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Shang Gong Group Co., Ltd.

Annual Report 2018

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	Shang Gong Group Co., Ltd

IMPORTANT NOTES

1. The board of directors, the board of supervisors, directors, supervisors and senior executives ofthe Company undertake that the content of the annual report is true, accurate and complete, andcontains no false records, misleading statements, or major omissions, and will assume joint and severallegal liabilities arising therefrom.

2. All the directors of Shang Gong Group Co., Ltd. attended the meeting of the board of directors.

3. BDO China Shu Lun Pan Certified Public Accountants LLP. provided a standard unqualifiedopinion audit report for the Company.

4. Zhang Min, Chairman of the Company, Zhang Jianrong, the principal in charge of theaccounting, and Zhao Lixin, Chief of Accounting Affairs, declare and guarantee the veracity, accuracyand integrity of the financial report in the annual report.

5. Plan of profit distribution or transfer of reserves deliberated by the board

Audited by BDO China Shu Lun Pan Certified Public Accountants LLP., the Company achieved theconsolidated net profit of 158,449,643.95 yuan in 2018, of which, the net profit attributable to parentcompany owners is 140,828,047.20 yuan.

According to the provisions in the Articles of Association, before withdrawing the legal accumulationfund, the Company should first cover the deficit with the profit of the year. As the profit of the year failed tomake up the deficit of previous years, the Company did not draw the legal accumulation fund. Thecurrent-period net profit of the parent company is 32,898,977.07 yuan; the undistributed profits at thebeginning of 2018 are -143,892,809.85 yuan; thus the practical profit available for distribution is-110,993,832.78 yuan at the end of 2018. As the parent company¡¯s profit available for distribution is negative,the profit distribution cannot be made in 2018, neither the transferring of capital reserves into share capital.

6. Warning statement of forward-looking statements

The Company¡¯s future plan, development strategy and other forward-looking statements in the report donot constitute any material commitment of the Company to investors. Investors and relevant persons shall besufficiently mindful of risks, and undertake the difference in plans, predictions and commitments.

7. There was no occupation of fund of the Company occurred for non-operating use by holdingshareholder and its related parties.

8. There was no external guarantee against the rules and regulations of the Company.

9. Major risk waring

The Company has described in detail the risks faced by the Company in this report. For details see¨DDiscussion and Analysis on Business Operation¡¬ and other relevant chapters in this report.

10. This report is prepared in both Chinese and English. In the case of any inconsistentunderstanding between the Chinese version and the English version, the Chinese version shall prevail.

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

TABLE OF CONTENTS

Chapter 1 Definition ...... 4

Chapter 2 Company Profile and Main Financial Index ...... 4

Chapter 3 Summary of Company Business ...... 6

Chapter 4 Discussion and Analysis on the Business Operation ...... 9

Chapter 5 Important Matters ...... 21

Chapter 6 Changes in Common Shares and Shareholders ...... 26

Chapter 7 Preferred Stock ...... 27

Chapter 8 Directors, Supervisors, Senior Management and Employees ...... 28

Chapter 9 Corporate Governance ...... 33

Chapter 10 Corporate Bond ...... 36

Chapter 11 Financial Report ...... 37

Chapter 12 Documents for Reference ...... 121

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Chapter 1 Definition

1. As used in this report, the following terms have the following meanings unless the contextrequires otherwises:

Definition of common terms
ShangGong Group, SGG, the Company	refer to	Shang Gong Group Co., Ltd.
PKFR	refers to	Shanghai Puke Flyingman Investment Co., Ltd
Pudong SASAC	refers to	State-owned Assets Supervision and Administration Commission of Shanghai Pudong New Aear People¡¯s Government
DA AG	refers to	D¨¹rkopp Adler AG. In July 2018, DAP Industrial AG completed the acquisition of all minority shareholders' equity of DA AG, and absorbed DA AG, and changed its name to D¨¹rkopp Adler AG after the merger was completed.
PFAFF GmbH	refers to	PFAFF Industriesystemeund Maschinen GmbH
KSL	refers to	PFAFF Industriesystemeund Maschinen GmbH Zweigniederlassung KSL
Stoll KG, STOLL	refers to	H. Stoll AG & Co. KG
DAP Branch	refers to	Shang Gong Group Co., Ltd. Industrial Sewing Machine Branch
Butterfly Branch	refers to	Shang Gong Group Co., Ltd. Shanghai Butterfly Sewing Machine Branch
Richpeace, SG Richpeace	refers to	TIANJIN RICHPEACE AI CO., LIMITED
SGGEMSY	refers to	Zhejiang ShangGong GEMSY CO., LTD.
PIZ	refers to	PFAFF Industrial Sewing Machine (Zhangjiagang) Co., Ltd.
SHENSY	refers to	Shanghai Shensy Enterprise Development Co., Ltd.
SG Zhejiang	refers to	ShangGong Sewing Machine (Zhejiang) Co., Ltd.
Report period, reporting period	refers to	From 1st January 2018 to 31st December 2018
Yuan, RMB	refer to	The lawful currency of the People¡¯s Republic of China
Euro, EUR	refer to	The lawful currency of the European Union

2. In this report, the unit of the amount is expressed in RMB Yuan unless otherwise specified.

Chapter 2 Company Profile and Main Financial Index

1. Company information

Company name in Chinese	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾
Abbreviation of the Company name in Chinese	ÉϹ¤Éê±´
Compay name in English	Shang Gong Group Co., Ltd.
Abbreviation of the Company name in English	ShangGong Group
Legal representative	Zhang Min

2. Contact information

	Secretary of Board of Directors	Representative of Securities Affairs
Name	Zhao Lixin	Shen Lijie
Office address	No. 1566 New Jinqiao Road, Pudong New Aear, Shanghai	No. 1566 New Jinqiao Road, Pudong New Aear, Shanghai
Tel	021-68407700	021-68407515
Fax	021-63302939	021-63302939
Email	[e-mail]	[e-mail]

3. Basic situation introduction

Registered address	Room A-D, 12th Floor, Orient Mansion, No. 1500 Century Avenue, China (Shanghai) Pilot Free Trade Zone
Postal code of registered address	200122

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	Shang Gong Group Co., Ltd

Office address	No. 1566 New Jinqiao Road, Pudong New Aear, Shanghai
Postal code of office address	201206
Company website	http://www.sgsbgroup.com/
Email	[e-mail]

4. Place for information disclosure and consulting

The name of the information disclosure media selected by the company	Shanghai Securities News, Hong Kong Commercial Daily
The website that publishes the annual report designated by China Securities Regulatory Commission	http://www.sse.com.cn
Lodging address of annual report of the Company	Office of the Company

5. Corporate stock

Type	Stock exchange	Stock abbreviation	Stock code
A Share	Shanghai Stock Exchange	SGSB	600843
B Share	Shanghai Stock Exchange	SGBG	900924

6. Other information

Accounting firm appointed by the Company (Domestic)	Name	BDO China Shu Lun Pan Certified Public Accountants LLP.
	Address	Sixth Floor, New Huangpu Financial Plaza, No. 61 East Nanjing Road, Shanghai
	Signing accountant's name	Li Ping, Zhang Yongmei

7. Main accounting data and financial index7.1 Main accounting data

Unit: Yuan, Currency: RMB

Main accounting data	2018	2017	Year-on-year increase/decrease (%)	2016
Operaing income	3,200,527,741.09	3,064,971,500.79	4.42	2,759,855,136.98
Net profit attributable to shareholders of listed company	140,828,047.20	197,487,226.27	-28.69	144,231,343.84
Net profit attributable to shareholders of listed company after deduction of non-recurrent account profits and losses	124,656,582.51	154,753,519.99	-19.45	117,425,853.16
Net cash flow from operating activities	79,553,871.30	117,335,869.17	-32.20	99,056,912.42
	31st December 2018	31st December 2017	Year-on-year increase/decrease (%)	31st December 2016
Net assets attributable to shareholders of listed company	2,212,858,250.06	2,145,214,676.69	3.15	1,916,349,381.88
Total assets	4,144,127,162.05	3,703,515,071.60	11.90	3,506,172,981.71

7.2 Main financial index

Main financial index	2018	2017	Year-on-year increase/decrease (%)	2016
Basic earnings per share (yuan/share)	0.2567	0.3600	-28.69	0.2629
Diluted earning per share (yuan/share)	0.2567	0.3600	-28.69	0.2629
Basic earnings per share after deduction of non-recurrent profits and losses (yuan/share)	0.2272	0.2821	-19.46	0.2141
Weighted average return on net assets (%)	6.3561	9.8004	Decrease 3.44 percent point	7.8098
Weighted average return on net assets after deduction of non-recurrent profits and losses (%)	5.6262	7.6797	Decrease 2.05 percent point	6.3584

8. Accounting data differences between domestic and foreign accounting standardsNot applicable.9. Main accounting data of each quarter in report period

	The first quarter (from January to March)	The second quarter (from April to June)	The third quarter (from July to September)	The forth quarter (from October to December)
Operaing income	701,350,250.94	793,444,162.33	798,251,068.15	907,482,259.67
Net profit attributable to shareholders of listed company	45,491,262.77	54,670,083.73	34,854,917.67	5,811,783.03

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	Shang Gong Group Co., Ltd

Net profit attributable to shareholders of listed company after non-recurrent account profit/loss	39,609,986.99	49,760,628.20	29,755,246.40	5,530,720.92
Net cash flow from operating activities	-21,967,006.01	-35,736,148.74	22,598,770.01	114,658,256.04

10. Items and amount of non-recurring profit and loss

Item	2018	2017	2016
Profits and losses from disposal of non-current assets	-1,285,095.62	23,550,480.53	3,529,785.81
Government subsidies recorded in the current profit and loss	9,897,636.07	11,861,884.98	11,190,319.23
Except effective hedging business relevant to the normal business of the Company, gains and losses from changes in fair value arising from trading financial assets and trading financial liabilities, and investment income from disposal of trading financial assets, trading financial liabilities and available-for-sale financial assets	12,601,058.35	10,553,231.30	4,708,383.25
Profits and losses from external entrusted loans	603,626.80
Other non-operating income and expenditure except the above-said items	4,659,776.73	5,690,312.52	17,172,464.17
Impact on minority interests	-4,268,282.88	-5,345,419.70	-6,050,593.20
Impact on income tax	-6,037,254.76	-3,576,783.35	-3,744,868.58
Total	16,171,464.69	42,733,706.28	26,805,490.68

11. Items for adopting fair value measurement

Item	Opening balance	Ending balance	Current change	Influence on current profit
Trading financial assets	0.00	0.00	0.00	45,148.42
Available-for-sale financial assets	89,721,694.56	86,406,778.33	-3,314,916.23	1,664,198.76
Total	89,721,694.56	86,406,778.33	-3,314,916.23	1,709,347.18

Chapter 3 Summary of Company Business

1. The Company¡¯s main business, business model in the report period and industry situationDuring the reporting period, the Company's main business is the sewing equipment manufacturingindustry and intelligent equipment manufacturing industry. The Company¡¯s business also involved flat knittingmachines, office machinery, logistics services and trade. The Company's sewing equipment includes industrialsewing machines, household sewing machines and custom-made industrial machines for special purposes.

The Company adheres to globalization of business, and implements unified management of sales ofsewing equipment. The Company adopts a gradient-based specialized multi-brand marketing strategy, andconducts gradient division management on production sites throughout Europe and Asia. The Company paysattention to collaborative research and development, and seizes the global high-end market of sewingequipment with leading technology. At the same time, the Company is cultivating the business model of¨DShanghai Manufacturing¡¬, which means R&D and marketing in Shanghai while production in Jiangsu,Zhejiang and other provinces.

In recent years, through the implementation of mergers and acquisitions at home and abroad and thereorganization and integration within the Company, with the business philosophy of ¨Dmarket orientation andbenefit first¡¬ to manage subsidiaries in a unified manner, the synergy effect has gradually emerged and theinternational business model has achieved good results.

China¡¯s sewing machinery manufacturing industry is a branch of light industry in China. It hasestablished the most complete industrial system in the world, and is capable of manufacturing a full range ofsewing machinery products, including household and industrial sewing machine, embroidery machine andcutting machine, and the related controller, motor ability and spare parts, which satisfies all kinds of socialneeds. However, compared with the advanced in the world, there is still a large gap for China¡¯s sewingmachinery manufacturing industry in independent innovation ability, industrial structure, technology, productand brand quality and other aspects. The whole industry is big but not strong. The development of the worldsewing machinery industry started in the middle of the nineteenth Century in Europe and the United States.

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	Shang Gong Group Co., Ltd

After 100 years of development, at present the world sewing machine industry development center has beentransferred to the Asian region like China and Japan, and gradually formed tripartite confrontation patternbetween China, Germany and Japan.

In 2018, the industry's production and sales maintained a double-digit growth rate, the operation qualitywas good, showing the remarkable characteristics of ¨Dstable and good, and call back from the top¡¬. Accordingto the China Sewing Machinery Association, in terms of production, from January to December in 2018, thetop 100 backbone machine manufacturers in the industry produced 7.54 million sewing machines, ayear-on-year increase of 15.2%. Production volume of industrial sewing machines was 5.44 million units, anincrease of 21.5%, of which the volume of flatbed lockstitch was 3.16 million units, an increase of 24.2%;volume of special machine was 360,000 units, an increase of 15%; volume of automatic sewing equipmentwas 30,000 units, an increase of 38.6 %. Production volume of industrial sewing machines was 1.65 millionunits, an increase of 3.7%. The overall production of the industry has reached new heights and the productstructure has been upgraded. In terms of sales, from January to December in 2018, the top 100backbonemachine manufacturers in the industry sold 7.14 million sewing machines, a year-on-year increase of 10.5%.Among them, 5.06 million units were industrial machines, an increase of 15.2% year-on-year, and 1.62 millionunits were household machines, an increase of 0.4%. In terms of domestic sales, the domestic market was firstraised and then suppressed in 2018. In the first half of the year, the downstream industry's consumer demandrepresented by clothing, leather, home textiles and other industries upgraded and accelerated the constructionof smart factories, and promoted the continuous growth of China's sewing machinery domestic market.However, since the third quarter, the impact of Sino-US trade friction has gradually emerged. The willingnessto increase investment in the industry has declined, and the cyclical demand in the domestic market hasgradually saturated, and industry sales have declined month by month. In terms of export trade, in the contextof the overall recovery of the international economy and the release of downstream market demand, the exporttrade of domestic enterprises has reached a new high. According to the data of the General Administration ofCustoms, the export volume of the industry in 2018 reached 2.45 billion US dollars, an increase of 5.3%.Among them, the export of industrial sewing machines reached 1.22 billion US dollars, an increase of 19.2%.In terms of operating efficiency, in 2018 the sales revenue of the top 100 backbone machine manufaturers inthe industry reached 21.6 billion yuan, a year-on-year increase of 9.7%. However, as the market graduallybecame saturated, market competition became increasingly fierce, and investment in product promotion, newproduct development, production and other inputs increased, operating and management expenses increasedsubstantially, thus the growth rate of industry efficiency was lowered. In 2018, the total profit of top 100backbone machine manufaturers in the industry reached 1.58 billion yuan, a year-on-year increase of only3.3%.

2. Description of major changes in main assets of the Company during the reporting period

For details of major changes in the Company's major assets in the report period, please refer to ¨D(3)Analysis of assets and liabilities¡¬ in ¨DChapter 4 Disscussion and Analysis on Business Operation¡¬.

The Company¡¯s overseas assets amounted to 1,953.5446 million yuan, accounting for 47.12% of the totalassets.

The Company¡¯s overseas assets mainly come from the Company¡¯s previous overseas acquisitions and thebusiness growth of overseas subsidiaries. The Company¡¯s wholly-owned subsidiary SGE acquired DA AG in2005, acquired PFAFF GmbH and KSL in 2013, and invested in STOLL KG in 2016.

3. Core competitiveness analysis in the report period

The Company is the first listed company with the longest history in the domestic sewing equipmentindustry, and has more than 50-year experience in sewing equipment production. The Company¡¯s "Butterfly"household sewing machine originated in 1919 and has a history of nearly 100 years.The Company controlled

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	Shang Gong Group Co., Ltd

DA AG and PFAFF GmbH, both are famous sewing machine manufacturing companies in the world with morethan 150 years¡¯ history, as well as PFAFF KSL Branch, which possesses the world's top sewing technology.During the reporting period, the Company continued to promote the integration of global resources, promotethe further integration of European subsidiaries, accelerate the construction of European and domesticmanufacturing bases, implement mergers and acquisitions at the appropriate time in China, and expand themain business. Furthermore, based on the existing business, the Company continue to expand business inaviation manufacturing and structural parts on the basis of customers of aviation companies such as COMAC,Hafei and AVIC. During the reporting period, the Company's core competitiveness was further consolidatedand enhanced, further consolidating the foundation of the Company's sustainable and healthy development.Thecore competence of the Company is mainly shown in the following aspects:

(1) Strong technological research and development capabilityThe Company always adheres to the guidance of science and technology and develop through innovation,attaches much importance to the construction of technological research and development capabilities, whichhave become the important force driving the development of the Company. The Company has owned apowerful technological research and development team, has advanced testing methods and has strongcontinuous development capabilities of product and application technology. The R&D team's research anddevelopment of Industry 4.0 on sewing equipment has achieved initial results. The Company's technologycenter was identified as a Shanghai-Municipal-level R&D center, SGGEMSY was identified as aZhejiang-Province-level R&D center, and Richpeace was recognized as a Tianjin-Municipal-level R&D center.

(2) Advanced technology advantageThe Company has the world¡¯s high-end intelligent and 3D sewing technology of flexible material, and theCompany is a global leader in special sewing machine for medium or heavy materials, garment automaticsewing unit, robot-control automatic sewing technology and textile material welding technology and otherfields. The products are not only applied in the traditional market for sewing machine industry but also appliedin some fields, such as automobile, environmental protection, aeronautics and astronautics and renewableenergy, etc. Especially, the Company has a leaing position in sewing technology for light carbon fiber, 3Dsewing automation and QONDAC 4.0 Intelligent Industrial Sewing Network Online Production MonitoringSystem.

(3) Multiple brand and product advantageThe Company owns some internationally well-known brands, such as DA, PFAFF Industrial, KSL,Beisler, and etc., and some famous domestic brands, such as Butterfly with 100 years¡¯ history, Bee, Flyingman,and Shanggong with over 50 years¡¯ history. In recent years, the Company is cultivating industrial machinebrands, such as SGGEMSY, Mauser and so on. The Company has a full range of high-end sewing equipmentproduct chain, these brands of the Company has a high recognition and reputation in the industry. TheCompany has a group of customers with great value and stability in the field of high-end automotiveaccessories manufacturing and luxury goods manufacting.

(4) Global resource integration capabilityThe Company utilizes and develops the basis and advantages of its respective domestic and foreignsubsidiaries, implements globalization layout and integration in the production base, sales network,procurement of raw materials, technology R&D and other aspects, implements resource sharing, hascomplementary advantages and develops collaboratively. The Company not only has a wide sales network andbusiness base in China, but also has established a relatively complete marketing channel and service networkin the world. The Company has established three sewing machine R&D and production bases in Shanghai,Zhejiang and Zhangjiagang; the Company also has five R&D and manufacturing bases in Germany, CzechRepublic and Romania.

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(5) Internationalized operation and management experienceSince 2005, the Company has begun to implement an overseas merger and acquisition strategy forinternational operations. In recent years, the Company has increased the pace of overseas acquisitions andmergers, and the proportion of overseas businesses has grown. The Company's multi-year internationaloperation and management has gradually cultivated a management team with an international perspective andmultinational operating capabilities, and has accumulated rich international management experience.

Chapter 4 Discussion and Analysis on the Business Operation

1. Discussion and analysis on the business operationIn 2018, affected by the US tariff policy and other retaliatory measures by other economies, tradeprotection sentiment rose, international trade friction increased, investors' confidence in the economic outlookdeclined, and manufacturing and trade growth slowed. In 2018, China's economic operation has been steadybut with change. The external environment is complex and severe, and the economy is facing downwardpressure. Judging from the economic situation of the industry, in 2018, the production and sales of China'ssewing machinery industry maintained a double-digit growth rate, the operation quality was good, and theconcentration continued to increase, showing the remarkable characteristics of ¨Dstable and good, and call backfrom the top¡¬.

2018 is a relatively difficult year for SGG. In the face of complex and severe market environment, theCompany has reached a critical period when it is urgent to change again. On the one hand, the Company facesenormous cyclical pressures on corporate growth, increasing human labor costs, and the technical advantagesof some products are being challenged. The market base of conventional products has not yet been established,and China's intelligent manufacturing base is still under construction. On the other hand, the automobileindustry is accelerating its decline. The downstream markets such as garment and luggage are accelerating thetransfer to Southeast Asia and other regions. External factors such as low-cost competition among domesticpeers have had a negative impact on the Company. In 2018, the Company faced challenges and overcomedifficulties, and achieved remarkable results.

The Company mainly carried out the following works:

(1) Deepening the reform and integration, and promoting acquisitions and mergers

In 2018, 49% shares of PKFR, the Company's largest shareholder, were transferred to the Shendie EquityInvestment Partnership, which was indirectly held by the management, and initially realized the Company'smanagement participation.

The Company further promoted internal integration in 2018. In Europe, the Company overcame thedifficulties and steadily promoted the squeeze-out of 6% of the minority shareholders of DA AG, completedthe legal procedures in July 2018, and ended the listing status in Frankfurt, Berlin and D¨¹sseldorf StockExchange. In addition, in 2018, the Company launched the integrated integration of PFAFF GmbH and KSLBranch, adjusted its organization, and promoted production integration and product transfer in an orderlymanner. The integration promoted the transformation of PFAFF GmbH into KSL technology and products, andrealized the rapid development of the Company's intelligent equipment R&D and manufacturing. Throughasset restructuring and business integration of European subsidiaries, the Company is able to take fulladvantage of the technology, production, procurement, sales, capital and human resources of DA AG and itssubsidiaries, PFAFF GmbH and KSL Branch, and to enhance profitability. In China, the import and exportbusiness of the Company's subsidiary Butterfly Import and Export, Shanggong Import and Export and SMPICImport and Export has been steadily advanced, and the transfer of personnel and business has been basicallycompleted. At the same time, the Company completed the transfer of business from the domestic sales

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	Shang Gong Group Co., Ltd

subsidiary, SG Butterfly and DAP Shanghai, to the parent company in 2018. Throught the integration, theeffect of the parent company's materialized operation has gradually emerged. The rising cost of humanresources has been digested, and the operating profit of the parent company has increased significantly, whichis conducive to solving the problem that the undistributed profit of the parent company is negative and cannotbe distributed.

In 2018, the Company seized the opportunity to invest in mergers and acquisitions and invested 130million yuan to acquire a 65% stake in Tianjin Richpeace Computer Machinery Co., Ltd. The acquisition willhelp solve the problem of the Company's relatively weak ability to undertake German KSL product technologyin domestic software development and automatic sewing solution technology, thereby enhancing theCompany's market share in the domestic high-end special sewing equipment field, which will help improve theoverall performance of the Company. Richpeace's automated cutting and embroidering equipmentcomplements the Company's product range. Its automatic patterning machine and other automation solutionsare also an effective extension of the Company's existing business.

(2) Adhere to the professional multi-brand strategy and increase the market share of products

In 2018, DA AG further promoted the integration of the marketing network, established DAP Russia, andcompleted the reorganization of the welding machine marketing network.

In China, the Company has established branches or offices in Guangdong, Fujian and Wuhan, andorganized exhibitions and exhibitions of various themes in industrial clusters, including 12 garment machineexhibitions and 22 heavy material machine exhibitions. In 2018, the Company achieved the goal of asubstantial increase in sales revenue in the sofa and luggage industry. The sales of DA and PFAFF basicproducts also achieved breakthroughs. The Company has improved the visit mechanism of major customers,established a saleperson/technician daily report system, and continued to strengthen maintenance and technicaltraining. In addition, the Company has also established and improved the evaluation and eliminationmechanism of dealers, vigorously expanded the construction of dealer networks, and realized the contractualmanagement of all dealers.

(3) Maintaining product technology leadership and strengthening production and manufacturingcapabilities

DA AG completed the development of a new generation of M-Type as planned, and realized theproduction of the new DAC-Compact electronic control series. The QONDAC Network system wascommercialized in May 2018.

In 2018, DAMSH completed five R&D projects, such as keyhole fastening machine and semi-automaticwire-cutting machine. The project of automatic wire-cutting machine and single-cut wire-cutting machine isunder development.

PIZ completed the trial production of automatic feeding shoe machine, short shearing shoe machine andPFAFF welding machine and extended version of Powerline; Mauser 591 has started mass production; the costof three machines such as DA 1767 have been reduced. The trial production of 11 types of parts such as theneedle bar swing frame and the column was completed, and the mass production capability was obtained.

SGGEMSY strives to expand production capacity in 2018, and the volume of self-produced machines hasincreased by 21% year-on-year. At the same time, the integration and improvement of products have beencontinuously promoted. Mauser 8125 sewing machine and Mauser EX overlock sewing machine have begunto produce in small batches. The automatic sewing machine, the 8802E single-stop sewing machine and theprogram-controlled tying machine have been prototyped.

In Europe, the Company invested 13.33 million euros in 2018 to build a European intelligent productresearch and development center and a trial production base in Bensheim, Germany, which is expected to becompleted by the end of 2019. This investment is conducive to meeting the rising demand for automation and

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intelligent upgrading of sewing machinery; it can expand the production capacity of KSL Branch, solve theproblem of limited production sites, achieve capacity balance and meet market demand. This project isconducive to enhancing the Company's research and development capabilities and improving the trialproduction level of new products; it is also conducive to the Company's continued integration and promotesthe Company's globalization strategy.

In China, the Company invested 154 million yuan to build an intelligent manufacturing base in HuangyanDistrict, Taizhou, Zhejiang Province. The investment in the construction of Taizhou Huangyan IntelligentManufacturing Base is conducive to better grafting German DA and PFAFF product technology based on theCompany's existing industry, developing multi-brand and intelligent product manufacturing, and creating thelargest sewing machine production base in China.

(4) Continue to do a good job in internal control management and continuously improve operationalefficiency

In 2018, the Company completed the revision of the Company's ISO 9001:2015 quality managementsystem. Combined with the new standards, such as performance appraisal and risk prevention, based on theCompany's new organizational structure, the Company has sort out the related processes of quality control.

In 2018, the Company will do a good job in the implementation and management of the Group's annualbudget, do a good job in fund arrangement and fund pooling within the Group, and expand financing channels.In addition, the Company continued to build the internal control system of the Company and its subsidiaries,and rectified the 2017 internal control re-evaluation test and defects. Nine internal audit engineering auditswere also completed.

2. Main Operating Condition

During the reporting period, the Company achieved operating income of 3.2 billion yuan, a year-on-yearincrease of 4.42%, mainly due to the year-on-year increase of 11.31% in sewing equipment and intelligentmanufacturing equipment. Operating profit was 200 million yuan, down 30.92% year-on-year, mainly due tothe loss of Stoll in current period and the year-on-year reduction of housing relocation compensation income.The net profit attributable to shareholders of listed companies was 141 million yuan, a year-on-year decreaseof 28.59%. The net profit attributable to shareholders of listed companies after deducting non-recurring gainsand losses decreased by 19.45% year-on-year.

1) Main Business Analysis

A. Analysis of Changes of Items in Income Statement and Cash Flow Statement

Item	2018	2017	Increase/Decrease£¨%£©
Operating income	3,200,527,741.09	3,064,971,500.79	4.42
Operating cost	2,322,152,730.89	2,245,537,329.26	3.41
Selling expenses	322,696,906.11	284,810,887.21	13.30
General and administration expenses	230,502,679.98	207,021,408.70	11.34
R & D expenses	97,647,657.57	84,350,255.40	15.76
Finance expenses	16,859,739.48	-5,263,527.90	N/A
Net cash flow from operating activities	79,553,871.30	117,335,869.17	-32.20
Net cash flow from investing activities	-352,612,604.58	-119,869,574.99	N/A
Net cash flow from financing activities	113,452,905.75	-60,325,135.90	N/A

B. Income and Cost Analysis

During the reporting period, the Company achieved operating income of 3.2 billion yuan, a year-on-yearincrease of 4.42%, mainly due to the year-on-year increase of 11.31% in sewing equipment and intelligent

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	Shang Gong Group Co., Ltd

manufacturing equipment. The main reason is that the Company is committed to the development of intelligentmanufacturing. In 2018, SGG acquired 65% of stake in Richpeace and incorpoarted it in the scope ofconsolidation.

a) Main Business by Industry/Region

Main Business by Industry
Industry	Operating income	Operating cost	Gross margin (%)	Operating income increase/ decrease (%)	Operating cost increase/ decrease (%)	Gross margin increase/ decrease (%)
Sewing equipment & intelligent equipment	2,159,131,523.78	1,399,795,850.60	35.17	11.31	14.42	Decrease 1.76 percent point
Logistic service	761,681,126.67	695,390,097.46	8.70	-0.94	-2.71	Increase 1.66 percent point
Export trade	95,223,904.21	93,291,211.22	2.03	-51.97	-52.16	Increase 0.4 percent point
Office equipment and film materials	46,474,027.84	39,231,617.54	15.58	-17.62	-20.80	Increase 3.38 percent point
Others	12,168,911.64	7,764,028.10	36.20	19.45	-6.69	Increase 17.87 percent point
Total	3,074,679,494.14	2,235,472,804.92	27.29	3.41	2.03	Increase 0.98 percent point
Main Business by Region
Industry	Operating income	Operating cost	Gross margin (%)	Operating income increase/ decrease (%)	Operating cost increase/ decrease (%)	Gross margin increase/ decrease (%)
Domestic	1,734,368,475.06	1,477,335,063.27	14.82	9.00	4.02	Increase 4.08 percent point
Overseas	1,500,442,605.74	918,269,328.31	38.80	1.23	5.47	Decrease 2.46 percent point

b) Analysis of Production and Sales

Major Product	Product output	Sales volume	Inventory	Increase/Decrease in production over the previous year£¨%£©	Increase/Decrease in sales over the previous year£¨%£©	Increase/Decrease in inventory over the previous year£¨%£©
Industrial sewing equipment (domestic)	193,344	187,215	37,964	3.4%	3.5%	19.3%
Industrial sewing equipment (domestic, OEM)	45,053	45,063	135	76.1%	76.1%	-7.4%
Industrial sewing equipment (overseas)	29,837	32,419		-2.9%	-11.6%
Industrial sewing equipment (Total)	268,234	264,697	35,517	10.3%	8.9%	11.1%
Household sewing machine£¨OEM£©	293,523	293,341	677	40.9%	39.4%	36.8%
Multi-functional household sewing machine£¨OEM£©	85,604	87,091	18,976	-14.0%	-6.4%	-7.3%
Household sewing machine£¨Total£©	379,127	380,432	19,653	23.1%	25.4%	-6.2%

c) Cost Analysis

Industry	Cost item	2018	Current period proportion (%)	2017	Previous period proportion (%)	Change (%)	Notes
Sewing equipment & intelligent equipment	Material	941,826,785.27	42.13	774,957,920.33	35.37	21.53
	Labor	341,566,272.60	15.28	296,611,105.46	13.54	15.16
	Depreciation	44,765,110.83	2.00	38,158,659.16	1.74	17.31
	Manufacture cost	71,637,681.90	3.20	113,687,326.29	5.19	-36.99
	Total	1,399,795,850.60	62.62	1,223,415,011.24	55.84	14.42
Logistic service	Logistics cost	695,390,097.46	31.11	714,752,388.59	32.62	-2.71
Export trade		93,291,211.22	4.17	195,004,666.92	8.90	-52.16
Office	Material	26,314,943.38	1.18	37,664,031.50	1.72	-30.13

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equipment and film materials	Labor	9,983,697.47	0.45	7,587,657.23	0.35	31.58
	Depreciation	264,644.22	0.01	338,835.76	0.02	-21.90
	Manufacture cost	2,668,332.47	0.12	3,943,876.00	0.37	-32.34
	Total	39,231,617.54	1.75	49,534,400.49	2.26	-20.80
Others		7,764,028.10	0.35	8,320,443.37	0.38	-6.69

d) Main Consumers and Main SuppliersThe sales of the top five customers were 357.62 million yuan, accounting for 11.17% of the total annualsales; the purchase amount of the top five suppliers was 149.95 million yuan, accounting for 7.72% of the totalannual purchase.

C. Expense

Item	2018	2017	Increase/Decrease (%)
Selling expenses	322,696,906.11	284,810,887.21	13.30
General and administration expenses	230,502,679.98	207,021,408.70	11.34
R & D expenses	97,647,657.57	84,350,255.40	15.76
Finance expenses	16,859,739.48	-5,263,527.90	N/A
Income tas expenses	45,789,835.67	82,928,869.66	-44.78

Note 1: Financial expenses increased by RMB 22.12 million year-on-year, mainly due to the year-on-yeardecrease in interest income and the increase in exchange losses.

Note 2: Income tax expenses decreased by 44.58% year-on-year, mainly due to the year-on-year decreasein net profit of DA AG with high income tax rate.

