and amortization method of intangible assets with finite service life, if there is any change, it shall be regarded as a change of the accounting estimates. Besides, the Group shall check the service life of intangible assets without certain service life, if there is any evidence showing that the period of intangible assets to bring the economic benefits to the enterprise can be prospected, it shall be estimated the service life and amortized in accordance with the amortization policies for intangible assets with finite service life. (2) R & D expenses The expenditures for internal research and development projects of an enterprise shall be classified into research expenditures and development expenditures. The research expenditures shall be recorded into the profit or loss for the current period. The development expenditures shall be confirmed as intangible assets when they satisfy the following conditions simultaneously, and shall be recorded into profit or loss for the current period when they don’t satisfy the following conditions. ① It is feasible technically to finish intangible assets for use or sale; ② It is intended to finish and use or sell the intangible assets; ③ The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; ④ It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; ⑤ The development expenditures of the intangible assets can be reliably measured. As for expenses that can ’ t be identified as research expenditures or development expenditures, the occurred R & D expenses shall be all included in current profits and losses. 116 Konka Group Co., Ltd. Interim Report 2018 (3) Testing method of impairment and withdraw method of impairment provision of intangible assets For details of the testing method of impairment and withdraw method of impairment provision on intangible assets, see Notes IV. 20 “Long-term assets impairment”. 19. Amortization Method of Long-term Deferred Expenses Long-term deferred expenses refer to general expenses with the apportioned period over one year (one year excluded) that have occurred but attributable to the current and future periods. Long-term deferred expense shall be amortized averagely within benefit period. 20. Impairment of Long-term Assets For non-current financial Assets of fixed Assets, projects under construction, intangible Assets with limited service life, investing real estate with cost model, long-term equity investment of subsidiaries, cooperative enterprises and joint ventures, the Group should judge whether decrease in value exists on the date of balance sheet. Recoverable amounts should be tested for decrease in value if it exists. Other intangible Assets of reputation and uncertain service life and other non-accessible intangible assets should be tested for decrease in value no matter whether it exists. If the recoverable amount is less than book value in impairment test results, the provision for impairment of differences should include in impairment loss. Recoverable amounts would be the higher of net value of asset fair value deducting disposal charges or present value of predicted cash flow. Asset fair value should be determined according to negotiated sales price of fair trade. If no sales agreement exists but with asset active market, fair value should be determined according to the Buyer ’s price of the asset. If no sales agreement or asset active market exists, asset fair value could be acquired on the basis of best information available. Disposal expenses include legal fees, taxes, cartage or other direct expenses of merchantable Assets related to asset disposal. Present value of predicted asset cash flow should be determined by the proper discount rate according to Assets in service and predicted cash flow of final disposal. Asset depreciation reserves should be calculated on the basis of single Assets. If it is difficult to predict the recoverable amounts for single Assets, recoverable amounts should be determined according to the belonging asset group. Asset group is the minimum asset combination producing cash flow independently. In impairment test, book value of the business reputation in financial report should be shared to beneficial asset group and asset group combination in collaboration of business merger. It 117 Konka Group Co., Ltd. Interim Report 2018 is shown in the test that if recoverable amounts of shared business reputation asset group or asset group combination are lower than book value, it should determine the impairment loss. Impairment loss amount should firstly be deducted and shared to the book value of business reputation of asset group or asset group combination, then deduct book value of all assets according to proportions of other book value of above assets in asset group or asset group combination except business reputation. After the asset impairment loss is determined, recoverable value amounts would not be returned in future. 21. Employee Compensation Employee compensation of the Company mainly includes short-term employee compensation, departure benefits, demission benefits and other long-term employee compensation. Of which: Short-term compensation mainly including salary, bonus, allowances and subsidies, employee services and benefits, medical insurance premiums, birth insurance premium, industrial injury insurance premium, housing fund, labour union expenditure and personnel education fund, non-monetary benefits etc. The short-term compensation actually happened during the accounting period when the active staff offering the service for the Group should be recognized as liabilities and is included in the current gains and losses or relevant assets cost. Of which the non-monetary benefits should be measured according to the fair value. Welfare after demission mainly includes setting drawing plan. Defined contribution plans include basic endowment insurance, unemployment insurance and annuity. Deposited amounts are charged to relevant asset costs or current profits and losses during the period in which they are incurred. Defined benefit plan of the Company is internal early retirement plan. According to anticipated accumulative welfare unit, the Company makes estimates by unbiased and consistent actuarial assumption for the demographic variables and financial variables, measures the obligations produced in defined benefit plans, and determines the vesting period. On balance sheet date, the Company will list all obligations in defined benefit plans as present value and include current service costs into current profits and losses. When terminating labour relations before expiration of contract, or layoffs with compensations, and the Company cannot terminate the labour relations unilaterally or reduce the demission welfare, remuneration and liabilities produced from the demission welfare 118 Konka Group Co., Ltd. Interim Report 2018 should be determined and included in current profits and losses when determining the costs of demission welfare and recombination. However, demission welfare not fully paid within 12 months after annual Reporting Period should be handled the same as other long-term employees’ payrolls. The inside employee retirement plan is treated by adopting the same principle with the above dismiss ion welfare. The group would recorded the salary and the social security insurance fees paid and so on from the employee’s service terminative date to normal retirement date into current profits and losses (dismiss ion welfare) under the condition that they meet the recognition conditions of estimated liabilities. The other long-term welfare that the Group offers to the staffs, if met with the setting drawing plan, should be accounting disposed according to the setting drawing plan, while the rest should be disposed according to the setting revenue plan. 22. Estimated Liabilities The company should recognize the related obligation as a provision for liability when the obligation meets the following conditions: (1) That obligation is a present obligation of the enterprise; (2) It is probable that an outflow of economic benefits from the enterprise will be required to settle the obligation; (3) A reliable estimate can be made of the amount of the obligation. On the balance sheet date, an enterprise shall take into full consideration of the risks, uncertainty, time value of money, and other factors pertinent to the Contingencies to measure the estimated liabilities in accordance with the best estimate of the necessary expenses for the performance of the current obligation. When all or some of the expenses necessary for the liquidation of an estimated liabilities of an enterprise is expected to be compensated by a third party, the compensation should be separately recognized as an asset only when it is virtually certain that the reimbursement will be obtained. Besides, the amount recognized for the reimbursement should not exceed the book value of the estimated liabilities. 23. Revenue (1) Revenue from selling goods No revenue from selling goods may be recognized unless the following conditions are met simultaneously: the significant risks and rewards of ownership of the goods have been transferred to the buyer by the enterprise; the enterprise retains neither continuous 119 Konka Group Co., Ltd. Interim Report 2018 management right that usually keeps relation with the ownership nor effective control over the sold goods; the relevant amount of revenue can be measured in a reliable way; the relevant economic benefits may flow into the enterprise; and the relevant costs incurred or to be incurred can be measured in a reliable way. The recognition of revenue from commodities for the home market when shipping the goods or transferring property in goods; for goods exported, the revenue shall be recognized once the goods are cleared through customs and delivered to the carrier designated by the purchaser. (2) Providing labour services If the Group can reliably estimate the outcome of a transaction concerning the labour services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method on the date of the balance sheet. The completed proportion of a transaction concerning the providing of labour services shall be decided by the proportion of the labour service already provided to the total labour service to provide. The outcome of a transaction concerning the providing of labour services can be measured in a reliable way, means that the following conditions shall be met simultaneously: ① The amount of revenue can be measured in a reliable way; ② The relevant economic benefits are likely to flow into the enterprise; ③ The schedule of completion under the transaction can be confirmed in a reliable way; and ④ The costs incurred or to be incurred in the transaction can be measured in a reliable way. If the outcome of a transaction concerning the providing of labour services cannot be measured in a reliable way, the revenue from the providing of labour services shall be recognized in accordance with the amount of the cost of labour services incurred and expected to be compensated, and make the cost of labour services incurred as the current expenses. If it is predicted that the cost of labour services incurred couldn’t be compensated, thus no revenue shall be recognized. Where a contract or agreement signed between Group and other enterprises concerns selling goods and providing of labour services, if the part of sale of goods and the part of providing labour services can be distinguished from each other and can be measured respectively, the part of sale of goods and the part of providing labour services shall be treated respectively. If the part of selling goods and the part of providing labour services cannot be distinguished 120 Konka Group Co., Ltd. Interim Report 2018 from each other, or if the part of sale of goods and the part of providing labour services can be distinguished from each other but cannot be measured respectively, both parts shall be conducted as selling goods. (3) Recognition method of the sales revenues of real estate The Group had signed the sales contract with the real estate had completed and be examined qualified, and reached the referable using conditions agreed by the sales contract as well as at the same time the housing accounts had been recognized the realize of the sales revenues when received with full amount according to the sales contract. (4) Royalty revenue In accordance with relevant contract or agreement, the amount of royalty revenue should be recognized as revenue on accrual basis. (5) Interest revenue The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the Group’s monetary fund is used by others and the agreed interest rate. (6) Property leasing revenue For the recognition method of the property leasing revenue, please refer to Notes IV. 26. (7) Factoring business revenue Take the paid-in factoring payment as the fair value to carry out initial measurement. Subsequent measurement shall be carried out as per the effective interest method according to the amortized cost. Take the balance between the fair value initially confirmed and transferred amount of accounts receivable or face value of notes receivable as the interest income by effective interests method and amortized costs during the financing period or the rest credit period; interest income shall be recognized by straight-line method if it is due within 1 year. The profits and losses from termination of recognition, impairment, and amortization shall be included into the current profits and losses. (8) Construction contract income Under circumstance of that the outcome of the construction contract can be reliably estimated, the contract income and costs are confirmed on the balance sheet date in accordance with the percentage of completion method. The completion of the contract is determined by the proportion of the contracted work that has been completed to the estimated total workload of the contract. 121 Konka Group Co., Ltd. Interim Report 2018 That the result of the construction contract can be reliably estimated refers to that: ① the total income of the contract can be reliably measured; ②the economic benefits related to the contract are likely to flow into the enterprise; ③ The actual contract costs can be clearly differentiated and reliably measured; ④ the completion of the contract and the costs needed to complete the contract can be reliably determined. If the result of the construction contract cannot be reliably estimated, but the contract cost can be recovered, the contract income can be confirmed according to the actual contract cost that can be recovered, and the contract cost is confirmed as the contract expense in the current occurring period; for the contract cost that cannot be recovered, it is immediately confirmed as the contract cost but not the contract income when it occurs. If the uncertainties that make the results of the construction contract cannot be reliably estimated are no longer in existence, the income and expenses related to the construction contract are determined according to the percentage of completion method. If the estimated total cost of the contract exceeds the total contract income, the estimated loss is confirmed as the current expense. The accumulated costs incurred in the contract in progress, the accumulated recognized gross profit (loss) and the settled price are stated in the balance sheet as net offset. The part of the sum of the accumulated costs incurred in the contract in progress and the accumulated recognized gross profit (loss) that exceeds the settled price is stated as the inventory; the part of the settlement costs of the contract in progress that exceeds the sum of the accumulated costs incurred and the accumulated recognized gross profit (loss) are stated as account collected in advance. For the provision of business for government and social capital cooperation (PPP) to participate in the public infrastructure construction, the Company confirms the relevant income and expenses for the construction services provided in accordance with the Accounting Standards for Business Enterprises No. 15 - Construction Contract; during the project construction period. After completing the construction of the infrastructure, the Company confirms the income and expenses related to the follow-up business services in accordance with the Accounting Standards for Business Enterprises No. 14 - Income. (9) The business income of BOT and BT confirms that the Company adopts the BOT to participate in the public infrastructure construction business. And if the infrastructure construction is contracted to other parties without providing the actual construction services, the Company doesn ’ t confirm the construction service income, and considers the contract provisions according to the project price paid in construction process and ensures the financial assets or intangible assets. 122 Konka Group Co., Ltd. Interim Report 2018 The contract stipulates that the Company has the right to charge the object of obtaining the service within a certain period of operation after the completion of the relevant infrastructure. If the amount of the fee is determined, it is confirmed as the financial asset; if the amount of the fee is uncertain, it is confirmed as the intangible asset. The processing principles for BOT business can also be applied to some cases, such as that the Company builds or purchases infrastructure from a third party for the purpose of the service agreement, or the current infrastructure business and BT business that the contractual grantor provides to the Company based on the service agreement. For the expenses specified by the relevant service agreement that belong to routine maintenance management fees, the Company will directly include it in the profit and loss during the period of service provision. If the compensation for the relevant maintenance and management fee is sure to be received or is received from the government, it shall be included in the operating income when providing the service, and shall be matched with the relevant expenses. The Company mainly provides integrated solutions for water treatment and sells industrial automation products. The income recognition conditions for providing integrated solutions for water treatment: the Company confirms the sales revenue based on the completion schedule approved by both parties and carries down the sales cost. The income recognition conditions for Revenue recognition conditions for selling industrial automation products: the Company has delivered the products to the purchaser according to the contract, and the products that need to be accepted have passed the acceptance of the purchaser, and the amount of sales income of the products has been determined. The relevant economic benefits are likely to flow in, and the related costs of products can be reliably measured. 24. Government Subsidies A government subsidy means the monetary or non-monetary assets obtained free by the Group from the government, but excluding the capital invested by the government as the investor with corresponding owner’s equity. Government subsidies consist of the government subsidies pertinent to assets and government subsidies pertinent to income. Government subsidy that is obtained by this Company used for purchasing or acquisition and construction, or forming the long-term assets by other ways, which is confirmed the government subsidy related to assets; Other government subsidies shall be defined as the government subsidy that related with interest. If it does not clear the subsidy object in the government document, the grants will be divided based on the following modes into government subsidy related to earnings and government subsidy related to assets: (1) If the particular project of the grants is clear in the government document, make a division according to the relative proportion of 123 Konka Group Co., Ltd. Interim Report 2018 expense amount of the formed assets in the budget of the particular project and the expense amount included in the cost, shall review the division ratio required at each balance sheet date and make changes if necessary; (2) Only make general statements for the application in the government document, for not specifying the particular item, as the governmental subsidy related to earnings. If a government subsidy is a monetary asset, it shall be measured in the light of the received or receivable amount. If a government subsidy is a non-monetary asset, it shall be measured at its fair value. If its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount. The government subsidies measured at their nominal amounts shall be directly included in the current profits and losses. When this Company actually received the government subsidy, recognize and measure as the actual measured amount. If the government grants related to assets are recognized as deferred income and are included in the profits and losses by instalments in a reasonable and systematic way within the service life of underlying assets. The government grants related to income, using to compensate the relevant expenses or losses in the later period shall be recognized as the deferred income and are included in the current profit or loss in the period of confirming the related expenses or losses; If the government grant is used for compensating the occurred costs or loss, include it in the current profit and loss directly. At the same time, for the government subsidies related to assets and profits, carry out different accounting processing for different parts; for the governmental subsidy hard to differentiate, the overall governmental subsidies are taken as the governmental subsidy related to revenue. The government grants related to daily activities of this Company shall be included in other revenues or offset related costs according to the economic business nature; Government subsidies unrelated to daily activities shall be included into the non-operating profits. If the governmental subsidies confirmed needs to be returned and there is the deferred earnings balance concerned, the book balance of relevant deferred earnings shall be offset against, but the excessive part shall be included into current profits and losses; Government subsidies belonging to other situations shall be directly included into current losses and profits. 25. Deferred Income Tax Assets/Deferred Income Tax Liabilities (1) Income tax of the current period On the balance sheet date, for the current income tax liabilities (or assets) of the current 124 Konka Group Co., Ltd. Interim Report 2018 period as well as the part formed during the previous period, should be measured by the income tax of the estimated payable (returnable) amount which be calculated according to the regulations of the tax law. The amount of the income tax payable which is based by the calculation of the current income tax expenses, are according to the result measured from the corresponding adjustment of the pre-tax accounting profit of 2014 which in accord to the relevant regulations of the tax law. (2) Deferred income tax assets and deferred income tax liabilities The difference between the book value of certain assets and liabilities and their tax assessment basis, as well as the temporary difference occurs from the difference between the book value of the items which not be recognized as assets and liabilities but could confirm their tax assessment basis according to the regulations of the tax law, the deferred income tax assets and the deferred income tax liabilities should be recognized by adopting liabilities law of the balance sheet. No deferred tax liability is recognized for a temporary difference arising from the initial recognition of goodwill, the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). Besides, no deferred tax assets is recognized for the taxable temporary differences related to the investments of subsidiary companies, associated enterprises and joint enterprises, and the investing enterprise can control the time of the reverse of temporary differences as well as the temporary differences are unlikely to be reversed in the excepted future. Otherwise, the Group should recognize the deferred income tax liabilities arising from other taxable temporary difference. No deferred taxable assets should be recognized for the deductible temporary difference of initial recognition of assets and liabilities arising from the transaction which is not business combination, the accounting profits will not be affected, nor will the taxable amount or deductible loss be affected at the time of transaction. Besides, no deferred taxable assets should be recognized for the deductible temporary difference related to the investments of the subsidiary companies, associated enterprises and joint enterprises, which are not likely to be reversed in the expected future or is not likely to acquire any amount of taxable income tax that may be used for making up such deductible temporary differences. Otherwise, the Company shall recognize the deferred income tax assets arising from a deductible temporary difference basing on the extent of the amount of the taxable income that is likely to be 125 Konka Group Co., Ltd. Interim Report 2018 acquired to make up such deductible temporary differences For any deductible loss or tax deduction that can be carried forward to the next year, the corresponding deferred income tax asset shall be determined to the extent that the amount of future taxable income to be offset by the deductible loss or tax deduction to be likely obtained. On the balance sheet date, the deferred income tax assets and the deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. The book value of deferred income tax assets shall be reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of the deferred income tax asset, the book value of the deferred income tax assets shall be written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. (3) Income tax expenses Income tax expenses include current income tax and deferred income tax. The rest current income tax and the deferred income tax expenses or revenue should be included into current gains and losses except for the current income tax and the deferred income tax related to the transaction and events that be confirmed as other comprehensive income or be directly included in the shareholders’ equity which should be included in other comprehensive income or shareholders ’ equity as well as the book value for adjusting the goodwill of the deferred income tax occurs from the business combination. (4) Offset of income tax The current income tax assets and liabilities of the Group should be listed by the written-off net amount which intend to executes the net amount settlement as well as the assets acquiring and liabilities liquidation at the same time while owns the legal rights of settling the net amount. The deferred income tax assets and liabilities of the Group should be listed as written-off net amount when having the legal rights of settling the current income tax assets and liabilities by net amount and the deferred income tax and liabilities is relevant to the income tax which be collected from the same taxpaying bodies by the same tax collection and administration department or is relevant to the different taxpaying bodies but during each period which there is significant reverse of the deferred income assets and liabilities in the future and among 126 Konka Group Co., Ltd. Interim Report 2018 which the involved taxpaying bodies intend to settle the current income tax and liabilities by net amount or are at the same time acquire the asset as well as liquidate the liabilities. 26. Leasing Financing leasing virtually transferred the whole risks and leasing of the compensation related to the assets ownership and their ownership may eventually be transferred or maybe not. Other leasing except for the financing leasing is operating leasing. (1) Business of operating leases recorded by the Group as the lessee The rent expenses from operating leases shall be recorded by the lessee in the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs shall be recognized as the profits and losses of the current period. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (2) Business of operating leases recorded by the Group as the lessor The rent incomes from operating leases shall be recognized as the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs of great amount shall be capitalized when incurred, and be recorded into current profits and losses in accordance with the same basis for recognition of rent incomes over the whole lease term. The initial direct costs of small amount shall be recorded into current profits and losses when incurred. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (3) Business of finance leases recorded by the Group as the lessee On the lease beginning date, the Group shall record the lower one of the fair value of the leased asset and the present value of the minimum lease payments on the lease beginning date as the entering value in an account, recognize the amount of the minimum lease payments as the entering value in an account of long-term account payable, and treat the balance between the recorded amount of the leased asset and the long-term account payable as unrecognized financing charges. Besides, the initial direct costs directly attributable to the leased item incurred during the process of lease negotiating and signing the leasing agreement shall be recorded in the asset value of the current period. The balance through deducting unrecognized financing charges from the minimum lease payments shall be respectively stated in long-term liabilities and long-term liabilities due within 1 year. Unrecognized financing charges shall be adopted by the effective interest rate method in the 127 Konka Group Co., Ltd. Interim Report 2018 lease term, so as to calculate and recognize current financing charges. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (4) Business of finance leases recorded by the Group as the lessor On the beginning date of the lease term, the Group shall recognize the sum of the minimum lease receipts on the lease beginning date and the initial direct costs as the entering value in an account of the financing lease values receivable, and record the unguaranteed residual value at the same time. The balance between the sum of the minimum lease receipts, the initial direct costs and the unguaranteed residual value and the sum of their present values shall be recognized as unrealized financing income. The balance through deducting unrealized financing incomes from the finance lease accounts receivable shall be respectively stated in long-term claims and long-term claims due within 1 year. Unrecognized financing incomes shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing revenues. