/[Periodic Report] Henghe Co., Ltd.: 2026 Semi-annual Report

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[Periodic Report] Henghe Co., Ltd.: 2026 Semi-annual Report

Beijing Stock Exchange

2026/08/21

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Semi-annual report

2026

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1. Basic information

Securities abbreviation: Henghe Shares

Securities code 920145

The company’s full Chinese name: Beijing Henghe Xinye Technology Co., Ltd.

Beijing Henghe Information and Technology Co., Ltd. English name and abbreviation

HENGHE

Legal representative Li Yujian

2. Contact information

Name of Board Secretary: Xu Jingning

Contact address: Room 301, Building 5, No. 98, Lianshihu West Road, Mentougou District, Beijing Tel: 010-68235097

Fax 010-68235102

Secretary’s email [email protected]

Company website www.bjhenghe.com

Office address: Room 301, Building 5, No. 98, Lianshihu West Road, Mentougou District, Beijing Postcode 102300

Company email [email protected]

3. Information disclosure and preparation location

Company Interim Report 2026 Semi-Annual Report

The stock exchange website where companies disclose interim reports

www.bse.cn

stand

The media name and website where the company discloses its interim report

"Shanghai Securities News" (www.cnstock.com) address

The company's interim report is prepared at the Securities Department of Beijing Henghe Xinye Technology Co., Ltd.

4. Corporate information

The company's stock is listed on the Beijing Stock Exchange

Launch date: November 15, 2021

Industry Classification Manufacturing - Instruments, Meters - Main products and services of the instrumentation manufacturing industry. The company's current main products include online monitoring systems for oil and gas recovery at gas stations and oil depots, online monitoring data management platforms, secondary oil and gas recovery systems at gas stations, oil and gas treatment devices at gas stations and oil depots, liquid level measurement systems, leakage detection systems, water surface oil spill monitoring systems, gas chromatographs and testing services. It mainly provides oil and gas recovery online monitoring and data services and comprehensive VOCs control understanding for petroleum and petrochemical companies and environmental protection departments.

solutions and provide design, research and development, production, installation and commissioning, data analysis, third-party

Inspection and other services. Total common stock capital (shares) 70,550,000 Total preferred stock capital (shares) 0

Controlling shareholder: The controlling shareholder is (Li Yujian, Wang Lin). The actual controller and its persons acting in concert are (Li Yujian, Wang Lin). The actual controller is (Li Yujian, Wang Lin), and the person acting in concert is (Li Yujian, Wang Lin).

5. Registration changes

□Applicable √Not applicable

6. Intermediaries

□Applicable √Not applicable

7. Voluntary disclosure

□Applicable √Not applicable

8. Updates after the reporting period

□Applicable √Not applicable

Section 3 Accounting data and operating conditions

1. Main accounting data and financial indicators

(1) Profitability

Unit: Yuan

Current period Same period last year Increase or decrease ratio % Operating income 11,977,183.02 25,052,491.14 -52.19% Gross profit margin % -14.43% 20.17% -

Net profit attributable to shareholders of listed companies -9,232,312.61 -5,552,426.67 -66.28% Net profit attributable to shareholders of listed companies, excluding non-recurring expenses

-9,230,395.51 -5,546,668.64 -66.41%Net profit after profit and loss

Weighted average return on equity % (based on attributable to -

-3.62% -2.10%

Calculation of net profit for shareholders of listed companies)

Weighted average return on equity % (based on attributable to -

Shareholders' income of listed companies after deducting non-recurring gains and losses -3.62% -2.10%

calculation of net profit)

Basic earnings per share -0.13 -0.08 -62.50%

(2) Solvency

Unit: Yuan

End of the current period End of the previous year Increase or decrease ratio% Total assets 254,031,259.05 268,547,751.41 -5.41% Total liabilities 12,801,797.87 22,548,772.57 -43.23% Net assets attributable to shareholders of listed companies 252,083,906.00 256,579,331.03 -1.75% Net assets per share attributable to shareholders of listed companies 3.57 3.64 -1.92% Asset-liability ratio % (parent company) 3.01% 5.28% -

Asset-liability ratio % (consolidated) 5.04% 8.40% -

Current ratio 12.05 7.56 -

Interest coverage ratio -424.75 -295.41 -

(3) Operational conditions

Unit: Yuan

Current period Same period last year Increase/decrease ratio % Net cash flow generated from operating activities -2,133,153.21 -3,666,080.92 41.81% Accounts receivable turnover rate 0.25 0.37 -

Inventory turnover rate 0.78 0.93 -

(4) Growth situation

Current period Same period last year Increase/decrease ratio % Total assets growth rate % -5.41% -4.09% -

Operating income growth rate % -52.19% 0.68% -

Net profit growth rate% -65.04% -5.25% -

2. Non-recurring profit and loss items and amounts

Unit: Yuan

Item Amount

Profit and loss from disposal of non-current assets, including write-off of provision for asset impairment

Government subsidies included in the current profit and loss, but are closely related to the company's normal business operations, comply with national policies and regulations, are enjoyed in accordance with determined standards, and are beneficial to the company

Except for government subsidies that have a lasting impact on the company's profits and losses

Reversal of impairment provision for accounts receivable subject to separate impairment test -Other non-operating income and expenses other than the above items -4,946.08

Total non-recurring gains and losses -4,946.08 Less: Impact on income tax -247.31 Impact on minority shareholders’ equity (after tax) -2,781.67

Net non-recurring gains and losses -1,917.10

3. Supplementary financial indicators

□Applicable √Not applicable

4. Changes in accounting policies, changes in accounting estimates or correction of major errors, etc.

(1) Retroactive adjustments or restatements of accounting data

□Changes in accounting policies □Correction of accounting errors □Other reasons √Not applicable

(2) Reasons and effects of changes in accounting policies, accounting estimates, or correction of major accounting errors

√Applicable □Not applicable

(1) Changes in important accounting policies

Implementation of "Interpretation No. 19 of Accounting Standards for Business Enterprises"

On December 19, 2025, the Ministry of Finance issued the "Interpretation No. 19 of Accounting Standards for Business Enterprises" (Financial Accounting [2025] No. 32, hereinafter referred to as Interpretation No. 19), which will be effective from January 1, 2026. The company will implement the provisions of Interpretation No. 19 from January 1, 2026. The implementation of the relevant provisions of Interpretation No. 19 will have no significant impact on the company's financial statements during the reporting period.

Implementation of "Interpretation No. 20 of Accounting Standards for Business Enterprises"

On June 24, 2026, the Ministry of Finance issued the "Interpretation No. 20 of Accounting Standards for Business Enterprises" (Finance [2026] No. 7, hereinafter referred to as Interpretation No. 20), which will be effective from January 1, 2026. The company will implement the provisions of Interpretation No. 20 from January 1, 2026. The implementation of the relevant provisions of Interpretation No. 20 will have no significant impact on the company's financial statements during the reporting period.

(2) Changes in important accounting estimates

During the reporting period, the Company had no significant changes in accounting estimates.

(3) Correction of major accounting errors

During the reporting period, the Company had no major accounting error corrections.

5. Differences in accounting data under domestic and foreign accounting standards

□Applicable √Not applicable

6. Business Overview

Changes in business model during the reporting period:

(1) Company business introduction

The company was founded in 2000 and listed on the Beijing Stock Exchange in 2021. It is mainly engaged in comprehensive management and monitoring services of volatile organic compounds (VOCs), providing customers with services such as design, research and development, production, integration, installation and commissioning, data analysis, third-party testing and operation and maintenance, and integrated solutions. With the continuous development of the company's business, the oil and gas recovery and treatment and online monitoring business will gradually expand into the oil storage and refining fields on the basis of consolidating the market share of existing gas stations, and further extend to the oilfield associated gas recovery and treatment market, and continue to expand the application fields and market scope. The company's core products include gas station oil and gas recovery online monitoring systems, oil and gas recovery online monitoring systems for oil storage depots, gas station oil and gas treatment devices, oil and gas depot oil and gas treatment devices, gas chromatographs and other testing instruments, intelligent network monitoring platforms, ceramic pressure sensors and core cores, etc. The company is a high-tech enterprise with independent intellectual property rights. As of the end of the reporting period, it has obtained 37 patents, including 6 invention patents. The company's core R&D team masters technologies such as hardware development, software development, structural design, and data analysis software algorithms, and is committed to providing domestically produced, digital, and integrated products and services for well-known large domestic and foreign petroleum and petrochemical companies such as PetroChina, Sinopec, CNOOC, and Shell.

(2) R&D model

The company has an R&D center, which is specifically responsible for the company's technology development. The R&D center pays attention to industry development trends, summarizes and analyzes the development direction of the industry based on market demand, determines product needs and formulates design plans in accordance with national standards, industry standards, etc., and conducts product design and development work. By actively exploring advanced technologies in the industry, tracking customer needs, and conducting research and development of new technologies, we continuously improve the company's core competitiveness and technical level.

(3) Procurement model

The raw materials purchased by the company are divided into outsourced standard parts, outsourced customized parts and other auxiliary materials. Outsourced standard parts mainly include sensors, electronic components, etc., which are mainly purchased directly from domestic manufacturers or through domestic agents; outsourced customized parts mainly include casings, PCB boards, etc. The company provides design drawings, technical parameters and quality requirements, and the supplier provides products according to the company's requirements. The company formulates a procurement plan based on comprehensive consideration of order status and safety inventory, which is implemented by the procurement department.

(4) Production model

According to the sales order, the company's production department assembles, produces and tests the products according to the customer's needs before putting them into storage. The company adopts a production method that combines orders and plans to ensure that sales, production, and inventory preparations are consistent and meet customer requirements for product quality and delivery deadlines.

(5) Sales model

The company adopts two sales models: direct sales and distribution. The company's business model has been continuously improved and formed after years of business development, and is in line with business development and industry characteristics. Key factors affecting the company's business model include national policies and regulations, industry competition, customer needs, company size, company development strategy, etc.

During the reporting period, the company's business model did not undergo significant changes compared with the previous year.

Changes in core competitiveness during the reporting period:

□Applicable √Not applicable

Recognition status of specialties, specialties, etc.

√Applicable □Not applicable

"Specialized, Specialized and New" certification □National level √Provincial (municipal) level

"High-tech enterprise" certification √Yes

7. Business Review

(1) Business plan

During the reporting period, affected by objective factors such as the external environment and the overall development trend of the industry, the company's half-year operating income fell by 52.19% year-on-year, putting the company's performance under pressure. Facing the current operating pressure, the company has conducted a comprehensive review, deeply analyzed the reasons for the decline in revenue, deeply explored the needs of existing customers, actively expanded business development paths and improvement directions, and actively took measures to improve operating conditions.

Operating performance

During the reporting period, the company achieved operating income of 11,977,183.02 yuan, a decrease of 13,075,308.12 yuan compared with the same period last year. yuan, a decrease of 52.19%; the net profit attributable to shareholders of the listed company was -9,232,312.61 yuan, a decrease of 3,679,885.94 yuan, or 66.28% compared with the same period last year; the company's total assets were 254,031,259.05 yuan, a decrease of 14,516,492.36 yuan, or 5.41%, from the beginning of the period.

Progress of key tasks

(1) Sales work

During the reporting period, affected by factors such as the continued slowdown in investment in the petroleum and petrochemical industry, weak overall demand, and intensified low-price competition in the market, the implementation cycle of original projects has been lengthened. The company continues to follow up on orders in hand and promote delivery, strengthens project risk assessment and accounts receivable management, and strictly controls sales credit risks. The sales work carried out during the reporting period mainly included: continuing to follow up on various framework bidding and regional project price comparisons for large energy companies such as PetroChina, Sinopec, CNOOC, Sinochem, Shell, Rongtong, etc., seizing project opportunities for three oil and gas recovery renovations at gas stations, oil and gas management in oil storage depots, and online monitoring system upgrades, and focusing on developing regional markets in the northwest, northeast, south China, and east China. However, the overall results were not reflected in the first half of the year results in time.

Based on the sales performance in the first half of the year, the company will: ① optimize distribution channel management, strengthen cooperation with high-quality dealers, eliminate inefficient cooperation channels, rely on dealers to open private chain gas stations and small and medium-sized customer markets, and achieve sales of key products such as tertiary oil and gas treatment devices at gas stations and online monitoring of gas stations. ② Accelerate the market promotion of new products, actively promote the domestic pilot work of ORVR refueling sample guns, VOCs monitoring instruments and other demonstration projects, and carry out technical exchanges and product promotions for oilfield associated gas products with large domestic mining and refining oil fields. ③ Deepen the existing market value and expand value-added business. Actively promote the expansion of business scale such as operation and maintenance of oil and gas recovery equipment, out-of-warranty paid services for similar products from other manufacturers, and system upgrades to enhance customer stickiness and stabilize long-term revenue sources. ④ In line with the development trend of online marketing and making up for the shortcomings of traditional sales channels, the company has opened online platforms such as "Douyin" since the second half of 2026 to achieve customer drainage and precise screening of gas chromatographs, instruments and other products through online promotion, laying a foundation for the sales promotion of related products.

(2) Research and development work

The company always adheres to research and development innovation, actively tracks the development direction of technology in the industry, and continuously researches and develops products that meet market demand and customer requirements. During the reporting period, a total of 8 R&D projects were invested in the development of mobile mixed hydrocarbon recovery and CNG/LNG preparation devices, process optimization of new oil and gas recovery and treatment devices, development of ORVR automatic identification refueling nozzles, intelligent oil and gas recovery pump design, development of ORVR automatic identification gas station online monitoring systems, expansion of gas chromatography analysis instruments and supporting equipment, product iteration of portable volatile organic analyzers, and serialization of ceramic capacitor pressure cores. The research and development projects are progressing smoothly and have achieved phased results.

(3) Development of subsidiary ceramic pressure sensor business

During the reporting period, Xinzhisen, a holding subsidiary, received the "High-tech Enterprise" certificate issued by Jiangsu Province and obtained supplier qualification certification from a domestic new energy thermal management company in terms of new customer development. In terms of technology research and development, the cost reduction design of related products has been completed at the customer's request and is currently being tested; the customer's customized square core test has been completed, and samples are being produced; new customer projects of 18mm single pressure and P+T pressure sensors have been developed, and sample delivery and testing have been completed; customer sample delivery and testing of the 21mm traditional ceramic pressure core and 18mm P+T pressure sensor ceramic core have been completed.

(2) Industry situation

According to the "China Public Companies Association Listed Company Industry Statistical Classification Guidelines" issued by the China Association of Public Companies on May 21, 2023, the company's industry is manufacturing-instrument, meter-instrument manufacturing. Its main products include oil and gas recovery online monitoring systems, oil and gas recovery and treatment equipment, oil and gas treatment devices in oil storage depots, magnetic flow sensors, liquid level measurement systems, gas chromatographs, smart network monitoring platforms, portable volatile organic analyzers and oil and gas recovery detectors, etc.

Atmospheric pollutant volatile organic compounds (VOCs) treatment industry

The company focuses on the comprehensive management and monitoring of petroleum and petrochemical volatile organic compounds (VOCs). As an important part of national air pollution control, this industry continues to receive strong support from national policies. During the reporting period, national ministries and commissions issued and began to implement policies such as the "Ecological Environment Monitoring Regulations", which clearly requires enterprises and institutions to install automatic monitoring equipment and network with the ecological environment authorities. The "Beijing-Tianjin-Hebei Beautiful China Pioneer Area Construction Action Plan" requires that the battle to defend the blue sky be fought with higher standards. Strengthen the comprehensive management of atmospheric non-point sources and the management of ozone-depleting substances and hydrofluorocarbons. The "Action Plan for the Construction of the Yangtze River Delta Beautiful China Pioneer Zone" strengthens the precise control of air pollution. Promote the comprehensive management of volatile organic compounds (VOCs) in key industries such as petrochemicals, chemicals, industrial painting, packaging and printing, and oil product storage, transportation and sales, and complete no less than 1,000 VOCs source replacement projects every year. The "Action Plan for the Construction of the Beautiful China Pilot Zone in the Guangdong-Hong Kong-Macao Greater Bay Area" jointly builds a pilot demonstration zone for air quality improvement. Strengthen the integrated prevention and control of air pollution, promote cross-border cooperation in atmospheric environment monitoring, pollution weather forecasting, and mobile source emission supervision; deepen the comprehensive management of volatile organic compounds in key industries throughout the entire process. The "15th Five-Year Plan for the Construction of a Beautiful China" promotes continuous improvement of air quality. Emphasize the research and formulation of mandatory national standards for VOCs content limits in key products, and promote VOCs source substitution and full-process management. Carry out rectification and improvement of traditional gas-related industrial clusters, implement inspection and rectification of inefficient and ineffective air pollution control facilities, and deepen graded management of atmospheric environmental performance

management and carry out actions to improve performance levels. There were no major changes in industry policies during the reporting period.

During the reporting period, although there were no major changes in industry policies, affected by the macroeconomic situation, the pace of policy implementation was slow, and oil and gas recovery and treatment

The management and monitoring business has been significantly reduced. At the same time, the penetration rate of new energy vehicles continues to increase, which has a greater impact on the oil storage, transportation and sales business.

The chemical industry has increased investment in new energy business, while investment in traditional business has declined. The company is facing declining market demand, narrowing space for business increment and

With multiple challenges such as intensified low-price competition, the company is conducting new product research and development based on customer needs to extend its application areas and promote sustainable business development.

Sensitive components and sensor manufacturing industry

The subsidiary Wuxi Xinzhisen Technology Co., Ltd. is mainly engaged in the R&D and manufacturing of ceramic capacitor pressure cores and sensors, focusing on the automotive field.

We are committed to providing customers with stable and reliable mid- and high-voltage core sensitive components and sensor products for domain and industrial applications.

During the reporting period, driven by policy support and market demand, the industry maintained stable development. As the market penetration rate of new energy vehicles continues to increase,

With the gradual adjustment of subsidy policies, the competitive landscape of the sensor market has accelerated its evolution. Industry competition focuses on technological innovation and product reliability

In terms of supply chain integration capabilities, the industry as a whole is in an accelerated reshuffle stage, and competition is becoming increasingly fierce. Core Intelligence focuses on medium voltage and high voltage cores and transmission

Sensor R&D and manufacturing, relying on mature technology and perfect quality control system, have the core to ensure stable product performance and reliable quality.

Competitive advantage.

(3) Newly added important non-main businesses

□Applicable √Not applicable

(4) Financial analysis

Analysis of asset and liability structure

Unit: Yuan End of current period End of previous year

Item Percentage of change in total assets Percentage of change in total assets Amount

Proportion % Proportion %

Monetary funds 94,269,238.37 37.11% 90,018,750.17 33.52% 4.72% Notes receivable 726,716.79 0.29% 190,000.00 0.07% 282.48% Accounts receivable 35,744,446.35 14.07% 49,974,617.08 18.61% -28.47% Inventory 15,733,762.18 6.19% 16,783,125.72 6.25% -6.25% Investment real estate - - - - - Long-term equity investment 4,282,814.77 1.69% - - - Fixed assets 83,967,555.02 33.05% 86,426,121.70 32.18% -2.84%Construction in progress - - 5,971,685.77 2.22% -100.00%Intangible assets - - - - -Goodwill - - - - -Short-term borrowings - - - - -Long-term borrowings - - - - - Receivables financing 115,047.59 0.05% 13,000.00 0.00% 784.98%Prepayment 739,001.00 0.29% 1,897,730.43 0.71% -61.06%Other receivables 1,289,928.92 0.51% 1,447,458.23 0.54% -10.88%Other current assets 3,159,418.14 1.24% 3,146,753.89 1.17% 0.40%Right-of-use assets 1,902,937.00 0.75% 2,278,881.46 0.85% -16.50% Long-term deferred expenses 3,260,898.25 1.28% 3,481,832.40 1.30% -6.35% Deferred income tax assets 8,242,373.25 3.24% 6,689,865.03 2.49% 23.21% Other non-current assets 597,121.42 0.24% 227,929.53 0.08% 161.98%Accounts payable 9,399,142.48 3.70% 16,397,353.12 6.11% -42.68%Contract liabilities 176,459.04 0.07% 154,590.96 0.06% 14.15% Employee benefits payable 235,947.80 0.09% 2,220,168.78 0.83% -89.37% Taxes payable 103,511.06 0.04% 1,101,630.37 0.41% -90.60% Other payables 189,340.01 0.07% 291,510.49 0.11% -35.05% Non-payables due within one year 1,738,582.56 0.68% 1,298,947.04 0.48% 33.85% Current liabilities

Other current liabilities 750,335.65 0.30% 156,054.82 0.06% 380.82% Lease liabilities 208,479.27 0.08% 928,516.99 0.35% -77.55%Total assets 254,031,259.05 100.00% 268,547,751.41 100.00% -5.41%

Reasons for major changes in asset and liability items:

The notes receivable at the end of the current period were 726,716.79 yuan, an increase of 536,716.79 yuan from the end of the previous year, an increase of 282.48%, mainly due to the increase of Wuxi Core in this period.

This was due to the increase in bank acceptance bills received by Zhigan from its customer Wuhan Shendong.

The long-term equity investment at the end of this period was RMB 4,282,814.77, an increase of RMB 4,282,814.77 from the end of the previous year, mainly due to the partnership between Core Intelligence and Huapei

Due to the investment from Shanghai Huapei Nueng Zhixin Automotive Electronics Co., Ltd., a joint venture joint venture.

The construction in progress at the end of this period was 0 yuan, a decrease of 5,971,685.77 yuan or 100.00% compared with the end of the previous year. This was mainly due to the construction in progress of Wuxi Xinzhisen.

The process sensor production line was transferred to Shanghai Huapei Digital Intelligent Core Automotive Electronics Co., Ltd., a joint venture with Huapei Power.

The financing receivables at the end of this period was 115,047.59 yuan, an increase of 102,047.59 yuan from the end of the previous year, an increase of 784.98%, mainly from Wuhan

This was due to the increase in bank acceptance bills received by Shendong.

Prepayments at the end of this period were RMB 739,001.00, a decrease of RMB 1,158,729.43 or 61.06% from the end of the previous year, mainly due to the decrease at the end of the previous year.

The amount of advance payment is relatively large, because the relevant material purchases have been put into storage and part of the advance payment has been carried forward.

Other non-current assets at the end of the current period were 597,121.42 yuan, an increase of 369,191.89 yuan from the end of the previous year, an increase of 161.98%, mainly due to the

This was due to the increase in the amount prepaid by Xinzhisen to purchase long-term assets at the end of the current period.

Accounts payable at the end of the current period was 9,399,142.48 yuan, a decrease of 6,998,210.64 yuan, or 42.68%, from the end of the previous year. This was mainly due to the decrease in operating income during the period, which led to a decrease in the total amount of materials purchased, a decrease in service fees paid, and a decrease in the purchase of long-term assets payable, resulting in a decrease in the balance of accounts payable.

Caused by less.

Employee benefits payable at the end of this period were 235,947.80 yuan, a decrease of 1,984,220.98 yuan or 89.37% from the end of the previous year, mainly due to the

The bonus accrued at the end of the previous year was paid, and the balance at the end of this period does not involve bonuses.

The taxes payable at the end of this period are 103,511.06 yuan, a decrease of 998,119.31 yuan or 90.60% compared with the end of the previous year. This is mainly due to the tax paid during this period.

The value-added tax and surcharge at the end of the period were due to the decrease in income during the period and the decrease in related taxes at the end of the period.

Other payables at the end of this period were RMB 189,340.01, a decrease of RMB 102,170.48 or 35.05% from the end of the previous year, mainly due to the decrease at the end of the previous year.

This is due to the fact that the balance of employee reimbursements is larger than the balance at the end of the period.

At the end of this period, non-current liabilities due within one year were 1,738,582.56 yuan, an increase of 439,635.52 yuan from the end of the previous year, an increase of 33.85%.

Mainly due to the increase in lease liabilities due within one year and the reclassification of statement items.

Other current liabilities at the end of this period were 750,335.65 yuan, an increase of 594,280.83 yuan or 380.82% compared with the end of the previous year, mainly due to statement items

This is due to the increase in notes receivable that companies reclassified to this level have paid to suppliers but have not met the derecognition criteria.

The lease liability at the end of the current period was 208,479.27 yuan, a decrease of 720,037.72 yuan, or 77.55%, from the end of the previous year. This was mainly due to the loss of public funds during the reporting period.

After the company paid the lease payments and reclassified part of the payments to non-current liabilities due within one year, the decrease in lease payments payable beyond one year was

To.

Business situation analysis

(1) Profit composition

Unit: yuan for the current period and the same period last year

Items for the current period and the same period last year accounted for operating income accounted for operating income

Amount Amount Change in amount %

Proportion % Proportion %

Operating income 11,977,183.02 - 25,052,491.14 - -52.19% Operating cost 13,704,939.55 114.43% 19,998,968.74 79.83% -31.47%Gross profit margin -14.43% - 20.17% - -

Selling expenses 2,515,036.79 21.00% 3,313,767.76 13.23% -24.10% Administrative expenses 5,517,512.61 46.07% 5,424,180.14 21.65% 1.72% Research and development expenses 4,832,987.77 40.35% 5,451,816.27 21.76% -11.35%Financial expenses -585,749.46 -4.89% -276,921.23 -1.11% 111.52%Credit impairment loss 1,586,702.04 13.25% 1,448,897.46 5.78% 9.51% Asset impairment losses -948,418.68 -7.92% -678,387.28 -2.71% 39.80% Other income 24,434.24 0.20% 23,141.64 0.09% 5.59% Investment income -136,435.23 -1.14% - - -Changes in fair value - - - - -Income

Asset disposal income - - -5,513.05 -0.02% -100.00% Exchange income - - - - -Operating profit -13,817,079.80 -115.36% -8,467,949.67 -33.80% -63.17%Non-operating income - - - -

Non-operating expenses 4,946.08 0.04% 5,753.70 0.02% -14.04% Net profit -12,269,517.66 - -7,434,436.57 - -65.04% Taxes and surcharges 335,817.93 2.80% 396,767.90 1.58% -15.36% income tax expense -1,552,508.22 -12.96% -1,039,266.80 -4.15% -49.38%

Reasons for major changes in the project:

During the reporting period, operating income was 11,977,183.02 yuan, a decrease of 13,075,308.12 yuan or 52.19% compared with the same period last year, mainly due to the impact of the market

The reduction in field demand affects oil and gas recovery online monitoring, oil and gas recovery and treatment equipment, and ceramic capacitor pressure core business.

During the reporting period, operating costs were 13,704,939.55 yuan, a decrease of 6,294,029.19 yuan or 31.47% compared with the same period last year, mainly due to operating costs

The decrease in revenue was simultaneously caused by a decrease in operating costs.

During the reporting period, the gross profit margin was -14.43%, a decrease of 34.60 percentage points from 20.17% in the same period last year. This was mainly due to the decrease in the company’s operating income and the unit

This is due to an increase in the allocation of fixed manufacturing expenses borne by the product.

During the reporting period, financial expenses were -585,749.46 yuan (negative values represent income), an increase of 308,828.23 yuan over the same period last year, an increase of 111.52%.

This is mainly due to the increase in interest income due to the interest settlement period when the company and cooperative banks carry out deposit services such as fixed deposits.

During the reporting period, the asset impairment loss was -948,418.68 yuan (negative value is loss), an increase of 270,031.40 yuan compared with the loss in the same period last year.

39.80%, mainly due to the high production cost of core smart ceramic capacitor pressure cores and the provision for price decreases in inventories such as tertiary oil and gas recovery and processing devices.

Preparation is due to increase.

During the reporting period, investment income was -136,435.23 yuan, a decrease of 136,435.23 yuan compared with the same period last year, mainly due to the company's associate company Shanghai Huapei

Shuneng Zhixin Automotive Electronics Co., Ltd. suffered losses during the preparatory period, and the equity method accounted for the losses according to the investment ratio.

During the reporting period, the asset disposal income was 0 yuan, and the loss in the same period last year was 5,513.05 yuan, a decrease of 5,513.05 yuan compared with the same period last year.

100.00%, mainly due to the disposal of fixed assets in the same period last year.

During the reporting period, operating profit was -13,817,079.80 yuan, a decrease of 5,349,130.13 yuan or 63.17% compared with the same period last year, mainly due to the impact of the market

The reduction in market demand affected the operating income of the current period and caused a significant decrease.

During the reporting period, the net profit was -12,269,517.66 yuan, a decrease of 4,835,081.09 yuan or 65.04% compared with the same period last year. The reason was the same as "business

Profit".

During the reporting period, income tax expenses were -1,552,508.22 yuan, a decrease of 513,241.42 yuan or 49.38% compared with the same period last year, mainly due to the

The increase in deductible losses for income taxes resulted in an increase in the recognition of deferred income tax assets.

(2) Income composition

Unit: Yuan

Item Amount for the current period Amount for the previous period Change percentage %

Main business income 11,977,183.02 25,052,491.14 -52.19% Other business income - - - Main business cost 13,704,939.55 19,998,968.74 -31.47% Other business costs - - -

Analysis by product category:

Unit: Yuan Operating income ratio Operating cost ratio

Gross profit margin increased compared to the same period last year Category/Item Operating income Operating costs Gross profit margin % Same period last year

Increase or decrease over the same period

Increase or decrease % Decrease %

Oil and gas recovery and treatment decreased by 36.68 6,155,739.90 7,658,359.84 -24.41% -55.17% -36.43%

The oil and gas recovery percentage of management equipment decreased by 25.16 points.

3,537,565.13 2,810,600.49 20.55% -46.27% -21.37%

Line monitoring system ceramic capacitor voltage reduced by 75.75 points

1,442,698.84 2,554,027.52 -77.03% -53.91% -19.44%

Li core body liquid level measurement system decreased by 3.95% 649,763.98 626,351.15 3.60% -44.38% -42.01%

The number of testing services at the statistical points decreased by 11.59 191,415.17 55,600.55 70.95% -2.71% 61.84%

Intelligent network monitoring level decreased by 61.79 points - - - -100.00% -100.00%

Taiwan percentage points

Total 11,977,183.02 13,704,939.55 - - - -

Analysis by region:

Unit: Yuan

Operating income ratio Operating cost ratio

Gross profit margin compared to previous categories/items Operating income Operating costs Gross profit margin % Same period last year Same period last year

Increase/decrease over the same period of the year Increase/decrease % Increase/decrease %

Decrease by 4.48% Northwest region 3,496,434.20 3,101,463.99 11.30% -25.72% -21.77%

equinox

An increase of 8.77 in Southwest China 800,109.94 589,605.78 26.31% -70.59% -73.72%

equinox

Decreased by 48.26 East China regions 2,719,942.77 3,343,431.06 -22.92% -56.45% -28.29%

percentage points

42.35 fewer North China regions 1,801,819.61 1,998,075.48 -10.89% 26.67% 104.94%

percentage points

Decreased by 51.10 South China regions 952,171.74 1,124,652.66 -18.11% -80.16% -65.03%

percentage points

93.22 fewer Central China regions 1,438,120.69 2,806,217.25 -95.13% -47.23% 1.04%

percentage points

Decrease by 7.67% Northeast region 768,584.07 741,493.33 3.52% -68.40% -65.67%

equinox

Total 11,977,183.02 13,704,939.55 - - - -

Reasons for changes in revenue composition:

During the reporting period, the operating income of oil and gas recovery and treatment equipment was 6,155,739.90 yuan, a decrease of 7,575,624.23 yuan compared with the same period last year, a decrease of 55.17%.

Mainly due to the weak overall market demand, the company's sales revenue to various branches and subsidiaries of PetroChina decreased.

During the reporting period, the operating income of the oil and gas recovery online monitoring system was 3,537,565.13 yuan, a decrease of 3,046,076.68 yuan compared with the same period last year.

46.27%, mainly due to the decrease in the company's sales revenue to branches and subsidiaries of CNOOC and Sinopec due to the weak overall market demand.

During the reporting period, the operating income of ceramic capacitor pressure cores was 1,442,698.84 yuan, a decrease of 1,687,809.65 yuan or 53.91% from the same period last year.

Mainly due to the decrease in purchasing volume from Wuhan Shendong, the main downstream customer of the product.

During the reporting period, the operating income of the liquid level measurement system was 649,763.98 yuan, a decrease of 518,484.90 yuan or 44.38% compared with the same period last year.

This is mainly due to the decline in the company's sales to CNOOC branches and subsidiaries due to the weak overall market demand.

During the reporting period, the operating income of the smart network monitoring platform was 0 yuan, a decrease of 241,981.29 yuan or 100.00% compared with the same period last year, mainly due to

The smart network platform contract expired in this period, and there is no new contract for this product in this period.