D. Investment in R & D

R & D investment capitalized in 2018	97,647,657.57
R & D investment expensing in 2018	6,768,028.94
Total	104,415,686.51
Total R &D investment in proportion in operating income	3.26
Proportion of R & D investment capitalized (%)	6.48

E. Cash Flow

Item	2018	2017	Increase/Decrease (%)
Net cash flow from operating activities	79,553,871.30	117,335,869.17	-32.20
Net cash flow from investing activities	-352,612,604.58	-119,869,574.99	N/A
Net cash flow from financing activities	113,452,905.75	-60,325,135.90	N/A
Impact of exchange rate changes on cash and cash equivalents	4,033,729.47	26,314,632.54	N/A

Note 1: Mainly due to the year-on-year decrease in the sales-to-revenue ratio, the increase in cash paid toemployees and the year-on-year increase in cash paid for employees and the year-on-year decrease in taxespaid.

Note 2: Mainly due to the increase in the purchase of Richpeace's 65% equity and the purchase andconstruction of fixed assets and the year-on-year decrease in the receipt of housing relocation compensationincome.

Note 3: Mainly due to the increase in bank loans.

Note 4: Mainly due to the impact of changes in the exchange rate of the euro.

2) Explanation of major changes in profits caused by non-core business

(1) Detailed description of major changes in the company's profit composition or source of profit

Item

2018

2017

Increase/Decrease (%)

Reason

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	Shang Gong Group Co., Ltd

Finance expense	16,859,739.48	-5,263,527.90	N/A	Note 1
Investment income	12,758,268.06	45,607,259.29	-72.03	Note 2
Asset disposal income	443,708.05	23,963,103.89	-98.15	Note 3
Income tax expense	45,958,015.67	82,928,869.66	-44.58	Note 4
Net after tax for other comprehensive income	-3,215,557.02	36,930,889.17	-108.71	Note 5

Note 1: Mainly due to the year-on-year decrease in interest income and the increase in exchange lossyear-on-year.

Note 2: Mainly due to the decrease in investment income of the joint venture Stoll.

Note 3: Mainly due to the compensation for housing relocation in 2017.

Note 4: Mainly due to the year-on-year decrease in the net profit of the DA Group with high income taxrate.

Note 5: Mainly due to the decrease in the net assets of the European subsidiaries' re-measurement of thedefined benefit plan and the translation of the foreign currency statement.

3) Analysis of Assets and Liabilities

Item	Ending balance of current period	Ending balance to total assets of current period£¨%£©	Ending balance of previous period	Ending balance to total assets of current period£¨%£©	Change£¨%£©	Notes
Prepayments	39,695,762.85	0.96	64,393,627.71	1.74	-38.35	Mainly due to the transfer of intangible assets by the transfer of land transferred by SG Zhejiang in the previous year.
Other receivables	120,422,496.29	2.91	58,966,056.94	1.59	104.22	Mainly due to the dividends distributed by Stoll KG and the increase in the current development of the welding business of the domestic subsidiary DAMSH and the increase in the export tax rebate in the current period.
Other current assets	249,326,335.31	6.02	366,533,356.84	9.90	-31.98	Due to the company's reduction of the purchase of bank-guaranteed wealth management products in the current period.
Long-term receivables	31,427,418.92	0.76	0.00	0.00		Due to the financing lease receivable from the domestic subsidiary ShangGong SMPIC Finance Leasing Co., Ltd.
Construction in progress	119,166,627.75	2.88	12,665,274.09	0.34	840.89	Mainly due to the expenditures of construction projects such as production, R&D bases and modern logistics management centers increased by domestic and foreign subsidiaries during the current period.
Intangible assets	270,072,349.34	6.52	149,988,157.46	4.05	80.06	Mainly due to the acquisition of 65% equity of Tianjin Richpeace in the current period, which was included in the scope of consolidation

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	Shang Gong Group Co., Ltd

Item	Ending balance of current period	Ending balance to total assets of current period£¨%£©	Ending balance of previous period	Ending balance to total assets of current period£¨%£©	Change£¨%£©	Notes
						and increased land use rights.
Development expenditure	6,798,312.48	0.16	16,683,772.84	0.45	-59.25	Mainly due to the overseas subsidiaries' carryover of capitalized R&D expenditures to intangible assets
Goodwill	140,074,270.28	3.38	72,482,033.43	1.96	93.25	Mainly due to the company¡¯s premium acquisition of 65% equity of Richpeace
Long-term prepaid expenses	3,875,409.77	0.09	1,631,013.88	0.04	137.61	Mainly due to the increase in fixed assets improvement expenses of domestic subsidiaries in the current period
short-term loan	206,614,015.12	4.99	330,389,201.62	8.92	-37.46	Mainly due to the company's overseas subsidiary DA AG reduced the short-term bank loans in the current period
Notes payable and accounts payable	318,803,039.91	7.69	206,343,320.56	5.57	54.50	Mainly due to the increase in bank acceptance bills of SGGEMSY and Richpeace was include in the consolidation scope in the current period.
Advance receipt	75,412,987.77	1.82	38,326,094.65	1.03	96.77	Mainly due to the acquisition of 65% equity of Richpeace in the current period.
Taxes payable	21,208,862.17	0.51	14,074,587.91	0.38	50.69	Mainly due to the inclusion of unpaid corporate income tax and value-added tax at the end of the period in which Richpeace was included in the the scope of consolidation.
Other payables	254,827,223.50	6.15	195,761,119.66	5.29	30.17	Mainly due to the increase of Tianjin Baoying¡¯s minority shareholders¡¯ loans
Non-current liabilities due within one year	4,173,297.07	0.10	1,260,000.00	0.03	231.21	Mainly due to the technology development funds received by the company in the current period and the financing leases due within one year.
Long term loan	340,477,650.27	8.22	62,956,504.27	1.70	440.81	Mainly due to the increase in bank borrowings for more than one year of the company's overseas subsidiary DA AG.
Deferred income	0.00	0.00	2,340,000.00	0.06	-100.00	The development service industry guidance fund project received by SHENSY will be accepted by the government in

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	Shang Gong Group Co., Ltd

Item	Ending balance of current period	Ending balance to total assets of current period£¨%£©	Ending balance of previous period	Ending balance to total assets of current period£¨%£©	Change£¨%£©	Notes
						2018, so it is adjusted to the subject of ¨Dother non-current liabilities due within one year¡¬.
Deferred income tax liabilities	70,805,236.44	1.71	52,863,141.42	1.43	33.94	Mainly due to the income tax liabilities arising from the taxable temporary differences arising from the increase in the identifiable assets calculated by Richpeace on the date of purchase.

Not applicable.4) Industry Business Information AnalysisSee Chapter 3 for details.5) Investment AnalysisA. General Analysis

Unit: 10,000 Yuan

Long-term equity investment in 2018	28,351.59
Increase/Decrease	27,331.59
Long-term equity investment in 2017	1,020
Increase/Decrease (%)	2,679.57%

a) Significant equity investment

Name	Business	Total Amount	Shareholding ratio	Investment in 2018	Cumulative investment amount	Sources of funds	Other shareholders	Lawsuit
Richpeace	Automation special equipment, high-tech content (light, machine, electricity integration) special sewing equipment manufacturing; high-end textile and apparel software design, development; computer textile machinery manufacturing and software development, production, sales and related technical products consulting services; Import and export business; ordinary freight.	RMB 15,613,780	65%	RMB 12,881,300,300	RMB 12,881,300,300	Self-owned funds	Shenzhen Yingning Venture Capital Co., Ltd., Tianjin Tongshang Software Co., Ltd.	No
Sequeeze-out of 5.99% minority shareholders of DA AG		20 million euro	/	20.35 million euros	20.517 million euros	Self-owned funds		Yes The Squeeze-out is completed. Lawsuit on the Purchase price is in progress.

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	Shang Gong Group Co., Ltd

b) Major non-equity investment

Item	Total amount	Actual investment amount for the current year	Cumulative actual investment amount	Sources of funds	Project progress
Investment in the construction of Taizhou Manufacturing Base	394 million yuan	RMB 28.61 million	RMB 65 million	Self-owned funds	Under construction
Investment in the construction of the European intelligent product research and development center and manufacturing base	13.39 million euros	271.34 million euros	271.34 million euros	Self-owned funds	Under construction

c) Financial assets measured at fair value

Securities code	Abbreviation	Initial investment cost	Proportion of the company's equity£¨£¥£©	Book value as of December 31, 2018	Profi/loss in 2018	Changes in owner's equity during the reporting period	Accounting item	Source of Shares
600757	Changjiang Publising & Media	72,085,722.82	0.85	67,146,441.68	1,029,853.40	-4,428,369.62	Available for sale financial assets	The transferee¡¯s interest in the bankruptcy and reorganization
900932	Lujia £Â Share	773,099.71	0.0067	1,975,180.91	100,135.76	-157,523.95		Enforcement
000166	Shenwan & Hongyuan	200,000.00	0.0011	889,791.54	10,931.10	-284,208.60		Purchased
601229	Bank of Shanghai	951,400.00	0.013	16,395,364.20	523,278.50	1,555,185.94		Purchased
Total		74,010,222.53	-	86,406,778.33	1,664,198.76	-3,314,916.23	-	-

6) Major assets and equity salesNot applicable.

7) Analysis of Major Subsidiaries

Unit: 10,000 Yuan

Name	Business Scope	Registered capital	Total assets	Net assets	Operating income	Operating profit	Net profit
DA AG	Production, processing and sale of machines, machines and related parts and software, in particular sewing machines and conveyors and other industrial products	€12.5 million	191,230	87,448	147,620	12,681	8,954
SHENSY	Transportation of goods	17,882	47,658	26,092	76,294	1,912	1,419
SGGEMSY	Manufacturing and sales of various sewing equipment	21,600	36,061	21,413	35,556	143	320
Richpeace	Automatic special equipment, high-tech content (light, machine, electricity integration) special sewing equipment manufacturing; high-end textile and apparel software design, development	5,000	21,225	4,961	9,541	2,191	1,913

3. Discussion and Analysis of the Company's Future Development1) Industry Pattern and TrendFrom the perspective of the external environment, there are still many opportunities in the industry. First,

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	Shang Gong Group Co., Ltd

the demand for replacement of the international sewing equipment market will continue to be released. Second,the national ¨DOne Belt, One Road¡¬ policy strategy will be further promoted. Exports to the countries in the¨DBelt and Road¡¬ accounted for 62.3% of the total in the industry, which has increased by about nine percentagepoints in the past five years. It is expected that the future growth will remain huge. Third, the government hasactively introduced various policies to reduce burdens for manufacturing enterprises and promote thehigh-quality development of manufacturing industries. Fourth, the upgrading of consumer demand fordownstream industries represented by garment, leather, home textiles and other industries and the accelerationof the construction of smart factories in China will provide a broader space for development and growth ininnovation and intelligent transformation of products, service expansion, value extension, and structuralupgrading in the sewing machinery industry. At the same time, the unstable global economic situation has alsobrought challenges to the industry. First, the impact of Sino-US trade disputes will continue to be uncertain,downstream enterprises will continue to wait and see, and many manufacturing enterprises will shift toSoutheast Asia. Second, the emerging US dollar will continue to raise interest rates. The market currency crisisand sluggish demand pose challenges to industry exports.

From the perspective of the internal environment of the industry, the industry has gradually entered a newround of industry growth cycle from automation to intelligence. The combination of strong and strongindustries and complementary advantages has become an important development option for enterprises. Theintegration of new technologies, new models, new formats, and sewing machinery industries such as Internetof Things, big data, and intelligent manufacturing will strongly promote industry transformation and upgrading."Automation" + "Big Data" + "Artificial Intelligence" may become the core competitiveness of the future.However, the challenges and operational pressures faced by enterprises are still unabated. First, under theimpetus of environmental protection and supply-side reform, the cost of enterprises will rise irreversibly.Second, the adverse effects of the staged overcapacity caused by the rapid downturn of the market in thesecond half of 2018 will soon appear, and a new round of market and price competition will have an adverseimpact on the industry. Third, in the process of transformation, the shortage of talents is more prominent, andenterprises lack effective talent support.

2) Company Development Strategy

In 2019, the Company will continue to adhere to the Market-oriented, Benefit-first business philosophy,comprehensively promote institutional adjustment, mechanism reform, achieve rapid response to the market,and strive to create a market-oriented enterprise oriented to customer demand. The Company will adhere totechnological innovation, increase investment in research and development, accelerate product technologyupgrades, consolidate product technology advantages, and continue to maintain its leading position in theglobal sewing equipment industry. Meanwhile, the Company will continue to do a good job in internal controlmanagement, reduce costs and increase efficiency, and complete the business objectives set by the Board ofDirectors.

Main tasks of SGG in 2019:

1. Vigorously promote institutional reform and explore the diversified development of manufacturingindustry

In 2019, the Company will further deepen the mechanism reform and continue to promote the operator'sshareholding operation. The Company will seize market opportunities, conduct financing investments in atimely manner, and explore and promote the moderate diversification of manufacturing products.

In 2019, the Company will vigorously promote the comprehensive reform of the customer-orientedorganization. The enterprises and departments of SGG will adjust the system based on the rapid response to themarket, and allocate the salary of the cadre and employees based on the economic benefits.

In Europe, the Company will accelerate the full integration of DA Group with PFAFF and KSL, and

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	Shang Gong Group Co., Ltd

achieve break-even of PFAFF by reducing costs. In China, the Company will steadily advance the follow-upwork of SMPIC Electronics Co., Ltd., and integrate DAMSH, SMPIC Electronics and the Group¡¯sManufacturing Branch to promote the development of robot application technology and intelligentmanufacturing equipment business.

In addition, according to the decision of the Board, the Company will also make a follow-up capitalincrease for Richpeace and promote the cooperation between Richpeace and PFAFF/KSL.

2. Adhere to market orientation and actively expand sales

The Company will always adhere to the Market-oriented, Benefit-first business philosophy, continue toimplement a professional multi-brand marketing strategy, and strive to expand the market. The Company andits subsidiaries will work together to actively carry out the exhibitions of the two major exhibitions of CISMAand Texprocess in 2019, and vigorously promote the company's brands.

DA Group will further increase the revenue of DAC electronic control business, actively promote Qondacsystem, and plan to launch M-Type Delta machine at Texprocess in 2019.

In China, the Company will continue to integrate the domestic DAP sales platform, and integrate DAPShanghai, DAP Taizhou and Richpeace¡¯s domestic branches, and implement localized management of salesand maintenance personnel. For the basic products of the DA, Pfaff and Mauser brands, the Company willstrive to increase sales significantly; in the field of heavy material machine sales, it will gradually form aclassified sales comparable to the sales of automotive products. In 2019, try to realize the significant increaseof sales in heavy/medium material machine applid for luggages and sofas. The sales of KSL automaticequipment products are also striving to achieve substantial growth; further improve the evaluation andelimination mechanism of dealers and vigorously expanding the dealer network; in addition, promote sales ofthe full series of the Mauser brand which is also identified as an important marketing strategy task.

In Southeast Asia, the Company will strengthen the coordinated sales of its subordinate DAP Singapore,Richpeace and SGGEMSY in Southeast Asia, integrate customer resources, and make full use of SGG'smarketing platform to tap market potential and expand market share. In the Vietnamese market, the Companywill consolidate the dealer network and do contract management. According to the customer country, choosedifferent agents; at the same time, strengthen the training of local sales staff, rapidly expand the sales of localVietnamese companies, and significantly increase the sales of the PFAFF brand in the Vietnamese market. Inthe Thai market, the Company will set up a sales and service team as soon as possible, taking the automotiveindustry as a breakthrough point, focusing on serving large customers, and vigorously promoting basicproducts such as DA, PFAFF, Masuer and Richpeace, resulting in a large increase in sales. In addition, theCompany will actively expand its market in the Indonesian market, the Myanmar market and the Cambodianmarket.

In 2019, the Company's production companies will share sales responsibilities and achieve budgetarytargets with sales organizations, and organize efforts to assist sales organizations to meet customerrequirements for product price, functional performance, quality improvement and maintenance services, andjointly control sales expenses. .

In 2019, the Company's household sewing machine will make full use of the "Butterfly" brand'scentennial celebration, promoting the "Butterfly" brand, and striving to achieve a substantial increase indomestic sewing machine sales in China. Continue to improve the "Sewn Embroidery Home" networkplatform, actively promote the network platform, and strive to achieve a full coverage of the country. Inaddition, SGG will continue to build the industrial sewing machine network sales platform, realize thebreakthrough of the standard industrial sewing machine online sales, and expand the online sales range ofindustrial sewing machine parts. In addition, the Company will focus on the development of major marketssuch as India, Russia, Algeria, Sri Lanka and Brazil, and deploy a network of distribution agents.

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	Shang Gong Group Co., Ltd

3. Consolidate product technology advantages and steadily promote intelligent manufacturingIn 2019, the Company will continue to build the Bensheim trial base in Germany and enhanced KSLproduction capacity. SG Zhejiang will continue to promote the construction of the Taizhou intelligentmanufacturing base, and with the assistance of SGGemsy, do a good job in equipment selection and site layoutof the base, and strive to complete the integration and commissioning of the Taizhou factory by the end of2019.

In terms of research and development, the Company will continue to do research and development ofembroidery electrical control, integrated flat seam electrical control (automatic), integrated overlock electricalcontrol and automatic feeding shoe electrical control (improved); Development and trial production of L-Typesewing machine; advancement of M-Type 3 development as planned; and together with Shanghai JiaotongUniversity to further promote the design-manufacturing-service integrated cloud platform development forapparel customization.

In 2019, the Company completed the trial production of the sleeve card machine and the improvement ofthe forklift machine, completed the manufacture of the DA 806 and PFAFF 3588 templates and otherimportant parts and accessories of the sewing unit; optimize the cost, focus on the rectification of existingproduct quality problems and after-sales service; do a good job of item management of intelligent equipment toensure that the gross profit margin reaches 15% or more. PFAFF welding machine and short-cutting shoemachine must have mass production capacity in China; the Company will strengthen supply chainmanagement, reorganize the supplier system, and strive to reduce the cost of Mauser machine raw materialsand parts by 10% under the premise of ensuring quality. In addition, accelerate the trial production and massproduction of key components, and try to sell some third-party products in addition to the Company's internalsupport.

4. Improve operational efficiency and manage risk

In 2019, the Company will continue to build the internal control system of the parent company and itssubsidiaries, and continue to complete the rectification of the internal control re-evaluation test and defects in2018, as well as the combing, supervision and improvement of the internal control standardization of the groupsystem in 2019 and the independent testing of the Internal Control Evaluation Work Programme for 2019.

Richpeace should further improve the system construction, establish a suitable internal controlmanagement system on the premise of meeting the requirements of internal control, implement comprehensivemanagement, advocate full participation, establish internal control system that restricts each other and connectseach other, and improves Enterprise management level and anti-risk ability; at the same time, self-diagnosis ofthe status quo of internal institutions, analysis of the division of functions, past performance, cooperationability, personnel composition, cost and other aspects of various agencies, judging the implementation ofseparation of main and auxiliary, streamlining and simple administration, collaborative production Thefeasibility of other aspects, and do a good job of reform and adjustment.

Actively explore the establishment of an efficient financial management and control system, do a goodjob in the preparation of comprehensive budget management in 2019, do a good job in financial risk earlywarning, realize early warning management of major financial risks, prevent financial risks; actively exploreand establish a "fund pool" of the group company Improve capital gains and strengthen fund supervision.Continue to do a good job of maintaining stability, further tap effective assets, and properly handle historicalissues. Continue to implement the safety production responsibility system and continue to do a good job insafety production and environmental protection.

3) Business plan

Operating income: 3.7 billion yuan; operating profit: 290 million yuan; ROE: not less than 8%.

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	Shang Gong Group Co., Ltd

4) Possible risks(1) Industrial and market riskThe sewing equipment industry is an industry full of market competition, with obvious periodicity, andhas strong dependence on downstream textile and garment, leather bags and other industries, and is greatlyaffected by the macroeconomic environment. Due to the large proportion of the Company's sewing equipmentindustry, the Company is more likely to be affected by the overall industry fluctuations. The Company mayface increased competition in the industry, lower gross profit margins and lower product prices.

(2) Transnational operations and integration riskWith the expansion of the Company's overseas assets and business scale, transnational operations putforward higher requirements for the Company's organizational structure, business model, management teamand staff. In the process of production, operation and the integration of overseas subsidiaries, the Companywill face challenges arising from differences in domestic and international policy systems, corporate cultureand management concepts.

(3) Risk of exchange rate fluctuationsThe bookkeeping base currency of the Company's consolidated statements is RMB. Domestic productexports are mostly settled in US dollars. The daily operations of the Company's subsidiary DAP AG and itsholding subsidiaries are mainly settled in foreign currencies such as the Euro. Fluctuations in the RMBexchange rate will bring certain exchanges on the future operation of the Company, resulting in assetdepreciation risk.

Chapter 5 Important Matters

1. Common stock profit distribution plan or capital reserve fund transfer planAccording to the documentary spirit of the China Securities Regulatory Commission's "Guidelines for theSupervision of Listed Companies No. 3 - Cash dividends of listed companies" and the relevant documents ofthe Shanghai Stock Exchange on the "Guidelines for Cash Dividends of Listed Companies of the ShanghaiStock Exchange", combined with the actual situation of the company, The company has formulated a clearcash dividend policy and its decision-making and adjustment mechanism in the Articles of Association. Duringthe reporting period, the company implemented the dividend policy in strict accordance with the relevantdividend regulations formulated by the Company's Articles of Association.

During the reporting period, the 2017 annual profit distribution plan reviewed and approved by theCompany's 2017 Annual General Meeting of Shareholders was implemented without the implementation ofcash dividend distribution, non-shareholding or transfer of share capital.

Audited by BDO China Shu Lun Pan Certified Public Accountants LLP., the Company achieved theconsolidated net profit of 158,449,643.95 yuan in 2018, of which, the net profit attributable to parent companyowners is 140,828,047.20 yuan.

According to the provisions in the Articles of Association, before withdrawing the legal accumulationfund, the Company should first cover the deficit with the profit of the year. As the profit of the year failed tomake up the deficit of previous years, the Company did not draw the legal accumulation fund. Thecurrent-period net profit of the parent company is 32,898,977.07 yuan; the undistributed profits at thebeginning of 2018 are -143,892,809.85 yuan; thus the practical profit available for distribution is-110,993,832.78 yuan at the end of 2018. As the parent company¡¯s profit available for distribution is negative,the profit distribution cannot be made in 2018, neither the transferring of capital reserves into share capital.

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	Shang Gong Group Co., Ltd

2. CommitmentPKFR promised that its shareholding ratio will not be reduced to less than the shareholding ratio ofPudong SASAC within 36 months from the date of stock delivery. The commitment period is from December29, 2016 to December 28, 2019. It is being strictly implemented.

3. The situation of funds being occupied and the progress of debts during the reporting periodNot applicable.4. Explanation of ¡°non-standard opinion audit report¡±Not applicable.5. Analysis of the Reasons and Impacts of Changes in Accounting Policies, Changes inAccounting Estimates, or Major Accounting Errors

The Content and reasons of accounting policy changes	Item and amount affected
(1) The ¨Dreceivable notes¡¬ and ¨Daccounts receivable¡¬ in the balance sheet are combined as ¨Dreceivable notes and accounts receivable¡¬; ¨Dpayable notes¡¬ and ¨Daccounts payable¡¬ are combined as ¨Dpayable¡¬ "Notes and accounts payable"; "interest receivable" and "dividends receivable" are included in "other receivables"; "interest payable" and "dividend payable" are included in "other payables"; ¨DAsset Clearance¡¬ is included in ¨DFixed Assets¡¬; ¨DEngineering Materials¡¬ is included in ¨DConstruction in Construction¡¬; ¨DSpecial Payables¡¬ is included in ¨DLong-term Payables¡¬. The comparison data is adjusted accordingly.¡£	The ¨Dreceivable notes¡¬ and ¨Daccounts receivable¡¬ are combined into ¨Dreceivable notes and accounts receivable¡¬. The current amount is 617,760,694.90 yuan, and the previous period amount is 526,096,919.07 yuan; The ¨DAccounts payable¡¬ and ¨DAccounts payable¡¬ are combined into ¨DAccounts payable and accounts payable¡¬. The current amount is 318,803,039.91 yuan, and the previous amount is 206,343,320.56 yuan; Increasing the amount of ¨Dother receivables¡¬ for the current period of 27,041,989.94 yuan, and increasing the amount of the previous period by 21,645.73 yuan; Increasing the amount of ¨Dother payables¡¬ for the current period was 1,838,717.63 yuan, and the amount of the previous period was 2,143,371.92 yuan; The amount of the ¨Dfixed assets¡¬ in the current period and the amount in the previous period have not been increased; The current amount of the ¨Dconstruction in progress¡¬ and the amount of the previous period have not been increased; The amount of the ¨Dlong-term payables¡¬ for the current period and the amount of the previous period have not been increased.
(2) Add ¨DR&D Expenses¡¬ item in the income statement, reclassify the R&D expenses in the original ¨DManagement Expenses¡¬ to ¨DR&D Expenses¡¬ separately; add ¨DIncluding: Interest¡¬ under the financial expenses in the income statement.: Fees and interest income items. The comparison data is adjusted accordingly.	The amount of ¨Dadministrative expenses¡¬ was reduced to 97,647,657.57 yuan, and the previous amount was 84,350,255.40 yuan, which was reclassified to ¨DR&D expenses¡¬.
In the table of changes in owner's equity, the item ¨DSetting the benefit of the change in the defined benefit plan to carry forward the retained income¡¬ is added. The comparison data is adjusted accordingly.	N/A

6. Appointment of Accounting Firms

Unit: 10,000 Yuan

Name	BDO China Shu Lun Pan Certified Public Accountants LLP.
Payment	100
Audit Years	12

	Name	Payment
Internal control audit accounting firm	BDO China Shu Lun Pan Certified Public Accountants LLP.	45

7. Risk of Suspension of ListingNot applicable.8. The Situation and Reasons for the Termination of ListingNot applicable.

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	Shang Gong Group Co., Ltd

9. BankruptcyNot applicable.10. Major lawsuits and arbitrationsAccording to the capital increase agreement signed by DAP AG, a subsidiary of the Company, on August29, 2015, the calculation of the 26% share price of the capital increase is based on the net assets in the 2014audited consolidated statement of Stoll. It is agreed that the share price will be adjusted according to the netassets in the 2015 audited consolidated statement of Stoll and the relevant terms of the agreement. Due to thedispute between the two parties on the calculation of Stoll's 2015 net asset value and the relevant provisions inthe agreement, there are differences in the calculation of the equity price adjustment. On July 20, 2017, DAPAG received an arbitration application from 12 Stoll shareholders including Michael Stoll and Corinna Stoll,except for DAP AG. The Company will settle the dispute through arbitration in accordance with the Germanlegal procedures in accordance with the terms of the agreement.

As of December 31, 2018, DAP AG absorbed and merged DA AG. and changed its name to DA AG. Thearbitration is still in progress and will be resolved together with the company's disposal of 26% equity of Stoll.

11. Penalties and rectification of listed companies and their directors, supervisors, seniormanagement personnel, controlling shareholders, actual controllers and purchaser

Not applicable.

12. Explanation of the integrity of the company and its controlling shareholders and actualcontrollers during the reporting period

Not applicable.

13. The Company's Equity Incentive Plan, Employee Stock Ownership Plan or Other EmployeeIncentives

Not applicable.

14. Major related party transactions

Shanghai SGSB Electronic Co., Ltd., a wholly-owned subsidiary of the Company, sells products to FijiXerox of Shanghai Limited., and is its permanent accessory supplier. The above-said transaction constitutesthe daily associated transaction. It is estimated that in 2018, the amount of products that it will sell to FijiXerox is 20 million yuan, and in the report period, the sales amount was 17.43 million yuan, decreased by12.85%. It is mainly due to the year-on-year decrease in the sales volume of Shanghai Fuji Xerox Co., Ltd. andthe adjustment of production models.

15. Significant contracts and their implementation

1) Trusteeship, contracting and lease

Not applicable.

2) Guarantee

Unit: 10,000 Yuan, Currency: RMB

Guarantor

Relations of the guarantor to listed company

Security party

Amount guaranteed

Guarantee date (agreement signoff date

Start date

Expiration date

Type

If guarantee is done

Overdue

Overdue amounts

If counter guarantee available?

Guarantee for related party?

Relation

SGG

The Company

Commerzbank Shanghai Branch

7,000

2014/3/25

2014/3/25

2018/11/15

Joint liability guarantee

Yes

No

0

No

No

SGG

The Company

Commerzbank Shanghai Branch

6,866

2014/6/30

2014/7/1

2018/11/15

Joint liability guarantee

Yes

No

0

No

No

SGG

The Company

Commerzbank Shanghai Branch

10,299

2016/9/19

2016/9/19

2018/11/15

Joint liability guarantee

Yes

No

0

No

No

SGG

The Company

Commerzbank Shanghai Branch

8,583

2015/8/28

2015/8/28

2018/11/15

Joint liability guarantee

Yes

No

0

No

No

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	Shang Gong Group Co., Ltd

SGG

The Company

Industrial & Commercial Bank of China Shanghai Hongkou Branch

6,278

2015/12/21

2015/1221

2020/12/21

Joint liability guarantee

No

No

0

No

No

DA AG

Wholly-owned subsidiary

Commerzbank

2,146

2016/1/7

2016/1/7

2018/7/30

Joint liability guarantee

Yes

No

0

No

No

Guarantee amounts spent during the report period (excluded guarantee to affiliate company.

-34,858

Total balance of guarantee at the end of period (affiliate companies are not quailed.)£¨A£©

6,278

Guarantee of company to affiliates

Total guarantee amounts of subsidiaries in the report period

6,000

Total balance of guarantee to subsidiaries at the end of report period (B)

6,000

Company total guarantee amounts (including those to subsidiaries)

Total guarantee amounts£¨A+B£©

12,278

Ratio of total guarantee amounts to company net assets (%)

5.55

In which:

Guarantee amounts provided to stockholders, actual controller and affiliated parties (C)

0

Guarantee amounts directly or indirectly provided for liabilities of guarantor whose assets liabilities ratio is higher than 70%£¨D£©

6,000

Differences of total guarantee amounts exceeds 50% of the net assets£¨E£©

0

Total guarantee amounts of the above-mentioned three items £¨C+D+E£©

6,000

On 21st December 2015, the Company's wholly owned subsidiary DAP AG applied to the FrankfurtBranch of ICBC for a limit loan of 7.878 million euro so as to pay the acquisition fee to Stoll KG. ICBCShanghai Hongkou Branch issued a financing guarantee letter for the funds, and the Company issued anunconditionally irrecoverable corporate letter of guarantee for self-using fix assets where No.603 Dapu Roadas counter guarantee for the abovementioned financing guarantee letter.

On November 20, 2018, Tianjin Richpeace Computer Machinery Co., Ltd., a subsidiary of the Company,applied to the Shanghai Branch of China Minsheng Bank Co., Ltd. for a comprehensive credit of 60 millionyuan. The company provides the highest comprehensive credit guarantee. Tianjin Tongshang Software Co., Ltd.and Shenzhen Yingning Venture Capital Co., Ltd., minority shareholders of Richpeace, respectively provided15% and 20% of the shares of Richpeace to provide 15% and 20% guarantee fro the company's guaranteeresponsibility.

3) Cash asset management

A. Entrusted financing

Unit: 100 million yuan, Currency: RMB

Type	Resource	Total amount	Amount unexpired	Amount overdue
Structured deposits	Idle raised funds	1.11	1.1	0
Structured deposits	Idle self-owned funds	2.22	0.7	0

With the review and approval of the 35th meeting of the Seventh Board of Directors on 31st March 2017,it is resolved that idle raised funds of 110 million yuan and self-owned funds of 222 million yuan weremanaged in purchasing RMB financial products of the bank with principal guaranteed. With the review andapproval of the 4th meeting of the Eighth Board of Directors on 12 April 2018, it is resolved that idle raisedfunds of 110 million yuan and self-owned funds of 222 million yuan were managed in purchasing RMBfinancial products of the bank with principal guaranteed.