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. 27. Other Main Accounting Policies and Estimates Termination of operation refers to a separately identifiable constituent part that satisfies one of the following conditions that has been disposed of by the Company or is classified as held-for-sale: This constituent part represents an independent main business or a separate main business area; This constituent part is part of an associated plan that is intended to be disposed of in an independent main business or a separate major business area; This constituent part is a subsidiary that is specifically acquired for resale. For accounting method of termination of operation, please refer to relevant description of Notes IV. 12 “Assets held for sale and disposal group” 28. Changes in Main Accounting Policies and Estimates (1) Changes of accounting policies Changes of accounting policies resulted from implementing new Accounting Standards for Business Enterprises: On 28 April 2017, the Ministry of Finance issued the Accounting Standards for Business Enterprises No. 42 - Non-current Assets and Disposal Groups Held for Sale and Termination of Operations (CaiKuai [2017] No. 13), which is required to be implemented from the date of 28 May 2017. On 10 May 2017, the Ministry of Finance issued the Accounting Standards for Business Enterprises No. 16-Governmental Subsidies (revised in 2017) (CaiKuai [2017] No. 15), which is required to be implemented from the date of 12 June 2017. The Company 128 Konka Group Co., Ltd. Interim Report 2018 began to implement the two above-mentioned accounting standards according to the time required by the Ministry of Finance. The Accounting Standards for Business Enterprises No. 42 - Non-current Assets and Disposal Groups Held for Sale and Termination of Operations specified the classification, measurement, presentation and disclosure of non-current assets and disposal group held for sale, and the presentation and disclosure of termination of operations. The financial statement has already adjusted the termination of operation existed on the date of implementation (28 May 2017) and presentation of comparative annual financial statement and the disclosure of annotations according to the Standards. The above-mentioned changes of accounting policies had no influences on the data of last year of the Company, so there was no need to retroactively adjust. Before implementing the Accounting Standards for Business Enterprises No. 16-Governmental Subsidies (revised in 2017), the Company included the obtained governmental subsidies into non-operating income; the governmental subsidies related to assets were recognized as deferred income, which is amortized averagely within the useful life and included into current gains and losses. After implementing the Accounting Standards for Business Enterprises No. 16-Governmental Subsidies (revised in 2017), the governmental subsidies related to routine activities occurred after 1 January 2017 were included into other income; the governmental subsidies have nothing to do with routine activities were included into non-operating income and expense. (2) Change of accounting estimates There was no any change of accounting estimate of the Company in the Reporting Period. 29. Critical Accounting Judgments and Estimates Due to the inside uncertainty of operating activity, the Group needed to make judgments, estimates and assumption on the book value of the accounts without accurate measurement during the employment of accounting policies. And these judgments, estimates and assumption were made basing on the prior experience of the senior executives of the Group, as well as in consideration of other factors. These judgments, estimates and assumption would also affect the report amount of income, costs, assets and liabilities, as well as the disclosure of contingent liabilities on balance sheet date. However, the uncertainty of these estimates was likely to cause significant adjustment on the book value of the affected assets and liabilities. The Group would check periodically the above judgments, estimates and assumption on the basis of continuing operation. For the changes in accounting estimates only affected on the 129 Konka Group Co., Ltd. Interim Report 2018 current period, the influence should be recognized at the period of change occurred; for the changes in accounting estimates affected the current period and also the future period, the influence should be recognized at the period of change occurred and future period. On the balance sheet date, the Group needed to make judgments, estimates and assumption on the accounts in the following important items: (1) Revenue Recognition - Construction Contract If the construction contract results can be reliably estimated, the Company adopts the method of completion percentage to confirm the contract income on the balance sheet date. The percentage of contract completion is confirmed in accordance with the method described in Note IV, 23, Revenue, and is cumulatively calculated in each fiscal year in which each construction contract is executed. Significant judgment is required in determining the percentage of completion, contract costs incurred, estimated total contract income and total cost, and contract recyclability, and the project management personnel usually make judgments mainly based on past experience and work. The estimated total contract income and total cost, as well as estimated changes in contract execution results, may have an impact on operating income, operating costs, and profit or loss for the current or subsequent period of the change, and may have a significant impact. (2) Categorization of leasing In accordance with Accounting Standards for Enterprises No. 21 – Leasing, the Group categorized the leasing into operating lease and finance lease. During the categorization, the management level needed to make analysis and judgment on whether all the risk and compensation related with the leased assets had been transferred to the leasee, or whether the Group had already undertaken all the risk and compensation related with the leased assets. (3) Provision for bad debts In accordance with the accounting policies of accounts receivable, the Group measured the losses for bad debts by adopting allowance method. The impairment of accounts receivable was based on the appraisal of the recoverability of accounts receivable. The impairment of accounts receivable was dependent on the judgment and estimates. The actual amount and the difference of previous estimates would affect the book value of accounts receivable and the withdrawal and reversal on provision for bad debts of accounts receivable during the period of estimates being changed. (4) Provision for falling price of inventories 130 Konka Group Co., Ltd. Interim Report 2018 In accordance with the accounting policies of inventories, for the inventories that the costs were more than the net realizable value as well as out-of-date and dull-sale inventories, the Group withdrawn the provision for falling price of inventories on the lower one between costs and net realizable value. Evaluating the falling price of inventories needed the management level gain the valid evidence and take full consideration of the purpose of inventories, influence of events after balance sheet date and other factors, and then made relevant judgments and estimates. The actual amount and the difference of previous estimates would affect the book value of inventories and the withdrawal and reversal on provision for bad debts of inventories during the period of estimates being changed. (5) The fair value of financial instrument For the financial instruments without active market, the Group recognized the fair value by various methods. These evaluation methods included discounted cash flow mode analysis, etc. The Group needed to estimate the future cash flow, credit risk, fluctuation rate of market and relativity and other factors, as well as choose the property discount rate. Due to the uncertainty of relevant assumptions, so their changes would affect the fair value of financial instrument. (6) Held-to-maturity investments The Company classifies the non-derivative financial asset with a fixed or determinable amount of repo price, and a fixed date of maturity, which the enterprise holds for a definite purpose or the enterprise is able to hold until its maturity, to held-to-maturity investment. Such classification concerns lots of judgments. During the judgment process, the Company will assess the purpose and capability for holding such kind of investment to maturity. Except for special cases (for example, selling investment with no-large amount when the maturity date is closely to come), if the Company can ’ t hold the investment to maturity date, the Company should re-classify all that investment to available-for-sale financial assets, and shouldn’t classify those financial assets into hold-to-maturity investment in the current fiscal year and the next two complete fiscal years. Such cases may have significant impact on related financial assets value stated in financial statements, and may influence the risk management strategy for financial tools of the Company. (7) Impairment of held-to-maturity investment The decision about confirming the impairment of the investment held-to-maturity by the Company depends on the judgment of the management layer to a great extent. The objective 131 Konka Group Co., Ltd. Interim Report 2018 evidences of the occurrence of the impairment include there is serious financial difficulties of the issuer which lead the financial assets could not be continued to deal in the active market and could not execute the clauses of the contracts (for example, to pay for the interests or the principal occurs default) and so on. When executing the judgment, the Company should assess the influences of the objective evidences of the occurrence of the impairment on the estimated future cash flow of the investment. (8) The impairment of financial assets available for sale The Group judged whether the financial assets available for sale were impaired relying heavily on the judgment and assumption of the management team, so as to decide whether recognized the impairment losses in the income statement. During the process of making the judgment and assumption, the Group needed to appraise the balance of the cost of the investment exceeding its fair value and the continuous period, the financial status and business forecast in a short period, including the industrial situation, technical reform, credit level, default rate and risk of counterparty. (9) Provision for impairment of long-term assets The Group made a judgment on the non-current assets other than financial assets whether they had any indication of impairment on the balance sheet date. For the intangible assets without finite service life, other than the annual impairment test, they should be subject to the impairment test when there was any indication of impairment. For other non-current non-financial assets, which should be subjected to impairment test when there was indication of impairment indicated that the book value can’t be recoverable. When the book value of the assets or assets portfolio was more than the recoverable amount, which was the higher one between the net amount of fair value after deducting the disposal expenses and the discounted amount of the estimated future cash flow, it means impairment incurred. The net amount of fair value after deducting the disposal expenses should be fixed the price in the sale agreement for similar assets in the fair transaction minus the increased costs directly attributable to the assets disposal. When estimated the discounted value of future cash flow, the Group needed to make important judgment on the output, selling price, relevant costs and the discount rate for calculating the discounted amount, etc. When estimated the recoverable amount, the Group would adopt all the available documents, including the prediction for relevant output, selling 132 Konka Group Co., Ltd. Interim Report 2018 price and relevant operating costs arising from reasonable and supportive assumptions. The Group made the impairment test on goodwill at least one time per year, which required to predict the discounted amount of the future cash flow of the assets or assets portfolio with the distributed good will, for which, the Group needed to predict the future cash flow of the assets or assets portfolio, and adopt the property discounted rate to decide the discounted amount of future cash flow. (10) Depreciation and amortization For the investment real estate, fixed assets and intangible assets, the Group withdrew the depreciation and amortization by adopting the straight-line method during the service life after full consideration of the salvage value. The Group checked the service life periodically so as to decide the amount of depreciation and amortization at each Reporting Period. The service life was fixed by the Group in accordance with the previous experience of the similar assets and the expected technical update. If there was any significant change on the previous estimates, the depreciation and amortization expenses should be adjusted. (11) Deferred income tax assets Within the limit that it was likely to have sufficient taxable profits to offset the losses, the Group recognized the deferred income tax assets by all the unused tax losses, which needed the management level of the Group to estimate time and amount of the future taxable profits incurred with many judgments, as well as integrate strategy of tax payment, to decide the amount of deferred income tax assets which should be recognized. (12) Income tax During the routine operating activities, there were some uncertainty in the ultimate tax treatment and calculation for parts of transactions. Some accounts of such transaction could be listed as pre-tax expenditures only after the approval of taxation authorities. If there were any differences between the ultimate result of recognition for these taxation maters and their initial estimates, the differences would affect the current income tax and deferred income tax at the period of ultimate recognition. (13) Internal early retirement welfare and supplementary retirement welfare Amounts of expenditures and liabilities of internal early retirement welfare and supplementary retirement welfare should be determined according to assumption terms. Assumption terms include discount rate, average growth rate of medical costs, growth rate of subsidies for early retirement employees and retirees and other factors. The differences of 133 Konka Group Co., Ltd. Interim Report 2018 actual results and assumption should be confirmed immediately and included into costs of current year. Although the management have adopted reasonable assumption terms, changes of actual experience value and assumption terms may affect the internal early retirement welfare, supplementary retirement benefits and balance of liabilities. (14) Estimated liabilities The Group made the estimation on product quality guarantee, predicted loss of contract and the fine for delayed delivery etc. and withdrew the relevant provision for estimated liabilities in accordance the provisions of contract, current knowledge and experience. Under the condition that the contingent event has formed a current duty and fulfilling the duty is likely to cause the economical interest outflow the Group, the Group measures the estimated liabilities in accordance with the best estimate of the necessary expenses for the performance of the current duty. The recognition and measurement of estimated liabilities were heavily relied on the judgment of the management team. During the process of making judgment, the Group needed to appraise the relevant risks, uncertainty and the time value of money and etc. Of which, the Group estimated the liabilities basing on the after-sale services commitments to the customers upon the sale, repair and reform of goods. When estimating the liabilities, the Group has fully taken the consideration of the latest repair experience, but which may not reflect the repair situation in the future. Any increase / decrease of the provision for estimated liabilities may affect the profits and losses in the future periods. (15) Measurement for fair value Some assets and liabilities of this Company will be measured at fair value in the financial statements. The board of directors of this Company has established the appraisement committee (led by the CFO of this Company) to confirm appropriate appraisement technology and input value for measurement of fair value. This Company will apply available and observable market data during estimating the fair value of some assets and liabilities. If the input value in Level 1 is not available, this Company will entrust a third qualified appraiser for the estimation. The appraisement committee will closely cooperate with the outside appraiser to determine proper estimation technology and input values of the related models. CFO submits a report to the discoveries of the appraisement committee to the board of directors of this Company to explain the reasons of fluctuation of fair value of related assets and liabilities. Related information of the appraisement technology and input value during the process of confirming the fair value of various assets and liabilities shall be disclosed in Note X. V. Taxation 134 Konka Group Co., Ltd. Interim Report 2018 1. Main Taxes and Tax Rate Category of taxes Specific situation of the taxes rate Calculated the output tax at 3%, 5%, 6%, 10%, 11%, 13%, 16%, 17% and paid the VAT by the amount after deducting the deductible withholding VAT at VAT current period, of which the VAT applicable to easy collection won’t belong to the deductible withholding VAT. Paid at 7% of the circulating tax actually paid, of which Dongguan Packing, Urban maintenance and construction tax Dongguan Konka, Boluo Konka, Boluo Konka Precision, and Kunshan Kangsheng of 5%. Hong Kong Konka, Konka Household Appliances Investment, Konka Household Appliances International Trading, Konka Zhisheng, and Chain Kingdom of 16.5%; Telecommunication Technology, Dongguan Konka, Anhui Enterprise income tax Konka, E-display, Kangqiao Easy Chain, and Wankaida and Chongqing Qingjia, Commercial System Technology, and Econ Technology of 15%; and Europe Konka of 31%. The Company as the parent and the other subsidiaries paid at 25% of the taxable income. Education surtax Paid at 3% of the circulating tax actually paid. Local education surtax Paid at 2% of the circulating tax actually paid. Foundation for water works Paid at 1% and 0.5% of the circulating tax actually paid. Note: (1) In accordance with the Notice on Printing the Administration Method on Charging and Use of the Treatment Funds of Discarded Electronic Appliance and Electric Products issued by the Ministry of Finance, Ministry of Environmental Protection, National Development and Reform Commission, Ministry of Industry and Information, General Administration of Customs and National Taxation Bureau (CZ [2012] No. 34), and the Administration Method on Charging and Use of the Treatment Funds of Discarded Electronic Appliance and Electric Products issued by National Taxation Bureau (GJSWZJGG [2012] No. 41), the domestic manufacturer of the electrical appliances and electronic products of PRC started to pay the treatment funds for discarded electrical appliance and electronic products according the sales volume (trusted processing amount) and relevant charging standards from 1 July 2012. According to the regulations, the Group’s charging standards were RMB13 per set of TV, RMB12 per set of refrigerator and RMB7 per set of washing machine. (2) According to regulations of Temporary Provisions of Income Tax of Trans-boundary Tax Payment Enterprises by State Administration of Taxation, resident enterprises without 135 Konka Group Co., Ltd. Interim Report 2018 business establishment or places of legal persons should be tax payment enterprises with the administrative measures of income tax of “unified computing, level-to-level administration, local prepayment, liquidation summary, and finance transfer ” . It came into force from 1 January 2008. According to the above methods, the Company ’s sales branch companies in each area will hand in the corporate income taxes in advance from 1 January 2008 and will be final settled uniformly by the Company at the year-end. (3) According to the document of Finance and Taxation [2018] No. 32 issued by the Ministry of Finance and the State Administration of Taxation, for the taxpayers who have taxable sales behaviors of VAT, the tax rates shall be adjusted from originally applicable 17% and 11% to 16% and 10% respectively from 1 May 2018. 2. Tax Preference and Approved Documents (1) On 31 October 2017, Shenzhen Konka Telecommunications Technology Co., Ltd., the subsidiary of this Company obtained the high-tech enterprise certificate (certificate No.: GR201444201722) jointly issued by Shenzhen Technology Innovation Committee, Finance Commission of Shenzhen Municipality, Shenzhen Municipal Office, SAT, Shenzhen Local Taxation Bureau, with a valid period of three years. According to related taxation regulations, Shenzhen Konka Telecommunications Technology Co., Ltd. enjoys related taxation preferential policies as a high-tech enterprise from 2017 to 2019 and pays the enterprise income tax as per the preferential tax rate of 15%. (2) On 31 October 2017, Wankaida, the subsidiary of this Company obtained the High-tech Enterprise Certificate (certificate No.: GR201744204716) joint issued by Shenzhen Technology Innovation Committee, Finance Committee of Shenzhen Municipality, Shenzhen Municipal Office, SAT and Shenzhen Local Taxation Bureau with a valid period of three years. According to related taxation regulations, Wankaida enjoys related taxation preferential policies as a high-tech enterprise from 2017 to 2019and pays the enterprise income tax as per the referential tax rate of 15%. (3) On 1 November 2017, Dongguan Konka Electronic Co., Ltd., the subsidiary of this Company obtained the High-tech Enterprise Certificate (certificate No.: GR201744003812) jointly issued by Department of Science and Technology of Guangdong Province, Department of Finance of Guangdong Province, Guangdong Provincial Office, SAT, Guangdong Local Taxation Bureau with a valid period of three years. According to related taxation regulations, the company enjoys related taxation preferential policies as a high-tech enterprise from 2017 to 2019 and pays the enterprise income tax as per the preferential tax rate of 15%. 136 Konka Group Co., Ltd. Interim Report 2018 (4) On 21 October 2016, the subsidiary of the Company, Anhui Konka acquired the certificate of high-technology enterprises joint issued by Anhui Province Science and Technology Department, Department of Finance of Anhui Province, Anhui Provincial Office, SAT, and Anhui Local Taxation Bureau with the certification number of GR201634000520 and the validity of three years. According to the relevant taxation regulations, the Anhui Konka could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2016 to 2018, and pay for the corporate income tax according to 15% of the preferential tax rate. (5) On 21 November 2016, the subsidiary of the Company, Konka E-display acquired the certificate of high-technology enterprises joint issued by Shenzhen Science and Technology Innovation Committee, Finance Commission of Shenzhen Municipality, Shenzhen Municipal Office, SAT, and Shenzhen Local Taxation Bureau with the certification number of GR201644201332 and the validity of three years. According to the relevant taxation regulations, the Konka E-display could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2016 to 2018, and pay for the corporate income tax according to 15% of the preferential tax rate. (6) On 31 October 2017, Shenzhen Konka Commercial System Technology Co., Ltd., the subsidiary of this Company obtained the high-tech enterprise certificate (certificate No.: GR201744202349) jointly issued by Shenzhen Technology Innovation Committee, Finance Committee of Shenzhen Municipality, Shenzhen Municipal Office, SAT, Shenzhen Local Taxation Bureau with a valid period of three years. According to related taxation regulations, the company enjoys related taxation preferential policies as a high-tech enterprise from 2017 to 2019 and pays the enterprise income tax as per the preferential tax rate of 15%. (7) According to Notice about Related Taxation Policy Problems of Further Implementation of the Western Development Strategy CS [2011] No. 58, Chongqing Qingjia, the subsidiary of this Company pays the enterprise income tax as per the referential tax rate of 15% from 1 January 2011 to 31 December 2020. (8) According to the Overall Development Plan on Shenzhen-Hong Kong Cooperation on Modern Service Industries in Qianhai Area approved by the State Council and the Industry Access Catalogue of Modern Service Industry in Qianhai, Shenzhen issued by the National Development and Reform Commission, Shenzhen Kangqiao Easy Chain Technology Co., Ltd., a subsidiary of the Company was established in Qianhai, and enjoyed a 15% income tax rate, and the privileges in Qianhai can be superimposed with others. (9) According to the fiscal and taxation document [2011] No. 100 published by the Ministry 137 Konka Group Co., Ltd. Interim Report 2018 of Finance and the State Administration of Taxation, for the VAT general taxpayers who sell their self-developed and produced software products, the VAT shall be levied at the rate of 17%, and then the part that the actual tax burden on their VAT exceeds 3 will be implemented with the policy of immediate withdrawal. The Company and its subsidiaries, Telecommunication Technology, Wankaida Technology, and E-display Service all enjoy this preferential policy. (10) On 28 December 2017, Econ Technology, a subsidiary of the Company, obtained the High-tech Enterprise Certificate, certificate No.: GR201737001495, valid for three years. According to the relevant tax regulations, the Telecommunication Technology enjoys related tax incentives for high-tech companies for three consecutive years from 2017 to 2019 and is subject to corporate income tax at a preferential rate of 15%. (11) According to the regulations of the Special Catalogue of VAT Concessions for Products and Labors with Comprehensive Utilization of Resources issued by the Ministry of Finance and the State Administration of Taxation (Finance and Taxation [2015] No. 78), the wastewater treatment business operated by Lairun Holdings belongs to the this catalogue. Then after it has been levied the VAT at a rate of 17 %, the actual tax burden on the wastewater treatment income tax will be refunded in accordance with the 70% of the actual tax burden, and the actual tax burden on the renewable water income VAT will be refunded immediately at 50%. That Lairun Holdings enjoyed the tax concession was registered and recorded in August 2017 in Laizhou Taxation Bureau of Shandong Province. (12) As mentioned in (11), Laizhou Binhai Sewage Treatment Co., Ltd. enjoys the policy of immediate withdrawal of VAT levied for the income of sewage treatment. The Binhai Company was registered and recorded in December 2017 in Laizhou Taxation Bureau of Shandong Province. (13) According to the Notice on Promoting the Development of VAT, Business Tax and Enterprise Income Tax Policy for Energy-Saving Service Industry issued by the Ministry of Finance and the State Administration of Taxation (Finance and Taxation [2010] No. 110), Lairun Holdings enjoys the preferential policy of tax exemptions since 2017 for three years and halved in next three years. (14) As mentioned in (13), Laizhou Binhai Sewage Treatment Co., Ltd. enjoys the preferential policy of tax exemptions since 2017 for three years and halved in next three years. VI. Notes on Major Items in Consolidated Financial Statements of the Company Unless otherwise noted, the following annotation project (including the main projects annotation of the financial statement of the Company), the period-begin refers to 1 January 138 Konka Group Co., Ltd. Interim Report 2018 2018, the period-end refers to 30 June 2018 and this period refers to January – June 2018 with the last period of January – June 2017. 1. Monetary Funds Item Ending balance Beginning balance Cash on hand 122,746.45 49,343.08 Bank deposits 3,761,865,889.21 3,097,850,360.68 Other monetary funds 149,831,518.94 114,145,147.32 Total 3,911,820,154.60 3,212,044,851.08 Of which: total amount deposited in overseas 188,007,556.28 535,621,931.96 Notes: The ending balance of other monetary fund was the deposits of each margin deposit not withdrawn at any time. On 30 June 2018, the monetary funds deposited in overseas by the Company was RMB188,007,556.28 2. Financial Assets at Fair Value through Profit or Loss Item Ending balance Beginning balance Income from agreement of forward foreign 14,497,221.94 296,799.53 exchange purchase Transactional financial assets — — Total 14,497,221.94 296,799.53 3. Notes Receivable (1) Notes Receivable Listed by Category Item Ending balance Beginning balance Bank acceptance bill 2,174,328,097.06 3,324,023,541.23 Trade acceptance bill 2,440,923,143.51 1,854,645,447.00 Total 4,615,251,240.57 5,178,668,988.23 (2) Notes Receivable Pledged by the Company at the Period-end Item Amount Bank acceptance bill 1,414,894,166.20 Trade acceptance bill - Total 1,414,894,166.20 Notes: Up to 30 June 2018, the Company pledged the banker’s acceptance bill of the carrying 139 Konka Group Co., Ltd. Interim Report 2018 value of RMB1,414,894,166.20 for the comprehensive financing business such as handling the billing, letter of credit, letter of guarantee, and the trading financing. (3) Notes Receivable Which had Endorsed by the Company or had Discounted and had not Due on the Balance Sheet Date at the Period-end Amount of recognition termination Amount of not terminated Item at the period-end recognition at the period-end Bank acceptance bill - 10,000,000.00 Commercial acceptance bill - 241,824,358.53 Total - 251,824,358.53 Note: Up to 30 June 2018, the Company used the trade acceptance bill of the carrying value of RMB241,824,358.53 as discount of bank with right of recourse, getting RMB227,979,976.51 of short-term borrowings, and used the bank acceptance bill of the carrying value of RMB10,000,000.00 as discount of bank with right of recourse, getting RMB9,545,000.00 of short-term borrowings. 