During the reporting period, the operating income of the southwest region was 800,109.94 yuan, a decrease of 1,920,307.90 yuan or 70.59% compared with the same period last year, mainly due to a decrease of 70.59%.

This is due to the decrease in market demand for the oil and gas recovery and treatment business of PetroChina branches and subsidiaries in the region.

During the reporting period, the operating income in East China was RMB 2,719,942.77, a decrease of RMB 3,525,073.39 or 56.45% compared with the same period last year.

This is mainly due to the reduced market demand for oil and gas recovery and treatment equipment and oil and gas recovery online monitoring services in the region.

During the reporting period, the operating income of South China was 952,171.74 yuan, a decrease of 3,847,951.24 yuan or 80.16% compared with the same period last year, mainly due to

This is due to the decrease in the oil and gas recovery online monitoring business of Sinopec and CNOOC branches and subsidiaries in the region.

During the reporting period, the operating income in Central China was 1,438,120.69 yuan, a decrease of 1,287,118.30 yuan or 47.23% compared with the same period last year.

This is mainly due to the decrease in the business of Wuhan Shendong, the company's main customer for ceramic capacitor pressure cores in this region.

During the reporting period, the operating income of the Northeast region was 768,584.07 yuan, a decrease of 1,663,700.23 yuan or 68.40% compared with the same period last year, mainly due to

This is due to the decrease in revenue from PetroChina Shenyang oil and gas recovery and treatment equipment in this region.

Cash flow status

Unit: Yuan

Item Amount for the current period Amount for the previous period Change ratio % Net cash flow generated from operating activities -2,133,153.21 -3,666,080.92 41.81% Net cash flow generated from investing activities -537,158.00 -2,932,874.25 81.68% Net cash flow generated from financing activities 6,620,799.41 -847,646.31 881.08%

Cash flow analysis:

During the reporting period, the company’s net cash flow generated from operating activities was -2,133,153.21 yuan, an increase of 1,532,927.71 yuan compared with the same period last year.

The increase was 41.81%, mainly due to the decrease in operating income in the current period. The company’s cash for purchasing goods and accepting labor services decreased significantly, which offset the decline in sales.

This is due to the decrease in cash received from selling goods and providing services, and at the same time, the service fees paid to service providers are correspondingly reduced due to the decrease in operating income.

During the reporting period, the company’s net cash flow generated from investment activities was -537,158.00 yuan, an increase of 2,395,716.25 yuan compared with the same period last year.

The increase was 81.68%, mainly due to the decrease in equipment purchased by Core Intelligence during the reporting period.

During the reporting period, the company’s net cash flow generated from financing activities was 6,620,799.41 yuan, an increase of 7,468,445.72 yuan compared with the same period last year.

The increase of 881.08% was mainly due to the fact that the subsidiary Xinzhi Sensing received an investment of 7.5 million yuan from the new shareholder Huapei Power in this period.

Investment in financial products

□Applicable √Not applicable

Investment status of private equity investment funds

□Applicable √Not applicable

8. Analysis of major holding and participating companies

(1) Operations of major subsidiaries and joint-stock companies

√Applicable □Not applicable

Unit: Yuan

public

Company name Division Main business

Registered capital Total assets Net assets Operating income Net profit

Type

Beijing Central

gas station

ring walker sub

Oil and gas return

Sri Lanka Testing Company 488,652.04 -4,091,174.66 266,226.28 -812,226.66

Received inspection 5,000,000.00

Technology company

Testing service

Ltd.

Oil and gas return

Collection and management

Xi'an Ai

and monitoring

staiko sub

system group

Environmental Technology Company 968,921.66 961,874.77 367,514.10 -75,654.32

Installation and sales 10,000,000.00

Technology Co., Ltd.

sold as well

company

Maintenance industry

service

Electronic components and

Mechanical and electrical components Wuxi core parts

son

Intelligent Sense Science manufactures and sells

Company 12,500,000.00 30,335,360.26 -16,267,643.29 1,442,698.84 -5,297,536.76 Technology Limited Sales, Collective

Division

Company Integrated circuit design, manufacturing and sales

The main business is passing on

Sensor total Shanghai Hua

Into and glass fiber number energy parameter

Liweirong Intelligent Automobile Co., Ltd.

Core body, etc. 22,290,000.00 14,412,336.22 11,964,465.91 4,539.20 -454,784.09Automotive Electronics Company

of research

Co., Ltd.

hair, health department

production, sales and transportation

camp.

Business analysis of major joint stock companies √Applicable □Not applicable

Company name Relevance to the company's business Purpose of holding Shanghai Huapei Digital Intelligent Core Automotive Electronics Co., Ltd. Digital Intelligent Core, a subsidiary of the company Xin Zhisen, holds shares in order to enhance sensor cores and assemblies.

(2) Acquisition and disposal of subsidiaries during the reporting period

□Applicable √Not applicable

Has the scope of consolidation in the consolidated financial statements changed? Yes √ No

Structured entities controlled by the company

□Applicable √Not applicable

Explanation of key audit matters

□Applicable √Not applicable

Corporate Social Responsibility

(1) Consolidation of poverty alleviation results and fulfillment of social responsibilities for rural revitalization

□Applicable √Not applicable

(2) Performance of other social responsibilities

√Applicable □Not applicable

As an environmental protection technology company, Henghe Co., Ltd. has always paid attention to environmental protection and governance. It has long been committed to the treatment and monitoring of atmospheric pollutants VOCs, and always puts social responsibility first. Over the years, the company has operated with integrity, paid taxes in accordance with the law, had the courage to innovate, focused on talent training and provided employee benefits, and fulfilled its corporate social responsibilities. The company adheres to the combination of independent innovation and the introduction of advanced technology, continues to carry out technological innovation, improves management levels, provides more comprehensive and efficient means for the comprehensive prevention, control and monitoring of atmospheric pollutants VOCs, and contributes to the progress of social civilization and sustainable development of the environment.

(3) Situations related to environmental protection

□Applicable √Not applicable

12. No profit or accumulated unrecovered losses during the reporting period

√Applicable □Not applicable

During the reporting period, the company achieved operating income of 11,977,183.02 yuan, a year-on-year decrease of 52.19%; net profit attributable to shareholders of listed companies -9,232,312.61 yuan, a year-on-year decrease of 66.28%; net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses -9,230,395.51 yuan, a year-on-year decrease of 66.41%.

(1) Analysis of the company’s unprofitable performance during the reporting period

Oil and gas recovery management and monitoring business

(1) Impact of customer industry

During the reporting period, due to the impact of macroeconomics and the slow pace of implementation of industry policies, coupled with the decline in traditional business investment in the petrochemical industry due to the transformation of new energy, the company faced multiple challenges such as declining market demand, narrowing space for business growth, and intensified low-price competition, resulting in a decline in the company's oil and gas recovery management and monitoring business.

(2) Impact of seasonal fluctuations in income

The company's customers are concentrated in the petroleum and petrochemical industry. The implementation of projects in this industry itself has certain seasonality, generally concentrated in the second half of the year. Petroleum and petrochemical companies formulate annual capital investment plans based on operating conditions, policy requirements, and planning needs. Based on the approval of the annual investment plan, the procurement demand and investment plan for the whole year will be made in the first quarter of the year. In the second quarter, internal applications for procurement and demand plans will be made and the rationality and urgency of the investment plan will be discussed. As a result, the company will receive more orders in the third and fourth quarters, and the income distribution will have seasonal characteristics.

Ceramic capacitor pressure core business

(1) During the reporting period, Xinzhigan's main products were ceramic capacitor cores, and its main customers were relatively concentrated. Other new customers were still in the small-batch procurement stage and had not yet achieved large-volume orders, resulting in the company's overall ability to resist market fluctuations being weak.

(2) During the reporting period, industry involution intensified, and the sales price and sales volume of Xinzhisen ceramic capacitor pressure cores declined; production capacity utilization was insufficient, resulting in an increase in the manufacturing cost of a single product. At the same time, affected by rising raw material prices, product costs increased; continuous R&D investment failed to translate into sufficient income in the short term.

(3) Xinzhisen products are automotive-grade products, and their main customers are car companies and their Tier 1 suppliers. The quality requirements for automotive-grade products are very stringent, resulting in a large number of tests and verifications required for the products from R&D and sample production to batch installation and sales, which need to be carried out separately. Bench test and loading test, multiple rounds of functional testing, durability testing, environmental adaptability testing, anti-interference testing, and finally production verification and mass production evaluation before it can be officially loaded into the vehicle. The entire testing and verification cycle takes one and a half to two years. Therefore, in the automotive industry, the cycle from research and development to achievement transformation of car-grade products is relatively long.

(2) Measures to improve profitability

Steadyly improve the main business and expand the market for oil and gas processing and online monitoring products

We will continue to do a good job in the main business of oil and gas recovery and online monitoring, and expand into upstream fields such as petroleum and petrochemical oil field exploitation and oil storage. The company focuses on the two core scenarios of gas stations and oil storage depots, focuses on promoting the core products of oil and gas processing devices and oil and gas recovery online monitoring systems, and continues to follow up on the normal centralized procurement projects of PetroChina, Sinopec, and CNOOC.

Actively cultivate new business

On the basis of consolidating the existing main business operations, the company will actively explore new business opportunities around the upstream and downstream of the industrial chain and the same technology areas, enhance the company's ability to continue operating, and steadily improve revenue and profitability.

Relying on independently developed skid-mounted oilfield associated gas recovery and treatment equipment and mature compression, condensation, and membrane separation core processes, the company strives to promote the marketization of the oilfield associated gas business and hedge against the shrinkage risk of the traditional oil and gas environmental protection equipment market.

Reduce costs, increase efficiency, and improve benefits

By accelerating the transformation of research and development results, we optimize production processes and reduce manufacturing costs, while strengthening supply chain management and cost and expense control to achieve the goal of cost reduction and efficiency improvement.

Steadyly promote the business development of the controlled subsidiary Xinzhisen

(1) Carry out strategic cooperation with industry customers to achieve coordinated industrial development

On February 9, 2026, the holding subsidiary Xinzhisen and Huapei Power jointly invested in the establishment of a joint venture company, Shanghai Huapei Digital Energy Intelligent Core Automotive Electronics Co., Ltd. (hereinafter referred to as "Huapei Digital Energy"), mainly engaged in the research and development, production and sales of ceramic capacitive pressure sensors. At the same time, Huapei Power made an equity investment in Xin Zhisen, holding 20% of the equity in Xin Zhisen, becoming a strategic shareholder of Xin Zhisen, which will help enhance Xin Zhisen's R&D and manufacturing capabilities. Huapei Power has been in the field of automotive sensors for many years, and has mature sales channels and customer service systems. With its long-term accumulation of car company supplier qualifications and car company supply qualifications, Huapei Power maintains cooperation with mainstream car companies at home and abroad. After Core Intelligence and Huapei Power established a joint venture, both parties will leverage their respective advantages to achieve industrial synergy, thereby bringing sustained investment returns to Core Intelligence.

The joint venture has basically completed the assembly and debugging of production equipment and the technical verification of sensor assemblies. It has now begun the verification of products on complete vehicles, platform confirmation, and customer factory audits, steadily advancing the sensor business.

(2) Steady expansion of ceramic capacitor core business

During the reporting period, Core Intelligence has achieved initial results in developing new customers. It has obtained supplier qualification certification from a domestic new energy thermal management system company and obtained a test sample order from Huapei Power. In the second half of the year, it will continue to strengthen the development of new customers to ensure the steady development of the company's core business.

13. Forecast of operating performance from January to September 2026

□Applicable √Not applicable

14. Risks faced by the company and countermeasures

Name of major risk matters Risks faced by the company and countermeasures

Description of major risk matters: The company's main business is VOCs control and monitoring equipment, and its business development is directly affected by environmental protection policies. If national and local policy implementation in the fields of VOCs, PM2.5 and other pollution control areas weakens, emission reduction targets are adjusted, or standards are upgraded, it may lead to fluctuations in market demand, prolonged project cycles, and the risk of changes in industrial policies, thereby affecting the stability of the company's performance.

Countermeasures: Closely track environmental protection policies in key areas and develop targeted treatment plans that meet local standards. We will continue to invest in research and development to create high-precision equipment that meets the requirements of modern ecological environment monitoring, promote the integration of oil and gas management and monitoring technologies, and expand new application scenarios for refining and oilfield associated gas recovery.

Description of major risk matters: Currently, VOCs governance industry policies are becoming stricter and intelligent upgrades are accelerating. However, fierce market competition has put pressure on profits. Low-price competition is common in the industry, coupled with low-price bidding by customers, compressing corporate profit margins; at the same time, differences in local policy implementation lead to demand fluctuations, affecting order stability. If the company cannot make breakthroughs in key areas such as intelligent upgrades, cost control and service response, it may face market competition risks, market share and profit decline risks.

Countermeasures: The company will continue to track industry policy trends, focus on policy-intensive areas such as Beijing, Tianjin and Hebei, and establish regional customized solutions. Through technological innovation, we meet the requirements of modern monitoring systems, while optimizing the supply chain, reducing costs, actively promoting the construction of online channels, covering the needs of small and medium-sized customers, and enhancing market competitiveness.

Description of major risk matters: Affected by the characteristics of the environmental protection industry and the procurement characteristics of downstream petroleum and petrochemical enterprises, the company's main business income shows seasonal characteristics. Since most of the company's major customers, large petroleum and petrochemical companies, focus on public bidding for environmental protection equipment and services in the second half of the year, customer orders are mainly concentrated in the third and fourth quarters of the risk of seasonal fluctuations in operations, which will have a greater impact on the balance of the company's main business income.

Countermeasures: The company will actively explore the upstream market, increase customers with different procurement cycles, and diversify market risks; at the same time, it will vigorously promote service businesses such as operation and maintenance to increase stable recurring income to smooth seasonal fluctuations.

Whether major risks occur in this period

There have been no major changes in major risks during this period.

Major changes:

Section 4 Major Events

1. Index of major events

Matter Yes or No Index whether there is any litigation or arbitration matter □Yes √No 4.2. (1) Whether there is any matter of providing guarantee □Yes √No

Whether to provide external loans □Yes √No

Is there any situation where shareholders and their related parties occupy or transfer the company’s funds, assets and other resources? □ Yes √ No 4.2. (2) Sources

Whether there are any major related transactions √ Yes □ No 4.2. (3) Whether there are acquisitions, sales of assets, external investments, etc. that have been reviewed and approved by the shareholders’ meeting □ Yes √ No

and business mergers that occurred during the reporting period

Is there an equity incentive plan, employee stock ownership plan or other employee incentive measures? Yes √No

Is there any share repurchase matter □Yes √No

Whether there are any disclosed commitments √Yes □No 4.2.(4) Whether there are assets that have been sealed, detained, frozen or mortgaged or pledged √Yes □No 4.2.(5) Whether there are matters subject to investigation and punishment □Yes √No

Is there any breach of trust? □Yes √No

Are there any major contracts that should be disclosed? Yes √No

Are there any other major matters that should be disclosed? Yes √No

Are there any other matters voluntarily disclosed? Yes √ No

2. Details of major events

(1) Litigation and arbitration matters

The company had no major litigation or arbitration matters during the reporting period

(2) Occupation or transfer of company funds, assets and other resources by shareholders and their related parties

During the reporting period, the company did not have any shareholders or its related parties occupying or transferring the company's funds, assets and other resources.

(3) Major related transactions of the company during the reporting period

Whether the company expects daily related transactions

√Yes □No

Unit: Yuan

Specific event type Estimated amount Amount incurred 1. Purchase raw materials, fuel, power, and receive labor services - - 2. Selling products and commodities, providing services 8,000,000.00 961,480.50 3. The types of daily related transactions applicable to the company are stipulated in the company's articles of association - - 4. Others - -

Major daily related transactions

√Applicable □Not applicable

Unit: Yuan

market price and whether market price and

Related large sales temporary business

Transaction Pricing Transaction Settlement Party Transaction Price Transaction Price and Large Amount

Transaction Transaction amount Sales return Report disclosure price Principle Contents Form Whether there is a larger sales return

party situation time

Big Difference in Bigger Back

The reason for the gap

Wuhan city

God moves on the field

Sales

Car similar

Ceramic Bank commits to e-competition in 2026

961,480.50 Capacitor Exchange of draft No Not applicable No Not applicable January 27 Electrical Appliance Maker

Pressure is the main day stock is the reference

Core

Limited test anchor

company point

Related transactions arising from asset or equity acquisition and sale

□Applicable √Not applicable

Related transactions involving joint external investments with related parties

□Applicable √Not applicable

Debt and credit transactions with related parties

√Applicable □Not applicable

Unit: Yuanbao

Table: Reasons for the formation of temporary announcements to the company during the current period: Related parties' claims and debts: opening balance, closing balance

Reason Amount Cause Influence Disclosure Time Item

This related transaction is necessary for the daily operations of the company's holding subsidiaries. It is not only commercially reasonable but also based on fair market prices and follows the core principles of Wuhan Shen Public Company.

Electric vehicles should be treated with fairness, justice and intelligence

Principles of electronic electricity collection, 2026 1 200,000.00 564,965.05 764,965.05 Sales of ceramics

There is no loss of capacitor pressure on the 27th of the month.

Limited liability company and core body formation

The interests of the company's shareholders will not affect the company's independence, nor will it have a significant adverse impact on the company's production, operations and financial status. Wuhan God

Electric vehicles should

Electronics revenue 2026 1 4,077,315.11 -610,256.26 3,467,058.85 Same as above Same as above

Instrument shares account limited public funds on 27th of the month

Division

Wuhan Shen Ying

Motor vehicle collection

Electronics 2026 1 - 114,047.59 114,047.59 Same as above Same as above

Equipment Co., Ltd. Xiang Yue 27th Co., Ltd.

Division capital

Core wisdom and sense

in research

development, production

its

Wuxi core preparation stage

him

Intellectual and sensory department, need 2022 7 should 20,000,000.00 - 20,000,000.00 Same as above

Limited technical funds. Payment will be collected on the 4th of the month.

The company insists on its

money

Offer period

for three years

borrow money

its

Wuxi core

He lent 2000

Zhiganke 2022 7 should be 1,600,000.00 -400,000.00 1,200,000.00 yuan amount Same as above

Technology Limited will collect interest on the 4th of the month.

company

money

Related transactions are necessary for the company's daily operations and follow the principles of openness, fairness and impartiality.

There is no need to damage its business operations

Wuxi Core harms the company and others and requires funds to be spent

Zhiganke Shareholders of the company November 2023 should 20,000,000.00 - 20,000,000.00 hold, to its

Limited technology. Benefit information. Received on the 16th of the month. Offer period

Due to the current situation of the company, the payment will not be made for three years.

Borrowing money from the company

It will not have an impact on the company's independence and will not have any adverse impact on the company's daily operations.

Wuxi core loan 2000

November 2023 Zhiganke He 1,105,367.15 65,683.07 1,171,050.22 million yuan Same as above

Interest due on the 16th of the month

company collect

money

Matters concerning guarantees provided by related parties to the company

□Applicable √Not applicable

Deposits, loans, credits or other transactions between the company and related financial companies, or financial companies controlled by the company and related parties.

Other financial services

□Applicable √Not applicable

Other major related transactions

□Applicable √Not applicable

(4) Performance of commitments

Whether the company has added any new commitments

□Applicable √Not applicable

Details of commitments:

During the reporting period, the company had no new commitments, and none of the disclosed commitments were overdue and unfulfilled. The committers performed their commitments normally, and there was no breach of commitments. For details of the disclosed commitments, please refer to "Part 9 Important Commitments" in "Section 4 Basic Information of the Issuer" in the Company's "Public Offering Prospectus".

(5) Assets that have been seized, detained, frozen or mortgaged or pledged

Unit: Yuan Rights Restricted Category Ratio of Total Assets

Asset name Asset category Book value Reason for occurrence

Type Example%

Monetary funds Monetary funds Guarantee deposit 1,431,300.00 0.56% Guarantee deposit

ETC tolls

Monetary funds Monetary funds 2,400.00 0.00% Apply for ETC margin deposit

Total - - 1,433,700.00 0.56% -

The impact of restricted asset rights on the company:

During the reporting period, the margin is required for the company's normal operations and will not have an adverse impact on the company.

Section 5 Share Changes and Financing

1. Common stock capital situation

(1) Common stock capital structure

Unit: Shares at the beginning of the period and at the end of the period

Nature of shares Changes in the current period

Quantity Proportion % Quantity Proportion %

Total number of shares without trading limit 48,593,000 68.88% 239,250 48,832,250 69.22% without trading limit Among them: controlling shareholder, actual control

7,000,000 9.92% 0 7,000,000 9.92% conditional shares Person

Shares Directors and senior executives 0 0% 67,500 67,500 0.10% Core employees 447,482 0.63% 19,804 467,286 0.66%

Total number of shares subject to sale restrictions 21,957,000 31.12% -239,250 21,717,750 30.78% shares subject to sale restrictions Including: controlling shareholder, actual control

21,000,000 29.77% 0 21,000,000 29.77% conditional shares Person

Shares Directors and senior executives 270,000 0.38% -67,500 202,500 0.29% Core employees 0 0% 0 0 0% Total share capital 70,550,000 - 0 70,550,000 -

Number of common shareholders 3,790

Changes in share capital structure:

□Applicable √Not applicable

(2) Shareholders holding more than 5% of the shares or the top ten shareholders

Unit: Share

Held at the end of the period Restricted for holdings at the end of the period Unlimited holdings at the end of the period Name of shareholder Nature of shareholder Number of shares held at the beginning of the period Changes in shareholdings Number of shares held at the end of the period

Share ratio % Number of shares Number of shares sold 1 Wang Lin Domestic natural person 17,150,000 0 17,150,000 24.31% 12,862,500 4,287,500 2 Li Yujian Domestic natural person 10,850,000 0 10,850,000 15.38% 8,137,500 2,712,500 3 Chen Fashu Domestic natural person 5,703,000 0 5,703,000 8.08% 0 5,703,000 4 Duan Juanjuan Domestic natural person 5,250,000 0 5,250,000 7.44% 0 5,250,000 5 Gong Daoyong Domestic natural person 1,000 1,197,841 1,198,841 1.70% 0 1,198,841 6 Chen Liya Domestic natural person 665,000 0 665,000 0.94% 498,750 166,250 7 Chen Yanhui Domestic natural person 620,000 0 620,000 0.88% 0 620,000 8 Zhang Tao Domestic natural person 35,979 562,565 598,544 0.85% 0 598,544 9 Liu Jianwen Domestic natural person 491,514 8,486 500,000 0.71% 0 500,000 10 Wang Miaonan Domestic natural person 447,256 0 447,256 0.63% 0 447,256

Total - 41,213,749 1,768,892 42,982,641 60.92% 21,498,750 21,483,891Explanation on the relationship between shareholders holding more than 5% of the shares or the top ten shareholders:

Li Yujian and Wang Lin are husband and wife; Chen Fashu and Chen Yanhui are father and son.

Whether shareholders holding more than 5% of the shares or the top ten shareholders have pledged or judicially frozen shares

□Applicable √Not applicable

Situations in which investors become the top ten shareholders by subscribing for the company's publicly issued shares:

□Applicable √Not applicable

Information about the top ten shareholders without selling restrictions

√Applicable □Not applicable

Unit: Share

Information about the top ten shareholders without selling restrictions

Serial number Shareholder name Number of shares without selling restrictions held at the end of the period

1 Chen Fashu 5,703,000 2 Duan Juanjuan 5,250,000 3 Wang Lin 4,287,500 4 Li Yujian 2,712,500 5 Gong Daoyong 1,198,841 6 Chen Yanhui 620,000 7 Zhang Tao 598,544 8 Liu Jianwen 500,000 9 Wang Miaonan 447,256 10 Luo Shuai 432,533

2. Changes in controlling shareholders and actual controllers

□Applicable √Not applicable

Whether there is an actual controller:

√Yes □No

The actual controller and its persons acting in concert hold shares with voting rights in the company

28,000,000 (shares)

Ratio of the company’s voting rights held by the actual controller and its persons acting in concert

39.69% cases (%)

3. Issuance of common shares and use of raised funds during the reporting period

Issuance of common shares during the reporting period

(1) Public issuance status

□Applicable √Not applicable

(2) Directed issuance situation

□Applicable √Not applicable

Details of use of raised funds:

This issuance raised a total of 156,400,000 yuan, with issuance expenses of 21,963,962.26 yuan, and the net amount of funds raised was 134,436,037.74

Yuan, self-raised funds were pre-invested in the replacement and raised project expenses amounting to 4,755,936.13 yuan.

The balance of raised funds at the beginning of 2026 was 30,128,483.17 yuan, and the total amount of raised funds invested during the reporting period was 2,975,976.65 yuan.

The interest income is 32,951.49 yuan, and the remaining 14.000.000.00 yuan of raised funds will be permanently replenished as working capital. As of June 30, 2026, the balance of raised funds is 13,185,458.01 yuan.

The company has formulated a "Raised Fund Management System" to supervise and manage the use of raised funds in accordance with the existing fund management system and approval authority to ensure that the raised funds are used in accordance with the purposes specified in the "Public Offering Instructions".

There is no situation in which the controlling shareholder, actual controller or other related parties will occupy or transfer the funds raised in this public issuance of shares, nor is there any situation in which the funds raised in this stock issuance are used before the completion of share registration.

4. Relevant information on preference shares surviving to the current period

□Applicable √Not applicable

Bond financing that lasts to the date of approval of the interim report □Applicable √Not applicable

6. Convertible corporate bonds surviving to the current period

□Applicable √Not applicable

7. Equity distribution

□Applicable √Not applicable

Whether the equity distribution plan during the reporting period complies with the company's articles of association and relevant laws and regulations √ Yes □ No

Audit status of interim financial accounting report:

□Applicable √Not applicable

8. Arrangements for special voting rights

□Applicable √Not applicable

Section 6 Changes in Directors, Senior Management and Core Employees

1. Directors and senior managers

(1) Basic situation

Start and end date of appointment

Name Position Gender Date of Birth

Start Date End Date Li Yujian Chairman and General Manager Male December 1965 November 15, 2023 November 14, 2026 Wang Lin Director and Deputy General Manager Female June 1965 November 15, 2023 November 14, 2026 Yin Yancheng Director Male April 1971 November 15, 2023 November 14, 2026 Qu Kai Independent Director Male May 1970 November 15, 2023 November 14, 2026 Zong Chengyong Independent Director Male May 1973 November 15, 2023 November 14, 2026 Jia Kebin Independent Director Male August 1962 November 15, 2023 November 14, 2026 Xu Jingning Director Female June 1979 September 16, 2025 November 14, 2026 Xu Jingning Secretary of the Board of Directors Female June 1979 November 15, 2023 November 14, 2026 Li Yongzhen Financial Manager Male June 1977 November 15, 2023 November 14, 2026 Board of Directors: 7

Number of senior managers: 4

Relationship between Directors, Senior Management and Shareholders:

Li Yujian and Wang Lin are husband and wife; apart from this, there is no related relationship between the above-mentioned directors and senior managers.

(2) Shareholding status

Unit: shares held at the end of the period, vested at the end of the period

The number of common stocks held at the end of the period at the end of the period and the number of common stocks held at the end of the period are restricted.

Name Position Number of common shares held Unlimited shares Change Number of common shares Number of options Number of non-tradable shares

Share Ratio % Number of Shares Quantity

Chairman, General Manager

Li Yujian 10,850,000 0 10,850,000 15.38% 0 0 2,712,500 Manager

Director, Vice President

Wang Lin 17,150,000 0 17,150,000 24.31% 0 0 4,287,500

manager

Yin Yancheng Director 0 0 0 0% 0 0 0

Qu Kai Independent Director 0 0 0 0% 0 0 0 Zong Chengyong Independent Director 0 0 0 0% 0 0 0 Jia Kebin Independent Director 0 0 0 0% 0 0 0

director, director

Xu Jingning 0 0 0 0% 0 0 0

secretary

Li Yongzhen Financial Manager 0 0 0 0% 0 0 0

Total - 28,000,000 - 28,000,000 39.69% 0 0 7,000,000

(3) Changes

Has the chairman of the board changed? □Yes √No

Has the general manager changed? □Yes √No

Information Statistics Whether the Secretary of the Board of Directors has changed? Yes √No

Has there been any change in the financial director? □Yes √No

Are there any changes in independent directors? □Yes √No

Details of changes in directors and senior management during the reporting period:

□Applicable √Not applicable

The professional background and main work experience of the new directors and senior managers during the reporting period:

□Applicable √Not applicable

(4) Equity incentives

□Applicable √Not applicable

2. Employee situation

(1) Basic information of current employees (the company and its holding subsidiaries)

Classification by nature of work Number of people at the beginning of the period New in this period Decreased in this period Number of people at the end of the period Management and operation personnel 26 0 1 25 Engineering and production personnel 64 7 9 62 Sales personnel 12 0 0 12 R&D personnel 25 0 3 22 Total employees 127 7 13 121

Classification by education level Number of people at the beginning of the term Number of people at the end of the term Ph.D. 0 0

Master 9 7

Undergraduate 45 44

Specialist 38 36

Junior college or below 35 34

Total employees 127 121

(2) Basic information and changes of core personnel (the company and its holding subsidiaries)

√Applicable □Not applicable

Item Number of people at the beginning of the period Newly added in this period Decreased in this period Number of people at the end of the period

Core employees 10 0 0 10

Changes in core personnel:

During the reporting period, there were no changes in core employees.

