Annual Report 2019 Stock Code: 688007 Stock Short Name: Appotronics Appotronics Corporation Limited Annual Report 2019 1 / 312 Annual Report 2019 Laser focus on our long-term success Dear Shareholders, The year of 2019 is a significant year for Appotronics. In July 2019, we became one of the first group of companies listed on the Shanghai Stock Exchange’s Sci-Tech Innovation Board (“STAR Market”). The establishment of the STAR Market is a historic event of the Chinese capital market in the past 30 years, which will provide technical innovation driven companies, such as Appotronics, with a broader and high-quality development space through combining the advantages of technology and capital. The outbreak of Covid-19 throughout the world in 2020 has brought significant and irrevocable changes to global economy, people’s daily life and production activities. Facing the crisis, Appotronics believes that focusing on technical innovations, satisfying users’ basic demands and seeking stable and long-run profits will be the effective approach to address the long-term social changes brought by the outbreak, and create higher value for our investors. We released our first corporate social responsibility report along with this annual report. We believe that, by making unremitting efforts in technical innovations, we will create value for the society, provide better services to the public, and effectively fulfill the social responsibility as a corporate. I. A review of our history: Basic technical innovations bring out long-term and valuable returns Appotronics was incorporated in Shenzhen in 2006. Since its establishment, Appotronics has been focusing on the utilization of mature industry chain to create new laser display technology architecture, form our proprietary intellectual properties (“IP”), and master the design and manufacture technology of core devices. Through more than ten years’ unremitting efforts, Appotronics has taken the lead in the world in overcoming the shortcomings of traditional laser display technology, including high cost, low reliability and inefficiency, invented the creative laser phosphor display architecture, and by giving full play to this disruptive technical advantage, successfully overcome the barriers for commercialization, and realized the driving forces of both technical innovation and industrialization. According to the Research Report on Chinese Laser Projector Market 2019 issued by AVC, blue laser + phosphor powder technology (ALPD is a kind of such technology), as the mainstream light source technology, occupies 98.6% of the market share. The laser display industry is growing rapidly, and plays an important role in the upgrading and transformation of the manufacturing industry. As a new low energy-consumption display technology, laser display technology is developing vigorously and will provide a good opportunity for our development. 2 / 312 Annual Report 2019 Since its establishment, Appotronics has persevered in investing in patents and other IP rights. As of December 31, 2019, we had obtained 908 patents in total throughout the world, and had another 756 patents pending. ALPD technology architecture patent of Appotronics, as a basic patent for the laser phosphor display route, has been quoted 416 times in the world. As a Leader Level Member of the Laser Illuminated Projector Association (LIPA), Appotronics has participated in and led the preparation of the international laser display standard. In the process of industrialization in the past ten years, the advantages of ALPD technology have been gradually reflected in high-end applications and other fields of display application. Our revenue from ALPD technology has grown rapidly from RMB 355 million in 2016 to nearly RMB 2 billion in 2019. Since the installation of the first ALPD laser cinema projection system in the world in 2014, we have been promoting laser cinema projection technology in the world through cooperation with China Film and Barco of Belgium. At present, we take the lead in the field of laser cinema projection in the world. The C5 laser cinema projector launched in 2019 is not only the first Chinese product of the like passing DCI certification of the U.S. Digital Cinema Projection Association, but also the first laser cinema projector in the industry featuring non-manual operation, muteness, no machine room and low operating cost. Appotronics launched the first 100 inch laser TV in the world in cooperation with LG in 2013, and the first 100 inch laser TV with a selling price of less than RMB 10,000 in cooperation with Xiaomi in 2017. In 2019, Appotronics occupied more than 30% share of the laser TV market, ranking first in the industry, and launched a portable mini projector with a selling price of less than RMB 3,000 in cooperation with Xiaomi. Through technical innovations, we enjoy unique opportunities as a pioneer. On the cinema projector market, we take the lead in offering “Laser as a service” in the industry. Under this “mode of laser light source lease”, the cinemas just need to pay rents according to the length of use, without needing to purchase light sources, which will help the cinemas not only effectively reduce equipment purchase costs, labor costs and maintenance costs, but also improve their market competitiveness through the high luminance, wide color gamut, high contrast and good picture quality and other technical advantages provided by the laser light source of Appotronics. On the other hand, it will provide Appotronics with a long-term and stable source of revenue, and promote the rapid application of ALPD technology. As of the date of this report, Appotronics has supplied more than 17,000 sets of ALPD laser projectors on the market, which have provided licensed services for more than 100 million hours in total. II. Prospects for 2020: Live in the present and focus on business and talent development The outbreak and spread of Covid-19 around the world in early 2020 has greatly affected the economy, especially the cinema and other sectors featuring gathering of crowds. We expect that our traditional laser projector business will be greatly affected for a long time, and other business will also be affected due to the global economic recession, so that the momentum of our rapid development may be hindered. Facing such severe challenges, we have taken the following measures: Just as before, we will continue to adhere to the pioneering spirit, maintain the streamlined structure even after the listing of the Company, and uphold the virtue of 3 / 312 Annual Report 2019 saving and hard struggle, especially as the epidemic situation is still severe at present. We will enhance budget management, promptly make business analysis and adjust the relevant budgets according to the development of the epidemic situation, closely monitor the epidemic situation and adjust the relevant business plans in a timely manner. During this process, we will enhance information disclosures, so that the investors will fully understand our new strategies and be able to make their judgments on our business plans. We will take a more prudent approach toward employment and focus on those talents who have pioneering spirit and will give support to the long-term development of our core business. Just as before, we will continue to use share incentive rather than cash as the main incentive approach. We wish this approach will help us recruit more outstanding talents and enhance their sense of being the master of their own affairs. The completion of the IPO in 2019 laid a foundation for us to focus on business and talent development. In 2019, our operating income was about RMB 1.979 billion, up 42.82% year on year; the total assets reached RMB 3.1 billion, up 49.48% over the opening of the period; the net cash flows from operating activities were RMB 243 million, up 106.33% year on year; and the R&D expenses were RMB 202 million, up 48.60% year on year. III. Turn crisis into opportunities in the future The consumers always seek portable large screen display technology, which will not be changed by the epidemic situation. Even if the cinemas suffer a setback temporarily, after the epidemic situation is eased or resolved, the cinemas will open again. However, the video conference, online education and other new types of operation inspired by the epidemic situation enhance the consumers’ expectation for large-screen and eye-care displays. Our ALPD laser projector can effectively provide healthier large-screen and eye-care displays. The unexpected epidemic situation makes us be clearly aware of users’ expectation for our laser projection technology. Though the epidemic situation slows down the momentum of our rapid development in the past few years, we find that it provides us with a good opportunity to adjust resources. In the future, we will continue to listen to users’ demands, and focus on technology development and services that can bring about long-term use value to users, rather than product development or marketing catering to short-term market demands. We believe this approach reflects the real customer-oriented concept, and we will bring about the best long-term returns for our investors through continuous technology development. Through accumulation of technologies in the past ten years, we have become a technology leader in the industry. In comparison with our peers, we are stronger in technology development and enjoy the head start advantage. Now we will extremely focus on the target, just like laser. Though it seems that light is invisible and powerless, when plenty of light, such as laser, focuses on an object, it can shoot through hard steel. Therefore, we plan to do the following work: Continue to be committed to disruptive innovations. Appotronics has been committed to innovations in laser display technology, and created technology reserves and patent portfolios covering the whole technology chain of laser display from key system architecture, core devices to key algorithm. ALPD technology architecture has been upgraded to the fourth generation. The performance of each 4 / 312 Annual Report 2019 generation of architecture platform has been improved in an all-round way as compared to the previous generation, thereby enabling us to maintain the technical and performance advantages in the industry. We will continuously increase investments in technology reserves geared to the needs of the future, and improve and extend the core industry chain, so as to build a sound patent protection system. Focus on core devices. We will continuously strengthen our core device research, development and manufacturing capability, as we will be unable to greatly improve the performance of complete equipment without making breakthroughs in core devices and architectures. We will consolidate and increase our advantages in core devices, create the mode of open platform operation, and cooperate with the industrial circles to jointly make the laser display industry bigger and stronger, enrich the content of the industry, and expand the applications. Persevere in the development direction of “software + hardware + service”. In the future, we will be committed to providing better user experience and services to end users through in-depth hardware and software integration, based on “hard-core technology”, and supplemented by upgrading of software system. We will create a stable and long-run mode of profit increase through continuous product services. Fully respect to the emphasis on IP on the overseas market. We will expand our overseas business and market through creating value for users. The year of 2020 starts a new decade, witnesses great changes, and will go down in history. Appotronics will continue to uphold the pioneering spirit, to face the unknown challenges. Thanks to all shareholders and friends following Appotronics. Make unremitting efforts as God rewards those who work hard. Let time become our friends. LI Yi Founder and Chairman of Appotronics April 28, 2020 5 / 312 Annual Report 2019 Important Note I. The Board of Directors, the Board of Supervisors, directors, supervisors and senior officers of the Company hereby warrant that the information contained in this Annual Report is true, accurate and complete and this Annual Report is free from any misrepresentation, misleading statement or material omission, and agree to assume joint and several liability for this Annual Report. II. Alert of significant risks During the reporting period, there has been no extremely significant risk that may have a material effect on the production and operation of the Company. The Company has described in detail the risks that may exist. Please refer to Section IV “Discussion and Analysis of Business Situations” for the relevant risks. III. All directors of the Company attended the meeting of the Board of Directors. IV. Pan-China Certified Public Accountants (Special General Partnership) issued a standard unqualified auditor’s report to the Company. V. BO Lianming, Principal of the Company, ZHAO Ruijin, Person in Charge of the Accounting Body and Chief Accountant WEI Yanlin hereby represent that the financial statements contained in this Annual Report are true, accurate and complete. VI. Profit distribution proposal or proposal for capitalization of capital reserve approved by the Board of Directors during the reporting period The Company’s profit distribution proposal for the year of 2019 is as follows: On the basis of the total share capital of the Company as at the record date for the dividend distribution for the year of 2019, the Company will distribute a cash dividend of RMB 0.75 per 10 shares (inclusive of tax) to all shareholders. On the basis of 451,554,411 shares of the Company as at December 31, 2019, RMB 33,866,580.83 of cash dividends is expected to be distributed in total (inclusive of tax). The Company will not capitalize the capital reserve or distribute bonus shares for the reporting period. The profit distribution proposal for the year of 2019 is subject to approval by the general meeting of shareholders of the Company. VII. Is there any material event concerning any special arrangement of corporate governance? □ Applicable √ N/A VIII. Risk statement regarding forward-looking statements √Applicable □ N/A The forward-looking statements contained herein regarding the future plans, development strategies or other matters of the Company do not constitute any substantive covenant made by the Company to the investors. The investors should be aware of the risk of investment. IX. Is there any non-operational occupation of funds by the controlling shareholder or its affiliates? No X. Is there any external guarantee provided in contravention of the stipulated decision-making procedure? No XI. Other information □ Applicable √ N/A 6 / 312 Annual Report 2019 Table of Contents Section I Definitions .............................................................................................................. 8 Section II Company Profile and Financial Highlights ....................................................... 9 Section III Operational Highlights .................................................................................... 14 Section IV Discussion and Analysis of Business Situations ............................................. 32 Section V Significant Matters ............................................................................................ 49 Section VI Changes in Shares and Shareholders ........................................................... 117 Section VII Preferred Shares ........................................................................................... 127 Section VIII Directors, Supervisors, Senior Officers and Employees .......................... 128 Section IX Corporate Governance .................................................................................. 142 Section X Corporate Bonds .............................................................................................. 147 Section XI Financial Report ............................................................................................ 148 Section XII List of Documents Available for Inspection ............................................... 312 7 / 312 Annual Report 2019 Section I Definitions I. Definitions For purpose of this report, unless the context otherwise requires, the following terms shall have the meanings indicated below: Terms Company or means Appotronics Corporation Limited Appotronics Appotronics Ltd. means Appotronics Corporation Ltd., the former name of the Company CINEAPPO means CINEAPPO Laser Cinema Technology (Beijing) Co., Ltd. Fengmi means Fengmi (Beijing) Technology Co., Ltd. Appotronics HK means Appotronics Hong Kong Limited Yuanshi means Shenzhen Yuanshi Laser Industrial Investment Consulting Partnership (LP) Appotronics Daye means Shenzhen Appotronics Daye Investment Partnership ( LP) Appotronics Deye means Shenzhen Appotronics Deye Consulting Partnership (LP) Appotronics Hongye means Shenzhen Appotronics Hongye Investment Partnership ( LP) Blackpine means Blackpine Investment Corp. Ltd Jinleijing means Shenzhen Jinleijing Investment Limited Partnership (LP) Appotronics Chengye means Shenzhen Appotronics Chengye Consulting Partnership (LP) Appotronics Holdings means Shenzhen Appotronics Holdings Limited Jiayuan I means Huatai Appotronics Employee Stock Ownership Plan - Jiayuan I Collective Asset Management Plan CINIONIC means Cinionic Limited (previously known as Barco Cineappo Limited) China Film means China Film Co., Ltd. CFEC means China Film Equipment Co. Ltd DonView Digital means Beijing DonView Digital Technology Co., Ltd. Tianjin Jinmi means Tianjin Jinmi Investment Partnership (LP) WUXGA means Widescreen Ultra eXtended Graphics Array, a computer display mode, which provides a resolution of 1920×1200 pixels. 8 / 312 Annual Report 2019 Section II Company Profile and Financial Highlights I. Company profile Chinese name 深圳光峰科技股份有限公司 Short name in Chinese 光峰科技 English name Appotronics Corporation Limited Short name in English Appotronics Legal representative BO Lianming Registered address 20-22/F, Hi-tech Zone Union Tower, No. 63 Xuefu Road, Yuehai Street, Nanshan District, Shenzhen Postal code of registered address 518052 Office address 20-22/F, Hi-tech Zone Union Tower, No. 63 Xuefu Road, Yuehai Street, Nanshan District, Shenzhen Postal code of office address 518052 Website http://www.appotronics.com Email ir@appotronics.cn II. Contact person and contact information Board Secretary (Domestic representative for information disclosure) Name XIAO Yangjian Address 20-22/F, Hi-tech Zone Union Tower, No. 63 Xuefu Road, Yuehai Street, Nanshan District, Shenzhen Telephone 0755-32950536 Facsimile 0755-86186299 Email ir@appotronics.cn III. Media for information disclosure and place for keeping the annual reports Designated media for information China Securities Journal, Shanghai Securities disclosure News, Securities Times, Securities Daily Websites designated by the China www.sse.com.cn Securities Regulation Commission for publishing the annual reports Place for keeping the annual reports Office of the Board of Directors IV. Stock and depository receipts of the Company (I) Stock of the Company √Applicable □ N/A Stock of the Company Type of Stock exchange and Stock short name Stock code Former stock stock board short name A-shares Shanghai Stock Appotronics 688007 N/A 9 / 312 Annual Report 2019 Exchange, STAR Market (II) Depository receipts of the Company □ Applicable √ N/A V. Other related information Name Pan-China Certified Public Accountants (Special General Partnership) Domestic accounting Office address 9/F, No. 128 Xixi Road, Xihu District, firm appointed by the Hangzhou, Zhejiang Company Accountants signing YANG Kejing, ZOU Tiantian the report Name Huatai United Securities Co., Ltd. Office address 5/F (01A, 02, 03 and 04), 17A, 18A, 24A, 25A and 26A, Hong Kong China Travel Sponsor performing the Service Building, Central Plaza, Futian duty of continuous District, Shenzhen supervision within the Sponsor ZHANG Guanfeng, QIN Lin reporting period representatives signing the report Period of continuous From July 22, 2019 to December 31, supervision 2022 VI. Main accounting data and financial highlights in the past three years (I) Main accounting data In RMB % Change (2019 Main accounting data 2019 2018 2017 v 2018) Operating income 1,979,148,918.89 1,385,727,211.09 42.82 805,587,943.59 Net profit attributable 186,457,276.71 176,971,092.49 5.36 105,393,395.69 to shareholders of the listed company Net profit attributable 134,218,640.96 165,011,362.18 -18.66 132,015,218.32 to shareholders of the listed company after deduction of non-recurring profit or loss Net cash flows from 243,000,903.71 117,773,454.30 106.33 -115,179,556.79 operating activities December 31, December 31, % Change (2019 December 31, 2019 2018 v 2018) 2017 Net assets attributable 1,974,559,837.64 715,913,478.56 175.81 70,572,171.92 to shareholders of the listed company Total assets 3,099,508,090.85 2,073,471,490.56 49.48 1,037,660,589.99 10 / 312 Annual Report 2019 (II) Financial highlights % Change (2019 v Financial highlights 2019 2018 2017 2018) Basic earnings per share 0.45 0.73 -38.36 - (RMB/share) Diluted earnings per share 0.45 0.73 -38.36 - (RMB/share) Basic earnings per share after 0.33 0.68 -51.47 - deduction of non-recurring profit or loss (RMB/share) Weighted average return on net 14.84 41.25 -26.41 percentage 197.26 assets (%) points Weighted average return on net 10.68 38.49 -27.81 percentage 531.94 assets after deduction of points non-recurring profit or loss (%) Proportion of R&D expenses to 10.19 9.79 +0.40 percentage 11.58 operating income points Explanation about the main accounting data and financial highlights in the past three years √Applicable □ N/A 1. The increase in operating income by 42.82% year on year was primarily due to the increase in revenue from the sale of household To C products and cinema leases during the reporting period. 2. The decrease in basic earnings per share by 38.36% year on year was primarily due to the dilution of the earnings per share resulting from the increase in the share capital by 68,000,000 shares offered in the IPO of the Company. 3. The increase in total assets by 49.48% year on year was primarily due to the funds raised through the IPO completed in the reporting period. 4. The decrease in net profit attributable to the owners of the parent company after deduction of non-recurring profit or loss by 18.66% year on year was primarily due to the rapid growth of expenses during the reporting period as the Company enhanced the recruitment of talents in response to the larger scale of operation and increased investments in technology research, development of new products and other areas. 5. The increase in net cash flows from operating activities by 106.33% year on year was primarily due to the increase in the sales revenue received. VII. Differences in accounting data arising from adoption of foreign and Chinese accounting standards concurrently (I) Differences in net profit and net assets attributable to shareholders of the listed company disclosed on the financial statements according to the international accounting standards and the Chinese accounting standards □ Applicable √ N/A (II) Differences in net profit and net assets attributable to shareholders of the listed company disclosed on the financial statements according to the foreign accounting standards and the Chinese accounting standards □ Applicable √ N/A (III) Explanation about the difference between foreign and Chinese accounting standards □ Applicable √ N/A 11 / 312 Annual Report 2019 VIII. Financial highlights in 2019 by quarter In RMB st nd rd th 1 quarter (Jan. - 2 quarter (Apr. 3 quarter (Jul. - 4 quarter (Oct. - Mar.) - Jun.) Sep) Dec.) Operating income 359,369,025.24 493,987,939.60 498,415,347.23 627,376,606.82 Net profit attributable to 27,848,207.29 38,731,366.77 57,550,852.99 62,326,849.66 shareholders of the listed company Net profit attributable to 17,279,140.15 24,325,503.60 48,553,875.07 44,060,122.14 shareholders of the listed company after deduction of non-recurring profit or loss Net cash flows from operating -65,364,673.16 50,821,259.64 68,855,552.21 188,688,765.02 activities Explanation about the difference between quarterly data and the data disclosed on regular reports □ Applicable √ N/A IX. Items and amounts of non-recurring profit or loss √Applicable □ N/A In RMB Note (if Item of non-recurring profit or loss 2019 2018 2017 applicable) Gain or loss on disposal of non-current -3,214,488.06 -1,711,797.47 -1,845,934.69 assets Government grants recognized in profit or 25,782,112.48 24,032,705.76 9,606,112.65 loss for the current period (excluding government grants that are closely related to the business of the Company and are provided in fixed amount or quantity continuously according to the applicable polices and standards of the country) Net gain or loss on subsidiaries arising 23,321,528.06 18,765,375.86 -16,306,769.81 from business combinations involving entities under common control from the beginning of the reporting period till the date of combination Gain or loss on changes in fair value of 9,552,990.98 held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities, and derivative financial liabilities and gain on disposal of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities, derivative financial liabilities and other debt investments, except for effective hedges held in the ordinary course of business Reversal of impairment loss on accounts 238,836.00 receivable tested for impairment individually Other non-operating income and expenses 2,981,778.07 1,182,062.52 386,740.42 12 / 312 Annual Report 2019 Other gains or losses meeting the definition -22,338,042.90 -6,846,741.55 of non-recurring profit or loss Effect of minority interest -1,891,481.86 -3,860,005.15 -10,719,926.94 Effect of income tax -4,532,639.92 -4,110,568.31 -895,302.71 Total 52,238,635.75 11,959,730.31 -26,621,822.63 X. Items at fair value √Applicable □ N/A In RMB Effect on profit for Item Opening balance Closing balance Change the current period Held-for-trading 0 540,000,000.00 540,000,000.00 9,552,990.98 financial assets Investment in other 0 11,975,419.38 11,975,419.38 0 equity instruments Total 0 551,975,419.38 551,975,419.38 9,552,990.98 XI. Other information □ Applicable √ N/A 13 / 312 Annual Report 2019 Section III Operational Highlights I. Main business, business model, status of industry and R&D activities during the reporting period (I) Main business and main products or services We are a leading laser display technology enterprise in the world owning proprietary technologies and core patents and having core device research, development and manufacturing capability. In the reporting period, we were mainly engaged in the research and development, production and sale of core laser display devices and complete laser display equipment, and provision of laser cinema projection services through lease of light sources. Since our establishment 14 years ago, we have been committed to technical innovations, invented ALPD technology in 2007, created the new laser phosphor display architecture, formed our proprietary IP, and mastered the design and manufacture technology of core devices. We have upgraded ALPD technology continuously, and relying on the advanced ALPD technology, promoted the industrial applications of laser display, and gradually extended the application of laser display from laser cinema projection and other high-end applications to large venue, business education, laser TV, smart mini projector and other display applications. During this process, Appotronics has consolidated its position as a leader and become a popular brand. We have many types of products, which can be classified into core laser display devices and complete laser display equipment, wherein the core devices can be further classified into laser light source (cinema light source and large venue light source), laser TV light generator and laser projection screen, and complete laser display equipment can be further classified into laser cinema projector, large venue laser projector, laser video wall, laser education projector, laser TV and smart mini projector, of which, the former four products fall within the field of To B, while the latter two fall within the field of To C. Our rich product lines reflect the great advantages of ALPD technology architecture as the fundamental key architecture, and the good operating results achieved by us driven by technical innovation and industrialization. 14 / 312 Annual Report 2019 Figure 1: Technical innovation and industrialization, the double driving forces of the development of the Company 1. Core devices Technical innovation is the foundation of business, while core devices are the basis of development. We will be unable to greatly improve the performance of complete equipment without making breakthroughs in core devices and architectures. Among our three types of core devices, laser light source and laser TV light generator are stable and mature products, which make great contributions to our operating results, including sale of such devices separately or sale of complete equipment containing such devices; while laser projection screen is one of our key new products under development, which will be used in conjunction with laser TV and smart projectors, to provide better visual experience. Our core devices reflect various advantages and characteristics of ALPD technology, such as high luminance, wide color gamut, high contrast and relatively low cost. The quality and performance of such products have received recognition of downstream customers, which helps us establish our position as a core supplier on the industry chain of laser display. Figure 2: Laser light source and laser light generator On the commercial market, we have entered into in-depth cooperation with China Film and Barco in laser light source and promotion of laser cinema projection technology throughout the world. We took the lead in launching “laser as a service”, the mode of laser light source lease, in the industry, which can effectively help the cinemas reduce costs and increase efficiency with the technical advantages of the light source provided by us and the flexibility and convenience of the lease mode, and has helped us become the company deploying the most laser cinema light source in China. On the household market, we have cooperated with LG and Xiaomi to develop customized laser TV light generators. In particular, the laser TV with a selling price of less than RMB 10,000 launched by us in cooperation with Xiaomi has led the reform and development of the entire laser TV market and stimulated the consumers to purchase laser TV. At present, our laser TV light generators are not only used on Mijia products and our own brand products, but also used for providing customized development services to Hola, VAVA, Haier, ViewSonic and other companies. Its customer base is expanding gradually. According to AVC, our laser TV light generators occupied the largest domestic market share in 2019. In the future, we will further consolidate the advantages of core devices, create an open platform, and cooperate with the industrial circles to jointly make the laser display industry bigger and stronger, enrich the content of the industry, and expand the applications. 15 / 312 Annual Report 2019 Figure 3:Application of ALPD laser cinema light source 2. Complete equipment (1) To B commercial market On the basis of laser light source and light generators, we have further developed complete equipment, which has been widely used in cinema projection, cultural and tourism lighting, security and surveillance, education and training, and other commercial applications, and become the mainstream choice for high-quality projection display technology. ——In the field of cinema projection, we have created a product portfolio of laser cinema light source covering multiple ranges of lumens, from 5,000 lumens to 51,000 lumens, which can satisfy the projection demands of different scenarios, including without limitation high-end cinema, ordinary cinema and private cinema. Relying on the solid basis of light source research and development, we have developed C5 laser cinema projector, the first equipment of the like in China that meets the standard of DCI (Digital Cinema Initiatives, LLC), which marks that we have become the fifth company in the world that is able to develop and manufacture DCI compliant digital cinema projector, have the technical capability to provide solutions to all laser cinemas of various specifications, and will promote the advancement of digital cinema projection technology in China1. 1 https://www.dcimovies.com/compliant_equipment/KEIO-CINEAPPO-C5-20190830-ver3.html 16 / 312 Annual Report 2019 Figure 4:Certificate of DCI compliant equipment ——On the large venue display market, as the country continuously gives strong support to the cultural and tourism industry, there are strong demands for large venue laser projectors in the cultural, creative, exhibition, display and other fields. Due to its remarkable advantages such as no damage to landscape and cultural relics, being convenient to install and dismantle, low cost and recyclability, large venue laser projector has been successfully used in the “future city” project of Shenzhen venue of 2019 Spring Festival Gala, the “Light up the Forbidden City” at the night of the Lantern Festival 2019, and the ski resort project of the Beijing Winter Olympics, which has greatly increased our brand popularity and influence. Figure 5: Effect of “Night of the Lantern Festival” at the Forbidden City and the ski resort project of the Beijing Winter Olympics ——On the security and surveillance market, the laser video wall unit produced by us features high reliability, 7x24 operation free of failure, high luminance, wide color gamut, wide viewing angle, precise color reproduction and low power consumption, among others, and has been widely used by the important State organs and large-sized enterprises and institutions. In 2019, we provided laser video walls to the Tiananmen Public Bureau of Beijing, the Nanshan District Administrative Service Hall of Shenzhen and the Inner Mongolia Commanding Center for Electric Power Dispatch. 17 / 312 Annual Report 2019 Figure 6:Commanding Center for Electric Power Dispatch ——On the education projector market, our laser business education projector product series cover ultra short throw, short throw, long throw and other focal lengths, and luminance from 3,300 lumens to 5,000 lumens, support WUXGA images, have a service life of 25,000 hours, can be widely used in various scenarios such as colleges, universities, middle schools and primary schools, commercial exhibition and homes, replace traditional business education projectors using bulbs or LED as light source, and provide a new idea for eye protection. (2) To C household market In recent years, laser TV, smart mini projector and other household projector products have been developing rapidly, due to the ever increasing acceptance of the new mode of movie watching by the consumers, and rapid decrease of the costs and prices and better performance of products. During the reporting period, Mijia laser TV, Fengmi laser TV and Fengmi smart mini projector continue to maintain the lead on the market, and our household equipment business also grows rapidly. ——In the laser TV business segment, we manufacture Mijia laser TV and own brand laser TV products, of which, Mijia laser TV products are customized products manufactured for Xiaomi, which are sold by Fengmi (our affiliate) to Xiaomi and then distributed by Xiaomi to end consumers, and the own brand laser TV products are distributed by Fengmi, which have a luminance slightly higher than that of Mijia laser TV, and provide projection screen, subwoofer and other components for the consumers to choose, thereby implementing a differential sales strategy with Mijia laser TV. The laser TV launched by us in cooperation with Xiaomi was the first product of the like with a selling price lower than RMB 10,000, thereby becoming a benchmark product in the laser TV industry. Due to the application of ALPD technology, our products show remarkable superiority in overall performance, including image quality, audio effect and smart experience. In the future, we will increase R&D investment to develop laser TV toward larger screen, higher resolution and lower cost, and enhance hardware and software integration to provide the consumers with products with outstanding performance and a high cost-performance ratio. 18 / 312 Annual Report 2019 Figure 7: Laser TV product ——In the smart mini projector business segment, our smart mini projector products feature small size, portability, high efficiency and strong color performance compared with general projectors, and are embedded with smart operating system and Wi-Fi module for connection with cloud server, so they can provide the consumers with more convenient information and resource sharing and huge volume of content. As we are entering the era of 5G, the big bandwidth and low latency provided by 5G technology will make the real-time transmission and broadcasting of ultra high definition videos become a reality. Laser display features large size, high resolution and portability. The combination of laser display and 5G transmission technology can solve the contradiction between large screen and portability. Along with the increasingly strong functions of mobile phones, portable laser mini projectors used in conjunction with mobile phones are expected to become a new growth area. Figure 8: Smart mini projector product (II) Main business model We are mainly engaged in the R&D, production, sale and lease of core laser display devices and complete laser display equipment, and provision of customized R&D and 19 / 312 Annual Report 2019 manufacturing services to customers, and have an independent and complete procurement, sales, production and service system. 1. R&D mode We mainly adopt the independent R&D mode, and separate technology development from product development in organization structure and development process. Our technology development focuses on creating and mastering core and key technologies. When a kind of technology becomes relatively mature, it will be applied in product development. Our technology development team comprises a large number of creative scientists, who follow up the progress of frontier technology in the industry, focus on the key technical problems that urgently need to be solved in our business development, and develop the technologies required for our products to be launched in the next three years, to create the Company’s core competitive edge in technology. Our product development is driven by product planning, and mainly divided into stages of feasibility, EVT, DVT, PVT and MP. We set up product lines and product development teams by market segment, and develop series products based on product platform, to rapidly respond to market demands. Our product development team is responsible for developing the products that will be put into mass production within about one year. The product development team is divided into optical, structure, software, hardware, thermal and other technical departments by profession. Such technical departments share technologies and platforms with each other. Through matrix management, we realize flexible allocation and sharing of human, operating and other resources among different products, to optimize resource allocation and improve R&D efficiency and professional and technical capability. 2. Procurement mode Our Resources Development Department and Supply Chain Center Planning Management Department are responsible for procurement, of which, the Resources Development Department is responsible for the selection of suppliers, determination of purchasing prices, building of business system and supply platform and other front-end procurement affairs, and the Planning Management Department is responsible for the preparation and implementation of procurement plans and other back-end procurement affairs. We have formulated the Supplier Development, Management and Control Process and other policies, to manage the development of suppliers, implementation of procurement plans, inspection of incoming materials and other business. 3. Production mode Our production mode relies on own production, supplemented by OEM, mainly because of the different production capacity required by different manufacturing processes and modes and consideration of cost-effectiveness. Our core devices sold or leased to customers are manufactured by us. Laser TV and smart mini projector products are assembled by OEMs. Other complete equipment products are also manufactured by us. With respect to the products manufactured by us, we schedule production pursuant to purchase orders, taking into account the requirement of safety stock. The production of standard spare parts is scheduled according to the requirement of safety stock and relevant production plans. With respect to OEM products, we appoint third parties to manufacture PCBA, coating and other semi-finished products, and assemble laser TV, smart mini projector and other complete equipment. 4. Sales mode 20 / 312 Annual Report 2019 Our sales mode is classified into product sales and lease service, as described below: (1) Product sales mode Our products include core laser display devices and complete laser display equipment. ① Core devices are customized for and directly sold to customers. For example, we developed a customized laser cinema light source for Barco and Cinionic (a company jointly established by Barco and us), and sold the light source products to Barco and Cinionic; and developed a customized laser TV light generator for Hola, and sold the laser TV light generator products to Hola or its supply chain service providers. ② The sale of complete equipment has three modes, which are customized direct sale, non-customized direct sale and distribution. Xiaomi, DonView, CVTE, VAVA, Haier, ViewSonic and other companies purchase customized complete equipment products developed by us for them. Large venue laser projectors are sold mainly using the off-line direct sale mode, while Fengmi branded laser TV and smart mini projector products are sold both at the online retail stores on Tmall, JD, Youpin, Pinduoduo and other platforms, and off-line physical stores. Other complete equipment products are sold through distributors. (2) Mode of lease service We established CINEAPPO jointly with CFEC, a wholly owned subsidiary of China Film. CINEAPPO purchases laser cinema light source from Appotronics, and then leases such light source and provides laser cinema projection service to downstream cinema customers (“Laser as a service”). Such mode of light source lease was a first in the industry, under which CINEAPPO charges service fees according to the length of use of light source by the cinemas (the fees are charged by the hour or a certain period of time), while the cinemas do not need to purchase light source equipment, thereby effectively easing their capital pressure and reducing their labor and maintenance costs. CINEAPPO connects the leased light source equipment with its remote information platform, uses IT technology to provide remote license and smart timer services in respect of such light source, and gives support to day-to-day operation of such light source, such as asset monitoring, inspection and maintenance order and tracking. The lease of light source by CINEAPPO to the cinemas is classified as operating lease. 5. Mode of joint venture We believe that it is a reasonable business strategy to establish joint ventures with the excellent companies on the market segments, and have established the following joint ventures: (1) We established CINEAPPO jointly with CFEC. CINEAPPO provides laser light source lease services to the cinemas throughout the country. Appotronics supplies laser light source to CINEAPPO, while China Film contributes its in-depth understanding of the film industry and gives support to CINEAPPO through its cinema network operation system. The parties initiated the business model of lease by the hour in the film projection industry, and promoted such business model among the cinemas throughout the country. (2) We established Fengmi jointly with Tianjin Jinmi and Shunwei Technology (both are affiliates of Xiaomi Technology, a leading Internet company). Fengmi is engaged in R&D, manufacturing and sale of laser TV sets, and Xiaomi Communications is its main customer. Appotronics supplies laser TV light generators to Fengmi. Xiaomi 21 / 312 Annual Report 2019 Communications sells the laser TV products of Fengmi at home and abroad, by giving full play to its advantages in sales channel and brand marketing capability. (3) We established Orient Appotronics jointly with DonView, a well-known company in the field of multi-media display. Orient Appotronics is engaged in the sale of laser business education projectors supplied by Appotronics, and DonView is its customer. DonView distributes such products through its powerful sales channels throughout the country. Such joint venture arrangements combine the respective advantages and resources of the parties thereto, and are routine and reasonable commercial arrangements. Such joint ventures enjoy superiority in talents, as the members of their management teams come from first-class enterprises in the industry, and have expertise and rich experience in the implementation of business strategies, and business and product innovations. Such joint venture arrangements have greatly promoted our business development in the past. In the future, we will continue to consolidate our relationship and closely cooperate with the relevant joint venturers, jointly promote technical and product innovations and seek development opportunities on the market with them, to promote the stable and healthy development of such joint ventures. (III) Industry in which the Company operates 1. Development stage, basic characteristics and main technical barriers of the industry 1.1 Industry According to the Industrial Classification for National Economic Activities (GB/T4754-2017) published by the National Bureau of Statistics, we are classified into the “display device manufacturing” industry (industrial code: C3974) of the “computer, communication and other electronic equipment manufacturing” industry (industrial code: C39). According to the Guidelines on the Industrial Classification for the Listed Companies published by the China Securities Regulatory Commission, we are classified into the “computer, communication and other electronic equipment manufacturing” industry (industrial code: C39). 1.2 Development stage of the industry (1) Laser display To B market: Growth stage in which the performance of mature products is improved and the products are continuously upgraded On the To B market, laser display technology is mainly applied in cinema projection and large venue display, including cinema projection, security and surveillance, command and control, theater performance, exhibition and display, artificial and virtual reality and other scenarios. In recent years, due to its remarkable advantages such as stable performance, long service life and rich color, laser display technology has been rapidly replacing the traditional light source technology used in cinema projection and large venue display equipment. Since the launch of the first ALPD laser cinema projector jointly developed by Appotronics, China Film and Barco in 2014, ALPD laser light source has been widely applied in the cinemas throughout the country, and entered the overseas projector market. According to the China Film Exhibition & Distribution Association, as of December 31, 2018, the domestic cinemas installed about 23,000 sets of laser projection systems; the market penetration rate of laser projection system rapidly increased from 0% to 38% within four years, and Appotronics is a leader on the laser cinema projector market. According to the Research Report on Chinese Laser Projector Market 2019 issued by AVC, the sales of 22 / 312 Annual Report 2019 large venue laser projectors in 2019 increased by 30.5% year on year, which shows that the laser display technology is rapidly penetrating into the large venue display market. Though the growth of laser display on To B market is temporarily hindered by the epidemic situation, laser display has great growth potentials due to its unique advantages. We expect that after the epidemic situation is put under control, the demands for laser display technologies and products on To B market will grow continuously and steadily, and the laser display technologies and products for To B market will provide better performance and more functions. (2) Laser display To C market: As an emerging industry, it is at the early stage of rapid development The application of laser display technology in TV and other household products is a wholly new creation. Based on the long-term accumulation of ALPD technology, Appotronics has made a breakthrough in the application of core devices and imaging solutions of laser display and achieved superiority in the field of household display, including lower cost, higher efficiency and smaller size, among others, which makes laser TV possible. Since Appotronics launched the first 100 inch laser TV in the world and introduced the concept of laser TV based on “ultra short throw front laser projector with anti-ambient light screen” in 2013 in cooperation with LG, HiSense, Xiaomi, Changhong, Haier and other well-known companies have been engaged in R&D, production and marketing of laser TV products, promoting the rapid growth of the market size of laser TV and other related household products. According to AVC, the sales of household laser display products on the domestic market increased from 76,000 units in 2017 to 195,000 units in 2019, with a three-year compound growth rate of 60%. Household laser display products have three unique advantages, which are large size, eye care and portability. Along with the continuous development of the laser display industry chain, the costs of core materials and devices will be further lowered and their performance will be further improved. It is expected that household laser display products will develop toward lower price, smaller size and better display effect in the next few years, and become common household products. 1.3 Main technical barriers (1) Technical barriers The technical barriers for To B market are continuous upgrading of performance, and the technical barriers for To C market are high efficiency, small size and low cost. After fourth upgrading, our ALPD technology architecture has gained relatively solid technical advantages in terms of performance, cost, efficiency and size, and formed a sound IP protection system. In the future, certain companies in the industry may face the problems of lack of R&D capability and core technology, and reliance on supply chain for core patents and core devices, rendering them unable to compete with leading domestic or international companies that have their proprietary IP or core technologies and core devices. (2) Quality barriers We have accumulated rich experience over the years and adopted strict quality standards in respect of R&D, design, manufacturing, management system, quality control standard, installation and operation, to ensure the stability of the internal optical components and fluorescent materials of laser display products under prolonged laser exposure. Any new enterprise wishing to enter the laser display industry must put in enormous capital and accumulated experience in these areas, and may be unable to make an outstanding product satisfying the demand of the market and having stable and reliable 23 / 312 Annual Report 2019 performance until a very long time has passed. Therefore, a new enterprise may face the quality barriers of the laser display industry before its products become mature. (3) Talent barriers The display equipment industry is a knowledge and technology intensive industry, requires the technologies in optical, semiconductor, material, mechanical, electronic, software and other fields, and puts forward very high requirements for the overall R&D, technology application, manufacturing and other capabilities of an enterprise, so it needs a large number of professional and inter-disciplinary talents. Along with the continuous development of the technological level of the industry, the consumers will have increasingly higher requirements for the display quality of images. An enterprise must have a high-quality R&D team with strong innovative capability, high R&D level and rich product experience, so that it can continuously develop new technologies meeting the market demands and maintain its competitive edge on the market. Through ten years of development and fourth upgrading of ALPD technology architecture, we have built and nurtured a team of laser display professionals having a firm grounding in technology and rich R&D experience, which lays a solid foundation for the continuous upgrading of our products and technologies and our long-term innovation and development. 2. Analysis of the position of the Company in the industry and changes therein At the beginning of the industrialization of laser display technology, as one of the leading companies in the field of laser display, Appotronics has mastered core technologies. We have not only created the fundamental key architecture for laser phosphor display technology, but also built a proprietary IP protection system through patent applications in China, the United States, Japan, Europe and other countries. Our leading position mainly comes from technical performance and market applications. 2.1 ALPD architecture has become the mainstream technical route for laser light source ALPD technology architecture has been upgraded to the fourth generation. The performance of each generation of architecture platform has been improved in an all-round way as compared to the previous generation, thereby enabling us to maintain the technical and performance advantages in the industry. In terms of luminance, our products can realize 55,000 lumens of ultra high luminance output, taking the lead in the world. In terms of color gamut, ALPD technology can provide a wide color gamut, which covers 98.5% of REC.2020 color gamut, or 153% of NTSC color gamut, taking the lead in the world. In terms of speckle, ALPD technology mixes speckle-free fluorescence with laser, thereby remarkably reducing the effect of laser speckle and achieving the effect of no speckle in vision. This technology has been widely applied in the world. According to the Research Report on Chinese Laser Projector Market 2019 issued by AVC, blue laser + phosphor powder technology architecture, represented by ALPD, occupies 98.6% of the market share, and has become the mainstream technical route for the laser display industry. 2.2 Our core devices are widely applied and occupy a high market share in the field of film and TV Appotronics has, on the basis of its core technologies, made available its technical solutions for complete equipment application to the market, and entered into strategic cooperation with CFGC, Xiaomi, Haier, Barco and other well-known domestic and foreign companies, to provide light source, optical engine and other core devices and complete 24 / 312 Annual Report 2019 equipment application solutions, thereby rapidly promoting and expanding the application of ALPD technology in cinema, household and other market segments. On the cinema projector market, the first ALPD cinema laser light source installed by us in June 2014 has operated stably for nearly six years. As of the end of 2019, we have supplied more than 17,000 sets of ALPD laser projectors on the market, which have provided licensed services for more than 100 million hours in total, both of which take the lead on the market. On the laser TV market, in addition to own brand laser TV products, we have made available our optical engine products and complete equipment application technology to the market, and launched laser TV products jointly with Xiaomi, Haier and other companies, to expand the application of ALPD technology in the household field. In 2019, Appotronics maintained the lead in terms of market share of laser TV light generators. 3. Development of new technologies, new industries, new types of operation and new modes during the reporting period and future trend 3.1 Application of 5G technology will stimulate the market demands for laser display products (1) 5G video will stimulate the demands for larger sized display equipment. The capacity and speed of video transmission using 5G technology will increase greatly. Larger display capacity and higher resolution are more suitable for large screen. Laser display products have exceptional technical and cost advantages in large screen, and are suitable for the content presentation and experience of 5G videos. In light of portability, eye care and other traditional advantages of laser display products, the market demands for laser display products, in particular, household products, are expected to be further stimulated. Appotronics will grasp the development opportunities brought about by the commercialization of 5G technology, focus on forward-looking development of laser TV, smart mini projector and other household products, to provide the consumers with a wholly new experience in large-screen display and entertainment in the era of 5G. (2) The popularization of 5G mobile phones will stimulate the potential demands for peripheral laser display products. 5G mobile phones provide more functions, but have some shortcomings, such as limitation of screen size, damage to eyes by the light produced by the phones, poor experience and easy-to-fatigue if looking at the screen for a long time. If the laser display products are used in conjunction with mobile phones, the content exhibited on the small screen of the phone can be projected on an ultra high definition and large screen that is comfortable to watch, which is expected to bring about considerably potential market demands. Appotronics will insist on the development concept of high efficiency, small size and low cost, continuously follow up the demands for the development of peripheral products for mobile phones, and take active actions as we deem appropriate. 3.2 The epidemic situation brings about the market opportunity for the upgrading of the mode of “hardware + software + service” (1) The cinema industry is turning to the asset-light business strategy that focuses on operation. During the period that the epidemic situation persists, the domestic and foreign cinemas are unable to do business, which makes them realize the importance of cash flows. The “laser as service” provided by Appotronics can partially ease the cinemas’ capital pressure caused by purchasing of cinema equipment, so this mode is expected to receive recognition by more cinemas in the days to come. (2) To C market faces the opportunity to upgrade software and services. During the period that the epidemic situation persists, the number of users, traffic, duration of 25 / 312 Annual Report 2019 watch time, ARPU value and other indicators in respect of online videos have increased rapidly. The epidemic situation has promoted the habits of users to watch videos on line. Appotronics is committed to in-depth hardware and software integration for To C products, and improving software capability and service experience based on its “hard-core technology”. For example, our subsidiary Fengmi has cooperated with iQiyi and other video platforms, to provide users with content services. In the future, Appotronics will continue to give full play to its software and hardware advantages in laser TV, smart mini projector and large screen display, and provide richer and high quality experiences and services to users. (IV) Core technologies and progress in R&D of technologies 1. Core technologies and their advancement, and changes during the reporting period We have been committed in the breakthroughs, innovations, commercialization and industrialization of laser display technology, and created technology reserves and patent portfolios covering the whole technology chain of laser display from key system architecture, core devices to key algorithm. ALPD technology architecture has been upgraded to the fourth generation. The performance of each generation of architecture platform has been improved in an all-round way as compared to the previous generation, thereby enabling us to maintain the technical and performance advantages in the industry. As a Leader Level Member of the Laser Illuminated Projector Association (LIPA), we have participated in and led the preparation of the international laser display standard. During the reporting period, we have poured substantial R&D resources in the preparation and processing of thin film materials, micro- & nano- optical structure technology, light source architecture, dynamic control, complete equipment structure, machine perception and miniaturization of laser display system. The big data, algorithm and reference designs accumulated by us over the years will enable us to rapidly develop products and solutions meeting the requirements of different application scenarios, such as cinema projection, home entertainment, outdoor exhibition, ultra large-sized display, and immersive display. In addition, we are developing laser display technology with high dynamic contrast and high dynamic color gamut, battery-powered high-performance mini laser projector technology and other technologies. Such new technologies have been continuously validated and will be applied in our future products. During the reporting period, we released ALPD 4.0, which has been applied in many product series. At present, we are focusing on the development of ALPD 5.0. This upgrading will not only increase the dynamic contrast and peak luminance of laser display equipment, and reduce the luminance of dark field, but also maintain relatively high light effect and high cost-performance ratio. The products for mass production applying ALPD 5.0 are expected to be launched on the market in 2021. 2. R&D achievements during the reporting period In respect of technical innovation, we upgraded ALPD technology to Version 4.0 in 2019. This upgrading improved a lot of core indicators, such as light effect, reliability and color gamut, and promoted the development of laser display products toward high definition, miniaturization and higher efficiency. In respect of product innovation, in 2019, we applied ALPD 4.0 in certain new-generation laser display products, some of which have already been launched on the market in consideration of different product demands. Please see “Section IV Discussion 26 / 312 Annual Report 2019 and Analysis of Business Situations - I. Discussion and analysis of business situations - (I) Overall business situation during the reporting period”. In respect of IP protection, we have established a sound IP protection system. As of December 31, 2019, we obtained 908 patents throughout the world, including 682 domestic patents and 226 foreign patents, had 756 domestic and foreign patents pending and 337 PCT patents pending, obtained 49 software copyrights, and owned 551 domestic and foreign trademarks. In 2019, we obtained 163 new patents at home and abroad, including 113 patents for invention, and had 208 new domestic and foreign patents pending, including 150 patents for invention. In addition, we were awarded the “22nd China Patent Prize”, the “6th Gold Patent Prize of Guangdong” and the “Patent Prize 2019 of Shenzhen”, and included in the “Top Ten IP Events of Shenzhen in 2018”. 3. R&D expenses In RMB R&D expenses expensed in the current period 201,697,766.26 R&D expenses capitalized in the current period - Total R&D expenses 201,697,766.26 Proportion of R&D expenses to operating income (%) 10.19 Number of R&D staff 387 Proportion of R&D staff to total employees of the Company (%) 31.06 Proportion of R&D expenses capitalized (%) - Note: During the reporting period, our R&D expenses were RMB 202 million, accounting for 10.19% of operating income. We have maintained R&D expenses at a high level, because continuous technical innovations will enable us to maintain and increase our technical advantages, and rapidly transform such technical advantages into product advantages, thereby promoting our innovations and development. 27 / 312 Annual Report 2019 4. R&D projects √Applicable □ N/A In RMB Investment in Progress or Estimated total Aggregate Application No. Project the current interim Goals Technological level investment investment scenario period results 1 Core devices 60,500,000.00 41,717,366.61 53,544,405.70 Mass Great improvement of Take the lead in the Upgrading of production color gamut, contrast, light industry; the color light source for effect, luminance and other gamut, contrast, light cinema performance, to better effect, luminance and projectors, laser satisfy the demands for other performance are TV and other cinema, laser TV and other greatly improved, to fields. high-end displays better satisfy the demands of customers. 2 High 63,008,512.00 57,465,969.89 66,712,048.49 Mass 4K resolution laser TV 4K resolution laser TV 4K household definition production takes the lead in the laser TV laser TV industry. 3 Laser 48,985,000.00 24,101,039.59 34,972,284.37 Mass Laser cinema projector for The first proprietary DCI compliant cinema production community cinema chains DCI compliant projector small cinema projector and home theatres in China. projector 4 High-perfor 34,373,807.00 21,665,201.43 21,665,201.43 Mass High definition portable High definition portable Smart mini mance smart production smart mini projector smart mini projector projector mini takes the lead in the market projector industry. 5 Other 48,750,000.00 45,528,606.83 45,528,606.83 Mass Large venue projector, Large venue projector Large venue complete production business education and business education projector, equipment projector and other projector with business complete equipment with outstanding education high luminance, large performance in projector and screen and wide color luminance and color other fields. gamut performance take the lead in the industry. 6 Laser 34,000,000.00 5,342,814.91 6,224,971.65 Labor trial Development of laser The development of key Through display lab phosphor display optical laser display technology transformation engine, high-performance and devices based on of lab R&D 28 / 312 Annual Report 2019 fluorescent materials and laser phosphor results, develop fluorescent components, technology takes the multiple laser portable laser display lead in the industry. display terminal technology, and laser products, and display technology with promote the high contrast and high development of color reproduction the entire display industry chain. 7 Demonstrati 102,840,000.00 5,876,767.00 9,403,718.77 Prototype This project is a This project will greatly This project on sub-project of the State promote the industrial will build a production key R&D program titled upgrading of demonstration line for “strategic advanced trichromatic laser production line trichromatic electronic materials”, and display technology, and for trichromatic laser display will research the gain international laser display complete industrialization of the competitive edge for complete equipment technology of trichromatic proprietary trichromatic equipment, with laser with phosphor to laser display an annual satisfy the market demands technology. production for trichromatic laser capacity of display, build a mass 200,000 sets of production line for trichromatic trichromatic laser display laser display complete equipment, complete acquire proprietary IP, and equipment, and realize large-scale a yield ≥90%. application of trichromatic laser display products. Total / 392,457,319.00 201,697,766.26 238,051,237.24 / / / / Note: None 29 / 312 Annual Report 2019 5. R&D staff In RMB 0’000 Education Academic background Number Percentage (%) Doctor 28 7.24 Master 81 20.93 Undergraduate 206 53.23 College or below 72 18.60 Total 387 100.00 Age structure Age Number Percentage (%) 25 years of age or below 53 13.69 26-35 years of age 224 57.88 36-45 years of age 96 24.81 46 years of age or above 14 3.62 Total 387 100.00 Compensation Total compensation of R&D staff 11,805.40 Average compensation of R&D staff 30.50 6. Other issues □ Applicable √ N/A II. Material changes in the main assets during the reporting period √Applicable □ N/A During the reporting period, our total assets increased by 49.48%, primarily due to the increase in cash and bank balances received through the IPO. Please see “Section IV Discussion and Analysis of Business Situations - III. Main business activities during the reporting period - (III) Analysis of assets and liabilities”. Wherein, the overseas assets were RMB 326,727,855.34, representing 10.54% of the total assets. III. Analysis of core competitiveness during the reporting period (I) Analysis of core competitiveness √Applicable □ N/A 1. Advantage in proprietary technologies Since we invented ALPD technology, the fundamental key technology architecture has been gradually formed and improved. On the basis of this technology, we have established rich product lines, which have a remarkable substitution effect on the traditional products in cinema, TV, business education, large venue and other fields. ALPD technology has become the mainstream technical route for laser display. By relying on technical innovation rather than consumption of resources, we have realized rapid development, continuously improved the performance and cost-performance ratio of our products, and maintained the competitive advantages in the industry. 2. Sound IP protection system Through years of R&D efforts, we have upgraded ALPD1.0 to ALPD4.0 and accumulated a lot of proprietary technologies. As of December 31, 2019, we had obtained 908 patents throughout the world (including 487 patents for invention) and 337 PCT 30 / 312 Annual Report 2019 patents pending in respect of ALPD technology. Such patents jointly build our global patent system, which is a united whole, and is hard to be simulated or broken by the competitors. In addition to patented technologies, we also own multiple know-how accumulated through R&D efforts over the years. 3. Advantage in product performance Through more than ten years of R&D efforts, our technical advantages have been given full play in cinema, household, large venue and other fields. Our products show superior performance in luminance, service life, color gamut, removal of speckle and other aspects. Through sufficient validation at R&D and quality labs and on-site use for a long time, all types of our products have become mature. Since its installation in June 2014, the first set of ALPD cinema light source has been stably operating for nearly six years. Our products in other fields have also won trust on the market with their outstanding performance and reliable quality. 4. Advantage in multiple product series At present, our ALPD technology has certain demonstration effect in the field of laser display, and its application covers professional market and mass market, and high-end market and low-end market. Our multiple product series can satisfy the demands of various scenarios. In addition, we have adopted the differential development strategy and upgraded ALPD technology from multiple angles to satisfy the demands of different market segments and applications. 5. Advantage in talents and teams Our founder and Chairman, Dr. LI Yi, is a well-known expert in the field of laser display. Our President, Dr. BO Lianming is a well-known leader in the display industry. Before joining Appotronics, he held the posts of Chairman of Shenzhen Chinastar Optoelectronic Co., Limited and President of TCL Group and other important posts, and helped TCL become the third largest TV maker ranking only next to Samsung and LG in terms of shipment in the global color TV market. Under the leadership of our outstanding management team, we now have a sound corporate governance system and strong internal controls, and have greatly improved our management level and risk prevention capability. In addition, we have a group of high-quality R&D personnel, including a lot of doctors graduated from famous domestic and foreign universities. Our R&D team has taken the lead in the research of laser display technology in the industry. Through the combination of technology and management, we are able to precisely catch the development trend of the display industry, and continuously launch promising and new laser display products meeting the market demands. (II) Events occurred during the reporting period that have a material effect on the Company’s core competitiveness, analysis of the effect and countermeasures □ Applicable √ N/A 31 / 312 Annual Report 2019 Section IV Discussion and Analysis of Business Situations I. Discussion and analysis of business situations (I) Overall business situation during the reporting period The year of 2019 is a significant year for Appotronics. On July 22, we became one of the first group of companies listed on the STAR Market. During the reporting period, we continued to expand the household market and cinema market, and steadily develop the overseas market. The large-sized IP projects completed by us and our listing on the STAR Market further increased our brand popularity and influence. We were awarded the “Application Innovation Prize” by the China Video Industry Association for the project “Night of the Lantern Festival” at the Forbidden City, the “22nd China Patent Prize”, the “6th Gold Patent Prize of Guangdong” and the “Patent Prize 2019 of Shenzhen”, included in the “Top Ten IP Events of Shenzhen in 2018”, and selected by the National Business Daily as one of the “Most Highly Praised STAR Market Listed Companies on the List of Highly Praised Listed Companies in China in 2019”. During the reporting period, our operating income was RMB 1.979 billion, up 42.82% year on year; total profit was RMB 279 million, up 8.17% year on year; and the net cash flows from operating activities were RMB 243 million, up 106.33% year on year. (II) Completion of key tasks during the reporting period 1. Continue to increase investment in technology R&D and enhance innovations in product application Since our establishment, we have persevered in the research and development of proprietary technologies and product innovations, and maintained R&D investments at a high level. We have applied patents for our core technologies throughout the world, continuously improved our IP protection system, and reasonably protected our proprietary IP by legal means. In addition, we have developed high-performance products and a variety of solutions, to satisfy the diversified demands of the market. (1) Field of cinema projector The C5 laser digital cinema projector launched by us filled a gap in the field of projector manufacturing in China, made China become the fourth country in the world that could produce projectors, broke the long-term monopoly by foreign manufacturers, and promoted the development of China’s film and cultural industry. The overall design of C5 projector has taken into account the demands of the emerging cinema projector market, and popularization, communitization, video on demand (VOD), home theater and other development trends in cinema projection in China. C5 is the first laser cinema projector in the industry featuring non-manual operation, muteness, no machine room and low operating cost. In addition, the technical innovations of C5 greatly reduce the projection cost, which makes C5 become the cheapest laser cinema projector, and the entry of laser cinema projector into homes possible. (2) Field of household TV Our controlled subsidiary Fengmi, as our major subsidiary in the household business, launched “4K laser projector TV cinema” during the reporting period, which has a 4K ultra high definition, accommodates up to 150 inch screen, and adopts the diffuse reflection imaging principle. According to the tests by professional institutions, this laser TV can better protect eyes. This product has won a Good Design Award in Japan. In addition, “Wemax One laser projector” jointly launched by Fengmi and iQiyi was the first equipment in the industry that has passed the tests for billing system (software) and projection 32 / 312 Annual Report 2019 equipment (hardware), and provided a cost-effective solution for the standardized and high-quality development of VOD cinemas throughout the country. In the field of software, Fengmi launched Feng OS project, which aims to develop an open operating system customized for smart laser TV with ultra large screen, and integrate each smart laser TV terminal into the content eco-system. Through Feng OS integrated application store, the end users will have access to smart content services and functions, such as VOD, community interaction, game, entertainment, interactive education, real-time information and tremendous applications. In addition, Feng OS will provide users with innovative and concise large-screen, human-machine interaction experience, and a variety of convenient online services, so as to lay a solid foundation for Fengmi to realize the business model of “terminal sales + platform operation”. (3) Field of smart mini projector To enrich its product lines and fill in gaps on the market, Fengmi has launched two projector products named SmartM055FCN and SmartLiteM055DCN, which focus on the “mobile market” and are embedded with large-capacity batteries. In addition, during the reporting period, Fengmi launched 1,500 lumens “Vogue smart projector M135FCN” and 2,400 lumens “Mijia laser mini projector”, which are designed for high-end users, and embedded with Classmate AI App, support far-field voice recognition and Bluetooth link, accommodate up to 150 inch screen, and feature high luminance, high definition and intelligent control. (4) Field of large venue projector During the reporting period, in the field of outdoor lighting and display, Appotronics provided a laser display solution with higher luminance (up to 51,000 lumens). The size of single-equipment projection screen is up 300 square meters. It can guarantee the quality of large venue projection to the maximum extent with the minimum equipment. The laser video wall solutions provided by Appotronics for disease control and prevention centers, rail transit, commanding and dispatch, security and surveillance, power system and other sectors and fields feature high luminance, high definition and high reliability, among others, are able to process multiple routes of signals with complicated background, and realize centralized management, efficient processing and accurate display of massive information, zoom-in and zoom-out of signals on any position in the form of window, display on single or full screen, and visualization and rapid sharing of information, and further improve the capability to make forecasts, give early warnings and prevent security risks. At present, more than 6,000 sets of Appotronics ALPD laser video wall have been installed. (5) Field of education projector Along with the popularization of education IT equipment, the schools have provided more and more education equipment with display functions, which greatly increases the students’ exposure to blue light and the chances of their eyes being damaged by blue light. In August 2019, all six series of education projector products of Appotronics passed the tests by the National Testing & Inspection Center for Radio & TV Products. The first group of 11 products have passed the certification in respect of the Technical Standard for the Certification of Display Performance and Vision Health of Display Equipment Part IV: Laser Projector, which proves that our products provide the teachers and students with high standard laser display solutions with outstanding display effect, rich image color, high contrast and eye care. 2. Establish and improve our management system and management cycle, and improve our process IT system 33 / 312 Annual Report 2019 We have preliminarily established and improved the management cycle led by mechanism, guaranteed by system, guided by culture and supported by capacity, set up a number of professional committees responsible for major strategies and business decision making, improved our strategic planning capability, and emphasized on the building of core capabilities, and implementation, management and control of our strategies. We have continuously optimized our process system through creating the process map. In addition, through informatization, we have developed and maintained a variety of management systems, including database management, business process management, Slack R&D platform, OA office and other IT systems, to improve our operation efficiency, realize all-round information management, provide information support for the implementation of our future development strategies, and promote the transition of our management style from a start-up to a comprehensive group. 