4. Accounts Receivable (1) Accounts Receivable Disclosed by Category Ending balance Carrying amount Bad debt provision Category Withdrawal Proportion Carrying value Amount Amount proportion (%) (%) Accounts receivable with significant individual amount 100.00 - 23,544,065.47 0.49 23,544,065.47 and make independent provision for bad debt Accounts receivable withdrawn bad debt provision according to - - - - credit risks characteristics Group 1: aging group 5.84 4,690,073,018.72 97.92 273,671,868.15 4,416,401,150.57 Subtotal of groups 5.84 4,690,073,018.72 97.92 273,671,868.15 4,416,401,150.57 140 Konka Group Co., Ltd. Interim Report 2018 Ending balance Carrying amount Bad debt provision Category Withdrawal Proportion Carrying value Amount Amount proportion (%) (%) Accounts receivable with insignificant single amount for 84.28 which bad debt provision 76,275,854.05 1.59 64,286,391.41 11,989,462.64 separately accrued Total 7.55 4,789,892,938.24 100 361,502,325.03 4,428,390,613.21 (Continued) Beginning balance Carrying amount Bad debt provision Withdrawa Category Proportion l Carrying value Amount Amount (%) proportion (%) Accounts receivable with significant individual amount and 23,250,858.84 0.62 23,250,858.84 100.00 — make independent provision for bad debt Accounts receivable withdrawn bad debt provision according to credit risks characteristics Group 1: aging group 3,664,952,156.09 97.62 241,524,112.19 6.59 3,423,428,043.90 Subtotal of groups 3,664,952,156.09 97.62 241,524,112.19 6.59 3,423,428,043.90 Accounts receivable with insignificant single amount for which bad debt provision 65,920,181.32 1.76 46,252,277.96 70.16 19,667,903.36 separately accrued Total 3,754,123,196.25 100.00 311,027,248.99 8.28 3,443,095,947.26 ① Accounts receivable with significant individual amount and make independent provision for bad debt at the period-end Accounts receivable (classified Ending balance by units) 141 Konka Group Co., Ltd. Interim Report 2018 Bad debt Withdrawal Account receivable Withdrawal reason provision proportion (%) Difficult to recover due to the DSC HOLDINGS LIMITED 23,544,065.47 23,544,065.47 100 bankruptcy of that company ② In the groups, accounts receivable adopting aging analysis method to withdraw bad debt provision: Ending balance Aging Withdrawal proportion Account receivable Bad debt provision (%) Within 1 year 4,431,328,061.98 96,707,915.56 2.00-5.00 1 to 2 years 59,120,920.84 3,072,750.80 5.00-10.00 2 to 3 years 31,528,215.41 8,862,752.71 20.00-30.00 3 to 4 years 3,265,899.42 1,632,949.72 50.00 4 to 5 years 2,869,166.34 1,434,744.63 50.00-80.00 Over 5 years 161,960,754.73 161,960,754.73 100.00 Total 4,690,073,018.72 273,671,868.15 ③ Top five of account receivable with insignificant single amount for which bad debt provision separately accrued Ending balance Accounts receivable (classified by units) Bad debt Withdrawal Withdrawal Account receivable provision proportion (%) reason Difficult to H-BUSTER DO BRASIL INDUSTRIA 17,980,150.07 17,980,150.07 100 recover Difficult to SUBSIDIARIES OF LITE-ON GROUP 17,433,707.52 17,433,707.52 100 recover Part of it is expected to HENAN BROADCAST & TELEVISION be difficult to NETWORK CO., LTD. 4,580,000.00 1,374,000.00 30 recover Difficult to HILEVEL CONSUMER ITALIA S.P.A 3,374,913.78 3,374,913.78 100 recover Part of it is YUNNAN CABLE NETWORK GROUP expected to be difficult to CO., LTD 2,138,825.00 748,588.75 35 recover 142 Konka Group Co., Ltd. Interim Report 2018 Ending balance Accounts receivable (classified by units) Bad debt Withdrawal Withdrawal Account receivable provision proportion (%) reason Total 45,507,596.37 40,911,360.12 (2) Accounts Receivable Withdraw, Reversed or Collected during the Reporting Period The withdrawal amount of the bad debt provision during the Reporting Period was of RMB29,523,274.52; the amount of the reversed or collected part during the Reporting Period was of RMB17,339,612.15. The increased amount was RMB30,781,473.78 due to the acquirement of controlling right of subsidiaries. The decreased amount was RMB5,196,395.05 due to the loss of controlling right of subsidiaries. The write-off amount was RMB0. (3) Top 5 of the Ending Balance of the Accounts Receivable Collected according to the Arrears Party The total amount of top five of account receivable of ending balance collected by arrears party was RMB1,887,434,278.576, 39.40% of total closing balance of account receivable, the relevant closing balance of bad debt provision withdrawn was RMB37,748,685.57. 5. Prepayment (1) Listed by Aging Analysis Ending amount Beginning amount Carrying amount Carrying amount Aging Bad debt Bad debt Proportion ( Proportion ( Amount provision Amount provision %) %) Within 1 year 897,670,289.17 99.17 340,443.14 466,156,792.72 99.06 175,964.90 1 to 2 years 3,257,733.06 0.36 84,702.50 1,199,279.69 0.25 565,892.65 2 to 3 years 950,621.94 0.11 329,339.03 23,736.73 0.01 — Over 3 years 3,213,629.83 0.36 2,884,290.80 3,208,755.30 0.68 2,723,615.15 Total 905,092,274.00 100.00 3,638,775.47 470,588,564.44 100.00 3,465,472.70 Notes: (1) Significant prepayment with aging more than 1 year was mainly the prepayment of companies with no cooperation. (2) Top 5 of the ending balance of the prepayment collected according to the prepayment target 143 Konka Group Co., Ltd. Interim Report 2018 The total amount of top five of prepayment of closing balance collected by arrears party was RMB485,564,872.80, accounting for 53.65% of total closing balance of prepayment. (3) The withdrawal amount of bad debt provision this year was of RMB228,596.09; the collected or reversed bad debt provision was RMB59,415.35 this year; and the write-off bad debt provision was RMB0. 6. Interest Receivable Item Ending balance Beginning balance Deposit interest 5,506,845.29 1,422,238.38 Entrusted loan interest and 210,456.02 391,018.39 occupation fee of capital Total 5,717,301.31 1,813,256.77 7. Dividends Receivable Investee Ending balance Beginning balance Shenzhen Jielunte Technology Co., Ltd — — Total — — 8. Other Accounts Receivable (1) Other Accounts Receivable Disclosed by Category Ending balance Carrying amount Bad debt provision Category Proportion Withdrawal Carrying value Amount Amount (%) proportion (%) Other accounts receivable with significant single amount for 183,915,489.33 22.64 173,320,694.97 94.24 10,594,794.36 which bad debt provision separately accrued Other accounts receivable withdrawn bad debt provision 0.00 0.00 0.00 0.00 according to credit risks characteristics Group 1: aging group 625,783,203.74 77.05 35,182,845.12 5.62 590,600,358.62 Subtotal of groups 625,783,203.74 77.05 35,182,845.12 5.62 590,600,358.62 144 Konka Group Co., Ltd. Interim Report 2018 Ending balance Carrying amount Bad debt provision Category Proportion Withdrawal Carrying value Amount Amount (%) proportion (%) Other accounts receivable with insignificant single amount 2,515,181.05 0.31 733,893.68 29.18 1,781,287.37 for which bad debt provision separately accrued Total 812,213,874.12 100.00 209,237,433.77 25.76 602,976,440.35 (Continued) Beginning balance Carrying amount Bad debt provision Withdrawa Category Proportion l Carrying value Amount Amount (%) proportion (%) Other accounts receivable with significant single amount for 183,915,489.33 47.74 173,320,694.97 94.24 10,594,794.36 which bad debt provision separately accrued Other accounts receivable withdrawn bad debt provision according to credit risks characteristics Group 1: aging group 198,796,860.68 51.61 28,768,843.02 14.47 170,028,017.66 Subtotal of groups 198,796,860.68 51.61 28,768,843.02 14.47 170,028,017.66 Other accounts receivable with insignificant single 2,516,181.05 0.65 733,893.68 29.17 1,782,287.37 amount for which bad debt provision separately accrued Total 385,228,531.06 100.00 202,823,431.67 52.65 182,405,099.39 Other account receivable with significant single amount for which bad debt provision 145 Konka Group Co., Ltd. Interim Report 2018 separately accrued at the period-end Ending balance Other accounts receivable (unit) Other accounts Withdrawal Bad debt provision Withdrawal reason receivable proportion Energy saving subsidy 152,402,680.00 152,402,680.00 100.00% Difficult to recover Shenzhen Konka Video & Part of it is expected to be Communication Systems 18,115,952.51 7,521,158.15 41.52% difficult to recover Engineering Co., Ltd. Chongqing Konka Auto Electronic Irrecoverable, under Company 13,396,856.82 13,396,856.82 100.00% bankruptcy liquidation Total 183,915,489.33 173,320,694.97 ② In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision: Ending balance Aging Other accounts receivable Bad debt provision Withdrawal proportion (%) Within 1 year 578,597,643.16 12,555,416.81 2.00-5.00 1 to 2 years 16,866,255.09 966,056.61 5.00-10.00 2 to 3 years 6,551,097.99 1,324,426.95 20.00-30.00 3 to 4 years 4,418,555.84 2,209,277.92 50.00 4 to 5 years 2,443,969.67 1,221,984.84 50.00-80.00 Over 5 years 16,905,681.99 16,905,681.99 100.00 Total 625,783,203.74 35,182,845.12 (2) Bad Debt Provision Withdrawal, Reversed or Recovered in the Reporting Period The withdrawal amount of the bad debt provision during the Reporting Period was of RMB 1,814,413.27. The increased bad debt provision was RMB5,662,913.15 due to merger and acquistion; the amount of the reversed or collected part during the Reporting Period was of RMB 771,614.38. The decreased amount was RMB296,147.88 due to the loss of controlling right of subsidiaries. The write-off amount was RMB0. (3) Other Account Receivable Classified by Account Nature Nature Ending carrying amount Energy-saving subsidies 152,402,680.00 146 Konka Group Co., Ltd. Interim Report 2018 Nature Ending carrying amount Intercourse funds of units 481,171,341.62 Deposit and margin 32,732,734.17 Pretty cash 6,811,882.40 Transferred funds 74,564,442.45 Others 64,530,793.48 Total 812,213,874.12 (4) Top 5 Other Accounts Receivable in Ending Balance Collected according to the Arrears Party Proportion of ending balance of Ending balance of Name of units Nature Ending balance Aging the total other bad debt provision accounts receivable National energy-saving and benefiting people 1-2 years, 4-5 years, Subsidies (Energy-saving over 5 years subsidies) 152,402,680.00 19.81 152,402,680.00 Jiangbei District Transferred Within 1 year Housing Authority funds 61,167,585.63 7.95 1,223,351.71 Export tax rebate Tax rebate receivables 31,287,301.48 Within 1 year 4.07 625,746.03 Shenzhen Konka Video & Communication Transferred Systems Engineering funds Co., Ltd. 18,115,952.51 3-4 years 2.35 7,521,158.15 2-3 years, 3-4 years, Chongqing Konka Auto Intercourse 4-5 years, over 5 Electronic Company funds 13,396,856.82 years 1.74 13,396,856.82 Total — 276,370,376.44 35.92 175,169,792.71 9. Inventory (1) Category of Inventory Item Ending balance 147 Konka Group Co., Ltd. Interim Report 2018 Of which: the capitalized Falling price Carrying amount Carrying value reserves amount of the borrowings Development projects of the property: Development cost 563,064,669.44 0.00 563,064,669.44 Development products 11,823,931.07 0.00 11,823,931.07 94,119.39 Subtotal 574,888,600.51 94,119.39 0.00 574,888,600.51 Non-development projects of the property: 0.00 Raw materials 768,744,643.75 30,731,630.56 738,013,013.19 Semi-finished product 73,309,911.45 10,104,501.08 63,205,410.37 Inventory goods 3,785,679,772.30 318,860,184.08 3,466,819,588.22 Turnover material 43,294.21 0.00 43,294.21 Engineering construction 11,265,156.24 0.00 11,265,156.24 Subtotal 4,639,042,777.95 0.00 359,696,315.72 4,279,346,462.23 Total 5,213,931,378.46 94,119.39 359,696,315.72 4,854,235,062.74 (Continued) Beginning balance Of which: the Item capitalized Falling price Carrying amount Carrying value reserves amount of the borrowings Development projects of the property: Development cost 382,096,368.17 — — 382,096,368.17 Development products 17,203,260.25 94,119.39 — 17,203,260.25 Subtotal 399,299,628.42 94,119.39 — 399,299,628.42 148 Konka Group Co., Ltd. Interim Report 2018 Beginning balance Of which: the Item capitalized Falling price Carrying amount Carrying value reserves amount of the borrowings Non-development projects of the property: Raw materials 761,148,857.65 — 22,807,431.06 738,341,426.59 Semi-finished product 112,079,579.22 — 8,475,640.99 103,603,938.23 Inventory goods 3,740,419,327.12 — 291,591,777.78 3,448,827,549.34 Turnover material 291,022.95 — — 291,022.95 Subtotal 4,613,938,786.94 — 322,874,849.83 4,291,063,937.11 Total 5,013,238,415.36 94,119.39 322,874,849.83 4,690,363,565.53 (2) List of the Development Cost Expected completion Name of item Starting time Beginning amount Ending amount time of the next batch Finishing by phases, Phases of Shuiyue Phase IV is estimated to 304,110,330.47 482,049,634.94 Zhouzhuang Project 2015 be finished in 2018 Innovation Center April 2018 December 2022 77,986,037.70 81,015,034.50 Total 382,096,368.17 563,064,669.44 (3) List of the Developed Products Completion Name of item Beginning amount Increased Decreased Ending amount time Shuiyue Zhouzhuang Project Y 2014 3,955,097.73 3,955,097.73 (Phase I) Shuiyue Zhouzhuang Project Y 2015 2,072,508.39 2,072,508.39 (Phase II) Shuiyue Y 2017 11,175,654.13 5,379,329.18 5,796,324.95 149 Konka Group Co., Ltd. Interim Report 2018 Completion Name of item Beginning amount Increased Decreased Ending amount time Zhouzhuang Project (Phase III) Total 17,203,260.25 5,379,329.18 11,823,931.07 (4) Falling Price Reserves of Inventory Increased amount Decreased amount Item Beginning balance Ending balance Withdrawal Other Reverse Write-off Other Raw 22,807,431.06 9,384,807.50 1,257,185.73 399,577.86 2,318,215.87 30,731,630.56 materials Semi-finishe 8,475,640.99 2,653,611.25 0.00 1,024,751.16 10,104,501.08 d product Inventory 291,591,777.78 34,644,733.04 3,456,305.22 127,115.52 2,950,588.67 7,754,927.77 318,860,184.08 goods Total 322,874,849.83 46,683,151.79 4,713,490.95 526,693.38 6,293,555.70 7,754,927.77 359,696,315.72 Notes: other increase was due to the acquisition of control right by merging companies, and other decrease was due to the loss of control right to subsidiaries. (5) Withdrawal Provision Basis of the Falling Price of the Inventory and the Reasons of the Write-off Specific basis of withdrawal of falling price Item Reasons for reverse Reasons for write-off reserves of inventory The realizable net value was lower than the Sold or disposed in the current Raw materials carrying value — period Semi-finished The realizable net value was lower than the Sold or disposed in the current carrying value — period product Inventory The realizable net value was lower than the — Sold in the current period goods carrying value The decrease of inventories ’ market price in the first half year of 2018 resulted into the realizable net value of finished products and relevant raw materials value lower than inventory cost. (6) Ending balance of the inventory which includes capitalized borrowing expenses was RMB 94,119.39. 10. Other Current Assets 150 Konka Group Co., Ltd. Interim Report 2018 Item Ending balance Beginning balance Financial products 320,000,000.00 400,063,013.70 Entrusted financing 887,000,000.00 979,000,000.00 Unreached bank deposits 4,401,110.41 Prepayments and deductible taxes 638,595,871.52 331,862,744.70 Total 1,845,595,871.52 1,715,326,868.81 151 Konka Group Co., Ltd. Interim Report 2018 11. Available-for-sale Financial Assets (1) List of Available-for-sale Financial Assets Ending balance Beginning balance Item Depreciation Carrying amount Carrying value Carrying amount Depreciation reserves Carrying value reserves Available-for-sale equity instruments 702,860,021.97 10,747,785.64 692,112,236.33 722,918,184.73 10,747,785.64 712,170,399.09 Of which: measured at fair value 58,162.76 - 58,162.76 Measured by cost 702,860,021.97 10,747,785.64 692,112,236.33 722,860,021.97 10,747,785.64 712,112,236.33 Total 702,860,021.97 10,747,785.64 692,112,236.33 722,918,184.73 10,747,785.64 712,170,399.09 (2) Available-for-sale Financial Assets Measured by Cost at the Period-end Carrying amount Investee Period-begin Increased Decreased Period-end Shenzhen Qianhai Qingsong Venture Capital Fund Enterprise 20,000,000.00 20,000,000.00 0.00 Shenzhen Tianyilian Science & Technology Co., Ltd. 4,800,000.00 4,800,000.00 Shenzhen A Dot TV Co., Ltd. 5,750,000.00 5,750,000.00 Feihong Electronics Co., Ltd. 1,300,000.00 1,300,000.00 ZAEFI 100,000.00 100,000.00 Shenzhen Chuangce Investment Development Co., Ltd. 485,000.00 485,000.00 Shanlian Information Technology Engineering Center 5,000,000.00 5,000,000.00 Shenzhen CIU Science & Technology Co., Ltd. 1,153,000.00 1,153,000.00 152 Konka Group Co., Ltd. Interim Report 2018 Carrying amount Investee Period-begin Increased Decreased Period-end Shenzhen Digital TV National Engineering Laboratory Co., Ltd. 6,000,000.00 6,000,000.00 Shanghai National Engineering Research Center of Digital TV Co., Ltd. 2,400,000.00 2,400,000.00 ChinaAMC - Jiayi Overseas Orientation Programs 203,000,000.00 203,000,000.00 Hunan Vary Science & Technology Co., Ltd. 47,230,000.00 47,230,000.00 Beijing Konka Technology Co., Ltd 4,700,000.00 4,700,000.00 Yibin OCT Sanjiang Real Estate Co., Ltd 120,000,000.00 120,000,000.00 Enraytek Optoelectronics (Shanghai) Co., Ltd. 61,494,666.97 61,494,666.97 Wuhan Tianyuan Environmental Protection Co., Ltd 239,447,355.00 239,447,355.00 Chongqing Konka Eurotomotive Electronic Co., Ltd. (Note) 0.00 Total 722,860,021.97 0.00 20,000,000.00 702,860,021.97 (Continued) Depreciation reserves Shareholding Cash bonus of the Investee proportion among Period-begin Increased Decreased Period-end Reporting Period the investees (%) Shenzhen Qianhai Qingsong Venture Capital Fund Enterprise — — — — 6.00 — Shenzhen Tianyilian Science & Technology Co., Ltd. — — — — 6.10 — Shenzhen A Dot TV Co., Ltd. 5,750,000.00 — — 5,750,000.00 12.67 — Feihong Electronics Co., Ltd. 1,300,000.00 — — 1,300,000.00 9.60 — 153 Konka Group Co., Ltd. Interim Report 2018 Depreciation reserves Shareholding Cash bonus of the Investee proportion among Period-begin Increased Decreased Period-end Reporting Period the investees (%) ZAEFI 100,000.00 — — 100,000.00 — — Shenzhen Chuangce Investment Development Co., Ltd. 485,000.00 — — 485,000.00 1.00 — Shanlian Information Technology Engineering Center 1,639,190.80 — — 1,639,190.80 9.62 — Shenzhen CIU Science & Technology Co., Ltd. 200,000.00 — — 200,000.00 11.50 — Shenzhen Digital TV National Engineering Laboratory Co., 1,273,594.84 — — 1,273,594.84 6.00 — Ltd. Shanghai National Engineering Research Center of Digital — — — — 4.26 — TV Co., Ltd. ChinaAMC - Jiayi Overseas Orientation Programs — — — — — 13,740,000.00 Hunan Vary Science & Technology Co., Ltd. — — — — 8.38 — Beijing Konka Technology Co., Ltd — — — — 3.62 — Yibin OCT Sanjiang Real Estate Co., Ltd — — — — 20.00 — Enraytek Optoelectronics (Shanghai) Co., Ltd. — — — — — 18.90 Wuhan Tianyuan Environmental Protection Co., Ltd — — — — — 15.22 Chongqing Konka Eurotomotive Electronic Co., Ltd. — — — — — — Total 10,747,785.64 — — 10,747,785.64 — — 154 Konka Group Co., Ltd. Interim Report 2018 (3) Changes of the Impairment of the Available-for-sale Financial Assets in the Reporting Period Category of available-for-sale financial assets Available-for-sale equity instruments Withdrawn impairment balance at the 10,747,785.64 period-begin Withdrawal of the Reporting Period — Of which: transferred from other — comprehensive income Decrease of the Reporting Period — Of which: recovered or reversed from the fair — value after the Period Withdrawn impairment balance at the 10,747,785.64 period-end Note: On 27 March 2015, the People's Court of Jiangbei District, Chongqing handled the bankruptcy liquidation application of Chongqing Electronics, the subsidiary of this Company and established the liquidation group. This Company will not own the right of controlling related activities of Chongqing Electronics. After bankruptcy, it will not be included into the consolidation scope. It will be reclassified into the financial asset available for sale with the net value of zero. Liquidation has not been finished in the current period. 155 Konka Group Co., Ltd. Interim Report 2018 12. Long-term Equity Investment Increase/decrease in the Reporting Period Investee Beginning balance Investment profit and loss Adjustment of other Additional Decreased Other equity changes investment investment recognized under the equity method comprehensive income Associated enterprises Shanghai Konka Green Science & 79,729,560.91 -1,062,323.74 324,021.02 Technology Co., Ltd. Zhuhai Jinsu Plastic Co., Ltd. 9,444,160.97 627,916.90 Shenzhen Jielunte Technology Co., Ltd ① 99,562,391.48 -6,716,864.96 Panxu Intelligence Co., Ltd 48,417,046.08 226,132.34 Shenzhen Zhongbin Konka technology co., 14,317,400.80 -2,208,794.15 Ltd. Shenzhen Konka Intelligent Electric Co., Ltd 4,927,589.47 -2,065,657.20 Shenzhen Konka Information Network Co., 26,462,212.34 196,728.66 Ltd Shenzhen Yaode Technology Co., Ltd 210,279,132.55 3,705,243.63 Guangdong Chutian Dragon Smart Card Co., 617,214,571.50 10,226,294.00 Ltd. Guangdong Hotcomm Information 1,523,166.24 0.00 Technology Co., Ltd Guoguang Ruilian (Shenzhen) Internet 2,425,262.66 -939,401.62 Technology Co., Ltd 156 Konka Group Co., Ltd. Interim Report 2018 Increase/decrease in the Reporting Period Investee Beginning balance Investment profit and loss Adjustment of other Additional Decreased Other equity changes investment investment recognized under the equity method comprehensive income Shenzhen OCT Life Network Technology Co., -22,084.12 3,771,400.00 0.00 Ltd Kunshan Konka 205,706,932.86 3,587,367.82 Weihai City Water Environmental Protection 0.00 Technology Co., Ltd Weihai Yiheng Environment Technology Co.,Ltd Laizhou Lairun Financial Leasing Co., Ltd Binzhou Beihai Weiqiao Solid Waste Disposal Co., Ltd Shandong Bishuiyuan Environmental Protection Technology Co., Ltd Yantai Yikang Business Management Ceneter (LLP) Guangzhou Sanchuan Control System 0.00 Engineering Equipment Co., Ltd Shenzhen Bosheng New Materials Co., Ltd 75,000,000.00 233,407.38 Heilongjiang Longkang Zhijia Technology 7,000,000.00 0.00 Co., Ltd Shanxi Silk Road Yunqi Intelligent 5,400,000.00 0.00 Technology Co., Ltd 157 Konka Group Co., Ltd. Interim Report 2018 Increase/decrease in the Reporting Period Investee Beginning balance Investment profit and loss Adjustment of other Additional Decreased Other equity changes investment investment recognized under the equity method comprehensive income Anhui Kaikai Shijie E-commerce Co., Ltd. 0.00 Beijing Konka Jingyuan Technology Co., Ltd 760,000.00 0.00 Shenzhen Xiaorui Technology Co., Ltd 98,000,000.00 265,133.53 Konka Venture Capital Investment (Shenzhen) 2,450,000.00 Co., Ltd Oriexcellent (Zhuhai) Assets Management 6,000,000.00 Co., Ltd Total 1,319,987,343.74 198,381,400.00 0.00 6,075,182.59 324,021.02 0.00 (Continued) Increase/decrease in the Reporting Period Ending balance Withdrawn Investee Declaration of cash Ending balance of impairment impairment Cost method converted into equity method Increased merger firms dividends or profits provision provision Associated enterprises Shanghai Konka Green Science & 78,991,258.19 — Technology Co., Ltd. Zhuhai Jinsu Plastic Co., Ltd. 10,072,077.87 — Shenzhen Jielunte Technology Co., Ltd ① 92,845,526.52 — 158 Konka Group Co., Ltd. Interim Report 2018 Panxu Intelligence Co., Ltd 48,643,178.42 — Shenzhen Zhongbin Konka technology co., 12,108,606.65 — Ltd. Shenzhen Konka Intelligent Electric Co., Ltd 2,861,932.27 — Shenzhen Konka Information Network Co., 26,658,941.00 — Ltd Shenzhen Yaode Technology Co., Ltd 213,984,376.18 — Guangdong Chutian Dragon Smart Card Co., 627,440,865.50 — Ltd. Guangdong Hotcomm Information 1,523,166.24 — Technology Co., Ltd Guoguang Ruilian (Shenzhen) Internet 1,485,861.04 — Technology Co., Ltd Shenzhen OCT Life Network Technology 3,749,315.88 — Co., Ltd Kunshan Konka 209,294,300.68 — Weihai City Water Environmental Protection 2,027,201.88 2,027,201.88 Technology Co., Ltd Weihai Yiheng Environment Technology 4,337,942.19 4,337,942.19 Co.,Ltd Laizhou Lairun Financial Leasing Co., Ltd 100,033,567.26 100,033,567.26 Binzhou Beihai Weiqiao Solid Waste 63,492,789.75 63,492,789.75 Disposal Co., Ltd Shandong Bishuiyuan Environmental 22,232,418.57 22,232,418.57 159 Konka Group Co., Ltd. Interim Report 2018 Protection Technology Co., Ltd Yantai Yikang Business Management Ceneter 648,000.00 648,000.00 (LLP) Guangzhou Sanchuan Control System 10,000,000.00 10,000,000.00 Engineering Equipment Co., Ltd Shenzhen Bosheng New Materials Co., Ltd 75,233,407.38 Heilongjiang Longkang Zhijia Technology 7,000,000.00 Co., Ltd Shanxi Silk Road Yunqi Intelligent 5,400,000.00 Technology Co., Ltd Anhui Kaikai Shijie E-commerce Co., Ltd. 460,000,000.00 460,000,000.00 Beijing Konka Jingyuan Technology Co., Ltd 760,000.00 Shenzhen Xiaorui Technology Co., Ltd 98,265,133.53 Konka Venture Capital Investment 2,450,000.00 (Shenzhen) Co., Ltd Oriexcellent (Zhuhai) Assets Management 6,000,000.00 Co., Ltd Total 0.00 0.00 460,000,000.00 202,771,919.65 2,187,539,867.00 — 160 Konka Group Co., Ltd. Interim Report 2018 Note: ①Shenzhen Konka Precision Mold Manufacturing Co., Ltd was renamed as Shenzhen Jielunte Technology Co., Ltd on 20 April 2018. 13. Investment Property Investment Property Adopted the Cost Measurement Mode Item Houses and buildings Total I. Original carrying value 1. Beginning balance 249,923,047.75 249,923,047.75 2. Increased amount of the period — — 3. Decreased amount of the period — — 4. Ending balance 249,923,047.75 249,923,047.75 II. The accumulative depreciation and accumulative amortization — — 1. Beginning balance 33,467,417.76 33,467,417.76 2. Increased amount of the period 2,815,637.15 2,815,637.15 Withdraw or amortization 2,815,637.15 2,815,637.15 3. Decreased amount of the period — — 4. Ending balance 36,283,054.91 36,283,054.91 III. Impairment provision — — 1. Beginning balance — — 2. Increased amount of the period — — 3. Decreased amount of the period — — 4. Ending balance — — IV. Carrying value — — 1. Ending carrying value 213,639,992.84 213,639,992.84 2. Beginning carrying value 216,455,629.99 216,455,629.99 161 Konka Group Co., Ltd. Interim Report 2018 14. Fixed Assets (1) List of Fixed Assets Transportation Item Houses and buildings Machinery equipment Electronic equipment Other equipment Total equipment I. Original carrying value 1. Beginning balance 1,559,039,774.48 715,947,835.05 187,109,755.76 49,930,623.13 174,208,488.89 2,686,236,477.31 2. Increased amount of the 167,412,660.07 202,563,637.23 8,911,081.35 10,120,140.22 49,222,115.30 438,229,634.17 period (1) Purchase 66,858,030.01 384,266.06 45,787,673.49 7,605,512.75 1,005,292.68 12,075,285.03 (2) Transfer of project under 17,325,661.28 8,871,138.39 15,400.00 1,610,504.29 5,394,043.03 33,216,746.99 construction (3) increase of business 149,702,732.73 338,154,857.17 147,904,825.35 1,290,168.60 7,504,343.25 31,752,787.24 combination 3. Decreased amount of the 3,147,948.27 55,651,559.18 12,340,532.22 2,355,940.70 13,101,858.54 86,597,838.91 period (1) Disposal or Scrap 3,147,948.27 55,483,214.12 12,340,532.22 2,355,940.70 13,101,858.54 86,429,493.85 (2) decrease of loss of 0.00 168,345.06 0.00 0.00 0.00 168,345.06 controlling right 4. Ending balance 1,723,304,486.28 862,859,913.10 183,680,304.89 57,694,822.65 210,328,745.65 3,037,868,272.57 162 Konka Group Co., Ltd. Interim Report 2018 Transportation Item Houses and buildings Machinery equipment Electronic equipment Other equipment Total equipment II. Accumulative depreciation 1. Beginning balance 367,660,000.41 428,143,422.45 129,422,777.12 36,768,297.26 115,293,690.98 1,077,288,188.22 2. Increased amount of the 58,501,360.68 117,083,959.55 11,799,023.66 5,407,726.87 22,465,416.81 215,257,487.57 period (1) Withdrawal 19,721,777.35 52,337,774.41 11,149,709.12 1,864,790.85 14,903,165.88 99,977,217.61 3. Decreased amount of the 38,779,583.33 64,746,185.14 649,314.54 3,542,936.02 7,562,250.93 115,280,269.96 period (1) Disposal or Scrap 2,403,761.41 42,556,170.47 8,863,984.18 2,463,354.38 9,771,651.56 66,058,922.00 (2) decrease of loss of 2,403,761.41 42,556,170.47 8,798,985.45 2,463,354.38 9,771,651.56 65,993,923.27 controlling right 4. Ending balance 0.00 0.00 64,998.73 0.00 0.00 64,998.73 III. Depreciation reserves 423,757,599.68 502,671,211.53 132,357,816.60 39,712,669.75 127,987,456.23 1,226,486,753.79 1. Beginning balance 2. Increased amount of the 1,064,479.47 17,067,824.99 1,249,373.18 862,703.36 1,533,559.74 21,777,940.74 period (1) Withdrawal - 2,170,185.45 - - - 2,170,185.45 3. Decreased amount of the - 0.00 0.00 - 0.00 0.00 163 Konka Group Co., Ltd. Interim Report 2018 Transportation Item Houses and buildings Machinery equipment Electronic equipment Other equipment Total equipment period (1) Disposal or Scrap - 2,170,185.45 0.00 - 0.00 2,170,185.45 (2) decrease of loss of 0.00 1,037,548.46 425,131.58 21,775.12 183,963.57 1,668,418.73 controlling right 4. Ending balance 0.00 1,037,548.46 425,131.58 21,775.12 183,963.57 1,668,418.73 IV. Carrying value - - - - 0.00 0.00 1. Ending carrying value 1,064,479.47 18,200,461.98 824,241.60 840,928.24 1,349,596.17 22,279,707.46 2. Beginning carrying value 1,298,482,407.13 341,988,239.59 50,498,246.69 17,141,224.66 80,991,693.25 1,789,101,811.32 1,190,315,294.60 270,736,587.61 56,437,605.46 12,299,622.51 57,381,238.17 1,587,170,348.35 (2) List of Temporarily Idle Fixed Assets Item Original carrying value Accumulative depreciation Impairment provision Carrying value Mechanical equipment 17,316,561.19 7,128,572.44 7,419,088.45 2,768,900.30 Electronic equipment 4,417,917.35 4,417,917.35 0.00 0.00 Other equipment 157,611.28 157,611.28 0.00 0.00 Total 21,892,089.82 11,704,101.07 7,419,088.45 2,768,900.30 164 Konka Group Co., Ltd. Interim Report 2018 (3) Fixed Assets Leased in from Financing Lease Original Accumulative Item Impairment provision Carrying value carrying value depreciation Mechanical equipment 29,163,849.33 5,088,859.14 0.00 24,074,990.19 