东信和平科技股份有限公司2016年年度报告全文€¦ · web viewthe board of...

Annual Report (Full) of 2016 of Eastcompeace Technology Co. Ltd.

Annual Report of 2016

Eastcompeace Technology Co. Ltd.

April 2017

1


Section I - Important Notes, Information and Explanations

The Board of Directors and Board of Supervisors of the Company and their directors, supervisors and senior managerial staff guarantee that this annual report is authentic, accurate and complete and does not contain any misrepresentation, misleading statement or serious omission, and take legal responsibility for the report on joint and separate basis.

The Company’s Principal Zhang Xiaochuan, Chief Accountant Ren Bo and Accounting Firm Principal (Chief Accountant) Ren Bo make a statement to guarantee the authenticity, accuracy and integrity of the financial report under the annual report。

All directors attended the Board Meeting intended for examining this annual report in person.

The Company is facing the challenges of growth decline of domestic macro economy, intensifying market competition, accelerated product updating and replacement and continuously rising labor cost. Under the influence of slowdown of global economy, it is more difficult and risky for the company to expand new business and market and the foreign income is at the risk of exchange rate fluctuation. All the investors are suggested to pay attention to investment risks.

The profit distribution plan of the Company passed at the Board Meeting: on the base number of 346,416,336 shares, a dividend of RMB 0.30 Yuan (tax included) and 0 bonus share shall be distributed to all shareholders every 10 shares, without turning accumulation fund to capital stock.

2


Contents

Section I - Important Notes, Information and Explanations......................................................................................................................2

Section II - Company Profile and Major Financial Indicators...................................................................................................................5

Section III - Company Business Overview..............................................................................................................................................10

Section IV - Discussion and Analysis of the Management......................................................................................................................13

Section V - Important Matters.................................................................................................................................................................26

Section VI - Change of Share Holding and Shareholders........................................................................................................................42

Section VII - Relevant Information on Preferred Stock..........................................................................................................................53

Section VIII - Information on Directors, Supervisors, Senior Management and Staff............................................................................54

Section IX - Corporate Governance.........................................................................................................................................................70

Section X - Information on Corporate Bonds..........................................................................................................................................81

Section XI - Financial Report..................................................................................................................................................................82

Section XII - Contents of References....................................................................................................................................................225

3


Terms and Abbreviations

Interpretation Terms Refer to Content of Interpretation

The Company Refer to Eastcompeace Technology Co. Ltd.

Eastcompeace Group Refer to Potevio Eastcom Group Co. Ltd.

General Meeting of Shareholders Refer to General meeting of shareholders of the Company

Directors or Board of Directors Refer to Directors or Board of Directors of the Company

Supervisors or Board of Supervisors Refer to Supervisors or Board of Supervisors of the Company

Company Law Refer to Company Law of the People’s Republic of China

Securities Law Refer to Securities Law of the People’s Republic of China

Articles of Association Refer to Articles of Association of Eastcompeace Technology Co. Ltd.

CSRC Refer to China Securities Regulatory Commission

SSE Refer to Shenzhen Stock Exchange

Yuan Refer to RMB Yuan

Report Period Refer to From January 1, 2016 to December 31, 2016

4


Section II - Company Profile and Major Financial Indicators

I. Company Information

Stock Abbreviation Eastcompeace Stock Code 002017

Brief Name of the Stock after

Alteration (If any)None

Listing Stock Exchange Shenzhen Stock Exchange

Chinese Name of the

CompanyEastcompeace Technology Co. Ltd.

Chinese Abbreviation of the

CompanyEastcompeace

Foreign Name of the

Company (If any)Eastcompeace Technology Co. Ltd.

Foreign Abbreviation of the

Company (If any)Eastcompeace

Legal Representative of the

CompanyZhang Xiaochuan

Registered Address No 8 Middle Pinggong Road, Nanping Science & Technology Park, Zhuhai City, PRC

Postal code of registered

address519060

Office address No 8 Middle Pinggong Road, Nanping Science & Technology Park, Zhuhai City, PRC

Postal code of office address 519060

Website of the Company http://www.eastcomoeace.com

E-mail [email protected]

II. Contact Information

Secretary of Board of Directors Security Affairs Representative

Name Chen Zongchao Lin Wei

Contact address:No 8 Middle Pinggong Road, Nanping

Science & Technology Park, Zhuhai City

No 8 Middle Pinggong Road, Nanping

Science & Technology Park, Zhuhai City

Telephone 0756-8682893 0756-8682893

Fax 0756-8682166 0756-8682166

5


E-mail [email protected] [email protected]

III. Information Disclosure and Place of Preparation

Name of the Company Designated Media for

Information DisclosureChina Securities Journal and Securities Times

CSRC Designated Website for Annual Report

Publicationhttp://www.cninfo.com.cn

Place of Preparation of the Company’s Annual Report President Secretary’s Office of the Company

IV. Registration Alteration

Organizational Institution Code 91440400707986731W (Uniform Social Credit Code)

Major Business Alteration Status of the

Company as from Its Listing (If any)Not applicable

All Previous Holding Shareholder

Alteration Status (If any)Not applicable

V. Other Relevant Information

Accounting Firm Employed by the Company

Name of the Accounting FirmBeijing Branch of Zhongshenzhonghuan Certified Public Accountants (Special Ordinary

Partnership)

Office address of the accounting

firm

Room 1302-1, Floor 13~14, No 7 Building, 16, Western Fourth Ring Middle Road, Haidian

District, Beijing, PRC

Name of Signing Accountants Luo Yun, Gao Xiaofeng

The Company Employed Sponsor Institution Responsible for Constant Supervision and Instruction during the Report Period

□ Applicable √ Not applicable

The Company Employed Financial Consultant Responsible for Constant Supervision and Instruction during the Report Period


VI. Major Accounting Data and Financial Indicators

Whether the Company makes retroactive adjustment or restate the accounting data over previous years due to changes of accounting

policies and accounting error correction.

□ Yes √ No

6


2016 2015

Increase or Decrease

in Current Year Over

Last Year

2014

Operating revenue (Yuan) 1,496,767,853.97 1,439,347,993.07 3.99% 1,287,020,629.20

Net Profit to Shareholders of

Listed Companies (Yuan)81,711,620.60 64,317,702.11 27.04% 57,563,768.25

Net Profit to Shareholders of

Listed Companies with Unusual

Loss and Profit Excluded (Yuan)

73,148,681.10 56,677,243.96 29.06% 46,578,389.77

Net cash flow resulted from

operating activities162,499,846.51 178,486,915.50 -8.96% 172,052,003.11

Basic earning per share

(Yuan/share)0.24 0.19 26.32% 0.1661

Diluted earning per share 0.24 0.19 26.32% 0.1661

Weighted average net assets

income rate9.53% 8.17% 1.36% up 7.83%

At the end of 2016 At the end of 2015

Increase or Decrease

by the End of This

Year Over the End of

Last Year

At the end of 2014

Total Assets (Yuan) 1,590,050,860.96 1,546,378,792.21 2.82% 1,576,099,105.14

Net Assets to Shareholders of

Listed Companies (Yuan)911,353,940.85 822,102,754.24 10.86% 759,793,057.39

VII. Accounting Data Differences under Domestic and Foreign Accounting Rules

1. Differences of net profits and net assets under the financial report disclosed respectively according to the international accounting rules and Chinese accounting rules


There is no differences of net profits and net assets under the financial report disclosed respectively according to the international

accounting rules and Chinese accounting rules during the report period.

2. Differences of net profits and net assets under the financial report disclosed respectively according to the foreign accounting rules and Chinese accounting rules


There is no differences of net profits and net assets under the financial report disclosed respectively according to the foreign

7


accounting rules and Chinese accounting rules during the report period.

VIII. Major Financial Indicators Each Quarter

Unit: Yuan

Q1 Q2 Q3 Q4

Operating revenue 282,760,960.82 328,192,123.45 321,397,215.17 564,417,554.53

Net profit to shareholders of listed

companies8,230,962.59 18,991,524.49 14,271,631.71 40,217,501.81


companies with unusual loss and

profit excluded

6,252,864.38 18,577,610.35 14,289,920.26 34,028,286.11


operating activities134,421,456.29 -288,022,891.80 82,191,586.24 233,909,695.78

Whether there is severe difference between the aforesaid financial indicators or their summation and relevant financial indicators

already disclosed in quarterly reports or semi-annual reports of the Company.

□ Yes √ No

IX Items and Amounts of Unusual Loss and Profit

√ Applicable □ Not applicable

Unit: Yuan

Item Amount in 2016 Amount in 2015 Amount in 2014 Description

Loss and profit generated by non-current

assets disposal (including the offset part of

withdrawn asset depreciation reserves)

-136,438.54 -621,839.96 -2,007,060.17

Governmental subsidies included into

current loss and profit (excluding

governmental subsidies that are closely

related to enterprise business and granted at

national uniform fixed amount or quantity)

12,141,223.12 8,479,942.29 12,165,288.30

Variable loss and profit of fair value

generated from holding trading financial

assets and trading financial liabilities and

investment income earned from disposing

trading financial assets, trading financial

liabilities and marketable financial assets,

except for effective hedges related to the

company’s normal operational business

-2,248,219.10 1,544,470.68 1,732,082.96

Other non-operating revenues and expenses -5,796.96 -391,151.00 354,905.95

8


besides the aforesaid items

Minus: Amount influenced by income tax 1,053,686.23 1,299,810.24 1,199,069.46

Amount subject to minority equity (after-

tax)134,142.79 71,153.62 60,769.10

Total 8,562,939.50 7,640,458.15 10,985,378.48 --

It is required to make explanation on the unusual loss and profit items defined by the Company based on No.1 Explanatory Public

Notice of Information Disclosure of Companies Making Public Security Offering and the unusual loss and profit items that are

defined as usual loss and profit items as indicated in No.1 Explanatory Public Notice of Information Disclosure of Companies

Making Public Security Offering.


During the report period, the Company has no unusual loss and profit items defined as usual loss and profit as described and listed in

No.1 Explanatory Public Notice of Information Disclosure of Companies Making Public Security Offering.

9


Section III - Company Business Overview

I. Major Businesses of the Company during the Report Period

Does the Company need to comply with disclosure requirements for special industry?

No

During the report period, the Company was mainly engaged in smart card products applicable for three major

fields including communications, banking and social insurance. Despite continuous fall of domestic and oversea

economic circumstances and substantial drop of product price caused by intensified competition in smart card

industry, the Company held the market share and even made breakthrough, kept contract order quantity increasing

and production scale growing continuously and thereby ensured relatively stable achievements.

During the report period the Company kept accelerating product integration, industrial collaboration and

integrated innovation based on growth of major businesses and by focusing on development of the capabilities of

coordinating market resource, innovating technology and business and controlling risks in basic management. The

Company kept deepening and strengthening research and expansion in financial payment field, and made

breakthrough in system platform business. The medical insurance fund consumption terminal security

management platform project based on trial operation was promoted to the whole of country and put into practice

in some cities. Transformation and upgrade of the Company were in the trend of health growth.

II. Significant Changes of Major Assets

1. Significant Changes of Major Assets

Not applicable

2. Major Overseas Assets


III. Analysis on Core Competitiveness


No

As a leader in of the smart card industry, the Company has been dedicated to research & development, production

10


and sale of smart cards oriented to all fields of application for the past 19 years from its establishment. With

industrial upgrading and establishment of strategic transformation objective, in recent years, the Company

embraces the development vision of “becoming the provider and serviceman of internationalized smart cards and

relevant system integration and integral solutions”, constantly strengthens its core competitiveness and

comprehensive operational capability, and strives to play a leading role in research & development technological

capacity, industrial scale, management level and market share etc.

1) Capability of Technological Research & Development: The Company is national torch key high-tech

enterprise, key high-tech enterprise of Guangdong Province and enterprise that has obtained “double-software”

certification. In addition, it is provincial smart card engineering technology research & development center with

“Grade II Computer System Integration Qualification” and Grade III certification of CMMI (Software Capability

Maturity Model Integration).The Company established special technical group to tap into the market tendency

towards the major technological directions of internet payment, smart card and payment security, mobile payment

and NFC. During the report period, the Company continuously and steadfastly executed the original strategy of

high investment in research & development, strengthened application card COS development in all industries and

made additional investment in research and development of SIM card platform porting, mobile payment, financial

application and terminal products.

2) Scale Advantage: Through years of dedicated development, the Company currently boosts complete product

line and advanced capacity in smart card area and owns abundant resources for production and research &

development. Strong scale advantage and broad market foundation will make for the Company to further cut cost,

control resources in a larger scope and intensify the market competitiveness.

3) Qualification and Certification Advantage: The Company, by virtue of outstanding technological research &

development capability, quality products and considerable services, has successively entered into important

application areas of high admission threshold and large market capacity, such as communications, identification

and finance. At present, it is one of the enterprises with the most qualifications in domestic smart card industry.

Relevant qualifications are not only necessary access permit for smart card enterprises to some important market

segments, but also basic guaranty of winning more market share.

4) Product Structure Advantage: With diversified product structure, the Company provides products and

services covering various smart cards and relevant products for three major areas of application-

telecommunications, financial payment and security, and governmental public utilities and carries out work

11


around five business units including industrial system solutions, operational services, intelligent safety terminals,

card products and test tools.

5) Management Advantage: Through years of development practice, the Company has gradually formed

relatively complete legal person management structure and good modern enterprise operational mechanism. In the

same time, the Company has stronger strain capacity and anti-risk capability by establishing and perfecting

internal control and continuously deepening internal management promotion mechanism. By implementing and

exploring international strategy over the past few years, the Company is more capable of managing its overseas

subsidiaries and more conscientious with the international market arrangement, marching forward to become

globally advanced smart card enterprise.

However, there is still a gap compared with globally advanced smart card providers in terms of overall scale,

brand influence and technology reserve. In addition, in comparison with international excellent counterparts, the

Company still has insufficient solution integration ability and marketing ability, and is accumulating basic

experience for new business operation models. The basic management, operational efficiency and operational

benefits of all links need to be enhanced comprehensively. There is still a large space of improvement for the

Company’s abilities of global layout and market planning, business model innovation, management model

innovation and global market risk response.

12


Section IV - Discussion and Analysis of the Management

I. Overview

During the report period, the Company realized total business revenue of RMB 1.497 Billion Yuan, up 3.99%

year on year; realized net profit for shareholders of listed companies RMB 81.7116 Million Yuan, up 27.04% year

on year, with an earning RMB 0.2359 Yuan per share, weighted average net assets income rate of 9.43%, Gross

profit rate of 26.35%, increasing 1.17% over the previous year. During the report period, despite slight growth in

overall revenue, net profit grew by 27.04% due to increase of gross margin in enhancement of lean management,

cost control and growth of gross profit rate and substantial reduction of financial costs in 2016.

1. Business Operation

(1) Smart Card Business

Communications Area: During the report period, the Company sustained its position as a major supplier in

domestic communications market by intensifying presence in domestic market, exerting efforts to control the

production cost of SIM cards and stabilizing market through innovation and product diversification. In overseas

market, its sales quantity reached a historical high in foreign telecommunications market, with its TELECOM

card occupation rate and company brand getting further enhanced.

Financial Payment and Security Area: During the report period, the Company consolidated its market position

by actively participating in bids of banks and continuously increasing issuance of financial cards, and accelerated

market business expansion in Eastern Europe, South America and South Asia and grew its oversea financial card

business stably.

Governmental Public Service: During the report period, the Company further push forward social insurance

card business, strengthened expansion of “All-in-one” card business in cities and made stable development in the

area of residential healthy card.

(2) System Integration Business

During the report period, the Company saw the first dawn in its system platform business. Inter-city data

card integrated service platform was operated across industries in support of credit platform. Medical insurance

fund consumption terminal security management platform based on trial operation was promoted to the whole of

13


country and put into practice in some cities.

2. Refinancing

During the report period, based on demands for business growth, the Company refinanced by issuing non-

public stocks and used the funds raised mainly in the following projects:

SN Project Name

1 R&D of NB-IoT-based security access solution

2 Construction and operation of medical insurance fund consumption terminal security management platform

3 Reconstruction and upgrade of intelligent production

4 Supplementary working fund

For more details on non-public issuance of stocks, see the Plan of Non-Public Issuance of A Share by

EASTCOMPEACE as disclosed on August 26, 2016 on cninfo.com.cn. So far the Company has made reply to

Chinese Securities Supervision and Management Committee and normal review and evaluation is ongoing now.

This refinancing event helps to strengthen maintainable operation capacity of the Company and reduce asset-

liability ratio. The refinancing project was evaluated and verified carefully and was highly risk-resistant and

profitable, and would create more values to shareholders.

II. Analysis on Major Businesses

1. Overview

Refer to relevant information in I. Overview under Discussion and Analysis of Management.

2. Income and Cost

(1) Composition of operating revenues

Unit: Yuan

2016 2015Year-on-year income

or decreaseAmountShare in operating

revenueAmount

Share in operating

revenue

Operating revenues

in total1,496,767,853.97 100% 1,439,347,993.07 100% 3.99%

Industry

14


Manufacturing

industry1,488,081,830.92 99.42% 1,431,837,786.01 99.48% 3.93%

Commodity

circulation industry29,724.97 0.00% -100.00%

Lease 8,686,023.05 0.58% 7,480,482.09 0.52% 16.12%

Product

Smart card product 1,429,770,498.06 95.52% 1,371,634,231.59 95.30% 4.24%

Software and system 21,145,713.40 1.41% 14,007,947.14 0.97% 50.96%

Negotiable

document28,121,606.63 1.88% 36,908,584.72 2.56% -23.81%

Terminals and others 17,730,035.88 1.18% 16,797,229.62 1.17% 5.55%

Area

Domestic sale 962,215,917.58 64.29% 986,729,433.50 68.55% -2.48%

Overseas sale 534,551,936.39 35.71% 452,618,559.57 31.45% 18.10%

(2) Situation of industries, products or regions occupying over 10% of the Company’s operating revenue or profit



No

Unit: Yuan

Operating

RevenueOperating cost Gross profit rate

Operating

revenue increase/

decrease

compared with

last period

Operating

cost

increase/decre

ase compared

with last

period

Gross profit rate

increase/decrease

compared with last

period

Industry

Manufacturing

industry1,488,081,830.92 1,096,865,146.53 26.29% 3.93% 2.23% 1.22% up

Product

Smart card

product1,429,770,498.06 1,058,482,742.10 25.97% 4.24% 2.54% 1.23% up

Area

Domestic 962,215,917.58 705,254,431.07 26.71% -2.48% -3.22% 0.56% up

Overseas 534,551,936.39 397,146,308.90 25.70% 18.10% 14.03% 2.65% up

15


Major business data adjusted based on the caliber by the end of the report period in recent 1 year under the circumstance that the data

statistical caliber of the Company’s major business was adjusted during the report period


（3）Whether the material sales income of the Company was more than the labor cost

√ Yes □ No

Industrial

classificationItem Unit 2016 2015

Year-on-year income

or decrease

Communication and

other electronic

production industry

Sales Piece 951,765,609 872,483,590 9.09%

Production Piece 1,096,766,700 863,082,760 27.08%

Stocks Piece 72,936,676 92,186,581 -20.88%

Reason for relevant data with a fluctuation of more than 30% compared with last period.


None

（4）Performance status of major sales contracts signed by the Company during the report period


（5）Composition of operating cost

Industrial classification

Industrial classification

Unit: Yuan

Industrial

classificationItem

2016 2015 Year-on-year

income or

decreaseAmountShare in

operating costAmount

Share in

operating cost

Communication

and other

electronic

production

industry

Raw materials 942,162,011.70 85.46% 910,651,665.42 84.89% 0.57%

Description

None

（6）Whether the scope of combination was changed during the report period.

√ Yes □ No

The Company has completed liquidation of its subsidiary Hangzhou Eastcom Baifeng Technology Co. Ltd. in

16


September of 2016 and it is excluded from consolidation in current period.

（ 7） Status of significant changes or adjustments of businesses, products or services of the Company during the report period


（8）Status of major sales customers and suppliers

Status of the company’s major sales customers

Total sales with top five customers (Yuan) 241,479,275.87

Proportion of total sales with top five clients to annual

total sales16.13%

Ratio of sales of associated parties in top five clients to

the annual total sales0.00%

Information of the Company’s top 5 clients

Serial No Customer name Sales (Yuan) Share in Annual Total Sales

1 Client 1 59,216,430.33 3.96%

2 Client 2 56,950,712.75 3.80%

3 Client 3 52,847,988.45 3.53%

4 Client 4 47,040,325.37 3.14%

5 Client 5 25,423,818.97 1.70%

Total -- 241,479,275.87 16.13%

Other explanations on major customers


Major suppliers of the Company

Total purchase amount with top five suppliers (Yuan) 431,862,883.72

Proportion of total purchase amount with the top five

suppliers to annual total purchases50.17%

Proportion of total purchase amount with the top five

suppliers to annual total purchases0.00%

Information of the Company’s top 5 suppliers

Serial No Supplier name Purchase amount (Yuan) Share in annual total purchases

1 Supplier 1 130,589,931.58 15.17%

2 Supplier 2 85,128,522.94 9.89%

3 Supplier 3 83,647,348.77 9.72%

4 Supplier 4 78,040,648.69 9.07%

17


5 Supplier 5 54,456,431.74 6.33%

Total -- 431,862,883.72 50.17%

Other explanations on major suppliers


3. Expense

Unit: Yuan

2016 2015Year-on-year

income or decreaseExplanation on material changes

Sales cost 107,083,522.21 90,325,423.78 18.55%

Administrative cost 182,769,420.53 168,737,371.97 8.32%

Financial expense -7,534,439.90 13,998,742.51 -153.82%

Appreciation of US dollar and active

control on foreign exchange by the

Company resulted in reduction of

financial costs from the previous year.

4. Investment in research & development


None

Investment in research & development (Yuan)

2016 2015 Changing ratio

Number of research personnel

(person)620 618 0.32%

Share of research personnel 28.11% 26.90% 1.21%

R&D investment (Yuan) 126,864,036.38 114,945,551.60 10.37%

Proportion of investment in

research & development to

operating revenue

8.48% 7.99% 0.49%

Capitalized amount of R&D

investment (Yuan)0.00 0.00 0.00%

Proportion of capitalized R&D

investment to total R&D

investment

0.00% 0.00% 0.00%

Reasons for obvious change of the proportion of the total R&D investment against the operating revenue compared with last year


Causes and reasonable explanation on significant changes of capitalization rate of the R&D investment


18


5. Cash Flow

Unit: Yuan

Item 2016 2015Year-on-year income or

decrease

Subtotal of cash inflow of

operating activities1,787,792,556.21 1,751,883,086.40 2.05%

Subtotal of cash outflow of

operating activities1,625,292,709.70 1,573,396,170.90 3.30%


operating activities162,499,846.51 178,486,915.50 -8.96%


investment activities1,555,806.18 5,483.24 28,273.85%


investment activities26,857,083.17 23,681,645.11 13.41%


investment activities-25,301,276.99 -23,676,161.87 6.86%


financing activities46,141,800.00 97,699,008.14 -52.77%


financing activities121,514,190.60 191,691,069.81 -36.61%


financing activities-75,372,390.60 -93,992,061.67 -19.81%

Net increase of cash and cash

equivalents62,540,489.69 60,842,202.99 2.79%

Explanation on major influential factors leading to material changes of relevant data year on year


Cash inflow in investment grew substantially over the previous year mainly because of cash and cash equivalents of 1.53 million

Yuan received from disposal of subsidiary in Hangzhou.

Reason for the large gap between the cash flow resulted from the Company’s operating activities and the current-year net profit

during the report period


III. Analysis on Sideline Businesses


19


IV. Analysis on Assets and Liabilities Status

1. Material changes of asset composition

Unit: Yuan

At the end of 2016 At the end of 2015Increase/ Decrease

Ratio

Explanation on material

changesAmountShare in total

assetsAmount

Share in total

assets

Monetary fund614,468,903.0

738.64% 548,834,098.41 35.49% 3.15% up

Accounts

receivable

157,545,717.6

99.91% 146,974,299.60 9.50% 0.41% up

Inventory395,131,752.7

124.85% 426,211,045.02 27.56% 2.71% down

Investment real

estate72,534,804.53 4.56% 78,136,810.39 5.05% 0.49% down

Long-term equity

investment20,661,676.60 1.30% 23,081,984.30 1.49% 0.19% down

Fixed assets226,095,817.5

714.22% 232,336,347.23 15.02% 0.80% down

Construction in

Process0.00% 26,089.00 0.00%

Short-term loans 38,153,500.00 2.40% 97,404,000.00 6.30% 3.90% down

Long-term loans 913,398.19 0.06% 51,662,203.03 3.34% 3.28% down

2. Assets and liabilities measured by fair value


Unit: Yuan

Item Short-term loan

Variable loss

and profit of

fair value in

current period

Variation of

accumulated

fair value

included in

equity

Depreciation

accrued in

current period

Monetary

amount in

current period

Sales amount in

current

Ending

amount

Financial assets

1.Financial

assets which

are measured

by fair value

55,924.56

20


and whose

variation is

incorporated

into current

profit and loss

(excluding

derivative

financial assets)

Subtotal of

financial assets55,924.56

√ Applicable □

Not Applicable55,924.56 0.00

Initial amount 0.00 307,833.38 307,833.38

Are main asset measuring properties change materially during the report period?

□ Yes √ No

3. Limits to asset rights by the end of the report period

Assets with limited ownership or right-to-useItem Ending amount Reason for limit

Monetary fund 7,485,447.39 Guarantee deposit/ bond for tax certificate

Fixed assets 7,217,022.30 Collateral for long-term loan

Total 14,702,469.69

V. analysis on Investment Status

1. Overall Circumstance


2. Major equity investments received during report period


3. Major non-equity investments ongoing during report period


4. Financial assets valued by fair value


21


5. Use of funds raised


No fund raised was used by the Company during report period.

VI. Sale of major asset/equity

1. Sale of major asset


□ Yes √ No

2. Sales of major equity


VII. Analysis on Major Holding/Participating Company


Information on major subsidiaries and participating companies with 10% or higher effect on net profit of the Company

Unit: Yuan

Company

NameCompany Type

Major

Business

Registered

CapitalTotal Assets Net Assets

Operating

Revenue

Profit from

OperatingNet Profit

Eastcompeac

e (India) Co.

Ltd.

Subsidiary

Production &

sale of smart

card

1,139,014.3797,920,623.7

95,712,779.98

168,097,156.

32

19,990,013.9

2

15,949,595.7

1

Acquisition/disposal of subsidiary during report period


Company NameHow subsidiary is acquired/disposed

during report period

Effect on overall production operation and

achievement

Hangzhou Eastcom Baifeng Technology

Co. Ltd.Dissolution Net profit affected by up to -2.02%

Description of Main Holding/Participating Company

Company

Name

Company

Type

Major

BusinessTotal Assets Net Assets

Operating

Revenue

Profit from

OperatingNet Profit

Eastcompeac

e (Russia)

Co. Ltd.

Subsidiar

y

Production &

sale of smart

card

22,728,089.57

9,408,665.50 63,454,050.864,080,647.7

83,060,964.53

Eastcompeac

e

(Singapore)

Subsidiar

y

Sale of smart

card

45,712,769.92

12,896,266.33

128,082,762.94

2,566,454.10

3,101,671.43

22


Co. Ltd.

Eastcompeac

e Smart Card

(Bangladesh

) Co. Ltd.

Subsidiar

y

Production &

sale of smart

card

61,277,370.64

43,353,743.55

59,017,665.952,269,188.7

3782,154.06

Eastcompeac

e

Technology

(Guangzhou)

Co. Ltd.

Subsidiar

y

Sale of smart

card7,135,477.74 1,467,841.23 7,031,749.00 87,622.51 77,733.94

Inter-City

Data Co.

Ltd.

Joint-

stock

company

Construction

and operation

of

information/da

ta system

platforms

42,332,577.81

41,323,353.21

2,202,408.28-

4,942,617.32

-4,840,615.39

VIII. Description of Structured Entity Controlled by Company


IX. Development Prospect of the Company

(I) Major development direction and major work of the Company in the next few years Adhere to the guideline of “Innovation, Integration and Capital” and conform to the strategic planning for

industrial development to deeply explore the development potential, make key breakthrough, intensify global

expansion, step up integration innovation, push forward the company business combination and further promote

industrial coordination and sustainable development.

Deepen the R&D system construction and strengthen innovation and R&D achievements industrialization. Further

deepen the R&D system construction, make long-term arrangement to properly deal with product planning,

industrialization execution and product innovation, give great impetus to technological innovation and pay more

attention to such areas as mobile payment, TSM platform operation management, internet of things and digital

safety certification. Strengthen mutual cooperation with strategic cooperation industry alliance and relevant

important organizations.

Continue to intensify market expansion. The situation of tripartite confrontation in the field of card products has

basically formed. Further strengthen the synergistic effect between technological R&D and marketing and

management, enhance early-stage planning service capacity and seek for effective breakthrough in new market

23


and increase of new product scale. Spare no efforts to size high-end and high gross profit telecommunication

business opportunities and non-telecommunication business opportunities such as finance and identification.

Fix global supply chain development direction and provide diversified products, particularly the supply capacity

of financial card products. Optimize supply chain operational mechanism, advance towards the intellectualized

and dynamic direction, enhance management ability on all production links, intensify the resource integration

ability and coordination ability of the supply chain and increase the resources utilization efficiency. Optimize the

process of production line, increase the flexibility of the production chain and effectively deal with diversified and

personalized order demands.

Steadfastly enhance the level of basic management and strengthen service and operating ability. Set foot in the

Company’s strategic objective and development planning; concretely practice all the basic management work,

intensify detailed management and risk control and specifically strengthen the basic management on all levels and

links with the help of split execution of medium and long-term targets and KPI (Key Performance Indicators).

(II) Operational Planning in 2017

1. Domestic Market: Stick to the combination between industry and application and coordinative promotion

between products and systems, set foot in deep exploration and key breakthrough in major industries and

application areas, further optimize the platform construction and resource allocation in all areas. Actively keep

trace of operators' business innovation, and proactively play its role in integration and innovation in card terminal,

system, terminal and platform; provide customers with tailored integration and innovation solutions and spread

toward the field of IoT. Collect resources to support financial card market promotion and further grow its market

occupation. In the field of governmental public service, further focus on and keep trace of 2-G social insurance

card process and issuance of health card in cities.

2. Overseas Market: Build a global large district platform supporting marketing network; focus on market

expansion and risk control; strengthen response measure and prevention against international trade and financial

risks in2017; seek for strategic opportunity and policy support based on the national "One Belt One Road"

strategy; further increase its oversea telecommunication market share and make every effort to expand oversea

non-telecommunication markets.

3. System and Operational Service Business: Further elevate inter-city data platform value; boost system

business integration; further promote medical insurance fund consumption terminal security management platform

and make every effort to further expand the market. In residence permit and intelligent community platform

24


projects, actively seek import to new-emerging industries and explore promotion and operation modes.

4. Technological Research and Development: In 2017, the Company will further increase R&D investment,

facilitate integration innovation of R&D system, increase innovation speed and efficiency and constantly spread

out the Company’s innovation value chains and product innovation schemes closely surrounding such business

units as card products, industrial systems, operational services, intelligent safe terminals and testing tools to

enhance the product competitiveness of the Company.

5. Basic Management: In 2017, combine the internal basic management with all the business management

systems and make use of information means and tools to further optimize the business process and increase the

management efficiency.

X. Reception of Survey, Communication and Interview

1. Registration forms of survey, communication and interview received during report period


Date of reception Reception model Object type Overview of survey

August 29, 2016 On-site survey Organizationhttp://www.cninfo.com.cn/finalpage/

2016-08-31/1202663646.DOC

September 1, 2016 On-site survey Organizationhttp://www.cninfo.com.cn/finalpage/

2016-09-05/1202675993.DOC

September 6, 2016 On-site survey institutionhttp://www.cninfo.com.cn/finalpage/

2016-09-08/1202686637.DOC

September 7, 2016 On-site survey Organizationhttp://www.cninfo.com.cn/finalpage/

2016-09-08/1202686637.DOC

25


Section V - Important Matters

I. The situation of the profit distribution of the corporate common stock and the common reserves capitalizing

The situation of the profit distribution policy of the common stock within the statement period, especially the formulation,

implementation or adjustment situation of the cash dividends policy


To perfect and improve dividend distribution decision-making and supervision mechanism of the Company,

actively pay investors back, and guide investors to a proper long-term investment concept, in accordance with the

Notice on Cash Dividend Payment of Listed Companies and No 3 Guideline for Supervision and Control of Listed

Companies - Cash Dividend of Listed Companies issued by CSRC and Articles of Association, the Board of

Directors established Shareholder Return Plan for Next Three Years (2016-2018), which was reviewed and

adopted at the 16th meeting of the fifth Board and the 2nd interim general meeting of shareholders in 2016.

Special descriptions of cash dividend policy

Is it meet the provisions of Articles of Association or resolution

of the general meeting of stockholders?Yes

Are dividend distribution standard and ratio definite and clear? Yes

Are relevant decision-making process and mechanism complete? Yes

Do independent director perform his/her duties and play an

adequate role?Yes

Do minority shareholders have any opportunity to fully express

their comments and claims and have their legitimate rights and

interests protected completely?

Yes

Is the cash dividend distribution policy regulated or altered in a

proper and public way?Yes

The situation of the profit distribution proposal (plan) of the corporate common stock and the common reserves capitalizing proposal

(plan) of the company in recent 3 years (including current report period)

1. Profit distribution plan for 2014

Cash dividend of 0.5 Yuan (including tax) per 10 shares is distributed based on total capital stock of 288,992,280

shares on December 31, 2014, without share distribution or conversion into capital stock from capital reserve.



26






The situation table of the cash dividends of the corporate common stock in recent 3 years (including current report period)

Unit: Yuan

Year of distribution

Amount of cash

dividend (tax

included)

Net profit to

shareholders of

common stock of

listed companies in

annual consolidated

financial statements

Share in net profit to

shareholders of

common stock of

listed companies in

annual consolidated

financial statements

Amount of the cash

dividends in other

ways

Ratio of the cash

dividends in other

ways

2016 10,392,490.08 81,711,620.60 12.72% 0.00 0.00%

2015 10,396,468.08 64,317,702.11 16.16% 0.00 0.00%

2014 14,449,614.00 57,563,768.25 25.10% 0.00 0.00%

The company is in the profit-gaining state within the statement period, and the parent company’s profit which can be distributed by

the shareholders of the common stock is positive, but the common stock cash dividends plan has not been put forward.


II. The profit distribution and the common reserves capitalizing plan in the statement state


Bonus shares (share) for every 10 shares 0

Number of dividends for every 10 shares (yuan)

(taxes included)0.30

Number of bonus shares allotting per 10 shares

(share)0

Equity base of the distribution plan (share) 346,416,336

Total amount of the cash dividends (yuan) (taxes

included)10,392,490.08

Distributable profit (yuan) 257,336,398.71

Ratio of the cash dividends to the total amount of

the profit distribution100.00%

Current payment of cash dividends

The ratio of the cash dividends in the profit distribution of this time shall arrive at 20% at least while carrying out the profit

distribution if it is difficult to differentiate in the development stage of the company but there is the significant expenditure

arrangement.

27


Details of the profit distribution and the common reserves capitalizing plan

The Plan of the Profit Distribution and the Common Reserves Capitalizing in 2016 was reviewed and passed in the thirteenth

meeting of the fifth board of directors held on April 24, 2017. In 2016, the parent company achieved the net profit of 60,493,438.40

yuan, and according to the relevant stipulations of Articles of Incorporation after drawing the legal surplus reserves of 6,049,343.84

yuan according by 10%, added the undistributed profit of 213,288,772.73 yuan in the parent company at the beginning of the year,

and deducted the distributed cash dividends of 10,396,468.08 yuan within the statement period. Actual distribution of profit which

is available for shareholders is 257,336,398.71 Yuan. In order to pay back shareholders and in consideration of the fund needed by

the company’s operational development in 2016, this is to distribute cash dividend of RMB 0.3 Yuan (tax included) every 10 shares

based on the total capital stock of 346,416,336 shares by December 31, 2016, totaling RMB 10,392,490.08 Yuan, with the residual

undistributed profit included into the next period. At the end of 2016, the common reserves balance of the parent company is

214,615,274.31 yuan, without common reserves capitalizing.

III. Fulfillment of Commitments

1. Commitments which have been fulfilled within the statement period and those that have not been fully fulfilled by the end of the statement period by the company, shareholders, actual controllers, acquirers, and other interested parties


CommitmentCommitting

party

Commitment

type

Content of

commitment

Date of

commitment

Time limit of

commitmentFulfillment

Commitment for share reform

Commitments made in the acquisition

report or equity change report

Commitments made in assets

restructuring

Commitments made in IPO or

refinancing

China Potevio

Information

Industry

Group

Company;

Potevio

Eastcom

Group Co.

Ltd.; Zhuhai

Potevio Peace

Telecom

Industrial Co.

Ltd.; Beijing

Xinjietong

Mobile

Communicati

Commitment

at IPO

All originators

shareholders

of the

company

issued the

Commitment

Letter on not

Engaging in

the Horizontal

Competition,

the final actual

controller of

the company

China Potevio

Information

Industry

May 30, 2004 Long-term

fulfillment

Performed

normally

28


on Technology

Co. Ltd.;

Zhuhai

Fuchun

Communicati

on Equipment

Co. Ltd.;

Zhou

Zhongguo;

Shi Jixing;

Zeng Guomin;

Yang Youwei;

Zhang Peide;

Huang

Ningzai;

Zhang

Xiaochuan; Li

Haijiang

Group

Company

issued the

Commitment

Letter on

China Potevio

Information

Industry

Group

Company

Avoiding the

Horizontal

Competition

with Zhuhai

Eastcompeace

Smart Card

Co.,Ltd.

China Potevio

Information

Industry

Group

Company

Refinancing China Potevio

and other legal

entities and

organizations

controlled by

it are not

engaged in,

directly or

indirectly, any

business

similar with

that of or

constituting

material

competition

with

Eastcompeace

. During the

period acting

as actual

controller of

Eastcompeace

, China

Potevio will

not be

November 4,

2016

Long-term

fulfillment

Performed

normally

29


engaged in,

directly or

indirectly

through any

other legal

entity or

organization

controller by

it, any

business

similar with

that of or

constituting

material

competition

with

Eastcompeace

or its

subsidiary.

During the

period acting

as actual

controller of

Eastcompeace

, China

Potevio

undertakes to

fulfill its

obligations

under this

commitment

by assigning

office and

staff

(including

without

limitation

director,

senior

executives) to

any other legal

entity/organiz

ation

30


controlled by

it or interested

party.

Commitment to equity incentiveEastcompeace

Technology

Co. Ltd.

Commitment

to equity

incentive

In accordance with the relevant stipulations of the Equity Incentive Management Measures of Listed Companies (Trial),the company promises not to offer the loan for the incentive objects obtaining the relevant equity according to the incentive plan and other kinds of financial aids including offering guarantee for its loan in the future.

November 11,

2013

November 11,

2013~Decemb

er 31, 2018

Performed

normally

Commitment made to minority

shareholders

Eastcompeace

Technology

Co. Ltd.

Commitment

for dividend

distribution

The

accumulated

profit

distributed in

August 26,

2016

2016-2018 Performed

normally

31


cash in the

following

three years

shall be not

less than 30%

of the annual

average

distributable

profit in these

three years; on

the condition

that the

undistributed

profit of the

company is

positive, the

net profit

within the

statement

period is

positive and

the fund

requirements

for the normal

operation for

the company

can be

satisfied and

the statutory

reserves and

discretionary

reserves are

reserved with

the enough

amount, if

there is no

significant

investment

plan or

significant

cash

expenditure

and other

32


issues, the

company shall

distribute the

dividends in

cash, and the

profit

distributed in

cash shall not

be less than

10% of the

distributable

profit realized

in that year.