3. Updates after the reporting period

□Applicable √Not applicable

Section 7 Financial Accounting Report

1. Audit report

Whether to audit No

2. Financial statements

(1) Consolidated balance sheet

Unit: Yuan

Item Notes June 30, 2026 Current assets as of December 31, 2025:

Monetary funds 5. 1 94,269,238.37 90,018,750.17 Settlement reserve fund

Loan funds

trading financial assets

Derivative financial assets

Notes receivable 5. 2 726,716.79 190,000.00 Accounts receivable 5. 3 35,744,446.35 49,974,617.08 Accounts receivable financing 5. 4 115,047.59 13,000.00 Prepayments 5. 5 739,001.00 1,897,730.43 premiums receivable

Reinsurance accounts receivable

Receivable reinsurance contract reserves

Other receivables 5.6 1,289,928.92 1,447,458.23 Including: interest receivable

Dividends receivable

Buy financial assets under resale agreements

Inventory 5.7 15,733,762.18 16,783,125.72 Including: data resources

contract assets

Assets held for sale

Non-current assets due within one year

Other current assets 5.8 3,159,418.14 3,146,753.89

Total current assets 151,777,559.34 163,471,435.52 Non-current assets:

Granting loans and advances

debt investment

Other debt investments

long-term receivables

Long-term equity investment V.9 4,282,814.77 - Other equity instrument investments

Other non-current financial assets

investment real estate

Fixed assets V. 10 83,967,555.02 86,426,121.70 Construction in progress V. 11 - 5,971,685.77 Productive biological assets

oil and gas assets

Right-of-use assets V. 12 1,902,937.00 2,278,881.46 Intangible assets V. 13 - - Including: data resources

development expenditure

Among them: data resources

goodwill

Long-term deferred expenses V. 14 3,260,898.25 3,481,832.40 Deferred income tax assets V. 15 8,242,373.25 6,689,865.03 Other non-current assets V. 16 597,121.42 227,929.53 Total non-current assets 102,253,699.71 105,076,315.89

Total assets 254,031,259.05 268,547,751.41 Current liabilities:

short term borrowing

Borrow from the central bank

borrowing funds

Trading financial liabilities

Derivative financial liabilities

Notes payable

Accounts payable 5. 18 9,399,142.48 16,397,353.12 Advance receipts

Contract liabilities 5. 19 176,459.04 154,590.96 Financial assets sold and repurchased

Taking deposits and placing deposits with other banks

Agent for buying and selling securities

Agent underwriting securities funds

Employee benefits payable V. 20 235,947.80 2,220,168.78 Taxes payable V. 21 103,511.06 1,101,630.37 Other payables V. 22 189,340.01 291,510.49 Including: interest payable

Dividends payable

Handling fees and commissions payable

Reinsurance accounts payable

Liabilities held for sale

Non-current liabilities due within one year V. 23 1,738,582.56 1,298,947.04 Other current liabilities V. 24 750,335.65 156,054.82

Total current liabilities 12,593,318.60 21,620,255.58 Non-current liabilities:

insurance contract reserves

long term borrowing

bonds payable

Among them: preferred shares

perpetual bond

Lease liabilities 5. 25 208,479.27 928,516.99 Long-term payables

Long-term employee benefits payable

Estimated liabilities

deferred income

Deferred income tax liabilities V. 15 - - Other non-current liabilities

Total non-current liabilities 208,479.27 928,516.99

Total liabilities 12,801,797.87 22,548,772.57 Owners’ equity (or shareholders’ equity):

Equity V. 26 70,550,000.00 70,550,000.00 Other equity instruments

Among them: preferred shares

perpetual bond

Capital reserve V. 27 152,972,931.52 148,236,043.94 Less: treasury shares

other comprehensive income

special reserve

Surplus reserve V. 28 13,901,440.12 13,901,440.12 General risk reserve

Undistributed profits 5. 29 14,659,534.36 23,891,846.97 Owners’ equity (or shareholders’ equity) attributable to the parent company 252,083,906.00 256,579,331.03 Total

Minority interests -10,854,444.82 -10,580,352.19

Total owners’ equity (or shareholders’ equity) 241,229,461.18 245,998,978.84 Total liabilities and owners’ equity (or shareholders’ equity) 254,031,259.05 268,547,751.41 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

(2) Balance sheet of the parent company

Unit: Yuan

Item Notes June 30, 2026 Current assets as of December 31, 2025:

Monetary funds 90,632,971.91 88,033,108.47 Trading financial assets

Derivative financial assets

Notes receivable

Accounts receivable 17.1 32,001,906.74 46,052,089.83 Accounts receivable financing 1,000.00 13,000.00 Prepayments 736,278.23 1,745,456.76 Other receivables 17.2 47,932,489.47 47,820,855.71 of which: interest receivable

Dividends receivable

Buy financial assets under resale agreements

Inventory 13,947,759.99 15,451,217.07 Including: data resources

contract assets

Assets held for sale

Non-current assets due within one year

Other current assets 490,398.61 1,661.94

Total current assets 185,742,804.95 199,117,389.78 Non-current assets:

debt investment

Other debt investments

long-term receivables

Long-term equity investment 17.3 16,200,000.00 16,200,000.00 Other equity instrument investments

Other non-current financial assets

investment real estate

Fixed assets 71,134,659.42 72,622,712.84 Construction in progress

productive biological assets

oil and gas assets

Right-of-use assets 739,748.80 688,479.82 Intangible assets

Among them: data resources

development expenditure

Among them: data resources

goodwill

Long-term deferred expenses 3,199,643.10 3,481,832.40 Deferred income tax assets 8,226,383.52 6,671,983.71 Other non-current assets 256,627.26 - Total non-current assets 99,757,062.10 99,665,008.77

Total assets 285,499,867.05 298,782,398.55 Current liabilities:

short term borrowing

Trading financial liabilities

Derivative financial liabilities

Notes payable

Accounts payable 7,625,035.01 12,066,484.77 Advance payments

Contract liabilities 176,459.04 154,590.96 Financial assets sold and repurchased

Employee benefits payable 207,478.85 1,616,199.83 Taxes payable 72,231.87 1,058,935.37 Other payables 151,622.09 266,524.53 Including: interest payable

Dividends payable

Liabilities held for sale

Non-current liabilities due within one year 304,744.18 295,637.58 Other current liabilities 45,283.20 -

Total current liabilities 8,582,854.24 15,458,373.04 Non-current liabilities:

long term borrowing

bonds payable

Among them: preferred shares

perpetual bond

Lease liabilities - 312,193.75 long-term payables

Long-term employee benefits payable

Estimated liabilities

deferred income

Deferred income tax liability

Other non-current liabilities

Total non-current liabilities - 312,193.75

Total liabilities 8,582,854.24 15,770,566.79Owner’s equity (or shareholders’ equity):

Share capital 70,550,000.00 70,550,000.00 Other equity instruments

Among them: preferred shares

perpetual bond

Capital reserve 148,236,043.94 148,236,043.94 Less: treasury shares

other comprehensive income

special reserve

Surplus reserve 13,901,440.12 13,901,440.12 General risk reserve

Undistributed profits 44,229,528.75 50,324,347.70

Total owners’ equity (or shareholders’ equity) 276,917,012.81 283,011,831.76 Total liabilities and owners’ equity (or shareholders’ equity) 285,499,867.05 298,782,398.55 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

(3) Consolidated income statement

Unit: Yuan

Project Notes January-June 2026 January-June 2025

Total operating income 11,977,183.02 25,052,491.14 Including: operating income 5. 30 11,977,183.02 25,052,491.14 Interest income

Premiums earned

Fee and commission income

Total operating costs 26,320,545.19 34,308,579.58 Including: operating costs 5. 30 13,704,939.55 19,998,968.74 Interest expenses

Handling fees and commission expenses

surrender deposit

Net compensation expenses

Net withdrawal of insurance liability reserves

policy dividend payout

Reinsurance cost

Taxes and surcharges V. 31 335,817.93 396,767.90 Sales expenses V. 32 2,515,036.79 3,313,767.76 Administrative expenses V. 33 5,517,512.61 5,424,180.14 R&D expenses V. 34 4,832,987.77 5,451,816.27 Financial expenses 5. 35 -585,749.46 -276,921.23 Including: interest expenses 32,465.37 66,356.07

Interest income 636,543.34 378,771.45 plus: other income V. 36 24,434.24 23,141.64 Investment income (losses are listed with "-") V. 37 -136,435.23

Including: Investment income from associates and joint ventures 5. 37 -136,435.23

Financial assets measured at amortized cost are derecognised

Recognized gains (losses are listed with "-")

Exchange gains (losses are listed with "-")

Net exposure hedging income (losses are listed with a “-” sign)

Gains from changes in fair value (losses are listed with a “-” sign)

Credit impairment losses (losses are listed with "-") 5. 38 1,586,702.04 1,448,897.46 Asset impairment losses (losses are listed with "-") 5. 39 -948,418.68 -678,387.28

Asset disposal income (losses are listed with "-") 5. 40 - -5,513.05

Operating profit (losses are listed with "-") -13,817,079.80 -8,467,949.67 plus: non-operating income

Less: Non-operating expenses V. 41 4,946.08 5,753.70

Total profits (total losses are listed with "-") -13,822,025.88 -8,473,703.37 minus: income tax expenses 5. 42 -1,552,508.22 -1,039,266.80
Net profit (net loss is listed with "-") -12,269,517.66 -7,434,436.57 Among them: the net profit realized by the merged party before the merger

(1) Classification by business continuity: - - -

Net profit from continuing operations (net loss is listed with "-") -12,269,517.66 -7,434,436.57
Net profit from discontinued operations (net loss is listed with "-")

(2) Classification by ownership: - - -

Profit and loss of minority shareholders -3,037,205.05 -1,882,009.90
Net profit attributable to owners of the parent company -9,232,312.61 -5,552,426.67

6. Net amount of other comprehensive income after tax

(1) Other comprehensive income attributable to owners of the parent company

net of tax

Other comprehensive income that cannot be reclassified into profit or loss

(1) Remeasurement of changes in defined benefit plan

(2) Other comprehensive income that cannot be transferred to profit or loss under the equity method

(3) Changes in fair value of other equity instrument investments

(4) Changes in the fair value of the company’s own credit risk

(5) Others

Other comprehensive income that will be reclassified into profit and loss

(1) Other comprehensive income that can be converted to profit or loss under the equity method

(2) Changes in fair value of other debt investments

(3) Financial assets are reclassified and included in other comprehensive income

Amount

(4) Credit impairment provisions for other debt investments

(5) Cash flow hedging reserve

(6) Translation differences of foreign currency financial statements

(7) Others

(2) After-tax other comprehensive income attributable to minority shareholders

net amount

Total comprehensive income -12,269,517.66 -7,434,436.57

(1) Total comprehensive income attributable to owners of the parent company -9,232,312.61 -5,552,426.67

(2) Total comprehensive income attributable to minority shareholders -3,037,205.05 -1,882,009.90

8. Earnings per share:

(1) Basic earnings per share (yuan/share) 18.2 -0.13 -0.08

(2) Diluted earnings per share (yuan/share) 18. 2 -0.13 -0.08 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

(4) Income statement of the parent company

Unit: Yuan

Project Notes January-June 2026 January-June 2025

Operating income 17.4 10,341,936.93 21,725,236.11 Less: Operating costs 17.4 10,636,660.95 16,481,811.37 Taxes and surcharges 333,893.00 398,495.70 Sales expenses 2,441,462.38 3,285,072.32Administrative expenses 3,891,143.51 3,843,987.49R&D expenses 3,246,374.41 3,727,780.27Financial expenses -1,362,642.02 -1,060,248.70Including: interest expenses 9,780.42 9,476.59

Interest income 1,390,021.88 1,104,481.44 plus: other income 16,681.79 15,777.06 Investment income (losses are listed with "-")

Including: Investment income from associates and joint ventures

Financial assets measured at amortized cost are derecognised

Recognized gains (losses are listed with "-")

Exchange gains (losses are listed with "-")

Net exposure hedging income (losses are listed with a “-” sign)

Gains from changes in fair value (losses are listed with a “-” sign)

Credit impairment loss (losses are listed with "-") 1,606,881.38 1,288,822.02 Asset impairment losses (losses are listed with "-") -427,826.63 -92,663.15

Asset disposal income (losses are listed with "-") - 1,818.16

Operating profit (losses are listed with "-") -7,649,218.76 -3,737,908.25 plus: non-operating income

Less: Non-operating expenses - 2,565.20

Total profits (total losses are listed with "-") -7,649,218.76 -3,740,473.45 Less: income tax expenses -1,554,399.81 -1,039,266.80
Net profit (net loss is listed with "-") -6,094,818.95 -2,701,206.65

(1) Net profit from continuing operations (net loss is filled in with "-"

-6,094,818.95 -2,701,206.65 columns)

(2) Net profit from discontinued operations (net loss is filled in with "-"

column)

5. Net amount of other comprehensive income after tax

(1) Other comprehensive income that cannot be reclassified into profit or loss

Remeasure the changes in defined benefit plan
Other comprehensive income that cannot be transferred to profit or loss under the equity method
Changes in fair value of other equity instrument investments
Changes in the fair value of the company’s own credit risk

5.Others

(2) Other comprehensive income that will be reclassified into profit and loss

Other comprehensive income that can be converted to profit or loss under the equity method
Changes in fair value of other debt investments
Financial assets are reclassified and included in other comprehensive income.

Credit impairment provisions for other debt investments
Cash flow hedging reserve
Translation differences of foreign currency financial statements

7.Others

Total comprehensive income -6,094,818.95 -2,701,206.65

7. Earnings per share:

(1) Basic earnings per share (yuan/share)

(2) Diluted earnings per share (yuan/share)

Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

(5) Consolidated cash flow statement

Unit: Yuan

Project Notes January-June 2026 January-June 2025

1. Cash flow generated from operating activities:

Cash received from selling goods and providing services 27,820,853.76 35,155,765.31 Net increase in customer deposits and deposits from banks

Net increase in borrowing from the central bank

Net increase in borrowing funds from other financial institutions

Cash received from premiums from the original insurance contract

Net cash received from reinsurance business

Net increase in policyholders’ savings and investment funds

Cash collected from interest, fees and commissions

Net increase in borrowing funds

Net increase in repurchase business funds

Net cash received from buying and selling securities on behalf of agents

Tax refunds received - 7,021.85 Other cash received related to operating activities V. 43(1) 1,630,260.62 1,313,407.37

Subtotal of cash inflows from operating activities 29,451,114.38 36,476,194.53 Cash paid for purchasing goods and receiving services 10,722,861.32 17,517,726.95 Net increase in customer loans and advances

Net increase in deposits with central banks and inter-banks

Cash used to pay compensation from the original insurance contract

Net increase in financial assets held for trading purposes

Net increase in lending funds

Cash payments for interest, fees and commissions

Cash payment for policy dividends

Cash paid to and for employees 13,411,025.90 12,975,612.08 Various taxes and fees paid 1,461,717.96 805,887.68 Cash paid for other operating activities 5. 43 (1) 5,988,662.41 8,843,048.74 Subtotal of cash outflows from operating activities 31,584,267.59 40,142,275.45

Net cash flow from operating activities -2,133,153.21 -3,666,080.92

2. Cash flow generated from investing activities:

Recover cash received on investments

Cash received from investment income

Disposal of fixed assets, intangible assets and other long-term asset recovery

Net cash amount of 5,500.00

Net cash received from disposal of subsidiaries and other business units

Other cash received related to investing activities

Subtotal of cash inflows from investing activities - 5,500.00 Cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets 537,158.00 2,938,374.25

Cash paid for investments

Net increase in mortgage loans

Net cash received from subsidiaries and other business units

Other cash payments related to investing activities

Subtotal of cash outflows from investing activities 537,158.00 2,938,374.25

Net cash flow generated from investing activities -537,158.00 -2,932,874.25

3. Cash flow generated from financing activities:

Cash received from investment 7,500,000.00 - Including: Cash received by subsidiaries from investment from minority shareholders 7,500,000.00 - Cash received from borrowings

Cash received from bond issuance

Other cash received related to financing activities

Subtotal of cash inflows from financing activities 7,500,000.00 - Cash paid to repay debt

Cash paid to distribute dividends, profits or repay interest

Including: dividends and profits paid by subsidiaries to minority shareholders

Payment of other cash related to financing activities V. 43 (2) 879,200.59 847,646.31 Subtotal of cash outflows from financing activities 879,200.59 847,646.31

Net cash flow generated from financing activities 6,620,799.41 -847,646.31

4. The impact of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents 3,950,488.20 -7,446,601.48 plus: opening balance of cash and cash equivalents 88,885,050.17 93,410,144.52
Balance of cash and cash equivalents at the end of the period 92,835,538.37 85,963,543.04 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

(6) Cash flow statement of the parent company

Unit: Yuan

Project Notes January-June 2026 January-June 2025

1. Cash flow generated from operating activities:

Cash received from selling goods and providing services 26,832,568.60 30,753,197.65 Tax refunds received - 261.74 Cash received related to other operating activities 1,612,804.77 1,066,813.82

Subtotal of cash inflows from operating activities 28,445,373.37 31,820,273.21 Cash paid for purchasing goods and receiving services 9,290,056.01 16,314,228.49 Cash paid to and for employees 9,435,431.50 8,714,236.98 Various taxes and fees paid 1,436,493.66 769,463.33 Other cash payments related to operating activities 5,572,204.74 8,019,746.83 Subtotal of cash outflows from operating activities 25,734,185.91 33,817,675.63

Net cash flow generated from operating activities 2,711,187.46 -1,997,402.42

2. Cash flow generated from investing activities:

Recover cash received on investments

Cash received from investment income

Proceeds from disposal of fixed assets, intangible assets and other long-term assets

5,500.00 net cash back

Net cash received from disposal of subsidiaries and other business units

Other cash received related to investing activities 1,134,316.93 -

Subtotal of cash inflows from investing activities 1,134,316.93 5,500.00 Expenses for purchase and construction of fixed assets, intangible assets and other long-term assets

317,130.00 121,257.00 paid in cash

Cash paid for investments

Net cash received from subsidiaries and other business units

Other cash payments related to investing activities 600,000.00 5,600,000.00 Subtotal of cash outflows from investing activities 917,130.00 5,721,257.00

Net cash flow generated from investing activities 217,186.93 -5,715,757.00

3. Cash flow generated from financing activities:

Absorbing cash received from investments

Obtain cash received from borrowing money

Cash received from bond issuance

Other cash received related to financing activities

Subtotal of cash inflows from financing activities - Cash paid to repay debt

Cash paid to distribute dividends, profits or repay interest

Other cash payments related to financing activities 628,510.95 328,510.95 Subtotal of cash outflows from financing activities 628,510.95 328,510.95

Net cash flow generated from financing activities -628,510.95 -328,510.95

4. The impact of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents 2,299,863.44 -8,041,670.37 plus: opening balance of cash and cash equivalents 86,901,808.47 89,887,254.62
Balance of cash and cash equivalents at the end of the period 89,201,671.91 81,845,584.25 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

(7) Consolidated statement of changes in shareholders’ equity

Current situation

Unit: yuan for the first half of 2026

Owner's equity attributable to parent company

Other equity instruments, other items, are generally reduced to: minority shareholders' equity, total owner's equity, capital, comprehensive earnings, venture capital, inventory, retained earnings, other reserves, insurance premiums, shares

He collects and prepares stocks and bonds

Be prepared

Closing balance of the previous year 70,550,000.00 148,236,043.94 13,901,440.12 23,891,846.97 -10,580,352.19 245,998,978.84 Add: changes in accounting policies

Early error correction

Business combination under common control

Others

Balance at the beginning of the year 70,550,000.00 148,236,043.94 13,901,440.12 23,891,846.97 -10,580,352.19 245,998,978.84

3. Amount of increase or decrease in the current period (minus

4,736,887.58 -9,232,312.61 -274,092.63 -4,769,517.66 (please fill in with "-")

(1) Total comprehensive income -9,232,312.61 -3,037,205.05 -12,269,517.66

(2) Owner’s investment and capital reduction

4,736,887.58 2,763,112.42 7,500,000.00 copies

Common shares invested by shareholders
Other equity instrument holders invest

invest capital

Share-based payments are included in ownership rights

amount of profit

Others 4,736,887.58 2,763,112.42 7,500,000.00

(3) Profit distribution

Withdraw surplus reserve
Extract general risk reserves
Distribution to owners (or shareholders)

Match

4.Others

(4) Internal carryover of owners’ equity

Conversion of capital reserves into capital (or shares

this)

Convert surplus reserves to capital (or shares

this)

Surplus reserve to make up for losses
Changes in defined benefit plan balances

Transfer to retained earnings

Other comprehensive income carried forward and retained

income

6.Others

(5) Special reserves

Extraction in this period
Use in this issue

(6) Others

Ending balance of the current period 70,550,000.00 152,972,931.52 13,901,440.12 14,659,534.36 -10,854,444.82 241,229,461.18

Last period situation

Unit: yuan for the first half of 2025

Owner's equity attributable to parent company

Other equity instruments One of the items He specializes in General

Less: Minority shareholders’ equity, total owner’s equity, outstanding capital, comprehensive items, surplus, venture capital, other inventories, retained profits, continued reserves, reserves, insurance

he shares

Stock and debt collection provisions

Be prepared

Closing balance of the previous year 70,550,000.00 148,236,043.94 13,901,440.12 34,064,521.30 -5,788,041.18 260,963,964.18 Add: changes in accounting policies

Early error correction

Business combination under common control

Others

Balance at the beginning of the year 70,550,000.00 148,236,043.94 13,901,440.12 34,064,521.30 -5,788,041.18 260,963,964.18
Amount of increase or decrease in the current period (minus

-5,552,426.67 -1,882,009.90 -7,434,436.57 (please fill in with "-")

(1) Total comprehensive income -5,552,426.67 -1,882,009.90 -7,434,436.57

(2) Owner’s investment and capital reduction

Common shares invested by shareholders
Other equity instrument holders invest capital
The amount of share-based payment included in owners’ equity

4.Others

(3) Profit distribution

Withdraw surplus reserve
Extract general risk reserves
Distribution to owners (or shareholders)

4.Others

(4) Internal transfer of owners’ equity 1. Transfer of capital reserves to capital (or share capital)

Convert surplus reserves to capital (or share capital)
Surplus reserve to make up for losses
Changes in defined benefit plans are carried forward to retained earnings
Other comprehensive income carried forward to retained earnings

6.Others

(5) Special reserves

Extraction in this period
Use in this issue

(6) Others

Ending balance of the current period 70,550,000.00 - - - 148,236,043.94 - - - 13,901,440.12 28,512,094.63 -7,670,051.08 253,529,527.61 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Head of accounting agency: Li Yongzhen

(8) Statement of changes in shareholders’ equity of the parent company

Current situation

Unit: Yuan Other equity instruments for the first half of 2026 Special deductions: Other General items Advantage items Equity capital Perpetual capital reserve Inventory Comprehensive surplus reserve Risk Undistributed profits Total owner’s equity Other Reserve debt shares Income provision

Stock equipment

Closing balance of the previous year 70,550,000.00 148,236,043.94 13,901,440.12 50,324,347.70 283,011,831.76 Add: changes in accounting policies

Early error correction

Others

Balance at the beginning of the year 70,550,000.00 148,236,043.94 13,901,440.12 50,324,347.70 283,011,831.76

3. Amount of increase or decrease in the current period (minus

-6,094,818.95 -6,094,818.95 should be filled in with "-" sign)

(1) Total comprehensive income -6,094,818.95 -6,094,818.95

(2) Owner’s investment and capital reduction

Ben

Common shares invested by shareholders
Investments from other equity instrument holders

capital

Share-based payments are included in owners’ equity

amount of

4.Others

(3) Profit distribution

Withdraw surplus reserve
Distribution to owners (or shareholders)

Match

3.Others

(4) Internal carryover of owners’ equity

Conversion of capital reserves into capital (or shares

this)

Convert surplus reserves to capital (or shares

this)

Surplus reserve to make up for losses
Carry forward changes in defined benefit plan

retained earnings

Other comprehensive income carried forward and retained

benefit

6.Others

(5) Special reserves

Extraction in this period
Use in this issue

(6) Others

Closing balance of the current period 70,550,000.00 148,236,043.94 13,901,440.12 44,229,528.75 276,917,012.81

Last period situation

Unit: Yuan Other equity instruments for the first half of 2025 Special deductions: Other General items Advantage items Equity capital Perpetual capital reserve Inventory Comprehensive surplus reserve Risk Undistributed profits Total owner’s equity first Other Reserve debt shares Income provision

Stock equipment

Closing balance of the previous year 70,550,000.00 148,236,043.94 13,901,440.12 54,521,259.18 287,208,743.24 Add: changes in accounting policies

Early error correction

Others

Balance at the beginning of the year 70,550,000.00 148,236,043.94 13,901,440.12 54,521,259.18 287,208,743.24

3. Amount of increase or decrease in the current period (minus

-2,701,206.65 -2,701,206.65 should be filled in with "-" sign)

(1) Total comprehensive income -2,701,206.65 -2,701,206.65

(2) Owner’s investment and capital reduction

Ben

Common shares invested by shareholders
Investments from other equity instrument holders

capital

Share-based payments are included in owners’ equity

amount of

4.Others

(3) Profit distribution

Withdraw surplus reserve
Distribution to owners (or shareholders)

3.Others

(4) Internal transfer of owners’ equity 1. Transfer of capital reserves to capital (or share capital)

Convert surplus reserves to capital (or share capital)
Surplus reserve to make up for losses
Changes in defined benefit plans are carried forward to retained earnings
Other comprehensive income carried forward to retained earnings

6.Others

(5) Special reserves

Extraction in this period
Use in this issue

(6) Others

Ending balance of the current period 70,550,000.00 148,236,043.94 13,901,440.12 51,820,052.53 284,507,536.59 Legal representative: Li Yujian Person in charge of accounting work: Li Yongzhen Person in charge of the accounting department: Li Yongzhen

3. Notes to Financial Statements

(1) Index of additional notes

Matter Yes or No Index 1. Have the accounting policies adopted in the semi-annual report changed from the financial statements of the previous year? □ Yes √ No 2. Whether the accounting estimates used in the semi-annual report have changed from the financial statements of the previous year? □ Yes √ No 3. Is there any error correction in the previous period? Yes √ No 4. Does the business operation have seasonal or cyclical characteristics? √Yes □No Explanation 1 5. Have there been any changes in the related parties with controlling relationships? □Yes √No 6. Whether the scope of consolidation of the consolidated financial statements has changed? □Yes √No7. Is there any issuance, repurchase and repayment of securities? Yes √ No 8. Is there any distribution of profits to owners? □Yes √No9. Whether segment reports are disclosed in accordance with the relevant provisions of accounting standards □ Yes √ No 10. Are there any non-adjusting matters between the semi-annual balance sheet date and the date when the semi-annual financial report is approved for issuance? Yes √ No

Are there any contingent liabilities and/or changes in assets that occurred after the balance sheet date of the previous year? Yes √ Are there any changes in assets?
Is there any change in corporate structure? □Yes √No13. Whether significant long-term assets are transferred or sold □Yes √No14. Have there been any changes in significant fixed assets and intangible assets? □Yes √No15. Is there any significant research and development expenditure □Yes √No16. Is there any significant asset impairment loss □Yes √No17. Are there estimated liabilities? Yes √No

Additional notes index description:

Note 1: Seasonal explanation of business operations

Oil and petrochemical companies formulate annual capital investment plans based on operating conditions, policy requirements, and planning needs. According to the approval of the annual investment plan

In the first quarter of the year, we will make a full-year procurement demand and investment plan, and in the second quarter, we will conduct internal applications and plans for procurement and demand planning.

Discussing the rationality and urgency of the investment plan resulted in the company receiving more orders in the third and fourth quarters, and the revenue distribution had seasonal characteristics.

(2) Notes to financial statements

Beijing Henghe Xinye Technology Co., Ltd.

Notes to Financial Statements

2026 half year

(Unless otherwise stated, the unit of amount is RMB)

1. Basic information of the company

Beijing Henghe Xinye Technology Co., Ltd. (hereinafter referred to as the company or the company) was established as a whole by Beijing Henghe Xinye Technology Co., Ltd., and the change was registered with the Beijing Administration for Industry and Commerce on October 28, 2014. The company was listed on the National Equities Exchange and Quotations on March 12, 2015, and will be listed on the Beijing Stock Exchange on November 15, 2021. As of June 30, 2026, the company's total share capital is 70,550,000.00 shares, and the company's unified social credit letter code: 911101097226954143.

Company address: Room 301, Floor 3, Building 5, No. 98, Lianshihu West Road, Mentougou District, Beijing.

Legal representative of the company: Li Yujian.

The company's main business activities include the sales of professional equipment such as oil and gas recovery online monitoring, oil and gas recovery management, ceramic capacitor pressure cores, liquid level measurement, and smart network monitoring platforms, as well as providing related installation and debugging, data analysis, third-party testing and operation and maintenance services.

Date of approval for issuance of financial statements: These financial statements have been approved for issuance by the company's board of directors on August 20, 2026.

2. Basis for preparation of financial statements

Basics of preparation

The company is based on going concern, recognizes and measures actual transactions and events in accordance with the Accounting Standards for Business Enterprises and their application guidelines and explanations of the standards, and prepares financial statements on this basis. In addition, the company also discloses relevant financial information in accordance with the China Securities Regulatory Commission's "Information Disclosure and Preparation Rules for Companies that Offer Securities to the Public No. 15 - General Provisions on Financial Reports (2023 Revision)".

Going concern

The company has evaluated the company's ability to continue operating for 12 months from the end of the reporting period, and has found no issues that affect the company's ability to continue operating. It is reasonable for the company to prepare financial statements based on going concern.

3. Important accounting policies and accounting estimates

The following important accounting policies and accounting estimates of the Company are formulated in accordance with the Accounting Standards for Business Enterprises. Businesses not mentioned are carried out in accordance with the relevant accounting policies in the Accounting Standards for Business Enterprises.

Statement on compliance with Accounting Standards for Business Enterprises

The financial statements prepared by the company comply with the requirements of accounting standards for enterprises and truly and completely reflect the company's financial status, operating results, changes in owner's equity, cash flow and other relevant information.

Accounting period

The company's fiscal year begins on January 1 and ends on December 31 of the Gregorian calendar.

Business cycle

The company's normal operating cycle is one year.

Accounting standard currency

The company's accounting standard currency is RMB, and its overseas (branch) subsidiaries use the currency of the main economic environment in which they operate as the accounting standard currency.

Determination method and selection basis of materiality criteria

Project Materiality Criteria

Important accounts receivable are written off. The amount of a single account receivable is written off accounts for more than 1% of the total assets. Important individual accounts receivable for which bad debt provisions are made account for more than 1% of the total assets.

Amount of single other receivables aged over 1 year accounts for total assets Important other receivables aged over 1 year

0.5% or more

Amount of single accounts payable aged over 1 year accounts for total assets Important accounts payable aged over 1 year

More than 1%

The investment budget for important projects under construction accounts for more than 0.5% of total assets.

Accounting treatment methods for business combinations under the same control and those not under the same control

(1) Business merger under common control

The assets and liabilities acquired by the company in a business merger are measured at the book value of the merged party in the consolidated financial statements of the ultimate controlling party on the merger date. Among them, if the accounting policies and accounting periods adopted by the merged party and the company before the business merger are different, the accounting policies and accounting periods will be unified based on the principle of importance, that is, the book value of the assets and liabilities of the merged party will be adjusted in accordance with the company's accounting policies and accounting periods. If there is a difference between the book value of the net assets acquired by the company in the business combination and the book value of the consideration paid, the capital reserve (capital premium or equity premium) will be adjusted first. If the balance of the capital reserve (capital premium or equity premium) is insufficient to offset it, the surplus reserve and undistributed profits will be offset in sequence.

For the accounting treatment method of business combination under common control achieved through step-by-step transactions, please refer to Note 3, 7(6).

(2) Business combination not under common control

The identifiable assets and liabilities of the purchased party acquired by the Company in a business combination are measured at their fair value on the acquisition date. Among them, if the accounting policies and accounting periods adopted by the purchased party and the company before the business merger are different, the accounting policies and accounting periods shall be unified based on the principle of importance, that is, the book value of the assets and liabilities of the purchased party shall be adjusted in accordance with the accounting policies and accounting periods of the company. The difference between the company's merger cost on the acquisition date and the fair value of the acquiree's identifiable assets and liabilities acquired in the business merger is recognized as goodwill; if the merger cost is less than the difference between the fair values of the acquiree's identifiable assets and liabilities acquired in the business merger, the difference is recognized as goodwill. First, the merger cost and the fair value of the acquiree's identifiable assets and liabilities obtained in the business merger are reviewed. After the review, if the merger cost is still less than the fair value of the acquiree's identifiable assets and liabilities, the difference is recognized as the current profit and loss of the merger.

For the accounting treatment method of business combination not under common control achieved through step-by-step transactions, please refer to Note 3, 7(6).

(3) Treatment of transaction costs in business mergers

Intermediary fees such as auditing, legal services, evaluation and consulting, and other related management fees incurred for business mergers are included in the current profit and loss when incurred. The transaction costs of equity securities or debt securities issued as consideration for the merger shall be included in the initial recognition amount of the equity securities or debt securities.

Judgment criteria for control and preparation method of consolidated financial statements

(1) Judgment criteria for control and determination of consolidation scope

Control means that the company has power over the investee, enjoys variable returns by participating in the investee's relevant activities, and has the ability to use its power over the investee to affect the amount of its returns. The definition of control includes three basic elements: first, the investor has power over the investee; second, it enjoys variable returns due to participation in the investee’s relevant activities; third, it has the ability to use its power over the investee to affect the amount of its returns. When the company's investment in the investee meets the above three elements, it indicates that the company can control the investee.

The scope of consolidation in consolidated financial statements is determined on the basis of control, including not only subsidiaries determined based on voting rights (or similar voting rights) alone or in combination with other arrangements, but also structured entities determined based on one or more contractual arrangements.

Subsidiaries refer to entities controlled by the company (including divisible parts of enterprises, investee units, and structured entities controlled by enterprises, etc.). Structured entities refer to entities designed without voting rights or similar rights as a decisive factor when determining their controllers (note: sometimes also called special purpose entities).

(2) Special provisions regarding the parent company as an investment entity

If the parent company is an investment entity, only those subsidiaries that provide relevant services for the investment activities of the investment entity will be included in the scope of consolidation, and other subsidiaries will not be consolidated. The equity investors of subsidiaries that are not included in the scope of consolidation will be recognized as financial assets measured at fair value with changes included in current profits and losses.

When a parent company meets the following conditions at the same time, it is an investment entity:

①The company aims to provide investment management services to investors and obtains funds from one or more investors. ②The company's sole business purpose is to provide investors with returns through capital appreciation, investment income, or both.

③The company considers and evaluates the performance of almost all investments based on fair value.

When a parent company transforms from a non-investment entity to an investment entity, in addition to including only the subsidiaries that provide related services for its investment activities into the scope of consolidated financial statements when preparing consolidated financial statements, the enterprise will no longer consolidate other subsidiaries from the date of transformation, and handle them with reference to the principle of partially disposing of subsidiary equity without losing control.

When the parent company transforms from an investment entity to a non-investment entity, the subsidiaries that were not originally included in the scope of the consolidated financial statements should be included in the scope of the consolidated financial statements on the date of transformation. The fair value of the subsidiaries that were not originally included in the scope of the consolidated financial statements on the date of transformation is regarded as the transaction consideration for the purchase, and is treated in accordance with the accounting treatment method for business combinations not under common control. (3) Preparation method of consolidated financial statements

The company prepares consolidated financial statements based on its own and its subsidiaries' financial statements and other relevant information. The company prepares consolidated financial statements, treating the entire enterprise group as an accounting entity, and reflecting the overall financial status, operating results and cash flow of the enterprise group in accordance with the recognition, measurement and presentation requirements of relevant accounting standards for enterprises and in accordance with unified accounting policies and accounting periods.