Electronic equipment 205,128.20 136,752.13 0.00 68,376.07 Total 29,368,977.53 5,225,611.27 0.00 24,143,366.26 (4) Fixed Assets Leased out from Operation Lease Item Ending carrying value Houses and buildings 33,819,268.21 Total 33,819,268.21 (5) Details of Fixed Assets Failed to Accomplish Certification of Property Original Accumulative Impairment Net carrying Item Reason value carrying value depreciation provision Kangsheng Aquatic Club 21,481,356.96 2,363,211.89 — 19,118,145.07 Under processing Huaguoyuan Project in Huaguoyuan Road, 3,628,629.00 129,269.92 — 3,499,359.08 Under processing Guiyang Pangjiang Street The problems of Property in Dadong 10,189,892.23 842,885.68 — 9,347,006.55 developers District, Shenyang Yinhai Shangyu Property in Guandu District, 5,432,239.86 244,450.82 — 5,187,789.04 Under processing Kunming Jingyuan Building 20,018,497.00 8,194,102.38 — 11,824,394.62 Historical reasons Yikang Building 76,610,752.33 31,733,590.84 — 44,877,161.49 Historical reasons 15. Construction in Progress (1) List of Construction in Progress Ending balance Beginning balance Impair Impair Item ment ment Carrying amount Carrying value Carrying amount Carrying value provis provis ion ion Kunshan — — 0.00 29,125,312.81 — 29,125,312.81 Kangsheng 165 Konka Group Co., Ltd. Interim Report 2018 Ending balance Beginning balance Impair Impair Item ment ment Carrying amount Carrying value Carrying amount Carrying value provis provis ion ion - Green Park Guangming 83,241,261.25 — 83,241,261.25 76,514,067.90 — 76,514,067.90 Project Kunshan 2,351,789.02 — 2,351,789.02 1,643,881.07 — 1,643,881.07 gallery Other small 35,051,674.26 — 35,051,674.26 28,580,559.23 — 28,580,559.23 projects Total 120,644,724.53 — 120,644,724.53 135,863,821.01 — 135,863,821.01 (2) Changes of Significant Construction in Progress Amount that Other transferred to Estimated Beginning Increase decreased Name o f item long-term fixed Ending balance number balance Amount amount of assets of the the period period Guangming RMB241 76,514,067.90 6,727,193.35 83,241,261.25 Project million RMB35 Green Park 29,125,312.81 0.00 29,125,312.81 0.00 million RMB263 Kunshan gallery 1,643,881.07 707,907.95 2,351,789.02 million Other small 28,580,559.23 20,860,829.46 14,389,714.43 35,051,674.26 projects Total 135,863,821.01 28,295,930.76 43,515,027.24 120,644,724.53 (Continued) Of which: the Proportion estimated Accumulative Capitalization amount of the of the project Project amount of rate of the Project name capitalized Capital resources accumulative input capitalized interests of progress interests of the (%) interests the period (%) period Guangming Project Self-owned fund 34.54 34.54 — — — Green Park Self-owned fund 90.63 90.63 — — — 166 Konka Group Co., Ltd. Interim Report 2018 Of which: the Proportion estimated Accumulative Capitalization amount of the of the project Project amount of rate of the Project name capitalized Capital resources accumulative input capitalized interests of progress interests of the (%) interests the period (%) period Kunshan gallery Self-owned fund 8.81 8.81 — — — 16. Intangible Assets (1) List of intangible assets Foreign Franchise Patent and Item Land use right registered rights Other Total know-how trademark I. Original carrying value 1. Beginning 196,989,129.47 3,519,159.61 40,234,111.64 66,665,916.59 307,408,317.31 balance 2. Increased 139,050,625.0 amount of 73,106,270.05 0.00 11,221,785.00 4,805,660.47 228,184,340.53 1 the period (1) Purchase 0.00 0.00 0.00 2,753,050.37 2,753,050.37 (2) Transfer of project 0.00 0.00 0.00 0.00 0.00 under construction (3) increase 139,050,625.0 of business 73,106,270.05 0.00 11,221,785.00 2,052,610.10 225,431,290.16 1 combination 3. Decreased amount of 1,170,000.00 0.00 0.00 0.00 0.00 1,170,000.00 the period (1) Disposal 1,170,000.00 0.00 1,170,000.00 (2) other 0.00 0.00 0.00 decrease 4. Ending 139,050,625.0 268,925,399.52 3,519,159.61 51,455,896.64 71,471,577.06 534,422,657.84 1 balance 167 Konka Group Co., Ltd. Interim Report 2018 Foreign Franchise Patent and Item Land use right registered rights Other Total know-how trademark II. Accumulated 0.00 amortization 1. Beginning 34,734,302.29 3,519,159.61 34,420,126.84 26,775,872.27 99,449,461.01 balance 2. Increased amount of 11,472,335.15 0.00 276,920.89 4,442,025.00 4,478,725.34 20,670,006.38 the period (1) 2,636,294.83 0.00 276,920.89 740,337.50 3,146,460.46 6,800,013.68 Withdrawal (2) increase of business 8,836,040.32 0.00 0.00 3,701,687.50 1,332,264.88 13,869,992.70 combination 3. Decreased amount of 947,700.00 0.00 0.00 0.00 0.00 947,700.00 the period (1) Disposal 947,700.00 947,700.00 (2) other — 0.00 decrease 4. Ending 45,258,937.44 3,519,159.61 34,697,047.73 4,442,025.00 31,254,597.61 119,171,767.39 balance III. Depreciation 0.00 reserves 1. Beginning 2,901,082.61 2,901,082.61 balance 2. Increased amount of 0.00 the period (1) 0.00 Withdrawal 168 Konka Group Co., Ltd. Interim Report 2018 Foreign Franchise Patent and Item Land use right registered rights Other Total know-how trademark 3. Decreased amount of 0.00 the period (1) Disposal 0.00 (2) other 0.00 decrease 4. Ending 0.00 0.00 2,901,082.61 0.00 2,901,082.61 balance IV. Carrying 0.00 value 1. Ending 134,608,600.0 carrying 223,666,462.08 0.00 13,857,766.30 40,216,979.45 412,349,807.84 1 value 2. Beginning carrying 162,254,827.18 0.00 2,912,902.19 39,890,044.32 205,057,773.69 value 17. Goodwill (1) Original Carrying Value of Goodwill Increased Decreased Name of the investees or the Formed from the Beginning balance Ending balance events formed goodwill business Other Dispose Other combination Anhui Konka 3,597,657.15 — — — 3,597,657.15 Econ Technology 460,743,447.02 460,743,447.02 Xingda Hongye 35,680,773.95 35,680,773.95 Beihai Jingmai 3,208,303.51 3,208,303.51 Econ Environmental 2,800,000.00 2,800,000.00 Engineering Total 3,597,657.15 502,432,524.48 — — — 506,030,181.63 (2) Provisions for Goodwill Impairment Name of the investees or the Increased Decreased Beginning balance Ending balance events formed goodwill Withdrawal Other Dispose Other 169 Konka Group Co., Ltd. Interim Report 2018 Name of the investees or the Increased Decreased Beginning balance Ending balance events formed goodwill Withdrawal Other Dispose Other Anhui Konka — — — — — — Econ Technology — — — — — — Xingda Hongye — — — — — — Beihai Jingmai — — — — — — Econ Environmental Engineering — — — — — — Total — — — — — — 18. Long-term Unamortized Expenses Amortization Other decrease Item Beginning balance Increased amount Ending amount amount amount Renovation 23,241,203.51 27,609,384.34 5,032,922.46 0.00 45,817,665.39 costs Shoppe expe 56,402,256.28 24,554,895.87 22,413,323.85 17,439.56 58,526,388.74 nse Other 70,417,477.51 6,012,231.03 12,045,640.32 585.42 64,383,482.80 Total 150,060,937.30 58,176,511.24 39,491,886.63 18,024.98 168,727,536.93 Notes: Other decrease included the decreased amount RMB0.00 mainly generated from the loss of control over subsidiaries. 19. Deferred Income Tax Assets/Deferred Income Tax Liabilities (1) Deferred Income Tax Assets without Offset Ending balance Beginning balance Item Deductible temporary Deferred income tax Deductible temporary Deferred income tax difference assets difference assets Assets impairment provision 865,728,820.65 211,783,617.94 796,345,288.62 197,835,345.27 Unrealized internal sales 54,102,230.48 13,525,557.62 32,715,116.95 8,178,779.24 gain and loss Accrued expenses 77,434,022.64 18,633,318.72 118,441,697.07 28,839,536.61 Deferred income 99,261,495.92 23,710,167.52 106,943,380.58 25,500,563.17 Deductible losses 552,517,701.19 135,814,854.93 2,250,284.11 364,943.32 170 Konka Group Co., Ltd. Interim Report 2018 Changes in fair value of transactional financial 0.00 47,482,470.52 11,870,617.63 liabilities others 177,909,267.07 43,724,265.15 141,409,911.41 35,352,477.88 Total 1,826,953,537.95 447,191,781.88 1,245,588,149.26 307,942,263.12 (2) Lists of Deferred Income Tax Liabilities without Offset Ending balance Beginning balance Item Taxable temporary Deferred income tax Taxable temporary Deferred income tax difference liabilities difference liabilities Accelerated depreciation of 5,237,869.27 785,680.39 6,889,703.33 1,033,455.50 fixed assets Change in fair value of 12,372,942.00 3,093,235.50 --- --- trading financial assets Change in fair value of available-for-sale financial --- --- --- assets Prepaid interests 142,724,394.92 35,681,098.73 45,386,505.16 11,346,626.29 Prepaid taxes 1,452,756.00 363,189.00 1,026,206.42 256,551.61 Expected equity transfer 96,862,745.08 24,215,686.27 Total 258,650,707.27 64,138,889.89 53,302,414.91 12,636,633.40 (3) List of Unrecognized Deferred Income Tax Assets Item Ending balance Beginning balance Deductible temporary 135,874,599.56 132,372,523.56 difference Deductible losses 1,055,016,010.25 1,085,593,457.20 Total 1,190,890,609.81 1,217,965,980.76 20. Assets Impairment Provision Increased Decreased Beginning Item Increase of Ending balance balance Withdrawal Reverse Write-off or others combination or other I. Bad debt provision 517,316,153.36 31,566,283.88 49,098,516.01 18,170,641.88 5,431,777.10 574,378,534.27 II. Impairment of 322,874,849.83 46,683,151.79 4,713,490.95 526,693.38 14,048,483.47 359,696,315.72 inventories III. Impairment provision 10,747,785.64 0.00 0.00 0.00 10,747,785.64 171 Konka Group Co., Ltd. Interim Report 2018 Increased Decreased Item Beginning Ending balance of the available-for-sale balance financial assets IV. Impairment provision of 21,777,940.74 0.00 2,170,185.45 0.00 1,668,418.73 22,279,707.46 the fixed assets V. Impairment provision of 2,901,082.61 0.00 0.00 0.00 2,901,082.61 the intangible assets VI. Long-term equity 0.00 0.00 0.00 0.00 investment Total 875,617,812.18 78,249,435.67 55,982,192.41 18,697,335.26 21,148,679.30 970,003,425.70 21. Other Non-current Assets Item Ending balance Beginning balance Prepayment for equipment 41,422,528.53 1,122,880.00 Prepayment for house-purchase 10,099,279.84 8,167,948.00 Entrusted loans 20,000,000.00 20,000,000.00 Total 71,521,808.37 29,290,828.00 22. Short-term Loans Item Ending balance Beginning balance Credit loan 41,422,528.53 1,122,880.00 Guaranteed loan 10,099,279.84 8,167,948.00 Mortgage loan 20,000,000.00 20,000,000.00 Pledged loan 71,521,808.37 29,290,828.00 Total 10,397,447,703.32 6,927,472,037.35 Note: ① Konka Household Appliances International Trading took US$72,000,000.00 usance letter of credit with 360 days as pledge, obtaining RMB476,395,071.41 short-term loans. ② Konka Factoring discounted the notes receivable with right of recourse, obtaining RMB237,524,976.51 short-term loans in equal amount. Xingda Hongye obtained mortgage loan RMB210,700,000.00 by house and building with carrying value of RMB60,288,708.63 and land use rights with carrying value of RMB38,617,359.68 23. Financial Liabilities at Fair Value through Profit or Loss Item Ending balance Beginning balance 172 Konka Group Co., Ltd. Interim Report 2018 Item Ending balance Beginning balance Loss from forward foreign exchange purchase agreement 1,827,480.43 47,482,470.50 Total 1,827,480.43 47,482,470.50 24. Notes Payable Category Ending balance Beginning balance Trade acceptance 610,205,567.87 133,211,455.00 Bank’s acceptance bill 316,197,091.42 407,963,857.09 Total 926,402,659.29 541,175,312.09 Notes: The amount of notes payable due during the next accounting period was RMB926,402,659.29. 25. Accounts Payable (1) List of Accounts Payable Aging Ending balance Beginning balance Within 1 year 3,597,923,005.02 3,519,530,711.60 1 to 2 years 57,570,544.64 53,966,422.15 2 to 3 years 9,634,490.48 5,991,933.36 Over 3 years 33,417,303.91 32,727,199.48 Total 3,698,545,344.05 3,612,216,266.59 (2) Significant Accounts Payable Aging over One Year Item Ending balance Unpaid/ Un-carry-over reason Estimated construction costs 18,271,970.18 Unsettled Payment for material purchase 17,920,695.44 Unsettled Total 36,192,665.62 26. Advances from Customers (1) List of Advances from Customers Item Ending balance Beginning balance Within 1 year 888,441,204.46 571,998,516.53 1 to 2 years 9,866,764.66 36,662,083.53 2 to 3 years 13,858,968.24 14,937,831.50 173 Konka Group Co., Ltd. Interim Report 2018 Item Ending balance Beginning balance Over 3 years 24,505,478.96 16,912,352.61 Total 936,672,416.32 640,510,784.17 (2) The Significant Advances from Customers Aging over One Year Were Mainly the Advances from Customers from Companies without Continuous Cooperation. (3) Advance Receipts of Houses Item Ending balance Beginning balance Shuiyue Zhouzhuang Project (Phase I 2,383,130.00 2,383,130.00 Residence) Shuiyue Zhouzhuang Project (Phase II 2,559,493.00 2,559,493.00 Residence) Shuiyue Zhouzhuang Project (Phase III 2,126,839.00 11,129,253.00 Residence) Shuiyue Zhouzhuang Project (Phase IV 115,062,809.00 30,861,638.00 Residence) Total 122,132,271.00 46,933,514.00 27. Payroll Payable (1) List of Payroll Payable Beginning Other Other Ending Item Increase Decrease balance increase decrease balance I. Short-term 289,046,664.85 639,875,510.00 11,618,430.65 749,247,534.97 2,060,020.02 189,233,050.51 salary II. Post-employ ment 2,323,632.82 58,833,576.00 6,597.36 53,275,816.00 16,540.85 7,871,449.33 benefit-defin ed 174 Konka Group Co., Ltd. Interim Report 2018 Beginning Other Other Ending Item Increase Decrease balance increase decrease balance contribution plans III. Termination 1,168,975.44 0.00 1,168,975.44 0.00 0.00 benefits IV. Other benefits due 0.00 within one year Total 291,370,297.67 699,878,061.44 11,625,028.01 803,692,326.41 2,076,560.87 197,104,499.84 (2) List of Short-term Salary Beginning Other Other decrease Ending Item Increase Decrease balance increase balance 1. Salary, bonus, 275,524,552. 556,001,754.8 11,310,409.72 674,937,666.70 1,794,961.49 166,104,088.73 allowance, subsidy 33 7 2. Employee 4,562,983.10 31,644,919.42 0.00 25,543,116.73 3,235.51 10,661,550.28 welfare 3. Social insurance 2,816,379.51 28,995,101.22 3,199.92 26,185,328.94 128,405.25 5,500,946.46 Of which: 1. Medical insurance 815,364.61 25,523,063.63 2,529.60 23,805,844.80 127,521.51 2,407,591.53 premiums Work-relat ed injury 247,215.23 1,587,821.19 352.80 1,333,628.03 445.00 501,316.19 insurance Maternity 1,753,799.67 1,884,216.40 317.52 1,045,856.11 438.74 2,592,038.74 insurance 4. Housing fund 299,531.17 12,272,740.04 0.00 12,332,139.98 7,204.63 232,926.60 5. Labor union budget and 3,624,491.64 4,793,354.11 269,437.80 3,106,294.57 126,213.14 5,454,775.84 employee education budget 175 Konka Group Co., Ltd. Interim Report 2018 Beginning Other Other decrease Ending Item Increase Decrease balance increase balance 6.Short-term absence 0.00 with payment 7. Short-term 0.00 profit sharing plan 8. Other 2,218,727.10 6,167,640.34 35,383.21 7,142,988.05 0.00 1,278,762.60 289,046,664. 639,875,510.0 Total 11,618,430.65 749,247,534.97 2,060,020.02 189,233,050.51 85 0 (3) List of Defined Contribution Plan Beginning Other Other Ending Item Increase Decrease balance increase decrease balance 1. Basic pension 2,096,931.52 57,401,468.77 6,350.40 51,852,532.03 15,368.97 7,636,849.69 benefits 2. Unemployment 226,701.30 1,432,107.23 246.96 1,423,283.97 1,171.88 234,599.64 insurance 3. Annuity 0.00 0.00 0.00 0.00 0.00 Total 2,323,632.82 58,833,576.00 6,597.36 53,275,816.00 16,540.85 7,871,449.33 The Company, in line with the requirement, participate the endowment insurance, unemployment insurance scheme and so on, according to the scheme, the Company monthly pay to the scheme in line with requirements of local government, except the monthly payment, the Company no longer shoulder the further payment obligation, the relevant expense occurred was recorded into current profits and losses or related assets costs. 28. Taxes Payable Item Ending balance Beginning balance VAT 22,655,545.28 47,749,976.31 Corporate income tax 47,395,613.36 1,124,832,572.96 Fund for disposing abandoned appliances and 10,733,357.08 23,666,123.67 electronic products Land use tax 2,043,328.90 1,855,882.68 176 Konka Group Co., Ltd. Interim Report 2018 Item Ending balance Beginning balance Real estate tax 3,876,005.59 4,802,640.61 Business tax 401,823.10 401,823.10 Tariff 3,240,037.08 3,451,843.43 Personal income tax 2,691,802.73 3,570,618.46 Urban maintenance and construction tax 1,964,597.39 4,155,984.89 Stamp duty 723,813.88 1,851,821.21 Education fees and local education Surcharge 1,646,083.02 4,749,633.12 Flood control fund, fund for embankment, fund for water conservancy and fund for river 264,623.34 344,630.28 management Land VAT 98,073,836.96 104,967,760.07 Others 2,782,683.66 167,783.74 Total 198,493,151.37 1,326,569,094.53 29. Interest Payable Item Ending balance Beginning balance Loan interests 44,957,010.99 35,723,963.94 Total 44,957,010.99 35,723,963.94 30. Other Payables (1) Other Payables Listed by Nature of Account Item Ending balance Beginning balance Expenses payable 915,409,402.16 826,839,671.60 Cash deposit and front 364,632,999.76 472,308,401.08 money Intercourse funds 641,055,203.42 222,637,701.31 Payment on behalf 1,369,414.67 3,606,727.50 Payment for stock rights 350,500,000.00 Other 101,334,139.43 82,966,804.38 Total 2,374,301,159.44 1,608,359,305.87 (2) Significant Other Payables Aging over One Year 177 Konka Group Co., Ltd. Interim Report 2018 Item Ending balance Unpaid/Un-carry-over reason Cash deposit 123,137,443.40 Unsettled Total 123,137,443.40 — 31. Current Portion of Non-current Liabilities Item Ending balance Beginning balance Current portion of long-term borrowings 10,000,000.00 (Note VI-32) Current portion of long-term payables 165,596.84 374,358.99 (Note VI-33) Total 10,165,596.84 374,358.99 32. Long-term Borrowings Item Period-end Period-beginning Credit loan 316,000,000.00 167,000,000.00 Guarantee loan 150,000,000.00 Pledge loan 45,000,000.00 Less: current portion of long-term 10,000,000.00 borrowings Total 501,000,000.00 167,000,000.00 Note: (1) Rushan Yike Water Treatment Co., Ltd., the Company ’ s subsidiary, obtained a borrowing of RMB290 million from Yantai Economic Development Zone Branch of China Everbright Bank with the period of ten years from the date of drawings on. The service charge of Rushan Finance Bureau for Rushan Silver Beach PPP Project was taken as the pledge during the 29 December 2016 to 28 December 2026. In the meanwhile, the Company provided the guarantee and undertook joint several liabilities regarding the aforesaid borrowing. As of 30 June 2018, the actual borrowing was RMB150 million. (2) Laizhou Lairun Holdings Co., Ltd., the Company’s subsidiary, made the sale-lease-back transaction with Laizhou Lairun Finance Lease Co., Ltd., the Company’s joint stock company, with guarantee amount of RMB50 million, pledged by the future charging right of sewage plant of Laizhou Lairun Holdings Co., Ltd. As of 30 June 2018, the ending balance of the pledge loan was RMB45 million. 33. Long-term Payables Item Ending balance Beginning balance 178 Konka Group Co., Ltd. Interim Report 2018 Item Ending balance Beginning balance Accrued financing lease outlay 11,796,936.49 435,897.45 Less: current portion (Note VI-31) 165,596.84 374,358.99 Total 11,631,339.65 61,538.46 34. Long-term Payroll Payable (1) List of Long-term Payroll Payable Item Ending balance Beginning balance I. Termination benefits-net liabilities of defined 11,440,243.54 13,361,821.86 contribution plans II. Termination benefits — — III. Other long term welfare — — Total 11,440,243.54 13,361,821.86 (2) Changes in Defined Benefit Pension Schemes ① Present Worth of Defined Benefit Pension Schemes Obligation: Same period of last Item Reporting Period year I. Beginning balance 13,361,821.86 18,151,659.90 II. Defined benefit cost recorded into current profits — — and losses 1. Current service cost — — 2. Previous service cost — — 3. Settlement gains (loss “-”) — — 4. Net interest — — III. The cost of defined benefit recorded into other — — comprehensive income 1. Actuarial gains (loss “-“) — — IV. Other changes 1,921,578.32 2,536,813.42 1. Consideration paid when settled — — 2.Welfare paid 1,921,578.32 2,536,813.42 179 Konka Group Co., Ltd. Interim Report 2018 Same period of last Item Reporting Period year V. Ending balance 11,440,243.54 15,614,846.48 ② Notes to the influence of the content and related risk of defined benefit pension schemes to the future cash flows, time and uncertainty of the Company: Due to upgrading and reconstruction of current work sites of the subsidiary, communication technology, it is to adjust the labor relations according to Implementation Measures for Accompanying Employees in manufacturing system of Shenzhen Konka Telecommunication Technology Co., Ltd on the premise to balance the Company’s and employees’ benefits and voluntary selection, Telecommunication Technology provides early retirement plans for senior employees (employed before 31 December 1990 and signed non-fixed term labor contract with the Company or Communication Technology). The accumulative compensation paid to the internal early retirement pensions in future year is RMB11,440,243.54, the Company in line with Agreement of Internal Early Retirement Pension, in line with the standard of salary remaining the same, turnover rate of 0, the mortality rate of, fix standard of social security base payment remaining the same to test the present worth of defined benefit plans. The actual payment for the employee is influence by the actual turnover rate, death rate and the changes of minimum cardinality of social security. ③ Notes to Actuarial Assumptions and Sensibility Analysis Result of Defined Benefit Pension Schemes Period-end of Reporting Period-end of last Significant assumptions estimated Period period Treasury bond rate in same Discount rate — period Death rate 0% — Expected life expectancy Over legal emeritus age — Expected compensation growth rate 0% — 35. Provisions Beginning Item Ending balance Reason for formation balance Pending litigations 82,042.98 4,711,597.59 Litigation Other 1,470,267.51 1,470,267.51 Contract consideration 180 Konka Group Co., Ltd. Interim Report 2018 Total 1,552,310.49 6,181,865.10 181 Konka Group Co., Ltd. Interim Report 2018 36. Government Subsidies 1. Government Subsidies Initially Recognized during the Reporting Period Related to assets Related to income Offsetting Whether Offsettin Item Amount Deferred carrying Deferred Non-operating received Other income g cost income value of income income actually expenses assets I. Government subsidies related to income Rewards and subsidies Support fund 28,748,955.99 — — — 18,563,333.33 10,185,622.66 — Yes Tax rebate for software 34,848,961.96 — — — 34,848,961.96 — Yes Support fund 48,012,477.79 — — — 48,012,477.79 — Yes Subsidies for L/C export 132,738.00 — — — 132,738.00 — Yes Subsidies for posts 3,229,884.31 — — — 3,229,884.31 — Yes Other government subsidies related to income 7,409,880.69 — — — 6,133,800.00 1,276,080.69 — Yes II. Government Subsidies related to assets Subsidy for Yantai Konka Life Science Innovation — Yes Center 10,000,000.00 10,000,000.00 — — — Other government subsidies related to assets 2,916,666.67 2,916,666.67 — — — — — Yes Total 135,299,565.41 12,916,666.67 0.00 0.00 110,921,195.39 11,461,703.35 — 2. Government Subsidies Recorded into the Current Profit or Loss Recorded into non-operating Item Related to assets/income Recorded into other income Offsetting cost expenses income 182 Konka Group Co., Ltd. Interim Report 2018 Recorded into non-operating Item Related to assets/income Recorded into other income Offsetting cost expenses income Rewards and subsidies Related to income 18,563,333.33 10,185,622.66 — Tax rebate for software Related to income 34,848,961.96 — — Support fund Related to income 48,012,477.79 — — Transferred from deferred income Related to assets/income 12,105,088.11 — — Subsidies for L/C export Related to income 132,738.00 — — Subsidies for posts Related to income 3,229,884.31 — — Other Related to income 6,133,800.00 1,276,080.69 — Total 123,026,283.50 11,461,703.35 — 3. Government Subsidies Returned in the Reporting Period No such case in the Reporting Period. 37. Deferred Income Item Beginning balance Increase Decrease Other decrease Ending balance Reason for formation Government Related to assets/income subsidies 130,049,911.87 12,916,666.67 12,105,088.11 0.00 130,861,490.43 Total 130,049,911.87 12,916,666.67 12,105,088.11 0.00 130,861,490.43 — Notes: Other decrease in the Reporting Period was mainly caused by the loss of controlling rights over the subsidiaries. 183 Konka Group Co., Ltd. Interim Report 2018 Of which, items related to government subsidies: Decrease Beginning Recorded into Related to Item Increase Recorded into Offsetting Ending balance balance assets/income non-operating Other decrease other income cost expenses income Smart TV industrial chain of Related to Konka Group Co., Ltd 19,848,500.00 0.00 2,247,000.00 17,601,500.00 assets Subsidy for Yantai Konka Related to Life Science Innovation assets Center 10,000,000.00 499,999.98 9,500,000.02 R & D of double Related to HDR OLED smart television assets and industrialization 13,300,000.00 13,300,000.00 Research, production and industrialization smart Related to terminal system of assets next-generation internet 7,761,844.66 990,873.78 6,770,970.88 AVS/DRA terminal and Related to matched core chip R & D 5,620,000.00 5,620,000.00 assets Research, development and industrialization of new smart Related to TV of man-machine assets interaction 5,256,893.21 5,256,893.21 184 Konka Group Co., Ltd. Interim Report 2018 Decrease Beginning Recorded into Related to Item Increase Recorded into Offsetting Ending balance balance assets/income non-operating Other decrease other income cost expenses income Laboratory project of next-generation Konka Related to multimedia terminal assets technology 4,500,000.02 499,999.98 4,000,000.04 Investment items located in Related to the weak sector of Shenzhen assets industrial link in 2017 4,500,000.00 4,500,000.00 Project of display terminal Related to smart plant with new pattern assets based on NB-IOT 3,822,000.00 409,500.00 3,412,500.00 Konka Smart Home Project Related to of Constructing Cloud Smart assets Control Platform 3,620,000.00 3,620,000.00 Post rewards and subsidies for technical Related to transformation of industrial assets enterprises in 2016 3,281,040.00 91,684.98 3,189,355.02 Funds of Shenzhen Industrial Design Center from Related to Shenzhen Economic, Trade assets and Information in 2015 3,000,000.00 3,000,000.00 185 Konka Group Co., Ltd. Interim Report 2018 Decrease Beginning Recorded into Related to Item Increase Recorded into Offsetting Ending balance balance assets/income non-operating Other decrease other income cost expenses income R & D and industrialization of new application service Related to system of mobile smart assets terminal 2,809,233.44 399,999.96 2,409,233.48 Industrialization of mobile internet and 4th generation Related to mobile communication assets industry 2,754,867.45 267,895.02 2,486,972.43 Research, development and industrialization of digital Related to products of synergetic assets interconnection 2,600,000.00 2,600,000.00 R & D of key technologies of Related to information safety system for assets mobile smart terminal 2,400,000.00 844,812.96 1,555,187.04 Special funds of provincial Related to strategic emerging industry of assets Dongguan Finance Bureau 2,400,000.00 5,805.00 2,394,195.00 Provincial major special Related to projects in 2017 2,360,000.00 240,000.00 2,120,000.00 assets 186 Konka Group Co., Ltd. Interim Report 2018 Decrease Beginning Recorded into Related to Item Increase Recorded into Offsetting Ending balance balance assets/income non-operating Other decrease other income cost expenses income Comprehensive integration and innovation project of lean Related to manufacturing assets implementation system 2,100,000.00 2,100,000.00 Design of Curved TV and the Related to achievement transformation 1,960,000.00 1,960,000.00 assets Embedded OS development and terminal system Related to development for TV assets application 1,951,430.02 229,579.98 1,721,850.04 Whole machine integration of Related to module 1,875,000.00 150,000.00 1,725,000.00 assets Research, development and industrialization of Major Related to technology of LED backlight assets FPTV 1,750,000.13 499,999.98 1,250,000.15 Special fund of 2010-2012 Related to industrial technology 1,680,000.00 114,610.02 1,565,389.98 assets Research, development and industrialization project of Related to new two-channel 3D smart assets TV 1,590,166.71 202,999.98 1,387,166.73 187 Konka Group Co., Ltd. Interim Report 2018 Decrease Beginning Recorded into Related to Item Increase Recorded into Offsetting Ending balance balance assets/income non-operating Other decrease other income cost expenses income Glasses-free 3D Smart LCD Related to TV with Multi-view and assets High Definition 1,500,000.00 1,500,000.00 R & D of UST Laser Related to Projection Smart TV 1,500,000.00 1,500,000.00 assets Real-time Synthesis and Pilot Related to of True 3D Video with assets Continuous Viewpoint 1,420,000.00 1,420,000.00 R & D and industrialization Related to of Information Terminal assets based on the IGRS 1,400,000.00 1,400,000.00 Provincial fiscal subsidies for Related to R & D of Guangdong assets enterprises in 2016 1,375,319.98 114,610.02 1,260,709.96 R & D and industrialization of operation system for Related to exploiting users based on big assets data 1,320,000.00 1,320,000.00 R & D and engineering of 3D Related to TV Terminal 1,300,000.00 1,300,000.00 assets Special fund for industrial Related to structural adjustment 1,199,999.88 210,000.00 989,999.88 assets 188 Konka Group Co., Ltd. Interim Report 2018 Decrease Beginning Recorded into Related to Item Increase Recorded into Offsetting Ending balance balance assets/income non-operating Other decrease other income cost expenses income Post rewards and subsidies received for Related to technical transformation of assets industrial enterprises in 2016 1,100,220.00 0.00 1,100,220.00 Development subsidies for Related to tourist resort in 2014 1,094,583.35 18,499.98 1,076,083.37 assets Smart TV and system Related to supporting platform of three assets networks combination 1,066,666.76 199,999.98 866,666.78 Satellite Receiving Facility Related to based on safe and reliable assets chips 1,000,000.00 1,000,000.00 Related to Others 10,602,751.22 2,916,666.67 3,682,968.63 9,836,449.26 assets Subtotal 128,620,516.83 12,916,666.67 0.00 11,920,840.23 0.00 0.00 129,616,343.27 Related to Others 1,429,395.04 184,247.88 1,245,147.16 income Subtotal 1,429,395.04 0.00 0.00 184,247.88 0.00 0.00 1,245,147.16 Total 130,049,911.87 12,916,666.67 0.00 12,105,088.11 0.00 0.00 130,861,490.43 189 Konka Group Co., Ltd. Interim Report 2018 38. Share Capital Increase/decrease (+/-) Beginning balance New Ending balance Item Bonus Bonus issue shares Other Subtotal shares from profit issued The sum of 2,407,945,408.00 — — — — — 2,407,945,408.00 shares 39. Capital Reserves Item Beginning balance Increase Decrease Ending balance Capital premium (premium on 7,393,378.55 7,393,378.55 stock) Other capital 97,338,863.75 97,338,863.75 reserves Total 104,732,242.30 104,732,242.30 190 Konka Group Co., Ltd. Interim Report 2018 40. Other Comprehensive Income Reporting Period Less: recorded in other comprehen sive Attributable to Ending Item Beginning balance Income before income in Attributable to Less: Income tax owners of the balance taxation in the prior non-controlling expense Company as the Current Period period and interests after tax parent after tax transferred in profit or loss in the Current Period I. Items that will not be — — — — — — — reclassified to profit or loss II. Items that may subsequently be 3,697,458.95 -4,369,616.63 31,342.08 0.00 -4,851,840.74 450,882.03 -1,154,381.79 reclassified to profit or loss Of which: Share of other -3,138,048.04 -3,138,048.04 comprehensive income of 191 Konka Group Co., Ltd. Interim Report 2018 Reporting Period Less: recorded in other comprehen sive Attributable to Ending Item Beginning balance Income before income in Attributable to Less: Income tax owners of the balance taxation in the prior non-controlling expense Company as the Current Period period and interests after tax parent after tax transferred in profit or loss in the Current Period investees that will be reclassified into profit or loss under equity method Gain/Loss on changes in fair value of 31,342.08 31,342.08 -31,342.08 0 available-for-sal e financial assets Differences arising from 6,804,164.91 -4,369,616.63 -4,820,498.66 450,882.03 1,983,666.25 translation of foreign 192 Konka Group Co., Ltd. Interim Report 2018 Reporting Period Less: recorded in other comprehen sive Attributable to Ending Item Beginning balance Income before income in Attributable to Less: Income tax owners of the balance taxation in the prior non-controlling expense Company as the Current Period period and interests after tax parent after tax transferred in profit or loss in the Current Period currency-denomi nated financial statements Total of other comprehensive 3,697,458.95 -4,369,616.63 31,342.08 0.00 -4,851,840.74 450,882.03 -1,154,381.79 income 193 Konka Group Co., Ltd. Interim Report 2018 41. Surplus Reserves Item Beginning balance Increase Decrease Ending balance Statutory surplus reserves 963,582,609.22 963,582,609.22 Discretional surplus reserves 254,062,265.57 254,062,265.57 Total 1,217,644,874.79 1,217,644,874.79 Notes: Based on the regulations of the Corporation Law and Constitution, the Company should withdraw 10% of the statutory surplus reserves according to the net profits. If the accumulated amount of the statutory surplus reserves exceeded the 50% of the registered capital, the Company could no more withdraw. The Company can withdraw the discretional surplus reserves after withdrawing the statutory surplus reserves. The discretional surplus reserves can be used to make up for the previous losses or to increase share capital once approved. 