Unit: 10,000 yuan, Currency: RMB

Name of partner	Product name	Amount	Starting date	Ending date	Fund resource	Method of determining gains	Annualized rate of return	Gains actually obtained
BOS Fumin Branch	Wenjin No. 2 SD21706M041B	8,000	2017/7/6	2018/1/4	Self-owned	Floating gains with guaranteed principal	4.20%	167.54
BOS Fumin Branch	Wenjin No. 2 SD21706M051B	2,500	2017/8/1	2018/1/30	Self-owned	Floating gains with guaranteed principal	4.35%	54.23
BOS Fumin Branch	Wenjin No. 2 SD21706M051B	2,500	2017/8/1	2018/1/30	Raised	Floating gains with guaranteed principal	4.35%	54.23
BOS Fumin Branch	Wenjin No. 2 SD21706M091B	6,500	2017/11/28	2018/5/29	Raised	Floating gains with guaranteed principal	4.30%	139.37
BOS Fumin Branch	Wenjin No. 2 SD21706M091B	1,500	2017/11/28	2018/5/29	Self-owned	Floating gains with guaranteed principal	4.30%	32.16
BOS Fumin Branch	Wenjin No. 2 SD21703M114B	2,000	2017/12/7	2018/3/8	Raised	Floating gains with guaranteed principal	4.40%	21.94

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BOS Fumin Branch	Wenjin No. 2 SD21706M094B	10,200	2017/12/7	2018/6/7	Self-owned	Floating gains with guaranteed principal	4.30%	218.70
BOS Fumin Branch	Wenjin No. 2 SD21803M004B	7,000	2018/1/9	2018/4/10	Self-owned	Floating gains with guaranteed principal	4.55%	79.41
Shanghai Pudong Development Bank	JG903 Structured deposit	1,000	2018/1/9	2018/7/9	Self-owned	Floating gains with guaranteed principal	4.60%	23.00
BOS Fumin Branch	Wenjin No. 2 SD21806M012A	2,500	2018/2/1	2018/8/2	Self-owned	Floating gains with guaranteed principal	4.60%	57.34
BOS Fumin Branch	Wenjin No. 2 SD21806M012A	2,500	2018/2/1	2018/8/2	Raised	Floating gains with guaranteed principal	4.60%	57.34
BOS Fumin Branch	Wenjin No. 2 SD21803M048B	2,000	2018/4/17	2018/7/17	Raised	Floating gains with guaranteed principal	4.60%	22.94
BOS Fumin Branch	Wenjin No. 2 SD21806M037B	7,000	2018/4/17	2018/10/16	Self-owned	Floating gains with guaranteed principal	4.60%	160.56
BOS Fumin Branch	Wenjin No. 2 SD21803M078C	6,000	2018/6/12	2018/9/11	Self-owned	Floating gains with guaranteed principal	4.55%	68.06
BOS Fumin Branch	Wenjin No. 2 SD21801M088A	6,500	2018/6/19	2018/7/24	Raised	Floating gains with guaranteed principal	4.20%	26.18
China Merchants Bank	BBSJ 8688	2,000	2018/6/15	2018/8/14	Self-owned	Floating gains with guaranteed principal	3.15%¡ª3.90%	10.73
China Merchants Bank	BBSJ 8688	1,500	2018/7/10	2018/8/14	Self-owned	Floating gains with guaranteed principal	3.15%¡ª3.70%	4.60
BOS Fumin Branch	Wenjin No. 2 SD21803M105B	8,500	2018/7/26	2018/10/25	Raised	Floating gains with guaranteed principal	4.20%	89.01
Bank of Communications	Yuntong Wealth 91 Days	2,500	2018/8/6	2018/11/5	Raised	Floating gains with guaranteed principal	4.30%	26.80
BOS Fumin Branch	Wenjin No. 2 SD21801M137A	4,000	2018/10/16	2018/11/20	Self-owned	Floating gains with guaranteed principal	3.60%	13.81
BOS Fumin Branch	Wenjin No. 2 SD21803M158B	8,500	2018/11/8	2019/2/14	Raised	Floating gains with guaranteed principal	4.00%
BOS Fumin Branch	Wenjin No. 2 SD21803M162A	2,500	2018/11/20	2019/2/19	Raised	Floating gains with guaranteed principal	4.00%
PING AN BANK	Structured deposits	1,500	2018/11/20	2019/2/19	Self-owned	Floating gains with guaranteed principal	4.10%
BOS Fumin Branch	Wenjin No. 2 SD21803M170A	4,000	2018/12/6	2019/3/7	Self-owned	Floating gains with guaranteed principal	4.00%
PING AN BANK	Structured deposits 92Days	1,500	2018/12/4	2019/1/4	Self-owned	Floating gains with guaranteed principal	3.80%

B. Entrusted loan

Unit: 10,000 yuan, Currency: RMB

Trustee	Type	Amount	Starting date	Ending date	Fund resource	Investment targets	Annualized rate of return	Actual gain or loss	Note
BOS Fumin Branch	Others	5,300	2018/5/22	2018/11/22	Self-owned	Richpeace	4.7%	125.08	Principal and interest are fully recovered

16. Other Major IssuesNot applicable.17. Implementation of Social Responsibility1) Poverty alleviation work of listed companiesNot applicable.2) Social responsibility work situationThe Company always regards the operation according to law as the basic principle of the Company'soperation, and pays attention to the simultaneous and win-win situation of the economic and social benefits ofthe enterprise. In 2018, the Company earnestly abides by the requirements of national laws, regulations andpolicies, always operates according to law, actively pays taxes, strictly controls product quality, develops jobs,actively participates in Pudong New Area charity donations and volunteers for the people, and supports localeconomic development. There have been no cases of social responsibility such as social and economicdevelopment and environmental protection.

3) Environmental informationThe company and its Subsidiaries are not key pollutant discharge units announced by the environmentalprotection department. During the reporting period, the Company and its subsidiaries strictly implemented thenational laws and regulations on environmental protection, formulated strict environmental practices, andadopted corresponding measures for pollution sources.

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	Shang Gong Group Co., Ltd

18. Convertible Corporate BondsNot applicable.

Chapter 6 Changes in Common Shares and Shareholders

1. Changes in common stock capitalNot applicable.2. Securities issuance and listingNot applicable.3. Shareholders and actual controllers1) Total number of shareholdersAs of the end of the reporting period, the company had a total of 57,633 ordinary shareholders, including31,036 shareholders of A shares and 26,597 shareholders of B shares.

As of the end of January last year, the total number of common shareholders of the company was 55,234,including 28,805 A-share shareholders and 26,429 B-share shareholders.

2) The shareholdings of the top ten shareholders as of the end of the reporting period

Unit: Share

Top Ten Unrestricted Shareholders' Shareholdings
Name	Changer in 2018	Amount of shares held at the end of the period		Proportion (%)	Amount of shares held under restricted conditions		Pledge or freeze			Nature of shareholders
							Type	Amount
Shanghai Puke Flyingman Investment Co., Ltd.	-789,457	60,000,000		10.94	0		Pledge	60,000,000		Domestic non-state legal person
State-owned Assets Supervision and Administration Commission of Shanghai Pudong New Aear People¡¯s Government	0	45,395,358		8.27	0		/			State
China GreatWall Asset Management Co., Ltd.	0	22,200,000		4.05	0		/			State-owned legal person
Shanghai International Group Asset Management Co., Ltd.	0	10,968,033		2.00	0		/			State-owned legal person
SCBHK A/C KG INVESTMENTS ASIA LIMITED	520,985	5,430,440		0.99	0		/			Foreign legal person
ISHARES CORE MSCI EMERGING MARKETS ETF	1,427,060	4,989,260		0.91	0		/			Foreign legal person
GreatWall Guorong Investment Management Co., Ltd.	0	4,770,654		0.87	0		/			State-owned legal person
VANGUARD EMERGING MARKETS STOCK INDEX FUND	0	3,678,113		0.67	0		/			Foreign legal person
Zeng Weili	3,487,900	3,487,900		0.64	0		/			Domestic natural persons
Chen Yan	3,263,500	3,263,500		0.59	0		/			Domestic natural persons
Top Ten Unrestricted Shareholders' Shareholdings
Name			Number of shares held in unrestricted conditions			Type & Amount
						Type			Amount
Shanghai Puke Flyingman Investment Co., Ltd.			60,000,000			A Share			60,000,000
State-owned Assets Supervision and Administration Commission of Shanghai Pudong New Aear People¡¯s Government			45,395,358			A Share			45,395,358
China GreatWall Asset Management Co., Ltd.			22,200,000			A Share			22,200,000
Shanghai International Group Asset Management Co., Ltd.			10,968,033			A Share			10,968,033
SCBHK A/C KG INVESTMENTS ASIA LIMITED			5,430,440			B Share			5,430,440

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	Shang Gong Group Co., Ltd

ISHARES CORE MSCI EMERGING MARKETS ETF	4,989,260	Share	4,989,260
GreatWall Guorong Investment Management Co., Ltd.	4,770,654	A Share	4,770,654
VANGUARD EMERGING MARKETS STOCK INDEX FUND	3,678,113	Share	3,678,113
Zeng Weili	3,487,900	A Share	3,487,900
Chen Yan	3,263,500	A Share	3,263,500
Note: PKFR is a wholly-owned subsidiary of Shanghai Pudong Technology Investment Co., Ltd., which has a relationship. Shanghai Pudong Technology Investment Co., Ltd. directly holds 789,457 A shares of the company, and PKFR holds 60,000,000 A sharesof the company. GreatWall Guorong Investment Management Co., Ltd. is a wholly-owned subsidiary of China GreatWall Asset Management Co., Ltd., and there is a relationship; the Company is not aware of any relationship or concerted action among other shareholders.

The top ten shareholders with restricted sales and restricted sales: Not applicable.4. The Situation of Controlling Shareholders and Actual ControllersAs the Company's largest shareholder PKFR and the second largest shareholder Pudong SASAC holds arelatively low proportion of shares of the Company, and the shareholding ratio is relatively close, no more than30%, no shareholder can form a separate control over the Company, the Company is a listed company with nocontrolling shareholder and no actual controller.

5. Other corporate shareholders holding more than 10% of shares

Name	Legal representative	Date of establishment	Organization Code	Registered capital	Main business
Shanghai Puke Flyingman Investment Co., Ltd.	Zhu Xudong	2016/6/16	91310115MA1K3D9W81	7.235 million yuan	Industrial investment, investment management, investment consulting

6. Explanation of the restrictions on shareholding reductionNot applicable.

Chapter 7 Preferred Stock

Not applicable.

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	Shang Gong Group Co., Ltd

Chapter 8 Directors, Supervisors, Senior Management and Employees

1. Share change and compensation1) Share change and compensation of current and former directors, supervisors and seniormanagers

Unit: Share

Name	Title)	Gender	Age	Starting Date	Ending Date	Shares Held at the Beginning of the Year	Shares Held at the End of the Year	Increase/ Decrease	Reason for the Change	Pre Tax Compensation Payable in the Report Period (Unit: 10,000 yuan)	Compensation Payable by Related Parties
Zhang Min	Chairman	Male	56	2004/7/30	2020/4/26	170,000	170,000			105.92	No
	President			2017/4/27	2020/4/26
Zhu Xudong	Director	Male	54	2017/4/27	2020/4/26						Yes
Yin Qiang	Director	Male	40	2017/4/27	2020/4/26						Yes
Huang Yingjian	Director	Female	42	2017/4/27	2020/4/26						Yes
Lu Yujie	Director	Male	49	2009/6/30	2020/4/26						Yes
Li Chen	Director	Male	35	2018/6/20	2020/4/26						No
Xi Lifeng	Independent director	Male	52	2017/4/27	2020/4/26					12	No
Rui Meng	Independent director	Male	51	2017/4/27	2020/4/26					12	Yes
Chen Zhen	Independent director	Male	44	2017/4/27	2020/4/26					12	Yes
Qiao Junhai	Chairman of the Supervisory Board	Male	61	2014/4/28	2020/4/26						No
Chen Mengzhao	Supervisor	Male	41	2017/4/27	2020/4/26						Yes
Zhang Jianguo	Supervisor	Male	59	2017/4/27	2020/4/26					64.30	No
Li Jiaming	Vice president (Chief)	Male	58	2008/4/18	2020/4/26					80.17	No
Fang Haixiang	Vice president	Male	52	2008/4/18	2020/4/26						No
Li Xiaofeng	Vice president	Male	44	2012/12/27	2020/4/26					78.44	No
Xia Guoqiang	Vice president	Male	54	2018/10/29	2020/4/26	54,900	54,900			11.51	No
Zhang Jianrong	CFO	Male	46	2018/10/29	2020/4/26					8.20	No
Zhao Lixin	Secretary of the board	Male	52	2019/1/30	2020/4/26						No
Li Wenhao	Director	Male	36	2017/4/27	2018/4/4						No
Zheng Ying	Vice president	Female	54	2008/10/27	2018/2/26	21,500	23,500	2,000	Purchase in the secondary marked		No
Zhou Yongqiang	Secretary of the Board	Male	56	2017/4/27	2018/10/30					50.02	No
Total	/	/	/	/	/	246,400	248,400	2,000	/	434.56	/

Name

Main work experience

Zhang Min

He has a bachelor degree in engineering from Shanghai Jiao Tong University, an EMBA from China Europe International Business School, a professor-level senior engineer. He has won the title ¨DChina's Light Industry Model Worker¡¬, ¨DShanghai Labor Model Worker¡¬, ¨DNational Model Worker¡¬, ¨DNational Outstanding Entrepreneur¡¬ from 2015 to 2016, and ¨D¨D2018 Shanghai Outstanding Entrepreneur¡¬. He took part in the work in July 1983. He used to be the engineer of the introduction office., the deputy section chief of the quality control department, the chief section of the supply section, the director of the full quality office, the chief of the financial section, the head of the investment and development section, and general manager of Shanghai Refrigerator Compressor Co., Ltd. Assistant; General Manager of Shanghai Zanussi Electric Machinery Co., Ltd.; Deputy Party Secretary, Vice Chairman and General Manager, Chairman of Shanghai SMPIC Office Machinery Co., Ltd.;

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

	Chairman and CEO of ShangGong Group Co., Ltd. Since April 2017, he has served as chairman of the eighth Board of Directors and the General Manager of SGG. Now he is concurrently the vice chairman of China National Light Industry Council and vice chairman of the China Sewing Machinery Association.
Zhu Xudong	He has a doctor degree from Tongji University, a EMBA from China Europe International Business School, senior engineer. He used to be Assistant Engineer of Aeronautics and Aircraft Design Institute of Ministry of Transportation, Chief Staff Officer and Assistant to the Director of Urban Construction Bureau of Pudong New Area, Deputy Director and Chief Engineer of Pudong New Area Municipal Construction Construction Administration, General Manager of Pudong New Area Construction and Management Co., Ltd., Deputy Director of the Planning and Development Bureau of Pudong New Area, Secretary of Science and Technology Bureau of Pudong New Area, Secretary of the Party Group (Director of Intellectual Property Office and Director of the Information Commission), Director of Science and Technology Committee of Pudong New Area, Party Secretary and First Vice-President and Party Secretary of the Pudong New Area Science and Technology Association. He is currently the chairman and president of Shanghai Pudong Science and Technology Investment Co., Ltd., and serves as the board chairman of Shanghai Wanye Enterprise Co., Ltd. and the director of Shanghai Xinmei Real Estate Co., Ltd. Since April 2017, he has served as a director of the eighth Board of Directors of the Company.
Yin Qiang	He holds a master's degree in financial investment from the School of Management of the University of Rotterdam in Netherlands, and is a first-tier financial analyst. He used to be a programmer in the financial software development department of the Shanghai Institute of Computing Technology; a staff member of the Investment Banking Department and the Investment Finance Department of Pudong Development Group Finance Co., Ltd.; a director of the Office of Pudong Public Rental Housing Company; an assistant to the director of office of Pudong Development Group Co., Ltd.; assistant director (Presiding) of Pudong SASAC. He is currently the general manager of the investment management department of Shanghai Pudong Investment Holdings Co., Ltd. and chairman of Shanghai Shine-link International Logistics Co., Ltd.. Since April 2017, he has served as a director of the eighth Board of Directors of the Company.
Huang Yingjian	She graduated from the University of Braunschweig in Germany with a master's degree and is an economist. She used to be a project consultant of Desun Trading & Consulting GmbH, a researcher at Fuka Economic Forecasting Institute, investment staff and employee director of Shanghai Digital Industry (Group) Co., Ltd., assistant director of the property rights section of Pudong SASAC; Deputy Manager of the Equity Management Department of Shanghai Pudong Investment Holding (Group) Co., Ltd. (Presiding), Legal Representative of Shanghai Pudong Asset Management Co., Ltd., Director of Shanghai Digital Industry Group Co., Ltd. Since April 2017,s he has served as a director of the eighth Board of Directors of the Company.
Lu Yujie	Fudan University Master of Business Administration, Senior Economist. Previously worked at Shanghai Metro Corporation; once served as head of the investment bank of Shanghai International Trust & Investment Corporation; project manager of Financial Advisory Department, manager of Investment Banking Department and financial manager of Shanghai International Group Asset Management Co., Ltd.; operations director, financial director, and investment director of asset management of hanghai International Group Asset Management Co., Ltd. Currently he is deputy general manager of Shanghai International Group Asset Management Co., Ltd. Since April 2017, he has served as a director of the eighth Board of Directors of the Company.
Li Chen
Xi Lifeng	He is a senior professor in Shanghai Jiao Tong University. He received his Ph.D. from Shanghai Jiaotong University in 1995. Since September 1995, he has taught at Shanghai Jiao Tong University and served as vice president and dean of School of Mechanical and Power Engineering of Shanghai Jiao Tong University. Currently He serves as Vice President of Shanghai Jiao Tong University and Dean of Gas Turbine Research Institute, Executive Deputy Dean of China Institute of Quality Development, and Deputy Director of the Machinery Engineering Professional Steering Committee of the Ministry of Education, founded Fellow of International Engineering Asset Management Society, Standing Director of China Quality Association, and deputy chief editor of "Industrial Engineering and Management" journal. Since April 2017, he has served as an independent director of the 8th Board of Directors of the Company.
Rui Meng	He holds a Ph.D. in Finance from University of Houston. He is also professionally designated as Certified Financial Analyst (CFA) and Financial Risk Manager (FRM). He used to be a tenured Professor at Chinese University of Hong Kong. He was the Programme Director of Executive Master of Professional Accountancy which is a joint programme between the CUHK and Shanghai National Institute of Accounting. He was a deputy director of the Center for Institutions and Governance and a senior research fellow of Institute of Economics and Finance. He also serves as an independent director for COSCO Shipping Energy Transportation Co., Ltd. and Shanghai Winner Information Technology Co., Inc. He is a Member of American Finance Association, Financial Management Association, American Accounting Association, Hong Kong Securities Institute. He was a former member of the Panel of Examiners of the Securities Industry Examination of the Hong Kong Stock Exchange and a former member of the Advisory Board of the Business Valuation Forum in Hong Kong. He was a visiting financial economist at Shanghai Stock Exchange, research fellow at Hong Kong Institute for Monetary Research and research fellow at Asian Development Bank Institute. He was also a vice president of Hong Kong Financial Engineering Association. Since April 2017, he has served as an independent director of the eighth Board of Directors of the Company.
Chen Zhen	Bachelor of law. Chinese practicing lawyers. Since 1999, He has worked as a lawyer and partner in Llinks Law Offices. Since April 2017, he has served as an independent director of the 8th Board of Directors of the Company.
Qiao Junhai	Serve in the army from December 1976 to April 2005, former deputy commander. Former director and secretary of party committee of Shanghai Nanhui District Sports Bureau, vice secretary and secretary-general of Nanhui District Politics and Law Committee, director of Nanhui District Comprehensive Management of Public. Former Party Committee Secretary of Pudong New Area Politics and Law Committee, vice director of Comprehensive Management of Social Security Committee Office, member of Pudong New Area Commission for Discipline Inspection. From April 28, 2014, he served as the Supervisory Board Chairman of the Company.
Chen Mengzhao	Bachelor of Engineering, Bachelor of Law, Lawyer. He used to be a layer at Shanghai Allbright Law Offices and Shanghai HIWAYS Law Firm. He joined Shanghai Pudong Science & Technology Investment Co., Ltd. in 2011 and has served as Senior Legal Manager of the Legal Department, Deputy General Manager of the Legal Department and Legal Director. He has also served as Director of Shanghai Wanye Enterprise Co., Ltd.; currently he serves as Partner of Shanghai Pudong Science &

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	Technology Investment Co., Ltd., and Director & General Manager of Shanghai Xinmei Real Estate Co., Ltd. Since April 2017, he has served as a supervisor of the Company's8th Supervisory Board.
Zhang Jianguo	University degree, senior engineer. He once served at Shanghai Washing Machine Third Factory and was the Chief of the Production Unit and Technical Unit; Deputy Chief of the Technical Department and the Workshop Director of Shanghai Washing Machine Factory; Director of the Enterprise Management Department, the Director of the Technology Development Department and the Deputy General Manager of Shanghai Shui Xian Electric Appliance Co., Ltd.; Chief engineer and deputy general manager of Shanghai SMPIC Office Machinery Co., Ltd., party secretary and deputy general manager of Shanghai Fuji Xerox Co., Ltd., secretary of the board of directors of ShangGong Group Co., Ltd. Now he is the deputy party secretary of the Company and the chairman of the labor union. Since April 2017, he has served as the supervisor of the 8th Supervisory Board of the Company.
Li Jiaming	He holds a bachelor's degree in science from Fudan University and is a professor-level senior engineer. Former R&D Director, Deputy General Manager of Shanghai SMPIC Office Equipment Co., Ltd., Site Manager of SMPIC Photosensitive Materials Factory, General Manager and Party Secretary of Shanghai Machinery Co., Ltd.; Director and deputy general manager of ShangGong Group Co., Ltd.. Since April 2008, he served as deputy general manager of the Company.
Fang Haixiang	Master of engineering, senior engineer. Former deputy general manager and chief engineer of Shanghai Xiechang Feiren Co., Ltd.; former director of the Company. Since April 2017, he served as deputy general manager of the Company.
Li Xiaofeng	EMBA from China Europe International Business School, MBA from Shanghai University of Finance and Economics, Senior Economist. Former general manager Assistant of the Company, general manager of Shanghai Import & Export Co., general manager of Shanghai Shanggong Butterfly Sewing Machine Co., Ltd., currently general manager of DAPSH. Since December 2012, he served as the Company¡¯s deputy general manager.
Xia Guoqiang	Shanghai University of Technology (now Shanghai University) undergraduate degree, senior engineer. He used to be the technical technician and deputy section chief of Shanghai Jiangwan Machinery Factory, the marketing manager of Venus Needle Shanghai Co., Ltd. (Taiwan-funded), and the marketing director of Jinmingdun Water Heater Co., Ltd. (China-Canada Cooperation), Singer (Shanghai) Sewing Machine Co., Ltd. Engineering Manufacturing Manager, Product Manager, China Sales Director, Global Industrial Products Purchasing Manager; joined Shang Gong Group Co., Ltd. in February 2012, and served as Manager of Shanghai Purchasing Center of DA AG, Germany. Deputy General Manager of DAMSH, General Manager of Pfaff Industrial Sewing Machine (Taicang) Co., Ltd., General Manager of SGGEMSY, Assistant to President of SGG. Director of Manufacturing Management; from October 2019 to present, served as Vice President of the Company.
Zhang Jianrong	Master of Zhongnan University of Economics and Law, China Certified Public Accountant, China Registered Asset Appraiser. He used to be a trader of Wuhan Stock Exchange, the financial director of the Hong Kong and Macao Securities Hankou business department, the financial supervisor of Huawei Technologies Co., Ltd. (Wuhan); the assistant director of the financial direction of Shanghai Mingyuan Industrial Group Co., Ltd., the head of the audit department, and the assistant to the chairman; Guangwei Holdings General Manager of Risk Control Department. From October 2018 to present, he served as the Company's CFO.
Zhao Lixin	Undergraduate degree, accountant title. He used to be a financial officer of Shanghai Shenbei Office Machinery Co., Ltd., manager of the financial department of Shanghai Shenbei Real Estate Development Co., Ltd., manager of the finance department of Shanghai Suoying Real Estate Co., Ltd., and deputy manager of the finance department, Finance Director, and Assistant to the President of SGG. Since January 2019, he has served as Secretary of the Board of Directors and Director of the Finance Department.

Note 1: During the reporting period, Mr. Fang Haixiang, the Company's vice president, worked inGermany and received remuneration from overseas subsidiaries. He did not receive remuneration from thecompany headquarters.

Note 2: The Company's ninth meeting of the eighth board of directors held on January 30, 2019,appointed Mr. Zhao Lixin as the company's board secretary.

2) Equity incentives granted to directors and senior managers during the reporting period

Not applicable.

2. Current and former director, supervisor and senior manager¡¯s employment

1) Employment with shareholders

Name	Shareholder	Title	Starting date	Ending date
Zhu Xudong	PKFR	Director, Legal Representative	June 2016
Zhang Min	PKFR	Director	October 2018
Huang Yingjian	Pudong SASAC	Assistant Director	Feburary 2013
Lu Yujie	Shanghai International Group Asset Management Co., Ltd.	Deputy general manager	May 2015
Li Chen	GreatWall Guorong Investment Management Co., Ltd.	Manager (Senior)	July 2015
Chen Mengzhao	PKFR	Supervisor	June 2016

2) Employment with other institutions

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Name	Company name	Title	Starting date	Ending date
Zhang Min	China Sewing Machinery Association	Deputy Director	26 September 2011
	China Light Industry Federation	Deputy Director	21 June 2016
	Ningbo Meishan Bonded Port Area Shangshen Investment Management Co., Ltd.	Executive Director, Manager, Legal Representative	23 March 2018
	Ningbo Meishan Bonded Port Area Gongbei Investment Management Co., Ltd.	Chairman, legal representative	17 April 2018
	Ningbo Meishan Bonded Port Area Shendie Equity Investment Partnership	Delegated representative	28 April 2018
Zhu Xudong	Shanghai Pudong Technology Investment Co., Ltd.	Founding Partner, Chairman, President	January 2018
	Shanghai Wanye Enterprise Co., Ltd.	Director	18 December 2015	14 January 2022
	Shanghai Xinmei Real Estate Co., Ltd.	Director	16 November 2016
Yin Qiang	Shanghai Pudong Investment Holdings Co., Ltd.	General Manager of Investment Management	January 2018
	Shanghai Changlian International Logistics Co., Ltd.	Chairman	June 2016
Huang Yingjian	Shanghai Pudong Investment Holdings Co., Ltd.	Deputy Manager of Equity Management Department (presiding)	January 2016
	Shanghai Digital Industry (Group) Co., Ltd.	Director	August 2014
	Shanghai Pudong Asset Management Co., Ltd.	Legal representative	February 2016
Lu Yujie	Shanghai International Group Asset Management Co., Ltd.	Executive director	March 2009
	Gimpo Industrial Investment Fund Management Co., Ltd.	Director	December 2015
	Shanghai Baoding Investment Co., Ltd.	Director	June 2014
	Longjiang Bank Co., Ltd.	Director	July 2015
	Tonglian Payment Network Service Co., Ltd.	Supervisor	August 2014
Li Chen	Luoyang Axis Technology Co., Ltd.	Director	11 July 2018
	Space Intelligence Co., Ltd.	Director	15 May 2018
Rui Meng	COSCO Shipping Energy Transportation Co., Ltd.	Independent director	June 2015
	Shanghai Huina Information Technology Co., Ltd.	Independent director	December 2015
	Midea Group Co., Ltd.	Independent director	December 2015	26 September 2018
	China Education Group Holdings Limited	Independent director	December 2017
Chen Zhen	KONE Law Firm	Lawyer, partner	January 1999
	China Longgong Holdings Co., Ltd.	Independent director	October 2014
	Ashridge Technology (Shanghai) Co., Ltd.	Independent director	May 2014
	Chengdu Nibilu Technology Co., Ltd.	Independent director	July 2014
Chen Mengzhao	Shanghai Pudong Technology Investment Co., Ltd.	Partner	January 2018
	Shanghai Wanye Enterprise Co., Ltd.	Director	18 December 2015	15 January 2019
	Shanghai Xinmei Real Estate Co., Ltd.	Director	November 2016
	Shanghai Xinmei Real Estate Co., Ltd.	General manager	25 May 2018
Li Jiaming	Shanghai Fuji Xerox Co., Ltd.	Vice Chairman	June 2014
	Ningbo Meishan Bonded Port Area Gongbei Investment Management Co., Ltd.	Director	April 2018
Li Xiaofeng	Ningbo Meishan Bonded Port Area Gongbei Investment Management Co., Ltd.	Director	April 2018

3. Compensation for director, supervisor and senior managers

Decision making procedure for director, supervisor and officer compensation	Apply the regulation on Officers¡¯ Salary in Senior Management Personnel Remuneration Management Regulation
Basis for director, supervisor and officer compensation	Implement according to Senior Management Personnel Remuneration Management Regulation and other corporate internal control system
Director, supervisor and officer compensation payable	Compensation will be paid according to KPI, according to independent director

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	compensation standard and procedure approved by the shareholder general meeting.
Total compensation at end of reporting period for director, supervisor and officer	RMB 4.3456 million yuan, before tax

4. Change of directors, supervisors and senior managers of the Company

Name	Title	Change	Reason
Zheng Ying	Vice President	Outgoing	Resignation
Li Wenhao	Director	Outgoing	Resignation
Li Chen	Director	Election	Election
Xia Guoqiang	Vice President	Appointment	Appointment
Zhang Jianrong	CFO	Appointment	Appointment
Zhou Yongqiang	Secretary of the board	Outgoing	Resignation

5. Punishment by the securities regulatory authorities in last three yearsNot applicable.6. Staff condition of parent company and major subsidiaries1) Staff condition

Population of serving staff in parent company	194
Population of serving staff in major subsidiary companies	3,885
Total population of serving staff	4,079
Professional composition
Type of professional composition	Population of professional composition
Production Staff	2,432
Sales Personnel	486
Technician	534
Financial Staff	154
Administrative Staff	473
Total	4,079
Education
Type of educational degree	Population
Postgraduate, undergraduate and above	814
Junior college	2,078
Junior college and below	1,187
Total	4,079

2) Compensation policyIn the report period, the Company has formulated the Employee Performance Assessment and SalaryManagement Method in the Department. The staff salary is implemented strictly according to stipulatedpolicies.

3) Training planThe Company will do a good job in budget implementation of training costs according to the annualtraining plan, especially for the special training of the enterprises, so as to have an after-the-fact evaluation andfocus on the training effect. The Company urges all enterprises to improve the continuing education of allkinds of professional and technical personnel and management personnel, establish training files, and link thetraining effectiveness with performance. At the same time, it is one of the basis for promotion of positions andforms a positive learning atmosphere. It reflects the concept of common development between the companyand its employees.

In order to get closer to the market, the Company continued to arrange the training of young cadres in2018, and exercised in practice by exercising at the grassroots level. In the second half of 2018, the Company

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concentrated on training and evaluation of sales management and financial management for young cadres, andcontinuously improved the quality and management level of young cadres. In 2018, the Company organizedand completed 30 continuing financial trainings for financial auditing professionals in the group's corporatefinance personnel; organized and completed 12 ¨Dlabor management personnel continuing education in the2018 annual labor management cadres organized by the Shanghai Light Industry Labor Branch¡¬. Training with33 person labor contracts and individual tax deductions; organize personnel to participate in special trainingssuch as brand management, equity incentives, and new accounting standards. Through training, wecontinuously improve the comprehensive quality of professionals.

4) OutsourcingNot applicable.

Chapter 9 Corporate Governance

1. Description of Corporate Governance

In the report period, the Company has continuously improved the corporate governance structure andregulated operation in strict accordance with laws and regulations including the Corporate Law, Securities Lawand Code of Corporate Governance for Listed Companies, and the requirement of China Securities RegulatoryCommission, Shanghai Stock Exchange and other regulators. The Company has formed the legal governancestructure with distinct rights and liabilities, each performing its own functions, effective balance, scientificdecisions and coordinating operation. The corporate governcet complies with the requirement of relevant lawsand regulations, and there is no rectification within a limited time required by any supervision department. Theshareholders¡¯ meeting, board of directors and board of supervisors fulfill their own duties and operate in astandard way to practically guarantee the interest of vast investors and the Company.

(1) Shareholders and shareholders¡¯ meeting

The Company holds shareholders¡¯ meeting in strict accordance with the laws and regulations includingthe Corporate Law, Listing Rule of Shanghai Stock Exchange, and the requirement of the Articles ofAssociation and Procedure Rules of Shareholders¡¯ Meeting to ensure that all the shareholders can enjoy equalstatus and rights. Meanwhile, lawyers are invited to attend the shareholders¡¯ meeting and confirm and witnessthe convention procedure, deliberation matters and attendees¡¯ identities. The meeting minutes should becomplete to guarantee the legitimacy and effectiveness of the shareholders¡¯ meeting.

(2) Controlling shareholders and the Company

The Company possesses independent business and management abilities. Both the Company andcontrolling shareholders can realize ¨Dfive independences¡¬ in terms of staff, asset, finance, organization andbusiness. The board of directors, board of supervisions and internal organizations can operate independently.The Company¡¯s major decisions are made by the shareholders? meeting according to the law. The controllingshareholders exercise shareholders¡¯ rights by law without the behavior of interfering with the Company¡¯sdecision and operating activities directly or indirectly exceeding the shareholders¡¯ meeting. The Company hasno related transaction with controlling shareholders.

(3) Directors and board of directors

The Company has formulated the Procedure Rules of the Board of Directors according to the stipulationof the Corporate Law and Articles of Association. The directors¡¯ qualification and electoral procedure complywith the stipulation of relevant laws and regulations. All the directors strictly abide by the directors¡¯declaration and promise that they have made, fulfill the rights and obligations endowed by the Articles ofAssociation earnestly, and perform their duties loyally, diligently and sincerely.