Potevio

Eastcom

Group Co.,

Ltd, Zhuhai

Potevio Peace

Telecom

Industrial Co.,

Ltd.

Other

commitment

Undertake that

the shares sold

through the

securities

exchange

system shall

be less than

5% of the total

shares of the

company

within the

continuous six

months.

May 13, 2015

May 13,

2015~Novem

ber 12, 2015

Completed

Potevio

Eastcom

Group Co.

Ltd; Zhuhai

Potevio Peace

Telecom

Industrial Co.

Ltd.; Zhou

Zhongguo;

Zhang Zexi;

Guo

Duanduan; Ni

Shouping;

Chen

Genhong;

Wang Xin; Xu

Liying; Song

Other

commitments

In view of the

irrational

fluctuation of

the stock

market

recently, and

based on the

confidence for

the

development

prospect of the

company and

the

recognition on

the company

value, in order

to promote the

July 9, 2015 July 9,

2015~January

8, 2016

Completed

33


Guangyao;

Wang Lijun;

Wang Jianbo;

Zhou

Yongjian;

Zhang

Xiaochuan;

Huang

Xiaopeng; Hu

Dan; Ren Bo;

Shi

Wenzhong;

Song Gang;

Yuan Jianguo;

Chen

Zongchao

continuous,

stable and

healthy

development

of the

company and

maintain the

interests of the

shareholders,

the majority

shareholders

of the

company and

the concert

part, directors

of the

company,

supervisors

and the senior

management

staff promise

not to reduce

the shares of

the company

held by them

within the

next 6 months

since July 9,

2015 (July 9,

2015-January

8, 2016).

Was the commitment fulfilled as

scheduled?Yes

Describe in details the reason and next

work plan in case that any

commitment was not fulfilled as

scheduled

Not applicable

2. If there exists profit forecast for the company assets or projects and the statement period is still in the period of profit forecast, the company shall make the description for the assets or projects achieving the original profit forecast and the reasons


34


IV. Use of non-operating fund of listed company by majority shareholders and their interested parties


No non-operating fund was used by any shareholder or its interested party during the report period.

V Description for the “non-standard audit statement” of the accounting firm within the statement period by the board of directors, the board of supervisors and the independent directors(if there is)


VI Description of changes in the accounting policy, the accounting estimation and the accounting methods compared with the financial statement of the last year


No change in the accounting policy, the accounting estimation and the accounting method occurred during the report period

VII Description of significant accounting error correction appearing within the statement period and requiring tracing back and restatement


No significant accounting error correction was restated during the report period

VIII Description of the change of the scope of the combination statement compared with the financial statement of the last year


The Company has completed liquidation of its subsidiary Hangzhou Eastcom Baifeng Technology Co. Ltd. in September of 2016 and it is excluded from consolidation in current period.

IX Employment/unemployment of accounting firm

Accounting Firm Currently Employed by the Company

Name of the Accounting FirmBeijing Branch of Zhongshenzhonghuan Certified Public Accountants

(Special Ordinary Partnership)

Pay for the domestic accounting firms (10,000 Yuan) 40

Years of audit service provided by the domestic

accounting firm1

Name of CPA of the domestic accounting firm Luo Yun, Gao Xiaofeng

Will the accounting firm employed by the Company be changed in current period?

√ Yes □ No

35


Will the accounting firm employed by the Company be changed within audit period?

□ Yes √ No

Will change of the accounting firm be subject to review and approval procedure?

√ Yes □ No

Details on change of the accounting firm

In accordance with the provisions in Notice on Strengthening Financial Settlement Audit of Central

Enterprises (No. 2005-43) issued by SASAC, service years of an accounting firm for financial settlement audit of

any enterprise shall not be more than 5 years. As the original audit team has provided audit service for the

Company consecutively for 5 years, based on bid of China Potevio Group and review of the audit committee of

the Company, the Company has assigned Zhongshenzhonghuan Certified Public Accountants (Special Ordinary

Partnership) as the annual audit institution for audit service of 2016. For more details see the Notice on Change of

the Accounting Firm (No.2016-53).

Employment of internal control audit accounting firm, financial adviser or sponsor


X. Suspension or termination of listing following disclosure of annual report


XI. Matters related to bankruptcy/recombination


No bankruptcy or reorganization occurred during the report period.

XII. Significant lawsuit and arbitration


No Significant lawsuit and arbitration occurred within current report period.

XIII. Punishment and Rectification


No punishment and rectification occurred within the report period.

XIV. Credit state of the Company and its shareholders and actual controllers


36


XV Implementation of equity incentive plan, Employee Stock Ownership Plan or other employee incentive measures


1. On September 5, 2013, announcement No. 2013-36/2013-37/2013-38, Proposal of Eastcom Peace Restricted

Stock Incentive Plan and the Restricted Stock Awarding for the First Phase (Draft), Abstract of Proposal of

Eastcom Peace Restricted Stock Incentive Plan and the Restricted Stock Awarding for the First Phase (Draft),

Implementation and Assessment Methods of the Eastcom Peace Restricted Stock Incentive Plan, Distribution

Schedule of Eastcom Peace Restricted Stock Incentive Plan, Resolution Announcement of the 25th meeting of the

4th board of directors, the Independent Opinions of the Independent Directors on the Proposal of Eastcom Peace

Restricted Stock Incentive Plan and the Restricted Stock Awarding for the First Phase (Draft), the Independent

Financial Consulting Statement of Shanghai Realize Investment Consulting Co., Ltd on the Proposal of Eastcom

Peace Restricted Stock Incentive Plan and the Restricted Stock Awarding for the First Phase (Draft), and other

documents were issued.

2. On November 19, 2013，announcement No.2013-44 Announcement about the Restricted Stock Incentive Plan

having been replied by the State-owned Assets Supervision and Administration Commission of the State Council.

3. On November 29, 2013, announcement No. 2013-46 Announcement about the Restricted Stock Incentive Plan

for the first phase Having Obtained the Record of China Securities Regulatory Commission and without

objections.

4. On December 5, 2013, announcement No. 2013-47/2013-48/2013-49 Eastcom Peace Restricted Stock Incentive

Plan for the First Phase (draft revised), Abstract of Eastcom Peace Restricted Stock Incentive Plan for the First

Phase (draft revised), Resolution Announcement of the 27th meeting of the 4th board of directors, the Independent

Opinions of the Independent Directors on the relevant proposals of the 27th meeting of the 4th board of directors,

the Independent Financial Consulting Statement of Shanghai Realize Investment Consulting Co., Ltd on the

Eastcom Peace Restricted Stock Incentive Plan for the First Phase (Draft Revised), and other documents

announcement.

5. On December 21, 2013, announcement No. 2013-51 Resolution Announcement of the 1st Provisional

Shareholders’ Meeting 2013.

6. On December 24, 2013, announcement No. 2013-52/2013-53/2013-54 Announcement on the relevant items of

the restricted stock awarding, the 1st Meeting of the 5th Board of Directors, the 1st Meeting of the 5th Board of

Supervisors and other documents announcement.

37


7. On February 26, 2014, announcement No. 2014-06 Announcement on the Completion of the Awarding of the

Restricted Stock for the First Phase.

8. On June 10, 2015, announcement No. 2015-20 Announcement on Repurchasing and Canceling Parts of

Restricted Stocks.

9. On August 19, 2015, announcement No.2015-30 Announcement on the Completion of the Repurchasing and

Canceling Parts of Restricted Stocks.

10. On August 22, 2015, announcement No.2015-33 Announcement on Adjusting the Benchmarking Enterprise of

the Performance Assessment in the First Unlocking Period of the Restricted Stock Incentive Plan.

11. On February 18, 2016, announcement No.2016-02 Announcement on the Unlocked Condition Achievement of

the First Unlocked Period of the Restricted Stock Incentive Plan for the First Phase.

12. On February 26, 2016, announcement No.2016-05 Suggestive Announcement on the Listing and Circulating of

the Unlocked Stocks in the First Unlocked Period of the Restricted Stock Incentive Plan for the First Phase.

13. On July 30, 2016, announcement No.2016-26 Announcement on Repurchasing and Canceling Parts of

Restricted Stocks.

14. On October 12, 2016, announcement No.2016-43 Announcement on the Completion of Repurchasing and

Canceling Parts of Restricted Stocks.

15. On January 26, 2017, announcement No.2017-06 Announcement on Adjusting the Benchmarking Enterprise

of the Performance Assessment in the Second Unlocking Period of the Restricted Stock Incentive Plan.

16. On February 21, 2017, announcement No.2017-10 Announcement on Achievement of Unlocking Condition

for First-Phase Restricted Stock Incentive Plan for the Second Unlocking Period.

17. On February 24, 2017, announcement No.2017-14 Suggestive Announcement on the Listing and Circulating

of the Unlocked Stocks in the Second Unlocking Period of the Restricted Stock Incentive Plan For the First Phase.

XVI. Significant related transactions

1. Related transaction associated with the daily operation


No transaction associated with the daily operation occurred during the report period.

2. Related transaction appeared in the acquisition and selling of the assets or equity


38


No related transaction occurred in the acquisition and selling of the assets or equity during the report period.

3. Related transaction of jointly foreign investment


No related transaction of jointly foreign investment occurred during the report period.

4. Related credits and liabilities correspondence


No related credits and liabilities correspondence occurred within the report period.

5. Other significant related transactions


□ Yes √ No

XVII. Significant contract and its performance

1. Trusteeship, contract and leasing matters

(1) Trusteeship


No trusteeship activity occurred within the report period.

(2) Contracting


No contracting activity occurred within the report period.

(3) Leasing


Description of leasing

Parts of the factory building of the technology innovation coast factory project of the company has been leased, and the turnover

within the statement period is 8,690,000 Yuan.

The project by which the gains and losses brought for the company arriving over 10% of the total profit amount of the statement

period of the company


There does not exist the leasing project by which the gains and losses brought for the company arriving over 10% of the total profit

amount of the statement period of the company within the statement period of the company.

39


2. Significant guarantee


No significant guarantee occurred within the report period.

3. Entrusted cash asset management

(1) Entrusted financing


No entrusted financing activity occurred within the report period.

（2）Entrusted loan


No entrusted loan activity occurred within the report period.

4. Other significant contracts


□ Yes √ No

XX. Social responsibilities

1. Social responsibility for performing accurate poverty alleviation

Not applicable

2. Performance of other social responsibilities

Within the statement period, the company takes implementing the scientific development concept as the guide,

promoting social harmony as its responsibility, devoting to fulfilling the social responsibilities, carefully fulfilling

the responsibilities and obligations to shareholders, employees and other aspects on one hand, and at the same

time, making the contribution within its power for the social public welfare and promoting the coordinated and

harmonious development of the company with the society and nature. The company take the initiative to accept

the supervision of the regulatory department and all sectors of community, and constantly improve the corporate

management system, improve the construction of social responsibility management system, actively support social

public welfare and support the vulnerable groups to promote the harmonious development of the company and the

surrounding communities and make due contribution for the harmonious society.

40


Are the listed company and its subsidiary the heavy pollution industry stipulated by the national environment protection department?

Not applicable

Was social responsibility report issued?

□ Yes √ No

XIX. Description of other significant matters


There was not other significant matter to be described within the report period.

XX. Significant matters of subsidiaries


For more details see the Announcement on Completion of liquidation and Dissolution of Holding Subsidiary (No.

2016-42) as disclosed on www.cninfo.com.cn on September 29, 2016.

41


Section VI - Change of Share Holding and Shareholders

I. Change of Share Holding

1. Change of share holding

Unit: Share

Changed From Increase/Decrease Into

Quantity Ratio

Issuance

of New

Stock

Bonus

Issue

Conversio

n of

Public

Accumula

tion Fund

into

Shares

Miscellan

eousSubtotal Quantity Ratio

I. Restricted shares 6,477,607 1.87%-

2,086,942

-

2,086,9424,390,665 1.27%

1. Holding by state 0 0.00%

2. Holding by state-owned

legal entity0 0.00%

3. Holding by other domestic-

invested bodies6,477,607 1.87%

-

2,086,942

-

2,086,9424,390,665 1.27%

Including: Holding by

domestic legal entity0 0.00%

Holding by domestic natural

person6,477,607 1.87%

-

2,086,942

-

2,086,9424,390,665 1.26%

4. Holding by foreign-

invested bodies0 0.00%

Including: Holding by foreign

legal entity0 0.00%

Holding by foreign natural

person0 0.00%

II. Unrestricted shares340,071,3

2998.13% 1,954,342 1,954,342

342,025,6

7198.73%

1. Ordinary shares in RMB340,071,3

2998.13% 1,954,342 1,954,342

342,025,6

7198.73%

42


2. Foreign shares listed in

China0 0.00%

3. Foreign shares listed

overseas0 0.00%

4. Others 0 0.00%

III. Total shares346,548,9

36100.00% -132,600 -132,600

346,416,3

36100.00%

Reason for change


1. The restricted stock of the directors, supervisors and senior management staff appeared restriction removing and changes within

the report period.

2. 132,600 shares of equity incentive restricted stock were repurchased and canceled by the company within the report period.

3. First-phase equity incentive was untied and issued.

Approval for change of share holding


1. On July 28 2016, Proposal for Repurchasing and Revoking Part of Restricted Stocks was reviewed and adopted

by the 15th meeting of the 5th board of directors, approving to repurchase and cancel the restricted stocks having

been granted but not been unlocked with the total number of 132,600 shares of the original incentive objects Guo

Li, Luo Dun, Wang Yongji and Wen Yi who did not comply with the incentive conditions any more due to the

resignation, and the equity capital of the company changed to 346,416,336 shares after the completion of the

repurchasing and canceling.

2. The Proposal for Unlocking the First Unlocking Stage of First-Phase Restricted Stock Incentive Plan was

reviewed and adopted at the 12th meeting of the 5th board of directors on February 17, 2016, and the unlocked

restricted stock was issued on February 29, 2016.

Ownership transfer for change of share holding


The aforesaid restricted stocks completed the canceling procedure in Shenzhen Branch of China Securities

Depository and Clearing Corporation Limited.

The influence of the shares changes on the basic profit per share, the diluted earnings per share, the net asset per share belonging to

the shareholders of the company common stock and other financial indicators in the recent one year and recent period


Any other information necessary or required to be disclosed by the regulatory authority


43


2. Change of restricted shares


Unit: Share

Shareholder

Name

Restricted shares

at the beginning

of the period

Restricted shares

untied in current

period

Restricted shares

added in current

period

Restricted shares

at the end of the

period

Reason for

restriction

Date of untying

restricted sale

Zhou Zhongguo 692,900 173,225 0 519,675

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

January 2, 2016,

February 29,

2016

Zhang Xiaochuan 312,227 78,057 0 234,170

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

January 2, 2016,

February 29,

2016

Huang Xiaopeng 156,000 39,000 0 117,000

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Hu Dan 156,000 39,000 0 117,000

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Ren Bo 156,000 37,500 0 118,500

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

44


Shi Wenzhong 156,000 39,000 0 117,000

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Chen Zongchao 156,000 39,000 0 117,000

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Song Gang 124,800 31,200 0 93,600

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Yuan Jianguo 124,800 31,200 0 93,600

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Other equity

incentive objects

of the Company

4,442,880 1,579,760 0 2,863,120

Senior

management

holding shares

and stock

ownership

incentive sales

restriction

February 29,

2016

Total 6,477,607 2,086,942 0 4,390,665 -- --

II. Issuance of securities

1. Issuance of securities within report period (excluding preferred stock)


45


2. Description of total shares and changes of shareholder structure, asset and liability structure


On July 28, 2016, Proposal for Repurchasing and Revoking Part of Restricted Stocks was reviewed and

adopted by the 15th meeting of the 5th board of directors, approving to repurchase and cancel the restricted stocks

having been granted but not been unlocked with the total number of 132,600 shares of the original incentive

objects Guo Li, Luo Dun, Wang Yongji and Wen Yi who did not comply with the incentive conditions any more

due to the resignation, and the equity capital of the company changed to 346,416,336 shares after the completion

of the repurchasing and canceling.

3. Existing internal employee shares


III. Shareholders and actual controller

1. Shareholders and their holdings

Unit: Share

Total of

shareholders of

common stock

at the end of

the report

period

38,348

Total of

shareholders of

common stock

of the end of

the month

before the date

of disclosing

annual report

40,006

Total of

shareholders of

preferred stock

restored by the

right to vote at

the end of

report period

(if any) (see

Note 8)

0

Total of the

shareholders of

preferred stock

restored by the

right to vote at

the end of the

month before

the date of

disclosing

annual report

(if any)(see

Note 8)

0

Shareholders holding shares of at least 5% or top ten shareholders

Shareholder NameNature of

Shareholder

Sharehold

ing Ratio

Sharehol

ding at

the end of

report

period

Increase/

decrease

of

sharehold

ing

within

report

period

Holdings

of

restricted

shares

Holdings

of

unrestricte

d shares

Pledge or withholding

Share state Quantity

46


Potevio Eastcom

Group Co. Ltd.

State-owned legal

person29.13%

100,901,7

33

100,901,7

33

Zhuhai Potevio

Peace Telecom

Industrial Co. Ltd.

State-owned legal

person15.70%

54,375,07

4

54,375,07

4

Central Huijin

Assets

Management Co.

Ltd.

State-owned legal

person1.14% 3,964,500 3,964,500

Zeng QunzhenDomestic natural

person0.92% 3,177,733 3,177,733

Bank of

Communications

Company Limited

- Taida Hongli

value-optimized

developing-

industry mixed-

type securities

investment fund

Domestic non-

state-owned legal

person

0.73% 2,515,855 2,515,855

Yang HuiDomestic natural

person0.72% 2,492,350 2,492,350

Liang WenjunDomestic natural

person0.70% 2,418,300 2,418,300

Song BoDomestic natural

person0.68% 2,341,300 2,341,300

Jiao ZhijunDomestic natural

person0.62% 2,147,109 2,147,109

Han GuochenDomestic natural

person0.57% 1,970,000 1,970,000

Strategic investor or the general legal

person becoming top ten shareholders

due to the new shares placement (if

any)(see Note 3)

Not applicable

Description for the incidence relation

of the aforesaid shareholders or the

concerned action

Potevio Eastcom Group Co. Ltd. is the largest shareholder of the Company and Zhuhai

Potevio Peace Telecommunication Industry Co. Ltd. is the second largest shareholder. The

Company’s holding shareholder Potevio Eastcom Group occupies 57.8% of the total shares

of and acts in concert with Heping Telecommunications. It is unknown whether the other

shareholders of the Company are mutually related and whether they are parties acting in

concert as set forth in Management Methods for Shareholding Changes Disclosure of Listed

47


Companies.

Holdings of top ten shareholders without selling limit

Shareholder NameHolding of shares without selling limit at the end of

report period

Stock type

Stock type Quantity

Potevio Eastcom Group Co. Ltd. 100,901,733Ordinary shares

in RMB100,901,733

Zhuhai Potevio Peace Telecom

Industrial Co. Ltd54,375,074

Ordinary shares

in RMB54,375,074

Central Huijin Assets Management

Co., Ltd.3,964,500

Ordinary shares

in RMB3,964,500

Zeng Qunzhen 3,177,733Ordinary shares

in RMB3,177,733

Bank of Communications Company

Limited - Taida Hongli value-

optimized developing-industry mixed-

type securities investment fund

2,515,855Ordinary shares

in RMB2,515,855

Yang Hui 2,492,350Ordinary shares

in RMB2,492,350

Liang Wenjun 2,418,300Ordinary shares

in RMB2,418,300

Song Bo 2,341,300Ordinary shares

in RMB2,341,300

Jiao Zhijun 2,147,109Ordinary shares

in RMB2,147,109

Han Guochen 1,970,000Ordinary shares

in RMB1,970,000

Description of the incidence relation

among the top 10 shareholders of the

circulation stock without selling limit

and between the top 10 shareholders of

the circulation stock without selling

limit and the top 10 shareholders or the

concerted action

Potevio Eastcom Group Co. Ltd. is the largest shareholder of the Company and Zhuhai

Potevio Peace Telecommunication Industry Co. Ltd. is the second largest shareholder. The

Company’s holding shareholder Potevio Eastcom Group occupies 57.8% of the total shares

of and acts in concert with Heping Telecommunications. It is unknown whether the other

shareholders of the Company are mutually related and whether they are parties acting in

concert as set forth in Management Methods for Shareholding Changes Disclosure of Listed

Companies.

Description of the top 10 shareholders

of the common stock joining margin

trading business (if any)(see Note 4)

Not applicable

Whether the first ten shareholders of the common stock and the top 10 shareholders without the limit selling conditions carry out the

agreed repurchase transaction within the statement period.

□ Yes √ No

48


The top 10 shareholders of the common stock and the first ten shareholders without the limit selling conditions did not carry out the

agreed repurchase transaction within the statement period.

2. Controlling shareholders

Nature of Shareholder: state-owned controller

Shareholder Type: legal person

Shareholder NameLegal

representative/headDate of incorporation

Organizational Institution

CodeMajor Business

Potevio Eastcom Group

Co. Ltd.

Zhou Zhongguo April 8, 1996 25391560-4 Technology

development, service,

training, wholesale and

retail; communication

equipment, electronic

computer and external

equipment, and

electronic components;

contracting;

communication

equipment engineering;

consultation; economic

information(except the

securities, futures and

commodities

intermediary); goods

import and export

(except the projects

prohibited to operate by

the law and

administrative regulation,

and the projects limited

to operate by the law and

administrative regulation

only can be operated

after obtaining

permission ); service;

self-owned house leasing

and property

management;

manufacturing and

processing;

communication

equipment, electronic

49


computer and external

equipment, and

electronic components.

Stock equity of other

domestic and foreign

listed company of the

controlling shareholder

within the report period

Within the report period, Potevio Eastcom Group Co. Ltd. holds 45.44% of shares of Eastcom Co. Ltd.

(code: 600776).

Change of controlling shareholder within report period


No change of controlling shareholder occurred within the report period.

3. Information on actual controller of the Company

Nature of actual controller: Central state-owned assets management agency

Type of actual controller: Legal entity

Name of actual controllerLegal

representative/headDate of incorporation

Organizational Institution

CodeMajor Business

China Potevio Information

Industry Group Company

Xing Wei January 1, 1980 10000157-X Major business:

Production by enterprises

subordinate to it:

communication

equipment, special posts

equipment,

communication line

equipment and

maintenance spare parts,

special communication

equipment electronic

components, special

posts communication

motors and the spare

parts and the research

and development,

wholesale, retail,

purchasing and selling on

a commission base and

exhibition and sales of

the other products

produced by the

system(except for the

special provisions of the

50


state); import of raw

materials, machinery

equipment, instrument

and meter, reserved spare

parts and components

and the spare parts and

technologies required for

production and scientific

research of the enterprise

(except for the import

commodities of the first

class stipulated by the

state); joint-stock

operation and

production; self-

operation or agency of

import and export of the

other commodities and

technologies except for

the export commodities

which are unitedly

organized and operated

by the state and the

import commodities for

which the state

implements the

authorized company

operation; carry out

processing of the

supplied materials and

the supplied samples,

assembling of the

supplied parts and the

compensation trade, and

the processing service of

the imported materials;

operate counter trade and

intermediary trade.

Stock equity of other

domestic and foreign

listed company controlled

by the actual controller

within the report period

Within the statement period, China Potevio Information Industry Group Co., Ltd holds 100% stock

equity of Potevio Information Industry Co., Ltd. Potevio Information Industry Co., Ltd holds 50.25%

shares of Shanghai Potevio Posts and Telecommunications Technologies Co., Ltd (code: 600680),

50.25% shares of Chengdu Potevio Cable Co. Ltd. (code: HK1202) and 53.49% shares of Nanjing

Potevio Communication Co. Ltd. (code: 200468).

51


Change of actual controller within report period


No change of actual controller occurred within the report period.

Block diagram of equity and controlling relationship between the Company and actual controller

The actual controller controls the company by trust or other assets management mode


4. Other legal person shareholders with holdings above 10%


Name of legal person shareholderLegal

representative/head

Date of

incorporation

Registered share

capital

Main business or

management activities

Zhuhai Potevio Peace Telecom

Industrial Co. Ltd

Ni Shouping July 10, 1987 24,998,500 Yuan Design and production of:

electronic components,

communication equipment

and instruments; wholesale

and retail of: hardware,

electronic components and

communication equipment,

instruments, stationery and

52

Eastcom Peace Technologies Co. Ltd.

Zhuhai Potevio Peace Telecom Industrial Co. Ltd.

Potevio Eastcom Group Co. Ltd.

Potevio Information Industry Co. Ltd.

China Potevio Information Industry Group Co. Ltd.


general merchandise.

5. Reduction of holding by controlling shareholders, actual controller, recombining party and other committing party due to share limit.


53


Section VII - Relevant Information on Preferred Stock


No preferred stock was issued by the Company within the report period.

54


Section VIII - Information on Directors, Supervisors, Senior

Management and Staff

I. Change of holding by directors, supervisors and senior executives

Name TitleEmploym

entGender Age

Starting

Date of

Tenure

Ending

Date of

Tenure

Starting

Holdings

(Share)

Increase

of

Holdings

in Current

Period

(Share)

Decrease

of

Holdings

in Current

Period

(Share)

Other

Increases

and

Decreases

(Share)

Ending

Holdings

(Share)

Zhou

Zhongguo

Chairman

of the

Board

Currently

in officeMale 49

February

14, 2004

December

20, 2016692,900 0 173,225 0 519,675

Zhang

Xiaochua

n

Director,

general

manager

Currently

in officeMale 46

May 13,

2016

December

20, 2016312,227 0 0 0 312,227

Ni

ShoupingDirector

Currently

in officeFemale 52

Septembe

r 27, 2004

December

20, 2016

Lou

ShuiyongDirector

Currently

in officeMale 41

August

17, 2016

December

20, 2016

Wang Xin DirectorCurrently

in officeMale 49

Septembe

r 13, 2010

December

20, 2016

Chen

GenhongDirector

Currently

in officeMale 41

December

20, 2013

December

20, 2016

Zhang

ZexiDirector Retired Male 61

Septembe

r 10, 2004

April 14,

2016

Guo

DuanduanDirector Retired Male 45

December

20, 2013

July 28,

2016

Yang

Xiong

Independ

ent

Director

Currently

in officeMale 50

April 13,

2011

December

20, 2016

Zhang Qi Independ Currently Female 71 December December

55


ent

Directorin office 31, 2012 20, 2016

Yu Fang

Independ

ent

Director

Currently

in officeFemale 59

December

31, 2012

December

20, 2016

Meng

Luoming

Independ

ent

Director

Currently

in officeMale 61

December

20, 2013

December

20, 2016

Zeng

Xiaodong

Independ

ent

Director

Currently

in officeMale 38

May 13,

2016

December

20, 2016

Yuan

Huasheng

Independ

ent

Director

Retired Male 56May 13,

2016

December

20, 2016

Song

Guangyao

Chairman

of the

board of

superviso

rs

Currently

in officeMale 43

April 10,

2012

December

20, 2016

Du Yuan

Chairman

of the

board of

superviso

rs

Retired Male 40Septembe

r 10, 2015

July 28,

2016

Pan LijunSuperviso

r

Currently

in officeFemale 45

August

17, 2016

December

20, 2016

Wang

Lijun

Superviso

r

Currently

in officeFemale 38

April 10,

2012

December

20, 2016

Wang

Jianbo

Superviso

r on

behalf of

staff

Currently

in officeMale 57

December

10, 2002

December

20, 2016

Zhou

Yongjian

Superviso

r on

behalf of

staff

Currently

in officeMale 59

Novembe

r 10, 2001

December

20, 2016

Huang

Xiaopeng

Vice-

general

manager

Currently

in officeMale 43

Septembe

r 13, 2010

December

20, 2016156,000 0 0 0 156,000

Hu Dan Vice- Currently Male 41 Septembe December 156,000 0 0 0 156,000

56


general

managerin office r 13, 2010 20, 2016

Ren Bo

Vice-

general

manager

Currently

in officeMale 46

March 30,

2010

December

20, 2016158,000 0 12,000 0 146,000

Shi

Wenzhon

g

Vice-

general

manager

Currently

in officeMale 48

April 10,

2012

December

20, 2016156,000 0 200 0 155,800

Chen

Zongchao

Vice-

general

manager

Currently

in officeMale 43

April 10,

2012

December

20, 2016156,000 0 0 0 156,000

Song

Gang

Vice-

general

manager

Currently

in officeMale 48

August

16, 2012

December

20, 2016124,800 0 0 0 124,800

Yuan

Jianguo

Vice-

general

manager

Currently

in officeMale 54

March 15,

2013

December

20, 2016124,800 0 0 124,800

Total -- -- -- -- -- -- 2,036,727 0 185,425 0 1,851,302

II. Change of Directors, Supervisors and Senior Executives


Name Title Held Type Date Reason

Zhou Zhongguo General manager Retired April 14, 2016 Resigned for job transfer

Yuan HuashengIndependent

DirectorRetired May 13, 2016 Resigned for personal reason

Zhang ZexiNon-Independent

DirectorRetired April 14, 2016 Resigned for personal reason

Guo DuanduanNon-Independent

DirectorRetired August 17, 2016 Resigned for job transfer

Du Yuan

Chairman of the

board of

supervisors

Retired July 28, 2016 Resigned for job transfer

III. Employment

Professional background, main working experience and current main responsibilities of directors, supervisors and the senior

executives currently in office

1. Directors

Mr. Zhou Zhongguo, male, born in 1967, bachelor’s degree, senior engineer, CPC member; Currently is

57


Chairman of the Board of the Company, and vice-chairman of the board and president of Eastcompeace Group,

director of Hangzhou Eastcom Software Technology Co. Ltd., director of Hangzhou Eastcompeace Northpost

Information Technology Co. Ltd., the member of the 8th Zhuhai committee of Political Consultative Conference,

the committee member of Zhuhai Association for Science and Technology, the chairman of the fifth board of

management of Zhuhai Software Industry Association, the vice chairman of Xiangzhou District Association for

Science and Technology, the vice chairman of Zhuhai Federation of Industry and Commerce, the chairman of

Xiangzhou District Federation of Industry and Commerce, the vice president of Zhuhai Chamber of Commerce

for Import and Export, the vice president of Zhuhai Foreign Friendly Association, the managing director of the

board of management of Zhuhai Public Diplomacy Association, the member of the editorial committee of Golden

Card Engineering, the director of City Link Data Co. Ltd. and etc.; formerly was the general manager assistant of

the users’ department and the director of the branch plant of Hangzhou Communication Equipment Plant.

Ms. Ni Shouping, born in 1964, graduate of junior college, certified public accountant, senior

accountant, CPC member; Currently acts as director of the Company, vice-president and chief accountant of

Potevio Eastcom Group Co., Ltd., director of Eastcom Co. Ltd., chairman of the board of Zhuhai Potevio Peace

Telecom Industrial Co. Ltd., director of Hangzhou Eastcom Northpost Information Technology Co. Ltd.,

chairman of the board of Guangzhou Post and Telecommunication equipment Co. Ltd., chairman of the board of

Hefei Eastcom Estate Development Co. Ltd., chairman of the board of Huzhou Eastcom Industry Investment Co.

Ltd., chairman of the board of Shanghai Wireless communication equipment Co. Ltd., member of the fourth

CPPCC of Xihu District, Hangzhou, and formerly be the director of the financial department of Eastcom Co., Ltd,

the chief accountant of Potevio Eastcom Group Co. Ltd.

Mr. Lou Shuiyong, born in 1975, master’s degree, senior accountant; currently acts as director of the

Company, vice-president of Potevio Eastcom Group Co., Ltd., chairman of the board and vice-general manager of

Hangzhou Eastcom Trading Co. Ltd., chairman of the board of Hangzhou Eastcom Industry Co. Ltd., chairman of

the board of Hangzhou Eastcom Optoelectronic Technology Co. Ltd. and NPC member of Xihu District,

Zhuzhou; formerly be investment management business director, financial manager, financial general manager

and chief vice-accountant of Potevio Eastcom Group Co., Ltd.

Mr. Zhang Xiaochuan, born in 1970, undergraduate of Shanghai Jiao Tong University. Currently is director

and chairman of the board of Eastcompeace Technology Co., Ltd., and vice-chairman of the board of Inter-City

58


Data Co. Ltd., and director of Potevio Peace Telecom Industrial Co. Ltd.; previously was secretary of president of

Potevio Eastcom Group Co., Ltd., corporate administration director, vice-general manager of investment

management company, secretary of board of directors of Eastcompeace, vice-president and general vice-president.

Mr. Wang Xin, born in 1967, MBA of CEIBS. Currently be the chairman of Peter F. Drucker Academy

and formerly be the vice president and the general manager of the public service department of Microsoft (China)

Co., Ltd, the general manager in north Asia of the government and enterprise mobile solutions department of

Motorola(China) Inc. and the managing director and the sales director in north Asia for the professional unlimited

communication service of Shanghai Motorola Communication Products Trading Co., Ltd, the general manager of

the central government service in china of the government and public service department and the general manager

in China of the transport and commodities circulation of the IBM (China) Co., Ltd.

Mr. Chen Genhong, born in 1975, master's degree, CPC member. Currently the director of the Company,

chairman of the board of Zhuhai Xiangzhou Zhengfang Holding Co. Ltd., chairman of the board of Zhuhai

Zhengfang Entrepreneurship Investment Co. Ltd., and chairman of the board of Zhuhai Xiangzhou Zhengfang

Public Resource Operating Co. Ltd.; formerly be the dean assistant of Hongwan village of Nanping town of

Xiangzhou district, the section chief of the organization department of Xiangzhou district committee, the vice

director of the ocean and fisheries bureau of Xiangzhou district and the general manager of Xiangzhou Zhengfang

Holdings Co., Ltd.

Yang Xiong, born in 1966, undergraduate, Certified Public Accountant and the first group of experienced

member of CICPA. Currently is independent director of the Company, director of Lixing Accounting Firm

(special ordinary partnership), senior partner, general partnership of Beijing headquarters, independent director of

Guangfa Securities, Rongfeng Holding Group and Aerospace Industry Development Co. Ltd.; formerly vice-head

of Guizhou Accountant Firm, Chief Accountant of Guizhou Xianyuan Accountant Firm, director and vice-chief

accountant of Tianyi Accountant Firm, chairman of the board and Chief Accountant of Zhonghe Zhengxing

Accountant Firm; Chief accountant of Tianjing Zhengxin Accountant Firm.

Ms. Zhang Qi, born in 1945, professor level senior engineer and part-time professor. Currently be

independent director, the executive chairman of China Information Industry Chamber of Commerce, the director-

general of China RFID Industry Alliance, the managing director of China Institute of Electronics and the

chairman of the computer engineering and application branch; the vice dean of the Electronic Scientific and

Technological Commission of the National Ministry of Industry and Information Technology and the office dean

59


of the National Golden Card Engineering Coordinating Group from 1993 till now. Formerly be the vice director

and director of Heilongjiang Yanshou Electronics Plant; the deputy director and director of the Computer and

Information Technology Promotion Division of the Ministry of Electronics Industry; the director of the Electronic

Information Products Management Division of the Ministry of Information Industry.

Ms. Yu Fang, born in 1957, doctor of financial engineering and economic development major, the researcher

of the economics (Grade III) and the master supervisor of the international finance major. Currently be

independent director of the Company, auditor of Guangzhou Property Ownership Trading Center, adviser of

Office of the Counselors of Guangdong Provincial People's government; Formerly be the vice director of the

Modernized Strategic Development Research Institute and the director of the Open Economy Research Institute

(the name has been changed to the Public Finance and Finance Research Institute)of Guangdong Academy of

Social Sciences, the dean of the public finance and finance center, the independent director of Yueyang Hengli

Co., Ltd., and master supervisor of International Finance Department of School of Postgraduate of Social Science

Institute of Guangdong.

Mr. Meng Luoming, born in 1955, master’s degree. Currently be independent director of the Company, and

professor, doctoral supervisor and vice-director of the academic committee of Beijing University of Posts and

Telecommunications, the member of the national committee of the CPPCC, the counselor of Beijing people’s

government, the board chairman of Beijing Metarnet Technology Co. Ltd.; successively acted as assistant

teacher, lecturer, associate professor and professor of Beijing University of Posts and Telecommunications,

specialized in research in communication network, network administration and communication software.

Mr. Zeng Xiaodong, born in 1978, CPC member, master's degree, bachelor of Laws from Zhejiang

University, master of Maritime Law from University of Southampton, certified lawyer. Currently be independent

director of the Company, senior partner of Jingcheng Tongda Lawyer Firm, vice-director of Securities Law

Committee of Beijing Lawyer Association, research follower of Shanghai Finance and Law Research Institute,

independent of Hebei Bank, Beijing Sanyuan Food Co. Ltd., and Ningbo Joint Group Company; formerly served

in Norton Rose LLP and Zhejiang Tiance Lawyer Firm.

2. Supervisors

Mr. Song Guangyao: born in 1973, master's degree, CPC member. currently is chairman of the board of

supervisors of the Company, strategic investment general manager of Eastcom Group, supervisor of Hangzhou

Eastcom Northpost Information Technology Co. Ltd., director and general manager of Hangzhou Eastcom

Entrepreneurship Investment Co. Ltd., director of Hangzhou Eastcom Optoelectronic Technology Co. Ltd.

60


successively acted as the general manager assistant of Hangzhou Eastcom Venture Capital Investment Co., Ltd,

the business manager, vice general manager and general manager of the strategic investment department of

Potevio Eastcom Group Co., Ltd.

Ms. Pan Lijun: born in 1971, undergraduate, senior accountant. Currently is supervisor of the Company,

audit supervision General manager of Eastcom Group; formerly was financial director of Program Control

Manufacturing Department of Hangzhou Communication Equipment Plant of MPT, operational finance director

of Potevio Eastcom Group Co. Ltd., general accountant of Finance Department, financial manager and financial

director of subsidiary company.

Ms. Wang Lijun: born in 1978, undergraduate. Currently is supervisor of the Company, supervisor and vice-

general manager of Zhuhai Xiangzhou Zhengfang Holding Co. Ltd., director of Zhuhai Xiangzhou Zhengfang

Public Resource Operating Co. Ltd., director of Zhuhai Zhengda Parking Co. Ltd. and director of Zhuhai

Shangcong Agricultural Trading Market Co. Ltd. Successively acted as export director of Marketing Department

of Zhuhai Hongtarenheng Paper Industry Co. Ltd.

Mr. Wang Jianbo: born in 1959, college graduate. Currently is staff representative supervisor of the

Company, and general manager of General Administration Department, formerly was the technician of No. 132

group of the 8th agriculture division of Xinjiang Production Construction Army, the chief of the human resource

section of Xinjiang Shihezi Tonglian Industrial Corporation and the office dean of Zhuhai Xiyada

Communications Equipment Co., Ltd.

Mr. Zhou Yongjian: born in 1957, college graduate. Currently is staff representative supervisor of the

Company, and general manager of HR Department; formerly was quality inspector of QC Development of

Eastcom Group, and business manager of HR Department.

3. Senior executives

For details on Mr. Zhou Zhongguo and Mr. Zhang Xiaochuan, see the section "Members of Board of Directors"

above.

Mr. Huang Xiaopeng: born in 1973, master's degree, and senior engineer. Currently is vice-president and

chief engineer of the Company, and director of R&D Center, and director of Inter-City Data Co. Ltd.; formerly

acted as senior research and development engineer of Eastcom Co. Ltd, manager of the Research and

Development Department of the Company, dean of the research and development center of the Company.

Mr. Hu Dan: born in 1975, undergraduate. Currently be the vice president of the company, and hold concurrent

posts of the general manager of the international department and the board president of Eastcompeach (Singapore)

61


Co., Ltd., Eastcompeach Smart-Card (The People's Republic of Bangladesh) Co., Ltd and Eastcompeach (India)

Co., Ltd.; Formerly be the business manager of the commerce and trade department of Eastcom Co., Ltd, the

general manager of the purchasing department of the Company.