3. Enhance the building of marketing system and increase our brand influence In terms of marketing, we have focused on both domestic and overseas markets, and gradually formed a multi-level and all-round marketing mode combining online sales with off-line sales, agent mode with direct sale mode, and sales on the domestic market with exploitation of overseas market. We have focused on the development of channels and market cooperation through exhibitions, product presentations, nation-wide partner programs, channel training and other activities and measures. The three major projects undertaken by us, “2019 Spring Festival Gala”, the “Light up the Forbidden City” at the night of the Lantern Festival 2019, and “Shougang Ski Resort”, have become nationwide hot events, and increased our brand influence. In terms of online sales, we have enhanced the building of our online flagship stores on Tmall, JD and other major e-retail platforms, actively cooperated with our strategic customers in online sales, and formulated well-targeted sales strategies. In terms of off-line sales, we have gradually created the mode of proactive sales for household laser display products, and made breakthroughs in retail customers on smart audio & video, household appliances, IT and other core channels. As of the end of the reporting period, we had 974 terminal exhibition stores, a 200% increase year on year. 4. Promote the mode of operation by integrated business units, and enhance team building and talent incentives During the reporting period, we have initially completed the adjustment of business structure. In order to ensure the achievement of our strategic objectives, fully motivate all business units and improve the efficiency of internal resource integration, we have adopted the business unit system in an all-round way, broken down the overall sales targets, and assessed the performance of all business units according to their contributions to operating income and profits. Our team building focuses on “talent recruitment, talent nurturing, talent incentives and cultural building”. In terms of talent nurturing, we have conducted “star light - sharp light - polar light” three-level talent training program, product operation training camp, Appotronics auditorium and other training programs, to improve the abilities of our employees. In terms of talent incentives, we have enhanced our efforts to acquire and attract talents, continuously recruited high-end talents from the market, established the profit sharing mechanism and launched the medium-to-long term share incentive plans, to implement the share ownership plan for key employees. After completion of the IPO, we have explored the establishment of a long-term incentive mechanism relying on the capital market. We have granted 4.4 million incentive shares to 169 key employees, and adopted a 34 / 312 Annual Report 2019 triple assessment system, to ensure the achievement of our strategic objectives in an all-round way. 5. Upgrade our corporate culture system and define our enterprise spirit to promote the development of the Company In 2019, we created the model of our corporate culture, and defined our culture and core values. Specifically, we have defined our mission as “new light, new life”, development objective as “to become the pioneer in the display industry through disruptive technical innovations and differential mode covering the entire value chain”, and core values as “respect customers, guided by performance, live up to one’s words, criticism and self-criticism”. We will enhance education on our employees about our corporate culture, continuously publicize our corporate culture, promote the implementation of our corporate culture, practice our core values, improve cultural awareness, and build us into an “incentive and high-performance” organization. 6. Exploit the overseas market and enhance our influence on the professional market We have been committed to expanding cooperation on the overseas market and providing solutions to high-end cinemas throughout the world. In January 2019, we established Cinionic jointly with Barco, China Film and CITIC Private Equity Funds, to promote the laser cinema projection technology and other advanced projection technologies on the overseas market, and the increase of the sales proceeds of our laser light source on the overseas market. In December 2019, we announced our plan to acquire 36% shares of GDC Technology Limited (“GDC”), a global leading digital cinema server provider. We and GDC will explore cooperation in R&D, sales of products, provision of solutions and other areas in the field of digital cinema projection, and relying on our R&D and manufacturing advantages in the light source of laser cinema projectors and complete laser cinema projection equipment, and the global sales market of GDC, promote the sales of our proprietary laser cinema projectors on the overseas market. 7. Use the funds raised through the IPO on the STAR Market in accordance with the applicable regulations In July 2019, we successfully entered the capital market and became one of the first group of companies listed on the STAR Market. We issued 68 million RMB-denominated ordinary shares (A-shares) to the public, and raised RMB 1,190,000,000 in total. During the reporting period, we have deposited and used the raised funds in strict accordance with the applicable laws and regulations. Subject to the normal implementation of the plan for the use of the raised funds, we used certain raised funds that were idle for the time being to purchase low-risk and liquid bank principal-protected wealth management products, to increase the use efficiency of idle funds raised, which brought up an investment income of RMB 9,553,000 in total in 2019. 8. Optimize internal controls and supervision, and improve the effect of internal controls We have strictly complied with the provisions of the Basic Standard for Internal Controls of Enterprises and its supplementary guidelines, and other regulatory requirements for internal controls, and established systemic internal controls and effective internal supervision mechanism, to provide reasonable guarantee for the achievement of our development strategies by ensuring legal and regulatory compliance of business activities, achievement of business goals, reliability of information, operating efficiency, and security of capital and assets, among others. 35 / 312 Annual Report 2019 Under the leadership of the Audit Committee and by reference to the good practices in the industry, the Audit Department has completed the reform of internal audit process, and effectively improved the quality and efficiency of audits; through regular audits on business process, the Audit Department has objectively assessed and identified the internal control risks of the Company, and led the fixation of responsibilities and close-loop improvement in respect of the problems with internal control, to give support to the building of business and honest environment in the Company, provide guidance to business management in respect of risk control, improve their capability to proactively identify and manage business risks, and reduce the operating risks of the Company. II. Risk factors (I) Risk of not making a profit □ Applicable √ N/A (II) Risk of significant decrease in operating performance or loss □ Applicable √ N/A (III) Risk related to core competitiveness √Applicable □ N/A Risk of the technology R&D falling short of expectations The core of our development is technical innovation. If we fail to effectively judge the direction of technical innovations, or to make continuous technical innovations, or to make effective R&D investments due to limited funds, or to successfully commercialize the technologies developed by us, our core competitiveness in technical innovation may be impaired, and we may encounter technological risks in future development. (IV) Operating risk √Applicable □ N/A 1. Risk of unsustainability of rapid growth driven by the mode of cooperation We adopt the business strategy of joint venture and cooperation, which combines the advantages and resources of all partners. If our technical and product innovations slow down and cannot satisfy the market demands, or our innovation capability decreases continuously as a result of which our products are surpassed by our competitors, such cooperation may bring lower benefits, or become unable to drive our rapid growth or unable to continue. 2. Risks related to tax benefits and government grants During the reporting period, we have received certain VAT reduction and government grants pursuant to the applicable policies of the country. Along with the growth of our operating performance, though the effect of tax benefits and government grants on our current net profit decreases year by year, and our operating results do not rely on tax benefits and government grants, such tax benefits and government grants still have certain effect on our operating results. The decrease in our revenue from tax benefits and government grants may affect our profit. 3. Risk related to the management of light source In our light source lease service, we enter into an agreement with a customer, pursuant to which, we charge a lease service fee on the customer based on the duration of use of the light source, while the customer uses the light source and pays fees therefor, and is responsible for the day-to-day safekeeping and maintenance of the light source and damages thereto, but we do not collect any deposit or other similar fees for the light source. The cinemas will use their best endeavors to maintain the light source in good condition in order to ensure normal projection of films and continuity of their business operation. 36 / 312 Annual Report 2019 However, we still face the risk of impairment of assets due to damage or loss of light source caused by improper safekeeping on the part of the cinemas. In particular, due to the effect of the outbreak of Covid-19, most cinemas have closed down. If such situation persists, some cinemas may go bankrupt, as a result of which our assets may fall into an unsafe situation. 4. Risk of impairment of inventories Our inventories mainly comprise raw materials and goods in stock. As of the end of the reporting period, the carrying amount of our inventories was RMB 299,966,200. If any significant change in the competition pattern of the industry, material innovation in laser display technology and products or the persistence of Covid-19 results in a large quantity of unsalable products, the recoverable amount of the inventories will be lower than their carrying amount. The impairment of inventories will have a negative effect on our earnings. 5. Risk of impairment of accounts receivable Our products are generally delivered after receiving the payment therefor. We give certain credit period to some major customers. As of the end of the reporting period, the carrying amount of our accounts receivable was RMB 176,035,200. In case of any material adverse change in the business condition of our customers, we may be unable to recover certain accounts receivable, which may have an adverse effect on our operating performance in the future. 6. Risk of internal control The increase of sales revenue and rapid growth of assets and number of employees put forward challenges for our management level, structure of corporate governance and effective implementation of internal controls. In the future, if our management fails to effectively overcome the difficulties in management caused by rapid growth of sales revenue and continuous expansion of the scale of operation, or to effectively implement internal controls, we may face risks of internal control during rapid business development, such as out-of-control in management, loss of assets, brain drain, and decrease in operating performance. 7. Risk of IP litigation IP protection and management includes protection of our proprietary and core technologies, and prevention of infringement on third-party IP. On the one hand, the process of patent application often lasts a long time and requires continuous and huge investment. If any proprietary IP in the process of patent application is infringed by any third party, it may have an adverse effect on our production and operation. On the other hand, due to the increasingly fierce competition in the industry, many manufacturers wish to gain competitive advantages through developing core laser phosphor display technology. If we fail to effectively prevent infringement on our proprietary IP, or inadvertently infringe on any IP of others during the development of products, we may face IP litigations or disputes, which may have an adverse effect on our business development and financial condition. 8. Risk of business development on the overseas market As the outbreak of Covid-19 has not been effectively put under control in the world, the stagnation of economic activities abroad will have certain effect on our export, the business development of Cinionic and GDC on the overseas market, and the efficient operation and marketing of our subsidiaries in Hong Kong and the United States, as a result of which our business development abroad may fall short of expectations. 9. Risk related to the supply of important raw materials 37 / 312 Annual Report 2019 The key components of our products include laser devices, chips and lenses, which are mainly purchased from some key suppliers of the United States and Japan. If such suppliers significantly change the prices for such components, or are unable to supply such components in a timely manner with both quality and quantity guaranteed, or fall into difficulties in operation, or are unable to supply such components in a normal manner due to trade dispute between the relevant countries or any other reason, it may have an adverse effect on our production and operation. (V) Industrial risk √Applicable □ N/A Risk of increasingly fierce market competition Laser display is a new and thriving field in the display device industry. A lot of international and domestic companies have entered the field, further heating up the market competition. If we cannot maintain our competitive advantages in technology, product, cost, service and other areas, or the competitors combine their advantages and resources through acquisition and merger, or the top technology companies in the world increase their investment in the field of laser display, we may face the risks of decrease in the amount or growth rate of operating income, gross margin, profitability and market share. (VI) Risk of macro-environment √Applicable □ N/A Covid-19 is still spreading in the world, and the epidemic situation does not look good. The economic stagnation caused by the epidemic situation, in particular the shut-down of cinemas, will have a direct effect on our revenue from cinema light source lease service. Other businesses may also be affected by the shrinkage in consumer demands caused by global economic recession. Therefore, our operating performance may decrease sharply. (VII) Risk related to depository receipts □ Applicable √ N/A (VIII) Other significant risks √Applicable □ N/A 1. Risk of outflow of key technical personnel The laser display industry is a technology intensive industry. Along with the rapid development of the laser display industry, the competition for high-end technical personnel has been increasingly fierce. If we cannot maintain the stability of the existing R&D staff, continuously train technical personnel, and attract outstanding talents in the world, we may be unable to maintain our technical advantages in the industry, and the stability and sustainability of our business operation. The outflow of key technical personnel may cause disclosure of know-how, slow-down of R&D process, weakening of competitive advantage and other risks, which may have an adverse effect on our ability to operate continuously. 2. Risk of loss on external investments We attempt to expand our scale of operation through merger, acquisition or otherwise according to the development situation of the industry, to continuously improve our overall competitiveness. If the environments or policies in respect of the industry in which the investee operates undergo any material change, or the technological level of the investee falls short of our expectation, or the operating performance of the investee decreases sharply due to poor management, the returns on investment in the investee may fall short of expectation and we may need to recognize an impairment loss on the long-term equity investment. If we fail to achieve a synergy effect through acquisition of the investee, our strategic plan may be unable to be implemented as scheduled. 38 / 312 Annual Report 2019 III. Main business activities during the reporting period During the reporting period, our revenue from main business was RMB 1,979,148,900, a 42.82% increase compared to 2018, and the net profit attributable to the shareholders of the listed company was RMB 186,457,300, a 5.36% increase compared to 2018. (I) Analysis of main business 1. Analysis of changes in statement of income and statement of cash flows lines In RMB Item 2019 2018 % Change Operating income 1,979,148,918.89 1,385,727,211.09 42.82 Operating costs 1,183,650,635.25 783,243,430.56 51.12 Sales expenses 151,760,111.00 102,349,110.00 48.28 Administration expenses 152,626,530.61 95,580,970.10 59.68 R&D expenses 201,697,766.26 135,730,450.92 48.60 Financial expenses 29,491,223.42 -2,652,161.71 N/A Net cash flows from operating activities 243,000,903.71 117,773,454.30 106.33 Net cash flows from investment activities -772,857,910.07 -272,432,179.99 N/A Net cash flows from financing activities 884,616,830.77 522,562,789.37 69.28 2. Analysis of revenue and costs √Applicable □ N/A During the reporting period, our operating income was RMB 1,979,148,900, a 42.82% increase year on year as compared to RMB 593,421,700 in 2018, primarily due to the increase in the revenue from the sale of household To C products and cinema leases; operating cost was RMB 1,183,650,600, an increase of RMB 400,407,200 or 51.12% year on year. Our overall gross margin was 40.19% in 2019, a decrease of 3.28 percentage points compared to 2018. (1) Main business by sector, product and region In RMB 0’000 Main business by sector Gross % Change in % Change in Operating Operating % Change in Sector margin operating operating income cost gross margin (%) income cost Laser 197,914.89 118,365.06 40.19 42.82 51.12 Decrease by 3.28 display percentage points Main business by product Gross % Change in % Change in Operating Operating % Change in Product margin operating operating income cost gross margin (%) income cost 155,344.15 102,544.69 33.99 46.73 54.49 Decrease by 3.32 1. Sales percentage points 2. Lease 39,799.12 13,526.03 66.01 30.78 35.8 Decrease by 1.26 service percentage points 3. Other 2,771.62 2,294.34 17.22 21.93 15.32 Decrease by 4.74 business percentage points Main business by region Gross % Change in % Change in Operating Operating % Change in Region margin operating operating income cost gross margin (%) income cost Domestic 178,039.72 111,260.78 37.51 42.81 51.56 Decrease by 3.61 percentage points Overseas 19,875.17 7,104.28 64.26 42.91 44.61 Decrease by 0.42 percentage points 39 / 312 Annual Report 2019 Explanation about main business by sector, product and region Our laser display products have been successfully applied in cinema projection, home entertainment, education interaction, commercial applications, outdoor exhibition and other fields. Due to the strong consumer demands on the domestic market and driven by the sales of household To C products and cinema leases, our operating income in 2019 increased by 42.82% year on year. Our overall gross margin was 40.19% in 2019, a decrease of 3.28 percentage points as compared to 2018, primarily because that we have vigorously promoted the sales of To C laser TV and smart mini projector products on the household consumer market to address the strong demands on the household consumer market that has a large customer base, and our overall gross margin decreased to certain extent due to the increase in the proportion of revenue from To C products to the total operating income. Our products are mainly sold on the domestic market, which accounts for 89.96% of our total operating income. Revenue from the overseas market accounts for 10.04% of our total operating income. (2) Analysis of output and sales volume √Applicable □ N/A Sales % Change in % Change in % Change in Main products Unit Output Stock volume output sales volume stock Core devices and Set 251,407 236,290 32,123 93.51 115.57 59.30 complete equipment Explanation about output and sales volume We supplied part of laser light source produced under operating leases, which was not included in the sales volume and stock, and used part of laser TV light generators produced to manufacture laser TV products, which were not included in the production, sales volume and stock. (3) Analysis of costs In RMB 0’000 Costs by sector Components of % of total % of % Sector 2019 2018 Remark cost cost total cost change Laser 118,365.06 100.00 78,324.34 100.00 51.12 display Costs by product Components of % of total % of % Product 2019 2018 Remark cost cost total cost change 1. Sales Direct materials 89,655.34 87.43 59,106.35 89.05 51.68 Direct labor 2,673.66 2.61 2,044.33 3.08 30.78 Manufacturing 10,215.69 9.96 5,223.66 7.87 95.57 expenses Subtotal 102,544.69 100.00 66,374.34 100.00 54.49 2. Lease Depreciation of 6,759.98 49.98 4,338.06 43.55 55.83 service light source Software 2,399.51 17.74 2,350.73 23.60 2.08 license fee Technical 3,917.01 28.96 2,853.46 28.65 37.27 service fee Labor cost 449.53 3.32 410.16 4.12 9.60 Others - - 8.01 0.08 -100.00 Subtotal 13,526.03 100.00 9,960.42 100.00 35.80 40 / 312 Annual Report 2019 3. Other 2,294.34 100.00 1,989.58 100.00 15.32 businesses Total 118,365.06 100.00 78,324.34 100.00 51.12 Explanation about cost analysis We are primarily engaged in the sale of products. Sales costs mainly comprise direct materials, direct labor and manufacturing expenses, of which, the costs of direct materials account for 87.43%. Our cost composition has basically remained stable as compared to 2018. (4) Main customers and main suppliers A. Main customers The sales to top 5 customers were RMB 966,911,600 in 2019, representing 48.85% of the total annual sales, of which, the sales to related parties were RMB 798,507,600, representing 40.35% of the total annual sales. Top 5 customers √Applicable □ N/A In RMB 0’000 No. Customer Sales % of total annual sales 1 Customer 1 45,648.60 23.06 2 Customer 2 23,038.31 11.64 3 Customer 3 14,177.80 7.16 4 Customer 4 7,484.85 3.78 5 Customer 5 6,341.60 3.20 Total / 96,691.16 48.85 Other information: None. B. Main suppliers The purchases from top 5 suppliers were RMB 491,154,600 in 2019, representing 34.31% of the total annual purchase cost, of which, the purchases from related parties were RMB 213,613,000, representing 14.92% of the total annual purchase cost. Top 5 suppliers √Applicable □ N/A In RMB 0’000 No. Supplier Purchase cost % of total annual purchase cost 1 Supplier 1 13,594.80 9.50 2 Supplier 2 12,755.85 8.91 3 Supplier 3 9,474.80 6.62 4 Supplier 4 7,766.50 5.42 5 Supplier 5 5,523.51 3.86 Total / 49,115.46 34.31 Other information: None. 3. Expenses √Applicable □ N/A In RMB Item 2019 2018 % Change 41 / 312 Annual Report 2019 Sales expenses 151,760,111.00 102,349,110.00 48.28 Administration expenses 152,626,530.61 95,580,970.10 59.68 R&D expenses 201,697,766.26 135,730,450.92 48.60 Financial expenses 29,491,223.42 -2,652,161.71 N/A Analysis of change in sales expenses: The increase in sales expenses in 2019 by RMB 49,411,000 or 48.28% as compared to 2018 was primarily due to the increase in sales efforts, employee benefits, marketing costs resulting from enhancing promotion of new products and brand advertising, and provision for after-sale expenses along with increase in sales. Analysis of change in administration expenses: The increase in administration expenses in 2019 by RMB 57,045,600 or 59.68% as compared to 2018 was primarily due to the increase in investment in human resources and employee benefits to address the need of rapid business development, increase in lease expenses for the premises and office space newly leased, and increase in the amortization of land use right in respect of the R&D center located at Nanshan District, Shenzhen. Analysis of change in R&D expenses: The increase in R&D expenses in 2019 by RMB 65,967,300 or 48.60% as compared to 2018 was primarily due to the increase in R&D investment in new products and technologies, and the increase in employee benefits and material costs. Analysis of change in financial expenses: The increase in financial expenses in 2019 by RMB 32,143,400 as compared to 2018 was primarily due to the sharp decrease in exchange gain and increase in interest expenses caused by decrease in interest subsidies offered by the government. 4. Cash flows √Applicable □ N/A In RMB Item 2019 2018 % Change Net cash flows from operating activities 243,000,903.71 117,773,454.30 106.33 Net cash flows from investment activities -772,857,910.07 -272,432,179.99 N/A Net cash flows from financing activities 884,616,830.77 522,562,789.37 69.28 Analysis of change in net cash flows from operating activities: Net cash flows from operating activities in 2019 were RMB 243,000,900, an increase of RMB 125,227,400 as compared to 2018, primarily due to the increase in the sales revenue received. Analysis of change in net cash flows from investment activities: Net cash flows from investment activities in 2019 were RMB -772,857,900, an increase of RMB 500,425,700 as compared to 2018, primarily due to the increase in the structured deposits purchased in 2019. Analysis of change in net cash flows from financing activities: Net cash flows from financing activities in 2019 were RMB 884,616,800, an increase of RMB 362,054,000 as compared to 2018, primarily due to the proceeds from the IPO on the STAR Market. (II) Explanation about material change in profit due to non-main business □ Applicable √ N/A 42 / 312 Annual Report 2019 (III) Analysis of assets and liabilities √Applicable □ N/A 1. Status of assets and liabilities In RMB Balance as at % of total Balance as at % of total Item % Change Remark December 31, 2019 assets December 31, 2018 assets Cash and bank 875,858,784.58 28.26 484,169,208.44 23.35 80.90 Primarily due to the proceeds from the IPO balances and net cash flows from operating activities in the reporting period Held-for-trading 540,000,000.00 17.42 Primarily due to the purchase of wealth financial assets management products using the idle funds raised in the reporting period Notes receivable 4,042,559.63 0.13 35,903,632.13 1.73 -88.74 Primarily due to the decrease in the notes received in the reporting period and acceptance of matured notes Receivables financing 1,980,500.00 0.06 Primarily due to the adoption of the new accounting standard for financial instruments in the accounting of receivables financing according to our business mode for the management of notes receivable Accounts receivable 176,035,155.24 5.68 119,715,786.19 5.77 47.04 Primarily due to the increase in the accounts receivable from customers along with the increase in sales Prepayments 35,070,999.13 1.13 22,909,249.21 1.10 53.09 Primarily due to the increase in prepayments to suppliers along with the increase in purchases Long-term equity 139,534,371.94 4.50 Primarily due to the investment of USD 20 investments million in Cinionic and returns on investment Construction in 20,132,004.07 0.65 30,953,213.42 1.49 -34.96 Primarily due to the decrease in the light progress source installed in the reporting period Long-term prepaid 16,908,070.34 0.55 6,400,455.04 0.31 164.17 Primarily due to the increase in the fit-out expenses expenses of the production site and office space Other non-current 11,420,185.94 0.37 137,518,255.16 6.63 -91.70 Primarily due to the transfer of the investment 43 / 312 Annual Report 2019 assets in Cinionic to long-term equity investments in the reporting period Short-term 76,765,319.05 2.48 124,440,000.00 6.00 -38.31 Primarily due to the repayment of short-term borrowings borrowings in the reporting period Employee benefits 50,586,932.71 1.63 38,184,612.34 1.84 32.48 Primarily due to the increase in employee payable benefits in the reporting period Other payables 14,364,076.43 0.46 185,661,537.24 8.95 -92.26 Primarily due to the payment of the remaining land use fee in the reporting period Non-current liabilities 64,968,795.02 2.10 28,609,163.00 1.38 127.09 Primarily due to the increase in the long-term due within one year borrowings due within one year Long-term borrowings 279,615,107.27 9.02 403,107,800.00 19.44 -30.64 Primarily due to the transfer of long-term borrowings to non-current liabilities due within one year Long-term accounts 3,488,100.00 0.11 6,863,200.00 0.33 -49.18 Primarily due to the payment for intangible payable assets in the reporting period Provisions 27,072,676.49 0.87 9,449,087.12 0.46 186.51 Primarily due to the increase in provision for after-sale expenses along with the increase in sales Other information: None. 44 / 312 Annual Report 2019 2. Encumbrances on assets as of the end of the reporting period √Applicable □ N/A In RMB Item Amount Reason Other cash and bank balances - security 15,831,289.87 Security deposit for notes and letters of deposit credit Bank deposits - frozen funds 30,000,000.00 Funds frozen in connection with litigations Bank deposits - deposit interest that has 238,006.85 Deposit interest that has not become due not become due but has been recognized but has been recognized Note: As of the date of this report, among the frozen funds stated above, RMB 10 million has been released. 3. Other information □ Applicable √ N/A (IV) Analysis of operation information of the industry □ Applicable √ N/A (V) Analysis of investments 1. Overall analysis of external equity investments √Applicable □ N/A As of the end of the reporting period, the balance of long-term equity investments was RMB 139,534,371.94. In addition, we plan to invest an additional USD 18.2 million in Appotronics HK, for it to acquire 36% shares of GDC Technology Limited (a company incorporated in British Virgin Islands) (“GDC”). As of the end of 2019, this investment had not yet been made. (1) Material equity investments √Applicable □ N/A In January 2019, we invested USD 20 million in Cinionic to acquire 20.00% of its shares, for the purpose of promoting the laser cinema projection technology and other advanced projection technologies on the overseas market, and the increase of the sales of our laser light source on the overseas market. On December 6, 2019, the 20th meeting of the 1st Board of Directors of the Company adopted the Proposal for Capital Injection in the Wholly Owned Subsidiary and Investment in GDC, approving the investment of an additional USD 18.2 million in Appotronics HK, for it to acquire 36% shares of GDC. The relevant information was disclosed in the Announcement No.2019-029 issued by us on www.sse.com.cn and the designated media for information disclosure on December 7, 2019. In March 2020, we completed the approval and filing procedures with the development and reform, commerce and other competent government authorities in respect of this transaction. Upon satisfaction of the conditions precedent to the closing of this transaction, we paid an amount equivalent to USD 18.11 million as the consideration for such shares on April 9, 2020. As of the date of this report, we legally held 93,071,822 shares in GDC, representing 36% of the total shares of GDC. (2) Material non-equity investments □ Applicable √ N/A (3) Financial assets at fair value √Applicable □ N/A 45 / 312 Annual Report 2019 As of December 31, 2019, the balance of held-for-trading financial assets was RMB 540,000,000.00, which was structured deposits; the balance of investment in other equity instruments was RMB 11,975,419.38, which was investment in equity instruments not held for trading. The change in fair value of such financial assets was RMB 0 in the reporting period. (VI) Sale of material assets and equities □ Applicable √ N/A (VII) Analysis of major investees √Applicable □ N/A In RMB 0’000 Company Main business Registered Shareholding Total assets Net assets Operating Net profit capital percentage income CINEAPPO Provision of cinema 10,000.00 55.20% 104,563.87 37,341.21 59,302.09 14,480.26 laser light source lease service and sales of projectors Fengmi R&D and sale of 5,000.00 55% 26,194.25 -2,867.57 70,057.77 -4,748.11 household display products Appotronics R&D and sale of laser 3,536.40 100% 32,868.29 22,873.35 18,941.60 3,266.52 HK light source (VIII) Structured entities controlled by the Company □ Applicable √ N/A IV. Discussion and analysis of future development of the Company (I) Structure and trend of the industry √Applicable □ N/A (1) Main market spaces 1. Sector of laser TV In the household field, the application scenarios for home drawing room are of great value, and have remarkable advantages in large-screen content and human-machine interaction. At present, there are more and more ultra high definition TV programs; some films have their premiere on line; some online TV plays and entertainment programs are exclusively broadcast on streaming media, and there’s rich content available. HiSense and other TV makers have continuously launched new laser TV products. All of these indicate that the sector of laser TV will face a new and key development period in the future. According to AVC, 194,500 sets of laser TV were sold in 2019, a 29% increase year on year, and the total sales reached RMB 3.775 billion, a 34.5% increase year on year. The top 5 brands are the brands of household appliances and Internet TV, holding 81.5% market share in total. Appotronics holds 31.9% market share, the highest in the industry, including 17% market share held by Mijia (whose products are manufactured by Appotronics) and 14.9% market share held by Fengmi. According to AVC, the sales volume of laser TV will exceed 1 million sets on the Chinese market, so the outlook for the market is promising. 2. Sector of smart mini projector With the help of smart projection technology, users can access the information they need at any time. Smart projector is becoming a new information access terminal. Through this “entertainment center”, users can search all kinds of network resources, hold remote meetings, watch online videos and carry out other operations. According to AVC, 3.592 million sets of smart projectors were sold in 2019 in China, a 37.5% increase year on year, and the total sales reached RMB 8.26 billion, a 38.8% 46 / 312 Annual Report 2019 increase year on year. At present, young consumers are the main users of smart projectors. The market is still at the blue sea growth period and has great potentials. (2) Development trend of the industry 1. As an emerging technology, laser display technology is upgrading and substituting the traditional projection industry on cinema, large venue, education, business and other markets. Laser light source has become increasingly popular. All projector manufacturers have entered the era of laser. 2. The smart products have become more and more practical, and now can provide rapid data transmission, unlimited connection with the Internet of Things, audio functions, lossless audio transmission with high sound quality, and smart hi-fi system that provide perfect audio & video experience. In addition, such products are embedded with app stores, which offer a variety of entertainment applications for downloading. The smart products also provide video conference system and apps, online education and other functions, so they have gradually become popular consumer electronic products. 3. The industrial solutions have been well accepted. As experience economy has become popular in the world, the mode of audio & video technology plus cultural IP is more preferred for the strategy of cultural and tourism integration. The immersive experience enables off-line space, and the concept of smart cultural and tourism integration draws wide attention. The outlook for the high-quality image solutions is promising. 4. The software and hardware integration and cross boundary have become the trend. Simple product functions cannot satisfy the demands of consumers, and must provide content support. A channel from the content side to the technology side will provide core competitiveness for a company. (II) Development strategy of the Company √Applicable □ N/A In the future, Appotronics will be committed to its mission of “New light, New life”, focus on the demands of customers, create value for users with high-quality products and services, and strive to become the pioneer in the display industry through disruptive technical innovations and differential mode covering the entire value chain. We will focus on the technology development and services that can provide long-term use value for users, based on core devices, create the mode of open platform operation, develop toward the mode of “software + hardware + service”, and through in-depth software and hardware integration, provide end users with better experience and services, and expand the overseas market relying on our global IP protection system. (III) Business plan √Applicable □ N/A Business plan for 2020 The outbreak of Covid-19 since the beginning of 2020 has caused global economic recession, affected our businesses to different degrees, and hindered the momentum of our rapid development. Facing the present crisis and challenges, we adopt the bottom-line thinking method and prepare for worst-case scenarios. Meanwhile, we wish to grasp the opportunities of the recovery of the domestic and overseas market, consolidate resources and business, and minimize the effect of the epidemic situation. In 2020, Appotronics will improve its capabilities in the following ways: 1. Improve R&D capabilities, integrate and optimize the R&D system, consolidate resources, optimize development mode and R&D efficiency, orient on the market, explore emerging market opportunities and spaces, rapidly enrich and extend the product lines, 47 / 312 Annual Report 2019 ensure timely delivery of major and new products, improve the technological competitiveness of products and achieve the goal to reduce the design cost of products. 2. Improve the platform support capabilities, strictly control all kinds of expenses and implement the relevant budgets, increase working efficiency per capita and the internal collaborative efficiency, enhance echelon building of personnel, improve organization capability, promote corporate culture, optimize processes, upgrade IT system, and improve the process architecture and system, operating efficiency of business processes, and the ERP-based interconnected IT architecture. 3. Improve the capabilities of the supply chain, gradually build the manufacturing center into a profit center, continuously implement the supply chain optimization project and Lean Six Sigma production, build an industry leading supply chain team, manufacture products with reliable quality and competitive costs, increase the flexibility of supply chain, reduce the inventories and increase the inventory turnover ratio. 4. Improve the marketing capabilities, under the guidance of industry-leading business strategy, penetrate into all market segments, explore industrial applications according to the demands of the industry, design corresponding products and solutions, train a group of industrial business experts, enhance marketing efforts and channel building, dig deep into the market, realize online and off-line integration, and turn technical advantages into market advantages. (IV) Other information □ Applicable √ N/A V. Information not disclosed according to the standard due to inapplicability of the standard, involving State secrets or trade secrets or other reasons, and explanation about the relevant reasons □ Applicable √ N/A 48 / 312 Annual Report 2019 Section V Significant Matters I. Proposals for profit distribution on ordinary shares and capitalization of the capital reserve (I) Establishment, implementation or adjustment of the cash dividend policy √Applicable □ N/A 1. Pursuant to our Articles of Association and the Statement of Appotronics Corporation Limited Regarding the Initial Public Offering of RMB-denominated Ordinary Shares (A-shares) and the Plan for Distribution of Dividends to Shareholders within Three Years Following the Listing on the STAR Market, we will focus on long-term and sustainable development, and establish a clear profit distribution policy taking into consideration our strategic development plan, actual business situation, development objectives, future profitability, status of cash flows, shareholder return, cost of social capital, external financing environment and other relevant factors, and the balance between the reasonable returns on investment for shareholders and our sustainable development, to ensure the consistency and stability of the profit distribution policy and ensure that we are able to operate continuously and healthily in the long run. Subject to the satisfaction of the conditions for distributing cash dividends, we will distribute not less than 10% of the distributable profit made in each year in cash. The Board of Directors will adopt the following differential cash dividend policy according to the procedures set forth in our Articles of Association, giving comprehensive consideration to the characteristics of the industry in which we operate, our development stage, business model and earnings, material capital expenditure arrangements and other relevant factors: (1) If we are at the mature stage and do not have any material capital expenditure arrangement, at least 80% of the distributable profit will be distributed in cash; (2) If we are at the mature stage and have certain material capital expenditure arrangements, at least 40% of the distributable profit will be distributed in cash; or (3) If we are at the growth stage and have certain material capital expenditure arrangements, at least 20% of the distributable profit will be distributed in cash. If it is hard to determine the development stage but there are certain material capital expenditure arrangements, the policy set forth above may apply. We will formulate or adjust the shareholder returns plan subject to the profit distribution policy set forth above, according to our actual situations and the opinions of the shareholders (in particular, the minority shareholders) and the independent directors. 2. Profit distribution proposal for the year of 2019: According to our consolidated financial statements 2019 as audited by Pan-China Certified Public Accountants (Special General Partnership), the net profit attributable to the shareholders of the listed company is RMB 186,457,276.71, and the aggregate distributable profit of the parent company is RMB 211,573,548.42. According to our overall business situations and development stage, we propose to distribute a cash dividend of RMB 0.75 per 10 shares (inclusive of tax) to all shareholders on the basis of our total share capital as at the record date for the dividend distribution for the year of 2019. RMB 33,866,580.83 of cash dividends (inclusive of tax) is expected to be distributed in total, representing 18.16% of the net profit attributable to the shareholders of the listed company as reported on our consolidated financial statements 2019. We will not capitalize the capital reserve or distribute bonus shares in the reporting period. 49 / 312 Annual Report 2019 The amount of cash dividends stated in our profit distribution proposal for the year of 2019 was calculated on the basis of 451,554,411 shares in our total share capital at present. The total amount of cash dividends actually distributed shall be calculated on the basis of our total share capital as at the record date for the dividend distribution for the year of 2019. The profit distribution proposal for the year of 2019 has been approved by the 21st meeting of the 1st Board of Directors of the Company. The independent directors of the Company have reviewed, expressed their independent opinions on and given explicit consent to the proposal. The Board of Supervisors of the Company has reviewed and expressed its opinions on the proposal. The proposal is still subject to approval by the general meeting of shareholders. After the proposal has been approved by the general meeting of shareholders, the Board of Directors shall distribute the cash dividends (or stock dividends) (as applicable) within two months. 3. Reasons for distribution of cash dividends lower than 30% of the distributable profit and actual use of the retained profit The Board of Directors adopted the profit distribution proposal for the year of 2019 taking into account the provision of returns to shareholders and the requirements of the Company’s steady growth. We plan to use the retained profit in R&D and market development and to address the operating risks that might be brought about by the epidemic situation, satisfy the working capital requirements in our R&D and marketing activities and day-to-day management, and support the implementation of our medium-to-long term development strategy and continuous and healthy development. In particular, we plan to use the retained profit for the following purposes: (1) The retained profit will be used to satisfy the capital requirements of R&D activities to give support to our technical innovations and product innovations. Our development strategy is to focus on technical innovations and product innovations, to enhance our core competitiveness and ensure our sustainable development. We will continue to maintain R&D investments in technical innovations and product innovations, improve R&D capabilities in an all-round way, integrate and optimize R&D system, consolidate resources, optimize development mode, increase R&D efficiency, and enhance the competitiveness of our products. The retained profit will mainly be used in the upgrading of core technologies, development of software platform and products for new application scenarios, and other R&D activities. (2) The retained profit will be used to satisfy the capital requirements of marketing activities to give support to the development of the overseas market and brand building. On the overseas market, we will adopt the internationalized thinking and management standard, enhance the international orientation of our products, gradually build a global marketing network, provide localized services, and increase the share of our products on the overseas market. With respect to brand building, we will consolidate the position of ALPD as proprietary technology in the field of laser display, and enhance the promotion and advertising efforts on the domestic and overseas markets, to bring our products into the mainstream market system in the world. (3) The retained profit will be used to satisfy the capital requirements of day-to-day management to address the uncertainties of the macro-environment caused by the outbreak of Covid-19. Due to the outbreak of Covid-19, the cinemas have shut down, resulting in the suspension of our cinema light source lease service, which has a direct effect on our revenue from cinema light source lease service and other related business. In addition, the 50 / 312 Annual Report 2019 consumer demands are shrinking due to the effect of macro-environment. Therefore, our operating performance may decrease sharply. We will keep cash reserves to address the risk of uncertainties and satisfy the capital requirements of day-to-day management. In the future, we will continue to emphasize on providing returns to the investors in the form of cash dividends, and share our results of development with the investors in strict accordance with the applicable laws and regulations and the provisions of our Articles of Association, taking into consideration of all factors relating to profit distribution, to better safeguard the long-term interests of all shareholders. 4. During the reporting period, we have strictly complied with the dividend principles and policies in accordance with the provisions of our Articles of Association. Our dividend distribution criteria and ratio are clear, and the relevant decision-making procedures and mechanism are sound and transparent and comply with the applicable regulations. Our independent directors have duly performed their duties in the review of the profit distribution proposal by the Board of Directors, to ensure that the legitimate rights and interests of the minority shareholders are fully protected. (II) Proposals for profit distribution on ordinary shares and capitalization of the capital reserve in the past three years (including the reporting period) In RMB Net profit % of the net attributable to profit the Cash attributable to Number of Number of shareholders of dividends Amount of the shareholders bonus shares ordinary shares distributed cash of ordinary shares distributed of the listed Year per 10 dividends shares of the distributed out of the company shares (inclusive of listed company per 10 capital reported in the (inclusive tax) reported in the shares reserve consolidated of tax) consolidated financial financial statements for statements the year 2019 0 0.75 0 33,866,580.83 186,457,276.71 18.16 2018 0 0 0 0 176,971,092.49 0 2017 0 0 0 0 105,393,395.69 0 (III) Repurchase of shares by cash included in cash dividends □ Applicable √ N/A (IV) If the Company made a profit in the reporting period and there’s profit distributable by the parent company to the shareholders of its ordinary shares, but the Company does not propose to distribute profits on ordinary shares in cash, the Company shall explain the reason in detail and use of the undistributed profit. □ Applicable √ N/A 51 / 312 Annual Report 2019 II. Fulfillment of covenants (I) Covenants made by the actual controller, shareholders, affiliates and acquirer of the Company, the Company itself and other related parties during the reporting period or the outstanding covenants made by them in the prior periods √Applicable □ N/A Whether the Whether Action plan if covenant Reason for failure there’s a time failing to Background of Type of Content of Validity period of has been to fulfill the Covenantor limit for the fulfill the covenant covenant covenant covenant strictly covenant on time fulfillment of covenant on fulfilled on (if applicable) the covenant time time Covenant by the controlling shareholder regarding restriction on 36 months after Restriction the sale of shares held by completion of the Covenant on the sale him, voluntary lock-up of Note 1 IPO and the Yes Yes N/A N/A relating to IPO of shares such shares, extension of extended period lock-up period, intention stated below to hold and dispose of shares and other issues Covenant by the actual 36 months after controller regarding completion of the restriction on the sale of IPO and the Restriction shares held by him, extended period Covenant on the sale voluntary lock-up of such Note 2 stated below, and 6 Yes Yes N/A N/A relating to IPO of shares shares, extension of months after lock-up period, intention termination of to hold and dispose of employment with shares and other issues the Company Covenant by the concert 36 months after parties of the actual Restriction completion of the Covenant controller regarding on the sale Note 3 IPO and the Yes Yes N/A N/A relating to IPO restriction on the sale of of shares extended period shares held by them, stated below voluntary lock-up of such 52 / 312 Annual Report 2019 shares, extension of lock-up period, intention to hold and dispose of shares and other issues Covenant by the directors regarding restriction on 12 months after the sale of shares held by Restriction completion of the Covenant them, voluntary lock-up of on the sale Note 4 IPO and the Yes Yes N/A N/A relating to IPO such shares, extension of of shares extended period lock-up period, intention stated below to hold and dispose of shares and other issues Covenant by the supervisors regarding restriction on the sale of Restriction shares held by them, 12 months after Covenant on the sale voluntary lock-up of such Note 5 completion of the Yes Yes N/A N/A relating to IPO of shares shares, extension of IPO lock-up period, intention to hold and dispose of shares and other issues Covenant by HU Fei, as a 12 months after senior officer and member completion of the of key technical staff, IPO and the regarding restriction on Restriction extended period Covenant the sale of shares held by on the sale Note 6 stated below, and 6 Yes Yes N/A N/A relating to IPO him, voluntary lock-up of of shares months after such shares, extension of termination of lock-up period, intention employment with to hold and dispose of the Company shares and other issues Covenant by the senior 12 months after officers BO Lianming, Restriction completion of the Covenant WU Bin, LI Lu, ZHAO on the sale Note 7 IPO and the Yes Yes N/A N/A relating to IPO Ruijin and XIAO of shares extended period Yangjian regarding stated below restriction on the sale of 53 / 312 Annual Report 2019 shares held by them, voluntary lock-up of such shares, extension of lock-up period, intention to hold and dispose of shares and other issues Covenant by the key technical staff YU Xin, WU Xiliang, WANG Lin 12 months after and GUO Zuqiang completion of the Restriction regarding restriction on Covenant IPO and listing of on the sale the sale of shares held by Note 8 Yes Yes N/A N/A relating to IPO stock and the of shares them, voluntary lock-up of extended period such shares, extension of stated below lock-up period, intention to hold and dispose of shares and other issues Covenant by the holders of more than 5% shares regarding restriction on 12 months after Restriction the sale of shares held by Covenant completion of the on the sale them, voluntary lock-up of Note 9 Yes Yes N/A N/A relating to IPO IPO and listing of of shares such shares, extension of stock lock-up period, intention to hold and dispose of shares and other issues Covenant by the other shareholders regarding restriction on the sale of 12 months after Restriction shares held by them, Covenant completion of the on the sale voluntary lock-up of such Note 10 Yes Yes N/A N/A relating to IPO IPO and listing of of shares shares, extension of stock lock-up period, intention to hold and dispose of shares and other issues Covenant Restriction Covenant by the senior at least 12 months Note 11 Yes Yes N/A N/A relating to IPO on the sale officers and key after completion of 54 / 312 Annual Report 2019 of shares employees participating in the IPO and listing the strategic allotment, LI of stock Yi, BO Lianming, WU Bin, LI Lu, GAO Lijing, CHEN Xuxiang, LAI Yongsai and GAO Xiaohong, regarding restriction on the sale of shares held by him, voluntary lock-up of such shares, extension of lock-up period, intention to hold and dispose of shares and other issues Issuer’s plan for stabilizing the Company’s 36 months after Covenant stock price and covenant completion of the Others Note 12 Yes Yes N/A N/A relating to IPO regarding share repurchase IPO and listing of measures within three stock years after the listing Controlling shareholder and the actual controller’s plan for stabilizing the 36 months after Covenant Company’s stock price completion of the Others Note 13 Yes Yes N/A N/A relating to IPO and covenant regarding IPO and listing of share repurchase measures stock within three years after the listing Directors and senior officers’ plan for 36 months after stabilizing the Company’s Covenant completion of the Others stock price and covenant Note 14 Yes Yes N/A N/A relating to IPO IPO and listing of regarding share repurchase stock measures within three years after the listing Covenant Issuer’s covenant Others Note 15 Permanent No Yes N/A N/A relating to IPO regarding measures 55 / 312 Annual Report 2019 against fraud in IPO Controlling shareholder, actual controller and their Covenant Others concert parties’ covenant Note 16 Permanent No Yes N/A N/A relating to IPO regarding measures against fraud in IPO Directors, supervisors and Covenant senior officers’ covenant Others Note 17 Permanent No Yes N/A N/A relating to IPO regarding measures against fraud in IPO Issuer’s covenant regarding remedial Covenant Others measures for diluted Note 18 Permanent No Yes N/A N/A relating to IPO earnings in the current period Controlling shareholder, actual controller and their concert parties’ covenant Covenant Others regarding remedial Note 19 Permanent No Yes N/A N/A relating to IPO measures for diluted earnings in the current period Directors, supervisors and senior officers’ covenant Covenant regarding remedial Others Note 20 Term of office No Yes N/A N/A relating to IPO measures for diluted earnings in the current period Issuer’s covenant Covenant Others regarding profit Note 21 Permanent No Yes N/A N/A relating to IPO distribution policy Issuer’s covenant regarding restraint Covenant measures and liability for Others Note 22 Permanent No Yes N/A N/A relating to IPO compensation in the event of failure to fulfill its covenants 56 / 312 Annual Report 2019 Controlling shareholder, actual controller and their concert parties’ covenant Covenant regarding restraint Others Note 23 Permanent No Yes N/A N/A relating to IPO measures and liability for compensation in the event of failure to fulfill their covenants Directors, supervisors and senior officers’ covenant regarding restraint Covenant Others measures and liability for Note 24 Term of office No Yes N/A N/A relating to IPO compensation in the event of failure to fulfill their covenants Controlling shareholder’s Resolve covenant on avoiding Covenant horizontal horizontal competition and Note 25 Permanent No Yes N/A N/A relating to IPO competition regulating and reducing issues related-party transactions Actual controller’s Resolve covenant on avoiding Covenant related-party horizontal competition and Note 26 Permanent No Yes N/A N/A relating to IPO transaction regulating and reducing issues related-party transactions Covenant by the grantee Covenant related of share incentives to share Others Note 27 Permanent No Yes N/A N/A regarding information incentives disclosure documents Covenant related Company’s covenant on to share Others refraining from providing Note 28 Permanent No Yes N/A N/A incentives financial assistance Note 1: Appotronics Holdings, as the controlling shareholder of the Company, hereby covenants that: 57 / 312 Annual Report 2019 “1. With respect to the shares directly or indirectly held by us in the Company, we undertake: (1) within 36 months after completion of the IPO and the extended period stated below (“Lock-up Period”), not to transfer or appoint any other person to manage the shares held by us in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or to request the Company to repurchase such Pre-IPO Shares; and (2) to comply with the applicable laws and regulations, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange and other business rules of the Shanghai Stock Exchange regarding share transfer by the controlling shareholder and the actual controller of a listed company. The foregoing covenants shall not apply to any transfer to any person who controls, is controlled by or is under common control with the transferor within 12 months after completion of the IPO. 2. If the closing price of the Company’s stock has been lower than the offering price of the IPO for 20 consecutive trading days within six months after completion of the IPO, or on the date that is six months after completion of the IPO, the Lock-up Period for the shares held by us in the Company shall be extended by an additional six months after the expiration of the initial Lock-up Period. 3. After the expiration of the Lock-up Period, if we dispose of any shares held by us in the Company, we will do so in strict accordance with the applicable laws, rules, regulations and normative documents, through call auction on the secondary market, private transfer, allotment, block trade or otherwise. 4. After the expiration of restriction on the sale of shares, if we dispose of any Pre-IPO Shares, we will ensure that the Company continues to operate stably. If we transfer our control over the Company, we will ensure that such transfer is conducted on an arm’s length basis, without prejudice to the legitimate rights and interests of the Company and other shareholders, and that we are free from the following circumstances upon the transfer of our control over the Company: (1) any illegal occupation by us of the funds of the Company; (2) any obligation owed by us to the Company’s debt or any outstanding guarantee offered by the Company for us; (3) any outstanding covenant made by us to the Company or any other shareholder; or (4) any other circumstance on our part that has a material adverse effect on the interests of the Company or the minority shareholders. 5. If we dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the Shanghai Stock Exchange. If we dispose of any Pre-IPO Shares two years after the expiration of the Lock-up Period, the selling price shall be determined according to the market price of the Company’s stock then. 58 / 312 Annual Report 2019 6. We will strictly comply with the applicable laws, rules, regulations and normative documents, and regulatory requirements, and will not dispose of any shares held by us in the Company during the Lock-up Period. After the expiration of the Lock-up Period, we will formulate the share disposal plan in a prudent manner, and dispose of the shares at such time as we deem fit in our sole discretion, taking into consideration the situations of the stock market, movement of the Company’s stock price, and the relevant public information, subject to the applicable laws, rules, regulations and normative documents. 7. If we dispose of any shares held by us in the Company within two years after the expiration of the Lock-up Period, we will do so in accordance with the provisions of the China Securities Regulatory Commission and the Shanghai Stock Exchange regarding disposal of shares by a shareholder and the relevant information disclosure. 8. If the Company meets the criteria for delisting due to any serious violation as set forth below, we will not dispose of any shares held by us in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 9. We will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of a shareholder. 10. We will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 2: LI Yi, as the actual controller of the Company, hereby covenants that: “1. With respect to the shares directly or indirectly held by me in the Company, I undertake: (1) within 36 months after completion of the IPO and the extended period stated below, and 6 months after termination of my employment with the Company (“Lock-up Period”), not to transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or to request the Company to repurchase such Pre-IPO Shares; 59 / 312 Annual Report 2019 The foregoing covenants shall not apply to any transfer to any person who controls, is controlled by or is under common control with the transferor within 12 months after completion of the IPO; (2) within four years after the expiration of restriction on the sale of Pre-IPO shares, not to transfer more than 25% of the total Pre-IPO Shares held by me in aggregate every year; (3) so long as I remain a director of the Company, not to transfer more than 25% of the total shares held by me in the Company; (4) within half a year after I retire from my post as director of the Company, not to transfer any shares held by me in the Company; and (5) to comply with the applicable laws and regulations, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange and other business rules of the Shanghai Stock Exchange regarding share transfer by the actual controller, directors or key technical staff of a listed company. I will comply with foregoing covenants notwithstanding any change in my shareholding in the Company due to any equity distribution made by the Company or otherwise. 2. If the closing price of the Company’s stock has been lower than the offering price of the IPO for 20 consecutive trading days within six months after completion of the IPO, or on the date that is six months after completion of the IPO, the Lock-up Period for the shares held by me in the Company shall be extended by an additional six months after the expiration of the initial Lock-up Period. 3. After the expiration of the Lock-up Period, if I dispose of any shares held by me in the Company, I will do so in strict accordance with the applicable laws, rules, regulations and normative documents, through call auction on the secondary market, private transfer, allotment, block trade or otherwise. 4. After the expiration of restriction on the sale of shares, if I dispose of any Pre-IPO Shares, I will ensure that the Company continues to operate stably. If I transfer my control over the Company, I will ensure that such transfer is conducted on an arm’s length basis, without prejudice to the legitimate rights and interests of the Company and other shareholders, and that I’m free from the following circumstances upon the transfer of my control over the Company: (1) any illegal occupation by me of the funds of the Company; (2) any obligation owed by me to the Company’s debt or any outstanding guarantee offered by the Company for me; (3) any outstanding covenant made by me to the Company or any other shareholder; or (4) any other circumstance on our part that has a material adverse effect on the interests of the Company or the minority shareholders. 5. If I dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the 60 / 312 Annual Report 2019 Shanghai Stock Exchange. If I dispose of any Pre-IPO Shares two years after the expiration of the Lock-up Period, the selling price shall be determined according to the market price of the Company’s stock then. 6. I will strictly comply with the applicable laws, rules, regulations and normative documents, and regulatory requirements, and will not dispose of any shares held by me in the Company during the Lock-up Period. After the expiration of the Lock-up Period, I will formulate the share disposal plan in a prudent manner, and dispose of the shares at such time as I deem fit in my sole discretion, taking into consideration the situations of the stock market, movement of the Company’s stock price, and the relevant public information, subject to the applicable laws, rules, regulations and normative documents. 7. During my employment with the Company, I will truthfully report the shares held by me in the Company and changes therein to the Company on a regular basis (other than changes arising from any dividend distribution or capitalization of the capital reserve by the Company). 8. If I dispose of any shares held by me in the Company within two years after the expiration of the Lock-up Period, I will do so in accordance with the provisions of the China Securities Regulatory Commission and the Shanghai Stock Exchange regarding disposal of shares by the actual controller, directors or key technical staff and the relevant information disclosure. 9. If the Company meets the criteria for delisting due to any serious violation as set forth below, I will not dispose of any shares held by me in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 10. I will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of the actual controller, directors and key technical staff. 11. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 3: Each of the concert parties of the actual controller of the Company hereby covenants that: 61 / 312 Annual Report 2019 “1. With respect to the shares directly or indirectly held by us in the Company, we undertake: (1) within 36 months after completion of the IPO and the extended period stated below (“Lock-up Period”), not to transfer or appoint any other person to manage the shares held by us in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or to request the Company to repurchase such Pre-IPO Shares; and (2) to comply with the applicable laws and regulations, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange and other business rules of the Shanghai Stock Exchange regarding share transfer by the controlling shareholder and the actual controller of a listed company. The foregoing covenants shall not apply to any transfer to any person who controls, is controlled by or is under common control with the transferor within 12 months after completion of the IPO. 2. If the closing price of the Company’s stock has been lower than the offering price of the IPO for 20 consecutive trading days within six months after completion of the IPO, or on the date that is six months after completion of the IPO, the Lock-up Period for the shares held by us in the Company shall be extended by an additional six months after the expiration of the initial Lock-up Period. 3. After the expiration of the Lock-up Period, if we dispose of any shares held by us in the Company, we will do so in strict accordance with the applicable laws, rules, regulations and normative documents, through call auction on the secondary market, private transfer, allotment, block trade or otherwise. 4. If we dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the Shanghai Stock Exchange. If we dispose of any Pre-IPO Shares two years after the expiration of the Lock-up Period, the selling price shall be determined according to the market price of the Company’s stock then. 5. We will strictly comply with the applicable laws, rules, regulations and normative documents, and regulatory requirements, and will not dispose of any shares held by us in the Company during the Lock-up Period. After the expiration of the Lock-up Period, we will formulate the share disposal plan in a prudent manner, and dispose of the shares at such time as we deem fit in our sole discretion, taking into consideration the situations of the stock market, movement of the Company’s stock price, and the relevant public information, subject to the applicable laws, rules, regulations and normative documents. 6. If we dispose of any shares held by us in the Company within two years after the expiration of the Lock-up Period, we will do so in accordance with the provisions of the China Securities Regulatory Commission and the Shanghai Stock Exchange regarding disposal of shares by a shareholder and the relevant information disclosure. 62 / 312 Annual Report 2019 7. If the Company meets the criteria for delisting due to any serious violation as set forth below, we will not dispose of any shares held by us in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 8. We will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of a shareholder. 9. We will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 4: Each director of the Company, who is also a shareholder, hereby covenants that: “1. With respect to the shares directly or indirectly held by me in the Company, within 12 months after completion of the IPO and the extended period stated below (“Lock-up Period”), I will not transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. If the closing price of the Company’s stock has been lower than the offering price of the IPO for 20 consecutive trading days within six months after completion of the IPO, or on the date that is six months after completion of the IPO, the Lock-up Period for the shares held by me in the Company shall be extended by an additional six months after the expiration of the initial Lock-up Period. 3. During my employment with the Company, I will truthfully report the shares held by me in the Company and changes therein to the Company on a regular basis (other than changes arising from any dividend distribution or capitalization of the capital reserve by the Company). 4. If I dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve, issuance of new shares or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the Shanghai Stock Exchange. If the Company has distributed any dividends or bonus shares, capitalized the capital 63 / 312 Annual Report 2019 reserve or made any rights issue during the period from the date of listing of the Company’s stock to the date of such disposal, the minimum selling price and number of shares salable shall be adjusted accordingly. 5. If I retire from my post as director of the Company prior to the expiration of my term of office, I will comply with the following restrictive provisions: (1) so long as I remain a director of the Company, I will not transfer more than 25% of the total shares held by me in the Company; and (2) within half a year after I retire from my post as director of the Company, I will not transfer any shares held by me in the Company. I will comply with foregoing covenants notwithstanding any change in my shareholding in the Company due to any equity distribution made by the Company or otherwise. 6. If the Company meets the criteria for delisting due to any serious violation as set forth below, I will not dispose of any shares held by me in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 7. I will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect. 8. If I acquire any additional shares of the Company or become eligible to sell any shares held by me in the Company, I will strictly comply with, and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith. If I fail to perform my duties and obligations under the covenants set forth above, I will indemnify the Company and other shareholders or stakeholders of the Company for the losses arising therefrom according to law, and surrender my gains from illegal disposal of the Company’s shares (if any) to the Company.” Note 5: Each supervisor of the Company, who is also a shareholder, hereby covenants that: 64 / 312 Annual Report 2019 “1. With respect to the shares directly or indirectly held by me in the Company, within 12 months after completion of the IPO (“Lock-up Period”), I will not transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. During my employment with the Company, I will truthfully report the shares held by me in the Company and changes therein to the Company on a regular basis (other than changes arising from any dividend distribution or capitalization of the capital reserve by the Company). 