① Consolidate the assets, liabilities, owners' equity, income, expenses, cash flow and other items of the parent company and subsidiaries. ② Offset the parent company's long-term equity investment in the subsidiary with the parent company's share of the subsidiary's owner's equity. ③ Offset the impact of internal transactions between the parent company and its subsidiaries, and between subsidiaries. If internal transactions indicate that impairment losses have occurred on related assets, the losses shall be recognized in full.

④Adjust special transaction matters from the perspective of the enterprise group.

(4) Processing of adding or removing subsidiaries during the reporting period

① Add subsidiaries or businesses

A. Subsidiaries or businesses added by business mergers under common control

(a) When preparing the consolidated balance sheet, adjust the opening balance of the consolidated balance sheet and adjust the relevant items in the comparative statement at the same time. It is deemed that the merged reporting entity has existed since the time when the ultimate controlling party began to control.

(b) When preparing the consolidated income statement, the income, expenses and profits of the subsidiary and the business combination from the beginning of the current period to the end of the reporting period are included in the consolidated income statement, and relevant items in the comparative statement are adjusted at the same time. It is deemed that the post-merger reporting entity has existed since the time when the ultimate controlling party began to control.

(c) When preparing the consolidated cash flow statement, the cash flows of the subsidiary and the business combination from the beginning of the current period to the end of the reporting period are included in the consolidated cash flow statement, and relevant items in the comparative statements are adjusted at the same time. It is deemed that the post-merger reporting entity has existed since the time when the ultimate controlling party began to control.

B. Subsidiaries or businesses added by business combination not under common control

(a) When preparing the consolidated balance sheet, the opening balance of the consolidated balance sheet will not be adjusted.

(b) When preparing the consolidated income statement, include the income, expenses and profits of the subsidiary and business from the date of purchase to the end of the reporting period into the consolidated income statement.

(c) When preparing the consolidated cash flow statement, include the cash flow from the acquisition date of the subsidiary to the end of the reporting period into the consolidated cash flow statement.

②Dispose of subsidiaries or businesses

A. When preparing the consolidated balance sheet, the opening balance of the consolidated balance sheet will not be adjusted.

B. When preparing the consolidated income statement, include the subsidiary and the revenue, expenses and profits from the beginning of the business period to the disposal date into the consolidated income statement.

C. When preparing the consolidated cash flow statement, include the cash flow of the subsidiary and the business from the beginning of the period to the disposal date into the consolidated cash flow statement.

(5) Special considerations in merger elimination

① The long-term equity investment held by a subsidiary of the company shall be regarded as the company's treasury shares, and shall be listed as "less: treasury shares" under the owner's equity item in the consolidated balance sheet as a deduction from the owner's equity.

For long-term equity investments held by subsidiaries among each other, the long-term equity investment and its corresponding share of the owner's equity of the subsidiary are offset against each other according to the offsetting method of the company's equity investment in the subsidiary.

② Since the "special reserves" and "general risk reserves" items are neither paid-in capital (or equity) nor capital reserves, nor are they different from retained earnings and undistributed profits, after the long-term equity investment and the subsidiary's owner's equity are offset, they will be restored according to the share attributable to the owners of the parent company.

③ If there is a temporary difference between the book value of assets and liabilities in the consolidated balance sheet and the tax basis of the taxable entity due to the offsetting of unrealized internal sales profits and losses, deferred income tax assets or deferred income tax liabilities will be recognized in the consolidated balance sheet, and the income tax expenses in the consolidated income statement will be adjusted at the same time, except for deferred income taxes related to transactions or events directly included in owner's equity and business mergers.

④ Unrealized internal transaction gains and losses arising from the company's sale of assets to subsidiaries shall be fully offset against "net profits attributable to owners of the parent company". Unrealized internal transaction profits and losses arising from the sale of assets by a subsidiary to the company shall be allocated and offset between "net profits attributable to owners of the parent company" and "minority shareholders' profits and losses" in accordance with the company's distribution ratio to the subsidiary. Unrealized internal transaction profits and losses arising from the sale of assets between subsidiaries shall be allocated and offset between "net profits attributable to owners of the parent company" and "minority shareholders' profits and losses" in accordance with the company's distribution ratio to the selling subsidiary.

⑤ If the current losses shared by minority shareholders of a subsidiary exceed the minority shareholders' share of the subsidiary's opening owner's equity, the balance should still be offset against minority shareholders' equity.

(6) Accounting treatment of special transactions

①Purchase minority shareholders’ equity

The Company purchases the equity of a subsidiary owned by minority shareholders of the subsidiary. In the individual financial statements, the investment cost of the newly acquired long-term equity investment for the purchase of the minority equity is measured according to the fair value of the consideration paid. In the consolidated financial statements, the difference between the newly acquired long-term equity investment due to the purchase of minority shares and the share of the subsidiary's net assets calculated continuously from the date of purchase or merger based on the new shareholding ratio shall be adjusted to the capital reserve (capital premium or equity premium). If the capital reserve is insufficient to offset, the surplus reserve and undistributed profits shall be offset in sequence.

② Obtaining control of a subsidiary step by step through multiple transactions

A. The merger of enterprises under the same control is realized step by step through multiple transactions.

On the merger date, the company determines the initial investment cost of the long-term equity investment in its individual financial statements based on the share of the book value of the subsidiary's net assets in the ultimate controlling party's consolidated financial statements that it will enjoy after the merger; the initial investment cost is the same as the long-term equity before the merger. The difference between the book value of the investment and the sum of the book value of the newly paid consideration for further shares acquired on the merger date is adjusted to the capital reserve (capital premium or equity premium). If the capital reserve (capital premium or equity premium) is insufficient to offset, the surplus reserve and undistributed profits are offset in turn.

In the consolidated financial statements, the assets and liabilities of the merged party obtained by the combining party during the merger are measured according to their book value in the consolidated financial statements of the ultimate controlling party on the date of merger, except for adjustments due to differences in accounting policies and accounting periods. The difference between the book value of the investments held before the merger plus the book value of the new consideration paid on the date of merger and the book value of the net assets acquired in the merger is adjusted to the capital reserve (equity premium/capital premium). If the capital reserve is insufficient for offset, the retained earnings are adjusted.

For equity investments held by the merging party before acquiring control of the merged party, relevant profits and losses, other comprehensive income and other changes in owner's equity have been recognized between the date of acquisition of the original equity and the date when the merging party and the merged party are under the final control of the same party, whichever is later, to the merger date, and shall be offset against the opening retained earnings or current profits and losses of the comparative statement period respectively.

B. Merger of enterprises not under common control is realized step by step through multiple transactions.

On the merger date, in individual financial statements, the sum of the book value of the original long-term equity investment plus the new investment cost on the merger date will be regarded as the initial investment cost of the long-term equity investment on the merger date.

In the consolidated financial statements, the equity of the acquiree held before the acquisition date is remeasured according to the fair value of the equity on the acquisition date. The equity of the acquiree held before the acquisition date is designated as a financial asset measured at fair value and its changes are included in other comprehensive income. , the difference between the fair value and its book value is included in retained earnings, and the cumulative fair value changes of the equity that were originally included in other comprehensive income are transferred to retained earnings; the equity of the purchased party held before the purchase date is measured at fair value and its changes are included in the current profit and loss. For assets or long-term equity investments accounted for by the equity method, the difference between the fair value and its book value is included in the current investment income; the equity of the purchased party held before the acquisition date involves other comprehensive income under the equity method and net profit and loss and other comprehensive income under the equity method. If there are other changes in owners' equity other than profit distribution, the other comprehensive income related to it will be accounted for on the same basis as the investee's direct disposal of relevant assets or liabilities on the purchase date, and the other changes in owner's equity related to it will be converted into investment income for the current period on the purchase date.

③The company disposes of long-term equity investment in subsidiaries but does not lose control

If the parent company partially disposes of its long-term equity investment in a subsidiary without losing control, in the consolidated financial statements, the difference between the disposal price and the share of the subsidiary's net assets continuously calculated from the date of purchase or merger will be adjusted to the capital reserve (capital premium or equity premium). If the capital reserve is insufficient for offset, the retained earnings will be adjusted.

④The company disposes of its long-term equity investment in the subsidiary and loses control

A. One transaction disposal

If the company loses control over the investee due to disposal of part of its equity investment or other reasons, when preparing consolidated financial statements, the remaining equity will be remeasured according to its fair value on the date when control is lost. The difference between the sum of the consideration obtained for disposing of the equity and the fair value of the remaining equity, minus the sum of the share of the original subsidiary's net assets calculated continuously from the date of purchase or merger based on the original shareholding ratio and the sum of goodwill, shall be included in the investment income in the period when control is lost.

Other comprehensive income related to the equity investment of the atomic company will be accounted for on the same basis as the original subsidiary's direct disposal of relevant assets or liabilities when control is lost. Other changes in owner's equity related to the original subsidiary that are accounted for under the equity method will be transferred to the current profit and loss when control is lost.

B. Step-by-step disposal of multiple transactions

In the consolidated financial statements, we should first determine whether the step-by-step transaction is a "package transaction".

If the step-by-step transaction does not belong to a "package transaction", in the individual financial statements, for each transaction before the loss of control of the subsidiary, the book value of the long-term equity investment corresponding to each equity disposal will be carried forward, and the difference between the proceeds and the book value of the long-term equity investment disposed shall be included in the investment income of the current period; in the consolidated financial statements, it shall be handled in accordance with the relevant provisions of "the parent company disposes of the long-term equity investment in the subsidiary without losing control."

If the step-by-step transaction is a "package transaction", each transaction should be accounted for as a transaction in which the subsidiary is disposed of and control is lost; in individual financial statements, the difference between the price of each disposal before the loss of control and the book value of the long-term equity investment corresponding to the equity disposed is first recognized as other comprehensive income. When control is lost, it will be transferred to the profit and loss of the current period when control is lost; in the consolidated financial statements, for each transaction before the loss of control, the difference between the disposal price and the share of the net assets of the subsidiary corresponding to the disposal investment should be recognized as other comprehensive income, and when control is lost, it will be transferred to the profit and loss of the current period when control is lost.

If the terms, conditions and economic impact of each transaction meet one or more of the following conditions, multiple transactions are usually accounted for as a "package transaction":

(a) The transactions were entered into simultaneously or with consideration of their influence on each other.

(b) These transactions as a whole can achieve a complete business result.

(d) A transaction that is uneconomical when considered alone is economical when considered together with other transactions.

⑤ Dilution of the equity ratio owned by the parent company due to capital increase by minority shareholders of the sub-company

Other shareholders (minority shareholders) of the subsidiary increase capital in the subsidiary, thereby diluting the parent company's equity ratio in the subsidiary. In the consolidated financial statements, the share of the subsidiary's book net assets before the capital increase is calculated based on the parent company's equity ratio before the capital increase. The difference between this share and the subsidiary's share of the subsidiary's book net assets after the capital increase calculated based on the parent company's shareholding ratio after the capital increase is adjusted to the capital reserve (capital premium or equity premium). If the capital reserve (capital premium or equity premium) is insufficient to offset, the retained earnings are adjusted.

Classification of joint arrangements and accounting treatment of joint operations

A joint arrangement refers to an arrangement that is jointly controlled by two or more parties. The Company's joint venture arrangements are divided into joint operations and joint ventures.

(1) Joint operation

A joint operation refers to a joint arrangement in which the Company enjoys the relevant assets of the arrangement and assumes the relevant liabilities of the arrangement.

The company confirms the following items related to its share of interests in joint operations, and performs accounting treatments in accordance with the relevant accounting standards for enterprises:

① Recognize the assets held individually and recognize the assets held jointly according to their shares;

② Confirm the liabilities borne individually and the liabilities borne jointly according to their shares;

③ Recognize the income generated from the sale of its share of joint operating output;

④ Recognize the income generated by the joint operation from the sale of output according to its share;

⑤ Recognize the expenses incurred individually, and recognize the expenses incurred by joint operations according to their share.

(2) Joint venture

A joint venture is a joint arrangement in which the Company only has rights to the net assets of the arrangement.

The Company accounts for investments in joint ventures in accordance with the provisions on equity method accounting for long-term equity investments.

Determination criteria for cash and cash equivalents

Cash refers to corporate cash on hand and deposits that can be used for payment at any time. Cash equivalents refer to investments that are held for a short period (generally due within three months from the date of purchase), are highly liquid, are easily convertible into known amounts of cash, and have little risk of changes in value.

Foreign currency business and foreign currency statement conversion

(1) Method for determining the conversion exchange rate in foreign currency transactions

When the Company's foreign currency transactions are initially recognized, they are converted into the accounting functional currency using the spot exchange rate on the date of the transaction or an exchange rate determined in a systematic and reasonable manner that is approximate to the spot exchange rate on the date of the transaction (hereinafter referred to as the "approximate exchange rate of the spot exchange rate").

(2) Conversion method of foreign currency monetary items on the balance sheet date

On the balance sheet date, foreign currency monetary items are translated using the spot exchange rate on the balance sheet date. Exchange differences arising from differences between the spot exchange rate on the balance sheet date and the spot exchange rate on initial recognition or the previous balance sheet date are included in the current profit and loss. For foreign currency non-monetary items measured at historical cost, the spot exchange rate on the date of transaction is still used for translation; for inventories measured at the lower of cost and net realizable value, the inventory is purchased in foreign currency and the net realizable value of the inventory on the balance sheet date is If the value is reflected in a foreign currency, the net realizable value is first converted into the recording currency amount according to the spot exchange rate on the balance sheet date, and then compared with the inventory cost reflected in the recording currency to determine the ending value of the inventory; for fair value Foreign currency non-monetary items measured at fair value are converted using the spot exchange rate on the date when the fair value is determined. For financial assets measured at fair value with changes included in current profits and losses, the difference between the converted accounting functional currency amount and the original accounting functional currency amount The amount is included in the current profit and loss. For non-trading equity instrument investments designated as measured at fair value and whose changes are included in other comprehensive income, the difference between the converted accounting functional currency amount and the original accounting functional currency amount is included in other comprehensive income.

(3) Conversion method of foreign currency statements

Before converting the financial statements of an enterprise's overseas operations, it is necessary to adjust the accounting period and accounting policies of the overseas operations to make them consistent with the accounting period and accounting policies of the enterprise, and then prepare financial statements in the corresponding currency (currency other than the accounting standard currency) based on the adjusted accounting policies and accounting periods, and then convert the financial statements of the overseas operations according to the following method:

① The assets and liability items in the balance sheet are translated using the spot exchange rate on the balance sheet date. Owner's equity items, except for the "undistributed profits" items, are translated using the spot exchange rate at the time of occurrence.

② The income and expense items in the income statement are converted using the spot exchange rate on the date of transaction or an approximate exchange rate of the spot exchange rate.

③ Foreign currency cash flows and cash flows of overseas subsidiaries are translated using the spot exchange rate on the date of cash flow occurrence or an approximate exchange rate of the spot exchange rate. The impact of exchange rate changes on cash should be presented separately in the cash flow statement as an adjustment item.

④ The resulting translation differences of foreign currency financial statements will be listed in the "other comprehensive income" item under the owner's equity item in the consolidated balance sheet when preparing the consolidated financial statements.

When an overseas operation is disposed of and control is lost, the translation difference of foreign currency statements listed under the owner's equity item in the balance sheet and related to the overseas operation shall be transferred to the current profit and loss of the disposal in full or in proportion to the disposal of the overseas operation.

Financial instruments

A financial instrument refers to a contract that forms a financial asset of one party and a financial liability or equity instrument of another party. (1) Recognition and derecognition of financial instruments

When the company becomes a party to a financial instrument contract, the relevant financial assets or financial liabilities are recognized.

Financial assets shall be derecognized if they meet one of the following conditions:

①The contractual right to receive cash flows from the financial asset terminates;

②The financial asset has been transferred and meets the following conditions for derecognition of financial asset transfer.

If the current obligation of a financial liability (or part thereof) has been discharged, the financial liability (or part thereof) shall be derecognised. An agreement is signed between the company (borrower) and the lender to replace the original financial liability by assuming a new financial liability, and if the contract terms of the new financial liability are substantially different from the original financial liability, the original financial liability will be derecognised and the new financial liability will be recognized at the same time. If the company makes substantial modifications to the contract terms of the original financial liability (or part thereof), it shall terminate the original financial liability and recognize a new financial liability in accordance with the modified terms.

When financial assets are bought and sold in a regular manner, accounting recognition and derecognition will be carried out based on the transaction date. The conventional way of buying and selling financial assets refers to delivering financial assets in accordance with the terms of the contract and at the time schedule determined by regulations or market practices. The trading day refers to the date when the company commits to buy or sell financial assets.

(2) Classification and measurement of financial assets

Upon initial recognition, based on the business model of managing financial assets and the contractual cash flow characteristics of financial assets, the company classifies financial assets into: financial assets measured at amortized cost, financial assets measured at fair value with changes included in current profits and losses, and financial assets measured at fair value with changes included in other comprehensive income. Financial assets may not be reclassified after initial recognition unless the Company changes the business model in which the financial assets are managed, in which case all affected related financial assets are reclassified on the first day of the first reporting period following the change in business model.

Financial assets are measured at fair value upon initial recognition. For financial assets measured at fair value and whose changes are included in the current profit and loss, the relevant transaction costs are directly included in the current profit and loss, and the relevant transaction costs of other types of financial assets are included in their initial recognition amount. Notes receivable and accounts receivable arising from the sale of goods or provision of services, which do not contain or take into account significant financing components, are initially measured by the company based on the transaction price defined in the revenue standards.

The subsequent measurement of a financial asset depends on its classification:

①Financial assets measured at amortized cost

If a financial asset meets the following conditions at the same time, it is classified as a financial asset measured at amortized cost: the company's business model for managing the financial asset is to collect contractual cash flows as the goal; the contractual terms of the financial asset stipulate that the cash flow generated on a specific date is only the payment of principal and interest based on the outstanding principal amount. For such financial assets, the actual interest rate method is used and subsequent measurement is carried out at amortized cost. Gains or losses arising from their derecognition, amortization or impairment based on the actual interest rate method are included in the current profits and losses.

②Financial assets measured at fair value and changes included in other comprehensive income

If a financial asset meets the following conditions at the same time, it is classified as a financial asset measured at fair value with changes included in other comprehensive income: the company's business model for managing this financial asset is to collect contractual cash flows as well as sell financial assets as the goal; the contract terms of the financial asset stipulate that the cash flow generated on a specific date is only the payment of principal and interest based on the outstanding principal amount. For such financial assets, fair value is used for subsequent measurement. Except for impairment losses or gains and exchange gains and losses that are recognized as current profits and losses, changes in the fair value of such financial assets are recognized as other comprehensive income until the financial assets are derecognised, and their accumulated profits or losses are transferred to current profits and losses. However, the interest income related to the financial asset calculated using the actual interest rate method is included in the current profit and loss.

The Company irrevocably chooses to designate some non-trading equity instrument investments as financial assets measured at fair value with changes included in other comprehensive income. Only relevant dividend income will be included in the current profit and loss, and changes in fair value will be recognized as other comprehensive income until the financial assets are derecognised, and their accumulated gains or losses will be transferred to retained earnings.

③Financial assets measured at fair value and changes included in current profits and losses

Financial assets other than the above-mentioned financial assets measured at amortized cost and financial assets measured at fair value through other comprehensive income are classified as financial assets measured at fair value through profit or loss for the current period. For such financial assets, fair value is used for subsequent measurement, and all changes in fair value are included in the current profit and loss.

(3) Classification and measurement of financial liabilities

The Company classifies financial liabilities into financial liabilities measured at fair value through current profits and losses, loan commitments and financial guarantee contract liabilities for loans with lower than market interest rates, and financial liabilities measured at amortized cost.

The subsequent measurement of financial liabilities depends on their classification:

①Financial liabilities measured at fair value and changes included in current profits and losses

This type of financial liabilities includes trading financial liabilities (including derivatives that are financial liabilities) and financial liabilities designated as measured at fair value with changes included in current profits and losses. After initial recognition, such financial liabilities are subsequently measured at fair value. Except for those related to hedging accounting, the gains or losses (including interest expenses) incurred are included in the current profits and losses. However, for financial liabilities designated by the Company as measured at fair value and whose changes are included in current profits and losses, the change in the fair value of the financial liability caused by changes in its own credit risk is included in other comprehensive income. When the financial liability is derecognised, the accumulated gains and losses previously included in other comprehensive income should be transferred out from other comprehensive income and included in retained earnings. ②Loan commitments and financial guarantee contract liabilities

A loan commitment is a commitment provided by the Company to customers to provide loans to customers under established contract terms during the commitment period. Loan commitments are provided with impairment losses based on the expected credit loss model.

A financial guarantee contract refers to a contract that requires the company to pay a specific amount of compensation to the contract holder who has suffered a loss when a specific debtor is unable to repay its debts in accordance with the terms of the original or modified debt instrument when due. Financial guarantee contract liabilities are subsequently measured based on the higher of the loss reserve amount determined based on the impairment principle of financial instruments and the initial recognition amount minus the accumulated amortization amount determined based on the revenue recognition principle.

③Financial liabilities measured at amortized cost

After initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method.

Except for special circumstances, financial liabilities and equity instruments are distinguished according to the following principles:

① If the company cannot unconditionally avoid delivering cash or other financial assets to fulfill a contractual obligation, then the contractual obligation meets the definition of a financial liability. Although some financial instruments do not explicitly contain terms and conditions for the obligation to deliver cash or other financial assets, they may indirectly form contractual obligations through other terms and conditions.

② If a financial instrument must be settled or can be settled with the company's own equity instruments, it is necessary to consider whether the company's own equity instruments used to settle the instrument are used as a substitute for cash or other financial assets, or to enable the holder of the instrument to enjoy the remaining equity in the issuer's assets after deducting all liabilities. If it is the former, the instrument is a financial liability of the issuer; if it is the latter, the instrument is an equity instrument of the issuer. In some cases, a financial instrument contract stipulates that the company must use or use its own equity instruments to settle the financial instrument, and the amount of the contractual rights or contractual obligations is equal to the number of its own equity instruments that can be obtained or needs to be delivered multiplied by its fair value at the time of settlement. Regardless of whether the amount of the contractual rights or contractual obligations is fixed or is based entirely or partially on changes in variables other than the market price of the company's own equity instruments (such as interest rates, the price of a certain commodity or the price of a certain financial instrument), the contract is classified as a financial liability.

(4) Derivative financial instruments and embedded derivatives

Derivative financial instruments are initially measured at their fair value on the date when the derivative transaction contract is signed, and are subsequently measured at their fair value. Derivative financial instruments with a positive fair value are recognized as an asset and those with a negative fair value are recognized as a liability.

Except for the effective part of the cash flow hedging, which is included in other comprehensive income and transferred out and included in the current profit and loss when the hedged item affects the profit and loss, gains or losses arising from changes in the fair value of derivative instruments are directly included in the current profit and loss.

For hybrid instruments containing embedded derivatives, such as if the main contract is a financial asset, the relevant provisions on the classification of financial assets shall apply to the hybrid instrument as a whole. If the main contract is not a financial asset, and the hybrid instrument is not measured at fair value and its changes are included in the current profit and loss for accounting treatment, and there is no close relationship between the embedded derivative instrument and the main contract in terms of economic characteristics and risks, and if the conditions of the embedded derivative instrument are the same and the stand-alone instrument meets the definition of a derivative, the embedded derivative instrument is separated from the hybrid instrument and treated as a separate derivative financial instrument. If the fair value of the embedded derivative cannot be measured separately on the acquisition date or subsequent balance sheet date, the hybrid instrument as a whole is designated as a financial asset or financial liability at fair value through profit or loss for the current period.

(5) Impairment of financial instruments

The Company recognizes loss provisions based on expected credit losses for financial assets measured at amortized cost, debt investments measured at fair value with changes included in other comprehensive income, contract assets, lease receivables, loan commitments and financial guarantee contracts, etc.

①Measurement of expected credit losses

Expected credit losses refer to the weighted average of the credit losses of financial instruments with the risk of default as the weight. Credit loss refers to the difference between all contractual cash flows receivable under the contract and all cash flows expected to be received by the company, discounted at the original actual interest rate, that is, the present value of all cash shortfalls. Among them, credit-impaired financial assets purchased or originated by the company should be discounted according to the credit-adjusted actual interest rate of the financial assets.

Lifetime expected credit losses refer to the expected credit losses caused by all possible default events that may occur during the entire expected life of a financial instrument.

Expected credit losses in the next 12 months refer to the expected credit losses caused by default events on financial instruments that may occur within 12 months after the balance sheet date (if the expected duration of the financial instrument is less than 12 months, the expected duration), and are part of the expected credit losses throughout the duration.

On each balance sheet date, the Company measures the expected credit losses of financial instruments at different stages respectively. If the credit risk of a financial instrument has not increased significantly since initial recognition, it is in the first stage, and the Company will measure loss provisions based on the expected credit losses within the next 12 months; if the credit risk of a financial instrument has increased significantly since initial recognition but no credit impairment has occurred, it is in the second stage, and the Company will measure loss provisions based on the expected credit losses throughout the entire duration of the instrument; if a financial instrument has experienced credit impairment since initial recognition, it is in the third stage, and the Company will measure loss provisions based on the expected credit losses throughout the entire duration of the instrument.

For financial instruments with low credit risk on the balance sheet date, the Company assumes that its credit risk has not increased significantly since initial recognition, and measures loss provisions based on expected credit losses within the next 12 months.

For financial instruments in the first and second stages and with lower credit risk, the company calculates interest income based on its book balance before impairment provisions and actual interest rate. For financial instruments in the third stage, interest income is calculated based on its book balance minus the amortized cost and actual interest rate after impairment provisions have been made.

For notes receivable, accounts receivable, and receivable financing, regardless of whether there is a significant financing component, the company measures loss provisions based on the expected credit losses throughout the duration.

A. Accounts receivable

For bills receivable, accounts receivable, other receivables, receivables financing and long-term receivables where there is objective evidence of impairment, and other bills receivable, accounts receivable, and long-term receivables that are subject to individual assessment, individual impairment tests are conducted, expected credit losses are confirmed, and individual impairment provisions are made. For notes receivable, accounts receivable, other receivables, receivables financing and long-term receivables where there is no objective evidence of impairment or when a single financial asset cannot assess expected credit losses at a reasonable cost, the company divides notes receivable, accounts receivable, other receivables, receivables financing and long-term receivables into several combinations based on credit risk characteristics, and calculates expected credit losses on the basis of the combinations. The basis for determining the combinations is as follows:

The basis for determining the combination of notes receivable is as follows:

Notes Receivable Portfolio 1 Bank Acceptance Bill

Notes Receivable Portfolio 2 Commercial Acceptance Bill

Notes Receivable Portfolio 3 Finance Company Acceptance Bill

For notes receivable divided into portfolios, the Company refers to historical credit loss experience, combines current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and the expected credit loss rate throughout the duration. The basis for determining the combination of accounts receivable is as follows:

Accounts receivable portfolio 1 Customers within the scope of receivable consolidation

Accounts receivable portfolio 2 Receivables from non-consolidated customers

For accounts receivable divided into portfolios, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, prepares a comparison table between the aging of accounts receivable and the expected credit loss rate for the entire duration, and calculates expected credit losses.

The basis for determining the combination of other receivables is as follows:

Other receivables portfolio 1 Amounts receivable from companies within the consolidation scope

Other receivables portfolio 2 Amounts receivable from companies outside the scope of consolidation

For other receivables classified into portfolios, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and expected credit loss rate within the next 12 months or the entire duration.

The basis for determining the combination of receivables financing is as follows:

Receivables Financing Portfolio 1 Bank Acceptance Bill

Receivables Financing Package 2 Commercial Acceptance Bill

For the financing of receivables divided into portfolios, the Company refers to historical credit loss experience, combines current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and the expected credit loss rate throughout the duration.

The company's aging calculation method is based on the combination of aging recognition credit risk characteristics: the aging of accounts receivable and other receivables is recognized based on the time from the entry date to the balance sheet date.

Aging Expected credit loss rate of accounts receivable (%) Expected credit loss rate of other receivables (%) Within 1 year 5.00 5.00

1 to 2 years 10.00 10.00

2 to 3 years 30.00 30.00

Aging Expected credit loss rate of accounts receivable (%) Expected credit loss rate of other receivables (%) 3 to 4 years 60.00 60.00

4 to 5 years 80.00 80.00

More than 5 years 100.00 100.00

B. Debt investment and other debt investments

For debt investments and other debt investments, the Company calculates expected credit losses through the default risk exposure and the expected credit loss rate within the next 12 months or throughout the duration, based on the nature of the investment and various types of counterparties and risk exposures.

② Has lower credit risk

If the default risk of a financial instrument is low, the borrower has a strong ability to fulfill its contractual cash flow obligations in the short term, and even if there are adverse changes in the economic situation and operating environment in the longer term, it may not necessarily reduce the borrower's ability to fulfill its contractual cash flow obligations, the financial instrument is considered to have lower credit risk.

③Credit risk increases significantly

The Company compares the default probability of the financial instrument within the expected duration determined on the balance sheet date with the default probability within the expected duration determined at the time of initial recognition to determine the relative change in the default probability of the financial instrument during the expected duration to assess whether the credit risk of the financial instrument has increased significantly since the initial recognition.

When determining whether credit risk has increased significantly since initial recognition, the Company considers reasonable and supportable information, including forward-looking information, that is available without unnecessary additional cost or effort. The information considered by the company includes: A. Whether there are significant changes in internal price indicators caused by changes in credit risk;

B. Adverse changes in business, financial or economic conditions that are expected to result in significant changes in the debtor's ability to fulfill its debt repayment obligations;

C. Whether the actual or expected operating results of the debtor have significantly changed; whether the regulatory, economic or technological environment in which the debtor is located has significantly adverse changes;

D. Whether the value of the collateral used as collateral for the debt or the quality of the guarantee or credit enhancement provided by a third party has changed significantly. These changes are expected to reduce the debtor's economic incentives to repay within the contractual period or affect the probability of default;

E. Whether there is a significant change in the economic motivation that is expected to reduce the debtor's repayment within the contract period;

F. Anticipated changes in the loan contract, including whether anticipated breaches of the contract may result in the exemption or revision of contractual obligations, the granting of interest-free periods, jumps in interest rates, requirements for additional collateral or guarantees, or other changes to the contractual framework of financial instruments;

G. Whether the debtor’s expected performance and repayment behavior have changed significantly;

H. Whether the contract payment is overdue for more than 30 days (inclusive).

Depending on the nature of the financial instrument, the Company evaluates whether the credit risk has increased significantly on the basis of a single financial instrument or a combination of financial instruments. When evaluating based on a portfolio of financial instruments, the Company may classify financial instruments based on common credit risk characteristics, such as overdue information and credit risk ratings.

Normally, if it is overdue for more than 30 days, the Company determines that the credit risk of a financial instrument has increased significantly. Unless the company can obtain reasonable and evidence-based information without excessive cost or effort, proving that although the payment period stipulated in the contract exceeds 30 days, the credit risk has not increased significantly since the initial recognition.

④ Financial assets that have suffered credit impairment

The Company assesses whether credit impairment has occurred on financial assets measured at amortized cost and debt investments measured at fair value through other comprehensive income on the balance sheet date. When one or more events that have an adverse impact on the expected future cash flows of a financial asset occur, the financial asset becomes a credit-impaired financial asset. Evidence that a financial asset has been credit-impaired includes the following observable information:

The issuer or the debtor encounters significant financial difficulties; the debtor breaches the contract, such as default or overdue payment of interest or principal; the creditor grants the debtor concessions that would not be made under any other circumstances due to economic or contractual considerations related to the debtor's financial difficulties; the debtor is likely to go bankrupt or undergo other financial reorganization; the issuer or debtor's financial difficulties cause the active market for the financial asset to disappear; a financial asset is purchased or originated at a substantial discount, and the discount reflects the fact that a credit loss has occurred.

⑤ Presentation of expected credit loss provisions

In order to reflect changes in the credit risk of financial instruments since initial recognition, the company remeasures expected credit losses on each balance sheet date, and the resulting increase or reversal of loss provisions shall be included in the current profit and loss as impairment losses or gains. For financial assets measured at amortized cost, the loss provision is deducted from the book value of the financial asset listed in the balance sheet; for debt investments measured at fair value with changes included in other comprehensive income, the company recognizes its loss provision in other comprehensive income and does not deduct the book value of the financial asset.

⑥Writing off

If the company no longer reasonably expects that the contractual cash flows of a financial asset can be fully or partially recovered, it will directly write down the book balance of the financial asset. Such a write-down constitutes the derecognition of the relevant financial asset. This situation typically occurs when the Company determines that the debtor does not have the assets or sources of income to generate sufficient cash flow to repay the amount that will be written down.