Mr. Ren Bo: born in 1970, undergraduate, senior accountant. Currently is be the CFO of the company, and

hold concurrent posts of the general manager of the financial department and the director of Eastcompeach

(Singapore) Co., Ltd and Eastcompeach Smart-Card (The People's Republic of Bangladesh) Co., Ltd. Formerly

was the accountant of the financial department of China Packaging Import and Export Zhejiang Company and

Potevio Eastcom Group Co., Ltd, the vice manager and manager of the financial department of the company and

the general manager of the financial department.

Mr. Shi Wenzhong: born in 1968, postgraduate, engineer. Currently be the vice president of the company,

and formerly be the general manager of the human resource and administrative department of Potevio Eastcom

Group Co., Ltd, the vice office dean and regional manager of Hangzhou Communication Equipment Plant, the

vice general manager of the human resource department of Julong Communication Equipment Co., Ltd, the office

dean of the Net Equipment Company of Eastcom Group, Chairman of the Board of supervisors of the company.

Mr. Chen Zongchao: born in 1973, undergraduate. Currently be the vice president, secretary of the board of

directors of the company, and hold concurrent posts of the general manager of the investment development

department and the purchasing department, the board chairman of Eastcompeach (Russia) Co., Ltd., the director

of Eastcompeach Smart-Card (The People's Republic of Bangladesh) Co., Ltd, Eastcompeach (Singapore) Co.,

Ltd.; Formerly was securities issues representative, and president assistant of the company.

Mr. Song Gang: born in 1968, postgraduate. Currently be the vice president of the company, formerly be

the general manager of the Goldpac Secur-Card (Zhuhai) Ltd, the vice executive president of the Goldpac Group

Ltd, the project manager of the investment department, the vice manager of the corporate management department

of China Safety International Group Co. Ltd. in Zhuhai special economic zone and the general manager of its

subsidiary pharmaceutic company.

Mr. Yuan Jianguo: born in 1962, undergraduate. Currently be the vice president of the company, the

director and general manager of the City Link Data Co., Ltd, and formerly be the vice general manager of Ningbo

Netcom Information Port Co., Ltd., the general manager and the secretary of the party leadership group of Ningbo

Citizen Card Operation Management Co., Ltd, the office dean of the Ningbo Orient Group Co. Ltd, the general

manager of the investment company, the chief economist and the vice president of the group.

62


Employment with shareholder organizations


Name of

HolderName of Shareholder Organization

Title in

Shareholder

Organization

Starting Date of

Tenure

Ending Date of

Tenure

Paid or not by

Shareholder

Organization

Zhou

ZhongguoPotevio Eastcom Group Co. Ltd.

Vice-

Chairman of

the Board

June 8, 2016 Yes

Zhou

ZhongguoPotevio Eastcom Group Co. Ltd. President May 19, 2016 Yes

Ni Shouping Potevio Eastcom Group Co. Ltd.

Vice-

president and

general

accountant

April 1, 1999 Yes

Ni ShoupingZhuhai Potevio Peace Telecom Industrial

Co. Ltd

Chairman of

the BoardMarch 1, 2005 No

Lou Shuiyong Potevio Eastcom Group Co. Ltd.Vice-

president

September 9,

2010Yes

Song Guangyao Potevio Eastcom Group Co. Ltd.

Strategic

investment

general

manager

December 1,

2008Yes

Pan Lijun Potevio Eastcom Group Co. Ltd.

Audit

supervision

general

manager

February 2,

2015Yes

Description of

employment

with

shareholder

organization

None

Employment with other organizations


Name of Holder Name of other Organization

Title Held in

Other

Organization

Starting Date of

Tenure

Ending Date of

Tenure

Paid or not by

other organization

Zhou Zhongguo East Communication Group Co. Ltd.Chairman of

the BoardMay 13, 2016 No

Ni Shouping East Communication Group Co. Ltd. Director April 1, 1999 No

63


Ni ShoupingZhuhai Potevio Peace Telecom Industrial

Co. Ltd

Chairman of

the Board

February 2,

2005No

Ni ShoupingGuangzhou Post and Communication

Equipment Co. Ltd.

Chairman of


Ni ShoupingChairman of the Board of Hefei Eastcom

Estate Development Co. Ltd.

Chairman of


Ni ShoupingChairman of the Board of Huzhou Eastcom

Industry Investment Co. Ltd.

Chairman of

the Board

November 13,

2012No

Ni Shouping

Chairman of the Board of Shanghai

Wireless Communication Equipment Co.

Ltd.

Chairman of


Lou Shuiyong Hangzhou Eastcom Trading Co. Ltd.

Chairman of

the Board and

general

manager

April 2, 2009 No

Lou ShuiyongHangzhou Eastcom Entrepreneurship

Investment Co. Ltd.

Chairman of

the Board

December 6,

2012No

Lou Shuiyong Hangzhou Eastcom Industry Co. Ltd.Chairman of

the Board

November 11,

2009No

Lou ShuiyongHangzhou Eastcom Optoelectronic

Technology Co. Ltd.

Chairman of

the BoardMay 21, 2012 No

Zhang

XiaochuanInter-City Data Co. Ltd.

Vice-

chairman of

the board

April 17, 2016 No

Zhang

Xiaochuan

Zhuhai Potevio Peace Telecom Industrial

Co. LtdDirector April 14, 2017 No

Mr. Wang Xin Peter F. Drucker Academy of Beijing PresidentOctober 10,

2013Yes

Chen GenhongZhuhai Xiangzhou Zhengfang Holding Co.

Ltd.

Chairman of

the Board

September 29,

2012Yes

Chen GenhongZhuhai Zhangfang Entrepreneurship

Investment Co. Ltd.

Chairman of

the Board

December 3,

2014No

Chen GenhongZhuhai Xiangzhou Zhengfang Public

Resource Operating Co. Ltd.

Chairman of

the Board

February 3,

2016No

Yang Xiong Lixing Accountant Firm (Special Ordinary

Partnership)

Director,

senior partner,

and general

manager of

Beijing

January 1, 2011 Yes

64


headquarters

Yang Xiong Guangfa Securities Co. Ltd.Independent

DirectorMay 13, 2014 May 12, 2017 Yes

Yang Xiong Rongfeng Holding Group Co. Ltd.Independent

Director

November 18,

2014

November 17,

2017Yes

Yang Xiong Aerospace Industry Development Co. Ltd.Independent

Director

August 10,

2015August 9, 2018 Yes

Zhang QiOffice of National Golden Card Program

Leading TeamDirector January 1, 1993 Yes

Meng LuomingBeijing University of Posts and

Telecommunications

Professor and

doctoral

supervisor

August 14,

1987Yes

Meng Luoming Beijing Metarnet Technologies Co. Ltd.Chairman of

the Board

February 1,

2008Yes

Zeng Xiaodong Jingcheng Tongda Lawyer FirmAdvanced

partner

December 2,

2009Yes

Zeng Xiaodong Beijing Sanyuan Food Co. Ltd.Independent

DirectorMay 27, 2016 May 26, 2019 Yes

Zeng Xiaodong Ningbo Joint Group Co. Ltd.Independent

DirectorApril 25, 2016 April 24, 2019 Yes

Song GuangyaoHangzhou Eastcom Northpost Information

Technology Co. Ltd.Supervisor No

Song GuangyaoHangzhou Eastcom Entrepreneurship

Investment Co. Ltd.

Director and

general

manager

No

Song GuangyaoHangzhou Eastcom Optoelectronic

Technology Co. Ltd.Director No

Wang LijunZhuhai Xiangzhou Zhengfang Holding Co.

Ltd.

Director and

vice-general

manager

Yes

Wang LijunZhuhai Xiangzhou Zhengfang Public

Resource Operating Co. Ltd.Director No

Wang Lijun Zhuhai Zhengda Parking Co. Ltd. Director No

Description of

employment

with other

organizations

None

Punishment of current/retired (within report period) directors, supervisors and senior management by regulatory authority in recent

65


three years


VI. Remuneration of Directors, Supervisors and Senior Executives

Decision-making procedure, confirmation basis and actual payment condition of rewards of directors, supervisors and senior

management

1. Remuneration decision-making process

The company shall carry out in accordance with the Company Articles, the Emolument and Welfare

Management Method for the Senior Management Staff, the Guidelines on Building Independent Director System

in the Listed Company and the Independent Director Working System

2. Basis for determination of remuneration

The directors, supervisors and senior management staff holding office in the company receives the emolument

according to their administrative positions and posts and the current emolument and welfare management method

of the company, and the annual bonus is confirmed according to the operation performance of the year and the

examination and evaluation procedure. The emolument and evaluation committee of the board of directors is

responsible for the emolument management and performance assessment.

3. Actual payment of remuneration

The company pays the emolument and welfare on time strictly in accordance with the decision-making

procedure and confirmation basis of the emolument of the directors, supervisors and the senior management staff.

Remuneration of directors, supervisors and senior executives within report period

Unit: Yuan

Name Title Gender Age EmploymentTotal Pre-Tax

Remuneration

Remuneration

from interested

party

Zhou ZhongguoChairman of the

BoardMale 49

Currently in

office103 Yes

Zhang Zexi Director Male 61 Retired 0 Yes

Ni Shouping Director Female 51Currently in

office0 Yes

Wang Xin Director Male 49Currently in

office0 Yes

66


Guo Duanduan Director Male 45 Retired 0 Yes

Lou Shuiyong Director Male 41Currently in

office0 Yes

Chen Genhong Director Male 41Currently in

office0 No

Yang XiongIndependent

DirectorMale 50

Currently in

office8 Yes

Zhang QiIndependent

DirectorFemale 71

Currently in

office8 No

Yu FangIndependent

DirectorFemale 60

Currently in

office8 No

Meng LuomingIndependent

DirectorMale 61

Currently in

office8 No

Yuan HuashengIndependent

DirectorMale 54 Retired 0 No

Zeng XiaodongIndependent

DirectorMale 38

Currently in

office5.08 No

Du Yuan

Chairman of the

board of

supervisors

Male 38 Retired 0 Yes

Song Guangyao

Chairman of the

board of

supervisors

Male 43Currently in

office0 Yes

Pan Lijun supervisor Female 46Currently in

office0 Yes

Wang Lijun supervisor Female 39Currently in

office0 Yes

Zhou YongjianSupervisor on

behalf of staffMale 59

Currently in

office27 No

Wang JianboSupervisor on

behalf of staffMale 57

Currently in

office25 No

Zhang Xiaochuan president Male 46Currently in

office94 No

Huang Xiaopeng Vice-president Male 43Currently in

office74 No

Hu Dan Vice-president Male 42Currently in

office71 No

Ren Bo Vice-president Male 46 Currently in 72 No

67


financial director office

Shi Wenzhong Vice-president Male 48Currently in

office69 No

Chen Zongchao

Vice-president

and secretary of

chairman of the

board

Male 43Currently in

office69 No

Song Gang Vice-president Male 48Currently in

office67 No

Yuan Jianguo Vice-president Male 55Currently in

office65 No

Total -- -- -- -- 773.08 --

Equity incentive rewarded to directors and senior executives within report period


Unit: Share

Name Title

Exercisabl

e shares

within

report

period

Exercised

shares

within

report

period

Price of

exercised

shares

within

report

period

(Yuan/shar

e)

Market

value at

the end of

report

period

(Yuan/shar

e)

Shared

held at the

beginning

of the

period

Shared

unlocked

in current

period

Restricted

shares

awarded

within

report

period

Award

price of

restricted

stock

(Yuan/shar

e)

Restricted

shares held

at the end

of the

period

Zhou

Zhongguo

Chairman

of the

Board

0 0 187,200 62,400 0 124,800

Zhang

Xiaochuanpresident 0 0 156,000 52,000 0 104,000

Huang

Xiaopeng

Vice-

president0 0 156,000 52,000 0 104,000

Hu DanVice-

president0 0 156,000 52,000 0 104,000

Ren Bo

Vice-

president

financial

director

0 0 156,000 52,000 0 104,000

Shi

Wenzhong

Vice-

president0 0 156,000 52,000 0 104,000

Chen Vice- 0 0 156,000 52,000 0 104,000

68


Zongchao

president

and

secretary

of

chairman

of the

board

Song GangVice-

president0 0 124,800 41,600 0 83,200

Yuan

Jianguo

Vice-

president0 0 124,800 41,600 0 83,200

Total -- 0 0 -- -- 1,372,800 457,600 0 -- 915,200

Remarks (if any)

Condition for unlocking restricted stock for equity incentive in the first unlocking stage is met, and the date

of unlocking (date of issuance) is February 29, 2016. Unlocked quantity is one third of the total restricted

shares for equity incentive. The aforesaid statistics are change of Restricted shares for equity incentive,

excluding variation in unlocked shares for senior executives.

V. Information on staff

1. Employees quantity, discipline composition and education background

Quantity of employees in service in parent company (person) 1,869

Quantity of employees in service in major subsidiary company

(person)337

Total of employees in service 2,206

Total of employees paid in current period (person) 2,206

Quantity of the retired employees who are paid by parent/major

subsidiary company (person)0

Discipline composition

Discipline composition type Discipline composition quantity (person)

Production staff 1,277

Marketing staff 117

Technical staff 620

Financial staff 31

Administrative staff 161

Total 2,206

Education background

Education background type Quantity (person)

69


Master or higher 40

Undergraduate 613

Junior college graduate 286

Below junior college graduate 1,267

Total 2,206

2. Remuneration policy

Basic goal: to build the market competitiveness with the intermediate and upper level in the industry, attract

and retain the valuable talents and exert the performance incentive effect to promote and coordinate the

realization of the company’s strategic operation goal.

Current condition: The Company has built a multi-level and multi-dimension emolument and welfare system,

and formulated a emolument and welfare system which complies with the practical situation of the company and

integrates with the labor market according to the price of the labor market; exert the performance incentive effect

to arouse the working enthusiasm of the employees and guide the improvement of the performance of the

employees; persist in the principle that the legal equity of the employees are not infringed, and according to the

relevant labor law, timely pay the labor salaries with enough amount; regularly formulate the annual labor costs

and gross salaries every year, and carry out the real-time monitoring and control the labor costs with the target.

3. Training plan

The company focuses on growth and development of the employees, actively seeks various kinds of training

resources and channels, builds the perfect training system, including the orientation training for the new

employees, the skills improving training for the employees in active service, the quality training for the

management staff, the safety production training, occupational health training and etc., and advocates enhancing

occupational competence and management level by continuous study and training, which can not only promote

the implementation of the company overall strategy object, but also can satisfy the need of the employees’

individual capability and occupational development, realizing the win-win situation of the company development

and the employees’ individual development.

4. Labor outsourcing


70


Section IX - Corporate Governance

I. Basic Situation of Corporate Governance

During the reporting period, the Company will strictly implement Corporation Law, Securities Act,

Governing Rules of Listed Companies, Stock Listing Rules of Shenzhen Stock Exchange and requirements of

related laws and regulations of CSRC to continuously improve the corporate governance structure, establish and

perfect the internal management and control system and continue to carry out the special activity of the corporate

governance in a deep-going way so that the company’s corporate governance structure will be more perfect and its

standard operation and governance level will also be further enhanced. The actual situation of the corporate

governance largely conforms to the relevant normative documents about governance of the listed companies

issued by CSRC and the specific situation is as follows.

(1) Shareholders and general meeting of shareholders: The Company will further standardize the convening,

holding and voting procedures of the Shareholder’s Meeting, equally treat all shareholders and expand the

participation of medium and small shareholders in strict accordance with the provisions and requirements of the

Regulatory Opinions on Shareholder’s Meeting of the Listed Companies and the Rules of Procedure of

Shareholder’s Meeting so as to guarantee shareholders’ right to know and participate in the company’s major

matters and ensure that the shareholders, especially medium and small shareholders, can fully exercise the

shareholders’ rights.

(2) Relationship between controlling shareholders and the Company: The Company and its controlling

shareholder are completely separated in the business, personnel, assets, institutions, finance and other aspects with

the independent and integrated business and operation capacity. The controlling shareholder of the company shall

exercise the rights and undertake corresponding obligations according to laws, which will not directly or indirectly

interfere with the company's decision-making and business operation activities and damage the legitimate rights

and interests of the company or other shareholders. The company has independent operation and the Board of

Directors, Board of Supervisors and the internal mechanism can run independently without the intervention of the

controlling shareholder.

(3) Directors and Board of Directors: The Company will elect the directors in strict accordance with director

71


election procedures stipulated by Corporate Law and Articles of Association. The election of directors will adopt

the cumulative voting system to ensure the justice, fairness and openness of the election of directors. During the

reporting period, the Board of Directors of the company will have eleven members including five independent

directors, which accounts for more than one-third of all the members of the Board of Directors, and the number

and staff composition of the Board of Directors conform to the requirements of laws and regulations and Articles

of Association. In accordance with the requirements of Corporate Law and Rules of Procedures of Board of

Directors, the Board of Directors shall convene and organize the meeting and exercise their powers according to

laws so that the Board of Directors of the company can exercise the powers in a practical, effective, honest and

diligent way. The Board of Directors consists of remuneration and appraisal committee, the strategic committee

and the audit committee, which will further improve the corporate governance structure and be helpful to better

play the role of independent directors.

(4) Supervisors and the Board of Supervisors: The Company’s Board of Supervisors will elect the supervisors in

strict accordance with supervisor election procedures of Articles of Association and Rules of Procedure of Board

of Supervisors and the staff composition of the Board of Supervisors conforms to requirements of the laws and

regulations. The corporate supervisors and the staff representative supervisor will conscientiously perform their

duties, supervise the company’s financial status and legality and compliance of responsibilities performed by

directors, managers and other senior executives and safeguard the legal rights and interests of the company and

shareholders.

(5) Performance evaluation and incentive and restriction mechanism: The Company gradually improves and

establishes the fair and transparent performance evaluation and incentive and restriction mechanism of directors,

supervisors and the senior managers and the appointment of the managers and complies with the requirements of

relevant laws and regulations. The senior managers of this company obtain salaries in the form of the basic annual

salary and special incentives from benefits.

(6) Information disclosure and transparency: The Information Disclosure Management System, Reception and

Communication System for Investors, Potential Investors and Specific Objects and system of Secretary Work of

the Board of Directors will be strictly carried out and the secretary of the board will be responsible for the

information disclosure. The transparency of the corporate operation will be improved by establishing the

dedicated telephone and e-mail of investors and setting up the special page of the investor relations in the

company’s website. In 2013, the Company timely disclosed the relevant information in a true, accurate and

72


complete way in strict accordance with relevant provisions to ensure that all shareholders of the Company can

obtain information equally.

(7) Interested parties: The Company can fully respect and maintain the legal rights and interests of shareholders,

actively participate in the social welfare undertakings, strengthen communications and exchanges with all parties,

realize the benefit balance among the shareholders, staff and society and jointly promote the sustained and healthy

development the company.

(8) During the reporting period, the name and disclosure of various systems formulated/revised by the Company

are as follow:

Serial No. Name of Regulations Date of Disclosure

1 Articles of Association July 28, 2016, October 20, 2016

2 Management and Use of Funds Raised August 24, 2016

3 Regulations on Management of External Security August 24, 2016

4 Implementing Regulations on Accumulative Voting System August 24, 2016

5 Regulations on Prevention against Fund Occupation by

Interested Party

August 24, 2016

6 Internal Audit Rules December 23, 2016

Is actual corporate governance significantly different from the normative documents about governance of the listed companies issued

by CSRC?

□ Yes √ No

The actual corporate governance is not significantly different from the normative documents about governance of the listed

companies issued by CSRC.

II. Independence of the Company from Controlling Shareholders in Business, Staffing, Assets, Organization and Finance

The Company is completely separated from its controlling shareholders in business, staffing, assets,

organization and finance, and has independent and integrated assets and business and the capacity of market-

oriented and self-reliant operation.

(1) Independence in business

Currently, the Company is engaged in the R&D, production and sales of integration and value-adding service of

the smart-card products and relevant systems while the controlling shareholders is not engaged in the production

and sales of the relevant products. The Company has a completely independent business operation system, the

73


business profits are not dependent on the related transactions of shareholders and other related parties, and

meanwhile it is not subject to the company’s shareholders and other related parties neither.

(2) Independence in staffing

The Company’s directors (including the independent directors), supervisors and the senior managers will be

generated in strict accordance with relevant provisions of Company Law and Articles of Association; the

Company’s staffing and salary management is strictly separated from the shareholders’ units; the Company’s

current General Manager, Deputy General Manager, finance employee in charge, board secretary and other senior

managers and the key technical staff do the full-time work in the company and receive the salary and they do not

take the part-time jobs in the affiliated enterprises and receive the salary; the appointment and dismissal of the

senior managers will be decided by the Board of Directors through the legal procedures without the situation that

the controlling shareholders intervene with the appointment and dismissal of staffing; the Company has an

independent staff team and has established a relatively perfect labor, employment and personnel management

system. The Company has signed the labor contract with all staff and paid the social insurance expenditures

according to the national laws and regulations and the Company has an independent labor employment right

without the situation that the controlling shareholders intervene in it.

(3) Asset integrity

The assets of the Company is integrated with various qualifications, production equipment, auxiliary production

equipment, patents and other assets matching the scope of production and business as well as with the ownership

certificate of the above assets. All the assets of the Company shall not be mortgaged or pledged and company has

the complete ownership of them. The Company’s assets are independent of the controlling shareholders, other

sponsor and shareholders. The Company has not provided guarantee for debts of shareholders by the assets or

credit so far and the Company has the complete dominance control of all the assets without the situation that

assets and funds are occupied by the controlling shareholders and the company’s interests are damaged. 　　

(4) Independence in organization

In accordance with Articles of Association, the Company has set up the general meeting of shareholders, Board of

Directors, Board of Supervisors and General Manager, which are independent of the controlling shareholders and

exercise their own powers pursuant to the laws. The Company, the controlling shareholders and other

shareholders have their own office and the site for business operation; the Company has set up a relatively perfect

and efficient organizational structure with an integrated purchase, production and sales system and supporting

74


facilities and each department has constituted an organic whole. Since the establishment of the Company, the

situation that the controlling shareholders and other shareholders intervene in the company’s normal production

and business does not occur.

(5) Independence in finance

The Company has set up the independent Finance and Accounting Department with the independent bank

account and the situation that the bank account is shared with the controlling shareholders and Eastcom Group and

that the capitals are deposit into the finance company or the account of the settlement center of the controlling

shareholders does not exist. The Company has established the independent financial accounting system and

financial management system, which can independently make a financial decision, and the situation that the

controlling shareholders interfere with the Company’s financial decision and fund use does not exist. The

Company will independently carry out the tax declaration and perform the tax liability according to laws.

III. Horizontal Competition


IV. Information on Annual General Meeting of Shareholders and Extraordinary General Meeting of Shareholders held during Report Period

1. General meeting of shareholders in current report period

Meeting Period Type of MeetingInvestors’

Participation RatioDate of Meeting Date of Disclosure Disclosure Index

Annual General

Meeting of

Shareholders of

2015

Annual General

Meeting (AGM)45.15% May 13, 2016 May 14, 2016 2016-19

The First

Extraordinary

General Meeting of

Shareholders of

2016

Extraordinary

general meeting of

shareholders

45.24% August 17, 2016 August 18, 2016 2016-31

The Second

Extraordinary

General Meeting of

Shareholders of

Extraordinary

general meeting of

shareholders

46.34% November 9, 2016 November 10, 2016 2016-49

75


2016

2. Extraordinary general meeting of shareholders required by shareholders of preferred stock with voting power recovered


V. Performance of Duty by Independent Director within Report Period

1 Attendance of independent director at meetings of board and shareholders

Attendance of independent director at meetings of board

Name of Independent

Director

Meetings of

Board Required

in Current

Report Period

Meetings Present

in Person

Meetings Present

Remotely

Meetings Present

by AgentMeetings Absent

Two Successive

Meetings Absent

Yang Xiong 7 1 5 1 0 No

Zhang Qi 7 2 5 0 0 No

Yu Fang 7 2 5 0 0 No

Meng Luoming 7 2 5 0 0 No

Zeng Xiaodong 4 1 3 0 0 No

Yuan Huasheng 3 0 2 1 0 No

Meetings of Shareholders Attended by

Independent Director as Nonvoting

Delegate

3

Explanation for Absence of Two Successive Meetings

None

2. Independent directors' objection to related matters of the Company

Did any independent director raise any objection to any matter of the Company?

□ Yes √ No

No objection was raised by independent director within the report period.

3. Other explanation of performance of duty by independent director

Was independent director's any advice on the Company adopted?

√ Yes □ No

Explanation for adoption or refusal of independent director's advice

During the reporting period, based on Instructions on the Establishment of the Independent Directors System in

76


the Listed Company, Yang Xiong, Zhang Qi, Yu Fang, Meng Luoming, Zeng Xiaodong and Yuan Huasheng as

the independent directors of the Company carefully and diligently perform duties stipulated in Working System of

Independent Directors, pay attention to the operation normative of the Company and put forward a lot of valuable

and professional suggestions on the system improvement of the Company and daily business activities on the

basis of their own professional knowledge and ability. They also give the objective and impartial advice on

accumulative and current external security, capital occupying of the related parties and changes in accounting

policies of the appointed accounting firm, which shall be commented by the independent directors. They put

forward the suggestions on the internal control construction, auditing and improvement of the human resource

management system and the suggestions are adopted, playing a positive role in the sustained, healthy and stable

development of the Company.

VI. Performance of Duty by Special Committees under the Board of Directors within Report Period

1. Audit committee. During the reporting period, the Audit Committee of the Board of Director will strictly

conform to Rules of Procedures of Audit Committee of Board of Directors to carry out the work according to the

relevant requirements of CSRC. In the annual reporting and auditing, the Audit Committee determines the time

arrangement of the audit work in the annual financial report by the negotiation with the audit agency and review s

the Company’s financial report and forms the written opinions; it will urge the audit work process, keep contact

and communication with the auditor and timely exchange views on problems found in the auditing process to

ensure the independence of audit and completion of audit work on time and carefully self exam the internal

control system.

2. Strategic committee. During the reporting period, the Strategic Committee has a thorough discussion on the

strategic transformation of the Company combined with the actual business situation and faced opportunities an

risks and based on the industrial development of the Company, it also provides the strategic guidance to the

Company on solution scheme of the industry system, operation service, intelligent security terminal, card products

and test tools by regarding reform and innovation as the driving force and the efficiency improvement as the core.

Meanwhile, the Strategic Committee puts forward suggestions on management and control of the important

investment projects and management of the overseas subsidiaries.

77


3. Remuneration and performance evaluation committee. During the reporting period, the Company lifted its ban

on the first restricted stocks under the guidance of Remuneration and Appraisal Committee. Meanwhile,

Remuneration and Appraisal Committee reviewed the salary of the directors, supervisors and the senior managers

disclosed in the 2015 annual reporting and thought that the salary standard was carried out according to the

Company’s assessment method and consistent with the actual payments. The Committee conducted a research on

the Company’s salary system, discussed the Company’s incentive mechanism and then put forward suggestions

on the improvement of the salary system.

VII. Performance by Board of Supervisors

Was any risk found by the board of supervisors in supervision of the Company within the report period?

□ Yes √ No

No objection to supervision was raised by the board of supervisors within the report period.

VIII. Performance Evaluation and Incentives of Senior Management

The Company has established the sound performance-evaluating system and the salary system for senior

managers. During the reporting period, Remuneration and Appraisal Committee of the Board of Directors will be

responsible to evaluate the working ability, performance of duties and completion of the responsible targets of

senior managers. Mainly based on the accomplishment degree of the annual targets, the Company will determine

their payments in combination of business management and completion situation of the related tasks and

supervise the execution of the salary system.

IX. Internal Control Evaluation Report

1. Information on material deficiency in internal control found within report period

□ Yes √ No

2. Internal control self-evaluation report

Date of disclosing internal control

evaluation reportApril 26, 2017

Disclosure index of internal control

evaluation report

Internal Control Self-evaluation Report of 2016 issued on http://www.cninfo.com.cn

on April 26, 2017

Proportion of total assets of unit included 100.00%

78


in the evaluation scope on that of the

company’s consolidated financial

statements

Proportion of operation revenue of unit

included in the evaluation scope on that of

the company’s consolidated financial

statements

100.00%

Defect Identification Standard

Classification Financial statement Non-financial statement

Identification standard Material deficiency: any single or concurrent

deficiencies which would stop any material

error in financial statement from being found

and corrected. A material

deficiency is identified in any one of the

following cases: (1)

Invalid environment control;

(2) Directors, supervisors and senior

management personnel of the company

engage in embezzlement and cause heavy

losses and adverse effects to the enterprise;

(3) External audit finds that the current

financial report has major errors but the

company fails to find them firstly;

(4) The major defects that have been

discovered and reported to the Management

have not been corrected within a reasonable

time;

(5) The supervision of Audit Committee and

Internal Audit Department of the company to

the internal control is invalid.

Important defects:

(1) Fail to choose and use accounting

policies according to the generally accepted

accounting principles;

(2) Fail to establish important check-and-

balance system and control measures against

fraud;

(3) There is single or many defects in the

financial reporting process. Although they

don’t meet the recognized standard of major

defects, they affect the truth and accuracy of

the financial report. General defects: The

A material deficiency is identified in any

one of the following cases:

(1) Violate national laws, regulations or

normative documents;

(2) Decision-making process is improper

and thereby leads to major decision-

making error;

(3) Institutional shortage or systematic

failure of important business;

(4) Major or important defects cannot be

effectively rectified;

(5) Safety and environmental accidents

cause significant negative impact on the

company;

(6) Other circumstances that have

significant negative impact on the

company.

Important defect: any defect identified in

any important business system or rules.

Any important deficiency which is found

in internal control and supervision but

not corrected promptly. Any other case

which has material adverse effect on the

Company.

Common deficiency: any defect

identified in any business system or

rules. Any common deficiency which is

found in internal control and supervision

but not corrected promptly.

79


defects haven’t formed other internal control

defects of major and important defects

standards.

Common defect: any other defect in internal

control which is not material or important

defects.

Quantitative standard

(1) A material deficiency is identified in any


Total profit is misstated: misstatement

amount ≥ 5% of total profit

Total assets are misstated: misstatement

amount ≥ 1% of total assets

Operation revenue is misstated:

misstatement amount ≥ 1% of total operation

revenue

(2) An important deficiency is identified in

any one of the following cases:

Total profit is misstated: 3% of total profit ≤

misstatement amount ＜ 5% of total profit

Total assets are misstated: 0.5% of total

assets ≤ misstatement amount ＜ 1% of

total assets

Operation revenue is misstated: 0.5% of total

operation revenue ≤ misstatement amount ＜ 1% of total operation revenue

(3) A common deficiency is identified in any


Total profit is misstated: misstatement

amount ＜ 3% of total profit

Total assets are misstated: misstatement

amount ＜ 0.5% of total assets

Operation revenue is misstated:

misstatement amount ＜ 0.5% of total

operation revenue

Material deficiency: If the direct property

loss of a single event is over 10 million

yuan (included), the significant negative

impact on the company caused by it shall

be disclosed in the form of

announcement.

Important defect: The direct property

loss of a single event is between 5

million yuan (including 5 million yuan)

and 10 million yuan or the company was

punished by government agency but the

event had no negative impact on the

company.

Common deficiency: The direct property

loss of a single event is below 5 million

yuan or the company has been punished

by sub-provincial-level (including

provincial level) government

departments but the event has not

negative impact on the company.

Number of major defects in financial

statement0

Number of major defects in non-financial

statement0

80


Number of important defects in financial

statement0

Number of important defects in non-

financial statement0

X. Audit Report or Verification Report of the Internal Control

Internal control audit report

Review comments in internal control audit report

We think that, the Company has maintained effective internal control on financial statements in all material aspects in accordance

with Basic Standard for Enterprise Internal Control and related rules on December 31, 2016.

Disclosure of internal control audit

reportDisclosure

Date of disclosing internal control

audit reportApril 26, 2017

Disclosure index of internal control

audit reportInternal Control Audit Report of 2016 issued on http://www.cninfo.com.cn on April 26, 2017.

Type of comments on internal

control audit reportStandard without comment reserved

Is there any material deficiency in

non-financial statement?No

Did the accounting firm issue internal control audit report with non-standard comment?

□ Yes √ No

Is the audit report of the internal control issued by the accounting firm consistent with the self-evaluation report of the Board of

Directors or not?

√ Yes □ No

81


Section X - Information on Corporate Bonds

Is any corporate bond issued by the Company and listed in the securities exchange, premature or mature but not fully cashed before

the offering date approved by the annual statement?

No

82


Section XI - Financial Report

I. Audit Report

Audit comment type Standard and without comment reserved

Date of signing audit report April 24, 2017

Name auditorBeijing Branch of Zhongshenzhonghuan Certified Public

Accountants (Special Ordinary Partnership)

Audit Report Number RH-AUT-2017-021786

Name of Certified Public Accountant Luo Yun, Gao Xiaofeng

Body of Audit Report

All shareholders of Eastcompeace Technology Co. Ltd.: We have audited the attached financial statements of Eastcompeace Technology Co., Ltd. (hereinafter referred

to as “Eastcompeace”), including merge and company balance sheets on December 31, 2016, 2016 merge and

company’s income statement, merge and company’s cash flow statement and consolidated and company’s

statement of changes in stockholder’s equity and financial statement notes.

I. Responsibility of the Management for Financial Statements

Preparation and fair presentation of financial statements are the responsibilities of the management of

Eastcompeace, which include: (1) Prepare financial statements according to the regulations of accounting criteria

of the enterprise and make them realize fair presentation; (2) Design, execute and maintain necessary internal

control to make financial statements not have major misstatement caused by fraud or mistakes.

II. Responsibility of Certified Public Accountant

Our responsibility is to express an audit opinion on the financial statements based on the implementation of the

audit work. We have carried out the audit work in accordance with the regulations of accounting standards for

Chinese certified public accountants. Accounting standards for Chinese certified public accountants require us to

comply with the code of professional ethics for Chinese certified public accountants, plan and perform the audit

work to obtain reasonable assurance that there is no significant misstatement in the financial statements. Audit

works involves the implementation of audit procedures in order to obtain the audit evidence on the amount of

83


financial statements and disclosure. The chosen audit procedures depend on the judgment of certified public

accountant, including the assessment of the risk of major misstatement of financial statements caused by fraud or

mistakes. In the risk assessment, certified public accountant considers internal control related to the preparation of

financial statements and fair presentation to design appropriate audit procedures, but they are not intended to

express their views on the effectiveness of internal control. Audit work also includes the evaluation of the

appropriateness of accounting policies chosen by the Management and reasonableness of accounting estimation as

well as the overall presentation of financial statements.

III. Comments on Audit

We believe that the above financial statements are prepared in accordance with the regulations of accounting

standards of the enterprise in all material respects and reflect the consolidated and company’s financial condition

on December 31, 2016 and 2016 consolidated and the company’s operating results and cash flow of

Eastcompeace Technology Co., Ltd. basically and truly.

Beijing Branch of Zhongshenzhonghuan Certified

Public Accountants (Special Ordinary Partnership)

Chinese Certified Public Accountant: Luo Yun

Chinese Certified Public Accountant: Gao

Xiaofeng

Beijing, China April 24, 2017

II. Financial Statement

The unit of the statement in the notes of the finance is RMB yuan.

1. Consolidated Balance Sheet

Unit: Eastcompeace Technology Co. Ltd.