3. If I retire from my post as supervisor of the Company prior to the expiration of my term of office, I will comply with the following restrictive provisions: (1) so long as I remain a supervisor of the Company, I will not transfer more than 25% of the total shares held by me in the Company; and (2) within half a year after I retire from my post as supervisor of the Company, I will not transfer any shares held by me in the Company. I will comply with foregoing covenants notwithstanding any change in my shareholding in the Company due to any equity distribution made by the Company or otherwise. 4. If the Company meets the criteria for delisting due to any serious violation as set forth below, I will not dispose of any shares held by me in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 5. I will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of a supervisor. 6. If I acquire any additional shares of the Company or become eligible to sell any shares held by me in the Company, I will strictly comply with, and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. 7. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Note 6: HU Fei, as the deputy general manager and member of key technical staff of the Company, hereby covenants that: 65 / 312 Annual Report 2019 “1. With respect to the shares directly or indirectly held by me in the Company, I undertake: (1) within 12 months after listing of the Company’s stock and the extended period stated below, and 6 months after termination of my employment with the Company (“Lock-up Period”), not to transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or to request the Company to repurchase such Pre-IPO Shares; (2) within four years after the expiration of restriction on the sale of Pre-IPO shares, not to transfer more than 25% of the total Pre-IPO Shares held by me in aggregate every year; (3) so long as I remain a senior officer of the Company, not to transfer more than 25% of the total shares held by me in the Company; (4) within half a year after I retire from my post as senior officer of the Company, not to transfer any shares held by me in the Company; and (5) to comply with the applicable laws and regulations, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange and other business rules of the Shanghai Stock Exchange. 2. If the closing price of the Company’s stock has been lower than the offering price of the IPO for 20 consecutive trading days within six months after completion of the IPO, or on the date that is six months after completion of the IPO, the Lock-up Period for the shares held by me in the Company shall be extended by an additional six months after the expiration of the initial Lock-up Period. 3. If I dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve, issuance of new shares or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the Shanghai Stock Exchange. If the Company has distributed any dividends or bonus shares, capitalized the capital reserve or made any rights issue during the period from the date of listing of the Company’s stock to the date of such disposal, the minimum selling price and number of shares salable shall be adjusted accordingly. 4. If the Company meets the criteria for delisting due to any serious violation as set forth below, I will not dispose of any shares held by me in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 66 / 312 Annual Report 2019 5. I will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect. 6. During my employment with the Company, I will truthfully report the shares held by me in the Company and changes therein to the Company on a regular basis (other than changes arising from any dividend distribution or capitalization of the capital reserve by the Company). If I acquire any additional shares of the Company or become eligible to sell any shares held by me directly or indirectly in the Company, I will strictly comply with, and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. 7. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Note 7: Each of the senior officers of the Company other than HU Fei, who is also a shareholder, hereby covenants that: “1. With respect to the shares directly or indirectly held by me in the Company, within 12 months after completion of the IPO and the extended period stated below (“Lock-up Period”), I will not transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. If the closing price of the Company’s stock has been lower than the offering price of the IPO for 20 consecutive trading days within six months after completion of the IPO, or on the date that is six months after completion of the IPO, the Lock-up Period for the shares held by me in the Company shall be extended by an additional six months after the expiration of the initial Lock-up Period. 3. During my employment with the Company, I will truthfully report the shares held by me in the Company and changes therein to the Company on a regular basis (other than changes arising from any dividend distribution or capitalization of the capital reserve by the Company). 4. If I dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve, issuance of new shares or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the Shanghai Stock Exchange. If the Company has distributed any dividends or bonus shares, capitalized the capital reserve or made any rights issue during the period from the date of listing of the Company’s stock to the date of such disposal, the minimum selling price and number of shares salable shall be adjusted accordingly. 5. If I retire from my post as senior officer of the Company prior to the expiration of my term of office, I will comply with the following restrictive provisions: (1) so long as I remain a senior officer of the Company, I will not transfer more than 25% of the total shares held by me in the Company; and (2) within half a year after I retire from my post as senior officer of the Company, I will not transfer any shares held by me in the Company. 67 / 312 Annual Report 2019 I will comply with foregoing covenants notwithstanding any change in my shareholding in the Company due to any equity distribution made by the Company or otherwise. 6. If the Company meets the criteria for delisting due to any serious violation as set forth below, I will not dispose of any shares held by me in the Company from the date that the relevant administration penalty or judicial judgment is imposed or made, till the date of delisting of the Company’s stock: (1) where the Company has committed fraud in IPO, seriously violated the laws regarding information disclosure or otherwise seriously disrupted the order of stock market, as a result of which its listing status is seriously undermined; or (2) where the Company has seriously violated the laws regarding national security, public security, ecological security, production safety or public health, and such violation is of a serious nature, has seriously damaged the national interest or public interest, or seriously undermined its listing status. 7. I will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect. 8. If I acquire any additional shares of the Company or become eligible to sell any shares held by me in the Company, I will strictly comply with, and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. 9. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Note 8: Each of the members of key technical staff of the Company other than LI Yi and HU Fei, who is also a shareholder, hereby covenants that: “1. Within 12 months after completion of the IPO and listing of stock (“the IPO”) and the extended period stated below (“Lock-up Period”), I will not transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. Within four years after the expiration of the Lock-up Period, I will not transfer more than 25% of the total Pre-IPO Shares held by me in aggregate every year. If the Company has distributed any dividends or bonus shares, capitalized the capital reserve or made any rights issue during such period, the number of shares salable shall be adjusted accordingly. 3. During my employment with the Company, I will truthfully report the shares held by me in the Company and changes therein to the Company on a regular basis (other than changes arising from any dividend distribution or capitalization of the capital reserve by the Company). If I acquire any additional shares of the Company or become eligible to sell any shares held by me in the Company, I will strictly comply with, 68 / 312 Annual Report 2019 and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. 4. I will strictly comply with the applicable laws and regulations, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange and other business rules of the Shanghai Stock Exchange, and the Articles of Association of Appotronics Corporation Limited in effect. 5. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Note 9: Each of the holders of more than 5% of the shares of the issuer hereby covenants that: “1. With respect to the shares directly or indirectly held by us in the Company, within 12 months after completion of the IPO (“Lock-up Period”), we will not transfer or appoint any other person to manage the shares held by us in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. After the expiration of the Lock-up Period, if we dispose of any shares held by me/us in the Company, we will do so in strict accordance with the applicable laws, rules, regulations and normative documents, through call auction on the secondary market, private transfer, allotment, block trade or otherwise. 3. If we dispose of any Pre-IPO Shares within two years after the expiration of the Lock-up Period, the selling price shall not be lower than the offering price of the IPO, as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve or rights issue by the Company during the period from the date of listing of the Company’s stock to the date of such disposal pursuant to the applicable rules of the Shanghai Stock Exchange. If we dispose of any Pre-IPO Shares two years after the expiration of the Lock-up Period, the selling price shall be determined according to the market price of the Company’s stock then. 4. We will strictly comply with the applicable laws, rules, regulations and normative documents, and regulatory requirements, and will not dispose of any shares held by us in the Company during the Lock-up Period. After the expiration of the Lock-up Period, we will formulate the share disposal plan in a prudent manner, and dispose of the shares at such time as we deem fit in our sole discretion, taking into consideration the situations of the stock market, movement of the Company’s stock price, and the relevant public information, subject to the applicable laws, rules, regulations and normative documents. 5. If we dispose of any shares held by us in the Company within two years after the expiration of the Lock-up Period, we will do so in accordance with the provisions of the China Securities Regulatory Commission and the Shanghai Stock Exchange regarding disposal of shares by a shareholder and the relevant information disclosure. 69 / 312 Annual Report 2019 6. We will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of a shareholder. We will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Note 10: Each of the other corporate shareholders hereby covenants that: “1. With respect to the shares directly or indirectly held by us in the Company, within 12 months after completion of the IPO (“Lock-up Period”), we will not transfer or appoint any other person to manage the shares held by us in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. We will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of a shareholder. 3. If we acquire any additional shares of the Company or become eligible to sell any shares held by us in the Company, we will strictly comply with, and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. We will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Each of the other natural-person shareholders hereby covenants that: “1. With respect to the shares directly or indirectly held by me in the Company, within 12 months after completion of the IPO (“Lock-up Period”), I will not transfer or appoint any other person to manage the shares held by me in the Company directly or indirectly issued prior to the IPO of the Company (“Pre-IPO Shares”), or request the Company to repurchase such Pre-IPO Shares. 2. I will strictly comply with the provisions and requirements of the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics Corporation Limited in effect regarding the duties and obligations of a shareholder. 3. If I acquire any additional shares of the Company or become eligible to sell any shares held by me in the Company, I will strictly comply with, and cooperate with the Company to comply with, all applicable information disclosure provisions and requirements regarding the dealings in the Company’s shares. I will faithfully fulfill the covenants set forth above and assume the legal liabilities in connection therewith.” Note 11: 70 / 312 Annual Report 2019 Each of the senior officers and key employees participating in the strategic allotment, namely LI Yi, BO Lianming, WU Bin, LI Lu, GAO Lijing, CHEN Xuxiang, LAI Yongsai and GAO Xiaohong, hereby covenants that: “1. I am the actual holder of the asset management plan, and have not participated in the strategic allotment on behalf of any other investor or appointed any other investor to participate in the strategic allotment on my behalf; 2. I use my own funds to participate in the strategic allotment; 3. I believe in the long-term investment value of the Company, and agree with the asset management plan to subscribe for the shares available to it through the strategic allotment at such offering price as finally determined; 4. I agree to accept such number of shares available through the strategic allotment as finally determined by the issuer and the lead underwriter, subject to the number/amount of share that the asset management plan undertakes to subscribe for; 5. I will not participate in the online or off-line offering in connection with the IPO of the Company; 6. I will hold the shares acquired through the strategic allotment for a period of not less than 12 months, calculated from the date of listing of the shares publically offered this time; 7. I will not transfer any shares held by me under the asset management plan during the Lock-up Period in any manner; 8. There isn’t any illegal benefit transfer between me and the Company or any other stakeholder.” Note 12: The issuer hereby covenants: “I. Conditions for triggering and stopping the stock price stabilization measures (I) Condition for triggering the measures If, within 36 months after completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares) on the STAR Market (“IPO”), the closing price of the Company’s stock has been lower than its most recently audited net assets per share (as adjusted for any distribution of dividends or bonus shares, capitalization of the capital reserve, issuance of new shares or rights issue by the Company) for 20 consecutive trading days (“Trigger Condition” or “Trigger Condition for Stabilization of Stock Price”), except for any event of force majeure, the Company and the related persons shall take the following measures to stabilize the Company’s stock price subject to the provisions of the China Securities Regulatory Commission (“CSRC”) and the Shanghai Stock Exchange (“SSE”) regarding share repurchase, acquisition of additional shares and information disclosure and other applicable provisions: (1) repurchase of shares by the Company; (2) acquisition of additional shares of the Company by the controlling shareholder and the actual controller; 71 / 312 Annual Report 2019 (3) acquisition of additional shares of the Company by the directors and senior officers; (4) other measures permitted by the applicable laws, rules, regulations and normative documents, and the CSRC and the SSE. If the Company intends to repurchase shares upon satisfaction of the Trigger Condition, the Company shall hold a meeting of the Board of Directors within 10 days and a general meeting of shareholders within 30 days, to review the specific proposal for stabilizing the stock price and the period for implementing such proposal, and implement such proposal within five trading days after the same has been approved by the general meeting of shareholders. (2) Condition for stopping the measures If, prior to or during the implementation of the stock price stabilization measures, the closing price of the Company’s stock has been higher than its most recently audited net assets per share for 20 consecutive trading days, the Company shall stop the stock price stabilization measures to the extent permitted by the applicable laws, rules, regulations and normative documents. After the stock price stabilization measures have been completed or stopped, if the Trigger Condition is satisfied again, the Company shall implement the stock price stabilization plan again. II. Measures for stabilizing the stock price of the Company Upon satisfaction of the Trigger Condition, the Company and its controlling shareholder, actual controller, directors and senior officers shall promptly take all or part of the following measures to stabilize the stock price of the Company: (I) Repurchase of shares by the Company 1. Any share repurchase by the Company for purpose of stabilizing its stock price shall comply with the Contract Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Administrative Measures for Repurchase by the Listed Companies of their Public Shares (Tentative), the Supplementary Provisions on Repurchase by the Listed Companies of their Public Shares through Call Auction, the Opinion on Supporting Repurchase by the Listed Companies of their Public Shares, the Rules of the Shanghai Stock Exchange for Implementation of Share Repurchase by the Listed Companies, and other applicable laws, rules, regulations and normative documents. 2. Any share repurchase by the Company for purpose of stabilizing its stock price shall meet the following conditions: (1) the Company’s stock has been listed for at least one year; (2) after the completion of such share repurchase, the Company shall be solvent and have the ability to continue as a going concern; (3) after the completion of such share repurchase, the shareholding structure of Company shall continue to meet the listing conditions; and (4) such other conditions as may be set forth by the CSRC. If the Company repurchases shares for purpose of stabilizing its stock price and reduces its registered capital accordingly, the Company may do so even if its stock has been listed for less than one year. 72 / 312 Annual Report 2019 3. The share repurchase proposal requires the approval of the shareholders representing more than two thirds of the total votes present at the general meeting of shareholders. The controlling shareholder and the actual controller of the Company undertake to vote for such share repurchase proposal. 4. The general meeting of shareholders may authorize the Board of Directors to decide on the share repurchase proposal, provided that the relevant resolution of the general meeting of shareholders shall specify the specific powers delegated to the Board of Directors and the delegation period. The resolution of the Board of Directors on the share repurchase proposal requires the approval of more than two thirds of the directors present at the meeting of the Board of Directors. The non-independent directors of the Company undertake to vote for the share repurchase proposal (to the extent that they have the voting power). 5. After the share repurchase proposal has been approved by the general meeting of shareholders, the Company shall notify its creditors and submit the relevant documents and go through the applicable approval or filing procedures with the CSRC, the SSE and other competent authorities according to law, and may implement the share repurchase proposal only after the applicable approval, filing, information disclosure and other procedures have been completed. If the share repurchase proposal fails to be approved by the general meeting of shareholders, the Company shall procure the controlling shareholder and the actual controller to perform their obligations to acquire additional shares of the Company as promised by them. 6. In addition to the requirements of the applicable laws, rules, regulations and normative documents, any share repurchase by the Company for purpose of stabilizing its stock price shall also comply with the following provisions: (1) the Company shall repurchase its shares on the secondary market through call auction or tender offer; (2) the total amount used by the Company in the share repurchase shall not exceed 80% of its IPO net proceeds; (3) the total number of shares repurchased by the Company within 12 consecutive months shall not exceed 2% of the total shares of the Company as of the end of the preceding year; and (4) the total amount used by the Company under a share repurchase plan shall not be lower than 5% and not be more than 10% of its audited net profit attributable to the shareholders of the parent company for the preceding accounting year, or such other higher ratio may be applied as approved by the Board of Directors; In case of any conflict between the provisions of Paragraph (3) and Paragraph (4) above, Paragraph (3) shall prevail. (5) the Company may use its own funds, proceeds from issuance of preferred shares or bonds, the excess funds raised through issuance of ordinary shares beyond what is actually required, the surplus funds of the projects in which the funds raised invest, the funds raised that have been permanently applied to replenish working capital according to law, loans from financial institutions and other legal funds to repurchase its shares. 73 / 312 Annual Report 2019 7. The Board of Directors of the Company shall pay close attention to the Company’s capital position, solvency and ability to continue as a going concern, draw up and implement the share repurchase plan prudently, and ensure that the number and amount of the shares repurchased are appropriate for the actual financial condition of the Company. The Company shall establish sound and effective internal controls in respect of share repurchase, draw up the detailed operation plans, prevent insider trading and other unfair transactions, and shall not manipulate its stock price or make any illegal benefit transfer to any of its directors, supervisors, senior officers, controlling shareholder or actual controller through any share repurchase. (II) Acquisition of additional shares of the Company by the controlling shareholder and the actual controller 1. Upon satisfaction of the Trigger Condition, if the Company is unable to make share repurchase, the controlling shareholder and the actual controller shall acquire additional shares of the Company, subject to the Administrative Measures for the Acquisition of the Listed Companies and other applicable laws, rules, regulations and normative documents, provided that such transaction will not cause the shareholding structure of Company to cease to meet the listing conditions and/or trigger obligation to make a tender offer by the controlling shareholder. 2. Subject to Paragraph 1 above, the controlling shareholder and the actual controller of the Company shall, within 10 trading days after satisfaction of the Trigger Condition, notify the Company in writing of their plan to acquire additional shares, which shall specify, among others, the scope of number of shares to be acquired, upper limit of the purchase price and time limit for such acquisition. The Company shall announce such plan within 3 trading days prior to the implementation of such plan. 3. The controlling shareholder and the actual controller shall acquire additional shares of the Company on the secondary market through call auction or otherwise legally. 4. The stock price stabilization plan implemented by the controlling shareholder and the actual controller shall also comply with the following provisions: (1) the amount used by the controlling shareholder and the actual controller in the acquisition of additional shares under a single plan shall not be lower than 20% of the aggregate cash dividends (after tax) received by them from the Company after the listing of the Company; (2) the total amount used by the controlling shareholder and the actual controller in the acquisition of additional shares under a single plan or within 12 consecutive months shall not exceed 50% of the aggregate cash dividends (after tax) received by them from the Company after the listing of the Company; (3) the total number of additional shares acquired by the controlling shareholder and the actual controller under a single plan shall not exceed 2% of the total shares of the Company; and (4) the purchase price paid by the controlling shareholder and the actual controller for the additional shares shall not exceed 100% of the most recently audited net assets per share of the Company. In case of any conflict between the provisions of Paragraph (1) and Paragraph (3) above, Paragraph (3) shall prevail. 74 / 312 Annual Report 2019 5. The controlling shareholder and the actual controller shall be jointly and severally liable for such acquisition of additional shares. (III) Acquisition of additional shares of the Company by the directors and senior officers 1. Upon satisfaction of the Trigger Condition, if the Company is unable to make share repurchase, and the controlling shareholder and the actual controller are unable to acquire additional shares of the Company, or fail to put forward or implement the plan to acquire additional shares of the Company, the directors and senior officers shall acquire additional shares of the Company, subject to the Administrative Measures for the Acquisition of the Listed Companies, the Management Rules for Shareholding by Directors, Supervisors and Senior Officers of Listed Companies in the Companies and Changes in such Shareholding and other applicable laws, rules, regulations and normative documents, provided that such transaction will not cause the shareholding structure of Company to cease to meet the listing conditions. 2. Subject to Paragraph 1 above, the directors and senior officers of the Company shall, within 10 trading days after satisfaction of the Trigger Condition, notify the Company in writing of their plan to acquire additional shares, which shall specify, among others, the scope of number of shares to be acquired, upper limit of the purchase price and time limit for such acquisition. The Company shall announce such plan within 3 trading days prior to the implementation of such plan. 3. The stock price stabilization plan implemented by the directors and senior officers shall also comply with the following provisions: (1) the amount used by any director or senior officer in the acquisition of additional shares under a single plan shall not be lower than 20% of the aggregate cash dividends, remunerations and subsidies (in each case, if any and after tax) received by such director or senior officer from the Company in the preceding year; (2) the total amount used by any director or senior officer in the acquisition of additional shares under a single plan or within 12 consecutive months shall not exceed 50% of the aggregate cash dividends, remunerations and subsidies (in each case, if any and after tax) received by such director or senior officer from the Company in the preceding year; and (3) the purchase price paid by the directors and senior officers for the additional shares shall not exceed 100% of the most recently audited net assets per share of the Company. 4. The Company shall request each new director or senior officer appointed within three years after completion of the IPO to sign a letter of undertaking, warranting that he will fulfill the covenants made by the existing directors and senior officers in the IPO. (IV) Other measures permitted by the applicable laws, rules, regulations and normative documents, and the CSRC and the SSE The Company and the related persons may take one or more measures to stabilize the Company’s stock price according to the situations of the Company and the market, provided that such measures shall be taken for purpose of safeguarding the listing status of the Company and protecting the interests of the Company and the investors, and comply with the applicable laws, rules, regulations and normative documents, and the relevant provisions of the SSE, and shall perform the relevant obligation of information disclosure. III. Restraint mechanisms for stock price stabilization plan 75 / 312 Annual Report 2019 Upon satisfaction of the Trigger Condition, if the Company or any controlling shareholder, actual controller, director or senior officer fails to take the stock price stabilization measures stated above, the Company and such person shall be bound by the following restraint mechanisms: 1. The Company or such controlling shareholder, actual controller, director or senior officer (as applicable) shall publicly explain the reason for failure to take the stock price stabilization measures to the general meeting of shareholders of the Company and on the media for information disclosure designated by the CSRC, and apologize to the shareholders of the Company and the investors, and the Company shall assume the relevant legal liabilities. 2. If any controlling shareholder, actual controller, director or senior officer fails to fulfill his covenant regarding acquisition of additional shares, the issuer may defer the payment of cash dividends (if any) for the year in which the obligation to acquire additional shares is triggered and the following year and 50% of the total remuneration and subsidies for such year payable to him, and prohibit him from transferring the shares held by him in the Company, until he has taken and completed the relevant stock price stabilization measures. 3. The Company shall remind and procure the directors and senior officers newly appointed in the future to fulfill the covenants made by the existing directors and senior officers in the IPO regarding the stock price stabilization measures. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares) on the STAR Market.” Note 13: Appotronics Holdings, as the controlling shareholder of the Company, hereby covenants that: “We will seriously perform our duties in accordance with the requirements of the Plan of Appotronics Corporation Limited on Stabilizing the Stock Price of the Company if the Stock Price is Lower than the Net Assets per Share of the Company within Three Years after Completion of the IPO and Listing of the Company’s RMB-denominated Ordinary Shares (A-shares) on the STAR Market, and ensure the implementation of the Plan through the restraint mechanisms set forth therein, to maintain the stability of the Company’s stock price and protect the interests of the investors. We will actively support the Company in repurchasing shares according to law, and will not engage in any abuse of rights, insider trading, market manipulation or other illegal acts to the detriment of the interests of the Company and other shareholders in connection with the share repurchase by the Company. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” LI Yi, as the actual controller of the Company, hereby covenants that: 76 / 312 Annual Report 2019 “I will seriously perform my duties in accordance with the requirements of the Plan of Appotronics Corporation Limited on Stabilizing the Stock Price of the Company if the Stock Price is Lower than the Net Assets per Share of the Company within Three Years after Completion of the IPO and Listing of the Company’s RMB-denominated Ordinary Shares (A-shares) on the STAR Market, and ensure the implementation of the Plan through the restraint mechanisms set forth therein, to maintain the stability of the Company’s stock price and protect the interests of the investors. I will actively support the Company in repurchasing shares according to law, and will not engage in any abuse of rights, insider trading, market manipulation or other illegal acts to the detriment of the interests of the Company and other shareholders in connection with the share repurchase by the Company. I will be honest, keep my promise, be assiduous in my duties, and safeguard the interests of the Company and the legitimate rights and interests of the shareholders and creditors of the Company in the share repurchase by the Company. I covenant that the share repurchase by the Company will not prejudice the Company’s solvency and ability to continue as a going concern. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 14: Each of the directors and senior officers of the Company hereby covenants that: “I will seriously perform my duties in accordance with the requirements of the Plan of Appotronics Corporation Limited on Stabilizing the Stock Price of the Company if the Stock Price is Lower than the Net Assets per Share of the Company within Three Years after Completion of the IPO and Listing of the Company’s RMB-denominated Ordinary Shares (A-shares) on the STAR Market, and ensure the implementation of the Plan through the restraint mechanisms set forth therein, to maintain the stability of the Company’s stock price and protect the interests of the investors. I will be honest, keep my promise, be assiduous in my duties, and safeguard the interests of the Company and the legitimate rights and interests of the shareholders and creditors of the Company in the share repurchase by the Company. I covenant that the share repurchase by the Company will not prejudice the Company’s solvency and ability to continue as a going concern. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 15: The issuer hereby covenants that: 77 / 312 Annual Report 2019 “1. If the competent securities regulatory authority or any other competent authority finds that the Company’s IPO prospectus contains any misrepresentation or misleading statement or omits any material fact, which has a material and substantial effect on the determination of whether the Company meets the conditions for IPO and listing set forth in the applicable laws, regulations and normative documents, the Company undertakes to take the following measures to repurchase all new shares issued in the IPO according to law: (1) subject to the applicable laws, regulations and normative documents, if such event occurs after completion of the IPO but prior to the listing of the new shares of the Company, within 30 working days after the competent securities regulatory authority or any other competent authority makes the relevant decision, the Company shall repurchase all new shares issued in the IPO from the investors who have successfully subscribed for the new shares on line and the investors who have received the new shares allotted off the line at the offering price plus interest at the bank deposit rate for the same period; and (2) subject to the applicable laws, regulations and normative documents, if such event occurs after completion of the IPO and the listing of the new shares of the Company, within 5 working days after the competent securities regulatory authority or any other competent authority makes the relevant decision, the Company shall prepare a share repurchase plan and submit the same to the general meeting of shareholders for approval, and after the plan has been approved by the general meeting of shareholders, repurchase all new shares issued in the IPO to the extent practicable. The repurchase price shall be determined on the basis of the offering price, taking into account the relevant market factors. If the Company has distributed any dividends or bonus shares, capitalized the capital reserve or made any rights issue after the listing of the Company, the price and number of shares repurchased shall be adjusted accordingly. 2. If the Company’s IPO prospectus contains any misrepresentation or misleading statement or omits any material fact, the Company shall indemnify the investors for the losses incurred in dealings in the stock of the Company resulting therefrom in the following manner according to law: after the competent securities regulatory authority has found that the Company violated the law and issued an official decision on administrative penalty, the Company shall arrange for registration of the investors who claim compensation from the Company, and after verifying their qualifications and amount of losses, pay compensation to such investors in a timely manner.” Note 16: The controlling shareholder Appotronics Holdings, the actual controller LI Yi and their concert parties hereby covenant that: “The Company’s IPO prospectus is free from any misrepresentation, misleading statement or material omission. If the prospectus contains any misrepresentation or misleading statement or omits any material fact, which has been found to have a material and substantial effect on the determination of whether the Company meets the conditions for IPO set forth in the applicable laws, we/I and the related persons will promptly put forward proposals for compensation and conduct share repurchase according to law, vote for such proposals at the meeting of the Board of Directors or general meeting of shareholders, and indemnify the investors for the losses incurred in dealings in the stock of the Company resulting therefrom according to law. 78 / 312 Annual Report 2019 Procedures for compensation and criteria for determining the losses suffered by the investors: Within 20 working days after the competent securities regulatory authority or any other competent authority finds that the Company’s IPO prospectus contains any misrepresentation or misleading statement or omits any material fact, the procedures for compensating the losses of the investors shall be commenced. The losses of the investors shall be determined through consultation with the investors, or in such manner as required by the competent securities regulatory authority or judicial authority.” Note 17: Each of the directors, supervisors and senior officers of the Company hereby covenants that: “The IPO prospectus is free from any misrepresentation, misleading statement or material omission. If the prospectus contains any misrepresentation or misleading statement or omits any material fact, I will indemnify the investors for the losses incurred in dealings in the stock of the Company resulting therefrom according to law. Procedures for compensation and criteria for determining the losses suffered by the investors: Within 20 working days after the competent securities regulatory authority or any other competent authority finds that the Company’s IPO prospectus contains any misrepresentation or misleading statement or omits any material fact, the procedures for compensating the losses of the investors shall be commenced. The losses of the investors shall be determined through consultation with the investors, or in such manner as required by the competent securities regulatory authority or judicial authority.” Note 18: The issuer’s covenant regarding remedial measures for diluted earnings in the current period: “(I) Focus on technology R&D and product innovations, and continuously improve the IP protection system The Company will focus on technology R&D and product innovations relying on its technology R&D capabilities. Since its establishment, the Company has obtained a lot of domestic and foreign patents in respect of laser display and related fields. In the future, the Company will continue to consolidate and enhance its market competitive advantages through conforming to the development law of the industry, increasing R&D investments, improving product functions and quality, optimizing product portfolio and other measures. In addition, the Company will continue to improve its IP protection system, apply for patents in respect of its core technologies throughout the world, reasonably use legal means to protect its proprietary IP, and promote the establishment of industrial technical standards and the harmonious and healthy development of the laser display industry. (II) Enhance the building of marketing system and improve profitability 79 / 312 Annual Report 2019 The Company will, based on the current marketing system, give full play to the advantages of the multi-level and all-round marketing mode combining online sales with off-line sales, agent mode with direct sale mode, and sales on the domestic market with exploitation of overseas market, to expand the market layout, and continuously optimize the sales service system and enhance brand influence relying on the advantages of technologies and products, to realize synchronous and sound development of the base and quality of customers. In addition, the Company will actively cultivate and develop overseas market, promote its laser display products with proprietary IP in the world based on its leading technologies and outstanding products, and giving full play to the synergy effect with its strategic partners, to realize the continuous growth of sales and improvement of profitability. (III) Enhance internal controls and team building of talents, and improve management and operational efficiency in an all-round way The Company has established relatively sound internal controls and management system, and will continue to improve its management and operation level, revise and improve internal controls, control management and operating risks, and ensure the continuous and effective implementation of internal controls. In addition, the Company will enhance the building of IT system and budget management, control costs and expenses meticulously, improve the use efficiency of funds, and realize reduction of costs and improvement of efficiency. The Company will also continuously improve the compensation and incentive mechanisms, recruit outstanding talents, motivate the employees to the maximum extent, and give full play to the employees’ creative power and maximize their potentials. Through such measures, the Company will improve its management and operational efficiency in an all-round way, and realize long-term, steady and healthy development. (IV) Enhance management over the funds raised and strive to yield the desired results as soon as practicable The projects in which the funds raised will invest orient on the main business of the Company and comply with the applicable industrial policies of the country, and after being completed, will improve the Company’s technological level, increase its production scale and market share, and improve its profitability, core competitiveness and sustainability. After completion of the IPO, the Company will strictly manage the use and ensure the full and efficient use of the funds raised in accordance with the Company Law, the Securities Law, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange, the Administrative Measures of the Shanghai Stock Exchange for Fund-raising by the Listed Companies, and other applicable laws, rules, regulations and normative documents, and the Measures of Appotronics Corporation Limited for Management and Use of Funds Raised. In addition, the Company will, according to the use and amount of the offering proceeds as promised, actively push forward the building and implementation of the relevant projects, and have the projects yield the desired results as soon as practicable, to safeguard the interests of all shareholders of the Company. After receipt of the offering proceeds, the Company will actively push forward the investment in and building of the relevant projects, and fully mobilize R&D, procurement, production, sales, administrative and other resources of the Company, to promptly and efficiently complete the projects. In addition, the Company will ensure the availability of the relevant personnel, provide thorough and comprehensive skill trainings to new employees, and through active market exploitation and sound communications with the customers, ensure that the products of the newly 80 / 312 Annual Report 2019 built projects will be launched on the market successfully. Through these all-round measures, the Company will procure the relevant investment projects to reach the designed production capacity and yield the desired results as soon as practicable. (V) Improve the profit distribution policy and enhance the mechanism of returns to investors The general meeting of shareholders of the Company has adopted the Articles of Association of Appotronics Corporation Limited (draft) for the IPO, which further specifies and improves the Company’s profit distribution principles and approaches, the respective conditions and proportion of cash dividends and stock dividends, and improves the Company’s decision-making procedures and mechanisms with respect to profit distribution, and decision-making procedures for the adjustment of the profit distribution policy. In addition, the Company has formulated the Plan of Appotronics Corporation Limited on the Shareholder Returns within Three Years after Completion of the IPO and Listing of the Company’s Shares on the STAR Market, to make specific arrangements for profit distribution within three years after completion of the IPO. The Company will maintain the consistency and stability of its profit distribution policy, attach importance to the reasonable returns to investors, enhance the protection of the investors’ rights and interests, and take into account both the overall interest of all shareholders and the sustainable development of the Company. The Company reminds the investors to be aware that the remedial measures for diluted earnings stated above do not mean any warranty made by the Company as to its earnings in the future. After being approved by the general meeting of shareholders of the Company, this proposal will take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares) on the STAR Market. (VI) Covenants of the directors and senior officers regarding the serious implementation of the remedial measures for diluted earnings of the Company Pursuant to the relevant provisions of the CSRC, each of the directors and senior officers of the Company hereby covenants as follows with respect to the remedial measures for diluted earnings of the Company: 1. Not to transfer benefits to any other entity or individual without compensation or on unfair terms, or otherwise damage the interest of the Company; 2. To exercise self-discipline in consumption in performing his duties; 3. Not to use the assets of the Company to engage in any investment or consumption activities not in connection with his duties; 4. To link the compensation system adopted by the Board of Directors or the Compensation Committee with the implementation of the Company’s remedial measures for diluted earnings in the current period; 5. If the Company implements any share incentive plan in the future, to link the conditions to exercise rights under such share incentive plan with the implementation of the Company’s remedial measures for diluted earnings in the current period; and 81 / 312 Annual Report 2019 6. To indemnify the Company or shareholders of the Company for the losses arising from any breach of or refusal to fulfill the covenants by him according to law. (VII) Controlling shareholder, actual controller and their concert parties Note 19: Each of controlling shareholder, actual controller and their concert parties hereby covenants as follows with respect to the serious implementation of the remedial measures for diluted earnings of the Company: 1. Not to interfere with management and operation of the Company beyond its/his powers; 2. Not to infringe on the interest of the Company; 3. Not to transfer benefits to any other entity or individual without compensation or on unfair terms, or otherwise damage the interest of the Company; and 4. To indemnify the Company or shareholders of the Company for the losses arising from any breach of or refusal to fulfill the covenants by it/him according to law. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” 2. Covenants of the controlling shareholder and the actual controller regarding the remedial measures for diluted earnings in the current period Each of the concert parties of the controlling shareholder Appotronics Holdings and the actual controller hereby undertakes: “1. Not to interfere with management and operation of the Company beyond its powers; 2. Not to infringe on the interest of the Company; 3. Not to transfer benefits to any other entity or individual without compensation or on unfair terms, or otherwise damage the interest of the Company; and 4. To indemnify the Company or shareholders of the Company for the losses arising from any breach of or refusal to fulfill the covenants by it according to law. As one of the persons responsible for the remedial measures for diluted earnings, if we breach or refuse to fulfill the covenants set forth above, we agree that the CSRC, the SSE and other securities regulatory authorities may mete out punishments on or take other administrative actions against us pursuant to the relevant provisions and rules established or published by them. 82 / 312 Annual Report 2019 This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares). The covenants and warranties stated above shall remain in effect so long as we remain a concert party of the controlling shareholder or the actual controller of the Company.” LI Yi, as the actual controller of the Company, hereby undertakes: “1. Not to interfere with management and operation of the Company beyond his powers; 2. Not to infringe on the interest of the Company; 3. Not to transfer benefits to any other entity or individual without compensation or on unfair terms, or otherwise damage the interest of the Company; 4. To indemnify the Company or shareholders of the Company for the losses arising from any breach of or refusal to fulfill the covenants by him according to law; 5. To exercise self-discipline in consumption in performing his duties; 6. Not to use the assets of the Company to engage in any investment or consumption activities not in connection with his duties; 7. To link the compensation system adopted by the Board of Directors or the Compensation Committee with the implementation of the Company’s remedial measures for diluted earnings in the current period; and 8. If the Company implements any share incentive plan in the future, to link the conditions to exercise rights under such share incentive plan with the implementation of the Company’s remedial measures for diluted earnings in the current period. As one of the persons responsible for the remedial measures for diluted earnings, if I breach or refuse to fulfill the covenants set forth above, I agree that the CSRC, the SSE and other securities regulatory authorities may mete out punishments on or take other administrative actions against me pursuant to the relevant provisions and rules established or published by them. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares). The covenants contained in Paragraphs 1 through 4 above shall remain in effect so long as I remain the actual controller of the Company, and the covenants contained in Paragraphs 3 through 8 above shall remain in effect so long as I remain a director of the Company.” Note 20: Each of the directors and senior officers of the Company hereby undertakes: “1. Not to transfer benefits to any other entity or individual without compensation or on unfair terms, or otherwise damage the interest of the Company; 83 / 312 Annual Report 2019 2. To exercise self-discipline in consumption in performing his duties; 3. Not to use the assets of the Company to engage in any investment or consumption activities not in connection with his duties; 4. To link the compensation system adopted by the Board of Directors or the Compensation Committee with the implementation of the Company’s remedial measures for diluted earnings in the current period; 5. If the Company implements any share incentive plan in the future, to link the conditions to exercise rights under such share incentive plan with the implementation of the Company’s remedial measures for diluted earnings in the current period; and 6. To indemnify the Company or shareholders of the Company for the losses arising from any breach of or refusal to fulfill the covenants by him according to law. As one of the persons responsible for the remedial measures for diluted earnings, if I breach or refuse to fulfill the covenants set forth above, I agree that the CSRC, the SSE and other securities regulatory authorities may mete out punishments on or take other administrative actions against me pursuant to the relevant provisions and rules established or published by them. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 21: The issuer hereby covenants as follows with respect to the profit distribution policy of the Company: “I. Considerations in the preparation of the shareholder returns plan The Company focuses on the long-term and sustainable development, and in preparing the plan, has taken into consideration its strategic development plan, actual business situation, development objectives, future profitability, status of cash flows, shareholder returns, cost of social capital, external financing environment and other relevant factors, and established a clear profit distribution mechanism on the basis of the balance between the reasonable returns on investment for shareholders and its sustainable development, to ensure the consistency and stability of the profit distribution policy and that the Company is able to operate continuously and healthily in the long run. II. Principles observed in the preparation of the shareholder returns plan (I) To strictly observe the basic principles for profit distribution set forth in the Articles of Association of Appotronics Corporation Limited (“AOA”); (II) To give full consideration and listen to the opinions of the shareholders (especially the minority shareholders) and the independent directors; 84 / 312 Annual Report 2019 (III) To strike a balance between the short-term interest and long-term development, and ensure that the profit distributions made by the Company will not undermine its ability to continue as a going concern; and (IV) To give priority to the distribution of cash dividends, attach importance to the provision of reasonable returns to investors, and ensure that the profit distributions are made continuously and stably and comply with the applicable laws, rules, regulations and normative documents, and the AOA. III. Detailed shareholder returns plan within three years following completion of the IPO (I) Intervals of profits distribution The Company shall make profit distributions at least once a year to the extent there are distributable profits. The annual profit distributions shall be made within two months following the relevant annual general meeting of shareholders. The Company may make interim profit distributions in cash according to its production and business situations and capital requirements. Such interim profit distributions shall be proposed by the Board of Directors according to the capital position of the Company, and made within two months after the same have been approved by the general meeting of shareholders. (II) Form of profit distribution The Company may distribute its profits in the form of cash dividends, stock dividends or a combination of cash dividends and stock dividends or otherwise permitted by the applicable laws, rules, regulations and normative documents, provided that cash dividends shall take precedence over stock dividends. The Company shall distribute its profits in cash to the extent that the conditions for distribution of cash dividends are satisfied. The cash dividends shall be distributed once every year in principle, but the Board of Directors may propose the distribution of interim cash dividends according to the earnings and capital position of the Company. (III) Conditions for distribution of cash dividends The Company shall distribute cash dividends for a year if: (1) the Company has earned a distributable profit in such year (after making up for the losses in prior years and appropriating public reserves), has sufficient cash flows, and will be able to continue as a going concern after such distribution of cash dividends; (2) the Company’s accumulated distributable profit is positive; (3) the Company’s auditor has issued a standard unqualified opinion on the Company’s financial report for such year; (4) the Company does not have any material investment plan or material capital expenditures (except the projects in which the offering proceeds invest); 85 / 312 Annual Report 2019 Material capital expenditures mean: (i) the aggregate amount of expenditures on external investments, acquisition of assets, purchase of equipment or land or other transactions that the Company plans to conduct in the next 12 months is equal to or exceeds 50% of the most recently audited net assets of the Company; or (ii) the aggregate amount of expenditures on external investments, acquisition of assets, purchase of equipment or land or other transactions that the Company plans to conduct in the next 12 months is equal to or exceeds 30% of the most recently audited total assets of the Company. (5) there isn’t any special circumstance that makes the profit distribution unsuitable as approved by the general meeting of shareholders. If the conditions set forth above are not satisfied, the Board of Directors shall determine whether or not to distribute cash dividends according to the actual circumstances. (IV) Ratio of cash dividends Subject to the satisfaction of the conditions for distribution of cash dividends, the Company shall pay out at least 10% of the distributable profit earned each year as cash dividends for such year. A subsidiary shall prepare its distribution plans on the basis of the distributable profit reported in the financial statements of the parent company. The Company shall determine the specific profit distribution ratio on the basis of the lower of the distributable profits reported in the consolidated financial statements and the financial statements of the parent company, to avoid excess profit distribution. If the Company has repurchased any shares by cash through tender offer or call auction in a year, the repurchase price paid by the Company shall be deemed as the cash dividends already distributed by the Company, and taken into account in the calculation of the cash dividend ratio for such year. (V) Differential cash dividend policy The Board of Directors will adopt the following differential cash dividend policy according to the procedures set forth in the AOA, giving comprehensive consideration to the characteristics of the industry in which the Company operates, its development stage, business model and earnings, material capital expenditure arrangements and other relevant factors: (1) If the Company is at the mature stage and does not have any material capital expenditure arrangement, at least 80% of the distributable profit will be distributed in cash; (2) If the Company is at the mature stage and has certain material capital expenditure arrangements, at least 40% of the distributable profit will be distributed in cash; or (3) If the Company is at the growth stage and has certain material capital expenditure arrangements, at least 20% of the distributable profit will be distributed in cash. If it is hard to determine the development stage but there are certain material capital expenditure arrangements, the policy set forth above may apply. 86 / 312 Annual Report 2019 The Company will formulate or adjust the shareholder returns plan subject to the profit distribution policy set forth above, according to its actual situations and the opinions of the shareholders (in particular, the minority shareholders) and the independent directors. (VI) Conditions for distribution of stock dividends The Company may distribute profits in the form of stock dividends according to its earnings and cash flows in a given year and on the premise of full distribution of cash dividends, to the extent that the Company maintains the minimum cash dividend ratio and reasonable share capital and shareholding structure, and ensures that the increase in share capital keeps pace with the growth of its operating performance. IV. Cycle for drawing up the shareholder returns plan and the relevant decision-making mechanism (I) The Company shall review the shareholder returns plan at least once every three years, make appropriate and necessary amendments to its profit distribution policy and decide on the shareholder returns plan for the giving period according to the opinions of the shareholders (in particular, holders of public shares), the independent directors and supervisors, subject to the applicable laws, rules, regulations and normative documents. (II) The Board of Directors shall draw up the specific profit distribution proposal for each year according to the AOA, earnings, capital requirements and shareholder returns plan of the Company, thoroughly discuss the reasonableness of such profit distribution proposal, seriously analyze and discuss the timing, conditions, minimum ratio, conditions for adjustment, decision-making procedures and other issues in respect of distribution of cash dividends, adopt a special resolution thereon, and submit the same to the general meeting of shareholders for consideration. The independent directors shall explicitly express their opinions on such profit distribution proposal, and may solicit the opinions of minority shareholders, and then directly submit a profit distribution proposal to the Board of Directors for consideration. (III) In considering a specific cash dividend distribution proposal, the general meeting of shareholders shall actively communicate and exchange with shareholders, in particular minority shareholders in various ways, including without limitation online voting and inviting minority shareholders to participate in the general meeting of shareholders, fully listen to the opinions and claims of minority shareholders, and promptly answer the questions raised by minority shareholders. The dividend distribution proposal requires the approval of the shareholders representing a majority of the total votes present at the general meeting of shareholders in person or by proxy. (V) The Board of Supervisors shall supervise the implementation of the Company’s profit distribution policy and shareholder returns plan by the Board of Directors and the management of the Company and the relevant decision-making procedures, and if the Company makes a profit in a year and does not intend to distribute profits, make an explanation and issue an opinion about the implementation of the relevant policies and plans. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” 87 / 312 Annual Report 2019 Note 22: The issuer hereby covenants that: “The Company will strictly perform all duties and obligations under all covenants made by it publicly in connection with the IPO (“Covenants”). If the Company fails to perform all duties and obligations under the Covenants, the Company shall make a public explanation and apologize to the shareholders and investors of public shares at the general meeting of shareholders and on the media for information disclosure designated by the CSRC, disclose the reasons for failure to fulfill the relevant Covenants, make supplementary or alternate covenants, or put forward other solutions, and assume the relevant legal liabilities and liability for compensation according to law. The shareholders and investors of public shares shall have the right to take legal actions to request the Company to fulfill the Covenants. The Company shall not increase the salaries or subsidies of the directors, supervisors and senior officers who assume personal liability for failure of the Company to fulfill the Covenants in any manner until the Company has fully removed the adverse effect of its failure to fulfill the Covenants. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares).” Note 23: The controlling shareholder Appotronics Holdings, the actual controller LI Yi and their concert parties hereby covenant that: “1. We/I will strictly perform all duties and obligations under all covenants made by us/me publicly in connection with the IPO (“Covenants”). 2. If we/I fail to perform, or actually become unable to perform, or become unable to perform as scheduled all duties and obligations under the Covenants (except those resulting from any change in the applicable laws, regulations and policies, natural disaster, event of force majeure or any other objective circumstances beyond our/my control), we/I will: (1) promptly and fully disclose the reasons for failure or inability to perform, or inability to perform as scheduled the relevant Covenants through the Company, and make a public apology to other shareholders of the Company; (2) make supplementary or alternate covenants to the Company and other shareholders of the Company, to protect their rights and interests to the maximum extent practicable; (3) submit such supplementary or alternate covenants to the general meeting of shareholders for consideration; and (4) surrender all gains (if any) obtained from failure to perform the relevant Covenants to the Company, and indemnify the Company and other shareholders of the Company for the losses arising therefrom according to law. 88 / 312 Annual Report 2019 3. If we/I fail to perform, or actually become unable to perform, or become unable to perform as scheduled the duties and obligations under the Covenants due to any change in the applicable laws, regulations and policies, natural disaster, event of force majeure or any other objective circumstances beyond our/my control, we/I will: (1) promptly and fully disclose the reasons for failure or inability to perform, or inability to perform as scheduled the relevant Covenants through the Company; and (2) make supplementary or alternate covenants to the Company and other shareholders of the Company, to protect their rights and interests to the maximum extent practicable. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares). The covenants set forth above shall remain in effect so long as we/I remain the controlling shareholder/actual controller/concert party of the actual controller (as applicable) of the Company.” Note 24: Each of the directors, supervisors and senior officers of the Company hereby covenants that: “1. I will strictly perform all duties and obligations under all covenants made by me publicly in connection with the IPO (“Covenants”). 2. If I fail to perform, or actually become unable to perform, or become unable to perform as scheduled all duties and obligations under the Covenants (except those resulting from any change in the applicable laws, regulations and policies, natural disaster, event of force majeure or any other objective circumstances beyond my control), I agree to surrender the gains obtained from breach of the Covenants to the Company, and indemnify the Company or the investors for the losses arising therefrom according to law. 3. If I fail to perform, or actually become unable to perform, or become unable to perform as scheduled the duties and obligations under the Covenants due to any change in the applicable laws, regulations and policies, natural disaster, event of force majeure or any other objective circumstances beyond my control, I will: (1) promptly and fully disclose the reasons for failure or inability to perform, or inability to perform as scheduled the relevant Covenants through the Company; and (2) make supplementary or alternate covenants to the Company and the shareholders of the Company, to protect their rights and interests to the maximum extent practicable. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of the Company’s RMB-denominated ordinary shares (A-shares). The covenants and warranties set forth above shall remain in effect so long as I remain a director/supervisor/senior officer (as applicable) of the Company.” 89 / 312 Annual Report 2019 Note 25: Appotronics Holdings, as the controlling shareholder of the issuer, hereby covenants that: “I. We acknowledge that as of the date of this Letter of Undertaking, we and our subsidiaries have not, directly or indirectly, engaged in any business or activity competing with the main business presently conducted by Appotronics in or outside China in any manner. II. We covenant and warrant that so long as we remain the controlling shareholder of Appotronics, we and our subsidiaries will not engage in any competing business that might have a material adverse effect on the main business of Appotronics. III. We and our subsidiaries will avoid and reduce related-party transactions with Appotronics to the maximum extent practicable. IV. With respect to the related-party transactions that are unavoidable or conducted with good reason: 1. We will abstain from the review of and voting on related-party transactions involving us in strict accordance with the applicable laws, rules, regulations and normative documents, and the Articles of Association, the Policy on Related-party Transaction and other regulations of Appotronics; 2. We will enter into contracts or agreements with Appotronics in respect of such related-party transactions according to the general commercial principle of “fairness, free will and valuable consideration”, and ensure that the price for such related-party transactions is fair and does not materially differ from the price or rate that will be offered by or to an independent third party on the market; 3. We will duly perform the applicable approval procedures and the obligation of information disclosure in connection with such related-party transactions in accordance with the applicable laws, rules, regulations and normative documents; and 4. We will not transfer any profits or benefits through any related-party transaction or take advantage of our decision-making power over the management of Appotronics to damage the legitimate rights and interests of Appotronics and the other shareholders of Appotronics. V. We undertake to exercise the relevant rights and perform the relevant obligations in strict accordance with the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics, and not to take advantage of our position and influence as the controlling shareholder to seek illegal gains or damage the legitimate rights and interests of Appotronics and the other shareholders of Appotronics. VI. We will procure our subsidiaries to comply with the covenants set forth above, and indemnify Appotronics and the other shareholders of Appotronics for damages to their legitimate rights and interests resulting from any breach by us or any of our subsidiaries of the covenants set forth above. 90 / 312 Annual Report 2019 This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of Appotronics’s RMB-denominated ordinary shares (A-shares). The covenants and warranties set forth above shall remain in effect so long as we remain the controlling shareholder of Appotronics.” Note 26: LI Yi, as the actual controller of the issuer, hereby covenants that: “I. I acknowledge that as of the date of this Letter of Undertaking, I and my subsidiaries have not, directly or indirectly, engaged in any business or activity competing with the main business presently conducted by Appotronics in or outside China in any manner. II. I covenant and warrant that so long as I remain the actual controller of Appotronics, I and my subsidiaries will not engage in any competing business that might have a material adverse effect on the main business of Appotronics. III. I and my subsidiaries and other business or economic entities in which I hold the post of director or senior officer (each an “Employer”) will avoid and reduce related-party transactions with Appotronics to the maximum extent practicable. IV. With respect to the related-party transactions that are unavoidable or conducted with good reason: 1. I will abstain from the review of and voting on related-party transactions involving me in strict accordance with the applicable laws, rules, regulations and normative documents, and the Articles of Association, the Policy on Related-party Transaction and other regulations of Appotronics; 2. I will enter into contracts or agreements with Appotronics in respect of such related-party transactions according to the general commercial principle of “fairness, free will and valuable consideration”, and ensure that the price for such related-party transactions is fair and does not materially differ from the price or rate that will be offered by or to an independent third party on the market; 3. I will duly perform the applicable approval procedures and the obligation of information disclosure in connection with such related-party transactions in accordance with the applicable laws, rules, regulations and normative documents; and 4. I will not transfer any profits or benefits through any related-party transaction or take advantage of my decision-making power over the management of Appotronics to damage the legitimate rights and interests of Appotronics and the other shareholders of Appotronics. V. I undertake to exercise the relevant rights and perform the relevant obligations in strict accordance with the applicable laws, rules, regulations and normative documents, and the Articles of Association of Appotronics, and not to take advantage of my position and influence as the actual controller to seek illegal gains or damage the legitimate rights and interests of Appotronics and the other shareholders of Appotronics. 91 / 312 Annual Report 2019 VI. I will procure my subsidiaries and the Employers to comply with the covenants set forth above, and indemnify Appotronics and the other shareholders of Appotronics for damages to their legitimate rights and interests resulting from any breach by me or any of my subsidiaries or the Employers of the covenants set forth above. This Letter of Undertaking shall take effect from the date of completion of the IPO and listing of Appotronics’s RMB-denominated ordinary shares (A-shares). Unless otherwise agreed, the covenants and warranties set forth above shall remain in effect so long as I remain the actual controller of Appotronics.” Note 27: Each of the grantees of share incentives of the Company hereby covenants that if the relevant information disclosure documents of the Company contain any misrepresentation or misleading statement or omit any material fact, as a result of which that the grantee becomes ineligible for the equities granted to him or the relevant equity attribution arrangement, the grantee shall surrender all benefits received by him under the incentive plan to the Company after the relevant information disclosure documents of the Company have been found to contain any misrepresentation or misleading statement or omit any material fact. Note 28: The Company undertakes not to provide loans or any other financial assistance to any grantee of restricted shares under the incentive plan, including guarantee for any loan obtained by such grantee. 