42. Retained Earnings Item This year Last year Beginning balance of retained earnings before 4,260,125,492.57 -427,163,254.63 adjustments Total beginning balance of retained earnings before — — adjustments (increase+, decrease -) Beginning balance of retained earnings after 4,260,125,492.57 -427,163,254.63 adjustments Add: Net profit attributable to owners of the 341,793,039.03 5,057,025,155.71 Company as the parent Less: Withdrawal of statutory surplus reserves 369,736,408.51 Withdrawal of discretional surplus reserves — — Dividend of ordinary shares payable 390,087,134.64 — Dividend of ordinary shares transferred into share — — capital Other — — Ending retained earnings 4,211,831,396.96 4,260,125,492.57 43. Operating Revenue and Cost of Sales (1) Operating Revenue and Cost of Sales 194 Konka Group Co., Ltd. Interim Report 2018 Reporting Period Same Period of last year Item Operating revenue Cost of sales Operating revenue Cost of sales Main 16,803,504,680.73 15,789,523,498.53 11,116,190,367.22 9,941,054,112.21 operations Other 821,910,089.09 652,732,946.73 289,775,612.21 169,137,145.86 operations Total 17,625,414,769.82 16,442,256,445.26 11,405,965,979.43 10,110,191,258.07 (2) Main Operations (Classified by product) Reporting Period Same period of last year Product name Operating revenue Cost of sales Operating revenue Cost of sales Color TV 4,963,088,596.70 4,352,820,070.48 5,289,992,150.21 4,431,743,317.09 business White electricity 1,084,381,984.51 892,338,557.03 891,933,843.48 726,049,054.97 service Supply chain 10,008,880,630.62 9,925,786,697.58 4,307,330,068.12 4,247,646,007.45 trade business Environmental protection 77,951,411.92 52,515,288.25 business Other 669,202,056.98 566,062,885.19 626,934,305.41 535,615,732.70 Total 16,803,504,680.73 15,789,523,498.53 11,116,190,367.22 9,941,054,112.21 (3) Main Operations (Classified by area) Reporting Period Same period of last year Area Operating revenue Cost of sales Operating revenue Cost of sales Domestic 4,672,082,285.24 3,847,140,507.59 7,343,613,290.29 6,314,287,989.74 sales Overseas 12,131,422,395.49 11,942,382,990.94 3,772,577,076.93 3,626,766,122.47 sales Total 16,803,504,680.73 15,789,523,498.53 11,116,190,367.22 9,941,054,112.21 (4) Other Operations (Classified by product) Reporting Period Same period of last year Product name Operating revenue Cost of sales Operating revenue Cost of sales Sale of materials 461,460,767.54 463,125,455.40 44,655,567.09 30,009,254.48 Maintenance cost 23,647,020.02 12,451,873.87 17,463,699.51 14,710,810.95 Sale of waste 5,528,818.17 885,134.95 2,580,270.82 925,711.74 195 Konka Group Co., Ltd. Interim Report 2018 Reporting Period Same period of last year Product name Operating revenue Cost of sales Operating revenue Cost of sales Housing lease 55,541,441.82 7,877,581.44 42,485,581.44 5,088,830.73 Others 275,732,041.54 168,392,901.07 182,590,493.35 118,402,537.96 Total 821,910,089.09 652,732,946.73 289,775,612.21 169,137,145.86 (5) Operating Revenue from Top 5 Customers Total operating revenue from top 5 Proportion to operating revenue of Period customers Reporting Period 35.79 Jan.-June of 2018 6,013,731,094.97 Jan.-June of 2017 2,662,113,944.10 23.95 44. Taxes and Surtaxes Item Reporting Period Same Period of last year Land VAT 0.00 9,045,781.48 Urban maintenance and 7,615,970.19 102,929.05 construction tax Stamp duty 5,471,304.55 47,500.00 Property tax 2,268,252.08 4,011,787.05 Land use tax 4,628,137.36 2,617,655.26 Education surcharge 3,403,425.83 4,633,250.57 Local education surcharge 2,284,037.36 6,808,790.65 Business tax 0.00 5,698,979.66 Water resources fund 162,579.33 13,620.00 Vehicle and vessels usage tax 3,180.00 457,748.63 Others 1,809,687.92 991,549.69 Total 27,646,574.62 34,429,592.04 Note: Refer to Note V Taxation for details of the measurement standards of various taxes and surtaxes. 45. Selling Expense Item Reporting Period Same Period of last year Salary 144,544,854.91 146,655,505.33 196 Konka Group Co., Ltd. Interim Report 2018 Item Reporting Period Same Period of last year Promotional activities 339,904,932.61 320,216,302.42 Logistic Fee 163,966,076.58 148,814,891.66 Warranty fee 121,621,614.96 114,430,603.12 Advertising expense 161,559,044.17 93,547,508.94 Social security charges 19,599,139.12 21,205,649.26 Taxes and fund 179,335.16 95.10 Business travel charges 16,371,700.85 16,044,394.98 Rental charges 15,783,834.11 14,424,674.47 Employee welfare 7,276,619.77 7,914,094.31 Other 112,373,922.27 90,749,586.95 Total 1,103,181,074.51 974,003,306.54 46. Administrative Expense Item Reporting Period Same Period of last year R&D expenses 137,008,896.76 96,753,027.87 Salary 72,498,745.45 68,075,439.56 Depreciation charge 30,392,140.28 16,955,414.43 Consulting fees 17,149,760.33 6,907,424.07 Social security charges 14,494,572.24 9,395,168.52 Business entertainment expense 9,155,485.63 8,204,092.21 Patent fee 883,906.94 2,018,722.61 Business travel charges 7,528,524.84 4,518,651.08 Employee welfare 7,882,174.11 6,552,271.96 Water & electricity fees 4,538,405.21 2,590,650.84 Labor-union expenditure 2,467,456.89 3,456,348.07 Other 60,827,600.65 38,680,889.75 Total 364,827,669.33 264,108,100.97 47. Finance Costs Item Reporting Period Same Period of last year Interest expense 138,646,255.45 165,919,248.32 Less: Interest income 49,719,529.94 61,587,922.88 197 Konka Group Co., Ltd. Interim Report 2018 Item Reporting Period Same Period of last year Foreign exchange profit or loss -72,148,811.10 -94,091.34 Other 19,514,995.00 6,645,661.36 Total 36,292,909.41 110,882,895.46 48. Asset Impairment Loss Item Reporting Period Same Period of last year Bad debt loss 13,395,642.00 -10,238,423.79 Inventory falling price loss 46,156,458.41 12,397,789.34 Fixed assets impairment losses 0.00 111,677.21 Total 59,552,100.41 2,271,042.76 49. Gain on changes in fair value Same period of last Sources Reporting Period year Financial assets at fair value through profit or loss 59,855,412.48 -103,077,757.73 Of which: gain on changes in fair value of derivative 59,855,412.48 -59,008,507.733 financial instruments Trading financial assets -44,069,250.00 Financial liabilities at fair value through profit or loss — Of which: gain on changes in fair value of derivative — financial instruments Total 59,855,412.48 -103,077,757.73 50. Investment Income Same Period of Item Reporting Period last year Long-term equity investment income measured by equity method 6,075,182.59 -4,574,294.19 Investment income from disposal of long-term equity investment 47,126,189.12 28,234.62 Investment income from holding of financial assets at fair value 0.00 263,100.00 through profit or loss Investment income from disposal of financial assets at fair value -82,412,478.05 15,901,726.37 through profit or loss Investment income from holding of available-for-sale financial assets 13,740,000.00 — 198 Konka Group Co., Ltd. Interim Report 2018 Same Period of Item Reporting Period last year Investment income from disposal of available-for-sale financial 17,360,398.59 25,048,785.15 assets Income from purchase of financial products and entrust loans 84,300,652.01 30,338,020.11 Income from re-measurement of residual stock rights at fair value 445,568,627.45 — after losing control power Total 531,758,571.71 67,005,572.06 51. Asset Disposal Income Amount recorded Same Period of last into the current Item Reporting Period year non-recurring profit or loss Fixed assets disposal income 89,814.27 — 89,814.27 Intangible assets disposal income 63,632,291.11 — 63,632,291.11 Total 63,722,105.38 — 63,722,105.38 52. Other Income Amount recorded into Same Period of the current Item Reporting Period last year non-recurring profit or loss Tax rebates of software 34,848,961.96 35,115,965.51 — Rewards and subsidies 18,563,333.33 18,563,333.33 — Support fund 48,012,477.79 48,012,477.79 — Transferred from deferred income 12,105,088.11 12,105,088.11 — Land tax return 0.00 — Subsidy for L/C export 132,738.00 132,738.00 — Subsidy for posts 3,229,884.31 3,229,884.31 1,722,426.00 Other 6,133,800.00 6,133,800.00 Total 123,026,283.50 36,838,391.51 88,177,321.54 53. Non-operating Income 199 Konka Group Co., Ltd. Interim Report 2018 Amount recorded into the Same Period of last Item Reporting Period current non-recurring profit year or loss Government subsidies unrelated to the normal operation of the 11,461,703.35 79,034,666.86 11,461,703.35 Company Gains on debt restructuring 0.00 — 0.00 Penalty income 870,715.65 3,366,979.21 870,715.65 Compensation income 0.00 — 0.00 Gains on the damage and 33,597,795.57 94,061.30 94,061.30 scrapping of non-current assets Other 14,791,012.67 7,347,666.65 14,791,012.67 Total 27,217,492.97 123,347,108.29 27,217,492.97 Of which, government subsidies recorded into current profit or loss: Item Reporting Same period of Related to the assets/ income Period last year Tax rebate for software — — — Support fund — 40,225,800.00 Related to income Deferred income — 11,561,486.48 Related to income Rewards and subsidies 10,185,622.66 21,005,000.00 Related to income Specific fund for smart home appliances — — — Return of land tax — 1,948,800.00 Related to income Subsidies for posts — — — Subsidies for L/C export — — — Financial discount — — — Other 1,276,080.69 4,293,580.38 Related to income Total 11,461,703.35 79,034,666.86 54. Non-operating Expense Amount recorded into Same Period of last the current Item Reporting Period year non-recurring profit or loss 200 Konka Group Co., Ltd. Interim Report 2018 Amount recorded into Same Period of last the current Item Reporting Period year non-recurring profit or loss Losses on damage and scraping of 1,671,547.63 1,065,392.90 1,671,547.63 non-current assets Compensation expense 3,500.00 1,531.07 3,500.00 Donations 20,000.00 13,600.00 20,000.00 Other 4,256,701.94 2,555,014.14 4,256,701.94 Total 5,951,749.57 3,635,538.11 5,951,749.57 55. Income Tax Expense (1) Lists of Income Tax Expense Item Reporting Period Same period of last year Current income tax expense 59,240,226.94 21,286,293.02 Deferred income tax expense -76,686,276.07 -25,125,065.99 Total -17,446,049.13 -3,838,772.97 (2) Adjustment Process of Accounting Profit and Income Tax Expense Item Reporting Period Profit before taxation 391,286,112.75 Current income tax expense accounted at 97,821,528.18 statutory/applicable tax rate Influence of applying different tax rates by subsidiaries -14,964,781.64 Influence of income tax before adjustment 748,615.33 Influence of non-taxable income -41,708,898.94 Influence of not deductable costs, expenses and losses 9,218,497.91 Influence of deductable loss of unrecognized deferred -91,144,150.70 income tax assets in prior period Influence of deductable temporary difference or deductable losses of unrecognized deferred income tax in the 22,583,140.73 Reporting Period Changes in the balance of deferred income tax assets/ --- liabilities in previous period due to adjustment of tax rate Influence of plus deducting costs Income tax expense -17,446,049.13 201 Konka Group Co., Ltd. Interim Report 2018 56. Other Comprehensive Income Refer to Note VI-40 for details. 57. Cash Flow Statement (1) Cash Generated from Other Operating Activities Same Period of last Item Reporting Period year Commercial factoring accounts received (Note ①) 1,177,791,975.34 --- Intercourse funds 87,455,725.93 76,180,729.27 Income from government subsidy 97,520,522.22 73,794,757.98 Front money and guarantee deposit 19,955,669.93 35,452,861.96 Interest income from bank deposits 6,703,808.76 7,386,176.08 Compensation from suppliers 30,537,543.95 Income from waste 3,377,283.28 5,528,381.42 Repayment of individual borrowings 2,206,730.89 2,369,554.91 Temporary received repair fund 17,717.50 2,820,613.27 Income from penalty and default money 245,081.28 170,823.92 Other 51,447,417.30 38,800,691.61 Total 1,477,259,476.38 242,504,590.42 Note:①The Commercial factoring accounts were referred to the accounts received from the bill discounting of the factoring business by the Company. (2) Cash Used in Other Operating Activities Same Period of last Item Reporting Period year The commercial factoring payment (Note) 1,607,828,551.79 — Expense for cash payment 643,840,207.45 619,722,220.51 Payment made on behalf 18,580,685.28 16,655,746.00 Payment for guarantee deposit, cash deposit and repair 1,607,828,551.79 — Petty cash for employees 643,840,207.45 619,722,220.51 Expense for bank handling charges 18,580,685.28 16,655,746.00 Donation expense 1,607,828,551.79 — 202 Konka Group Co., Ltd. Interim Report 2018 Same Period of last Item Reporting Period year Default money 643,840,207.45 619,722,220.51 Other expense 18,580,685.28 16,655,746.00 Total 2,347,454,070.52 755,674,441.38 Note: The commercial factoring payment referred to the accounts paid to the factoring applicant by the Company’s subsidiary- Konka Factoring (Shenzhen) Co., Ltd. (3) Cash Generated from Other Investing Activities Same Period of last Item Reporting Period year Recovery of financial products 942,900,000.00 857,900,000.00 Other 1,449.68 Total 942,900,000.00 857,901,449.68 (4) Cash Used in Other Investing Activities Same Period of last Item Reporting Period year Purchase of financial products 774,730,000.00 2,130,900,000.00 Payment for stock bidding 100,000,000.00 --- Other 25,168,913.10 Total 874,730,000.00 2,156,068,913.10 (5) Cash Generated from Other Financing Activities Item Reporting Period Same Period of last year The solution pay of pledged RMB certificate of deposit at 444,475,802.89 maturity Other 1,023,076.93 Total 1,023,076.93 444,475,802.89 (6) Cash Used in Other Financing Activities Same Period of last Item Reporting Period year Deposit as margin for pledge 574,504.77 Financing expense 22,612,122.48 — Total 22,612,122.48 574,504.77 203 Konka Group Co., Ltd. Interim Report 2018 58. Supplemental Information for Cash Flow Statement (1) Supplemental Information for Cash Flow Statement Same period of last Supplemental information Reporting Period year 1. Reconciliation of net profit to net cash flows generated from operating activities Net profit 408,732,161.88 34,396,332.58 Add: Provision for impairment of assets 59,552,100.41 2,271,042.76 Depreciation of fixed assets, oil-gas assets, and 99,977,217.61 57,373,770.25 productive living assets Amortization of intangible assets 6,800,013.68 5,514,858.35 Amortization of long-term prepaid expenses 39,491,886.63 32,110,310.89 Losses on disposal of fixed assets, intangible assets -63,722,105.38 -32,532,402.67 and other long-lived assets (gains: negative) Losses on scrap of fixed assets (gains: negative) 1,577,486.33 — Losses on changes in fair value (gains: negative) -59,855,412.48 103,077,757.73 Finance costs (gains: negative) 138,646,255.45 205,629,196.69 Investment loss (gains: negative) -531,929,987.83 -67,005,572.06 Decrease in deferred income tax assets (gains: -139,323,718.64 -35,150,295.62 negative) Increase in deferred income tax liabilities 51,576,456.37 2,453,021.63 (“-” means decrease) Decrease in inventories (gains: negative) -200,692,963.10 -2,097,599,214.55 Decrease in accounts receivable generated from -1,290,880,669.75 274,747,714.15 operating activities (gains: negative) Increase in accounts payable used in operating -358,107,427.04 -737,739,738.53 activities (decrease: negative) Other -11,561,486.48 Net cash generated from/used in operating activities -1,838,158,705.86 -2,264,014,704.88 2. Significant investing and financing activities without involvement of cash receipts and payments Transfer of debt to capital — — Current portion of convertible corporate bonds — — Fixed assets leased in by financing — — 3. Net increase/decrease of cash and cash equivalent: Ending balance of cash 3,761,988,635.66 2,326,786,079.22 204 Konka Group Co., Ltd. Interim Report 2018 Same period of last Supplemental information Reporting Period year Less: beginning balance of cash 3,097,899,703.76 2,020,902,945.13 Add: Ending balance of cash equivalents — — Less: Beginning balance of cash equivalents — — Net increase in cash and cash equivalents 664,088,931.90 305,883,134.09 (2) Net Cash Receive from Disposal of the Subsidiaries Item Amount Cash or cash equivalents received currently from the disposal of subsidiaries in the Reporting Period Of which: Kaikai Shijie 50,000,000.00 Less: cash and cash equivalents held by subsidiaries on the date of losing control — power Of which: Kaikai Shijie 7,488,940.78 Net cash from disposal of subsidiaries 42,511,059.22 (3) Cash and Cash Equivalents Item Ending balance Beginning balance I. Cash 3,761,988,635.66 2,326,786,079.22 Including: Cash on hand 122,746.45 2,243.88 Bank deposit on demand 3,761,865,889.21 2,326,783,835.34 III. Ending balance of cash and cash equivalents 3,761,988,635.66 2,326,786,079.22 Note: The cash and cash equivalents excluded other monetary assets with restriction on use. 59. Assets with Restricted Ownership or Right to Use Item Ending carrying value Reason for restriction Monetary assets 149,831,518.94 Margin deposit that cannot be drawn at any time 205 Konka Group Co., Ltd. Interim Report 2018 Item Ending carrying value Reason for restriction ①As of 30 June 2018, the Company pledged the bank ’ s acceptance with carrying value of RMB1,414,894,166.20 used in issuing the bank acceptance, letter of credit, letter of guarantee, trade financing and other comprehensive financing businesses. ②As of 30 June 2018, the trade acceptance with 1,666,718,524.73 Notes receivable carrying value of RMB241,824,358.53 was used by the Company for the bank discount with recourse and obtained a short-term borrowing of RMB227,979,976.51, and the bank ’ s acceptance bill with carrying value of RMB10,000,000.00 was used by the Company for the bank discount with recourse and obtained a short-term borrowing of RMB9,545,000.00. 5,807,674.32 Conservatory measures in litigation Fixed assets 60,288,708.63 As of 30 June 2018, the subsidiary of the Company, Xingda Hong Ye, obtained a pledge loan of RMB210,700,000.00 taking houses and buildings with carrying value of Intangible assets 38,617,359.68 RMB60,288,708.63 and land use right with carrying value of RMB38,617,359.68 as the pledge. Total 1,921,263,786.30 60. Foreign Currency Monetary Items (1) Foreign Currency Monetary Items Ending foreign currency Ending balance converted Item Exchange rate balance to RMB Monetary assets Including: USD 112,780,634.54 6.6166 746,224,346.50 EUR 5,312.33 7.6515 40,647.29 HKD 13,029,927.79 0.8431 10,985,532.12 GBP 1.11 8.6551 9.61 206 Konka Group Co., Ltd. Interim Report 2018 Ending foreign currency Ending balance converted Item Exchange rate balance to RMB PLN 7,250,355.04 1.75497 12,724,155.58 Accounts receivable Including: USD 166,139,933.57 6.6166 1,099,281,484.49 HKD 5,945,102.95 0.8431 5,012,316.30 AUD 49,764.00 4.8633 242,017.26 Accounts payable Including: USD 238,075,212.16 6.6166 1,575,248,448.78 Other receivables Including: USD 2,276,499.71 6.6166 15,062,687.98 Other payables Including: USD 9,192,347.10 6.6166 60,822,083.82 HKD 603,122.24 0.8431 508,492.36 Short-term borrowings Including: USD 253,872,941.35 6.6166 1,679,775,703.74 HKD 86,065,100.00 0.8431 72,561,485.81 Interest payable Including: USD 2,909,774.15 6.6166 19,252,811.64 VII. Changes of Consolidation Scope 1. Single Disposal of Investment to Subsidiary that Losing Control Power 207 Konka Group Co., Ltd. Interim Report 2018 The differences of enjoyed net assets share of the Name of Equity Recognition basis subsidiary in Method Time of The equity disposal disposal for the time of corresponding the of equity losing price proportio losing control consolidated disposal control subsidiary n (%) power statements of the disposal price and the disposal investment Transfer of equity, Kaikai operation and 50,000,000.00 5 Transfer 2018/6/28 47,126,189.12 Shijie financial controlling power (Continued) Recognition Amount of Residual method and other equity Carrying value of Fair value of Gains or losses main comprehensive Name of proportion residual equity residual equity from assumption of income related the on the date on the date of on the date of re-measurement of fair value of to former of losing losing control losing control residual equity at residual equity subsidiaries subsidiary control power power fair value on the date of transferred into power (%) losing control investment power profit or loss Kaikai Market trading Shijie 46% 14,431,372.55 460,000,000.00 445,568,627.45 price — 2. Changes in Combination Scope for Other Reasons (1) Kangjietong (Hong Kong) Limited was incorporated by Konka Electrical Appliances Investment & Development Co., Ltd. (a subsidiary of the Company) and Aujet Industry Limited in Hong Kong on 9 January 2018 with a registered capital of HKD1 million, of which Konka Electrical Appliances Investment & Development Co., Ltd. contributed HKD0.51 million (or 51%) and Aujet Industry Limited contributed HKD0.49 million (or 49%). Therefore, the Company has the control over Kangjietong (Hong Kong) Limited and it has been included into the Company’s consolidation scope since 9 January 2018. (2) Sichuan Konka Smart Terminal Technology Co., Ltd. was incorporated by Shenzhen Konka Mobile Interconnection Technology Co., Ltd. (a subsidiary of the Company) on 15 January 2018 with a registered capital of RMB100 million, of which Shenzhen Konka Mobile Interconnection Technology Co., Ltd. contributed RMB100 million (or 100%). Therefore, the Company has the control over Sichuan Konka Smart Terminal Technology Co., Ltd. and it has been included into the Company’s consolidation scope since 15 January 2018. 208 Konka Group Co., Ltd. Interim Report 2018 (3) Yibin Konka Technology Park Operation Co., Ltd. was incorporated by the Company on 15 January 2018 with a registered capital of RMB100 million, of which the Company contributed RMB100 million (or 100%). Therefore, the Company has the control over Yibin Konka Technology Park Operation Co., Ltd. and it has been included into the Company ’s consolidation scope since 15 January 2018. (4) Shenzhen Konka Electronics Technology Co., Ltd. was incorporated by the Company on 16 January 2018 with a registered capital of RMB1 billion, of which the Company contributed RMB1 billion (or 100%). Therefore, the Company has the control over Shenzhen Konka Electronics Technology Co., Ltd. and it has been included into the Company ’ s consolidation scope since 16 January 2018. (5) Jiaxin Technology Co., Ltd. was incorporated by Shenzhen Konka Pengrun Technology & Industry Co., Ltd. (a subsidiary of the Company) in Hong Kong on 25 January 2018 with a registered capital of HKD10 million, of which Shenzhen Konka Pengrun Technology & Industry Co., Ltd. contributed HKD10 million (or 100%). Therefore, the Company has the control over Jiaxin Technology Co., Ltd. and it has been included into the Company ’ s consolidation scope since 25 January 2018. (6) Jiali International (Hong Kong) Limited was incorporated by Shenzhen Konka Unifortune Supply Chain Management Co., Ltd. (a subsidiary of the Company) in Hong Kong on 2 February 2018 with a registered capital of HKD5 million, of which Shenzhen Konka Unifortune Supply Chain Management Co., Ltd. contributed HKD5 million (or 100%). Therefore, the Company has the control over Jiali International (Hong Kong) Limited and it has been included into the Company’s consolidation scope since 2 February 2018. (7) Chengdu Konka Incubator Management Co., Ltd. was incorporated by Konka Ventures Development (Shenzhen) Co., Ltd. (a subsidiary of the Company) on 5 February 2018 with a registered capital of RMB5 million, of which Konka Ventures Development (Shenzhen) Co., Ltd. contributed RMB5 million (or 100%). Therefore, the Company has the control over Chengdu Konka Incubator Management Co., Ltd. and it has been included into the Company’s consolidation scope since 5 February 2018. (8) Sichuan Kangjiatong Supply Chain Management Co., Ltd. was incorporated by the Company, Shenzhen Trade Link Supply Chain Management Co., Ltd. and Sichuan Yibin Port (Group) Co., Ltd. on 26 March 2018 with a registered capital of RMB30 million, of which the Company contributed RMB15.3 million (or 51%) in cash, Shenzhen Trade Link Supply Chain Management Co., Ltd. contributed RMB13.2 million (or 44%) in cash and Sichuan Yibin Port (Group) Co., Ltd. contributed RMB1.5 million (or 5%) in cash. Therefore, the 209 Konka Group Co., Ltd. Interim Report 2018 Company has the control over Sichuan Kangjiatong Supply Chain Management Co., Ltd. and it has been included into the Company’s consolidation scope since 26 March 2018. (9) Konka Suiyong Investment (Shenzhen) Co., Ltd. was incorporated by Shenzhen Konka Investment Holding Co., Ltd. (a subsidiary of the Company) and Suiyong Rongxin Capital Management Co., Ltd. on 11 May 2018 with a registered capital of RMB50 million, of which Shenzhen Konka Investment Holding Co., Ltd. contributed RMB25.5 million (or 51%) in cash and Suiyong Rongxin Capital Management Co., Ltd. contributed RMB24.5 (or 49%) in cash. Therefore, the Company has the control over Konka Suiyong Investment (Shenzhen) Co., Ltd. and it has been included into the Company ’s consolidation scope since 11 May 2018. (10) Konka Huanjia (Dalian) Environmental Technology Co., Ltd. was incorporated by the Company, Huanjia Group and Zhang Yuyin on 6 June 2018 with a registered capital of RMB180 million, of which the Company contributed 91.8 million (or 51%) in cash, Huanjia Group contributed RMB70.2 million (or 39%) in cash and Zhang Yuyin contributed RMB18 million (or 10%) in cash. Therefore, the Company has the control over Konka Huanjia (Dalian) Environmental Technology Co., Ltd. and it has been included into the Company ’s consolidation scope since 6 June 2018. (11) Anhui Konka Electrical Appliance Technology Co., Ltd. was incorporated by Anhui Konka Tongchuang Electrical Appliances Co., Ltd. (a subsidiary of the Company) and Chuzhou Hanshang Electrical Appliance Co., Ltd. on 12 June 2018 with a registered capital of RMB100 million, of which Anhui Konka Tongchuang Electrical Appliances Co., Ltd. contributed RMB51 million (or 51%) in cash and Chuzhou Hanshang Electrical Appliance Co., Ltd. contributed RMB49 million (or 49%) in cash. Therefore, the Company has the control over Anhui Konka Electrical Appliance Technology Co., Ltd. and it has been included into the Company’s consolidation scope since 12 June 2018. (12) The Company completed the merger & acquisition of Shandong Econ Technology Co., Ltd. on 4 May 2018 with a registered capital of RMB164 million, of which the Company contributed RMB688.5 million (or 51%) in cash. Therefore, the Company has the control over Shandong Econ Technology Co., Ltd. and its following subsidiaries: Beijing Econ Runfeng Technology Co., Ltd., Shanghai Jiyi Environmental Technology Co., Ltd., Binzhou Econ Zhongke Environmental Technology Co., Ltd., Laizhou Lairun Holdings Co., Ltd., Econ Environmental Engineering Co., Ltd., Rushan Yike Water Treatment Co., Ltd., Binzhou Weiyijie Environmental Technology Co., Ltd., Yantai Chunzhiran Environmental Technology Co., Ltd., Rushan Econ Beike Technology Incubator Co., Ltd., Fujian Econ Changrun 210 Konka Group Co., Ltd. Interim Report 2018 Environmental Protection Co., Ltd., Laizhou Lairun Huayang Heating Co., Ltd., Laizhou Lairun Heating Co., Ltd., Laizhou Lairun Green Energy Co., Ltd., Binzhou Beihai Jingmai Industrial Development Co., Ltd., Yantai Huanhai Xinze Enterprise Management Co., Ltd., Binzhou Weinengda Transport Co., Ltd., Laizhou Binhai Sewage Treatment Co., Ltd. and Laizhou Lairun Environmental Protection Co., Ltd. And these acquirees have been included into the Company’s consolidation scope since 4 May 2018. (13) Shenzhen Konka Electronics Technology Co., Ltd. (a subsidiary of the Company) has completed the merger & acquisition of GuangDong XingDa HongYe Electronic Co., Ltd. on 29 June 2018 with a registered capital of RMB88.89 million, of which the Company contributed RMB99.45 million (or 51%) in cash. Therefore, Shenzhen Konka Electronics Technology Co., Ltd. has the control over GuangDong XingDa HongYe Electronic Co., Ltd. and its following subsidiaries: Shanghai Xinfeng Zhuoqun PCB Co., Ltd. and Zhongshan Zewei Kechuang Investment Management Co., Ltd. And these acquirees have been included into the Company’s consolidation scope since 29 June 2018. VIII. Equity in Other Entities 1. Equity in Subsidiary (1) Subsidiaries Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Shenzhen Konka Shenzhen, Shenzhen, Manufacturin Set up or Telecommunications Technology 75 25 Guangdong Guangdong g industry investment Co., Ltd. Manufacturin Shenzhen, Shenzhen, Set up or Konka Household Appliances g industry, 100 — Guangdong Guangdong commerce investment Shenzhen Konka Plastic Products Shenzhen, Shenzhen, Manufacturin Set up or 49 51 Co., Ltd. Guangdong Guangdong g industry investment Shenzhen Konka Life Electronic Shenzhen, Shenzhen, Manufacturin Set up or 75 25 Co., Ltd. Guangdong Guangdong g industry investment Shenzhen Konka Electronic Fittings Shenzhen, Shenzhen, Investment Set up or 75 25 Technology Co., Ltd. Guangdong Guangdong holding investment Mudanjiang Arctic Ocean Mudanjiang, Mudanjiang, Manufacturin Set up or Appliances Co., Ltd. Heilongjiang Heilongjian g industry 60 — investment g 211 Konka Group Co., Ltd. Interim Report 2018 Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Chongqing Konka Electronic Co., Chongqing Chongqing Manufacturin Set up or — 40 Ltd. ① g industry investment Chuzhou, Chuzhou, Manufacturin Set up or Anhui Konka Electronic Co., Ltd. 78 — Anhui Anhui g industry investment Dongguan Konka Electronic Co., Dongguan, Dongguan, Manufacturin Set up or 75 25 Ltd. Guangdong Guangdong g industry investment Dongguan Konka Packing Materials Dongguan, Dongguan, Manufacturin Set up or — 100 Co., Ltd. Guangdong Guangdong g industry investment Boluo, Boluo, Manufacturin Set up or Boluo Konka PCB Co., Ltd. — 100 Guangdong Guangdong g industry investment Boluo Konka Precision Technology Boluo, Boluo, Manufacturin Set up or — 100 Co., Ltd. Guangdong Guangdong g industry investment Hong Kong Konka Co., Ltd. Hong Kong, Hong Kong, International Set up or 100 — China China Trading investment Konka Household Appliances Hong Kong, Hong Kong, Investment Set up or Investment & Development Co., — 100 China China holding investment Ltd. Konka Household Appliances Hong Kong, Hong Kong, International Set up or — 100 International Trading Co., Ltd. China China Trading investment Konka (Europe) Co., Ltd. Frankfurt, Frankfurt, International Set up or Germany, Germany, Trading 100 — investment Europe Europe Konka Commercial Factoring Shenzhen, Shenzhen, Insurance (Shenzhen) Co., Ltd Guangdong Guangdong agents Set up or 100 — (non-bank investment finance) Shenzhen Wankaida Science and Shenzhen, Shenzhen, Software Set up or 100 — Technology Co., Ltd. Guangdong Guangdong development investment Kunshan Kangsheng Investment Kunshan, Kunshan, Real estate Set up or 100 — Development Co., Ltd. Jiangsu Jiangsu investment Anhui Konka Tongchuang Chuzhou, Chuzhou, Manufacturin Set up or 100 — Household Appliances Co., Ltd.