The Company¡¯s independent directors shouldn¡¯t be less than 1/3 of total directors. During the report

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period, they have attended the board meeting carefully, delivered their professional opinions on major issuesincluding periodic reports, related party transactions and external securities, and played a positive role in thescientific decisions of the board of directors and the healthy development of the company.

(4) Supervisors and board of supervisorsThe Company elects supervisors in strict accordance with the selection procedure of the Corporate Lawand Articles of Association. The Company¡¯s board of supervisors consists of five supervisors, including twostaff representatives. Population and staff composition comply with the requirement of laws and regulations.All the supervisors can carefully fulfill the obligations according to the Procedure Rule of the Board ofSupervisors. Driven by the responsibility for all the shareholders, especially minority shareholders, supervisorsfulfill responsibilities carefully, according to the Procedure Rules of the Board of Supervisors, supervise theCompany¡¯s finance, the legitimacy and compliance of directors and senior executives in fulfilling their duties.

(5) Information disclosure and transparencyThe Company appoints the secretary of the board to be responsible for the Company¡¯s informationdisclosure, receiving investors¡¯ visit and consultation, and designates Shanghai Securities News and HongKong Commercial Daily to disclose the Company¡¯s information. The Company strictly abides relevantstipulations of information disclosure, effectively prevents selective information disclosure and occurrence ofinsider trading, and makes everything in a just, impartial and open way. The Company can disclose relevantinformation truly, accurately, completely and timely according to relevant stipulations of laws, regulations andthe Articles of Association to ensure that all the shareholders have the equal opportunity to gain information.

(6) About investors¡¯ relation and related interest partiesThe Company further enhances the channel to communicate with investors, fully respects and maintainsthe legitimate interest of related interest parties realizes the balance of the interest of shareholders, staff andsociety, commonly promotes the sustainable and healthy development of the company according to theInvestor Relations Management. A specially-assigned person in the Company¡¯s board office is responsible forreceiving investors¡¯ incoming calls, letters, visits and questions, and replies them by instant answers, relyingletters or emails.

In order to regulate the Company¡¯s insider information management, enhance the privacy of insideinformation and maintain information disclosure fairness, the Company formulates and strictly executes theInside Information and Insiders? Management System according to laws and regulations of the Corporate Law,Securities Law, Administrative Measures on Information Disclosure by Listed Companies, Stock Listing Ruleof Shanghai Stock Exchange, relevant stipulations of the Articles of Association and the actual condition of thecompany. The Company¡¯s inside information management will be under the centralized leadership andmanagement of the board of directors to guarantee that the information insiders? files are true, accurate andcomplete. The chairman will become the major person in charge. The secretary of the board organizes theimplementation and is responsible for registering and filling information insiders. The board of supervisorssupervises the management system implementation of information insiders.

During the report period, the Company has strictly implemented the registration management system ofinside information and normalized information transfer process. During the regular report and temporaryannouncement disclosure period, the company has strictly controlled insiders? range for private information,organized to fill in the Information Insider Registration Form, and truly and completely recorded the list of allthe information insiders before the information above were public, and the time when insiders knew the insideinformation, etc.

During the report period, the Company¡¯s directors, supervisors, senior executives and other relevant staffhave strictly abided by the management system of information insiders. No information insider has beendiscovered to utilize inside information to buy and sell Company¡¯s stocks, and no information insider has been

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investigated by the supervision department for being suspected of being involved in inside information trade.

During the report period, the Company has revised the Articles of Association, Rules for the Shareholders'Meetings, and various regulations and systems to further perfect the corporate governance and normalizeoperation.

There is no significant difference between the Company¡¯s corporate governance and the requirements ofrelevant provisions released by CSRC.

2. Brief Introduction of Shareholder¡¯S Meeting

Name of meeting	Date of meeting	Inquiry index of designated website for publishing resolutions	Disclosure date for publishing resolutions
The 2017 Annual Shareholders¡¯ Meeting	2018/6/20	www.sse.com.cn	2018/6/21
First Extraordinary General Meeting of Shareholders in 2018	2018/9/18	www.sse.com.cn	2018/9/18

3. Directors' performance of duties

1) Attendance of Directors in Board Meeting and Shareholders Meeting

Name	Whether Independent Director	Attendance in Board Meeting						Attendance in Shareholders¡¯ Meeting
		Scheduled Meeting	Personal Attendance	By Telecommuni- cation	By Proxy	Absent	Whether two times in a row did not personally attend the meeting
Zhang Min	No	5	5	3	0	0	No	2
Zhu Xudong	No	5	5	5	0	0	No	0
Yin Qiang	No	5	5	3	0	0	No	1
Huang Yingjian	No	5	5	3	0	0	No	2
Lu Yujie	No	5	5	3	0	0	No	0
Li Chen	No	3	3	3	0	0	No	0
Xi Lifeng	No	5	5	5	0	0	No	0
Rui Meng	No	5	5	3	0	0	No	1
Chen Zhen	No	5	5	4	0	0	No	2
Li Wenhao	No	0	0	0	0	0	No	0

Number of Board Meetings Held During the Year	5
Including on-site meeting	0
meetings by telecommunication	3
On-site with telecommunication meeting	2

2) Independent directors¡¯ objection against significant events of the Company

Not applicable.

4. Important opinions and recommendations of special committees under the board in reportperiod

Not applicable.

5. Explanation by supervisory board on the risks of the Company

Not applicable.

6. Explanation on structural independence of the Company on business, personnel, assets,organization and finance from the holding shareholder

Not applicable.

7. Appraisal and incentive system for senior managers

According to the requirements of the Company's marketization and centralized management, through theproject consultation of PricewaterhouseCoopers Management Consulting (Shanghai) Co., Ltd., the Companyrevised and improved the compensation performance optimization plan of the executive team. On the basis of

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the salary incentive design plan of the middle management staff of SGG, the program design is further carriedout in the medium and long-term incentives, and the incentive projects are basically completed.

In 2018, senior executive compensation is linked to the completion of the Company's business objectives,the performance of individual in charge of work, and the completion of key tasks. The Remuneration andAppraisal Committee of the Board of Directors determines the evaluation of senior management personnelbased on the completion of the company's business indicators in 2018 and the completion of the duties of thesenior executives.

8. Self-evaluation report of internal control

There were not factors which have influence on evaluation conclusion of effectiveness of internal controlfrom the benchmark date of self-evaluation report of internal control to issuance date of self-evaluation reportof internal control. For details of self-evaluation report of internal control, please see the complete reportreleased in the website of Shanghai Stock Exchange.

9. Internal control audit report

Appointed by the Company, BDO conducted an audit on the effectiveness of internal control of financialstatements, and issued a standard audit report for internal control without reserved opinions. For details ofaudit report for internal control, please see the complete report released in the website of Shanghai StockExchange.

Chapter 10 Corporate Bond

Not applicable.

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Chapter 11 Financial Report

1. Audit Report

XinKuaiShiBaoZi[2019]No. ZA11614

To all the shareholders of Shang Gong Group Co., Ltd.:

1. Audit OpinionWe have audited the financial statements of Shang Gong Group Co., Ltd. (hereinafter referred to as ¨DtheCompany¡¬), including the consolidated statement of financial position and statement of financial position as of31st December 2018, consolidated statement of comprehensive income and statement of comprehensiveincome, consolidated statement of cash flows and statement of cash flows, consolidated statement of changesin equity and statement of changes in equity and notes to the financial statements for the Year 2018.

In our opinion, the accompanying financial statements are prepared in all material respects in accordancewith the Accounting Standards for Business Enterprises and fairly reflect the consolidated financial positionand the parent company¡¯s financial position as of 31st December 2018 and the consolidated and the parentcompany¡¯s operating results and cash flows for the Year 2018.

2. Basis of Forming Audit Opinion

We performed the audit in accordance with the Chinese Certified Public Accountants Auditing Standards.The ¨DCPA's Responsibility for Auditing Financial Statements¡¬ section of the audit report further elaborated ourresponsibilities under these guidelines. According to the Code of Ethics of Chinese Certified PublicAccountants, we are independent of the Company and perform other professional ethics duties. We believe thatthe audit evidence we have obtained is sufficient and appropriate to provide a basis for issuing an auditopinion.

3. Key Audit Matters

The key audit matters are the matters that we believe are most important for the audit of the currentfinancial statements based on professional judgment. The response to these matters is based on the audit of thefinancial statements as a whole and the formation of an audit opinion. We do not comment on these mattersseparately. We confirm that the following matters are key audit matters that need to be communicated in theaudit report.

Key audit matter	How is this matter handled in the audit
(1) Impairment of inventory
As of December 31, 2018, the book balance of your company's inventory was 1,036,353,124.60 yuan, the inventory depreciation reserve amount was 139,375,239.77 yuan, and the inventory depreciation loss occurred in the current period was 9,068,644.01 yuan. Your company's inventories are measured at the lower of cost and net realisable value. The net realizable value of the completed product is determined by the estimated selling price of the inventory minus the estimated sales expenses and related taxes; The net realizable value of inventory which needs to be processed, in the normal production and operation process, is determined by the estimated selling price of the finished product produced minus the estimated cost, estimated selling expenses, and related taxes and fees that will be incurred when the finished product is completed. The service cost is determined by the settlement unit price and the carrier amount confirmed by both parties of the service. Determining the net realisable value of inventory involves the use of significant accounting estimates and judgments by the management, and the provision for inventory devaluation reserve is of importance for the consolidated	¢ÙUnderstand and evaluate the design and operation effectiveness of key internal controls related to the provision of inventory impairment by your Company's management. ¢ÚCarry out the inventory monitoring process, check the quantity and status of the inventory. Carry out a major inspection of the long-age inventory, and analyze the adequacy of the depreciation reserve for the inventory with indications of impairment. ¢ÛCheck the changes in the inventory depreciation reserve provision of the Company in previous years and analyze the rationality of inventory depreciation reserve changes. ¢ÜAcquire the Company's inventory depreciation reserve calculation table, review the net realizable value of inventory and the amount of provision for impairment of inventory, and check the estimated selling price, settlement unit price, and sales expense when the management determines the net realizable value with the actual amount incurred. In this way to assess whether management's judgment in determining the

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financial statements. Therefore, we recognize the provision for inventory devaluation reserve as a key audit matter. For details of the relevant accounting policies for inventory depreciation provision, please refer to Note V. (12). For details of the provision for inventory depreciation, please refer to Note VII. (VII).	net realizable value of inventory is reasonable.
(2) Impairment of goodwill
As of December 31, 2018, the book value of the goodwill of the company was 173,308,163.56 yuan, the impairment provision of goodwill was 33,233,893.28 yuan, and the impairment loss of goodwill occurred during the period was 10,370,000.00 yuan. The management of the Company conducts impairment test on goodwill at the end of each year and adjusts the book value of goodwill based on the results of the impairment test. Goodwill impairment testing involves management using significant accounting estimates and judgments, primarily including estimates of estimated future cash flows and discount rates for subsidiaries. The provision for goodwill impairment provision is of importance to the consolidated financial statements, so we recognise the provision for impairment of goodwill as a key audit matter. For details of the accounting policies for impairment of goodwill, please refer to Note V. (22). For details of the provision for impairment of goodwill, please refer to Note VII (22).	¢ÙUnderstand the historical performance and development plan of the acquired subsidiary, as well as the development trend of the industry. ¢ÚUnderstand and evaluate how the Company's management utilizes the work of assessment experts. Assess the rationality of the valuation method chosen by the management and the key assumptions adopted. ¢ÛReview the rationality of the estimated cash flow and the discount rate adopted, and compare and analyze the historical data of the relevant subsidiaries. ¢ÜReview the calculation accuracy of the impairment test of goodwill.
(3) Confirmation of sales related to sales of sewing equipment and intelligent manufacturing equipment
In 2018, your company's annual sales revenue totaled 3,200,527,741.09 yuan, of which the sales of sewing equipment and intelligent manufacturing equipment confirmed a total of 2,159,131,523.78 yuan. Your company has confirmed the realization of sales revenue when transferring the main risks and rewards of ownership of the goods to the purchaser. For domestic sales, your company recognizes revenue primarily when the product is handed over or the product is fully accepted. For export sales, your company recognizes revenue primarily when the risk transfer conditions agreed in the applicable international trade terms are met. Since sales of sewing equipment revenue is one of your company's key performance indicators, and there is inherent risk that management will manipulate revenue recognition in order to achieve specific goals or expectations, we identify your company's revenue recognition as a key audit matter. For the relevant accounting policies on revenue recognition, please refer to Note V. (28); for the confirmation of income, please refer to Note VII (52).	¢ÙUnderstand and evaluate the design and operational effectiveness of key internal controls related to your company's management and sales of product revenue. ¢ÚImplement an analytical review procedure to analyze performance indicators such as gross profit margin and turnover rate, and pay attention to whether there are abnormal fluctuations. ¢ÛSelect important customer, implement letter procedures. ¢ÜSelect important sales orders to perform detailed testing, obtain various internal and external documents for the sales process, and verify whether the sales revenue actually occurs.¡£ ¢ÝPerform a cut-off test on the revenues recognized near the balance sheet date to verify that the sales revenue is included in the correct period.

4. Other informationThe management of the Company (hereinafter referred to as ¨Dmanagement¡¬) is responsible for otherinformation. Other information includes information contained in the Annual Report 2017, but excludefinancial statements and our audit report.

Our audit opinion on financial statements does not contain any other information, nor do we publish anyform of forensic conclusion on other information.

In combination with our audit of financial statements, our responsibility is to read other information. Inthe process, it is important to consider whether other information is in significant disagreement with thefinancial statements or what we know in the process of auditing, or if there seems to be a materialmisstatement.

Based on the work we have performed, if we determine that there is a material misstatement of otherinformation, we should report that fact. In this regard, we have nothing to report.

5. Responsibility of the management and the governance for financial statements

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

The management is responsible for preparing financial statements in accordance with the requirements ofthe Accounting Standards for Business Enterprises to enable them to achieve fair reflection. And design,implement and maintain necessary internal controls so that there are no material misstatements due to fraud orerrors in the financial statements.

In preparing the financial statements, the management is responsible for assessing the Company'scontinuing operations capabilities, disclosing issues related to going-concern (if applicable), and applying thegoing-concern assumption unless the plan is to liquidate, terminate operations or have no other realisticoptions.

The governance layer is responsible for overseeing the Company's financial reporting process.

6. Auditors¡¯ responsibilities

Our objective is to obtain reasonable assurance as to whether the entire financial statements are free frommaterial misstatement due to fraud or error and to issue an audit report containing audit opinion. Reasonableassurance is a high level of assurance, but it does not guarantee that an audit performed in accordance withauditing standards can always be discovered when a material misstatement exists. Misstatement may be causedby fraud or mistakes, and if a reasonable expectation of misstatement alone or aggregated may affect theeconomic decision made by users of financial statements based on the financial statements, the misstatement isgenerally considered to be material.

In the process of auditing in accordance with auditing standards, we use professional judgment andmaintain professional suspicion. At the same time, we also perform the following tasks:

(1) Identify and assess risks of material misstatement of financial statements due to fraud or errors, designand implement audit procedures to address these risks, and obtain adequate and appropriate audit evidence as abasis for issuing audit opinions. Since fraud may involve collusion, falsification, intentional omissions,misrepresentation or override of internal controls, the risk of failing to detect a material misstatement due tofraud is higher than the risk of failing to detect a material misstatement due to an error.

(2) Understand the internal control related to auditing to design appropriate auditing procedures, but thepurpose is not to express opinions on the effectiveness of internal control.

(3) Evaluate the appropriateness of accounting policies used by the management and the reasonablenessof accounting estimates and related disclosures.

(4) Conclusions are reached on the appropriateness of management's use of going-concern. At the sametime, according to the audit evidence obtained, reach conclusions on whether there are significant uncertaintiesin the matters or circumstances that have major doubts about the Company's ability to continue to operate. Ifwe conclude that there are significant uncertainties, the auditing standards require us to request the users of thereport to pay attention to the relevant disclosures in the financial statements in the audit report; if the disclosureis insufficient, we should publish non-unqualified opinions. Our conclusions are based on the informationavailable as of the date of the audit report. However, future events or circumstances may prevent the Companyfrom continuing to operate.

(5) Evaluate the overall presentation, structure, and content (including disclosures) of the financialstatements and evaluate whether the financial statements fairly reflect the relevant transactions and events.

(6) Obtain sufficient and appropriate audit evidence on the financial information of entities or businessactivities in the Company to express an opinion on the financial statements. We are responsible for directing,supervising and executing group audits and assume full responsibility for audit opinions.

We communicate with the governance on planned audit scope, timing, and major audit findings, includingcommunication of the internal control deficiencies that we identified during the audit.

We also provide a statement to the governance on compliance with ethical requirements related toindependence, and communicate with the governance on all relationships and other matters that may

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

reasonably be considered to affect our independence, as well as related preventive measures (if applicable).

From matters communicated with the governance, we determine which items are most important for theaudit of financial statements for current period and thus constitute the key audit matters. We describe thesematters in our audit report, unless laws and regulations prohibit the public disclosure of these matters, or inrare cases, if it is reasonably expected that the negative consequences of communicating something in the auditreport will outweigh the benefits in the public interest, we determine that the matter should not becommunicated in the audit report.

BDO China Shu Lun Pan Certified Public Accountant of China: Li Ping (Project Partner)Certified Public Accountants LLP Certified Public Accountant of China: Zhang Yongmei

Shanghai ? China 12

th

April 2019

2. Financial Statement

Shang Gong Group Co., Ltd.Consolidated Statement of Financial Position

As of 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	Note	Ending Balance	Beginning Balance
Current assets:
Cash and cash equivalents		595,034,146.11	723,337,878.53
Deposit reservation for balance
Lending funds
Financial assets at fair value whose fluctuation is attributed to profit or loss for current period
Derivative financial assets
Notes receivable and Accounts receivable		617,760,694.90	526,096,919.07
Including: Notes receivable		81,482,151.15	61,337,538.87
Accounts receivable		536,278,543.75	464,759,380.20
Prepayment		39,695,762.85	64,393,627.71
Premiums receivable
Reinsurance accounts receivable
Provision of cession receivable
Other receivables		120,422,496.29	58,966,056.94
Including: Interest receivable			21,645.73
Dividends receivable		27,041,989.94
Redemptory monetary capital for sale
Inventories		896,977,884.83	705,141,821.59
Assets held for sale
Non-current assets maturing within one year
Other current assets		249,326,335.31	366,533,356.84
Total current assets		2,519,217,320.29	2,444,469,660.68
Non-current assets:
Loans and payments on behalf
Available-for-sale financial assets		117,733,027.78	118,959,944.05
Held-to-maturity investments
Long-term receivables		31,427,418.92
Long-term equity investments		248,368,207.89	275,799,606.70
Investment properties		145,386,135.12	149,502,332.46
Fixed assets		473,157,221.59	397,788,367.78
Construction in progress		119,166,627.75	12,665,274.09

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Item	Note	Ending Balance	Beginning Balance
Productive biological assets
Oil and gas assets
Intangible assets		270,072,349.34	149,988,157.46
Development expenditures		6,798,312.48	16,683,772.84
Goodwill		140,074,270.28	72,482,033.43
Long-term deferred expenses		3,875,409.77	1,631,013.88
Deferred income tax assets		68,850,860.84	63,544,908.23
Other non-current assets
Total non-current assets		1,624,909,841.76	1,259,045,410.92
Total assets		4,144,127,162.05	3,703,515,071.60
Current liabilities:
Short-term loans		206,614,015.12	330,389,201.62
Borrowings from central bank
Deposits from customers and interbank
Borrowings from banks and other financial institutions
Financial liabilities at fair value whose fluctuation is attributed to profit or loss for current period
Derivative financial liabilities
Notes payable and accounts payable		318,803,039.91	206,343,320.56
Receipt in advance		75,412,987.77	38,326,094.65
Financial assets sold for repurchase
Handling charges and commissions payable
Employee benefits payable		101,169,469.49	91,112,179.00
Taxes and surcharges payable		21,208,862.17	14,074,587.91
Other payables		254,827,223.50	195,761,119.66
Including: Interest payable		805,898.77	1,110,553.06
Dividends payable		1,032,818.86	1,032,818.86
Reinsurance accounts payable
Provision for insurance contracts
Acting trading securities
Acting underwriting securities
Liabilities held for sale
Non-current liabilities maturing within one year		4,173,297.07	1,260,000.00
Other current liabilities		47,083.80	48,330.03
Total current liabilities		982,255,978.83	877,314,833.43
Non-current liabilities:
Long-term loans		340,477,650.27	62,956,504.27
Bonds payable
Including: preference shares
Perpetual bond
Long-term payables		3,403,296.49	3,121,893.11
Long-term employee benefits payable		234,036,612.41	247,420,777.32
Estimated liabilities		672,720.00	546,461.91
Deferred income			2,340,000.00
Deferred income tax liabilities		70,805,236.44	52,863,141.42
Other non-current liabilities		520,000.00	520,000.00
Total non-current liabilities		649,915,515.61	369,768,778.03
Total liabilities		1,632,171,494.44	1,247,083,611.46
Owners' equity
Share capital		548,589,600.00	548,589,600.00
Other equity instruments
Including: preference shares
Perpetual bond
Capital reserves		916,215,448.24	972,000,595.56
Less: treasury stock
Other comprehensive income		-75,701,094.41	-72,163,452.90

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Item	Note	Ending Balance	Beginning Balance
Special reserves
Surplus reserves		4,546,242.52	4,546,242.52
General risk reserves
Undistributed profits		819,208,053.71	692,241,691.51
Total owners' equity attributable to the parent company		2,212,858,250.06	2,145,214,676.69
Minority equity		299,097,417.55	311,216,783.45
Total owners' equity		2,511,955,667.61	2,456,431,460.14
Liabilities and owners' equity		4,144,127,162.05	3,703,515,071.60

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

Shang Gong Group Co., Ltd.Statement of Financial Position

As of 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	Note	Ending Balance	Beginning Balance
Current assets:
Cash and cash equivalents		125,257,400.64	137,028,156.51
Financial assets at fair value whose fluctuation is attributed to profit or loss for current period
Derivative financial assets
Notes receivable and Accounts receivable		49,567,114.47	55,466,452.06
Including: Notes receivable		8,713,253.21	18,619,880
Accounts receivable		40,853,861.26	36,846,572.06
Prepayment		1,013,250.66	3,488,722.53
Other receivables		154,756,949.21	107,954,125.03
Including: Interest receivable
Dividends receivable		1,050,356.92
Inventories		116,010,332.72	114,386,355.60
Assets held for sale
Non-current assets maturing within one year
Other current assets		182,331,726.62	310,981,332.13
Total current assets		628,936,774.32	729,305,143.86
Non-current assets:
Available-for-sale financial assets		117,733,027.78	118,959,944.05
Held-to-maturity investments
Long-term receivables		132,003,607.99	135,720,449.62
Long-term equity investments		795,948,021.03	639,310,221.03
Investment properties		82,357,348.39	88,389,027.77
Fixed assets		5,108,388.24	8,036,379.04
Construction in progress		2,804,766.05	2,871,501.40
Productive biological assets
Oil and gas assets
Intangible assets		10,991,616.43	11,541,893.86
Development expenditures
Goodwill
Long-term deferred expenses		1,600,982.68	1,496,482.78
Deferred income tax assets		940,809.20	587,977.83
Other non-current assets
Total non-current assets		1,149,488,567.79	1,006,913,877.38
Total assets		1,778,425,342.11	1,736,219,021.24
Current liabilities:
Short-term loans		9,348,148.62	348,148.62
Financial liabilities at fair value whose fluctuation is attributed to profit or loss for

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Item	Note	Ending Balance	Beginning Balance
current period
Derivative financial liabilities
Notes payable and Accounts payable		95,996,884.11	123,067,605.01
Receipt in advance		19,890,459.82	14,500,867.77
Employee benefits payable		9,208,635.04	9,133,348.57
Taxes and surcharges payable		4,352,572.60	579,085.22
Other payables		174,326,023.74	154,311,408.71
Including: Interest payable		805,898.77	1,110,553.06
Dividends payable		1,032,818.86	1,032,818.86
Liabilities held for sale
Non-current liabilities maturing within one year		2,700,000.00	1,260,000.00
Other current liabilities
Total current liabilities		315,822,723.93	303,200,463.90
Non-current liabilities:
Long-term loans		1,489,984.87	1,489,984.87
Bonds payable
Including: preference shares
Perpetual bond
Long-term payables		1,574,312.63	1,574,312.63
Long-term employee benefits payable
Estimated liabilities
Deferred income
Deferred income tax liabilities		1,197,067.41	1,197,067.41
Other non-current liabilities		520,000.00	520,000.00
Total non-current liabilities		4,781,364.91	4,781,364.91
Total liabilities		320,604,088.84	307,981,828.81
Owners' equity:
Share capital		548,589,600.00	548,589,600.00
Other equity instruments
Including: preference shares
Perpetual bond
Capital reserves		1,003,282,687.73	1,003,282,687.73
Less: treasury stock
Other comprehensive income		12,396,555.80	15,711,472.03
Special reserves
Surplus reserves		4,546,242.52	4,546,242.52
Undistributed profits		-110,993,832.78	-143,892,809.85
Total owners' equity		1,457,821,253.27	1,428,237,192.43
Liabilities and owners' equity		1,778,425,342.11	1,736,219,021.24

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Shang Gong Group Co., Ltd.Consolidated Statement of Comprehensive Incomes

From 1

st

January 2018 to 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	Note	2018	2017
1. Incomes		3,200,527,741.09	3,064,971,500.79
Including: operating income		3,200,527,741.09	3,064,971,500.79
Interest income
Premiums earned
Income from handling charges and commissions
2. Costs		3,023,493,792.82	2,856,099,579.43
Including: Cost of sales		2,322,152,730.89	2,245,537,329.26
Interest expenses
Handling charges and commissions expenses
Surrender value
Net amount of compensation payout
Net amount withdrawn for insurance contract reserves
Policy dividend payment
Reinsurance costs
taxes and surcharges		13,033,211.21	13,445,563.98
Selling expenses		322,696,906.11	284,810,887.21
General and administrative expenses		230,502,679.98	207,021,408.70
R & D expenses		97,647,657.57	84,350,255.40
Financial expenses		16,859,739.48	-5,263,527.90
Including: Interest expense		14,154,020.93	13,537,239.17
Interest income		4,431,325.55	12,388,093.76
Losses from asset impairment		20,600,867.58	26,197,662.78
Plus: gains from changes in fair value ("-" for losses)		10,190,505.23	11,713,174.75
Investment income ("-" for losses)		12,758,268.06	45,607,259.29
Including: income from investment in associates and joint ventures		-12,972,718.90	17,990,723.92
Fair gains from changes in fair value ("-" for losses)
Gains on disposal of assets		443,708.05	23,963,103.89
Foreign exchange gains ("-" for losses)
3. Operating profits ("-" for losses)		200,426,429.61	290,155,459.29
Plus: non-operating income		7,878,704.50	9,192,748.08
Less: non-operating expenses		4,065,654.49	3,766,348.69
4. Total profits ("-" for total losses)		204,239,479.62	295,581,858.68
Less: income tax expenses		45,789,835.67	82,928,869.66
5. Net profit ("-" for net loss)		158,449,643.95	212,652,989.02
(1) Classified by operating sustainability
a. Net profit from continuing operations ("-" for losses)		158,449,643.95	212,652,989.02
b. Net profit from discontinued operations ("-" for losses)
(2) Classified by ownership
a. Non-controlling interests		140,828,047.20	197,487,226.27
b. Net profit attributable to owners of the parent company		17,621,596.75	15,165,762.75
6. Net of tax of other comprehensive income		-3,215,557.02	36,930,889.17
Net of tax of other comprehensive income attributable to owners of the parent company		-3,537,641.51	30,980,593.25
(1) Other comprehensive income can't be reclassified to gains and losses later		-195,235.00	5,682,076.80
a. Changes in net liabilities or assets due to the remeasurement and redefinition of the benefit plan		-195,235.00	5,682,076.80
b. The shares in other comprehensive income of the investee that can't be reclassified to gains and losses under the equity method

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Item	Note	2018	2017
(2) Other comprehensive income to be reclassified to gains and losses later		-3,342,406.51	25,298,516.45
a. The shares in other comprehensive income of the investee that can be reclassified to gains and losses under the equity method
b. Gains and losses from changes in fair value of available-for-sale financial assets		-3,314,916.23	-18,259,294.75
c. Gains and losses from the reclassification of the held-to-maturity investment to held-for-sale financial assets
d. The effective portion of the gains and losses from cash flow hedging
e. Translation differences of financial statements		-27,490.28	43,557,811.20
f. Others
Net of tax of other comprehensive income attributable to non-controlling shareholders		322,084.49	5,950,295.92
7. Total comprehensive incomes		155,234,086.93	249,583,878.19
Total comprehensive income attributable to owners of the parent company		137,290,405.69	228,467,819.52
Total comprehensive income attributable to non-controlling shareholders		17,943,681.24	21,116,058.67
8. Earnings per share
(1) Basic earnings per share (yuan/share)		0.2567	0.3600
(2) Diluted earnings per share (yuan/share)		0.2567	0.3600

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

Shang Gong Group Co., Ltd.Statement of Comprehensive IncomesFrom 1

st

January 2018 to 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	Note	2018	2017
1. Operating income		367,960,667.27	207,618,193.06
Less: Operating cost		259,199,202.19	139,483,153.60
tax and surcharges		4,684,246.76	4,092,703.92
Selling expenses		46,138,151.55	24,026,800.66
General and Administration expenses		50,965,593.67	47,523,439.27
R & D expenses		4,057,999.93	145,292.60
Finance expenses		-4,544,544.30	-20,567,218.74
Including: Interest expense		684,673.61	343,483.78
Interest income		5,048,704.81	13,899,856.76
Impairment losses on assets		1,261,403.29	6,083,598.81
Plus: Other income		524,968.70	1,873,821.10
Investment income ("-" for losses)		27,172,011.05	30,708,465.14
Including: Investment income in associates and joint ventures
gains from changes in fair value ("-" for losses)
Gain on disposal of assets ("-" for losses)		-4,246.42	21,997,891.55
2. Operating profits ("-" for losses)		33,891,347.51	61,410,600.73
Plus: Non-operating income		3,419,360.11	1,196,634.66
Less: Non-operating expenses		763,346.00	256,782.69
3. Total profits ("-" for total losses)		36,547,361.62	62,350,452.70
Less: income tax expenses		3,648,384.55	-587,977.83
4. Net profit ("-" for net loss)		32,898,977.07	62,938,430.53
a. Net profit from continuing operations ("-" for losses)		32,898,977.07	62,938,430.53
b. Net profit from discontinued operations ("-" for losses)
5. Net of tax of other comprehensive income		-3,314,916.23	-18,259,294.75
Net of tax of other comprehensive income attributable to owners of the parent company
(1) Other comprehensive income can't be reclassified to gains and losses later

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Item	Note	2018	2017
a. Changes in net liabilities or assets due to the remeasurement and redefinition of the benefit plan
b. The shares in other comprehensive income of the investee that can't be reclassified to gains and losses under the equity method		-3,314,916.23	-18,259,294.75
(2) Other comprehensive income to be reclassified to gains and losses later
a. The shares in other comprehensive income of the investee that can be reclassified to gains and losses under the equity method		-3,314,916.23	-18,259,294.75
b. Gains and losses from changes in fair value of available-for-sale financial assets
c. Gains and losses from the reclassification of the held-to-maturity investment to held-for-sale financial assets
d. The effective portion of the gains and losses from cash flow hedging
e. Translation differences of financial statements
6. Total comprehensive incomes		29,584,060.84	44,679,135.78
7. Earnings per share
(1) Basic earnings per share (yuan/share)
(2) Diluted earnings per share (yuan/share)

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

Shang Gong Group Co., Ltd.Consolidated Statement of Cash FlowsFrom 1

st

January 2018 to 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	Note	2018	2017
1. Cash flows from operating activities:
Cash received from sale of goods and provision of services		3,236,145,513.33	3,164,760,853.53
Net increase in customer bank deposits and placement from banks and other financial institutions
Net increase in borrowings from central bank
Net increase in loans from other financial institutions
Premiums received from original insurance contracts
Net cash received from reinsurance business
Net increase in deposits and investments from policyholders
Net increase from disposal of financial assets at fair value whose fluctuation is attributed to profit or loss for current period
Cash received from interest, handling charges and commissions
Net increase in loans from banks and other financial institutions
Net capital increase in repurchase business
Refunds of taxes and surcharges		76,064,162.93	43,906,468.45
Cash received from other operating activities		52,723,527.37	50,445,946.85
Sub-total of cash inflows from operating activities		3,364,933,203.63	3,259,113,268.83
Cash paid for goods purchased and services received		2,123,866,868.13	2,017,747,474.86
Net increase in loans and advances to customers
Net increase in deposits in central bank and other banks and financial institutions
Cash paid for original insurance contract claims
Cash paid for interests, handling charges and commissions
Cash paid for policy dividends

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Item	Note	2018	2017
Cash paid to and on behalf of employees		723,853,477.52	658,533,406.62
Cash paid for taxes and surcharges		125,411,834.31	185,158,629.33
Cash paid for other operating activities		312,247,152.37	280,337,888.85
Sub-total of cash outflows from operating activities		3,285,379,332.33	3,141,777,399.66
Net cash flows from operating activities		79,553,871.30	117,335,869.17
2. Cash flows from investing activities:
Cash inflow from divestment		874,980,665.96	1,012,030,235.06
Cash inflow from investment incomes		12,600,885.09	16,326,012.85
Cash gain from disposal of fixed assets, intangible assets, and other long-term investment		848,621.30	36,421,255.81
Cash inflow from disposal of subsidiaries and other operating units
Cash received from other investing activities		393,810.60
Sub-total of cash inflows from investing activities		888,823,982.95	1,064,777,503.72
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets		225,273,247.86	158,264,625.96
Cash paid for investments		921,981,573.80	1,005,380,152.75
Net increase in pledge loans
Net cash paid to acquire subsidiaries and other business units		94,181,765.87	21,002,300.00
Cash paid for other investing activities
Sub-total of cash outflows from investing activities		1,241,436,587.53	1,184,647,078.71
Net cash flows from investing activities		-352,612,604.58	-119,869,574.99
3. Cash flows from financing activities
Cash received from investors
Including: cash received by subsidiaries from investments by non-controlling shareholders
Cash received from loans		624,144,720.00	224,230,000.00
Cash received from bonds issuance
Cash received from other financing activities			3,897,697.51
Sub-total of cash inflows from financing activities		624,144,720.00	228,127,697.51
Cash paid for debt repayments		487,840,810.20	273,539,464.00
Cash paid for distribution of dividends and profits or payment of interest		21,685,176.55	14,913,369.41
Including: dividends and profits paid to non-controlling shareholders by subsidiaries
Cash paid for other financing activities		1,165,827.50
Sub-total of cash outflows from financing activities		510,691,814.25	288,452,833.41
Net cash flows from financing activities		113,452,905.75	-60,325,135.90
4. Effect of fluctuation in exchange rate on cash and cash equivalents		4,033,729.47	26,314,632.54
5. Net increase in cash and cash equivalents		-155,572,098.06	-36,544,209.18
Plus: beginning balance of cash and cash equivalents		713,813,720.45	750,357,929.63
6. Ending balance of cash and cash equivalents		558,241,622.39	713,813,720.45

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

Shang Gong Group Co., Ltd.