92 / 312 Annual Report 2019 (II) If the Company has made any profit forecast on its assets or project and the reporting period falls within the period of such profit forecast, explanation about whether the goal has been achieved and the relevant reasons □ Reached □ Not reached √ N/A (III) Fulfillment of performance covenant and the relevant effect on goodwill impairment test □ Applicable √ N/A III. Occupation of funds during the reporting period and return of such funds □ Applicable √ N/A IV. Explanation about the modified audit opinion issued by the accounting firm □ Applicable √ N/A V. Explanation about the reasons and effect of changes in accounting policies and accounting estimates and correction of material accounting errors (I) Analysis of the reasons of changes in accounting policies and accounting estimates and the relevant effect √Applicable □ N/A Please see “Section XI. Financial Report - V. Significant accounting policies and accounting estimates - 41 Changes in significant accounting policies and accounting estimates”. (II) Explanation about the reasons and effect of correction of material accounting errors □ Applicable √ N/A (III) Communication with the former accounting firm □ Applicable √ N/A (IV) Other information □ Applicable √ N/A VI. Appointment and termination of appointment of accounting firm In RMB 0’000 Current accounting firm Name of domestic accounting firm Pan-China Certified Public Accountants (Special General Partnership) Fee payable to domestic accounting firm 53 Audit period of domestic accounting firm 4 years Name Fee Sponsor Huatai United Securities Co., Ltd. / Explanation about the appointment and termination of appointment of accounting firm √Applicable □ N/A The annual general meeting of shareholders of the Company for the year of 2018 approved the resolution to continue to appoint Pan-China Certified Public Accountants (Special General Partnership) as the auditor of the Company for the year of 2019 for a term of one 93 / 312 Annual Report 2019 year. Pan-China Certified Public Accountants (Special General Partnership) has issued auditor’s reports for the Company between 2016 and 2018. Explanation about re-appointment of accounting firm during the audit period □ Applicable √ N/A VII. Risk of delisting and the reason □ Applicable √ N/A VIII. Matters relating to bankruptcy and reorganization □ Applicable √ N/A 94 / 312 Annual Report 2019 IX. Material litigations and arbitrations √ The Company has been involved in material litigations and arbitration in this year □ The Company has not been involved in material litigations and arbitration in this year (I) Litigations and arbitrations already disclosed in interim announcements about which no new information is available √Applicable □ N/A Summary and type of case Reference I. Cases of dispute over infringement on patents for invention [2019] Yue 73 Zhi Min Chu No. Please refer to the Announcement No. 663 and No. 664 2019-005 issued by the Company on 1. Parties www.sse.com.cn and the designated media Plaintiff: Delta Electronics, Inc. for information disclosure on July 30, 2019. Defendant 1: Appotronics Corporation Limited Defendant 2: Futian SPN Projector & Video System Firm of Shenzhen 2. Background The Plaintiff alleges that the production, sale and offer for sale of “Appotronics Laser Projector AL-LX410UST” by Defendant 1 and Defendant 2 for purpose of production and operation has infringed on the Plaintiff’s patent for invention and caused economic losses to the Plaintiff. 3. Amount claimed: RMB 16,145,300. 4. The Guangzhou IP Court has issued Civil Rulings [2019] Yue 73 Zhi Min Chu No. 663 and No. 664, ordering the seizure and freeze of an aggregate of RMB 10 million of deposit or other properties in the equivalent amount of the Company. II. Cases of dispute over infringement on patents for invention [2019] Yue 03 Min Chu No.s Please refer to the Announcement No. 2942-2951 2019-006 issued by the Company on 1. Parties www.sse.com.cn and the designated media Plaintiff: Appotronics Corporation Limited for information disclosure on July 31, 2019. Defendant 1: Delta Electronics Business Management (Shanghai) Co., Ltd. 95 / 312 Annual Report 2019 Defendant 2: Delta Video Display System (Wujiang) Limited Defendant 3: Shenzhen Super Network Technology Co., Ltd. 2. Background The Plaintiff alleges that it is the owner of the patents for invention ZL200810065225.X “a phosphor-based light source structure for improving the efficiency of light conversion”, and ZL200880107739.5 “a multi-color lighting apparatus using moving pattern plate containing wavelength conversion material, and the production, sale and offer for sale of a variety of laser projector products by Defendant 1, Defendant 2 and Defendant 3 for purpose of production and operation has infringed on such patents for invention owned by the Plaintiff and caused economic losses to the Plaintiff. 3. Amount claimed: RMB 56 million. III. Case for changing the inventor of patent 19-cv-00466-RGD-LRL in the United States Please refer to the Announcement No. District Court for the Eastern District of Virginia 2019-012 issued by the Company on 1. Parties www.sse.com.cn and the designated media Plaintiff: Appotronics Corporation Limited for information disclosure on September 9, 2019. Defendant: Delta Electronics, Inc. 2. Background The Company brings a suit against Delta in the United States District Court for the Eastern District of Virginia for breach of non-disclosure agreement, wrongful appropriation of the technical solutions actually invented by the Company’s employees LI Yi and HU Fei, and filing for patent application in the United States without authorization, and petitions the court to order that the inventors of the patent-in-suit US 9,024,241 shall be changed from WANG Bo, ZHANG Kesu and HUA Jianhao into LI Yi and HU Fei. IV. Cases of dispute over infringement on patents for invention [2019] Jing 73 Min Chu No. Please refer to the Announcement No. 1275 and No. 1276 2019-014 issued by the Company on 1. Parties www.sse.com.cn and the designated media Plaintiff: Delta Electronics, Inc. for information disclosure on September 21, 2019. Defendant 1: Fengmi (Beijing) Technology Co., Ltd. 96 / 312 Annual Report 2019 Defendant 2: Appotronics Corporation Limited 2. Background The Plaintiff alleges that it is the owner of the patents for invention ZL201410249663.7 “manufacturing method of light source module and color wheel” and ZL201610387831.8 “phosphor color wheel and its applicable light source system”, and the joint production and sale of Mijia Laser Projector TV “MJJGTYDS01FM” by Defendant 1 and Defendant 2 has infringed on such patents for invention owned by the Plaintiff and caused economic losses to the Plaintiff. 3. Amount claimed: RMB 32.02 million. V. Case of dispute over title to patents [2019] Yue 03 Min Chu No. 4309 Please refer to the Announcement No. 1. Parties 2019-028 issued by the Company on Plaintiff: Appotronics Corporation Limited www.sse.com.cn and the designated media for information disclosure on November 8, Defendant: Delta Electronics, Inc. 2019. 2. Background The Plaintiff brings a suit in the Shenzhen Intermediate People’s Court, alleging that the Defendant filed a patent application in respect of the technical solution owned by the Plaintiff and named WANG Bo, ZHANG Kesu and HUA Jianhao as the inventors of such technical solution without authorization, thereby infringed on the technical achievements made by the Plaintiff and the right of authorship of LI Yi and HU Fei, the actual inventors, and petitions the court to declare that Plaintiff 1, Appotronics Corporation Limited owns the patent ZL201610387831.8 “phosphor color wheel and its applicable light source system”, and that Plaintiff 2, HU Fei and Plaintiff 3, LI Yi are the first and second inventors of the patent ZL201610387831.8 “phosphor color wheel and its applicable light source system”. (II) Litigations and arbitrations that have not been disclosed in interim announcements or about which there’s new information available √Applicable □ N/A In RMB 0’000 97 / 312 Annual Report 2019 During the reporting period: Whether any Party jointly Type of provision Enforcement Plaintiff/ Defendant/ Amount Result and and severally litigation/ Background is Status of judgment/ claimant respondent claimed effect liable arbitration recognized award and the amount Delta Appotronics Futian SPN Infringement In the case of dispute over 1,614.53 No Stayed, Stayed RMB 10 Electronics, Corporation Projector & on patent for infringement on patents for RMB 10 million has Inc. Limited Video invention invention [2019] Yue 73 Zhi Min million been System Firm Chu No. 662, the Plaintiff alleges has been released of Shenzhen that it is the owner of the patent for released invention ZL201610387831.8 “phosphor color wheel and its applicable light source system”, and the production, sale and offer for sale of “Appotronics Laser Projector AL-LX410UST” by Defendant 1 and Defendant 2 for purpose of production and operation has infringed on such patent for invention of the Plaintiff and caused economic losses to the Plaintiff. Appotronics Dehao Shenzhen Infringement In the cases of dispute over 4,163.04 No Pending Judgment of Pending Corporation Electronic Super on patent for infringement on patents for second first instance: second trial Limited, and Technology Network invention invention [2018] Yue 03 Min Chu trial The Shenzhen Ltd. Technology No.s 1891-1898, 1899-1907 and Defendant YLX Co., Ltd. 1940, the Plaintiff alleges that the should stop Technology production, sale and offer for sale its act of Development of a variety of projector products infringement Co., Ltd. by Defendant 1 and Defendant 2 and pay the for purpose of production and Plaintiff for operation has infringed on the the economic Plaintiff’s patent for invention and losses and caused economic losses to the reasonable 98 / 312 Annual Report 2019 Plaintiff. expenses, RMB 35.6 million in total. Casio Appotronics AV Design Infringement In the cases of dispute over 2,049.95 No The Judgment of In the Computer Corporation (Beijing) on patent for infringement on patents for Parties first instance: process of Co., Ltd. Limited Technology invention invention [2016] Jing 73 Min Chu entered All claims withdrawing Development No.s 59-60, the Plaintiff alleges into a made by the suit Co., Ltd. that it is the owner of the patents mediation Casio for invention 201210334155.X and agreement Computer 201010293730.7, and the in March Co., Ltd. production, sale and offer for sale 2020. were of Laser TV APUS-20(S) by dismissed. Defendant 1 and Defendant 2 for The Parties purpose of production and entered into a operation has infringed on such mediation patents for invention of the agreement in Plaintiff and caused economic March 2020. losses to the Plaintiff. Appotronics Casio Casio Infringement In the cases of dispute over 760 No The The Parties In the Corporation Computer (China) Co., on patent for infringement on patents for Parties entered into a process of Limited Co., Ltd. Ltd. and invention invention [2018] Jing 73 Min Chu entered mediation withdrawing Beijing No.s 1239 and 1240, the Plaintiff into a agreement in the suit Hongyang alleges that it is the owner of the mediation March 2020. Jiye patent for invention agreement Technology ZL200810065225.X, and the in March Co., Ltd. production, sale and offer for sale 2020. of two laser projector products by Defendant 1, Defendant 2 and Defendant 3 for purpose of production and operation has infringed on such patent for invention of the Plaintiff and caused economic losses to the Plaintiff. 99 / 312 Annual Report 2019 Note: In March 2020, the Company and Casio Computer Co., Ltd. entered into a Mediation Agreement, to finally settle the litigations involving the Parties. After the execution of the Mediation Agreement, each party has begun to withdraw the suits instituted by it against the other party, and will not lodge any claim against the other party or file any new petition for invalidation in respect of the relevant patents. Please refer to the Announcement No. 2020-008 issued by the Company on www.sse.com.cn and the designated media for information disclosure on March 21, 2020. As of the disclosure date of this report, the parties are going through the procedures for withdrawing their respective suits. (III) Other information √Applicable □ N/A As of December 31, 2019, the cases of petition for invalidation involving the Company that were pending trial by the State Intellectual Property Office are as follows: 1. Cases of petition for invalidation brought against the Company as the patent assignee No. Case No. Current Patent No. at issue Title of patent at issue Petitioner for Background Remark patent invalidation assignee 1 4W109289 Appotronics ZL200880107739.5 A multi-color lighting WEI Qun On July 25, 2019, the petitioner for On February 5, 2020, 4W109291 Corporation apparatus using moving invalidation filed a petition for the State Intellectual Limited pattern plate containing invalidation of the patent for Property Office wavelength conversion invention owned by the Company, decided that the patent material which was found to comply with the at issue is valid. Please relevant provisions of the Patent refer to our Interim Law, the Rules for Implementation Announcement No. of the Patent Law and the 2020-005. Guidelines for Examination according to prima facie examination, and was accepted by the State Intellectual Property Office on August 5, 2019. 2 4W109439 Appotronics ZL200880107739.5 A multi-color lighting Delta On August 29, 2019, the petitioner The petitioner for Corporation apparatus using moving Electronics for invalidation filed a petition for invalidation withdrew Limited pattern plate containing Business invalidation of the patent for the petition in March wavelength conversion Management invention 200880107739.5 titled “a 2020. material (Shanghai) multi-color lighting apparatus using 100 / 312 Annual Report 2019 Co., Ltd. moving pattern plate containing wavelength conversion material” (“Patent 7739”) owned by the Company, which was found to comply with the relevant provisions of the Patent Law, the Rules for Implementation of the Patent Law and the Guidelines for Examination according to prima facie examination, and was accepted by the State Intellectual Property Office on September 2, 2019. 3 4W108668 Appotronics ZL200810065225.X A phosphor-based light Dehao On March 27, 2019, the petitioner Pending trial Corporation source structure for Electronic for invalidation filed a petition for Limited improving the efficiency Technology invalidation of the patent for of light conversion Ltd. invention 200810065225.X titled “a phosphor-based light source structure for improving the efficiency of light conversion” owned by the Company, which was found to comply with the relevant provisions of the Patent Law, the Rules for Implementation of the Patent Law and the Guidelines for Examination according to prima facie examination, and was accepted by the State Intellectual Property Office on April 4, 2019. 4 4W108847 Appotronics ZL200810065225.X A phosphor-based light WEI Qun On May 9, 2019, the petitioner for Pending trial Corporation source structure for invalidation filed a petition for Limited improving the efficiency invalidation of the patent for of light conversion invention 200810065225.X titled “a phosphor-based light source structure for improving the efficiency of light conversion” owned by the Company, which was found to comply with the relevant 101 / 312 Annual Report 2019 provisions of the Patent Law, the Rules for Implementation of the Patent Law and the Guidelines for Examination according to prima facie examination, and was accepted by the State Intellectual Property Office on June 5, 2019. 5 4W109440 Appotronics ZL200810065225.X A phosphor-based light Delta On August 29, 2019, the petitioner The petitioner for Corporation source structure for Electronics for invalidation filed a petition for invalidation withdrew Limited improving the efficiency Business invalidation of the patent for the petition in March of light conversion Management invention 200810065225.X titled “a 2020. (Shanghai) phosphor-based light source Co., Ltd. structure for improving the efficiency of light conversion” owned by the Company, which was found to comply with the relevant provisions of the Patent Law, the Rules for Implementation of the Patent Law and the Guidelines for Examination according to prima facie examination, and was accepted by the State Intellectual Property Office on September 2, 2019. 2. Cases of petition for invalidation brought by the Company No. Case No. Current patent Patent No. at issue Title of patent at Petitioner for Background Remark assignee issue invalidation 1 4W109293 Delta Electronics, ZL201310017478.0 (1) Optical Appotronics On July 29, 2019, the Company filed a petition On February 5, 4W109294 Inc. ZL201310625063.1 system; (2) Corporation for invalidation of the patents for invention 2020, the State Blu-ray Limited 201310017478.0 titled “optical system” and Intellectual integration 201310625063.1 titled “blu-ray integration Property Office method and method and system” owned by Delta decided that the system Electronics, Inc. with the State Intellectual patent at issue is Property Office, which was found to comply wholly invalid. with the relevant provisions of the Patent Law, Please refer to the Rules for Implementation of the Patent Law our Interim 102 / 312 Annual Report 2019 and the Guidelines for Examination according Announcement to prima facie examination, and was accepted No. 2020-004. by the State Intellectual Property Office on July 30, 2019. 2 4W109295 Delta Electronics, ZL201610387831.8 Phosphor color Appotronics On July 29, 2019, the Company filed a petition On December 9, Inc. wheel and its Corporation for invalidation of the patent for invention 2019, the State applicable light Limited 201610387831.8 titled “phosphor color wheel Intellectual source system and its applicable light source system” owned Property Office by Delta Electronics, Inc. with the State decided to Intellectual Property Office, which was found suspend the trial to comply with the relevant provisions of the from November Patent Law, the Rules for Implementation of 7, 2019 to the Patent Law and the Guidelines for November 7, Examination according to prima facie 2020. examination, and was accepted by the State Intellectual Property Office on July 30, 2019. 3 4W109538 Delta Electronics, ZL201410249663.7 Manufacturing Appotronics On September 20, 2019, the Company filed a Pending trial Inc. method of light Corporation petition for invalidation of the patent for source module Limited invention 201410249663.7 titled and color wheel “manufacturing method of light source module and color wheel” owned by Delta Electronics, Inc. with the State Intellectual Property Office, which was found to comply with the relevant provisions of the Patent Law, the Rules for Implementation of the Patent Law and the Guidelines for Examination according to prima facie examination, and was accepted by the State Intellectual Property Office on September 23, 2019. 103 / 312 Annual Report 2019 X. Penalties imposed on the listed company and its directors, supervisors, senior officers, controlling shareholder, actual controller and acquirer and rectification of the relevant violations □ Applicable √ N/A XI. Credit standing of the Company and its controlling shareholder and actual controller during the reporting period □ Applicable √ N/A XII. Share incentive plan, employee stock ownership plan and other employee incentive measures of the Company and their effect (I) Incentives already disclosed in the interim announcements about which no new information is available √Applicable □ N/A Summary Reference On September 27, 2019, the Company held the 17th meeting of the Please refer to the relevant 1st Board of Directors and the 7th meeting of the 1st Board of announcement issued by the Supervisors, which reviewed and approved the Proposal on the Company on www.sse.com.cn and the 2019 Restricted Share Incentive Plan (Draft) of the Company and designated media for information Summary of the Plan and other related proposals. disclosure on September 28, 2019. On October 14, 2019, the Company held the 6th extraordinary Please refer to the relevant general meeting of shareholders in 2019, which reviewed and announcement issued by the approved the Proposal on the 2019 Restricted Share Incentive Plan Company on www.sse.com.cn and the (Draft) of the Company and Summary of the Plan and other related designated media for information proposals. disclosure on October 15, 2019. On October 14, 2019, the Company held the 18th meeting of the 1st Please refer to the relevant Board of Directors and the 8th meeting of the 1st Board of announcement issued by the Supervisors, which reviewed and approved the Proposal on the Company on www.sse.com.cn and the Adjustment of the 2019 Restricted Share Incentive Plan and the designated media for information Proposal on Initial Grant of Restricted Shares, pursuant to which, disclosure on October 15, 2019. the Company initially granted 4.4 million shares to 169 persons at the price of RMB 17.5 per share on October 14, 2019. The Company’s independent directors expressed their independent opinions on such proposals, and the Board of Supervisors expressed its opinion after review of such proposals. (II) Incentives that have not been disclosed in any interim announcement or about which there’s new information available Share incentives □ Applicable √ N/A Other information □ Applicable √ N/A Employee stock ownership plan □ Applicable √ N/A Other incentives □ Applicable √ N/A 104 / 312 Annual Report 2019 XIII. Material related-party transactions (I) Related-party transactions in connection with day-to-day operation 1. Matters already disclosed in the interim announcements about which no new information is available □ Applicable √ N/A 2. Matters already disclosed in the interim announcements about which there’s new information available □ Applicable √ N/A 3. Matters that have not been disclosed in any interim announcement √Applicable □ N/A In RMB 0’000 Reason for % of the big total amount difference Subject Pricing Transaction Method of Market Counterparty Relationship Type Amount of the same between the matter principle price settlement price type of transaction transactions price and the market price Xiaomi Corporation Sale of Laser TV, Determined 45,648.60 23.06 Bank / N/A Communications or other goods smart mini through settlement Technologies organization projector consultation Co., Ltd. and its holding on the basis affiliates more than of market 10% shares price in a / controlled subsidiary having significant influence on the Company CFEC and its Corporation Sale of Laser light Determined 14,177.80 7.16 Bank / N/A affiliates or other goods, source, through settlement organization lease and lease and consultation holding services services on the basis more than of market 10% shares price in a / controlled subsidiary having significant influence on the Company Cinionic Corporation Sale of Laser light Determined 12,539.51 6.34 Bank / N/A in which the goods source through settlement actual consultation controller or on the basis a director of of market / the price Company holds the post of director Beijing Donview Corporation Sale of Laser Determined 7,484.85 3.78 Bank / N/A Education or other goods business through settlement Technology Co., organization education consultation Ltd. and its holding projector on the basis affiliates more than of market 10% shares price in a / controlled subsidiary having significant influence on the Company Xiaomi Corporation Purchase of Electronic Determined / 13,500.66 9.43 Bank / N/A 105 / 312 Annual Report 2019 Communications or other goods and components through settlement Technologies organization materials consultation Co., Ltd. and its holding on the basis affiliates more than of market 10% shares price in a controlled subsidiary having significant influence on the Company CFEC and its Corporation Purchase of Power Determined 3,814.97 2.66 Bank / N/A affiliates or other goods and supply, through settlement organization materials water consultation holding cooling and on the basis more than services of market 10% shares price in a / controlled subsidiary having significant influence on the Company Xiaomi Corporation Acceptance Service Determined 94.14 0.07 Bank / N/A Communications or other of services through settlement Technologies organization consultation Co., Ltd. and its holding on the basis affiliates more than of market 10% shares price in a / controlled subsidiary having significant influence on the Company CFEC and its Corporation Acceptance Service Determined 3,744.48 2.62 Bank / N/A affiliates or other of services through settlement organization consultation holding on the basis more than of market 10% shares price in a / controlled subsidiary having significant influence on the Company Beijing Donview Corporation Acceptance Service Determined 7.03 0.00 Bank / N/A Education or other of services through settlement Technology Co., organization consultation Ltd. and its holding on the basis affiliates more than of market 10% shares price in a / controlled subsidiary having significant influence on the Company CFEC and its Corporation Property Property Determined 207.05 0.14 Bank / N/A affiliates or other lease lease through settlement organization consultation holding on the basis more than of market 10% shares price / in a controlled subsidiary having significant 106 / 312 Annual Report 2019 influence on the Company Total / / 101,219.09 / / / / Large-sum returned sales N/A Explanation about related-party transactions We conduct routine related-party transactions on an arm’ length basis, according to the relevant market rules, for purpose of satisfying the requirements of our business development, production and operation. The proportion of related-party transactions to the same type of transactions is calculated on the basis of total operating income if such transactions involve sale of goods, or on the basis of total purchase cost if such transactions involve purchase of goods. (II) Related-party transactions involving acquisition or sale of assets or equities 1. Matters already disclosed in the interim announcements about which no new information is available □ Applicable √ N/A 2. Matters already disclosed in the interim announcements about which there’s new information available □ Applicable √ N/A 3. Matters that have not been disclosed in any interim announcement □ Applicable √ N/A 4. Fulfillment of performance covenants (if any) during the reporting period □ Applicable √ N/A (III) Related-party transactions involving joint external investments 1. Matters already disclosed in the interim announcements about which no new information is available □ Applicable √ N/A 2. Matters already disclosed in the interim announcements about which there’s new information available □ Applicable √ N/A 3. Matters that have not been disclosed in any interim announcement □ Applicable √ N/A (IV) Accounts receivable from and payable to related parties 1. Matters already disclosed in the interim announcements about which no new information is available □ Applicable √ N/A 2. Matters already disclosed in the interim announcements about which there’s new information available □ Applicable √ N/A 3. Matters that have not been disclosed in any interim announcement □ Applicable √ N/A (V) Other information □ Applicable √ N/A XIV. Material contracts and performance thereof (I) Trusteeship, contracting and lease 1. Trusteeship □ Applicable √ N/A 107 / 312 Annual Report 2019 2. Contracting □ Applicable √ N/A 3. Lease □ Applicable √ N/A 108 / 312 Annual Report 2019 (II) Guarantees √Applicable □ N/A In RMB 0’000 External guarantees provided by the Company (excluding those provided for the subsidiaries) Total amount of guarantees provided during the reporting period (excluding those provided for the subsidiaries) 0 Balance of guarantees at the end of the reporting period (excluding those provided for the subsidiaries) (A) 0 Guarantees provided by the Company or its subsidiaries for the subsidiaries of the Company Relationship Relationship Whether the Whether the Amount of the Whether Commencement date between the between the Amount Effective date of Expiry date of Type of obligation obligation overdue there’s a Guarantor Obligor of guarantee (signing guarantor and the obligor and the guaranteed guarantee guarantee guarantee guaranteed has guaranteed has obligation counter date of agreement) listed company listed company been discharged become overdue guaranteed guarantee Two years after the Appotronics Joint and Controlled due date for the Corporation Headquarters CINEAPPO 80,000 November 28, 2018 November 28, 2018 several No No No subsidiary obligations under Limited liability the master contract Appotronics Joint and Controlled Corporation Headquarters CINEAPPO 6,000 June 27, 2019 June 27, 2019 June 26, 2023 several No No No subsidiary Limited liability Appotronics Two years after the Joint and Controlled Corporation Headquarters Fengmi 16,500 October 21, 2019 October 21, 2019 due date for the several No No No subsidiary Limited obligations liability Initial utilization Two years after the Appotronics Joint and Controlled date or actual date latest due date of Corporation Headquarters Fengmi 10,000 November 23, 2018 several Yes No No subsidiary of utilization under the loans under the Limited liability the financing letter financing letter Total amount of guarantees provided for the subsidiaries during the reporting period 27,379 Balance of guarantees provided for the subsidiaries at the end of the reporting period (B) 41,024 Total amount of guarantees provided by the Company (including those provided for the subsidiaries) Total amount guaranteed (A+B) 41,024 Proportion of total amount guaranteed to the net assets of the Company (%) 19.31 Where: Total amount of guarantees provided for the shareholders, actual controller and their affiliates (C) 0 Total amount of debt guarantees directly or indirectly provided for the obligors whose equity-debt ratio exceeds 70% (D) 26,500 109 / 312 Annual Report 2019 Total amount guaranteed in excess of 50% of the net assets of the Company (E) Total amount guaranteed (C+D+E) 26,500 Explanation about outstanding guarantees for which the Company may assume joint and several liability None Explanation about guarantees None Note: With respect to the guarantee provided by the Company for Fengmi in the amount of RMB 100 million as of the date of this Report, the guarantee contract has been executed but the relevant bank loan has not been granted, so no liability for guarantee has been incurred. (III) Entrusted cash asset management 1. Entrusted wealth management (1) Overall situation of entrusted wealth management √Applicable □ N/A In RMB Type Source of funds Total amount Outstanding amount Overdue amount Bank wealth management amount Offering proceeds 859,000,000.00 540,000,000.00 0 Other information □ Applicable √ N/A (2) Single entrusted wealth management □ Applicable √ N/A Other information □ Applicable √ N/A 110 / 312 Annual Report 2019 (3) Provision for impairment of entrusted wealth management products □ Applicable √ N/A 2. Entrusted loans (1) Overall situation of entrusted loans □ Applicable √ N/A Other information □ Applicable √ N/A (2) Single entrusted loans □ Applicable √ N/A Other information □ Applicable √ N/A (3) Provision for impairment of entrusted loans □ Applicable √ N/A 3. Other information □ Applicable √ N/A (IV) Other material contracts □ Applicable √ N/A XV. Other significant matters □ Applicable √ N/A XVI. Active performance of social responsibilities (I) Poverty alleviation of listed companies □ Applicable √ N/A (II) Performance of social responsibilities 1. Protection of the rights and interests of shareholders and creditors √Applicable □ N/A (1) Seriously safeguard the legitimate rights and interests of investors During the reporting period, we have continuously improved our corporate governance structure, and operated in strict accordance with the applicable laws and regulations. In addition, we have reviewed our internal control and information systems, to improve our management efficiency. We have defined the operating mechanisms of the Board of Directors, the Board of Supervisors and the general meeting of shareholders in strict accordance with the applicable laws and regulations. At the general meetings of shareholders held after our listing on the STAR Market, the shareholders could cast their votes at the venue of meeting or on line, so as to ensure that the minority shareholders can exercise their voting rights. The proceedings of the Board of Directors, the Board of Supervisors and the general meeting of shareholders comply with the applicable laws and regulations, and the procedures of business transaction are legal and valid. The directors, supervisors and senior officers have been assiduous in their duties, and seriously safeguarded the legitimate rights and interests of the shareholders. We have strictly complied with the Securities Law of the People’s Republic of China, the Administrative Measures for Information Disclosure by the Listed Companies, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange and other applicable laws and regulations, and performed the obligation of information disclosure as a listed company. We have disclosed information on the principle 111 / 312 Annual Report 2019 of truthfulness, accuracy and completeness, to ensure the investors are informed of our operational highlights and significant events in a timely manner. We have actively carried out investor relations activities in various forms, and subjected ourselves to the supervision of the investors, to increase the transparency of our operation and enhance our corporate image. We have established the investor relations management policy, and actively communicated with the investors by telephone, email, the e-information platform of the SSE, investor briefing or otherwise, to enable the investors to have a better understanding about our business situations and development directions. We have also adopted the reasonable advice of the investors to promote our healthy development. (2) Seriously safeguard the legitimate rights and interests of creditors We attach importance to the protection of the legitimate rights and interests of creditors, through execution of contract or otherwise. We have duly performed our payment obligation and other obligations in strict accordance with the relevant contracts. In addition, we have enhanced communications and exchanges with our creditors, to enhance their understanding about us. 2. Protection of the rights and interests of employees √Applicable □ N/A We have complied with the Labor Law, the Labor Contract Law and other applicable laws, regulations and normative documents, and continuously improved our human resources management system and compensation and incentive mechanisms. With a view to complying with the applicable laws and regulations of the country and fully safeguarding the rights, interests and benefits of the employees, we have established the Recruitment Policy, the Training Policy, the Performance Assessment Policy, the Basic Personnel Management Policy, the Employee Attendance Policy, the Employee Leave Policy, the Employee Benefits Policy, and other human resources management regulations and policies. Main rights and interests of employees In the recruitment and employment of the employees, we adhere to the principle of equality and fairness, and comply with the applicable anti-discrimination regulations, and will not treat differently, or show a bias or discrimination against any employee based on age, sex, gender, ethnicity, race, national origin, color, disability or other characteristics. Our production activities are free from any child labor or forced labor. Our regular employees are entitled to all legal leaves stipulated by the country. In addition, the bereavement leave, and (for the employees of our subsidiary in Hong Kong) maternity leave, wedding leave and parenting leave granted by us to our employees are more favorable than those stipulated by the governments of China and Hong Kong. Compensation and benefits of employees In order to establish a fair and equal compensation and incentive system, and ensure the Company’s market competitiveness externally and effective incentive for employees internally, we have designed a compensation system based on post, capability and performance, according to the design concept and approaches of international compensation system, and by reference to the compensation level on the market. Our compensation system is based on position hierarchy, wherein different positions and ranks correspond to different levels of compensation, so that the employees’ compensation corresponds to the value of their position and their capability and experience. The employees’ compensation is also linked to their performance and contribution to the Company, thereby establishing a performance-based compensation and incentive system. 112 / 312 Annual Report 2019 We adjust the salaries of all employees or promote certain employees to higher ranks or positions or adjust the salaries of certain employees at multiple fixed points of time every year. The adjustment of salaries is determined according to the compensation level on the market, changes in the ranks of employees, performance and other relevant factors. Share incentive plan In order to further improve our long-term incentive mechanism, attract and retain outstanding talents, enhance the sense of responsibility and mission of our management team and key employees for the continuous and healthy development of the Company, and ensure the achievement of our development objectives, we launched the 2019 share incentive plan immediately after our listing on the STAR Market. The plan is designed to fully motivate our business teams, effectively bind the interests of the shareholders and the Company with their personal interests, procure all stakeholders to focus on our long-term development, share the benefits of our development with the employees, and enhance the competitiveness of the salaries of our employees. Career development of employees We stick to the philosophy of “pooling top talents, keeping company with outstanding talents, and nurturing more talents”, continuously recruit outstanding talents, provide them with broad development spaces, and continuously improve our compensation and benefit system, talent training system and career development system. With respect to the career development system, we have created two career development routes oriented on profession and management respectively, and carried out talent training plans for the professional line and management line respectively. In 2019, we established Appotronics auditorium, which is a platform for employees to learn and share. Through all-round talent training, we will promote and foster our corporate culture and values, and realize both development of the Company and the personal development of employees. In order to promote talent development, Appotronics has established a fair, equal and sound performance management system, formulated the Appotronics Performance Policy, provided the employees with chances of promotion every year depending on their performance, competence for their jobs and other qualifications for jobs, and designed a sound promotion assessment process. In addition, we have provided the employees with cross-position and cross-channel career development opportunities. We have also established the complaint mechanism for the result of performance assessment, and provided channels for the employees to raise their objections to the result of performance assessment, so as to further ensure the fairness of performance assessment. Diversified training mechanisms We stick to the philosophy of “helping outstanding talents become more outstanding”, focus on the development of the capabilities of key employees, and arouse their enthusiasm for continuous innovation, to achieve our development objective “to become the pioneer in the laser display industry through disruptive technical innovations and differential mode covering the entire value chain”. In 2019, we organized and implemented the “Polar Light Program”, the “Product Operation Training Camp”, the “Star Light Program” and other talent development programs, to help medium and high level managerial staff better implement our strategies, lead their teams and achieve the goals of the organization; help the members of product operation team understand product operation, enhance awareness of products and create popular products of Appotronics; and help college graduates rapidly transit to their new 113 / 312 Annual Report 2019 roles, master the professional knowledge and skills required in their jobs, be competent for their jobs within a short time, and create the highest value. In 2019, we built and gradually improved a three-level training management system, and achieved the initial goals. The three-level training management and course system provides visual presentation of skill training courses, makes available learning channels and satisfies the learning requirements for professional, non-professional and cross-department knowledge. In 2019, we organized and shared more than 500 training courses, with nearly 20,000 class hours in total, which effectively satisfied the requirements for the improvement of the employees’ personal capabilities and the organization capabilities. Focus on safety and health of employees Appotronics strictly complies with the provisions of the Labor Law regarding injuries at work. In 2019, we did not have any accident involving injuries at work. We advocate the philosophy of “happy work, healthy life”, and focus on the health of employees. Our employees have physical examinations every year at the professional institutions selected by us. The family members of employees who have physical examinations will get the same discounts as those given to the Company. In addition, we have purchased personal accident insurance and disease and mortality life insurance for all of our employees at Ping An Insurance. 3. Protection of the rights and interests of suppliers, customers and consumers √Applicable □ N/A We have established the Supplier Development, Management and Control Process and other relevant policies according to our actual circumstances, to strictly control the development of suppliers, implementation of procurement plans, inspection of incoming materials and other business. When selecting a new supplier, we will organize a group of specialists comprising members from R&D, quality control, purchasing and other related departments, to assess the processing, quality control, financial and other capabilities of the supplier. We have established long-term and stable cooperation relationship with many suppliers, and bound such suppliers by contract and standard in terms of date of delivery, quality control and others issues in respect of the goods delivered by them. We are committed to providing the customers with high-quality products through strict quality control. Our production base has passed ISO9001 quality management system certification. The contracts executed by us with the customers generally contain quality assurance clauses, pursuant to which we have the obligation to repair the products sold by us that are found to have quality problems during the warranty period (which is 1-3 years generally) free of charge. We guarantee that the laser light source sold by us on the domestic market will have a service life of 30,000 hours. We respond to customers’ requests rapidly. With respect to any service request made by a customer, our policy is to respond within two hours, provide a solution within four hours, and solve the related problems within the shortest possible time. In 2019, we passed “five-star” service certification of the After-sale Service Assessment System. We safeguard the legitimate rights and interests of the suppliers, customers and consumers through the measures stated above. 4. Product safety √Applicable □ N/A We attach great importance to ensuring safety of products, and have passed the following product safety certifications in the manufacturing field at home and abroad, which provides assurance for the safety of our products. 114 / 312 Annual Report 2019 Abbreviation Description China Compulsory Certification, a compulsory safety certification CCC required by the Certification and Accreditation Administration of the People’s Republic of China for the products covered. Electrical Testing Laboratories, a generally accepted product safety ETL certification in the North America. CE Conformite Europeenne, a compulsory certification required by EU. Federal Communications Commission, a certification required by the Federal Communications Commission for the radio products, FCC communication products and digital products entering the American market. Certification Bodies, a global system established by the International CB Electrotechnical Commission (IECEE). CB test reports and CB test certificates are recognized in all member states of IECEE. Technischer berwachungs-Verein, a generally accepted safety TUV certification of electronic components in Germany and Europe. 5. Public relations and public welfare activities √Applicable □ N/A In the context that the country is vigorously promoting the building of education IT system, the IT infrastructure is relatively weak in western China. Appotronics has closely cooperated with the local education bureaus and sports bureaus to promote the development of the educational undertakings, and enhanced cultural exchanges between Shenzhen and Ganzi County, to actively help the western region improve the level of IT infrastructure. We donated 10 sets of smart classroom solution with ALPD laser projector, worth RMB 300,000 in total, to Ganzi Tibet Autonomous Prefecture of Sichuan Province, which have been installed and used in No.2 Six-grade Primary School of Chengguan in Ganzi County and No. 4 Middle School of Luding County. (III) Environment 1. Environmental protection information of the Company and its major subsidiaries that are identified as major polluters by the environmental protection authority □ Applicable √ N/A 2. Environmental protection information of the Company that is not identified as a major polluter √Applicable □ N/A We have not been identified as a major polluter during the reporting period. We attach importance to environmental protection and have taken the following environmental protection measures to fulfill our social responsibility: Disposal of solid wastes Our solid wastes include consumer wastes, general industrial solid wastes and hazardous wastes. The consumer wastes are collected and then handed over to the environmental sanitation entity for centralized treatment. The general industrial solid wastes mainly consist of leadless waste scruff and waste packing materials generated in the production process, which are collected by category and then handed over to the relevant resource recycling entities for recycling. The hazardous wastes mainly consist of waste active carbon 115 / 312 Annual Report 2019 generated in the waste gas treatment process, and wastes containing industrial alcohol and waste packing materials containing cleaning agents that are generated in the production process, which are collected and then handed over to the qualified entities for treatment. Sewage treatment Our sewage includes domestic sewage and industrial sewage. The domestic sewage is pre-treated through septic tank or otherwise, and after meeting the relevant standard, discharged to the municipal sewage treatment pipelines and sewage treatment plant. The industrial sewage is handed over to the qualified entities for treatment. In addition, we have optimized the technologies currently used to reduce the sewage discharged. We appoint a third party to inspect our domestic sewage every year. Waste gas treatment Our waste gas mainly includes waste gas containing tin and organic waste gas generated in the production process. We have built a waste gas treatment system, comprising UV photolysis, active carbon adsorption plant, air purification equipment and other equipment. The concentration of tin and NmHc in the waste gas discharged by us to the air meets the local standard for Atmospheric Pollutant Emission Limit. We appoint a third party to conduct the relevant inspections every year. Certifications relating to environmental protection We passed ISO14001 environmental management system certification in 2008, and has maintained such certification to date. In 2019, we passed QC080000 hazardous substance process management system certification. All of our products are green products and have passed RoHS, REACH and China environmental labeling product certification, among others. 3. Reason for failure to disclose environmental protection information of the Company that is not identified as a major polluter □ Applicable √ N/A 4. New information about the environmental protection information disclosed during the reporting period □ Applicable √ N/A (IV) Other information □ Applicable √ N/A XVII. Convertible corporate bonds □ Applicable √ N/A 116 / 312 Annual Report 2019 Section VI Changes in Shares and Shareholders I. Changes in ordinary shares (I) Statement of changes in ordinary shares 1. Statement of changes in ordinary shares Unit: Share Before the change +/- After the change Bonus Capitalization of Number % New shares Others Subtotal Number % shares capital reserves I. Non-tradable shares 383,554,411 100.00 10,807,087 10,807,087 394,361,498 87.33 1. Shares held by the State 2. Shares held by State-owned corporations 3. Shares held by other domestic investors 232,858,375 60.71 10,807,087 10,807,087 243,665,462 53.96 Incl.: Shares held by domestic non-Stated-owned 222,808,836 58.09 10,807,087 10,807,087 233,615,923 51.73 corporations Shares held by domestic natural persons 10,049,539 2.62 10,049,539 2.23 4. Shares held by foreign investors 150,696,036 39.29 150,696,036 33.37 Incl.: Shares held by foreign corporations 135,203,427 35.25 135,203,427 29.94 Shares held by foreign natural persons 15,492,609 4.04 15,492,609 3.43 II. Tradable shares 57,192,913 57,192,913 57,192,913 12.67 1. RMB-denominated ordinary shares 57,192,913 57,192,913 57,192,913 12.67 2. Foreign currency-denominated shares listed domestically 3. Foreign currency-denominated shares listed overseas 4. Others III. Total ordinary shares 383,554,411 100.00 68,000,000 68,000,000 451,554,411 100.00 117 / 312 Annual Report 2019 2. Explanation about changes in ordinary shares √Applicable □ N/A Upon approval by the CSRC through the Reply on Approving the Registration of the Initial Public Offering of Appotronics Corporation Limited (Zheng Jian Xu Ke [2019] No. 1163) and by the SSE, we issued 68 million RMB-denominated ordinary shares (A-shares) to the public at the offering price of RMB 17.5 per share. The total offering proceeds were RMB 1,190,000,000, and the net offering proceeds were RMB 1,062,470,797.73 after deducting the offering expense of RMB 127,529,202.27 (exclusive of tax), of which, RMB 68,000,000.00 was recorded in the share capital, and RMB 994,470,797.73 was recorded in the capital reserve. Pan-China Certified Public Accountants (Special General Partnership) examined our capital increase through IPO and issued the Capital Verification Report (Tian Jian Yan [2019] No. 7-62) thereon. 3. Effect of the changes in ordinary shares on the earnings per share, net assets per share and other financial indicators of the most recent year and the most recent reporting period (if any) √Applicable □ N/A During the reporting period, we publicly issued A-shares on the SSE, as a result of which our share capital increased by RMB 68,000,000.00 and capital reserve increased by RMB 994,470,797.73. Unit: RMB per share Item 2019 2019 (calculated on the same basis) (Note) Basic earnings per share 0.45 0.49 Diluted earnings per share 0.45 0.49 Net assets per share attributable to the 4.37 2.38 shareholders of ordinary shares of the listed company Note: The basic earnings per share, diluted earnings per share and net assets per share attributable to the shareholders of ordinary shares of the listed company in 2019 calculated on the same basis are calculated supposing that no shares were issued in 2019. 4. Other information disclosed as the Company deems necessary or required by the securities regulatory authority □ Applicable √ N/A (II) Changes in non-tradable shares √Applicable □ N/A Unit: Share Balance of Number of Balance of Number of non-tradable non-tradable non-tradable non-tradable Reason for Shareholder shares as at shares shares as at Unlock date shares increased restriction January 1, unlocked in December 31, in 2019 2019 2019 2019 Appotronics Holdings 0 0 79,762,679 79,762,679 Non-tradable July 22, 2022 pre-IPO shares SAIF IV Hong 0 0 62,980,676 62,980,676 Non-tradable July 22, 2020 Kong (China pre-IPO shares Investments) Limited CITIC PE Investment 0 0 41,774,562 41,774,562 Non-tradable July 22, 2020 (Hong Kong) 2016 pre-IPO shares Limited Fuzhou Haixia 0 0 25,064,737 25,064,737 Non-tradable July 22, 2020 Appotronics pre-IPO shares Investment Partnership 118 / 312 Annual Report 2019 (LP) Yuanshi 0 0 24,139,500 24,139,500 Non-tradable July 22, 2022 pre-IPO shares Appotronics Daye 0 0 20,430,250 20,430,250 Non-tradable July 22, 2022 pre-IPO shares Green Future 0 0 16,504,518 16,504,518 Non-tradable July 22, 2020 Holdings Limited pre-IPO shares Appotronics Hongye 0 0 15,662,374 15,662,374 Non-tradable July 22, 2022 pre-IPO shares Jinleijing 0 0 12,353,106 12,353,106 Non-tradable July 22, 2022 pre-IPO shares Changzhou Lisheng 0 0 11,667,635 11,667,635 Non-tradable July 22, 2020 Equity Investment pre-IPO shares Partnership (LP) Shenzhen Guochuang 0 0 10,443,640 10,443,640 Non-tradable July 22, 2020 Chenggu Capital pre-IPO shares Management Co., Ltd. - Shenzhen Chengguhui Equity Investment Partnership (LP) Appotronics Chengye 0 0 10,394,846 10,394,846 Non-tradable July 22, 2022 pre-IPO shares CAI Kunliang 0 0 10,049,539 10,049,539 Non-tradable July 22, 2020 pre-IPO shares CUI Jingtao 0 0 9,658,792 9,658,792 Non-tradable July 22, 2020 pre-IPO shares Smart Team 0 0 6,799,660 6,799,660 Non-tradable July 22, 2020 Investment Limited pre-IPO shares ZHENG Yongshi 0 0 5,833,817 5,833,817 Non-tradable July 22, 2020 pre-IPO shares Shenzhen Liansong 0 0 5,833,817 5,833,817 Non-tradable July 22, 2020 Capital Management pre-IPO shares Partnership (LP) Shenzhen Shanqiao 0 0 5,320,000 5,320,000 Non-tradable July 22, 2020 Capital Management pre-IPO shares Partnership (LP) Jiayuan I 0 0 4,548,685 4,548,685 Non-tradable July 22, 2020 strategic allotted shares in IPO Blackpine Investment 0 0 3,994,011 3,994,011 Non-tradable July 22, 2022 Corp. Limited pre-IPO shares Light Zone Limited 0 0 3,150,000 3,150,000 Non-tradable July 22, 2020 pre-IPO shares Huatai Venture 0 0 2,720,000 2,720,000 Non-tradable July 22, 2021 Capital Investment strategic Co., Ltd. allotted shares in IPO SCGC Hongtu Angel 0 0 1,736,252 1,736,252 Non-tradable July 22, 2020 Investment pre-IPO shares Management (Shenzhen) Co., Ltd. - Shenzhen Hongtu Kongque Venture Capital Investment Co., Ltd. Off-line allotment 0 0 3,538,402 3,538,402 Non-tradable January 22, account off-line 2020 allotted shares in IPO Total 0 0 394,361,498 394,361,498 / / Note:As of the end of the reporting period, Huatai Venture Capital Investment Co., Ltd. held 2,720,000 non-tradable shares in total, including the shares lent out under refinancing arrangement. II. Issuance and listing of securities (I) Securities issued during the reporting period √Applicable □ N/A 119 / 312 Annual Report 2019 Unit: Share, RMB Offering Number of Termination Type of shares Listing Number of Issue date price (or shares date of and derivatives date shares listed interest rate) issued transaction Type of ordinary shares A-shares July 22, 17.5 68,000,000 July 22, 68,000,000 N/A 2019 2019 Explanation about the securities issued during the reporting period (in case of any outstanding bonds with different interest rates, please explain separately): √Applicable □ N/A Upon approval by the CSRC through the Reply on Approving the Registration of the Initial Public Offering of Appotronics Corporation Limited (Zheng Jian Xu Ke [2019] No. 1163) and by the SSE, we issued 68 million RMB-denominated ordinary shares (A-shares) to the public at the offering price of RMB 17.5 per share. The total offering proceeds were RMB 1,190,000,000. Such shares were listed on the STAR Market on July 22, 2019. (II) Changes in total number of ordinary shares, shareholding structure, and structure of assets and liabilities of the Company √Applicable □ N/A During the reporting period, we issued 68 million RMB-denominated ordinary shares (A-shares) to the public , as a result of which the total number of shares in our share capital increased from 383,554,411 shares to 451,554,411 shares. III. Shareholders and actual controller (I) Total number of shareholders Total number of shareholders of ordinary shares as of the end of the 19,204 reporting period Total number of shareholders of ordinary shares as of the end of the month 17,029 immediately prior to the issue date of this annual report Total number of shareholders of preferred shares whose voting right has 0 been restituted as of the end of the reporting period Total number of shareholders of preferred shares whose voting right has 0 been restituted as of the end of the month immediately prior to the issue date of this annual report Number of holders of depository receipts □ Applicable √ N/A 120 / 312 Annual Report 2019 (II) Shares held by top 10 shareholders and top 10 holders of tradable shares as of the end of the reporting period Unit: Share Shares held by top 10 shareholders Balance of Number of Shares pledged or Change shares held non-tradable shares frozen Number of during the as at the end held, including the Nature of Shareholder % non-tradable reporting of the shares lent out under shareholder shares held Status of period reporting the refinancing Number period arrangement shares Appotronics Holdings 0 79,762,679 17.66 79,762,679 79,762,679 0 Domestic non-stated None owned corporation SAIF IV Hong Kong (China Investments) 0 62,980,676 13.95 62,980,676 62,980,676 0 Foreign corporation None Limited CITIC PE Investment (Hong Kong) 2016 0 41,774,562 9.25 41,774,562 41,774,562 0 Foreign corporation None Limited Fuzhou Haixia Appotronics Investment 0 25,064,737 5.55 25,064,737 25,064,737 0 Domestic non-stated None Partnership (LP) owned corporation Yuanshi 0 24,139,500 5.35 24,139,500 24,139,500 0 Domestic non-stated None owned corporation Appotronics Daye 0 20,430,250 4.52 20,430,250 20,430,250 0 Domestic non-stated None owned corporation Green Future Holdings Limited 0 16,504,518 3.66 16,504,518 16,504,518 None 0 Foreign corporation Appotronics Hongye 0 15,662,374 3.47 15,662,374 15,662,374 0 Domestic non-stated None owned corporation Jinleijing 0 12,353,106 2.74 12,353,106 12,353,106 0 Domestic non-stated None owned corporation Changzhou Lisheng Equity Investment 0 11,667,635 2.58 11,667,635 11,667,635 0 Domestic non-stated None Partnership (LP) owned corporation Shares held by top 10 holders of tradable shares Type and number of shares Shareholder Number of tradable shares held Type Number National Social Security Fund Portfolio No. 102 1,742,168 RMB-denominated ordinary 1,742,168 share 121 / 312 Annual Report 2019 UBS AG 1,546,625 RMB-denominated ordinary 1,546,625 share WANG Danping 329,210 RMB-denominated ordinary 329,210 share GAO Ermei 307,411 RMB-denominated ordinary 307,411 share Shanghai Securities Co., Ltd. 300,000 RMB-denominated ordinary 300,000 share LIU Qing’an 266,769 RMB-denominated ordinary 266,769 share ZHANG Shangmin 244,000 RMB-denominated ordinary 244,000 share ZHONG Haidi 201,967 RMB-denominated ordinary 201,967 share GAO Mei 185,913 RMB-denominated ordinary 185,913 share HE Ziheng 180,280 RMB-denominated ordinary 180,280 share Affiliates or concert parties among the shareholders stated above 1. As of December 31, 2019, among our top 10 shareholders, Appotronics Holdings, Yuanshi, Appotronics Daye, Appotronics Hongye and Jinleijing are concert parties. We have not received any notice about affiliates or concert parties among other shareholders stated above. 2. We are not aware whether there are affiliates or concert parties as defined in the Administrative Measures for the Acquisition of the Listed Companies among the holders of tradable shares. Holders of preferred shares whose voting right has been restituted and the N/A number of shares held by them Top 10 holders of non-tradable shares and lock-up period √Applicable □ N/A Unit: Share Unlocking of non-tradable shares Number of non-tradable No. Holder of non-tradable shares Number of shares Lock-up period shares held Unlock date newly unlocked 1 Appotronics Holdings 79,762,679 July 22, 2022 0 36 months after the listing date 122 / 312 Annual Report 2019 2 SAIF IV Hong Kong (China Investments) Limited 62,980,676 July 22, 2020 0 12 months after the listing date 3 CITIC PE Investment (Hong Kong) 2016 Limited 41,774,562 July 22, 2020 0 12 months after the listing date 4 Fuzhou Haixia Appotronics Investment Partnership (LP) 25,064,737 July 22, 2020 0 12 months after the listing date 5 Yuanshi 24,139,500 July 22, 2022 0 36 months after the listing date 6 Appotronics Daye 20,430,250 July 22, 2022 0 36 months after the listing date 7 Green Future Holdings Limited 16,504,518 July 22, 2020 0 12 months after the listing date 8 Appotronics Hongye 15,662,374 July 22, 2022 0 36 months after the listing date 9 Jinleijing 12,353,106 July 22, 2022 0 36 months after the listing date 10 Changzhou Lisheng Equity Investment Partnership (LP) 11,667,635 July 22, 2020 0 12 months after the listing date Affiliates or concert parties among the shareholders stated above As of December 31, 2019, among our top 10 shareholders, Appotronics Holdings, Yuanshi, Appotronics Daye, Appotronics Hongye and Jinleijing are concert parties. We have not received any notice about affiliates or concert parties among other shareholders stated above. Statement of top 10 holders of domestic depository receipts as of the end of the reporting period □ Applicable √ N/A Number of non-tradable depository receipts held by top 10 holders and lock-up period □ Applicable √ N/A (III) Statement of top 10 shareholders by number of votes held as of the end of the reporting period □ Applicable √ N/A 123 / 312 Annual Report 2019 (IV) Strategic investors or general corporations that become top 10 shareholders as a result of allotment of new shares/ depository receipts □ Applicable √ N/A (V) Strategic allotment in IPO 1. Participation by any special asset management plan established by senior officers and key employees in the strategic allotment in IPO √Applicable □ N/A Unit: Share Number of shares/ Balance at the Change during the Shareholder depository receipts Unlock date end of the reporting period allotted reporting period Jiayuan I 4,548,685 July 22, 2020 0 4,548,685 2. Participation by any subsidiary of the sponsor in the strategic allotment in IPO √Applicable □ N/A Unit: Share Relationship Number of shares/ Change during Balance at the Shareholder with the depository Unlock date the reporting end of the sponsor receipts allotted period reporting period Huatai Subsidiary of 2,720,000 July 22, 2021 0 2,720,000 Venture the sponsor Capital Investment Co., Ltd. IV. Controlling shareholder and actual controller (I) Controlling shareholder 1 Corporation √Applicable □ N/A Name Appotronics Holdings Principal or legal representative LI Yi Date of establishment January 17, 2014 Main business Investment holding Shares held in other domestic or foreign listed None companies during the reporting period Other information N/A 2 Natural person □ Applicable √ N/A 3 Special explanation if the Company does not have a controlling shareholder □ Applicable √ N/A 4 Reference to and date of change in the controlling shareholder during the reporting period □ Applicable √ N/A 124 / 312 Annual Report 2019 5 Block diagram of the controlling shareholder’s ownership of and control over the Company √Applicable □ N/A Appotronics Holdings Appotronics (II) Actual controller 1 Corporation □ Applicable √ N/A 2 Natural person √Applicable □ N/A Name LI Yi Nationality China Whether or not have right of residence in Yes any other country or region Main occupation and title Chairman of Appotronics Whether or not control any domestic or No foreign listed company in the past 10 years 3 Special explanation if the Company does not have an actual controller □ Applicable √ N/A 4 Reference to and date of change in the actual controller during the reporting period □ Applicable √ N/A 5 Block diagram of the actual controller’s ownership of and control over the Company √Applicable □ N/A LI Yi Appotronics Yuanshi Appotronics Appotronics Jinleijing Appotronics Jiayuan I Holdings Daye Hongye Chengye Appotronics Note: The shareholding percentages of LI Yi in Yuanshi, Appotronics Daye, Appotronics Hongye, Jinleijing and Appotronics Chengye indicated above include the shares held by him in such companies directly and indirectly. LI Yi holds 28.78% of the shares of the Company in total. In addition, LI Yi’s son indirectly holds 0.2521% of the shares of the Company through Blackpine. 125 / 312 Annual Report 2019 6 Control by the actual controller over the Company through trust or otherwise □ Applicable √ N/A (III) Other information about the controlling shareholder and the actual controller □ Applicable √ N/A V. Other corporate shareholders holding more than 10% shares √Applicable □ N/A In RMB Principal or Main business or Corporate Date of Organization Registered legal management shareholder establishment code capital representative activity SAIF IV Hong Kong YAN Yan August 9, N/A N/A Equity investment (China Investments) Pak Tao Wan 2013 Limited Explanation N/A VI. Restrictions on the disposal of shares/ depository receipts □ Applicable √ N/A VII. Implementation of and changes in arrangements relating to depository receipts during the reporting period □ Applicable √ N/A VIII. Shares with special voting rights □ Applicable √ N/A 126 / 312 Annual Report 2019 Section VII Preferred Shares □ Applicable √ N/A 127 / 312 Annual Report 2019 Section VIII Directors, Supervisors, Senior Officers and Employees I. Changes in shareholding and remunerations (I) Changes in shareholding and remunerations of current directors, supervisors, senior officers and key technical staff and the former directors, supervisors, senior officers and key technical staff who left the Company during the reporting period √Applicable □ N/A Unit: Share Total Whether or remuneration not receive (inclusive of any Number of Number of tax) received remuneration Beginning Expiry date shares shares held Cause Change in from the from any Name Title (Note) Sex Age date of term of term of held as at as at of shareholding Company affiliate of the of office office January 1, December change during the Company 2019 31, 2019 reporting period (in RMB 0’000) LI Yi Chairman of the Male 49 July 18, 2018 July 17, 2021 / / / / 293.99 No Board of Directors & key technical staff YAN Yan Director Male 63 July 18, 2018 July 17, 2021 / / / / 0 Yes WU BIN Director Male 49 July 18, 2018 July 17, 2021 / / / / 0 Yes BO Director & Male 57 July 18, 2018 July 17, 2021 / / / / 332.4 No Lianming General Manager NING Independent Male 54 July 18, 2018 July 17, 2021 / / / / 15 No Xiangdong director TANG Independent Male 57 July 18, 2018 July 17, 2021 / / / / 15 No Guliang director ZHANG Independent Male 44 July 18, 2018 July 17, 2021 / / / / 15 No Wei director WU Bin Deputy General Male 56 October 19, July 17, 2021 / / / / 100 No Manager 2018 ZENG Deputy General Male 44 April 16, January 23, / / / / 313.01 No Luhai Manager 2019 2020 HU Fei Deputy General Male 40 July 18, 2018 July 17, 2021 / / / / 148.76 No 128 / 312 Annual Report 2019 Manager & key technical staff LI Lu Deputy General Male 49 October 19, July 17, 2021 / / / / 141.42 No Manager 2018 ZHAO Financial Director Male 42 July 18, 2018 July 17, 2021 / / / / 85.28 No Ruijin XIAO Board Secretary & Male 34 July 18, 2018 July 17, 2021 / / / / 69.31 No Yangjian Deputy General Manager GAO Chairman of the Female 40 July 18, 2018 July 17, 2021 / / / / 61.29 No Lijing Board of Supervisors LIANG Supervisor Male 49 July 18, 2018 July 17, 2021 / / / / 52.87 No Rong WANG Supervisor Female 43 July 18, 2018 July 17, 2021 / / / / 29.78 No Yanyun YU Xin Key technical staff Male 40 / / / / / / 98.46 No WU Key technical staff Male 45 / / / / / / 45.46 No Xiliang WANG Key technical staff Male 39 / / / / / / 58.59 No Lin GUO Key technical staff Male 30 / / / / / / 50.04 No Zuqiang total / / / / / / / / / 1,925.66 / Note: None of the directors, supervisors, senior officers and key technical staff directly holds any share in the Company. As of the end of the reporting period, their indirect shareholdings in the Company are as follows: Refer to “Section VI- IV(II) Actual controller” for the shares held by LI Yi; YAN Yan indirectly holds shares in the Company through Light Zone; BO Lianming indirectly holds shares in the Company through direct or indirect shareholding in Appotronics Daye; WU Bin indirectly holds shares in the Company through Appotronics Hongye, Liansong Capital and Jinleijing; HU Fei, GAO Lijing, LIANG Rong, WANG Yanyun and WU Xiliang indirectly hold shares in the Company through direct shareholding in Appotronics Hongye and indirect shareholding in Appotronics Daye; ZHAO Ruijin and XIAO Yangjian indirectly hold shares in the Company through indirect shareholding in Appotronics Daye; YU Xin and GUO Zuqiang indirectly hold shares in the Company through Appotronics Daye; and WANG Lin indirectly holds shares in the Company through Appotronics Hongye. There is no change in the indirect shareholding stated above during the reporting period. During the reporting period, LI Yi, BO Lianming, WU Bin, LI Lu and GAO Lijing participated in the strategic allotment in IPO through Jiayuan I. 129 / 312 Annual Report 2019 Name Main work experience LI Yi Mr. LI Yi holds a bachelor’s degree from Tsinghua University, and a master’s degree and a doctor’s degree from the University of Rochester. He was previously CTO of O-Net Communications (HK) Limited. In October 2006, LI Yi founded Appotronics Corporation Ltd.. He has served as Chairman of the Company since December 2010. YAN Yan Mr. YAN Yan holds a master’s degree from Princeton University. He was previously Economist of Washington Headquarter of the World Bank, researcher of American Thinker Hudson Institute, Director of Strategic Planning and Business Development of Sprint International Corporation in Asia Pacific, Managing Director of Emerging Markets Partnership in the Management Company of AIG Asian Infrastructure Investment Fund and Director of Hong Kong Office. He has served as Founding Managing Partner of SAIF Partners since October 2001. He has been a Director of the Company since December 2016. WU BIN Mr. WU BIN holds a master’s degree from Stanford University. He was previously Global Associate Director of McKinsey & Company and Chief Inspector of Legend Holdings Corporation. He has served as Managing Director of CITIC Private Equity Funds since 2010. He has been a Director of the Company since December 2016. BO Lianming Mr. BO Lianming holds a doctor’s degree from Xi’an Jiaotong University. He was previously Chief Accountant of Shenzhen Airlines Co., Ltd., President and CEO of Shenzhen Chinastar Optoelectronic Co., Limited, Director and President of TCL Technology Group Corporation and Chairman and CEO of TCL Multimedia Technology Holdings Limited.. He joined the Company in March 2018, responsible for the management and operation of the Company. He has been a Director and General Manager of the Company since July 2018, and Legal Representative of the Company since December 2018. NING Xiangdong Mr. NING Xiangdong holds a doctor’s degree from Tsinghua University. He previously served as teaching assistant, lecturer and associate professor at Tsinghua University and Executive Deputy Director of National Center for Economic Research, Tsinghua University, and currently is a professor and doctoral tutor of Tsinghua University, School of Economic and Management. He has been an independent director of the Company since July 2018. TANG Guliang Mr. TANG Guliang holds a doctor’s degree from Chinese Academy of Fiscal Sciences. He previously served as Dean and professor of Beijing Technology and Business University, School of Accounting (formerly known as Beijing College of Commerce), and currently is a professor and doctoral tutor of the Business School, University of International Business and Economics. He has been an independent director of the Company since July 2018. ZHANG Wei Mr. ZHANG Wei holds a doctor’s degree from Indiana University. He was previously Legal Director of Legend Holdings Corporation and General Manager of the Legal Affairs Department of China Vanke Co., Ltd.. He has served as Vice President, Legal Affairs of Qifei International Development Co., Limited since February 2019. He has been an independent director of the Company since July 2018. WU Bin Mr. WU Bin holds a master’s degree from Party School of the CPC. He was previously a non-executive director of Shenzhen Gotonly Investment Ltd. and Vice President of Shenzhen Lighting Institute. He has been Deputy General Manager of the Company since October 2018. ZENG Luhai Mr. ZENG Luhai holds a bachelor’s degree from Nanyang Technological University and a master’s degree from University of Michigan. He was previously Executive General Manager of the Department of Investment Bank, China International Capital Corporation Limited, and Managing Director of the Department of Equity Market, CMB International Capital Limited. He served as Deputy General Manager of the Company between 130 / 312 Annual Report 2019 April 2019 and January 2020. HU Fei Mr. HU Fei holds a bachelor’s degree and a master’s degree from Tsinghua University and a master’s degree from Rensselaer Polytechnic Institute. He was previously a software engineer at Optical Research Associates, and Deputy President, R&D of Shenzhen YLX Technology Development Co., Ltd. and Appotronics Ltd.. He has served as CTO of the Company since February 2018, and Deputy General Manager of the Company since July 2018. LI Lu Mr. LI Lu holds a master’s degree from Cheung Kong Graduate School of Business. He was previously Deputy President of TCL Multimedia Technology Holdings Limited., General Manager of TCL (China) Sales Company, and General Manager of White Goods Business Division of TCL Technology Group Corporation. He has been Deputy General Manager of the Company since October 2018, and Legal Representative and Chairman of Fengmi since December 2018. ZHAO Ruijin Mr. ZHAO Ruijin holds a master’s degree from Peking University. He was previously Financial Manager of ZTE Corporation, Financial Director and Assistant to General Manager of Shenzhen ZNV Technology Co., Ltd.. He joined the Company in February 2018 as Director of the Department of Financial Management, and has been Financial Director of the Company since July 2018. XIAO Yangjian Mr. XIAO Yangjian holds a bachelor’s degree from Beijing Jiaotong University. He was previously Deputy General Manager and Board Secretary of Vision Group and head of the Office of the Board of Directors of Appotronics Ltd.. He has been Deputy General Manager and Board Secretary of the Company since July 2018. GAO Lijing Ms. GAO Lijing holds a bachelor’s degree from Tianjin University of Technology and Education. She previously worked at Southern China IP Office of Foxconn Technology Group, and Center for IP and Legal Affairs of Netac Technology Co., Ltd.. She has served as a supervisor of Netac Technology Co., Ltd., and Director of IP and Legal Department of the Company since May 2017, and a Supervisor of the Company since July 2018. LIANG Rong Mr. LIANG Rong holds a master’s degree from Shanghai University of Finance and Economics. He joined the Company in 2013, and served as Assistant to Chairman of Appotronics Ltd.. He has been Director of Public Affairs of the Company since March 2018, and a Supervisor of the Company since November 2017. WANG Yanyun Ms. WANG Yanyun holds a bachelor’s degree from Tianjin University of Commerce. She has been a senior manager of the Company since July 2013, and a Supervisor of the Company since July 2018. YU Xin Mr. YU Xin holds a doctor’s degree from Tsinghua University. He was previously a senior software engineer at Schlumberger Ltd. and senior researcher at Shenzhen Lighting Institute. He has been a senior researcher and Software Director of the R&D Center of the Company since February 2018. WU Xiliang Mr. WU Xiliang holds a bachelor’s degree from Huazhong University of Science and Technology. He served as R&D Manager and Technology Director of the Company between 2007 and 2016, and has been Deputy General Manager of Fengmi since 2016. WANG Lin Mr. WANG Lin holds a bachelor’s degree from University of Science and Technology of China, a master’s degree from Tsinghua University, and a doctor’s degree from Universidad Politécnica de Madrid. He was previously a senior optical engineer at Shanghai Phillips Lighting (China) Investment Co., Ltd.. He has been a senior optical research of the Company since February 2017. GUO Zuqiang Mr. GUO Zuqiang holds a master’s degree from Tsinghua University. He was previously an optical engineer at Shenzhen YLX Technology Development Co., Ltd.. He has been R&D Manager of the Company since March 2017. 