December 31, 2016

Unit: Yuan

84


Item Ending Balance Opening Balance

Current assets:

Monetary capital 614,468,903.07 548,834,098.41

Deposit reservation for balance

Loans to other Banks

Financial assets calculated as per fair

value and its changes included into

current loss and profit

55,924.56

Derivative financial assets

Notes receivable

Accounts receivable 157,545,717.69 146,974,299.60

prepayments 4,688,455.89 4,105,472.45

Premium receivable

Reinsurance accounts receivable

Reinsurance contract reserves

receivable

Interests receivable 1,185,255.13

Dividends receivable

Other receivables 35,072,430.01 26,771,284.98

Redemptory monetary capital for sale

Inventory 395,131,752.71 426,211,045.02

Assets held and available for sale

Non-current Assets due within a year

Other Current Assets 19,279,126.22 15,045,850.92

Total Current Assets 1,227,371,640.72 1,167,997,975.94

Non-current Assets:

Issued Loans and Advance in Cash

financial assets available for sale

Held-to-maturity investments

Long-term account receivable

Long-term equity investment 20,661,676.60 23,081,984.30

Investment real estate 72,534,804.53 78,136,810.39

Fixed asset 226,095,817.57 232,336,347.23

Construction in Process 26,089.00

85


Engineering materials

Disposal of fixed assets

Productive biological assets

Oil and gas assets

Intangible assets 4,095,641.60 4,510,635.51

Development expenditure

Goodwill 1,076,163.60 1,076,163.60

Long-term unamortized expense

Deferred tax asset 34,658,091.54 34,159,067.27

Other non-current assets 3,557,024.80 5,053,718.97

Total non-current assets 362,679,220.24 378,380,816.27

Total assets 1,590,050,860.96 1,546,378,792.21

Current liabilities:

Short-term loan 38,153,500.00 97,404,000.00

Loans from central bank

Deposits from customers and interbank

　　Loans from other banks

Financial liabilities measured at fair

value with the change included in the

current profits and losses

307,833.38

Derivative financial liability

Bill payable 49,519,027.82 50,825,581.96

Accounts payable 264,176,837.80 263,401,086.88

Advance receipts 67,151,837.11 68,880,443.88

Financial assets sold for repurchase

Handling charges and commissions

payable

Payroll payable 70,822,243.83 62,275,466.85

Taxes payable 22,604,649.30 14,062,554.36

Accrued interest payable 60,434.74 141,471.82

Dividends payable

Other payables 67,483,299.73 73,080,696.49

Reinsurance accounts payable

Insurance contract reserves

86


Acting trading securities

Acting underwriting securities

Liabilities held and available for sale

Non-current liability due within one

year50,000,000.00

Other current liabilities

Total current liabilities 630,279,663.71 630,071,302.24

Non-current liabilities:

Long-term loan 913,398.19 51,662,203.03

Bonds payable

Including: Stock preferred

Perpetual capital securities

Long-term payables

Long-term payroll payable

Special payables 33,900,000.00 32,830,483.25

Estimated liabilities

Deferred income 5,719,415.37 7,127,058.22

Deferred tax liabilities 44,743.65 8,388.68

Other non-current liabilities

Total non-current liabilities 40,577,557.21 91,628,133.18

Total liabilities 670,857,220.92 721,699,435.42

Owner's equity

Capital stock 346,416,336.00 346,548,936.00

Other equity instruments



Capital reserves 214,615,274.31 215,020,613.91

Minus: Treasury stock 12,184,013.60 26,096,000.00

Other comprehensive income -598,417.13 -5,160,404.42

Special reserves

Surplus reserves 76,486,750.55 70,437,406.71

General risk reserve

Unappropriated profit 286,618,010.72 221,352,202.04

Total owner’s Equity attributable to 911,353,940.85 822,102,754.24

87


parent company

Minority equity 7,839,699.19 2,576,602.55

Total owner's equity 919,193,640.04 824,679,356.79

Total liabilities and owner’ equity 1,590,050,860.96 1,546,378,792.21

Legal Representative of the Company: Zhang Xiaochuan Chief Accountant: Ren Bo

Accounting director: Ren Bo

2. Balance Sheet of the Parent Company

Unit: Yuan


Current assets:

Monetary capital 562,939,449.78 495,954,201.12

Financial assets calculated as per fair



55,924.56

Derivative financial assets

Notes receivable


Prepayments 4,163,234.81 3,039,464.68

Interests receivable 1,185,255.13

Dividends receivable


Stocks 359,266,241.00 408,957,240.61

Assets held and available for sale

Non-current Assets due within a year

Other Current Assets 345,937.95 2,770,788.01

Total current assets 1,138,346,347.75 1,115,756,277.37

Non-current assets:

Financial assets available for sale

Held-to-maturity investments

Long-term account receivable

Long-term equity investment 52,418,429.51 61,664,717.37

Investment real estate 72,534,804.53 78,136,810.39

Fixed asset 208,863,022.45 213,479,242.07

88


Construction in Process 26,089.00

Engineering materials

Disposal of fixed assets

Productive biological assets

Oil and gas assets

Intangible assets 4,008,672.83 4,448,830.43

Development expenditure

Goodwill

Long-term unamortized expense

Deferred tax asset 34,723,739.11 32,002,522.02

Other non-current assets 3,557,024.80 5,053,718.97

Total non-current assets 376,105,693.23 394,811,930.25

Total assets 1,514,452,040.98 1,510,568,207.62

Current liabilities:

Short-term loan 38,153,500.00 97,404,000.00

Financial liabilities measured at fair

value with the change included in the


307,833.38

Derivative financial liability

Bill payable 49,519,027.82 50,825,581.96


Advance Receipts 66,145,000.23 67,866,259.78

Payroll payable 67,412,321.18 59,595,979.59

Taxes payable 17,745,123.55 12,933,105.65

Accrued interest payable 60,434.74 141,471.82

Dividends payable

Other payables 57,207,997.77 61,768,840.93

Liabilities held and available for sale

Non-current liability due within one

year50,000,000.00

Other Current Liabilities

Total current liabilities 607,285,513.67 616,526,182.65

Non-current liabilities:

Long-Term Loan 50,000,000.00

89


Bonds payable



Long-term payables

Long-term payroll payable

Special payables 33,900,000.00 32,830,483.25

Estimated liabilities

Deferred income 5,719,415.37 7,127,058.22

Deferred tax liabilities 8,388.68

Other non-current liabilities

Total non-current liabilities 39,619,415.37 89,965,930.15


Owner's equity

Capital stock 346,416,336.00 346,548,936.00




Capital reserves 199,491,640.28 199,896,979.88

Minus: Treasury stock 12,184,013.60 26,096,000.00

Other comprehensive income

Special reserves

Surplus reserves 76,486,750.55 70,437,406.71

Unappropriated profit 257,336,398.71 213,288,772.23

Total owner's equity 867,547,111.94 804,076,094.82

Total liabilities and owner’ equity 1,514,452,040.98 1,510,568,207.62

3. Consolidated Profit Statement

Unit: Yuan

Item Amount in Current Period Amount in Last Period

I. Total Operating Revenues 1,496,767,853.97 1,439,347,993.07

Including: Operating Revenue 1,496,767,853.97 1,439,347,993.07

Interest revenue

Earned premium

90


Handling charges and commission

income

II. Operating Costs 1,422,926,382.61 1,378,339,741.23

Including: Operating cost 1,102,400,739.97 1,076,962,005.81

Interest Expenses

Handling Charges and Commissions

Surrender value

Net payments for insurance claims

Net amount of withdrawn insurance

contract reserves

Payments for policy dividend

Amortized reinsurance expenditures

Tax and surtax 11,328,009.70 6,169,545.94

Sales expense 107,083,522.21 90,325,423.78

Management fee 182,769,420.53 168,737,371.97

Finance charges -7,534,439.90 13,998,742.51

Asset impairment loss 26,879,130.10 22,146,651.22

Plus: Gains from variation of fair value

(loss amount headed by "-")-363,757.94 -2,279,956.08

Return on investment (loss amount

headed by "-")-4,668,526.80 -1,648,179.45

Including: Return on investment in

associated enterprises and joint ventures-2,420,307.70 -3,136,725.57

Exchange gain (loss amount headed by

"-")

III. Operating Profit (loss amount headed

by "-")68,809,186.62 57,080,116.31

Plus: Non-operating revenue 29,989,686.18 24,464,570.34

Including: Gains from disposal of non-

current assets65,491.03 5,483.24

Minus: Non-operating expenses 1,658,016.99 1,395,590.54

Including: Disposal loss on non-current

liability201,929.57 627,323.20

IV. Total Profit (total loss amount headed

by "-")97,140,855.81 80,149,096.11

Minus: income tax expense 9,932,541.79 9,979,196.03

91


V. Net Profit (loss amount headed by "-") 87,208,314.02 70,169,900.08


companies81,711,620.60 64,317,702.11

Minorities’ interests income 5,496,693.42 5,852,197.97

VI. After-Tax Net Amount of Other

Comprehensive Income5,400,271.13 1,527,389.34

After-tax net amount of other

comprehensive incomes belonging to

owners of the parent company

4,561,987.29 1,879,367.15

(I) Other comprehensive income that

cannot be reclassified into loss and profit

in future

　　　　　1. Changes upon

recalculating the net liabilities and net

assets of benefit plan

　　　　　2.Share of other

comprehensive income of invested units

that cannot be reclassified into loss and

profit under equity law

(II) Other comprehensive income that

will be reclassified into the loss and

profit in future

4,561,987.29 1,879,367.15



that will be reclassified into loss and


　　　　　2.Loss and profit resulted

from fair value changes of available for

sale financial assets


from reclassifying held-to-maturity

investment into available for sale

financial assets

　　　　　4.Valid part of loss and profit

of cash-flow hedges

　　　　　5.Translation difference of

financial statements in foreign currencies4,561,987.29

　　　　　6.Others

After-tax net amount of other 838,283.84 -351,977.81

92


comprehensive incomes belonging to

minority shareholders

7. Comprehensive income in total 92,608,585.15 71,697,289.42

Total comprehensive incomes belonging

to owners of the parent company86,273,607.89 66,197,069.26

Total comprehensive incomes belonging

to minority shareholders6,334,977.26 5,500,220.16

VIII. Earnings per share:

(I) Basic earning per share 0.24 0.19

(II) Diluted earning per share 0.24 0.19

For business merger under the same control in this period, the net profit of the merged realized before merge is *** yuan and the net

profit of the merged realized in the previous period is *** yuan.

Legal Representative of the Company: hang Xiaochuan Chief Accountant: Ren Bo

Accounting director: Ren Bo

4. Profit Statement of the Parent Company

Unit: Yuan


I. Operating revenue 1,345,735,334.76 1,322,806,082.78

Minus: Operating cost 1,035,808,942.11 1,033,663,368.03

Tax and surtax 11,319,458.01 6,158,026.56

Sales expense 73,982,991.86 71,223,525.40

Management Fee 161,980,608.45 151,579,641.32

Finance charges -7,506,034.42 3,386,178.29

Asset impairment loss 29,676,705.79 15,436,464.49

Plus: Gains from variation of fair value

(loss amount headed by "-")-363,757.94 -2,279,956.08

Return on investment (loss amount

headed by "-")-6,086,205.20 -1,648,179.45

Including: Return on investment in

associated enterprises and joint ventures-2,420,307.70 -3,136,725.57

II. Operating Profit (loss amount headed

by "-")34,022,699.82 37,430,743.16

Plus: Non-operating revenue 28,030,972.73 24,093,470.99

Including: Gains from disposal of non- 62,787.85

93


current assets

Minus: Non-operating expenses 542,822.52 1,370,455.92

Including: Disposal loss on non-current

liability201,929.57 627,323.20

III. Total Profit (total loss amount

headed by "-")61,510,850.03 60,153,758.23

Minus: Income tax expense 1,017,411.63 7,850,132.12

IV. Net Profit (net loss amount headed

by "-")60,493,438.40 52,303,626.11

VI. After-Tax Net Amount of Other

Comprehensive Income

(I) Total Comprehensive Income not to

be Re-Classified into Loss Others Gain

in Following Accounting Periods

　　　　　1.Variation from Re-

Measured Net Liability for Defined

Income Plan



that cannot be reclassified into loss and


(II) Other comprehensive income that


profit in future



that will be reclassified into loss and



from fair value changes of available for

sale financial assets


from reclassifying held-to-maturity

investment into available for sale

financial assets

　　　　　4.Valid part of loss and

profit of cash-flow hedges

　　　　　5.Translation difference of

foreign currency statements

94


　　　　　6.Others

VI. Total Comprehensive Incomes 60,493,438.40 52,303,626.11

VII. Earnings per share:

(I) Basic earning per share

(II) Diluted earning per share

5. Consolidated Cash Flow Statement

Unit: Yuan


I. Net cash flow resulted from operating

activities:

Cash receipts from sales of goods or

rendering of services1,699,551,038.89 1,663,419,644.21

Net increases of customer deposits and

deposit taking of interbank

Net increases of loans from central bank

Net increases of borrowing funds from

other financial institutions

Cash obtained from the premium of the

original insurance contract

Net amount from the reinsurance

business

Net increases of insured savings and

investments

Financial assets calculated by per fair



Cash for charging the interest, fees and

commission

Net increases of borrowing funds

Net increases of the buy-back business

funds

Received refunds of taxes 74,413,794.01 64,747,037.99

Other cash received related to operating

activities13,827,723.31 23,716,404.20

Subtotal of cash inflow of operating 1,787,792,556.21 1,751,883,086.40

95


activities

Cash paid for goods purchased and

service received1,204,456,384.97 1,173,878,441.86

Net increases of customer lending and

advance

Net increases deposit in the central bank

and the same trade

Cash for paying compensations in the

original insurance contract

Cash for paying interest, fees and

commission

Cash for paying the policy dividend

Cash paid to and for staff 195,890,218.28 183,505,254.18

Various paid taxes and dues 99,425,319.12 84,571,443.08

Other cash paid and related to operating

activities125,520,787.33 131,441,031.78

Subtotal of cash outflow of operating

activities1,625,292,709.70 1,573,396,170.90

Net cash flow resulted from operating

activities162,499,846.51 178,486,915.50

II. Net cash flow resulted from

investment activities:

Cash receipts from disinvestment

Cash receipts from return on investment

Net cash from disposal of fixed assets,

intangible assets and other long-term

assets

28,567.46 5,483.24

Net cash receipts from disposal of other

business units1,527,238.72

Cash received related to investment

activities

Subtotal of cash inflow of investment

activities1,555,806.18 5,483.24

Cash paid for purchase and construction

of fixed assets, intangible assets and

other long-term assets

26,857,083.17 23,681,645.11

Cash paid for investment

96


Net increases of pledged loan

Net cash paid for acquisition of

subsidiaries and other business units

Other cash paid related to financial

activities

Subtotal of cash outflow of investment

activities26,857,083.17 23,681,645.11

Net cash flow resulted from investment

activities-25,301,276.99 -23,676,161.87

III. Net cash flow resulted from

financing activities:

Cash receipts from accepting

investment

Including: Cash receipts from minority

shareholders investment by subsidiaries

Cash receipts from borrowings 45,581,800.00 95,531,008.14

Cash receipts from issuing bonds

plan received related to investment

activities560,000.00 2,168,000.00

Subtotal of cash inflow of financing

activities46,141,800.00 97,699,008.14

Cash paid for repayment of debts 105,581,104.84 171,036,970.11

Cash paid for dividends, profits or

repayment of interests15,284,419.36 20,654,099.70

Including: Dividends and profits paid to

minority shareholders by subsidiaries


activities648,666.40

Subtotal of cash outflow of financing

activities121,514,190.60 191,691,069.81

Net cash flow resulted from financing

activities-75,372,390.60 -93,992,061.67

IV. Foreign exchange rate fluctuation

consequences on cash and cash

equivalents

714,310.77 23,511.03

V. Net increase of cash and cash

equivalents62,540,489.69 60,842,202.99

Plus: Opening balance of cash and cash 544,442,965.99 483,600,763.00

97


equivalents

VI. Closing balance of cash and cash

equivalents606,983,455.68 544,442,965.99

6. Parent Company’s Cash Flow Statement

Unit: Yuan


I. Net cash flow resulted from operating

activities:

Cash receipts from sales of goods or

rendering of services1,500,285,652.81 1,518,847,747.91

Received Refunds of Taxes 74,411,434.01 63,339,923.82

Other cash received related to operating

activities18,961,934.90 22,985,081.41

Subtotal of cash inflow of operating

activities1,593,659,021.72 1,605,172,753.14

Cash Paid for Goods Purchased and

Service Received1,094,509,302.79 1,116,677,081.01

Cash paid to and for staff 171,402,370.56 160,561,709.51

Various paid taxes and dues 69,336,403.96 65,084,867.53

Other cash paid and related to operating

activities98,932,854.73 110,327,855.82

Subtotal of cash outflow of operating

activities1,434,180,932.04 1,452,651,513.87


activities159,478,089.68 152,521,239.27

II. Net cash flow resulted from

investment activities:

Cash receipts from disinvestment

Cash receipts from return on investment 3,881,063.05 418,562.62

Net cash from disposal of fixed assets,

intangible assets and other long-term

assets

28,567.46

Net cash receipts from disposal of other

business units1,527,238.72

Cash received related to investment

activities

98


Subtotal of cash inflow of investment

activities5,436,869.23 418,562.62

Cash paid for purchase and construction

of fixed assets, intangible assets and

other long-term assets

24,805,938.69 19,006,576.67

Cash paid for investment

Net cash paid for acquisition of

subsidiaries and other business units


activities

Subtotal of cash outflow of investment

activities24,805,938.69 19,006,576.67

Net cash flow resulted from investment

activities-19,369,069.46 -18,588,014.05

III. Net cash flow resulted from

financing activities:

Cash receipts from accepting

investment

Cash receipts from borrowings 45,581,800.00 95,531,008.14

Cash receipts from issuing bonds


activities560,000.00 2,168,000.00

Subtotal of cash inflow of financing

activities46,141,800.00 97,699,008.14

Subtotal of cash inflows from financing

activities104,832,300.00 170,125,100.00

Cash paid for dividends, profits or

repayment of interests12,667,511.12 20,610,280.94


activities648,666.40

Subtotal of cash outflow of financing

activities118,148,477.52 190,735,380.94

Net cash flow resulted from financing

activities-72,006,677.52 -93,036,372.80

IV. Foreign exchange rate fluctuation

consequences on cash and cash

equivalents

-492,597.74 27,865.36

V. Net increase of cash and cash 67,609,744.96 40,924,717.78

99


equivalents

Plus: Opening balance of cash and cash

equivalents495,329,704.82 454,404,987.04

VI. Closing balance of cash and cash

equivalents562,939,449.78 495,329,704.82

7. Consolidated Statement of Changes in Owner’ Equity

Amount in current period

Unit: Yuan

Item

Current Period

Owner’s equity attributable to parent company

Minorit

y equity

Total

owner's

equityCapita

l Stock

Other equity

instruments

Capital

reserve

Minus:

Treasur

y Stock

Other

compre

hensive

income

Special

reserves

Surplus

reserves

General

risk

reserve

Unappr

opriated

profitStock

prefer

red

Perpet

ual

capita

l

securi

ties

Other

s

I. Closing balance

of last period

346,54

8,936.

00

215,020

,613.91

26,096,

000.00

-

5,160,4

04.42

70,437,

406.71

221,352

,202.04

2,576,6

02.55

824,679

,356.79

Plus: Changes in

accounting

policies

Error correction in

the prior period

Enterprise mergers

under the same

control

Others

II. Opening

Balance of this

Year

346,54

8,936.

00

215,020

,613.91

26,096,

000.00

-

5,160,4

04.42

70,437,

406.71

221,352

,202.04

2,576,6

02.55

824,679

,356.79

III.

Increase/Decrease

in Current Period

(decreased headed

-

132,60

0.00

-

405,339

.60

-

13,911,

986.40

4,561,9

87.29

6,049,3

43.84

65,265,

808.68

5,263,0

96.64

94,514,

283.25

100


by "-")

(I) Total

Comprehensive

Incomes

4,561,9

87.29

81,711,

620.60

6,334,9

77.26

92,608,

585.15

(II) Capital paid in

/ (reduced) by

owners

-

132,60

0.00

-

405,339

.60

-

13,911,

986.40

-

654,530

.89

12,719,

515.91

1.Common shares

invested by

shareholders

-

132,60

0.00

-

446,066

.40

-

578,666

.40

2.Capital invested

by other interest

instrument holders

3.Amount of share

payment included

into the ownership

interest

2,634,9

00.00

2,634,9

00.00

4.Others

-

2,594,1

73.20

-

13,911,

986.40

-

654,530

.89

10,663,

282.31

（III) Profits

Distribution

6,049,3

43.84

-

16,445,

811.92

-

417,349

.73

-

10,813,

817.81

1. Surplus reserve

withdrawal

6,049,3

43.84

-

6,049,3

43.84

2.General risk

reserve withdrawal

3.Distribution to

owners (or

shareholders)

-

10,396,

468.08

-

417,349

.73

-

10,813,

817.81

4.Others

(IV) Internal

carry-over of

ownership

interests

1.Turning capital

reserve into capital

(or capital stock)

101


2.Turning surplus


(or capital stock)

3.Loss

compensation with

surplus reserve

4.Others

(V) Special

reserve

1.Current

withdrawal

2.Current use

(VI) Others

IV. Current ending

balance

346,41

6,336.

00

214,615

,274.31

12,184,

013.60

-

598,417

.13

76,486,

750.55

286,618

,010.72

7,839,6

99.19

919,193

,640.04

Amount in last period

Unit: Yuan

Item

Prior Period

Owner’s equity attributable to parent company

Minorit

y equity

Total

owner's

equityCapita

l stock

Other equity

instruments

Capital

reserve

Minus:

Treasur

y stock

Other

compre

hensive

income

Special

reserves

Surplus

reserves

General

risk

reserve

Unappr

opriated

profitStock

prefer

red

Perpet

ual

capita

l

securi

ties

Other

s

I. Closing balance

of last period

288,99

2,280.

00

263,100

,028.32

27,181,

000.00

-

7,039,7

71.57

65,207,

044.10

176,714

,476.54

-

2,923,6

17.61

756,869

,439.78

Plus: Changes in

accounting

policies

Error correction in

the prior period

Enterprise mergers

under the same

102


control

Others

II. Opening

Balance of this

Year

288,99

2,280.

00

263,100

,028.32

27,181,

000.00

-

7,039,7

71.57

65,207,

044.10

176,714

,476.54

-

2,923,6

17.61

756,869

,439.78

III.

Increase/Decrease

in Current Period

(decreased headed

by "-")

57,556

,656.0

0

-

48,079,

414.41

-

1,085,0

00.00

1,879,3

67.15

5,230,3

62.61

44,637,

725.50

5,500,2

20.16

67,809,

917.01

(I) Total

Comprehensive

Incomes

1,879,3

67.15

64,317,

702.11

5,500,2

20.16

71,697,

289.42


/ (reduced) by

owners

-

241,80

0.00

9,719,0

41.59

-

1,085,0

00.00

10,562,

241.59

1. Common shares

invested by

shareholders

-

241,80

0.00

-

843,200

.00

-

1,085,0

00.00

2. Capital invested

by other interest

instrument holders

3.Amount of share

payment included

into the ownership

interest

5,306,3

16.59

5,306,3

16.59

4.Miscellaneous5,255,9

25.00

-

1,085,0

00.00

6,340,9

25.00

(III) Profits

Distribution

5,230,3

62.61

-

19,679,

976.61

-

14,449,

614.00

1.Surplus reserve

withdrawal

5,230,3

62.61

-

5,230,3

62.61

2.General risk

reserve withdrawal

103


3.Distribution to

owners (or

shareholders)

-

14,449,

614.00

-

14,449,

614.00

4.Miscellaneous

(IV) Internal

carry-over of

ownership

interests

57,798

,456.0

0

-

57,798,

456.00

1.Turning capital


(or capital stock)

57,798

,456.0

0

-

57,798,

456.00

2.Turning surplus


(or capital stock)

3.Loss

compensation with

surplus reserve

4.Others

(V) Special

reserve

1. Current

withdrawal

2.Current use

(VI) Others

IV. Current ending

balance

346,54

8,936.

00

215,020

,613.91

26,096,

000.00

-

5,160,4

04.42

70,437,

406.71

221,352

,202.04

2,576,6

02.55

824,679

,356.79

8. Statement of Change in Equity of the Parent Company

Amount in current period

Unit: Yuan

Item

Current Period

Capital

Stock


Capital

reserve

Minus:

Treasury

stock

Other

comprehe

nsive

income

Special

reserves

Surplus

reserves

Unappr

opriated

profit

Total

owner's

equity

Stock

preferre

d

Perpetu

al

capital

securiti

es

Others

104


I. Closing balance

of last year

346,548,

936.00

199,896,9

79.88

26,096,00

0.00

70,437,40

6.71

213,288

,772.23

804,076,0

94.82

Plus: Changes in

accounting

policies

Error correction in

the prior period

Others

II. Opening

balance of this

year

346,548,

936.00

199,896,9

79.88

26,096,00

0.00

70,437,40

6.71

213,288

,772.23

804,076,0

94.82

III.

Increase/Decrease

in Current Period

(decreased headed

by "-")

-

132,600.

00

-

405,339.6

0

-

13,911,98

6.40

6,049,343

.84

44,047,

626.48

63,471,01

7.12

(I) Total

Comprehensive

Incomes

60,493,

438.40

60,493,43

8.40


/ (reduced) by

owners

-

132,600.

00

-

405,339.6

0

-

13,911,98

6.40

13,374,04

6.80

1.Common shares

invested by

shareholders

-

132,600.

00

-

446,066.4

0

-

578,666.4

0

2.Capital invested

by other interest

instrument holders

3.Amount of share

payment included

into the ownership

interest

2,634,900

.00

4.Others

-

2,594,173

.20

-

13,911,98

6.40

11,317,81

3.20

(III) Profits

Distribution

6,049,343

.84

-

16,445,

811.92

-

10,396,46

8.08

1.Surplus reserve

withdrawal

6,049,343

.84

-

6,049,3

105


43.84

2.Distribution to

owners (or

shareholders)

-

10,396,

468.08

-

10,396,46

8.08

3.Others

(IV) Internal

carry-over of

ownership

interests

1.Turning capital


(or capital stock)

2.Turning surplus


(or capital stock)

3.Loss

compensation with

surplus reserve

4.Others

(V) Special

reserve

1. Current

withdrawal

2. Current use

(VI) Others

IV. Current ending

balance

346,416,

336.00

199,491,6

40.28

12,184,01

3.60

76,486,75

0.55

257,336

,398.71

867,547,1

11.94

Amount in last period

Unit: Yuan

Item

Prior Period

Capital

Stock


Capital

reserve

Minus:

Treasury

stock

Other

comprehe

nsive

income

Special

Reserves

surplus

reserves

Unappr

opriated

profit

Total

owner's

equity

Stock

preferre

d

Perpetu

al

capital

securiti

es

Miscell

aneous

I. Closing balance

of last year

288,992,

280.00

247,976,3

94.29

27,181,00

0.00

65,207,04

4.10

180,665

,122.73

755,659,8

41.12

106


Plus: Changes in

accounting

policies

Error correction in

the prior period

Others

II. Opening

balance of this

year

288,992,

280.00

247,976,3

94.29

27,181,00

0.00

65,207,04

4.10

180,665

,122.73

755,659,8

41.12

III.

Increase/Decrease

in Current Period

(decreased headed

by "-")

57,556,6

56.00

-

48,079,41

4.41

-

1,085,000

.00

5,230,362

.61

32,623,

649.50

48,416,25

3.70

(I) Total

Comprehensive

Incomes

52,303,

626.11

52,303,62

6.11


/ (reduced) by

owners

9,719,041

.59

-

1,085,000

.00

10,804,04

1.59

1.Common shares

invested by

shareholders

-

843,200.0

0

-

843,200.0

0

2.Capital invested

by other interest

instrument holders

3.Amount of share

payment included

into the ownership

interest

5,306,316

.59

5,306,316

.59

4.Others5,255,925

.00

-

1,085,000

.00

6,340,925

.00

(III) Profits

Distribution

-

241,800.

00

5,230,362

.61

-

19,679,

976.61

-

14,691,41

4.00

1.Surplus reserve

withdrawal

-

241,800.

00

5,230,362

.61

-

5,230,3

62.61

-

241,800.0

0

107


2.Distribution to

owners (or

shareholders)

-

14,449,

614.00

-

14,449,61

4.00

3.Others

(IV) Internal

carry-over of

ownership

interests

57,798,4

56.00

-

57,798,45

6.00

1.Turning capital


(or capital stock)

57,798,4

56.00

-

57,798,45

6.00

2.Turning surplus


(or capital stock)

3.Loss

compensation with

surplus reserve

4. Others

(V) Special

reserve

1. Current

withdrawal

2. Current use

(VI) Others

IV. Current ending

balance

346,548,

936.00

199,896,9

79.88

26,096,00

0.00

70,437,40

6.71

213,288

,772.23

804,076,0

94.82

III. Basic Information of the Company

The predecessor of Eastcompeace Technology Co., Ltd. (hereinafter referred to as the "Company") is Zhuhai

Eastcompeace Smart Card Co., Ltd. On October 15, 2001, subject to the approval of State Economy and Trade

Enterprise Reform No. [2001] 1143 document of the State Economy and Trade Commission of the People's

Republic of China, the Company was jointly set by Potevio Eastcom Group Co., Ltd., Zhuhai Potevio Peace

Telecom Industry Co., Ltd. Beijing Xinjietong Mobile Communication Technology Co., Ltd, and Zhuhai Fuchun

Communication Equipment Co., Ltd (original Xiangzhou Electronic Equipment Factory in Zhuhai Special

Economic Zone) as well as the natural person Zhou Zhongguo, Shi Jixing, Zheng Guomin, Yang Youwei, Zhang

Peide, Huang Ningzhai, Zhang Xiaochuan and Li Haijiang and registered in Guangdong Administrative Bureau

108


for Industry and Commerce on December 4, 2001 to obtain the License of the Business Corporation with the

registration number 4400001009956. The Company’s stocks have been listed for trading in Shenzhen Stock

Exchange on July 13, 2004.

On April 16, 2008, the Company turned the accumulation fund of 35,412,000.00 yuan to increase the

subscribed capitals through the resolution of 2007 Annual General Meeting of Shareholders and completed the

change of registration in the Administrative Bureau for Industry and Commerce on July 1 2008 and obtained the

License of the Business Corporation with the registration number 440000000038082. The registered capital of the

Company was 153,452,000.00 yuan after capital increase and the sum of shares was 153,452,000 (face value of 1

yuan per share) and all shares are A share.

Approved by China Securities Regulatory Commission (No. (2009)1047) on December 16 2009, the

Company completed to sell 45,110,504 yuan of ordinary shares (A-share) (one yuan for each share) to the original

shareholders and the placing price was 4.60 yuan for each share. After distribution, the registered capital was

increased to 45,110,504.00 yuan and the Company’s registered capital was changed into 198,562,504.00 yuan.

Approved by the resolution of 2010 Annual General Meeting of Shareholders on April 12 2011, the

Company regarded 198,562,504 shares of the total stock issue on December 31, 2010 as the base and turned the

capital reserve by the proportion of ten shares into one share to increase 19,856,250 shares for all shareholders, in

face value of 1 yuan per share, totally increasing 19,856,250.00 yuan of the capital stock. The Company’s capital

stocks are 218,418,754.00 yuan after increase.

Proposal on the Company’s Incentive Plan (Revised Draft) and Abstract of the First Restricted Shares was

passed by the resolution of the 27th meeting of the Fourth Session of the Board of Directors and 2013 Second

Extraordinary General Meeting and eventually 85 incentive objects of the restricted share exercised the right to

increase 3,883,000 yuan of the capital stock. The capital stock after alternation was 222,301,754 yuan.

Approved by the resolution of 2013 Annual General Meeting of Shareholders on April 22 2014, the

Company regarded 222,301,754 shares of the total stock issue on February 27, 2014 as the base and turned the

capital reserve by the proportion of ten shares into three shares to increase 66,690,526 shares for all shareholders,

in face value of 1 yuan per share, totally increasing 66,690,526.00 yuan of the capital stock. The capital stock after

the changes is 288,992,280.00 Yuan.

Approved by the resolution of 2014 Annual General Meeting of Shareholders on May 15, 2015, the

Company regarded 288,992,280 shares of the total stock issue as the base and turned the capital reserve by the

proportion of ten shares into two shares to increase 57,798,456.00 shares for all shareholders, one yuan for each

109


share, totally increasing 57,798,456.00 yuan of the capital stock and reducing 57,798,456.00 yuan of capital

reserve-capital stock premium. The capital stock after the changes is 346,790,736.00 Yuan.

Approved by the resolution of the 8th meeting of the Fifth Session of the Board of Directors on June 9 2015,

the board agreed to repurchase and cancel 241,800 restricted shares of the original incentive objects Guo Li, Luo

Dun, Wang Yongji and Wen Yi who did not conform to the incentive conditions due to demission, which were

authorized but not unlock. After repurchase and cancel part restricted shares, the total capital stock of the

Company was reduced from 346,790,736 shares to 346,548,936 shares.

The Company finished repurchasing and canceling the part restricted shares on August 18, 2015 and total

241,800.00 restricted shares authorized and unlock from four people who did not conform to the incentive

conditions due to resignation were repurchased and canceled. This repurchase and cancellation reduced

241,800.00 yuan of capital stocks and 843,200.00 yuan of capital reserve-capital stock premium and meanwhile

reduced 1,085.000.00 yuan of the treasury stocks.


132,600.00 restricted shares authorized and unlock from three people who did not conform to the incentive



reduced 578,666.40 yuan of the treasury stocks.


132,600.00 restricted shares authorized and unlock from three people who did not conform to the incentive



reduced 578,666.40 yuan of the treasury stocks.

The Proposal for Unlocking the First Unlocking Stage of First-Phase Restricted Stock Incentive Plan was

reviewed and adopted at the 12th meeting of the 5th board of directors on February 17, 2016, and 1,904,760

shares of restricted stock was unlocked on February 29, 2016, accounting for 0.5496% of total capital stock of the

Company. The unlocked incentive objects were 79 persons, reducing treasury stock and restricted equity incentive

expenses of 13,333,320.00 yuan.

The current capital stock structure of the Company consists of 4,390,700.00 yuan of shares with restricted

110


conditions, accounting for 1.27% of the total capital stocks and 342,025,700.00 yuan of common stocks (A share)

without restricted conditions listing and circulating in the churchyard, accounting for 98.73% of the total capital

stocks.

The Company belongs to the other manufacturing industry and its business scope includes: permitted

operation scope: information service business in the second value-added telecommunication business (not

including fixed network telephone information services and Internet information services); R&D, production and

sale of the magnetic stripe cards, smart cards (including SIM card of the mobile phones and bank cards),

microelectronic smart-label products and relevant RW equipment and terminal equipment in the communication,

banking, public utilities and other industries; R&D, sales and technical service of the computer soft hardware,

network equipment and related technologies of the system integration; R&D, sales and technical service of related

products of Internet of Things; module wrapping and technical consulting of the semiconductors; lease and

management of its own properties; management of self-produced products and import and export practices,

processing imported materials and the business of “three-processing and one compensation” of the related

technologies; packaging and decorating the printing materials and printing of other printing materials.

The parent company of this Company is Potevio Eastcom Group Co., Ltd and the actual controlling company

is China Potevio Company Limited.

For more details on major subsidiary companies merged in current year, see Note VII. For more details on

Hangzhou Eastcom Baifeng Technology Co. Ltd. which is not in merger scope in current, see Note VI.

These financial statements were approved by the board of directors of the Company on April 24, 2017.

IV. Basis for Preparation of Financial Statements

1. Basis for Preparation

These financial statements are prepared in accordance with provisions in Basic Rules - Accounting Standards

for Business Enterprises issued by Ministry of Finance on February 15, 2006 and revised from time to time and

disclosure provisions of General Provisions of Financial Statements - No. 15 of Rules on Information Disclosure

and Submission by Companies Publicly Issuing Securities issued by China Securities Regulatory Commission.

These financial statements are prepared on going-concern basis.

111


2. Going Concern

During preparation of these financial statements, the Company has fully evaluated its maintainable operation

ability in next 12 months from balance sheet date. By suing all available information (including history of gaining

operation recently and bank financing resources) to make evaluation, the Company has reasonably expected that,

it will have sufficient resources to maintain continuous operation within next 12 months from the balance sheet

date, so the Company has prepared these financial statements on going-concern basis.

VI. Critical Accounting Policies and Estimates


No

Tip on specific accounting policies and estimates:

The Company has determined specific accounting policies and estimates based on features of production

operation, including method of withdrawing bad debt reserves for receivables (Note III - 11), method of valuing

stocks (Note III - 11), standard of determining depreciation of available-for-sale equity instrument (Note III - 10),

fixed assets depreciation and intangible assets amortization (Note III - 16, 19), standard of determining

capitalization of development expenditure (Note 19), model of calculating investment estate (Note III - 15) and

time point of identifying revenue (Note III - 25).

For key judgments used in determining critical accounting policies, see Note III - 30.

1. Statement on Compliance with Accounting Standards for Business Enterprises

These financial statements comply with requirements of Accounting Standards for Business Enterprises, and

authentically and completely reflect merger and the financial situation as of December 31, 2016 and merger,

operating results and cash flow during 2016 of the Company.

2. Accounting Period

The accounting period of the Company is divided into accounting year and interim accounting period.

Interim accounting period refers to a report period which is shorter than a whole accounting year. Accounting year

112


of the Company adopts Gregorian calendar which is from Jan. 1st to Dec. 31st of each year.

3. Business Cycle

Normal business cycle of the Company is one year (12 months).

4. Recording Currency

As the currency in the main economic environment of the locations of the Company and its domestic organizations, RMB is the recording currency of the Company and its domestic organizations. Overseas organizations of the Company shall determine their recording currency according to the currency in the main economic environments of their locations. The Company uses RMB as the currency in preparation of theses financial statements.

5. Accounting Arrangement Methods for Business Merger under Same Control and Non-same Control

Business merger refers to a transaction or a matter that two or more than two individual enterprises merged

and formed a report subject. Business merger could be divided into business merger under same control and

business merger under non-same control.

(1) Business Merger under Same Control

In case that the merging party uses cash payment, transfer of non-cash assets or repayment of liabilities as

merger consideration, the Merger consideration paid by the merging party and owner's equity of the merged party

acquired by it will be valued by book value. Capital reserve (share premium) is regulated based on the difference

between share of book value of owner's equity of merged party in final controller's consolidated financial

statements and book value of merger consideration paid. In case that capital reserve is insufficient to offset the

difference, retained earnings will be regulated. In case that merging party use issuance of equity securities as

merger consideration, it should use the share of book value of owner's equity of merged party in final controller's

consolidated financial statements as the initial investment cost in long-term equity investment. Capital reserve will

be regulated based on the difference between initial investment cost in long-term equity investment and total

amount of book value of stock issued (capital stock). In case that capital reserve is insufficient to offset the

difference, retained earnings will be regulated. All direct costs incurred for enterprise merger will be incorporated

into the current profit and loss. Trading costs incurred in issuance of equity security or debt security for purpose of

enterprise merger will be incorporated into initial recognition cost of equity security or debt security.

113


In case that merger under same control is achieved through several deals, if these deals are "package deals",

the Company will handle them as one deal acquiring control on subsidiary company on the principle for same

control as stated above. If these deals are not package deals, equity investment held by the Company before

acquiring control on the merged party will be used to offset opening retained earnings or current profit and loss if

related profit and loss, other comprehensive income and other change of net assets as confirmed on the date of

acquiring original equity or the date of merging party and merged party being put under same control (whichever

is latter).

(2) Merger of enterprises not under the same controller

Merging costs incurred to buyer and recognizable net assets acquired in merge will be valued based on the

fair value on the date of acquisition. The portion in merging cost above the fair value of recognizable net assets

acquired on the date of acquisition is identified as goodwill. The portion in merging cost below the fair value of

recognizable net assets acquired on the date of acquisition is incorporated into current profit and loss. All direct

costs incurred for enterprise merger will be incorporated into the current profit and loss. Trading costs incurred in

issuance of equity security or debt security for purpose of enterprise merger will be incorporated into initial

recognition cost of equity security or debt security.

In case that merger not under same control is achieved through several deals, if these deals are "package

deals", the Company will handle them as one deal acquiring control on subsidiary company on the principle for

differential control as stated above. If these deals are not package deals, the equity of acquired party held before

the date of acquisition should be re-valued based on fair value of such equity on the date of acquisition, and the

difference between the fair value and its book value will be incorporated into current return on investment. In

case that the equity of acquired party held before date of acquisition involves other comprehensive income and in

other owner's equity variation except net profit or loss, other comprehensive income and profit distribution

(hereinafter referred to as "other owner's equity variation"), any other comprehensive income and other owner's

equity variation related thereto should be converted into current gain for the date of acquisition, except other

comprehensive income gained due to re-valuation of variation in net liability or net assets in gaining plan.

(3) Determination of package deal

In case of enterprise merger achieved in multiple deals by stages, the Company will determine whether these

deals are package deals based on terms and conditions in agreements in the process, and equity ratio, object

acquired, mode of acquisition, time point of acquisition and acquisition consideration. The Company will usually

handle these deals as package deal in accounting treatment in case that terms and conditions for deals and

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economic effect meet one or more of the following circumstances: ① These transactions are made simultaneously

or with a consideration of mutual influences; ② These transactions as an integral whole could achieve a complete

business consequence;③ One transaction occurs due to the occurrence of at least one of other transactions; ④ One

transaction is uneconomical individually, while it is economical when taking a consideration along with all the

other transactions.

6. Method of preparing consolidated financial statements

In preparation of consolidated financial statements, the scope covers the Company and all subsidiaries, and

the subsidiaries are the object on which the Company will impose control.

The Company starts to incorporate them in its consolidation scope from the date of obtaining actual control

on subsidiaries, and remove them from the consolidation from the date of terminating actual control on them. Any

subsidiary company acquired in merger under same control will be incorporated into merger scope of the

Company from the date of it being putting under the final controller's control, and its net profit achieved before

the date of merging will be stated in a separate item in consolidated profit statement.

When compiling the combined financial statement, if the accounting policy and accounting period of

subsidiary corporation is inconsistent with those of the Company, necessary adjustments shall be made on the

subsidiary corporations’ financial statements according to the accounting policy and accounting period of the

Company. For the subsidiary corporation acquired during business merger under non-same control, adjustments

shall be made on the subsidiary corporations’ financial statements on the basis of the fair value of net identifiable

assets on the purchasing day.

Significant running balance, transactions and unrealized profits of the Company shall be offset when

compiling combined financial statements, but any loss in depreciation of related assets as identified in internal

deals shall be identified in full amount. Any portion of shareholders’ equity, current net profit or loss and

comprehensive income of a subsidiary will be stated separately in consolidated financial statements as minority

stockholder's interest, minority shareholders' loss and gain and Total comprehensive incomes belonging to

minority shareholders. Any unrealized loss and gain in internal deal incurred to the Company in selling its assets

to subsidiary will be used to set off Net profits attribute to stockholders of parent company. Any unrealized loss

and gain in internal deal incurred to subsidiary in selling its assets to the Company will be used to set off the

difference between the net profits attribute to stockholders of parent company and Minority Shareholders' loss and

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gain based on the distribution ratio of the Company to the subsidiary. Any unrealized loss and gain in internal deal

incurred to a subsidiary in selling its assets to another subsidiary will be used to set off the difference between the

net profits attribute to stockholders of parent company and minority Shareholders' loss and gain based on the

distribution ratio of parent company to the subsidiary.

In case that determination based on the Company acting as accounting entity is different from that based on a

subsidiary as accounting entity, the deal will be regulated from the perspective of the Company.

7. Joint Operation Arrangement Classification and Accounting Treatment Methods for Common Operation

The Company, based on the rights and obligations under joint operation arrangement, and taking into

consideration structure of the arrangement, legal form and terms of contract, classify joint operation arrangement

into joint operation and joint venture.