Statement of Cash FlowsFrom 1

st

January 2018 to 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	Note	2018	2017
1. Cash flows from operating activities:
Cash received from sale of goods and provision of services		387,054,926.14	229,795,360.70
Refunds of taxes and surcharges		1,536,599.94
Cash received from other operating activities		78,486,350.81	63,397,907.63
Sub-total of cash inflows from operating activities		467,077,876.89	293,193,268.33

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	Shang Gong Group Co., Ltd

Cash paid for goods purchased and services received		282,896,673.53	156,824,506.55
Cash paid to and on behalf of employees		51,443,489.27	36,908,166.30
Cash paid for taxes and surcharges		7,870,185.99	7,411,003.59
Cash paid for other operating activities		159,293,598.74	117,490,277.69
Sub-total of cash outflows from operating activities		501,503,947.53	318,633,954.13
Net cash flows from operating activities		-34,426,070.64	-25,440,685.80
2. Cash flows from investing activities:
Cash inflow from divestment		865,342,851.82	932,849,014.15
Cash inflow from investment incomes		14,210,229.53	21,090,100.93
Cash gain from disposal of fixed assets, intangible assets, and other long-term investment		32,017.27	23,855,652.27
Cash inflow from disposal of subsidiaries and other operating units
Cash received from other investing activities
Sub-total of cash inflows from investing activities		879,585,098.62	977,794,767.35
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets		3,101,244.10	4,925,918.01
Cash paid for investments		862,354,965.00	929,584,425.75
Net cash paid to acquire subsidiaries and other business units
Cash paid for other investing activities
Sub-total of cash outflows from investing activities		865,456,209.10	934,510,343.76
Net cash flows from investing activities		14,128,889.52	43,284,423.59
3. Cash flows from financing activities
Cash received from investors
Cash received from loans		9,000,000.00
Cash received from bonds issuance
Cash received from other financing activities
Sub-total of cash inflows from financing activities		9,000,000.00
Cash paid for debt repayments
Cash paid for distribution of dividends and profits or payment of interest		41,325.00
Cash paid for other financing activities
Sub-total of cash outflows from financing activities		41,325.00
Net cash flows from financing activities		8,958,675.00
4. Effect of fluctuation in exchange rate on cash and cash equivalents		-432,249.75	-25,815.69
5. Net increase in cash and cash equivalents		-11,770,755.87	17,817,922.10
Plus: beginning balance of cash and cash equivalents		137,028,156.51	119,210,234.41
6. Ending balance of cash and cash equivalents		125,257,400.64	137,028,156.51

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Shang Gong Group Co., Ltd.Consolidated Statement of Changes in EquityFrom 1

st

January 2018 to 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	2018
	Owners' equity attributable to the parent company											Minority equity	Total owners' equity
	Share capital	Other equity instruments			Capital reserves	Less: treasury stock	Other comprehensive income	Special reserves	Surplus reserves	General risk reserves	Undistributed profits
		Preference shares	Perpetual bonds	Others
1. Previous year ending balance brought forward	548,589,600.00				972,000,595.56		-72,163,452.90		4,546,242.52		692,241,691.51	311,216,783.45	2,456,431,460.14
Plus: accounting policy changes
Correction of previous-period accounting errors
Business combination involving entities under common control
Others
2. Beginning balance of current year	548,589,600.00				972,000,595.56		-72,163,452.90		4,546,242.52		692,241,691.51	311,216,783.45	2,456,431,460.14
3. Increase/ (decrease) for the current year ("-" for losses)					-55,785,147.32		-3,537,641.51				126,966,362.20	-12,119,365.90	55,524,207.47
(1) Total comprehensive incomes							-3,537,641.51				140,828,047.20	17,943,681.24	155,234,086.93
(2) Investment/ (divestment)					-55,785,147.32						-13,861,685.00	-30,063,047.14	-99,709,879.46
a. Common shares from shareholders
b. Investment capital from the holders of other equity instruments
c. Amount of the share-based payment included in the owners' equity
d. Others					-55,785,147.32						-13,861,685.00	-30,063,047.14	-99,709,879.46
(3) Distribution of profits
a. Surplus reserves
b. General risk reserves
c. Distribution to owners or shareholders
d. Others
(4) Internal transfer of owners' equity
a. Capital reserve turn to stock

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	Shang Gong Group Co., Ltd

equity
b. Surplus reserve turn to stock equity
c. Surplus reserve to recover loss
d. Defined benefit plans change amount to carry forward retained earnings
e. Others
(5) Special reserves
a. Appropriation for current year
b. Use in current year
(6) Others
4. Ending balance of the current year	548,589,600.00				916,215,448.24		-75,701,094.41		4,546,242.52		819,208,053.71	299,097,417.55	2,511,955,667.61

Item	2017
	Owners' equity attributable to the parent company											Minority equity	Total owners' equity
	Share capital	Other equity instruments			Capital reserves	Less: treasury stock	Other comprehensive income	Special reserves	Surplus reserves	General risk reserves	Undistributed profits
		Preference shares	Perpetual bonds	Others
1. Previous year ending balance brought forward	548,589,600.00				971,603,120.27		-103,144,046.15		4,546,242.52		494,754,465.24	291,984,568.18	2,208,333,950.06
Plus: accounting policy changes
Correction of previous-period accounting errors
Business combination involving entities under common control
Others
2. Beginning balance of current year	548,589,600.00				971,603,120.27		-103,144,046.15		4,546,242.52		494,754,465.24	291,984,568.18	2,208,333,950.06
3. Increase/ (decrease) for the current year ("-" for losses)					397,475.29		30,980,593.25				197,487,226.27	19,232,215.27	248,097,510.08
(1) Total comprehensive incomes							30,980,593.25				197,487,226.27	21,116,058.67	249,583,878.19
(2) Investment/ (divestment)					397,475.29								397,475.29
a. Common shares from shareholders
b. Investment capital from the holders of other equity instruments

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	Shang Gong Group Co., Ltd

c. Amount of the share-based payment included in the owners' equity
d. Others					397,475.29								397,475.29
(3) Distribution of profits												-1,883,843.40	-1,883,843.40
a. Surplus reserves
b. General risk reserves
c. Distribution to owners or shareholders												-1,883,843.40	-1,883,843.40
d. Others
(4) Internal transfer of owners' equity
a. Capital reserve turn to stock equity
b. Surplus reserve turn to stock equity
c. Surplus reserve to recover loss
d. Defined benefit plans change amount to carry forward retained earnings
e. Others
(5) Special reserves
a. Appropriation for current year
b. Use in current year
(6) Others
4. Ending balance of the current year	548,589,600.00				972,000,595.56		-72,163,452.90		4,546,242.52		692,241,691.51	311,216,783.45	2,456,431,460.14

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

Shang Gong Group Co., Ltd.Statement of Changes in EquityFrom 1

st

January 2018 to 31

st

December 2018

Unit: Yuan, Currency: RMB

Item	2018
	Share capital	Other equity instruments			Capital reserves	Less: treasury stock	Other comprehensive income	Special reserves	Surplus reserves	Undistributed profits	Total owners' equity
		Preference shares	Perpetual bonds	Others
1. Previous year ending balance brought forward	548,589,600.00				1,003,282,687.73		15,711,472.03		4,546,242.52	-143,892,809.85	1,428,237,192.43
Plus: accounting policy changes

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Correction of previous-period accounting errors
Others
2. Beginning balance of current year	548,589,600.00				1,003,282,687.73		15,711,472.03		4,546,242.52	-143,892,809.85	1,428,237,192.43
3. Increase/(decrease) for the current year ("-" for losses)							-3,314,916.23			32,898,977.07	29,584,060.84
(1) Total comprehensive incomes							-3,314,916.23			32,898,977.07	29,584,060.84
(2) Investment/ (divestment)
a. Common shares from shareholders
b. Investment capital from the holders of other equity instruments
c. Amount of the share-based payment included in the owners' equity
d. Others
(3) Distribution of profits
a. Surplus reserves
b. Distribution to owners or shareholders
c. Others
(4) Internal transfer of owners' equity
a. Capital reserve turn to stock equity
b. Surplus reserve turn to stock equity
c. Surplus reserve to recover loss
d. Defined benefit plans change amount to carry forward retained earnings
e. Others
(5) Special reserves
a. Appropriation for current year
b. Use in current year
(6) Others
4. Ending balance of the current year	548,589,600.00				1,003,282,687.73		12,396,555.80		4,546,242.52	-110,993,832.78	1,457,821,253.27

Item	2017
	Share capital	Other equity instruments			Capital reserves	Less: treasury stock	Other comprehensive income	Special reserves	Surplus reserves	Undistributed profits	Total owners' equity
		Preference shares	Perpetual bonds	Others
1. Previous year ending balance brought forward	548,589,600.00				1,003,282,687.73		33,970,766.78		4,546,242.52	-206,831,240.38	1,383,558,056.65
Plus: accounting policy changes
Correction of previous-period accounting errors
Others

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

2. Beginning balance of current year	548,589,600.00				1,003,282,687.73		33,970,766.78		4,546,242.52	-206,831,240.38	1,383,558,056.65
3. Increase/(decrease) for the current year ("-" for losses)							-18,259,294.75			62,938,430.53	44,679,135.78
(1) Total comprehensive incomes							-18,259,294.75			62,938,430.53	44,679,135.78
(2) Investment/ (divestment)
a. Common shares from shareholders
b. Investment capital from the holders of other equity instruments
c. Amount of the share-based payment included in the owners' equity
d. Others
(3) Distribution of profits
a. Surplus reserves
b. Distribution to owners or shareholders
c. Others
(4) Internal transfer of owners' equity
a. Capital reserve turn to stock equity
b. Surplus reserve turn to stock equity
c. Surplus reserve to recover loss
d. Defined benefit plans change amount to carry forward retained earnings
e. Others
(5) Special reserves
a. Appropriation for current year
b. Use in current year
(6) Others
4. Ending balance of the current year	548,589,600.00				1,003,282,687.73		15,711,472.03		4,546,242.52	-143,892,809.85	1,428,237,192.43

Legal representative: Zhang Min Financial director: Zhang Jianrong Financial manager: Zhao Lixin

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

3. Company basic information

1) Company profileShang Gong Group Co., Ltd.( hereinafter referred to as "Company" or "the Company"), a joint stocklimited company with publicly issued A & B shares on the Shanghai Stock Exchange, is the first listedcompany in the sewing machinery industry of China. The Company was incorporated in April 1994. Theregistration number has changed to 91310000132210544K (Unified social credit code) in 2016. Theorganizational form of the Company is a joint stock limited company (a Sino-foreign joint venture and a listedcompany) and the registered capital amounts to 548,589,600.00 yuan. The registered address is Room A-D,12th Floor, Orient Mansion, No. 1500, Century Avenue, China (Shanghai) Pilot Free Trade Zone and the headoffice is located in No. 1566 New Jinqiao Road, Pudong New Area, Shanghai. The legal representative is Mr.Zhang Min.

On 22

nd

May 2006, it was decided on the General Meeting on equity division reform by the Company that:

the non-tradable equity stockholders pay partially their shares to all the tradable equity shareholders at a ratioof 10 to 6 as consideration of getting tradable rights. After the above consideration of share donation, the totalnumber of shares remains unchanged, but consequently the equity structure has changed. As at 31

st

December2013, there were 448,886,777 shares in total.

On 28

th

February 2014, CSRC approved the non-public offering of A shares of the Company under theOfficial Reply to the Approval of Non-public Offering of Shares of Shang Gong Group Co., Ltd. ([2014] No.237). The number of shares issued was 99,702,823.00 and the total number of share capital after the issue was548,589,600.00. The Company handled equity registration and escrow formalities with the CSDC ShanghaiBranch; the corresponding registered capital was changed to RMB 548,589,600.00 yuan and had been verifiedby the Verification Report (PCPAR [2014] No.111126) issued by BDO CHINA Shu Lun Pan Certified PublicAccountants LLP on 26

th

March 2014.On 29

th

December 2016, Pudong SASAC, the original controlling shareholder and actual controller of theCompany, had sold 60.00 million A shares of the Company to Shanghai Puke Flyman Investment Co., Ltd.which is the wholly-owned subsidiary of Shanghai Pudong Science and Technology Investment Co., Ltd.China Securities Depository and Clearing Co., Ltd. has issued a "transfer registration confirmation" on thesame day.

After the transfer, PKFR held A shares accounted for 10.94% of the total share capital of the Company,which is the largest shareholder of the Company; Pudong SASAC held A shares accounted for 8.27%, which isthe second largest shareholder of the Company. After the completion of the equity transfer, the Company haschanged to a listed company with no controlling shareholder and no actual controller.

As of 31

st

December 2018, the Company¡¯s total share capital was 548,589,600.00, including 548,589,600shares with no restrictive terms, accounting for 100.00% of the total number of shares.

The Company belongs to special equipment manufacturing industry; main operating activities of theCompany are: production and sales of sewing equipment.

According to the resolution of the 11

th

meeting of the 8

th

board of directors, the financial statements wereapproved for disclosure by all directors of the Company on 12

th

April 2019.2) Scope of the consolidated financial statementsAs of 31

st

December 2018, the subsidiaries within the consolidated financial statements of the Companyare as follows:

Name of subsidiary

1. Shanghai Shanggong & Butterfly Sewing Machine Co., Ltd.

2. DAP (Shanghai) Co., Ltd.

3. Shanghai SMPIC IMPORT & EXPORT CO., LTD.

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	Shang Gong Group Co., Ltd

4. Shanghai SGSB Electronics Co., Ltd.

5. Shanghai SGSB Asset Management Co., Ltd.

6. Shanghai Sewing Construction Property Co., Ltd.

7. D¨¹rkopp Adler Aktiengesellschaft£¨Note 2£©

8.Zhejiang ShangGong GEMSY Co., Ltd.

9.Shanghai Shensy Enterprise Development Co., Ltd.

10.Shanghai ShangGong Financial Leasing Co., Ltd.

11. PFAFF Industrial Sewing Machine (Zhangjiagang) Co., Ltd.

12.DAP (Vietnam) Co., Ltd.

13.ShangGong Sewing Equipment (Zhejiang) Co., Ltd.

14.D¨¹rkopp Adler Manufacturing(Shanghai) Co.,Ltd.

15.Tianjin Richpeace£¨Note 1£©

Note 1: The company's subsidiary DAP Trading (Shanghai) Co., Ltd. was renamed as DAP Industrial(Shanghai) Co., Ltd. in January 2019, and its subsidiary T Tianjin Richpeace was renamed as TianjinRichpeace Computer & Machinery Co.,Ltd in February 2019.

Note 2: DAP Industrial Co., Ltd., a subsidiary of the Company, absorbed the D¨¹rkopp AdlerAktiengesellschaft, a third-tier subsidiary of the Company in 2018 and changed its name to D¨¹rkopp AdlerAktiengesellschaft.

See ¨DNote 8 Changes in the scope of consolidation" and ¨DNote 9 Equity in other subjects" for details ofthe scope of consolidated financial statements in the current year and the changes thereof.

4. Preparation basis of financial statements

1) Preparation basis of financial statements

The Company prepares the financial statements based on going concern, according to the transactions andevents actually occurred and in accordance with the Accounting Standards for Business Enterprises ¨C BasicStandard and various specific accounting standards, application guidance and interpretations for accountingstandards for business enterprises and other relevant provisions (hereinafter collectively referred to as¨DAccounting Standards for Business Enterprises¡¬) promulgated by the Ministry of Finance and disclosureprovisions of the Rules for the Information Disclosure and Compilation of Companies Publicly IssuingSecurities No. 15 ¨C General Rules on Financial Reports of the China Securities Regulatory Commission.

2) Going concern

The Company has going-concern ability within 12 months as of the end of the report period and has nomatters or situations that may lead to serious doubts about the Company¡¯s going-concern ability.

5. Principal accounting policies and accounting estimates

Specific accounting policies and accounting estimates:

The following disclosure has covered the Company¡¯s specific accounting policies and accountingestimates prepared according to the actual production and operation characteristics.

1) Statement on compliance with Accounting Standards for Business Enterprises

The financial statements prepared by the Company meet the requirements of the Accounting Standards forBusiness Enterprises and truly and completely reflect the Company¡¯s financial position, operating results, cashflows and other related information in the report period.

2) Accounting period

The accounting year is from 1

st

Januaryto 31

st

December in calendar year.

3) Operating cycle

The Company¡¯s operating cycle is 12 months.

4) Functional currency

The Company adopts RMB as its functional currency.

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	Shang Gong Group Co., Ltd

5) Accounting treatment methods of business combinations under common control and not undercommon control

Business combinations under common control: Assets and liabilities acquired from business combinationsby the Company are measured at book value of assets and liabilities (including goodwill formed from thepurchase of the cquire by the ultimate controller) in the consolidated financial statements of the ultimatecontroller. Stock premium in the capital reserve should be adjusted according to the difference between thebook value of net asset acquired from the combinations and that of consideration (or total face value of theshares issued) paid. In case the stock premium in the capital reserve is not enough, the retained earnings needto be adjusted.

Business combinations not under common control: Assets paid for consideration and liabilities incurred orborne by the Company on the acquisition date shall be measured at their fair values. The difference betweenthe fair value and the book value should be included in the current profit and loss. The Company shallrecognize the difference of the combination costs in excess of the fair value of the identifiable net assetsacquired from the cquire as goodwill. The Company shall include the difference of the combination costs inshort of the fair value of the identifiable net assets acquired from the cquire in the current profit and loss afterreview.

Intermediary service charges such as audit fee, legal service fee, appraisal and consultancy fee paid forbusiness combinations and other directly relevant expenses are included in the current profit and loss whenincurred; the transaction costs for the issuance of equity securities shall be used to offset equities.

6) Preparation methods of consolidated financial statements

1. Scope of consolidation

The scope of consolidation of the Company¡¯s consolidated financial statements is recognized based on thecontrol. All subsidiaries (including the divisible part of the investee controlled by the Company) should beincluded in the consolidated financial statements.

2. Consolidation procedure

The Company prepares consolidated financial statements based on its own financial statements andfinancial statements of its subsidiaries according to other relevant materials. When the Company prepares itsconsolidated financial statements, it shall regard the whole enterprise group as an accounting entity to reflectthe overall financial position, operating results and cash flows of the enterprise group according to therequirements for recognition, measurement and presentation of the relevant Accounting Standards for BusinessEnterprises and the uniform accounting policies.

Accounting policies and accounting periods adopted by all subsidiaries included in the consolidationscope of the consolidated financial statements should be consistent with those of the Company. If accountingpolicies and accounting periods adopted by all subsidiaries are inconsistent with those of the Company, in thepreparation of the consolidated financial statements, necessary adjustments shall be made according to theaccounting policies and accounting periods of the Company. For the subsidiaries acquired through businesscombination not under common control, adjustments to their financial statements shall be made based on thefair values of net identifiable assets on the acquisition date. For the subsidiaries acquired through businesscombination not under common control, adjustments to their financial statements shall be made based on thefair values of their assets and liabilities (including goodwill from acquisition of the subsidiaries by the ultimatecontroller) in the financial statements of the ultimate controller.

The share of owner¡¯s equity, net profits and losses in the current year and comprehensive income in thecurrent year of subsidiaries attributable to minority shareholders should separately presented under the item ofowner¡¯s equity of the Consolidated Balance Sheet, the item of net profit of the Consolidated Income Statementand the item of total comprehensive income. The difference formed by the loss in the current year shared by

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

minority shareholders of the subsidiaries in excess of the share of minority shareholders in the owner¡¯s equityat the beginning of the year of the subsidiaries should be used to offset the minority equity.

£¨1£©Increase in subsidiaries or businessIn the report period, if the Company increased subsidiaries or business from business combinations undercommon control, then the beginning amount of the Consolidated Balance Sheet should be adjusted; theincomes, expenses and profits from the combinations of the subsidiaries and business from the beginning ofthe current year to the end of the reporting period shall be included in the Consolidated Income Statement;cash flows from the combinations of the subsidiaries and business from the beginning of the current year to theend of the reporting period shall be included in the Consolidated Cash Flow Statement. At the same time, theCompany should adjust the relevant items of the comparative statements and deem that the reporting entityalready exists when the ultimate controller starts its control.

Where the Company can control the investee under common control from additional investments, itshould deem that parties involved in the combination have make adjustments at the current state when theultimate controller starts its control. Equity investments held before the Company controls the cquire, therelevant profit and loss recognized during the period from the later of the date when the Company obtains theoriginal equity and the date when the acquirer and the cquire are under common control, othercomprehensive income and changes in other net assets shall be used to offset the retained earnings at thebeginning of the year or the current profit and loss in the period of the comparative statements.

In the report period, if the Company increased subsidiaries or business from business combinations notunder common control, then the beginning amount of the Consolidated Balance Sheet should not be adjusted;the incomes, expenses and profits from the subsidiaries and business from the acquisition date to the end of thereport period shall be included in the Consolidated Income Statement; cash flows from the subsidiaries andbusiness from the acquisition date to the end of the reporting period shall be included in the Consolidated CashFlow Statement.

Where the Company can control the investee not under common control from additional investments, itshall re-measure equity of the cquire held before the acquisition date at the fair value of such equity on theacquisition date and include the difference of the fair value and book value in the investment income in thecurrent year. Where equity of the cquire held before the acquisition date involves in other comprehensiveincome accounted for under equity method and other changes in owner¡¯s equity other than net profit and loss,other comprehensive income and profit distribution, the relevant other comprehensive income and otherchanges in owner¡¯s equity shall be transferred to investment income in the current year which the acquisitiondate falls in, except for other comprehensive income from changes arising from re-measurement of netliabilities or net assets of defined benefit plan.

£¨2£©Disposal of subsidiaries or business

¢ÙGeneral treatment methods

In the reporting period, if the Company disposed subsidiaries or business, then the incomes, expenses andprofits from the subsidiaries and business from the beginning of the year to the disposal date shall be includedin the Consolidated Income Statement; cash flows from the combinations of the subsidiaries and business fromthe beginning of the year to the disposal date shall be included in the Consolidated Cash Flow Statement.

When the Company losses the control over the original subsidiary due to disposal of partial equityinvestments or other reasons, the remaining equity investments after the disposal will be re-measured at thefair value at the date of loss of the control. The difference of total amount of the consideration from disposal ofequities plus the fair value of the remaining equities less the shares calculated at the original shareholding ratioin net assets of the original subsidiary which are continuously calculated as of the acquisition date is includedin the investment income of the period at the loss of control. Other comprehensive income associated with the

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	Shang Gong Group Co., Ltd

original equity investments of the subsidiary and other changes in owner¡¯s equity other than net profit and loss,other comprehensive income and profit distribution are transferred into investment income in the current yearwhen the control is lost, except for other comprehensive income from changes arising from re-measurement ofnet liabilities or net assets of defined benefit plan.

If other investors increase their shareholdings due to the increase in capital of their subsidiaries and losecontrol, they shall be accounted for in accordance with the above principles.

¢ÚDisposal of subsidiary by stages

Where the Company disposes the equity investments in subsidiary through multiple transactions and bystages until it loses the control, if the effect of the disposal on the terms and conditions of all transactions ofequity investments in subsidiary and economic effect meet one or more of the following circumstance, itusually indicates that the multiple transactions should be accounted for as a package deal:

i. These transactions are concluded at the same time or under the consideration of mutual effect;

ii. These transactions as a whole can reach a complete business results;

iii. The occurrence of a transaction depends on the occurrence of at least one other transaction;

¢¤. A single transaction is uneconomical but it is economical when considered together with othertransactions.

Where various transactions of disposal of equity investments in subsidiaries until loss of the controlbelong to a package deal, accounting treatment shall be made by the Company on the transactions as atransaction to dispose subsidiaries and lose the control; however, the difference between each disposal cost andnet asset share in the subsidiaries corresponding to each disposal of investments before loss of the controlshould be recognized as other comprehensive income in the consolidated financial statements and should betransferred into the current profit or loss at the loss of the control.

Where various transactions of disposal of equity investments in subsidiaries until loss of the control donot belong to a package deal, before the loss of the control, accounting treatment shall be made according tothe relevant policies for partial disposal of equity investments in the subsidiary without losing control; at theloss of the control, accounting treatment shall be made according to general treatment methods for disposal ofsubsidiaries.

£¨3£©Purchase of minority interest of subsidiaries

The difference between long-term equity investments newly acquired by the Company through purchaseof minority interest and the subsidiary¡¯s identifiable net assets attributable to the Company calculatedcontinuously from the acquisition date (or the combination date) in accordance with the newly increasedshareholding ratio shall be charged against stock premium within capital reserves in the consolidated balancesheet; when stock premium within capital reserves is insufficient to offset, the retained earnings shall beadjusted.

£¨4£©Partial disposal of equity investments in the subsidiary without losing control

The difference between the proceeds from partial disposal of equity investments in the subsidiary and theshare of identifiable net assets of the subsidiary attributable to the Company which are calculated continuouslyfrom the acquisition date (or the combination date) and which are corresponding to the disposal of long-termequity investments without losing control shall be charged against stock premium within capital reserves in theconsolidated balance sheet; when stock premium within capital reserves is insufficient to offset, the retainedearnings shall be adjusted.

7) Classification of joint venture arrangements and accounting methods for joint operation

Not applicable.

8) Determination of cash and cash equivalents

Cash equivalents refer to short-term (usually due within three months from the date of purchase), highly

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	Shang Gong Group Co., Ltd

liquid investments that are readily convertible into known amounts of cash and which are subject to aninsignificant risk of changes in value.

9) Foreign currency transactions and translation of foreign currency statements1. Foreign currency transactionsForeign currency transactions are, on initial recognition, translated to RMB at the spot exchange rates atthe dates of the transactions.

The balance of foreign currency monetary items is adjusted and translated into functional currency atbalance sheet date using the spot exchange rate. Regarding the year-end differences of translation in foreigncurrency, except those special borrowing accounts under the acquisition, building or production of assets to becapitalized are capitalized and accounted into related assets cost, all the other differences are accounted intocurrent profits and losses. The foreign currency non-monetary items at historical cost are translated using thespot exchange rate. And the foreign currency non-monetary items at fair value are adjusted and translated intomeasurement currency at adoption date of fair value using the spot exchange rate. The difference of translationbetween different currencies is accounted into current profits and losses or capital reserves.

2. Translation of foreign currency statements

The assets and liabilities of foreign operation are translated to RMB at the spot exchange rate at thebalance sheet date. The equity items, excluding ¨DRetained earning¡¬, are translated to RMB at the spotexchange rates at the transaction dates. The income and expenses of foreign operation are translated to RMB atthe spot exchange rates or the rates that approximate the spot exchange rates at the transaction dates. Theresulting exchange differences are recognized in a separate component of equity.

Upon entire/partial disposal of a foreign operation, the entire/partial cumulative amount of the exchangedifferences recognized in equity which relates to that foreign operation is transferred to profit or loss in theperiod in which the disposal occurs.

10) Financial instruments

Financial instruments include financial assets, financial liabilities and equity instruments.

1. Classification of financial instruments

At the initial recognition, financial assets and financial liabilities are classified as: financial assets orfinancial liabilities measured at fair value through current profit and loss, including financial assets or financialliabilities held for trading, and financial assets or financial liabilities that are directly to be measured at fairvalue through current profit and loss, held-to-maturity investments, accounts receivable, available-for-salefinancial assets and other financial liabilities, etc.

2. Recognition basis and measurement method of financial instruments

(1) Financial assets (financial liabilities) measured at fair value through current profit and loss

Financial assets (financial liabilities) are initially recorded at fair values when acquired (deducting cashdividends that have been declared but not distributed and bond interest that has matured but not been drawn).Relevant transaction expenses are included in the current profit and loss.

The interest or cash dividends to be received during the holding period are recognized as investmentincome. Change in fair values is included in the current profit and loss at the end of the period.

Upon the disposal, difference between the fair value and the initial book-entry value is recognized asinvestment income; meanwhile, adjustment is made to gains or losses from changes in fair values.

(2) Held-to-maturity investments

Held-to-maturity investments are initially recorded at the sum of fair values (less the bond interest thathas matured but not been drawn) and relevant transaction expenses when acquired.

During the period of holding the investment, the interest income is calculated and recognized according tothe amortized costs and effective interest rate, and included in the investment income. The effective interest

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	Shang Gong Group Co., Ltd

rates are determined upon acquisition and remain unchanged during the expected remaining period, or ashorter period if applicable.

Difference between the proceeds and the book value of the investment is recognized as investmentincome upon disposal.

(3) Receivables

For creditor¡¯s rights receivable arising from external sales of goods or rendering of service by theCompany and creditor¡¯s rights of other enterprises (excluding creditor¡¯s right quoted in the active market) heldby the Company, including accounts receivable, other receivables, the initial recognition amount shall be thecontract price or agreement price receivable from the purchasing party; for those with financing nature, theyare initially recognized at their present values.

The difference between the amount received and the book value of accounts receivable is included in thecurrent profit and loss upon the recovery or disposal.

(4) Available-for-sale financial assets

Available-for-sale financial assets are initially recorded at the sum of fair values (deducting cashdividends that have been declared but not distributed and bond interest that have matured but not been drawn)and relevant transaction costs when acquired.

The interest or cash dividends to be received during the holding period is or are recognized as investmentincome. Available-for-sale financial assets are measured at fair value at the end of the year and the changes infair value are included in other comprehensive income. However, equity instrument investments that have noquoted price in the active market and of which fair values cannot be measured reliably and derivative financialassets that relate to such equity instruments and that shall be settled through the delivery of such equityinstruments shall be measured at cost.

Difference between the proceeds and the book value of the financial assets is recognized as investmentincome upon disposal; meanwhile, amount of disposal corresponding to the accumulated change in fair valuewhich is originally and directly included in other comprehensive income shall be transferred out andrecognized as the current profit and loss.

(5) Other financial liabilities

Other financial liabilities are initially recognized at fair values plus related transaction costs. Thesubsequent measurement is based on amortized costs.

3. Recognition and measurement of transfer of financial assets

Upon occurrence of transfer of a financial asset, the Company shall de-recognize the transfer of thefinancial asset if nearly all the risks and rewards associated with the ownership of the financial assets havebeen transferred to the transferee; and shall not de-recognize the transfer of the financial asset if nearly all therisks and rewards associated with the ownership of the financial assets are retained.

The principle of substance over form is adopted to determine whether a financial asset meets the abovede-recognition conditions for the financial asset. The transfer of a financial asset of the Company is classifiedinto the entire transfer and the partial transfer of financial asset. If the entire transfer of financial asset satisfiesthe criteria for de-recognition, the difference between the amounts of the following two items shall be includedin the current profit and loss:

(1) The book value of the transferred financial asset;

(2) The sum of the consideration received from the transfer and the accumulated amount of the changes infair value originally and directly included in shareholders¡¯ equity (the situation where the financial assettransferred is an available-for-sale financial asset is involved in).