131 / 312 Annual Report 2019 Other information □ Applicable √ N/A (II) Share incentives granted to directors, senior officers and key technical staff during the reporting period 1. Share options □ Applicable √ N/A 2. Type I restricted shares □ Applicable √ N/A 3. Type II restricted shares √Applicable □ N/A Unit: Share Number of Number of Number of restricted Number of Market price as restricted shares Number of Exercise price of restricted shares that restricted shares of the end of already granted restricted shares the restricted shares actually Name Title could be already granted as the reporting as at the granted during the shares granted vested in the vested in the of the end of the period (RMB beginning of the reporting period (RMB per share) reporting reporting reporting period per share) reporting period period period BO Director & 0 100,000 17.5 0 0 100,000 27.7 Lianming General Manager WU Bin Deputy General 0 100,000 17.5 0 0 100,000 27.7 Manager ZENG Deputy General 0 100,000 17.5 0 0 100,000 27.7 Luhai Manager HU Fei Deputy General 0 100,000 17.5 0 0 100,000 27.7 Manager & CTO LI Lu Deputy General 0 100,000 17.5 0 0 100,000 27.7 Manager ZHAO Financial 0 50,000 17.5 0 0 50,000 27.7 Ruijin Director XIAO Board Secretary 0 30,000 17.5 0 0 30,000 27.7 Yangjian & Deputy General 132 / 312 Annual Report 2019 Manager YU Xin Key technical 0 50,000 17.5 0 0 50,000 27.7 staff WANG Lin Key technical 0 50,000 17.5 0 0 50,000 27.7 staff GUO Key technical 0 40,000 17.5 0 0 40,000 27.7 Zuqiang staff WU Xiliang Key technical 0 30,000 17.5 0 0 30,000 27.7 staff Total / 0 750,000 / 0 0 750,000 / II. Posts held by current directors, supervisors and senior officers and the former directors, supervisors and senior officers who left the Company during the reporting period (I) Posts held at corporate shareholders of the Company √Applicable □ N/A Beginning date of term of Expiry date of term of Name Corporate shareholder Posts held at corporate shareholder office office LI Yi Appotronics Holdings Executive Director & General January 2014 / Manager LI Yi Appotronics Daye Representative of Managing Partner October 2016 / LI Yi Appotronics Hongye Representative of Managing Partner December 2015 / LI Yi Jinleijing Representative of Managing Partner October 2016 / LI Yi Yuanshi Representative of Managing Partner June 2016 / LI Yi Appotronics Chengye Representative of Managing Partner July 2017 / LI Yi Blackpine Investment Corp. Limited Director September 2018 / YAN Yan SAIF IV Hong Kong Director August 2013 (China Investments) Limited YAN Yan Light Zone Limited Director March 2017 WU BIN CITIC Private Equity Funds Managing Director January 2010 Explanation about the posts None held at corporate shareholders of the Company 133 / 312 Annual Report 2019 (II) Posts held at other entities √Applicable □ N/A Beginning date of Expiry date of Name Other entity Posts held at other entity term of office term of office LI Yi Appotronics Deye Representative of Managing Partner May 2018 LI Yi Cinionic Director November 2018 LI Yi Shenzhen Appotronics Technical Consulting Co., Ltd. Executive Director & General October 2017 Manager LI Yi Jiangsu Yisheng Technology Co., Ltd. Chairman September 2017 LI Yi Shenzhen YLX Technology Development Co., Ltd. Chairman January 2007 LI Yi Shenzhen Qingda Yifeng Equity Investment Fund General Manager & Executive January 2017 Management Enterprise (LP) Director LI Yi Shenzhen Qingda Yifeng Investment Consulting Partnership Managing Partner October 2016 (LP) LI Yi Shenzhen Lighting Institute Director & Sponsor November 2016 LI Yi APEX Fund Managed Limited Director November 2013 LI Yi Atria Light Ltd. Director April 2018 LI Yi Atria Light Hong Kong Limited Director April 2018 LI Yi Long Pine Investment Ltd. Director September 2016 LI Yi Longpines Financial Investment Ltd. Director May 2018 LI Yi YLX (Hong Kong) Limited Director June 2008 YAN Yan SAIF Partners Founding Managing Partner October 2001 YAN Yan Atria Light Ltd. Director May 2018 YAN Yan SAIF Investment Management Consulting (Shanghai) Co., General Manager June 2002 Ltd. YAN Yan Beijing Daotong Changjing Investment Management Center Representative of Managing Partner July 2011 (LP) YAN Yan Beijing SAIF Chuangyuan Investment Center (LP) Representative of Managing Partner August 2010 YAN Yan Beijing SAIF Hongyuan Investment Center (LP) Representative of Managing Partner October 2010 YAN Yan Beijing SAIF Ruiyi Investment Management Center (LP) Representative of Managing Partner July 2012 August 2019 YAN Yan Beijing SAIF Ruizhi Investment Center (LP) Representative of Managing Partner July 2012 August 2019 YAN Yan Beijing SAIF Xiangrui Investment Center (LP) Representative of Managing Partner April 2010 YAN Yan Changzhou SAIF High-Tech Venture Capital Center (LP) Representative of Managing Partner December 2009 YAN Yan Guangzhou SAIF Guangdong Fortune Radio and Television Representative of Managing Partner December 2011 Network Investment Limited Partnership (LP) YAN Yan Hefei SAIF Heyuan Venture Capital Center (LP) Representative of Managing Partner January 2011 134 / 312 Annual Report 2019 YAN Yan Qingdao Haier-Saifu Intelligent Family Venture Capital Representative of Managing Partner October 2014 Center (LP) YAN Yan SAIF Songyuan (Shanghai) Equity Investment Fund Representative of Managing Partner September 2012 Partnership (LP) YAN Yan Xiamen SAIF Equity Investment Partnership (LP) Representative of Managing Partner August 2012 YAN Yan Xiamen SAIF Keyuan Equity Investment Partnership (LP) Representative of Managing Partner August 2012 YAN Yan Xiamen SAIF Xiayuan Equity Investment Partnership (LP) Representative of Managing Partner November 2013 May 2019 YAN Yan Tianjin SAIF Venture Capital Fund (LP) Representative of Managing Partner July 2008 YAN Yan Tianjin SAIF Composite Equity Investment Center (LP) Representative of Managing Partner May 2010 YAN Yan Tianjin SAIF Hanyuan Equity Investment Partnership (LP) Representative of Managing Partner June 2010 YAN Yan Tianjin SAIF Shengyuan Investment Management Center Representative of Managing Partner July 2008 (LP) YAN Yan Hefei SAIF Venture Capital Management Co. Ltd. Legal Representative & Executive November 2010 Director & General Manager YAN Yan Nanjing SAIF Hengzhun Venture Capital Fund (LP) Representative of Managing Partner July 2017 YAN Yan China Resources Land Limited Independent Non-executive July 2006 Director YAN Yan Shanghai SAIF Yanyuan Equity Fund Management Co. Ltd. Legal Representative & Executive January 2013 Director & General Manager YAN Yan Tianjin Himalaya Investment Consulting Co. Ltd. Legal Representative & Executive June 2008 Director & Manager YAN Yan Shanghai SAIF Xinpai Investment Management Co. Ltd. Legal Representative & Executive March 2014 Director YAN Yan Qingdao SAIF Investment Management Co. Ltd. Legal Representative & Chairman September 2014 & General Manager YAN Yan Changzhou SAIF High-Tech Venture Capital Management Legal Representative & Chairman October 2009 Co. Ltd. YAN Yan Tianjin SAIF Zhongyuan Investment Advisory Co. Ltd. Legal Representative & Chairman July 2008 YAN Yan Shenzhen SAIF Qianyuan Equity Investment Fund Legal Representative & Chairman August 2013 Management Co. Ltd. YAN Yan TCL Technology Group Corporation Independent Director March 2015 YAN Yan Beijing Blue Focus Brand Management Co. Ltd. Independent Director March 2014 YAN Yan Beijing Softbank SAIF Investment Advisory Co., Ltd. Chairman February 2001 YAN Yan Huangshan SAIF Fund Management Co., Ltd. Chairman November 2016 YAN Yan Youth Happy (Beijing) Business Management Co., Ltd. Chairman July 2012 YAN Yan Shanghai TopxGun Robotics Co., Ltd. Chairman September 2015 135 / 312 Annual Report 2019 YAN Yan CYPA (Beijing) Investment Management Co., Ltd. Chairman June 2012 YAN Yan Foreign Tribes (Beijing) Business Management Consulting Chairman September 2012 September 2019 Co., Ltd. YAN Yan Leqicheng Technology (Beijing) Co., Ltd. Vice Chairman June 2015 May 2019 YAN Yan Suzhou Beiang Technology Co., Ltd. Vice Chairman October 2013 YAN Yan Xi’an Maike Metal International Group Co., Ltd. Vice Chairman April 2014 YAN Yan Anqing SAIF Huanxin Auto Parts Co., Ltd. Director August 2015 YAN Yan SAIF IV Mauritius (China Investment) Ltd. Director July 2010 YAN Yan ATA Creativity Global Director March 2005 YAN Yan Anqing SAIF Huanxin Enterprise Management Consultant Director November 2014 Co., Ltd. YAN Yan Beijing Hanyuan Capital Management Co., Ltd. Director December 2015 YAN Yan Beijing Xiaodu Entertainment Technology Co., Ltd. Director January 2018 YAN Yan Guangdong Cable Co., Ltd. Director February 2017 YAN Yan Guangzhou SAIF Heyin Asset Management Co., Ltd. Director August 2013 YAN Yan Guodian Technology & Environmental Protection Group Co., Non-executive Director June 2012 Ltd. YAN Yan Hangzhou Geyun Technology Co., Ltd. Director February 2015 April 2016 YAN Yan Heilongjiang Dazheng Derun Investment Management Co., Director February 2017 Ltd. YAN Yan Heilongjiang Dazheng SAIF Investment Management Co., Director November 2009 Ltd. YAN Yan Pacoo (Beijing) Technology Co., Ltd. Director September 2016 YAN Yan Xiamen SAIF Venture Capital Management Co., Ltd. Director February 2012 YAN Yan Shanghai Wenxi Enterprise Management Co., Ltd. Director June 2017 YAN Yan Shanghai Yingxun Technology Co., Ltd. Director August 2017 YAN Yan Shenzhen Orbbec Technology Co., Ltd. Director May 2018 YAN Yan Xinyong Computing Information Technology (Shanghai) Co., Director September 2017 Ltd. YAN Yan Zhejiang Daily Interaction Network Technology Co., Ltd. Director December 2015 May 2019 YAN Yan Gexin Interaction (Beijing) Network Technology Co., Ltd. Director October 2014 December 2016 YAN Yan COFCO Haiyou Trading Co., Ltd. Director July 2013 YAN Yan COFCO Womai Investment Co., Ltd. Director November 2018 YAN Yan Khorgos Big Color Information Technology Co., Ltd. Director November 2018 July 2019 YAN Yan Shenzhen Digital Media Technology Co., Ltd. Director October 2018 YAN Yan Yinda International Holding Company Limited Director August 2014 YAN Yan Wisers Information Holdings Company Limited Director May 2016 136 / 312 Annual Report 2019 YAN Yan Haier Smart Home Co., Ltd. Director June 2019 YAN Yan Shanghai Welltech Automation Co., Ltd. Director June 2019 YAN Yan 360 Finance, Inc. Independent Director July 2019 YAN Yan COFCO Haiyou (Beijing) Co., Ltd. Director November 2018 YAN Yan COFCO Youcai Kitchen Food (Shanghai) Co., Ltd. Director November 2018 WU BIN Shaanxi Xifeng Liquor Co., Ltd. Director 2012 WU BIN Shaanxi Xifeng 15-Year and 6-Year Liquor Marketing Co., Director 2013 Ltd. WU BIN Yunnan Green A Biological Project Co., Ltd. Director 2011 WU BIN Hangzhou BroadLink Electronic Technology Co., Ltd. Director 2018 NING Xiangdong Tsinghua University Professor & Doctoral Tutor 1990 NING Xiangdong Weichai Power Co., Ltd. Independent Director June 2018 NING Xiangdong Sinopec Sales Co., Ltd. Independent Director December 2018 NING Xiangdong China Life Asset Management Co., Ltd. Independent Director March 2018 NING Xiangdong Sinochem Energy Co., Ltd. Independent Director August 2018 NING Xiangdong Xiamen Bank Co., Ltd. Director July 2017 NING Xiangdong Shandong Heavy Industry Group Co., Ltd. Director January 2018 TANG Guliang University of International Business and Economics Professor March 2006 TANG Guliang China JIC Leasing Co., Ltd. Independent Director April 2017 TANG Guliang Three Gorges Capital Holdings Co., Ltd. Independent Director February 2018 TANG Guliang Shanghai Fosun Pharmaceutical (Group) Co., Ltd. Independent Director March 2019 ZHANG Wei Qifei International Development Co. Limited Deputy President, Legal Affairs February 2019 ZHANG Wei AVIC Vanke Co., Ltd. Director January 2018 ZHANG Wei Hengqin Vanke Cloudland Commercial Services Co., Ltd. Director & General Manager May 2017 ZHANG Wei Shenzhen Yingda Investment Fund Management Co., Ltd. Director April 2016 ZHANG Wei Tian’an Xincheng Development (Hengqin) Co., Ltd. Director July 2017 ZHANG Wei Shenzhen Wanhu Management Consulting Co., Ltd. Supervisor November 2017 ZHANG Wei Shenzhen Wanhu Quanyuan Management Consulting Co., Supervisor November 2017 Ltd. ZHANG Wei Shenzhen Wanshuzhimiao Management Consulting Co., Ltd. Supervisor November 2017 ZHANG Wei Shenzhen Wanqing Management Consulting Co., Ltd. Supervisor November 2017 ZHANG Wei Shenzhen Wanmazhengxian Management Consulting Co., Supervisor November 2017 Ltd. ZHANG Wei Dongguan Vanke Real Estate Co., Ltd. Supervisor October 2015 ZHANG Wei Lijiang Banyan Tree Property Services Co., Ltd. Director May 2018 ZHANG Wei Lijiang Banyan Tree Hotel Co., Ltd. Director March 2018 137 / 312 Annual Report 2019 ZHANG Wei Lijiang Banyan Tree International Travel Agency Co., Ltd. Director March 2018 ZHANG Wei Lijiang Angsana Real Estate Development Co., Ltd. Director July 2018 ZHANG Wei Huangshan Banyan Tree Property Management Co., Ltd. Director September 2018 ZHANG Wei Huangshan Banyan Tree Tourism Development Co., Ltd. Director September 2018 ZHANG Wei Chengdu Banyan Tree No.1 Real Estate Co., Ltd. Director June 2018 ZHANG Wei Chengdu Banyan Tree No.3 Real Estate Co., Ltd. Director June 2018 ZHANG Wei Chengdu Banyan Tree No.4 Real Estate Co., Ltd. Director June 2018 ZHANG Wei Beijing 6.cn Technology Co., Ltd. Director December 2019 GAO Lijing Netac Technology Co., Ltd. Supervisor January 2008 LIANG Rong Shanghai QianKun Photoelectric Technology Co., Ltd. Supervisor May 2015 April 2019 WU Bin Shenzhen Shangzuo Charity Foundation Secretary-General November 2015 WU Bin Shenzhen Lighting Institute Director November 2016 Explanation about None the posts held at other entities III. Remunerations of directors, supervisors, senior officers and key technical staff √Applicable □ N/A In RMB 0’000 Decision-making procedure regarding the Pursuant to the Company’s Articles of Association, the Compensation and Performance Assessment Committee remunerations of directors, supervisors and senior consider and review the compensation policy and proposal for directors and senior officers; the compensation officers proposal for senior officers is implemented after being approved by the Board of Directors; the compensation proposal for directors is implemented after being adopted by the Board of Directors and then approved by the general meeting of shareholders; and the compensation proposal for supervisors is implemented after being adopted by the Board of Supervisors and then approved by the general meeting of shareholders. Basis for determining the remunerations of The Company’s directors and supervisors who hold posts in the Company shall receive remunerations for such posts directors, supervisors and senior officers pursuant to the relevant provisions of the Company, but will not receive remunerations in their capacity as director or supervisor. Each independent director will receive a fixed amount of director’s emoluments. Non-independent directors not holding posts in the Company will receive director’s emoluments pursuant to the compensation proposal approved by the general meeting of shareholders. Remunerations paid to senior officers comprise basic salaries and year-end bonuses, where the basic salaries are paid on a monthly basis according to the ranks and duties of the senior officers, and the year-end bonuses are paid according to the operating results of the Company and their performance in the given year. Remunerations actually paid to directors, During the reporting period, the remunerations actually paid to directors, supervisors and senior officers are consistent supervisors and senior officers with the relevant information disclosed by the Company. 138 / 312 Annual Report 2019 Total remunerations paid to directors, supervisors 1673.11 and senior officers as of the end of the reporting period Total remunerations paid to key technical staff as 695.30 of the end of the reporting period IV. Changes in directors, supervisors, senior officers and key technical staff √Applicable □ N/A Name Position Change Cause of change ZENG Luhai Deputy General Manager Left the Company Resigned Explanation about the changes in directors, supervisors, senior officers and key technical staff: 1. The Company’s Deputy General Manager Mr. ZENG Luhai resigned from his position as Deputy General Manager of the Company due to personal career development reasons on January 23, 2020, and will act as a consultant of the Company after resigning from the Company. The Company issued an announcement regarding this event on January 23, 2020. V. Penalties imposed by the securities regulatory authorities in the past three years □ Applicable √ N/A 139 / 312 Annual Report 2019 VI. Employees of the parent company and major subsidiaries (I) Employees Number of active employees of the parent company 959 Number of active employees of major subsidiaries 287 Total number of active employees 1,246 Number of retired employees for whom the parent company 0 and major subsidiaries need to pay certain expenses Profession Category Number of employees Production staff 473 Sales staff 166 R&D staff 387 Financial staff 33 Administrative staff 187 Total 1,246 Education Level of education Number of employees Doctor 29 Master 154 Undergraduate 486 College or below 577 Total 1,246 (II) Compensation policy √Applicable □ N/A In order to ensure the market competitiveness of our compensation level externally and the fairness and equality internally, insist on performance-based compensation, adhere to the corporate values of creating together and sharing by all, and fully motivate the employees, we have designed a compensation system based on posts, capability and performance, according to the design concept and approaches of international compensation system, and by reference to the compensation level on the market. Our compensation system is based on position hierarchy, wherein different positions and ranks correspond to different levels of compensation, so that the employees’ compensation corresponds to the value of their position and their capability and experience. The employees’ compensation and bonuses are also linked to their performance and contribution to the Company, thereby establishing a performance-based compensation and incentive system. In addition to fixed salaries and bonuses, our employees enjoy a variety of benefits. We adjust the salaries of all employees or promote certain employees to higher ranks or positions or adjust the salaries of certain employees every year according to the compensation level on the market, changes in the ranks of employees, performance and other relevant factors. Pursuant to the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange, the Administrative Measures for Share Incentives of the Listed Companies, the Measures for the Continuous Supervision of Companies Listed on the Sci-tech Innovation Board, the Memorandum on Information Disclosure by the Listed Companies on the STAR Market No. 4 - Guide on Information 140 / 312 Annual Report 2019 Disclosure Regarding Share Incentives, and other applicable laws, regulations and normative documents, we launched the restricted share incentive plan in 2019 to further improve our long-term incentive mechanism, attract and retain outstanding talents, enhance the sense of responsibility and mission of our management team and key employees for the continuous and healthy development of the Company, and ensure the achievement of our development objectives. The plan is designed to fully motivate our business teams, effectively bind the interests of the shareholders and the Company with their personal interests, procure all stakeholders to focus on our long-term development, share the benefits of our development with the employees, and enhance the competitiveness of the salaries of our employees. (III) Training programs √Applicable □ N/A The building of training system plays an important role in developing the capabilities of the organization and employees, and promoting the sustainable development of the organization. In 2019, Appotronics built and gradually improved a three-level training management system. Through providing plenty of opportunities for internal learning and high-quality external education resources, the system has effectively satisfied the requirements for the improvement of the employees’ personal capabilities and the organization capabilities, and greatly aroused the employees’ enthusiasm for learning and growth. According to statistics, in 2019, more than 7,000 personnel participated in the courses/sharing organized by the company, with nearly 20,000 class hours in total. Nearly 200 internal and external lecturers have given lectures at Appotronics auditorium, which lays a solid foundation for building a learning-oriented organization. We lay stress on the training of key talents: The “Polar Light Program” is designed to help medium and high level managerial staff implement our strategies, lead their teams and achieve the goals of the organization; the “Product Operation Training Camp” is designed to help the product operation team form product-oriented thinking and create better business ideas; and the “Star Light Program” is designed to help college graduates rapidly transit to their new roles, successfully integrate with the team, rapidly improve their professional knowledge and skills, and make outstanding contributions to the Company. In 2020, our training programs will focus on accumulating internal knowledge, consolidating the basis of the three-level training management system, training and building a team of experienced internal trainers having aspiration and spirit of dedication in a planned way, summing up the management and professional experience of the Company, and studying external good practices, to create learning products with the characteristics of Appotronics, and provide the employees with well-targeted learning services. In addition, we will continue to train key talents through the Polar Light Program, the Sharp Light Program and the Star Light Program. The growth of talents will inject vigor into the Company, while the growth of the Company will bring about opportunities for the growth of talents. Appotronics is committed to building a platform for the growth of outstanding talents, so as to enter into a sound cycle of growth of both the Company and the talents. (IV) Outsourced workers √Applicable □ N/A Total man-hours of outsourced workers 2,496 hours Total remunerations paid to outsourced workers RMB102,816 VII. Other information □ Applicable √ N/A 141 / 312 Annual Report 2019 Section IX Corporate Governance I. Corporate governance √Applicable □ N/A We have continuously improved our corporate governance structure and operated in strict accordance with the requirement of the Company Law, the Securities Law and the relevant rules and regulations of the CSRC and the SSE, taking into account our actual business situations, and established a corporate governance structure comprising the general meeting of shareholders, the Board of Directors, the Board of Supervisors and the management, and a mechanism in which the highest authority, the decision-making body, the supervisory body and the management coordinate with and hold up each other. We have established a sound corporate governance system, to effectively protect the interests of investors. (I) Shareholders and general meeting of shareholders The general meeting of shareholders is the highest authority of the Company. During the reporting period, we have convened and held general meetings of shareholders in strict accordance with our Articles of Association (“AOA”), the Rules of Procedure of the General Meeting of Shareholders and other applicable laws and regulations. The notices, convening, resolutions, voting, signing and information disclosures in respect of the general meeting of shareholders comply with the relevant provisions of the Company Law, the Securities Law, the CSRC and the SSE, and the resolutions of the general meeting of shareholders are legal and valid. We have fully protected the rights of all shareholders, especially the minority shareholders, and ensured that each shareholder can enjoy the right to know and participate in the affairs of the Company and exercise his voting rights according to law. (II) Directors and the Board of Directors The Board of Directors is the standing decision-making and management body of the Company, and has set up four committees, namely the Strategy Committee, the Compensation and Performance Assessment Committee, the Nomination Committee and the Audit Committee. During the reporting period, the number of directors and the composition of the Board of Directors comply with the requirements of the applicable laws and regulations and the AOA; the Board of Directors has exercised its functions and powers in strict accordance with the requirements of the applicable laws and regulations, the AOA, the Rules of Procedure of the Board of Directors, and the Work Regulations for Independent Directors, and each director has been assiduous in his duties and actively received the relevant trainings. In order to improve the objectivity and scientificness of the decisions made by the Board of Directors, we have appointed the independent directors to participate in and supervise the decision-making process of the Board of Directors. The independent directors have performed their duties independently, actively safeguarded the interests of the Company and the shareholders, and expressed their opinions on important and material matters of the Company. The committees of the Board of Directors have fully exercised their relevant functions, to ensure that the Board of Directors makes scientific and reasonable decisions for the Company. (III) Supervisors and the Board of Supervisors The Board of Supervisors is the supervisory body of the Company and comprises three supervisors. The Board of Supervisors has exercised its functions and powers according to the procedures set forth in the AOA and the Rules of Procedure of the Board of Supervisors, effectively supervised the legal and regulatory compliance of the performance of duties by 142 / 312 Annual Report 2019 the financial staff, directors and senior officers of the Company, and actively safeguarded the interests of the Company and the shareholders. (IV) Management of information disclosures During the reporting period, we have disclosed the relevant information truthfully, accurately, promptly, fairly and completely, and duly performed our obligation of information disclosure in accordance with the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange, the Administrative Measures for Information Disclosure by the Listed Companies and other applicable laws and regulations, and our Information Disclosure Policy, to ensure that all shareholders and other stakeholders have equal access to the information of the Company. (V) Registration of insiders During the reporting period, we have registered and filed the insiders in connection with the matters disclosed in our regular reports in strict accordance with the applicable laws and regulations and our Insider Management Policy. During the reporting period, we have defined the respective responsibilities of the general meeting of shareholders, the Board of Directors, the Board of Supervisors and the management. According to the requirements of the Board of Directors, the management has continuously improved the management cycle led by mechanism, guaranteed by system, guided by culture and supported by capacity. Our management level and governance capability have been improved remarkably, providing further assurance for our healthy and sustainable development. The directors, supervisors and senior officers have been assiduous in their duties, and seriously exercised the rights and performed the obligations under the Company Law and the AOA, to ensure the safe, steady and sustainable development of the Company and safeguard the interests of the shareholders to the maximum extent practicable. Explanation about the material deviations (if any) of the Company’s corporate governance from the relevant requirements of the CSRC □ Applicable √ N/A II. General meetings of shareholders held Reference to resolutions Date of disclosure of Session Date of meeting published on the resolutions designated website 1st extraordinary general February 26, 2019 N/A N/A meeting of shareholders in 2019 2nd extraordinary general March 18, 2019 N/A N/A meeting of shareholders in 2019 2018 annual general April 14, 2019 N/A N/A meeting of shareholders in 2019 3rd extraordinary general May 8, 2019 N/A N/A meeting of shareholders in 2019 4th extraordinary general May 24, 2019 N/A N/A meeting of shareholders in 2019 5th extraordinary general July 8, 2019 N/A N/A meeting of shareholders in 2019 6th extraordinary general October 14, 2019 www.sse.com.cn October 15, 2019 meeting of shareholders 143 / 312 Annual Report 2019 in 2019 Explanation about the general meetings of shareholders √Applicable □ N/A The 1st, 2nd, 3rd, 4th and 5th extraordinary general meeting of shareholders in 2019 and 2018 annual general meeting of shareholders were held prior to the listing of the Company. The convening, proceedings, qualification of the conveners, qualification of the participants and voting procedures of such general meetings of shareholders comply with the relevant provisions of the Company Law, the Rules of the General Meeting of Shareholders of the Listed Company and other applicable laws and regulations and the AOA, and the resolutions of such meetings are legal and valid. III. Performance of duties by the directors (I) Attendance by the directors of the meetings of the Board of Directors and shareholders Attendance of the general Attendance of the meetings of the Board of Directors meetings of shareholders Whether or Meetings not an Whether the Director Meetings Meetings from independent director has General the director Meetings attended Meetings which director been absent meetings of should have attended through attended the from two shareholders attended in in person communication by proxy director consecutive attended 2019 equipment was meetings absent LI Yi No 15 15 0 0 0 No 6 YAN Yan No 15 15 5 0 0 No 7 WU BIN No 15 15 5 0 0 No 7 BO No 15 15 0 0 0 No 7 Lianming NING Yes 15 15 5 0 0 No 7 Xiangdong TANG Yes 15 15 5 0 0 No 7 Guliang ZHANG Yes 15 15 5 0 0 No 7 Wei Explanation about absence from two consecutive meetings of the Board of Directors □ Applicable √ N/A Meetings of the Board of Directors held in 2019 15 Incl.: Face-to-face meetings 10 Meeting held through communication equipment 0 Meetings held both in the form of face-to-face meeting and 5 through communication equipment (II) Objections raised by the independent directors to matters of the Company □ Applicable √ N/A (III) Other information □ Applicable √ N/A IV. Important opinions and suggestions put forward by the committees of the Board of Directors during the reporting period and objections thereto (if any) √Applicable □ N/A The Board of Directors has set up the Strategy Committee, the Audit Committee, the Compensation and Performance Assessment Committee, and the Nomination Committee. Each committee has duly exercised its functions in strict accordance with the AOA, the 144 / 312 Annual Report 2019 Rules of Procedure of the Board of Directors, the rules of procedure of such committee and other relevant regulations. During the reporting period, the Strategy Committee has held one meeting; the Audit Committee has held four meetings; the Compensation and Performance Assessment Committee has held two meetings, and the Nomination Committee has held one meeting. The members of each committee have actively attended the meetings of such committee, been assiduous in their duties, duly exercised the functions and powers delegated by the Board of Directors to such committee, put forward guidance and advice for the proper functioning of such committee and the long-term development of the Company, and played active roles in improving the corporate governance structure and promoting the development of the Company. During the reporting period, the members of the Strategy Committee have seriously performed their duties, fully communicated with the management of the Company with respect to the future development direction, external investments and other affairs of the Company from the prospective of their profession and put forward reasonable suggestions on the basis of the actual operations of the company; the Audit Committee has duly exercised its functions, and played an active role in the appointment of the auditor, review of regular financial reports, examination of related-party transactions, establishment of internal controls, and other relevant affairs of the Company; the Compensation and Performance Assessment Committee has assessed the performance of the senior officers of the Company, examined the compensation proposal for the senior officers, and reviewed and expressed its opinions on the 2019 restrictive share incentive plan of the Company; and the Nomination Committee has examined the qualifications of the senior officers of the Company, and reviewed and expressed its opinions on the criteria and procedures in respect of the appointment of the senior officers. Each committee of the Board of Directors has duly performed the duty of care. V. Risks of the Company identified by the Board of Supervisors □ Applicable √ N/A VI. Give an explanation if the Company cannot guarantee its dependence and ability to operate independently due to its relationship with the controlling shareholder in business, personnel, assets, organization, financial and other affairs □ Applicable √ N/A Solutions to horizontal competition with the Company (if any) and the relevant progress and subsequent action plans □ Applicable √ N/A VII. Performance assessment mechanism for senior officers and the establishment and implementation of incentive mechanism for senior officers during the reporting period √Applicable □ N/A The remunerations of the senior officers comprise salaries and bonuses. The Compensation and Performance Assessment Committee of the Board of Directors is responsible for formulating and implementing the compensation proposal and performance assessment proposal for senior officers. The compensation proposal for senior officers has been reviewed in accordance with the AOA and other relevant corporate governance policies. During the reporting period, the remunerations paid to the senior officers of the Company have been reviewed and approved by the Board of Directors. During the reporting period, the senior officers have been assiduous in their duties in strict accordance with the requirements of the Company Law and other applicable laws and regulations and the AOA, and continuously enhanced internal management of the Company under the 145 / 312 Annual Report 2019 guidance of the Board of Directors, to lay a solid foundation for future development of the Company. VIII. Whether a self-assessment report on internal controls has been disclosed √Applicable □ N/A Please see the 2019 Assessment Report on Internal Controls disclosed by us on www.sse.com.cn on April 29, 2020. Explanation about material loopholes in internal controls during the reporting period □ Applicable √ N/A IX. Explanation about the auditor’s report on internal controls □ Applicable √ N/A Whether an auditor’s report on internal controls has been disclosed: No. X. Control structure by agreement and other special arrangements in respect of corporate governance □ Applicable √ N/A XI. Other information □ Applicable √ N/A 146 / 312 Annual Report 2019 Section X Corporate Bonds □ Applicable √ N/A 147 / 312 2019 Annual Report Section XI Financial Report I. Auditor's report √Applicable □N/A I. Opinion We have audited the financial statements of Appotronics Corporation Limited (“Appotronics”), which comprise the consolidated and the Parent Company's balance sheets as at December 31, 2019, and the consolidated and the Parent Company's income statements, the consolidated and the Parent Company's statements of cash flow and the consolidated and the Parent Company's statements of changes in owners' equity for the year then ended, and the notes to the relevant financial statements. In our opinion, the accompanying financial statements of Appotronics are prepared and present fairly, in all material respects, the consolidated and the Parent Company's financial position as of December 31, 2019, and the consolidated and the Parent Company's results of operations and cash flows for the year then ended in accordance with Accounting Standards for Business Enterprises. II. Basis for opinion We conducted our audit in accordance with Chinese Standards on Audit. Our responsibilities under those standards are further described in the “Auditor's Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of Appotronics in accordance with the code of ethics for Chinese Certified Public Accountants, and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. III. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. (I) Revenue recognition 1. Description Details of relevant information are disclosed in V 36, VII 59, and XVI 6 of Section XI. Appotronics is mainly engaged in research and development, production, sales and leasing of laser display core devices and complete equipment. In 2019, the operating income of Appotronics amounted to RMB1,979,148,900, of which the income from product sales and lease services amounted to RMB 1,553,441,500 and RMB 397,991,200 respectively. Relevant policies in terms of the revenue recognition are disclosed in V 36 of Section XI in details. As the operating income is one of Appotronics's KPIs, there may be an inherent risk that the management of Appotronics (hereinafter referred to as "management”) may recognize the revenue inappropriately to achieve specific objectives or expectations. Therefore, we identified revenue recognition as a key audit matter. 2. Description of how the key audit matter was addressed in the audit For revenue recognition, our audit procedures include, inter alia: (1) Understand the key internal controls related to revenue recognition, evaluate the design of those controls, determine whether they are implemented, and test the operational effectiveness of the relevant internal controls; (2) Test general controls of information system and application controls related to the revenue recognition process; 148 / 312 2019 Annual Report (3) Examine major sales contracts and lease contracts, understand the major provisions or conditions thereof, and evaluate whether revenue recognition methods are appropriate; (4) Implement analysis procedures for operating income and gross margin by month, product, customer, etc., to identify whether there are significant or unusual fluctuations and to find out the causes of such fluctuations; (5) For sales income, sample supporting documents related to revenue recognition, including sales contracts or orders, sales invoices, warehouse receipts, delivery notes, transport information, customer signature forms, export declarations and electronic port system information; for lease income, sample supporting documents including, among other things, lease contracts, orders, installation orders, unit lease price per hour, and number of hours consumed; (6) In conjunction with accounts receivable confirmation procedures, send confirmation to major customers to recognize the current sale volumes on a sample basis; (7) Conduct the cut-off test on the operating incomes recognized on or after the balance sheet date to evaluate whether the operating incomes are recognized during the appropriate period; (8) Obtain a record of sales returns after the balance sheet date to check if there is any instance that conditions for revenue recognition were not met at the balance sheet date; (9) Check whether information relative to operating income is properly presented in the financial statements. (II) Net realizable value of inventories 1. Description Details of relevant information are disclosed in V 15 and VII 9 of Section XI. As of December 31, 2019, the carrying amount of inventories of Appotronics amounted to RMB 340,431,100, and provisions for decline in value of inventories amounted to RMB 40,464,900, hence the book value of inventories amounted to RMB 299,966,200. At the balance sheet date, inventories are measured at the lower of cost and net realizable value. If the net realizable value is below the cost of inventories, a provision for decline in value of inventories is made. In view of the purpose of holding inventories, the management determines the estimated selling price of inventories based on historical or actual average selling prices, and the net realizable value of inventories in accordance with the balance of the estimated selling price less the sum of the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The amount of inventories is material and the determination of the net realizable value of inventories involves significant management judgment, therefore, we identified the determination of the net realizable value of inventories as a key audit matter. 2. Description of how the key audit matter was addressed in the audit For the net realizable value of inventories, our audit procedures include, inter alia: (1) Understand the key internal controls related to the net realizable value of inventories, evaluate the design of those controls, determine whether they are implemented, and test the operational effectiveness of the relevant internal controls; (2) Review the management's forecast of the estimated selling price of inventories on a sample basis, comparing the estimated selling price with historical data and subsequent situations, etc.; (3) Evaluate the appropriateness of the management's estimates on the estimated costs of completion of inventories and the estimated costs necessary to make the sale and relevant taxes; (4) Test the accuracy of the management's calculation on the net realizable value of inventories; 149 / 312 2019 Annual Report (5) Evaluate the reasonableness of the management's estimates on the net realizable value of inventories by checking inventories recognized at the end of the period in terms of long age, obsolescence, changes in technology or market demand in conjunction with inventory monitoring; (6) Check whether information relative to the net realizable value of inventories is properly presented in the financial statements. IV. Other information The management is responsible for other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. V. Responsibilities of the management and those charged with governance for the financial statements The management is responsible for the preparation and fair presentation of the financial statements in accordance with Accounting Standards for Business Enterprises, and designing, implementing and maintaining internal control that is necessary to enable the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the management is responsible for assessing Appotronics’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intends to liquidate Appotronics or to cease operations, or has no realistic alternative but to do so. Those charged with governance of Appotronics (hereinafter referred to as “Those Charged with Governance”) are responsible for overseeing Appotronics’s financial reporting process. VI. Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with China Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with China Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (I) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than that 150 / 312 2019 Annual Report resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (II) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. (III) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. (IV) Conclude on the appropriateness of the management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Appotronics's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause Appotronics to cease to continue as a going concern. (V) Evaluate the overall presentation, structure and content of the financial statements, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (VI)Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within Appotronics to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Pan-China Certified Public Accountants Chinese Certified Public Accountant: (Special General Partnership) (Partner in Charge) Hangzhou, China Chinese Certified Public Accountant: April 28, 2020 II. Financial statements Consolidated Balance Sheet At December 31, 2019 151 / 312 2019 Annual Report Prepared by: Appotronics Corporation Limited In RMB At December 31, Item Note At December 31, 2018 2019 Current Assets: Cash and bank balances 1 875,858,784.58 484,169,208.44 Balances with clearing agencies Placements with banks and other financial institutions Held-for-trading financial 2 540,000,000.00 assets Financial assets at fair value through profit or loss Derivative financial assets Notes receivable 3 4,042,559.63 35,903,632.13 Accounts receivable 4 176,035,155.24 119,715,786.19 Receivables financing 5 1,980,500.00 Prepayments 6 35,070,999.13 22,909,249.21 Premiums receivable Amounts receivable under reinsurance contracts Reinsurer's share of insurance contract reserves Other receivables 7 9,618,750.08 12,543,543.59 Including: Interest receivable Dividends receivable Financial assets purchased under resale agreements Inventories 8 299,966,170.35 325,302,295.60 Held-for-sale assets Non-current assets due within one year Other current assets 9 44,405,513.30 44,707,753.47 Total Current Assets 1,986,978,432.31 1,045,251,468.63 Non-current Assets: Loans and advances Debt investments Available-for-sale financial 11,975,419.38 assets Other debt investments Held-to-maturity investments Long-term receivables Long-term equity investments 10 139,534,371.94 Other equity instrument 11 11,975,419.38 investments Other non-current financial assets 152 / 312 2019 Annual Report Investment properties Fixed assets 12 471,204,340.95 399,651,937.13 Construction in progress 13 20,132,004.07 30,953,213.42 Bearer biological assets Oil and gas assets Use right assets Intangible assets 14 332,331,324.07 342,227,766.06 Development expenditure Goodwill Long-term prepaid expenses 15 16,908,070.34 6,400,455.04 Deferred tax assets 16 109,023,941.85 99,492,975.74 Other non-current assets 17 11,420,185.94 137,518,255.16 Total Non-current Assets 1,112,529,658.54 1,028,220,021.93 Total assets 3,099,508,090.85 2,073,471,490.56 Current Liabilities: Short-term borrowings 18 76,765,319.05 124,440,000.00 Loans from the central bank Taking from banks and other financial institutions Held-for-trading financial liabilities Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable 19 37,335,841.79 39,051,466.05 Accounts payable 20 176,624,445.46 164,258,731.06 Receipts in advance 21 184,444,643.33 172,867,568.93 Financial assets sold under repurchase agreements Customer deposits and deposits from banks and other financial institutions Funds from securities trading agency Funds from underwriting securities agency Employee benefits payable 22 50,586,932.71 38,184,612.34 Taxes payable 23 42,924,647.79 59,954,133.70 Other payables 24 14,364,076.43 185,661,537.24 Including: Interest payable Dividends payable Fees and commissions payable Amounts payable under reinsurance contracts Held-for-sale liabilities Non-current liabilities due 25 64,968,795.02 28,609,163.00 within one year Other current liabilities 153 / 312 2019 Annual Report Total Current Liabilities 648,014,701.58 813,027,212.32 Non-current Liabilities: Insurance contract reserves Long-term borrowings 26 279,615,107.27 403,107,800.00 Bonds payable Including: Preferred shares Perpetual bonds Leasing liabilities Long-term payables 27 3,488,100.00 6,863,200.00 Long-term employee benefits payable Provisions 28 27,072,676.49 9,449,087.12 Deferred income 29 17,108,361.69 14,125,164.43 Deferred tax liabilities Other non-current liabilities Total Non-current Liabilities 327,284,245.45 433,545,251.55 Total Liabilities 975,298,947.03 1,246,572,463.87 Owners' (or Shareholders') Equity: Paid-in capital (or share 30 451,554,411.00 383,554,411.00 capital) Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 31 1,207,942,318.37 205,995,596.85 Less: Treasury shares Other comprehensive income 32 3,287,063.85 1,044,703.00 Special reserve Surplus reserve 33 22,800,224.13 12,695,712.93 General risk reserve Retained profits 34 288,975,820.29 112,623,054.78 Total owners’ (or 1,974,559,837.64 715,913,478.56 shareholders’) equity attributable to owners of the Parent Company Minority interests 149,649,306.18 110,985,548.13 Total Owners’ (or 2,124,209,143.82 826,899,026.69 Shareholders’) Equity Total Liabilities and 3,099,508,090.85 2,073,471,490.56 Owners’ (or Shareholders’) Equity Legal Representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin 154 / 312 2019 Annual Report Balance Sheet of the Parent Company At December 31, 2019 Prepared by: Appotronics Corporation Limited In RMB At December 31, Item Note At December 31, 2019 2018 Current Assets: Cash and bank balances 570,479,390.49 306,709,743.06 Held-for-trading financial 540,000,000.00 assets Financial assets at fair value through profit or loss Derivative financial assets Notes receivable 3,542,559.63 10,091,743.00 Accounts receivable 1 299,315,776.44 227,673,423.35 Receivables financing 442,500.00 Prepayments 6,410,257.48 12,293,204.18 Other receivables 2 67,227,575.21 34,226,930.38 Including: Interest receivable Dividends receivable Inventories 135,617,379.22 180,602,162.31 Held-for-sale assets Non-current assets due within one year Other current assets 12,280,164.39 Total Current Assets 1,635,315,602.86 771,597,206.28 Non-current Assets: Debt investments Available-for-sale financial 7,075,419.38 assets Other debt investments Held-to-maturity investments Long-term receivables Long-term equity investments 3 257,795,276.13 219,365,735.89 Other equity instrument 7,075,419.38 investments Other non-current financial assets Investment properties Fixed assets 60,391,512.92 49,100,811.69 Construction in progress 1,385,496.59 Bearer biological assets Oil and gas assets Use right assets Intangible assets 330,796,423.87 340,207,888.91 Development expenditure 155 / 312 2019 Annual Report Goodwill Long-term prepaid expenses 12,771,126.83 4,155,925.64 Deferred tax assets 9,545,438.20 5,710,071.90 Other non-current assets 6,744,453.85 254,255.16 Total Non-current Assets 686,505,147.77 625,870,108.57 Total assets 2,321,820,750.63 1,397,467,314.85 Current Liabilities: Short-term borrowings 10,217,738.36 124,440,000.00 Held-for-trading financial liabilities Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable 37,335,841.79 39,051,466.05 Accounts payable 162,596,838.45 140,069,264.80 Receipts in advance 11,116,659.11 35,062,546.75 Employee benefits payable 26,985,668.92 20,568,733.86 Taxes payable 1,534,242.70 18,958,729.81 Other payables 42,599,703.36 173,955,421.70 Including: Interest payable Dividends payable Held-for-sale liabilities Non-current liabilities due within one year Other current liabilities Total Current Liabilities 292,386,692.69 552,106,162.97 Non-current Liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Leasing liabilities Long-term payables 3,488,100.00 6,863,200.00 Long-term employee benefits payable Provisions 14,631,273.00 9,449,087.12 Deferred income 15,724,174.30 5,125,274.76 Deferred tax liabilities Other non-current liabilities Total Non-current 33,843,547.30 21,437,561.88 Liabilities Total Liabilities 326,230,239.99 573,543,724.85 Owners’ (or shareholders’) equity: Paid-in capital (or share 451,554,411.00 383,554,411.00 capital) Other equity instruments 156 / 312 2019 Annual Report Including: Preferred shares Perpetual bonds Capital reserve 1,310,939,867.82 308,318,059.21 Less: Treasury shares Other comprehensive income Special reserve Surplus reserve 21,522,683.40 11,418,172.20 Retained profits 211,573,548.42 120,632,947.59 Total Owners’ (or 1,995,590,510.64 823,923,590.00 Shareholders’) Equity Total Liabilities and 2,321,820,750.63 1,397,467,314.85 Owners’(or Shareholders’) Equity: Legal Representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin Consolidated Income Statement January to December 2019 In RMB Item Note 2019 2018 I. Total operating income 1,979,148,918.89 1,385,727,211.09 Including: Operating income 1 1,979,148,918.89 1,385,727,211.09 Interest income Premiums earned Fee and commission income II. Total operating costs 1,726,836,417.68 1,127,865,623.06 Including: Operating costs 1 1,183,650,635.25 783,243,430.56 Interest expenses Fee and commission expenses Surrenders Claims and policyholder benefits (net of amounts recoverable from reinsurers) Net withdrawal of insurance contract reserves Insurance policyholder dividends Expenses for reinsurance accepted Taxes and levies 2 7,610,151.14 13,613,823.19 Selling expenses 3 151,760,111.00 102,349,110.00 Administrative expenses 4 152,626,530.61 95,580,970.10 R&D expenses 5 201,697,766.26 135,730,450.92 Financial expenses 6 29,491,223.42 -2,652,161.71 Including: Interest expense 33,120,484.94 23,216,946.43 157 / 312 2019 Annual Report Interest income 4,079,231.03 2,204,490.11 Add: other income 7 34,124,614.12 20,937,327.12 Investment income (loss is 8 9,549,063.05 indicated by “-”) Including: Income from -3,927.93 investments in associates and joint ventures Gains from derecognition of financial assets at amortized assets Foreign exchange gains (loss is indicated by “-”) Gains from net exposure hedges (loss is indicated by “-”) Gains from changes in fair values (loss is indicated by “-”) Losses of credit impairment 9 -3,771,572.38 (loss is indicated by “-”) Impairment losses of assets 10 -12,623,251.67 -20,002,303.09 (loss is indicated by “-”) Gains from disposal of 11 41,420.84 assets (loss is indicated by “-”) III. Operating profit (loss is 279,632,775.17 258,796,612.06 indicated by “-”) Add: Non-operating income 12 3,926,066.73 1,315,412.86 Less: Non-operating expenses 13 4,200,197.56 1,845,147.81 IV. Total profits (total losses are 279,358,644.34 258,266,877.11 indicated by “-”) Less: Income tax expenses 14 54,982,221.63 46,715,665.67 V. Net profits (net losses are 224,376,422.71 211,551,211.44 indicated by “-”) (I) Categorized by the continuity of operation 1. Net profits from continuing 224,376,422.71 211,551,211.44 operations (net losses are indicated by "-") 2. Net profits from discontinued operations (net losses are indicated by “-”) (II) Categorized by the ownership 1.Net profits attributable to 186,457,276.71 176,971,092.49 shareholders of the Parent Company(net losses are indicated by "-") 2. Profits or losses attributable 37,919,146.00 34,580,118.95 to minority shareholders (net losses are indicated by “-”) VI. Other comprehensive income, 2,311,885.81 948,957.22 net of tax (I) Other comprehensive income 2,242,360.85 1,044,936.22 158 / 312 2019 Annual Report that can be attributable to owners of the Parent Company, net of tax 1. Other comprehensive income that cannot be reclassified subsequently to profit or loss (1) Changes from remeasurement of defined benefit plans (2) Other comprehensive income that cannot be reclassified to profit or loss under the equity method (3) Changes in fair value of investments in other equity instruments (4) Changes in fair value of enterprises’ own credit risks 2.Other comprehensive 2,242,360.85 1,044,936.22 income that will be reclassified to profit or loss (1) Other comprehensive income that will be reclassified to profit or loss under the equity method (2) Changes in fair value of other debt investments (3) Profit or loss from changes in the fair value of available-for-sale financial assets (4) Amount of financial assets reclassified to other comprehensive income (5) Profit or loss arising from reclassification of held-to-maturity investments to available-for-sale financial assets (6) Provision for credit impairment of other debt investments (7) Reserve for cash flow hedges (Effective portion of profit or loss from cash flow hedges) (8) Exchange differences on 2,242,360.85 1,044,936.22 translation of financial statements denominated in foreign currencies (9) Others (II) Other comprehensive income 69,524.96 -95,979.00 that can be attributable to minority shareholders, net of tax VII. Total comprehensive income 226,688,308.52 212,500,168.66 (I) Total comprehensive income 188,699,637.56 178,016,028.71 that can be attributable to owners of 159 / 312 2019 Annual Report the Parent Company (II) Total comprehensive income 37,988,670.96 34,484,139.95 that can be attributable to minority shareholders VIII. Earnings per share: (I) Basic earnings per share 0.45 0.73 (RMB/share) (II) Diluted earnings per share 0.45 0.73 (RMB/share) For business combination involving entities under common control occurred during the period, net profit of the acquiree generated before the business combination is nil, and net profit of the acquiree generated in prior period is nil. Legal Representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin Income Statement of the Parent Company January to December 2019 In RMB Item Note 2019 2018 I. Operating income 1 1,070,365,243.34 1,175,915,671.75 Less: Operating costs 1 728,135,468.64 768,440,895.19 Taxes and levies 4,961,497.25 9,754,824.93 Selling expenses 82,052,362.77 93,799,707.78 Administrative expenses 104,579,027.77 69,895,078.82 R&D expenses 113,795,005.25 94,422,286.20 Financial expenses -5,955,117.03 -18,973,568.93 Including: Interest expense 4,340,274.90 8,376,479.52 Interest income 10,208,837.58 3,138,192.73 Add: other income 13,016,565.69 9,123,680.33 Investment income (loss is 2 55,488,448.65 indicated by “-”) Including: Income from investments in associates and joint ventures Gains from derecognition of financial assets at amortized assets Gains from net exposure hedges (loss is indicated by “-”) Gains from changes in fair values (loss is indicated by “-”) Losses of credit impairment -1,682,540.09 (loss is indicated by “-”) Impairment losses of assets -11,985,107.53 -35,920,615.46 (loss is indicated by “-”) 160 / 312 2019 Annual Report Gains from disposal of assets (loss is indicated by “-”) II. Operating profit (loss is 97,634,365.41 131,779,512.63 indicated by “-”) Add: Non-operating income 3,686,726.20 1,128,266.53 Less: Non-operating expenses 2,291,107.75 1,386,526.38 III. Total profits (total losses are 99,029,983.86 131,521,252.78 indicated by “-”) Less: Income tax expenses -2,015,128.17 17,339,530.79 IV. Net profits (net losses are 101,045,112.03 114,181,721.99 indicated by “-”) (I) Net profits from continuing 101,045,112.03 114,181,721.99 operations (net losses are indicated by “-”) (II) Net profits from discontinued operations (net losses are indicated by “-”) V. Other comprehensive income, net of tax (I) Other comprehensive income that cannot be reclassified subsequently to profit or loss 1.Changes from remeasurement of defined benefit plans 2. Other comprehensive income that cannot be reclassified to profit or loss under the equity method 3.Changes in fair value of investments in other equity instruments 4.Changes in fair value of enterprises’ own credit risks (II) Other comprehensive income that will be reclassified to profit or loss 1. Other comprehensive income that will be reclassified to profit or loss under the equity method 2. Changes in fair value of other debt investments 3. Profit or loss from changes in the fair value of available-for-sale financial assets 4. Amount of financial assets reclassified to other comprehensive income 161 / 312 2019 Annual Report 5. Profit or loss arising from reclassification of held-to-maturity investments to available-for-sale financial assets 6. Provision for credit impairment of other debt investments 7. Reserve for cash flow hedges (Effective portion of profit or loss from cash flow hedges) 8. Exchange differences on translation of financial statements denominated in foreign currencies 9. Others VI. Total comprehensive income 101,045,112.03 114,181,721.99 VII. Earnings per share: (I) Basic earnings per share 0.25 0.47 (RMB/share) (II) Diluted earnings per 0.25 0.47 share(RMB/share) Legal Representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin Consolidated Cash Flow Statement January to December 2019 In RMB Item Note 2019 2018 I. Cash Flows from Operating Activities: Cash receipts from the sale 2,141,322,935.57 1,689,416,835.44 of goods and the rendering of services Net increase in customer deposits and deposits from banks and other financial institutions Net increase in loans from the central bank Net increase in taking from banks and other financial institutions Cash receipts from premiums under direct insurance contracts Net cash receipts from reinsurance business 162 / 312 2019 Annual Report Net cash receipts from policyholders’ deposits and investment contract liabilities Cash receipts from interest, fees and commissions Net increase in taking from banks Net increase in financial assets sold under repurchase arrangements Net cash received from securities trading agencies Receipts of tax refunds 9,567,790.75 70,031,597.14 Other cash receipts relating 1 78,562,934.95 75,443,525.79 to operating activities Sub-total of cash inflows 2,229,453,661.27 1,834,891,958.37 from operating activities Cash payments for goods 1,318,597,298.92 1,168,397,115.69 purchased and services received Net increase in loans and advances to customers Net increase in balance with the central bank and due from banks and other financial institutions Cash payments for claims and policyholders' benefits under direct insurance contracts Net increase in placements with banks and other financial institutions Cash payments for interest, fees and commissions Cash payments for insurance policyholder dividends Cash payments to and on 285,393,667.92 206,733,872.64 behalf of employees Payments of various types 125,550,662.05 159,832,368.26 of taxes Other cash payments 2 256,911,128.67 182,155,147.48 relating to operating activities Sub-total of cash 1,986,452,757.56 1,717,118,504.07 outflows from operating activities Net cash flow from 243,000,903.71 117,773,454.30 operating activities 163 / 312 2019 Annual Report II. Cash Flows from Investing Activities: Cash receipts from 1,312,700,000.00 3,800,000.00 disposals and recovery of investments Cash receipts from 9,552,990.98 investment income Net cash receipts from 257,846.73 4,525.88 disposals of fixed assets, intangible assets and other long-term assets Net cash receipts from disposals of subsidiaries and other business units Other cash receipts relating 85,426,350.80 to investing activities Sub-total of cash inflows 1,322,510,837.71 89,230,876.68 from investing activities Cash payments to acquire or 243,918,747.78 195,082,197.29 construct fixed assets, intangible assets and other long-term assets Cash payments to acquire 1,851,450,000.00 149,439,419.38 investments Net increase in pledged loans receivables Net cash payments for 17,141,440.00 acquisitions of subsidiaries and other business units Other cash payments relating to investing activities Sub-total of cash 2,095,368,747.78 361,663,056.67 outflows from investing activities Net cash flow from -772,857,910.07 -272,432,179.99 investing activities III. Cash Flows from Financing Activities: Cash receipts from capital 1,094,215,094.34 451,406,814.28 contributions Including: cash receipts 10,347,000.00 from capital contributions from minority shareholders of subsidiaries Cash receipts from 405,787,875.56 446,934,500.00 borrowings Other cash receipts relating 51,102,952.00 to financing activities Sub-total of cash inflows 1,500,002,969.90 949,444,266.28 164 / 312 2019 Annual Report from financing activities Cash repayments of 541,704,799.90 337,789,537.00 borrowings Cash payments for 34,285,290.48 31,772,229.05 distribution of dividends or profits or settlement of interest expenses Including: payments for distribution of dividends or profits to minority shareholders of subsidiaries Other cash payments 39,396,048.75 57,319,710.86 relating to financing activities Sub-total of cash 615,386,139.13 426,881,476.91 outflows from financing activities Net cash flow from 884,616,830.77 522,562,789.37 financing activities IV. Effect of Foreign 2,521,113.05 24,581,322.48 Exchange Rate Changes on Cash and Cash Equivalents V. Net Increase in Cash and 357,280,937.46 392,485,386.16 Cash Equivalents Add: Opening balance of 472,508,550.40 80,023,164.24 cash and cash equivalents VI. Closing Balance of Cash 829,789,487.86 472,508,550.40 and Cash Equivalents Legal representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin Cash Flow Statement of the Parent Company January to December 2019 In RMB Item Note 2019 2018 I. Cash Flows from Operating Activities: Cash receipts from the sale 1,084,739,304.57 1,217,448,068.36 of goods and the rendering of services Receipts of tax refunds 4,102,468.55 2,600,794.13 Other cash receipts relating 76,574,005.12 62,940,850.96 to operating activities Sub-total of cash inflows 1,165,415,778.24 1,282,989,713.45 from operating activities Cash payments for goods 722,868,487.80 829,239,661.69 purchased and services received 165 / 312 2019 Annual Report Cash payments to and on 180,775,409.02 150,626,823.38 behalf of employees Payments of various types 46,036,572.76 103,776,148.37 of taxes Other cash payments 180,658,173.58 189,099,669.62 relating to operating activities Sub-total of cash 1,130,338,643.16 1,272,742,303.06 outflows from operating activities Net cash flow from 35,077,135.08 10,247,410.39 operating activities II. Cash Flows from Investing Activities: Cash receipts from 1,313,635,457.67 3,800,000.00 disposals and recovery of investments Cash receipts from 55,552,990.98 investment income Net cash receipts from 117,985.66 1,775.89 disposals of fixed assets, intangible assets and other long-term assets Net cash receipts from disposals of subsidiaries and other business units Other cash receipts relating 124,900,000.00 147,432,129.81 to investing activities Sub-total of cash inflows 1,494,206,434.31 151,233,905.70 from investing activities Cash payments to acquire or 227,902,344.94 186,456,128.18 construct fixed assets, intangible assets and other long-term assets Cash payments to acquire 1,886,364,000.00 162,409,419.38 investments Net cash payments for acquisitions of subsidiaries and other business units Other cash payments 166,020,000.00 51,200,000.00 relating to investing activities Sub-total of cash 2,280,286,344.94 400,065,547.56 outflows from investing activities Net cash flow from -786,079,910.63 -248,831,641.86 investing activities III. Cash Flows from Financing Activities: Cash receipts from capital 1,094,215,094.34 441,059,814.28 contributions 166 / 312 2019 Annual Report Cash receipts from 132,000,000.00 176,000,000.00 borrowings Other cash receipts relating 114,000,000.00 1,167,254.48 to financing activities Sub-total of cash inflows 1,340,215,094.34 618,227,068.76 from financing activities Cash repayments of 246,440,000.00 141,560,000.00 borrowings Cash payments for 5,416,064.64 7,758,293.09 distribution of dividends or profits or settlement of interest expenses Other cash payments 110,396,048.75 5,248,465.69 relating to financing activities Sub-total of cash 362,252,113.39 154,566,758.78 outflows from financing activities Net cash flow from 977,962,980.95 463,660,309.98 financing activities IV. Effect of Foreign 2,638,810.20 23,568,697.81 Exchange Rate Changes on Cash and Cash Equivalents V. Net Increase in Cash and 229,599,015.60 248,644,776.32 Cash Equivalents Add: Opening balance of 295,049,085.02 46,404,308.70 cash and cash equivalents VI. Closing Balance of Cash 524,648,100.62 295,049,085.02 and Cash Equivalents Legal Representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin 167 / 312 2019 Annual Report Consolidated Statement of Changes in Owners’ Equity January to December 2019 In RMB 2019 Equity attributable to owners of the Parent Company Item Minority Total Owner's Other equity instruments Gener interests Equity Less: Other Paid-in capital Special al risk Other Capital reserve Treasury comprehensive Surplus reserve Retained profits Sub-total (or share capital) Preferred Perpetual reserve reserv s Others shares income shares bonds e I. Closing balance of the 383,554,411.00 205,995,596.85 1,044,703.00 12,695,712.93 112,623,054.78 715,913,478.56 110,985,548.13 826,899,026.69 preceding year Add: Changes in accounting policies Corrections of prior period errors Business combination involving entities under common control Others II. Opening balance of the 383,554,411.00 205,995,596.85 1,044,703.00 12,695,712.93 112,623,054.78 715,913,478.56 110,985,548.13 826,899,026.69 current year III. Changes for the year 68,000,000.00 1,001,946,721.52 2,242,360.85 10,104,511.20 176,352,765.51 1,258,646,359.08 38,663,758.05 1,297,310,117.13 (decrease is indicated by “-”) (I) Total comprehensive 2,242,360.85 186,457,276.71 188,699,637.56 37,988,670.96 226,688,308.52 income (II) Owners’ contributions 68,000,000.00 1,001,946,721.52 1,069,946,721.52 675,087.09 1,070,621,808.61 and reduction in capital 1. Ordinary shares 68,000,000.00 994,470,797.73 1,062,470,797.73 1,062,470,797.73 contributed by owners 2. Capital contribution from holders of other equity instruments 3. Share-based payment 7,475,923.79 7,475,923.79 675,087.09 8,151,010.88 recognized in owners' equity 4. Others (III) Profit distribution 10,104,511.20 -10,104,511.20 1. Transfer to surplus 10,104,511.20 -10,104,511.20 reserve 2. Transfer to general risk reserve 3. Distributions to owners (or shareholders) 4. Others (IV) Transfers within owners’ equity 1.Capitalization of capital reserve 2. Capitalization of capital reserve 3. Loss offset by surplus reserve 168 / 312 2019 Annual Report 4.Retained earnings carried forward from changes in defined benefit plans 5.Retained earnings carried forward from other comprehensive income 6.Others (V) Special reserve 1. Transfer to special reserve in the period 2. Amount utilized in the period (VI) Others IV. Closing balance of the 451,554,411.00 1,207,942,318.37 3,287,063.85 22,800,224.13 288,975,820.29 1,974,559,837.64 149,649,306.18 2,124,209,143.82 current year 2018 Equity attributable to owners of the Parent Company Item Minority Total Owner's Other equity instruments Less: Genera interests Equity Paid-in capital Other comprehensive Special Capital reserve Treasury Surplus reserve l risk Retained profits Others Sub-total (or share capital) income reserve Preferred Perpetual shares reserve Others shares bonds I. Closing balance of the 48,238,559.00 10,559,256.60 -233.22 9,630,943.39 2,143,646.15 70,572,171.92 60,901,980.61 131,474,152.53 preceding year Add: Changes in accounting policies Corrections of prior period errors Business combination involving entities under common control Others II. Opening balance of the 48,238,559.00 10,559,256.60 -233.22 9,630,943.39 2,143,646.15 70,572,171.92 60,901,980.61 131,474,152.53 current year III. Changes for the year 335,315,852.00 195,436,340.25 1,044,936.22 3,064,769.54 110,479,408.63 645,341,306.64 50,083,567.52 695,424,874.16 (decrease is indicated by “-”) (I) Total comprehensive 1,044,936.22 176,971,092.49 178,016,028.71 34,484,139.95 212,500,168.66 income (II) Owners’ contributions and 335,315,852.00 128,218,349.18 463,534,201.18 17,710,656.00 481,244,857.18 reduction in capital 1.Ordinary shares 335,315,852.00 105,743,962.28 441,059,814.28 17,847,000.00 458,906,814.28 contributed by owners 2.Capital contribution from holders of other equity instruments 3. Share-based payment 22,338,042.90 22,338,042.90 22,338,042.90 recognized in owners' equity 4. Others 136,344.00 136,344.00 -136,344.00 (III) Profit distribution 11,418,172.20 -11,418,172.20 1. Transfer to surplus reserve 11,418,172.20 -11,418,172.20 2. Transfer to general reserve 3. Distributions to owners (or shareholders) 4. Others (IV) Transfers within owners’ 65,664,628.79 -8,353,402.66 -57,311,226.13 equity 1.Capitalization of capital reserve 169 / 312 2019 Annual Report 2. Capitalization of capital reserve 3. Loss offset by surplus reserve 4.Retained earnings carried forward from changes in defined benefit plans 5.Retained earnings carried forward from other comprehensive income 6.Others 65,664,628.79 -8,353,402.66 -57,311,226.13 (V) Special reserve 1. Transfer to special reserve in the period 2. Amount utilized in the period (VI) Others 1,553,362.28 2,237,714.47 3,791,076.75 -2,111,228.43 1,679,848.32 IV. Closing balance of the 383,554,411.00 205,995,596.85 1,044,703.00 0 12,695,712.93 112,623,054.78 715,913,478.56 110,985,548.13 826,899,026.69 current year Legal Representative: Person in Charge of the Accounting Body: Chief Accountant: BO Lianming ZHAO Ruijin WEI Yanlin 170 / 312 2019 Annual Report Statement of Changes in Owners’ Equity of the Parent Company January to December 2019 In RMB 2019 Other equity instruments Less: Other Item Paid-in capital (or share Special Capital reserve Treasury comprehensive Surplus reserve Retained profits Total Owner's Equity capital) Preferred Perpetual reserve Others shares income shares bonds I. Closing balance of the preceding year 383,554,411.00 308,318,059.21 11,418,172.20 120,632,947.59 823,923,590.00 Add: Changes in accounting policies Corrections of prior period errors Others II. Opening balance of the current year 383,554,411.00 308,318,059.21 11,418,172.20 120,632,947.59 823,923,590.00 III. Changes for the year (decrease is 68,000,000.00 1,002,621,808.61 10,104,511.20 90,940,600.83 1,171,666,920.64 indicated by “-”) (I) Total comprehensive income 101,045,112.03 101,045,112.03 (II) Owners’ contributions and 68,000,000.00 1,034,366,105.22 1,102,366,105.22 reduction in capital 1. Ordinary shares contributed by 68,000,000.00 1,026,215,094.34 1,094,215,094.34 owners 2.Capital contribution from holders of other equity instruments 3. Share-based payment recognized in 8,151,010.88 8,151,010.88 owners' equity 4. Others (III) Profit distribution 10,104,511.20 -10,104,511.20 1. Transfer to surplus reserve 10,104,511.20 -10,104,511.20 2. Distributions to owners (or shareholders) 3. Others (IV) Transfers within owners’ equity 1.Capitalization of capital reserve 2. Capitalization of capital reserve 3. Loss offset by surplus reserve 4.Retained earnings carried forward from changes in defined benefit plans 5.Retained earnings carried forward from other comprehensive income 6.Others (V) Special reserve 1. Transfer to special reserve in the period 2. Amount utilized in the period (VI) Others -31,744,296.61 -31,744,296.61 IV. Closing balance of the current year 451,554,411.00 1,310,939,867.82 21,522,683.40 211,573,548.42 1,995,590,510.64 Item 2018 171 / 312 2019 Annual Report Other equity instruments Paid-in capital (or share Less: Treasury Other comprehensive Special Surplus Retained Total Owner's Capital reserve capital) Preferred Perpetual shares income reserve reserve profits Equity Others shares bonds I. Closing balance of the preceding year 48,238,559.00 114,571,425.24 8,353,402.66 75,180,623.93 246,344,010.83 Add: Changes in accounting policies Corrections of prior period errors Others II. Opening balance of the current year 48,238,559.00 114,571,425.24 8,353,402.66 75,180,623.93 246,344,010.83 III. Changes for the year (decrease is indicated 335,315,852.00 193,746,633.97 3,064,769.54 45,452,323.66 577,579,579.17 by “-”) (I) Total comprehensive income 114,181,721.99 114,181,721.99 (II) Owners’ contributions and reduction in 335,315,852.00 128,082,005.18 463,397,857.18 capital 1. Ordinary shares contributed by owners 335,315,852.00 105,743,962.28 441,059,814.28 2.Capital contribution from holders of other equity instruments 3. Share-based payment recognized in owners' 22,338,042.90 22,338,042.90 equity 4. Others (III) Profit distribution 11,418,172.20 -11,418,172.20 1. Transfer to surplus reserve 11,418,172.20 -11,418,172.20 2. Distributions to owners (or shareholders) 3. Others (IV) Transfers within owners’ equity 65,664,628.79 -8,353,402.66 -57,311,226.13 1. Capitalization of capital reserve 2. Capitalization of capital reserve 3. Loss offset by surplus reserve 4.Retained earnings carried forward from changes in defined benefit plans 5.Retained earnings carried forward from other comprehensive income 6.Others 65,664,628.79 -8,353,402.66 -57,311,226.13 (V) Special reserve 1. Transfer to special reserve in the period 2. Amount utilized in the period (VI) Others IV. Closing balance of the current year 383,554,411.00 308,318,059.21 11,418,172.20 120,632,947.59 823,923,590.00 Legal Representative: BO Lianming Person in Charge of the Accounting Body: ZHAO Ruijin Chief Accountant: WEI Yanlin 172 / 312 2019 Annual Report III. Basic information 1. Profile √Applicable □N/A Appotronics Corporation Limited (hereinafter referred to as “Company” or “the Company”), formally named as Appotronics Corporation Ltd.(hereinafter referred to as “Appotronics Ltd.”), was jointly invested and established by LI Yi and XU Yanzheng and registered in Nanshan Branch of Market Supervision and Regulation Bureau of Shenzhen Municipality on October 24, 2006 with the business license numbered in 4403011245637. Upon establishment, the registered capital of Appotronics Inc. was RMB 100,000. On May 31, 2018, the benchmark date, Appotronics Inc was changed into a company limited by shares as a whole. On July 20, 2018, the Company completed the registration in Nanshan Branch of Market Supervision and Regulation Bureau of Shenzhen Municipality and headquartered in Shenzhen, Guangdong Province. The Company now holds the business license with the unified social credit code of 91440300795413991N and has registered capital amounted to RMB 451,554,411.00. The Company has 451,554,411 shares in total (with the par value of RMB 1 per share), of which 394,361,498 shares were outstanding shares under restrictions and 57,192,913 shares were outstanding shares without restrictions. The Company’s shares were listed for trading on Shanghai Stock Exchange on July 22, 2019. The Company can be classified into the computer, communication and other electronic equipment manufacturing industry. It mainly engages in research and development, production, sales and leasing of laser display core devices and complete equipment, and can provide customers with technical research and development services and customized products. Its products mainly include laser business education projectors, laser TV, laser large venue projector and laser digital cinema projector. This financial statements have been approved by the Company’s twenty-first session of the first board of directors on April 28, 2020 for public disclosure. 2. Scope of consolidated financial statements √Applicable □N/A The Company has included 17 subsidiaries into the consolidated financial statements for the current period, including Appotronics Timewaying (Beijing) Technology Co., Ltd., Shenzhen Appotronics Software Technology Co., Ltd., Shenzhen City Appotronics Xiaoming Technology Co., Ltd., Beijing Orient Appotronics Technology Co., Ltd., Fengmi (Beijing) Technology Co., Ltd., CINEAPPO Laser Cinema Technology (Beijing) Co., Ltd., Shenzhen Appotronics Laser Display Technology Co., Ltd., Shenzhen Appotronics Laser Technology Co., Ltd., Qingda Appotronics (Xiamen) Technology Co., Ltd., Shenzhen Appotronics Home Line Technology Co., Ltd., Appotronics Hong Kong Limited, Appotronics USA, Inc., Fabulus Technology Hong Kong Limited, JoveAI Limited, JoveAI Innovation,Inc., Appotronics Technology (Changzhou) Co., Ltd., FORMOVIE TECHNOLOGY INC and other subsidiaries. Refer to descriptions in VIII and IX of Section XI for details. 