If a financial asset that has been written down is later recovered, the reversal of the impairment loss will be included in the profit and loss of the current period of recovery.

(6) Transfer of financial assets

Financial asset transfer refers to the following two situations:

A. Transfer the contractual right to receive cash flows from financial assets to another party;

B. Transfer the financial asset in whole or in part to another party, but retain the contractual right to collect the cash flow from the financial asset and assume the contractual obligation to pay the collected cash flow to one or more payees.

① Termination of recognition of transferred financial assets

If substantially all the risks and rewards of ownership of a financial asset have been transferred to the transferee, or if substantially all the risks and rewards of ownership of a financial asset have neither been transferred nor retained, but control of the financial asset has been given up, the financial asset shall be derecognised.

When judging whether control of the transferred financial asset has been given up, the actual ability of the transferee to sell the financial asset is based on the transferee's actual ability to sell the financial asset. If the transferee can unilaterally sell the transferred financial assets as a whole to an unrelated third party, and there are no additional conditions to restrict this sale, the company has given up control of the financial assets.

When the Company determines whether the transfer of financial assets meets the conditions for derecognition of financial assets, the Company pays attention to the essence of the transfer of financial assets.

If the overall transfer of financial assets meets the conditions for derecognition, the difference between the following two amounts will be included in the current profit and loss:

A. Book value of the transferred financial assets;

B. The sum of the consideration received for the transfer and the amount corresponding to the derecognition portion of the cumulative amount of changes in fair value that was originally directly included in other comprehensive income (the financial assets involved in the transfer are financial assets classified as financial assets measured at fair value and their changes are included in other comprehensive income in accordance with Article 18 of "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments").

If a partial transfer of a financial asset meets the conditions for derecognition, the overall book value of the transferred financial asset shall be apportioned between the derecognized part and the non-derecognized part (in this case, the retained service assets shall be deemed to be part of the continued recognition of financial assets) according to their respective relative fair values on the date of transfer, and the difference between the following two amounts shall be included in the current profit and loss:

A. The book value of the derecognized part on the date of derecognition;

B. The consideration for the derecognized part is the amount of the corresponding derecognized part of the cumulative amount of changes in fair value originally included in other comprehensive income (the financial assets involved are transferred in accordance with the "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments"

Article 18 The sum of circumstances classified as financial assets measured at fair value with changes included in other comprehensive income). ② Continue to be involved in the transferred financial assets

If it neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, and does not give up control of the financial asset, the relevant financial assets shall be recognized to the extent of its continued involvement in the transferred financial assets, and the relevant liabilities shall be recognized accordingly.

The degree of continued involvement in the transferred financial assets refers to the degree of risk or reward that the enterprise bears from changes in the value of the transferred financial assets.

③Continue to recognize the transferred financial assets

If it still retains substantially all the risks and rewards of ownership of the transferred financial assets, the entire transferred financial assets should continue to be recognized, and the consideration received should be recognized as a financial liability.

The financial assets and the recognized related financial liabilities shall not be offset against each other. In subsequent accounting periods, the enterprise shall continue to recognize the income (or gains) generated by the financial assets and the expenses (or losses) generated by the financial liabilities.

(7) Offset of financial assets and financial liabilities

Financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset against each other. However, if the following conditions are met at the same time, the net amount after offsetting each other will be presented in the balance sheet:

The company has the legal right to offset the recognized amount, and such legal right is currently enforceable;

The Company plans to settle on a net basis, or to realize the financial assets and pay off the financial liabilities at the same time.

For transfers of financial assets that do not meet the conditions for derecognition, the transferor shall not offset the transferred financial assets and related liabilities.

(8) Method for determining fair value of financial instruments

Please refer to Note 3.12 for the method of determining the fair value of financial assets and financial liabilities.

Fair value measurement

Fair value refers to the price that can be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.

The company measures the fair value of relevant assets or liabilities at the price in the main market. If there is no main market, the company measures the fair value of the relevant assets or liabilities at the most favorable market price. The Company uses the assumptions used by market participants to maximize their economic interests when pricing the asset or liability.

The main market refers to the market with the largest transaction volume and the highest level of transaction activity for the relevant assets or liabilities; the most favorable market refers to the market in which the relevant assets can be sold at the highest amount or the relevant liabilities can be transferred at the lowest amount after taking into account transaction costs and transportation costs.

For financial assets or financial liabilities that have an active market, the Company determines their fair value using quotes in the active market. If there is no active market for a financial instrument, the Company uses valuation techniques to determine its fair value.

When measuring non-financial assets at fair value, the ability of market participants to use the asset for its best purpose to generate economic benefits is considered, or the ability to sell the asset to other market participants who can use it for its best purpose to generate economic benefits. ①Valuation technology

The Company adopts valuation techniques that are applicable under the current circumstances and supported by sufficient available data and other information. The valuation techniques used mainly include market method, income method and cost method. The company uses a method consistent with one or more of the valuation techniques to measure fair value. If it uses multiple valuation techniques to measure fair value, it considers the rationality of each valuation result and selects the amount that best represents the fair value under the current circumstances as the fair value.

In the application of valuation techniques, the Company gives priority to the use of relevant observable input values, and only uses unobservable input values when relevant observable input values cannot be obtained or are impractical to obtain. Observable input values refer to input values that can be obtained from market data. This input reflects the assumptions used by market participants when pricing the underlying asset or liability. Unobservable input values refer to input values that cannot be obtained from market data. The input is based on the best available information about the assumptions used by market participants in pricing the underlying asset or liability.

②Fair value level

The company divides the input values used in fair value measurement into three levels, and first uses the first level input values, then uses the second level input values, and finally uses the third level input values. The first level input value is the unadjusted quoted price in an active market for the same asset or liability that can be obtained on the measurement date. The second level input value is the directly or indirectly observable input value of the relevant assets or liabilities in addition to the first level input value. The third level input value is the unobservable input value of the relevant asset or liability.

Inventory

(1) Classification of inventory

Inventories refer to the finished products or commodities held by the company for sale in daily activities, products in progress during the production process, materials and supplies consumed in the production process or in the process of providing services, including raw materials, products in progress, goods in stock, goods shipped, turnover materials, etc.

(2) Valuation method for issued inventory

The Company's inventories are valued using the weighted average method when shipped.

(3) Inventory inventory system

The company's inventory adopts a perpetual inventory system, which is counted at least once a year. The amount of inventory gain and loss is included in the current year's profit and loss. (4) Recognition standards and accrual methods for inventory depreciation provisions

On the balance sheet date, it is measured at the lower of cost and net realizable value. If the inventory cost is higher than its net realizable value, a provision for inventory depreciation is made and included in the current profit and loss.

When determining the net realizable value of inventory, it is based on the reliable evidence obtained and factors such as the purpose of holding the inventory and the impact of events after the balance sheet date are considered.

① For inventories that are directly for sale, such as finished products, commodities and materials for sale, during the normal production and operation process, the net realizable value is determined by the estimated selling price of the inventory minus the estimated sales expenses and related taxes. For inventories held for the execution of a sales contract or a service contract, the contract price is used as the measurement basis for its net realizable value; if the quantity of inventory held is greater than the quantity ordered in the sales contract, the excess net realizable value of the inventory is measured based on the general sales price. For materials used for sale, the market price is used as the measurement basis of their net realizable value.

② For materials inventories that need to be processed, in the normal production and operation process, the net realizable value is determined by the estimated selling price of the finished products minus the estimated costs to be incurred upon completion, estimated sales expenses and related taxes. If the net realizable value of the finished product produced by it is higher than the cost, the material is measured at cost; if the drop in material price indicates that the net realizable value of the finished product is lower than the cost, the material is measured at net realizable value, and inventory depreciation provisions are made based on the difference.

③The company generally accrues inventory depreciation provisions based on individual inventory items; for inventories with large quantities and low unit prices, accrual is based on inventory categories.

④ On the balance sheet date, if the factors that caused the previous write-down of the inventory value have disappeared, the amount of the write-down will be restored and reversed within the amount of the inventory depreciation provision that was originally accrued, and the reversed amount will be included in the current profit and loss.

(5) Amortization method of turnover materials

①Amortization method for low-value consumables: The one-time write-off method is adopted when they are used.

②Amortization method of packaging materials: The one-time write-off method is adopted when receiving the goods.

Contract assets and contract liabilities

The Company presents contract assets or contract liabilities in the balance sheet based on the relationship between performance obligations and customer payments. Consideration that the Company has a right to receive for transferring goods or providing services to a customer (and that right is dependent on factors other than the passage of time) is shown as a contract asset. The Company's obligations to transfer goods or provide services to customers for consideration received or receivable from customers are listed as contract liabilities.

Please refer to Note 3.11 for details of the Company’s determination method and accounting treatment method of expected credit losses on contract assets.

Contract assets and contract liabilities are presented separately in the balance sheet. Contract assets and contract liabilities under the same contract are listed in a net amount. If the net amount is a debit balance, it is listed in the "contract assets" or "other non-current assets" item according to its liquidity; if the net amount is a credit balance, it is listed in the "contract liabilities" or "other non-current liabilities" item based on its liquidity. Contract assets and contract liabilities under different contracts cannot be offset against each other.

Contract costs

Contract costs are divided into contract performance costs and contract acquisition costs.

The costs incurred by the company to perform the contract are recognized as an asset as contract performance costs when the following conditions are met at the same time:

① The cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing overhead (or similar expenses), costs clearly borne by the customer, and other costs incurred solely because of the contract.

② This cost increases the company’s resources for fulfilling its performance obligations in the future.

③The cost is expected to be recovered.

The incremental costs incurred by the Company to obtain the contract are expected to be recovered and are recognized as an asset as the contract acquisition cost.

Assets related to contract costs are amortized on the same basis as the revenue recognition of goods or services related to the assets; however, if the amortization period of the contract acquisition costs does not exceed one year, the company will include them in the current profits and losses when incurred.

If the book value of assets related to contract costs is higher than the difference between the following two items, the company will make impairment provisions for the excess and recognize it as asset impairment losses, and further consider whether it should accrue estimated liabilities related to loss-making contracts:

①The remaining consideration expected to be obtained from the transfer of goods or services related to the asset;

② The estimated cost that will be incurred to transfer the relevant goods or services.

If the above-mentioned asset impairment provision is subsequently reversed, the book value of the asset after the reversal shall not exceed the book value of the asset on the date of reversal if no impairment provision was made.

For contract performance costs recognized as assets, if the amortization period does not exceed one year or one normal operating cycle when initially recognized, they are listed in the "inventory" item. When initially recognized, the amortization period exceeds one year or one normal operating cycle and are listed in the "other non-current assets" item.

For contract acquisition costs recognized as assets, if the amortization period does not exceed one year or one normal operating cycle when initially recognized, they are listed in the "other current assets" item. When initially recognized, the amortization period exceeds one year or one normal operating cycle and are listed in the "other non-current assets" item.

Long-term equity investment

The Company's long-term equity investments include equity investments that control and have significant influence on the invested units, as well as equity investments in joint ventures. If the company can exert significant influence on the invested unit, it is an associate of the company. (1) Basis for determining joint control and significant influence on the invested unit

Joint control refers to the shared control over an arrangement in accordance with relevant agreements, and the relevant activities of the arrangement must be decided only with the unanimous consent of the parties sharing control rights. When determining whether joint control exists, first determine whether all participants or a combination of participants collectively control the arrangement. If all participants or a group of participants must act in concert to decide on the relevant activities of an arrangement, then all participants or a group of participants are deemed to collectively control the arrangement. Next, determine whether decisions on activities related to the arrangement must be unanimously agreed upon by the participants who collectively control the arrangement. If a combination of two or more parties can collectively control an arrangement, it does not constitute joint control. When determining whether joint control exists, the protective rights enjoyed are not taken into account.

Significant influence means that the investor has the power to participate in decision-making on the financial and operating policies of the invested unit, but it is not able to control or jointly control the formulation of these policies with other parties. When determining whether it can exert significant influence on the invested unit, the investor's direct or indirect holding of voting shares of the invested unit and the impact of the current executable potential voting rights held by the investor and other parties are assumed to be converted into equity in the invested unit, including the impact of current convertible warrants, share options and convertible corporate bonds issued by the invested unit.

When the company directly or indirectly through its subsidiaries owns more than 20% (including 20%) but less than 50% of the voting shares of the invested unit, it is generally considered to have a significant impact on the invested unit. Unless there is clear evidence that it cannot participate in the production and operation decisions of the invested unit, it will not have a significant impact.

(2) Determination of initial investment cost

① The investment cost of long-term equity investment formed by enterprise merger shall be determined in accordance with the following provisions:

A. For business mergers under the same control, if the merging party pays cash, transfers non-cash assets or assumes debts as the merger consideration, the share of the book value of the owner's equity of the merged party in the final controlling party's consolidated financial statements on the merger date shall be used as the initial investment cost of the long-term equity investment. The difference between the initial investment cost of long-term equity investment and the cash paid, non-cash assets transferred and the book value of debts assumed shall be adjusted to the capital reserve; if the capital reserve is insufficient for offset, the retained earnings shall be adjusted;

B. In the merger of enterprises under the same control, if the merging party issues equity securities as the merger consideration, the share of the book value of the merged party's owner's equity in the final controlling party's consolidated financial statements on the merger date shall be used as the initial investment cost of the long-term equity investment. The total face value of the shares issued is taken as share capital. The difference between the initial investment cost of the long-term equity investment and the total face value of the shares issued is adjusted to the capital reserve; if the capital reserve is insufficient for offset, the retained earnings are adjusted;

C. For business mergers not under the same control, the fair value of the assets paid, liabilities incurred or assumed, and equity securities issued on the acquisition date to obtain control of the purchased party is determined as the merger cost as the initial investment cost of the long-term equity investment. The merging party's intermediary fees such as auditing, legal services, evaluation and consulting, and other related management expenses incurred by the business merger shall be included in the current profit and loss when incurred.

②Except for long-term equity investments formed through business mergers, the investment cost of long-term equity investments obtained through other means shall be determined in accordance with the following provisions:

A. For long-term equity investments obtained by payment of cash, the investment cost shall be based on the actual purchase price paid. Initial investment costs include fees, taxes and other necessary expenses directly related to obtaining long-term equity investment;

B. For long-term equity investments obtained by issuing equity securities, the initial investment cost shall be the fair value of the equity securities issued;

C. For long-term equity investments obtained through the exchange of non-monetary assets, if the exchange has commercial substance and the fair value of the assets exchanged or exchanged out can be measured reliably, the fair value of the assets exchanged out and related taxes and fees will be used as the initial investment cost, and the difference between the fair value and book value of the assets exchanged out will be included in the current profit and loss; if the exchange of non-monetary assets does not meet the above two conditions at the same time, the book value of the assets exchanged out and related taxes and fees will be used as the initial investment cost.

D. For long-term equity investments obtained through debt restructuring, the book value is determined based on the fair value of the relinquished claims and taxes and other costs directly attributable to the asset, and the difference between the fair value of the relinquished claims and the book value is included in the current profit and loss.

(3) Subsequent measurement and profit and loss recognition methods

The long-term equity investment that the company can control over the investee is accounted for using the cost method; the long-term equity investment in associates and joint ventures is accounted for using the equity method.

①Cost method

For long-term equity investments accounted for using the cost method, the cost of the long-term equity investment is adjusted when the investment is added or recovered; cash dividends or profits declared by the investee to be distributed are recognized as investment income for the current period.

②Equity method

For long-term equity investments accounted for using the equity method, the general accounting treatment is:

If the investment cost of the company's long-term equity investment is greater than the fair value share of the investee's identifiable net assets at the time of investment, the initial investment cost of the long-term equity investment will not be adjusted; if the initial investment cost of the long-term equity investment is less than the fair value share of the investee's identifiable net assets at the time of investment, the difference will be included in the current profit and loss, and the cost of the long-term equity investment will be adjusted at the same time.

The company recognizes investment income and other comprehensive income respectively according to its share of the net profit or loss and other comprehensive income realized by the invested unit, and adjusts the book value of the long-term equity investment at the same time; the company calculates its share of the profits or cash dividends declared by the invested unit, and accordingly reduces the book value of the long-term equity investment; for other changes in the owner's equity of the invested unit other than net profits and losses, other comprehensive income and profit distribution, the company adjusts the book value of the long-term equity investment and includes it in the owner's equity. When confirming the share of the investee's net profits and losses, the net profit of the investee is adjusted and recognized based on the fair value of the investee's identifiable net assets when the investment is obtained. If the accounting policies and accounting periods adopted by the invested unit are inconsistent with those of the Company, the financial statements of the invested unit shall be adjusted in accordance with the Company's accounting policies and accounting periods, and investment income and other comprehensive income shall be recognized accordingly. Unrealized gains and losses from internal transactions between the Company and its associates and joint ventures are offset based on the proportion attributable to the Company, and investment gains and losses are recognized on this basis. If the unrealized internal transaction losses between the company and the investee belong to asset impairment losses, they should be recognized in full.

If the investee can exert significant influence or implement joint control due to additional investment or other reasons but does not constitute control, the sum of the fair value of the original equity investment plus the cost of the new investment shall be used as the initial investment cost to be calculated according to the equity method. If the equity investment originally held is classified as other equity instrument investment, the difference between its fair value and book value, as well as the accumulated gains or losses originally included in other comprehensive income, shall be transferred out of other comprehensive income in the current period when it is calculated according to the equity method and included in retained earnings.

If joint control or significant influence over the invested unit is lost due to disposal of part of the equity investment or other reasons, the remaining equity after disposal shall be measured at fair value, and the difference between its fair value and book value on the date of loss of joint control or significant influence shall be included in the current profit and loss. Other comprehensive income recognized as a result of the original equity investment being accounted for using the equity method will be accounted for on the same basis as if the investee directly disposed of relevant assets or liabilities when the equity method is terminated. (4) Equity investments held for sale

For remaining equity investments that are not classified as assets held for sale, the equity method is used for accounting treatment.

If an equity investment in an associate or joint venture that has been classified as held for sale no longer meets the classification conditions for assets held for sale, it will be retrospectively adjusted using the equity method from the date it is classified as an asset held for sale. The financial statements during the period classified as held for sale are adjusted accordingly.

(5) Impairment testing method and impairment provision accrual method

For investments in subsidiaries, associates and joint ventures, please refer to Note 3.22 for the method of calculating asset impairment.

Investment real estate

(1) Classification of investment real estate

An investment property is real estate held to earn rentals or for capital appreciation, or both. Mainly include: ①Leased land use rights.

② Land use rights held and prepared to be transferred after appreciation.

③ Buildings that have been leased.

(2) Measurement model of investment real estate

The company adopts the cost model for subsequent measurement of investment real estate. Please refer to Note 3.22 for the method of accruing asset impairment.

Fixed assets

Fixed assets refer to tangible assets with a high unit value that are held for the purpose of producing goods, providing labor services, renting or operating management, with a service life of more than one year.

(1) Confirmation conditions

When fixed assets meet the following conditions at the same time, they shall be recognized at the actual cost when acquired:

①The economic benefits related to the fixed asset are likely to flow into the enterprise.

②The cost of the fixed asset can be measured reliably.

Subsequent expenditures incurred on fixed assets that meet the fixed asset recognition conditions are included in the cost of the fixed assets; those that do not meet the fixed asset recognition conditions are included in the current profit and loss when incurred.

(2) Depreciation methods for various types of fixed assets

The company accrues depreciation based on the straight-line method from the month after the fixed assets reach their intended usable condition. The depreciation life and annual depreciation rate are determined based on the category of fixed assets, estimated economic useful life and estimated net residual value rate as follows:

Category Depreciation method Depreciation period (years) Residual value rate (%) Annual depreciation rate (%) Houses and buildings Year-average method 35 5 2.71

Machinery and equipment Average life method 10 5 9.50

Transportation equipment Average age method 5 5 19

Office equipment Average age method 5 5 19

Electronic equipment Average age method 5 5 19

For fixed assets that have been provided for impairment, the provision for impairment of fixed assets will be deducted when calculating depreciation. At the end of each year, the company reviews the useful life, estimated net residual value and depreciation method of fixed assets. If the estimated useful life is different from the original estimate, the useful life of the fixed assets will be adjusted.

Construction in progress

(1) Construction in progress is classified and accounted for by approved projects.

(2) Standards and timing for transferring projects under construction into fixed assets

For projects under construction, all expenditures incurred before the asset reaches its intended usable state shall be regarded as the recorded value of the fixed assets. Including construction costs, the original price of machinery and equipment, other necessary expenditures incurred to bring the project under construction to its intended usable state, as well as the borrowing costs incurred for special borrowing for the project before the asset reaches its intended usable state and the borrowing costs incurred for general borrowings occupied. The company will transfer the construction in progress to fixed assets when the project installation or construction is completed and reaches the intended usable state. Fixed assets that have been constructed and have reached the intended usable state but have not yet processed the final settlement of completion will be transferred to fixed assets at an estimated value based on the project budget, cost or actual cost of the project from the date they reach the intended usable state, and depreciation of the fixed assets will be accrued in accordance with the company's fixed asset depreciation policy. After the final settlement of completion has been processed, the original estimated value will be adjusted based on the actual cost, but the originally accrued depreciation amount will not be adjusted.

Borrowing costs

(1) Recognition principles and capitalization period of capitalization of borrowing costs

The borrowing costs incurred by the Company that are directly attributable to the acquisition, construction or production of assets that meet the capitalization conditions will be capitalized and included in the cost of the relevant assets when the following conditions are met at the same time:

① Asset expenditure has occurred;

②The borrowing costs have been incurred;

③The necessary purchase, construction or production activities to bring the asset to its intended usable state have begun.

Other borrowing interests, discounts or premiums and exchange differences are included in the profits and losses of the current period.

If an asset that meets the capitalization conditions is abnormally interrupted during the acquisition, construction or production process, and the interruption lasts for more than 3 months, the capitalization of borrowing costs will be suspended.

When the acquisition, construction or production of assets that meet the capitalization conditions reaches the intended usable or salable state, the capitalization of borrowing costs will be stopped; subsequent borrowing costs will be recognized as expenses in the current period in which they are incurred.

(2) Calculation method of capitalization rate of borrowing costs and capitalization amount

If a special loan is borrowed for the purpose of purchasing, constructing or producing assets that meet the capitalization conditions, the capitalized amount of the special borrowing interest fee shall be determined as the amount of interest expense actually incurred on the special borrowing in the current period, minus the interest income obtained from depositing the unused borrowed funds in the bank or the investment income obtained from temporary investment.

If general borrowings are occupied by the acquisition, construction or production of assets that meet the capitalization conditions, the amount of interest that should be capitalized on the general borrowings shall be calculated and determined based on the weighted average of the asset disbursements that exceed the part of the special borrowings multiplied by the capitalization rate of the occupied general borrowings. The capitalization rate is calculated and determined based on the weighted average interest rate of general borrowings.

Intangible assets

(1) Valuation method of intangible assets

Recorded at actual cost when acquired.

(2) Useful life and amortization of intangible assets

① Estimation of useful life of intangible assets with limited service life:

Item Estimated service life Basis

Software usage rights: 2 years. The service life is determined by referring to the period that can bring economic benefits to the company.

At the end of each year, the company reviews the service life and amortization method of intangible assets with limited service life. After review, the useful life and amortization method of the intangible assets at the end of the current period are no different from previous estimates.

② If it is impossible to predict the period during which an intangible asset will bring economic benefits to the enterprise, it shall be regarded as an intangible asset with an indefinite useful life. For intangible assets with uncertain useful lives, the company will review the useful lives of intangible assets with uncertain useful lives at the end of each year. If the useful lives of intangible assets with uncertain useful lives are still uncertain after re-review, an impairment test will be conducted on the balance sheet date.

③Amortization of intangible assets

For intangible assets with limited service life, the company determines its service life when it acquires it, and uses the straight-line method to rationally amortize it within the service life. The amortization amount is included in the current profit and loss according to the benefit items or included in the cost of related assets. The specific amount that should be amortized is the amount after deducting the estimated residual value from the cost. For intangible assets for which impairment provisions have been made, the accumulated amount of impairment provisions for intangible assets that have been made shall also be deducted. The residual value of an intangible asset with a limited useful life is deemed to be zero, except in the following circumstances: a third party has committed to purchase the intangible asset at the end of its useful life or the estimated residual value information can be obtained based on an active market, and the market is likely to exist at the end of the intangible asset's useful life.

Intangible assets with indefinite useful lives are not amortized. The service life of intangible assets with indefinite service life is reviewed at the end of each year. If there is evidence that the service life of the intangible asset is limited, its service life is estimated and amortized systematically and reasonably within the expected service life.

(3) Scope of R&D expenditure collection

The Company classifies various expenses directly related to the development of R&D activities as R&D expenditures, including employee salaries of R&D personnel, direct input material costs, rent and property expenses, inspection fees, depreciation expenses, travel expenses, long-term deferred expenses, amortization of intangible assets, entrusted external research technology service fees, and other expenses, etc.

(4) Specific standards for dividing the research stage and development stage of internal research and development projects

① The company regards the preparation of information and related aspects for further development activities as the research stage. Expenditures in the research stage of intangible assets are included in the current profit and loss when incurred.

② Development activities carried out after the company has completed the research phase are regarded as the development phase.

(5) Specific conditions for capitalization of expenditures during the development phase

Expenditures in the development stage can be recognized as intangible assets only when they meet the following conditions:

A. It is technically feasible to complete the intangible asset so that it can be used or sold;

B. Have the intention to complete the intangible asset and use or sell it;

C. The way intangible assets generate economic benefits includes being able to prove that there is a market for the products produced using the intangible assets or that the intangible assets themselves have a market. If the intangible assets will be used internally, their usefulness can be proven;

D. Have sufficient technical, financial and other resource support to complete the development of the intangible asset, and have the ability to use or sell the intangible asset;

E. The expenditures attributable to the development stage of the intangible asset can be measured reliably.

Impairment of long-term assets

The asset impairment of long-term equity investments in subsidiaries, associates and joint ventures, investment real estate, fixed assets, projects under construction, right-of-use assets, intangible assets, goodwill, and (except inventories, deferred income tax assets, and financial assets) that are subsequently measured using the cost model is determined according to the following method:

On the balance sheet date, it is judged whether there are any signs that the asset may be impaired. If there are signs of impairment, the company will estimate its recoverable amount and conduct an impairment test. Goodwill formed due to business mergers, intangible assets with indefinite useful lives and intangible assets that have not yet reached a usable state are subject to impairment testing every year regardless of whether there are signs of impairment. The recoverable amount is determined based on the higher of the asset's fair value less disposal costs and the present value of the asset's expected future cash flows. The Company estimates the recoverable amount on the basis of a single asset; if it is difficult to estimate the recoverable amount of an individual asset, the recoverable amount of the asset group to which the asset belongs is determined based on the asset group. The identification of an asset group is based on whether the main cash inflow generated by the asset group is independent of the cash inflows of other assets or asset groups. When the recoverable amount of an asset or asset group is lower than its book value, the company will write down its book value to the recoverable amount, and the amount of the write-down will be included in the current profit and loss, and the corresponding asset impairment provision will be made.

As far as the impairment test of goodwill is concerned, the book value of goodwill formed due to a business combination shall be allocated to the relevant asset groups in a reasonable manner from the date of purchase; if it is difficult to allocate it to the relevant asset groups, it shall be allocated to the relevant asset group combinations. The relevant asset group or asset group combination is an asset group or asset group combination that can benefit from the synergistic effects of the business combination, and is no larger than the reporting segment determined by the company.

During impairment testing, if there are signs of impairment in an asset group or combination of asset groups related to goodwill, first conduct an impairment test on the asset group or combination of asset groups that does not include goodwill, calculate the recoverable amount, and recognize the corresponding impairment loss. Then conduct an impairment test on the asset group or asset group combination containing goodwill, and compare its book value with the recoverable amount. If the recoverable amount is lower than the book value, the impairment loss of goodwill is recognized.

Once the asset impairment loss is recognized, it will not be reversed in subsequent accounting periods.

Long-term deferred expenses

Long-term deferred expenses are calculated as various expenses that have been incurred by the company but should be borne by the current and subsequent periods with an amortization period of more than one year.

The company's long-term deferred expenses are amortized evenly during the benefit period. The amortization period of each expense is as follows:

Item Amortization period

Decoration fee 5-10 years

Employee compensation

Employee compensation refers to various forms of remuneration or compensation given by the company to obtain services provided by employees or to terminate labor relations. Employee compensation includes short-term compensation, post-employment benefits, termination benefits and other long-term employee benefits. The benefits provided by the company to employees' spouses, children, dependents, survivors of deceased employees and other beneficiaries are also employee benefits.

Based on liquidity, employee benefits are listed in the "Employee Benefits Payable" item and the "Long-term Employee Benefits Payable" item on the balance sheet respectively.

(1) Accounting treatment method for short-term compensation

①Basic salary of employees (wages, bonuses, allowances, subsidies)

During the accounting period when employees provide services to them, the Company recognizes actual short-term remuneration as a liability and includes it in the current profit and loss, unless other accounting standards require or allow it to be included in the cost of assets.

②Employee welfare fees

The employee welfare expenses incurred by the company shall be included in the current profit and loss or related asset costs according to the actual amount when they are actually incurred. If employee benefits are non-monetary benefits, they are measured at fair value.

③Medical insurance premiums, work-related injury insurance premiums, maternity insurance premiums and other social insurance premiums and housing provident funds, as well as labor union funds and employee education funds

The company pays social insurance premiums such as medical insurance premiums, work-related injury insurance premiums, maternity insurance premiums, and housing provident funds for its employees, as well as labor union funds and employee education funds withdrawn in accordance with regulations. During the accounting period when employees provide services to them, the corresponding amount of employee compensation is calculated and determined based on the prescribed accrual basis and accrual ratio, and the corresponding liabilities are recognized and included in the current profit and loss or related asset costs.

④Short-term paid absence from work

When employees provide services that increase their future paid absence rights, the company recognizes employee benefits related to accumulated paid absences and measures them based on the expected increase in payment amount due to accumulated unexercised rights. The Company recognizes employee benefits related to non-cumulative paid absences during the accounting period in which employees are actually absent.

⑤Short-term profit sharing plan

If the profit sharing plan meets the following conditions at the same time, the company will confirm the relevant employee benefits payable:

A. The enterprise now has a legal obligation or constructive obligation to pay employee remuneration due to past events;

B. The amount of employee compensation obligations payable due to the profit sharing plan can be estimated reliably.

(2) Accounting treatment of post-employment benefits

① Set up a withdrawal plan

During the accounting period when employees provide services to them, the company recognizes the deposit amount payable calculated according to the defined contribution plan as a liability and includes it in the current profit and loss or related asset costs.

According to the defined contribution plan, if the entire amount of deposits payable is not expected to be paid within twelve months after the end of the annual reporting period in which employees provide relevant services, the company shall refer to the corresponding discount rate (determined based on the market rate of return of treasury bonds or high-quality corporate bonds in the active market that match the obligation period and currency of the defined contribution plan on the balance sheet date), and measure the entire amount of deposits payable at the discounted amount.

②Defined benefit plan

A. Determine the present value of defined benefit plan obligations and current service costs

According to the expected cumulative benefit unit method, unbiased and mutually consistent actuarial assumptions are used to estimate relevant demographic variables and financial variables, measure the obligations arising from the defined benefit plan, and determine the vesting period of the relevant obligations. The Company discounts the obligations arising from the defined benefit plan at the corresponding discount rate (determined based on the market yield of treasury bonds or high-quality corporate bonds in the active market that match the obligation term and currency of the defined benefit plan on the balance sheet date) to determine the present value of the defined benefit plan obligations and the current service cost.

B. Confirm the net liabilities or net assets of the defined benefit plan

If there are assets in the defined benefit plan, the company will recognize the deficit or surplus formed by the present value of the defined benefit plan obligations minus the fair value of the defined benefit plan assets as the net liability or net assets of a defined benefit plan.

If there is a surplus in the defined benefit plan, the company shall measure the net assets of the defined benefit plan at the lower of the surplus of the defined benefit plan and the asset upper limit.

C. Determine the amount that should be included in the asset cost or current profit and loss

Service costs include current service costs, past service costs and settlement gains or losses. Among them, except for current service costs that are required or allowed to be included in asset costs by other accounting standards, other service costs are included in current profits and losses. The net interest on the net liabilities or net assets of a defined benefit plan, including interest income on plan assets, interest expenses on defined benefit plan obligations, and interest affected by the asset ceiling, are all included in the current profit and loss.