In case that the Company is a participant having common control on joint operation, or otherwise having

related assets in joint operation and bearing related liabilities in the joint operation, any assets, liabilities, revenues

and costs related to interest of the Company in joint operation will be identified. Before the Company acquires

assets, invest into joint operation or sells asset (except that such asset constitutes business), only the portion of the

loss and gain in the deal which is attribute to other participants of the joint operation will be identified. In case of

loss in depreciation of asset involved, such loss will be identified based on the share liable to the Company for

asset acquired from joint operation, or identified in full amount for asset invested to joint operation or sold out.

8. Standard of identifying cash and cash equivalents

Cash and cash equivalents of the Company includes cash on hand, deposit which could be paid at any time,

currency with a short time limit (it generally expires within 3 months since the purchasing date) and strong

mobility which is easily converted to the known sum of money, investment with a small risk of value change.

9. Foreign Currency Operations and Foreign Currency Statement Translation

(1) Translation Methods for Foreign Currency Transactions

When recognizing the foreign currency of the Company initially, it shall be converted into the amount of

money of the recording currency according to the spot rate of the trading day. However, foreign currency

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exchange business or transactions involved in foreign currency exchange shall be converted into the amount of

money of the recording currency according to actual adoptive exchange rate.

(2) Translation Methods for Foreign Currency Monetary Items and Foreign Currency Non-monetary Items

On the balance sheet date, foreign currency monetary items shall be converted according to the spot rate on

the balance sheet date, except: ① The incurred exchange difference of foreign currency specialized for loan

related to purchasing the assets which conforms to capitalization conditions shall be disposed according to the

principle of borrowing costs capitalization; ② (applicable only to the case of hedge accounted by hedging

accounting method) exchange difference of hedging instrument for net investment in oversea operation (such

difference will in incorporated into other comprehensive income and not be identified as current profit and loss

until the net investment is disposed); and ③ The incurred exchange difference incurred due to other book balance

changes of available-for-sale foreign currency monetary items except the amortized cost shall be included in the

other comprehensive income. the incurred exchange difference shall be included in the current profit and loss.

The foreign currency non-monetary items which are measured on a historical cost basis shall be converted

into the amount of money of the recording currency according to the spot rate of the trading day. The foreign

currency non-monetary items which are calculated as per fair value shall be converted according to the spot rate of

the fair value determination day. The balance of the converted recording currency amount of money and original

recording currency amount of money, regarded as fair value change (including the change in exchange rate), shall

be included in the current profit and loss or recognized as other comprehensive income.

(3) Translation Methods for Foreign Currency Financial Statements

When compiling the combined financial statements involved with overseas operation, if there are foreign

currency monetary items which constitute the net investment on the overseas operation in essence, the incurred

exchange difference due to the change in exchange rate shall be regarded as “translation reserves” and recognized

as the other comprehensive income. When disposing overseas operation, it shall be converted to disposing current

profit and loss.

The foreign currency financial statements of overseas operation shall be converted into the RMB financial

statements according to the following methods: assets and liabilities items in the balance sheet shall be converted

according to the spot rate of balance sheet date; other items in shareholders’ equity items except items with

“undistributed profit” shall be converted according to the spot rate when shareholder equity items occur. Income

and cost items in the profit statement shall be converted according to the spot rate of the trading day.

Undistributed profit at the beginning of the year shall be the converted undistributed profit at the end of last year

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which shall be calculated and listed according to the converted profit distribution items. After conversion, the

balance of assets items & liabilities items and the total number of shareholders’ equity items shall be regarded as

the translation reserves and recognized as other comprehensive income. When disposing overseas operation and

losing the control power, translation reserves related to overseas operation which have been listed under the

shareholders’ equity item shall be converted to the current profit and loss completely or according to the disposal

rate of the overseas operation.

Foreign currency cash flow and cash flow of overseas subsidiary corporations shall be converted according

to the approximate spot rate of the trading day which is determined by adopting systematic reasonable method on

the date that cash flow occurs. The influenced amount of the change in exchange rate on cash shall be regarded as

a reconciling item and listed in the cash flow statement individually.

Opening amount of the year and actual amount of last year shall be listed according to the converted amount

of financial statements of last year.

When disposing all the owners’ equity in overseas operation of the Company or losing control power on

overseas operation due to disposing part of equity investment or other reasons, translation reserves related to

overseas operation belonging to owners’ equity of the parent company which have been listed under the

shareholders’ equity item in the balance sheet shall be converted to the current profit and loss of disposal

completely.

When disposing part of equity investment or other reasons leading to the decreased ratio of possessed

operation rights and interests but not losing control power on overseas operation, translation reserves related to

overseas operation disposal would belong to minority equity and shall not be converted to the current profit and

loss. When disposing part of the stock rights of overseas operation which is a jointly-run business or joint venture,

translation reserves related to overseas operation shall be converted to the current profit and loss of disposal

according to the disposal rate of the overseas operation.

10. Financial Instruments

(1) Method of determining fair value of financial assets and financial liabilities

The fair value of the financial instruments existing in the active market shall be valued with the quotation in

the active market. The fair value of the financial instruments not existing in the active market shall be valued with

valuation technologies. In valuation, the Company used a valuation technology which is suitable in current

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circumstance and where sufficient data and other information is available to it, and chose input values consistent

with asset or liability features considered by market participants in transaction of related assets or liabilities, and

preferentially used related observable input value as much as possible. Where related observable input value is

unavailable or impracticable, unobservable input value will be used instead.

(2) Classification, Determination and Measurement of Financial Assets

Financial asset traded in normal way will identified and terminated based on accounting on the date of

trading, and related interests in the trading will be accrued and identified after ownership has been transferred on

the date of settlement. Financial assets shall be divided into financial assets calculated as per fair value of which

change is included in the current profit and loss, held-to-maturity investments, loans, accounts receivables and

available-for-sale financial assets during initial recognition. Financial assets for initial recognition will be valued

by fair value. For the financial assets measured at fair value and whose changes are included in the profits and

losses, related transaction costs are directly included in the current profits and losses, and transaction costs related

to other types of financial assets are included in the initially recognized amount.

① The financial assets measured at fair value with the change included in the current profits and losses

comprise trading financial assets and the financial assets measured at fair value with the change included in the

current profits and losses appointed in initial recognition.

Trading financial assets refer to those financial assets that satisfy one of the following conditions: a) the

purpose for which the financial assets are acquired is to sell and repurchase in the near future; b) are part of group

of identifiable financial instruments that are centrally managed and indicated by objective evidence that the

Company will manage the group for short-term profit in the near future; and c) are derivative instruments, but not

including derivative instruments that are both designed ones and effective ones and effective hedging instruments,

that are in the financial guarantee contracts, or that are linked with equity instruments that have no quoted value

and reliable fair value measurements in active market and whose settlements must be done by the delivery of the

equity instruments.

The financial assets will be valued by fair value in initial recognition and its variation will be incorporated

into current profit and loss in one of the following cases: A. This designation can eliminate or significantly reduce

the inconsistency in recognition or measurement of related profits or losses caused by different measurements

basis of the financial instruments; B. The portfolio of financial assets that are clearly stated in the formal written

documents of risk management or investment strategy to be managed, and assessed at fair value basis and reported

to key management personnel. C. Mixed instruments of one or more embedded derivative instruments are

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included unless there is no significant change in cash flow by embedded derivative instruments, or the embedded

derivative instruments obviously shall not be split from related mixed instruments.

Follow-up measurement shall be carried out on the trading financial assets according to the fair value. Gains

or loss due to fair value change, the dividend on shares and interest income related to the financial assets shall be

included in the current profit and loss.

② Held-to-maturity investments

Held-to-maturity investments refers to the non-derivative instruments fixed at the maturity date or with fixed

or determinable recoverable amount that management holds to maturity with clear purpose and capacity. Held-to-

maturity investment which has lasted for more than 12 months upon acquisition but will be mature within 12

months (included) from balance sheet date will be listed as non-current assets due within a year. Held-to-maturity

investment which has lasted for less than 12 months (included) upon acquisition will be listed as other current

assets.

Held-to-maturity investment adopts effective interest method; and its follow-up measurement shall be

according to amortized cost. Gains or loss incurred during de-recognition, impairment or amortization shall be


Effective interest method refers to the method of calculating amortized costs and interest income or expense

of each period according to the effective interest rate of financial assets and financial liabilities (including a set of

financial assets and financial liabilities). Effective interest rate refers to the interest rate used in the conversion

from the future cash flow of financial assets and financial liabilities in the duration or applicable shorter period to

the current book value of the financial assets and financial liabilities.

When calculating the effective interest rate, the Company shall estimate future cash flow (without regard to

the credit loss in the future) on a basis of taking all the contract terms of the financial assets or financial liabilities

into consideration. Meanwhile, the charges, transaction costs and reduced price or premium etc. belonging to the

constituent parts of effective interest rate which are paid or received by all parties to contract of financial assets

and financial liabilities shall be taken into account.

③ Loan and receivables

They refer to the non-derivative financial assets with fixed or ascertainable recoverable amount without

quotations in the active market. The financial assets that the Company divides into loans and accounts receivables

include notes receivable, accounts receivable, interest receivable, dividends receivable and other receivables.

Loans and accounts receivables shall adopt effective interest rate method; and its follow-up measurement

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shall be according to amortized cost. Gains or loss incurred during de-recognition, impairment or amortization

shall be included in the current profit and loss.

④ Available-for-sale financial assets

Available-for-sale financial assets refer to the non-derivative financial assets having been designed for sale in

initial recognition as well as other financial assets not classified otherwise. Available-for-sale financial assets

which will be sold out within 12 months from balance sheet date will be listed as other current assets in balance

sheet.

Follow-up measurement shall be made on the available-for-sale financial assets according to the fair value.

Gains or loss due to fair value change, except that impairment loss and balance of exchange of foreign currency

monetary financial assets related to amortized cost shall be included in the current profit and loss, shall be

recognized as other comprehensive income; withdrawn during de-recognition of the financial assets; and included

in the current profit and loss. However, for the equity instrument investment without quotations in the active

market and its fair value could not be measured reliably, the follow-up measurement shall be made according to

the cost.

Interest acquired during the period of possessing the available-for-sale financial assets and cash dividends

which the invested unit declared to be issued shall be included in the income from investment.

(3) Impairment on financial assets

Except the financial assets calculated as per fair value of which change is included in the current profit and

loss, the Company shall check the book value of other financial assets on each balance sheet date. If there are

objective evidences indicating the impairment of financial assets, provision for impairment of assets shall be

withdrawn.

The objective evidence that indicating the financial assets are impaired, refers to the matters occurred

actually after initial confirmation of financial assets, which may influence the estimated future cash flow of the

financial assets, and the Company can measure the influence reliably.

For the financial assets of which single amount is significant, impairment test shall be individually made; for

the financial assets of which single amount isn’t significant, impairment test shall be made individually; or made

on the financial assets set with similar credit risk features which include them. Individual tests on the financial

assets without impairment incurred (including financial assets with a large single amount or a small single

amount) include another impairment test on the financial assets set with similar risk features. For the financial

assets of which impairment has been recognized in an individual event, the impairment test on the financial assets

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set with similar risk features is not included.

① Decrease in value of held-to-maturity investment, loans and accounts receivables

The book value of financial assets measured on the basis of cost or amortized cost shall be written down to

the estimated present value of future cash flow, write-down amount shall be recognized as impairment loss and

included in the current profit and loss. After impairment loss of the financial assets is recognized; if there are

objective evidences showing that the financial assets value is recovered and it is related to the events occurred

after impairment loss recognition objectively; impairment loss recognized initially shall be returned. The book

value of the financial assets after the return of impairment loss shall not be beyond the amortized cost of the

financial assets on the returning day under the premise of not withdrawing provision for impairment of assets.

② Available-for-sale financial assets

Objective evidences indicating that investment with available-for-sale equity instrument depreciates include

substantial or non-temporary decline of fair value of equity instrument investment. The Company has separately

checked Available-for-sale equity instrument investment on balance sheet date. If its fair value on the balance

sheet date is lower than 50% or more of its initial investment cost, or lower than its initial investment cost for one

year or longer, it indicates that it has depreciated. If its fair value on the balance sheet date is lower than

20%~50% its initial investment cost, the Company will take into consideration other relevant factors such as price

fluctuation rate to determine whether the equity instrument investment has depreciated. The Company uses

weighted average method to calculate initial investment cost of equity instrument investment.

When available-for-sale financial asset valued by fair value depreciates, accumulative loss incurred due to

decline of fair value which was listed directly in shareholders' equity will be taken out and incorporated into

impairment loss. For the available-for-sale liability instruments for which impairment loss has been identified,

where the fair value has increased and it is related to the matters happened after confirming the original

impairment losses objectively, the impairment losses confirmed before shall be recovered, to account into the

current profit and loss. For the Available-for-sale equity instrument investment for which impairment loss has

been identified, subsequent rise of its fair value will be directly incorporated into shareholders' equity.

If valued-by-cost financial asset is impaired, identify the book value of the financial assets as impairment

loss according to the difference with the present value confirmed by the current market return of the similar

financial assets to the discount of the future cash flow, to account into current profit and loss. The impairment

losses incurred shall not be recovered after identification.

(4) Confirmation Basis and Metering Methods for Transfer of Financial Assets

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De-recognition shall be made on the financial assets if meeting one of the following conditions: ①

Contractual right of receiving the cash flow of the financial assets is terminated; ② The financial assets have been

transferred, and nearly all the risks and rewards of the financial assets ownership have been transferred to the

transferee; ③The financial assets have been transferred. Although the enterprise didn’t transfer and reserve nearly

all the risks and rewards of the financial assets ownership, it abandoned the control power on such financial assets.

If the enterprise does not transfer and reserve nearly all the risks and rewards of the financial assets

ownership and it does not abandon the control power on such financial assets, relevant financial assets shall be

recognized according to continuous involvement degree of transferred financial assets; the relevant liabilities shall

be recognized correspondingly. Continuous involvement degree of transferred financial assets refers to the risk

level that the enterprise faces due to the value change in such financial assets.

If overall transfer of financial assets meets the derecognition conditions, the balance of the book value of

transferred financial assets plus received consideration due to transfer minus the accumulated amount of change in

fair value which has been included in other comprehensive income shall be included in the current profit and loss.

If partial transfer of financial assets meets the derecognition conditions, the book value of transferred

financial assets between derecognition part and non-derecognition part shall be amortized according to its

corresponding fair value; the balance of the sum of received consideration due to transfer and accumulated

amount of change in fair value amortized to derecognition part which has been included in other comprehensive

income minus amortized book value mentioned above shall be included in the current profit and loss.

(5) Classification and valuing of Financial Liabilities

When carrying out initial recognition, financial liabilities shall be divided into the financial liabilities

calculated as per fair value of which change is included in the current profit and loss and other financial liabilities.

Initially recognized financial liabilities shall be measured according to the fair value. For the financial liabilities

calculated as per fair value of which change is included in the current profit and loss, relevant transaction costs

shall be included in the current profit and loss; for other liabilities, relevant transaction costs shall be included in

initial recognition amount.

① Financial liabilities measured at fair value with the change included in current profits and losses

The classification conditions of trading financial liabilities and the designated financial liabilities calculated

as per fair value of which change is included in the current profit and loss during initial recognition is consistent

with those of trading financial assets and the designated financial assets calculated as per fair value of which

change is included in the current profit and loss during initial recognition.

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Follow-up measurement shall be made on the financial liabilities calculated as per fair value of which change

is included in the current profit and loss according to the fair value. Incurred gains or loss due to the change in fair

value and dividends & interest expense related to such financial liabilities shall be included in the current profit

and loss.

② Other financial liabilities

For the derivative financial liabilities linked up with the equity instrument without quotation in the active

market and its fair value could not be measured reliably, which shall be settled by the delivery of the equity

instrument, the follow-up measurement shall be according to the cost. Follow-up measurement shall be carried out

on other financial liabilities by adopting the effective interest rate method according to the amortized cost. The

gains or loss generated by de-recognition or amortization shall be included in the current profit and loss.

③ Financial Guarantee Contract

It does not belong to the designated Financial Guarantee Contract of financial liabilities calculated as per

fair value of which change is included in the current profit and loss. Initial recognition shall be made according to

the fair value. After initial recognition, follow-up measurement shall be made according to the relatively higher

amount of these two amounts which are the sum certain in money according to Accounting Standards for Business

Enterprises No. 13 – Contingency and the balance of initial recognition amount deducting recognized

accumulated amortized amount according to the principles in Accounting Standards for Business Enterprises No.

14 – Revenue.

(6) De-recognition of Financial Liabilities

If all or part of the current obligations of the financial liabilities are released, all or part of the financial

liabilities shall be derecognized. The Company (debtor) and creditor shall sign an agreement to undertake new

financial liabilities with replacement of the existing financial liabilities. If contract terms of new financial

liabilities are different from those of existing financial liabilities in essence, the existing financial liabilities shall

be derecognized, and new financial liabilities shall be recognized.

If all or part of the financial liabilities are derecognized, the balance of book value of derecognition part and

paying consideration (including withdrawn non-cash assets or undertaken new financial liabilities) shall be


(7) Derivative Instruments and Embedded Derivative Instruments

Initial measurement shall be made on the derivative instruments according to the fair value on the relevant

contract signing day, and follow-up measurement shall be made according to the fair value. Change in fair value

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of derivative instruments shall be included in the current profit and loss.

For the mixture instruments including embedded derivative instruments, if they are not designated as

financial assets or financial liabilities calculated as per fair value of which change is included in the current profit

and loss; embedded derivative instruments don’t have a close relation with economic characteristics and risk

aspects of Master Contract, and individual existing instruments of which conditions are the same with those of

embedded derivative instruments conform to the definition of derivative instruments; embedded derivative

instruments shall be separated from the mixture instruments as individual derivative financial instruments for

treatment. If individual measurement could not be realized on the embedded derivative instruments when

acquiring the embedded derivative instruments or on the follow-up balance sheet date, the overall mixture

instrument shall be designated as financial assets or financial liabilities calculated as per fair value of which

change is included in the current profit and loss.

(8) Offset of Financial Assets and Financial Liabilities

If the Company has the legal rights of offset against recognized financial assets or financial liabilities, and at

present it could perform the legal right; meanwhile, the Company plans to carry out netting or realize the financial

assets and pay off the financial liabilities at the same time; the amount after the mutual offset of financial assets

and financial liabilities shall be listed in the balance sheet. Otherwise, financial assets and financial liabilities shall

be listed respectively in the balance sheet without mutual offset.

(9) Equity instruments

Equity instrument refers to the contract which proves the residual equities of the Company in the assets after

deducting all the liabilities. Issuance (including refunding), counter purchase, sale or cancellation of equity

instrument by the Company shall be disposed as the equity change. The Company doesn’t recognize the change in

fair value of equity instrument. Transaction costs related to equities trades shall be deducted from the equities.

All kinds of distribution (not including stock dividends) of equity instruments holders by the Company shall

decrease shareholders’ equity. Issuance (including refinancing), buy-back, sale or revocation of equity instrument

will be handled as variation of equity, and variation in fair value of equity instrument will not be identified.

Consideration and trading cost paid by the Company for buy-back of its own equity instrument (including treasury

stock) will decrease owner's equity and financial assets will not be identified.

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11. Receivables

(1) Receivables with significant single amount of the individual bad debt provision made

Basis or amount standard to determine whether the individual

amount is significantAmount in single item above 18 million yuan.

Provision method for significant single amount and individual

provision of bad debt

The Company performs separate impairment test on receivables

in significant single amount, and withdraw bad debt reserves

based on the difference of present value of estimated cash flow

below its book value. Separate test on receivables without

impairment includes impairment test in the financial assets

portfolio with similar credit risk characteristics. Receivables for

which impairment loss has been identified in separate test will

not be contained in receivables with similar credit risk for

impairment test.

(2) Accounts receivable withdrawal of bad debt reserve based on the credit risk feature combination

Name of Combination Provision Method for Bad Debts

Aging portfolio Aging Analysis Method

Where the provision for bad debts in portfolio is accrued by aging analysis method:


Account receivable age Provision Ration of Accounts ReceivablesProvision Ration of Other Accounts

Receivables

Within 1 year (included) 5.00% 5.00%

1 ~ 2 years 10.00% 10.00%

2~3 years 30.00% 30.00%

More than 3 years 100.00% 100.00%

3 ~ 4 years 100.00% 100.00%

4 ~ 5 years 100.00% 100.00%

More than 5 years 100.00% 100.00%

Accounts receivables of bad debt reserve withdrawal based on balance percentage method in the combination:


Accounts receivables of bad debt reserve withdrawal based on any other method in the combination:


(3) Account receivables with insignificant single amount and individual provision for bad debts

Reason for individual provision of bad debts Any objective evidence indicating that the Company will not be

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able to collect receivables based on original terms and conditions

Provision method for bad debts

The Company will perform separate impairment test on any

receivables which, as indicated by objective evidence, it cannot

collect based on original terms and conditions. For receivables

which has impaired as indicated by any objective evidence,

impairment loss will be identified based on the difference of its

current value of future cash flow below its book value and

withdraw bad debt reserves.

12. Inventory


No

(1) Inventory classification

Inventory mainly includes raw materials, consigned processing materials, turnover materials, merchandises

inventory, and goods in process.

(2) Pricing method for inventory procurement and delivery

Inventory is valuated based on its standard cost upon acquisition. Inventory costs include purchase cost,

processing cost and other costs. Inventory is valuated based on its standard cost upon distribution and delivery.

Difference between actual cost and standard cost will be accounted through cost variation account, and cost

differential to be incorporated into inventory will be carried over as scheduled to convert planned cost into actual

cost.

(3) Inventory net realizable value confirmation method and provision method for falling price reserves

Net realizable value is the amount that the estimated selling price of inventory deducts the estimated cost at

completion, approximate selling cost as well as related taxes during daily activities. The net realizable value of

inventories shall be confirmed on the ground of reliable evidence obtained, while taking the purpose for holding

inventories and the effects of events occurring after the balance sheet date into consideration.

On the date of balance sheet, stock shall be measured at the lower of cost or net realizable value. When net

realizable value is lower than cost, depreciation preparation of goods in stock is extracted. The depreciation

preparation of goods in stock is extracted as per the cost of single inventory project higher than the balance of its

net realizable value. Depreciation reserve is withdrawn in full for raw material which is not changed for more than

6 month.

After the extraction of depreciation preparation of goods in stock, if the factors causing any write-down of

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the inventories do not exist any more and the net realizable value of inventory is higher than its book value, the

amount of write-down will be reversed from the provision for diminution in value of inventories that has been

made. The reversed amount will be included in the current profits and losses.

(4) The perpetual inventory system is adopted.

(5) Amortization method for low value consumables and packing materials

Low-value consumables and packing materials are written-off in full when issued for use. Packing

materials are written-off in full when issued for use.

13. Classified as available-for-sale assets

Non-current asset or disposal group which meets all of the following conditions will be classified as available

for sale: (1) the non-current asset or disposal group can be sold immediately just based on the conventional terms

and conditions established specially for such asset or disposal group of the same type. (2) The Company had made

a resolution for disposal of non-current asset or disposal group and obtained adequate approval for it. (3) An

irrevocable transfer agreement had been executed between the Company and transferee. (4) The transfer will be

completed within one year.

For non-current assets (excluding financial assets and deferred income tax assets) meeting the conditions for

available-for-sale assets will be valued based on the result of book value minus disposal cost or of fair value

minus disposal cost, whichever is the lower. The amount of fair value minus disposal cost below its original book

value will be identified as asset impairment loss.

Non-current Assets and assets and liabilities in disposal group which are classified as available-for-sale can

be classified into current asset and current liability.

Operation of any component which meets any one of the following conditions, has been disposed or

classified as available-for-sale, and can be distinguished separately within the Company in operation and upon

preparation of financial statements will be terminated: (1) Such component represents one separate major business

or operation area. (2) Such component is intended as part of disposal/planning of one separate major business or

operation area. (3) Such component is a subsidiary which is acquired just for resale.

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14. Long-term equity investment

Long-term equity investment includes: the Company's long-term equity investment in subsidiaries; the

Company's long-term equity investment in joint venture and associated enterprise.

A subsidiary is an entity on which the Company can have control. A joint venture is a joint operation

arrangement which the Company achieves with an independent entity, and can have joint control on with another

party, and have rights only in its net assets based on legal form, terms of contract and other facts and

circumstances. An associated enterprise is an entity which the Company invests in, and the Company can have

material effect on its financial affairs and operation decision-making.

Investment in subsidiary will be listed in financial statements of the Company in such amount as identified

based on cost method, and be incorporated into consolidated financial statements after being regulated based on

equity method. Investment in joint venture and associated enterprise will be accounted with equity method.

(1) Determination of investment cost

Long-term equity investment resulted from business merger: For long-term equity investment resulted from

business merger under common control, the share of book value of owner's equity of merged party in final

controller's consolidated financial statements will be the initial investment cost of long-term equity investment.

For long-term equity investment resulted from business merger not under common control, the merger control will

be the investment cost of long-term equity investment.

In case of any other long-term equity investment acquired in any manner other than business merger: Actual

purchase price paid will be the initial investment cost of the long-term equity investment acquired by payment in

cash. Fair value of the issued equity securities will be the initial investment cost of long-term equity investment

acquired from issuing equity securities.

(2) Subsequent measurement and confirmation method of profit and loss

Long-term equity investment accounted with cost method will be valued based on initial investment cost, and

cash dividends or profits distributed by the invested enterprise will be identified as return on investment and

incorporated into current profit and loss.

In case that initial investment cost of long-term equity investment accounted with equity method is higher

than fair value share of recognizable net asset of the invested enterprise which it deserves upon investment, the

initial investment cost will be the long-term equity investment cost. In case that initial investment cost of long-

term equity investment accounted with equity method is lower than fair value share of recognizable net asset of

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the invested enterprise which it deserves upon investment, the difference will be contained in current profit and

loss and the long-term equity investment cost will be increased correspondingly.

For long-term equity investment accordance with equity method, the Company will identify current profit

and loss in the investment based on net profit or loss of the invested enterprise which it should share. Any net loss

incurred to invested Enterprise as identified will be within the limit of reducing book value of the long-term equity

investment and other long-term equity that essentially constitutes the net investment in the invested units to zero,

except that the Company is liable to undertake extra loss or subject to estimated liability identification condition

as provided in rules, investment loss will be identified and accounted as estimated liability. For other changes of

shareholders’ equity except net profit or loss, other comprehensive income and profit distribution of the invested

units, book value of the long-term equity investment shall be adjusted and incorporated into the shareholders’

equity. For the due part in accordance with the profits or cash dividends that the invested units announce to assign,

book value of the long-term equity investment will be reduced accordingly. The portion of profit or loss in insider

transaction unrealized between the Company and invested unit which belongs to the Company based on

shareholding ratio will be set off, and profit and loss on investments will be identified based thereon. However the

unrealized loss in insider transaction between the Company and invested unit which is asset impairment loss will

not be set off.

(3) Basis for determining control/common control/material effect on invested enterprise

Control means the authority over the investee to share variable return by participating related activities of the

investee and the capacity to affect amount of the return by applying such authority.

Joint control means shared control on a certain arrangement based on related commitment, related activities

of which arrangement must be decided only after being approved by the participants sharing the control.

Significant impact is the right to participate decision-making of investee’s financial and business policies but

not to control or jointly control decision-making of these policies with others.

15. Investment real estate

Investment real estate valuing mode

Cost method

Depreciation or amortization method

Investment property is held for earning rent or capital appreciation, or both. It includes leased land use rights,

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land use rights held for sale after appreciation, leased buildings, and building in construction or to be leased

during development.

Investment real estate is valued initially based on cost. Subsequent expenditures related to an investment

property shall be included to cost of investment property only when the economic benefits associated with the

asset will likely flow to the Company and its cost can be measured reliably. All other subsequent expenditures are

charged to the current profits and losses once they are incurred.

If an investment real estate is disposed of, or if it withdraws permanently from use and no economic benefit

is expected to be obtained from the disposal, the investment real estate shall be de-recognized. The amount of

proceeds on sale, transfer, retirement or damage of any investment real estate net of the carrying value of the

investment real estate and the relevant taxes shall be accounted as current profit & loss.

16. Fixed asset

(1) Recognition criteria

Fixed assets refer to any tangible asset held for production of commodities, provision of service, leasing or operation management

and usable for over a fiscal year.

(2) Depreciation method

Classification Depreciation method Depreciation life Residual ratio Yearly depreciation

Houses and buildings Straight-line method 8-30 3 12.13-3.23

Dedicated Equipment Straight-Line Method 8 3 12.13

Transportation

EquipmentStraight-Line Method 10 3 9.70

General-Purpose

EquipmentStraight-Line Method 4-5 3 24.25-19.40

The fixed assets are initially valued by cost and impact of estimated retirement cost factors shall be considered.

Depreciation of fixed asset is accrued with straight-line method from the next month after the asset becomes

available for its intended purpose. Estimated residual value refers to the amount which the Company acquires from disposal of

the asset minus estimated disposal cost when its estimated service life expires.

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(3) Recognition basis, pricing and depreciation method for fixed assets under finance leases

A finance lease is a lease that transfers substantially all the risks and rewards related to the ownership of an asset.

The ownership may be transferred. The fixed assets rented by financial leasing shall adopt the same policy of self-

owned fixed assets to make depreciation of leased assets. If it is reasonable to be certain that the lessee will obtain

the ownership of the leased assets at the expiry of the lease term, the leased assets shall be fully depreciated within

the service life. If it is not reasonable to be certain that the lessee will obtain the ownership of the leased asset at

the expiry of the lease term, the leased asset shall be fully depreciated over the shorter one of the lease term or its

useful life.

(4) Other subsequent expenditures related to an investment property will be incorporated into cost of investment

property only when the economic benefits associated with the asset will likely flow to the Company and its cost

can be measured reliably, and book value of the replaced portion will be de-recognized. All other subsequent

expenditures are charged to the current profits and losses once they are incurred. Disposal consideration on sale,

transfer, scrapping or destruction of fixed assets will be incorporated into current profit and loss after its book

value and related taxes are deducted. The Company will at least recheck service life, estimated ratio of remaining

value and yearly depreciation of fixed assets at the end of each year and handle any changes in them as accounting

estimate variation.

17. Construction in Process


No

Cost of construction in process is determined according to the actual engineering expense and includes

necessary engineering expenses and other related costs during the construction period. In-process construction

will be carried over to fixed asset after it becomes available for its intended purpose.

18. Borrowing costs

Borrowing costs comprise interest incurred on borrowings, amortization of discounts or premiums, ancillary

costs, and exchange differences arising from foreign currency borrowings. The borrowing cost directly

attributable to acquire, construct, or produce the qualifying asset shall start with capitalization when the

expenditure of assets, the borrowing costs, and the necessary building or production activities to make the assets

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in the status of intended use or sales have already been started. Capitalization of borrowing cost shall be ceased

when acquisition, construction or production of the qualifying asset has prepared for its intended use or sale.

Other borrowing costs are recognized as expenses in the period in which they are incurred.

The balance of the actual interest expenses in the current period of specific borrowing net of the interest

income earned from the unused borrowing loans or the investment income acquired from temporary investment

shall be capitalized. The amount of capitalization on the general borrowing shall be determined by multiplying the

weighted average value of the accumulative asset expenditures net of the asset expenditures of specific borrowing

by the capitalization rate of general borrowing. Capitalization rate is confirmed by weighted average interest rate

of general borrowing.

The exchange balance of specific borrowing in foreign currency shall be fully capitalized in capitalization

period. The exchange balance of general borrowing in foreign currency shall be recorded in the current profits and

losses.

Qualifying assets are assets (fixed assets, investment property, inventories, etc.) that necessarily take a

substantial period of time for acquisition, construction or production to get ready for their intended use or sale.

Capitalization of borrowing costs shall be suspended during periods in which the acquisition, construction or

production of a qualifying asset is interrupted abnormally, and when the interruption is for a continuous period of

more than 3 months, until the acquisition, construction or production of a qualifying asset is resumed.

19. Biological assets

None

20. Oil and gas assets

None

21. Intangible assets

(1) Pricing method, service life, and impairment test

An intangible asset is an identifiable non-monetary asset without physical substance owned or controlled by

the Company.

Intangible assets are measured initially at cost. Expenditures related to an intangible asset shall be included to

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cost of intangible asset only when the economic benefits associated with the asset will likely flow to the Company

and its cost can be measured reliably. All other expenditures on an intangible item shall be included in current

profit and loss.

Typically, the land use rights purchased are recognized as intangible assets. Buildings such as self-developed

factories, related land use right expenses, construction cost of buildings shall be accounted as intangible assets and

fixed assets respectively. For purchased houses and buildings, the related costs will be distributed between land

use rights and buildings. If it is difficult to be fairly distributed, the land use rights and buildings are handled as

fixed assets.

The intangible assets with a finite useful life shall be used since it is available. The straight line method is

adopted for staging average amortization of the original cost net of the expected net salvage value and the

accumulative amount of impairment provision in its estimated useful life. No amortization will be granted for

intangible assets with uncertain service life.

For an intangible asset with a finite useful life, the useful life and the amortization method applied are

reviewed at each financial year-end, any change of which is treated as a change in an accounting estimate.

Besides, the service life of intangible assets with uncertain service life will be checked. If evidence indicates that

time limit of economic interest is foreseeable for intangible assets, its useful live is estimated and it is amortized

as per amortization policy of intangible assets with finite useful life.

(2) Accounting policies for expenditures of internal research and development

Expenditure of internal research and development within the Company, based on its nature and uncertainty of

whether such research and development activity will be finally converted into intangible assets, is classified into

research-stage expenditure and development-stage expenditure.

Expense in research stage is included in current profit and loss when it occurs.

The spending in the development phase is confirmed as the intangible assets if the following conditions are

met; otherwise, the spending in the development phase shall be recorded in the current profits and losses:

① It is technically feasible to use or sell the intangible assets;

② It is intended to use or sell the intangible assets;

③ The usefulness of methods for intangible assets to generate economic benefits shall be proved, including

being able to prove that there is a potential market for the products manufactured by applying the intangible assets

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or there is a potential market for the intangible assets itself or the intangible assets will be used internally;

④ It is able to finish the development of the intangible assets, and able to use or sell the intangible assets,

with the support of sufficient technologies, financial resources and other resources;

⑤ The development expenditures of the intangible assets can be reliably measured.

If expenses cannot be identified either as expenses occurred in the research phase or expenses occurred in the

development phase, all such expenses were recorded in the profit and loss of the current period at the time of

occurrence. Expense in development stage which fails to meet the above conditions will be included in current

profit and loss when it occurs. Any development expenditure which has been included in the current profit and

loss will be re-identified as asset in future. Any expenditure in development stage which has been capitalized will

be listed as development expenditure on balance sheet, and converted into intangible assets on the date of

becoming available for its intended purpose.

(3) Testing and provision method for impairment of intangible assets

For impairment test method and impairment reserves accrued method of fixed assets, refer to Notes II, 20 -

Impairment of Non-Current & Non-Financial Assets.

22. Impairment of long-term assets

For non-current non-financial assets, such as fixed assets, construction in progress, intangible assets with

finite useful lives, investment real estate measured at cost model, and long-term equity investments in

subsidiaries, joint venture, and consortium, shall be tested whether there is any indication that an asset may be

impaired at the date of balance sheet. If the evidence shows that there is possible assets impairment, the

recoverable amount of the assets shall be estimated and the impairment test is conducted. The intangible assets

with uncertain goodwill and useful life and not ready for use shall be assessed for impairment per fiscal year.

If the impairment test indicates that the recoverable amount of assets is less than its carrying amount, the

impairment provision is made based on its balance and recorded in the impairment loss. The recoverable amount

is either the net amount of fair value of asset net of disposal expenses, or the present value of expected future cash

flows from the assets, whichever is higher. An asset’s fair value is determined in a sales agreement on an arm’s

length transaction. If there is no sales agreement but the asset is traded in an active market, fair value shall be

determined based on the bid price. If there is no sales agreement or active market for an asset, fair value shall be

estimated based on the best available information. Costs of disposal are expenses attributable to the asset disposal,

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including legal fee, relevant tax and surcharges, transportation fee and direct expenses incurred to bring the asset

ready for intended sale. For the present value of the future cash flows expected to be derived from the asset, the

future cash flows expected to be derived from the continuing use and from the final disposal of the asset is

determined after being discounted at an appropriate discount rate. Impairment provision should be assessed and

confirmed for each individual asset. If it is not possible to estimate the recoverable amount of an individual asset,

the recoverable amount of the assets group to which the asset belongs is determined. A group of assets is the

smallest group of assets that is able to generate independent cash flow.

If the goodwill is separately listed in the financial statement, during the impairment test, the carrying value of

the goodwill is allocated to the benefited asset group or asset group portfolio which is expected to benefit from the

synergies of the business combination. If the result of the test indicates that the recoverable amount of an asset

group or asset group portfolio including the goodwill allocated is lower than its carrying amount, the

corresponding impairment losses shall be recognized. The impairment loss is first deducted from the carrying

amount of goodwill allocated to the asset group or asset group portfolio, and then deducted from the carrying

amount of the remaining assets of the asset group or asset group portfolio pro rata with goodwill.

Once the impairment loss of these assets is confirmed, it is not allowed to be reversed even if the value can

be recovered in a subsequent period.

23. Long-term unamortized expense

Long-term unamortized expense includes various expenses incurred in operation and modification of leased

fixed assets and other expenses which has incurred but should be borne in current and subsequent periods

for an apportion period of more than one year, and will be amortized averagely within estimated benefit

period and listed in the net amount of actual expenditure minus accumulated amortization.

24. Employee remuneration

(1) Accounting treatment method of short-term remuneration

Short-term remuneration mainly includes wage, bonus, allowance and subsidy, employee welfare expense,

medical insurance premium, birth insurance premium, occupational injury and birth insurance premium, housing

fund, labor union expenditure and personnel education fund. During accounting period that employees serve for

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the Company, the Company recognizes short-term employee remuneration actually incurred as liability and

include it into current profit and loss or relevant asset cost.

(2) Accounting treatment method of welfare after resignation

The Company classifies post-resignation welfare into defined contribution plan and defined benefit plan.

Defined contribution plan is a post-resignation welfare plan where the Company will not be liable for any

additional payment after it has paid fixed amounts to an independent fund. Defined benefit plan is a post-

resignation welfare plan in addition to the defined contribution plan. During the report period, the Company

mainly offers the following post-resignation welfare:

1. Basic pension insurance

Staff of the Company have been provided social basic pension insurance program implemented by local

labor and social security agencies, and such type of post-resignation welfare is part of defined contribution plan.

The Company will monthly pay pension insurance premium to local social pension insurance agency based on the

norm and ratio as specified locally. When an employee retires, local labor and social security agencies will be

liable for paying social basic pension to him/her. During accounting period that employees serve for the

Company, the Company recognizes the amount due calculated in accordance with the aforesaid social insurance

rules as liability and include it into current profit and loss or relevant asset cost.

(3) Accounting treatment method of welfare after dismissal

None

(4) Accounting treatment method of other long-term staff welfare

None

25. Estimated liabilities

When any matter related obligation meets all the following conditions, the Company will identify it as

estimated liability. (1) The obligation is the current obligation undertaken by the Company; (2) Performance of

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the obligation may lead to outflow of economic benefits from the Company; (3) Amount of the obligation can be

measured reliably.

On balance sheet date, risk, uncertainty, time value of money and other factors related to contingency shall

be considered and estimated liability shall be measured according to best estimate which is required to fulfill

relevant current obligation.

If settlement of all or part of estimated liability is compensated by third party, compensation amount shall be

recognized separately as asset when it’s confirmed that it can be received, and compensation amount recognized

shall not exceed book value of estimated liability.