173 / 312 2019 Annual Report IV. Basis of preparation of financial statements 1. Basis of preparation The Company’s financial statements are prepared on a going-concern basis. 2. Going concern √Applicable □N/A The Company has detected no events or circumstances that may cast significant doubt upon its ability to continue as a going concern within 12 months from the reporting period. V. Significant accounting policies and accounting estimates Specific accounting policies and accounting estimates: √Applicable □N/A Important notes: The Company establishes the specific accounting policies and makes the specific accounting estimates with respect to the impairment of financial instruments, depreciation of fixed assets, amortization of intangible assets, recognition of revenues and other transactions and events according to the actual production and operation characteristics of the Company. 1. Statement of compliance with the Accounting Standards for Business Enterprises The financial statements prepared by the Company conform to the requirements of the Accounting Standards for Business Enterprises and truly and completely reflect the Company’s financial position, operating results, changes in shareholders' equity, cash flows and other related information. 2. Accounting period The Company’s accounting year is from January 1 to December 31 of each calendar year. 3. Operating cycle √Applicable □N/A The Company has a relatively short operating cycle, and determines the liquidity of assets and liabilities on the basis of 12 months. 4. Functional currency The Company adopts RMB as its functional currency. 5. The accounting treatment of business combinations involving entities under common control and not involving entities under common control √Applicable □N/A 174 / 312 2019 Annual Report 1. Accounting treatment of business combinations involving entities under common control Assets and liabilities acquired from a business combination by the Company are measured at the carrying amounts of the assets and liabilities of the acquiree in the consolidated financial statements of the ultimate controller at the date of combination. The difference between the carrying amount of the owners’ equity of the acquiree as stated in the consolidated financial statements of the ultimate controller and the carrying amount of the total consideration paid or total par value of the shares issued in connection with the combination is treated as an adjustment to the capital reserve. In case the capital reserve is not sufficient to absorb the difference, the remaining balance is adjusted against the retained earnings. 2. Accounting treatment of business combinations not involving entities under common control Where the cost of combination exceeds the Company’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognized as goodwill. Where the cost of combination is less than the Company’s interest in the fair value of the acquiree’s identifiable net assets, the Company firstly reassesses the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of combination. If after that reassessment, the cost of combination is still less than the Company’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer recognizes the remaining difference immediately in profit or loss for the current period. 6. Method of preparation of consolidated financial statements √Applicable □N/A The parent company includes all of its controlled subsidiaries in its consolidated financial statements. The consolidated financial statements are prepared by the parent company in accordance with the Accounting Standards for Business Enterprises No. 33 -- Consolidated Financial Statements, on the basis of the respective financial statements of the parent company and its subsidiaries, by reference to other relevant data. 7. Classification of joint arrangements and accounting treatment of joint operations √Applicable □N/A 1. Joint arrangements are classified into joint operations and joint ventures. 2. When the Company is a party to a joint operation, the Company recognizes the following items relating to its interest in the joint operation: (1) the assets individually held by the Company, and the Company’s share of the assets held jointly; (2) the liabilities incurred individually by the Company, and the Company’s share of the liabilities incurred jointly; (3) the Company’s revenue from the sale of its share of output of the joint operation; (4) the Company’s share of revenue from the sale of assets by the joint operation; and 175 / 312 2019 Annual Report (5) the expenses incurred individually by the Company, and the Company’s share of the expenses incurred jointly. 8. Recognition of cash and cash equivalents Cash represented in the statement of cash flows comprises cash on hand and deposits that can be readily withdrawn on demand. Cash equivalents are the Group's short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 9. Translation of transactions and financial statements denominated in foreign currencies √Applicable □N/A 1. Transactions denominated in foreign currencies A foreign currency transaction is recorded in RMB, on initial recognition, by applying the spot exchange rate on the date of the transaction. At the balance sheet date, foreign currency monetary items are translated into RMB using the spot exchange rates at the balance sheet date. Exchange differences arising from such translations are recognized in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying assets and accrued interest. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the foreign exchange rates ruling at the transaction dates, without adjusting the amounts in RMB. Non-monetary items denominated in foreign currencies that are measured at fair value are translated using the foreign exchange rates prevailing at the dates when the fair value was determined, with exchange differences arising from such translations recognized in profit or loss for the current period or other comprehensive income. 2. Translation of financial statements denominated in foreign currencies Asset and liability items on the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; shareholders' equity items other than "retained profits” are translated at the spot exchange rates at the dates on which such items arose; income and expense items in the income statement are translated at the exchange rates that approximate the actual spot exchange rates on the dates of the transactions. Exchange differences arising from such translations are recognized in other comprehensive income. 10. Financial instruments √Applicable □N/A 1. Classification of financial assets and financial liabilities On initial recognition, the Company’s financial assets are classified into three categories, including (1) financial assets at amortized cost; (2) financial assets at fair value through other comprehensive income; and (3) financial assets at fair value through profit or loss for the current period. 176 / 312 2019 Annual Report Upon initial recognition, the Company’s financial liabilities are classified into four categories, including (1) financial liabilities at fair value through profit or loss for the current period; (2) financial liabilities arising as a result of the transfer of financial assets not meeting the criteria for derecognition or continuing involvement in the financial assets transferred; (3) financial guarantee contracts not falling under Clauses (1) and (2), and loan commitments not falling under Clause (1) and below market interest rate; and (4) financial liabilities at amortized cost. 2. Recognition, measurement and derecognition of financial assets and financial liabilities (1) Recognition and initial measurement of financial assets and financial liabilities When the Company becomes a party to a financial instrument contract, a financial asset or liability is recognized. Financial assets and liabilities are initially measured at fair value. Transaction costs relating to financial assets or liabilities at fair value through profit or loss are directly recognized in profit or loss for the current period. Transaction costs relating to other kinds of financial assets or liabilities are included in their initially recognized amount. However, the accounts receivable, if do not contain any significant financing component or are recognized by the Company without taking into consideration the financing components under the contracts with a term of less than one year upon initial recognition, are initially measured at transaction price. (2) Subsequent measurement of financial assets 1) Financial assets at amortized cost Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method. Gains or losses arising from financial assets at amortized cost that do not belong to any hedging relationship are recognized in profit or loss for the current period upon derecognition, reclassification, amortization using the effective interest method or recognition of impairment. 2) Investments in debt instruments at fair value through other comprehensive income Investments in debt instruments at fair value through other comprehensive income are subsequently measured at fair value. Interest, impairment losses or gains and exchange gains or losses calculated using the effective interest method are recognized in profit or loss for the current period, and other gains or losses are recognized in other comprehensive income. Upon derecognition, the aggregate gains or losses previously recognized in other comprehensive income are transferred to profit or loss for the current period. 3) Investments in equity instruments at fair value through other comprehensive income Investments in equity instruments at fair value through other comprehensive income are subsequently measured at fair value. Dividends received (other than those received as recovery of investment cost) are recognized in profit or loss for the current period, and other gains or losses are recognized in other comprehensive income. Upon derecognition, the accumulated gains or losses previously recognized in other comprehensive income are transferred to retained earnings. 4) Financial assets at fair value through profit or loss for the current period Financial assets at fair value through profit or loss for the current period are 177 / 312 2019 Annual Report subsequently measured at fair value, with gains or losses arising therefrom, including interest and dividend income, recognized in profit or loss for the current period, except the financial assets belonging to any hedging relationship. (3) Subsequent measurement of financial liabilities 1) Financial liabilities at fair value through profit or loss for the current period Financial liabilities at fair value through profit or loss for the current period include financial liabilities held for trading (including derivatives classified as financial liabilities), and financial liabilities directly designated as at fair value through profit or loss for the current period. Such financial liabilities are subsequently measured at fair value. Changes in the fair value of financial liabilities designated as at fair value through profit or loss for the period arising out of changes in the Company’s own credit risk are recognized in other comprehensive income, unless such treatment will result in or increase any accounting mismatch in profit or loss. Other gains or losses arising from such financial liabilities, including interest expenses and changes in fair value not arising out of changes in the Company’s own credit risk, are recognized in profit or loss for the current period, except the financial liabilities belonging to any hedging relationship. Upon derecognition, the accumulated gains or losses previously recognized in other comprehensive income are transferred to retained earnings. 2) Financial liabilities arising as a result of the transfer of financial assets not meeting the criteria for derecognition or continuing involvement in the financial assets transferred Such financial liabilities are measured in accordance with the Accounting Standards for Business Enterprises No. 23 -- Transfer of Financial Assets. 3)Financial guarantee contracts not falling under Clauses 1) and 2), and loan commitments not falling under Clause 1) and below market interest rate Such financial liabilities are subsequently measured at the higher of ① provision for impairment losses determined according to the policy for impairment of financial instruments; and ② balance of the initially recognized amount after deduction of the accumulated amortization determined in accordance with the relevant policy. 4) Financial liabilities at amortized cost Financial liabilities at amortized cost are subsequently measured at amortized cost using the effective interest method. Gains or losses on financial liabilities at amortized cost that do not belong to any hedging relationship are recognized in profit or loss for the current period upon derecognition or amortization using the effective interest method. (4) Derecognition of financial assets and financial liabilities 1) Financial assets are derecognized when: ① the contractual right to receive cash flows from the financial assets has expired; or ② the financial assets have been transferred and such transfer meets the criteria for derecognition of financial assets as set forth in the Accounting Standards for Business Enterprises No. 23 -- Transfer of Financial Assets. 2) A financial liability (or part thereof) is derecognized when all or part of the outstanding obligations thereon have been discharged. 3. Recognition and measurement of financial assets transferred 178 / 312 2019 Annual Report When a financial asset of the Company is transferred, if substantially all the risks and rewards incidental to the ownership of the financial asset have been transferred, the financial asset is derecognized, and the rights and obligations incurred or retained in such transfer are separately recognized as assets or liabilities (as the case may be); if substantially all the risks and rewards incidental to the ownership of the financial asset have been retained, the financial asset transferred continues to be recognized. If the Company neither transferred nor retained a substantial portion of all risks and rewards incidental to the ownership of the financial asset, then: (1) if the Company does not retain control over the financial asset, the financial asset is derecognized, and the rights and obligations incurred or retained in such transfer are separately recognized as assets or liabilities (as the case may be); and (2) if the Company retains control over the financial asset, the financial asset continues to be recognized to the extent of the Company’s continuing involvement in the financial asset transferred, and a corresponding liability is recognized. If an entire transfer of a financial asset meets the criteria for derecognition, the difference between (1) the carrying amount of the financial asset transferred at the date of derecognition; and (2) the sum of the consideration received from the transfer and the portion of the accumulated amount of changes in fair value directly recorded as other comprehensive income originally that corresponds to the part derecognized (where the financial asset transferred is an investment in debt instruments at fair value through other comprehensive income) is recognized in profit or loss for the current period. If part of a financial asset is transferred and the part transferred entirely meets the criteria for derecognition, the total carrying amount of the financial asset immediately prior to the transfer is allocated between the part derecognized and the part not derecognized in proportion to their relative fair value at the date of transfer, and the difference between (1) the carrying amount of the part derecognized; and (2) the sum of the consideration received from the transfer of the part derecognized and the portion of the accumulated amount of changes in fair value directly recorded as other comprehensive income originally that corresponds to the part derecognized (where the financial asset transferred is an investment in debt instruments at fair value through other comprehensive income) is recognized in profit or loss for the current period. 4. Determination of fair value of financial assets and financial liabilities The Company adopts the valuation techniques applicable to the current situations and with sufficient data available and support of other information, to determine the fair value of financial assets and financial liabilities. The Company classifies the inputs used by the valuation techniques in the following levels and uses them in turn: (1) Level 1 inputs: quoted market price (unadjusted) in an active market for an identical asset or liability available at the date of measurement; (2) Level 2 inputs: inputs other than inputs included within Level 1 that are observable directly or indirectly. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, observable inputs other than quoted prices (such as interest rate and yield curves observable during regular intervals of quotation), and inputs validated by the market; 179 / 312 2019 Annual Report (3) Level 3 inputs: inputs that are unobservable. This category includes interest rate or stock volatility that cannot be directly observed or validated by observable market data, future cash flows from retirement obligation incurred in business combinations, and financial forecasts made using own data. 5. Impairment of financial instruments (1) Measurement and accounting treatment of impairment of financial instruments The Company determines the impairment and assesses provision for impairment losses of financial assets at amortized cost, investments in debt instruments at fair value through other comprehensive income, lease receivable, loan commitments other than financial liabilities designated at fair value through profit or loss for the current period, and financial guarantee contracts other than financial liabilities designated at fair value through profit or loss for the current period and financial liabilities arising as a result of the transfer of financial assets not meeting the criteria for derecognition or continuing involvement in the financial assets transferred, on the basis of expected credit losses. Expected credit loss is the weighted average of credit losses on financial instruments taking into account the possibility of default. Credit loss is the difference between all contractual cash flows receivable under the contract and estimated future cash flows discounted at the original effective interest rate, i.e. the present value of all cash shortage, wherein the Company’s purchased or originated financial assets that have become credit impaired are discounted at their credit-adjusted effective interest rate. With respect to purchased or originated financial assets that have become credit impaired, at the balance sheet date, the Company recognizes a loss allowance equal to the accumulated amount of changes in lifetime expected credit losses since initial recognition. With respect to accounts receivable that do not contain any significant financing component or are recognized by the Company without taking into consideration the financing components under the contracts with a term of less than one year, the Company uses the simple measurement method and recognizes a loss allowance equal to the lifetime expected credit loss. With respect to financial assets not using the measurement methods stated above, at each balance sheet date, the Company assesses whether the credit risk has increased significantly since initial recognition, and recognizes a loss allowance equal to the lifetime expected credit loss if the credit risk has increased significantly since initial recognition, or to the expected credit losses within the next 12 months if the credit risk has not increased significantly since initial recognition. The Company uses reasonable and supportable information, including forward-looking information, and compares the possibility of default at the balance sheet date with the possibility of default upon initial recognition, to determine whether the credit risk of the financial instruments has increased significantly since initial recognition. At the balance sheet date, if the Company determines that a financial instrument only has low credit risk, the Company assumes that its credit risk has not increased significantly since initial recognition. The Company assesses expected credit risk and measures expected credit losses of 180 / 312 2019 Annual Report financial instruments individually or collectively. When assessing the financial instruments collectively, the Company includes the financial instruments in different groups according to their common risk characteristics. At each balance sheet date, the Company re-assesses the expected credit losses, with the amount of increase in or reversal of loss allowance recognized in profit or loss for the current period as impairment losses or gains. With respect to a financial asset at amortized cost, its carrying amount recorded in the balance sheet is written off against the loss allowance. With respect to an investment in debt instruments at fair value through other comprehensive income, the Company recognizes the loss allowance in other comprehensive income, without reducing its carrying amount. (2) Financial instruments for which expected credit risk is assessed and expected credit losses are measured collectively Item Basis for determining a Method for measuring group expected credit losses Other receivables - group By reference to historic of deposit and security credit loss experience, and receivable Nature of receivables taking into account the Other receivables- group of current situations and withholding receivable prediction of future Other receivables - group economic conditions, Receivables from related of receivables from related calculate the expected parties in the scope of parties in the scope of credit losses according to consolidation consolidation the default risk exposure and 12-month or rate of Other receivables - aging lifetime expected credit grouping by aging loss. (3) Accounts receivable for which expected credit losses are measured collectively 1) Groups and method for measuring expected credit losses Item Basis for determining a Method for measuring group expected credit losses Bank acceptance bills By reference to historic receivable credit loss experience, and Type of notes Commercial acceptance taking into account the bills receivable current situations and prediction of future economic conditions, Accounts receivable - Receivables from related calculate the expected group of receivables from parties in the scope of credit losses according to related parties in the scope consolidation the default risk exposure of consolidation and rate of lifetime expected credit loss. Accounts receivable - aging By reference to historic 181 / 312 2019 Annual Report grouping by aging credit loss experience, and taking into account the current situations and prediction of future economic conditions, prepare a comparison table of the aging of accounts receivable and rate of lifetime expected credit loss, and calculate the expected credit losses. 2) Accounts receivable - comparison table of the age of accounts receivable and rate of lifetime expected credit loss Accounts receivable Aging Rate of expected credit loss for accounts receivable (%) Within 1 year (including, the same below) 5.00 1-2 years 25.00 2-3 years 50.00 Over 3 years 100.00 6.Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are presented in the balance sheet separately, without offsetting each other. However, the Company may represent the financial assets and financial liabilities on a net basis in the balance sheet only if: (1) the Company has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, and (2) the Company intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously. With respect to the transfer of financial assets not meeting the criteria for derecognition, the Company does not offset the financial assets transferred against the relevant liabilities. 11. Notes receivable Method for recognition of expected credit losses of notes receivable and relevant accounting treatments √Applicable □N/A The Company's method for recognition of expected credit losses of notes receivable and relevant accounting treatments are disclosed in V10 of Section XI in details. 12. Accounts receivable Method for recognition of expected credit losses of accounts receivable and relevant accounting treatments √Applicable □N/A 182 / 312 2019 Annual Report The Company's method for recognition of expected credit losses of accounts receivable and relevant accounting treatments are disclosed in V10 of Section XI in details. 13. Receivables financing √Applicable □N/A The Company's policies on receivables financing are disclosed in V10 of Section XI in details. 14. Other receivables Method for recognition of expected credit losses of other receivables and relevant accounting treatments √Applicable □N/A The Company's method for recognition of expected credit losses of other receivables and relevant accounting treatments are disclosed in V10 of Section XI in details. 15. Inventories √Applicable □N/A 1. Categories of inventories Inventories mainly include finished goods or commodities held for sale in the ordinary course of businesses, work in progress in the process of production or materials and supplies consumed in the process of production or rendering service. 2. Valuation method of inventories upon delivery The actual cost of inventories upon delivery is calculated using the moving weighted average method. 3. Basis for determining net realizable value of inventories At the balance sheet date, inventories are measured at the lower of cost and net realizable value. If the net realizable value is below the cost of inventories, a provision for decline in value of inventories is made. For inventories directly used for sale, the net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale and relevant taxes. For inventories required for processing, the net realizable value is determined as the estimated selling price of finished goods in the ordinary course of business less the estimated costs of completion, and the estimated costs necessary to make the sale and relevant taxes. As at the balance sheet date, if in the same item of inventories, some are agreed with contractual prices while the others are not, the net realizable value for such inventories is determined separately, and compared with the costs of the two parts of inventories distinctively, as to determine the provisions or reversal of provisions for decline in value of inventories separately. 4. Inventory count system The perpetual inventory system is maintained for stock system. 5. Amortization method for low cost and short-lived consumable items and packaging materials 183 / 312 2019 Annual Report (1) Low cost and short-lived consumable items Low cost and short-lived consumable items are amortized using the immediate write-off method. (2) Packaging materials Packaging materials are amortized using the immediate write-off method. 16. Held-for-sale assets √Applicable □N/A 1. Categories of non-current assets or disposal group classified as held-for-sale Non-current assets or disposal groups classified as held for sale are required to satisfy the following conditions: (1) the assets or disposal groups are available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset or disposal group; (2) the sale is highly probable, i.e. the Company has made a resolution about selling plan and obtained a confirmed purchase commitment and the sale is expected to be completed within one year. Non-current assets or disposal groups acquired by the Company for resale only are classified as held for sale at the acquisition date if the assets or disposal groups can satisfy the condition that“ the sale is expected to be completed within one year” at the acquisition date and are highly probable to meet other conditions for being classified as held for sale in a short term (within 3 months in general). Despite transactions between unrelated parties not completed within one year, the Company continues to classify as held for sale the non-current assets or disposal groups that the Company still undertakes to sell if the failure in completion is due to one of the following reasons beyond the Company's control: (1) purchasers or other parties set conditions unexpectedly, which has led to a sale deferral, but the Company has taken measures promptly in response to such conditions and expects to solve the delay problem within one year from date when conditions leading to the sale deferral are set; (2) there are rare circumstances occurring, as a result of which non-current assets or disposal groups classified as held for sale fail to be sold, but the Company has taken necessary measures in the initial year to address these new circumstances to enable the non-current assets or disposal groups to satisfy classification criteria of held-for-sale category. 2. Measurement of non-current assets or disposal groups classified as held for sale (1) Initial and subsequent measurement When the Company measures the non-current assets or disposal groups classified as held for sale upon initial recognition or re-measures them at the balance sheet date, if their carrying amount is higher than the net amount of their fair value less costs to sell, the carrying amount should be reduced to the net amount of fair value less costs to sell, and such reduction is recognized in impairment loss of assets and included in profit or loss for the current period with a provision for impairment loss of held-for-sale assets made. Non-current assets or disposal groups classified as held for sale at the acquisition date are measured at the lower of their initial amount measured at the assumption of not being classified as held for sale and the net amount of fair value less costs to sell. Except non-current assets or disposal groups acquired through business combination, the balance of 184 / 312 2019 Annual Report non-current assets or disposal groups incurred by recognizing the net amount of fair value less costs to sell as the initial measurement amount is included in profit or loss for the current period. Impairment losses recognized in disposal groups classified as held for sale are firstly offset against the carrying amount of goodwill in the disposal groups and then offset against the carrying amount of each non-current asset in proportion to their shares in the disposal groups. When the non-current assets held for sale or in the disposal groups make no provision of depreciation or amortization, the interests incurred by the liabilities and other expenses in the disposal groups held for sale shall continue to be recognized. (2) Accounting treatment for reversal of impairment loss of assets When there is an increase in the net amount of fair value of non-current assets held for sale less costs to sell at the balance sheet date subsequently, the original deduction should be reversed in impairment loss of assets recognized after the classification of held-for-sale category, and the reverse amount is included in profit or loss for the current period. No reversion is made for the impairment loss of assets recognized before the classification of held-for-sale category. When there is an increase in the net amount of fair value of disposal groups held for sale less costs to sell at the balance sheet date subsequently, the original deduction should be reversed in impairment loss of non-current assets recognized after the classification of held-for-sale category, and the reverse amount is included in profit or loss for the current period. No reversion is made for the carrying amount of goodwill that has been offset and the impairment loss of non-current assets recognized before the classification of held-for-sale category. The reversed amount of impairment loss of assets recognized in disposal groups held for sale is added to the carrying amount of each non-current asset other than goodwill in proportion to their shares in the disposal groups. (3) Accounting treatment for discontinued classification of held for sale and derecognition When a non-current asset or disposal group ceases to be classified as held for sale since it no longer meets the criteria for classification of held-for-sale category, or when a non-current asset is removed from a disposal group classified as held for sale, the non-current asset or disposal group is measured at the lower of: 1) the carrying amount recognized before classification of held-for-sale category, subject to the amount adjusted according to depreciation, amortization or impairment that would have been recognized if it had not been classified as held for sale; and 2) the recoverable amount. Gains or losses from derecognized non-current assets or disposal groups classified as held for sale that have not been recognized are included in profit or loss for the current period. 185 / 312 2019 Annual Report 17. Debt investments (1). Method for recognition of expected credit losses of debt investments and relevant accounting treatments □Applicable √N/A 18. Other debt investments (1). Method for recognition of expected credit losses of other debt investments and relevant accounting treatments □Applicable √N/A 19. Long-term receivables (1). Method for recognition of expected credit losses of long-term receivables and relevant accounting treatments □Applicable √N/A 20. Long-term equity investments √Applicable □N/A 1. Judgments on joint control and significant influence Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities of such arrangement require unanimous consent of the parties sharing control. Significant influence is the power to participate in the financial and operating policy making of an entity, but does not control or jointly control over those policies. 2. Determination of investment cost (1) In case of an equity investment acquired through a business combination involving entities under common control, if the acquirer pays consideration for the business combination by cash, transfer of non-monetary assets, assumption of liabilities or issuance of equity securities, the initial investment cost of the long-term equity investment is the Company’s share of the carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controller at the date of combination. The difference between: (i) the initial investment cost of the long-term equity investment; and (ii) the carrying amount of the consideration paid for the combination or the total par value of the shares issued is treated as an adjustment to the capital reserve. In case the capital reserve is not sufficient to absorb the difference, the remaining balance is adjusted against the retained earnings. For a long-term equity investment acquired through business combination involving entities under common control and achieved through multiple transactions by steps, the Company shall judge whether such transactions constitute a package deal. If such transactions constitute a package deal, the Company accounts for such transactions as one transaction to acquire control. If such transactions do not constitute a package deal, the initial 186 / 312 2019 Annual Report investment cost is the Company’s share of the carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controller at the date of combination. The difference between: (i) the initial investment cost of the long-term equity investment at the date of combination; and (ii) the sum of the carrying amount of long-term equity investment before the combination and the carrying amount of the consideration paid for acquisition of the additional shares at the date of combination is adjusted against the capital reserve.In case the capital reserve is not sufficient to absorb the difference, the remaining balance is adjusted against the retained earnings. (2) In case of an equity investment acquired through a business combination not involving entities under common control, the initial investment cost is the fair value of the carrying amount of the consideration paid for the combination at the date of acquisition. For a long-term equity investment acquired through a business combination not involving entities under common control and achieved through multiple transactions by steps, the accounting treatment thereof in the separate financial statements is different from that in the consolidated financial statements as stated below: 1) In the separate financial statements, the sum of the carrying amount of the equity investment originally held in the acquiree and the additional investment cost incurred is recorded as the initial investment cost of the equity investment changed into the cost method. 2) In the consolidated financial statements, it is required to judge whether such transactions constitute a package deal. If such transactions constitute a package deal, the Company accounts for such transactions as one transaction to acquire control. If such transactions do not constitute a package deal, the Company re-measures the fair value of the equity held in the acquiree prior to the date of acquisition, and records the difference between the fair value and the carrying amount as investment income for the current period; if the equity held in the acquiree prior to the date of acquisition involves other comprehensive income under equity method, such other comprehensive income is transferred to the income of the period in which the date of acquisition falls, except for other comprehensive income arising from re-measurement of changes in net liabilities or net assets of defined benefit plans. (3) In case of an equity investment not acquired through business combination, the initial investment cost is the purchase price actually paid if it is acquired by cash, or the fair value of the equity securities issued if it is acquired through issuance of equity securities, or determined in accordance with the Accounting Standards for Business Enterprises No. 12 -- Debt Restructuring if it is acquired through debt restructuring, or determined in accordance with the Accounting Standards for Business Enterprises No. 7 -- Exchange of Non-monetary Assets if it is acquired through exchange of non-monetary assets. 3. Subsequent measurement and recognition of profit or loss Long-term equity investments in investees are measured using the cost method. Long-term equity investments in associates and joint ventures are measured using the equity method. 4. Disposal of investment in a subsidiary through multiple transactions by steps until loss of control over the subsidiary 187 / 312 2019 Annual Report (1) Separate financial statements The difference between the carrying amount of the equity disposed of and the proceeds of disposal actually received is recognized in profit or loss for the current period. If the remaining equity empowers the Company to exercise significant influence or joint control over the investee, the remaining equity is accounted for using the equity method; if the remaining equity does not empower the Company to exercise control, joint control or significant influence over the investee, the remaining equity is accounted for in accordance with the Accounting Standards for Business Enterprises No. 22 -- Recognition and Measurement of Financial Instruments. (2) Consolidated financial statements 1) Disposal of investment in a subsidiary through multiple transactions by steps until loss of control over the subsidiary which does not constitute a package deal Prior to the loss of control, the difference between the proceeds from disposal and the share owned by the Company in the net assets of the subsidiary in relation to the long-term equity investment disposed of that is calculated continuously from the date of acquisition or combination is adjusted against the capital reserve (capital premium). In case the capital premium is not sufficient to absorb the difference, the remaining balance is adjusted against the retained earnings. When losing control over a subsidiary, the remaining equity is re-measured at its fair value at the date of loss of control. The sum of the consideration received from the disposal of the equity and the fair value of the remaining equity, net of the share owned by the Company in the net assets of the subsidiary in relation to the long-term equity investment disposed of as calculated continuously from the date of acquisition or combination according to the previous shareholding ratio, is recognized in the investment income for the period in which the control is lost, and the goodwill is reduced accordingly. Other comprehensive income relating to the equity investment in the subsidiary is transferred to the investment income for the period in which the control is lost. 2) Disposal of investment in a subsidiary through multiple transactions by steps until loss of control over the subsidiary which constitutes a package deal The Company accounts for such transactions as one transaction to dispose of and lose its control over the subsidiary. However, the difference between the proceeds from each disposal before loss of control and the share owned by the Company in the net assets of the subsidiary in relation to the investment disposed of is recognized in other comprehensive income in the consolidated financial statements, which is wholly transferred to the profit or loss in the period in which the control is lost. 21. Investment properties N/A 188 / 312 2019 Annual Report 22. Fixed assets (1). Criteria for recognition √Applicable □N/A Fixed assets are tangible assets held for production of goods, rendering of service, lease or operation and management with a useful life of more than one accounting year. A fixed asset is recognized if the economic benefits relating to it are very likely to flow to the Company and its cost can be reliably measured. (2). Depreciation method √Applicable □N/A Annual Method of Depreciation Residual value Category depreciation rate depreciation period(years) rate (%) (%) Machinery and Straight line 5 5.00% 19.00% equipment method Transportation Straight line 5 5.00% 19.00% equipment method Electronic Straight line 3-5 5.00% 19.00%-31.67% equipment and method others Operating Straight line 3,7 5.00% 19.00%,13.57% leased method equipment (3). Identification basis, valuation method and depreciation method for fixed assets acquired under finance leases □Applicable √N/A 23. Construction in progress √Applicable □N/A 1. A construction in progress is recognized if the economic benefits relating to it are very likely to flow to the Company and its cost can be reliably measured. A construction in progress is measured at the actual cost incurred before it is completed and ready for intended use. 2. When a construction in progress is ready for intended use, it is transferred to fixed assets at its actual construction cost. A construction in progress that is ready for intended use but the final settlement of which has not yet been completed is transferred to fixed assets at estimated value first, and after the completion of final settlement, the estimated value is adjusted according to the actual cost, but the accrued depreciation is not adjusted. 189 / 312 2019 Annual Report 24. Borrowing costs □Applicable √N/A 25. Biological assets □Applicable √N/A 26. Oil and gas assets □Applicable √N/A 27. Use right assets □Applicable √N/A 28. Intangible assets (1). Measurement, service life and impairment test √Applicable □N/A 1.Intangible assets include land use rights, patents, and software etc. and are measured at cost initially. 2.An intangible asset with a finite useful life is amortized over its useful life in a systematical and rational expected realization of economic benefits relative to the intangible asset, or is amortized using the straight-line method if it is impossible to determine expected realization reliably. Details for amortization period are set out as below: Item Amortization period(years) Land use rights 30 Patents 10 Software 3-5 (2). Accounting policy on internal research and development expenditures □Applicable √N/A 29. Impairment of long-term assets √Applicable □N/A For long-term equity investments, fixed assets, construction in progress, intangible assets with a finite useful life and other long-term assets, if there’s an indication of impairment at the balance sheet date, the Company assesses their recoverable amount. Goodwill arising from business combinations and intangible assets with an infinite useful life are tested for impairment every year regardless of whether there’s an indication of impairment. Goodwill is tested for impairment together with the relevant groups of assets or combinations of groups of assets. 190 / 312 2019 Annual Report If the recoverable amount of a long-term asset is less than its carrying amount, the difference is measured as impairment loss of the asset and recognized in profit or loss for the current period. 30. Long-term prepaid expenses √Applicable □N/A Long-term prepaid expenses are expenses that have already been incurred but should be amortized over a period of more than one year (excluding one year). Long-term prepaid expenses are stated as the amount actually incurred and shall be amortized evenly by stages within the benefit period or specified period. If an item of long-term prepaid expenses will not benefit the subsequent periods, the amortized value of the item that has not yet been amortized is wholly transferred to profit or loss for the current period. 31. Employee benefits (1). Accounting treatment of short-term employee benefits √Applicable □N/A 1. Employee benefits include short-term benefits, post-employment benefits,termination benefits and other long-term employee benefits. 2. Accounting treatment of short-term employee benefits The short-term employee benefits actually incurred are recognized as liabilities in the accounting period during which employee services are rendered, and included in profit or loss for the current period or the cost of related assets. (2). Accounting treatment of post-employment benefits √Applicable □N/A Post-employment benefits are classified into defined contribution plans and defined benefit plans. (1) In the accounting period during which employee services are rendered, the amount in contribution as calculated according to the defined contribution plan is recognized as liabilities and included in profit or loss for the current period or the cost of related assets. (2) The accounting treatment of a defined benefit plan generally involves the following steps: 1) According to the projected unit credit method, use the unbiased and consistent actuarial assumptions to estimate demographic variables and financial variables, measure the obligation arising from the defined benefit plan and determine the period to which the relevant obligation belongs. Meanwhile, discount the obligation arising from the defined benefit plan, in order to determine the present value of the benefit plan obligation and the current service cost; 2) If the defined benefit plan has assets, the deficit or surplus resulting after reducing the present value of the defined benefit plan obligation by the fair value of the defined benefit plan is recognized as a net liability or asset of the defined benefit plan. If the defined benefit 191 / 312 2019 Annual Report plan has a surplus, the net assets of the defined benefit plan are measured at the lower of surplus in the defined benefit plan and asset ceiling; 3) At the end of the reporting period, the cost of employee benefits arising from the defined benefit plan is recorded as service cost, net interest on the net liabilities or net assets of the defined benefit plan, and changes arising from re-measurement of the net liabilities or net assets of the defined benefit plan, wherein the service cost and the net interest on the net liabilities or net assets of the defined benefit plan are included in profit or loss for the current period or the cost of related assets, and the changes arising from re-measurement of the net liabilities or net assets of the defined benefit plan are included in other comprehensive income, which will not be reserved to profit or loss in subsequent periods, but may be transferred within the scope of equity. (3). Accounting treatment of termination benefits √Applicable □N/A When the Company can no longer withdraw the offer of termination benefits as a result of termination of employment or redundancy, or recognizes the restructuring costs or expenses relating to payment of termination benefits, whichever the earlier, the employee benefit liabilities arising from recognition of termination benefits are recognized in profit or loss for the current period. (4). Accounting treatment of other long-term employee benefits √Applicable □N/A Other long-term employee benefits are accounted for in accordance with the provisions applicable to defined contribution plans if they are qualified as defined contribution plans, otherwise, are accounted for in accordance with the provisions applicable to defined benefit plans. In order to simplify the accounting treatment, the total net amount of the cost of employee benefits arising from the defined benefit plans that is recorded as service cost, net interest on the net liabilities or net assets of other long-term employee benefits, changes arising from re-measurement of the net liabilities or net assets of other long-term employee benefits and other components is included in profit or loss for the current period or the cost of related assets. 32. Leasing liabilities □Applicable √N/A 33. Provisions √Applicable □N/A 1. An obligation arising from any external guarantee, instigation, product quality warranty, onerous contract or other contingencies is recognized as a provision if it is a present obligation assumed by the Company, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably measured. 2.The amount recognized as a provision is the best estimate of the consideration required 192 / 312 2019 Annual Report to settle the present obligation. The carrying amount of provisions is reviewed at the balance sheet date. 34. Share-based payments √Applicable □N/A 1. Categories of share-based payments Share-based payments include equity-settled share-based payments and cash-settled share-based payments 2. Accounting treatment for implementation, modification and termination of share-based payment plan (1) Equity-settled share-based payments Equity-settled share-based payments in exchange for services rendered by employees that can be executed immediately upon being granted, are measured at the fair value of the equity instruments at the grant date, and recognized as related costs or expenses with a corresponding adjustment to capital reserve. At each balance sheet date during the vesting period, equity-settled share-based payments in exchange for services rendered by employees that cannot be executed until services in the vesting period are completed or required performance conditions are satisfied, are measured at the fair value of the equity instruments at the grant date based on the best estimate of exercisable numbers of equity instruments, and recognized as related costs or expenses with a corresponding adjustment to capital reserve. For equity-settled share-based payments in exchange for services rendered by other parties, if the fair value of services from other parties can be measured reliably, they are measured at the fair value of services from other parties at the date when such services are received. If the fair value of services from other parties cannot be measured reliably but the fair value of the equity instruments can be measured reliably, they are measured at the fair value of the equity instruments at the date when such services are received. The fair value of the equity instruments are recognized as related costs or expenses, with a corresponding increase in owners' equity. (2) Cash-settled share-based payments Cash-settled share-based payments in exchange for services rendered by employees that can be executed immediately upon being granted, are recognized as related costs or expenses based on the fair value of liabilities assumed by the Company at the grant date, with a corresponding increase in liability. At each balance sheet date during the vesting period, cash-settled share-based payments in exchange for services rendered by employees that cannot be executed until services in the vesting period are completed or required performance conditions are satisfied, are measured at the fair value of liabilities assumed by the Company based on the best estimate of exercisable conditions, and recognized as related costs or expenses and relevant liabilities. (3) Modification and termination of share-based payment plan In case the Company modifies a share-based payment plan, if the modification increases the fair value of the equity instruments granted, the Company will include the incremental fair value of the equity instruments granted in the measurement of the amount recognized for 193 / 312 2019 Annual Report services received. If the modification increases the number of the equity instruments granted, the Company will include the fair value of additional equity instruments granted in the measurement of the amount recognized for services received. If the Company modifies the exercisable conditions of the share-based payment plan in a manner beneficial to the employee, the Company will consider the modified exercisable conditions when dealing with exercisable conditions. If the modification decreases the fair value of the equity instruments granted, the Company will continue to measure the amount recognized for services received at the fair value of the equity instruments at the grant date without including the decremental fair value of the equity instruments. If the modification decreases the number of the equity instruments granted, the Company will treat the decreased number as the cancelled number of equity instruments granted. If the Company modifies the exercisable conditions in a manner unbeneficial to the employee, the Company will not consider the modified exercisable conditions when dealing with exercisable conditions. If cancellation or settlement of the equity instruments granted occurs (not due to unsatisfaction of exercisable conditions) during the vesting period, the Company will account for the cancellation or settlement of the equity instruments granted as an acceleration of vesting, and recognize immediately the amount that otherwise would have been recognized over the remainder of the vesting period. 35. Preferred shares, perpetual bonds and other financial instruments □Applicable √N/A 36. Revenue √Applicable □N/A 1. Principles for revenue recognition (1) Sale of goods Revenue from sale of goods is recognized when: 1) the Company has transferred to the buyer the significant risks and rewards incidental to the ownership of the goods; 2) the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; 3) the amount of revenue can be measured reliably; 4) it is probable that the economic benefits associated with the transaction will flow to the Company; and 5) the costs incurred or to be incurred in respect of the transaction can be measured reliably. (2) Rendering of services At the balance sheet date, if the outcome of a transaction involving the rendering of services can be estimated reliably (which means that the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Company; the stage of completion of the transaction at the end of the reporting period can be measured reliably, and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably), the revenue associated with the transaction is 194 / 312 2019 Annual Report recognized using the percentage of completion method, and the stage of completion of the transaction is determined according to the proportion of the service already rendered to the estimated total services to be rendered. At the balance sheet date, if the outcome of a transaction involving the rendering of services cannot be estimated reliably, the transaction is accounted for as follows: if the service cost already incurred is expected to be recoverable, the service cost already incurred is recognized as the revenue from rendering of services, with an equal amount recorded as service cost; and if the service cost already incurred is expected to be unrecoverable, the service cost already incurred is recognized in profit or loss for the current period, without recognizing revenue from rendering of service. (3) Transfer of use right of assets Revenue from the transfer of use right of assets is recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be measured reliably. Interest income is recognized according to the time of and effective interest rate for the use by others of the Company’s monetary capital. Royalty revenue is recognized according to the time and method of payment as agreed in relevant contracts or agreements. 2. Specific methods for revenue recognition (1) Revenue from sales of goods Goods sold to the domestic market: 1) Under the direct sale model and the distribution mode, the Company recognizes the revenue when the goods sent have been delivered to customers with customers' receipt given to the Company. For goods sold attached with return conditions, the Company recognizes the revenue when the validity period of goods return conditions expires; for goods required for installment and inspection after sales, the Company recognizes the revenue when such goods have been installed and inspected with customers' acceptance certificate given to the Company; for goods sold through a physical store, the Company recognizes the revenue when such goods are delivered to customers with payments received. If the Company shares profits from sales of product to downstream customers, the Company recognizes the revenue when profits from sales of product are realized. 2) Under the commissioned sales mode, the Company recognizes the revenue when it receives the list of commissioned sales from the customer. Goods exported to overseas markets: The Company mainly adopts FCA for export of goods. Under this mode, the Company recognizes revenue when it delivers goods at the designated location with export customs clearance procedures completed. (2) Revenue from leasing services For light source products of laser digital cinema projector leased by the Company with technical services to customers, the Company recognizes the revenue by multiplying actual hours in consumption by the agreed unit price at the end of each month if the rent is charged by actual hours in consumption pursuant to contract provisions, or by apportioning over the agreed service period at the end of each month (time proportion) if the rent is charged on a monthly, quarterly or annual basis. For other products leased by the Company, the Company recognizes the revenue by apportioning over the service period pursuant to contract provisions. 195 / 312 2019 Annual Report (3) Other incomes For installation services provided by the Company, the Company recognizes the revenue when it has completed the services and received customers’ acceptance certificate; for repair and maintenance services provided by the Company, the Company recognizes the revenue when it has completed the services and received payments; for technology development services provided by the Company, the Company recognizes the revenue when it has completed the services or when the agreed time point of service acceptance is reached. 37. Government grants √Applicable □N/A 1. Government grants are recognized if (i) the Company meets the conditions attaching to the government grants; and (ii) the Company will receive the government grants. Government grants in the form of monetary assets are measured at the amount received or receivable. Government grants in the form of non-monetary assets are measured at fair value, or if their fair value is unavailable, at nominal amount. 2. Determination and accounting treatment of government grants related to assets Government grants related to assets are government grants which are offered for purchasing, constructing or otherwise acquiring long-term assets as provided by the applicable government documents. In the absence of such express provision in the applicable government documents, government grants related to assets are those with a primary condition that the Company should purchase, construct or otherwise acquire long-term assets. Government grants related to assets are offset against the carrying amount of the relevant assets or recognized as deferred income. Government grants related to assets recognized as deferred income shall be included in profit or loss over the service life of the relevant assets on a reasonable and systemic basis. Government grants measured at nominal amount are directly recognized in profit or loss for the current period. In case of sale, transfer, retirement or damage of the relevant assets before the end of intended service life, the balance of the unallocated deferred income is transferred to profit or loss for the period in which the assets are disposed of. 3. Determination and accounting treatment of government grants related to income Government grants related to income are government grants other than those related to assets. Government grants related to both assets and income in which it is difficult to make a distinction between the portion related to assets and the portion related to income are wholly classified as government grants related to income. Government grants related to income as compensation for expenses or losses to be incurred in subsequent periods are recognized as deferred income and in the period for recognizing the relevant costs, expenses or losses, included in profit or loss for the current period or offset against the relevant costs. Government grants related to income as compensation for expenses or losses already incurred are directly included in profit or loss for the current period or offset against the relevant costs. 4. Government grants related to daily operations of the Company are recognized in other income or offset against the relevant costs and expenses depending on the nature of 196 / 312 2019 Annual Report economic business. Government grants not related to daily operations of the Company are recognized in non-operating income or expenses. 5. Accounting treatment of policy preferential loans and interest subsidies 1) If the Ministry of Finance appropriates the interest subsidies to the lending bank, who then grants the loan to the Company at the policy preferential rate, the loan is stated as the amount actually received, and the borrowing cost is calculated according to the principal of the loan and the policy preferential rate. 2) If the Ministry of Finance directly appropriates the interest subsidies to the Company, the interest subsidies are offset against the borrowing cost. 38. Deferred tax assets and deferred tax liabilities √Applicable □N/A 1. The difference between the tax base of an asset or liability and its carrying amount (or in case of an item not recognized as asset or liability whose tax base can be determined according to the applicable tax law, the difference between its tax base and carrying amount) is recognized as a deferred tax asset or deferred tax liability according to the tax rate applicable to the period in which the asset or liability is expected to be recovered or settled. 2. Deferred income tax assets are recognized to the extent of the amount of income tax payable that will be available in future periods against which deductible temporary differences are deductible. At the balance sheet date, deferred tax assets not recognized in prior periods are recognized if there’s conclusive evidence that it is probable that sufficient taxable income will be available in future periods against which the deductible temporary differences are deductible. 3. At the balance sheet date, the carrying amount of deferred income tax assets is reviewed and reduced to the extent that it is no longer probable that sufficient taxable income will be available in future periods to allow the benefit of the deferred tax assets to be utilized. If it is probable that sufficient taxable income will be available, the reduced amount is reversed. 4. The income taxes and deferred income taxes are included in profit or loss for the current period as income tax expenses or gains, except the income taxes arising from any: (i) business combination; or (ii) transaction or event directly recognized in owners’ equity. 39. Leases (1). Accounting treatment of operating leases √Applicable □N/A If the Company is a lessee, the rents paid by the Company are included in the costs of the relevant assets or in profit or loss for the current period over the whole lease term on a straight line basis. The initial direct cost incurred by the Company is directly recognized in profit or loss for the current period. Contingent rents are recognized in profit or loss in the period in which they are incurred. If the Company is a lessor, the rents received by the Company are recognized in profit or loss for the current period over the whole lease term on a straight line basis. The initial direct 197 / 312 2019 Annual Report cost incurred by the Company is directly recognized in profit or loss for the current period. However, if such initial direct cost is of a large amount, the initial direct cost is capitalized and recognized in profit or loss by installments. Contingent rents are recognized in profit or loss in the period in which they are incurred. (2). Accounting treatment of finance leases √Applicable □N/A If the Company is a lessee, the lower of the fair value of the leased asset at the inception of the lease and the present value of the minimum lease payments is recorded as the carrying amount of the rented assets, with the minimum lease payments as the carrying amount of long-term payables and the difference charged to unrecognized financing fees at the commencement date of the lease term. The initial direct cost incurred by the Company is directly recognized in the value of the rented assets. In each period of the lease term, the financing fees for the period is recognized by using the effective interest method. If the Company is a lessor, the aggregate of the minimum lease receivable at the inception of the lease and the initial direct costs is recognized as the carrying amount of the finance lease receivable and the unguaranteed residual value is recorded at the same time at the commencement date of the lease term; the difference between the aggregate of the minimum lease receivable, the initial direct costs and the unguaranteed residual value, and the aggregate of their present values is recognized as unearned financing income. In each period of the lease term, the financing income for the period is recognized by using the effective interest method. (3). Method for determination and accounting treatments of lease under new lease standards □Applicable √N/A 40. Other significant accounting policies and accounting estimates □Applicable √N/A 41. Changes in significant accounting policies and accounting estimates (1). Changes in significant accounting policies √Applicable □N/A Remarks(name and amount Changes in accounting of line items in financial policies and associated Approval procedures statements that have been reasons materially affected) Implementation of the Approved by the Notice on Issuing the management of the Company Revised Presentation of Financial Statements for 198 / 312 2019 Annual Report General Business Enterprises for 2019 issued by the Ministry f Finance Implementation of the Approved by the Accounting Standard for management of the Company Business Enterprises No.22 – Financial Instruments: Recognition and Measurement , the Accounting Standard for Business Enterprises No.23 – Transfer of Financial Assets, the Accounting Standard for Business Enterprises No.24 – Hedge Accounting and the Accounting Standard for Business Enterprises No.37 – Financial Instruments: Presentation revised by the Ministry of Finance Other description 1)The Company prepared the financial statements of 2019 in accordance with the Notice on Issuing the Revised Presentation of Financial Statements for General Business Enterprises for 2019 (Cai Kuai [2019] No.6) and the Notice on Issuing the Revised Presentation of Consolidated Financial Statements (2019) (Cai Kuai [2019] No.16) issued by the Ministry of Finance and requirements of Accounting Standards for Business Enterprises with retrospective adjustments subject to the changes in accounting policies. The followings are significantly influenced line items and amounts in the Company’s financial statements in 2018. Original line items and amounts New line items and amounts Notes 35,903,632.13 Notes and receivable accounts 155,619,418.32 Accounts 119,715,786.19 receivable receivable Notes 39,051,466.05 Notes and payable 203,310,197.11 accounts payable Accounts 164,258,731.06 payable 2) The Company has implemented the Accounting Standard for Business Enterprises No.22 – Financial Instruments: Recognition and Measurement, the 199 / 312 2019 Annual Report Accounting Standard for Business Enterprises No.23 – Transfer of Financial Assets, the Accounting Standard for Business Enterprises No.24 – Hedge Accounting and the Accounting Standard for Business Enterprises No.37 – Financial Instruments: Presentation (hereinafter referred to as “new financial instrument standards”) revised by the Ministry of Finance since January 1, 2019. As required by transition provisions to adopt these new financial instrument standards, information in the comparative period is not adjusted, but the opening balances of retained earnings or other comprehensive income in this report shall be adjusted retrospectively for any difference between the balance subject to the new standards and the balance subject to the previous standards at the first implementation date. In accordance with the new financial instrument standards, classification and measurement of financial assets are changed into three measurement categories: amortized cost, fair value through other comprehensive income, and fair value through current profit or loss. The Company adopts aforementioned classification on the basis of its own business model and the contractual cash flow characteristics of financial assets. Equity investments should be measured at fair value through current profit or loss while equity investments not held for trading can be selected to be measured at fair value through other comprehensive income at the initial recognition (in which the gains or losses from disposal cannot be reversed to profit or loss, but the dividend income can be recognized as the current profit or loss), but the selection is irrevocable. In accordance with the new financial instrument standards, the “expected credit loss model” has replaced the “incurred loss model” to measure the impairment of financial assets, which is applicable to financial assets measured at amortized cost, financial assets at fair value through other comprehensive income and lease receivable. ① The new financial instrument standards, when implemented, will mainly bring the following influences to the Company’s financial statements as at January 1, 2019. Balance sheet Adjustment influence of Item At December new financial At January 1, 31, 2018 instrument 2019 standards Notes receivable 35,903,632.13 -29,396,227.13 6,507,405.00 Receivables 29,396,227.13 29,396,227.13 financing Available-for-sale 11,975,419.38 -11,975,419.38 financial assets Other equity 11,975,419.38 11,975,419.38 instrument investments 200 / 312 2019 Annual Report Other payables 185,661,537.24 -1,553,988.22 184,107,549.02 Short-term 125,194,728.10 124,440,000.00 754,728.10 borrowings Non-current liabilities due 28,609,163.00 56,654.43 28,665,817.43 within one year Long-term 403,107,800.00 742,605.69 403,850,405.69 borrowings ② As at January 1, 2019, the comparison results of the classification and measurement of the Company’s financial assets and liabilities under the previous and new financial instrument standards are set out as below: Previous financial instrument standards New financial instrument standards Item Measurement Carrying Measurement Carrying category amount category amount Cash and bank Amortized cost (loans and 484,169,208.44 484,169,208 Amortized cost balances receivables) .44 6,507,405.0 Amortized cost 0 Notes Amortized cost (loans and 35,903,632.13 At fair value through receivable receivables) 29,396,227. other comprehensive 13 income Accounts Amortized cost (loans and 119,715,786.19 119,715,786 Amortized cost receivable receivables) .19 Other Amortized cost (loans and 12,543,543.59 12,543,543. Amortized cost receivables receivables) 59 At fair value through other Other equity At fair value through comprehensive 11,975,419. instrument 11,975,419.38 other comprehensive income(assets classified as 38 investments income available for sale ) Short-term Amortized cost (other 124,440,000.00 125,194,728 Amortized cost borrowings financial liabilities) .10 Non-current 28,609,163.00 Amortized cost (other liabilities due Amortized cost 28,665,817.43 financial liabilities) within one year Long-term Amortized cost (other 403,107,800.00 Amortized cost 403,850,405.69 borrowings financial liabilities) Amortized cost (other 39,051,466.05 39,051,466. Notes payable Amortized cost financial liabilities) 05 Accounts Amortized cost (other 164,258,731.06 164,258,731 Amortized cost payable financial liabilities) .06 Other payables Amortized cost (other 185,661,537.24 Amortized cost 184,107,549 201 / 312 2019 Annual Report Previous financial instrument standards New financial instrument standards Item Measurement Carrying Measurement Carrying category amount category amount financial liabilities) .02 Long-term Amortized cost (other 6,863,200.00 6,863,200.0 Amortized cost payables financial liabilities) 0 ③ Reconciliation of the previous carrying amounts of the Company’s financial assets and liabilities to the new carrying amounts of the Company’s financial assets and liabilities classified and measured under the requirement of new financial instrument standards as at January 1, 2019: Carrying amount Carrying amount presented presented subject subject to the previous to the new Item financial instrument Reclassification Remeasurement financial standards (December 31, instrument 2018) standards (January 1, 2019) A. Financial assets a. Amortized cost Cash and bank 484,169,208.44 484,169,208.44 balances Notes receivable Balance presented under previous CAS 35,903,632.13 22 Less: amount transferred to that at -29,396,22 fair value through 7.13 other comprehensive income (new CAS 22) Balance presented 6,507,405.00 under new CAS 22 Accounts receivable 119,715,786.19 119,715,786.19 Other receivables 12,543,543.59 12,543,543.59 Total financial assets -29,396,22 652,332,170.35 622,935,943.22 at amortized cost 7.13 b. Financial assets at fair value through other comprehensive income Receivables financing Balance presented under previous CAS 22 202 / 312 2019 Annual Report Add: amount 29,396,227. transferred from 13 amortized cost (previous CAS 22) Balance presented 29,396,227.13 under new CAS 22 Available-for-sale financial assets Balance presented 11,975,419.38 under previous CAS 22 Less: amount transferred to that at fair value through -11,975,41 other comprehensive 9.38 income (new CAS 22)-designation Balance presented under new CAS 22 Other equity instrument investments Balance presented under previous CAS 22 Add: amount transferred from available-for-sale 11,975,419. financial assets 38 (previous CAS 22)-designation Balance presented 11,975,419.38 under new CAS 22 Total financial assets at fair value through 29,396,227. 