D. Determine the amount that should be included in other comprehensive income

Changes resulting from remeasurement of the net liabilities or net assets of the defined benefit plan include:

(a) Actuarial gain or loss, that is, the increase or decrease in the present value of the previously measured defined benefit plan obligations due to actuarial assumptions and experience adjustments;

(b) Return on plan assets, net of the amount included in the net interest on the net liabilities or net assets of the defined benefit plan; (c) Changes affected by the asset cap, net of the amount included in the net interest on the net liabilities or net assets of the defined benefit plan.

The changes resulting from the above-mentioned remeasurement of the net liabilities or net assets of the defined benefit plan are directly included in other comprehensive income, and are not allowed to be transferred back to profit and loss in subsequent accounting periods. When the original defined benefit plan is terminated, the company will carry forward all the parts originally included in other comprehensive income to undistributed profits within the scope of equity.

(3) Accounting treatment method for dismissal benefits

If the company provides dismissal benefits to employees, the employee compensation liabilities arising from the dismissal benefits will be recognized at the earliest of the following two times, and included in the current profit and loss:

① When the enterprise cannot unilaterally withdraw the dismissal benefits provided due to the labor relationship termination plan or layoff proposal;

② When the enterprise confirms the costs or expenses related to the restructuring involving the payment of termination benefits.

If the dismissal benefit is not expected to be fully paid within twelve months after the end of the annual reporting period, the dismissal benefit amount will be discounted with reference to the corresponding discount rate (determined based on the market yield of treasury bonds or high-quality corporate bonds in the active market that match the obligation period and currency of the defined benefit plan on the balance sheet date), and the employee benefits payable will be measured at the discounted amount. (4) Accounting treatment methods for other long-term employee benefits

①Those who meet the conditions of the defined contribution plan

If the company provides other long-term employee benefits to employees that meet the conditions of the defined contribution plan, the entire payable deposit amount will be measured as the discounted amount of employee benefits payable.

②Meet the conditions for defined benefit plan

At the end of the reporting period, the company recognizes employee compensation costs arising from other long-term employee benefits as the following components: A. Service costs;

B. Net interest on other long-term employee benefits net liabilities or net assets;

C. Changes caused by re-measurement of other long-term employee benefits net liabilities or net assets.

In order to simplify the relevant accounting treatment, the total net amount of the above items is included in the current profit and loss or related asset costs.

Estimated liabilities

(1) Recognition standards for estimated liabilities

If the obligations related to contingencies meet the following conditions at the same time, the company will recognize them as estimated liabilities:

①The obligation is the current obligation of the company;

②The performance of this obligation is likely to result in the outflow of economic benefits from the company;

③The amount of the obligation can be measured reliably.

(2) Measurement method of estimated liabilities

Estimated liabilities are initially measured based on the best estimate of the expenditure required to fulfill the relevant current obligations, and factors such as risks, uncertainties, and time value of money related to contingencies are comprehensively considered. The book value of estimated liabilities is reviewed on each balance sheet date. If there is conclusive evidence that the book value cannot reflect the current best estimate, the book value will be adjusted based on the current best estimate.

Share-based payment

(1) Types of share-based payment

The Company's share-based payment includes cash-settled share-based payment and equity-settled share-based payment.

(2) Method for determining the fair value of equity instruments

① For shares granted to employees, their fair value is measured based on the market price of the company's shares, and adjusted by taking into account the terms and conditions on which the shares are granted (excluding vesting conditions other than market conditions). ② For stock options granted to employees, in many cases it is difficult to obtain the market price. If no trading options exist with similar terms and conditions, the Company selects an applicable option pricing model to estimate the fair value of the options granted.

(3) Basis for confirming the best estimate of exercisable equity instruments

On each balance sheet date during the waiting period, the company makes its best estimate based on the latest changes in the number of vested employees and other subsequent information, and corrects the number of equity instruments expected to be vested to make the best estimate of the vested equity instruments. (4) Accounting treatment for the implementation of share-based payment plans

cash-settled share-based payment

① For cash-settled share-based payments that become exercisable immediately after grant, the fair value of the liability assumed by the company on the grant date will be included in the relevant costs or expenses, and the liability will increase accordingly. The fair value of the liability is remeasured on each balance sheet date and settlement date before settlement, and the changes are included in profit and loss.

② For cash-settled share-based payments that are exercisable only after the services within the waiting period are completed or the specified performance conditions are met, on each balance sheet date during the waiting period, based on the best estimate of the vesting situation and the fair value of the liability borne by the company, the services obtained in the current period are included in costs or expenses and corresponding liabilities.

Equity-settled share-based payment

① Equity-settled share-based payments that are exercisable immediately after grant in exchange for employee services will be included in the relevant costs or expenses at the fair value of the equity instrument on the date of grant, and the capital reserve will be increased accordingly.

② For equity-settled share-based payments that are exercisable in exchange for employee services after completing services within the waiting period or reaching specified performance conditions, on each balance sheet date during the waiting period, based on the best estimate of the number of exercisable equity instruments and the fair value on the date of grant of the equity instrument, the services obtained in the current period are included in costs or expenses and capital reserves.

(5) Accounting treatment for modifications to share-based payment plans

When the company modifies the share-based payment plan, if the modification increases the fair value of the equity instruments granted, the increase in services obtained shall be recognized accordingly according to the increase in the fair value of the equity instruments; if the modification increases the number of equity instruments granted, the fair value of the increased equity instruments shall be recognized accordingly as an increase in services obtained. The increase in the fair value of equity instruments refers to the difference between the fair values of the equity instruments before and after the modification on the modification date. If the modification reduces the total fair value of the share-based payment or modifies the terms and conditions of the share-based payment plan in other ways that are unfavorable to employees, the accounting treatment for the services obtained will continue, as if the change has never occurred, unless the company cancels some or all of the equity instruments that have been granted.

(6) Accounting treatment for termination of share-based payment plan

If the granted equity instruments are canceled or settled during the waiting period (except those canceled due to failure to meet vesting conditions), the company:

① Treat cancellation or settlement as accelerated vesting, and immediately recognize the amount that should have been recognized within the remaining waiting period; ② All payments to employees upon cancellation or settlement are treated as repurchases of equity, and the amount paid for repurchase is higher than the fair value of the equity instrument on the repurchase date, and is included in current expenses.

If the company repurchases an equity instrument that has been exercised by its employees, it will offset the owner's equity of the enterprise; the part of the repurchase payment that is higher than the fair value of the equity instrument on the repurchase date shall be included in the current profit and loss.

Revenue recognition principles and measurement methods

(1) General principles

Income is the total inflow of economic benefits generated by the company in its daily activities that will lead to an increase in shareholders' equity and have nothing to do with the capital invested by shareholders.

The company fulfills its performance obligations in the contract, that is, when the customer obtains control of the relevant goods, revenue is recognized. Obtaining control over relevant goods means being able to direct the use of the goods and obtain almost all economic benefits from them.

If the contract contains two or more performance obligations, the Company will allocate the transaction price to each individual performance obligation based on the relative proportion of the stand-alone selling price of the goods or services promised by each individual performance obligation on the contract commencement date, and measure revenue based on the transaction price allocated to each individual performance obligation.

The transaction price is the amount of consideration that the Company expects to be entitled to receive for transferring goods or services to the customer, excluding payments received on behalf of third parties. When determining the contract transaction price, if there is variable consideration, the company determines the best estimate of the variable consideration based on the expected value or the most likely amount, and includes it in the transaction price at an amount that does not exceed the amount that is unlikely to significantly reverse the cumulative recognized revenue when the relevant uncertainty is eliminated. If there is a significant financing component in the contract, the company will determine the transaction price based on the amount payable in cash by the customer when it obtains control of the product. The difference between the transaction price and the contract consideration will be amortized using the effective interest method during the contract period. If the interval between the transfer of control and the customer's payment does not exceed one year, the company will not consider the financing component.

If one of the following conditions is met, the performance obligation is performed within a certain period of time; otherwise, the performance obligation is performed at a certain point in time:

① When the company performs the contract, the customer obtains and consumes the economic benefits brought by the company's performance;

②The customer can control the goods under construction during the company's performance of the contract;

③The goods produced by the company during the performance of the contract have irreplaceable uses, and the company has the right to collect payment for the cumulative performance part that has been completed so far during the entire contract period.

For performance obligations performed within a certain period of time, the Company will recognize revenue based on the performance progress during that period, except where the performance progress cannot be reasonably determined. The Company determines the performance progress of services provided according to the input method (or output method). When the progress of contract performance cannot be reasonably determined, if the costs incurred by the company are expected to be compensated, revenue will be recognized based on the amount of costs incurred until the progress of contract performance can be reasonably determined.

For performance obligations fulfilled at a certain point in time, the Company recognizes revenue at the point when the customer obtains control of the relevant goods. When judging whether the customer has obtained control of the goods or services, the company will consider the following signs:

① The company has the current right to receive payment for the goods or services, that is, the customer has current payment obligations for the goods; ② The company has transferred the legal ownership of the goods to the customer, that is, the customer has the legal ownership of the goods; ③ The company has transferred the physical goods of the goods to the customer, that is, the customer has physical possession of the goods;

④ The company has transferred the main risks and rewards of ownership of the commodity to the customer, that is, the customer has obtained the main risks and rewards of ownership of the commodity;

⑤The customer has accepted the product.

Sales Return Terms

For sales with a sales return clause, when the customer obtains control of the relevant goods, the company recognizes revenue based on the amount of consideration that the customer is entitled to receive for transferring the goods to the customer, and recognizes the amount expected to be refunded due to sales returns as estimated liabilities; at the same time, the book value of the goods that are expected to be returned at the time of transfer, after deducting the estimated costs of recovering the goods (including the value impairment of the returned goods), is recognized as an asset, that is, the cost of returns receivable. The book value of the transferred goods at the time of transfer, minus the net carry-over cost of the above-mentioned asset costs. On each balance sheet date, the company re-estimates future sales returns and re-measures the above assets and liabilities.

Warranty obligations

In accordance with contract stipulations, legal regulations, etc., the company provides quality assurance for the products sold and the projects constructed. For guarantee-type quality assurance that is used to ensure that the goods sold meet established standards for customers, the Company conducts accounting treatment in accordance with "Accounting Standards for Business Enterprises No. 13 - Contingencies". For service-type quality assurance that provides a separate service to customers in addition to ensuring that the goods sold meet established standards, the company treats it as a single performance obligation and allocates part of the transaction price to the service-type quality assurance based on the relative proportion of the separate selling price of the goods and service-type quality assurance provided, and recognizes revenue when the customer obtains control of the service. When assessing whether a quality guarantee provides a separate service to customers beyond the assurance that the goods sold meet established standards, the Company considers factors such as whether the quality guarantee is a statutory requirement, the duration of the quality guarantee and the nature of the tasks to which the Company undertakes to perform.

Main Responsible Person and Agent

The Company determines whether the Company is the principal or agent when engaging in transactions based on whether it has control over the goods or services before transferring them to the customer. If the company is able to control the goods or services before transferring them to the customer, the company is the primary responsible person and recognizes revenue based on the total amount of consideration received or receivable. Otherwise, the company acts as an agent and recognizes revenue based on the amount of commissions or fees that it is expected to be entitled to receive. This amount should be determined based on the net amount of the total consideration received or receivable after deducting the price payable to other related parties, or based on the established commission amount or ratio.

Consideration payable to customers

If there is consideration payable to customers in the contract, unless the consideration is for obtaining other clearly distinguishable goods or services from customers, the company will offset the consideration payable from the transaction price, and offset the current revenue at the later of the recognition of relevant income and the payment (or commitment to pay) of the customer consideration.

Customer’s unexercised contractual rights

If the company receives payment in advance from customers for the sale of goods or services, it will first recognize the payment as a liability and then convert it into revenue when the relevant performance obligations are fulfilled. When the Company's advance receipt does not need to be returned and the customer may give up all or part of its contractual rights, and the Company expects to be entitled to the amount related to the contractual rights given up by the customer, the above amount will be recognized as revenue in proportion according to the customer's mode of exercising the contract rights; otherwise, the Company will only convert the relevant balance of the above liabilities into revenue when the possibility of the customer's request to perform the remaining performance obligations is extremely low.

Contract changes

When the construction contract between the company and the customer is changed:

① If the contract change adds clearly distinguishable construction services and contract prices, and the new contract price reflects the separate selling price of the new construction services, the company will account for the contract change as a separate contract;

② If the contract change does not fall into the above ① situation, and the construction services that have been transferred and the construction services that have not been transferred can be clearly distinguished on the date of contract change, the company will regard it as the termination of the original contract, and at the same time, the unperformed part of the original contract and the changed part of the contract will be combined into a new contract for accounting treatment;

③ If the contract change does not fall into the above ① situation, and the construction services that have been transferred and the construction services that have not been transferred cannot be clearly distinguished on the date of contract change, the company will account for the contract change as an integral part of the original contract. The resulting impact on the recognized revenue will be adjusted to the current revenue on the contract change date.

(2) Specific methods

The specific method of revenue recognition of the Company is as follows:

A commodity sales contract

①Products that require installation

According to the contract, after the goods have been shipped, the customer's receipt is obtained, and the installation and debugging are completed and the installation acceptance form is obtained, the revenue will be recognized at that point in time.

②Products that do not require installation

According to the contract, after the goods have been shipped and the customer's receipt is obtained, the revenue will be recognized at that time.

B Provide service contract

①Intelligent network monitoring platform

According to the contract, after obtaining the project expert acceptance report or the project completion acceptance report, the realization of income will be recognized at that point in time.

②Testing service

According to the contract, the company will recognize the realization of revenue after issuing the test report.

Government subsidies

(1) Confirmation of government subsidies

Government subsidies can only be confirmed if they meet the following conditions at the same time:

① The company can meet the conditions attached to the government subsidy;

②The company can receive government subsidies.

(2) Measurement of government subsidies

If government subsidies are monetary assets, they shall be measured based on the amount received or receivable. If the government subsidy is a non-monetary asset, it shall be measured at fair value; if the fair value cannot be obtained reliably, it shall be measured at the nominal amount of 1 yuan.

(3) Accounting treatment of government subsidies

①Government subsidies related to assets

Government subsidies obtained by the company and used to purchase, construct or otherwise form long-term assets are classified as asset-related government subsidies. Government subsidies related to assets are recognized as deferred income and are included in profits and losses in installments according to a reasonable and systematic method during the use period of the relevant assets. Government subsidies measured according to the nominal amount are directly included in the current profit and loss. If the relevant assets are sold, transferred, scrapped or damaged before the end of their useful life, the undistributed balance of relevant deferred income will be transferred to the profit and loss of the current period of asset disposal.

②Government subsidies related to income

Government subsidies other than asset-related government subsidies are classified as income-related government subsidies. Government subsidies related to income shall be accounted for in accordance with the following provisions on a case-by-case basis:

If it is used to compensate the company for relevant costs or losses in subsequent periods, it will be recognized as deferred income, and will be included in the current profit and loss during the period when the relevant costs or losses are recognized;

If it is used to compensate for the relevant costs or losses incurred by the company, it will be directly included in the current profit and loss.

For government subsidies that contain both asset-related parts and income-related parts, different parts shall be distinguished and accounted for separately; if it is difficult to distinguish, the whole shall be classified as income-related government subsidies.

Government subsidies related to the company's daily activities are included in other income based on the economic and business essence. Government subsidies that are not related to the company's daily activities are included in non-operating income and expenses.

③Policy preferential loan interest discounts

The finance department will allocate interest discount funds to the lending bank, and the lending bank will provide loans to the company at a policy preferential interest rate. The actual loan amount received will be used as the entry value of the loan, and the relevant borrowing costs will be calculated based on the loan principal and the policy preferential interest rate.

The finance department will directly allocate interest discount funds to the company, and the company will use the corresponding interest discount to offset related borrowing costs.

④Refund of government subsidies

When a confirmed government subsidy needs to be returned, if the book value of the relevant assets is offset at the time of initial recognition, the book value of the assets is adjusted; if there is a balance of relevant deferred income, the book balance of the relevant deferred income is offset, and the excess is included in the current profit and loss; in other cases, it is directly included in the current profit and loss.

Deferred tax assets and deferred tax liabilities

The Company usually uses the balance sheet debt method to recognize and measure the impact of taxable temporary differences or deductible temporary differences on income tax as deferred income tax liabilities or deferred income tax assets based on the temporary differences between the book values and tax bases of assets and liabilities on the balance sheet date. The Company does not discount deferred income tax assets and deferred income tax liabilities.

(1) Recognition of deferred income tax assets

For deductible temporary differences, deductible losses and tax credits that can be carried forward to future years, the impact on income tax is calculated based on the income tax rate during the expected reversal period, and the impact is recognized as deferred income tax assets, but only to the extent that the company is likely to obtain future taxable income that can be used to offset the deductible temporary differences, deductible losses and tax credits.

The impact of deductible temporary differences on income tax arising from the initial recognition of assets or liabilities in transactions or events with the following characteristics is not recognized as deferred income tax assets:

A. The transaction is not a business combination;

B. When the transaction occurs, it neither affects accounting profits nor taxable income (or deductible losses).

However, this exemption from the initial recognition of deferred income tax liabilities and deferred income tax assets does not apply to a single transaction that meets the above two conditions at the same time and whose initial recognition of assets and liabilities results in equal amounts of taxable temporary differences and deductible temporary differences. For the taxable temporary differences and deductible temporary differences arising from the initial recognition of assets and liabilities in this transaction, the company recognizes the corresponding deferred income tax liabilities and deferred income tax assets respectively when the transaction occurs.

If the company's deductible temporary differences related to investments in subsidiaries, associates and joint ventures meet the following two conditions, the amount of its impact on income tax will be recognized as deferred income tax assets:

A. The temporary difference is likely to reverse in the foreseeable future;

B. It is likely to obtain taxable income in the future that can be used to offset the deductible temporary differences;

On the balance sheet date, if there is conclusive evidence that sufficient taxable income is likely to be obtained in the future period to offset the deductible temporary differences, deferred income tax assets that have not been recognized in previous periods will be recognized.

On the balance sheet date, the Company reviews the book value of deferred income tax assets. If it is probable that sufficient taxable income will not be available in future periods to offset the benefits of deferred tax assets, the carrying amount of the deferred tax assets will be reduced. The amount of the write-down is reversed when it is probable that sufficient taxable income will be obtained.

(2) Recognition of deferred income tax liabilities

All taxable temporary differences of the Company are measured to have an impact on income tax at the income tax rate expected to be reversed during the period, and the impact is recognized as deferred income tax liabilities, except for the following circumstances:

① The impact on income tax of taxable temporary differences arising from the following transactions or events is not recognized as deferred income tax liabilities:

A. Initial recognition of goodwill;

B. Initial recognition of assets or liabilities arising from a transaction with the following characteristics: the transaction is not a business combination, and when the transaction occurs, it neither affects accounting profits nor taxable income or deductible losses.

② The Company generally recognizes the taxable temporary differences related to investments in subsidiaries, joint ventures and associates, and their impact on income tax as deferred income tax liabilities, unless the following two conditions are met at the same time:

A. The company can control the time when temporary differences are reversed;

B. The temporary difference is likely not to be reversed in the foreseeable future.

(3) Recognition of deferred income tax liabilities or assets involved in specific transactions or events

① Deferred income tax liabilities or assets related to business combinations

For taxable temporary differences or deductible temporary differences arising from business combinations not under common control, while deferred income tax liabilities or deferred income tax assets are recognized, the related deferred income tax expenses (or income) are usually adjusted to the goodwill recognized in the business combination.

②Items directly included in owners’ equity

Current income taxes and deferred income taxes related to transactions or events that are directly included in owners' equity are included in owners' equity. Transactions or events that have the impact of temporary differences on income tax included in owners' equity include: other comprehensive income resulting from changes in the fair value of other debt investments, changes in accounting policies that adopt the retrospective adjustment method or the correction of differences in previous (important) accounting errors, the retrospective restatement method to adjust opening retained earnings, mixed financial instruments that contain both liability components and equity components are included in owners' equity at the time of initial recognition, etc.

③Can make up for losses and tax deductions

A. Recoverable losses and tax deductions generated by the company’s own operations

Deductible losses refer to losses calculated and determined in accordance with tax laws and allowed to be made up with taxable income in subsequent years. Uncovered losses (deductible losses) and tax credits that can be carried forward to future years in accordance with tax laws are treated as deductible temporary differences. When it is expected that sufficient taxable income will be obtained in the future period in which recoverable losses or tax credits can be utilized, the corresponding deferred income tax assets will be recognized to the extent of the taxable income that is likely to be obtained, and the income tax expense in the current period's income statement will be reduced at the same time.

B. Compensable uncompensated losses of the merged enterprise resulting from business mergers

In a business combination, if the company obtains deductible temporary differences from the purchased party and does not meet the conditions for recognition of deferred income tax assets on the acquisition date, it will not be recognized. Within 12 months after the purchase date, if new or further information is obtained indicating that the relevant circumstances on the purchase date already exist, and the economic benefits brought by the deductible temporary differences of the purchased party are expected to be realized on the purchase date, the relevant deferred income tax assets will be recognized, and the goodwill will be reduced at the same time. If the goodwill is insufficient to offset, the difference will be recognized as current profit and loss; except for the above circumstances, deferred income tax assets related to the business combination will be recognized and included in the current profit and loss. ④Temporary differences resulting from merger elimination

When the company prepares the consolidated financial statements, if there is a temporary difference between the book value of assets and liabilities in the consolidated balance sheet and the tax basis of the tax entity to which it belongs due to offsetting unrealized internal sales gains and losses, deferred income tax assets or deferred income tax liabilities will be recognized in the consolidated balance sheet, and the income tax expenses in the consolidated income statement will be adjusted at the same time, except for deferred income taxes related to transactions or events directly included in owner's equity and business mergers.

⑤ Equity-settled share-based payment

If the tax law stipulates that expenses related to share-based payment are allowed to be deducted before tax, during the period when costs and expenses are recognized in accordance with accounting standards, the company will calculate and determine the tax base and the resulting temporary differences based on the information obtained at the end of the accounting period to estimate the amount that can be deducted before tax. If the recognition conditions are met, the relevant deferred income tax will be recognized. Among them, if the amount that is expected to be deducted before tax in the future exceeds the costs and expenses related to share-based payment recognized in accordance with accounting standards, the excess income tax impact should be directly included in the owner's equity.

(4) Basis for presenting deferred income tax assets and deferred income tax liabilities on a net basis

When the company meets the following conditions at the same time, the deferred income tax assets and deferred income tax liabilities will be presented as the net amount after offsetting:

① The company has the legal right to settle current income tax assets and current income tax liabilities on a net basis;

② Deferred income tax assets and deferred income tax liabilities are related to the income tax levied by the same tax collection and administration department on the same taxable entity or to different taxable entities. However, in each future period when important deferred income tax assets and deferred income tax liabilities are reversed, the taxable entity involved intends to settle the current income tax assets and liabilities with a net amount or to obtain assets and pay off liabilities at the same time.

Leasing

(1) Identification of lease

On the contract inception date, the Company evaluates whether the contract is a lease or contains a lease. If a party in the contract transfers the right to control the use of one or more identified assets for a certain period in exchange for consideration, the contract is a lease or contains a lease. In order to determine whether the contract transfers the right to control the use of the identified assets within a certain period, the Company evaluates whether the customer in the contract has the right to obtain substantially all the economic benefits generated from the use of the identified assets during the use period, and has the right to direct the use of the identified assets during the use period.

(2) Identification of separate leases

If the contract contains multiple separate leases at the same time, the company will split the contract and conduct accounting treatment for each separate lease. The right to use an identified asset constitutes a separate lease in the contract if the following conditions are met at the same time: ① The lessee can profit from using the asset alone or using it together with other easily available resources; ② The asset is not highly dependent or highly related to other assets in the contract.

(3) The company’s accounting treatment method as a lessee

On the start date of the lease period, the Company identifies leases with a lease term of no more than 12 months and that do not include a purchase option as short-term leases; leases with a low value when a single leased asset is a new asset are identified as low-value asset leases. If the company subleases or anticipates subletting a leased asset, the original lease will not be recognized as a low-value asset lease.

For all short-term leases and low-value asset leases, the Company includes the lease payments into the relevant asset costs or current profits and losses on a straight-line basis during each period of the lease term.

In addition to the above-mentioned short-term leases and low-value asset leases that adopt simplified treatment, the company recognizes right-of-use assets and lease liabilities for leases on the start date of the lease period.

①Right-of-use assets

Right-of-use assets refer to the lessee’s right to use the leased assets during the lease term.

On the commencement date of the lease term, the right-of-use asset is initially measured at cost. This cost includes:

• The initial measurement amount of the lease liability;

• The lease payment amount paid on or before the start date of the lease period, if there is a lease incentive, will be deducted from the lease incentive that has been enjoyed.

Relevant amount of incentives;

• Initial direct costs incurred by the lessee;

• The costs that the lessee expects to incur to dismantle and remove the leased asset, restore the site where the leased asset is located, or restore the leased asset to the state agreed upon in the lease terms. The company recognizes and measures this cost in accordance with the recognition standards and measurement methods of estimated liabilities. For details, see Note III. 25. The aforementioned costs incurred for the production of inventory will be included in the inventory.

goods cost.

Depreciation of right-of-use assets is calculated using the straight-line method. For those who can reasonably determine that the ownership of the leased asset will be obtained when the lease term expires, the depreciation rate will be determined based on the right-of-use asset category and the expected net residual value rate within the estimated remaining useful life of the leased asset; for those who cannot reasonably be sure that the ownership of the leased asset will be obtained when the lease term expires, the depreciation rate will be determined based on the right-of-use asset category during the shorter of the lease term and the remaining useful life of the leased asset.

②Lease liabilities

Lease liabilities should be initially measured based on the present value of the unpaid lease payments at the beginning of the lease term. Lease payments include the following five items:

• From the fixed payment amount and the actual fixed payment amount, if there is a lease incentive, the amount related to the lease incentive will be deducted;

• variable lease payments that depend on an index or rate;

• The exercise price of the purchase option if the lessee is reasonably certain that it will exercise the option;

• Amounts payable upon exercise of the lease termination option if the lease term reflects the lessee's exercise of the lease termination option;

• Expected payments based on the guaranteed residual value provided by the lessee.

When calculating the present value of lease payments, the interest rate implicit in the lease is used as the discount rate. If the interest rate implicit in the lease cannot be determined, the company's incremental borrowing rate is used as the discount rate. The difference between the lease payment and its present value is regarded as an unrecognized financing expense, and the interest expense is recognized at the discount rate used to confirm the present value of the lease payment during each period of the lease term, and is included in the current profit and loss. Variable lease payments that are not included in the measurement of lease liabilities are included in the current profit and loss when actually incurred.

After the start date of the lease period, when the actual fixed payment amount changes, the expected amount payable of the guaranteed residual value changes, the index or ratio used to determine the lease payment amount changes, the evaluation results or actual exercise of the purchase option, lease renewal option or termination option change, the company remeasures the lease liability according to the present value of the changed lease payment amount, and adjusts the book value of the right-of-use asset accordingly.

(4) The company’s accounting treatment method as a lessor

On the lease commencement date, the Company classifies leases that substantially transfer almost all risks and rewards related to the ownership of the leased assets as finance leases, and other leases as operating leases.

①Operating lease

The company recognizes the lease receipts as rental income according to the straight-line method in each period during the lease period. The initial direct expenses incurred are capitalized and amortized on the same basis as the rental income recognition, and included in the current profit and loss in installments. Variable lease payments obtained by the Company related to operating leases that are not included in the lease receipts are included in the current profit and loss when they actually occur.

②Financial lease

On the start date of the lease, the Company recognizes the financial lease receivables based on the net lease investment (the sum of the unguaranteed residual value and the present value of the lease payments not yet received on the start date of the lease discounted at the interest rate implicit in the lease), and terminates the recognition of financial lease assets. During each period of the lease term, the Company calculates and recognizes interest income based on the interest rate implicit in the lease.

Variable lease payments obtained by the Company that are not included in the measurement of net lease investment are included in the current profit and loss when actually incurred.

(5) Accounting treatment of lease changes

① Lease change as a separate lease

If the lease changes and the following conditions are met at the same time, the company will account for the lease change as a separate lease: A. The lease change expands the scope of the lease by increasing the right to use one or more leased assets; B. The increased consideration is equivalent to the amount of the individual price of the expanded part of the lease scope adjusted according to the conditions of the contract.

②The lease change is not treated as a separate lease

A. The company serves as the lessee

On the effective date of the lease change, the Company re-determines the lease term and uses the revised discount rate to discount the changed lease payments to re-measure the lease liability. When calculating the present value of lease payments after the change, the interest rate implicit in the lease during the remaining lease period is used as the discount rate; if the interest rate implicit in the lease during the remaining lease period cannot be determined, the incremental borrowing rate on the effective date of the lease change is used as the discount rate.

Regarding the impact of the above lease liability adjustment, accounting treatment is carried out according to the following situations:

• If the lease change results in a reduction in the scope of the lease or a shortening of the lease period, the book value of the right-of-use asset will be reduced, and the related gains or losses from the partial or complete termination of the lease will be included in the current profit and loss;

• For other lease changes, the book value of the right-of-use asset is adjusted accordingly.

B. The company acts as the lessor

If an operating lease changes, the Company will account for it as a new lease from the effective date of the change, and the amount of lease receipts received in advance or receivable related to the lease before the change is regarded as the amount of receipts from the new lease.

If the change in the financial lease is not accounted for as a separate lease, the company will treat the changed lease under the following circumstances: If the lease change takes effect on the lease commencement date, the lease will be classified as an operating lease, and the company will treat it as an operating lease from the effective date of the lease change. New leases are accounted for, and the net lease investment before the effective date of the lease change is used as the book value of the leased asset; if the lease change takes effect on the lease start date, the lease will be classified as a finance lease, and the company will conduct accounting treatment in accordance with the regulations on modifying or renegotiating the contract.

(6) Sale and leaseback

The company evaluates and determines whether the asset transfer in the sale and leaseback transaction is a sale in accordance with the provisions of Note 3.27.

① Our company serves as the seller (lessee)

If the asset transfer in a sale and leaseback transaction does not constitute a sale, the company will continue to recognize the transferred assets, and at the same time recognize a financial liability equal to the transfer income, and perform accounting treatment on the financial liability in accordance with Note 3.11. If the asset transfer is a sale, the company measures the right-of-use assets formed by the sale and leaseback based on the portion of the original asset's book value related to the right-of-use obtained through the leaseback, and only recognizes relevant gains or losses for the rights transferred to the lessor.

② Our company serves as the buyer (lessor)

If the asset transfer in a sale and leaseback transaction does not constitute a sale, the company does not recognize the transferred asset, but recognizes a financial asset equal to the transfer income, and performs accounting treatment on the financial asset in accordance with Note 3.11. If the asset transfer is a sale, the company will account for the asset purchase and account for the asset leasing in accordance with other applicable business accounting standards.

Significant accounting judgments and estimates

The Company continuously evaluates the important accounting estimates and key assumptions adopted based on historical experience and other factors, including reasonable expectations for future events. The important accounting estimates and key assumptions that are likely to result in a significant adjustment in the book value of assets and liabilities in the next fiscal year are listed below:

Classification of financial assets

The Company's significant judgments involved in determining the classification of financial assets include analysis of business models and contractual cash flow characteristics.

The Company determines the business model for managing financial assets at the level of financial asset portfolios. Factors considered include the way to evaluate and report the performance of financial assets to key management personnel, the risks that affect the performance of financial assets and their management methods, and the way in which relevant business managers are remunerated.

When the company evaluates whether the contractual cash flows of financial assets are consistent with basic lending arrangements, the company makes the following main judgments: whether the time distribution or amount of the principal may change during the duration due to early repayment and other reasons; whether interest only includes the time value of money, credit risk, other basic lending risks and consideration for costs and profits. For example, whether the amount of early repayment only reflects the unpaid principal and interest based on the unpaid principal, as well as reasonable compensation paid for early termination of the contract.

Measurement of expected credit losses on accounts receivable

The Company calculates the expected credit losses of accounts receivable through the default risk exposure of accounts receivable and the expected credit loss rate, and determines the expected credit loss rate based on the probability of default and the loss given default rate. When determining the expected credit loss rate, the company uses internal historical credit loss experience and other data, and adjusts historical data based on current conditions and forward-looking information. When considering forward-looking information, the Company uses indicators including the risk of economic downturn, changes in the external market environment, technological environment and customer conditions. The Company regularly monitors and reviews assumptions related to the calculation of expected credit losses.

Deferred tax assets

Deferred tax assets should be recognized for all unused tax losses to the extent that it is probable that sufficient taxable profits will be available against which the losses can be utilised. This requires management to use a lot of judgment to estimate the timing and amount of future taxable profits, combined with tax planning strategies, to determine the amount of deferred income tax assets that should be recognized.