26 Share-based payment

(1) Classification of share-based payment

Stock payment is transaction of granting equity instrument or undertaking liability determined on basis of

equity instrument in order to obtain service provided by employees or other parties. Stock payment is divided into

stock payment settled in equity and stock payment settled in cash.

① Stock payment settled in equity

Stock payment settled in equity to exchange service provided by employees shall be measured by fair value

on grant date by granting employees equity instrument. Amount of such fair value shall be calculated by straight-

line method and included into relevant cost or expense on basis of best estimate of quantity of equity instrument

with power exercising right within waiting period under condition that service within waiting period is finished or

power can only be exercised after stipulated performance requirement is met, or shall be included into relevant

cost or expense to increase corresponding capital reserve when power can be exercised after granted.

Stock payment settled in equity to exchange service provided by other parties shall be measured by fair value

on date of obtaining service of other parties if fair value of service of other parties can be measured reliably while

it shall be measured by fair value of equity instrument on date of obtaining service if fair value of service of other

parties cannot be measured reliably but fair value of equity instrument can be measured reliably and shall be

included into relevant cost or expense and increase stockholders’ equity correspondingly.

② Share-based payment settled in cash

Share-based payment settled in cash shall be measured by fair value of liability determined on basis of stock

or other equity instruments undertaken by the Company. If power can be exercised immediately after granted, it

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shall be included into relevant cost or expense on grant date and increase liability correspondingly. If power can

only be exercised after service within waiting period is finished or stipulated performance requirement is met,

service obtained currently shall be included into cost or expense according to amount of fair value of liability

undertaken by the Company on basis of best estimate of condition of exercisable power in every balance sheet

date within waiting period, and increase liability correspondingly.

In every balance sheet date and settlement date before relevant liabilities are settled, fair value of liability

shall be measured again and its change shall be included into current profit and loss.

(2) Determination method of fair value of equity instrument

The fair value of the stock option rewarded by the Company will be valued with valuation technologies.

(3) Basis for determination of best estimate of exercisable equity instrument

In every balance sheet date within waiting period, the Company shall make best estimate according to latest

number of employees who can exercise power and other subsequent information and amend estimated quantity of

equity instruments with power exercising right.

(4) Accounting treatment related to implementation, modification and termination of share-based payment

plan

When the Company is modifying stock payment plan, if fair value of granted equity instrument is increased

by the modification, increase of service obtained shall be recognized correspondingly by increase of fair value of

equity instrument. Increase of fair value of equity instrument refers to difference between fair values of equity

instrument before and after modification date. If modification decreases total amount of fair value of stock

payment or other methods not good for employees are adopted, accounting treatment shall be conducted to

serviced obtained as well and such modification shall be regarded as never happened unless the Company cancels

part or all of granted equity instruments.

Within waiting period, if granted equity instrument is canceled, the Company shall make accelerated power

exercise treatment to grant equity instrument canceled, immediately include amount that shall be recognized

within remaining waiting period into current profit and loss, and recognize capital reserve at the same time. Where

employees or other parties can choose to meet non-power exercise condition but fail to meet within waiting

period, the Company shall treat it as cancel of granted equity instrument.

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27. Stock preferred, perpetual capital securities and other financial instruments

None

28. Revenue


No

Amount of revenue will be identified based on fair value of contract/agreement value as received or

receivable upon sales of goods or provision of service in routine operation activity, and listed in the net amount

after deduction of sale discount and sale return.

(1) Revenue from sales of goods

Realization of revenue of selling goods shall be recognized when main risk and remuneration of property in

the goods has been transferred to Buyer, neither continued management right generally related to property is kept

nor effective control is exercised to sold goods, amount of revenue can be measured reliably, relevant economic

benefits is likely to flow into enterprise, and relevant cost that has incurred or is going to incur can be measured

reliably.

(2) Revenue from provision of service

Under condition that transaction result of providing labor can be estimated reliably, labor revenue provided

shall be recognized on balance sheet date according to percentage of completion. Completion progress of labor

transaction shall be determined by proportion of incurred labor cost in total estimated cost.

Transaction result of providing labor can be estimated reliably refers to meeting following conditions at the

same time: ① amount of revenue can be measured reliably; ② relevant economic benefits is likely to flow into

enterprise; ③ completion degree of transaction can be determined reliably; ④ cost that has incurred or is going to

incur during transaction can be measured reliably.

If transaction result of providing labor cannot be estimated reliably, labor revenue provided shall be

recognized by amount of labor cost that has incurred and is expected to be compensated, and labor cost incurred

shall be regarded as current expense. If labor cost incurred is not expected to be compensated, revenue shall not be

recognized.

When contract or agreement signed by the Company and other enterprises includes selling goods and

providing labor, if part of selling goods and providing labor can be distinguished and measured separately, part of

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selling goods and providing labor shall be treated separately; if part of selling goods and providing labor cannot be

distinguished or can be distinguished but cannot be measured separately, such contract shall be treated as selling

goods.

(3) Royalty revenue

According to relevant contract or agreement, revenue shall be recognized by accrual basis.

(4) Interest revenue

Interest revenue will be calculated and determined based on the time that other party uses the monetary

capital of the Company and actual interest rate.

Revenue from operating lease will be determined on straight-line basis within lease period.

29. Government subsidy

(1) Judgment basis and accounting treatment method for asset-related governmental subsidy

Asset-related governmental subsidy refers to governmental subsidy which is obtained by an enterprise and

uses for acquisition or becomes long-term assets in other way. Revenue-related government subsidy is in addition

to asset-related governmental subsidy.

Government subsidy will be identified when the Company can meet any condition attached thereto and

receive it. Government subsidy in the form of monetary asset will be calculated as per the amount received or

receivable. Government subsidy in the form of non-monetary asset will be calculated as per its fair value, or as per

its nominal amount if its fair value cannot be obtained in a reliable way. Government subsidy calculated as per

nominal amount will be directly included in current profits and losses.

Government subsidies pertinent to assets shall be confirmed as deferred revenue, it shall be distributed

equally during service life of the related assets, and included in current profits and losses.

(2) Judgment basis and accounting treatment method for revenue-related governmental subsidy

In case government subsidies pertinent to revenue are used to compensate relevant expenses and losses later,

it shall be confirmed as deferred revenue, and shall be included in current profits and losses when confirming

related expenses; in case government subsidies pertinent to revenue are used to compensate relevant expenses and

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losses already incurred, it shall be directly included in current profits of the losses.

When recognized governmental subsidy is required to be returned, if there is balance of relevant deferred

income, it shall offset balance of relevant deferred income, and exceeding part shall be included into current profit

and loss; if there is no relevant deferred income, it shall be included into current profit and loss directly.

30. Deferred income tax assets/ deferred tax liabilities

Deferred income tax asset/deferred income tax liability will be calculated and identified as per the difference

between tax base of the asset/liability and its book value (temporary difference). For deductible losses in taxable

income in subsequent years in accordance with tax laws, related deferred income tax assets will be identified. For

temporary difference resulted from initial recognition of goodwill, related deferred income tax liabilities will not

be identified. For temporary difference resulted from initial recognition of assets or liabilities generated in

transactions rather than enterprise merger which have no effect on either accounting profit or taxable income (or

deductible losses), related deferred income tax asset/deferred income tax liability will not be identified. On the

balance sheet date, deferred income tax asset/deferred income tax liability will be calculated as per the applicable

tax rate during the period when it is expected to recover the asset or settle the liability.

For taxable temporary difference relate to investment in subsidiaries, joint ventures and associated

enterprises, deferred tax liabilities will be identified, unless the Company can control the time of recovering the

temporary difference and such difference is likely not to be recovered in foreseeable future. In addition, for

deductible temporary difference relate to investment in subsidiary, joint venture and associated enterprise,

deferred income tax assets will be identified when the temporary difference is likely to be recovered in foreseeable

future, and likely to be used to deduct taxable income of the deductible temporary difference.

Deferred income tax asset will be identified to the extent of being likely to be used to deduct any deductible

temporary difference, deductible loss and taxable income to set off taxes. On balance sheet date, book value of

deferred income tax asset shall be rechecked. If enough benefit of taxable income used to deduct deferred income

tax asset is not likely to be obtained in the future, book value of deferred income tax asset shall be written down.

When it is possible to gain enough taxable income, write-down amount shall be recovered.

Deferred income tax asset and deferred income tax liability which meets all of the following conditions will

be listed as net amount after offset:

• The Deferred income tax asset and deferred income tax liability is relevant to income tax imposed by

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the same taxing authority on the same taxpayer entity within the Company.

• The taxpayer entity within the Company has the legal right to settle current income tax assets and

income tax liabilities in net amount.

31. Lease

(1) Accounting treatment method of operating lease

Not applicable

(2) Accounting treatment method of financial lease

Financial lease is materially lease where all risks and remunerations related to property ownership have been

transferred, and the ownership may be finally transferred or not. Any other lease except financial lease is

operating lease.

(1) Operating lease business recorded as lessee

Rental expense in operating lease will be included in relevant assets cost or current profit and loss with the

straight-line method during each lease period. Initial direct costs will be included in the current profit and loss.

Contingent rents as of be recorded in current profit and loss when occurring actually.

(2) Operating lease business recorded as lessor

Rental income from operating lease will be identified as current profit and loss on straight-line basis during

each lease period. Initial direct costs in large amount will be capitalized upon occurrence, and included in current

profit and loss by stage on the same basis as for rental income throughout the lease period. Other initial direct

costs in small amount will be included in current profit and loss upon occurrence. Contingent rents as of be

recorded in current profit and loss when occurring actually.

(3) Financial lease business recorded as lessee

Form commencement date of lease, fair value of lease asset on commencement date of lease and present

value of minimum lease payment, whichever is lower, shall be regarded as entry value of asset under lease,

minimum lease payment shall be regarded as entry value of long-term payables, and the difference shall be

regarded as unrecognized financial expense. Besides, initial direct expense which is incurred during lease

143


negotiation and signing of lease contract and can be assigned to lease project shall be included into value of asset

under lease. Balance of minimum lease payment deducting unrecognized financial expense shall be reported as

long-term liability and long-term liability due within one year respectively.

Unrecognized financial expense will be used to recognize current financial expense with effective interest

method within lease period. Contingent rental will be included in the current profit and loss when it incurs.

(4) Financial lease business recorded as lessor

From commencement date of lease term, sum of minimum lease payment on commencement date of lease

and initial direct expense shall be regarded as entry value of financial lease payment receivable, and un-

guaranteed residual value shall be recorded at the same time; difference between sum of minimum lease payment,

initial direct expense and un-guaranteed residual value and sum of its present value shall be recognized as

unrealized financial income. Balance of financial lease payment receivable deducting unrealized financial income

shall be reported as long-term claim and long-term claim due within one year.

Unrealized financial income will be recognized as current financial income with effective interest method

within lease period. Contingent rental will be included in the current profit and loss when it incurs.

32. Other Critical Accounting Policies and Accounting Estimates

None

33. Change of Critical Accounting Policy and Accounting Estimate

(1) Change of Critical Accounting Policy


(2) Change of Critical Accounting Estimate


34. Others

Key assumptions and uncertainties used in critical accounting judgment and estimate

During application of accounting policies, due to inherent uncertainties in operating activity, the Company

needs to judge, estimate and assume book value of items in statements which cannot be calculated accurately.

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These judgments, estimates and assumptions are made based on the management's experience in the past, and in

consideration of other related factors. These judgments, estimates and assumptions will influence amount of

revenues, costs, assets and liabilities reported and disclosure of contingent liabilities on the date of balance sheet.

However, the actual result caused by the uncertainty of these estimates may be different from the management's

current estimates, and thereby leads to material change to book value of any assets or liabilities influenced in

future.

The Company will regularly recheck the aforementioned judgments, estimates and assumptions based on

going concern. Where change in accounting estimate influences only current period, its influence will be

identified in current period. Where change influences both current and future periods, its influence will be

identified in current and future periods.

On the balance sheet date, the Company needs to judge, estimate and assume amounts of items in financial

statements in following critical fields:

(1) Classification of lease

In accordance with No. 21 - Lease, Accounting Standards for Business Enterprises, the Company classifies

lease into operating lease and financial lease. When classifying them, the management needs to analyze and

determine whether all risks and remunerations related to leased property ownership have been materially

transferred to lessee or whether the Company has materially borne all risks and remunerations related to leased

property ownership.

(2) Provision for bad debts

The Company will use allowance method to account bad debt losses in accordance with accounting policies

concerning receivables. Depreciation of receivables is based on evaluation on collectability of receivables.

Identification of depreciation of receivables requires the management's judgment and estimate. The difference

between actual result and original estimate will influence book value of receivables and withdrawal or recovery of

bad debt reserves for receivables during estimated influenced period.

(3) Inventory depreciation reserves

The Company will, based on accounting policies concerning inventory, and by measuring which one is lower

between cost and net realizable value, withdraw inventory revaluation reserve for inventories whose cost is higher

than net realizable value and which get obsolete and unmarketable. Depreciation of inventories to net realizable

value is based on evaluation of marketability of inventories and its net realizable value. Identification of inventory

depreciation requires the management to make Judgment and estimate after obtaining conclusive evidence and

145


taking into consideration the purpose of holding inventory and effect on matters subsequent to balance sheet date.

The difference between actual result and original estimate will influence book value of inventories and withdrawal

or recovery of bad debt reserves for inventories during estimated influenced period.

(4) Fair value of financial instruments

The Company identify fair value of the financial instruments not existing in active market with various

valuation methods, including DCF model analysis. In valuation the Company needs to estimate future cash flow,

credit risk, market fluctuation rate and correlation and choose a proper discount rate. These relevant assumptions

are of uncertainty and their variation will have effect on fair value of financial instruments.

(5) Non-financial non-current asset impairment reserves

The Company judges whether there is an indication that non-current assets except financial asset may be

impaired on the balance sheet date. The intangible assets with service life uncertain, in addition to the annual

impairment test, if demonstrated to be impaired by an indication, can also be tested for impairment. Non-current

assets except financial asset if its book amount is demonstrated unrecoverable by an indication, can be tested for

impairment.

In case that book value of any asset or asset group is higher than its recoverable amount, which is the higher

between the net amount after disposal cost deducted from fair value and present value of estimated future cash

flow, it indicates that any depreciation has occurred.

The net amount of fair value with disposal cost deducted is determined based on the price under any sales

agreement for similar asset in fair transaction or available market price, with incremental cost directly attributable

to such disposal deducted from it.

Estimating present value of future cash flow requires making material judgment on output, sale price, and

relevant operating cost of the assets (or asset group) and discount rate used in calculation of present value. When

estimating recoverable amount, the Company will use all available relevant materials, including forecasts

concerning output, sale price and relevant operating cost which are made based on reasonable and supportable

assumptions.

The Company performs test to check whether its goodwill is devalued at least on an annual basis, by

estimating present value of the future cash flow of asset group or combination of asset groups for which goodwill

is distributed. In estimating present value of the future cash flows, the Company need predict cash flows caused

for future asset group or combination of asset groups, and select proper discount rate to determine present value of

the future cash flow.

146


(6) Depreciation and amortization

The Company will, after take into consideration residual values of investment real estate, fixed assets and

intangible assets, withdraw depreciation and amortization on straight line basis within the service life. The

Company will regularly recheck service life to determine amounts of depreciation and amortization costs which

will be incorporated into each report period. Service Life is determined based on past experience in similar assets

and estimated technical update. If previous estimates have changed significantly, depreciation and amortization

costs will be adjusted in future period.

(7) Development expenditure

When determining capitalized amount, the management needs to make assumptions on estimated future cash

flow, proper discount rate and estimated benefit period concerning related assets.

(8) Deferred income tax assets

To the extent that sufficient taxable profits are likely to be available to deduct loss, the Company will

identify deferred income tax assets with regard to all unused tax losses, which requires the management to use

many judgments in estimating when and how much taxable profits will occur in future, and, by taking into

account taxing strategies, to determine the recognizable amount of deferred income tax assets.

(9) Income tax

In normal operating activities of the Company, there are some transactions whose final tax treatment and

calculation are of some uncertainty. Whether some item will be reported before taxation is subject to review and

approval of the tax authorities. If the final results of these taxation matters as identified are different from the

amounts estimated initially, such difference will have effect on current income tax and deferred income tax in the

period as identified conclusively.

(10) Measurement of fair value

Some assets and liabilities of the Company will be calculated by fair value in financial statements. When

estimating fair value of an asset or Liability, the Company will use acquirable observable market data. If input

value of Layer 1 is unavailable, the Company will employ a third-party qualified appraiser to perform appraisal.

Valuation Committee will cooperate closely with qualified external appraiser to determine proper valuation

technologies and input values of relevant models. Information on valuation technologies and input values used in

determination of fair values of assets and liabilities are provided in Note IV.

147


VI. Taxes

1. Main taxes and rates

Taxes Tax Basis Tax Rate

VAT

Taxable added value (taxable value will be

determined by multiplying taxable sales

volume with applicable tax rate and then

deducting deductible input taxes in current

period)

Amount of output tax on taxable sales

revenue will be calculated as per rate of

17% (6% for some service industries), and

VAT will be determined by deducting

deductible input taxes in current period

from the output tax amount.

City construction taxAmounts of VAT, sales tax and

consumption tax paid7%

CIT Taxable Income 10%, 17%, 20%, 25%, 30%, 35%

Sales Tax Taxable turnover 5%

Educational Surtax Turnover tax paid actually 3%

In case of more than one CIT payers, give information on them below.

Name of Taxpayers CIT Rate

Eastcompeace (Singapore) Co. Ltd. 17%

Eastcompeace (India) Co. Ltd. 30%

Eastcompeace Smart Card (Bangladesh) Co. Ltd. 35%

Eastcompeace (Russia) Co. Ltd. 20%

Guangzhou Eastcompeace Technology Co. Ltd. 25%

2. Tax privilege

(1) Turnover tax

As per GF [2011] No.4 Notice on Insurance of Several Policies of State Council to Further Encourage

Development of Software Product and Integrate Circuit Industry and CS [2012] No.27 Notice on Corporate

Income Tax Policy of Further Encouraging Development of Software Product and Integrate Circuit Industry

issued by Ministry of Finance and State Administration of Taxation, after VAT of the company is levied on

software product self-produced by the company by 17% of tax rate, the part which is 3% exceeding actual tax

burden shall exercise drawback policy.

(2) Income tax

As per Notice on Issues Concerning Preferential Police for Corporate Income Tax in Software and

Integrated Circuit Industries (FT-2016-49), enterprises in software and integrated circuit industries enjoying the

148


preferential policy shall make registration with tax authority upon payment on a consolidated basis in accordance

with Notice on Issuing Measures on Handling of Matters Concerning Preferential Policy for Corporate Income

Tax (SAT No. 76 of 2015). Actual operation status and Indicators of the Company meet the conditions as

stipulated in Document No. FT-2012-27, and the Company is basically qualified for the tax privilege for key

software enterprises within national planning layout, and accrued amount of income tax as per preferential rate of

10% in 2016.

3. Others

None

VII. Notes to Items of Consolidated Financial Statements

1. Monetary fund

Unit: Yuan


Cash in hand 276,387.13 531,711.25

Bank deposit 606,563,801.75 543,882,358.33

Other monetary capitals 7,628,714.19 4,420,028.83

Total 614,468,903.07 548,834,098.41

Including: Total amounts deposited oversea 45,051,651.88 48,222,705.84

Other explanation

Notes: 1. Monetary funds include: security deposit of 7,485,447.39 Yuan (including *** in letter of

guarantee; guarantee of USD 522,855.02 dollars , equivalent RMB3,627,045.27 Yuan; guarantee of SGD

76,983.00 dollars, equivalent RMB 369,479.91 Yuan; guarantee for tax certificate of 34,108,749.00 Rupee,

equivalent RMB 3,488,922.21 Yuan), which is not deemed as cash equivalent.

2. Other monetary capitals are deposit by credit card, guarantee deposit and DF guarantee.

2. Financial assets calculated by fair value and with its changes included in current loss and profit

Unit: Yuan


Refer to financial assets measured by fair 55,924.56

149


value and with its changes included in the


Others 55,924.56

Total 55,924.56

Other explanation:

Notes: Book value of forward exchange contract is equal to its fair value. The aforesaid transactions

involving derivative financial instruments were conducted with Industrial and Commercial Bank of China, Bank

of China, Bank of Communications, HSBC and Agricultural Bank of China with AAA credit level.

The Company signed every kind of forward exchange contract not meeting condition of hedge accounting

method to manage foreign exchange risk. In this year, change of fair value of non-hedge monetary derivative

instrument with amount of RMB -363,757.94 Yuan (RMB -2,279,956.08 Yuan in 2015) is included in current

profit and loss.

3. Derivative financial assets


4. Accounts receivable

(1) Disclosure of amounts receivable by classification

Unit: Yuan

Classification

Ending Balance Opening Balance

Book Balance Bad Debt Reserves

Book

Value


Book ValueAmount Ratio Amount

Percenta

ge of

Accrual

Amount Ratio AmountPercentage

of Accrual

Accounts receivable

withdrawal of bad

debt reserve based on

credit risk feature

combination

197,992,

815.51100.00%

40,447,0

97.8220.43%

157,545,7

17.69

183,305

,674.19100.00%

36,331,37

4.5919.82%

146,974,29

9.60

Total197,992,

815.51100.00%

40,447,0

97.8220.43%

157,545,7

17.69

183,305

,674.19100.00%

36,331,37

4.5919.82%

146,974,29

9.60

Ending receivables with significant single amount and individual bad debt provision:


150


Receivables in portfolio for which provision for bad debts is accrued by aging analysis method:


Unit: Yuan

Account receivable ageEnding Balance

Accounts receivable Bad Debt Reserves Percentage of Accrual

Sub-items within 1 year

Subtotal within 1 years 144,618,685.34 7,230,934.26 5.00%

1~2 years 14,691,385.77 1,469,138.58 10.00%

2~3 years 9,908,170.60 2,972,451.18 30.00%

More than 3 years 28,774,573.80 28,774,573.80 100.00%

3~4 years 6,688,579.15 6,688,579.15 100.00%

4~5 years 6,042,513.19 6,042,513.19 100.00%

More than 5 years 16,043,481.46 16,043,481.46 100.00%

Total 197,992,815.51 40,447,097.82

Description of basis for determination of the combination:

Receivables in portfolio for which provision for bad debts is accrued by balance percentage:


Receivables in portfolio for which provision for bad debts is accrued by other methods:

(2) Information on bad debt reserves withdrawn, collected or recovered

Provisions for bad debts in amount of 4,115,723.23 Yuan were accrued in current period. Provisions for bad debts in amount of 0.00

Yuan were collected or recovered in current period.

Critical amounts of provision for bad debts collected or recovered in current period:

Unit: Yuan

Name of Organization Amount Collected or Recovered Recovery Mode

None

(3) Top five ending balances of accounts receivable sorted by owing party

Total amount of top 5 accounts receivable by ending balance sorted by owing party in current report period is 53,513,320.34 Yuan, accounting for 27.02% of the total, and the total amount of ending balance of bad debt reserve accrued is 10,405,171.92 Yuan.

151


5. Prepayment

(1) Prepayment reported by account age

Unit: Yuan

Account receivable ageEnding Balance Opening Balance

Amount Ratio Amount Ratio

Within 1 year 4,277,076.42 91.23% 1,631,262.93 39.73%

1~2 years 237,973.91 5.08% 308,819.08 7.52%

2~3 years 173,405.56 3.70% 809,140.38 19.71%

More than 3 years 1,356,250.06 33.04%

Total 4,688,455.89 -- 4,105,472.45 --

Description of reason why prepayment with account age of over one year and significant amount is not settled in time:

No applicable

(2) Top five ending balances of repayments sorted by repayment receiver

Total amount of top five repayments by ending balance is 4,110,329.94 yuan, accounting for 87.66 % of total of ending balances of repayments.

Other explanation:

None

6. Interest receivable

(1) Classification of interest receivable

Unit: Yuan


time deposit 1,185,255.13

Total 1,185,255.13

7. Dividends receivable

8. Other receivables


Unit: Yuan

Classification Ending Balance Opening Balance

152



Book

Value



Percenta

ge of

Accrual


of Accrual

Other accounts

receivable for which

bad debt reserve is

accrued based on

credit risk feature

combination

42,972,6

78.44100.00%

7,900,24

8.4318.38%

35,072,43

0.01

32,878,

022.67100.00%

6,106,737

.6918.57%

26,771,284.

98

Total42,972,6

78.44100.00%

7,900,24

8.4318.38%

35,072,43

0.01

32,878,

022.67100.00%

6,106,737

.6918.57%

26,771,284.

98

Other ending receivables with significant single amount and individual bad debt provision:


Other receivables in portfolio for which provision for bad debts is accrued by aging analysis method:


Unit: Yuan


Other receivables Bad Debt Reserves Percentage of Accrual



1~2 years 3,725,616.31 372,561.63 10.00%

2~3 years 3,386,267.58 1,015,880.27 30.00%

More than 3 years 4,967,122.96 4,967,122.96 100.00%

3~4 years 1,128,527.58 1,128,527.58 100.00%

4~5 years 953,627.26 953,627.26 100.00%

More than 5 years 2,884,968.11 2,884,968.11 100.00%

Total 42,972,678.44 7,900,248.43


None

Other receivables in portfolio for which provision for bad debts is accrued by balance percentage:


Other receivables in portfolio for which provision for bad debts is accrued by other methods:




153




Unit: Yuan

Name of Organization Amount recovered or collected Recovery Mode

(3) Classification of other receivables by nature

Unit: Yuan

Nature Ending Book Balance Opening Book Balance

Security Deposit 13,753,667.91 8,737,784.45

Petty Cash 1,129,008.66 1,246,526.06

Dealings 5,396,192.02 3,977,018.00

Taxes Withheld 20,097,973.69 16,498,546.73

Payroll Deductions 1,292,797.34 818,448.99

Others 1,303,038.82 1,599,698.44

Total 42,972,678.44 32,878,022.67

(4) Top five ending balances of other accounts receivable sorted by owing party

Unit: Yuan

Name of

OrganizationNature Ending Balance

Account receivable

age

Percentage in Total

Ending Balance of

Other Receivables

Ending Balance of

Bad Debt Reserves

No. 1 Taxes Withheld 4,408,864.39 Within 1 year 10.26% 220,443.22


No. 3Performance

Security1,550,000.00 Within 1 year 3.61% 77,500.00

No. 4 Bid Security 1,500,000.00 Within 1 year 3.49% 75,000.00

No. 5Performance


Total -- 11,659,711.30 -- 27.14% 582,985.57

9. Inventory

Does the Company need to comply with disclosure requirements for real estate industry?

No

154


(1) Classification of inventory

Unit: Yuan

Item


Book Balancefalling price

reservesBook Value Book Balance

Depreciation

ReservesBook Value

Raw materials 125,160,611.18 43,873,271.32 81,287,339.86 88,941,144.14 44,698,024.34 44,243,119.80

Goods in Process 14,111,698.48 14,111,698.48 16,773,456.66 16,773,456.66

Goods in Stock 322,461,129.79 31,997,016.20 290,464,113.59 367,833,388.17 14,502,325.28 353,331,062.89

Revolving

Materials5,602,894.81 5,602,894.81 9,828,061.67 9,828,061.67

Goods in Outside

Processing3,665,705.97 3,665,705.97 2,035,344.00 2,035,344.00

Total 471,002,040.23 75,870,287.52 395,131,752.71 485,411,394.64 59,200,349.62 426,211,045.02

Does the Company need to comply with the disclosure requirements in No. 4 - Listed Companies Engaged in Seeding/Planting

Business, Guidelines for Industrial Information Disclosure of Shenzhen Stock Exchange?

No

(2) Inventory depreciation reserves

Unit: Yuan

Item Opening Balance

Increased Amount in Current Period Decreased Amount in Current Period

Ending BalanceAccrued Others

Recovered or

Written OffOthers

Raw Materials 44,698,024.34 -824,753.02 43,873,271.32

Goods in Stock 14,502,325.28 19,903,362.13 2,408,671.21 31,997,016.20

Total 59,200,349.62 19,078,609.11 2,408,671.21 75,870,287.52

Reason for withdrawal and recovery of inventory revaluation reserve

Item Basis for determination of net realizable value

Reason for recovery/write-off of inventory revaluation reserves

Raw Materials Unchanged for more than 6 months

Goods in Stock Net realizable value lower than cost

Goods Sold

155


(3) Description of ending balance of inventory containing capitalization amount of borrowing costs

(4) Information on completed and unsettled asset under ending construction contract

Unit: Yuan

Item Amount

Other explanation:

10. Non-current assets due within a year

Unit: Yuan


Other explanation:

11. Other Current Assets

Unit: Yuan


VAT to deduct input taxes 2,255,103.36 6,906,899.32

Prepaid CIT 17,024,022.86 8,138,951.60

Total 19,279,126.22 15,045,850.92

Other explanation:

None


Unit: Yuan

InvesteeOpening

Balance

Increases/Decreases of Current Period

Ending

Balance

Ending

Balance

of

Depreciat

ion

Reserves

Additiona

l

Investme

nt

Investme

nt

Reduction

Profit and

loss on

investmen

ts

identified

under

equity

method

Other

comprehe

nsive

income

adjustmen

t

Other

equity

variation

Cash

dividends

or profits

announce

d to be

distribute

d

Accrued

impairme

nt

reserves

Others

I. Associated Enterprise

Inter-City

Data Co.

Ltd.

23,081,98

4.30

-

2,420,307

.70

20,661,67

6.60

156


Subtotal23,081,98

4.30

-

2,420,307

.70

20,661,67

6.60

II. Joint Ventures

Total23,081,98

4.30

-

2,420,307

.70

20,661,67

6.60

Other explanation

None

13. Investment real estate

(1) Investment real estate with cost measurement mode


Unit: Yuan

Item Houses and buildings Land Use Rights Construction in Process Total

I. Original Book Value

　　1. Opening Balance 82,287,567.03 3,584,833.20 85,872,400.23

　　2.Increased Amount

in Current Period26,089.00 26,089.00

(1) Bought-in

　(2) Transfer-in from

inventory/fixed

assets/construction in

progress

26,089.00 26,089.00

(3) Increase from

enterprise merger

　　3.Decreased

Amount in Current

Period

1,712,877.29 1,712,877.29

(1) Disposal

(2) Other transfer-out 1,712,877.29 1,712,877.29

　　4. Ending Balance 80,600,778.74 3,584,833.20 84,185,611.94

II. Accumulated

Depreciation and

157


Accumulated

Amortization

　　1. Opening Balance 7,042,801.67 692,788.17 7,735,589.84


in Current Period3,913,501.76 71,696.66 3,985,198.42

(1) Accrual or

Amortization3,913,501.76 71,696.66 3,985,198.42

　　3. Decreased

Amount in Current

Period

69,980.85 69,980.85

(1) Disposal

(2) Other transfer-out 69,980.85 69,980.85

　　4.Ending Balance 10,886,322.58 764,484.83 11,650,807.41

III. Impairment Reserves

　　1.Opening Balance


in Current Period

(1) Accrual

　　3. Decreased

Amount in Current

Period

(1) Disposal

(2) Other transfer-out

　　4.Ending Balance

IV. Book Value

　　1. Ending Book

Value69,714,456.16 2,820,348.37 72,534,804.53

　　2. Opening Book

Value75,244,765.36 2,892,045.03 78,136,810.39

158


14. Fixed assets

(1) Information on fixed assets

Unit: Yuan

ItemHouses and

buildings

Dedicated

Equipment

Transportation

Equipment

General-Purpose

EquipmentTotal

I. Original Book

Value:

　1. Opening

Balance133,453,736.55 402,698,255.69 7,476,880.45 34,999,945.35 578,628,818.04

　2. Increased

Amount in Current

Period

2,205,674.46 21,447,104.86 877,719.33 6,954,760.47 31,485,259.12

(1) Acquisition 2,205,674.46 21,447,104.86 877,719.33 6,954,760.47 31,485,259.12

(2) Construction in

Process

(3) Increase from

enterprise merger

　3.Decreased

Amount in Current

Period

7,478,427.20 1,178,750.41 915,545.65 9,572,723.26

(1) Disposal or

scrapping7,478,427.20 1,178,750.41 915,545.65 9,572,723.26

　4. Ending Balance 135,659,411.01 416,666,933.35 7,175,849.37 41,039,160.17 600,541,353.90

II. Accumulated

Depreciation

　1.Opening

Balance41,352,446.61 272,563,624.58 3,745,906.98 23,790,609.32 341,452,587.49

　2. Increased

Amount in Current

Period

4,331,915.89 27,076,861.78 914,681.61 6,593,479.37 38,916,938.65

(1) Accrual 4,331,915.89 27,076,861.78 914,681.61 6,593,479.37 38,916,938.65

　3.Decreased

Amount in Current

6,847,707.60 1,172,927.92 2,496,614.24 10,517,249.76

159


Period

(1) Disposal or

scrapping6,847,707.60 1,172,927.92 2,496,614.24 10,517,249.76

　4.Ending Balance 45,684,362.50 292,792,778.76 3,487,660.67 27,887,474.45 369,852,276.38

III. Impairment

Reserves

　1. Opening

Balance4,839,883.32 4,839,883.32

　2. Increased

Amount in Current

Period

(1) Accrual

　3.Decreased

Amount in Current

Period

246,623.37 246,623.37

(1) Disposal or

scrapping246,623.37 246,623.37

　4. Ending Balance 4,593,259.95 4,593,259.95

IV. Book Value

　1. Ending Book

Value89,975,048.51 119,280,894.64 3,688,188.70 13,151,685.72 226,095,817.57

　2.Opening Book

Value92,101,289.94 125,294,747.79 3,730,973.47 11,209,336.03 232,336,347.23

(2) Information on fixed assets idle temporarily

Unit: Yuan

Item Original Book ValueAccumulated

Depreciation

Depreciation

ReservesBook Value Remarks

Machinery

Equipment9,813,577.94 4,965,358.22 4,593,259.95 254,959.77

(3) Information on fixed assets without ownership certificate

Unit: Yuan

160


Item Book ValueReason for unavailability of ownership

certificate

Other explanation

Book value of the Real Estate owned by the Company and located at Blocks 75, 77 and 79, Floor 8, 7030, Unit 5, North Star Building, Ang Mo Kio, Singapore is 7,217,022.30 Yuan, which has used as a pledge for long-term loan.

15. Construction in Process

(1) Information on construction in progress

Unit: Yuan

Item


Book BalanceDepreciation

ReservesBook Value Book Balance

Depreciation

ReservesBook Value

Innovation Coast-

Installation works26,089.00 26,089.00

Total 26,089.00 26,089.00

(2) Change of critical construction in progress in current period

Unit: Yuan

Project

NameBudget

Opening

Balance

Increase

d

Amount

in

Current

Period

Amount

Transferr

ed to

Fixed

Assets in

Current

Period

Other

Decrease

d

Amount

in

Current

Period

Ending

Balance

Ratio of

accumul

ative

investme

nt in

construct

ion to

budget

Construc

tion

Progress

Accumul

ative

amount

of

interest

capitaliz

ation

Includin

g:

Current

amount

of

interest

capitaliz

ation

Current

Interest

Capitaliz

ation

Ratio

Source

of funds

Innovati

on

Coast-

Installati

on works

19,018,9

00.00

26,089.0

0

387,828.

84

413,917.

8430.72% 30.72 Others

Total19,018,9

00.00

26,089.0

0

387,828.

84

413,917.

84-- -- --

161


16. Intangible assets

(1) Information on intangible assets

Unit: Yuan

Item Land Use Rights Right of PatentNon-patented

technologySoftware Total

I. Original Book

Value

　　1. Opening

Balance1,601,903.05 4,911,354.44 6,513,257.49

　　2. Increased

Amount in Current

Period

340,165.48 340,165.48

(1) Acquisition 340,165.48 340,165.48

(2) Internal R&D

(3) Increase from

enterprise merger

　3.Decreased

Amount in Current

Period

(1) Disposal

　　4.Ending

Balance1,601,903.05 5,251,519.92 6,853,422.97

II. Accumulated

Amortization

　　1. Opening

Balance409,966.66 1,592,655.32 2,002,621.98

　　2. Increased

Amount in Current

Period

33,045.84 722,113.55 755,159.39

(1) Accrual 33,045.84 722,113.55 755,159.39

　　3. Decreased

Amount in Current

Period

162


(1) Disposal

　　4.Ending

Balance443,012.50 2,314,768.87 2,757,781.37

III. Impairment

Reserves

　　1. Opening

Balance

　　2.Increased

Amount in Current

Period

(1) Accrual

　　3. Decreased

Amount in Current

Period

(1) Disposal

　　4. Ending

Balance

IV. Book Value

　　1. Ending Book

Value1,158,890.55 2,936,751.05 4,095,641.60

　　2. Opening

Book Value1,191,936.39 3,318,699.12 4,510,635.51

Ratio of intangible assets formed in internal research and development within the Company to the balance of intangible assets at end

of the period 0.00%.

17. Goodwill

(1) Original Book Value of Goodwill

Unit: Yuan

Name of investee

or matter

generating

goodwill

Opening Balance Increase in current period Decrease in current period Ending Balance

Eastcompeace

(Singapore) Co.

3,306,665.21 3,306,665.21

163


Ltd.

Eastcompeace

(Russia) Co. Ltd.1,076,163.60 1,076,163.60

Total 4,382,828.81 4,382,828.81

(2) Goodwill impairment reserves

Unit: Yuan

Name of investee

or matter

generating

goodwill

Opening Balance Increase in current period Decrease in current period Ending Balance

Eastcompeace

(Singapore) Co.

Ltd.

3,306,665.21 3,306,665.21

Total 3,306,665.21 3,306,665.21

Describe method of determining goodwill impairment test process, parameters and goodwill impairment loss:

None

Other explanation

None

18. Deferred income tax assets/ deferred tax liabilities

(1) Deferred income tax assets not set off

Unit: Yuan

Item


Deductible Temporary

DifferencesDeferred Tax Asset

Deductible Temporary

DifferencesDeferred Tax Asset

Asset Impairment

Reserves119,123,911.67 17,868,586.75 94,334,763.75 14,151,034.56

Unrealized Profit in

Insider Transaction7,566,881.09 2,588,477.68 13,418,501.08 4,590,199.07

Trading Financial Assets 307,833.38 46,174.42

Fixed Asset Depreciation 450,353.78 135,106.07 27,915.78 8,374.73

Employee Remuneration 57,234,781.96 8,585,217.29 49,375,467.85 7,406,320.18

Share-Based Payment 31,567,612.00 4,735,141.80 46,227,200.00 6,934,080.00

Deferred Income 4,662,583.55 699,387.53 7,127,058.22 1,069,058.73

164


Total 220,913,957.43 34,658,091.54 210,510,906.68 34,159,067.27

(2) Deferred income tax liabilities not set off

Unit: Yuan

Item


Taxable Temporary

DifferencesDeferred Tax Liabilities

Taxable Temporary

DifferencesDeferred Tax Liabilities

Fixed Asset Depreciation 263,197.94 44,743.65

Change of fair value of

available-for-sale

financial assets

55,924.56 8,388.68

Total 263,197.94 44,743.65 55,924.56 8,388.68

(3) Details of unidentified deferred income tax assets

Unit: Yuan


Deductible Temporary Differences 13,518,771.09 12,143,581.47

Deductible Losses 5,002,805.86

Total 13,518,771.09 17,146,387.33

19. Other non-current assets

Unit: Yuan


Prepaid price of equipment purchased 3,557,024.80 5,053,718.97

Total 3,557,024.80 5,053,718.97

Other explanation:

None

20. Short-term loan

(1) Classification of short-term loan

Unit: Yuan


Fiduciary loan 38,153,500.00 97,404,000.00

165


Total 38,153,500.00 97,404,000.00

Description of classification of short-term loan:

None

21. Financial liabilities measured at fair value with the change included in current profits and losses

Unit: Yuan


Trading Financial Liabilities 307,833.38

Financial liabilities defined to be measured

by fair value with the change included in


307,833.38

Total 307,833.38

Other explanation:

22. Bills payable

Unit: Yuan

Category Ending Balance Opening Balance

Trade Acceptance 3,495,331.20

Bank Acceptance Bill 49,519,027.82 47,330,250.76

Total 49,519,027.82 50,825,581.96

Total amount of bills payable which become due but outstanding at the end of the period is 0.00 yuan.