② Anhui Anhui g industry investment 212 Konka Group Co., Ltd. Interim Report 2018 Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Shenzhen Shushida Logistics Shenzhen, Shenzhen, Logistics Set up or 100 — Service Co., Ltd. Guangdong Guangdong investment Beijing Konka Electronic Co., Ltd. Beijing Beijing Sale of home Set up or 100 — appliance investment Shenzhen Konka E-display Co., Shenzhen, Shenzhen, Manufacturin Set up or 60 — Ltd. Guangdong Guangdong g industry investment Shenzhen E-display Service Co., Shenzhen, Shenzhen, Manufacturin Set up or — 60 Ltd. Guangdong Guangdong g industry investment Xiamen Dalong Trade Co., Ltd. Xiamen, Xiamen, Commerce Set up or — 69.23 Fujian Fujian investment Youshi Kangrong Cultural Tianjin Tianjin Advertisemen Set up or — 70 Communication Co., Ltd. t investment Konka Smarttech Limited Hong Kong, Hong Kong, International Set up or — 61 China China trading investment Shenzhen Yipingfang Network Shenzhen, Shenzhen, Information Set up or 100 — Technology Co., Ltd Guangdong Guangdong service investment Shenzhen Konka Commercial Shenzhen, Shenzhen, Commerce Set up or 81 — Systems Technology Co., Ltd Guangdong Guangdong investment Shenzhen Konka Mobile Internet Shenzhen, Shenzhen, Commerce Set up or 51 — Technology Co., Ltd. Guangdong Guangdong investment Chain Kingdom Co., Limited Hong Kong Hong Kong International Set up or — 51 Trade investment Shenzhen Kangqiao Yilian Shenzhen, Shenzhen, Commerce Set up or 60 — Technology Co., Ltd. Guangdong Guangdong investment Network Yilifang (Hainan) Technology Co., Haikou, Haikou, Set up or platform 60 — Ltd Hainan Hainan investment development Chuzhou, Chuzhou, Science and Chuzhou Konka Technology & Set up or Anhui Anhui technology 100 — Industry Development Co., Ltd. investment industry Konka Ventures Development Shenzhen, Shenzhen, Software and 51 — Set up (Shenzhen) Co., Ltd. Guangdong Guangdong IT industry Shenzhen Konka Pengrun Shenzhen, Shenzhen, Retail 51 — Set up Technology & Industry Co., Ltd. Guangdong Guangdong industry Shenzhen Konka Unifortune Supply Shenzhen, Shenzhen, Retail 51 — Set up Chain Management Co., Ltd. Guangdong Guangdong industry 213 Konka Group Co., Ltd. Interim Report 2018 Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Shenzhen, Shenzhen, Capital Shenzhen Konka Investment Guangdong Guangdong markets 100 — Set up Holding Co., Ltd. service Chuzhou, Chuzhou, Wholesale Anhui Kangzhi Trade Co., Ltd. — 78 Set up Anhui Anhui business Hainan Konka Material Technology Haikou, Haikou, Commercial — 51 Set up Co., Ltd. Hainan Hainan service Tianjin pilot Tianjin pilot Leasing Tianjin Konka Leasing Co., Ltd. — 100 Set up FTZ FTZ industry Yantai Konka Healthcare Enterprise Yantai, Yantai, Commercial — 51 Set up Service Co., Ltd. Shandong Shandong service Shenzhen, Shenzhen, Capital Shenzhen Konka Capital Equity Guangdong Guangdong markets — 100 Set up Investment Management Co., Ltd. service Chain Kingdom (Shenzhen) Co., Shenzhen, Shenzhen, Wholesale — 51 Set up Ltd. Guangdong Guangdong business Shenzhen Konka Electronics Shenzhen, Shenzhen, Manufacturin 100 Set up Technology Co., Ltd. Guangdong Guangdong g industry Sichuan Konka Smart terminal Yibin, Yibin, Manufacturin 51 Set up Technology Co., Ltd. Sichuan Sichuan g industry Hong Kong, Hong Kong, Wholesale Jiaxin Technology Co., Ltd. 51 Set up China China business Hong Kong, Hong Kong, Wholesale Kangjietong (Hong Kong) Limited Set up China China business 51 Sichuan Kangjiatong Supply Chain Yibin, Yibin, Wholesale 51 Set up Management Co., Ltd. Sichuan Sichuan business Konka Huanjia (Dalian) Environmenta Dalian, Environmental Technology Co., Dalian, l protection Set up Liaoning 51 Ltd. Liaoning industry Chengdu Konka Incubator Chengdu, Chengdu, Commercial Set up Management Co., Ltd. Sichuan Sichuan service 51 Science and Yibin Konka Technology Park Yibin, Yibin, technology Set up Operation Co., Ltd. Sichuan Sichuan 100 industry Shenzhen, Shenzhen, Capital Konka Suiyong Investment Guangdong Guangdong markets Set up (Shenzhen) Co., Ltd. 51 service Anhui Konka Electrical Appliance Chuzhou, Chuzhou, Manufacturin Set up Technology Co., Ltd. Anhui Anhui g industry 51 214 Konka Group Co., Ltd. Interim Report 2018 Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Jiali International (Hong Kong) Hong Kong, Hong Kong, Wholesale Set up Limited China China business 51 Guangdong XingDa HongYe Zhongshan, Zhongshan, Manufacturin Merger and Electronic Co., Ltd. Guangdong Guangdong g industry 51 acquisition Shanghai Xinfeng Zhuoqun PCB Shanghai, Shanghai, Manufacturin Merger and Co., Ltd. China China g industry 51 acquisition Capital Zhongshan Zewei Kechuang Zhongshan, Zhongshan, markets Merger and Investment Management Co., Ltd. Guangdong 25.5 acquisition Guangdong service Environmenta Shandong Econ Technology Co., Yantai, Yantai, l protection Merger and Ltd. Shandong Shandong 51 industry acquisition Science research and Beijing Econ Runfeng Technology technological Co., Ltd. Beijing, Beijing, service Merger and China China industry 51.00 acquisition Science research and Shanghai Jiyi Environmental Shanghai, technological Technology Co., Ltd. China Shanghai, service Merger and China industry 51.00 acquisition Science Binzhou Econ Zhongke research and Environmental Technology Co., technological Ltd. Binzhou, Binzhou, service Merger and Shandong Shandong industry 51.00 acquisition Production and supply of electric Laizhou Lairun Holdings Co., Ltd. power, heating Laizhou, Laizhou, power, gas Merger and Shandong Shandong and water 30.60 acquisition Econ Environmental Engineering Yantai, Yantai, Architecture Merger and Co., Ltd. Shandong Shandong industry 51.00 acquisition 215 Konka Group Co., Ltd. Interim Report 2018 Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Management of water Rushan Yike Water Treatment Co., conservancy, Ltd. environment Rushan, Rushan, and public Merger and Shandong Shandong facilities 44.37 acquisition information transmission, Binzhou Weiyijie Environmental software and Technology Co., Ltd. Binzhou, Binzhou, IT service Merger and Shandong Shandong industry 35.70 acquisition Science research and Yantai Chunzhiran Environmental Yantai, Yantai, technological Technology Co., Ltd. Shandong Shandong service Merger and industry 35.70 acquisition Management of water Rushan Econ Beike Technology conservancy, Incubator Co., Ltd. environment Rushan, Rushan, and public Merger and Shandong Shandong facilities 51.00 acquisition Production and supply of electric Fujian Econ Changrun power, Environmental Protection Co., Ltd. heating Changle, Changle, power, gas Merger and Fujian Fujian and water 33.15 acquisition Science research and Laizhou Lairun Huayang Heating technological Co., Ltd. Laizhou, Laizhou, service Merger and Shandong Shandong industry 26.01 acquisition Production and supply of electric Laizhou Lairun Heating Co., Ltd. power, heating Laizhou, Laizhou, power, gas Merger and Shandong Shandong and water 51.00 acquisition 216 Konka Group Co., Ltd. Interim Report 2018 Holding Main percentage (%) Registration Nature of Way of Name operating place business Directl Indirec gaining place y tly Management of water Laizhou Lairun Green Energy Co., conservancy, Ltd. environment Laizhou, Laizhou, and public Merger and Shandong Shandong facilities 30.60 acquisition preparation of project on Binzhou Beihai Jingmai Industrial comprehensiv Development Co., Ltd. Binzhou, Binzhou, e utilization Merger and Shandong Shandong of solid waste 30.60 acquisition business administration Yantai Huanhai Xinze Enterprise Yantai, Yantai, and Management Co., Ltd. Shandong Shandong consulting Merger and services 51.00 acquisition Binzhou Weinengda Transport Co., Binzhou, Binzhou, transportation Merger and Ltd. Shandong Shandong of goods 37.23 acquisition treatment of sewage, consulting of environmental Laizhou Binhai Sewage Treatment protection Co., Ltd. engineering and environmental Laizhou, Laizhou, technical Merger and Shandong Shandong services 30.60 acquisition Management of water Laizhou Lairun Environmental conservancy, Protection Co., Ltd. environment Laizhou, Laizhou, and public Merger and Shandong Shandong facilities 30.60 acquisition Notes: ① Chongqing Qingjia: the Company holds its 40% shares, and all senior executive officers are designated and appointed by the Company; more than half of the members of Board of Director are directly or indirectly designated by the Company who has absolute influence and control over its production and operation, so it ’s included into the scope of consolidated statements. (2) Significant Non-wholly-owned Subsidiary 217 Konka Group Co., Ltd. Interim Report 2018 Declaring Shareholding The profit or loss Balance of dividends proportion of attributable to the non-controlling Name distributed to non-controlling non-controlling interests at the non-controlling interests interests period-end interests Anhui Konka Household 22.00 -1,947,406.50 — 80,203,594.24 Appliances Co., Ltd. Chain Kingdom (Shenzhen) Co., 49.00 13,863,023.00 — 28,222,534.03 Ltd. 218 Konka Group Co., Ltd. Interim Report 2018 (3) The Main Financial Information of Significant Non-wholly-owned Subsidiary Ending balance Name Current assets Non-current assets Total assets Current liabilities Non-current liability Total liabilities Anhui Konka Household 1,180,349,696.72 226,400,267.27 1,406,749,963.99 1,030,643,579.13 11,544,592.87 1,042,188,172.00 Appliances Co., Ltd. Chain Kingdom 1,405,583,233.71 133,856.87 1,405,717,090.58 1,348,120,082.36 0 1,348,120,082.36 (Shenzhen) Co., Ltd. (Continued) Beginning balance Name Current assets Non-current assets Total assets Current liabilities Non-current liability Total liabilities Anhui Konka Household 1,743,305,524.22 234,515,077.28 1,977,820,601.50 1,589,905,412.55 13,198,499.65 1,603,103,912.20 Appliances Co., Ltd. Chain Kingdom 1,162,693,203.78 129,592.90 1,162,822,796.68 1,134,435,779.93 — 1,134,435,779.93 (Shenzhen) Co., Ltd. Reporting Period Same period of last year Total Cash flows from Total Cash flows from Name Operating revenue Net profit comprehensive operating Operating revenue Net profit comprehensive operating income activities income activities Anhui Konka Household 1,732,222,387.44 -8,851,847.71 -8,851,847.71 286,378,066.73 2,399,150,981.00 8,748,900.14 8,748,900.14 -25,296,816.63 Appliances Co., 219 Konka Group Co., Ltd. Interim Report 2018 Name Reporting Period Same period of last year Ltd. Chain Kingdom (Shenzhen) Co., 3,256,025,071.58 28,291,883.68 28,291,883.68 25,288,584.51 1,909,913,550.33 11,394,229.70 11,394,229.70 49,714,579.94 Ltd. (4) There Was No Significant Restriction on Using the Group’s Assets and Liquidating the Group’s Liabilities. (5) There Were No Financial Supports or Other Supports Provided to Structural Entities Incorporated into the Scope of Consolidated Financial Statements 220 Konka Group Co., Ltd. Interim Report 2018 2. Equity in Associated Enterprises (1) Significant Associated Enterprises Holding Accounting percentage (%) treatment of the Main Registr Nature of investment to joint Name operating ation business Indirect venture or place place Directly ly associated enterprise Production and Shanghai Konka Green Science & Shangh Shanghai 39.00 — Technology Co., Ltd. ai sale of plastic Equity method mould Production and Shenzhen Jielunte Technology Co., Shenzhe Shenzh — 42.79 Ltd. n en sale of light Equity method emitting diode Manufacturing industry in computer, Shenzhen Yaode Technology Co., Shenzhe Shenzh 20.00 — Ltd. n en communication Equity method and other electronic equipment Manufacturing industry in computer, Guangdong Chutian Dragon Smart Donggua Dongg communication 22.4513 — Equity method Card Co., Ltd. n uan and other electronic equipment Manufacturing industry in computer, Kunshan Konka Electronic Co., Kunsha Kunshan communication 49.00 — Equity method Ltd. n and other electronic equipment 221 Konka Group Co., Ltd. Interim Report 2018 Note: Shenzhen Konka Precision Mould Manufacturing Co., Ltd. was renamed Shenzhen Jielunte Technology Co., Ltd. on 20 April 2018. (2) Main Financial Information of Significant Associated Enterprise Ending balance/Reporting Period Shanghai Konka Shenzhen Jielunte Shenzhen Yaode Guangdong Chutian Kunshan Konka Item Green Science & Technology Co., Technology Co., Dragon Smart Card Electronic Co., Technology Co., Ltd. Ltd. Co., Ltd. Ltd. Ltd. Current assets 238,505,916.56 277,297,528.36 716,867,398.25 1,314,638,426.28 525,061,810.64 Of which: cash and 138,267,820.64 25,052,334.89 520,507,991.35 216,879,312.23 8,144,241.21 cash equivalents Non-current assets 331,607,537.58 232,773,836.21 36,493,058.35 234,997,541.23 251,965,997.66 Total assets 570,113,454.14 510,071,364.57 753,360,456.60 1,549,635,967.51 777,027,808.30 Current liabilities 113,208,488.33 266,511,418.86 227,846,560.60 574,363,961.20 358,430,185.04 Non-current liability 74,625,997.45 16,855,660.69 3,442,363.70 15,192,263.19 8,678,352.12 Total liabilities 187,834,485.78 283,367,079.55 231,288,924.30 589,556,224.39 367,108,537.16 Equity of non-controlling 179,737,280.68 9,724,788.60 6,999,542.20 interests Equity attributable to shareholders of 202,541,687.68 216,979,496.42 522,071,532.30 953,080,200.92 409,919,271.14 the Company as the parent Share of net assets accounted by 78,991,258.19 92,845,526.52 104,414,306.46 213,978,895.15 200,860,442.86 shareholding percentage Adjusted events 222 Konka Group Co., Ltd. Interim Report 2018 -Goodwill — — 109,570,069.72 413,461,970.35 8,433,857.82 -Unrealized internal — — — — — sales gain and loss -Other — — — — — Carrying value of equity investment to 78,991,258.19 92,845,526.52 213,984,376.18 627,440,865.50 209,294,300.68 associated enterprises Fair value of equity investment to joint — — — — — ventures with public offer Operating revenue 188,967,645.42 188,975,170.98 319,742,579.72 486,019,598.26 649,068,015.15 Finance costs 569,432.88 3,668,764.35 7,373,783.33 -3,172,333.74 -3,467,057.33 Income tax expense 268,388.28 -2,459,079.12 2,534,205.92 13,415,113.49 0.00 Net profit -1,253,334.90 -15,866,759.35 18,526,218.16 64,781,109.89 7,321,158.81 Net profit from discontinued — — — — — operations Other comprehensive 830,823.12 — — — — income Total comprehensive -422,511.78 -15,866,759.35 18,526,218.16 64,781,109.89 7,321,158.81 income Dividends received from joint venture in — — — — — Reporting Period (Continued) Item Beginning balance/The same period of last year 223 Konka Group Co., Ltd. Interim Report 2018 Shanghai Konka Shenzhen Konka Shenzhen Yaode Guangdong Chutian Kunshan Konka Green Science & Precision Mould Technology Co., Dragon Smart Card Electronic Co., Technology Co., Manufacturing Co., Ltd. Co., Ltd. Ltd. Ltd. Ltd. Current assets 277,102,107.32 317,214,657.83 529,254,428.27 1,275,973,644.95 450,377,789.88 Of which: cash and 102,675,515.63 77,139,577.86 8,909,487.50 520,507,991.35 50,721,392.08 cash equivalents Non-current assets 342,856,720.05 229,756,861.75 81,833,013.73 265,717,459.13 339,299,159.57 Total assets 619,958,827.37 546,971,519.58 611,087,442.00 1,541,691,104.08 789,676,949.45 Current liabilities 164,142,536.68 283,150,937.49 102,411,669.34 610,280,220.79 393,186,594.32 Non-current liability 58,156,470.99 21,263,925.10 5,130,458.50 14,700,720.45 652,129.50 Total liabilities 222,299,007.67 304,414,862.59 107,542,127.84 624,980,941.24 387,078,837.13 Equity of non-controlling 193,225,048.13 9,879,883.26 — 9,178,745.28 — interests Equity attributable to shareholders of 204,434,771.57 232,676,773.73 503,545,314.16 907,531,417.56 402,598,112.32 the Company as the parent Share of net assets accounted by 79,729,560.91 99,562,391.48 100,709,062.83 203,752,601.15 197,273,075.04 shareholding percentage Adjusted events -Goodwill — — 109,570,069.72 413,461,970.35 8,433,857.82 -Unrealized internal — — — — — sales gain and loss -Other — — — — — 224 Konka Group Co., Ltd. Interim Report 2018 Beginning balance/The same period of last year Shanghai Konka Shenzhen Konka Shenzhen Yaode Guangdong Chutian Kunshan Konka Item Green Science & Precision Mould Technology Co., Dragon Smart Card Electronic Co., Technology Co., Manufacturing Co., Ltd. Co., Ltd. Ltd. Ltd. Ltd. Carrying value of equity investment to 79,729,560.91 99,562,391.48 210,279,132.55 617,214,571.50 205,706,932.86 associated enterprises Fair value of equity investment to joint — — — — — ventures with public offer Operating revenue 510,907,923.27 437,458,462.41 782,641,588.11 927,468,144.67 1,843,565,739.98 Finance costs 11,748,541.28 6,320,383.30 23,563,857.52 8,182,245.66 5,261,591.15 Income tax expense 3,287,206.08 -2,377,582.97 6,679,871.51 12,858,203.25 - Net profit -846,400.27 15,492,439.99 39,929,305.04 91,253,269.69 -1,656,818.45 Net profit from discontinued — — — — — operations Other comprehensive -2,440,477.18 — — — — income Total comprehensive -3,286,877.45 15,492,439.99 39,929,305.04 91,253,269.69 -1,656,818.45 income Dividends received from joint venture in — — — — — Reporting Period IX. The Risk Related to Financial Instruments 225 Konka Group Co., Ltd. Interim Report 2018 The Company's main financial instruments include monetary assets, notes receivable, interest receivable, other receivables, available-for-sale financial assets, other current assets, short-term borrowings, other payables, interest payable, long-term borrowings, etc. Details of the various financial instruments are shown in the relevant notes to Annotation VI. Risks related to these financial instruments, and risk management policies the Company has adopted to reduce these risks are described as follows. The Company management manages and monitors the risk exposure in order to ensure the above risks to be controlled in a limited scope. The Company use sensitivity analysis technology to analyze the reasonable of risk variables, influence of probable changes to the current profit or loss and Stockholders’ equity. Because rarely any risk variables change in isolation, and the correlation between variables for the eventual impact of the change of a risk variables will have a significant effect, thus, the aforesaid content was processing under the assumption of the change of each variable was conducted independently. (I) Risk Management Objectives and Policies The goals of Company engaged in the risk management is to achieve the proper balance between the risks and benefits, reduced the negative impact to the Company operating performance risk to a minimum, maximized the profits of shareholders and other equity investors. Based on the risk management goal, the basic strategy of the Company's risk management is determine and analyze the various risks faced by the Company, set up the bottom line of risk and conducted appropriate risk management, and timely supervised various risks in a reliable way and controlled the risk within the range of limit. 1. Market Risk (1) Foreign Exchange Risk Foreign exchange risk is referred to the risk incurred due to loss of changes in exchange rate. Foreign exchange risk refers to the risks that may lead to losses due to fluctuation in exchange rate. The foreign exchange risk borne by the Company is related to USD and HKD, except the procurement, sales and financing by US dollars for several subsidiaries such as the Company, Hong Kong Konka, Konka Household Appliances International Trading Co., Ltd., Chain Kingdom (Shenzhen) Co., Ltd., Europe Konka, Kangjietong, Jiaxin Technology and Jiali International which settled by USD for purchase and sale, the other main businesses of the Company and the subsidiaries were settled by RMB. On 30 June 2018, refer to Note. VI-60 Foreign Currency Monetary Items for details of foreign currency monetary items, and 226 Konka Group Co., Ltd. Interim Report 2018 the foreign exchange risks produced by the assets and liabilities balance may affect the business performance of the Company. The Company timely paid attention to the influence of change of the exchange rate to the Company's foreign exchange risk, which required the Group and others which conducted purchase and sale with settlement by foreign currency to purchase foreign currency long-term forward contract to lock the cost of purchase on forward date to reduce the risk exposure of foreign exchange. (2) Interest Rate Risk- Cash Flow Change Risk Cash flow change risk caused by financial instruments due to interest rate change is related to bank loans. By establishing good relations with banks and reasonable planning of credit line, credit varieties and credit period, it is to guarantee sufficient band line of credit and satisfy all financial demands. Moreover, it is to reduce risks of interest rate uncertainty by shortening single loan term and establishing repayment terms. The risk of change in cash flow of financial instruments due to the change of interest rate of the Company is mainly related to the borrowing of banks. As of 30 June 2018, the long-term and short-term borrowings had a total balance of RMB10,898,447,703.32. The Sensitivity analysis to interest rate risk was based on the follow assumption: ● Market interest rates change may affect the interest income or expense of variable rate financial instruments; Based on the above assumptions, if other variables remain the same, the pre-tax impacts of possible reasonable interest rate changes on the profits and losses of the Current Period and the shareholders' equities are as follows: Item Changes in interest rate Influence on profits Short-term and long-term Up 1.00% -108,984,477.03 borrowings Short-term and long-term Down 1.00% 108,984,477.03 borrowings (3) Other Price Risk The investment held by the Company classified as available-for-sale financial assets and tradable financial assets, the financial assets at fair value through profit or loss, and the financial liabilities at fair value through profit or loss shall be accounted at fair value on the balance sheet date. The management of the Company believed the market price risk facing 227 Konka Group Co., Ltd. Interim Report 2018 those investment activities was acceptable. For details of equity investment in listed companies held by the Company, please refer to Note VI-11. Available-for-sale Financial Assets. 2. Credit Risk On 30 June 2018, the biggest credit risk exposure may lead to the financial assets losses of the Company was mainly from the one party fail to perform its obligation, which included: carrying amount recognized in consolidated balance sheet. For financial instruments measured at fair value, the carrying value reflect its risk exposure, but not the biggest one, and the biggest risk exposure will change along with the change of future fair value. In order the reduce the credit risk, the Company establish a group response for recognizing line of credit, conducting credit approval and other monitor procedures to ensure that the necessary measures were used to recycle expired claims. In addition, the Company at each balance sheet date, review every single receivables recycling situation, to ensure that the money unable to recycle withdrawn provision for bad debt fully. Thus, the Company management believed that have assume the credit risk the Company shouldered had been greatly reduced. The company's working capital was in bank with higher credit rating, so credit risk of working capital was low. 3. Liquidity Risk When managing liquidity risk, the Company maintained the management ’ s believe that supervising the sufficient cash and cash equivalents to meet the operating demand of the Company and reduce the influence of the fluctuation of cash flow. The management of the Company monitored the use of bank’s loans and guaranteed the observance of the borrowing agreements. The Company took the bank’s loans as the main financing channel. The retained amount of loans of the Company by the end of 30 June 2018 was presented in Note XIV. Other Significant Events-7 in detail. (II) Offset between Financial Assets and Financial Liabilities The recognized financial assets under the executable general off-set agreement or similar agreement at the end of the Reporting Period were listed as follows: Period-end Total confirmed Amount offset of Net financial assets listed Item financial assets confirmed financial in the balance sheet (RMB’0,000) liabilities (RMB’0,000) (RMB’0,000) 228 Konka Group Co., Ltd. Interim Report 2018 Off-set of trading borrowings between 588,937.54 588,577.74 359.80 financial products Off-set of trading — — borrowings between notes — receivable X. The Disclosure of Fair Value 1. Ending Fair Value of Assets and Liabilities at Fair Value Ending fair value Fair value Fair value Item Fair value measurement measurement measurement Total items at level items at level items at level 1 2 3 I. Consistent fair value measurement (I) Financial assets at fair value 14,497,221.94 — — 14,497,221.94 through profit or loss 1. Trading financial assets — — — — 2. Income from purchase agreement 14,497,221.94 — — 14,497,221.94 of forward foreign exchange (II)Available-for-sale financial assets — — — — 1. Debt instrument investment — — — — 2. Equity instrument investment — — — — 3. Other — — — — Total assets of consistent fair value 14,497,221.94 — — 14,497,221.94 measurement (III) Financial liabilities at fair value 1,827,480.43 — — 1,827,480.43 through profit or loss 1. Income from purchase agreement 1,827,480.43 — — 1,827,480.43 of forward foreign exchange Total liabilities of consistent fair 1,827,480.43 — — 1,827,480.43 value measurement Total assets of inconsistent fair — — — — value measurement Total liabilities of inconsistent fair — — — — value measurement 2. Market Price Recognition Basis for Consistent and Inconsistent Fair Value Measurement Items at Level 1 As of the end of Reporting Period, the Company in line with the difference of DF forward foreign exchange purchase cost ( DF base price on balance sheet date) on assets balance 229 Konka Group Co., Ltd. Interim Report 2018 sheet and agreement DF forward foreign exchange purchase cost (DF exchange rate agreed) recognized as losses or profits XI. Connected Party and Connected Transaction 1. Information Related to the Company as the Parent of the Company Proportion of Proportion of voting rights share held by the Registration Nature of Registered owned by the Name Company as the place business capital Company as the parent against the parent against the Company (%) Company (%) Tourism, real Overseas Chinese RMB12 Shenzhen estate, electronics 30.30 30.30 Town Enterprises Co. billion industry Note: the final controller of the Company is State-owned Assets Supervision and Administration Commission 2. Subsidiaries of the Company Refer to Note VIII-1. Equity in Subsidiaries 3. Information on the Associated Enterprises of the Company Refer to Note VIII-2. Equity in Associated Enterprises for details of significant associated enterprises of the Company. Information on other joint ventures or associated enterprises occurring connected transactions with the Company in Reporting Period, or forming balance due to connected transactions made in previous period: Name Relationship with the Company Shenzhen Jielunte Technology Co., Ltd.