Changes in important accounting policies and accounting estimates

(1) Changes in important accounting policies

Implementation of "Interpretation No. 19 of Accounting Standards for Business Enterprises"

On December 19, 2025, the Ministry of Finance issued the "Interpretation No. 19 of Accounting Standards for Business Enterprises" (Finance [2025] No. 32, hereinafter referred to as Interpretation No. 19), which will be effective from January 1, 2026. The company will implement the provisions of Interpretation No. 19 from January 1, 2026. The relevant provisions of Implementation Interpretation No. 19 have no significant impact on the company's financial statements during the reporting period. Implementation of "Interpretation No. 20 of Accounting Standards for Business Enterprises"

On June 24, 2026, the Ministry of Finance issued the "Interpretation No. 20 of Accounting Standards for Business Enterprises" (Cai Kuai [2026] No. 7, hereinafter referred to as Interpretation No. 20), which will be effective from January 1, 2026. The company will implement the regulations of Interpretation No. 20 from January 1, 2026. Implementation Interpretation The relevant provisions of No. 20 have no significant impact on the company's financial statements during the reporting period. (2) Changes in important accounting estimates

During the reporting period, the Company had no significant changes in accounting estimates.

4. Taxes

Main tax types and tax rates

Tax Type Tax Calculation Basis Tax Rate

Calculate sales based on income from sales of goods and taxable services calculated according to tax laws.

13%, 9%, 6%, value-added tax, after deducting the input tax allowed to be deducted in the current period, the difference is:

3% and 1% VAT payable

Corporate income tax: taxable income 20%, 15% urban maintenance and construction tax; turnover tax payable: 5%

Education fee surcharge, turnover tax payable 3%

Tax Type Tax Calculation Basis Tax Rate

Local education surcharge, turnover tax payable 2%

Property tax: The residual value after deducting 30% from the original value of the taxable property 1.2%

The company's subsidiaries have different corporate income tax rates

Name of tax payer Income tax rate

Walkers, Central 20%

Estaco 20%

Core Intelligence 20%

Tax incentives

(1) Corporate income tax

① In October 2025, the company was recognized as a high-tech enterprise by the Beijing Municipal Science and Technology Commission, Beijing Municipal Finance Bureau, and Beijing Municipal Taxation Bureau of the State Administration of Taxation. The certificate number is GR202511002947 and is valid for three years. According to the provisions of the "Enterprise Income Tax Law of the People's Republic of China", the company will pay corporate income tax at a rate of 15% for the first half of 2026.

②In December 2025, Xinzhigan was recognized as a high-tech enterprise by the Jiangsu Provincial Department of Science and Technology, the Jiangsu Provincial Department of Finance, and the State Administration of Taxation Jiangsu Provincial Taxation Bureau. The certificate number is GR202532017110 and is valid for three years. According to the provisions of the "Enterprise Income Tax Law of the People's Republic of China", Xinzhigan will pay corporate income tax at a rate of 15% for the first half of 2026.

③Preferential policies for corporate income tax collection According to the "Announcement on Relevant Tax Policies to Further Support the Development of Small and Micro Enterprises and Individual Industrial and Commercial Households" (Announcement No. 12, 2023, of the Ministry of Finance and the State Administration of Taxation), small and low-profit enterprises will be charged a reduced rate of 25% to calculate taxable income and pay corporate income tax at a rate of 20%. The policy will continue to be implemented until December 31, 2027. Subsidiaries Zhonghuan Walkers, Estech, and Xinzhisen meet the conditions of small and low-profit enterprises to enjoy this preferential policy.

(2) Value-added tax

According to Article 1 of the "Notice on Issuing Several Policies to Further Encourage the Development of the Software Industry and the Integrated Circuit Industry" (Guofa "2011" No. 4) issued by the State Council and the "Notice on Value-Added Tax Policies for Software Products" jointly issued by the Ministry of Finance and the State Administration of Taxation (Finance and Taxation 2011 No. 100), companies selling self-developed and produced software products are entitled to first collect value-added tax at the statutory rate, and then implement a tax refund policy for the portion of the actual tax burden exceeding 3%.

5. Notes on Consolidated Financial Statement Items

Monetary funds

Project June 30, 2026 December 31, 2025

Cash on hand - - Bank deposits 92,835,538.37 88,885,050.17 Other monetary funds 1,433,700.00 1,133,700.00 Total 94,269,238.37 90,018,750.17 Including: Total amount deposited abroad - -

Notes receivable

(1) Classified listing

June 30, 2026 December 31, 2025

Type

Book balance Bad debt provision Book value Book balance Bad debt provision Book value Bank acceptance bill 764,965.05 38,248.26 726,716.79 - - - Commercial acceptance bill - - - 200,000.00 10,000.00 190,000.00 Finance company acceptance bill

- - - - tickets

Total 764,965.05 38,248.26 726,716.79 200,000.00 10,000.00 190,000.00 (2) There are no pledged notes receivable at the end of the period

(3) Notes receivable that have been endorsed or discounted at the end of the period but have not yet matured

Item Amount derecognized Amount not derecognized

Bank acceptance bill - 696,850.64 Total - 696,850.64 (4) Disclosure by classification according to bad debt accrual method

June 30, 2026

Category Book balance Bad debt provision

book value

Amount Proportion (%) Amount Provision Proportion (%)

Provision for bad debts based on individual items - - - - - Provision for bad debts based on combinations 764,965.05 100.00 38,248.26 5.00 726,716.79 1. Bank acceptance bill 764,965.05 100.00 38,248.26 5.00 726,716.79 2. Commercial acceptance bill - - - - - 3. Financial company acceptance bill - - - - -Total 764,965.05 100.00 38,248.26 5.00 726,716.79 (continued from the above table)

December 31, 2025

1. Original book value:

December 31, 2025 76,950,342.11 18,413,851.20 1,807,416.41 3,607,267.22 3,039,860.07 103,818,737.01 2. Increase in the current period - - - - 35,150.44 35,150.44 (1) Purchase - - - - 35,150.44 35,150.44 (2) Transfer of construction in progress - - - - - - (3) Other transfer - - - - - - 3. Reduction amount in this period - - - - - - (1) Disposal or scrapping - - - - - - 4. June 30, 2026 76,950,342.11 18,413,851.20 1,807,416.41 3,607,267.22 3,075,010.51 103,853,887.45

2. Accumulated depreciation

Items Houses and buildings Mechanical equipment Transportation equipment Office equipment Electronic equipment Total 1. December 31, 2025 7,310,282.28 4,727,068.87 1,515,832.09 1,899,541.23 1,939,890.84 17,392,615.31 2. Increase in the current period 1,044,326.04 877,283.71 24,692.46 292,871.51 254,543.40 2,493,717.12 (1) Provision 1,044,326.04 877,283.71 24,692.46 292,871.51 254,543.40 2,493,717.12 3. Reduction amount in the current period - - - - - - (1) Disposal or scrapping - - - - - - 4. June 30, 2026 8,354,608.32 5,604,352.58 1,540,524.55 2,192,412.74 2,194,434.24 19,886,332.43

3. Impairment provision

December 31, 2025 - - - - - - 2. Increase in the current period - - - - - - 3. Decrease in the current period - - - - - - 4. June 30, 2026 - - - - - -

4. Book price of fixed assets

value

June 30, 2026

68,595,733.79 12,809,498.62 266,891.86 1,414,854.48 880,576.27 83,967,555.02 Book value

2.December 31, 2025

69,640,059.83 13,686,782.33 291,584.32 1,707,725.99 1,099,969.23 86,426,121.70 Book value

Construction in progress

(1) Classified listing

Project June 30, 2026 December 31, 2025

Construction in progress - 5,971,685.77 Construction materials - - Total - 5,971,685.77 (2) Construction in progress

①Projects under construction

June 30, 2026 December 31, 2025

Project

Book balance Impairment provision Book value Book balance Impairment provision Book value Sensor production line - - - 7,409,379.16 1,437,693.39 5,971,685.77Total - - - 7,409,379.16 1,437,693.39 5,971,685.77 ②Changes in important construction projects under construction

December 2025 Increase in this period Transfer to fixed income in this period Other deductions in this period Project name in June 2026 Budget amount

Rated asset amount on 31st Less amount Sensor production line on 30th 8,609,379.16 7,409,379.16 - - 7,409,379.16 -Total 8,609,379.16 7,409,379.16 - - 7,409,379.16 -

(3) Impairment provisions for projects under construction

December 31, 2025 June 2026

Item Increase amount in the current period Decrease amount in the current period Reason for decrease 30 days

Transferred to long-term deferred sensor production line 1,437,693.39 - 1,437,693.39 -

cost

Total 1,437,693.39 - 1,437,693.39 -

Right-of-use assets

Item Houses and buildings Transportation Total

1. Original book value:

December 31, 2025 3,367,477.00 57,000.00 3,424,477.00 2. Increase in the current period 275,229.36 - 275,229.36 3. Decrease in the current period - - - 4. June 30, 2026 3,642,706.36 57,000.00 3,699,706.36

2. Accumulated depreciation

December 31, 2025 1,129,445.54 16,150.00 1,145,595.54 2. Increase in the current period

(1) Provision 645,473.82 5,700.00 651,173.82 3. Decrease amount in the current period -

(1) Disposal -

June 30, 2026 1,774,919.36 21,850.00 1,796,769.36

3. Impairment provision

December 31, 2024 - - - 2. Increase in the current period - - - 3. Decrease in the current period - - - 4. December 31, 2025 - - -

4. Book value

Book value as of June 30, 2026 1,867,787.00 35,150.00 1,902,937.00 2. Book value as of December 31, 2025 2,238,031.46 40,850.00 2,278,881.46
Intangible assets

Project Software usage rights Total

1. Original book value

December 31, 2025 591,295.51 591,295.51 2. Increase in the current period - - (1) Purchase - - 3. Decrease in the current period - - (1) Disposal - - 4. June 30, 2026 591,295.51 591,295.51

Project Software usage rights Total

2. Accumulated amortization

December 31, 2025 591,295.51 591,295.51 2. Increase in the current period - - (1) Provision - - 3. Decrease in the current period - - (1) Disposal - - 4. June 30, 2026 591,295.51 591,295.51

3. Impairment provision

December 31, 2025 - - 2. Increase in the current period - - 3. Decrease in the current period - - 4. June 30, 2026 - -

4. Book value

Book value as of June 30, 2026 - - 2. Book value as of December 31, 2025 - -
Long-term deferred expenses

Decrease in this period on December 31, 2025 Projects in June 2026 Increase in this period

Japanese period amortization Other decreases 30 days

Decoration expenses 3,481,832.40 - 282,189.30 - 3,199,643.10 Other long-term expenses - 75,668.07 14,412.92 - 61,255.15Total 3,481,832.40 75,668.07 296,602.22 - 3,260,898.25

Deferred income tax assets and deferred income tax liabilities

(1) Deferred income tax assets without offset

June 30, 2026 December 31, 2025

Item Temporary difference can be deducted Temporary difference can be deducted

Deferred income tax assets Differences in deferred income tax assets Differences

Asset impairment provision 1,153,727.45 173,059.12 1,022,996.28 153,450.45 Credit impairment provision 4,533,919.51 680,087.92 6,140,800.89 921,120.13 Deductible losses 49,565,042.67 7,434,756.39 37,866,499.33 5,679,973.89 Lease liabilities 1,676,510.76 135,157.79 2,250,377.59 178,516.47 Unrealized profits from internal transactions 106,598.18 15,989.73 119,208.80 17,881.32Total 57,035,798.57 8,439,050.95 47,399,882.89 6,950,942.26 (2) Deferred income tax liabilities without offset

Project June 30, 2026 December 31, 2025

Taxable temporary differences Deferred income tax liabilities Taxable temporary differences Deferred income tax liabilities Accelerated depreciation of fixed assets 425,278.47 63,791.77 562,751.18 84,412.68 Right-of-use assets 1,661,364.99 132,885.93 2,238,031.49 176,664.55 Total 2,086,643.46 196,677.70 2,800,782.67 261,077.23 (3) Deferred income tax assets or liabilities presented on a net basis after offsetting

Deferred income tax assets Deferred income after elimination Deferred income tax assets Deferred income and liabilities after elimination in 2026 Tax assets or liabilities in and liabilities in 2025 Tax assets or liabilities in items

Mutual offset on June 30 June 30, 2026 Mutual offset on December 31 Amount on December 31, 2025 Balance Amount Balance

Deferred income tax assets 196,677.70 8,242,373.25 261,077.23 6,689,865.03 Deferred income tax liabilities 196,677.70 - 261,077.23 - (4) Details of unconfirmed deferred income tax assets

Project June 30, 2026 December 31, 2025

Deductible temporary differences 747,884.56 1,824,330.43 Deductible losses 47,478,615.73 41,293,197.99 Total 48,226,500.29 43,117,528.42 (5) Deductible losses of unrecognized deferred income tax assets will expire in the following years

Year June 30, 2026 December 31, 2025

Due in 2026 2,082,012.19 2,082,012.19 Due in 2027 1,477,614.98 1,477,614.98 Due in 2028 2,381,767.51 2,381,767.51 Due in 2029 1,473,084.14 1,473,084.14 Due in 2030 893,496.70 893,496.70 Due in 2031 887,880.98 - Due in 2032 2,395,330.53 2,395,330.53 Due in 2033 9,912,759.04 9,912,759.04 Due in 2034 8,427,021.34 8,427,021.34 Due in 2035 12,250,111.56 12,250,111.56 Due in 2036 5,297,536.76 -Total 47,478,615.73 41,293,197.99

Other non-current assets

June 30, 2026 December 31, 2025

Project

Book balance Impairment provision Book value Book balance Impairment provision Book value Prepaid long-term assets 597,121.42 - 597,121.42 227,929.53 - 227,929.53

Total 597,121.42 - 597,121.42 227,929.53 - 227,929.53

Assets with restricted ownership or rights of use

June 30, 2026

Project

Book balance Book value Restriction type Restriction situation

Monetary funds 1,433,700.00 1,433,700.00 Frozen

Guarantee deposit 1,431,300.00 ETC toll deposit 2,400.00 Total 1,433,700.00 1,433,700.00 — — (continued from the above table)

December 31, 2025

Project

Book balance Book value Restriction type Restriction situation

Guarantee deposit 1,131,300.00 Monetary funds 1,133,700.00 1,133,700.00 Frozen

ETC toll deposit 2,400.00 Total 1,133,700.00 1,133,700.00 — —

Accounts payable

(1) Listed by nature

Project June 30, 2026 December 31, 2025

Material fee 2,273,005.49 4,475,682.14 Service fee 5,815,142.13 8,222,496.50 Long-term asset purchase 451,995.57 2,889,596.41 Freight fee 14,960.85 50,005.61 Others 844,038.44 759,572.46 Total 9,399,142.48 16,397,353.12 (2) The Company has no important accounts payable that are aged more than 1 year or are overdue.

Contract liabilities

Project June 30, 2026 Advance payment received on December 31, 2025 176,459.04 154,590.96

Employee benefits payable

(1) Presentation of employee benefits payable

December 31, 2025 June 30, 2026 Item Increase in this period Decrease in this period

day day

Short-term salary 2,109,085.99 10,513,383.92 12,494,059.71 128,410.20
Post-employment benefits - defined contribution plan 111,082.79 800,066.40 803,611.59 107,537.60 Total 2,220,168.78 11,313,450.32 13,297,671.30 235,947.80

(2) Presentation of short-term remuneration

December 2025 June 2026 30 items Increase in this period Decrease in this period

31st day

Salaries, bonuses, allowances and subsidies 1,950,000.00 9,202,308.90 11,152,308.90 -
Employee welfare fees - 178,874.72 178,874.72 -
Social insurance premiums 67,889.29 472,306.81 474,476.92 65,719.18 Including: medical insurance premiums 65,976.80 457,552.16 459,657.80 63,871.16 work-related injury insurance premiums 1,912.49 14,754.65 14,819.12 1,848.02
Housing provident fund - 533,956.00 533,956.00 -
Union funds and employee education funds 91,196.70 125,937.49 154,443.17 62,691.02 Total 2,109,085.99 10,513,383.92 12,494,059.71 128,410.20 (3) Presentation of defined contribution plan

December 31, 2025 June 30, 2026 Item Increase in this period Decrease in this period

day day

Post-employment benefits:

Basic pension insurance 107,716.64 775,497.28 778,935.04 104,278.88 2. Unemployment insurance premium 3,366.15 24,569.12 24,676.55 3,258.72 Total 111,082.79 800,066.40 803,611.59 107,537.60
Taxes payable

Project June 30, 2026 December 31, 2025

Value-added tax 5,474.18 871,543.22 Urban maintenance and construction tax 191.59 45,130.01 Education fee surcharge 136.85 45,064.28 Personal income tax 94,443.67 132,456.94 Stamp duty 3,264.77 7,435.92 Total 103,511.06 1,101,630.37

Other payables

(1) Classified listing

Project June 30, 2026 December 31, 2025

Interest payable - - Dividends payable - - Other payables 189,340.01 291,510.49

Total 189,340.01 291,510.49 (2) Other payables

Project June 30, 2026 December 31, 2025

Employee reimbursements 89,723.86 208,029.31 Others 99,616.15 83,481.18 Total 189,340.01 291,510.49 (3) The Company has no important other payables aged more than 1 year or overdue.

Non-current liabilities due within one year

Project June 30, 2026 December 31, 2025

Lease liabilities due within one year 1,738,582.56 1,298,947.04 Total 1,738,582.56 1,298,947.04

Other current liabilities

Project June 30, 2026 December 31, 2025

Notes receivable that have not been derecognized 696,850.64 155,902.00 Output tax to be transferred 53,485.01 152.82 Total 750,335.65 156,054.82

Lease liabilities

Project June 30, 2026 December 31, 2025

Lease payments 1,980,673.14 2,293,540.71 Less: Unrecognized financing expenses 33,611.31 66,076.68

Subtotal 1,947,061.83 2,227,464.03 Less: Lease liabilities due within one year 1,738,582.56 1,298,947.04 Total 208,479.27 928,516.99

Share capital

December 2025 This increase or decrease (+, 1) Project in June 2026

31st Issuance of new shares Bonus shares Conversion of provident funds Others Subtotal 30th

Total number of shares 70,550,000.00 - - - - - 70,550,000.00

Capital reserve

Item December 31, 2025 Increase in this period Decrease in this period June 30, 2026 Equity premium 146,536,043.94 4,736,887.58 - 151,272,931.52 Other capital reserves 1,700,000.00 - - 1,700,000.00Total 148,236,043.94 4,736,887.58 - 152,972,931.52

During the reporting period, the company's capital reserve increased, mainly due to other shareholders of the subsidiary Xinzhigan increasing their capital in the subsidiary. Their share of the subsidiary's book net assets before the capital increase was calculated based on the parent company's equity ratio before the capital increase. The difference between this share and the share of the subsidiary's book net assets after the capital increase calculated based on the parent company's shareholding ratio after the capital increase was included in the capital reserve.

Surplus reserve

Item December 31, 2025 Increase in the current period Decrease in the current period Statutory surplus reserve on June 30, 2026 13,901,440.12 - - 13,901,440.12

Total 13,901,440.12 - - 13,901,440.12

Undistributed profits

Item January to June 2026 Undistributed profit at the end of the previous period before adjustment in 2025 23,891,846.97 34,064,521.30 Total undistributed profit at the beginning of the adjustment (adjustment +, decrease -) - - Undistributed profit at the end of the adjustment 23,891,846.97 34,064,521.30 plus: net profit attributable to owners of the parent company for the period -9,232,312.61 -10,172,674.33 minus: withdrawal of statutory surplus reserve - - undistributed profit at the end of the period 14,659,534.36 23,891,846.97

Operating income and operating costs

January-June 2026 January-June 2025

Project

revenue cost revenue cost

Main business 11,977,183.02 13,704,939.55 25,052,491.14 19,998,968.74

Total 11,977,183.02 13,704,939.55 25,052,491.14 19,998,968.74 (1) Decomposition information of main business income and main business costs

January-June 2026 January-June 2025

Project

Revenue Cost Revenue Cost by Product Type

Oil and gas recovery and treatment equipment 6,155,739.90 7,658,359.84 13,731,364.13 12,047,114.18 Oil and gas recovery online monitoring system 3,537,565.13 2,810,600.49 6,583,641.81 3,574,513.96 Ceramic capacitor pressure core 1,442,698.84 2,554,027.52 3,130,508.49 3,170,507.74 Liquid level measurement system 649,763.98 626,351.15 1,168,248.88 1,080,025.54 Detection service 191,415.17 55,600.55 196,746.54 34,354.49 Intelligent network monitoring platform - - 241,981.29 92,452.83

Total 11,977,183.02 13,704,939.55 25,052,491.14 19,998,968.74 Classified by operating area

Domestic sales 11,977,183.02 13,704,939.55 25,052,491.14 19,998,968.74 Export sales - - - -

Total 11,977,183.02 13,704,939.55 25,052,491.14 19,998,968.74 Classified by revenue recognition time

Revenue recognized at a certain point in time 11,892,339.00 13,648,006.33 24,948,779.04 19,957,994.90

January-June 2026 January-June 2025

Project

Revenue Cost Revenue Cost Recognized revenue during a certain period of time 84,844.02 56,933.22 103,712.10 40,973.84 Total 11,977,183.02 13,704,939.55 25,052,491.14 19,998,968.74

Taxes and surcharges

Project January-June 2026 January-June 2025

Real estate tax 313,618.24 313,618.24 Urban maintenance and construction tax 6,428.38 36,985.56 Education surcharge 3,728.00 21,974.62 Local education surcharge 2,485.35 14,649.74 Stamp duty 6,754.51 6,823.79 Vehicle and vessel use tax 2,200.00 2,112.50Urban land use tax 603.45 603.45Total 335,817.93 396,767.90

Selling expenses

Project January-June 2026 January-June 2025

Service fee 579,735.34 1,371,419.81 Salary expenses 1,435,440.96 1,381,900.71 Bid-winning service fee 65,642.79 156,139.30 Travel expenses 137,144.55 142,068.49 Business entertainment expenses 127,654.70 114,521.41 Depreciation expenses 70,083.18 70,083.18 Office expenses 40,124.81 37,358.10 Amortization of long-term deferred expenses 23,584.92 23,584.92 Others 35,625.54 16,691.84 Total 2,515,036.79 3,313,767.76

Administrative expenses

Project January-June 2026 January-June 2025

Salary expenses 3,455,235.03 3,545,794.19 Intermediary agency service fees 1,077,302.11 848,709.58 Rent and property expenses 319,654.92 341,165.37 Office expenses 241,036.82 258,974.94 Depreciation expenses 222,070.23 233,880.17 Travel expenses 53,770.09 62,654.35 Business entertainment expenses 46,688.29 40,919.82

Project January-June 2026 January-June 2025

Amortization of long-term deferred expenses 53,332.52 38,919.60 Others 48,422.60 53,162.12 Total 5,517,512.61 5,424,180.14

Research and development expenses

Project January-June 2026 January-June 2025

Employee compensation 3,531,693.16 3,646,301.52 Depreciation and rent property 772,524.10 797,303.93 Office and others 141,761.58 199,131.91 Inspection fee - 368,052.21 Material fee 295,188.07 339,515.78 Travel expenses 40,600.15 37,107.00 Amortization of long-term deferred expenses 38,538.90 38,538.90 Power expenses 12,681.81 25,865.02 Total 4,832,987.77 5,451,816.27

Financial charges

Project January-June 2026 January-June 2025

Interest expense 32,465.37 66,356.07 Including: Interest expense on lease liabilities 32,465.37 24,697.21

Less: Interest income 636,543.34 378,771.45 Net interest expense -604,077.97 -312,415.38 Net exchange loss -2,358.91 23,224.77 Bank fees 20,687.42 12,269.38 Total -585,749.46 -276,921.23

Other income

Project January-June 2026 January-June 2025

Government subsidies included in other income - Government subsidies directly included in the current profit and loss - -
Other items related to daily activities and included in other income 24,434.24 23,141.64 Including: personal tax withholding fees 24,434.24 22,434.45 Value-added tax reduction and exemption - 445.45 Value-added tax refund upon collection - 261.74 Total 24,434.24 23,141.64
Investment income

Project January-June 2026 January-June 2025

Long-term equity investment income calculated by equity method -136,435.23 -Total -136,435.23 -

Credit impairment loss

Project January-June 2026 January-June 2025

Bad debt losses on notes receivable -28,248.26 66,161.43 Bad debt losses on accounts receivable 1,331,048.84 1,230,693.77 Bad debt losses on other receivables 283,901.46 152,042.26 Bad debt losses on prepayments - -Total 1,586,702.04 1,448,897.46

Asset impairment loss

Project January-June 2026 January-June 2025

Loss from inventory depreciation -948,418.68 -678,387.28 Total -948,418.68 -678,387.28

Income from asset disposals

Project January to June 2026 Fixed assets, projects under construction, and productive assets not classified as held for sale are disposed of from January to June 2025.

-5,513.05 Gains or losses on disposal of biological assets and intangible assets

Including: Fixed assets - -5,513.05 Total - -5,513.05

Non-operating expenses

Included in non-recurring items for the current period January-June 2026 January-June 2025

Amount of profit and loss Loss from damage and scrapping of non-current assets - 2,565.20 - Others 4,946.08 3,188.50 4,946.08 Total 4,946.08 5,753.70 4,946.08

Income tax expenses

(1) Composition of income tax expenses

Project January-June 2026 January-June 2025

Current income tax expense - - Deferred income tax expense -1,552,508.22 -1,039,266.80 Total -1,552,508.22 -1,039,266.80

(2) Adjustment process of accounting profits and income tax expenses

Item January to June 2026 Total profit from January to June 2025 -13,822,025.88 -8,473,703.37 Income tax expense calculated according to statutory/applicable tax rates -2,073,303.88 -1,271,055.51 Impact of different tax rates applicable to subsidiaries 618,541.77 473,322.99 Effect of adjusting income tax in previous periods - - Effect of non-deductible costs, expenses and losses 23,727.17 8,676.69 Use of deductible losses from deferred income tax assets not recognized in the previous period

-Influence

No deductible temporary differences of deferred income tax assets have been recognized in the current period.

387,259.82 320,868.80 or the impact of deductible losses

Super deduction for R&D expenses -508,733.10 -571,079.77 Income tax expense -1,552,508.22 -1,039,266.80

Notes on cash flow statement items

(1) Cash related to operating activities

①Other cash received related to operating activities

Project January-June 2026 January-June 2025

Financial expenses - interest income 636,543.34 378,771.45 Other income 25,900.29 23,746.33 Non-operating income - - Deposits, deposits and others 967,816.99 910,889.59 Total 1,630,260.62 1,313,407.37 ②Other cash paid related to operating activities

Project January-June 2026 January-June 2025

Sales expenses 3,343,290.12 4,821,149.75 Administrative expenses 1,232,514.92 1,699,216.53 Research and development expenses 545,852.95 815,491.16 Deposit, security deposit and others 846,317.00 1,494,871.00 Financial expenses - handling fees 20,687.42 12,269.38 Non-operating expenses - 50.92 Total 5,988,662.41 8,843,048.74 (2) Cash related to financing activities

①Other cash paid related to financing activities

Project January-June 2026 January-June 2025

Payment of principal and interest on lease liabilities 879,200.59 847,646.31

Project January-June 2026 January-June 2025

Total 879,200.59 847,646.31

Supplementary information to the cash flow statement

(1) Supplementary information for cash flow statement

Supplementary information January-June 2026 January-June 2025 1. Reconcile net profit to cash flow from operating activities:

Net profit -12,269,517.66 -7,434,436.57 Plus: asset impairment provision 948,418.68 678,387.28 Credit impairment provision -1,586,702.04 -1,448,897.46 Fixed asset depreciation, investment real estate depreciation, oil and gas asset depreciation,

2,493,717.12 2,476,030.29 Depreciation of productive biological assets

Depreciation of right-of-use assets 651,173.82 599,542.75 Amortization of intangible assets - - Amortization of long-term prepaid expenses 296,602.22 282,189.30 Losses on disposal of fixed assets, intangible assets and other long-term assets (acquisition

5,513.05 (please fill in with "-")

Loss on scrapping of fixed assets (income is listed with "-") - - Loss from changes in fair value (income is listed with "-") - - Financial expenses (income is listed with "-") 32,465.37 24,697.21 Investment losses (income is listed with "-") 136,435.23 - Decrease in deferred income tax assets (increase is listed with "-") -1,552,508.22 -1,039,266.80 Increase in deferred income tax liabilities (decreases are indicated by "-") - - Decrease in inventories (increases are indicated by "-") 577,564.19 -1,368,169.77 Decrease in operating receivables (increases are indicated by "-") 16,194,367.13 8,511,668.86 Increase in operating payables (decreases are listed with "-") -8,055,169.05 -4,953,339.06 Others -Net cash flow generated from operating activities -2,133,153.21 -3,666,080.92 2. Major investing and financing activities that do not involve cash receipts and payments:

Conversion of debt into capital - - Convertible corporate bonds due within one year - - New right-of-use assets - - 3. Net changes in cash and cash equivalents:

Closing balance of cash 92,835,538.37 85,963,543.04 Less: Opening balance of cash 88,885,050.17 93,410,144.52 Add: Closing balance of cash equivalents - - Less: Opening balance of cash equivalents - -

Supplementary information January to June 2026 Net increase in cash and cash equivalents from January to June 2025 3,950,488.20 -7,446,601.48 (2) Composition of cash and cash equivalents

Project June 30, 2026 June 30, 2025

Cash 92,835,538.37 85,963,543.04 Including: Cash on hand - - Bank deposits that can be used for payment at any time 92,835,538.37 85,963,543.04

Funds in other currencies readily available for payment - -

Cash equivalents - -
Balance of cash and cash equivalents at the end of the period 92,835,538.37 85,963,543.04
Leasing

(1) The company serves as the lessee

Current profit and loss and cash flow related to leasing

Items The amount from January to June 2026 is included in the current profit and loss for the current period. Short-term lease expenses using simplified treatment 160,418.36 Interest expense on lease liabilities 32,465.37 Total cash outflows related to leases 1,098,897.88

6. R&D expenditures

Listed by nature of expenses

Project January-June 2026 January-June 2025

Total 4,832,987.77 5,451,816.27 Including: Expenditure R&D expenditure 4,832,987.77 5,451,816.27 Capitalized R&D expenditure - -

7. Changes in consolidation scope

The company's consolidation scope has not changed in the first half of 2026.

8. Interests in other entities

Interests in subsidiaries

(1) Composition of enterprise groups

Main business Shareholding ratio (%) Name of acquiring party’s subsidiary Registered capital Place of registration Nature of business

Camp Direct Indirect Beijing Central Vox Inspection

5 million RMB Beijing Beijing Technical Services 100.00 - Establishment of Measurement Technology Co., Ltd.

Xi'an Esteco Environmental Product Development and Sales

10 million RMB Xi'an Xi'an 100.00 - Establishment of Technology Co., Ltd. Sale

Wuxi Xinzhisen Technology has product development and sales

RMB 12.5 million Wuxi Wuxi 40.80 - Establishment of a limited company Sale

(2) Important non-wholly owned subsidiaries

The shareholding ratio of minority shareholders is attributed to minority shares in the current period. The name of the subsidiary with minority interests at the end of the period is announced to minority shareholders in this period.

Example: Profit and loss of the owner, balance of dividends distributed

Wuxi Xinzhisen Technology has

59.20% -3,037,205.05 - -10,854,444.82 Co., Ltd.

(3) Main financial information of important non-wholly owned subsidiaries

June 30, 2026

Subsidiary name

Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Wuxi Xinzhigan

Technology Co., Ltd. 11,842,760.29 18,492,599.97 30,335,360.26 46,394,524.28 208,479.27 46,603,003.55 Company

(Continued from above table)

December 31, 2025

Name of subsidiary company Non-current liabilities

Current assets Non-current assets Total assets Current liabilities Total liabilities

debt

Wuxi Core Intelligent Sensory Technology

9,604,063.33 21,352,295.21 30,956,358.54 48,810,141.83 616,323.24 49,426,465.07 Technology Co., Ltd.

January-June 2026

Subsidiary name

Operating income Net profit Total comprehensive income Cash flow from operating activities Wuxi Xinzhisen Technology

1,442,698.84 -5,297,536.76 -5,297,536.76 -3,573,391.26 Co., Ltd.

(Continued from above table)

January-June 2025

Subsidiary name

Operating income Net profit Total comprehensive income Cash flow from operating activities Wuxi Xinzhisen Technology

3,130,508.49 -3,840,836.54 -3,840,836.54 -1,363,593.04 Co., Ltd.