If the partial transfer of financial asset satisfies the criteria for de-recognition, the entire book value of thetransferred financial asset shall be split into the derecognized part and recognized part according to their

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respective fair value and the difference between the amounts of the following two items shall be included incurrent profit and loss:

(1) The book value of derecognized part;(2) The sum of the consideration for the derecognized part and the portion of de-recognitioncorresponding to the accumulated amount of the changes in fair value originally and directly included inowners¡¯ equity (the situation where the financial asset transferred is an available-for-sale financial asset isinvolved in).

If the transfer of financial assets does not meet the de-recognition criteria, the financial assets shallcontinue to be recognized and the consideration received will be recognized as a financial liability.

4. Derecognition criteria of financial liabilities

A financial liability shall be wholly or partly derecognized if its present obligations are wholly or partlydissolved. Where the Company enters into an agreement with a creditor so as to substitute the existingfinancial liabilities with any new financial liability, and the new financial liability is substantially differentfrom the contractual stipulations regarding the existing financial liability, it shall derecognize the existingfinancial liability, and shall at the same time recognize new financial liability.

Where substantial revisions are made to some or all of the contractual stipulations of the existing financialliability, the Company shall derecognize the existing financial liability wholly or partly, and at the same timerecognize the financial liability with revised contractual stipulations as a new financial liability.

Upon whole or partial derecognition of financial liabilities, the difference between the book value of thefinancial liabilities derecognized and the consideration paid (including non-cash assets surrendered or newfinancial liabilities assumed) shall be included in the current profit and loss.

Where the Company redeems part of its financial liabilities, it shall, on the redemption date, allocate theentire book value of financial liabilities according to the comparative fair value of the part that continues to berecognized and de-recognized part. The difference between the book value allocated to the derecognized partand the considerations paid (including non-cash assets surrendered and the new financial liabilities assumed)shall be included in the current profit and loss.

5. Determination method of fair value of financial assets and financial liabilities

Where there is an active market for financial instruments, the fair values shall be determined according toquoted prices in active markets. Where there is no active market, the fair values shall be determined usingreasonable valuation techniques. At the time of valuation, the Company adopted valuation techniquesapplicable in the current situation and supported by enough available data and other information, select inputvalues consistent with the features of assets or liabilities considered by market participants in the transactionrelated to the assets or liabilities, and give priority to using the relevant observable input values. Only when itis unable or impracticable to obtain the relevant observable input values, unobservable input values can beused.

6. Test method and accounting treatment of depreciation of financial assets (excluding receivables)

Except for the financial assets measured at fair values through current profit and loss, the book value offinancial assets on the balance sheet date should be checked. If there is objective evidence that a financial assetis impaired, provision for impairment shall be made.

£¨1£©Provision for impairment of available-for-sale financial assets:

If the fair value of available-for-sale financial assets has significantly declined at the end of the period, orit is expected that the trend of decrease in value is non-temporary after considering of various relevant factors,the impairment shall be recognized, and accumulated losses from decreases in fair value originally and directlyincluded in owners¡¯ equity shall be all transferred out and recognized as impairment loss.

For available-for-sale debt instruments whose impairment losses have been recognized, if their fair values

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	Shang Gong Group Co., Ltd

rise in the subsequent accounting period and such rise is objectively related to the matters occurring after therecognition of impairment loss, the previously recognized impairment loss shall be reversed and recorded intothe current profit and loss.

Impairment losses on available-for-sale equity instruments should not be reversed through profit and loss.Criteria of the Company for ¨Dserious¡¬ decline of fair value of investments in available-for-sale equityinstruments: In general, for highly liquid equity investments that are actively traded in the market, over 50% ofthe decline is considered to be a serious fall. Criteria for ¨Dnon-temporary¡¬ decline of fair value: In general, if acontinuous decline lasts for more than six months, it is considered as ¨Dnon-temporary decline.¡¬

£¨2£©Provision for impairment of held-to-maturity investments:

Measurement of provision for impairment loss on held-to-maturity investments is treated in accordancewith the measurement method of impairment loss on accounts receivable.

11) Receivables1. Receivables that are individually significant but with provision for bad debts made on an individualbasis

Assessment basis or standard of amount individually significant

Top five biggest balance accounts.

Method of provision for bad debts of receivables individually significant

An impairment test shall be separately made. Provision for bad debts shall be accrued based on the difference between the present value of estimated future cash flow and its book value. And it shall be recorded into the current profit and loss. If the difference between expected future cash flow of short-term receivables and its present value is very small, it does not discount its expected future cash flows when determining the relevant impairment losses.

2. Provision for bad debts of receivables made on credit risk characteristics portfolio basis

Methods of provision for bad debts made on credit risk characteristics portfolio basis
Portfolio1	Balances of receivables other than accounts receivable subject to provisions for bad debts on an individual basis and other receivables
Portfolio2	Amount due from government agencies and institutions
Portfolio3	Security deposit
Portfolio4	Employee reserve and employee collection and payment
Portfolio5	Balances of receivables other than accounts receivable subject to provisions for bad debts on an individual basis and other receivables

Provision for bad debts made at aging analysis method in the portfolio:

Aging	Proportion of Provision for Accounts Receivable (%)	Proportion of Provision for Other Receivables (%)
Within 1 year (including 1 year)	5	5
1 to 2 years	20	20
2 to 3 years	50	50
Over 3 years	100	100

The receivables of the overseas subsidiaries of the Company were all tested separately and provision forbad debts was made separately.

3. Receivables that are individually insignificant but with provision for bad debts made on an individualbasis

Reason for bad debt provision provided on an individual basis	Receivables of a particular object
Method of provision for bad debts	An impairment test shall be separately made. If there is objective evidence that it has been impaired, provision for bad debts is made based on the difference between the present value of expected future cash flows and its book value, which is included in the current profit or loss.

12) Inventories1. Classification of inventoriesInventories are classified into Materials in transit, raw materials, revolving materials, stock commodities,goods in progress, dispatched goods, material procurement, consigned processing materials, labor cost andothers.

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2. Measurement method of dispatched inventoriesInventories are measured with weighted average method when dispatched. The percentage matchesmethod of the labor cost and labor revenue. One-off amortization method is adopted for low-cost consumableswhen they are consumed.

3. Recognition basis for net realizable values of inventories of different categoriesIn normal operation process, for merchandise inventories for direct sale, including finished goods, stockcommodities and materials for sale, their net realizable values are determined at the estimated selling pricesminus the estimated selling expenses and relevant taxes and surcharges; in normal operation process, formaterial inventories that need further processing, their net realizable values are determined at the estimatedselling prices of finished goods minus estimated costs to completion, estimated selling expenses and relevanttaxes and surcharges; for inventories held to execute sales contract or service contract, their net realizablevalues are calculated on the basis of contract price. If the quantities of inventories specified in sales contractsare less than the quantities held by the Company, the net realizable value of the excess portion of inventoriesshall be based on general selling prices.

At the end of the period, provisions for inventory depreciation reserve are made on an individual basis.For inventories with large quantity and low unit price, the provisions for inventory depreciation reserve aremade on a category basis. For inventories related to the product portfolios manufactured and sold in the samearea, and of which the final usage or purpose is identical or similar thereto, and which is difficult to separatefrom other items for measurement purposes, the provisions for inventory depreciation reserve shall be made ona portfolio basis.

Except that there is clear evidence that the market price is abnormal on the balance sheet date, the netrealizable value of inventory items shall be recognized at the market price on the balance sheet date.

Net realizable value of inventory items at the end of the year is recognized at the market price on thebalance sheet date.

4. Inventory system

Perpetual inventory system is adopted.

13) Assets held for sale

Not applicable.

14) Long-term equity investments

1¡¢ Criteria for judgment of common control and significant influence

The term ¨Dcommon control¡¬ refers to the sharing of control over an arrangement in accordance with therelevant agreement, and related activities of the arrangement must be unanimously agreed by the parties thatshare the right of control. Where the Company and other investors exert common joint control over theinvestee and have rights over the net assets of the investee, the investee is a joint venture of the Company.

Significant influence refers to the power to participate in making decisions on the financial and operatingpolicies of an enterprise, but not the power to control, or jointly control, the formulation of such policies withother parties. Where the Company is able to exert significant influence over the investee, the investee is itsassociate.

2¡¢ Recognition of initial investment costs

£¨1£©Long-term equity investments acquired from business combination

Business combination under common control: if the Company makes payment in cash, transfers non-cashassets or bears debts and issues equity securities as the consideration for the business combination, the bookvalue of the owner¡¯s equity of the cquire in the consolidated financial statements of the ultimate controller isrecognized as the initial cost of the long-term equity investment on the combination date. In case the Companycan exercise control over the investee under common control for additional investment or other reasons, the

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initial investment cost of long-term equity investments is recognized at the share of book value of net asset ofthe cquire after the combination in the consolidated financial statements of the ultimate controller on thecombination date. The stock premium should be adjusted at the difference between the initial investment costof long-term equity investments on the combination date and the book value of long-term equity investmentsbefore the combination plus the book value of consideration paid for additional shares; if there is no sufficientstock premium for write-downs, the retained earnings are adjusted.

Business combination not under common control: The Company recognizes the combination costdetermined on the combination date as the initial cost of long-term equity investments. Where the Companycan exercise control over the investee not under common control for additional investments or other reasons,the initial investment cost changed to be accounted for under the cost method should be recognized at the bookvalue of originally held equity investments plus costs of additional investments.

£¨2£©Long-term equity investment acquired by other means

For a long-term equity investment acquired through making payments in cash, its initial cost is theactually paid purchase cost.

For a long-term equity investment acquired from issuance of equity securities, its initial cost is the fairvalue of the issued equity securities.

If the exchange of non-monetary assets has commercial substance and the fair values of assets traded outand traded in can be measured reliably, the initial cost of long-term equity investment traded in withnon-monetary assets are determined based on the fair values of the assets traded out and the relevant taxes andsurcharges payable unless there is any conclusive evidence that the fair values of the assets traded in are morereliable; if the exchange of non-monetary assets does not meet the above criteria, the book value of the assetstraded out and the relevant taxes and surcharges payable are recognized as the initial cost of long-term equityinvestment traded in.

For a long-term equity investment acquired from debt restructuring, its initial cost is determined based onthe fair value.

3¡¢ Subsequent measurement and recognition of gains and losses

£¨1£©Long-term equity investment accounted for under the cost method

Long-term equity investments in subsidiaries are accounted for under the cost method. Except for theactual price paid for acquisition of investment or the cash dividends or profits contained in the considerationwhich have been declared but not yet distributed, the Company recognizes the investment income in thecurrent year at the cash dividends or profits declared by the investee.

£¨2£©Long-term equity investments accounted for under the equity method

Long-term equity investments in associates and joint ventures are accounted for under the equity method.If the cost of initial investment is in excess of the proportion of the fair value of the net identifiable assets inthe investee when the investment is made, the difference will not be adjusted to the initial cost of the long-termequity investments; if the cost of initial investment is in short of the proportion of the fair value of the netidentifiable assets in the investee when the investment is made, the difference will be included in the currentprofit and loss.

The Company shall recognize the investment income and other comprehensive income at the shares of netprofit and loss and other comprehensive income realized by the investee which the Company shall enjoy orbear and adjust the book value of long-term equity investments at the same time; the Company shall calculatethe shares according to profits or cash dividends declared by the investee and correspondingly reduce the bookvalue of long-term equity investments; the book value of long-term equity investments shall be adjustedaccording to the investee¡¯s other changes in owner¡¯s equity other than net profit and loss, other comprehensiveincome and profit distribution, which should be included in owner¡¯s equity.

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The share of the investee¡¯s net profit or loss should be recognized after adjustments are made to net profitof the investee based on the fair value of identifiable net assets of the investee upon acquisition of investmentsand according to accounting policies and accounting period of the Company. When holding the investment, theinvestee should prepare the consolidated financial statements, it shall account for the investment income basedon the net profit, other comprehensive income and the changes in other owner¡¯s equity attributable to theinvestee.

When the Company recognizes its share of loss incurred to the investee, treatment shall be done infollowing sequence: firstly, the book value of the long-term equity investment shall be reduced. Secondly,where the book value thereof is insufficient to cover the share of losses, investment losses are recognized tothe extent of book value of other long-term equities which form net investment in the investee in substance andthe book value of long term receivables shall be reduced. Finally, after all the above treatments, if theCompany is still responsible for any additional liability in accordance with the provisions stipulated in theinvestment contracts or agreements, provisions are recognized and included into current investment lossaccording to the obligations estimated to undertake.

£¨3£©Disposal of long-term equity investments

For disposal of long-term equity investment, the difference between its book value and the actual priceshall be included in the current profit and loss.

For long-term equity investments accounted for under the equity method, when the Company disposessuch investments, accounting treatment should be made to the part that is originally included in othercomprehensive income according to the corresponding proportion by using the same basis for the investee todirectly dispose the relevant assets or liabilities. Owner¡¯s equity recognized at the changes in the investee¡¯sother owner¡¯s equity other than net profit or loss, other comprehensive income and profit distribution shall betransferred to the current profit and loss according to the proportion, except for other comprehensive incomefrom changes arising from re-measurement of net liabilities or net assets of defined benefit plan.

In case the joint control or significant influence over the investee is lost for disposing part of equityinvestments or other reasons, the remaining equity will be changed to be accounted for according to therecognition and measurement principles of financial instruments. The difference between the fair value and thebook value on the date of the loss of joint control or significant influence should be included in the currentprofit and loss. For other comprehensive income recognized from accounting of the original equityinvestments under the equity method, accounting treatment should be made by using the same basis for theinvestee to directly dispose the relevant assets or liabilities when the equity method is no longer adopted.Owner¡¯s equity recognized from the investee¡¯s changes in other owner¡¯s equity other than net profit or loss,other comprehensive income and profit distribution should all transferred to the current profit and loss whenthe equity method confirmed is no longer adopted.

In case the control over the investee is lost for disposing part of equity investments or other reasons, whenthe Company prepares the individual financial statements, where the remaining equity after the disposal canexercise joint control or significant effect on the investee, then such equity will be changed to be accounted forunder the equity method and the remaining equity is deemed to have been adjusted under the equity method onacquisition; where the remaining equity after the disposal cannot exercise joint control or significant effect onthe investee, then accounting treatment shall be changed to be made according to the relevant provisions on therecognition and measurement principles of financial instruments. The difference between the fair value and thebook value on the date of the loss of joint control or significant influence should be included in the currentprofit and loss.

In case the disposed equity is acquired from additional investments or other reasons, when the Companyprepares the individual financial statements, where the remaining equity after the disposal is accounted for

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under the cost method or the equity method, other comprehensive income and other owner¡¯s equity recognizedfrom the accounting of equity investments held before the acquisition date under the equity method shall betransferred according to the proportion; where accounting treatment of the remaining equity after the disposalis changed to be made according to the recognition and measurement principles of financial instruments, all ofother comprehensive income and other owner¡¯s equity shall be transferred.

15) Investment propertyIf using the cost measurement model:

Investment properties are properties to earn rentals or for capital appreciation or both. Examples includeland leased out under operating leases, land held for long-term capital appreciation, buildings leased out underoperating leases, (including buildings that have been constructed or developed for future lease out underoperating leases, and buildings that are being constructed or developed for future lease out under operatingleases).

The Company adopts the cost model to measure all current investment properties. The Company adoptsthe same depreciation policy for the investment property measured at cost model ¨C building for renting as thatfor the Company¡¯s fixed assets and the same amortization policy of land use right for renting as that for theCompany¡¯s intangible assets.

16) Fixed assets

A. Recognition criteria for fixed assets

Fixed assets refer to tangible assets held for the purpose of producing commodities, providing services,renting or business management with useful lives exceeding one accounting year. Fixed assets will only berecognized when all the following criteria are satisfied:

(1) It is probable that the economic benefits relating to the fixed assets will flow into the Company; and

(2) The costs of the fixed asset can be measured reliably.

B. Depreciation method

Category	Depreciation Method	Depreciation Life (years)	Residual Rate (%)	Annual Depreciation Rate (%)
Buildings and constructions	Straight-line method	5-50	0-10%	2.00%-25.00%
Machinery equipment	Straight-line method	3-15	0-10%	6.00%-33.33%
Transportation equipment	Straight-line method	3-14	0-10%	6.43%-33.33%
Electronic equipment	Straight-line method	3-14	0-10%	6.43%-33.33%
Renovations of fixed assets	Straight-line method	5-15	0	6.67%-20.00%
Other equipment	Straight-line method	3-14	0-10%	6.43%-33.33%

C. Identification basis and pricing method of financing lease fixed assets

If one of the following conditions is stipulated in the terms of the lease agreement signed between theCompany and the lessor, it is recognized as a leased asset under finance:

(1) The ownership of the leased assets after the lease expires belongs to the Company;

(2) The Company has the option to purchase assets. The purchase price is much lower than the fair valueof the assets when the option is exercised;

(3) The lease period accounts for the majority of the useful life of the leased asset;

(4) The present value of the minimum lease payment on the lease start date is not significantly differentfrom the fair value of the asset.

At the beginning of the lease, the Company uses the lower of the fair value of the leased asset and thepresent value of the minimum lease payments as the entry value of the leased asset, and uses the minimumlease payment as the entry value of long-term payables. The difference is as unrecognized financing fee.

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17) Construction in progressThe book values of the construction in progress are stated at total expenditures incurred before reachingworking condition for their intended use. For construction in progress that has reached working condition forintended use but relevant budgets for the completion of projects have not been completed, the estimated valuesof project budgets, prices, or actual costs should be included in the costs of relevant fixed assets, anddepreciation should be provided according to relevant policies of the Company when working condition isreached. After the completion of budgets needed for the completion of projects, the estimated values should besubstituted by actual costs, but depreciation already provided is not adjusted.

18) Borrowing costsA. Recognition criteria for capitalization of borrowing costsBorrowing costs include the interest on borrowings, the amortization of discount or premium, auxiliaryexpenses, exchange differences incurred by foreign currency borrowings, etc.

The borrowing costs incurred to the Company and directly attributable to the acquisition and constructionor production of assets eligible for capitalization should be capitalized and recorded into asset costs; otherborrowing costs should be recognized as costs according to the amount incurred and be included into currentprofit and loss.

Assets eligible for capitalization refer to fixed assets, investment property, inventories and other assetswhich may reach their intended use or sale status only after long-time acquisition and construction orproduction activities.

Borrowing costs may be capitalized only when all the following conditions are met at the same time:

(1) The asset disbursements have already incurred, which shall include the cash paid, non-cash assetstransferred or interest bearing debts undertaken for the acquisition and construction or production activities forpreparing assets eligible for capitalization;

(2) The borrowing costs has already incurred; and

(3) Purchase, construction or manufacturing activities that are necessary to prepare the asset for itsintended use or sale have already started.

B. Capitalization period of borrowing costs

Capitalization period refers to the period from commencement of capitalization of borrowing costs to itscessation; period of suspension for capitalization is excluded.

When the qualified asset under acquisition and construction or production is ready for the intended use orsale, the capitalization of the borrowing costs shall be ceased.

When some projects among the acquired and constructed or produced assets eligible for capitalization arecompleted and can be used separately, the capitalization of borrowing costs of such projects should be ceased.

Where construction for each part of assets purchased, constructed or manufactured has been completedseparately but can be used or sold only after the entire assets have been completed, capitalization ofattributable borrowing costs should cease at the completion of the entire assets.

C. Period of capitalization suspension

If the acquisition and construction or production activities of assets eligible for capitalization areinterrupted abnormally and this condition lasts for more than three months, the capitalization of borrowingcosts should be suspended; if the interruption is necessary for the acquisition and construction or production toprepare the assets for their intended use or sale, the capitalization of borrowing costs should continue. Theborrowing costs incurred during interruption are recognized in the current profit and loss, and the capitalizationof borrowing costs continues after the restart of the acquisition and construction or production activities of theassets.

D. Capitalization rate and measurement of capitalized amounts of borrowing costs

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	Shang Gong Group Co., Ltd

As for special borrowings borrowed for acquiring and constructing or producing assets eligible forcapitalization, the to-be-capitalized amount shall be determined at interest expense of special borrowingactually incurred in the current period less the interest income of the borrowings unused and deposited in bankor return on temporary investment.

As for general borrowings used for acquiring and constructing or producing assets eligible forcapitalization, the to-be-capitalized amount should be calculated by multiplying the weighted average of assetdisbursements of the part of accumulated asset disbursements exceeding special borrowings by thecapitalization rate of used general borrowings. The capitalization rate is calculated by using the weightedaverage interest rate of general borrowings.

19) Biological assets

Not applicable.

20) Oil and gas assets

Not applicable.

21) Intangible assets

A. Valuation method, service life, impairment test

(1) Measurement of intangible assets

¢Ù The Company initially measures intangible assets at cost on acquisition

The costs of external purchase of intangible assets comprise their purchase prices, related taxes andsurcharges and any other directly attributable expenditure incurred to prepare the asset for its intended use. Ifpayments for the purchase of intangible assets are extended beyond the normal credit terms with financingnature, the costs of intangible assets are determined on the basis of present values of the purchase prices.

For intangible assets obtained from debtors in settlement of his liabilities in case of debt restructuring,they should be initially stated at their fair values. Differences between the book values and the fair values ofthe intangible assets are charged to profit or loss for the current period.

If the exchange of non-monetary assets has commercial substance, and the fair values of these assets canbe measured reliably, the book-entry values of intangible assets traded in are based on the fair values of theintangible assets traded out unless there is any conclusive evidence that the fair values of the assets traded inare more reliable. If the exchange of non-monetary assets does not meet the above criteria, the costs of theintangible assets traded in should be the book values of the assets traded out and relevant taxes and surchargespaid, and no profit or loss shall be recognized.

¢Ú Subsequent measurement

The useful lives of the intangible assets are analyzed and determined on their acquisition.

As for intangible assets with limited useful life, straight-line amortization method is adopted in the periodwhen the intangible assets generate economic benefit for enterprise; if the period when the intangible assetsgenerate economic benefit for enterprise cannot be forecasted, the intangible assets shall be deemed as thosewith indefinite useful life and shall not be amortized.

(2) Estimate of the useful life of the intangible assets with finite useful lives :

Item	Estimated Useful Lives
Land use right	50 years
Right to use trade mark	10 years
Patent and non-patent technology	4-8 years
Computer software	3-10 years

The useful lives and amortization methods of intangible assets with limited useful lives are reviewed ateach year end.

Upon review, the useful lives and amortization method of the intangible assets as at the end of the year are

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	Shang Gong Group Co., Ltd

not different from those estimated before.

(3) Specific criteria divided the research stage and development stageExpenditure internal research and development project is divided into research expenditures anddevelopment expenditures.

Research stage: the planned investigation and research activities to acquire and understand new scientificor technological knowledge.

Development stage: before commercial production and use, the research findings or other knowledge areapplied in some plan or design to produce new or substantially improved materials, devices, products, etc.

B. Internal research and development expenditure accounting policy

Specific criteria divided the research stage and development stage:

If it can be reliably estimated that future economic benefits will flow to the entity, and that the purchaseand production costs can be reliably measured, the development cost should be capitalized. The measurementof production cost of internally generated intangible assets is based on direct cost, indirect cost andamortization.

If it can be clearly defined that newly developed products or methods are technically feasible, and thatthey are intended for private use or sale, the development cost should be capitalized. The capitalizeddevelopment cost should be amortized within a product¡¯s expected 5 to 8 years¡¯ life cycle, using a straight-linemethod. If the value in use cannot be recognized, impairment and amortization should be carried out. Researchcost and the development cost which cannot be capitalized should be expense when it occurs.

22) Impairment of long-term assets

The Company will conduct the impairment test if any evidence suggests that the long-term assets, such asthe long-term equity investment and the investment property, fixed assets, construction in progress andintangible assets, are impaired on the balance sheet date. If impairment test results indicate that the recoverableamounts of the assets are lower than their carrying amounts, the provision for impairment is made based on thedifferences which are recognized as impairment losses. The recoverable amount is the higher of the fair valueof the asset minus the disposal expenses and the present value of the estimated future cash flow of the asset.The provision for assets impairment is calculated and recognized by the individual asset. If it is difficult toestimate the recoverable amount of an individual asset, the Company shall estimate the recoverable amount ofthe asset portfolio that the individual asset belongs to. The asset portfolio is the minimum asset group that canindependently generate the cash inflow.

Goodwill is tested for impairment at least at the end of each year.

The Company conducts an impairment test for the goodwill. The book value of goodwill arising frombusiness combinations is amortized to relevant asset groups with a reasonable method since the date ofacquisition; or amortized to relevant combination of asset groups if it is difficult to be amortized to relevantasset groups. The book value of goodwill is amortized to relevant asset groups or combinations of asset groupsaccording to the proportion of the fair value of such asset groups or combinations of asset groups in the totalfair value of relevant asset groups or combinations of asset groups. Where the fair value cannot be reliablymeasured, it should be amortized according to proportion of the book value of each asset group or combinationof asset group in the total book value of relevant asset groups or combinations of asset groups.

When making an impairment test on the relevant asset groups or combination of asset groups containinggoodwill, if any indication shows that the asset groups or combinations of asset groups related to the goodwillmay be impaired, the Company shall first conduct an impairment test on the asset groups or combinations ofasset groups not containing goodwill, calculate the recoverable amount and compare it with the relevant bookvalue to recognize the corresponding impairment loss. Then the Company shall conduct an impairment test onthe asset groups or combinations of asset groups containing goodwill, and compare the book value of these

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

asset groups or combinations of asset groups (including the book value of the goodwill apportioned thereto)with the recoverable amount. Where the recoverable amount of the relevant asset groups or combinations ofasset groups is lower than the book value thereof, the Company shall recognize the impairment loss of thegoodwill. The above impairment loss is not reversed in the future accounting period once recognized.

23) Long-term Deferred ExpensesNot applicable24) Employee compensation1. Accounting treatment of short-term remunerationDuring the accounting period in which employees provide service to the Company, the short-termremuneration actually incurred is recognized as liabilities and charged to the current profit or loss or therelevant assets cost.

The medical insurance premium, work-related injury insurance premium and the housing provident fundpaid by the Company for its employees, together with the labor union expenditures and employee educationare used to calculate and determine the relevant employee compensation amount based on the prescribedaccrual basis and accrual proportion.

The non-monetary benefits for employees that can be measured reliably are measured at fair value.

2. Accounting treatment of benefits paid after departure

(1) Defined withdrawal plan

The basic endowment insurance premium and unemployment insurance premium paid by the Companyfor its employees in accordance with relevant provisions of the local government are recognized as liabilitiesand charged to the current profit or loss or the relevant assets cost, with the payable amount calculated basedon the local prescribed payment base and percentage, during the accounting period in which the employeesprovide services to the Company.

In addition to the basic endowment insurance, the Company also builds the enterprise annuity paymentsystem (supplementary pension insurance) in accordance with relevant national policies for enterprise annuitysystem. The Company pays a certain percentage of the total employee compensation to the local socialinstitution, and record the relevant expenditures into the current profit or loss or the relevant assets cost.

(2) Defined benefit plan

The Company attributes the welfare obligation arising from the defined benefit plan to the period duringwhich the employees provide services, in accordance with the formula determined under the estimatedaccumulated welfare unit method, and records the same into the current profit or loss or the relevant asset cost.

A net liability or net asset in relation to the defined benefit plan is recognized at the present value of theobligation under the defined benefit plan less the deficit or surplus arising out of the fair value of the assets inrelation to the defined benefit plan. Where the defined benefit plan has any surplus, the Company willdetermine the net assets in relation to the defined benefit plan at the lower of the surplus of the defined benefitplan or the asset cap.

The obligations under the defined benefit plan, including the estimated payment obligation within 12months following the annual report period during which the employees provide service, are discounted to thepresent value at the market return of the national debt of which the term and currency match those of theobligation under the defined benefit plan on the balance sheet date, or of the high-quality corporate debt in anactive market.

The service cost incurred by the defined benefit plan, together with the net interest on the net liability ornet asset in relation to the defined benefit plan, are charged to the current profit or loss or the relevant assetcost; the change arising from the re-measurement of the net liability or net asset in relation to the definedbenefit plan are recorded into other comprehensive income and are not reversed to the profit or loss in thesubsequent accounting period.

The gains or losses on the settlement in respect of the defined benefit plan are recognized at the difference

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	Shang Gong Group Co., Ltd

between the present value and the settlement price of the obligation under the defined benefit plan on thesettlement date.

3. Accounting treatment of dismissal welfareWhere the Company cannot unilaterally withdraw the dismissal welfare offered in view of thecancellation of the labor relation plan or the layoff proposal, or recognizes the cost or expenses as to therestructuring involving the payment of dismissal welfare (whichever is earlier), the employee compensationarising from the dismissal welfare should be recognized as the liabilities and charged to the current profit orloss.

25) Estimated liabilities1. Recognition criteria for estimated liabilitiesThe Company should recognize an obligation in relation to contingencies as an estimated liability, such asthe litigation, debt guarantee, loss-making contract or restructuring, when all the following conditions aresatisfied:

(1) The obligation is a present obligation of the Company;(2) The performance of such obligation is likely to result in outflow of economic benefits from theCompany;

(3) The amount of the obligation can be measured reliably.2. Measurement of estimated liabilitiesThe estimated liabilities of the Company are initially measured as the best estimate of expenses requiredfor the performance of relevant present obligations.

The risks, uncertainties, time value of money, and other factors relating to the contingencies. If the timevalue of money is significant, the best estimates shall be determined after discount of relevant future cashoutflows.

The best estimates shall be treated as follows in different circumstances:

If there is continuous range (or interval) for the necessary expenses, and probabilities of occurrence of allthe outcomes within this range are equal, the best estimate shall be determined at the average amount of upperand lower limits within the range.

Given the fact that there is no continuous range (or interval) for the necessary expenses, or probabilities ofoccurrence of all the outcomes within this range are unequal despite such a range exists, in case that thecontingency involves a single item, the best estimate shall be determined at the most likely outcome; if thecontingency involves two or more items, the best estimate should be determined according to all the possibleoutcomes with their relevant probabilities.

When all or part of the expenses necessary for the settlement of an estimated liabilities are expected to becompensated by a third party or other parties, the compensation shall be separately recognized as an asset onlywhen it is virtually certain that the compensation will be received. The amount recognized for thecompensation shall not exceed the book value of the estimated liabilities.

26) Share payment

Not applicable.

27) Other financial instruments such as preferred shares and perpetual bonds

Not applicable.

28) Incomes

1. Specific criteria for determining the timing of income recognition for sales of goods

The Company will confirm that the sales income of the goods is realized when the Company hastransferred the major risks and rewards of ownership of the goods to the purchaser; the Company does notretain the right to continue management linked to ownership, nor does it have effective control over theproducts sold; the amount of income can be measured reliably; the related costs incurred or to be incurred can

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

be reliably measured.

The specific judgment criteria are as follows:

(1) Domestic sales: After the delivery of the goods, the Company confirms the sales income. According tothe delivery method agreed in the sales order, the detailed standards for income recognition are:

When the customer goes directly to the warehouse of the Company to pick up goods, based on theoutbound documents confirmed by the parties in various ways, the income is confirmed when the goods leavethe warehouse.

When the customer appoints a carrier, based on the logistics document issued by the carrier, income isrecognized when the goods are delivered to the carrier.

When the Company appoints a carrier, based on the logistics receipts signed and confirmed by thecustomer, income is recognized when the customer actually signs the receipt.

When the Company sells through the e-commerce platform, income is recognized when the electronicorder received by the customer to confirm the receipt or the e-commerce receipt period expires.

If an unconditional return period or acceptance period has been agreed upon, the income recognition willbe delayed to the expiry of unconditional return periodor acceptance period.

For sales on behalf of distributors, the income is recognized when the dealership list with the finalcustomer confirmation is received.

(2) International sales: If choose to apply international trade terms, sale income is recognized according tothe time point of risk transfer agreed in the specific applicable international trade terms. If an unconditionalreturn period or acceptance period is agreed upon, the income recognition will be extended to theunconditional return period or the acceptance period after meeting the applicable trade term risk transfer point.If no international trade terms have been selected, the Company will recognize income after obtaining varioustypes of risk transfer documents according to the agreed delivery method and the time of risk transfer.

(3) Sales of specialized sewing machine: As the customer has deeply customized the machine, accordingto the relevant agreement in the contract signed by both parties, the specific delivery obligations under eachtechnical clause are distinguished, and the corresponding income is confirmed according to the completion ofthe customer demand and the relevant confirmation documents.

2. Recognition of income from transfer of assets use right

When the economic benefit related to the transaction is probably to flow into the Company and therelevant income can be reliably measured, the income from transfer of the assets use right is determined asfollows:

(1) Interest income is measured based on the length of time for which the Company¡¯s monetary funds isused by others and the applicable interest rate;

(2) Royalty income is measured according to the period and method of charging as stipulated in therelevant agreements or contracts.