23. Accounts payable

(1) List of Accounts Payable

Unit: Yuan


Within 1 year 253,107,212.61 253,869,178.95

1 ~ 2 years 2,046,851.99 192,417.77

2 ~ 3 years 899,168.35 2,879,443.95

More than 3 years 8,123,604.85 6,460,046.21

Total 264,176,837.80 263,401,086.88

166


(2) Critical accounts payable aged more than 1 year

Unit: Yuan

Item Ending Balance Reason for not being repaid or carried over

Zhuhai Zhidi Technology Co. Ltd. 1,689,690.10Dispute in equipment acceptance, and

unsettled

Zhuhai Office, Shantou Jian'an Industry

(Group) Co. Ltd.1,354,166.52 Maintenance fund for undue construction

Total 3,043,856.62 --

Other explanation:

None

24 Advanced receipts

(1) List of advance receipts

Unit: Yuan


Advances on Sales 67,151,837.11 68,880,443.88

Total 67,151,837.11 68,880,443.88

(2) Critical advance receipts aged more than 1 year

Unit: Yuan


Industrial & Commercial Bank of China

Ltd.13,524,913.55

Payment in advance for Headquarters of

ICBC, unsettled yet.

Human Resources and Social Security

Bureau of Rizhao City, Shandong Province2,200,000.00

Full delivery and acceptance inspection are

still pending

Social Insurance Business Office of

Feicheng City2,100,000.00


still pending

Dalian Branch, Industrial & Commercial

Bank of China Ltd.1,867,960.00


still pending

Human Resources and Social Security

Department of Ningxia Hui Autonomous

Region

1,361,181.60Full delivery and acceptance inspection are

still pending

Total 21,054,055.15 --

167


25. Payroll payable

(1) List of Remuneration Payable

Unit: Yuan

Item Opening Balance Increase in current periodDecrease in current

periodEnding Balance

I. Short-term

remuneration62,272,204.02 193,228,886.04 184,687,170.96 70,813,919.10

II. Post-resignation

welfare - defined

contribution plans

3,262.83 9,524,107.31 9,519,045.41 8,324.73

Total 62,275,466.85 202,752,993.35 194,206,216.37 70,822,243.83

(2) List of short-term remuneration z

Unit: Yuan



1. Pay, bonus, allowance

and subsidy43,747,931.70 171,195,275.51 162,238,469.99 52,704,737.22

2. Employee services and

benefits126,616.76 10,103,131.55 10,074,261.20 155,487.11

3. Social insurance

premium2,356.16 6,364,540.99 6,344,920.88 21,976.27

Including: Medical

insurance premium2,068.39 5,845,367.07 5,827,071.10 20,364.36

Industrial injury

insurance premium71.94 196,881.63 196,721.32 232.25

Birth insurance premium 215.83 315,984.68 314,820.85 1,379.66

Others 6,307.61 6,307.61

4. Housing accumulation

funds4,379.00 3,247,362.10 3,251,741.10

5. Labor-union

expenditure and

personnel education fund

18,390,920.40 2,318,575.89 2,777,777.79 17,931,718.50

Total 62,272,204.02 193,228,886.04 184,687,170.96 70,813,919.10

168


(3) List of defined contribution plans

Unit: Yuan



1. Basic pension

insurance2,518.04 8,868,032.33 8,862,700.64 7,849.73

2. Unemployment

insurance premium269.79 430,889.99 431,159.78

3. Corporate annuity

payment475.00 225,184.99 225,184.99 475.00

Total 3,262.83 9,524,107.31 9,519,045.41 8,324.73

Other explanation:

None

26. Taxes payable

Unit: Yuan


VAT 11,313,035.70 4,087,279.47

CIT 8,289,278.17 6,701,828.72

Tax on Personal Income 427,278.25 451,743.61

City construction tax 706,390.15 557,714.65

Sales tax 185,492.23

Estate duty 843,221.02 1,041,284.25

Land use tax 155,088.08 155,088.08

Educational Surtax 504,564.39 398,367.53

Stamp duties 129,393.00 141,072.30

Other taxes withheld 236,400.54 307,351.56

Others 35,331.96

Total 22,604,649.30 14,062,554.36

Other explanation:

None

27. Interests Payable

Unit: Yuan

169



Interest on long-term loans with

installment of interest and repayment of

principal upon maturity

36,805.56 84,652.78

Interest payable on short-term loan 23,629.18 56,819.04

Total 60,434.74 141,471.82

Information on critical interest overdue and outstanding

Unit: Yuan

Borrower Amount overdue Reason for being overdue

Other explanation:

None

28. Other Payables

(1) List of other payables by nature

Unit: Yuan



Open Credit 16,186,004.05 13,141,609.69

Accrual Expense 33,988,850.79 29,884,235.12

Equity Incentive 12,207,511.60 26,119,498.00

Others 1,708,263.99 1,331,605.25

Total 67,483,299.73 73,080,696.49

(2) Other critical accounts payable aged more than 1 year

Unit: Yuan


Restricted Stock Incentive Costs 12,207,511.60 Not in unlocking period

SILICON PLAZA LTD 2,464,209.53 Amounts in deals not paid yet

Total 14,671,721.13 --

Other explanation

None

29. Non-current liability due within one year

Unit: Yuan

170



Long-term loan due within one year 50,000,000.00

Total 50,000,000.00

Other explanation:

See Note 30 for more details

30. Long-term loan

(1) Classification of long-term loan

Unit: Yuan


Mortgage loan 913,398.19 1,662,203.03

Fiduciary loan 50,000,000.00 50,000,000.00

Minus: Long-term loan due within one

year-50,000,000.00

Total 913,398.19 51,662,203.03

Explanation for classification of long-term loan:

The Mortgage loan is a housing mortgage loan handled by Eastcom Peace (Singapore) Co. Ltd., one of subsidiaries of the Company with Singapore Finance Ltd. The mortgage is real estate located at Blocks 75, 77 and 79, Floor 8, 7030, Unit 5, North Star Building, Ang Mo Kio, Singapore, under an individual guarantee provided by a director of the Company.

Other explanation, including interest rate range:

None

31. Special amounts payable

Unit: Yuan

Item Opening BalanceIncrease in current

period

Decrease in current

periodEnding Balance Reason

R&D and

industrialization of

RF SIM product

3,000,000.00 3,000,000.00 Note (1)

R&D and


RF SIM product

300,000.00 300,000.00 Note (2)

R&D and

demonstrative

270,000.00 270,000.00 Note (3)

171


application of IPv6-

based industrial IoT

supporting

technology and

product

Precision 3-D visual

measurement &

testing platform for

IC chips

100,000.00 100,000.00 Note (4)

Transformation of

technology result in

RF-based dual-

interface smart card

product

3,000,000.00 3,000,000.00 Note (5)

Import and


smart card module

packaging

technology

2,000,000.00 2,000,000.00 Note (6)

IoT product R&D

based on RFID

REACER (R2SIM)

security false-proof

technology

2,400,000.00 2,400,000.00 Note (7)

IOT product R&D

based on RFID

REACER (R3SIM)

security false-proof

technology

3,000,000.00 3,000,000.00 Note (8)

Research and

application of key

technologies in

visual inspection of

SIM module

400,000.00 400,000.00 Note (9)

Government-bank-

enterprise

cooperation funds

for strategic

emerging industries

of the third group in

Guangdong province

930,000.00 930,000.00 Note (10)

172


of 2013

Financial IC card

production line

(phase II) technical

improvement

double-interface card

packaging machine

fund

3,500,000.00 3,500,000.00 Note (11)

Award for capital

increase and

production

expansion in 2012

1,407,483.25 1,407,483.25 Note (12)

Smart card

engineering

technology research

and development

center (constructed

by internet of things

technical innovation

incubation center)

3,300,000.00 3,300,000.00 Note (13)

R&D and


SWP-SD mobile

payment card

product in

accordance with

national standards

2,000,000.00 2,000,000.00 Note (14)

Research &

development and


mobile payment

SWP-SIM card

1,800,000.00 1,800,000.00 Note (15)

Research &

development and


mobile payment

SWP-SIM card

500,000.00 500,000.00 Note (16)

Innovative IoT

Technology

Research Institute

300,000.00 300,000.00 Note (17)

Innovative IoT 1,600,000.00 1,600,000.00 Note (18)

173


Technology

Research Institute

Smart card

production line

equipment technical

transformation

project

1,000,000.00 1,000,000.00 Note (19)

Provincial financial

subsidy fund for

research and

development of

enterprises in

Guangdong Province

in 2015

1,793,000.00 1,793,000.00 Note (20)

Capital of Zhuhai

city service

outsourcing project

in 2015

230,000.00 230,000.00 Note (21)

Construction and

demonstrative

application of

flowing population

social service and

management

platform based on

mobile Internet

2,400,000.00 2,400,000.00 Note (22)

Construction and

demonstrative

application of

flowing population

social service and

management

platform based on

mobile Internet

900,000.00 900,000.00 Note (23)

Construction and

demonstrative

application of

flowing population

social service and

management

platform based on

500,000.00 500,000.00 Note (24)

174


mobile Internet

National-local joint

engineering research

center for intelligent

digital security

technology

700,000.00 700,000.00 Note (25)

Total 32,830,483.25 4,500,000.00 3,430,483.25 33,900,000.00 --

Other explanation:

Note: (1) In November of 2009, in accordance with ZFGS (2009) No.67, the company received provincial

supporting capital 300,000.00 Yuan for radio frequency SIM (RFSIM) product research and development and

industrialization. By December of 2016, the project has finished its development and internal test and in trial

production.

(2) In March of 2009, in accordance with YFGG (2009) No.434, the company obtained capital 3,000,000.00

Yuan arranged by the country for radio frequency SIM (RFSIM) product research and development and

industrialization. By December of 2016, the project has not been checked and accepted yet.

(3)In December of 2010, in accordance with ZKGMXJZ (2010) No.15, the company received Zhuhai City

3rd batch of science and technology research and development special fund 300,000.00 Yuan for research and

development and demonstrative application of industrial IoT supporting technical products based on IPv6 in 2010,

among which 30,000.00 Yuan was paid to cooperation project party. By December of 2016, all indexes of the

project have reached standard, and the project has not been checked and accepted yet.

(4) In December of 2010, Dongguan Sciencgo Machinery Manufacturing Co. Ltd. cooperated with the

Company to apply for Guangdong Province Education Department production-research special fund key project—

precise stereoscopic vision measurement and detection platform facing to IC chip 100,000.00 Yuan. By December

of 2016, the project has not been checked and accepted yet.

(5) In August of 2011, in accordance with ZCG (2011) No.52, the company received 3,000,000.00 Yuan for

transformation of scientific achievement project of double-interface smart card product based on radio-frequency

technology. By December of 2016, the project has passed internal test and is in industrialization phase.

(6) In September of 2011, in accordance with ZCG (2011) No.58, the company received 2,000,000.00 Yuan

for smart card module packaging technology introduction and industrialization project. By December of 2016,

construction index and economic index of the project have been accomplished and the project has not been

checked and accepted yet.

(7) In November of 2011, in accordance with GXBK (2011) No.353, the company received Ministry of

175


Industry and Information Technology of the People’s Republic of China internet of things special fund

3,000,000.00 Yuan for research and development project of security and anti-counterfeiting technology internet of

things product based on RFID Reader (R2SIM), among which 300,000.00 Yuan was paid to Wuxi Fanlian

Internet of Things Technology Limited Liability Company and 300,000.00 was paid to Chinese Academy of

Science Graduate School as cooperation expenditure. By December of 2016, the project has not been checked and

accepted yet.

(8) In August of 2012, in accordance with ZXKGMXZ (2012) No. 92, the company received supporting

expenditure of RFID REACER (R2SIM) security and anti-counterfeiting technology internet of things product

research and development 3,000,000.00 Yuan. By December of 2016, the project has not been checked and

accepted yet.

(9) In November of 2012, in accordance with ZKGMX (2012) No.895, the company received technical

research and development and innovation special industry-university-research cooperation and key laboratory

project fund 400,000.00 Yuan for SIM module vial inspection key technology research and application project. By

December of 2016, the project has been finished and in phase of acceptance material preparation.

(13) In June of 2014, in accordance with YJXCX (2014) No.189, the company received 2013 Guangdong

batch of strategic emerging industry government-bank enterprise cooperation fund 930,000.00 Yuan for financial

IC card production line (phase II) technical transformation project in Guangdong in 2013. By December of 2016,

all indexes of the project have reached standard and the project has been ready for acceptance.

(11) In September of 2014, as per GD-DR (2013) - No. 411 Regulations, the Company received a fund

of 1,332,000.00 Yuan for dual-interface card packaging machine in technical reconstruction of financial IC

card production line (Stage-II). In February of 2015, the Company received 2,168,000.00 Yuan for IoT-

related manufacturing of 1.3.1 embedded chips, RFID, sensor and network equipment. By December of 2016,

the project has been ready for acceptance with all Indicators meeting standards.

(12) In January of 2014, the company received 2012 capital increase and production expansion reward

fund of 1,407,483.25 Yuan from Zhuhai City Science and Technology Industry and Trade and Information

Technology Bureau. By December of 2016, the project has not been checked and accepted yet.

(13) In February of 2015, in accordance with ZCG (2015) No.10, the company received internet of

things special fund of 3,300,000.00 Yuan for smart card engineering technology research and development

center (constructed by internet of things technical innovation incubation center). By December of 2016,

capacity index of the project has not reached standard and the project has not been checked and accepted yet.

176


(14) In November of 2015, in accordance with ZKGX (2014) No.160, the company received significant

special fund of 2,000,000.00 Yuan for strategic emerging industry in Zhuhai City for research and

development and industrialization project of smart SWP-SD mobile payment card product conforming to

national standard. By December of 2016, the project has finished research and development and is in phase of

small scale production.

(15) In November of 2015, in accordance with ZCG (2015) No.126, the company received 2015

provincial advanced and key technical innovation special fund of 1,800,000.00 Yuan for research and

development and industrialization project of mobile payment SWP-SIM card. By December of 2016, the

project has finished hardware code development and internal test, and in on-line real network test.

(16) In December of 2015, the company received 2015 2nd batch of science and technology research and

development fund 500,000.00 Yuan for research and development and industrialization project of mobile

payment SWP-SIM card. By December of 2016, the project has finished hardware code development and

internal test, and is in phase of on-line real network test.

(17) In December of 2015, the company received 2015 2nd batch of science and technology research and

development fund 300,000.00 Yuan for internet of things innovative technology research institute project. By

December of 2016, the project has finished intelligent service management system of internet of things door

lock and artificial intelligent automatic parking and charging system, and is in phase of small scale trial

production. Internet of Things application project for public services and utilities are still in the phase of

framework establishment.

(18) In November of 2015, the company received 2014 provincial collaborative innovation and platform

environment construction special fund (2nd batch) 2,000,000.00 Yuan for internet of things innovative

technology research institute project, among which 400,000.00 Yuan was paid to Beijing Normal University

Zhuhai Branch School. By December of 2016, the project has finished intelligent service management system

of internet of things door lock and artificial intelligent automatic parking and charging system, and is in phase

of small scale trial production. IoT application works for urban public utilities are still in process of

architecture setup.

(19) In November of 2015, in accordance with ZKGX (2015) No.817, the company received Zhuhai City

technical transformation fund of 1,000,000.00 Yuan for smart card production line equipment technical

transformation project. By December of 2016, the project has not been checked and accepted yet.

(20) In December of 2015, the company received 2015 Guangdong Province enterprise research and

177


development provincial financial subsidy fund of 1,793,000.00 Yuan as per GD-F-I-535 (2015) Regulations.

By December of 2016, the project has been accepted.

(21) In November of 2015, the company received a service outsourcing fund of 230,000.00 Yuan for

outsourcing projects as per ZG No. 2009-62 Regulations and SITI No. 47 Regulations, By December of 2016, the

project has been accepted.

(22) In May of 2016, as per ZH-FI (2016) No. 39 Regulations, the Company received a national subsidy

fund of 3,000,000.00 Yuan for construction and demonstrative application of flowing population social

service and management platform based on mobile Internet, and 600,000.00 yuan of it would be paid to

Zhongshan University. By December of 2016, the project has not been accepted yet.

(23) In May of 2016, as per ZH-SICI (2016) No. 301 Regulations, the Company received a provincial

subsidy fund of 900,000.00 Yuan for construction and demonstrative application of flowing population social

service and management platform based on mobile Internet. By December of 2016, the project has not been

accepted yet.

(24) In May of 2016, the Company received a municipal subsidy fund of 500,000.00 Yuan from

Xiangzhou District of Zhuhai City for construction and demonstrative application of flowing population

social service and management platform based on mobile Internet. By December of 2016, the project has not

been accepted yet.

(25) In May of 2016, the Company received a subsidy fund of 500,000.00 Yuan from National-Local

Joint Engineering Research Center of Intelligent Digital Security Technology in Xiangzhou District of Zhuhai

City. By December of 2016, the project has not been accepted yet.

32. Deferred Income

Unit: Yuan

Item Opening BalanceIncrease in current

period

Decrease in current

periodEnding Balance Reason

Governmental

Subsidy7,127,058.22 560,000.00 1,967,642.85 5,719,415.37

Total 7,127,058.22 560,000.00 1,967,642.85 5,719,415.37 --

Projects involving governmental subsidy:

Unit: Yuan

178


Liability Project Opening Balance

Amount of

Additional

Subsidy in

Current Period

Amount Included

in Non-Operating

Income in

Current Period

Other variation Ending BalanceAsset-Related/

Income-Related

R&D and

industrialization

of RF-based IOT

product

4,300,896.46 858,688.53 3,442,207.93 Asset-Related

R&D and

industrialization

of SWP-SD

mobile payment

card product in

accordance with

national standards

2,826,161.76 1,108,954.32 1,717,207.44 Asset-Related

Stage-III

technological

transformation of

financial card

560,000.00 560,000.00 Asset-Related

Total 7,127,058.22 560,000.00 1,967,642.85 5,719,415.37 --

Other explanation:

Note (1) In June of 2011, in accordance with ZCG (2011) No.33, the company received strategic new-

advanced electronic information special fund of Economic and Information Commission of Guangdong Province

10,000,000.00 Yuan for research and development and industrialization of internet of things product based on

radio frequency technology. By December of 2014, the project has been checked and accepted. As such

governmental subsidy is related to asset, it shall be amortized equally during service life of asset.

(2) In September of 2011, in accordance with ZXKGMXZ (2011) No.78, the Company received Xiangzhou

District supporting fund of 1,500,000.00 Yuan for research and development and industrialization of internet of

things product based on radio frequency technology. Up to December of 2014, the project has been checked and

accepted. 1,000,000.00 Yuan thereof is benefit-related, and 500,000.00 thereof is asset-related. It will be

amortized equally during service life of asset.

(3) In August of 2012, in accordance with GXBC (2012) No.407, the company received 1st batch of industrial

transformation and upgrade fund 3,000,000.00 Yuan for research and development and industrialization project of

smart SWP-SD mobile payment card product conforming to national standard. By December of 2014, the project

has been checked and accepted. As 430,000.00 Yuan of such governmental subsidy is related to benefit and

179


2,570,000.00 Yuan is related to asset, it shall be amortized equally during service life of asset.

(4) In August of 2013, in accordance with ZXKGMX (2013) No.104, the company received Xiangzhou

District 2013 1st batch of science and technology research and development special fund 2,000,000.00 Yuan for

research and development and industrialization project of smart SWP-SD mobile payment card product

conforming to national standard. By December of 2014, the project has been checked and accepted. As such

governmental subsidy is related to asset, it shall be amortized equally during service life of asset.

(5) In 2016, As per ZH-XF-O (2016) No. 18 Regulations, the Company received a financial subsidy fund of

560,000.00 Yuan for Stage-III technical reconstruction of financial card. By December of 2016, the reconstruction

project has not been completed.

33. Capital stock

Unit: Yuan

Opening

Balance

Increase/Decrease（+、—）

Ending

BalanceIssuance of

New StockBonus Issue

Conversion of

Public

Accumulation

Fund into

Shares

Others Subtotal

Total of Shares 346,548,936.00 -132,600.00 -132,600.00 346,416,336.00

Other explanation:

Note: For variation in addition/reduction of capital stock, see enterprise overview under Note III.

34. Capital reserve

Unit: Yuan



Capital premium (stock

premium)198,176,988.91 446,066.40 197,730,922.51

Other capital reserves 16,843,625.00 2,634,900.00 2,594,173.20 16,884,351.80

Total 215,020,613.91 2,634,900.00 3,040,239.60 214,615,274.31

Other explanation, including variation in increases/decreases of current period and reason for the variation:

Note: 1. for variation in premium on capital stock, see enterprise overview under Note III.

2. Increase of other capital reserves is because that the Company made additional capital reserves of

180


2,634,900.00 Yuan for implementation of restricted stock incentive plan. See Note III - 1 in this financial

statement for more details. Reduction of capital reserves is because that Share-based Payment to be identified was

2,594,173.20 yuan higher than identified amount of deferred tax asset.

35. Treasury stock

Unit: Yuan



Restricted Stock

Incentive26,096,000.00 13,911,986.40 12,184,013.60

Total 26,096,000.00 13,911,986.40 12,184,013.60

Other explanation, including variation in increases/decreases of current period and reason for the variation:

Note: 1. The Company finished grant registration of restrictive stock in February 26 of 2014. 3,883,000

restrictive stocks were granted to 85 incentive objects in total (face value of 1 Yuan per share) at a grant price of

7.00 Yuan per share, increasing treasure stock of 27,181,000.00 Yuan.

2. For more details on variation, see enterprise overview under Note I.

36. Other comprehensive incomes

Unit: Yuan

ItemOpening

Balance

Amount in Current Period

Ending

Balance

Pre-income

tax amount

in current

period

Minus: Net

amount early

incorporated

into other

comprehensive

earnings and

subsequently

transferred to

gain or loss

Minus:

Income tax

expense

After-tax

amount

assigned to

parent

company

After-tax

amount

assigned to

minority

shareholder

s

II. Other comprehensive income that


profit in future

-5,160,404.425,400,271.1

3

4,561,987.2

9838,283.84

-

598,417.1

3

Translation difference of foreign

currency statements

-5,160,404.42 5,400,271.1

3

4,561,987.2

9

838,283.84 -

598,417.1

181


3

Total of other comprehensive

incomes-5,160,404.42

5,400,271.1

3

4,561,987.2

9838,283.84

-

598,417.1

3

Other explanation, including adjustment in conversion of valid part of loss and profit of cash-flow into initially recognized amount of

hedged items:

None

37. Surplus reserves

Unit: Yuan



Statutory surplus

reserves70,437,406.71 6,049,343.84 76,486,750.55

Total 70,437,406.71 6,049,343.84 76,486,750.55

Explanation for statutory surplus reserve, including increases/decreases in current period and reason therefor:

As per Company Law of the People's Republic of China and Articles of Association of the Company, the

Company kept withdrawing statutory surplus reserves at 10% of annual net profit till the accumulative amount of

statutory surplus reserves was above 50% of its registered capital. Statutory surplus reserves approved will be

used to make up losses or increase capital stock. As per Company Law and Articles of the Association, the

Company withdrew statutory surplus reserves of 6,049,343.84 yuan based on 10% of net profits in 2016.

38. Undistributed profit

Unit: Yuan

Item Current Period Prior Period

Pre-adjustment undistributed profit at the end of

last period221,352,202.04 176,714,476.54

Details of Undistributed profits at the beginning of

adjustment period ("+" for increase; "-" for

decrease)

0.00 0.00

Post-adjustment undistributed profit at the end of

last period221,352,202.04 176,714,476.54

Plus: Net profit assigned to owners of parent

company81,711,620.60 64,317,702.11

182


Minus: Withdrawal of statutory surplus reserves 6,049,343.84 5,230,362.61

Withdrawal of free surplus reserves 0.00 0.00

Withdrawal of general risk reserve 0.00 0.00

Dividends payable for common stock 10,396,468.08 14,449,614.00

Dividends for common stock converted into

capital stock0.00 0.00

0.00 0.00

Ending undistributed profits 286,618,010.72 221,352,202.04

Details of undistributed profits at the beginning of adjustment period:

1) 0.00 Yuan of undistributed profit at the beginning of the period is influenced for retroactive adjustment in

accordance with Accounting Standards for Business Enterprises and relevant new provisions.

2) 0.00 Yuan of undistributed profit at the beginning of the period is influenced for change of accounting policy.

3) 0.00 Yuan of undistributed profit at the beginning of the period is influenced for correction of significant

accounting error.

4) 0.00 Yuan of undistributed profit at the beginning of the period is influenced for change of consolidation scope

caused by the same control.

5) 0.00 Yuan of undistributed profit at the beginning of the period is influenced in total for other adjustment.

39. Operating revenues and operating costs

Unit: Yuan

ItemAmount in Current Period Amount in Last Period

Revenue Cost Revenue Cost

Primary business 1,486,175,135.79 1,095,798,846.74 1,430,327,841.06 1,072,696,805.66

Other business 10,592,718.18 6,601,893.23 9,020,152.01 4,265,200.15

Total 1,496,767,853.97 1,102,400,739.97 1,439,347,993.07 1,076,962,005.81

40. Tax and surtax

Unit: Yuan


Consumption tax 0.00 0.00

City construction tax 5,137,847.11 3,163,055.14

Educational Surtax 2,201,934.48 1,355,595.07

183


Tax on natural resources 0.00 0.00

Estate duty 1,137,103.02 0.00

Land use tax 171,653.05 0.00

Vehicle and vessel tax 0.00 0.00

Stamp duties 415,213.22 0.00

Surtax for education expenses 1,467,956.36 903,730.05

Sales tax 67,402.41 747,165.68

Non-trading tax payable 728,900.05 0.00

Total 11,328,009.70 6,169,545.94

Other explanation:

Note: Refer to Note VI - Tax for details of calculation and payment standard of every business tax and

surcharges. As per Regulations on VAT Accounting Treatment (No. 22 - 2016), stamp duties, estate duty and land

use tax accounted by the Company originally as management costs will be accounted as operating taxes and surtax

after May.

41. Sales costs

Unit: Yuan


Wage and welfare 28,406,881.32 28,054,131.51

Sale service expense 25,015,647.21 17,295,988.01

Freight 17,393,480.75 13,435,584.98

Business entertainment 11,965,007.07 8,641,087.93

Travel expense 6,571,793.62 5,301,563.61

Office expense 7,026,586.05 4,523,035.28

Customer training expense 528,568.72 2,088,000.00

Premium 2,787,801.99 1,765,347.64

Meeting expenses 468,329.95 1,319,886.19

Transportation expense 2,169,103.99 1,060,479.69

Others 4,750,321.54 6,840,318.94

Total 107,083,522.21 90,325,423.78

Other explanation:

None

184


42. Administrative costs

Unit: Yuan


R&D costs 126,864,036.37 114,945,551.60

Wage and welfare 33,420,220.83 30,068,021.50

Depreciation cost 1,624,997.32 2,342,954.38

Office expense 1,528,937.36 2,089,019.87

Travel expense 2,927,867.33 1,819,078.82

Equity incentive 2,634,900.00 5,306,316.59

Taxes 610,302.26 3,800,902.32

Business entertainment 1,774,853.01 1,485,812.76

Consultation fees 2,515,317.22 1,927,773.64

Transportation expense 1,399,674.38 1,539,467.79

Others 7,468,314.45 3,412,472.70

Total 182,769,420.53 168,737,371.97

Other explanation:

None

43. Financial expense

Unit: Yuan


Interest Expenses 2,221,735.42 6,137,626.56

Minus: Interest revenue 6,725,919.77 7,864,793.53

Profit or loss on exchange -6,544,505.57 12,411,137.60

Handling charges and others 3,514,250.02 3,314,771.88

Total -7,534,439.90 13,998,742.51

Other explanation:

None

44. Assets impairment losses

Unit: Yuan


I. Bad debt losses 7,800,520.99 3,991,725.03

185


II. Inventory depreciation damages 19,078,609.11 14,406,279.01

VII. Fixed asset impairment loss 3,748,647.18

Total 26,879,130.10 22,146,651.22

Other explanation:

None

45. Profit from fair value changes

Unit: Yuan

Source of profit from fair value changes Amount in current period Amount in last period

Financial assets measured by fair value and

with variations included in current profit

and loss

-363,757.94 -2,279,956.08

Including: Gains from variation in fair

value of derivative financial instruments-363,757.94 -2,279,956.08

Total -363,757.94 -2,279,956.08

Other explanation:

None

46. Return on investment

Unit: Yuan


Long-term equity investment returns

calculated with equity method-2,420,307.70 -3,136,725.57

Return on investment in capital asset measured

by fair value with the change included in the

current profits and losses during retention

-2,248,219.10 1,488,546.12

Total -4,668,526.80 -1,648,179.45

Other explanation:

None

47. Non-operating revenue

Unit: Yuan

Item Amount in Current Period Amount in Last PeriodAmount included in current

non-recurring profit and loss

Total of gains from disposal of

non-current assets65,491.03 5,483.24 65,491.03

186


Including: Gains from disposal

of fixed assets65,491.03 5,483.24 65,491.03

Governmental subsidy 28,473,904.69 24,293,802.17 12,141,223.12

Others 1,450,290.46 165,284.93 1,450,290.46

Total 29,989,686.18 24,464,570.34 13,657,004.61

Governmental subsidy included in current profit and loss:

Unit: Yuan

Subsidy ItemGranting

Entity

Reason for

grant

Type of

nature

Effect of

subsidy on

gain/loss in

the year

Special

subsidy or

not

Amount in

current

period

Amount in

last period

Asset-

Related/

Income-

Related

Provincial

R&D subsidy

fund

Science and

Technology

Department

of

Guangdong

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n

Yes No 1,793,000.00Asset-

Related

Funds for

outsourcing

projects in

Zhuhai

Technology

and Industry

and

Information

Technology

Bureau of

Zhuhai

Subsidy Yes No 230,000.00Asset-

Related

R&D and

industrializati

on of RF-

based IOT

product

Science and

Technology

Department

of

Guangdong

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n

Yes No 858,688.54Asset-

Related

R&D and

industrializati

on of SWP-

SD mobile

payment card

product in

accordance

with national

Science and

Technology

Department

of

Guangdong

Subsidy Subsidy

granted for

R&D,

technical

update and

reconstructio

n

Yes No 1,108,954.31 Asset-

Related

187


standards

Maintenance

fees for false-

proof tax-

control

technology

sets off

taxable

amount in

full

Local

Taxation

Bureau of

Zhuhai

Subsidy Yes No 330.00Income-

related

Software Tax

Refund

National

Taxation

Bureau of

Zhuhai

Subsidy Yes No16,332,681.5

7

15,813,859.8

8

Income-

related

Award for

capital

increase and

production

expansion

Business

Bureau of

Zhuhai

Subsidy Yes No 1,407,483.25Asset-

Related

Special for

import

expansion by

Business

Bureau of

Xiangzhou

District,

Zhuhai

Business

Bureau of

Xiangzhou

District,

Zhuhai

Subsidy Yes No 13,000.00Income-

related

Special fund

for expansion

of

international

market by

importing

enterprises

Business

Bureau of

Xiangzhou

District,

Zhuhai


related

Subsidy fund

for high-tech

products

(four) as

identified in

Zhuhai in

2015

Technology

and Industry

and

Information

Technology

Bureau of

Zhuhai


related

188


Social

security

subsidy for

the

unemployed

and disabled

Human

Resources

and Social

Security

Bureau of

Zhuhai City


related

Social

insurance

subsidy for

college

graduates in

current year

Human

Resources

and Social

Security

Bureau of

Zhuhai City


related

Support fund

for foreign

trade

promotion by

Xiangzhou

District in

2015

Business

Bureau of

Xiangzhou

District,

Zhuhai


related

Special fund

for trading

promotion

and branding

in

Guangdong

in 2015

Business

Bureau of

Guangdong


related

Subsidy fund

for high-tech

products as

identified in

Zhuhai in

2015

Technology

and Industry

and

Information

Technology

Bureau of

Zhuhai


related

Subsidy for

travel of

enterprises to

Shenzhen

High-Tech

Achievement

s Exchange

in 2015

Association

of Foreign

Economy and

Cooperation

of Zhuhai


related

189


Social

security

subsidy for

the

unemployed

Human

Resources

and Social

Security

Bureau of

Zhuhai City


related

Special

supporting

fund for

import

expansion in

Zhuhai for

the first half

of 2016

Business

Bureau of

Xiangzhou

District,

Zhuhai


related

Subsidy for

position

consolidation

for Chengdu

Talent

Company

Limited

Human

Resources

and Social

Security

Bureau of

Chengdu City

Subsidy Yes No 399.00Income-

related

Supporting

fund to

outstanding

enterprises in

Xiangzhou

District in

2015

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District,

Zhuhai


related

Subsidy and

award for

position

consolidation

in 2014

Human

Resources

and Social

Security

Bureau of

Zhuhai City


related

Subsidy for

unemployme

nt insurance

and position

consolidation

in 2015

Human

Resources

and Social

Security

Bureau of

Zhuhai City


related

190


Social

insurance

subsidy for

college

graduates in

current year

(for Q2 of

2016)

Human

Resources

and Social

Security

Bureau of

Zhuhai City


related

Subsidy fund

for domestic

invention

patent

granted by

Xiangzhou

District and

authorized by

Bureau of

Finance of

Zhuhai in

2016

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District,

Zhuhai


related

Subsidy fund

for research

and

development

of enterprises

in Xiangzhou

District in

2014

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District,

Zhuhai

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n

Yes No 287,600.00Income-

related

Subsidy fund

for research

and

development

of enterprises

in

Guangdong

Province in

2015

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District,

Zhuhai

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n

Yes No 1,057,300.00Income-

related

Subsequent

award and

subsidy funds

for technical

Economic

and

Information

Commission

Subsidy Subsidy

granted for

R&D,

technical

Yes No 767,100.00 Income-

related

191


reconstructio

n of

industrial

enterprise in

Guangdong

in 2016

of

Guangdong

update and

reconstructio

n

Subsequent

award and

subsidy funds

for technical

reconstructio

n of

industrial

enterprise in

Guangdong

in 2016

Technology

and Industry

and

Information

Technology

Bureau of

Zhuhai

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n


related

Subsequent

award and

subsidy funds

for technical

reconstructio

n of

industrial

enterprise in

Guangdong

in 2016

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District,

Zhuhai

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n


related

Award and

subsidy

granted by

government

of Singapore

Subsidy Yes No 692,529.41 365,602.63Income-

related

R&D and

industrializati

on of RF-

based IOT

product

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n

Yes No 1,695,622.11Asset-

Related

R&D and

industrializati

on of SWP-

SD mobile

Subsidy Subsidy

granted for

R&D,

technical


related

192


payment card

product in

accordance

with national

standards

update and

reconstructio

n

R&D and

industrializati

on of IOT

false-proof

product based

on cell phone

RFID

technology

Subsidy

Subsidy

granted for

R&D,

technical

update and

reconstructio

n


related

Special fund

for energy

conservation

in Zhuhai in

2013


related

Funds for

service

outsourcing

in Zhuhai in

2014


related

Special fund

for service

and trade

development

in 2014


related

Provincial

special fund

for industrial

restructuring

in 2014 (trial

enterprises of

the first

group

recommende

d in

Guangdong

province in

2015)


related

193


Special funds

for foreign

trading in

Guangdong

in 2014 -

projects of

loan with

discounted

interest and

guarantee


related

Before-tax

deductible

(super

deduction)

subsidy for

research and

development

of enterprises

in Zhuhai in

2013


related

Supporting

fund to

outstanding

enterprises in

Zhuhai in

2014


related

R&D fund

granted by

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District

Technology

and Industry

and

Information

Technology

Bureau of

Xiangzhou

District,

Zhuhai

subsidy Yes No 12,000.00Income-

related

Economy-

specific

headquarters

fund in

Zhuhai in

2015


related

194


Subsidy fund

for

enterprise’s

registration

of

international

trademark

subsidy Yes No 4,255.45Income-

related

Provincial

special fund

of the third

group for

intellectual

property in

2014


related

Subsidy fund

for patent

application in

2015


related

Special fund

for software

and

integrated

circuit design

industries of

Zhuhai in

2015.


related

Special fund

for foreign

trade in

Zhuhai


related

Special fund

for trading

promotion

and branding

in

Guangdong

in 2015 -

fund for

development

of

outstanding

enterprises

Subsidy Subsidy

obtained for

engagement

in specific

industries

encouraged

and

supported by

stage (in

accordance

with national

policies and


related

195


regulations)

Special fund

for promotion

of

transformatio

n and

upgrade of

processing

trade in 2015


related

Special fund

for interest

subsidy of

Stage I for

import/export

promotion in

2015


related

Municipal

fiscal subsidy

fund for

motor energy

efficiency

promotion


related

Provincial

special fund

of the first

and second

groups for

intellectual

property in

2014


related

Subsidy fund

for motor

energy

efficiency

promotion


related

Funds for

research and

development

products of

the second

group in

2015

Subsidy Yes No 20,000.00 Income-

related

196


(subsidy for

invention

patent)

Special fund

for

technology

standard

strategy in

Guangdong

in 2014

Subsidy

Subsidy

obtained for

engagement

in specific

industries

encouraged

and

supported by

stage (in

accordance

with national

policies and

regulations)


related

Special

supporting

fund for

import

expansion in

Zhuhai for

January ~

August of

2014

subsidy

Subsidy

obtained for

engagement

in specific

industries

encouraged

and

supported by

stage (in

accordance

with national

policies and

regulations)


related

Total -- -- -- -- --28,473,904.6

9

24,293,802.1

7--

Other explanation:

48. Non-operating expenses

Unit: Yuan

Item Amount in Current Period Amount in Last PeriodAmount included in current

non-recurring profit and loss

197


Total of losses on disposal of

non-current assets201,929.57 627,323.20 201,929.57

Including: Loss on disposal of

fixed assets201,929.57 627,323.20 201,929.57

Donation to external 120,000.00 60,000.00 120,000.00

Water conservancy project and

dike protection expenses54,650.97 211,831.41 54,650.97

Other expenditure 1,281,436.45 496,435.93 1,281,436.45

Total 1,658,016.99 1,395,590.54 1,658,016.99

Other explanation:

Note: Other mainly expenses include non-operating expenses of 946,278.09 yuan which failed to be collected

by subsidiary - Hangzhou Eastcom Baifeng Technology Co. Ltd. which was dissolved in September of 2016.

49. Income tax expense

(1) List of income tax expenses

Unit: Yuan


Current income tax expense 12,823,013.27 15,725,593.80

Deferred income tax expense -2,890,471.48 -5,746,397.77

Total 9,932,541.79 9,979,196.03

(2) Accounting profit and income tax expense adjustment

Unit: Yuan

Item Amount in Current Period

Total Profit 97,140,855.81

Income tax expense calculated as per statutory/applicable rate 14,571,128.37

Influences of different tax rates applicable to subsidiaries -3,557,694.22

Influence of un-deductible costs, expenses and losses -1,080,892.36

Income tax expense 9,932,541.79

Other explanation

50. Other comprehensive incomes

See Note 36 for more details.