(4) Transactions in which the ownership share of the subsidiary changes and the subsidiary is still controlled

Based on the needs of business strategic layout and business expansion, the company agreed that the company's controlled subsidiary Xinzhigan will issue additional equity to the investor Shanghai Huapei Digital Energy Technology (Group) Co., Ltd. (hereinafter referred to as "Huapei Power"). Huapei Power subscribed for the additional 2.5 million shares issued by Xinzhigan at a subscription price of RMB 7.5 million (hereinafter referred to as the "capital increase"). After the capital increase is completed, Xinzhigan's registered capital will increase from 10 million yuan to 12.5 million yuan.

After the capital increase is completed, Huapei Power holds 20% of the equity of Xinzhigan, and the company holds 40.80% of the equity of Xinzhigan. The control of Xinzhigan has not changed and is still included in the company's consolidated financial statements. This transaction resulted in an increase in minority shareholders' equity of RMB 2.7631 million and an increase in capital reserve of RMB 4.7369 million.

In order to further strengthen the company's control over Xinzhigan, the company signed a "Concert Acting Person Agreement" with Sun Daqian, a natural person shareholder of Xinzhigan. Both parties agreed that concerted actions should be taken when dealing with matters related to the business and development of Xinzhigan that require a resolution by the company's shareholders' meeting or a decision by the directors in accordance with the "Company Law of the People's Republic of China" and other relevant laws and regulations and the company's articles of association. Those acting in concert should first coordinate the relevant proposals or decision-making matters internally to form a consensus; if a consensus cannot be reached, the opinion of Henghe Co., Ltd. shall prevail.

Interests in joint ventures

(1) Important associates

Name of the accounting processor's associated enterprise Main place of business Registration place Shareholding ratio Nature of business

law

Shanghai Huapei Digital Intelligent Chip Automotive Electronics

Shanghai City Shanghai City Indirect 30% Automotive Electronics Equity method

Ltd.

(2) Main financial information of important associates

Ending balance/amount of the current period Beginning balance/amount of the previous period

Project Shanghai Huapei Digital Intelligent Core Automobile Shanghai Huapei Digital Intelligent Core Automobile

Electronic Co., Ltd. Electronic Co., Ltd.

Current assets 7,568,949.59 - Non-current assets 6,843,386.63 - Total assets 14,412,336.22 - Current liabilities 2,093,030.50 - Non-current liabilities 354,839.81 - Total liabilities 2,447,870.31 - Minority shareholders' equity - - Equity attributable to shareholders of the parent company 11,964,465.91 - Share of net assets calculated based on shareholding ratio 3,589,339.77 - Adjustments

——Goodwill - - ——Unrealized profits from internal transactions - - ——Others - - Book value of equity investments in associates 4,282,814.77 - Fair value of equity investments with publicly quoted prices - - Operating income 4,539.20 - Net profit -454,784.09 - Including: net profit from discontinuation of operations - - Other comprehensive income - - Total comprehensive income -454,784.09 -Dividends received by the company from associates in the current period - -

9. Government subsidies

Government subsidies recognized according to the amount receivable at the end of the period

As of June 30, 2026, the company had no government subsidies recognized based on the amount receivable.

Government subsidies included in current profits and losses

Items presented in the income statement January to June 2026 January to June 2025 Other income related to assets/income - 261.74 Total income related - 261.74

10. Risks related to financial instruments

The Company's risks related to financial instruments originate from various financial assets and financial liabilities recognized by the Company in the course of its operations, including: credit risk, liquidity risk and market risk.

The management of the Company is responsible for the management objectives and policies of the Company's various risks related to financial instruments. The operating management is responsible for daily risk management through functional departments (for example, the company's credit management department reviews the company's credit sales one by one). The Company's internal audit department conducts daily supervision on the implementation of the Company's risk management policies and procedures, and reports relevant findings to the Company's Audit Committee in a timely manner.

The overall goal of the company's risk management is to formulate risk management policies that reduce risks related to various financial instruments as much as possible without unduly affecting the company's competitiveness and resilience.

Credit risk

Credit risk refers to the risk that one party to a financial instrument fails to perform its obligations, resulting in financial losses to the other party. The Company's credit risk mainly arises from monetary funds, notes receivable, accounts receivable, receivables financing, other receivables, etc. The credit risk of these financial assets originates from counterparty default, and the maximum risk exposure is equal to the carrying amount of these instruments.

The company's monetary funds are mainly deposited in financial institutions such as commercial banks. The company believes that these commercial banks have high reputation and asset status and have low credit risks.

For notes receivable, accounts receivable, receivable financing, and other receivables, the Company sets relevant policies to control credit risk exposure. The company evaluates the customer's credit qualifications and sets corresponding credit periods based on the customer's financial status, the possibility of obtaining guarantees from third parties, credit records and other factors such as current market conditions. The company will regularly monitor customer credit records. For customers with poor credit records, the company will use written reminders, shorten the credit period or cancel the credit period to ensure that the company's overall credit risk is within a controllable range.

(1) Judgment criteria for significant increase in credit risk

The Company assesses on each balance sheet date whether the credit risk of relevant financial instruments has increased significantly since initial recognition. When determining whether credit risk has increased significantly since initial recognition, the Company considers reasonable and evidence-based information that can be obtained without unnecessary additional cost or effort, including qualitative and quantitative analysis based on the Company's historical data, external credit risk ratings, and forward-looking information. Based on a single financial instrument or a combination of financial instruments with similar credit risk characteristics, the Company determines the changes in default risk during the expected duration of the financial instrument by comparing the risk of default of the financial instrument on the balance sheet date with the risk of default on the initial recognition date.

When one or more of the following quantitative and qualitative criteria are triggered, the Company believes that the credit risk of financial instruments has increased significantly: the quantitative criteria are mainly that the default probability of the remaining duration on the reporting date has increased by more than a certain percentage compared with the initial recognition; the qualitative criteria are that there are major adverse changes in the operating or financial conditions of the main debtor, the list of early warning customers, etc.

(2) Definition of credit-impaired assets

In order to determine whether credit impairment has occurred, the definition standards adopted by the Company are consistent with the internal credit risk management objectives for relevant financial instruments, while taking into account quantitative and qualitative indicators.

When the company assesses whether a debtor has suffered credit impairment, it mainly considers the following factors: the issuer or the debtor encounters major financial difficulties; the debtor breaches the contract, such as default or overdue payment of interest or principal; the creditor gives the debt due to economic or contractual considerations related to the debtor's financial difficulties; Concessions that a person would not make under any other circumstances; the debtor is likely to go bankrupt or undergo other financial reorganization; financial difficulties of the issuer or debtor result in the disappearance of an active market for the financial asset; purchase or origination of a financial asset at a substantial discount that reflects the fact that a credit loss has occurred.

Credit impairment of financial assets may be caused by the combined effect of multiple events and may not be caused by an individually identifiable event.

(3) Parameters for measuring expected credit losses

Depending on whether there is a significant increase in credit risk and whether credit impairment has occurred, the Company measures impairment provisions for different assets based on expected credit losses for 12 months or the entire duration. Key parameters for measuring expected credit losses include probability of default, loss given default rate and exposure to default risk. The Company considers quantitative analysis and forward-looking information of historical statistical data (such as counterparty ratings, guarantee methods and collateral types, repayment methods, etc.) to establish default probability, default loss rate and default risk exposure models.

The relevant definitions are as follows:

The probability of default refers to the possibility that the debtor will be unable to fulfill its payment obligations in the next 12 months or throughout the remaining lifetime.

Loss given default refers to the Company’s expectation of the extent of loss due to default risk exposure. LGDs vary depending on the type of counterparty, the method and priority of recourse, and the collateral. The loss given default rate is the percentage of risk exposure loss when a default occurs, calculated based on the next 12 months or the entire duration;

Exposure at default is the amount that the Company will be reimbursed in the event of a default over the next 12 months or throughout the remaining lifetime. Forward-Looking Information The assessment of significant increases in credit risk and the calculation of expected credit losses involve forward-looking information. Through historical data analysis, the Company identifies key economic indicators that affect the credit risk and expected credit losses of each business type.

The Company's maximum exposure to credit risk is the carrying amount of each financial asset on the balance sheet. The Company has not provided any other guarantees that may expose the Company to credit risk.

Among the company's accounts receivable, the accounts receivable from the top five customers accounted for 32.49% of the company's total accounts receivable (comparison period: 46.21%); among the company's other receivables, the other receivables of the top five companies in arrears accounted for 69.61% of the company's total other receivables (comparison period: 55.04%).

Liquidity risk

Liquidity risk refers to the risk of a shortage of funds when an enterprise fulfills its obligations to settle by delivering cash or other financial assets. The company is responsible for the overall cash management of all subsidiaries within the company, including short-term investment of cash surplus and raising loans to meet expected cash needs. The Company's policy is to regularly monitor short-term and long-term liquidity requirements and compliance with borrowing agreements to ensure that adequate cash reserves and marketable securities are readily liquidated.

Market risk

foreign exchange risk

Foreign exchange risk is the risk arising from changes in exchange rates. The risk of exchange rate changes faced by the Company is mainly related to the Company's foreign currency accounts payable. For this part of foreign currency liabilities, if a short-term imbalance occurs, the Company will buy and sell foreign currencies at market exchange rates when necessary to ensure that the net risk exposure is maintained at an acceptable level.

As of June 30, 2026, the main foreign exchange risk exposures of the company's foreign currency assets and liabilities are as follows (for presentation considerations, the risk exposure amounts are listed in RMB and converted at the spot exchange rate on the balance sheet date):

June 30, 2026

Project name Euro

Foreign Currency Renminbi

Accounts payable - - (continued from above table)

December 31, 2025

Project name Euro

Foreign Currency Renminbi

Accounts Payable - - The Company pays close attention to the impact of exchange rate changes on the Company's exchange rate risk. The Company currently has not taken any measures to avoid exchange rate risks. However, management is responsible for monitoring exchange rate risks and will consider hedging significant exchange rate risks if necessary.

Transfer of financial assets

Classified presentation according to the method of transfer of financial assets

Transfer of financial assets Transferred financial assets Transferred financial assets

Derecognition situation. Method of judging the derecognition situation. Nature of assets. Amount of assets.

Since the bank acceptance bill in the bills receivable is accepted by a company with a low credit rating, the bank acceptance bill in the bills receivable is still outstanding.

Endorsed, endorsed or discounted bank acceptance endorsement Unexpired bank 696,850.64 Not terminated

The bill of exchange does not affect the right of recourse, and the acceptance bill related to the bill

The credit risk and deferred payment risk have not been transferred, so the recognition has not been terminated.

Total — 696,850.64 — —

11. Disclosure of fair value

The level to which the fair value measurement result belongs is determined by the lowest level to which the input value that is significant to the overall fair value measurement belongs:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: input values that are directly or indirectly observable for relevant assets or liabilities in addition to input values at the first level.

Level 3: Unobservable input values of related assets or liabilities.

On June 30, 2026, the fair value of assets and liabilities measured at fair value

Fair value as of June 30, 2026

Project First-level public Second-level public Third-level public

total

Fair value measurement Fair value measurement Fair value measurement

1. Continuous fair value measurement

(1) Financing of receivables - 115,047.59 - 115,047.59 Total assets continuously measured at fair value - 115,047.59 - 115,047.59 For financial instruments traded in active markets, the Company determines their fair value based on active market quotations; for financial instruments not traded in active markets, the Company uses valuation techniques to determine its fair value. The valuation models used are mainly discounted cash flow models and market comparable company models. The input values of valuation technology mainly include risk-free interest rates, benchmark interest rates, exchange rates, credit spreads, liquidity premiums, lack of liquidity discounts, etc.

Continuous and non-continuous second-level fair value measurement items, valuation techniques used and qualitative and quantitative information on important parameters

Due to the short remaining term of receivables financing and the book value being close to the fair value, the par amount is used as the fair value.

Fair value of financial assets and financial liabilities not measured at fair value

The Company's financial assets and financial liabilities measured at amortized cost mainly include: monetary funds, notes receivable, accounts receivable, other receivables, accounts payable, other payables, etc.

12. Related parties and related transactions

Criteria for identifying related parties: If one party controls or jointly controls the other party or exerts significant influence on the other party, and two or more parties are controlled or jointly controlled by one party, they constitute a related party.

Information about the company’s parent company

Natural person shareholders Wang Lin and Li Yujian are persons acting in concert, holding a total of 39.69% of the company's equity and are the actual controllers of the company.

Information about the company’s subsidiaries

For details of the company's subsidiaries, please see Note 8. Equity in other entities.

Information about the Company’s joint ventures and associated enterprises

(1) Information about the company’s important joint ventures

The Company has no joint ventures.

(2) Information about the company’s important associates

For details of the Company's associates, please refer to Note 8, Equity in Other Entities.

Information about other related parties of the company

Names of other related parties Relationship between other related parties and the company Chen Fashu holds more than 5% of the company's equity Duan Juanjuan holds more than 5% of the company's equity Xu Jingning Director, Secretary of the Board of Directors Yin Yancheng Director

Zong Chengyong Independent Director

Qu Kai Independent Director

Jia Kebin Independent Director

Li Yongzhen Financial Manager

Chen Fashu, a shareholder holding 8.08% of the company's shares, also holds Wuhan Shendong Wuhan Shendong Automotive Electronics and Electrical Co., Ltd.

24.76% equity

Related transactions

(1) Related transactions related to the purchase and sale of goods, provision and receipt of services

Sales of goods and provision of services

Related parties Related party transactions January to June 2026 Wuhan Shendong Automotive Electronics and Electrical Appliances from January to June 2025

Goods sold 961,480.50 2,529,485.50 Co., Ltd.

Shanghai Huapei Digital Intelligent Core Automobile

Goods for sale 25,128.42 -Electronics Co., Ltd.

(2) Remuneration of key management personnel

Project January to June 2026 Remuneration of key management personnel from January to June 2025 1,212,682.40 1,926,770.72

Accounts receivable and payable from related parties

(1) Items receivable

June 30, 2026 December 31, 2025 Project name Related parties

Book balance Provision for bad debts Book balance Provision for bad debts

Wuhan Shendong Automotive Electronics

Accounts receivable 3,467,058.85 176,036.08 4,077,315.11 203,865.76 Electrical Appliance Co., Ltd.

13. Share-based payment

As of June 30, 2026, the company has no share-based payment matters that need to be disclosed.

14. Commitments and contingencies

Important commitments

As of June 30, 2026, the Company has no important commitments that need to be disclosed.

Contingencies

As of June 30, 2026, the company has no important contingencies that need to be disclosed.

15. Events after the balance sheet date

As of August 20, 2026 (the date of approval of the report by the board of directors), the company has no post-balance sheet events that should be disclosed.

16. Other important matters

Asset replacement

(1) Non-monetary asset exchange

Basic overview of transactions

In order to enhance the R&D and manufacturing capabilities of sensor cores and assemblies, the company's controlled subsidiary Xinzhisen and Shanghai Huapei Digital Energy Technology (Group) Co., Ltd. jointly invested in the establishment of a joint venture company - Shanghai Huapei Digital Intelligent Core Automotive Electronics Co., Ltd., registered in Shanghai, with a registered capital of RMB 22.29 million. Among them, Huapei Power invested RMB 15.603 million in currency, accounting for 70% of the registered capital of the joint venture company. Xinzhisen invested RMB 6.687 million in non-monetary assets such as assessed production line facilities and equipment, intellectual property rights, technical achievements, business contracts (if any) related to the sensor assembly business, accounting for 30% of the registered capital of the joint venture company.

The joint venture has been established. Currently, the company's controlled subsidiary Xinzhigan has invested 4,419,250.00 yuan, which is the investment for the project under construction. The company also confirmed the long-term equity investment of the same amount. The company is able to exert a significant influence on the financial and operating decisions of Digital Intelligence Core. The investment is included in long-term equity investment and is accounted for using the equity method.

Basis for judgment of commercial substance

This non-monetary asset exchange has commercial substance, and the basis for judgment is as follows:

The future cash flows of the equity in the associates exchanged are significantly different from those of the production equipment exchanged out in terms of risk, time distribution and amount; the transaction was negotiated and determined based on the normal commercial cooperation purposes of both parties, and the price was based on the evaluation results issued by the asset appraisal agency. It was fair and reasonable, and complied with the judgment standards of commercial substance in the "Accounting Standards for Business Enterprises No. 7 - Exchange of Non-monetary Assets".

Exchange-in and exchange-out asset classes and measurement status

The company conducted a non-monetary asset exchange with Shuneng Zhixin in the first half of 2026, in which the asset class received was long-term equity investment and the asset class exchanged was construction in progress.

The fair value of the exchanged-out asset "Construction in Progress - Sensor Production Line (Main Equipment)" is RMB 4,419,250.00, and the book value is RMB 4,419,250.00; the fair value of the exchanged-in asset "Long-Term Equity Investment - Associate Enterprise (Equity Method Accounting)" is RMB 4,419,250.00.

The above fair value and book value are the values on the transaction date. The profit and loss recognized on the exchange of non-monetary assets in this period is 0 yuan. The cost of the assets exchanged is determined based on the fair value of the assets exchanged and the relevant taxes payable.

Other instructions

The capital contribution exchanged for the asset "Construction in Progress - Sensor Production Line (Main Equipment)" had an original book value of RMB 5,896,017.69. According to the agreement between the two parties, the company's subsidiary Xinzhisen invested in the project in progress based on the actual payment of RMB 4,419,250.00 (adjusted book value, also known as the appraised value) and transferred it to the joint venture company. Unpaid amounts for the equipment will continue to be paid by the joint venture company. Therefore, the fair value of the equipment exchanged for this investment is consistent with the book value. No non-monetary asset exchange gains and losses were recognized during the reporting period, which had no impact on the company's net profit for the current period. This transaction does not constitute a major asset restructuring.

Segment information

The company's main business is the sales of professional equipment such as oil and gas recovery online monitoring, oil and gas recovery management, ceramic capacitor pressure cores, liquid level measurement, and smart network monitoring platforms, as well as providing related installation and debugging, data analysis, third-party testing and operation and maintenance services. The company regards this business as a whole to implement management and evaluate operating results. Therefore, the Company is not required to disclose segment information. For detailed information on the company's revenue breakdown, please refer to Note V. 30. of this financial statement.

17. Notes on main items of the parent company’s financial statements

Accounts receivable

(1) Disclosure based on aging

Account aging June 30, 2026 December 31, 2025

Within 1 year 26,020,140.92 31,896,124.62 1 to 2 years 4,173,582.99 13,591,271.93 2 to 3 years 4,629,621.40 4,201,065.25 3 to 4 years 423,762.00 1,384,243.52 4 to 5 years 581,542.00 80,542.00 More than 5 years 109,796.30 151,281.30

Subtotal 35,938,445.61 51,304,528.62 Less: Provision for bad debts 3,936,538.87 5,252,438.79 Total 32,001,906.74 46,052,089.83 (2) Classified disclosure based on bad debt accrual method

June 30, 2026

Category Book balance Bad debt provision

book value

Amount Proportion (%) Amount Provision Proportion (%)

Provision for bad debts based on individual items - - - - - Provision for bad debts based on combinations 35,938,445.61 100.00 3,936,538.87 10.95 32,001,906.74 1. Portfolio 1 - - - - - 2. Portfolio 2 35,938,445.61 100.00 3,936,538.87 10.95 32,001,906.74 Total 35,938,445.61 100.00 3,936,538.87 10.95 32,001,906.74 (continued from the above table)

December 31, 2025

Category Book balance Bad debt provision

book value

Amount Proportion (%) Amount Provision Proportion (%)

Provision for bad debts based on individual items - - - - - Provision for bad debts based on combinations 51,304,528.62 100.00 5,252,438.79 10.24 46,052,089.83 1. Portfolio 1 161,504.42 0.31 - - 161,504.42 2. Portfolio 2 51,143,024.20 99.69 5,252,438.79 10.27 45,890,585.41 Total 51,304,528.62 100.00 5,252,438.79 10.24 46,052,089.83 Specific instructions for bad debt provision:

① On June 30, 2026, accounts receivable for which bad debt provisions are made according to combination 2

June 30, 2026 December 31, 2025

Account aging Provision ratio Provision ratio Book balance Bad debt provision Book balance Bad debt provision

(%) (%) Within 1 year 26,020,140.92 1,301,007.05 5.00 31,734,620.20 1,586,731.01 5.00 1 to 2 years 4,173,582.99 417,358.30 10.00 13,591,271.93 1,359,127.19 10.00 2 to 3 years 4,629,621.40 1,388,886.42 30.00 4,201,065.25 1,260,319.58 30.00 3 to 4 years 423,762.00 254,257.20 60.00 1,384,243.52 830,546.11 60.00 4 to 5 years 581,542.00 465,233.60 80.00 80,542.00 64,433.60 80.00 More than 5 years 109,796.30 109,796.30 100.00 151,281.30 151,281.30 100.00Total 35,938,445.61 3,936,538.87 10.95 51,143,024.20 5,252,438.79 10.27 Please refer to Note 3.11 for the recognition standards and explanation of bad debt provisions on a group basis.

(3) Changes in bad debt provisions

Amount of changes in the current period

December 2025 June 2026 Category Withdraw or transfer

Provision, write-off or write-off on the 31st, other changes, reply on the 30th

Expected credit losses 5,252,438.79 -1,315,899.92 - - - 3,936,538.87 (4) Accounts receivable actually written off in the current period

Item write-off amount

Accounts receivable actually written off - (5) Accounts receivable with the top five closing balances by debtors

Accounting for the balance of accounts receivable at the end of the period Accounts receivable bad debts quasi-accounts receivable at the end of the period

Unit name Proportion of total amount Ending balance of impairment provision

(%) Balance CD23 4,020,538.16 11.19 760,498.61 CA31 3,676,150.24 10.23 183,807.51 CB19 1,980,035.00 5.51 99,001.75 CDL01 1,692,691.98 4.71 106,970.05 CA30 1,592,800.00 4.43 127,424.00Total 12,962,215.38 36.07 1,277,701.92

Other receivables

(1) Classified listing

Project June 30, 2026 December 31, 2025

Interest receivable - - Dividends receivable - -

Project June 30, 2026 December 31, 2025

Other receivables 47,932,489.47 47,820,855.71 Total 47,932,489.47 47,820,855.71 (2) Other receivables

① Disclosure based on aging

Account aging June 30, 2026 December 31, 2025

Within 1 year 2,928,730.42 8,080,336.91 1 to 2 years 12,226,164.27 17,556,776.93 2 to 3 years 16,279,053.50 10,585,902.05 3 to 4 years 16,759,720.00 11,888,601.92 4 to 5 years 141,001.92 4,400.00 More than 5 years 195,200.00 593,200.00

Subtotal 48,529,870.11 48,709,217.81 Less: provision for bad debts 597,380.64 888,362.10 Total 47,932,489.47 47,820,855.71 ② Classification by nature of payment

Nature of payment June 30, 2026 December 31, 2025

Internal current funds 46,771,050.22 46,505,367.15 Guarantee and deposit 1,752,471.97 2,201,249.97 Employee reserve fund 6,347.60 2,600.00 Others 0.32 0.69

Subtotal 48,529,870.11 48,709,217.81 Less: provision for bad debts 597,380.64 888,362.10 Total 47,932,489.47 47,820,855.71 ③Disclosure by classification according to bad debt accrual method

A. The bad debt provisions as of June 30, 2026 are accrued according to the three-stage model as follows:

Stage Book balance Bad debt provision Book value

First stage 48,529,870.11 597,380.64 47,932,489.47 Second stage - - - Third stage - - - Total 48,529,870.11 597,380.64 47,932,489.47 On June 30, 2026, bad debt provisions in the first stage:

Provision ratio

Category Book balance Bad debt provision Book value Reason

(%)

Provision ratio

Category Book balance Bad debt provision Book value Reason

(%)

Provision for bad debts on an individual basis - - - -

Provision for bad debts on a portfolio basis for financial assets 48,529,870.11 1.23 597,380.64 47,932,489.47

Credit risk has not increased significantly since 1. Portfolio 1 46,771,050.22 - - 46,771,050.22 2. Portfolio 2 1,758,819.89 33.96 597,380.64 1,161,439.25 after initial recognition

Total 48,529,870.11 1.23 597,380.64 47,932,489.47

As of June 30, 2026, the company had no bad debt provisions in the second or third stages.

B. The bad debt provisions as of December 31, 2025 are accrued according to the three-stage model as follows:

Stage Book balance Bad debt provision Book value

First stage 48,709,217.81 888,362.10 47,820,855.71 Second stage - - - Third stage - - - Total 48,709,217.81 888,362.10 47,820,855.71 On December 31, 2025, bad debt provisions in the first stage:

Provision ratio

Category Book balance Bad debt provision Book value Reason

(%)

Provision for bad debts on an individual basis - - - -

Provision for bad debts on a portfolio basis for financial assets 48,709,217.81 1.82 888,362.10 47,820,855.71

Credit risk since 1. Portfolio 1 46,505,367.15 - - 46,505,367.15 After initial recognition

No significant increase 2. Combination 2 2,203,850.66 40.31 888,362.10 1,315,488.56

add

Total 48,709,217.81 1.82 888,362.10 47,820,855.71

As of December 31, 2025, the Company had no bad debt provisions in the second or third stages.

Basis for the amount of bad debt provision for the current period:

Please refer to Note 3.11 for the recognition standards and explanation of bad debt provision on a group basis.

④Changes in bad debt provisions

The first stage The second stage The third stage

Lifetime forecasts Lifetime forecasts

Bad debt provision Expected credit losses in the next 12 months in the aggregate period (unused losses (incurred credit losses)

credit loss

Credit impairment occurs) Impairment)

As of December 31, 2025

888,362.10 - - 888,362.10 amount

As of December 31, 2025

— — — —

Amount in this period

--Move to the second stage-----

The first stage The second stage The third stage

Lifetime forecasts Lifetime forecasts

Provision for bad debts Expected for the next 12 months Total

period credit losses (unused losses (credit incurred

credit loss

Credit impairment occurs) Impairment)

--Transfer to the third stage - - - - --Transfer to the second stage - - - - --Transfer to the first stage - - - -Provision for the current period -290,981.46 - - -290,981.46 Transferred for the current period - - - -Write-off for the current period - - - -Write-off for the current period - - - -Other changes - - - - Remainder of June 30, 2026

597,380.64 - - 597,380.64 amount

⑤ Other receivables with top five closing balances collected by debtors

Account for other receivables

Nature of the payment June 2026 Closing balance of the payment

Unit name Aging of accounts Bad debt provision quality 30-day balance Ratio of total amount

Example(%)

1,600,000.00 within 1 year

Wuxi Xinzhisen Technology Internal transactions 1 to 2 years 10,771,050.22

42,371,050.22 87.31 - Limited Company Payment 2 to 3 years 15,000,000.00

3 to 4 years 15,000,000.00

900,000.00 within 1 year

Beijing Central Walkers

Internal transactions 1 to 2 years 900,000.00

Detection Technology Co., Ltd. 4,400,000.00 9.07 -

Payment 2 to 3 years 1,000,000.00

Division

3 to 4 years 1,600,000.00

200,000.00 within 1 year

PetroChina 1 to 2 years 100,000.00

deposit, deposit

Co., Ltd. 620,000.00 3 to 4 years 100,000.00 1.28 290,000.00

gold

Qing Sales Branch 4 to 5 years 50,000.00

170,000.00 over 5 years

Sinopec International Affairs

Security deposit, deposit 1 to 2 years 86,550.55

Industry Co., Ltd. South China 252,400.00 0.52 58,409.89

Gold 2 to 3 years 165,849.45

Tendering Center

Sinopec International Affairs

Deposit and deposit Within 1 year 123,162.50

Industry Co., Ltd. Chongqing 214,466.00 0.44 15,288.48

Gold 1 to 2 years 91,303.50

Tendering Center

Total — 47,857,916.22 — 98.62 363,698.37

Long-term equity investment

(1) Long-term equity investment situation

Project June 30, 2026 December 31, 2025

Book balance Impairment provision Book value Book balance Impairment provision Book value Investment in subsidiaries 16,200,000.00 - 16,200,000.00 16,200,000.00 - 16,200,000.00Total 16,200,000.00 - 16,200,000.00 16,200,000.00 - 16,200,000.00 (2) Investment in subsidiaries

December 31, 2025 Increases and decreases in the current period Investee on June 30, 2026 Impairment allowance Additional Decrease Provision Less Impairment allowance Book value Other Book value

Reserve Balance Investment Investment Value Reserve Reserve Balance Beijing Central Vaux Inspection

5,000,000.00 - - - - - 5,000,000.00 - Measurement Technology Co., Ltd.

Xi'an Esteco Environment

6,100,000.00 - - - - - 6,100,000.00 - Technology Co., Ltd.

Wuxi Xinzhisen Technology has

5,100,000.00 - - - - - 5,100,000.00 - Co., Ltd.

Total 16,200,000.00 - - - - - 16,200,000.00 -

Operating income and operating costs

January-June 2026 January-June 2025

Project

revenue cost revenue cost

Main business 10,341,936.93 10,636,660.95 21,725,236.11 16,481,811.37 Total 10,341,936.93 10,636,660.95 21,725,236.11 16,481,811.37 (1) Decomposition information of main business income and main business costs:

January-June 2026 January-June 2025

Project

revenue cost revenue cost

Classification by product type

Oil and gas recovery and treatment equipment 6,155,739.90 7,526,769.35 13,731,364.13 11,946,893.23 Oil and gas recovery online monitoring system 3,536,433.05 2,579,812.77 6,583,641.81 3,379,553.55 Liquid level measurement system 649,763.98 530,078.83 1,168,248.88 1,062,911.76 Intelligent network monitoring platform - - 241,981.29 92,452.83

Total 10,341,936.93 10,636,660.95 21,725,236.11 16,481,811.37 Classified by operating area

Domestic sales 10,341,936.93 10,636,660.95 21,725,236.11 16,481,811.37 Export sales - - - -

Total 10,341,936.93 10,636,660.95 21,725,236.11 16,481,811.37 Classified by revenue recognition time

Revenue recognized at a certain point in time 10,257,092.91 10,579,727.73 21,621,524.01 16,440,837.53 Revenue recognized at a certain period of time 84,844.02 56,933.22 103,712.10 40,973.84Total 10,341,936.93 10,636,660.95 21,725,236.11 16,481,811.37

18. Supplementary information

Detailed statement of non-recurring profits and losses for the current period

Item January-June 2026 January-June 2025 Describe the gains and losses from disposal of non-current assets, including accrued asset deductions

Offset portion of value provision

-5,513.05 is included in the current profit and loss as a government subsidy, but it is not related to the company’s normal operations.

Closely related to business operations, in compliance with national policies and regulations, and in accordance with

Determined standards enjoy and have a lasting impact on the company's profits and losses

Except for government subsidies

Reversal of impairment provision for accounts receivable subject to separate impairment test -Other non-operating income and expenses other than the above items -4,946.08 -5,753.70

Total non-recurring gains and losses -4,946.08 -11,266.75 Less: income tax impact of non-recurring gains and losses -247.31 -635.50

Net non-recurring gains and losses -4,698.77 -10,631.25 Less: Net non-recurring gains and losses attributable to minority shareholders -2,781.67 -4,873.22 Net non-recurring gains and losses attributable to the company’s common shareholders -1,917.10 -5,758.03

Return on equity and earnings per share

①January-June 2026

Weighted average net assets, earnings per share, profit for the reporting period

Profit rate (%) Basic earnings per share Diluted earnings per share Net profit attributable to the company’s common shareholders -3.62 -0.13 -0.13 After deducting non-recurring gains and losses, net profit attributable to the company’s common shareholders

-3.62 -0.13 -0.13Shareholders’ net profit

②January-June 2025

Weighted average net assets Earnings per share Profit for the reporting period

Yield (%) Basic earnings per share Diluted earnings per share Net profit attributable to the company's common shareholders -2.10 -0.08 -0.08 After deducting non-recurring gains and losses, net profit attributable to the company's common shareholders

-2.10 -0.08 -0.08Shareholders’ net profit

Company name: Beijing Henghe Xinye Technology Co., Ltd.

Date: August 20, 2026

Section 8 Directory of Documents for Inspection

(1) Financial statements signed and stamped by the person in charge of the company, the person in charge of accounting work, and the person in charge of the accounting department (accounting supervisor).

(2) The original audit report (if any) containing the seal of the accounting firm and the signature and seal of the certified public accountant.

(3) The originals of all company documents and announcements publicly disclosed on the designated information disclosure platform during the reporting period.

File preparation address:

Securities Department of Beijing Henghe Xinye Technology Co., Ltd.