3. Measurement principles and methods of completion stage where revenues from rendering oflabor are recognized under percentage-of-completion method

The Company confirmed the income from the labor service when obtain the written settlementconfirmation from the customer and issue the settlement certificate.

If the outcome of transactions can be estimated reliably at the balance sheet date, income from renderingof labor service is recognized under the percentage-of-completion method. The percentage of completion isdetermined by measurement of completed work as a percentage of total estimated costs.

Income from rendering of labor service is determined by prices stated in the contracts or agreements,whether already received or to be received, unless such relevant prices are unfair. The current income from therendering of labor service is recognized at the amount of multiplying the total income from the rendering of

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	Shang Gong Group Co., Ltd

labor service by completion progress and deducting the accumulated income from the rendering of laborservice recognized in previous accounting periods on the balance sheet date; meanwhile, the current cost oflabor service is carried forward by the amount of multiplying the total costs of the rendering of labor serviceby completion progress and deducting the accumulated cost from the rendering of labor services recognized inprevious accounting periods.

When the outcome of transactions involving the rendering of services cannot be estimated reliably,income is recognized and measured at the balance sheet date as follows:

(1) If the service costs incurred are expected to be fully recoverable, the amounts equal to the labor costsincurred shall be recognized as incomes and the equivalent amounts of labor costs shall be carried forward;

(2) If the service costs incurred are not expected to be fully recoverable, the labor costs incurred shall beincluded in the current profit and loss, with no income from the rending of labor services not recognized.

The Company¡¯s income from logistics service and sewing equipment maintenance services is recognizedwhen related services have been provided, service costs have actually occurred, and service settlementdocuments confirmed by the service recipient have been obtained.

29) Government grants

1. Types

Government grants refer to the monetary or non-monetary assets obtained by the Company from thegovernment for free. Government grants are classified into government grants related to assets and governmentgrants related to income.

Government grants related to assets refer to government grants obtained by the Company that are used topurchase, construct or form long-term assets, including financial allocations for purchases of fixed assets orintangible assets, and financial discounts for special loans for fixed assets. Government grants related toincome refer to government grants other than those related to assets.

The Company¡¯s specific criteria for classifying government grants as related to assets are: governmentgrants obtained by the Company that are used to purchase, construct or form long-term assets.

The Company¡¯s specific criteria for classifying government grants as related to income are: governmentgrants other than those related to assets.

If the government documents do not clearly specify the target of the grant, the judgment basis ofclassifying the government grant as related to the assets or related to the income is whether it is used topurchase or construct or form long-term assets.

2. Accounting treatment

Government grants related to assets: write down the carrying amount of the related assets or recognizethem as deferred income. If it is recognized as deferred income, it shall be recorded into current profits andlosses in a reasonable and systematic way within the useful life of the relevant assets (related to the Company¡¯sdaily activities, included in other income; unrelated to the Company¡¯s daily activities, included innon-operating income).

Government grants related to income: grants used to compensate for the related costs or losses of theCompany in the future period, shall be recognized as deferred income, and shall be recorded in the currentprofits and losses (related to the Company¡¯s daily activities, included in other income; unrelated to theCompany¡¯s daily activities, included in non-operating income), or be used to reduce the related costs, expensesor losses during the period for confirming the relevant costs, expenses or losses.

30) Deferred income tax assets and deferred income tax liabilities

Deferred income tax assets shall be recognized for deductible temporary differences to the extent that it isprobable that taxable profit will be available against which the deductible temporary differences can be utilized.Deferred income tax assets should be recognized for deductible temporary differences to the extent that it is

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

probable that taxable profit will be available against which the deductible temporary differences can beutilized.

Taxable temporary differences are recognized as deferred income tax liabilities except in specialcircumstances.

Special circumstances in which deferred income tax assets or deferred income tax liabilities shall not berecognized include: the initial recognition of goodwill; other transactions or events excluding businesscombinations, which affect neither accounting profits nor the taxable income (or deductible losses) whenoccurred.

If the Company has the legal right of netting and intends to settle in net amount or to obtain assets anddischarge liabilities simultaneously, the income tax assets and income tax liabilities of the Company for thecurrent period shall be presented based on the net amount after offset.

When the Company has the legal rights to balance income tax assets and income tax liabilities for thecurrent period with net settlement, and deferred income tax assets and deferred income tax liabilities arerelated to the income tax which are imposed on the same taxpaying subject by the same tax collection authorityor on different tax paying subjects, but, in each important future period in connection with the reverse ofdeferred income tax assets and liabilities, the involved tax paying subject intends to balance income tax assetsand liabilities for the current period with net settlement at the time of obtaining assets and dischargingliabilities, deferred income tax assets and deferred income tax liabilities shall be presented based on the netamount after offset.

31) Lease

1. Accounting treatment of operating lease

(1) Lease fees paid by the Company for leased asset shall be amortized at straight-line method over thewhole lease period (including rent-free period) and shall be included in the current expenses. Initial direct costsrelating to lease transactions incurred by the Company shall be recognized as the current expenses.

If the expense related to the lease which shall be paid by the Company is assumed by the lessor of theasset, then such expenses shall be deducted from total lease fees, and the balances shall be amortized over thelease term s and charged to the current expenses.

(2) The lease fees received for the assets acquired under lease shall be recognized as current expensesover the lease terms (including rent-free periods) on a straight-line basis. The initial direct costs related to leasetransactions paid by the Company, included in the current expenses; if a larger amount is to be capitalized,according to confirm the same basis throughout the period of the lease installments related to the lease incomeis recognized in profit gains.

If expenses relating to leases which should be borne by the lessee of the assets are paid by the Company,they shall be deducted from the total lease income and the balances shall be amortized over the lease terms bythe Company.

2. Accounting treatment of financial lease

(1) Assets rented in by financial lease: At the beginning of the lease, the Company uses the lower of thefair value of the leased assets and the present value of the minimum lease payments as the entry value of theleased assets, and uses the minimum lease payment as the entry value of the long-term payables. Thedifference is used as unrecognized financing expenses. The Company adopts the actual interest rate method toamortize the unrecognized financing expenses during the asset lease period and count it into financial expenses.The initial direct costs incurred by the company are included in the value of the leased assets.

(2) Assets rented out by financial lease: At the lease beginning date, the Company recognizes the financiallease receivables, difference between the sum of unguaranteed residual value and its current value asunrealized financing income. It is recognized as lease income in each period during which rent is received inthe future. The initial direct costs incurred by the Company in relation to the lease transaction are included in

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	Shang Gong Group Co., Ltd

the initial measurement of the financial lease receivable, and the amount of income recognized in the leaseperiod is reduced.

32) Other important accounting policies and accounting estimatesNot applicable.33) Adjustment for changes in principal accounting policies and accounting estimates1. Adjustment for changes in accounting policies

The Content and reasons of accounting policy changes	Approval procedure	Item and amount affected
(1) The ¨Dreceivable notes¡¬ and ¨Daccounts receivable¡¬ in the balance sheet are combined as ¨Dreceivable notes and accounts receivable¡¬; ¨Dpayable notes¡¬ and ¨Daccounts payable¡¬ are combined as ¨Dpayable¡¬ ¨DNotes and accounts payable¡¬; ¨Dinterest receivable¡¬ and ¨Ddividends receivable¡¬ are included in ¨Dother receivables¡¬; ¨Dinterest payable¡¬ and ¨Ddividend payable¡¬ are included in ¨Dother payables¡¬; ¨DAsset Clearance¡¬ is included in ¨DFixed Assets¡¬; ¨DEngineering Materials¡¬ is included in ¨DConstruction in Construction¡¬; ¨DSpecial Payables¡¬ is included in ¨DLong-term Payables¡¬. The comparison data is adjusted accordingly.¡£	The Eleventh Session of the Eighth Board of Directors	The ¨Dreceivable notes¡¬ and ¨Daccounts receivable¡¬ are combined into ¨Dreceivable notes and accounts receivable¡¬. The current amount is 617,760,694.90 yuan, and the previous period amount is 526,096,919.07 yuan; The ¨DAccounts payable¡¬ and ¨DAccounts payable¡¬ are combined into ¨DAccounts payable and accounts payable¡¬. The current amount is 318,803,039.91 yuan, and the previous amount is 206,343,320.56 yuan; Increasing the amount of ¨Dother receivables¡¬ for the current period of 27,041,989.94 yuan, and increasing the amount of the previous period by 21,645.73 yuan; Increasing the amount of ¨Dother payables¡¬ for the current period was 1,838,717.63 yuan, and the amount of the previous period was 2,143,371.92 yuan; The amount of the ¨Dfixed assets¡¬ in the current period and the amount in the previous period have not been increased; The current amount of the ¨Dconstruction in progress¡¬ and the amount of the previous period have not been increased; The amount of the ¨Dlong-term payables¡¬ for the current period and the amount of the previous period have not been increased.
(2) Add ¨DR&D Expenses¡¬ item in the income statement, reclassify the R&D expenses in the original ¨DManagement Expenses¡¬ to ¨DR&D Expenses¡¬ separately; add ¨DIncluding: Interest¡¬ under the financial expenses in the income statement.: Fees and interest income items. The comparison data is adjusted accordingly.	The Eleventh Session of the Eighth Board of Directors	The amount of ¨Dadministrative expenses¡¬ was reduced to 97,647,657.57 yuan, and the previous amount was 84,350,255.40 yuan, which was reclassified to ¨DR&D expenses¡¬.
In the table of changes in owner¡¯s equity, the item ¨DSetting the benefit of the change in the defined benefit plan to carry forward the retained income¡¬ is added. The comparison data is adjusted accordingly.	The Eleventh Session of the Eighth Board of Directors	N/A

2. Adjustment for changes in principal accounting estimatesNot applicable.6. Tax1) Major taxes and tax rates

Tax type	Basis of tax assessment	Tax rate
Value-added tax (VAT)	Calculated based on the income from sales of goods and the provision of taxable labor services according to tax law, and value added tax payable should be the balance of the output tax for the period after deducting the deductible input tax for the period.	3%¡¢5%¡¢6% ¡¢7%¡¢11%¡¢10%¡¢16%¡¢17%¡¢19%
consumption tax
Business tax
Urban maintenance and construction tax	Levied based on the actual payment of business tax and VAT.	1%¡¢5%¡¢7%
Enterprise income tax (EIT)	Levied based on the taxable income	16%-38%¡¢15%¡¢25%
Education	Levied based on the actual payment of VAT.	3%¡¢2%¡¢1%

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	Shang Gong Group Co., Ltd

Note: The VAT rate applicable to DAAG and its subsidiaries is 19% or 7%.If there are different corporate income tax rate taxpayers, see the disclosure statement

surtax and localeducation sutax

Tax subject name

Tax subject name	Income tax rate£¨%£©
D¨¹rkopp Adler AG	16-38
DAP (Vietnam) Co., Ltd.	20
Zhejiang ShangGong GEMSY Co., Ltd.	15
D¨¹rkopp Adler Manufacturing(Shanghai) Co.,Ltd.	15
SG Richpeace	15

2) Tax incentivesThe company¡¯s subsidiary Zhejiang ShangGong GEMSY Co., Ltd.,, D¨¹rkopp AdlerManufacturing(Shanghai) Co.,Ltd.,, Tianjin Richpeace are state-level high-tech enterprises, enjoying corporateincome tax at 15%.

The Company and all subsidiaries in Mainland China are entitled to a tax benefit of 75% deduction forresearch and development expenses.

Shanghai ShangGong Financial Leasing Co., Ltd.,, a subsidiary of the Company, provides tangiblemovable property financing leasing services and tangible movable property financing after-sales leasebackservices, and enjoys the tax incentives for the portion of the VAT that exceeds 3% of the actual tax burden.

The company¡¯s three-tier subsidiary Shenzhen Yingruiheng Technology Co., Ltd. and Tianjin Yingrui¡¯anTechnology Co., Ltd. sell their own software products developed and produced, and enjoy the tax rebate of thepart of the VAT actual tax burden of more than 3%.

7. Notes to items of consolidated financial statements

1) Cash and cash equivalents

Item	Ending Balance	Beginning Balance
Cash on hand	743,089.39	707,925.98
Bank deposit	556,653,249.22	712,794,196.15
Other monetary funds	37,637,807.50	9,835,756.40
Total	595,034,146.11	723,337,878.53
Including: total amount of cash and cash equivalents offshore	261,229,432.22	373,357,927.57

Details of cash and cash equivalents restricted for use due to mortgage, pledge or freezing are follows:

Item	Ending Balance	Beginning Balance
Bank Acceptance Deposit Guarantee	35,374,936.26	6,539,032.60
Security deposit	712,626.09	400,000.00
Deposit held for foreign exchange inspection	320,825.64	2,585,125.48
Other guaranteed deposit	384,135.73
Total	36,792,523.72	9,524,158.08

Note 1: The balance of December 31, 2018 is the monetary fund that SGGEMSY and Richpeace, whichare subsidiaries of the Company, cannot withdraw at any time due to the opening of bank acceptance bills. .

Note 2: The balance of December 31, 2018 is the electricity security deposit of Richpeace, a subsidiary ofthe Company, and the counterfeit deposit of Shanghai Butterfly Import & Export Co., Ltd., a third-levelsubsidiary of the Company.

Note 3: The balance of December 31, 2018 is the foreign exchange supervisor of the company¡¯ssubsidiary DAPSH and the company¡¯s third-level subsidiary Shanghai Butterfly Import and Export Co., Ltd.The department has reviewed and has not transferred to the retained funds in the general trade account.

Note 4: The balance of December 31, 2018 is that the bank account information of Shanghai Shanggong

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	Shang Gong Group Co., Ltd

Import & Export Co., Ltd., a third-level subsidiary of the Company, has not been completed yet. The banktemporarily freezes the retained funds in the account.

2) Financial assets at fair value whose fluctuation is attributed to profit and loss for currentperiod

Not applicable.

3) Derivative financial assets

Not applicable.

4) Notes receivable and accounts receivable

Item	Ending Balance	Beginning Balance
Notes receivable	81,482,151.15	61,337,538.87
Accounts receivable	536,278,543.75	464,759,380.20
Total	617,760,694.90	526,096,919.07

Notes receivable

A. Presentation of notes receivable by category

Item	Ending Balance	Beginning Balance
Bank acceptance bills	71,718,740.15	47,405,556.75
Commercial acceptance bills	9,763,411.00	13,931,982.12
Total	81,482,151.15	61,337,538.87

B. Notes receivable pledged as at the end of period

Item	Ending Balance
Bank acceptance bills	2,380,000.00
Total	2,380,000.00

C. Notes receivable endorsed or discounted at the end of the period and have not yet expired at thebalance sheet date

Item	Closing confirmed amount	Closing unconfirmed amount
Bank acceptance bills	16,562,902.94
Total	16,562,902.94

D. Notes receivable transferred to accounts receivable due to the issuer¡¯s performance failure

Not applicable.

Accounts receivable

A. Disclosure of accounts receivable by category

Type	Ending Balance					Beginning Balance
	Book balance		Provision for bad debt		Book Value	Book balance		Provision for bad debt		Book Value
	Amount	%	Amount	%		Amount	%	Amount	%
Accounts receivable with significant individual amount and provision for bad debt is accrued separately	43,578,964.20	6.71	19,784,571.25	45.40	23,794,392.95	79,818,629.27	13.64	19,622,784.50	24.58	60,195,844.77
Accounts receivable with provision for bad debt accrued by credit risk characteristics of a portfolio	209,297,564.65	32.21	73,592,992.61	35.16	135,704,572.04	119,721,460.79	20.46	72,220,264.69	60.32	47,501,196.10

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	Shang Gong Group Co., Ltd

Accounts receivable with insignificant individual amount but provision for bad debt is accrued separately	396,860,846.20	61.08	20,081,267.44	5.06	376,779,578.76	385,572,745.19	65.90	28,510,405.86	7.39	357,062,339.33
Total	649,737,375.05	100.00	113,458,831.30	17.46	536,278,543.75	585,112,835.25	100.00	120,353,455.05	20.57	464,759,380.20

Accounts receivable with significant individual amount and provision for bad debt is accrued separately atthe end of the period

Accounts receivable (By entity)	Ending Balance
	Accounts receivable	Provision for bad debt	Proportion of provision (%)	Reason for provision
No.2 Client	19,735,959.50	19,735,959.50	100.00	Impaired according to the separate test
No.3 Client	12,315,321.00	48,611.75	0.39	Impaired according to the separate test
No.5 Client	11,527,683.70			Unimpaired according to the separate test
Total	43,578,964.20	19,784,571.25	45.40	/

Accounts receivable with provision for bad debt accrued using the aging analysis method in the portfolio

Aging	Ending Balance
	Accounts receivable	Provision for bad debt	Proportion of provision (%)
Within 1 year	77,476,546.06	3,873,827.29	5.00
1-2 years	4,362,501.88	872,500.38	20.00
2-3 years	3,349,564.89	1,674,782.46	50.00
Over 3 years	67,171,882.48	67,171,882.48	100.00
Total	152,360,495.31	73,592,992.61	48.30

Accounts receivable with provision for bad debt accrued using other methods in the portfolio

Name	Accounts receivable	Provision for bad debt	Proportion of provision (%)
Receivables guaranteed by financial institutions	56,937,069.34
Total	56,937,069.34

Accounts receivable with insignificant individual amount but provision for bad debt is accrued separately

Accounts Receivable (By Entity)	Ending Balance
	Accounts Receivable	Provision for Bad Debt	Proportion of Provision	Reason for Provision
Other insignificant accounts receivable (Note 1)	24,356,242.98	7,295,176.66	29.95	Impaired according to the separate test
Other insignificant accounts receivable (Note 2)	11,616,479.63	6,335,462.38	54.54	Impaired according to the separate test
Other insignificant accounts receivable (Note 3)	7,831,016.87	7,590.41	0.10	Impaired according to the separate test
Other insignificant accounts receivable (Note 4)	11,610.00	11,610.00	100.00	Impaired according to the separate test
Other insignificant accounts receivable (Note 5)	238,883,440.57	6,296,805.05	2.64	Impaired according to the separate test
Other insignificant accounts receivable (Note 6)	169,198.40	216.55	0.13	Impaired according to the separate test
Other insignificant accounts receivable (Note 7)	113,495,813.28	134,300.00	0.12	Impaired according to the separate test
Other insignificant accounts receivable (Note 8)	306,725.49	106.39	0.03	Impaired according to the separate test
Other insignificant accounts receivable (Note 9)	190,318.98			Unimpaired according to separate test
Total	396,860,846.20	20,081,267.44	5.06

Note 1: Mainly for the accounts receivable of the parent company of SGG, the impairment provision ismade according to the individual amount test.

Note 2: Mainly for the accounts receivable of the subsidiary Shanghai Shanggong Butterfly Sewing

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Machine Co., Ltd., the impairment provision is made according to the individual amount test.

Note 3: Mainly for the accounts receivable of the subsidiary DAPSH, the impairment provision is madeaccording to the individual amount test.

Note 4: Mainly for the subsidiary of Shanghai SGSB Electronics Co., Ltd., the accounts receivable areaccrued for impairment according to the individual amount test.

Note 5: Mainly for the accounts receivable of the subsidiary DA AG, the impairment provision is madeaccording to the individual amount test.

Note 6: Mainly for the subsidiary of SGGEMSY, the accounts receivable are accrued for impairmentaccording to the individual amount.

Note 7: Mainly for the subsidiary of Shanghai Shensy Enterprise Development Co., Ltd., the accountsreceivable are depreciated according to the individual amount test.

Note 8: Mainly for the accounts receivable of the subsidiary PFAFF Industrial Sewing Machine(Zhangjiagang) Co., Ltd., the impairment provision is made according to the individual amount test.

Note 9: Mainly due to the accounts receivable of the subsidiary DAP Vietnam Co., Ltd., no impairmentoccurred according to the individual amount test.

B. The accrual, reversal or recovery of the provision for bad debts in the current period

The provision for bad debts accrued in the current period is 7,764,954.65 yuan. The amount reversed orrecovered of the provision for bad debts in the current period is 7,097,708.43 yuan.

C. Accounts receivable actually write-off in the current period

Item	Amount
Accounts receivable actually write-off	8,644,485.21

Note: Due to the liquidation and cancellation of Shanghai SMPIC Photosensitive Material Factory, theCompany¡¯s President¡¯s Office Meeting agreed to write off the accounts receivable totaling RMB 3,436,227.61;the Company¡¯s President¡¯s Office Meeting agreed to write off the accounts receivable of the industrial sewingmachine branch that have been determined to be uncollectible and have been fully withdrawn for bad debtstotaling RMB 2,582,333.45.

D. Top five accounts receivable in terms of their ending balance

Company name	Ending Balance
	Accounts receivable	Proportion in total accounts receivable ratio (%)	Provision for bad debt
No.1 Client	22,361,217.60	3.44
No.2 Client	19,735,959.50	3.04	19,735,959.50
No.3 Client	12,315,321.00	1.90	48,611.75
No.4 Client	11,530,775.39	1.77	11,530,775.39
No.5 Client	11,527,683.70	1.77
Total	77,470,957.19	11.92	31,315,346.64

5) Prepayment

A. Presentation of prepayments by aging

Aging	Ending Balance		Beginning Balance
	Amount	%	Amount	%
Within 1 year	33,268,163.01	83.81	58,228,035.05	90.43
1-2 years	257,817.83	0.65	9,442.01	0.01
2-3 years	15,583.50	0.04	6,153,752.47	9.56
Over 3 years	6,154,198.51	15.50	2,398.18
Total	39,695,762.85	100.00	64,393,627.71	100.00

B. Top five prepayments to suppliers in terms of their ending balance

Supplier	Ending Balance	Proportion in Total Ending Balance of Advances to Suppliers (%)
No.1 Supplier	6,147,650.83	15.49

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	Shang Gong Group Co., Ltd

No.2 Supplier	3,913,507.58	9.86
No.3 Supplier	2,874,815.44	7.24
No.4 Supplier	1,948,300.55	4.91
No.5 Supplier	1,469,583.19	3.70
Total	16,353,857.59	41.20

6) Other receivables

Item	Ending Balance	Beginning Balance
Interest receivable		21,645.73
Dividends receivable	27,041,989.94
Other receivables	93,380,506.35	58,944,411.21
Total	120,422,496.29	58,966,056.94

A. Interest receivable

Item	Ending Balance	Beginning Balance
Fixed deposit		21,645.73
Total		21,645.73

B. Dividends receivable

Company Name	Ending Balance	Beginning Balance
H. Stoll AG & Co. KG	27,041,989.94
Total	27,041,989.94

Other receivablesC. Disclosure of other receivables by category

Type	Ending Balance					Beginning Balance
	Book Balance		Provision for Bad Debt		Book Value	Book Balance		Provision for Bad Debt		Book Value
	Amount	%	Amount	%		Amount	%	Amount	%
Other receivables with significant individual amount and provision for bad debt is accrued separately	32,015,520.86	24.82	15,933,916.53	49.77	16,081,604.33	30,666,334.88	33.51	13,304,781.50	43.39	17,361,553.38
Other receivables with provision for bad debt accrued by credit risk characteristics of a portfolio	87,820,109.01	68.08	16,921,209.59	19.27	70,898,899.42	24,977,450.21	27.29	16,622,435.95	66.55	8,355,014.26
Other receivables with insignificant individual amount but provision for bad debt is accrued separately	9,165,563.42	7.10	2,765,560.82	30.17	6,400,002.60	35,869,414.39	39.20	2,641,570.82	7.36	33,227,843.57
Total	129,001,193.29	100.00	35,620,686.94	27.61	93,380,506.35	91,513,199.48	100.00	32,568,788.27	35.59	58,944,411.21

Other receivables with significant individual amount and provision for bad debt is accrued separately atthe end of period

	Ending Balance
Other Receivables (By Entity)	Other receivables	Provision for bad debt	Proportion of provision(%)	Reason for Provision
No.1 Client	18,028,004.56	1,946,400.23	10.80	Impaired according to the

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	Shang Gong Group Co., Ltd

				separate test
No.3 Client	13,987,516.30	13,987,516.30	100.00	Impaired according to the separate test
Total	32,015,520.86	15,933,916.53	49.77	/

Other receivables with provision for bad debt accrued using the aging analysis method in the portfolio:

Aging	Ending Balance
	Other receivables	Provision for bad debt	Proportion of provision(%)
Within 1 year	5,922,821.39	296,141.06	5.00
1-2 years	1,404,446.92	280,889.38	20.00
2-3 years	285,469.04	142,734.52	50.00
Over 3 years	16,201,444.63	16,201,444.63	100.00
Total	23,814,181.98	16,921,209.59	71.06

Other receivables with provision for bad debt accrued using other method in the portfolio:

Name	Receivables	Provision for bad debt	Proportion of provision (%)
Receivables from government agencies and institutions	17,823,075.77
Deposit in security	44,239,906.50
Employee Standby Fund and Employee Collection and Payment	1,942,944.76
Total	64,005,927.03

Other receivable with insignificant individual amount but provision for bad debt is accrued separately atthe end of period

Other receivables (By entity)	Ending Balance
	Other receivables	Provision for bad debt	Proportion of provision (%)	Reason for provision
Other insignificant other receivables (Note 1)	4,529,575.94	17,725.00	0.39	Impaired according to the separate test
Other insignificant other receivables (Note 2)	1,780,485.31	1,780,485.31	100.00	Impaired according to the separate test
Other insignificant other receivables (Note 3)	674,943.00			Unimpaired according to separate test
Other insignificant other receivables (Note 4)	50,000.00	50,000.00	100.00	Impaired according to the separate test
Other insignificant other receivables (Note 5)	1,194,446.34			Unimpaired according to separate test
Other insignificant other receivables (Note 6)	917,350.51	917,350.51	100.00	Impaired according to the separate test
Other insignificant other receivables (Note 7)	18,762.32			Unimpaired according to separate test
Total	9,165,563.42	2,765,560.82	30.17

Note 1: Mainly for other receivables of the parent company of SGG, the impairment provision is madeaccording to the individual amount test.

Note 2: Mainly for the other receivables of the subsidiary Shanghai Shanggong Butterfly SewingMachine Co., Ltd., the impairment provision is made according to the individual amount test.

Note 3: Mainly for the other receivables of the subsidiary DAPSH, no impairment occurred according tothe individual amount test.

Note 4: Mainly for the other receivables of the subsidiary Shanghai SGSB Electronics Co., Ltd., theimpairment provision is made according to the individual amount test.

Note 5: Mainly for other receivables of the subsidiary DA AG, no impairment occurred according to theindividual amount test.

Note 6: Mainly for the other receivables of the subsidiary Shanghai Shensy Enterprise Development Co.,Ltd., the impairment provision is made according to the individual amount test.

Note 7: Mainly for the other receivables of the subsidiary DAP Vietnam Co., Ltd., no impairment wasfound according to the individual amount test.

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

D. The accrual, reversal or recovery of the provision for bad debts in the current periodThe provision for bad debts accrued in the current period is 3,958,712.82 yuan. The amount reversed orrecovered of the provision for bad debts in the current period is 3,823,650.77 yuan.

E. Other receivables actually write-off in the current period

Item	Amount
Other receivables actually write-off	534,288.45

F. Top five other receivables in terms of their ending balance

Company name	Nature	Ending balance	Aging	Proportion in the ending balance of total other receivable (%)	Provision for bad debt ending balance
No.1 Client	Current accounts	18,028,004.56	Within 1year	13.98	1,946,400.23
Export tax refund receivable	Export tax rebate	17,823,075.77	Within 1year	13.82
No.3 Client	Current accounts	13,987,516.30	From within 1year to over 3 years	10.84	13,987,516.30
No.4 Client	Security deposit	4,000,000.00	Within 1year	3.10
No.5 Client	Security deposit	3,500,000.00	Within 1year	2.71
Total	/	57,338,596.63		44.45	15,933,916.53

G. Receivables involving government grantsNot applicable.H. Other receivables derecognized due to the transfer of financial assetsNot applicable.I. Amount of assets and liabilities transferred from other receivables and continue to be involvedNot applicable7) Inventories

A. Classification of inventories

Item	Ending Balance			Beginning Balance
	Book balance	Provision for impairment	Book value	Book balance	Provision for impairment	Book value
Raw materials	344,109,150.92	57,005,053.46	287,104,097.46	285,435,138.31	52,813,472.76	232,621,665.55
Goods in progress	243,900,021.71	39,753,513.85	204,146,507.86	153,406,126.71	28,555,276.42	124,850,850.29
Finished goods	301,330,071.32	40,953,279.20	260,376,792.12	283,033,493.86	39,909,017.40	243,124,476.46
Revolving materials	1,847,268.54	1,158,016.41	689,252.13	1,427,640.89		1,427,640.89
Consigned processing materials	1,312,325.29		1,312,325.29	3,273,904.32		3,273,904.32
Dispatched goods	32,403,336.09		32,403,336.09	20,569,892.77		20,569,892.77
Semi finished product	10,818,745.22	505,376.85	10,313,368.37
Labor cost	100,632,205.51		100,632,205.51	79,273,391.31		79,273,391.31
Total	1,036,353,124.60	139,375,239.77	896,977,884.83	826,419,588.17	121,277,766.58	705,141,821.59

Note 1: For details of the restricted inventory, please refer to ¨DVII. (70) Assets with limited ownership oruse rights¡¬ in this note.

Note 2: The Company¡¯s semi finished products include intelligent equipment projects that have not yetbeen assembled.

B. Inventory depreciation reserve

Item	Beginning Balance	Increase in current period		Decrease in current period		Ending Balance
		Provision	Others	Reversal or write-off	Others
Raw materials	52,813,472.76	1,165,070.61	8,084,531.48	4,693,127.87	364,893.52	57,005,053.46

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	Shang Gong Group Co., Ltd

Item	Beginning Balance	Increase in current period		Decrease in current period		Ending Balance
		Provision	Others	Reversal or write-off	Others
Goods in progress	28,555,276.42	8,478,272.88	3,556,023.51	248,353.85	587,705.11	39,753,513.85
Finished goods	39,909,017.40	3,127,872.07	805,549.73	2,464,395.94	424,764.06	40,953,279.20
Revolving materials		1,065,536.74	167,479.18	74,999.51		1,158,016.41
Semi finished product			985,271.08	479,894.23		505,376.85
Total	121,277,766.58	13,836,752.30	13,598,854.98	7,960,771.40	1,377,362.69	139,375,239.77

C. Explanation of the amount of capitalization of borrowing costs in the ending balance of inventoryNot applicable.

8) Assets held for saleNot applicable.9) Non-current assets maturing within one yearNot applicable.10) Other current assets

Item	Ending Balance	Beginning Balance
Unamortized expense	565,112.42	400,169.64
Input tax to be credited	15,243,281.57	31,638,470.24
Rentals and insurance fees	2,580,239.87	1,592,432.66
Overpaid enterprise income tax	50,937,701.45	902,284.30
Structured deposit	180,000,000.00	332,000,000.00
Total	249,326,335.31	366,533,356.84

11) Available-for-sale financial assets

A. Available-for-sale financial assets

Item	Ending Balance			Beginning Balance
	Book Balance	Provision for Impairment	Book Value	Book Balance	Provision for Impairment	Book Value
Available for sale debt instruments
Available for sale equity instruments	119,431,159.69	1,698,131.91	117,733,027.78	120,658,075.96	1,698,131.91	118,959,944.05
Including: Measured at fair value	86,406,778.33		86,406,778.33	89,721,694.56		89,721,694.56
Measured at cost	33,024,381.36	1,698,131.91	31,326,249.45	30,936,381.40	1,698,131.91	29,238,249.49
Total	119,431,159.69	1,698,131.91	117,733,027.78	120,658,075.96	1,698,131.91	118,959,944.05

B. Available-for-sale financial assets measured at fair value as at the end of report period

Classification of available-for-sale Financial Assets	Available-for-sale Equity Instruments	Available-for-sale Debt Instruments	Total
Cost of equity instruments	74,010,222.53		74,010,222.53
Fair value	86,406,778.33		86,406,778.33
Accumulated changes in fair value included in other comprehensive income	12,396,555.80		12,396,555.80
Accrued provision for impairment

C. Available-for-sale financial assets measured atcost at the end of report period

Investee	Book balance				Provision for impairment				Shareholding ratio in investee (%)	Cash dividend in report period
	Beginning balance	+	-	Ending balance	Beginning balance	+	-	Ending balance
Shanghai Fuji Xerox Co., Ltd.	29,140,749.49			29,140,749.49					15.92	9,949,000.00
Shanghai Hirose									30.00	900,000.00

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	Shang Gong Group Co., Ltd

Precision Industrial Co., Ltd. (Note 1)
Changshu Qixing Elec-plating Co., Ltd.									90.00
Shanghai Huazhijie Plastic Co., Ltd. (Note 2)	736,283.66			736,283.66	736,283.66			736,283.66	23.04
Shanghai Xingguang Underwear Factory (South Africa)	308,033.99			308,033.99	308,033.99			308,033.99	14.30
Wuxi Shanggong Sewing Machines Co., Ltd. (Note 3)	153,814.26			153,814.26	153,814.26			153,814.26	80.00
China Perfect Machinery Co., Ltd.	90,000.00			90,000.00					0.099	10,227.55
Shanghai Baoding Investment Co., Ltd.	7,500.00			7,500.00					0.008	2,875.50
Shanghai Shanggong Jiarong Sewing Machine Trade Co., Ltd.	500,000.00			500,000.00	500,000.00			500,000.00	12.50
Shanghai Pacific Industrial Co., Ltd.£¨Note 4£©		2,087,999.96		2,087,999.96					48.00
Total	30,936,381.40	2,087,999.96		33,024,381.36	1,698,131.91			1,698,131.91		10,862,103.05

Note 1: Shang Gong Group Co., Ltd. holds 30% shares of Shanghai Hirose Precision Industrial Co., Ltd.According to the articles of association, the Company obtains guaranteed minimum revenue each year. Inaddition, the Company does not participate in the decision-making process of daily operations, and does nothave significant influence on the invested enterprise. Therefore, it adopts cost accounting to measure itsrevenue from its shares of Shanghai Hirose Precision Industrial Co., Ltd.