11,975,419.38 41,371,646.51 other comprehensive 13 income B. Financial liabilities a. Amortized cost Other payables 203 / 312 2019 Annual Report Balance presented under previous CAS 185,661,537.24 22 Less: amount transferred to bank -1,553,988. borrowings (interest 22 payable) Balance presented 184,107,549.02 under new CAS 22 Notes payable 39,051,466.05 39,051,466.05 Accounts payable 164,258,731.06 164,258,731.06 Short-term borrowings Balance presented under previous CAS 124,440,000.00 22 Add: amount transferred from other 754,728. payables (interest 10 payable) Balance presented 125,194,728.10 under new CAS 22 Non-current liabilities due within one year Balance presented under previous CAS 28,609,163.00 22 Add: amount transferred from other 56,654.4 payables (interest 3 payable) Balance presented 28,665,817.43 under new CAS 22 Long-term borrowings Balance presented under previous CAS 403,107,800.00 22 Add: amount transferred from other 742,605. payables (interest 69 payable) Balance presented 403,850,405.69 under new CAS 22 204 / 312 2019 Annual Report Long-term payables 6,863,200.00 6,863,200.00 Total financial liabilities at amortized 951,991,897.35 951,991,897.35 cost ④ Reconciliation of the previous closing balance of the provision for impairment of financial assets to the new balance of provision for impairment of financial assets classified and measured under the requirement of new financial instrument standards as at January 1, 2019: Provision for losses made subject to the previous Provision for losses financial instrument made subject to the new standards /estimated Item Reclassification Remeasurement financial instrument liabilities determined standards (January 1, subject to contingencies 2019) standards (December 31, 2018) Accounts 14,072,536.97 14,072,536.97 receivable Other 699,901.69 699,901.69 receivables (2). Changes in significant accounting estimates □Applicable √N/A (3). Description of adjustments in opening balances of line items in financial statements of the year due to implementation of new financial instrument standards, new revenue standard or new lease standard since 2019 √Applicable □N/A Consolidated balance sheet In RMB At December At January 1, Adjusted Item 31, 2018 2019 amount Current Assets: Cash and bank balances 484,169,208.44 484,169,208.44 Balances with clearing agencies Placements with banks and other financial institutions Held-for-trading financial assets Financial assets at fair value 205 / 312 2019 Annual Report through profit or loss Derivative financial assets Notes receivable 35,903,632.13 6,507,405.00 -29,396,227.13 Accounts receivable 119,715,786.19 119,715,786.19 Receivables financing 29,396,227.13 29,396,227.13 Prepayments 22,909,249.21 22,909,249.21 Premiums receivable Amounts receivable under reinsurance contracts Reinsurer's share of insurance contract reserves Other receivables 12,543,543.59 12,543,543.59 Including: Interest receivable Dividends receivable Financial assets purchased under resale agreements Inventories 325,302,295.60 325,302,295.60 Held-for-sale assets Non-current assets due within one year Other current assets 44,707,753.47 44,707,753.47 Total Current Assets 1,045,251,468.63 1,045,251,468.63 Non-current Assets: Loans and advances Debt investments Available-for-sale financial 11,975,419.38 -11,975,419.38 assets Other debt investments Held-to-maturity investments Long-term receivables Long-term equity investments Other equity instrument 11,975,419.38 11,975,419.38 investments Other non-current financial assets Investment properties Fixed assets 399,651,937.13 399,651,937.13 Construction in progress 30,953,213.42 30,953,213.42 Bearer biological assets Oil and gas assets 206 / 312 2019 Annual Report Use right assets Intangible assets 342,227,766.06 342,227,766.06 Development expenditure Goodwill Long-term prepaid expenses 6,400,455.04 6,400,455.04 Deferred tax assets 99,492,975.74 99,492,975.74 Other non-current assets 137,518,255.16 137,518,255.16 Total Non-current Assets 1,028,220,021.93 1,028,220,021.93 Total assets 2,073,471,490.56 2,073,471,490.56 Current Liabilities: Short-term borrowings 124,440,000.00 125,194,728.10 754,728.10 Loans from the central bank Taking from banks and other financial institutions Held-for-trading financial liabilities Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable 39,051,466.05 39,051,466.05 Accounts payable 164,258,731.06 164,258,731.06 Receipts in advance 172,867,568.93 172,867,568.93 Financial assets sold under repurchase agreements Customer deposits and deposits from banks and other financial institutions Funds from securities trading agency Funds from underwriting securities agency Employee benefits payable 38,184,612.34 38,184,612.34 Taxes payable 59,954,133.70 59,954,133.70 Other payables 185,661,537.24 184,107,549.02 -1,553,988.22 Including: Interest payable Dividends payable Fees and commissions payable Amounts payable under reinsurance contracts 207 / 312 2019 Annual Report Held-for-sale liabilities Non-current liabilities due 28,609,163.00 28,665,817.43 56,654.43 within one year Other current liabilities Total Current Liabilities 813,027,212.32 812,284,606.63 -742,605.69 Non-current Liabilities: Insurance contract reserves Long-term borrowings 403,107,800.00 403,850,405.69 742,605.69 Bonds payable Including: Preferred shares Perpetual bonds Leasing liabilities Long-term payables 6,863,200.00 6,863,200.00 Long-term employee benefits payable Provisions 9,449,087.12 9,449,087.12 Deferred income 14,125,164.43 14,125,164.43 Deferred tax liabilities Other non-current liabilities Total Non-current 433,545,251.55 434,287,857.24 742,605.69 Liabilities Total Liabilities 1,246,572,463.87 1,246,572,463.87 Owners’ (or Shareholders’) equity: Paid-in capital (or share 383,554,411.00 383,554,411.00 capital) Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 205,995,596.85 205,995,596.85 Less: Treasury shares Other comprehensive income 1,044,703.00 1,044,703.00 Special reserve Surplus reserve 12,695,712.93 12,695,712.93 General risk reserve Retained profits 112,623,054.78 112,623,054.78 Total owners’ (or 715,913,478.56 715,913,478.56 shareholders’) equity attributable to owners of the Company Minority interests 110,985,548.13 110,985,548.13 Total Owners’(or 826,899,026.69 826,899,026.69 208 / 312 2019 Annual Report Shareholders’) Equity Total Liabilities and 2,073,471,490.56 2,073,471,490.56 Owners’ (or Shareholders’) Equity Description of adjustments on each line item: √Applicable □N/A The Company has reclassified the equity investments not held for trading into other equity instrument investments pursuant to the new financial instrument standards since it adopted the new financial instrument standards on January 1, 2019. Adjusted amounts refer to statements listed above for details. The Parent Company's balance sheet In RMB At December 31, At January 1, Adjusted Item 2018 2019 amount Current Assets: Cash and bank balances 306,709,743.06 306,709,743.06 Held-for-trading financial assets Financial assets at fair value through profit or loss Derivative financial assets Notes receivable 10,091,743.00 6,507,405.00 -3,584,338.00 Accounts receivable 227,673,423.35 227,673,423.35 Receivables financing 3,584,338.00 3,584,338.00 Prepayments 12,293,204.18 12,293,204.18 Other receivables 34,226,930.38 34,226,930.38 Including: Interest receivable Dividends receivable Inventories 180,602,162.31 180,602,162.31 Held-for-sale assets Non-current assets due within one year Other current assets Total Current Assets 771,597,206.28 771,597,206.28 Non-current Assets: Debt investments Available-for-sale financial 7,075,419.38 -7,075,419.38 assets Other debt investments 209 / 312 2019 Annual Report Held-to-maturity investments Long-term receivables Long-term equity 219,365,735.89 219,365,735.89 investments Other equity instrument 7,075,419.38 7,075,419.38 investments Other non-current financial assets Investment properties Fixed assets 49,100,811.69 49,100,811.69 Construction in progress Bearer biological assets Oil and gas assets Use right assets Intangible assets 340,207,888.91 340,207,888.91 Development expenditure Goodwill Long-term prepaid expenses 4,155,925.64 4,155,925.64 Deferred tax assets 5,710,071.90 5,710,071.90 Other non-current assets 254,255.16 254,255.16 Total Non-current Assets 625,870,108.57 625,870,108.57 Total assets 1,397,467,314.85 1,397,467,314.85 Current Liabilities: Short-term borrowings 124,440,000.00 125,194,728.10 754,728.10 Held-for-trading financial liabilities Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable 39,051,466.05 39,051,466.05 Accounts payable 140,069,264.80 140,069,264.80 Receipts in advance 35,062,546.75 35,062,546.75 Employee benefits payable 20,568,733.86 20,568,733.86 Taxes payable 18,958,729.81 18,958,729.81 Other payables 173,955,421.70 173,200,693.60 -754,728.10 Including: Interest payable Dividends payable Held-for-sale liabilities Non-current liabilities due within one year 210 / 312 2019 Annual Report Other current liabilities Total Current Liabilities 552,106,162.97 552,106,162.97 Non-current Liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Leasing liabilities Long-term payables 6,863,200.00 6,863,200.00 Long-term employee benefits payable Provisions 9,449,087.12 9,449,087.12 Deferred income 5,125,274.76 5,125,274.76 Deferred tax liabilities Other non-current liabilities Total Non-current 21,437,561.88 21,437,561.88 Liabilities Total Liabilities 573,543,724.85 573,543,724.85 Owners’ (or Shareholders’) equity: Paid-in capital (or share 383,554,411.00 383,554,411.00 capital) Other equity instruments Including: preferred shares Perpetual bonds Capital reserve 308,318,059.21 308,318,059.21 Less: Treasury shares Other comprehensive income Special reserve Surplus reserve 11,418,172.20 11,418,172.20 Retained profits 120,632,947.59 120,632,947.59 Total Owners’ (or 823,923,590.00 823,923,590.00 Shareholders’) Equity Total Liabilities and 1,397,467,314.85 1,397,467,314.85 Owners’(or Shareholders’) Equity Description of adjustments on each line item: √Applicable □N/A The Company has reclassified the equity investments not held for trading into other equity instrument investments pursuant to the new financial instrument standards since it adopted the new financial instrument standards on January 1, 2019. Adjusted amounts refer to statements listed above for details. 211 / 312 2019 Annual Report (4). Description of retrospective adjustments in comparative data in prior periods due to implementation of new financial instrument standards or new lease standard in 2019 □Applicable √N/A 42. Others □Applicable √N/A VI. Taxes 1. Major categories of taxes and tax rates Description of major categories of taxes and tax rates √Applicable □N/A Basis of Category tax Tax rate of tax computatio n Value-adde Sales of 3%, 6%, 9%, 10%, 13%, 16% d tax goods or (VAT) rendering of taxable services City Turnover 5%, 7% maintenanc tax payable e and constructio n tax Education Turnover 3% surcharges tax payable Local Turnover 2% education tax payable surcharges Enterprise Taxable 8.25%、8.70%、8.84%、12.5%、15%、16.5%、20%、21% income tax income 、25% Disclosure of taxpayers with different rates of enterprise income tax: √Applicable □N/A Taxpayer Rate of enterprise income tax(%) Appotronics Corporation Limited 15.00 Fengmi (Beijing) Technology Co., Ltd. 15.00 212 / 312 2019 Annual Report Shenzhen Appotronics Software Technology 12.50 Co., Ltd. Appotronics Hong Kong Limited 8.25,16.50 Beijing Orient Appotronics Technology Co., 20.00 Ltd. Fabulus Technology Hong Kong Limited 16.50 JoveAI Innovation Inc. 8.70, 8.84, 21.00 Appotronics USA, Inc. 21.00 FORMOVIE TECHNOLOGY INC 21.00 JoveAI Limited Tax exemption Other taxpayers except above 25.00 Note: 1. Appotronics Hong Kong Limited and Fabulus Technology Hong Kong Limited, as domiciled in Hong Kong, one of which can apply the two-level income tax system, namely, applying the tax rate of 8.25% for the first HKD 2 million taxable income and 16.5% for the remaining taxable income. 2. JoveAI Limited, as domiciled in the Cayman Islands, is exempt from enterprise income tax. 3. Appotronics USA, Inc., as domiciled in the United States, applies the federal enterprise income tax rate of 21%. 4. JoveAI Innovation, Inc., as domiciled in the United States, applies the federal enterprise income tax rate of 21%, the California state enterprise income tax rate of 8.84%, and the Delaware state enterprise income tax rate of 8.70%. 5. FORMOVIE TECHNOLOGY INC, as domiciled in the United States, applies the federal enterprise income tax rate of 21%. 6.According to the Announcement of the Ministry of Finance, the State Taxation Administration and the General Administration of Customs on Relevant Policies for Deepening the Value-Added Tax Reform (Announcement No.39 in 2019 by the Ministry of Finance, the State Taxation Administration and the General Administration of Customs), for taxable income from sales or exports of goods, the general tax payers shall apply the VAT at a rate of 13% in exchange of 16%, or 9% in exchange of 10%. 2. Tax incentives √Applicable □N/A 1. On December 9, 2019, the Company obtained the High-tech Enterprise Certificate (Certificate No.: GR201944204257) jointly issued by Shenzhen Science and Technology Innovation Commission, Shenzhen Finance Bureau and Shenzhen Tax Service of State Taxation Administration with a valid term of three years. Therefore, the Company can pay the enterprise income tax at a rate of 15% from 2019 to 2021. 213 / 312 2019 Annual Report 2. On November 30, 2018, Fengmi (Beijing) Technology Co., Ltd. obtained the High-tech Enterprise Certificate (Certificate No.: GR201811009590) jointly issued by Beijing Municipal Science and Technology Commission, Beijing Finance Bureau and Beijing Tax Service of State Taxation Administration with a valid term of three years. However, as Fengmi (Beijing) Technology Co., Ltd. failed to complete the registration in competent authorities, it enjoyed no tax incentives in 2018. It can pay the enterprise income tax at a rate of 15% since 2019. 3. In accordance with the Notice of the Ministry of Finance and the State Administration of Taxation on Enterprise Income Tax Policies for Further Encouraging the Development of Software and Integrated Circuit Industries (Cai Shui (2012) No.27), commencing from the first year of earning profits prior to December 31,2017, a qualified company can be exempted from the enterprise income tax for the first two years and enjoy a 50% tax reduction on the statutory tax rate of 25% from the third to the fifth year until the tax incentive period expires. Therefore, the Company’s subsidiary, Shenzhen Appotronics Software Technology Co., Ltd., is qualified for the tax incentive policy of “exemption from income tax for the first two years and 50% reduction for next three years”, which means, it can be exempted from enterprise income tax from 2016 to 2017, and pay the enterprise income tax at a rate of 12.5% from 2018 to 2020. 4. In accordance with the Notice of the Ministry of Finance and the State Administration of Taxation on Value-added Tax Policies for Software Products ( Cai Shui [2011] No.100), for self-developed and produced software products sold by general VAT taxpayers, the tax-refund-upon-collection policy is applicable to the part of their actual VAT burden in excess of 3% after the VAT has been collected at a tax rate of 17%. The Company’s subsidiary Shenzhen Appotronics Software Technology Co., Ltd. is qualified for enjoying such tax incentive from January 1, 2015. 5. In accordance with Article 1 (26) of Annex 3 of the Notice of the Ministry of Finance and the State Administration of Taxation on Implementing the Pilot Program of Replacing Business Tax with Value-Added Tax in an All-round Manner (Cai Shui [2016] No.36), taxpayers are exempted from VAT if they provide technology transfer, technology development, and technology consultation and services in connection therewith. The Company is qualified for enjoying such tax incentive from January 26, 2018. 6. In accordance with the Notice of the Ministry of Finance and the State Administration of Taxation on Implementing the Inclusive Tax Deduction and Exemption Policies for Micro and Small Enterprises (Cai Shui [2019] No.13), the annual taxable income of a small low-profit enterprise that is not more than RMB 1 million shall be levied with the enterprise income tax rate at a discount of 25%, namely, for which the applicable enterprise income tax rate is 20%. The Company’s subsidiary Beijing Orient Appotronics Technology Co., Ltd. is qualified for enjoying such tax incentive from 2019. 3. Others □Applicable √N/A 214 / 312 2019 Annual Report VII. Notes to items in the consolidated financial statements 1. Cash and bank balances √Applicable □N/A In RMB Item Closing balance Opening balance Cash on hand 3,348.57 3,175.14 Bank deposits 857,708,997.58 470,309,528.51 Other monetary 18,146,438.43 13,856,504.79 funds Total 875,858,784.58 484,169,208.44 Including: total 132,334,643.95 15,316,654.03 oversea deposits Other description In other monetary funds, an amount of RMB 15,831,289.87 is restricted for being used as margins while in bank deposits, an amount of RMB30,000,000.00 is restricted for being frozen due to litigation. The bank deposits include deposit interests amounting to RMB238,006.85 which have been recognized yet not matured. 2. Held-for-trading financial assets √Applicable □N/A In RMB Item Closing balance Opening balance Financial assets at fair value 540,000,000.00 through profit or loss Including: Structural deposits 540,000,000.00 Total 540,000,000.00 Other description: □Applicable √N/A 3. Derivative financial assets □Applicable √N/A 4. Notes receivable (1). Categories of notes receivable √Applicable □N/A In RMB Item Closing balance Opening balance Bank acceptances 3,891,456.00 6,507,405.00 Commercial acceptances 151,103.63 Total 4,042,559.63 6,507,405.00 215 / 312 2019 Annual Report [Note]: The difference between the opening balance of the year and the closing balance of the prior year (as of December 31, 2018) can refer to V 41 of Section XI for details. (2). Notes receivable pledged by the Company at the end of the period □Applicable √N/A (3). Notes receivable which are undue as at the balance sheet date but endorsed or discounted by the Company at the end of the period √Applicable □N/A In RMB Amount derecognized at the Amount not derecognized at Item end of the period the end of the period Bank acceptances 2,791,456.00 Commercial acceptances 45,484.94 Total 2,836,940.94 (4). Notes transferred to accounts receivable due to drawer's failure in cashing at the end of the period □Applicable √N/A (5). Disclosure by categories of provision for bad debts √Applicable □N/A In RMB Closing balance Opening balance Carrying amount Bad debt provision Carrying amount Bad debt provision Proportion Category Book value Proportion Book value Proportion of Proportion Amount Amount Amount Amount of provision (%) provision (%) (%) (%) Provision for bad debts made individually Including: Provision for 4,050,512.45 100.00 7,952.82 0.20 4,042,559.63 6,507,405.00 100.00 6,507,405.00 bad debts made by group Including: Bank 3,891,456.00 96.07 3,891,456.00 6,507,405.00 100.00 6,507,405.00 acceptances 216 / 312 2019 Annual Report Commercial 159,056.45 3.93 7,952.82 5.00 151,103.63 acceptances Total 4,050,512.45 100.00 7,952.82 0.20 4,042,559.63 6,507,405.00 100.00 6,507,405.00 Provision for bad debts made individually: □Applicable √N/A Provision for bad debts made by group: √Applicable □N/A Item by group: commercial acceptance bills In RMB Closing balance Name Proportion of Notes receivable Bad debt provision provision (%) Commercial 159,056.45 7,952.82 5.00 acceptance bills group Total 159,056.45 7,952.82 5.00 Recognition criterion to make the bad debt provision by group and explanation □Applicable √N/A If a provision for bad debts of notes receivable is made in accordance with the general model of expected credit losses (hereinafter refereed to as “ECL”), please disclose relevant information subject to the disclosure of the bad debt provision for other receivables. □Applicable √N/A (6). Provision for bad debts √Applicable □N/A In RMB Changes for the current period Opening Closing Category Recovery or Write off or balance Provision balance reversal cancellation Commercial 7,952.82 7,952.82 acceptance bills Total 7,952.82 7,952.82 Including significant amounts recovered or reversed from the current provision for bad debts: □Applicable √N/A Other description: None 217 / 312 2019 Annual Report (7). Notes receivable actually canceled in the current period □Applicable √N/A Other description: □Applicable √N/A 5. Accounts receivable (1). Disclosure by aging √Applicable □N/A In RMB Aging Closing balance of carrying amount Within 1 year Including: sub-items within 1 year Sub-total of items within 1 year 179,597,137.86 1 to 2 years 6,188,114.04 2 to 3 years 1,553,577.49 Total 187,338,829.39 (2). Disclosure by categories of provision for bad debts √Applicable □N/A In RMB Closing balance Opening balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Book value Book value Proportion Proportion of Proportion Proportion of Amount Amount Amount Amount (%) provision (%) (%) provision (%) Provision for bad 6,661,956.09 4.98 6,661,956.09 100.00 debts made individually Including: Provision for bad 6,661,956.09 4.98 6,661,956.09 100.00 debts made individually Provision for bad 187,338,829.38 100 11,303,674.14 6.03 176,035,155.24 127,126,367.07 95.02 7,410,580.88 5.83 119,715,786.19 debts made by group Including: 218 / 312 2019 Annual Report Accounts 187,338,829.38 100 11,303,674.14 6.03 176,035,155.24 127,126,367.07 95.02 7,410,580.88 5.83 119,715,786.19 receivable for which the provision for bad debts is made by aging group Total 187,338,829.38 100.00 11,303,674.14 6.03 176,035,155.24 133,788,323.16 100.00 14,072,536.97 10.52 119,715,786.19 Provision for bad debts made individually: □Applicable √N/A Provision for bad debts made by group: √Applicable □N/A Item by group: aging group In RMB Closing balance Name Proportion of Accounts receivable Bad debt provision provision (%) Within 1 year 179,597,137.86 8,979,856.88 5.00 1-2 years 6,188,114.04 1,547,028.51 25.00 2-3 years 1,553,577.49 776,788.75 50.00 Total 187,338,829.39 11,303,674.14 6.03 Recognition criterion to make the bad debt provision by group and explanation √Applicable □N/A Recognition criterion to make the bad debt provision by group and explanation can refer to V10 of Section XI for details. If a provision for bad debts of accounts receivable is made in accordance with the general model of ECL, please disclose relevant information subject to the disclosure of the bad debt provision for other receivables. □Applicable √N/A (3). Provision for bad debts √Applicable □N/A In RMB Opening Changes for the current period Category Closing balance balance Provision Recovery or Write off or Other 219 / 312 2019 Annual Report reversal cancellation changes Provision for 6,661,956.09 238,836.00 6,423,120.09 bad debts made individually Provision for 7,410,580.88 3,904,459.26 11,366.00 11,303,674.14 bad debts made by group Total 14,072,536.97 3,904,459.26 238,836.00 6,434,486.09 11,303,674.14 Including significant amounts recovered or reversed from the current provision for bad debts: □Applicable √N/A (4). Accounts receivable actually canceled in the current period √Applicable □N/A In RMB Item Cancellation amount Accounts receivable actually canceled 6,434,486.09 Accounts receivable actually canceled in the current period are RMB 6,434,486.09. In which significant amounts canceled are described as below: √Applicable □N/A In RMB Nature of Cancellation If arising from Cancellation Cancellation Entity accounts procedures related party amount reason receivable performed transactions Beijing Goods 6,423,120.09 Expected to Approved by the No Dayang payment be management Huaying unrecoverable Technology & Culture Co., Ltd. Total / 6,423,120.09 / / / Description of accounts receivable cancellation: □Applicable √N/A (5). Top five closing balances of accounts receivable categorized by debtors √Applicable □N/A In RMB 220 / 312 2019 Annual Report Proportion to the balance of Entities Carrying amount Bad debt provision accounts receivable(%) Xiaomi Communications 45,679,955.49 24.38 2,283,997.77 Technologies Co., Ltd. and its affiliates BARCO 44,783,875.39 23.91 2,239,193.77 China Film Equipment Co., Ltd. and 17,494,326.54 9.34 874,716.33 its affiliates Beijing Jingdong Century Trading 14,737,368.94 7.87 736,868.45 Co., Ltd. Beijing Donview Education 8,829,840.85 4.71 442,339.31 Technology Co., Ltd. and its affiliates Sub-total 131,525,367.21 70.21 6,577,115.63 (6). Accounts receivable derecognized due to transfer of financial assets □Applicable √N/A (7). Assets and liabilities arising from transfer of accounts receivable and continued involvement □Applicable √N/A Other description: □Applicable √N/A 6. Receivables financing √Applicable □N/A In RMB Item Closing balance Opening balance Bank acceptance bills 1,980,500.00 29,396,227.13 receivable Total 1,980,500.00 29,396,227.13 Changes in amount and fair value of receivables financing: □Applicable √N/A 221 / 312 2019 Annual Report If a provision for bad debts of receivables financing is made in accordance with the general model of ECL, please disclose relevant information subject to the disclosure of the bad debt provision for other receivables. □Applicable √N/A Other description: √Applicable □N/A Notes receivable which are undue as at the balance sheet date but endorsed by the Company at the end of the period Amount not Amount derecognized at the Item derecognized at the end of the period end of the period Bank acceptance bills 5,490,827.07 Sub-total 5,490,827.07 Considering it is less probable that the bank acceptances cannot be paid at maturity as acceptors of bank acceptances are commercial banks with higher credit ratings, the Company has derecognized the endorsed bank acceptances with higher credit ratings. However, if such notes are unable to be paid at maturity, the Company will still be jointly and severally liable to the noteholders pursuant to the Negotiable Instruments Law. 7. Prepayments (1). Disclosure of prepayments by aging √Applicable □N/A In RMB Closing balance Opening balance aging Amount Proportion(%) Amount Proportion(%) Within 1 34,948,314.45 99.65 22,741,632.57 99.27 year 1 to 2 years 122,684.68 0.35 167,616.64 0.73 Total 35,070,999.13 100.00 22,909,249.21 100.00 Reasons for overdue settlement of prepayments with significant amounts aged more than 1 year: There are no prepayments with significant amounts aged more than 1 year at the end of the period. (2). Top five closing balances of prepayments categorized by receivers √Applicable □N/A 222 / 312 2019 Annual Report Entities Carrying Proportion to the balance of amount prepayments (%) Guangzhou Shiyuan Electronic 13,743,559.40 39.19 Technology Company Limited Shenzhen Global Digital Technology 3,804,627.44 10.85 Co., Ltd. ACE (Shanghai) Film & TV 3,337,436.92 9.52 Equipment Co., Ltd. China Film Equipment Co., Ltd. and 3,350,592.41 9.55 its affiliates Shenzhen Puzhen Technology Co., 901,968.13 2.57 Ltd. Sub-total 25,138,184.30 71.68 Other description □Applicable √N/A 8. Other receivables Presented by items √Applicable □N/A In RMB Item Closing balance Opening balance Interest receivable Dividends receivable Other receivables 9,618,750.08 12,543,543.59 Total 9,618,750.08 12,543,543.59 Other description: □Applicable √N/A Interest receivable (1). Categories of interest receivable □Applicable √N/A (2). Significant interests overdue □Applicable √N/A (3). Provision for bad debts □Applicable √N/A 223 / 312 2019 Annual Report Other description: □Applicable √N/A Dividends receivable (1) Dividends receivable □Applicable √N/A (2) Dividends receivable with significant amounts aged more than 1 year □Applicable √N/A (3) Provision for bad debts □Applicable √N/A Other description: □Applicable √N/A Other receivables (1). Disclosure by aging √Applicable □N/A In RMB Aging Closing balance of carrying amount Within 1 year Including: sub-items within 1 year Sub-total of items within 1 year 2,914,444.13 1 to 2 years 5,985,039.29 2 to 3 years 1,068,102.14 Over 3 years 90,300.00 Total 10,057,885.56 (2). Categories by the nature of other receivables √Applicable □N/A In RMB Closing balance of carrying Opening balance of carrying Nature of other receivables amount amount Deposits/margins/petty cash 8,772,420.22 8,496,423.15 Withholding 1,275,175.63 901,659.86 Receivables for transfer of 3,700,000.00 shares Temporary receivables 10,289.71 145,362.27 Total 10,057,885.56 13,243,445.28 224 / 312 2019 Annual Report (3). Provision for bad debts √Applicable □N/A In RMB Stage I Stage II Stage III Lifetime ECL Bad debt provision 12-month ECL Lifetime ECL (with Total (without credit in the future credit impairment) impairment) Balance as at January 612,714.94 100.00 87,086.75 699,901.69 1, 2019 Balance as at January 1, 2019 in the current period --transferred to Stage II --transferred to Stage -30,000.00 -100.00 30,100.00 III --reversed to Stage II --reversed to Stage I Provision -143,679.46 -143,679.46 Reversal Write-off Cancellation 117,086.75 117,086.75 Other changes Balance at December 439,035.48 100.00 439,135.48 31, 2019 Description of significant changes in the balance of other receivables with changed provisions for losses in the current period: □Applicable √N/A Basis for recognizing the amount of bad debt provisions and evaluating whether the credit risk of financial instruments has been increased significantly in the current period: □Applicable √N/A (4). Provision for bad debts √Applicable □N/A In RMB Category Opening Changes for the current period Closing 225 / 312 2019 Annual Report balance Recovery balance Write off or Other Provision or cancellation changes reversal Provision for 87,086.75 87,086.75 bad debts made individually Provision for 612,814.94 -143,679.46 30,000.00 439,135.48 bad debts made by group Total 699,901.69 -143,679.46 117,086.75 439,135.48 Including significant amounts recovered or reversed from the current provision for bad debts: □Applicable √N/A (5). Other receivables actually canceled in the current period √Applicable □N/A In RMB Item Cancellation amount Other receivables actually canceled 117,086.75 In which significant amounts canceled are described as below: □Applicable √N/A Description of other receivables cancellation: □Applicable √N/A (6). Top five closing balances of other receivables categorized by debtors √Applicable □N/A In RMB Closing balance Nature of Proportion to the Closing of bad debt Entities other Aging balance of other balance provision receivables receivables (%) Shenzhen Margins 4,094,368.00 1-2 years 40.71 204,718.40 Meisheng Industry Co., Ltd. 226 / 312 2019 Annual Report Shenzhen Deposits 1,036,606.40 Within 1 10.31 51,830.32 Science and year, 1-2 Technology years, 2-3 Assessment years Management Center Hong Kong Deposits 1,036,373.11 Within 1 10.30 51,818.66 Science & year Technology Parks Corporation WANG Deposits 300,000.00 Within 1 2.98 15,000.00 Shaogang year China Film Deposits 290,866.00 Within 1 2.89 14,543.30 Equipment year, 1-2 Co., Ltd. and years, 2-3 its affiliates years Total / 6,758,213.51 / 67.19 337,910.68 (7). Accounts receivable involving government grants □Applicable √N/A (8). Other receivables derecognized due to transfer of financial assets □Applicable √N/A (9). Assets and liabilities arising from transfer of other receivables and continued involvement □Applicable √N/A Other description: □Applicable √N/A 9. Inventories (1). Categories of inventories √Applicable □N/A In RMB Item Closing balance Opening balance 227 / 312 2019 Annual Report Provision Provision Carrying Carrying for decline Book value for decline Book value amount amount in value in value Raw materials 169,021,593.23 18,901,716.15 150,119,877.08 172,758,435.91 15,733,715.15 157,024,720.76 Work in 12,337,519.02 686,431.07 11,651,087.95 9,433,678.13 931,664.29 8,502,013.84 progress Goods on hand 95,889,640.29 20,855,142.36 75,034,497.93 97,961,682.59 20,235,396.20 77,726,286.39 Goods upon 56,776,659.73 56,776,659.73 66,939,392.07 32,258.46 66,907,133.61 delivery Materials for 6,405,637.99 21,590.33 6,384,047.66 17,775,800.60 2,633,659.60 15,142,141.00 consigned processing Total 340,431,050.26 40,464,879.91 299,966,170.35 364,868,989.30 39,566,693.70 325,302,295.60 (2). Provision for decline in value of inventories (3). Provision for decline in value of inventories and impairment of contract performance cost √Applicable □N/A In RMB Increase Decrease Opening Closing Item Other Reversal or Other balance Provision balance s write-off s Raw 15,733,715.1 14,992,560.9 11,824,559.9 18,901,716.1 materials 5 1 1 5 Work in 931,664.29 245,233.22 686,431.07 progress Goods on 20,235,396.2 7,138,530.40 6,518,784.24 20,855,142.3 hand 0 6 Goods 32,258.46 32,258.46 upon delivery Materials 2,633,659.60 2,612,069.27 21,590.33 for consigned processin g Total 39,566,693.7 22,131,091.3 21,232,905.1 40,464,879.9 0 1 0 1 Specify reasons for specific determination basis of net realizable value, and reversal or write-off of the provision for decline in value of inventories: 228 / 312 2019 Annual Report Specific determination basis of net realizable value: for inventories directly used for sale, the net realizable value is determined as the history or actual average selling price less the estimated costs necessary to make the sale and relevant taxes; for inventories required for processing, the net realizable value is determined as the history or actual average selling price of finished goods less the estimated costs of completion, and the estimated costs necessary to make the sale and relevant taxes. The reason for reversal of the provision for decline in value of inventories for the period is that, for the inventories of which a provision for decline in value has been made in prior period, their net realizable values have increased. The reason for write-off of the provision for decline in value of inventories for the period is that the Company has consumed or sold the inventories of which a provision for decline in value has been made. (4). Description of capitalized amount of borrowing costs included in the closing balance of inventories □Applicable √N/A (5). Completed but not yet billed assets arising from construction contracts at the end of the period □Applicable √N/A Other description □Applicable √N/A 10. Held-for-sale assets □Applicable √N/A 11. Non-current assets due within one year □Applicable √N/A Debt investments and other debt investments with significant amounts at the end of the period □Applicable √N/A Other description None 12. Other current assets √Applicable □N/A In RMB Item Closing balance Opening balance Input VAT to be deducted 40,317,187.39 44,692,236.45 Prepaid enterprise income tax 4,088,325.91 15,517.02 229 / 312 2019 Annual Report Total 44,405,513.30 44,707,753.47 Other description None 13. Debt investments (1). Description of debt investments □Applicable √N/A (2). Debt investments with significant amounts at the end of the period □Applicable √N/A (3). Description of provision for impairment □Applicable √N/A Basis for recognizing the amount of provisions for impairment and evaluating whether the credit risk of financial instruments has been increased significantly in the current period □Applicable √N/A Other description □Applicable √N/A 14. Other debt investments (1). Description of other debt investments □Applicable √N/A (2). Other debt investments with significant amounts at the end of the period □Applicable √N/A (3). Description of provision for impairment □Applicable √N/A Basis for recognizing the amount of provisions for impairment and evaluating whether the credit risk of financial instruments has been increased significantly in the current period □Applicable √N/A Other description: □Applicable √N/A 15. Long-term receivables (1). Description of long-term receivables □Applicable √N/A 230 / 312 2019 Annual Report (2). Provision for bad debts □Applicable √N/A Basis for recognizing the amount of bad debt provisions and evaluating whether the credit risk of financial instruments has been increased significantly in the current period □Applicable √N/A (3). Long-term receivables derecognized due to transfer of financial assets □Applicable √N/A (4). Assets and liabilities arising from transfer of long-term receivables and continued involvement □Applicable √N/A Other description □Applicable √N/A 16. Long-term equity investments √Applicable □N/A In RMB Changes for the current period Closing Investment Opening Adjustment in Declared Closing balance of profit or Other Provision Investees balance Additional Decreased other cash balance provision loss under equity for Others investment investment comprehensive dividends for equity changes impairment income or profits impairment method I. Joint venture Sub-total II. Associates Cinionic 139,524,000.00 -3,927.93 14,299.87 139,534,371.94 Limited Sub-total 139,524,000.00 -3,927.93 14,299.87 139,534,371.94 Total 139,524,000.00 -3,927.93 14,299.87 139,534,371.94 Other description None 17. Other equity instrument investments (1). Description of other equity instrument investments √Applicable □N/A 231 / 312 2019 Annual Report In RMB Item Closing balance Opening balance Shen Zhen Timewaying 7,075,419.38 7,075,419.38 Technology Co., Ltd. Shenzhen Bevix Technology Co., 4,900,000.00 4,900,000.00 Ltd. Total 11,975,419.38 11,975,419.38 [Note]: The difference between the opening balance of the year and the closing balance of the prior year (as of December 31, 2018) can refer to V 42 of Section XI for details. (2). Description of equity investments not held for trading √Applicable □N/A In RMB Reasons for Reasons for Dividends designating as transferring to income Amounts to retained financial assets retained Accumulated Accumulated Item recognized for earnings from other at fair value earnings from gains losses the current comprehensive income through other other period comprehensive comprehensive income income Shen Zhen Subject to the Timewaying management's Technology intention of Co., Ltd. holding Shenzhen Subject to the Bevix management's Technology intention of Co., Ltd. holding Other description: √Applicable □N/A The Company's equity investments in Shen Zhen Timewaying Technology Co., Ltd. and Shenzhen Bevix Technology Co., Ltd. are mainly for promoting future business cooperation rather than making transactions, hence they are designated as investments in equity instruments at fair value through other comprehensive income. 18. Other non-current financial assets □Applicable √N/A Other description: □Applicable √N/A 19. Investment properties Measurement mode of investment properties 232 / 312 2019 Annual Report N/A 20. Fixed assets Presented by items √Applicable □N/A In RMB Item Closing balance Opening balance Fixed assets 471,204,340.95 399,651,937.13 Disposal of fixed assets Total 471,204,340.95 399,651,937.13 Other description: √Applicable □N/A None Fixed assets (1). Description of fixed assets √Applicable □N/A In RMB Machinery Electronic Operating Transportation Item and equipment leased Total equipment equipment and others equipment I. Cost: 1.Opening 66,913,542.97 304,096.46 22,897,002.28 404,727,717.92 494,842,359.63 balance 2. Increase 23,690,628.28 716,303.59 9,101,989.42 126,212,655.90 159,721,577.19 (1)Purchase 23,690,628.28 716,303.59 9,101,989.42 33,508,921.29 (2) Transfer 125,269,204.33 125,269,204.33 from construction in progress (3) Increase due to business combination (4) Transfer 943,451.57 943,451.57 from inventories 3. Decrease 7,984,572.90 733,676.31 5,343,261.41 14,061,510.62 (1) Disposal 7,571,968.06 596,891.04 412,595.59 8,581,454.69 or retirement (2) Transfer 412,604.84 136,785.27 4,930,665.82 5,480,055.93 to inventories 4.Closing 82,619,598.35 1,020,400.05 31,265,315.39 525,597,112.41 640,502,426.20 balance 233 / 312 2019 Annual Report II. Accumulated depreciation 1.Opening 21,928,764.07 211,823.44 7,857,607.14 65,192,227.85 95,190,422.50 balance 2. Increase 12,407,120.20 80,400.42 4,770,710.62 63,283,462.83 80,541,694.07 (1) 12,407,120.20 80,400.42 4,770,710.62 63,283,462.83 80,541,694.07 Provision 3. Decrease 4,944,463.91 544,758.80 944,808.61 6,434,031.32 (1) Disposal 4,921,838.79 487,937.15 77,504.20 5,487,280.14 or retirement (2) Transfer 22,625.12 56,821.65 867,304.41 946,751.18 to inventories 4.Closing 29,391,420.36 292,223.86 12,083,558.96 127,530,882.07 169,298,085.25 balance III. Provision for impairment 1.Opening balance 2. Increase (1) Provision 3. Decrease (1) Disposal or retirement 4.Closing balance IV. Book value 1. Closing 53,228,177.99 728,176.19 19,181,756.43 398,066,230.34 471,204,340.95 balance 2. Opening 44,984,778.90 92,273.02 15,039,395.14 339,535,490.07 399,651,937.13 balance (2). Temporarily idle fixed assets □Applicable √N/A (3). Fixed assets rent under finance lease □Applicable √N/A (4). Fixed assets leased out under operating lease √Applicable □N/A In RMB Item Closing balance of carrying amount 234 / 312 2019 Annual Report Operating leased equipment 398,066,230.34 Total 398,066,230.34 (5). Fixed assets of which certificates of title have not been obtained □Applicable √N/A Other description: □Applicable √N/A Disposal of fixed assets □Applicable √N/A 21. Construction in progress Presented by items √Applicable □N/A In RMB Item Closing balance Opening balance Construction in progress 20,132,004.07 30,953,213.42 Materials for construction Total 20,132,004.07 30,953,213.42 Other description: □Applicable √N/A Construction in progress (1). Description of Construction in progress √Applicable □N/A In RMB Closing balance Opening balance Provision Provision Item Carrying for Carrying for Book value Book value amount impairmen amount impairmen t t Headquarte 1,385,496.59 1,385,496.59 r buildings Light 18,746,507.4 18,746,507.4 30,953,213.4 30,953,213.4 sources to 8 8 2 2 be leased 235 / 312 2019 Annual Report 20,132,004.0 20,132,004.0 30,953,213.4 30,953,213.4 Total 7 7 2 2 (2). Changes in significant constructions in progress for the current period √Applicable □N/A In RMB Amoun t Amount Includi Interest injecte of ng: Openin Amount Capitaliz Other Closing d as a Construc accumul capitali Budget g transferre ation rate Source Project Increase decrea balance proport tion ated sed amount balance d to fixed for the of funds ses ion of progress capitaliz interest assets period budget ed for the (%) amount interest period (%) Headqu 534,635,2 1,385,496. 1,385,496 0.26 Self-fun arter 00.00 59 .59 ded building capital s Light 30,953,21 113,703,1 125,269,2 640,61 18,746,50 Self-fun sources 3.42 14.75 04.33 6.36 7.48 ded to be capital leased 534,635,2 30,953,21 115,088,6 125,269,2 640,61 20,132,00 / / / / Total 00.00 3.42 11.34 04.33 6.36 4.07 236 / 312 2019 Annual Report (3). Provision for impairment losses for construction in progress in the current period □Applicable √N/A Other description □Applicable √N/A Materials for construction (4). Description of materials for construction □Applicable √N/A 22. Bearer biological assets (1). Bearer biological assets measured at cost □Applicable √N/A (2). Bearer biological assets measured at fair value □Applicable √N/A Other description □Applicable √N/A 23. Oil and gas assets □Applicable √N/A 24. Use right assets □Applicable √N/A 25. Intangible assets (1). Description of intangible assets √Applicable □N/A In RMB Land use Item Patents Software Total rights I. Cost 1.Opening 23,247,800.00 330,630,000.00 5,387,125.59 359,264,925.59 balance 2. Increase 4,809,423.19 4,809,423.19 (1) Purchase 4,809,423.19 4,809,423.19 (2)Internal R&D (3) Increase due to business combination 237 / 312 2019 Annual Report 3. Decrease (1)Disposal 4.Closing balance 23,247,800.00 330,630,000.00 10,196,548.78 364,074,348.78 II. Accumulated Amortization 1.Opening 10,210,710.02 5,510,500.02 1,315,949.49 17,037,159.53 balance 2. Increase 2,324,780.04 11,021,000.04 1,360,085.10 14,705,865.18 (1) Provision 2,324,780.04 11,021,000.04 1,360,085.10 14,705,865.18 3. Decrease (1) Disposal 4.Closing 12,535,490.06 16,531,500.06 2,676,034.59 31,743,024.71 balance III. Provision for impairment 1.Opening balance 2. Increase (1) Provision 3. Decrease (1) Disposal 4.Closing balance IV. Book value 1. Closing balance 10,712,309.94 314,098,499.94 7,520,514.19 332,331,324.07 2. Opening balance 13,037,089.98 325,119,499.98 4,071,176.10 342,227,766.06 The proportion of intangible assets generated by the Company's internal research and development to the balance of intangible assets at the end of the period is 0. (2). Land use rights of which certificates of title have not been obtained □Applicable √N/A Other description: □Applicable √N/A 26. Development expenditure □Applicable √N/A 238 / 312 2019 Annual Report 27. Goodwill (1). Original book value of goodwill □Applicable √N/A (2). Impairment provision of goodwill □Applicable √N/A (3).Relevant information of groups of assets or combinations of groups of assets where the goodwill is recognized □Applicable √N/A (4).Specify test procedure, key parameters of impairment of goodwill (such as increase rate at the projection period, increase rate at the steady period, profit rate, discount rate, and projection period upon the estimates of the presented value of future cash flow) as well as recognition method for impairment loss □Applicable √N/A (5). Impacts on test of goodwill impairment □Applicable √N/A Other description □Applicable √N/A 28. Long-term prepaid expenses √Applicable □N/A In RMB Item Opening Increase Amortization Other Closing balance decreases balance Renovation 6,400,455.04 15,380,470.28 4,872,854.98 16,908,070.34 costs Total 6,400,455.04 15,380,470.28 4,872,854.98 16,908,070.34 Other description: None 29. Deferred tax assets / deferred tax liabilities (1). Deferred tax assets that are not offset √Applicable □N/A In RMB Closing balance Opening balance Deducible Deducible Item Deferred tax Deferred tax temporary temporary asset asset difference difference Provision 35,664,470.56 5,836,098.21 33,900,084.27 5,518,806.05 for impairment of assets Unrealized 382,370,535.17 95,185,982.07 390,702,213.23 92,556,806.62 profits for 239 / 312 2019 Annual Report inside transactions Deductible losses Provisions 25,267,517.71 4,667,623.73 9,449,087.12 1,417,363.07 Deferred 16,475,547.96 2,546,469.56 income Share-based 4,987,200.41 787,768.28 payment expenses Total 464,765,271.81 109,023,941.85 434,051,384.62 99,492,975.74 (2). Deferred tax assets that are not offset □Applicable √N/A (3). Deferred tax assets and deferred tax liabilities that are presented at the net amount after offset □Applicable √N/A (4). Details of unrecognized deferred tax assets √Applicable □N/A In RMB Item Closing balance Opening balance Deducible temporary 32,593,450.49 40,272,087.80 difference Deducible losses 164,006,561.21 77,808,102.32 Total 196,600,011.70 118,080,190.12 (5). Deductible losses, for which no deferred tax assets are recognized, will expire in the following years √Applicable □N/A In RMB Year Closing balance Opening balance Remark 2020 9,243,377.13 9,246,743.85 2021 9,487,530.31 9,488,980.32 2022 11,900,329.00 11,956,016.78 2023 47,115,450.59 47,116,361.37 2024 86,259,874.18 Total 164,006,561.21 77,808,102.32 / Other description: □Applicable √N/A 30. Other non-current assets √Applicable □N/A In RMB Item Closing balance Opening balance 240 / 312 2019 Annual Report Prepayment for purchase of 11,420,185.94 254,255.16 long-term assets Prepayments for equity 137,264,000.00 investments Total 11,420,185.94 137,518,255.16 Other description: None 31. Short-term borrowings (1). Categories of short-term borrowings √Applicable □N/A In RMB Item Closing balance Opening balance Guaranteed loans 50,000,000.00 21,000,000.00 Interest payable 427,443.49 754,728.10 Credit loans 10,000,000.00 Guaranteed loans and loans 16,337,875.56 103,440,000.00 against collateral Total 76,765,319.05 125,194,728.10 Description for categories of short-term borrowings: [Note]: The difference between the opening balance of the year and the closing balance of the prior year (as of December 31, 2018) can refer to V 41 of Section XI for details. Banks Loan balance Guarantee way Shenzhen Branch of 10,000,000.00 Credit loan without any guarantee HSBC Bank (China) 50,000,000.00 Secured by the Company Company Limited Pledged by accounts receivable of the Company's subsidiary CINEAPPO Beijing Branch of Laser Cinema Technology (Beijing) Co., Ltd. from its downstream China Minsheng 16,337,875.56 customers for conclusion of equipment sale contract, and secured by the Banking Corp., Ltd. Company meanwhile (2). Short-term borrowings overdue but not yet repaid □Applicable √N/A Of which the significant overdue short-term borrowings are described as below: □Applicable √N/A Other description □Applicable √N/A 32. Held-for-trading financial liabilities □Applicable √N/A 33. Derivative financial liabilities □Applicable √N/A 241 / 312 2019 Annual Report 34. Notes payable (1). Presented by notes payable √Applicable □N/A In RMB Category Closing balance Opening balance Commercial acceptance bills Bank acceptance bills 37,335,841.79 39,051,466.05 Total 37,335,841.79 39,051,466.05 Total notes payable matured but not paid yet is RMB 0 at the end of the period. 35. Accounts payable (1). Presented by accounts payable √Applicable □N/A In RMB Item Closing balance Opening balance Amounts payable for 176,624,445.46 164,258,731.06 purchase Total 176,624,445.46 164,258,731.06 (2). Accounts payable with significant amounts aged more than 1 year □Applicable √N/A Other description □Applicable √N/A 36. Receipts in advance (1). Presented by receipts in advance √Applicable □N/A In RMB Item Closing balance Opening balance Receipts in advance for 184,444,643.33 172,867,568.93 goods Total 184,444,643.33 172,867,568.93 (2). Receipts in advance with significant amounts aged more than 1 year √Applicable □N/A In RMB Reasons for not repaid or Item Closing balance carried-forward Jiangsu Happy Blue Sea 36,309,008.65 Lease payments received in Cinema Development Co., advance Ltd. Total 36,309,008.65 / 242 / 312 2019 Annual Report (3). Billed but not yet completed projects arising from construction contracts at the end of the period □Applicable √N/A Other description □Applicable √N/A 37. Employee benefits payable (1). Presented by employee benefits payable √Applicable □N/A In RMB Opening Closing Item Increase Decrease balance balance 1. Short-term benefits 38,026,064.83 284,772,146.34 272,463,863.09 50,334,348.08 2.Post-employment 158,547.51 11,168,186.21 11,086,585.82 240,147.90 benefits-defined contribution plan 3. Termination benefits 2,073,708.19 2,061,271.46 12,436.73 Total 38,184,612.34 298,014,040.74 285,611,720.37 50,586,932.71 (2). Presented by short-term employee benefits √Applicable □N/A In RMB Opening Closing Item Increase Decrease balance balance I. Wages or salaries, 37,751,353.44 255,577,257.28 243,237,280.07 50,091,330.65 bonuses, allowances and subsidies II. Staff welfare 179,000.00 6,916,284.26 7,095,284.26 III. Social security 95,711.39 8,737,519.02 8,773,085.48 60,144.93 contributions Including: Medical 85,298.60 8,099,156.96 8,137,672.57 46,782.99 insurance Work injury 3,989.53 194,344.65 193,600.59 4,733.59 insurance Maternit 6,423.26 444,017.41 441,812.32 8,628.35 y insurance IV. Housing funds 12,723,152.42 12,721,039.42 2,113.00 V.Union running 817,933.36 637,173.86 180,759.50 costs and employee education costs VI. Short-term paid leaves VII.Short-term profit sharing plan Total 38,026,064.83 284,772,146.34 272,463,863.09 50,334,348.08 243 / 312 2019 Annual Report (3). Presented by defined contribution plan √Applicable □N/A In RMB Opening Closing Item Increase Decrease balance balance 1. Basic pensions 152,141.55 10,804,834.38 10,724,727.19 232,248.74 2. Unemployment 6,405.96 363,351.83 361,858.63 7,899.16 insurance 3.Enterprise annuity contribution Total 158,547.51 11,168,186.21 11,086,585.82 240,147.90 Other description: □Applicable √N/A 38. Taxes payable √Applicable □N/A In RMB Item Closing balance Opening balance VAT 776,108.18 5,855,297.62 Enterprise income tax 39,874,754.97 51,685,951.01 Individual income tax 1,447,882.44 1,229,829.98 City maintenance and 364,569.72 632,330.24 construction tax Education surcharges 156,244.17 273,030.65 Local education surcharges 104,162.78 182,020.43 Stamp duty 200,925.53 95,673.77 Total 42,924,647.79 59,954,133.70 Other description: None 39. Other payables Presented by items √Applicable □N/A In RMB Item Closing balance Opening balance Interest payable Dividends payable Other payables 14,364,076.43 184,107,549.02 Total 14,364,076.43 184,107,549.02 Other description: □Applicable √N/A 244 / 312 2019 Annual Report Interest payable (1). Presented by categories □Applicable √N/A Dividends payable (1) Presented by categories □Applicable √N/A Other payables (1). Other payables presented by nature √Applicable □N/A In RMB Item Closing balance Opening balance Withholding 145,265.79 198,666.56 Deposits/margins 2,626,034.93 855,151.45 Withdrawals in advance 11,539,286.03 10,313,849.81 Payable equity investments 2,450,000.00 Temporary receipts payable 53,489.68 159,881.20 Land-transferring fees 170,130,000.00 payable Total 14,364,076.43 184,107,549.02 (2). Other payables with significant amounts aged more than 1 year □Applicable √N/A Other description: □Applicable √N/A 40. Held-for-sale liabilities □Applicable √N/A 41. Non-current liabilities due within one year √Applicable □N/A In RMB Item Closing balance Opening balance Interest payable 127,055.02 56,654.43 Guaranteed loans and loans 64,841,740.00 28,609,163.00 against collateral Total 64,968,795.02 28,665,817.43 Other description: [Note]: The difference between the opening balance of the year and the closing balance of the prior year (as of December 31, 2018) can refer to V 41 of Section XI for details. Bank Loan balance Guarantee way 245 / 312 2019 Annual Report Bank Loan balance Guarantee way Pledged by the right of collecting all rents from lease of Shenzhen all laser light sources pursuant to contracts executed Branch of between CINEAPPO Laser Cinema Technology 343,902,163.10 PingAn Bank (Beijing) Co., Ltd. and cinemas, secured by Shenzhen Co., Ltd. YLX Technology Development Co., Ltd. and the Parent Company and guaranteed by LI Yi personally 42. Other current liabilities Description of other current liabilities □Applicable √N/A Changes in short-term bonds payable: □Applicable √N/A Other description: □Applicable √N/A 43. Long-term borrowings (1). Categories of long-term borrowings √Applicable □N/A In RMB Item Closing balance Opening balance Interest payable 554,684.17 742,605.69 Guaranteed loans and loans 279,060,423.10 403,107,800.00 against collateral Total 279,615,107.27 403,850,405.69 Description for categories of long-term borrowings: [Note]: The difference between the opening balance of the year and the closing balance of the prior year (as of December 31, 2018) can refer to V 41 of Section XI for details. Borrowings are disclosed in VII 42 of Section XI in details. Other description, including interest range: □Applicable √N/A 44. Bonds payable (1). Bonds payable □Applicable √N/A (2). Changes in bonds payable: (excluding other financial instruments such as preference shares, perpetual bonds and others classified as financial liabilities) □Applicable √N/A (3). Description of converting terms and period of convertible corporate bonds □Applicable √N/A 246 / 312 2019 Annual Report (4). Description of other financial instruments classified as financial liabilities Basic information of other financial instruments including outstanding preferred shares and perpetual bonds at the end of the period □Applicable √N/A Changes in financial instruments including outstanding preferred shares and perpetual bonds at the end of the period □Applicable √N/A Other financial instruments classified as financial liabilities: □Applicable √N/A Other description: □Applicable √N/A 45. Leasing liabilities □Applicable √N/A 46. Long-term payables Presented by items √Applicable □N/A In RMB Item Closing balance Opening balance Long-term payables 3,488,100.00 6,863,200.00 Special payables Total 3,488,100.00 6,863,200.00 Other description: □Applicable √N/A Long-term payables (1). Long-term payables presented by nature √Applicable □N/A In RMB Item Opening balance Closing balance Purchase of patent use rights 6,863,200.00 3,488,100.00 by installment Total 6,863,200.00 3,488,100.00 Other description: None Special payables (2). Special payables presented by nature □Applicable √N/A 247 / 312 2019 Annual Report 47. Long-term employee benefits payable □Applicable √N/A 48. Provisions √Applicable □N/A In RMB Item Opening balance Closing balance Reason Products quality 9,449,087.12 27,072,676.49 Expenses for “three warranty guarantees” services Total 9,449,087.12 27,072,676.49 / Other description, including significant assumptions and estimates relative to material provisions: None 49. Deferred income Description of Deferred income √Applicable □N/A In RMB Opening Closing Item Increase Decrease Reason balance balance Government 14,125,164.43 13,605,700.00 10,622,502.74 17,108,361.69 grants Total 14,125,164.43 13,605,700.00 10,622,502.74 17,108,361.69 / [Note]: Government grants included in the current profit or loss or offset relevant cost are disclosed in VII 83 of Section XI in details. Projects relating to government grants: √Applicable □N/A In RMB Amount Amount recognized recognized in Increased in other income for Related to Projects with government non-operati the current Other Opening balance Closing balance assets/inco liabilities grants for the ng income period changes me current period for the current period Beijing Industrial 8,000,000.00 8,000,000.00 Related to Development Fund assets Allocation 8K Ultra High 2,000,000.00 2,000,000.00 Related to Definition Laser assets Display Technology Engineering Research Center Research and 54,375.02 36,249.96 18,125.06 Related to Development of income High Performance Resin and Composite Materials Preparation Technique for Additive 248 / 312 2019 Annual Report Manufacturing Key Enterprise 5,000,000.00 179,582.69 4,820,417.31 Related to Laboratory for Laser income Display in Guangdong Province Ultra-high 2,250,000.00 107,181.13 2,142,818.87 Related to Brightness Laser income Light Source Engineering Technology Research Center Trichromatic Laser 5,320,789.41 3,845,700.00 1,471,735.98 7,694,753.43 Related to Display Complete income Equipment Production Demonstration Line Development of 750,000.00 750,000.00 Related to Heavy 20170372 4k income Ultra High Definition Laser Optical Engine Core Technology Key Technology of 510,000.00 77,752.98 432,247.02 Related to Trichromatic Laser income Display Complete Equipment Industrialization 14,125,164.43 13,605,700.00 - 10,622,502.74 17,108,361.69 Total Other description: □Applicable √N/A 50. Other non-current liabilities □Applicable √N/A 51. Share capital √Applicable □N/A In RMB Changes (+, -) Opening balance New issue of Capitalization of Closing balance Bonus shares capital reserve Others Sub-total issue Total 383,554,411.00 68,000,000.00 68,000,000.00 451,554,411.00 shares Other description: According to resolutions of the seventh session of the first Board of Directors and the second extraordinary general meeting of shareholders in 2019, the Company applied to increase RMB 68,000,000.00 registered capital by issuing RMB ordinary shares (A shares) to the public. After this change, the registered capital increased to RMB 451,554,411.00. As approved by the Official Reply of China Securities Regulatory Commission on Approving the Registration of IPO Stocks of Appotronics Corporation Limited (Zheng Jian Xu Ke [2019] No.1163), the Company was approved to issue 68,000,000 shares of RMB ordinary shares (A shares) with the par value at RMB 1 per share through public offering at an issue price of RMB 17.50 per share, and able to raise funds of RMB 1,190,000,000.00 in total. After deduction of underwriting fees and sponsor fees (excluding VAT) amounting to RMB 249 / 312 2019 Annual Report 95,784,905.66, the funds raised were RMB 1,094,215,094.34, in which RMB 68,000,000.00 were charged to paid-up capital and RMB 1,026,215,094.34 to capital reserve (share premium). Pan-China Certified Public Accountants (Special General Partnership) audited this capital increase and issued a Capital Verification Report (Tian Jian Yan [2019] No. 7-62). 52. Other equity instruments (1). Basic information of other financial instruments including outstanding preferred shares and perpetual bonds at the end of the period □Applicable √N/A (2). Changes in financial instruments including outstanding preferred shares and perpetual bonds at the end of the period □Applicable √N/A Changes of other equity instruments in the current period, reasons for such change and basis for related accounting treatments: □Applicable √N/A Other description: □Applicable √N/A 53. Capital reserve √Applicable □N/A In RMB Opening Item Increase Decrease Closing balance balance Capital 205,995,596.85 1,026,215,094.34 31,744,296.61 1,200,466,394.58 premium (Share premium) Other capital 7,475,923.79 7,475,923.79 reserve Total 205,995,596.85 1,033,691,018.13 31,744,296.61 1,207,942,318.37 Other description, including changes in the current period and reasons for changes: 1) The capital premium increased RMB 1,026,215,094.34, as detailed in the description in VII 51 of Section XI of this report. 2) The issuance expenses (excluding VAT) of RMB 31,744,296.61 paid by the Company which was used to offset the capital reserve (capital premium) included audit and capital verification expenses of RMB 17,660,377.36, legal fees of RMB 8,200,000.00, information disclosure expenses of RMB 4,462,264.15 and issuance expenses of RMB 1,421,655.10. 3) On October 14, 2019, the Company held the eighteenth session of the first board of directors and the eighth session of the first board of supervisors, in which resolutions on matters related to the 2019 Restricted Stock Incentive Plan were discussed and approved. As the Company’s implementation of this incentive plan was approved in the general meeting of shareholders, it was determined that 4.4 million shares of restricted shares were granted to 250 / 312 2019 Annual Report 169 incentive participants who met the grant conditions at a grant price of RMB 17.5 per share on the grant date of October 14, 2019. The total expense of equity-settled share-based payments amounted to RMB 8,151,010.88, in which RMB 7,475,923.79 were recognized in the capital reserve and RMB 675,087.09 were charged to the amount attributable to minority interests. 54. Treasury shares □Applicable √N/A 55. Other comprehensive income √Applicable □N/A In RMB Amount recognized in the current period Less: Less: amount amount previously previously included in included in other Attributa Opening Attributable to Closing Amount other comprehensiv ble to Item balance Less: owners of the balance incurred for comprehens e income and minority Income tax parent current period ive income transferred to sharehold expenses company after before tax and retained ers after tax transferred earnings for tax to profit or the period loss for the period I. Other comprehensiv e income that cannot be reclassified subsequently to profit or loss II. Other 1,044,703.00 2,311,885.81 2,242,360.85 69,524.96 3,287,063. comprehensiv 85 e income that will be reclassified to profit or loss Provision for credit impairment of other debt investments Exchange 1,044,703.00 2,311,885.81 2,242,360.85 69,524.96 3,287,063. differences on 85 translation of financial statements denominated in foreign currencies Total other 1,044,703.00 2,311,885.81 2,242,360.85 69,524.96 3,287,063. comprehensiv 85 e income Other descriptions, including adjustments on transferring effective portion of cash flow hedges to amount upon initial recognition of the hedged item: None 251 / 312 2019 Annual Report 56. Special reserve □Applicable √N/A 57. Surplus reserve √Applicable □N/A In RMB Item Opening balance Increase Decrease Closing balance Statutory 11,418,172.20 10,104,511.20 21,522,683.40 surplus reserve Discretionary surplus reserve Reserve fund Enterprise development fund Others Surplus reserve 1,277,540.73 1,277,540.73 recovered through business combination involving entities under common control Total 12,695,712.93 10,104,511.20 22,800,224.13 Surplus reserve description, including changes in the current period and reasons for changes: Increased surplus reserve for the current period refers to the appropriation to the statutory surplus reserve by 10% of net profits achieved by the Parent Company for the current period. 58. Retained profits √Applicable □N/A In RMB Item Current period Prior period Retained profits at the end of prior 112,623,054.78 2,143,646.15 period before adjustment Total adjusted retained profits at the beginning of the period (Add:+; Less: -) Retained profits at the beginning 112,623,054.78 2,143,646.15 of the period after adjustment Add: Net profit attributable to 186,457,276.71 176,971,092.49 owners of the Parent Company for the period Less: Appropriation to statutory 10,104,511.20 11,418,172.20 surplus reserve 252 / 312 2019 Annual Report Appropriation to discretionary surplus reserve Appropriation to general risk reserve Declaration of dividends on ordinary shares Conversion of ordinary shares' dividends into share capital Other appropriations -2,237,714.47 Capitalization of net assets 57,311,226.13 Retained profits at the end of the 288,975,820.29 112,623,054.78 period Details of adjustments to retained profits at the beginning of the period: 1) As a result of the retrospective adjustment of the Accounting Standards for Business Enterprises and related new regulations, retained profits at the beginning of the period were affected by RMB 0.00. 2. Retained profits at the beginning of the period were affected by RMB 0.00 due to changes in accounting policies. 3. Retained profits at the beginning of the period were affected by RMB 0.00 due to the correction of significant accounting errors. 4. Retained profits at the beginning of the period were affected by RMB 0.00 due to changes in the scope of consolidation resulting from business combination involving entities under common control. 5. Retained profits at the beginning of the period were affected by RMB 0.00 in total due to other adjustments. 59. Operating income and operating costs (1). Description of operating income and operating costs √Applicable □N/A In RMB 2019 2018 Item Revenue Cost Revenue Cost Principal 1,979,148,918.89 1,183,650,635.25 1,385,727,211.09 783,243,430.56 activities Total 1,979,148,918.89 1,183,650,635.25 1,385,727,211.09 783,243,430.56 Other description: None 60. Taxes and levies √Applicable □N/A In RMB Item 2019 2018 City maintenance and 3,070,823.26 6,621,885.65 construction tax 253 / 312 2019 Annual Report Education surcharges 1,336,864.61 2,859,559.28 Local education surcharges 879,366.01 1,902,444.16 Others 2,323,097.26 2,229,934.10 Total 7,610,151.14 13,613,823.19 Other description: None 61. Selling expenses √Applicable □N/A In RMB Item 2019 2018 Employee benefits 52,472,593.05 39,790,394.64 Business travel expenses 6,806,740.43 4,569,693.99 Business entertainment 3,015,283.66 1,806,511.97 expenses Marketing fees 36,724,064.18 26,380,592.80 Advertising costs and business 6,865,906.71 9,825,678.21 publicity expenses After-sale repair expenses 17,690,062.80 10,475,066.52 Service fees 7,249,578.52 1,338,989.87 Other expenses 20,935,881.65 8,162,182.00 Total 151,760,111.00 102,349,110.00 Other description: None 62. Administrative expenses √Applicable □N/A In RMB Item 2019 2018 Employee benefits 70,126,183.15 37,225,413.50 Rent expense 15,153,597.68 4,642,844.52 Business travel expenses 3,940,279.50 2,236,127.72 Service fees 27,332,463.20 12,601,285.06 Depreciation and amortization fees 14,945,520.79 7,981,227.46 Share-based payment expenses 8,146,719.12 22,338,042.90 Other expenses 12,981,767.17 8,556,028.94 Total 152,626,530.61 95,580,970.10 Other description: None 63. R&D expenses √Applicable □N/A In RMB 254 / 312 2019 Annual Report Item 2019 2018 Employee benefits 118,054,037.18 78,544,787.69 Material consumption expenses 30,630,477.60 20,203,045.19 Rent expense 9,706,785.26 3,646,917.10 Service fees 10,229,627.72 10,396,474.88 Depreciation and amortization fees 8,883,535.17 7,840,300.41 Testing expenses 4,161,556.69 2,529,155.35 Patent fees 11,169,391.10 7,131,899.77 Other expenses 8,862,355.54 5,437,870.53 Total 201,697,766.26 135,730,450.92 Other description: None 64. Financial expenses √Applicable □N/A In RMB Item 2019 2018 Interest expenses (income) 29,041,253.91 21,012,456.32 Exchange profit or loss -799,344.64 -24,220,687.35 Service charges 1,249,314.15 556,069.32 Total 29,491,223.42 -2,652,161.71 Other description: None 65. Other income √Applicable □N/A In RMB Item 2019 2018 Government grants related to 8,000,000.00 4,000,000.00 assets Government grants related to 22,467,052.33 16,937,327.12 income Additional deduction of 3,657,561.79 input VAT Total 34,124,614.12 20,937,327.12 Other description: Government grants recognized in other income in the current period are disclosed in VII 82 of Section XI in details. 66. Investment income √Applicable □N/A In RMB 255 / 312 2019 Annual Report Item 2019 2018 Long-term equity investment -3,927.93 accounted for using the equity method Investment income from disposal of 9,552,990.98 financial assets at fair value through profit or loss Total 9,549,063.05 Other description: None 67. Income from net exposure hedges □Applicable √N/A 68. Gains from changes in fair values □Applicable √N/A 69. Losses of credit impairment √Applicable □N/A In RMB Item 2019 2018 Bad debt losses -3,771,572.38 Total -3,771,572.38 Other description: None 70. Impairment losses of assets √Applicable □N/A In RMB Item 2019 2018 I.Bad debt losses -319,212.92 II.Decline in value of inventories -12,623,251.67 -19,683,090.17 Total -12,623,251.67 -20,002,303.09 Other description: None 71. Gains on disposal of assets √Applicable □N/A 256 / 312 2019 Annual Report In RMB Item 2019 2018 Gains on disposal of assets 41,420.84 Total 41,420.84 Other description: None 72. Non-operating income Description of non-operating income √Applicable □N/A In RMB Amount included in Item 2019 2018 non-recurring profit or loss for the period Total gains from disposal of non-current assets Including: gains from disposal of fixed assets Gains from disposal of intangible assets Gains from debt restructuring Gains from exchange of non-monetary assets Donation receipts Government grants Amounts not 1,876,501.15 1,314,418.36 1,876,501.15 required for payment Indemnity 2,005,696.00 2,005,696.00 Others 43,869.58 994.50 43,869.58 Total 3,926,066.73 1,315,412.86 3,926,066.73 Government grants included in profit or loss for the period □Applicable √N/A Other description: □Applicable √N/A 73. Non-operating expenses √Applicable □N/A In RMB Item 2019 2018 Amount included in 257 / 312 2019 Annual Report non-recurring profit or loss for the period Total losses from disposal of non-current assets Including: losses from disposal of fixed assets Losses from disposal of intangible assets Losses from debt restructuring Losses from exchange of non-monetary assets External donations 715,387.87 715,387.87 Losses from 3,255,908.90 1,711,797.47 3,255,908.90 damage and retirement of non-current assets Penalties and 212,581.48 133,350.32 212,581.48 overdue fines Others 16,319.31 0.02 16,319.31 Total 4,200,197.56 1,845,147.81 4,200,197.56 Other description: None 74. Income tax expense (1). Statement of income tax expense √Applicable □N/A In RMB Item 2019 2018 Income tax expense in the 64,508,782.78 80,669,735.12 current period Deferred income tax expenses -9,526,561.15 -33,954,069.45 Total 54,982,221.63 46,715,665.67 (2). Reconciliation of income tax expenses to the accounting profit √Applicable □N/A In RMB Item 2019 Total profit 279,358,644.34 Income tax expense calculated based on 41,903,796.65 258 / 312 2019 Annual Report statutory/applicable tax rate Effect of different tax rates of subsidiaries 14,819,386.38 operating in other jurisdictions Effect of adjustment on income tax for the -768,791.21 period Effect of non-taxable income -163,610.80 Effect of non-deductible cost, expense and 768,007.37 loss Effect of utilizing deductible loss not -751,471.60 recognized for deferred tax assets for prior period Effect of deductible temporary difference 16,436,559.98 or deductible loss not recognized for deferred tax assets for the current period Effect of additional deduction of R&D -17,261,655.14 expenses Income tax expense 54,982,221.63 Other description: □Applicable √N/A 75. Other comprehensive income √Applicable □N/A See annex for details Other comprehensive income net of tax has been disclosed in VII 55 of Section XI in details. 76. Items in cash flow statement (1). Other cash receipts relating to operating activities √Applicable □N/A In RMB Item 2019 2018 Government grants 28,765,309.74 23,017,245.19 Non-operating income 2,049,565.58 994.50 Interest income 3,841,224.18 2,204,490.11 Other monetary funds-margins 37,531,542.28 48,140,204.01 Receivables and payables 6,375,293.17 2,080,591.98 Total 78,562,934.95 75,443,525.79 Description of other cash receipts relating to operating activities: None (2). Other cash payments relating to operating activities √Applicable □N/A In RMB Item 2019 2018 259 / 312 2019 Annual Report Selling expenses paid in cash 75,178,450.72 59,397,046.56 Administrative and R&D 101,950,001.38 74,782,918.77 expenses paid in cash Financial expenses paid in cash 1,249,314.15 556,069.32 Non-operating expenses 944,288.66 133,350.34 Other monetary funds-margins 41,702,174.11 40,750,627.38 Bank deposits-frozen funds due 30,000,000.00 to litigation Receivables and payables 5,886,899.65 6,535,135.11 Total 256,911,128.67 182,155,147.48 Description of other cash payments relating to operating activities: None (3). Other cash receipts relating to investing activities √Applicable □N/A In RMB Item 2019 2018 Fund transaction 85,426,350.80 Total 85,426,350.80 Description of other cash receipts relating to investing activities: None (4). Other cash payments relating to operating activities □Applicable √N/A (5). Other cash receipts relating to financing activities √Applicable □N/A In RMB Item 2019 2018 Fund transaction 51,102,952.00 Total 51,102,952.00 Description of other cash receipts relating to financing activities: None (6). Other cash payments relating to financing activities √Applicable □N/A In RMB Item 2019 2018 Fund transaction 53,856,591.99 Call loan interest 3,463,118.87 Issue expenses 39,396,048.75 Total 39,396,048.75 57,319,710.86 260 / 312 2019 Annual Report Description of other cash payments relating to financing activities: None 77. Supplementary information to the cash flow statement (1). Supplementary information to the cash flow statement √Applicable □N/A In RMB Supplementary information 2019 2018 1. Reconciliation of net profit to cash flow from operating activities: Net profit 224,376,422.71 211,551,211.44 Add: Provision for impairment of 16,394,824.05 20,002,303.09 assets Depreciation of fixed assets, 80,539,152.68 56,780,866.37 depletion of oil and gas assets, depreciation of bearer biological assets Amortization of intangible assets 14,703,595.57 8,310,952.62 Amortization of long-term 4,870,707.84 2,678,955.07 prepaid expenses Losses on disposal of fixed assets, -41,420.84 intangible assets and other long-term assets (gains are indicated by “-”) Losses on retirement of fixed 3,255,908.90 1,711,797.47 assets (gains are indicated by “-”) Losses on changes in fair values (gains are indicated by “-”) Financial expenses (income is 33,561,732.74 9,967,160.17 indicated by “-”) Investment losses (income is -9,549,063.05 indicated by “-”) Decrease in deferred tax assets -9,530,966.11 -33,958,813.16 (increase is indicated by “-”) Increase in deferred tax liabilities (decrease is indicated by “-”) Decrease in inventories (increase -101,935,742.75 -210,665,615.43 is indicated by “-”) Decrease in receivables from -73,469,932.05 -59,597,514.17 operating activities (increase is indicated by “-”) Increase in payables from 51,678,964.90 88,654,107.93 operating activities (decrease is indicated by “-”) Others 8,146,719.12 22,338,042.90 Net cash flow from operating 243,000,903.71 117,773,454.30 261 / 312 2019 Annual Report activities 2. Significant investing and financing activities that do not involve cash receipts and payments: Conversion of debt into capital Convertible corporate bonds due within one year Fixed assets acquired under finance leases 3. Net changes in cash and cash equivalents: Closing balance of cash 829,789,487.86 472,508,550.40 Less: Opening balance of cash 472,508,550.40 80,023,164.24 Add: Closing balance of Cash Equivalents Less: Opening balance of Cash Equivalents Net increase in cash and cash 357,280,937.46 392,485,386.16 equivalents In the cash flow statement, the following are excluded from the scope of cash equivalents: the margins of RMB 15,831,289.87 under restriction, the fund of RMB 30,000,000.00 frozen due to litigation and the deposit interests of RMB 238,006.85 which have been recognized yet not matured. (2). Net cash paid to acquire subsidiaries for the current period □Applicable √N/A (3). Net cash receipts from disposal of subsidiaries for the current period □Applicable √N/A (4). Composition of cash and cash equivalents √Applicable □N/A In RMB Item Closing balance Opening balance I. Cash 829,789,487.86 472,508,550.40 Including: Cash on hand 3,348.57 3,175.14 Bank deposit that can 827,470,990.73 470,309,528.51 be paid at any time Other monetary funds 2,315,148.56 2,195,846.75 that can be paid at any time Deposits in the Central Bank that can be used for payments Deposits made with 262 / 312 2019 Annual Report other banks Placements with banks II. Cash equivalents Including: Investments in debt securities due within three months III. Closing balance of cash and 829,789,487.86 472,508,550.40 cash equivalents Including: restricted cash and cash equivalents of the Parent Company or subsidiaries within the Group Other description: □Applicable √N/A 78. Notes to items in the statement of changes in owners' equity Describe matters such as the names and the adjustment amounts of the items included in “others” in respect of adjustments to the closing balances of the prior year: □Applicable √N/A 79. Assets with limited ownership or use right √Applicable □N/A In RMB Item Closing balance of carrying Reason amount Other monetary funds 15,831,289.87 Margins Bank deposits 30,000,000.00 Frozen due to litigation Bank deposits 238,006.85 Deposit interests which have been recognized yet not matured Total 46,069,296.72 / Other description: None 80. Foreign currency monetary items (1). Foreign currency monetary items √Applicable □N/A In RMB Closing balance of Closing balance of Item Exchange rate RMB equivalent foreign currency 263 / 312 2019 Annual Report Cash and bank balances - - 155,036,860.28 Including: USD 22,142,782.48 6.9762 154,472,479.14 GBP 365.96 9.1501 3,348.57 HKD 626,292.22 0.8958 561,032.57 Accounts receivable - - 42,083,074.57 Including: USD 6,032,377.88 6.9762 42,083,074.57 EUR HKD Accounts payable - - 34,480,943.20 Including: USD 4,798,988.06 6.9762 33,478,700.47 EUR 126,138.18 7.8155 985,832.94 HKD 18,318.59 0.8958 16,409.79 Other description: None (2). Description of overseas operating entities, including significant overseas operating entities, of which the major operation place, functional currency and choosing basis as well as the reason for change of functional currency should be disclosed □Applicable √N/A 81. Hedge □Applicable √N/A 82. Government grants (1). Basic government grants √Applicable □N/A In RMB Amount recognized Category Amount Item presented in current profit or loss Government grants 2,000,000.00 Deferred income 8,000,000.00 related to assets Government grants 11,605,700.00 Deferred income 2,622,502.74 related to income and used for compensation of the Company’s relevant costs or losses in subsequent periods Government grants 19,844,549.59 Other income 19,844,549.59 related to income and used for compensation of the 264 / 312 2019 Annual Report Company’s relevant costs or losses that have been incurred Interest subsidies 720,000.00 Financial expenses 720,000.00 Description: the amount refers to government grants actually received in the current period. 