① Associated enterprise Kunshan Konka Electronic Co., Ltd. Associated enterprise Shenzhen Konka Information Network Co., Ltd. Shenzhen Konka Precision Mould Manufactory Associated enterprise Co., Ltd. Zhuhai Jinsu Plastic Co., Ltd. Associated enterprise Shenzhen Konka Intelligent Electrical Apparatus Associated enterprise Co., Ltd. Beijing Konka Technology Co., Ltd. Associated enterprise Shenzhen Zhongbing Konka Technology Co., Associated enterprise Ltd. Anhui Konka Green Lighting Technology Co., Associated enterprise Ltd. Shenzhen Bosheng Advanced Materials Co., Ltd. Associated enterprise 230 Konka Group Co., Ltd. Interim Report 2018 Name Relationship with the Company Helongjiang Longkang Zhijia Technology Co., Associated enterprise Ltd. Shaanxi Silk Road Cloud Smart Tech Co., Ltd. Associated enterprise Anhui Kaikai Shijie E-commerce Co., Ltd. Associated enterprise Note: ① Shenzhen Konka Precision Mould Manufacturing Co., Ltd. was renamed Shenzhen Jielunte Technology Co., Ltd. 4. Information on Other Connected Parties Name Relationship with the Company Guoguang Eastern Network (Beijing) Co., Ltd. Shareholder of the associated enterprise Shenzhen Shangyongtong Investment Non-controlling interest of the subsidiary Development Co., Ltd. Guoguang Ruilian (Shenzhen) Internet Associated enterprise of the subsidiary Technology Co., Ltd. Weihai City Water Environmental Protection Associated enterprise of the subsidiary Technology Co., Ltd. Weihai Yiheng Environment Technology Co., Associated enterprise of the subsidiary Ltd. Laizhou Lairun Financing Lease Co., Ltd. Associated enterprise of the subsidiary Binzhou Beihai Weiqiao Solid Waste Disposal Associated enterprise of the subsidiary Co., Ltd. Shandong Bishuiyuan Environmental Protection Associated enterprise of the subsidiary Technology Co., Ltd. Yantai Econ Business Management Center (LLP) Associated enterprise of the subsidiary Suntrans Intelligence & Equipment Co., Ltd. Associated enterprise of the subsidiary Beijing Konka Jingyuan Technology Co., Ltd. Associated enterprise of the subsidiary Shenzhen RF-LINK Polytron Technologies Inc Associated enterprise of the subsidiary Konka Ventures Development (Shenzhen) Co., Associated enterprise of the subsidiary Ltd. Oriental Huijia (Zhuhai) Assets Management Co., Associated enterprise of the subsidiary Ltd. The final controller of the non-controlling interest of Changrong Media Co., Ltd. the subsidiary Jiangxi Youshi Xinrong Culture Communication Controlled by the final controller of the non-controlling Co., Ltd. interest of the subsidiary Shenzhen Zhonglian Datong Supply Chain Controlled by the final controller of the non-controlling Management and Consulting Co., Ltd interest of the subsidiary Wulianfeng Huichuan Internet Technology Non-controlling interest of the subsidiary Partnership (LLP) 5. List of Connected Transactions (1) Information on Acquisition of Goods and Reception of Labor Service 231 Konka Group Co., Ltd. Interim Report 2018 ①Information on acquisition of goods and reception of labor service Same period of Connected party Content Reporting Period last year Shenzhen Jielunte Technology Co., Purchase of materials 165,222,526.85 72,430,652.14 Ltd. and its subsidiaries Purchase of materials Kunshan Konka Electronic Co., Ltd. and commodity 576,672,801.38 — Shenzhen Konka Information Network Commodity purchase Co., Ltd. 219,735,005.00 2,585,675.21 Purchase of materials OCT Group and its subsidiaries and services 13,494,613.22 49,578,374.49 Jiangxi Youshi Xinrong Culture Advertising agency Communication Co., Ltd. — Zhuhai Jinsu Plastics Co., Ltd. Material purchase 4,146,000.00 — Shenzhen Konka Intelligent Electrical Material purchase Apparatus Co., Ltd. 289,054.46 799,033.15 ChainKingdom Co., Limited Consultancy 1,160,469.47 0.00 Beijing Konka Technology Co., Ltd. Commodity purchase 1,393,783.09 — Guoguang Ruilian (Shenzhen) Commodity purchase Network Technology Co., Ltd. 351,361.55 — Shenzhen Refond Optoelectronics Co., Material purchase Ltd. 77,564,260.96 Guoguang Eastern Network (Beijing) Commodity purchase Co., Ltd. - 81,484,429.91 Changrong Media Co., Ltd. Advertising agency 1,660,000.00 6,415,094.34 Binzhou Beihai Weiqiao Solid Waste Engineering Disposal Co., Ltd. construction 7,391,146.29 ②Information of sales of goods and provision of labor service Same period of Connected party Content Reporting Period last year Kunshan Konka Electronic Co., Ltd. Sales of materials 422,921,017.22 — Shenzhen Konka Information Network Sales of materials and Co., Ltd. providing service 102,627,704.48 2,648,776.15 Commodity sales, OCT Group and its subsidiaries providing service 18,646,368.89 9,671,398.15 Shenzhen Jielunte Technology Co., Commercial factoring Ltd. and its subsidiaries 14,485,742.69 11,568,683.11 Guoguang Eastern Network (Beijing) Commodity sales Co., Ltd. 1,385,765.21 80,608,719.74 232 Konka Group Co., Ltd. Interim Report 2018 Same period of Connected party Content Reporting Period last year Shenzhen Zhongbing Technology Co., material sales, Ltd. providing service - 1,233,572.79 Guoguang Ruilian (Shenzhen) Internet Commodity sales Technology Co., Ltd. — Anhui Konka Green Lighting Providing service Technology Co., Ltd. 216,246.39 Beijing Konka Technology Co., Ltd. Providing service 7,901,215.40 Shenzhen Konka Intelligent Electrical Commodity sales, Apparatus Co., Ltd. 3,235.90 147,369.23 Shenzhen Refond Optoelectronics Co., Purchase material Ltd. 11,997,198.94 Changrong Media Co., Ltd. Advertising agency — 0 (2) Information on Connected Lease The Company was lessee: The lease fee The lease fee Category of leased confirmed in the Name of lessor confirmed in the assets same period of Reporting Period last year Commercial OCT Group and its subsidiaries residential building and 0 601,969.48 office building (3) Information on Inter-bank Lending of Capital of Connected Parties Connected party Amount Start date End date Applicable interest rate Borrowing: OCT Group Co., Ltd. 500,000,000.00 26 April 2018 21 May 2018 4.35% OCT Group Co., Ltd. 500,000,000.00 21 May 2018 31 Dec. 2018 6.00% OCT Group Co., Ltd. 1,400,000,000.00 14 May 2018 13 May 2019 6.00% OCT Group Co., Ltd. 100,000,000.00 14 June 2018 6 June 2021 5.40% Note: The interest confirmed with OCT Group Co., Ltd. is RMB 16,382,083.32. (4) Information on Connected Guarantee The Company was guarantor: Guarantee Amount Execution Curren Secured party amount (RMB’ actually used Start date End date accomplishe cy d or not 0,000) (RMB’0,000) 24 Oct. Anhui Tongchuang CNY 6,000.00 3,930.00 24 Oct. 2017 2018 No 233 Konka Group Co., Ltd. Interim Report 2018 Guarantee Amount Execution Curren Secured party amount (RMB’ actually used Start date End date accomplishe cy d or not 0,000) (RMB’0,000) Anhui Tongchuang CNY 4,500.00 4,002.50 9 May 2018 9 May 2019 No Anhui Tongchuang CNY 3,000.00 0.00 19 June 2018 18 Jun. 2019 No Telecommunication Technology CNY 50,000.00 5,224.64 5 Feb. 2018 4 Feb. 2019 No Anhui Konka CNY 20,000.00 6,774.14 2018/5/2 2019/4/9 No Anhui Konka CNY 8,000.00 8,000.00 1 June 2018 1 June 2019 No Konka E-display CNY 2,000.00 1,081.93 20 Jul. 2017 20 Jul. 2018 No 16 Oct. Konka Factoring CNY 50,000.00 6,210.85 17 Oct. 2017 2018 No 27 Sep. Konka Factoring CNY 20,000.00 17,971.59 24 Oct. 2017 2018 No Konka Factoring CNY 14,000.00 14,000.00 27 Jun. 2018 26 Jun. 2019 No 27 Oct. Hong Kong Konka USD 1,100.00 1,100.00 28 Oct. 2017 2018 No 27 Sep. Hong Kong Konka USD 500.00 500.00 27 Sep. 2017 2018 No 13 Oct. Hong Kong Konka USD 3,500.00 3,500.00 13 Oct. 2017 2018 No 30 May Hong Kong Konka USD 3,000.00 3,000.00 31 May 2018 2019 No 24 May Sichuan Konka CNY 14,000.00 5,000.00 28 May 2018 2025 No 29 Dec. Rushan Yike Water 29 Dec. 2016 No Treatment Co., Ltd. CNY 29,000.00 15,000.00 2026 Note: The Company provided a joint liability guarantee for the project financing borrowing of RMB290,000,000.00 on 27 December 2016 by Rushan Yike Water Treatment Co., Ltd. (within the consolidation scope) which was a subsidiary of Econ Technology-a new subsidiary of the Company via merger & acquisition. As of 30 June 2018, there was amount of RMB150,000,000.00 not repaid under the guarantee for Rushan Yike Water Treatment Co., Ltd. The duration of the borrowing in the master contract was from 29 December 2016 to 28 December 2026 and the guarantee period was two years from the expiration of the debt on. The Company was secured party (not approved by the Board Secretary, put aside) Guarantee Execution Guarantor Currency amount Start date End date accomplished or not (RMB’0,000) 234 Konka Group Co., Ltd. Interim Report 2018 Guarantee Execution Guarantor Currency amount Start date End date accomplished or not (RMB’0,000) Wu Guoren and Xiao Yongsong USD 3,500.00 11 Nov. 2016 17 Oct. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 1,000.00 6 Mar. 2017 31 Dec. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 1,000.00 24 Apr. 2017 31 Dec. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 1,000.00 11 May 2017 31 Dec. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 300.00 20 June 2018 20 June 2019 No (Note: ①) Wu Guoren and Xiao Yongsong USD 500.00 3 Jul. 2017 2 Jul. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 500.00 24 Jul. 2017 24 Jul. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 500.00 9 Aug. 2017 8 Aug. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 2,000.00 6 Sep. 2017 5 Sep. 2018 No (Note: ①) Wu Guoren and Xiao Yongsong USD 2,000.00 5 Mar. 2018 4 Apr. 2019 No (Note: ①) Wu Guoren and Xiao Yongsong USD 1,500.00 6 June 2018 5 June 2019 No (Note: ①) Shenzhen Konka Yi Capital Investment Partnership (Limited RMB 480.00 13 Apr. 2015 — No Partnership) (Note: ②) Hunan Vary Tech Packing Co., RMB 2,000.00 5 Apr. 2017 — No Ltd.(Note: ③) Shenzhen Kangwei Investment RMB 6,860.00 28 May 2018 27 May 2025 No 235 Konka Group Co., Ltd. Interim Report 2018 Guarantee Execution Guarantor Currency amount Start date End date accomplished or not (RMB’0,000) Partnership (Limited Partnership) (Note: ④) Chuzhou State-owned Assets RMB 4,400.00 2 May 2018 9 Apr. 2019 No Operation Co., Ltd. (Note: ⑤) Chuzhou State-owned Assets RMB 1,760.00 1 June 2018 1 June 2019 No Operation Co., Ltd. (Note: ⑥) Note: ①The Company’s subsidiary-Hong Kong Konka-provided a short-term borrowing of USD138 million with one-year period. The individual shareholders of Chain Kingdom Co., Ltd. Wu Guosong (holding 25% of shares) and Xiao Yongsong (holding 24% of shares) provided an equity pledge guarantee jointly taking a total shares of 49% they held as the pledge as well as the mortgage guarantee pledged by personal properties. ② Konka Group provided a credit guarantee of RMB20,000,000.00 for its controlling subsidiary-Konka E-display-with the period from 20 July 2017 to 20 July 2018. The businesses covered the opening of L/C, bill acceptance and obtaining banks’ financing credit, etc. The non-controlling interest-Shenzhen Yi Capital Investment Partnership (Limited Partnership)-provided the pledge guarantee taking the 40% of shares it held of Konka E-display as the pledge. ③ The Company provided an entrust loan of RMB20 million for the joint-stock company-Hunan Vary Tech Co., Ltd. Hunan Vary Tech Packing Co., Ltd. provided a joint and several guarantee for the principal and interests of the said entrust loan as well as the mortgage guarantee pledged by 4.65 million shares of Hunan Vary Tech Co., Ltd. it held. ④ Shenzhen Konka Telecommunications Technology Co., Ltd., the Company’s subsidiary, provided a credit guarantee of RMB140,000,000.00 with the period from 28 May 2018 to 27 May 2025 for Sichuan Konka Intelligent Terminal Technology Co., Ltd., its affiliated company, for obtaining the financing credit business from banks by the latter. Sichuan Konka Intelligent Terminal Technology Co., Ltd. is a wholly-owned subsidiary of Shenzhen Konka Mobile Interconnection Technology Co., Ltd. Shenzhen Kangwei Investment Partnership (Limited Partnership), the non-controlling interest of Shenzhen Konka Mobile Interconnection Technology Co., Ltd., provided a guarantee with 49% shares of Shenzhen Konka Mobile Interconnection Technology Co., Ltd. it held. 236 Konka Group Co., Ltd. Interim Report 2018 ⑤The Company provided a credit guarantee of RMB200,000,000.00 with the period from 2 May 2018 to 9 April 2019 for its majority-owned subsidiary-Anhui Konka-for issuing of L/C and acceptance bill and obtaining financing businesses such as financing credit by the latter. The non-controlling interest-Chuzhou State-owned Assets Operation Co., Ltd.-provided a counter guarantee of 22% for the amount guaranteed by the Company. ⑥The Company provided a credit guarantee of RMB80,000,000.00 with the period from 1 June 2018 to 1 June 2019 for its majority-owned subsidiary-Anhui Konka-for issuing of L/C and acceptance bill and obtaining financing businesses such financing credit. The non-controlling interest-Chuzhou State-owned Assets Operation Co., Ltd.-provided a counter guarantee of 22% for the amount guaranteed by the Company. (5) Information on Remuneration for Key Management Personnel Item Reporting period Same period of last year Remuneration for key RMB7.6233 million RMB4.1094 million management personnel 6. Accounts Receivable and Payable of Connected Party (1) Accounts Receivable Ending balance Beginning balance Item Bad debt Bad debt Carrying amount Carrying amount provision provision Accounts receivable: Kunshan Konka Electronic Co., Ltd. 893,458,982.03 17,869,179.63 340,827,332.77 6,816,546.66 Shenzhen Konka Information Network Co., Ltd. 136,119,685.74 2,722,066.80 50,237,204.89 1,586,224.62 Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries 5,850,541.55 117,010.83 13,685,968.41 614,448.23 OCT Group and its subsidiaries 12,872,909.50 565,241.60 12,597,677.70 398,014.48 Guoguang Eastern Network (Beijing) Co., Ltd. 128,115.00 2,562.30 889,327.11 17,786.54 Anhui Konka Green Lighting Technology Co., Ltd. - - 2,479.62 49.59 Shanghai Konka Green Lighting Technology Co., Ltd. — — — — Shenzhen Zhongbing Konka Technology Co., Ltd. — — — — Shenzhen Refond Optoelectronics Co. Ltd. — — 237 Konka Group Co., Ltd. Interim Report 2018 Ending balance Beginning balance Item Bad debt Bad debt Carrying amount Carrying amount provision provision Binzhou Beihai Weiqiao Solid Waste Disposal Co., Ltd. 8,647,641.16 432,382.06 Total 1,057,077,874.98 21,708,443.22 418,239,990.50 9,433,070.12 Notes receivable Kunshan Konka Electronic Co., Ltd. — 20,000,000.00 — Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries — 657,263.10 — Total — 20,657,263.10 — Other receivables: OCT Group and its subsidiaries 448,000.00 16,250.00 20,335,596.53 8,752,805.29 Guoguang Eastern Network (Beijing) Co., Ltd. - - 5,600.00 112.00 Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries 4,448.00 2,224.00 4,448.00 2,224.00 Shandong Chuangweijia Environmental Protection Technology Co., Ltd. 300.00 15.00 Shenzhen Konka Information Network Co., Ltd. — — Jiangxi Youshi Xinrong Culture Communication Co., Ltd. — — Total 452,748.00 18,489.00 20,345,644.53 8,755,141.29 (2) Accounts Payable Beginning Item Ending balance balance Accounts payable: Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries 2,478,270.34 31,792,226.82 Shenzhen Konka Information Network Co., Ltd. 113,767,615.79 9,131,218.97 OCT Group and its subsidiaries 1,540,653.48 42,942,847.99 Kunshan Konka Electronic Co., Ltd. 705,683,753.62 — Shenzhen Shangyongtong Investment Development Co., Ltd. 9,543,100.00 9,543,100.00 Shenzhen Konka Intelligent Electrical Apparatus Technology Co., Ltd. - 682,275.95 Shenzhen Dekang Electronics Co., Ltd. 358,929.03 358,929.03 Guoguang Ruilian (Shenzhen) Internet Technology Co., Ltd. 170,774.08 — 238 Konka Group Co., Ltd. Interim Report 2018 Beginning Item Ending balance balance Zhuhai Jinsu Plastic Co., Ltd. 264,307.04 — Guoguang Eastern Network (Beijing) Co., Ltd. — 13,907,425.83 Shenzhen Refond Optoelctronic Co., Ltd. — 27,963,779.92 Total 833,807,403.38 136,321,804.51 Notes payable: Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries 2,797,151.22 82,378,625.80 OCT Group and its subsidiaries 6,423,681.26 21,427,941.44 Kunshan Konka Electronic Co., Ltd. 1,888,881.59 — Zhuhai Jinsu Plastics Co., Ltd. - 1,000,000.00 Shenzhen Refond Optoelectronics Co. Ltd. — 45,043,301.91 Changrong Media Co., Ltd. — 275,291.47 Total 11,109,714.07 150,125,160.62 Advances from customers: OCT Group and its subsidiaries 1,294,380.72 16,149,510.73 Kunshan Konka Electronic Co., Ltd. - — Shenzhen Konka Information Network Co., Ltd. - — Shenzhen Zhongbing Konka Technology Co., Ltd. - — Guoguang Ruilian (Shenzhen) Internet Technology Co., Ltd. - — Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries 14,842,049.31 23,468,903.76 Zhonglianda Co., Ltd. — 232,667.70 Anhui Konka Green Lighting Technology Co., Ltd. — 4,063.72 Total 16,136,430.03 39,855,145.91 Other payables: Shenzhen Konka Information Network Co., Ltd. 20,000.00 9,021,630.77 Chongqing Konka Auto Electronics Co., Ltd. 0.00 — Shenzhen Jielunte Technology Co., Ltd. and its subsidiaries 350,000.00 19,440.00 OCT Group and its subsidiaries 105,000.00 4,031,354.68 Shenzhen Konka Intelligent Electrical Apparatus Technology Co., Ltd. 8,955.00 686,375.00 Guoguang Ruilian (Shenzhen) Internet Technology Co., Ltd. - — ChainKingdom Co., Limited - 992,890.82 Kunshan Konka Electronic Co., Ltd. 10,000.00 — Anhui Konka Green Lighting Technology Co., Ltd. - 48,670.70 Shenzhen Refond Optoelectronics Co. Ltd. 807,135.00 239 Konka Group Co., Ltd. Interim Report 2018 Beginning Item Ending balance balance Shenzhen Telen Science & Technology Co., Ltd. — 10,000.00 Laizhou Lairun Financing Lease Co., Ltd. 100,000,000.00 Total 100,763,955.00 15,617,496.97 Interest payable: OCT Group and its subsidiaries 9,151,083.33 43,541.67 Total 9,151,083.33 43,541.67 XII. Commitments and Contingency 1. Significant Commitments (1) Capital Commitment Item Ending balance Beginning balance Commitments signed but hasn’t been recognized in financial statements —Commitment on construction and purchase of — — long-lived assets - Contract with large amount 384,379,413.35 247,552,974.60 - Foreign investment commitments — — Total 384,379,413.35 247,552,974.60 (2) Operating Lease Commitments As of the balance sheet date, the irrevocable operating lease commitments that the Company signed were as followed: Item Ending balance Beginning balance Minimum lease payments of irrevocable operating lease 1 year after balance date 17,316,803.89 19,362,845.58 2 year after balance date 2,791,887.31 10,257,149.32 3 year after balance date 650,463.88 4,199,375.82 Following years 148,664.00 2,570,971.55 Total 20,907,819.08 36,390,342.27 (3) Other Commitments As of 30 June 2018, there were no other significant commitments for the Company to 240 Konka Group Co., Ltd. Interim Report 2018 disclose. 2. Contingencies (1) Contingent Liabilities Generated from Pending Action and Arbitration and their Financial Impacts Due to the problems of quality and construction delay in the settlement of intelligent engineering project between the Company and Shenzhen GNG Co., Ltd, they didn’t agree on the related deductions. On 28 September 2017, Shenzhen GNG Co., Ltd filed a lawsuit to People ’ s Court of Nanshan District, Shenzhen for the payment in project arrears in the Construction Contract of Konka R&D Building Intelligent Engineering, which required the Company to pay RMB2,770,487.13 for the project arrears and RMB340,761.69 for the interests of the project arrears. Up to the issuance date of this Report, People ’ s Court of Nanshan District, Shenzhen hasn’t gave judgment. Due to the dispute in rent lease contract among the Company ’s subsidiary-Mudanjiang Appliances, Heilongjiang Jinri Optoelectronics Technology Co., Ltd. and Jinyue Group Co., Ltd., the People's Court of Aimin District, Mudanjiang City, Helongjiang Province made the main civil judgment (2016) Hei 1004 Minchu No. 604 on 25 August 2017. The Judgment was as follows: The defendants Heilongjiang Jinri Optoelectronics Technology Co., Ltd. and Jinyue Group Co., Ltd. should jointly pay the plaintiff-Mudanjiang Appliances a total of RMB3,656,910.82 in occupancy fees, rent, and interest. As of the issue date of this report, it has not yet been implemented completely. There was a dispute among the Company’s subsidiary-Mudanjiang Appliances, Mudanjiang Wangjiangmian Restaurant Management Co., Ltd., Liu Lixia (the actual controller of Mudanjiang Wangjiangmian Restaurant Management Co., Ltd.), Heilongjiang Jinri Optoelectronics Technology Co., Ltd., and Jinyue Group Co., Ltd over the compensation of RMB4.2 million for the death and losses of Mudanjiang Wangjiangmian Restaurant Management Co., Ltd. Mudanjiang Appliances believed that it should not be held liable for natural disasters, and the RMB4.2 million paid by Mudanjiang Appliances is the advance payment which should be regarded as the accounts paid on the behalf of Mudanjiang Wangjiangmian Restaurant Management Co., Ltd. and Liu Lixia. As of the issue date of this report, the People's Court of Dongan District of Mudanjiang City, Heilongjiang Province had not made a judgment yet. There was a dispute among the Company ’ s subsidiary- Mudanjiang Appliances, Zhang Zhiqiang (the plaintiff) and Jinyue Group Co., Ltd. over the loan of RMB6.5 million. The amount was actually generated from the intention acquisition by Jinyue Group Co., Ltd. of 241 Konka Group Co., Ltd. Interim Report 2018 stocks held by the Company and Mudanjiang State-owned Assets Investment Holdings Co., Ltd. due to staff relocation. The main judgments of the (2016) Hei 1004 Minchu No. 223 Civil Judgment issued by the People’s Court of Aimin District, Mudajiang City, Helongjiang Province on 29 November 2017 were as follows: the Company and the Municipal State-owned Assets Investment Holding Co., Ltd. should pay the plaintiff-Zhang Zhiqiang RMB765,993.95 and the interest of RMB115,576.77; the subsidiary- Mudanjiang Appliances should assume joint and several liquidation liabilities for the above amount; and other claims of Zhang Zhiqiang were rejected. On 12 April 2018, the judgment of second instance rejected the appeal of Zhang Zhiqiang and affirmed the original judgment. (2) Contingent Liabilities Generated from Providing Debt Guarantee for Other Entities and their Financial Impacts ① The Company signed the guarantee contract of maximum amount (No. 2017XCYZBZ No.17czA0017-a) with Chuzhou Branch of China Citic Bank on 24 October 2017, in which the Company provided credit guarantee of RMB60 million to Anhui Tongchuang from 24 October 2017 to 24 October 2018. The credit line is mainly used to open and accept the letter of credit of Anhui Tongchuang and obtain the financing credit and other daily businesses from the bank. As of 30 June 2018, the guarantee amount has been used RMB39,300,000.00. ②The Company signed the guarantee contract of maximum amount (No. CZZHZGBZ 2018 No.0103) with Chengzhong Branch of Chuzhou Eastern Anhui Rural Commercial Bank on 9 May 2018, in which the Company provided credit guarantee of RMB45,000,000.00 to Anhui Tongchuang from 9 May 2018 to 9 May 2019. The credit line is mainly used to open and accept the letter of credit of Anhui Tongchuang and obtain the financing credit and other daily businesses from the bank. As of 30 June 2018, the guarantee amount has been used RMB40,025,000.00. ③ The Company signed the guarantee contract of maximum amount (No. CZGSB02GBT20180011) with Chuzhou Branch of China Everbright Bank on 19 June 2018, in which the Company provided credit guarantee of RMB30,000,000.00 to Anhui Tongchuang from 19 June 2018 to 18 June 2019. The credit line is mainly used to open and accept the letter of credit of Anhui Tongchuang and obtain the financing credit and other daily businesses from the bank. As of 30 June 2018, the guarantee amount has not been used yet. ④The Company signed the guarantee contract of maximum amount (No. 07301KB20178088) with Shenzhen Branch of Bank of Ningbo on 21 July 2017, in which the Company provided credit guarantee of RMB20,000,000.00 to Konka E-display from 20 July 2017 to 20 July 242 Konka Group Co., Ltd. Interim Report 2018 2018. The credit line is mainly used to open and accept the letter of credit of Konka E-display and obtain the financing credit and other daily businesses from the bank. As of 30 June 2018, the guarantee amount has been used RMB10,606,743.10. Shenzhen Konka E Capital Investment Partnership (LLP), the non-controlling interest of Konka E-display, provided 40% of counter guarantee to the amount. ⑤ The Company signed the Guarantee Contract of Maximum Amount (No. ZB7908201700000042) with Shenzhen Branch of Shanghai Pudong Development Bank for comprehensive credit line of RMB500,000,000.00 on 14 November 2017 used to help Konka Factoring to obtain the financing loan from the bank. The guarantee period is from 17 October 2017 to 16 October 2018. As of 30 June 2018, the amount has been used RMB62,108,473.38. ⑥ The Company signed the Guarantee Contract of Maximum Amount (HXSFZLEBZ No.20171023002001) with Shenzhen Branch of Guangdong Huaxing Bank for comprehensive credit line of RMB200,000,000.00 on 23 October 2017 used to help Konka Factoring to obtain the financing loan from the bank. The guarantee period is from 24 October 2017 to 27 September 2018. As of 30 June 2018, the amount has been used RMB179,715,885.15. ⑦ The Company signed Issuing Guarantee/SLC Agreement (No. 81050120180000040) and applied to Shenzhen OCT Branch of ABC for issuing the letter of guarantee of RMB140,000,000.00 on 27 June 2018 for Konka Factoring to obtain the financing loan from the bank. The guarantee period is 27 June 2018 to 26 June 2019. Konka Factoring has obtained the loan of RMB135,800,000.00 from Dubai Branch of ABC as of 30 June 2018. ⑧ The Company signed the Guarantee Contract (2018CZYEDBZNo.006) with Chuzhou Branch of Bank of China on 2 May 2018, in which the Company provided credit guarantee of RMB200,000,000.00 to Anhui Konka from 2 May 2018 to 9 April 2019. The credit line is mainly used to open and accept the letter of credit of Anhui Konka and obtain the financing credit and other daily businesses from the bank. As of 30 June 2018, the guarantee amount has been used RMB67,550,000.00. Chuzhou State-owned Assets Operation Co., Ltd., the non-controlling interest of Anhui Konka, provided 22% of counter guarantee to the amount. ⑨ The Company signed the Guarantee Contract of Maximum Amount (CZZHZGBZ2018No.0133) with Chengzhong Branch of Chuzhou Eastern Anhui Rural Commercial Bank Co., Ltd. on 1 June 2018, in which the Company provided credit guarantee of RMB80,000,000.00 to Anhui Konka from 1 June 2018 to 1 June 2019. The credit line is mainly used to open and accept the letter of credit of Anhui Konka and obtain 243 Konka Group Co., Ltd. Interim Report 2018 the financing credit and other daily businesses from the bank. As of 30 June 2018, the guarantee amount has been used RMB80,000,000.00. Chuzhou State-owned Assets Operation Co., Ltd., the non-controlling interest of Anhui Konka, provided 22% of counter guarantee to the amount. ⑩The Company applied to Shenzhen OCT Branch of ABC for issuing the letter of guarantee of USD11,000,000.00 on 28 August 2017 for Hong Kong Konka to obtain the financing loan from the bank. The guarantee period is 28 August 2017 to 27 August 2018. Hong Kong Konka has obtained the loan of USD11,000,000.00 from Bank of China (Hong Kong) Co., Ltd. as of 30 June 2018. The Company signed Issuing Guarantee/SLC Agreement (No.2017SJTZEZNo.008) and applied to Shenzhen Branch of China Mingsheng Bank Corp for issuing the letter of guarantee of USD5,000,000.00 on 25 September 2017 for Hong Kong Konka to obtain the financing loan from the bank. The guarantee period is 27 September 2017 to 27 September 2018. Hong Kong Konka has obtained the loan of USD5,000,000.00 from Bank of China (Hong Kong) Co., Ltd. as of 30 June 2018. The Company signed Issuing Guarantee/SLC Agreement (No.2017SJTZEZNo.008) and applied to Shenzhen Branch of China Mingsheng Bank Corp for issuing the letter of guarantee of USD35,000,000.00 on 25 September 2017 for Hong Kong Konka to obtain the financing loan from the bank. The guarantee period is 13 October 2017 to 13 October 2018. Hong Kong Konka has obtained the loan of USD35,000,000.00 from Bank of China (Hong Kong) Co., Ltd. as of 30 June 2018. The Company signed Issuing Guarantee/SLC Agreement (No. 81050120180000032) and applied to Shenzhen OCT Branch of ABC for issuing the letter of guarantee of USD30,000,000.00 on 31 May 2018 for Hong Kong Konka to obtain the financing loan from the bank. The guarantee period is 31 May 2018 to 30 May 2019. Hong Kong Konka has obtained the loan of USD30,000,000.00 from Bank of China (Hong Kong) Co., Ltd. as of 30 June 2018. Shenzhen Konka Telecommunications Technology Co., Ltd. signed the Guarantee Contract (No.[23301]YSHBZ[180525]No.00001) with Lingang Branch of Yinbin City Commercial Bank for providing its subsidiary-Sichuan Konka Smart terminal Technology Co., Ltd.