198


51. Items of cash flow statement

(1) Other cash received and related to operating activities

Unit: Yuan


Revenue from governmental subsidy 6,004,126.62 15,536,705.08

Interest revenue 6,983,394.38 7,864,793.53

Others 840,202.31 314,905.59

Total 13,827,723.31 23,716,404.20

Explanation for other cash received and related to operating activities:

None

(2) Other cash paid and related to operating activities

Unit: Yuan


Payment expenses 108,733,158.30 92,906,855.22

Amounts in payment transactions 11,107,115.46 28,398,372.96

Others 5,680,513.57 10,135,803.60

Total 125,520,787.33 131,441,031.78

Explanation for other cash paid and related to operating activities:

None

(3) Other cash received related to financing activity

Unit: Yuan


Governmental subsidy for dual-interface

card packaging machine in technical

reconstruction of financial IC card

production line (Stage-II)

2,168,000.00

Governmental subsidy for technical

reconstruction of financial IC card

production line (Stage-III)

560,000.00

Total 560,000.00 2,168,000.00

Explanation for other cash received and related to financing activity:

None

199


(4) Other cash paid and related to financing activity

Unit: Yuan


Donation paid in cash 70,000.00

Price for buy-back of retired staff's

restricted stock of equity incentive578,666.40

Total 648,666.40

Explanation for other cash paid and related to financing activity:

None

52. Additional information on cash flow statement

(1) Additional information on cash flow statement

Unit: Yuan

Additional Information Amount in current period Amount in last period

1.Adjusting net profits to cash flows in

operating activities:-- --

Net profit 87,208,314.02 70,169,900.08

Plus: Asset impairment reserves 26,879,130.10 22,146,651.22

Fixed asset depreciation, oil and gas assets

damage and productive biological assets

depreciation

25,558,794.45 44,093,893.69

Intangible assets amortization 440,157.60 482,092.98

Losses from disposal of fixed assets,

intangible assets and other long-term assets

(income headed by "-")

136,438.54 621,839.96

Losses from variation of fair value (income

headed by "-")363,757.94 2,279,956.08

Financial expense (income headed by "-") -2,422,821.53 6,114,115.53

Loss from investment (income headed by

"-")4,668,526.80 1,648,179.45

Reduction of deferred income tax assets

(increase head by "-")-499,024.27 -5,277,520.38

Increase of deferred income tax assets

(reduction head by "-")36,354.97 -468,877.39

Decrease of inventory (increase head by "-") 24,449,149.77 7,416,665.36

200


Reduction of operating items receivable

(increase head by "-")-32,698,232.06 47,144,712.79

Increase of operating items payable

(reduction head by "-")25,744,400.18 -23,267,664.63

Others 2,634,900.00 5,382,970.76


activities162,499,846.51 178,486,915.50

2.Significant investment and financing

activities not involving cash income and

expenditure:

-- --

3.Net variation of cash and cash equivalents: -- --

Ending cash balance 606,983,455.68 544,442,965.99

Minus: Opening cash balance 544,442,965.99 483,600,763.00

Net increase of cash and cash equivalents 62,540,489.69 60,842,202.99

(2) Current net cash received for disposal of subsidiary

Unit: Yuan

Amount

Cash or cash equivalents received for disposal of subsidiary 1,527,238.72

Including: --

Including: Hangzhou Eastcom Baifeng Technology Co. Ltd. 1,527,238.72

Including: --

Including: --

Net cash received for disposal of subsidiary 1,527,238.72

Other explanation:

None

(3) Composition of cash and cash equivalents

Unit: Yuan


I. Cash 606,983,455.68 544,442,965.99

Including: Cash on hand 276,387.13 531,711.25

Bank deposit available for payment at any

time606,563,801.75 543,882,358.33

Other monetary capitals available for 143,266.80 28,896.41

201


payment at any time

II. Ending balance of cash and cash

equivalents606,983,455.68 544,442,965.99

Other explanation:

None

53. Notes to items in Owner's Equity Variation Statement

Explanation for name of item "Others" with balance adjusted at the end of last period and adjustment amount:

54. Assets with limited ownership or right-to-use

Unit: Yuan

Item Ending Book Value Reason for limit

Monetary fund 7,485,447.39 Guarantee deposit/ bond for tax certificate

Fixed assets 7,217,022.30 Collateral for long-term loan

Total 14,702,469.69 --

Other explanation:

Note: For details on monetary capital see Note V - 1. For details on fixed assets see Note V - 11.

55. Projects in foreign currencies

(1) Projects in foreign currencies

Unit: Yuan

ItemEnding balance in foreign

currencyExchange rate Ending balance converted

Including: USD 3,398,251.87 6.937 23,573,673.22

Euro 1,099,214.72 7.3068 8,031,742.12

SGD 373,405.84 4.7995 1,792,161.33

Indian Rupee 199,081,633.20 0.1023 20,366,051.08

BDT 109,541,277.44 0.0878 9,617,724.16

MYR 739,530.58 1.5527 1,148,269.13

Russian Rouble 13,337,415.51 0.1151 1,535,136.53

Others 5,600.00 0.0208 116.48

Including: USD 6,525,880.65 6.937 45,270,034.07

Euro 1,556,104.00 7.3068 11,370,140.71

202


SGD 6,103.33 4.7995 29,292.93

Indian Rupee 452,534,571.18 0.1023 46,294,286.63

BDT 213,769,458.92 0.0878 18,768,958.49

MYR 423,486.66 1.5527 657,547.74

Russian Rouble 94,239,999.64 0.1151 10,847,023.96

HKD 391,710.00 0.8945 350,384.60

JPY 23,905,774.02 0.0596 1,424,784.13

Accounts Prepaid

Including: USD 111,739.91 6.937 775,139.76

SGD 13,488.43 4.7995 64,737.72

Indian Rupee 503,645.28 0.1023 51,522.91

BDT 3,183,748.00 0.0878 279,533.07

Russian Rouble 1,126,163.80 0.1151 129,621.45

Other receivables

SGD 13,813.67 4.7995 66,298.71

Indian Rupee 37,465,654.92 0.1023 3,832,736.50

BDT 12,912,720.54 0.0878 1,133,736.86

Russian Rouble 37,085,535.01 0.1151 4,268,545.08

Accounts Payable

Including: USD 3,780,495.46 6.937 26,225,297.01

Euro 233,365.70 7.3068 1,705,156.50

SGD 510.67 4.7995 2,450.96

Indian Rupee 31,399,325.76 0.1023 3,212,151.03

BDT 12,626,329.62 0.0878 1,108,591.74

MYR 35,795.02 1.5527 55,578.93

Russian Rouble 21,797,078.63 0.1151 2,508,843.75

HKD 173,259.00 0.8945 154,980.18

Deposit Received

Including: USD 137,776.64 6.937 955,756.55

Euro 700.00 7.3068 5,114.76

Indian Rupee 51,490.12 0.1023 5,267.44

Russian Rouble 5,592,381.37 0.1151 643,683.10

JPY 411,135.91 0.0596 24,503.70

Other Payables

203


Including: USD 248,291.84 6.937 1,722,400.49

Euro 2,000.00 7.3068 14,613.60

Indian Rupee 90,858,089.80 0.1023 9,294,782.59

Russian Rouble 2,900,378.79 0.1151 333,833.60

Short-term loans

Including: USD 5,500,000.00 6.937 38,153,500.00

Long-term loans

Including: USD 131,670.49 6.937 913,398.19

Other explanation:

(2) Explanation for oversea operational entity, including major operating place oversea and recording currency of critical oversea operational entity, and the reason for change of recording currency (if any).


(1) Exchange rate for major items in financial statements

Name of Organization Assets and liabilities

December 31, 2016 January 1, 2015

Eastcompeace Smart Card (Bangladesh) Co. Ltd.

1 BDT = RMB 0.0876 Yuan 1 BDT = RMB 0.0822 Yuan

Eastcompeace (Singapore) Co. Ltd.

1 USD = RMB 6.9370 Yuan 1 USD = RMB 6.4936 Yuan

Eastcompeace (India) Co. Ltd. 1 Rupee = RMB 0.1023 Yuan 1 Rupee = RMB 0.0979 Yuan

Eastcompeace (Russia) Co. Ltd. 1 Rouble = RMB 0.1151 Yuan 1 Rouble = RMB 0.0884 Yuan

Item Items of incomes and expenses in cash flow

2016 2015

Eastcompeace Smart Card (Bangladesh) Co. Ltd.

1 BDT = RMB 0.084977 Yuan 1 BDT = RMB 0.07985 Yuan

Eastcompeace (Singapore) Co. Ltd.

1 USD = RMB 6.7153 Yuan 1 USD = RMB 6.3063 Yuan

Eastcompeace (India) Co. Ltd. 1 Rupee = RMB 0.10001 Yuan 1 Rupee = RMB 0.09728 Yuan

Eastcompeace (Russia) Co. Ltd. 1 Rouble = RMB 0.10175 Yuan 1 Rouble = RMB 0.0995 Yuan

Note: Assets liabilities of balance sheet are converted as per the spot rate on balance sheet date. Items of

shareholders’ equity except undistributed profit are converted based on the spot rate on the date of translation.

Items of income and expense in cash flow in foreign currency and profit statement are converted based on

weighted average exchange rate then on the date of translation.

204


VIII. Variation of Consolidation Scope

1. Disposal of subsidiary

Was any control on subsidiary lost due to single disposal of investment in it?

□ Yes √ No

Was any control on subsidiary lost in current period due to multiple disposal of investment in it step by step?

□ Yes √ No

2. Variation of consolidation scope for other reason

Explanation for variation of consolidation scope for other reason (e.g. setup of new subsidiary, liquidation of subsidiary) and relevant

information:

The Company has completed liquidation of its subsidiary Hangzhou Eastcom Baifeng Technology Co. Ltd.

in September of 2016 and it is excluded from consolidation in current period.

VIII. Equity in other entities

1. Equity in subsidiaries

(1) Composition of enterprise group

Name of

Subsidiary

Major Business

Place

Registered

Address

Nature of

Business

Shareholding RatioAcquisition

Directly Indirectly

Eastcompeace

Smart Card

(Bangladesh) Co.

Ltd.

Bangladesh

(Dhaka)

Bangladesh

(Dhaka)

Manufacturing

industry100.00%

Incorporation or

investment

Guangzhou

Eastcompeace

Technology Co.

Ltd.

Guangzhou Guangzhou

Commodity

circulation

industry

100.00%Incorporation or

investment

Eastcompeace

(Singapore) Co.

Ltd.

Singapore Singapore

Commodity

circulation

industry

80.00%

Business merger

under non-

common control

Eastcompeace

(India) Co. Ltd.

India (New

Delhi)

India (New

Delhi)

Manufacturing

industry74.00%

Business merger

under non-

common control

Eastcompeace Russia (Moscow) Russia (Moscow) Manufacturing 60.00% Business merger

205


(Russia) Co. Ltd. industryunder non-

common control

Explanation for shareholding ratio in subsidiary different from voting power ratio:

Not applicable

Basis for control on investee with minority of voting power or loss of control on investee with majority of voting power:

None

Basis for control on critical structured entity incorporated into consolidation scope:

None

Basis for identification of the Company as agent or grantor:

None

Other explanation:

(2) Critical non-wholly-owned subsidiaries

Unit: Yuan

Name of SubsidiaryMinority shareholders'

shareholding ratio

Current profit and loss

assigned to minority

shareholders

Current dividends

announced to be

distributed to minority

shareholders

Ending balance of

minority shareholders'

interest

Hangzhou Eastcom

Baifeng Technology Co.

Ltd.

30.00% -494,921.56

Eastcompeace

(Singapore) Co. Ltd.20.00% 620,334.29 328,950.00 2,579,253.25

Eastcompeace (India)

Co. Ltd.26.00% 4,146,894.88 1,496,979.79

Eastcompeace (Russia)

Co. Ltd.40.00% 1,224,385.81 88,399.73 3,763,466.18

Explanation for minority shareholders' shareholding ratio in subsidiary different from voting power ratio:

None

Other explanation:

None

(3) Major financial information on critical non-wholly-owned subsidiaries

Unit: Yuan

Name of

Subsidiar

y


Current

assets

Non-

current

Total

assets

Current

liabilities

Non-

current

Total

liabilities

Current

assets

Non-

current

Total

assets

Current

liabilities

Non-

current

Total

liabilities

206


assets liabilities assets liabilities

Eastcom

peace

(Singapo

re) Co.

Ltd.

38,635,9

59.27

7,076,81

0.65

45,712,7

69.92

31,858,3

61.75

958,141.

84

32,816,5

03.59

35,533,4

99.01

6,757,85

4.78

42,291,3

53.79

29,955,9

38.43

1,662,20

3.03

31,618,1

41.46

Eastcom

peace

(India)

Co. Ltd.

93,536,5

06.20

4,384,11

7.59

97,920,6

23.79

92,207,8

43.81

92,207,8

43.81

75,841,5

40.77

5,308,66

1.26

81,150,2

02.03

91,168,2

37.59

-

8,374.73

91,159,8

62.86

Eastcom

peace

(Russia)

Co. Ltd.

21,621,0

94.11

1,106,99

5.46

22,728,0

89.57

13,319,4

24.07

13,319,4

24.07

13,433,2

30.18

584,095.

25

14,017,3

25.43

9,279,77

6.69

9,279,77

6.69

Unit: Yuan

Name of

Subsidiary

Amount in Current Period Amount in Last Period

Operating

revenueNet profit

Total

comprehensi

ve income

Cash flows

from

operating

activities

Operating

revenueNet profit

Total

comprehensi

ve income

Cash flows

from

operating

activities

Eastcompeac

e (Singapore)

Co. Ltd.

128,082,762.

943,101,671.43 3,867,804.00 4,323,311.54

108,797,415.

615,433,951.16 5,888,271.99 3,126,638.58

Eastcompeac

e (India) Co.

Ltd.

168,097,156.

32

15,949,595.7

1

15,767,275.3

7-6,638,743.07

114,567,469.

09

17,065,154.6

3

16,818,325.1

4

19,004,649.3

3

Eastcompeac

e (Russia)

Co. Ltd.

63,454,050.8

63,060,964.53 4,892,116.09 -1,926,355.66

54,198,175.6

21,545,678.83 599,013.05 1,127,822.81

Other explanation:

None

(4) Material restriction on use of asset of enterprise group and pay-off of liability of enterprise group

None

207


(5) Financial support or other support provided for structured entities incorporated into consolidated financial statements

None

Other explanation:

None

2. Equity in joint arrangement or associated enterprise

(1) Critical joint venture or associated enterprise

Name of

Associated

Enterprise/Joint

Venture

Major Business

Place

Registered

Address

Nature of

Business

Shareholding Ratio Accounting

treatment method

for investment in

joint venture or

associated

enterprise

Directly Indirectly

Inter-City Data

Co. Ltd.

Zhuhai,

GuangdongGuangdong

Construction and

operation of

information/data

system platforms

50.00% Equity method

Explanation for shareholding ratio in joint venture/associated enterprise different from voting power ratio:

None

Basis for possession of material influence with voting power of below 20% or loss of material influence with voting power of above

20%:

None

(2) Major financial information on critical joint ventures

Unit: Yuan

Ending Balance /Amount in current period Opening Balance /Amount in last period

Current assets 18,991,083.13 21,268,441.81

Including: Cash and cash equivalents 1,818,995.00 1,498,506.16

Non-current assets 23,341,494.68 26,409,469.75

Total assets 42,332,577.81 47,677,911.56

Current liabilities 1,009,224.60 1,513,942.96


Equity belonging to shareholders of parent 41,323,353.21 46,163,968.60

208


company

Net assets calculated by shareholding ratio 20,661,676.60 23,081,984.30

Operating revenue 2,202,408.28 264,150.95

Financial expense -346,243.62 -637,290.46

Net profit -4,840,615.39 -6,273,451.14

Total comprehensive income -4,840,615.39 -6,273,451.14

Other explanation

IX. Risk Related to Financial Instruments

Main financial instruments of the Company includes equity investment, creditor’s investment, borrowing,

account receivable, account payable, financial asset measured by fair value whose change shall be included into

current profit and loss etc. Refer to relevant items in Note VI for detailed information of every financial

instrument. Risks related to these financial instruments and risk management policy the Company takes to

decrease these risks are stated below. Management of the Company manage and monitor these risk exposures to

make sure that risks stated above are controlled within defined scope.

The Company adopts sensitivity analysis technology to analyze possible influence of reasonable and possible

change of risk variable on current profit and loss or stockholder’s equity. As any risk variable rarely changes

alone and correlation between variables will have significant effect on final influence on certain risk variable,

content stated below assumes that change of every variable is conducted independently.

1. Market risks

(1) Foreign exchange risk

Foreign exchange risk refers to risk of loss due to exchange rate movement. Foreign exchange risk the

Company bears is mainly related to dollar, Indian rupee, Russian ruble, Bangladesh BDT and euro. Some

purchases and sales of parent company of the Company are settled in dollar and euro, and other main business

activities are settled in RMB. Some subsidiaries conduct purchase and sale in Indian rupee, Russian ruble and

Bangladesh BDT. In December 31 of 2016, except that balance of asset or liability stated in following table is in

Indian rupee, Russian ruble, Bangladesh BDT, Singapore dollar, Malaysia Ringgit, and euro, balance of asset and

liability of the Company is all in RMB. Foreign exchange risk generated by such foreign currency asset and

liability may affect operating performance of the Company.

Item Ending amount Opening amount

Cash And Cash Equivalents 66,064,874.05 54,706,336.95

209



Accounts prepaid 1,300,554.92



Deposit Received 1,634,325.55

Other payables 87,672,630.28 13,375,181.97

Short-term loans 38,153,500.00 97,404,000.00

Long-term loans 913,398.19 1,662,203.03

The Company purchases foreign currency long-term contract to reduce foreign exchange risk exposure. Refer

to Note V- 2 for financial asset measured in fair value whose change shall be included into current profit and loss.

(2) Interest rate risk—risk of cash flow change

Risk of financial instrument cash flow change caused by interest rate change of the Company is mainly

related to floating interest rate bank borrowing. Policy of the Company is to maintain floating interest rate of these

borrowings.

(3) Other price risks

2. Credit risk

By December 31 of 2016, the largest credit risk exposure that may cause financial loss of the Company

mainly comes from loss of financial asset of the Company as the other party of contract fails to fulfill obligation,

including recognized book value of financial asset in consolidated balance sheet. For financial instrument

measured in fair value, book value reflects its risk exposure but not the largest risk exposure, which will change

with future fair value.

In order to reduce credit risk, the Company established a team to determine line of credit and conduct credit

examination and approval as well as other monitoring procedures to make sure necessary measures are taken to

recover stale claim. Besides, the Company audits recovery condition of every single receivables on every balance

sheet date to make sure sufficient bad debt reserve is make for unrecoverable account. Thus, management of the

Company believe that credit risk the Company undertakes has been greatly reduced.

Working capital of the Company is deposited in bank with relatively high credit rating, so credit risk of

working capital is relatively low.

3. Liquidity risk

When managing liquidity risk, management of the Company believe that adequate cash and cash equivalent

shall be kept and monitored to meet operation demand of the Company and reduce influence of cash flow

fluctuation. The management of the Company will monitor use of bank loans and ensure compliance with related

210


loan agreements.

XI. Disclosure of Fair Value

1. Ending fair value of assets and liabilities calculated by fair value

Unit: Yuan

Item

Ending fair value

Fair value measurement

of Layer 1


of Layer 2


of Layer 3Total

I. Continuous

Measurement of Fair

Value

-- -- -- --

(VI) Financial liability

defined to be measured by

fair value and with its

variation included in

current profit and loss

307,833.38 307,833.38

Total liabilities

continuously measured by

fair value

307,833.38 307,833.38

Ii. Non-Continuous

Measurement of Fair

Value

-- -- -- --

2. Basis for determining market value of continuous/non-continuous measurement by fair value of Layer 1

None

3. Qualitative and quantitative information on valuation technology and key parameters used in continuous/non-continuous measurement by fair value of Layer 2

The company conducts DF (delivery forward) and NDF (non-delivery forward) investment. There in active

market in such transaction. Bank copies forward exchange settlement list price on due date of enterprise

agreement, which is unadjusted quoted price of the same asset or liability in active market that can be obtained on

measurement date. Thus, it is regarded that input value of fair value measurement belongs to Layer 2 and such

business belongs to sustained fair value measurement.

211


4. Qualitative and quantitative information on valuation technology and key parameters used in continuous/non-continuous measurement by fair value of Layer 3

None

5. Information on adjustment between opening and ending book values and non-observable parameter sensitivity analysis in continuous measurement by fair value of Layer 3

6. Reason for transformation between layers and policy of determining time point of transformation in current period in continuous measurement by fair value

None

7. Variation in valuation technology occurring in current period and reason for it

None

8. Information on fair value of financial assets and liabilities not measured by fair value

None

9. Others

None

XII. Related Party and Related Transaction

1. Information on parent company of the Company

Name of Parent

CompanyRegistered Address Nature of Business

Registered Share

Capital

Shareholding by

Parent Company

Voting Power Ratio

of Parent Company

Potevio Eastcom

Group Co. Ltd.Hangzhou

Communication

industry900,000,000.00 38.19% 38.19%

Explanation for parent company of the Company

None

The final controller of the Company is China Potevio Information Industry Group Company.

Other explanation:

2. Information on subsidiaries of the Company

For Information on subsidiaries of the Company, see Note V - Equity in Other Equities.

212


3. Information on joint ventures and associated enterprises of the Company

For more details see Note VII - Equity in Other Equities.

Information on other joints or associated enterprises which have related party transaction with the Company in current period or had

related party transaction with the company in previous periods and formed balance is provided below:

Name of Associated Enterprise/Joint Venture Relationship with the Company

Inter-City Data Co. Ltd. Joint Venture

Other explanation

None

4. Information on other related parties

Name of Other Related Party Relationship with the Company

Potevio International Trading Co. Ltd. Under the control of common actual controller

East Communication Group Co. Ltd. Under the control of the parent company

Hangzhou Eastcom Optoelectronic Technology Co. Ltd. Under the control of the parent company

Hangzhou Eastcom Lintong Electronics Industry Company Under the control of the parent company

Hangzhou Eastcom Financial Technology Service Co. Ltd. Under the control of the parent company

China Potevio Information Industry Co. Ltd. Controlling shareholder of the parent company

Potevio Yingtong Payment Co. Ltd. Under the control of common actual controller

Potevio New Energy Co. Ltd. Under the control of common actual controller

Potevio Eastcom Software Technology Co. Ltd. Under the control of common actual controller

Other explanation

None

5. Information on related transaction

(1) Related transaction for purchase/supply of goods and services

List of Goods and Services Purchased

Unit: Yuan

Related PartyContent of Related

Transaction

Amount in Current

Period

Approved Transaction

Volume

Excess of Transaction

VolumeAmount in Last Period

Hangzhou Eastcom

Optoelectronic

Technology Co.

Ltd.

Purchase of Goods 1,199,213.62 4,000,000.00 No 917,682.59

List of Goods and Services Supplied

213


Unit: Yuan

Related PartyContent of Related

TransactionAmount in Current Period Amount in Last Period

Potevio New Energy Co. Ltd. Supply of Goods 616,700.90 258,393.16

East Communication Group Co.

Ltd.Supply of Goods 16,410.26

Potevio International Trading

Co. Ltd.Supply of Goods 2,536,923.16 2,421,367.52

Description of related transaction for purchase/supply of goods and services

None

(2) Information on related lease

Lessor Acted as by the Company

Unit: Yuan

Name of Lessee Classification of Asset LeasedRental Revenue Identified in

Current Period

Rental Revenue Identified in

Last Period


Ltd.Premises 38,400.00 38,400.00

Lessee Acted as by the Company

Unit: Yuan

Name of Lessor Classification of Asset LeasedRental Fee Identified in Current

Period

Rental Fee Identified in Last

Period

Potevio Eastcom Group Co.

Ltd.Premises 99,377.26 139,855.85

Potevio Eastcom Group Co.

Ltd.Premises 583,282.40 563,103.76


Ltd.Vehicle 265,481.29 265,481.29


Ltd.Vehicle 86,493.74 86,493.74

Information on related lease

Note: Price of any lease between the Company and related party is based on market price.

(3) Remuneration of critical management

Unit: Yuan


214


Sum 735.00 717.00

Including: (Persons in amount ranges)

[Above 200,000 Yuan] 11.00 11.00

[150,000 ～200,000 Yuan]

[100,000 ~ 150,000 Yuan]

[Below 100,000 Yuan]

(4) Other related transactions

None

6. Receivables and payables of related party

(1) Receivables

Unit: Yuan

Name of Item Related PartyEnding Balance Opening Balance

Book Balance bad debt reserves Book Balance Bad Debt Reserves

Accounts

Receivable:

Potevio International

Trading Co. Ltd.1,475,240.00 73,762.00

Accounts

Receivable:

Potevio Yingtong

Payment Co. Ltd.10,000.00 10,000.00 10,000.00 5,800.00

Accounts

Receivable:

East Communication

Group Co. Ltd.12,800.00 640.00

(2) Items Payable

Unit: Yuan

Name of Item Related Party Ending Book Balance Opening Book Balance

Accounts Payable:

Hangzhou Eastcom

Optoelectronic Technology Co.

Ltd.

163,340.00 334,386.75

Advanced Receipts: Inter-City Data Co. Ltd. 11,040.00

Other Payables:Potevio Eastcom Group Co.

Ltd.214,756.36 3,200.00

Other Payables:Potevio Eastcom Software

Technology Co. Ltd.13,584.91

215


7. Related party's commitment

None

8. Others

XIII. Share-Based Payment

1. Overview of share-based payment


Unit: Yuan

Total amount of equity instruments granted by the Company in current

period0.00

Total amount of equity instruments exercised by the Company in current

period0.00

Total amount of invalid equity instruments of the company in current

period132,600.00

Range of exercising price of stock option except for those issued

externally by the Company at the end of the period and remaining validity

of contract

Exercising price of restricted stock awarded in 2013

was 7 yuan per share and the contract had expired.

Range of exercising price of other equity instruments issued externally at

the end of the period and remaining validity of contractNot applicable

Other explanation

None

2 Payment of shares settled by equity


Unit: Yuan

Determination method of equity instrument fair value on grant date Fair value is determined by valuation technique

Determination basis of quantity of equity instrument with power

exercising right

Limit of restrictive stock granted is amortized equally within

unlock-waiting period

Reason for significant difference between estimate in this period

and last period

Three persons resigned, and incentive objects were adjusted

from 82 to 79 persons.

Accumulated amount of share-based payment settled in equity

included into capital reserve13,822,600.00

Total identified amount of share-based payments settled by equity

in current period2,634,900.00

Other explanation

216


The company conducted stock ownership incentive in December of 2013, actually granting 388.30 restrictive

stocks to incentive object in total. Unlock-waiting period of restrictive stock granted this time is 1 year, 2 years

and 3 years respectively, with unlock proportion of 1/3, 1/3 and 1/3 correspondingly. Employee service amount

exchanged by stock payment settled in equity recognized in this period is 2,634,900.00 Yuan, among which

2,634,900.00 Yuan is included into management expense, and capital reserve is increased at the same time.

3. Share-based payment settled in cash


4. Modification and termination of share-based payment

The Company finished buy-back and write-off of some restrictive stocks on August 11, 2016, conducting buy-back and write-off to restrictive stock granted to (not unlocked yet) Guo Li, Luo Dun, Wang Yongji and Wenyi who have resigned so that they do not conform to incentive condition, 132,600.00 shares in total.

5. Others

None

XIV. Commitment and Contingent Matters

1. Critical commitment

Critical commitment on balance sheet date

By December 31, 2016, no critical commitment within the Company has been to be disclosed.

2. Contingent matters

(1) Critical contingent matters on balance sheet date

By December 31, 2016, no contingent Matter within the Company has been to be disclosed.

(2) Any critical contingent matter within the Company which need not be disclosed should be described as well.

No other critical contingent matter need be disclosed within the company.

217


3. Others

None

XV. Matters Subsequent to Balance Sheet Date

1. Profit distribution

Unit: Yuan

Profit or dividends to be distributed 10,392,490.08

Profit or dividends approved to be distributed 10,392,490.08

2. Description of other matters subsequent to balance sheet date

By December 31, 2016, no matter subsequent to balance sheet date need be disclosed within the Company.

XVI. Other Critical Matters

1. Information on branch office

(1) Determination basis and accounting policy reported to branch

In accordance with internal organizational structure, management requirement and internal report system of

the Company, operational business of the Company is divided into four operating branches. Management of the

Company regularly evaluate business achievement of these branches to decide resource distribution and evaluate

their performance. On basis of operating branch, the Company determines four reporting branches, namely card

product branch, software and system branch, valuable ticket branch and terminal and others branch. These report

branches is determined on basis of business content of the company. Main product and labor provided by every

report branch of the Company is respectively card product, software and system, valuable ticket product, and

terminal and other products.

Information of reporting branch is disclosed according to accounting policy and measurement standard

adopted by every branch when reporting to management. There is difference between these measurement basis

and accounting and measurement basis when formulating financial statements. These differences mainly include:

information of reporting branch only includes business revenue and business cost of every branch but not include

business tax and surcharges, operating expense and other expenses and amortization of expenditure.

218


(2) Financial information reported to branch

Unit: Yuan

Item Card productSoftware and

system

Negotiable

document

Terminals and

others

Inter-branch set-

offTotal

Prime operating

revenue1,429,770,498.06 21,145,713.40 28,121,606.63 7,137,317.70 1,486,175,135.79

Prime operating

cost1,058,482,742.10 12,826,114.32 20,621,582.48 3,868,407.84 1,095,798,846.74

(3) In case that the Company reported no information to any branch office or could not disclose total assets and liabilities of any branch office, related reason shall be described.

None

(4) Other explanation

None

2. Critical transaction and matter influencing investor's decision-making

None

3. Others

None

XVI. Notes to Main Items of Financial Statements of Parent Company

1. Accounts receivable


Unit: Yuan

Classification


Book Balance bad debt reserves

Book

Value



Percenta

ge of

Accrual


of Accrual

Accounts receivable

withdrawal of bad

debt reserve based on

229,790,

161.20

100.00% 46,505,5

05.68

20.24% 183,284,6

55.52

219,405

,007.40

100.00% 37,169,08

9.42

16.94% 182,235,91

7.98

219


credit risk feature

combination

Total229,790,

161.20100.00%

46,505,5

05.6820.24%

183,284,6

55.52

219,405

,007.40100.00%

37,169,08

9.4216.94%

182,235,91

7.98

Ending receivables with significant single amount and individual bad debt provision:


Receivables in portfolio for which provision for bad debts is accrued by aging analysis method:


Unit: Yuan


Accounts receivable bad debt reserves Percentage of Accrual



1~2 years 7,940,039.47 794,003.95 10.00%

2~3 years 7,586,687.49 2,276,006.25 30.00%

More than 3 years 34,444,551.33 34,444,551.33 100.00%

3~4 years 10,170,778.73 10,170,778.73 100.00%

4~5 years 5,301,113.38 5,301,113.38 100.00%

More than 5 years 18,972,659.22 18,972,659.22 100.00%

Total 229,790,161.20 46,505,505.68


None

Receivables in portfolio for which provision for bad debts is accrued by balance percentage:


Receivables in portfolio for which provision for bad debts is accrued by other methods:





Unit: Yuan

Name of Organization Amount Collected or Recovered Recovery Mode

220


(3) Top five ending balances of accounts receivable sorted by owing party

Total amount of top 5 accounts receivable by ending balance sorted by owing party in current report period is 140,876,206.14 Yuan, accounting for 61.31% of the total, and the total amount of ending balance of bad debt reserve accrued is 18,766,140.22 Yuan.

2. Other receivables


Unit: Yuan

Classification



Book

Value



Percenta

ge of

Accrual


of Accrual

Other accounts

receivable for which

bad debt reserve is

accrued based on

credit risk feature

combination

33,712,4

95.53100.00%

6,550,92

1.9719.43%

27,161,57

3.56

28,031,

981.96100.00%

5,289,241

.5518.87%

22,742,740.

41

Total33,712,4

95.53100.00%

6,550,92

1.9719.43%

27,161,57

3.56

28,031,

981.96100.00%

5,289,241

.5518.87%

22,742,740.

41

Other ending receivables with significant single amount and individual bad debt provision:


Other receivables in portfolio for which provision for bad debts is accrued by aging analysis method:


Unit: Yuan


Other receivables Bad Debt Reserves Percentage of Accrual



1~2 years 3,307,586.27 330,758.63 10.00%

2~3 years 3,286,397.01 985,919.10 30.00%

More than 3 years 4,082,440.66 4,082,440.66 100.00%

3~4 years 578,764.20 578,764.20 100.00%

4~5 years 937,429.47 937,429.47 100.00%

221


More than 5 years 2,566,246.99 2,566,246.99 100.00%

Total 33,712,495.53 6,550,921.97


None

Other receivables in portfolio for which provision for bad debts is accrued by balance percentage:


Other receivables in portfolio for which provision for bad debts is accrued by other methods:






Unit: Yuan

Name of Organization Amount recovered or collected Recovery Mode

None

(3) Information on other receivables written off actually

Unit: Yuan

Item Written-Off Amount

Information on write-off of critical other receivables

Unit: Yuan

Name of Organization Other receivables Written-Off Amount Reason for write-offWrite-off process

performed

Amount generated in

related transaction or

not

Description of write-off of other receivables:

None

(4) Classification of other receivables by nature

Unit: Yuan

Nature of Amount Ending Book Balance Opening Book Balance


Petty Cash 965,965.76 1,246,526.06

Dealings 16,550.00 124,551.55

Taxes Withheld 16,968,667.77 16,498,546.73

222


Payroll Deductions 1,196,363.98 818,448.99

Others 1,320,637.83 1,599,698.44

Total 33,712,495.53 28,031,981.96

(5) Top five ending balances of other accounts receivable sorted by owing party

Unit: Yuan

Name of Organization Nature of Amount Ending BalanceAccount receivable

age

Percentage in Total

Ending Balance of

Other Receivables

Ending Balance of

Bad Debt Reserves



No. 3Performance


No. 4 Bid Security 1,500,000.00 Within 1 year 4.45% 75,000.00

No. 5Performance


Total -- 11,659,711.30 -- 34.59% 582,985.57


Unit: Yuan

Item


Book BalanceDepreciation

ReservesBook Value Book Balance

Depreciation

ReservesBook Value

Investment in

Subsidiaries35,955,564.91 4,198,812.00 31,756,752.91 42,781,545.07 4,198,812.00 38,582,733.07

Investment in

Associated

Enterprises and

Joint Ventures

20,661,676.60 20,661,676.60 23,081,984.30 23,081,984.30

Total 56,617,241.51 4,198,812.00 52,418,429.51 65,863,529.37 4,198,812.00 61,664,717.37

(1) Investment in subsidiaries

Unit: Yuan

Investee Opening Balance Increase in

current period

Decrease in

current period

Ending Balance Accrued

impairment

reserves in current

Ending Balance

of Depreciation

Reserves

223


period

Eastcompeace

Smart Card

(Singapore) Co.

Ltd.

3,310,600.00 3,310,600.00 3,310,600.00

Eastcompeace

(India) Co. Ltd.888,212.00 888,212.00 888,212.00

Eastcompeace

Smart Card

(Bangladesh) Co.

Ltd.

23,923,362.83 23,923,362.83

Eastcompeace

(Russia) Co. Ltd.6,833,390.08 6,833,390.08

Guangzhou

Eastcompeace

Technology Co.

Ltd.

1,000,000.00 1,000,000.00

Hangzhou

Eastcom Baifeng

Technology Co.

Ltd.

6,825,980.16 6,825,980.16

Total 42,781,545.07 6,825,980.16 35,955,564.91 4,198,812.00

(2) Investment in associated enterprises and joint ventures

Unit: Yuan

Unit:Opening

Balance

Increases/Decreases in Current Period

Ending

Balance

Ending

Balance

of

Depreciat

ion

Reserves

Additiona

l

Investme

nt

Investme

nt

Reduction

Profit and

loss on

investmen

ts

identified

under

equity

method

Other

comprehe

nsive

income

adjustmen

t

Other

equity

variation

Cash

dividends

or profits

announce

d to be

distribute

d

Accrued

impairme

nt

reserves

Others

I. Associated Enterprise

Inter-City

Data Co.

Ltd.

23,081,98

4.30

-

2,420,307

.70

20,661,67

6.60

Subtotal 23,081,98 - 20,661,67

224


4.302,420,307

.706.60

II. Joint Ventures

Total23,081,98

4.30

-

2,420,307

.70

20,661,67

6.60

(3) Other explanation

None

4. Operating revenues and operating costs

Unit: Yuan

ItemAmount in Current Period Amount in Last Period

Revenue Cost Revenue Cost

Primary business 1,335,142,616.58 1,029,207,048.88 1,313,859,200.28 1,029,154,039.39

Other business 10,592,718.18 6,601,893.23 8,946,882.50 4,509,328.64

Total 1,345,735,334.76 1,035,808,942.11 1,322,806,082.78 1,033,663,368.03

Other explanation:

None

5. Return on investment

Unit: Yuan


Return on long-term equity investment

accounted by cost method3,881,063.04

Long-term equity investment returns

accounted by equity method-2,420,307.70 -3,136,725.57

Return on investment from disposal of long-

term equity investment-5,298,741.44

Return on investment in capital asset

measured by fair value with the change

included in the current profits and losses

during retention

-2,248,219.10 1,488,546.12

Total -6,086,205.20 -1,648,179.45

225


6. Others

None

XVIII. Additional Information

1. Current detailed statement of non-recurring profits and losses


Unit: Yuan

Item Amount Description

Profit/loss on disposal of non-current assets -136,438.54

Governmental subsidies included into

current loss and profit (excluding

governmental subsidies that are closely

related to enterprise business and granted at

national uniform fixed amount or quantity)

12,141,223.12

Variable loss and profit of fair value

generated from holding trading financial

assets and trading financial liabilities and

investment income earned from disposing

trading financial assets, trading financial

liabilities and marketable financial assets,

except for effective hedges related to the

company’s normal operational business

-2,248,219.10

Other non-operating revenues and expenses

besides the aforesaid items-5,796.96

Minus: Amount influenced by income tax 1,053,686.23

　　Amount subject to minority equity 134,142.79

Total 8,562,939.50 --

It is required to make explanation on the unusual loss and profit items defined by the Company based on No 1 Explanatory Public

Notice of Information Disclosure of Companies Making Public Security Offering and the unusual loss and profit items that are

defined as usual loss and profit items as indicated in No 1 Explanatory Public Notice of Information Disclosure of Companies

Making Public Security Offering。□ Applicable √ Not applicable

2. Net assets income rate and earnings per share

Profit in Report Period Weighted average net assets income rate earnings per share

Basic earning per share Diluted earning per share

226


(Yuan/share)

Net profit assigned to shareholders

of common stock of the Company9.53% 0.24 0.24

Net profits attributable to

shareholders of common stock of

the company with non-recurring

profits and losses deducted

8.53% 0.21 0.21

3. Accounting data differences under domestic and foreign accounting rules

(1) Differences of net profits and net assets under the financial report disclosed respectively according to the international accounting rules and Chinese accounting rules


(2) Differences of net profits and net assets under the financial report disclosed respectively according to the foreign accounting rules and Chinese accounting rules


(3) Explain reason for discrepancy in accounting data under foreign and domestic accounting principle, and state name of foreign organization in case that discrepancy in data audited by oversea auditing institution has been adjusted.

None

4. Others

227


Section XII - Contents of References

1) Document of annual report with signature of Zhang Xiaochuan, the legal representative.

2) Accounting statements with signatures of Zhang Xiaochuan, the legal representative, and Ren Bo, the accounting director and chief accountant.

3) The original of audit report with stamp of accounting firm and stamp and signature of certified public accountant.

4) Originals of all documents and announcements disclosed publicly on the newspaper as specified by CSRC during the report period.

Eastcompeace Technology Co. Ltd.

Legal Representative: Zhang Xiaochuan

April 24, 2017

228

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