1) Government grants related to assets In RMB Opening Closing balance of balance of Amortization Increase Item deferred Amortization deferred Item Description income income presented Project Contract of Beijing Industrial Beijing Industrial Development 8,000,000.00 8,000,000.00 Other income Development Fund Fund Allocation Allocation Project Contract of 8K Ultra High 8K Ultra High Definition Laser Definition Laser Display Display Technology 2,000,000.00 2,000,000.00 Other income Technology Engineering Engineering Research Center Research Center (XMHT201901010 23) Sub-total 8,000,000.00 2,000,000.00 8,000,000.00 2,000,000.00 (2) Government grants related to income and used for compensation of the Company’s relevant costs or losses in subsequent periods In RMB Opening Closing Carrying balance of balance of Increase Carrying forward Item deferred deferred Description forward Item income income presented High Performance Resin and Research and Composite Development Materials Other 54,375.02 36,249.96 18,125.06 Cooperation Preparation income Contract Technique for (2016YFB1100802) Additive Manufacturing 265 / 312 2019 Annual Report Project Contract for Science and Technology Plan of Key Laboratory of Laser Display Enterprises in Guangdong Key Enterprise Province (Yue Ke Laboratory for Other Gui Cai Zi [2018] Laser Display in 5,000,000.00 179,582.69 4,820,417.31 income No. 233), Notice of Guangdong Shenzhen Science Province and Technology Innovation Commission on the Issuance of Grants to Provincial Key Laboratory in 2018 and 2019 The Project Ultra-high Contract for Brightness Laser Shenzhen Light Source Other Municipality 2,250,000.00 107,181.13 2,142,818.87 Engineering income Science and Technology Technology Plan Research Center (Shen Ke Ji Chuang Xin [2019] No. 33) Notice on the Establishment of 2018 Annual Trichromatic Projects for Laser Display Strategic Advanced Complete Other Electronic Materials Equipment 5,320,789.41 3,845,700.00 1,471,735.98 7,694,753.43 income in the National Key Production Research and Demonstration Development Line Programs (Guo Ke Gao Fa Ji Zi [2018] No.41) The Project Development of Contract for Heavy 20170372 Shenzhen 4k Ultra High Other Municipality 750,000.00 750,000.00 Definition Laser income Science and Optical Engine Technology Plan Core Technology (Shen Fa Gai [2017] No. 713) Task Statements for Key Technology Research and of Trichromatic Development Laser Display Other 510,000.00 77,752.98 432,247.02 Program in Key Complete income Fields of Equipment Guangdong Industrialization Province Sub-total 6,125,164.43 11,605,700.00 2,622,502.74 15,108,361.69 3) Government grants related to income and used for compensation of the Company’s relevant costs or losses that have been incurred In RMB Item Project Amount Description presented Other VAT refunds upon collection 5,404,939.85 income 266 / 312 2019 Annual Report Item Project Amount Description presented Measures for Administration of 2018 Shunyi District Cultural and Creativity Other Special Funds for the Development 3,000,000.00 Fund Awards income of Cultural and Creative Industries in Shunyi District (Revised) Notice of Beijing Municipal Human Resources and Social Security Bureau,Beijing Municipal Finance Bureau, Beijing Municipal Refund of Unemployment Benefits from Shunyi Commission of Development and Other District Social Insurance Business Management 40,416.15 Reform, Beijing Municipal Bureau of income Center Economy and Information Technology on Issues Related to Unemployment Insurance and Employment Stabilization (Jing Ren She Jiu Fa [2019] No. 68 ) Prize Money for Shunyi Sub-contest Areas’ Invitation Letter for Participation in Other Winner of 2019 Beijing Culture and Creative 20,000.00 Shunyi Sub-Region of 2019 Beijing income Competition Culture and Creative Competition Supplementary Announcement on 2019 Talent Housing Rent Allowance of Other 1,014,016.10 2019 Talent Housing Rent Nanshan District income Allowance of Nanshan District Maternity allowance from Shenzhen Social Other Regulations on Employee Maternity 384,716.37 Insurance Fund Administration income Insurance of Guangdong Province Disclosure of 2019 Subsidy for Subsidy for maintaining job position from Other Maintaining Job Positions of 4,913.25 Shenzhen Social Insurance Fund Administration income Enterprises in Shenzhen Municipality (First Batch) Other Notice on Allocation of Funds for Subsidies for high-tech qualifications 300,000.00 income Science and Technology Projects Disclosure of the Forth Batch of Enterprise Listing Financing Incentive Program Entities that Nanshan District Other of Economic Promotion Bureau of Nanshan 600,000.00 Independent Innovation Industry income District, Shenzhen Municipality Development Special Fund proposes to support in 2018 2018 Award for the licensing of overseas List of Grant Allocation for inventions for enhancing the competitiveness of Maintenance of Domestic Invention Other enterprises by the Market and Quality 92,000.00 Patent Annuities and Overseas income Supervision Commission of Shenzhen Invention Patent Licensing Awards Municipality of Shenzhen Municipality in 2018 Disclosure of the First Batch of Grants to the support program of cultivating and Entities that Nanshan District upgrading large industrial innovation capacity Other 1,000,000.00 Independent Innovation Industry from the Bureau of Science and Technology of income Development Special Fund proposes Nanshan District, Shenzhen Municipality to support in 2019 Disclosure of Shenzhen Science and Technology Innovation Commission The first batch of enterprise research and Other on the First Batch of Enterprises development grants from Shenzhen Science and 2,218,000.00 income proposed to be funded under 2018 Technology Innovation Commission Enterprise Research and Development Subsidy Scheme Disclosure on the proposed funding units for intellectual property Intellectual property rights protection special protection funding for 2019 for funds for science and technology innovation Other certain measures to support 500,000.00 from the Market and Quality Supervision income enterprises to enhance Commission of Shenzhen Municipality competitiveness and certain measures to promote technological innovation Disclosure of Guangdong Supporting incentives of Twentieth China Patent Other Administration for Market 600,000.00 Award of Guangdong Province income Regulation on 2019 Special Fund Allocation Plan 267 / 312 2019 Annual Report Item Project Amount Description presented Special funds for cultural industry development Award for Recognition of Excellent Other from the Culture Sports and Tourism 500,000.00 Cultural and Creative Enterprises in income Administration of Shenzhen Municipality Emerging Industries Notice of the Market and Quality Grants to the first batch of patent application Supervision Commission of Other from the Market and Quality Supervision 1,019,220.00 Shenzhen Municipality on the income Commission of Shenzhen Municipality in 2018 Allocation List of 2018 Shenzhen Municipal Patent Awards Notice on Implementing the “Navigating Talents”academic training subsidy Other Application of Project Grants of the Human Resources Bureau of Nanshan 10,000.00 income through the Third Batch of Talent District, Shenzhen Municipality Sub-funds in 2019 Notification of Shenzhen Bureau of 2019 Support Plan for Enterprises’ Production Industry and Information Expansion and Efficiency Improvement of Other Technology on the Disclosure of 1,000,000.00 Shenzhen Bureau of Industry and Information income 2019 Proposed Subsidy Scheme for Technology Enterprises’ Production Expansion and Efficiency Improvement Notification on the Disclosure of the The first batch of oversea trademark registration Second Batch in 2017 and the First funding projects of the Market and Quality Other Batch in 2018 of Oversea Trademark 52,000.00 Supervision Commission of Shenzhen income Registration Funding Projects of the Municipality in 2018 Market Supervision and Regulation Bureau of Shenzhen Municipality Disclosure of the Second Batch of Steady growth subsidy to top 100 industrial Entities that Nanshan District Other enterprises in Nanshan District, Shenzhen 40,700.00 Independent Innovation Industry income Municipality Development Special Fund proposes to support in 2019 Notice of the Market Supervision and Regulation Bureau of Shenzhen Municipality on the Subsidy The first batch of computer software grants in Other 8,100.00 Allocation List of the First Batch of 2018 income Computer Software Copyright Registration in Shenzhen Municipality in 2018 Subsidy Application for Talent Talent Quality Enhancement Project (Aurora Quality Enhancement Project by Project- Layer Leadership Training Program) of Other Special Funds for Independent 118,600.00 the Human Resources Bureau of Nanshan income Innovation Industry Development in District, Shenzhen Municipality Nanshan District, Shenzhen Municipality (2019) Notice on the Issuance of the First Grants to the first batch of patent application in Other Batch of Patent Funding of Shenzhen 960,000.00 2019 income Intellectual Property Special Funds in 2019 Scientific research grants to the first batch of Disclosure of the List of Post Doctors post doctors leaving work stations from the Other Leaving Work Stations Proposed to 100,000.00 Human Resources Bureau of Nanshan District, income be Granted with Scientific Research Shenzhen Municipality in 2019 Grants (First Batch in 2019) Notice of the Commerce Bureau of Matters of supporting foreign trade SMEs to Shenzhen Municipality on the expand markets funded by central governments Other Disclosure of Projects on Matters for 56,627.87 in 2018- Oversea Trademark Registration income Supporting Foreign Trade SMEs to Project Expand Markets Funded by Central Governments in 2018 Notice of the Market Supervision and Regulation Bureau of Shenzhen Municipality on the Disclosure of Special funds of portfolio national intellectual Other 2019 Project List (First Batch) property operating service system for high value 500,000.00 income Proposed to be Funded by the patent in 2019 Intellectual Property Special Funds under the Approval System and the Assessment System 268 / 312 2019 Annual Report Item Project Amount Description presented Notice of Headquartered Enterprises Funds for introducing high-end talent from and High-end Talent Service Center Headquartered Enterprises and High-end Talent Other for Airport Economy in Shunyi 300,000.00 Service Center for Airport Economy in Shunyi income District, Beijing on Supporting the District, Beijing Verification of Introduced High-end Talents (Shun Zu Fa [2017] No. 12) Other Beijing Municipal Patent Subsidy 300.00 income Sub-total 19,844,549.59 4) Interest subsidies In RMB Opening Closing Carrying balance Carrying balance of forward Item of Increase Description forward deferred item deferred income presented income Nanshan District Independent Innovation Industry Development Technology Special Fund - Science and Finance Interest Financial Technology Innovation Subsidy Scheme 538,800.00 538,800.00 expenses Sub-Fund - Project (2018 IP Pledge Application for Loan) Technology Financial Interest Subsidy Scheme (2019) Nanshan District Independent Innovation Industry Development Technology Special Fund - Science and Finance Interest Financial Technology Innovation Subsidy Scheme 181,200.00 181,200.00 expenses Sub-Fund - Project (2017 Combined Application for Credit Facility) Technology Financial Interest Subsidy Scheme (2019) Sub-total 720,000.00 720,000.00 Government grants included in profit or loss for the period amounted to RMB 31,187,052.33. (2). Refund of government grants □Applicable √N/A Other description: None 83. Others □Applicable √N/A VIII. Changes in scope of consolidation 1. Business combination not involving enterprises under common control □Applicable √N/A 269 / 312 2019 Annual Report 2. Business combination involving entities under common control □Applicable √N/A 3. Counter purchase □Applicable √N/A 270 / 312 2019 Annual Report 4. Disposal of subsidiaries Single disposal of investments in subsidiaries, i.e. the loss of control □Applicable √N/A Other description: □Applicable √N/A Disposal of investment in a subsidiary through multiple transactions by steps with loss of control over the subsidiary in the current period □Applicable √N/A 5. Changes in scope of consolidation for other reasons Description of changes in the scope of consolidation for other reasons (e.g., new subsidiary establishment and subsidiary liquidation, etc.) and the relevant information: √Applicable □N/A 1. Increased scope of combination Company name Proportion Method of Time point of Capital of obtaining equity obtaining equity contribution contribution Appotronics Technology September RMB 2 Establishment 100.00% (Changzhou) Co., Ltd. 2019 million FORMOVIE Establishment July 2019 55.00% TECHNOLOGY INC 2. Decreased scope of combination Net profits from the Time point of Net assets on Method of beginning of Company name disposing the disposal disposing equity the period to equity date the disposal date Beijing Appotronics Xiaoming Deregistration February 937,767.91 -400.00 Technology Co., Ltd. 2019 Qingda Appotronics Deregistration February (Shenzhen) Technology Co., 2019 0.00 0.00 Ltd. United Technology Deregistration May 2019 92,291.20 0.00 Corporation 6. Others □Applicable √N/A 271 / 312 2019 Annual Report IX. Equity in other entities 1. Equity in subsidiaries (1).Composition of enterprise group √Applicable □N/A Principal Proportion of Acquisition Subsidiaries Registration shareholding (%) operation Business nature method place place Direct Indirect Appotronics Beijing Beijing Sales; technology 90 Establishment Timewaying development, (Beijing) consulting Technology Co., Ltd. Shenzhen Shenzhen Shenzhen Technology 100 Establishment Appotronics development and Software sales of computer Technology Co., Ltd. software and hardware Beijing Orient Beijing Beijing Technology 59 Establishment Appotronics promotion; Technology Co., Ltd. computer systems, application software services Shenzhen Shenzhen Shenzhen Development, 100 Establishment Appotronics consultation and Xiaoming transfer of laser Technology Co., Ltd. display technology Fengmi (Beijing) Beijing Beijing Technology and 55 Establishment Technology Co., Ltd. software development Shenzhen Shenzhen Shenzhen R&D and sales of 100 Acquisition Appotronics Laser laser display through business Display Technology products combination Co., Ltd. involving entities under common control CINEAPPO Laser Beijing Beijing Research and 24.84 30.36 Acquisition Cinema Technology development, through business (Beijing) Co., Ltd. production, sales combination and lease of laser involving entities cinema projection under common equipment control Qingda Appotronics Beijing Xiamen Information 51 Establishment (Xiamen) technology Technology Co., Ltd. consulting services Shenzhen Shenzhen Shenzhen Software 100 Establishment Appotronics Laser development for Technology Co., Ltd. semiconductor optoelectronic devices Shenzhen Shenzhen Shenzhen Software 100 Establishment Appotronics Home development Line Technology related to Co., Ltd. semiconductor optoelectronic products Appotronics Hong Hong Kong Hong Kong Information 100 Establishment Kong Limited technology consulting services Appotronics USA, USA USA R&D, 100 Acquisition Inc. manufacture and through business 272 / 312 2019 Annual Report sales of combination semiconductor involving entities optoelectronic under common products control Fabulus Technology Hong Kong Hong Kong R&D, 100 Establishment Hong Kong Limited manufacture and sales of screens JoveAI Limited Cayman Cayman Island No specific 64.29 Establishment Island business conducted JoveAI Innovation USA USA R&D of laser 64.29 Establishment Inc. display software system Appotronics Changzhou Changzhou Technical 100 Establishment Technology research and (Changzhou) Co., development of Ltd. projection equipment, screen and electronic computer. FORMOVIE No specific 55 Establishment TECHNOLOGY business INC conducted Description of the difference between the proportion of shareholding and the proportion of voting rights in a subsidiary: None Basis for holding half of the voting rights or below but still controlling the investee, and holding over half voting right but having no control over the investee: None Basis for controls over significant structured entities included in consolidation scope: None Basis to determine the company acts as the agent or the principal: None Other description: None (2). Significant non-wholly subsidiaries √Applicable □N/A In RMB Dividends Shareholding Profit or loss declared for proportion by attributable to Closing balance distribution to Subsidiaries minority minority of minority minority shareholders shareholders for interests shareholders in the current period the current period Fengmi 45.00% -21,366,510.04 -12,904,049.48 (Beijing) Technology Co., Ltd. CINEAPPO 44.80% 64,871,559.07 167,288,609.89 273 / 312 2019 Annual Report Laser Cinema Technology (Beijing) Co., Ltd. Description of the difference between the proportion of shareholding by minority shareholders and their proportion of voting rights in a subsidiary: □Applicable √N/A Other description: √Applicable □N/A None 274 / 312 2019 Annual Report (3).Significant financial information of significant non-wholly subsidiaries √Applicable □N/A In RMB Closing balance Opening balance Subsidiaries Non-current Non-current Non-current Current assets Total assets Current liabilities Total Liabilities Current assets Non-current assets Total assets Current liabilities Total Liabilities assets Liabilities Liabilities Fengmi (Beijing) 253,973,931.39 7,968,567.46 261,942,498.8 288,180,191.85 2,437,972.51 290,618,164.36 169,863,293.93 3,285,377.69 173,148,671.62 154,545,487.96 501,666.67 155,047,154.63 Technology Co., 5 Ltd. CINEAPPO 255,777,103.29 789,861,645. 1,045,638,748. 383,085,231.40 289,141,441.68 672,226,673.08 257,104,710.30 716,694,256.35 973,798,966.65 342,250,356.10 403,606,023.00 745,856,379.10 Laser Cinema 43 72 Technology (Beijing) Co., Ltd. 2019 2018 Subsidiaries Total comprehensive Cash flow from Total comprehensive Cash flow from operating Operating income Net profit Operating income Net profit income operating activities income activities Fengmi (Beijing) Technology Co., 700,577,662.64 -47,481,133.43 -47,481,133.43 -99,566,333.52 325,770,716.69 -22,748,600.79 -22,748,600.79 29,164,155.57 Ltd. CINEAPPO Laser Cinema 593,020,861.03 144,802,587.21 144,802,587.21 173,475,022.15 377,779,539.47 103,750,837.96 103,750,837.96 -16,464,187.23 Technology (Beijing) Co., Ltd. Other description: None 275 / 312 2019 Annual Report (4).Significant limitations on use of the group assets and paying off the group debts □Applicable √N/A (5). Financial or other support provided to structured entities included in consolidated financial statements □Applicable √N/A Other description: □Applicable √N/A 2. Changes of shares of owners' equity in subsidiaries but continue to remain control over transactions of subsidiaries □Applicable √N/A 3. Equity in joint ventures or associates √Applicable □N/A (1).Significant associates or joint ventures □Applicable √N/A (2).Major financial information of significant joint ventures □Applicable √N/A (3).Major financial information of significant associates □Applicable √N/A (4).Summary financial information of insignificant joint ventures and associates √Applicable □N/A In RMB 0’000 Closing balance/2019 Opening balance / 2018 Joint ventures: Total carrying amount of investments Total amounts calculated based on shareholding proportions --Net profit --Other comprehensive income --Total comprehensive income Associates: 276 / 312 2019 Annual Report Total carrying amount of 13,953.44 investments Total amounts calculated 1.04 based on shareholding proportions --Net profit -0.39 --Other comprehensive 1.43 income --Total comprehensive 1.04 income Other description Basic information of associates Accounting Principal Proportion of shareholding (%) treatment method for Registration Business Associates investments operation place nature Direct Indirect in joint place ventures and associates Accounting Sale of Cinionic Europe and for under Hong Kong cinema 20 Limited USA equity projectors method (5). Descriptions of significant limitations over the ability of joint ventures or associates to transfer funds to the Company □Applicable √N/A (6).Excessive loss of joint venture or associates □Applicable √N/A (7). Unrecognized commitment relating to investments in joint ventures □Applicable √N/A (8).Contingent liabilities relating to investments in joint ventures or associates □Applicable √N/A 4. Significant joint operations □Applicable √N/A 5. Interests in structured entities that are not included in consolidated financial statements Description of structured entities that are not included in consolidated financial statements: 277 / 312 2019 Annual Report □Applicable √N/A 6. Others □Applicable √N/A X. Risks associated with financial instruments √Applicable □N/A The Company's risk management objectives are to achieve a proper balance between risks and yield, minimize the adverse impacts of risks on the Company's operation performance, and maximize the benefits of the shareholders and other stakeholders. Based on these risk management objectives, the Company's basic risk management strategy is to identify and analyze its exposure to various risks, establish an appropriate maximum tolerance to risk, implement risk management, and monitor regularly and effectively these exposures to ensure the risks are monitored at a certain level. The Company is exposed to various risks associated with financial instruments in its daily routines, primarily including credit risk, liquidity risk and market risk. The management has reviewed and approved policies to manage these risks, summarized as below. (I)Credit risk Credit risk refers to the risk that a party of the financial instrument will default on its obligations resulting in financial loss to the counterparty. 1. Management of credit risk (1) Evaluation of credit risk The Company assesses at each balance sheet date whether the credit risk of the underlying financial instruments has increased significantly since initial recognition. In determining whether the credit risk has increased significantly since initial recognition, the Company considers reasonable and supportable information that is available without undue cost or effort, including quantitative and qualitative analysis based on historical data, ranking of external credit risks and forward-looking information. The Company compares the risk of a default occurring on a financial instrument as at the balance sheet date with the risk of a default occurring on the financial instrument as at the date of initial recognition based on individual financial instrument or a group of financial instruments with similar credit risk characteristic, to determine the change of the risk of a default occurring on a financial instrument over the expected life. The Company considers the credit risk of financial instruments has increased significantly when one or more of the following quantitative and qualitative criteria are met: 1) The quantitative criterion primarily refers to a certain percentage of increase in the probability of default over the remaining life of the financial instruments as of the balance sheet date when comparing with that at initial recognition of the financial instruments; 2) The qualitative criteria includes, inter alia, adverse material changes in business or financial conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations, and an actual or expected significant adverse change in the technological, market, economic, or legal environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations. (2) Definition of defaulted or credit-impaired assets A financial asset is defined as defaulted when the financial instrument meets one or more conditions stated as below, and the criteria of defining defaulted asset is consistent with that of defining credit-impaired asset: 1) significant financial difficulty of the debtor; 278 / 312 2019 Annual Report 2) a breach of contract terms with binding force by the debtor; 3) it is becoming probable that the debtor will enter bankruptcy or other financial reorganization; 4) the creditor of the debtor, for economic or contractual reasons relating to the debtor’s financial difficulty, has granted to the debtor a concession(s) that the creditor would not otherwise consider. 2. Measurement of ECL Key parameters to measure ECL include the probability of default, loss given default and the exposure at default. The Company established models of the probability of default, loss given default and the exposure at default on the basis of qualitative analysis on historical statistical data (such as counterparty ranking, guarantee methods, collateral category, and repayment way) and forward-looking information. 3. Details of reconciliation of the opening balance and the closing balance of provision for impairment of financial instruments can refer to the description in VII 4, VII 5 and VII 8 of Section XI. 4. Credit risk exposure and credit risk concentration The Company's credit risk is primarily from cash and bank balances and receivables. In order to control the risks associated with aforementioned items, the Company has taken the following measures. (1) Cash and bank balances The credit risk of the Company is limited because the Company has deposited bank deposits and other monetary funds in banks with high credit ratings. (2) Receivables The Company regularly evaluates the creditworthiness of its customers with deals on credit, and selects to deal with approved and creditworthy customers subject to the results of the credit assessment with monitoring the balance of its receivables, so as to ensure that the Company is not exposed to significant risk of bad debt. No collaterals are required since the Company only deals with third parties that are approved and creditworthy. The concentrated credit risks are managed by customers . As of December 31, 2019, the Company is exposed to certain concentration of credit risks, as the Company’s accounts receivable from top 5 customers have accounted for 70.21% of the total balance of accounts receivable (December 31, 2018: 80.76%). The Company held no collateral or other credit ranking measures for the balance of accounts receivable. The maximum exposure to the Company is the carrying amount of each financial asset in the balance sheet. (II) Liquidity risk Liquidity risk refers to the risk that the Company is in shortage of funds in performing obligations that are settled by delivering cash or another financial asset. Liquidity risk may arise from an inability to sell a financial asset at fair value as soon as possible, a counterparty's inability to pay its contractual liabilities, the accelerated maturity of liabilities, or an inability to generate expected cash flows. In order to control this risk, the Company balances the continuity and flexibility of financing by using various financing measures such as notes settlement and bank loans comprehensively and adopting both long-term and short-term financing methods to optimize the financing structure. The Company has received credit facilities from a number of commercial banks to satisfy its working capital requirements and capital expenditures. Financial liabilities classified by remaining maturity dates Closing balance Item Undiscounted Over 3 Book value Within 1 year 1-3 years contract amount years 279 / 312 2019 Annual Report Closing balance Item Undiscounted Over 3 Book value Within 1 year 1-3 years contract amount years Bank 444,275,984.40 159,065,657.15 285,210,327.25 421,349,221.34 borrowings Notes payable 37,335,841.79 37,335,841.79 37,335,841.79 Accounts 176,624,445.46 176,624,445.46 176,624,445.46 payable Other payables 14,364,076.43 14,364,076.43 14,364,076.43 Long-term 3,488,100.00 3,488,100.00 3,488,100.00 payables Sub-total 653,161,685.02 676,088,448.08 390,878,120.83 285,210,327.25 (Continued to above table) Opening balance Item Undiscounted Over 3 Book value Within 1 year 1-3 years contract amount years Bank 557,710,951.22 590,065,504.00 155,154,966.13 434,910,537.87 borrowings Notes 39,051,466.05 39,051,466.05 39,051,466.05 payable Accounts 164,258,731.06 164,258,731.06 164,258,731.06 payable Other 184,107,549.02 184,107,549.02 184,107,549.02 payables Long-term 6,863,200.00 6,863,200.00 6,863,200.00 payables Sub-total 951,991,897.35 984,346,450.13 549,435,912.26 434,910,537.87 [Note]: The difference between the opening balance of the year and the closing balance of the prior year (as of December 31, 2018) can refer to V 41 of Section XI for details. (III) Market risk Market risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk mainly includes interest rate risk and currency risk. 1. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to the risk of fair value interest rate due to financial instruments with a fixed interest rate and to the risk of cash value interest rate due to financial instruments with a floating interest rate. The Company determines the proportion between the fixed-rate financial instruments and the floating-rate financial instruments based on market conditions, and maintains appropriate portfolios of financial instruments through regular review and monitoring. The cash flow interest rate risk exposed to the Company relates primarily to the Company’s floating-rate interest-bearing bank borrowings. As at December 31, 2019, the principal of the Company’s floating-rate interest-bearing bank borrowings amounted to RMB 420,240,038.66 (December 31, 2018: RMB556,156,963.00). On the basis of the assumption that the interest rate has changed 50 basic points, where all other variables are held constant, it will bring no material impacts on the Company's total profits and shareholders' equity. 2. Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company's exposure to the currency risk is primarily associated with the Company’s monetary assets and liabilities dominated in foreign currencies. If the monetary assets and liabilities dominated in foreign 280 / 312 2019 Annual Report currencies are imbalanced in a short time, the Company will purchase and sell foreign currencies at the market exchange rate to keep the net risk exposure acceptable. The closing balance of the Company’s monetary assets and liabilities dominated in foreign currencies are disclosed in VII 80 of Section XI in details. XI. Disclosure of fair value 1. The closing balance of the fair value of assets and liabilities measured at fair value √Applicable □N/A In RMB Closing balance of fair value Item Level 1 Level 2 Level 3 Total I. Continuous fair value measurement (I) Held-for-trading 540,000,000.00 540,000,000.00 financial assets 1. Financial assets at 540,000,000.00 540,000,000.00 fair value through profit or loss (1) Investment in debt instrument (2) Investment in equity instrument (3)Derivative financial assets (4) Structural deposits 540,000,000.00 540,000,000.00 2. Designated as financial assets at fair value through profit or loss (1) Investment in debt instrument (2) Investment in equity instrument (II) Other debt investments (III) Other equity 11,975,419.38 11,975,419.38 instrument investments (IV) Investment properties 1. Land use right for leasing purpose 2. Buildings leased 3. Land use right held for the purpose of transfer after value appreciation (V) Biological assets 281 / 312 2019 Annual Report 1. Consumable biological assets 2. Bearer biological assets Total assets 551,975,419.38 551,975,419.38 continuously measured at fair value (VI) Held-for-trading financial liabilities 1. Financial liabilities at fair value through profit or loss Including: Held-for-trading bonds issued Derivative financial liabilities Others 2. Designated as financial liabilities at fair value through profit or loss Total liabilities continuously measured at fair value II. Non-continuous fair value measurement (I) Held-for-sale assets Total assets that are not continuously measured at fair value Total liabilities that are not continuously measured at fair value 282 / 312 2019 Annual Report 2. Basis for determining the market price of continuous and non-continuous level 1 fair value measurement items □Applicable √N/A 3. Valuation techniques and qualitative and quantitative information of key parameters adopted for continuous and non-continuous level 2 fair value measurement items □Applicable √N/A 4. Valuation techniques and qualitative and quantitative information of key parameters adopted for continuous and non-continuous level 3 fair value measurement items √Applicable □N/A The fair value of short-term wealth management products of banks is determined based on their par value . The fair value of investments in equity instruments is determined by using the cost as the best estimate, since such investments are unlisted equity investments that do not have quoted prices in active markets. 5. Reconciliation between opening and closing carrying amounts and sensitivity analysis of unobservable parameters for continuous level 3 fair value measurement items □Applicable √N/A 6. Where transfers among levels occurred in the period, transfer reasons and policies for determining transfer time point for continuous fair value measurement items □Applicable √N/A 7. Changes in valuation techniques in the period and reasons for changes □Applicable √N/A 8. Fair value of financial assets and financial liabilities not measured at fair value □Applicable √N/A 9. Others □Applicable √N/A 283 / 312 2019 Annual Report XII.Related-party relationships and transactions 1. Parent of the Company √Applicable □N/A In RMB 0’000 Proportion of Proportion of the the Company's Name of the Registration Business Registered Company's voting right parent place nature capital shares held by held by the the parent (%) parent (%) Shenzhen Shenzhen R&D and 1,000.00 20.80 20.80 Appotronics sales of Holdings semiconductor Limited products Description of the parent of the Company None The ultimate controlling party of the Company is LI Yi. Other description: None 2. Subsidiaries of the Company Information of the significant subsidiaries of the Company are disclosed in the Annex. √Applicable □N/A Subsidiaries of the Company are disclosed in descriptions in IX 3 of Section XI in details. 3. Associates and joint ventures of the Company Information of the significant joint ventures or associates of the Company are disclosed in the Annex. □Applicable √N/A Details of other joint ventures or associates having related-party transactions and balances with the Company in the period or in prior periods: √Applicable □N/A Name of associates or joint ventures Relationship with the Company Cinionic Limited Participating company Other description □Applicable √N/A 4. Other related parties of the Company √Applicable □N/A Name of other related party Relationship between other related party and the Company Shenzhen YLX Technology Controlled by the same de facto controller Development Co., Ltd. Shenzhen Bevix Technology Co., Ltd. holding more than 5% of shares in the company 284 / 312 2019 Annual Report Shenzhen Lighting Institute Affiliates of the de facto controller Shenzhen Fengye Investment Affiliates of the de facto controller Consulting Limited Partnership (LP) China Film Equipment Co., Ltd. and Minority shareholders holding more than 10% its affiliates shares in the subsidiary and their affiliates Xiaomi Communications Minority shareholders holding more than 10% Technologies Co., Ltd. and its shares in the subsidiary and their affiliates affiliates Beijing Donview Education Minority shareholders holding more than 10% Technology Co., Ltd. and its affiliates shares in the subsidiary and their affiliates Other description None 5. Related-party transactions (1).Sales and purchase of goods, rendering and receipt of services Purchase of goods/receipt of services √Applicable □N/A In RMB Details of Related party related-party 2019 2018 transaction China Film Equipment Power, water cooling 75,594,510.73 58,306,727.65 Co., Ltd. and its and service affiliates Xiaomi Electronic 135,947,996.69 74,825,228.94 Communications components and Technologies Co., Ltd. services and its affiliates Beijing Donview Services 70,302.92 Education Technology Co., Ltd. and its affiliates Sub-total 211,612,810.34 133,131,956.59 Sales of goods/rendering of services √Applicable □N/A In RMB Details of Related party related-party 2019 2018 transaction Shenzhen Bevix Laser TV and smart 191,843.14 Technology Co., Ltd. mini projector Shenzhen Lighting Projectors 3,333.33 Institute 285 / 312 2019 Annual Report Shenzhen YLX Large venue 35,897.44 Technology projector and Development Co., Ltd. software China Film Equipment laser cinema 141,777,980.65 90,546,834.84 Co., Ltd. and its projector light source affiliates and lease service Xiaomi Laser TV and smart 456,486,039.21 247,297,756.49 Communications mini projector Technologies Co., Ltd. and its affiliates Beijing Donview Laser business 74,848,453.68 138,261,388.57 Education Technology education projectors Co., Ltd. and its affiliates Cinionic Limited Laser light source 125,395,135.96 Sub-total 798,507,609.50 476,337,053.81 Description of sales and purchase of goods, rendering and receipt of services □Applicable √N/A (2).Details of trust with related parties/subcontracting and trust management/ contract-issuing Details of trust / contracting where a group entity is the trustor / main contractor: □Applicable √N/A Description of trust/subcontracting with related parties □Applicable √N/A Details of trust / contracting where a group entity is the trustor / main contractor □Applicable √N/A Description of management/contract-issuing with related parties □Applicable √N/A (3). Leases with related parties The Company as the lessor: □Applicable √N/A The Company as the lessee: √Applicable □N/A In RMB Type of leased Lease fees recognized in Lease fees recognized in Name of lessor assets the current period the prior period China Film Housing rent 2,070,494.22 1,462,547.83 Equipment Co., Ltd. and its affiliates Description of leases with related parties □Applicable √N/A 286 / 312 2019 Annual Report (4).Guarantees with related parties The Company as a guarantor: □Applicable √N/A The Company as a guaranteed party: √Applicable □N/A In RMB Whether execution Guaranteed Inception date of Expiration date of Guarantor of guarantee has amount guarantee guarantee been completed Shenzhen YLX 758,318.00 July 4, 2017 January 4, 2020 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 333,318.00 July 4, 2017 January 4, 2020 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 1,750,000.00 July 27, 2017 January 27, 2020 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 2,250,000.00 August 18, 2017 February 17, No Technology 2020 Development Co., Ltd., LI Yi Shenzhen YLX 11,874,986.00 September 13, March 13, 2020 No Technology 2017 Development Co., Ltd., LI Yi Shenzhen YLX 624,986.00 September 15, March 15, 2020 No Technology 2017 Development Co., Ltd., LI Yi Shenzhen YLX 10,958,327.00 November 21, May 21, 2020 No Technology 2017 Development Co., Ltd., LI Yi Shenzhen YLX 1,374,994.00 December 20, June 15, 2020 No Technology 2017 Development Co., Ltd., LI Yi Shenzhen YLX 14,291,661.00 January 17, 2018 July 17, 2020 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 5,962,500.00 March 26, 2018 September 23, No Technology 2020 Development Co., Ltd., LI Yi 287 / 312 2019 Annual Report Shenzhen YLX 3,712,500.00 March 26, 2018 September 23, No Technology 2020 Development Co., Ltd., LI Yi Shenzhen YLX 5,150,158.00 April 25, 2018 October 25, 2020 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 3,150,000.00 June 1, 2018 December 1, No Technology 2020 Development Co., Ltd., LI Yi Shenzhen YLX 2,649,992.00 June 27, 2018 December 26, No Technology 2020 Development Co., Ltd., LI Yi Shenzhen YLX 4,456,660.00 August 17, 2018 February 17, No Technology 2021 Development Co., Ltd., LI Yi Shenzhen YLX 6,379,372.00 September 27, March 26, 2021 No Technology 2018 Development Co., Ltd., LI Yi Shenzhen YLX 18,866,458.10 November 1, April 30, 2021 No Technology 2018 Development Co., Ltd., LI Yi Shenzhen YLX 11,085,412.00 November 30, April 29, 2021 No Technology 2018 Development Co., Ltd., LI Yi Shenzhen YLX 58,227,196.00 December 19, December 19, No Technology 2018 2021 Development Co., Ltd., LI Yi Shenzhen YLX 21,975,998.00 December 19, June 21, 2021 No Technology 2018 Development Co., Ltd., LI Yi Shenzhen YLX 10,327,996.00 December 29, December 29, No Technology 2018 2021 Development Co., Ltd., LI Yi Shenzhen YLX 26,516,665.00 January 30, 2019 January 30, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 10,152,000.00 March 1, 2019 March 1, 2022 No 288 / 312 2019 Annual Report Technology Development Co., Ltd., LI Yi Shenzhen YLX 15,687,000.00 March 1, 2019 March 1, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 10,287,000.00 March 29, 2019 August 29, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 11,348,666.00 May 9, 2019 April 30, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 10,560,000.00 June 4, 2019 June 4, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 12,780,000.00 July 8, 2019 July 4, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 18,540,000.00 July 29, 2019 July 29, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 11,540,000.00 August 21, 2019 August 21, 2022 No Technology Development Co., Ltd., LI Yi Shenzhen YLX 20,330,000.00 September 18, September 18, No Technology 2019 2022 Development Co., Ltd., LI Yi Description of guarantees with related parties □Applicable √N/A (5).Borrowings/loans with related parties □Applicable √N/A (6).Assets transfer/debt restructuring with related parties □Applicable √N/A (7).Compensation for key management personnel √Applicable □N/A In RMB 0’000 Item 2019 2018 Compensation for key 1,673.11 724.09 management personnel 289 / 312 2019 Annual Report (8). Other related-party transactions □Applicable √N/A 6. Amounts due from / to related parties (1).Amounts due from related parties √Applicable □N/A In RMB Closing balance Opening balance Item Related party Carrying Bad debt Carrying Bad debt amount provision amount provision China Film 17,494,326.54 874,716.33 27,317,201.02 1,365,860.05 Accounts Equipment Co., receivable Ltd. and its affiliates Beijing 8,829,840.85 442,339.31 6,674,446.36 333,722.32 Donview Accounts Education receivable Technology Co., Ltd. and its affiliates Xiaomi 45,679,955.49 2,283,997.77 Communications Accounts Technologies receivable Co., Ltd. and its affiliates Accounts Cinionic Limited 24,298,258.08 1,214,912.90 receivable Sub-total 96,302,380.96 4,815,966.31 33,991,647.38 1,699,582.37 China Film 3,350,592.41 5,517.24 Equipment Co., Prepayments Ltd. and its affiliates Sub-total 3,350,592.41 5,517.24 Shenzhen 3,700,000.00 185,000.00 Fengye Other Investment receivables Consulting Limited Partnership (LP) China Film 290,866.00 14,543.30 266,046.00 13,302.30 Other Equipment Co., receivables Ltd. and its affiliates Xiaomi 100,000.00 5,000.00 Other Communications receivables Technologies Co., Ltd. and its 290 / 312 2019 Annual Report affiliates Sub-total 390,866.00 19,543.30 3,966,046.00 198,302.30 (2).Amounts due to related parties √Applicable □N/A In RMB Item Related party Closing balance Opening of carrying balance of amount carrying amount Accounts China Film Equipment Co., Ltd. and its 11,595,819.93 30,428,997.91 payable affiliates Accounts Xiaomi Communications Technologies Co., 20,751,194.86 payable Ltd. and its affiliates Sub-total 11,595,819.93 51,180,192.77 Receipts in China Film Equipment Co., Ltd. and its 15,893,424.21 14,492,010.96 advance affiliates Receipts in Xiaomi Communications Technologies Co., 6,000.00 advance Ltd. and its affiliates Sub-total 15,893,424.21 14,498,010.96 Other China Film Equipment Co., Ltd. and its 9,645.00 payables affiliates Sub-total 9,645.00 7. Related party commitments □Applicable √N/A 8. Others □Applicable √N/A XIII. Share-based payments 1. Summary of share-based payments √Applicable □N/A Unit: Share, Currency: RMB Total number of the Company's equity 4,400,000 instruments granted during the period Total number of the Company's equity 0 instruments executed during the period Total number of the Company's equity 0 instruments lapsed during the period Range of exercise prices and remaining Grant date: October 14, 2019; grant price: contractual life of the Company's share RMB 17.5/share; remaining contractual life: options outstanding at the end of the period 10/22/34 months Range of exercise prices and remaining None 291 / 312 2019 Annual Report contractual life of the Company's other equity instruments outstanding at the end of the period Other description: The Company granted 4.4 million shares of restricted shares during the current period. 2. Equity-settled share-based payments √Applicable □N/A In RMB The method of determining the fair value of Open market quotes equity instruments at the grant date The basis of determining the number of equity Actual grant amount instruments expected to be executed Reasons for the significant difference between None the estimate in the current period and that in the prior period Amounts of equity-settled share-based 7,475,923.79 payments accumulated in capital reserve Total expenses recognized arising from 8,146,719.12 equity-settled share-based payments Other description: The difference between the the total expenses recognized by equity-settled share-based payments in the current period and the amount of share-based payments included in owners' equity arises from the exchange rate translation difference. 3. Cash-settled share-based payments □Applicable √N/A 4. Modification to and termination of share-based payments □Applicable √N/A 5. Others □Applicable √N/A XIV. Commitments and contingencies 1. Significant commitments √Applicable □N/A Significant external commitments, and nature and amount thereof as of the balance sheet date Significant lease contracts which the Company has entered into or will perform and their financial impacts are disclosed in the following table: Rent Serial Rent Rent Rent address area(square Rent period No. purpose expense/year meters) Research and From May 1, 20/F, 21/F, 22/F, United Headquarter developmen 2018 to 1 Building, High-Tech Zone, No. 63 Xuefu 6,143.79 5,898,038.40 t, office December 31, Road, Nanshan District, Shenzhen administrati 2021 on 292 / 312 2019 Annual Report Rent Serial Rent Rent Rent address area(square Rent period No. purpose expense/year meters) From December Yaochuan Industrial Zone, Tangwei 1, 2018 to 2 Community, Fuhai Street, Bao'an 23,765.57 Plant 13,751,023.67 November 30, District, Shenzhen 2022 Room101, 1/F, Building 22E, Phase III Office From March 20, 3 of Hong Kong Science and Technology 1,138.25 administrati 2019 to March 3,289,377.60 Park on 19, 2022 2. Contingencies (1).Significant contingencies as of the balance sheet date √Applicable □N/A As of the date of issue of the financial statements, there have been five civil litigations where the Company was a defendant, with details as below: Case Cause of Plaintiffs Defendants Patents involved Progress No. action (2019) Yue 73 Suspension Zhi Min ZL201610387831.8 of hearing Chu No.662 Appotronics (2019) Corporation Yue 73 Limited; Futian Zhi Min SPN Projector ZL201310017478.0 Pending Chu & Video No.663 System Firm of (2019) Shenzhen Infringement Yue 73 Delta of patent Zhi Min Electronics, ZL20310625063.1 Pending rights of Chu Inc. inventions No.664 (2019) Jing 73 Fengmi Min ZL201410249663.7 Pending (Beijing) Chu Technology No.1275 Co., Ltd.; (2019) Appotronics Jing 73 Corporation Min ZL201610387831.8 Pending Limited Chu No.1276 As of December 31, 2019, the Company has had RMB 30 million frozen a result of the above litigation. As of the date of issue of the financial statements, the Guangzhou Intellectual Property Court has released the Company's deposits amounting to RMB 10 million. 293 / 312 2019 Annual Report (2).Description shall also be provided even if the Company has no significant contingencies to be disclosed: □Applicable √N/A 3. Others √Applicable □N/A As of the end of 2019, the principal balance of the Company's bank borrowings was RMB 420,240,038.66, including credit borrowings amounting to RMB 10,000,000.00, guaranteed borrowings amounting to RMB 50,000,000.00, and guaranteed loans and loans against collateral amounting to RMB 360,240,038.66. Guaranteed loans and loans against collateral are disclosed in VII 18 and 25 of Section XI in details. XV. Events after the balance sheet date 1. Material non-adjusting event √Applicable □N/A In RMB Reasons for not Effects on the being able to Item Content financial position estimate such effects and operating results Significant external GDC Investments investments In the twentieth session of the first board of directors held on December 6, 2019, the Proposal on Proposed Additional Capital Contribution to the Wholly-owned Subsidiary and Foreign Investments in GDC was discussed and approved, according to which it was agreed to make additional capital contribution of USD 18.2 million to the Company’s wholly-owned subsidiary Appotronics Hong Kong Limited for acquisition of 36% shares of GDC Technology Limited (British Virgin Islands). In March 2020, the Company completed the approval and filing procedures for overseas investments by National Development and Reform Commission and Ministry of Commerce and other competent authorities. After meeting the precedent closing conditions of this acquisition, on April 9, 2020, the Company paid the total consideration of approximately USD 18.11 million by its own funds. As of the date of the approval issue of the financial statements, the Company has legally held 93,071,822 shares of GDC, accounting for 36% of total shares in GDC. 2. Profit distribution √Applicable □N/A In RMB Proposed distributions of profits or 33,866,580.83 dividends Profits or dividends declared for distribution upon discussion and approval The Company's 2019 preliminary plan for profit distribution is disclosed as below: the Company proposed to distribute to all shareholders a cash dividend of RMB 0.75 (including tax) for every 10 shares on the basis of the total share capital as at the date of share 294 / 312 2019 Annual Report registration for 2019 annual dividend distribution, according to which the total cash dividends expected to be distributable would be RMB33,866,580.83; the Company would neither capitalize its capital reserve nor grant bonus shares. The amount for cash dividends in the aforesaid 2019 profit distribution plan is temporarily calculated based on the Company’s current total share capital of 451,554,411 shares, but the actual amount for cash dividends in total should be calculated subject to the basis of the total share capital as at the date of share registration for 2019 annual dividend distribution. The Company’s 2019 preliminary plan for profit distribution still needs to be approved by the general meeting of shareholders of the Company. 3. Sales return □Applicable √N/A 4. Description of other events after the balance sheet date √Applicable □N/A 1. Effect of the pneumonia epidemic infected by COVID-19 With the breaking out of the pneumonia epidemic infected by COVID-19 (hereinafter referred to as the COVID-19 epidemic) nationwide in January 2020, governments across the country have introduced measures in order to prevent and control the COVID-19 epidemic. The COVID-19 epidemic and the corresponding prevention and control measures have brought certain impacts on the normal production and operation of the Company, with details as below: Effects on the financial position and Specific effects operating results (1) Effect on production The Company's main production and operation place is located in Shenzhen It is expected that the Company’s incomes Municipality, Guangdong Province. As from lease services will decline affected by the COVID-19 epidemic, the significantly on a year-on-year basis, and Company resumed work on February 10, incomes from other businesses will also 2020 instead of the planned date of be affected to some extent with detailed February 3, 2020 after the Spring Festival. effects depending on specific situations (2) Effect on sales and duration period of epidemic The COVID-19 epidemic has brought a prevention and control as well as certain impact on the economic implementation of various epidemic performance of Hubei and other prevention and control measures by provinces and cities as well as the country governments. as a whole, which may, to a certain extent, affect the Company's cinema light source lease business. 295 / 312 2019 Annual Report Effects on the financial position and Specific effects operating results (3) Effect on provision for credit losses of receivables The Company's downstream customers are mainly engaged in the film, television and education industry and located in various regions of the country. Considering the operating results and cash flows of these industries were significantly affected by the COVID-19 epidemic, the Company may be exposed to increased expected credit risk of receivables. The Company will continue to closely monitor the development of the COVID-19 and actively respond to its adverse impacts on the Company's financial positions and operating results. XVI. Other significant events 1. Corrections of prior period errors (1).Retrospective application □Applicable √N/A (2).Prospective application □Applicable √N/A 2. Debt restructuring □Applicable √N/A 3. Asset swap (1).Exchange of non-monetary assets □Applicable √N/A (2).Other asset swap □Applicable √N/A 4. Annuity plan □Applicable √N/A 5. Discontinued operations □Applicable √N/A 6. Segment reporting (1).Determination basis and accounting policies of reporting segments □Applicable √N/A 296 / 312 2019 Annual Report (2).Financial information of reporting segments □Applicable √N/A (3). If the Company has no reporting segments, or cannot disclose the total assets and liabilities of reporting segments, specify the reasons. □Applicable √N/A (4).Other description √Applicable □N/A The Company has no reporting segments due to absence of diversified operations. A breakdown of the Company's principal operating incomes and costs categorized by businesses, products and regions is disclosed as below: Categorized by businesses and products: In RMB 0’000 2019 2018 Item Principal activity Principal activity Principal activity Principal activity cost income income cost 1. Sales 155,344.15 102,544.69 105,867.83 66,374.34 2.Lease service 39,799.12 13,526.03 30,431.71 9,960.42 3. Other business 2,771.62 2,294.34 2,273.18 1,989.58 Sub-total 197,914.89 118,365.06 138,572.72 78,324.34 Categorized by regions: In RMB 0’000 2019 2018 Item Principal activity Principal activity Principal activity Principal activity cost income income cost In China 178,039.72 111,260.78 124,664.87 73,411.52 Oversea 19,875.17 7,104.28 13,907.85 4,912.82 Sub-total 197,914.89 118,365.06 138,572.72 78,324.34 7. Other significant transactions and matters having an impact on the decisions of investors □Applicable √N/A 8. Others □Applicable √N/A 297 / 312 2019 Annual Report XVII. Notes to key items in the Parent Company's financial statements 1. Accounts receivable (1).Disclosure by aging √Applicable □N/A In RMB Aging Closing balance of carrying amount Within 1 year Including: sub-items within 1 year Within 1 year 19,245,692.97 Sub-total of items within 1 year 19,245,692.97 1 to 2 years 1,764,101.36 2 to 3 years 141,469.65 Total 21,151,263.98 (2).Disclosure by categories of provision for bad debts √Applicable □N/A In RMB Closing balance Opening balance Carrying amount Bad debt provision Carrying amount Bad debt provision Category Proportio Book value Proportion Book value Proportion n of Proportio of Amount Amount Amount Amount (%) provision n(%) provision (%) (%) Provision for bad debts made individually Including: Provision 300,789,821.26 100.00 1,474,044.82 0.49 299,315,776.44 229,538,979.01 100.00 1,865,555.66 0.81 227,673,423.35 for bad debts made by group Including: Group of 21,151,263.98 7.03 1,474,044.82 6.97 19,677,219.16 33,160,290.65 14.45 1,865,555.66 0.95 194,513,132.70 aging Group of 279,638,557.28 92.97 279,638,557.28 196,378,688.36 85.55 receivables from related parties in the scope of consolidatio n Total 300,789,821.26 100.00 1,474,044.82 0.49 299,315,776.44 229,538,979.01 100.00 1,865,555.66 0.81 227,673,423.35 Provision for bad debts made individually: □Applicable √N/A Provision for bad debts made by group: √Applicable □N/A Item by group: aging group In RMB Closing balance Name Proportion of Accounts receivable Bad debt provision provision (%) Within 1 year 19,245,692.97 962,284.65 5.00 298 / 312 2019 Annual Report 1-2 years 1,764,101.36 441,025.34 25.00 2-3 years 141,469.65 70,734.83 50.00 Total 21,151,263.98 1,474,044.82 6.97 Recognition criterion to make the bad debt provision by group and explanation: √Applicable □N/A Recognition criterion to make the bad debt provision by group and explanation can refer to V10 of Section XI for details. If a provision for bad debts of accounts receivable is made in accordance with the general model of ECL, please disclose relevant information subject to the disclosure of the bad debt provision for other receivables. □Applicable √N/A (3).Provision for bad debts √Applicable □N/A In RMB Changes for the current period Opening Recovery Closing Category Write off or Other balance Provision or balance cancellation changes reversal Provision 1,865,555.66 -380,144.84 11,366.00 1,474,044.82 for bad debts made by group Total 1,865,555.66 -380,144.84 11,366.00 1,474,044.82 Including significant amounts recovered or reversed from the current provision for bad debts: □Applicable √N/A (4).Accounts receivable actually canceled in the current period √Applicable □N/A In RMB Item Cancellation amount Accounts receivable actually canceled 11,366.00 In which significant amounts canceled are described as below: □Applicable √N/A (5).Top five closing balances of accounts receivable categorized by debtors √Applicable □N/A 299 / 312 2019 Annual Report Proportion to the balance of Bad debt Entities Carrying amount accounts provision receivable(%) Fengmi (Beijing) Technology Co., Ltd. 129,613,544.52 43.09 Appotronics Hong Kong Limited 79,389,380.91 26.39 CINEAPPO Laser Cinema Technology 59,561,540.15 19.80 (Beijing) Co., Ltd. Qingda Appotronics (Xiamen) 4,370,507.00 1.45 Technology Co., Ltd. Barco Visual (Beijing) Electronics Co., 4,114,596.68 1.37 205,729.83 Ltd. Total 277,049,569.26 92.11 205,729.83 (6).Accounts receivable derecognized due to transfer of financial assets □Applicable √N/A (7).Assets and liabilities arising from transfer of accounts receivable and continued involvement □Applicable √N/A Other description: □Applicable √N/A 2. Other receivables Presented by items √Applicable □N/A In RMB Item Closing balance Opening balance Interest receivable Dividends receivable Other receivables 67,227,575.21 34,226,930.38 Total 67,227,575.21 34,226,930.38 Other description: □Applicable √N/A Interest receivable (1). Categories of interest receivable □Applicable √N/A (2). Significant interests overdue □Applicable √N/A (3). Provision for bad debts □Applicable √N/A 300 / 312 2019 Annual Report Other description: □Applicable √N/A (1). Dividends receivable □Applicable √N/A (2). Dividends receivable with significant amounts aged more than 1 year □Applicable √N/A (3). Provision for bad debts □Applicable √N/A Other description: □Applicable √N/A Other receivables (1). Disclosure by aging √Applicable □N/A In RMB Aging Closing balance of carrying amount Within 1 year Including: sub-items within 1 year Sub-total of items within 1 year 47,244,926.00 1 to 2 years 19,500,616.19 2 to 3 years 779,437.14 Over 3 years 20,300.00 Total 67,545,279.33 (2). Categories by the nature of other receivables √Applicable □N/A In RMB Closing balance of carrying Opening balance of carrying Nature of other receivables amount amount Deposits/margins/pettty cash 6,343,792.67 7,466,203.05 Withholding 650,484.24 650,484.24 Receivables from related 60,540,712.71 22,913,571.50 parties in the scope of consolidation Receivables for transfer of 3,700,000.00 shares Temporary receivables 10,289.71 57,875.52 Total 67,545,279.33 34,788,134.31 301 / 312 2019 Annual Report (3). Provision for bad debts √Applicable □N/A In RMB Stage I Stage II Stage III 12-month Lifetime ECL Total Bad debt provision Lifetime ECL (with ECL in the (without credit credit impairment) future impairment) Balance as at January 561,203.93 561,203.93 1, 2019 Balance as at January 1, 2019 in the current period --transferred to Stage II --transferred to Stage -30,000.00 30,000.00 III --reversed to Stage II --reversed to Stage I Provision -213,499.81 -213,499.81 Reversal Write-off Cancellation 30,000.00 30,000.00 Other changes Balance at December 317,704.12 317,704.12 31, 2019 Description of significant changes in the balance of other receivables with changed provisions for losses in the current period: □Applicable √N/A Basis for recognizing the amount of bad debt provisions and evaluating whether the credit risk of financial instruments has been increased significantly in the current period: □Applicable √N/A (4). Provision for bad debts √Applicable □N/A In RMB Changes for the current period Opening Recovery Closing Category Write off or Other balance Provision or balance cancellation changes reversal Provision for 561,203.93 -213,499.81 30,000.00 317,704.12 bad debts made by group Total 561,203.93 -213,499.81 30,000.00 317,704.12 Including significant amounts recovered or reversed from the current provision for bad debts: □Applicable √N/A 302 / 312 2019 Annual Report (5). Other receivables actually canceled in the current period √Applicable □N/A In RMB Item Cancellation amount Other receivables actually canceled 30,000.00 In which significant amounts canceled are described as below: □Applicable √N/A Description of other receivables cancellation: □Applicable √N/A (6). Top five closing balances of other receivables categorized by debtors √Applicable □N/A In RMB Nature of Proportion to the Closing balance Closing Entities other Aging balance of other of bad debt balance receivables receivables (%) provision Fengmi Receivables 46,456,712.71 Within 1 year 68.78 (Beijing) from related Technology parties Co., Ltd. Shenzhen Receivables 13,919,500.00 Within 1 year, 20.61 1-2 years, Appotronics from related Laser Display parties Technology Co., Ltd. Shenzhen Margins 4,094,368.00 1-2 years 6.06 204,718.40 Meisheng Industry Co., Ltd. Shenzhen Deposits 983,006.40 1-2 years, 2-3 1.46 49,150.32 years Science and Technology Assessment Management Center WANG Deposits 300,000.00 Within 1 year 0.44 15,000.00 Shaogang Total 65,753,587.11 97.35 268,868.72 (7). Accounts receivable involving government grants □Applicable √N/A (8). Other receivables derecognized due to transfer of financial assets □Applicable √N/A 303 / 312 2019 Annual Report (9). Assets and liabilities arising from transfer of other receivables and continued involvement □Applicable √N/A Other description: □Applicable √N/A 3. Long-term equity investments √Applicable □N/A In RMB Closing balance Opening balance Provision Provision Item Carrying Carrying Book for Book value for amount amount value impairment impairment 303,680,560.40 45,885,284.27 257,795,276.13 265,251,020.16 45,885,284.27 219,365,735.89 Investments in subsidiaries Investments in associates and joint ventures 303,680,560.40 45,885,284.27 257,795,276.13 265,251,020.16 45,885,284.27 219,365,735.89 Total (1). Investments in subsidiaries √Applicable □N/A In RMB Provision Closing balance Opening Closing Investee Increase Decrease for of provision for balance balance impairment impairment Appotronics 27,000,000.00 27,000,000.00 27,000,000.00 Timewaying (Beijing) Technology Co., Ltd. Shenzhen 100,000.00 416,813.05 516,813.05 Appotronics Software Technology Co., Ltd. Beijing Orient 5,900,000.00 5,900,000.00 Appotronics Technology Co., Ltd. Beijing 1,000,000.00 1,000,000.00 Appotronics Xiaoming Technology Co., Ltd. Fengmi 27,500,000.00 703,950.93 28,203,950.93 6,057,491.48 (Beijing) Technology Co., Ltd. Shenzhen 18,966,857.26 18,966,857.26 Appotronics Laser Display Technology Co., Ltd. CINEAPPO 30,100,162.90 666,900.88 30,767,063.78 304 / 312 2019 Annual Report Laser Cinema Technology (Beijing) Co., Ltd. Qingda 5,100,000.00 5,100,000.00 827,792.79 Appotronics (Xiamen) Technology Co., Ltd. Shenzhen 12,000,000.00 12,000,000.00 12,000,000.00 Appotronics Xiaoming Technology Co., Ltd. Appotronics 137,584,000.00 35,641,875.38 173,225,875.38 Hong Kong Limited Appotronics 2,000,000.00 2,000,000.00 Technology (Changzhou) Co., Ltd. Total 265,251,020.16 39,429,540.24 1,000,000.00 303,680,560.40 45,885,284.27 Note: In the additional investments in Appotronics Hong Kong Limited by the Company for the current period, an amount of RMB 277,875.38 is the expense of share-based payments arising from stock ownership incentive. (2). Investments in associates and joint ventures □Applicable √N/A Other description: None 4. Operating income and operating costs (1). Description of operating income and operating costs √Applicable □N/A In RMB 2019 2018 Item Revenue Cost Revenue Cost Principal 1,070,365,243.34 728,135,468.64 1,175,915,671.75 768,440,895.19 activities Total 1,070,365,243.34 728,135,468.64 1,175,915,671.75 768,440,895.19 Other description: None 5. Investment income √Applicable □N/A In RMB Item 2019 2018 Gains from long-term equity 46,000,000.00 investment accounted for using the cost method Investment income from disposal of -64,542.33 305 / 312 2019 Annual Report long-term equity investments Investment income from financial assets at fair value through profit or loss during the holding period Investment income from disposal of 9,552,990.98 financial assets at fair value through profit or loss Investment income from held-to-maturity investments during the holding period Investment income from disposal of held-to-maturity investments Investment income from available-for-sale financial assets during the holding period Investment income from disposal of available-for-sale financial assets Investment income from held-for-trading financial assets during the holding period Dividend income from other equity instrument investments during the holding period Interest income from debt investments during the holding period Interest income from other debt investments during the holding period Investment income from disposal of held-for-trading financial assets Investment income from disposal of other equity instrument investments Investment income from disposal of debt investments Investment income from disposal of other debt investments Total 55,488,448.65 Other description: Description of dividend income from subsidiaries: in 2019, the Company’s wholly-owned subsidiary, Shenzhen Appotronics Laser Technology Co., Ltd., distributed to the Company a cash dividend amounting to RMB 46,000,000. As Shenzhen Appotronics Laser Technology Co., Ltd. is a wholly-owned subsidiary included in the scope of the Company's consolidated financial statements, the aforementioned distributed profits have been added to the net profits disclosed in the Company’s financial statements in 2019 but not to the net profits disclosed in the consolidated financial statements of the Company in 2019. 306 / 312 2019 Annual Report 6. Others √Applicable □N/A R&D expenses In RMB Item 2019 2018 Employee benefits 61,405,298.83 49,499,398.90 Material consumption expenses 17,246,073.81 16,877,135.28 Rent expense 8,730,216.56 3,100,298.35 Professional service fees 3,292,062.70 6,565,393.97 Depreciation and amortization fees 7,573,085.07 6,899,681.02 Patent fees 9,382,940.04 7,063,710.22 Other expenses 6,165,328.24 4,416,668.46 Total 113,795,005.25 94,422,286.20 XVIII. Supplementary information 1. Breakdown of non-recurring profit or loss for the current period √Applicable □N/A In RMB Item Amount Description Profit or loss on disposal of non-current -3,214,488.06 assets Tax refunds or reductions with ultra vires approval or without official approval documents Government grants recognized in profit 25,782,112.48 or loss (other than grants which are closely related to the Company's business and are either in fixed amounts or determined under quantitative methods in accordance with the national standard) Income earned from lending funds to non-financial institutions and recognized in profit or loss The excess of attributable fair value of identifiable net assets over the consideration paid for the acquisition of subsidiaries, associates and joint ventures Profit or loss on exchange of 307 / 312 2019 Annual Report non-monetary assets Profit or loss on entrusted investments or assets management Impairment losses on assets due to force majeure events, e.g. natural disasters Profit or loss on debt restructuring Entity restructuring expenses, e.g., expenditure for layoff of employees, integration expenses, etc. Profit or loss attributable to the evidently unfair portion of transaction price, being transacted price in excess of fair transaction price, of a transaction Net profit or loss of subsidiaries from 23,321,528.06 the beginning of the period up to the business combination date recognized as a result of business combination of enterprises involving enterprises under common control Profit or loss arising from contingencies other than those related to normal operating business Profit or loss on changes in the fair 9,552,990.98 value of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities and derivative financial liabilities and investment income on disposal of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities, derivative financial liabilities and other debt investments, other than those used in the effective hedging activities relating to normal operating business Reversal of provision for accounts 238,836.00 receivable that are tested for impairment losses individually Profit or loss on entrusted loans Profit or loss on changes in the fair value of investment properties that are subsequently measured using the fair value model Effects on profit or loss of one-off adjustment to profit or loss for the period according to the requirements of laws and regulations in respect of tax, accounting, etc. Custodian fees earned from entrusted 308 / 312 2019 Annual Report operation Other non-operating income and 2,981,778.07 expenses other than the above Other profit or loss items that meet the definition of non-recurring profit or loss Income tax effects -4,532,639.92 Effects attributable to minority interests -1,891,481.86 Total 52,238,635.75 It is required to specify the reason for defining items as non-recurring profit or loss items according to Information Disclosure and Presentation Rules for Companies Making Public Offering of Securities No. 1-Non-recurring Profit or Loss, and reasons for defining non-recurring profit or loss items illustrated in Information Disclosure and Presentation Rules for Companies Making Public Offering of Securities No. 1-Non-recurring Profit or Loss as recurring profit or loss items. □Applicable √N/A 2. Return on net assets and earnings per share √Applicable □N/A Weighted Earnings per share Profit for the reporting average return Basic earnings per Diluted earnings period on net assets (%) share per share Net profit attributable to 14.84 0.45 0.45 ordinary shareholders of the Company Net profit after deduction of 10.68 0.33 0.33 non-recurring profits or losses attributable to ordinary shareholders of the Company 1.Calculation process of weighted average return on net assets: Item Serial No. 2019 Net profit attributable to ordinary shareholders of the Company A 186,457,276.71 Non-recurring profit or loss B 52,238,635.75 Net profit after deduction of non-recurring profits or losses C=A-B 134,218,640.96 attributable to ordinary shareholders of the Company Opening balance of net assets attributable to ordinary D 715,913,478.56 shareholders of the Company Net assets increased due to issue of new shares or debt-to-equity swap that are attributable to ordinary E 1,062,470,797.73 shareholders of the Company Accumulated months from the month following the addition of F 5 net assets to the end of the reporting period Net assets reduced by repurchases or cash dividends that are G attributable to ordinary shareholders of the Company Accumulated months from the month following the reduction H of net assets to the end of the reporting period 309 / 312 2019 Annual Report Item Serial No. 2019 Effect of share-based payments on net assets I1 7,475,923.79 Accumulated months from the month following the addition or reduction of net assets to the end of the J1 6 reporting period Others Effect of translation of financial statements I2 2,242,360.85 denominated in foreign currencies on net assets Accumulated months from the month following the addition or reduction of net assets to the end of the J2 6 reporting period Months of reporting period K 12 L= D+A/2+ Weighted average net assets E×F/K-G×H/K±I×J/ 1,256,697,424.95 K Weighted average return on net assets M=A/L 14.84% Weighted average return on net assets after deduction of N=C/L 10.68% non-recurring profit or loss 2. Calculation process of basic and diluted earnings per share (1) Calculation process of basic earnings per share Serial Item 2019 No. 186,457, Net profits attributable to ordinary shareholders of the Company A 276.71 52,238,6 Non-recurring profit or loss B 35.75 Net profits after deduction of non-recurring profits or losses 134,218, C=A-B attributable to ordinary shareholders of the Company 640.96 383,554, Total shares at the beginning of the period D 411.00 Shares increased due to issue of new shares or debt-to-equity swap E 68,000,0 00.00 Accumulated months from the month following the addition of shares F 5 to the end of the reporting period Months of reporting period G 12 H=D+E Weighted average number of outstanding ordinary shares 411,887, ×F/G 744.33 Basic earnings per share I=A/L 0.45 Basic earnings per share after deduction of non-recurring profit or loss J=C/L 0.33 (1) Calculation process of diluted earnings per share Item Serial No. 2019 Net profits attributable to ordinary shareholders of A 186,457,276.71 the Company Effect of diluted potential ordinary shares on net B profit 310 / 312 2019 Annual Report Item Serial No. 2019 Net profits after dilution attributable to ordinary C=A-B 186,457,276.71 shareholders of the Company Non-recurring profit or loss D 52,238,635.75 Net profits after dilution and deduction of non-recurring profits or losses attributable to E=C-D 134,218,640.96 ordinary shareholders of the Company Weighted average number of outstanding ordinary F 411,887,744.33 shares Weighted average number of ordinary shares added to warrants, share options, and convertible G 306,196.26 bonds, etc. Weighted average number of outstanding ordinary H=F+G 412,193,940.59 shares after dilution Diluted earnings per share M=C/H 0.45 Diluted earnings per share after deduction of N=E/H 0.33 non-recurring profit or loss 3. Differences in accounting data under Chinese Accounting Standards and Oversea Accounting Standards □Applicable √N/A 4. Others □Applicable √N/A 311 / 312 2019 Annual Report Section XII List of Documents Available for Inspection List of Documents 1. 2019 Financial and Accounting Statements with seals and Available for signatures of the principal of the Company, the person in charge of Inspection the accounting body and the chief accountant. List of Documents 2. The Auditor’s Report with seals of Pan-China Certified Public Available for Accountants (Special General Partnership) and seals and signatures Inspection of the certified public accountant. List of Documents 3. All original documents and announcements of the Company Available for publicly disclosed in the websites designated by the Company as of Inspection the reporting period. List of Documents 4. The above-mentioned documents are prepared in: Office of the Available for Board of Directors of Appotronics Corporation Limited Inspection Chairman of the Board of Directors: LI Yi Approval for submission by the Board of Directors: April 29, 2020 Revised information □Applicable √N/A 312 / 312