-with a credit guarantee of RMB140,000,000.00 on 28 May 2018 used to help Sichuan Konka Smart terminal Technology Co., Ltd. to obtain the financing loan from the bank. The guarantee period is from 28 May 2018 to 27 May 2025. As of 30 June 2018, the amount has been used RMB50,000,000.00. Shenzhen Kangwei Investment Partnership (LLP), the other shareholder 244 Konka Group Co., Ltd. Interim Report 2018 of Sichuan Konka Smart terminal Technology Co., Ltd., provided 49% of counter guarantee to the amount guaranteed by Telecommunication Technology. The Company applied a comprehensive credit line of RMB500,000,000.00 to OCT Branch of Bank of Communications. As of 30 June 2018, the amount has been used RMB300 million. The rest amount of RMB200 million has not been used yet. The Company applied a comprehensive credit line of RMB1,000,000,000.00 to Shenzhen Branch of Guangdong Huaxing Bank. As of 30 June 2018, the amount has been used RMB300,000,000.00. Among the rest amount, RMB500,000,000.00 has not been used, and RMB200,000,000.00 has been transferred to Konka Factoring (Shenzhen) Co., Ltd. (3) Other Contingent Liabilities and their Financial Influence As of 30 June 2018, there was no significant contingent for the Company to disclose. XIII. Events after Balance Sheet Date 1. On 8 August 2018, the 8th Board of Directors of Konka Group made decisions on an increased capital of RMB232 million to Anhui Konka Tongchuang Household Appliances Co., Ltd. due to business development, after the resolution of the 46th meeting, with the capital increase price of RMB1 to registered capital of RMB1. Then the registered capital of Anhui Konka Tongchuang Household Appliances Co., Ltd. will increase to RMB502 million. 2. As the joint stock company of the Company, Kunshan Kangsheng Investment Development Co., Ltd. (the Company holds 49% of its equity), purchased the Kunshan Land Network [2018] No. 5-8 Parcel of Land for RMB590,062 through public auction and obtained the Notice of Online Listing Transfer of State-Owned Construction Land Use Rights issued by the Kunshan Municipal Bureau of Land and Resources. 3. On 16 August 2018, the Company will complete the merger and acquisition of Jiujiang Golden Phoenix Decoration Material Co., Ltd. with a registered capital of RMB272.7273 million. The Company contributes RMB765 million (or 51% shares) and possesses the control power over it. XIV. Other Significant Events 1. On 22 May 2018, the 8th Board of Directors of the Company deliberated and passed the Proposal on the Company's Compliance with Non-Public Issuance of Corporation Bonds, the Proposal on the Company's Non-Public Issuance of Corporation Bonds, and Proposal on Requesting General Meeting of Stockholders of the Company to Authorize the Board of Directors to Fully Handle Issues Related to Non-public Issuance of Corporation Bonds on the 43rd meeting. In order to widen the financing channels and optimize the debt structure, the Company plans to issue non-public corporation bonds, with the total amount of face 245 Konka Group Co., Ltd. Interim Report 2018 value not exceeding RMB5 billion (including RMB5 billion). The non-public issuance of corporation bonds has been approved by the General Meeting of Stockholders of the Company. 2. On 22 May 2018, the Eighth Board of Directors of the Company deliberated and passed the Proposal on Carrying out the Securitization of Receivables Assets on the 43rd meeting. In order to reduce the occupation of Company funds by accounts receivable, the Company plans to carry out the asset securitization of receivables, which has been approved by the General Meeting of Stockholders of the Company and will be issued according to market conditions. 3. On 22 May 2018, the Eighth Board of Directors of the Company deliberated and passed the Proposal on the Wholly-owned Subsidiary Implementing Commercial Factoring Asset Securitization Business on the 43rd meeting. In order to widen the financing channels, revitalize the stock assets and accelerate the assets turnover, Konka Factoring (Shenzhen) Co., Ltd., a wholly-owned subsidiary of the Company, plans to carry out commercial factoring asset securitization business, which has been deliberated and passed by the General Meeting of Stockholders of the Company as a special plan. It is still necessary to obtain a no objection letter for listing issued by the security exchange and to report to the China Securities Investment Fund Association for filing after finishing the issuance. 4. The 8th Board of Directors of the Company agreed that Konka Group transferred 51% equity of Kunshan Kangsheng Investment Development Co., Ltd. to Taizhou Overseas Chinese Town Co., Ltd., with the transfer price of RMB280,680,300 due to business development after the resolution of the 44th meeting.So far, the Company received 50% equity transfer fund from Taizhou Overseas Chinese Town Co., Ltd. and completed the equity change of Kunshan Kangsheng Investment Development Co., Ltd. 5. In order to implement the expansion idea of “Technology + Industry + Urbanization”, the Company plans to invest no less than RMB1 billion in the Tianfu New District, Sichuan, via its holding subsidiary to build the headquarters base of the Konka Group’s ‘Belt and Road’. The Board of Directors of the Company held the 45th meeting of the Eighth Board of Directors on 27 June 2018, deliberating and passing the Proposal on Investing in the Construction of the Konka Group’s ‘Belt and Road’ Headquarters Base in Chengdu. 6. On 29 June 2018, Anhui Konka Electrical Appliance Technology Co., Ltd., the majority-owned subsidiary of the Company (the Company indirectly holds 51% shares), won the 100% shares of Henan Frestec Electrical Appliance Co., Ltd., Henan Frestec Refrigeration Appliance Co., Ltd. and Henan Frestec Household Appliance Co., Ltd. at RMB455 million. At present, the three companies are in the process of reorganization and 246 Konka Group Co., Ltd. Interim Report 2018 will formally resume production on 28 August 2018. 7. In November 2015, the Company and the Company ’ s subsidiary E-display signed the Intention Agreement on Equity Transfer with Guangdong Sunwill Precising Plastic Co., Ltd. (hereinafter referred to as the “ Sunwill Company ” ), in which the Company intended to transfer the 60% shares in E-display to Sunwill Company. As stipulated in the agreement, Sunwill Company should perform the obligation of information disclosure and reporting to CSRC and corresponding stock exchange within 3 days from the date when its shareholding exceeds 5% on, pay the cash deposit and sign the formal agreement in accordance with the agreement and the listing announcement, and compensate for the Company’s losses (such as the listing expense and expected revenues of Party B etc.) if any defaults were made by it. After the signing of the agreement, the Company has made the preparations for the equity transfer in line with the agreement including entrusting the CPAs to audit and evaluate the corporate appraisal, etc. In January 2016, the Company sold the 60% shares of E-display it held on Shanghai United Assets and Equity Exchange pursuant to the agreement. However Sunwill Company had not delisted yet when the listing period expired. Then, the Company sent a notice to Sunwill Company to urge its delisting. And Sunwill Company replied and clearly gave up delisting. In May 2016, the Company and E-display filed a lawsuit to Shenzhen Nanshan District People’s Court against the default of Sunwill Company. In accordance with the civil judgment (2016)Yue 0305MC No. 6421 by Guangdong Shenzhen Nanshan District People ’ s Court, the Intention Agreement on Equity Transfer signed by the Company and E-display with Sunwill Company was terminated on 16 March 2016; Sunwill Company compensated for the Company ’s direct losses of RMB150,880.00 and for E-display ’s direct losses of RMB27,576.60; and other claims of the Company and E-display were rejected. The Company appealed to Shenzhen Intermediate People’s Court for the rejection of the first-instance judgment. Pursuant to the civil judgment (2017) Yue 03 MZ No.: 5299 by Shenzhen Intermediate People’s Court made on 7 February 2018, the original judgment was affirmed other than the fourth item- “ rejecting other claims of the Company and E-display” in the civil judgment (2016)Yue 0305MC No. 6421 by Guangdong Shenzhen Nanshan District People’s Court, and Sunwill Company was requested to compensate for the Company ’ s losses on acquirable interest of RMB7.2 million. On 16 March 2018, the Company received the compensation paid by Sunwill Company. So far the case has been closed. 8. Chongqing Qingjia Electronics Co., Ltd., a subsidiary of the Company, will conduct the liquidation after completing land purchasing and storage. 247 Konka Group Co., Ltd. Interim Report 2018 XV. Notes of Main Items in the Financial Statements of the Company 1. Accounts Receivable (1) Accounts Receivable Disclosed by Category Ending balance Carrying amount Bad debt provision Category Withdrawal Proportion Carrying value Amount Amount proportion (%) (%) Accounts receivable with significant single amount for which bad debt — — — — — provision separately accrued Accounts receivable withdrawal of bad debt provision of by credit risks characteristics: Group 1: aging group 2,103,437,646.59 44.50 198,119,251.75 9.42 1,905,318,394.84 Group 2: connected party 2,594,439,350.80 54.89 2,594,439,350.80 group Subtotal of groups 4,697,876,997.39 99.39 198,119,251.75 4.22 4,499,757,745.64 Accounts receivable with insignificant single amount for which bad debt 28,826,439.50 0.61 16,960,135.86 58.84 11,866,303.64 provision separately accrued Total 4,726,703,436.89 100.00 215,079,387.61 4.55 4,511,624,049.28 (Continued) Beginning balance Carrying amount Bad debt provision Category Withdrawal Proportion Carrying value Amount Amount proportion (%) (%) Accounts receivable with significant single amount for which bad debt — — — — — provision separately accrued Accounts receivable withdrawal of bad debt 248 Konka Group Co., Ltd. Interim Report 2018 Beginning balance Carrying amount Bad debt provision Category Withdrawal Proportion Carrying value Amount Amount proportion (%) (%) provision of by credit risks characteristics: Group 1: aging group 2,082,823,910.69 42.10 197,902,700.06 9.50 1,884,921,210.63 Group 2: connected party 2,827,688,037.26 57.16 — — 2,827,688,037.26 group Subtotal of groups 4,910,511,947.95 99.26 197,902,700.06 4.03 4,712,609,247.89 Accounts receivable with insignificant single amount for which bad debt 36,839,946.40 0.74 17,295,202.04 46.95 19,544,744.36 provision separately accrued Total 4,947,351,894.35 100.00 215,197,902.10 4.35 4,732,153,992.25 ① In the groups, accounts receivable adopting aging analysis method to accrue bad debt provision: Ending balance Aging Accounts receivable Bad debt provision Withdrawal proportion Within 1 year 1,894,407,746.72 37,874,274.02 2.00% 1 to 2 years 46,567,170.20 2,328,358.51 5.00% 2 to 3 years 2,718,733.96 543,746.79 20.00% 3 to 4 years 2,251,224.67 1,125,612.34 50.00% 4 to 5 years 2,491,021.90 1,245,510.95 50.00% Over 5 years 155,001,749.14 155,001,749.14 100.00% Total 2,103,437,646.59 198,119,251.75 ②In the groups, accounts receivable adopting other methods to withdraw bad debt provision: Ending balance Name of the group Bad debt Accounts receivable Withdrawal proportion provision Connected party group within the 2,594,439,350.80 — — consolidation scope Total 2,594,439,350.80 — — ③ The top 5 accounts receivable with insignificant single amount for which bad debt 249 Konka Group Co., Ltd. Interim Report 2018 provision separately accrued Ending balance Name of customer Account Bad debt Withdrawal Withdrawal reason receivable provision proportion (%) It is estimated that Yunnan Radio and part of the amount Television Network 2,138,825.00 748,588.75 35.00 is difficult to Group Co., Ltd. recover. It is estimated that Henan Radio and part of the amount Television Network Co., 4,580,000.00 1,374,000.00 30.00 is difficult to Ltd. recover. Administration of It is estimated that Radio, Film and part of the amount Television in Xinjiang 1,708,054.00 546,577.28 32.00 is difficult to Uygur Autonomous recover. Region It is estimated that Beijing CP Lotus Store 1,656,628.91 1,656,628.91 100.00 the amount is difficult to recover It is estimated that Qinhuangdao Baihai part of the amount Electric Appliance Co., 1,430,290.00 230,290.00 16.10 is difficult to Ltd. recover. Total 11,513,797.91 4,556,084.94 (2) Bad Debt Provision Withdrawn, Reversed or Recovered in the Reporting Period The withdrawal amount of the bad debt provision during the Reporting Period was of RMB0.00; the amount of the reversed or collected part during the Reporting Period was of RMB118,514.49, the amount of write-off during the Reporting Period was RMB0.00. (3) Top 5 Accounts Receivable in Ending Balance Collected according to the Arrears Party The total top 5 accounts receivable in ending balance collected according to the arrears party waas RMB3,143,265,739.53, accounting for 66.50% of total ending balance of accounts receivable, the total ending balance of bad debt provision correspondingly withdrawn was RMB2,713,403.37. 2. Other Receivables (1) Other Receivables Classified by Category 250 Konka Group Co., Ltd. Interim Report 2018 Ending balance Carrying amount Bad debt provision Category Withdra Proportion wal Carrying value Amount Amount (%) proportio n (%) Other receivables with significant single amount for which bad debt 173,061,959.33 4.71 162,467,164.97 93.88 10,594,794.36 provision separately accrued Other receivables withdrawn bad debt provision according to credit risks characteristics Group 1: aging group 139,981,486.90 3.81 24,771,476.52 17.70 115,210,010.38 Group 2: connected party 3,360,014,695.66 91.41 0.00 3,360,014,695.66 group Subtotal of groups 3,499,996,182.56 95.22 24,771,476.52 0.71 3,475,224,706.04 Other receivables with insignificant single amount for which bad debt 2,515,181.05 0.07 733,893.67 29.18 1,781,287.38 provision separately accrued Total 3,675,573,322.94 100.00 187,972,535.16 5.11 3,487,600,787.78 (Continued) Beginning balance Carrying amount Bad debt provision Category Withdrawa Proportion l Carrying value Amount Amount (%) proportion (%) Other receivables with significant single amount for 173,061,959.33 3.84 162,467,164.97 93.88 10,594,794.36 which bad debt provision separately accrued Other receivables withdrawn bad debt provision according - to credit risks characteristics Group 1: aging group 121,170,320.79 2.69 24,301,146.90 20.06 96,869,173.89 251 Konka Group Co., Ltd. Interim Report 2018 Group 2: connected party 4,205,636,078.64 93.41 — — 4,205,636,078.64 group Subtotal of groups 4,326,806,399.43 96.10 24,301,146.90 0.56 4,302,505,252.53 Other receivables with insignificant single amount 2,516,181.05 0.06 733,893.68 29.17 1,782,287.37 for which bad debt provision separately accrued Total 4,502,384,539.81 100.00 187,502,205.55 4.16 4,314,882,334.26 ①Other receivables with significant single amount for which bad debt provision separately accrued at the period-end Ending balance Withdra Other receivables (unit) Withdra Other Bad debt wal wal receivables provision proporti reason on (%) 141,549,150. 141,549,150. Irrecover Energy saving subsidy 100.00 00 00 able Difficult to recover Shenzhen Konka Video & Communication Systems 18,115,952.5 7,521,158.15 41.52 in full Engineering Co., Ltd. 1 amount after evaluated Difficult to recover 13,396,856.8 13,396,856.8 due to Chongqing Konka Auto Electronic Company 100.00 2 2 bankrupt cy liquidatio n 173,061,959. 162,467,164. Total — — 33 97 ② In the groups, other receivables adopting aging analysis method to withdraw bad debt provision: Ending balance Aging Other receivables Bad debt provision Withdrawal proportion (%) Within 1 year 112,476,602.77 2,249,518.22 2.00 252 Konka Group Co., Ltd. Interim Report 2018 Ending balance Aging Other receivables Bad debt provision Withdrawal proportion (%) 1 to 2 years 3,893,887.94 194,694.40 5.00 2 to 3 years 877,853.20 175,570.64 20.00 3 to 4 years 833,557.46 416,778.74 50.00 4 to 5 years 329,342.03 164,671.02 50.00 Over 5 years 21,570,243.50 21,570,243.50 100.00 Total 139,981,486.90 24,771,476.52 ③In the groups, other receivables adopting other methods to withdraw bad debt provision: Ending balance Name of the group Bad debt Withdrawal Other receivables provision proportion (%) Connected party group within the consolidation 3,360,014,695.66 — — scope Total 3,360,014,695.66 — — (2) Bad Debt Provision Withdrawn, Reversed or Recovered in the Reporting Period The withdrawal amount of the bad debt provision during the Reporting Period was of RMB470,329.61; the amount of the reversed or collected part during the Reporting Period was of RMB0.00. (3) Top 5 Other Receivables in Ending Balance Collected according to the Arrears Party Proportion to total Ending balance Name of the ending balance of Nature Ending balance Aging of bad debt entity other receivables provision (%) Loan and Within 1 Konka Factoring 1,506,771,426.27 40.99 interest year Loan and Within 1 Kangzhi Trade 402,848,734.02 10.96 interest year Anhui Loan and Within 1 399,745,633.35 10.88 Tongchuang interest year Energy saving Loan and Within 1 141,549,150.00 3.85 141,549,150.00 subsidy interest year Communication Loan and Within 1 61,129,833.33 1.66 Technology interest year Total — 2,512,044,776.97 — 68.34 141,549,150.00 253 Konka Group Co., Ltd. Interim Report 2018 3. Long-term Equity Investment (1) Category of Long-term Equity Investment Ending balance Beginning balance Item Carrying Depreciation Carrying Depreciation Carrying value Carrying value amount reserve amount reserve Investment to subsidiaries 2,996,452,345.01 46,732,484.69 2,949,719,860.32 1,592,732,345.01 46,732,484.69 1,545,999,860.32 Investment to joint ventures and associated 1,672,969,077.51 5,158,909.06 1,667,810,168.45 1,108,233,473.19 5,158,909.06 1,103,074,564.13 enterprises Total 4,669,421,422.52 51,891,393.75 4,617,530,028.77 2,700,965,818.20 51,891,393.75 2,649,074,424.45 (1) Investment to the Subsidiaries Depreciation Ending balance of Investee Beginning balance Increase Decrease Ending balance reserve depreciation reserve withdrawn Mudangjiang 36,000,000.00 36,000,000.00 36,000,000.00 electric appliances Anhui Konka 122,780,937.98 122,780,937.98 — Dongguan Konka 274,783,988.91 274,783,988.91 — Hong Kong Konka 781,828.61 781,828.61 — Konka Europe 261,482.50 261,482.50 — Kunshan Konka 0.00 — Plasthetics 4,655,000.00 4,655,000.00 — Konka Household 10,732,485.69 10,732,485.69 10,732,484.69 Appliances Telecommunication 90,000,000.00 210,000,000.00 300,000,000.00 — 254 Konka Group Co., Ltd. Interim Report 2018 Depreciation Ending balance of Investee Beginning balance Increase Decrease Ending balance reserve depreciation reserve withdrawn Technology Information 0.00 — Network Shushida 31,500,000.00 31,500,000.00 — Fittings 48,750,000.00 48,750,000.00 — Technology Kunshan 350,000,000.00 350,000,000.00 — Kangsheng Anhui Tongchuang 249,702,612.22 249,702,612.22 — Konka Factoring 200,000,000.00 100,000,000.00 300,000,000.00 — Wankaida 10,000,000.00 10,000,000.00 — Beijing Konka 30,000,000.00 170,000,000.00 200,000,000.00 — Shushida Logistics 10,000,000.00 10,000,000.00 — Konka E-display 7,200,000.00 7,200,000.00 — Kaikai Shijie 16,000,000.00 16,000,000.00 0.00 — Commercial 5,832,000.00 5,832,000.00 — Technology Mobile Internet 10,200,000.00 10,200,000.00 — Yilifang 12,000,000.00 12,000,000.00 — Dongguan Packing 8,602,009.10 8,602,009.10 — Konka TID 40,000,000.00 40,000,000.00 — Konka Ventures 2,550,000.00 2,550,000.00 — 255 Konka Group Co., Ltd. Interim Report 2018 Depreciation Ending balance of Investee Beginning balance Increase Decrease Ending balance reserve depreciation reserve withdrawn Konka Pengrun 5,100,000.00 20,400,000.00 25,500,000.00 — Konka Unifortune 15,300,000.00 15,300,000.00 — Konka Investment 38,000,000.00 38,000,000.00 — Electronics 100,000,000.00 100,000,000.00 Technology Sichuan 1,020,000.00 1,020,000.00 Kangjiatong Econ Technology 688,500,000.00 688,500,000.00 Konka Huanjia 91,800,000.00 91,800,000.00 Total 1,592,732,345.01 1,419,720,000.00 16,000,000.00 2,996,452,345.01 0.00 46,732,484.69 (3) Investment to Associated Enterprises Beginning Increase/decrease balance of Beginning Reduced Investee depreciatio Additional Gains and losses recognized under the equity Adjustment of other comprehensive Changes of other balance investme n on investment method income equity nt reserve Shanghai Konka Green 79,729,560.91 — -1,062,323.74 324,021.02 Science & Technolog y Co., Ltd. 256 Konka Group Co., Ltd. Interim Report 2018 Beginning Increase/decrease balance of Beginning Reduced Investee depreciatio Additional Gains and losses recognized under the equity Adjustment of other comprehensive Changes of other balance investme n on investment method income equity nt reserve Zhuhai Jinsu 9,444,160.97 — 627,916.90 Plastic Co., Ltd. Shenzhen Konka Intelligent 4,927,589.47 — -2,065,657.20 Electric Co., Ltd Shenzhen Zhongbing Konka 14,317,400.80 — -2,208,794.15 Technolog y Co., Ltd Shenzhen Konka 5,158,909.0 Informatio 18,960,898.67 196,728.66 6 n Network Co., Ltd 257 Konka Group Co., Ltd. Interim Report 2018 Beginning Increase/decrease balance of Beginning Reduced Investee depreciatio Additional Gains and losses recognized under the equity Adjustment of other comprehensive Changes of other balance investme n on investment method income equity nt reserve Shenzhen Yaode 210,279,132.55 — 3,705,243.63 Technolog y Co., Ltd. Guangdon g Chutian Dragon 617,214,571.50 — 10,226,294.00 Smart Card Co., Ltd. Guangdon g Hotcomm 1,523,166.24 — 0.00 IT Co., Ltd. Kunshan 151,859,076.20 — 3,587,367.82 Konka Shenzhen -22,084.12 — 3,771,400.00 0.00 OCT LIFE 258 Konka Group Co., Ltd. Interim Report 2018 Beginning Increase/decrease balance of Beginning Reduced Investee depreciatio Additional Gains and losses recognized under the equity Adjustment of other comprehensive Changes of other balance investme n on investment method income equity nt reserve Shenzhen Bosheng 75,000,000.0 Advanced 233,407.38 0 Materials Co., Ltd. Heilongjia ng Longkang 7,000,000.00 0.00 Zhijia Technolog y Co., Ltd. Shaanxi Silk Road Cloud 5,400,000.00 0.00 Smart Tech Co., Ltd. Anhui Kaikai Shijie 0.00 E-commer ce Co., Ltd. 259 Konka Group Co., Ltd. Interim Report 2018 Beginning Increase/decrease balance of Beginning Reduced Investee depreciatio Additional Gains and losses recognized under the equity Adjustment of other comprehensive Changes of other balance investme n on investment method income equity nt reserve 1,108,233,473.1 5,158,909.0 91,171,400.0 Total 0.00 13,240,183.30 324,021.02 0.00 9 6 0 (Continued) Increase/decrease Ending balance of Investee Cash bonus or profits Ending balance Withdrawal of impairment provision Other depreciation reserve announced to issue Shanghai Konka Green Science & 78,991,258.19 — Technology Co., Ltd. Zhuhai Jinsu Plastic Co., Ltd. 10,072,077.87 — Shenzhen Konka Intelligent Electric 2,861,932.27 — Co., Ltd Shenzhen Zhongbing Konka 12,108,606.65 — Technology Co., Ltd Shenzhen Konka Information Network 19,157,627.33 5,158,909.06 Co., Ltd Shenzhen Yaode Technology Co., Ltd. 213,984,376.18 — Guangdong Chutian Dragon Smart 627,440,865.50 — Card Co., Ltd. Guangdong Hotcomm IT Co., Ltd. 1,523,166.24 — 260 Konka Group Co., Ltd. Interim Report 2018 Increase/decrease Ending balance of Investee Cash bonus or profits Ending balance Withdrawal of impairment provision Other depreciation reserve announced to issue Kunshan Konka 155,446,444.02 — Shenzhen OCT LIFE 3,749,315.88 — Shenzhen Bosheng Advanced 75,233,407.38 Materials Co., Ltd. Heilongjiang Longkang Zhijia 7,000,000.00 Technology Co., Ltd. Shaanxi Silk Road Cloud Smart Tech 5,400,000.00 Co., Ltd. Anhui Kaikai Shijie E-commerce Co., 460,000,000.00 460,000,000.00 Ltd. Total 0.00 0.00 460,000,000.00 1,672,969,077.51 5,158,909.06 261 Konka Group Co., Ltd. Interim Report 2018 4. Operating Revenue and Cost of Sales (1) Operating Revenue and Cost of Sales Reporting Period Same period of last year Item Operating revenue Cost of sales Operating revenue Cost of sales Main 4,519,683,896.29 4,013,358,791.77 4,206,989,260.45 3,482,365,918.48 operations Other 2,036,884,619.01 1,944,666,140.94 2,065,723,384.28 1,961,473,989.08 operations Total 6,556,568,515.30 5,958,024,932.71 6,272,712,644.73 5,443,839,907.56 (2) Main Operations (Classified by Industry) Reporting Period Same period of last year Industry Operating revenue Cost of sales Operating revenue Cost of sales Electronic industry 4,519,683,896.29 4,013,358,791.77 4,206,989,260.45 3,482,365,918.48 Total 4,519,683,896.29 4,013,358,791.77 4,206,989,260.45 3,482,365,918.48 (3) Main Operations (Classified by Product) Reporting Period Same period of last year Product Operating revenue Cost of sales Operating revenue Cost of sales Color TV 4,224,714,468.42 3,730,979,831.79 4,058,572,854.30 3,352,318,191.14 business Consumer appliances 100,943,929.96 89,279,454.11 148,212,399.29 129,780,963.65 business Other 194,025,497.91 193,099,505.86 204,006.86 266,763.69 Total 4,519,683,896.29 4,013,358,791.77 4,206,989,260.45 3,482,365,918.48 (4) Main Operations (Classified by Area) Reporting Period Same period of last year Area Operating revenue Cost of sales Operating revenue Cost of sales Domestic 3,600,826,510.58 3,175,143,251.38 3,822,475,481.58 3,102,447,555.27 sales Overseas 918,857,385.71 838,215,540.39 384,513,778.87 379,918,363.21 sales Total 4,519,683,896.29 4,013,358,791.77 4,206,989,260.45 3,482,365,918.48 262 Konka Group Co., Ltd. Interim Report 2018 (5) Operating Revenue from the Top 5 Customers Total operating revenue from the top 5 Proportion to the operating revenue of Period customers the Reporting Period Jan.-Jun. of 2018 1,421,092,900.82 11.74 Jan.-Jun. of 2017 1,153,169,124.71 18.38 5. Investment Income Item Reporting Period Same period of last year Long-term equity investment income accounted by cost 634,394,080.11 33,233,152.36 method Long-term equity investment income accounted by equity 13,240,183.30 -6,495,694.18 method Investment income from disposal of long-term equity 48,431,372.55 investment Investment income from holding of financial assets at fair 0.00 value through profit or loss Investment income from disposal of financial assets at -82,412,478.05 16,271,994.98 fair value through profit or loss Investment income from holding of held-to-maturity — investments Investment income from holding of available-for-sale 13,740,000.00 financial assets Investment income from disposal of available-for-sale — financial assets Gains from re-measurement of residual equity at fair 445,568,627.45 value after losing control power Income from entrust financial products and entrust loans 86,485,492.92 34,754,476.41 Financial assets transferred from equity investments 0.00 accounted by equity method Total 1,159,447,278.28 77,763,929.57 XVI. Supplementary Materials 1. Items and Amounts of Non-recurring Profit or Loss Item Amount Note Gain/Loss arising from disposal of non-current assets 109,176,724.28 263 Konka Group Co., Ltd. Interim Report 2018 Item Amount Note Tax rebates, reductions or exemptions due to approval beyond authority or the 0.00 lack of official approval documents Government subsidies recognized in the current period, except for those acquired in the ordinary course of business or granted at certain quotas or 95,673,059.56 amounts according to the government’s unified standards Capital occupation charges on non-financial enterprises that are recorded into 0.00 current profit or loss Gains due to that the investment costs for the Company to obtain subsidiaries, associates and joint ventures are lower than the enjoyable fair value of the 0.00 identifiable net assets of the investees when making the investments Gain/Loss on non-monetary asset swap 0.00 Gain/Loss on entrusting others with investments or asset management 83,860,015.29 Asset impairment provisions due to acts of God such as natural disasters 0.00 Gain/Loss from debt restructuring 0.00 Expenses on business reorganization, such as expenses on staff arrangements, 0.00 integration, etc. Gain/Loss on the part over the fair value due to transactions with distinctly 0.00 unfair prices Current net profit or loss of subsidiaries acquired in business combination under the 0.00 same control from period-beginning to combination date Gain/Loss incurred from contingency unrelated to the Company ’ s normal 0.00 operating businesses. Gain/Loss on changes in fair value arising from holding of trading financial assets and liabilities and investment income from disposal of trading financial -5,196,666.98 assets, financial liabilities and available-for-sale financial assets other than effective hedge business related to the Company’s normal operating businesses Reverse of bad debt provision of accounts receivable individually conducting 0.00 impairment test Gain/loss on entrustment loans 599,186.29 Gain/loss on change in fair value of investment property of which the 0.00 264 Konka Group Co., Ltd. Interim Report 2018 Item Amount Note subsequent measurement is carried out adopting fair value method Effect on current profit or loss when a one-off adjustment is made to current profit or loss according to requirements of taxation, accounting and other 0.00 relevant laws and regulations Custody fee income when entrusted with operation 0.00 Other non-operating income and expense other than the above 14,941,575.60 Project confirmed with the definition of non-recurring gains and losses and 445,568,627.45 losses Subtotal 744,622,521.49 Income tax effects 38,310,511.85 Non-controlling interests effects (after tax) 63,648,357.81 Total 642,663,651.83 Notes: the number “+” among the non-recurring profit or loss items refers to revenue and income, while “-”referred to losses or expense. The recognition of the non-recurring profit or loss items was executed according to the regulations of No.1 of the Information Disclosure Explanatory Notice of the Companies Public Offering Securities-Non- recurring Profit or Loss (ZJH Announcement [2008] No. 43) . Item Amount Reason Closely related to the normal operating business of the Company which met with the regulations of the state Tax rebate of 34,848,961.96 policies as well as constantly enjoyed the governmental software subsidies according to certain standard quotas or quantities 2. Return on Equity and Earnings Per Share Weighted average EPS (Yuan/share) Profit as of Reporting Period ROE (%) EPS-basic EPS-diluted Net profit attributable to ordinary shareholders of the 4.19% 0.1419 0.1419 Company Net profit attributable to ordinary shareholders of the -3.69% -0.1249 -0.1249 Company after deduction of non-recurring profit or loss 265 Konka Group Co., Ltd. Interim Report 2018 Part XI Documents Available for Reference I. The financial statements with the signatures and stamps of the Company ’s legal representative, Chief Financial Officer and head of the financial department (equivalent to financial manager); II. The originals of all the Company ’s documents and announcements disclosed to the public via newspapers designated by the CSRC in the Reporting Period; and III. Other relevant materials. The Board of Directors Konka Group Co., Ltd. 30 August 2018 266