Note 2: Shang Gong Group Co., Ltd. holds 23.04% shares of Shanghai Huazhijie Plastic Co., Ltd.According to the articles of association, Shang Gong Group Co., Ltd. does not have facto control over theinvested enterprise. In addition, the Company does not participate in the decision-making process of dailyoperations, and does not have significant influence on the invested enterprise. Therefore, it adopts costaccounting to measure its revenue from its shares of Shanghai Huazhijie Plastic Co., Ltd.

Note 3: Shang Gong Group Co., Ltd. holds 80.00% shares of Wuxi Shanggong Sewing Machines Co., Ltd.According to the articles of association, Shang Gong Group Co., Ltd. does not have facto control over theinvested enterprise. In addition, the Company does not participate in the decision-making process of dailyoperations, and does not have significant influence on the invested enterprise. Therefore, it adopts costaccounting to measure its revenue from its shares of Wuxi Shanggong Sewing Machines Co., Ltd.

Note 4: The Company holds 48% equity of Shanghai Pacific Industrial Co., Ltd. Since the Company doesnot participate in the business activities of the invested entity, it does not have a significant impact on theinvested entity, so it is accounted for by the cost method.

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

D. Changes in the impairment of available-for-sale financial assets during the reporting period

Classification of Available-for-sale Financial Assets	Available-for-sale Equity Instruments	Available-for-sale Debt Instruments	Total
Balance of provision for impairment accrued as at 1st January 2018	1,698,131.91		1,698,131.91
Provision in Report Period
Including: transfer-in from other comprehensive income
Decrease in Report Period
Including: reversal due to the subsequent increase in fair value
Balance of provision for impairment accrued as at 31st December 2018	1,698,131.91		1,698,131.91

12) Held-to-maturity investmentsNot applicable.13) Long-term receivables

Item	Ending Balance			Beginning Balance			Discount Rate
	Book balance	Provision for bad debt	Book value	Book balance	Provision for bad debt	Book value
Financing lease	31,427,418.92		31,427,418.92
Of which: unrealized financing income	5,591,540.26		5,591,540.26
Total	31,427,418.92		31,427,418.92				/

14) Long-term equity investment

Investees	Beginning Balance	Change in current period								Ending Balance	Ending Balance of Provision of Impairment
		Increase in Investment	Decrease in Investment	Return on Investment under Equity Method	Other Comprehensive Income Adjustment	Other Changes in Equity	Declared Cash Dividends or Profit	Other	Increase in Investment
H. Stoll AG & Co. KG	275,799,606.70			-12,972,718.90			27,041,989.94		12,583,310.03	248,368,207.89
Total	275,799,606.70			-12,972,718.90			27,041,989.94		12,583,310.03	248,368,207.89

15) Investment properties

A. Investment property measured at cost

Item	Buildings and Constructions	Leased Land Use Rights	Investment Real Estate Decoration	Total
1. Original book value
(1) Beginning balance	226,181,075.92	50,523,752.24	2,583,492.92	279,288,321.08
(2) Increase in current period	2,837,434.34			2,837,434.34
¢Ù Outsourcing	2,315,430.07			2,315,430.07
¢Ú Transfer in from inventories, fixed assets or construction in progress
¢Û Increase from business combination
¢Ü Exchange rate fluctuation	522,004.27			522,004.27
(3) Decrease in current period
¢Ù Disposal
4.Ending Balance	229,018,510.26	50,523,752.24	2,583,492.92	282,125,755.42
2. Accumulated depreciation and accumulated amortization
(1) Beginning balance	105,181,671.01	16,183,322.31	688,931.76	122,053,925.08
(2) Increase in current period	5,632,800.53	1,104,003.24	172,233.00	6,909,036.77
¢ÙAmortization or accrual	5,501,506.05	1,104,003.24	172,233.00	6,777,742.29
¢ÚExchange rate fluctuation	131,294.48			131,294.48
(3) Decrease in current period
¢ÙDisposal
(4) Ending balance	110,814,471.54	17,287,325.55	861,164.76	128,962,961.85
3. Provision for impairment
(1) Beginning balance	7,732,063.54			7,732,063.54
(2) Increase in current period	44,594.91			44,594.91
¢ÙAccrual
¢ÚExchange rate fluctuation	44,594.91			44,594.91
(3) Decrease in current period
¢ÙDisposal

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	Shang Gong Group Co., Ltd

¢ÚOthers
(4) Ending balance	7,776,658.45			7,776,658.45
4. Book value
(1) Book value at the end of the period	110,427,380.27	33,236,426.69	1,722,328.16	145,386,135.12
(2) Book value at the beginning of the period	113,267,341.37	34,340,429.93	1,894,561.16	149,502,332.46

Note: For details of the restricted circumstances such as investment real estate mortgage, please refer to¨DVII. (70) Assets with limited ownership or use rights and 14. (II) Contingencies¡¬.

16) Fixed assets

A. Classification

Item	Ending Balance	Beginning Balance
Fixed assets	473,157,221.59	397,788,367.78
Liquidation of Fixed Assets
Total	473,157,221.59	397,788,367.78

B. Fixed assets

Item	Buildings and Constructions	Machinery Equipment	Transportation Equipment	Electronic Equipment	Other Equipment	Total
1. Original book value
(1) Beginning balance	449,191,194.52	391,885,505.83	14,935,691.94	3,916,967.73	280,602,586.17	1,140,531,946.19
(2) Increase in current period	82,762,170.09	39,282,629.74	6,758,433.32	4,868,116.16	24,903,764.72	158,575,114.03
¢Ù Purchase	18,043,421.67	27,554,064.83	2,334,223.77	549,580.01	23,394,982.59	71,876,272.87
¢Ú Transfer from construction in progress		94,167.60		61,327.34	439,448.80	594,943.74
¢Û Increase from business combination	63,267,378.54	11,360,584.66	4,424,209.55	4,255,522.28	249,313.00	83,557,008.03
¢ÜExchange rate fluctuation	1,451,369.88	273,812.65		1,686.53	820,020.33	2,546,889.39
(3) Decrease in current period	2,043,450.90	11,831,012.24	806,064.83	1,425,971.50	4,726,217.31	20,832,716.78
¢ÙDisposal or scrap	2,042,503.40	11,803,269.44	806,064.83	1,425,971.50	4,669,628.27	20,747,437.44
¢Ú Exchange rate fluctuation	947.50	27,742.80			56,589.04	85,279.34
(4) .Ending Balance	529,909,913.71	419,337,123.33	20,888,060.43	7,359,112.39	300,780,133.58	1,278,274,343.44
2. Accumulated depreciation
(1) Beginning balance	226,646,410.27	261,274,240.20	7,965,828.54	2,667,327.07	231,928,699.23	730,482,505.31
(2) Increase in current period	32,423,745.25	22,170,957.15	3,574,444.67	4,277,096.69	16,441,556.94	78,887,800.70
¢ÙAccrual	10,569,402.64	18,457,620.31	1,731,248.03	1,429,545.36	15,734,314.41	47,922,130.75
¢ÚIncrease in the business scope of consolidation	20,882,854.70	3,472,088.48	1,843,196.64	2,846,896.08	226,884.23	29,271,920.13
¢ÛExchange rate fluctuation	971,487.91	241,248.36		655.25	480,358.30	1,693,749.82
(3) Decrease in current period	1,638,098.62	8,936,083.34	591,460.24	1,275,229.13	4,298,915.65	16,739,786.98
¢ÙDisposal or scrap	1,637,605.92	8,914,366.64	591,460.24	1,275,229.13	4,280,913.15	16,699,575.08
¢ÚExchange rate fluctuation	492.70	21,716.70			18,002.50	40,211.90
(4) Ending balance	257,432,056.90	274,509,114.01	10,948,812.97	5,669,194.63	244,071,340.52	792,630,519.03
3. Provision for impairment
(1) Beginning balance	4,913,777.92	7,232,165.07	75,908.67	37,818.61	1,402.83	12,261,073.10
(2) Increase in current period		409,415.30				409,415.30
¢ÙAccrual		409,415.30				409,415.30
(3) Decrease in current period		156,147.61	27,737.97			183,885.58
¢Ù Disposal or scrap		156,147.61	27,737.97			183,885.58
(4) Ending balance	4,913,777.92	7,485,432.76	48,170.70	37,818.61	1,402.83	12,486,602.82
4. Book value
(1) Book value at the end of the period	267,564,078.89	137,342,576.56	9,891,076.76	1,652,099.15	56,707,390.23	473,157,221.59
(2) Book value at the beginning of the period	217,631,006.33	123,379,100.56	6,893,954.73	1,211,822.05	48,672,484.11	397,788,367.78

Note: For details of the restrictions on fixed assets mortgage, please refer to ¨DVII. (70) Assets with limitedownership or use rights and 14. (II) Contingencies¡¬.

C. Idle fixed assets

Item	Book value	Accumulated depreciation	Impairment	Book value	Note
Machinery and equipment	1,060,570.30	758,706.83	295,393.48	6,500.00
Total	1,060,570.30	758,706.82	295,393.48	6,500.00

D. Fixed assets leased through finance leases

Item	Book value	Accumulated depreciation	Impairment	Book value
Machinery and equipment	5,834,516.29	634,265.41		5,200,250.88
Transportation Equipment	5,905,280.88	1,230,693.18		4,674,587.70

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	Shang Gong Group Co., Ltd

Total

11,739,797.17

1,864,958.59

9,874,838.58

E. Fixed assets leased out through operating leases

Item	Ending Book Value
Machinery and equipment	120,960.00
Electronic equipment	175,960.00
Total	296,920.00

F. Fixed assets without certificate of title

Item	Book value	Reason for failure in completing the formalities for obtaining certificates of title
Buildings and constructions	1,793,232.40	Self-built housing, the certificates are in the process

Note: Self-built housing for the Company¡¯s subsidiary Shanghai SGSB Asset Management Co., Ltd.

17) Construction in progress

Item	Ending Balance			Beginning Balance
	Book balance	Provision for impairment	Book value	Book balance	Provision for impairment	Book value
Household multifunctional sewing machine	1,304,367.87		1,304,367.87	1,025,599.74		1,025,599.74
Software development project	1,589,858.17		1,589,858.17	186,166.68		186,166.68
Sewing Equipment Engineering	14,361,655.65		14,361,655.65	4,347,153.83		4,347,153.83
Bensheim base project	7,140,762.85		7,140,762.85
Modern logistics management center	54,755,378.01		54,755,378.01	4,858,082.75		4,858,082.75
Taizhou manufacturing project	28,259,697.79		28,259,697.79
Construction Project	6,269,885.19		6,269,885.19	2,248,271.09		2,248,271.09
Equipment project	1,657,178.48		1,657,178.48
Production process improvement project	3,827,843.74		3,827,843.74
Total	119,166,627.75		119,166,627.75	12,665,274.09		12,665,274.09

A. Changes in major construction in progress for current period

Item	Budget	Beginning balance	Increase in current period	Amount Transferred in Fixed Assets for the Current Period	Other decreases in current period	Ending balance	Proportion of the accumulated investment in project in budget (%)	Construction in progress	Accumulated amount of interest capitalization	Including: amount of interest capitalization in 2017	Interest capitalization rate in 2017(%)	Source of Fund
Household multifunctional sewing machine		1,025,599.74	278,768.13			1,304,367.87						Self-owned
Software development project		186,166.68	1,616,797.82	61,327.34	151,778.99	1,589,858.17						Self-owned/ raised
Sewing Equipment Engineering		4,347,153.83	10,548,118.22	533,616.40		14,361,655.65						Self-owned
Bensheim base project			7,140,762.85			7,140,762.85						Self-owned
Modern logistics management center		4,858,082.75	49,897,295.26			54,755,378.01						Self-owned
Taizhou manufacturing project			28,259,697.79			28,259,697.79						Self-owned
Construction Project		2,248,271.09	5,913,209.58		1,891,595.48	6,269,885.19						Self-owned
Equipment project			1,657,178.48			1,657,178.48						Self-owned/ raised
Production process improvement project			3,827,843.74			3,827,843.74						Self-owned

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Total

12,665,274.09

109,139,671.87

594,943.74

2,043,374.47

119,166,627.75

/

/

/

/

Note 1: The software development project was transferred to intangible assets after partial acceptance thisyear.

Note 2: The construction project will be transferred to the long-term deferred expenses after partialcompletion and acceptance this year.

18) Productive biological assets

Not applicable.

19) Oil and gas assets

Not applicable.

20) Intangible assets

A. Intangible assets

Item	Land Use Right	Trademark Use Right	Patent and Non-patent Technology	Computer Software	Others	Total
1. Original book value
(1) Beginning balance	101,054,020.23	20,161,268.51	134,827,412.78	5,273,690.04	6,187,223.90	267,503,615.46
(2) Increase in current period	67,917,887.04	12,000,000.00	64,365,166.81	3,755,633.37	35,685.00	148,074,372.22
¢Ù Purchase	37,499,895.00		24,271,951.35	351,724.20		62,123,570.55
¢Ú R & D
¢Ú Increase from business conbination	30,417,992.04	12,000,000.00	28,400,000.00	304,957.26		71,122,949.30
¢ÛExchange rate fluctuation			722,690.06		35,685.00	758,375.06
¢ÚTransfer from construction in progress/ development expenditure			10,970,525.40	3,098,951.91		14,069,477.31
(3) Decrease in current period			973,065.20			973,065.20
¢Ù Disposal			968,365.60			968,365.60
¢ÚExchange rate fluctuation			4,699.60			4,699.60
(4) .Ending Balance	168,971,907.27	32,161,268.51	198,219,514.39	9,029,323.41	6,222,908.90	414,604,922.48
2. Accumulated amortization
(1) Beginning balance	9,445,749.34	20,161,268.51	79,996,390.86	1,724,825.39	6,187,223.90	117,515,458.00
(2) Increase in current period	5,300,467.94	400,000.00	20,821,229.67	1,432,797.73	35,685.00	27,990,180.34
¢Ù Accrual	3,673,475.90	400,000.00	20,414,779.18	1,258,980.16		25,747,235.24
¢Ú increase of scope of consolidation	1,626,992.04			173,817.57		1,800,809.61
¢Û Exchange rate fluctuation			406,450.49		35,685.00	442,135.49
(3) Decrease in current period			973,065.20			973,065.20
¢Ù Disposal			968,365.60			968,365.60
¢Ú Exchange rate fluctuation			4,699.60			4,699.60
4.Ending Balance	14,746,217.28	20,561,268.51	99,844,555.33	3,157,623.12	6,222,908.90	144,532,573.14
3. Provision for impairment
(1) Beginning balance
(2) Increase in current period
¢Ù Accrual
(3) Decrease in current period
¢Ù Disposal
(4) Ending balance
4. Book value
(1) Book value at the end of the period	154,225,689.99	11,600,000.00	98,374,959.06	5,871,700.29		270,072,349.34
(2) Book value at the beginning of the period	91,608,270.89		54,831,021.92	3,548,864.65		149,988,157.46

For details of the intangible assets mortgage, please refer to ¨DVII. (70) Assets with limited ownership oruse rights¡¬ in this note.

21) Development Expenditures

Item	Beginning Balance	Increase in current period	Decrease in current period		Ending Balance
		Internal Development Expenditure	Recognized as Intangible Assets	Transferred to Current Profits and Losses
Sewing equipment	11,968,675.38	5,732,180.04	10,970,525.40	535,790.98	6,194,539.04
WeChat platform	1,099,814.50		1,099,814.50
Freight platform	3,615,282.96	1,035,848.90	4,047,358.42		603,773.44
Total	16,683,772.84	6,768,028.94	16,117,698.32	535,790.98	6,798,312.48

Note: The development expenditures of sewing equipment represent the development costs of DAP AG.The development expenditures of WeChat platform and Freight platform represent the development costs ofSHENSY. During the year, Shanghai Shensy Enterprise Development Co., Ltd. transferred the developedWeChat platform and freight platform to intangible assets, and the government subsidies related to it receivedis used to offset the book value of intangible assets. For details, please refer to ¨DNote 73¡¬. Government

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	Shang Gong Group Co., Ltd

subsidies, (1) Basic information on government subsidies.¡¬

22) GoodwillA. Book value of goodwill

Name of investee or goodwill formation events	Beginning Balance	Increase in Current Period		Decrease in Current Period		Ending Balance
		Acquisition	Exchange Rate Fluctuation	Disposal
PFAFF GmbH	72,482,033.43		418,042.31			72,900,075.74
Beisler	22,732,781.28		131,112.00			22,863,893.28
Richpeace		77,544,194.54				77,544,194.54
Total	95,214,814.71	77,544,194.54	549,154.31			173,308,163.56

B. Provision for impairment of goodwill

Name of investee or goodwill formation events	Beginning Balance	Increase in Current Period		Decrease in Current Period		Ending Balance
		Acquisition	Exchange Rate Fluctuation	Disposal
Beisler	22,732,781.28		131,112.00			22,863,893.28
PFAFF GmbH		10,370,000.00				10,370,000.00
Total	22,732,781.28	10,370,000.00	131,112.00			33,233,893.28

C. Information about the asset group or asset group combination in which the goodwill is locatedThe company¡¯s goodwill belongs to the sewing equipment and intelligent manufacturing equipmentdivision. After the acquisition, the company re-planned the product portfolio of each subsidiary, and eachsubsidiary independently produced and operated according to the product portfolio planned by the company.Therefore, all the assets of each subsidiary constitute the smallest cash-generating unit. Based on this, theCompany separately treats each subsidiary as a separate asset group, and distributes the goodwill formed bythe acquisition to the corresponding asset group for impairment test.

The company acquired PFAFF and KSL in March 2013. In March 2015, PFAFF absorbed and mergedwith KSL. After the merger was completed, KSL became a subsidiary of PFAFF. However, KSL¡¯s productportfolio and various business activities remain unchanged and independent of PFAFF. The Company stillconducts the goodwill impairment test of PFAFF and KSL as different asset groups, and the results of thegoodwill impairment test are disclosed according to the independent legal entity.

D. The Company confirms the impairment loss of goodwill against the recoverable amount and bookvalue of the asset group including goodwill. The recoverable amount is determined based on the present valueof the estimated future cash flow of the asset group. The management of the Company prepares the cash flowforecast for the next five years based on the most recent financial budget, and estimates the cash flow for thefollowing years, which is discounted accordingly. The key parameters used by the Company in conductinggoodwill impairment testing are as follows:

	Operating income growth rate£¨%£©	Gross profit margin£¨%£©	Discount Rate£¨%£©
PFAFF	0.00 or 4.00-13.00	25.00-28.00	10.24
KSL	0.00 or 7.00-33.00	22.00-25.00	10.25
Richpeace	0.00 or 5.00-10.00	40.00	14.70

The management of the Company determines the above parameters based on the historical situationbefore the budget period and the forecast of market development. The Company assumes that the operatingincome growth rate will be 0.00% in the next five years (after 2024 and after the period).

According to PFAFF¡¯s signed irrevocable sales orders, the company¡¯s estimated operating income growthrate for the year 2019 is 13.00%, and the expected operating income growth rate for the period 2020-2023 is4.00%-5.00%.

As KSL¡¯s production site in Bensheim, Germany, is scheduled to be completed in 2019, the company¡¯sestimated operating revenue growth rate for the 2019 is 33.00% based on the capacity of the new production

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	Shang Gong Group Co., Ltd

base and KSL¡¯s irrevocable sales orders. The projected revenue growth rate for the period from 2020 to 2023 is7.00%-25.00%.

E. Impact of goodwill impairment testBased on the above assumptions, the results of the Company¡¯s goodwill impairment test this year are asfollows:

Unit: RMB 10,000

	Asset group recoverable amount	Book value of asset group	Goodwill impairment loss
PFAFF	11,763.00	11,838.00	75.00
KSL	10,661.00	11,623.00	962.00
Richpeace	31,570.00	29,849.67	N/A

23) Long-term deferred expenses

Item	Beginning Balance	Increase in Current Period	Amortization in Current Period	Other Decreases in Current Period	Ending Balance
Enterprise Mailbox rental expense	142,249.20	63,786.66	53,395.04		152,640.82
Online brand registration fee	486,727.12	59,433.96	112,061.15		434,099.93
Landscape engineering	134,531.10		48,920.40		85,610.70
Leasehold improvements	123,916.71	2,737,816.86	248,418.88		2,613,314.69
Tooling cost	743,589.75		153,846.12		589,743.63
Total	1,631,013.88	2,861,037.48	616,641.59		3,875,409.77

24) Deferred income tax assets / deferred income tax liabilitiesA. Deferred income tax assets

Item	Ending Balance		Beginning Balance
	Deductible temporary differences	Deferred income tax assets	Deductible temporary differences	Deferred income tax assets
Unrealized profits from internal transactions		9,942,558.47		11,066,767.51
Receivables		2,812,242.21		1,885,764.75
Inventories		23,969,903.97		19,654,766.53
Long-term assets		850,120.55		353,743.29
Pension (Europe)		32,606,465.72		34,005,022.74
Deferred income				550,000.00
Estimated liabilities		168,180.00		136,615.48
Other liabilities		3,171,305.91		3,796,682.43
Offset amount		-4,669,915.99		-7,904,454.50
Total		68,850,860.84		63,544,908.23

B. Deferred income tax liabilities

Item	Ending Balance		Beginning Balance
	Taxable temporary differences	Deferred income tax liabilities	Taxable temporary differences	Deferred income tax liabilities
Receivables		5,426,063.85		6,146,045.08
Inventories				446,228.60
Long-term assets		65,007,499.07		49,472,348.52
Other liabilities		5,041,589.51		4,702,973.72
Offset amount		-4,669,915.99		-7,904,454.50
Total		70,805,236.44		52,863,141.42

25) Other non-current assetsNot applicable.

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	Shang Gong Group Co., Ltd

26) Short-term loans

Item	Ending Balance	Beginning Balance	Note
Mortgage loans	15,000,000.00	10,221,013.00	Note 1
Guaranteed loans	157,900,000.00	319,820,040.00	Note 2
Credit loans	33,714,015.12	348,148.62
Total	206,614,015.12	330,389,201.62

Note 1: Richpeace, a subsidiary of the Company, secured the fixed assets with a book value of RMB8,596,802.43 and intangible assets with a book value of RMB 5,389,231.47 as collateral to guarantee thecompany and its third-tier subsidiary Tianjin Richpeace Times Trading Co., Ltd. to borrow RMB 9,000,000.00and RMB 6,000,000.00 from Tianjin Baodi Pufa Village Bank respectively. At the same time, natural personsFeng Hui and Zhou Jiao (a member of the management team of Richpeace) provided joint liability guaranteefor the aforementioned loans.

Note 2: Please refer to ¨DIV. Commitments and Contingencies, (II) Contingencies, Note 2, Note 5¡¬ fordetails of the guarantees related to guarantee loans.

27) Financial liabilities measured at fair value through profit or loss for the current period

Not applicable.

28) Derivative financial liabilities

Not applicable.

29) Notes payable and accounts payable

Item	Ending Balance	Beginning Balance
Notes payable	71,109,160.21	12,311,525.18
Accounts payable	247,693,879.70	194,031,795.38
Total	318,803,039.91	206,343,320.56

Notes payable

Type	Ending Balance	Beginning Balance
Bank acceptance bill	71,109,160.21	12,311,525.18
Total	71,109,160.21	12,311,525.18

Accounts payable

Item	Ending Balance	Beginning Balance
Payable to suppliers	247,693,879.70	194,031,795.38
Total	247,693,879.70	194,031,795.38

30) Receipt in advance

Item	Ending Balance	Beginning Balance
Advances on sales	75,412,987.77	38,326,094.65
Total	75,412,987.77	38,326,094.65

31) Employee compensation payable

A. Employee compensation payable

Item	Beginning Balance	Increase in current period	Decrease in current period	Ending Balance
Short-term remuneration	70,429,400.35	693,036,304.70	682,047,283.36	81,418,421.69
Post-employment benefits ¨C defined benefit plans	591,856.15	23,126,011.64	22,761,103.49	956,764.30
Dismissal welfare		29,000.00	29,000.00
Defined benefit plan maturing within one year	20,090,922.50	18,812,566.00	20,109,205.00	18,794,283.50
Total	91,112,179.00	735,003,882.34	724,946,591.85	101,169,469.49

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

B. Short-term remuneration

Item	Beginning Balance	Increase in Current Period	Decrease in Current Period	Ending Balance
(1) Salary, bonus, allowance and subsidy	69,704,983.42	548,154,927.92	556,054,510.90	61,805,400.44
(2) Employee welfare	8,639.56	126,526,718.28	107,780,559.91	18,754,797.93
(3) Social insurance expenses	490,969.52	10,844,170.72	10,837,600.28	497,539.96
Including: medical insurance premium	342,596.18	8,990,949.83	8,981,683.24	351,862.77
Work-related injury insurance premium	37,465.61	651,488.90	650,774.99	38,179.52
Maternity insurance premium	20,885.53	801,099.48	794,330.57	27,654.44
Other	90,022.20	400,632.51	410,811.48	79,843.23
(4) Housing provident funds	160,871.34	5,806,497.60	5,644,623.94	322,745.00
(5) Labor union expenditures and employee education expenses	63,936.51	1,703,990.18	1,729,988.33	37,938.36
(6) Short-term paid absences
(7) short-term profit-sharing plan
Total	70,429,400.35	693,036,304.70	682,047,283.36	81,418,421.69

C. Defined contribution plan

Item	Beginning Balance	Increase in current period	Decrease in current period	Ending Balance
Basic endowment insurance premium	574,972.14	21,331,979.76	20,972,734.19	934,217.71
Unemployment insurance premium	16,884.01	605,417.45	599,754.87	22,546.59
Payment of annuity		1,188,614.43	1,188,614.43
Total	591,856.15	23,126,011.64	22,761,103.49	956,764.30

32) Taxes and surcharges payable

Item	Ending Balance	Beginning Balance
Value-added tax	6,825,857.95	4,454,097.17
Enterprise income tax	8,221,152.27	3,646,204.96
Individual income tax	4,696,274.54	5,613,216.71
Urban maintenance and construction tax	524,568.34	186,230.26
Educational surtax	417,462.59	168,142.01
Use tax of land	473,407.84
Stamp tax	10,922.70	6,696.80
Others	39,215.94
Total	21,208,862.17	14,074,587.91

33) Other payables

Item	Ending Balance	Beginning Balance
Interest Payable	805,898.77	1,110,553.06
Dividends payable	1,032,818.86	1,032,818.86
Other payables	252,988,505.87	193,617,747.74
Total	254,827,223.50	195,761,119.66

Interest Payable

Item	Ending Balance	Beginning Balance
Term interest on long-term borrowings due in installments	478,320.87	471,243.32
Short-term loan interest payable	327,577.90	639,309.74
Total	805,898.77	1,110,553.06

Dividends payable

Item	Ending Balance	Beginning Balance
Light Industrial Holding Group Co., Ltd	959,269.79	959,269.79

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Privately-owned corporate shares	73,549.07	73,549.07
Total	1,032,818.86	1,032,818.86

Other payables

Item	Ending Balance	Beginning Balance
Other payables	252,988,505.87	193,617,747.74
Total	252,988,505.87	193,617,747.74

34) Liabilities held for saleNot applicable.

35) Non-current liabilities maturing within 1 year

Item	Ending Balance	Beginning Balance
Long-term payable due within one year	1,473,297.07
Deferred income due within one year	2,700,000.00	1,260,000.00
Total	4,173,297.07	1,260,000.00

36) Other current liabilities

Item	Ending Balance	Beginning Balance
Short-term bond payable
Interest and rentals	47,083.80	48,330.03
Total	47,083.80	48,330.03

37) Long-term loans

Item	Ending Balance	Beginning Balance
Mortgage loans	61,821,029.40	61,466,519.40
Credit loans	278,656,620.87	1,489,984.87
Total	340,477,650.27	62,956,504.27

Note: For the description of the related mortgages in the closing balance of the mortgage loan of RMB61,821,029.40 (€7,878,000.00), please refer to ¨D14. Commitments and Contingencies, (2) Contingencies, Note1¡¬.

38) Bonds payable

Not applicable.

39) Long-term payables

Item	Ending Balance	Beginning Balance
Long-term payables	3,403,296.49	3,121,893.11
Total	3,403,296.49	3,121,893.11

Item	Beginning Balance	Ending Balance
Financing lease payments	1,853,818.94	960,531.14
Less: unconfirmed financing charges	213,538.77	79,007.64
other	1,763,016.32	2,240,369.61
Total	3,403,296.49	3,121,893.11

40) Long-term employee compensation payable

A. Long-term employee compensation payable

Item	Ending Balance	Beginning Balance
1. Post-employment benefits ¨C net liability of defined benefit plan	234,036,612.41	243,516,774.09
2. Dismissal welfare
3. Other long-term benefits		3,904,003.23
Total	234,036,612.41	247,420,777.32

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

B. Changes of defined benefit plan liabilitiesPresenet value of liabilities of defined benefit plan:

Item	2018	2017
1. Beginning Balance	263,607,696.59	271,454,022.22
2. Cost of defined benefit plan included in current profit and loss	5,380,676.60	4,971,817.2
1) Current service cost	1,093,316.00	1,038,659.20
2) Previous service cost
3) Settlement gains (loss is indicated by ¨D-¨D)
4) Net interest	4,287,360.60	3,933,158.00
3. Cost of defined benefit plan included in other comprehensive income	203,044.40	-8,798,054.40
1) Actuarial gains (loss is indicated by ¨D-¨D)	203,044.40	-8,798,054.40
4. Other change	-16,360,521.68	-4,020,088.43
1) The consideration paid at the time of settlement
2) Paid benefits	-19,992,064.00	-21,872,940.80
3) Exchange rate fluctuation	3,631,542.32	17,852,852.37
5. Ending Balance	252,830,895.91	263,607,696.59

Defined benefit plan of DA AG is based on supporting commitment.The base of measuring supporting liability is on actuarial and hypothesis, not only consider known andpossessed right to draw defined benefit plan, but the increase of future payroll and defined benefit plan. By theend of 2018, the weighted average period of defined benefit plan liability is 10.36 year. (10.28 year by the endof 2017). Assumed payment of defined benefit plan in 2019 is the same as in 2018.

¢Ù Significant actuarial assumptions:

The method used to calculate pension obligations is actuarial. The computation basis includes lifeexpectancy, developed rate, changes in pension, and developed payroll trends.

In 2018, actuarial assumptions are below, compared with 2017

Item	2018	2017
Actuaria rate	3.21%	1.70%
Rate of payroll increase	2.00%	2.00%
Rate of pension increase	1.50%	1.50%

¢Ú Sensitivity analysis

On 31

st

December 2018, sensitivity analysis was executed based on rational judgment possible changes inassumptions. Other assumptions remain unchanged.

Item	PV of defined benefit plan liability increase	PV of defined benefit plan liability decrease
Discount rate (changed by 0.5%)	13,127,601.40	-11,971,810.20
Increase in payroll (changed by 0.5%)	413,898.20	-390,470.00
Increase in pension (changed by 0.5%)	11,308,011.20	-10,448,977.20
Life expectancy (changed by 1 year)	21,577,372.20	¡ª

The sensitivity analysis above may not reflect the actual change of present value of defined benefit plan.

41) Estimated liabilities

Item	Beginning Balance	Ending Balance	Reason
Pending litigation	546,461.91	672,720.00	Expected compensation expenses
Total	546,461.91	672,720.00	/

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

42) Deferred income

Item	Beginning Balance	+	-	Ending Balance	Reason
Government grants	2,340,000.00		2,340,000.00
Total	2,340,000.00		2,340,000.00		/

Projects that involve government grants:

Item	Beginning Balance	Subsidies Increased in Current period	Subsidies Included in Current Non-operating Income	Other Change	Ending Balance	Asset-related / Income-related	Item
Guiding funds of developing service industry	2,200,000.00				-2,200,000.00		Asset-related
Taizhou science and Technology Bureau R & D expenditure subsidy	140,000.00		140,000.00				Income-related
Total	2,340,000.00		140,000.00		-2,200,000.00

Other changes (reduction) of the logistics project development fund are the completion of thedevelopment project of the Shanghai Shensy Enterprise Development Co., Ltd. of this year, which istransferred to intangible assets, and the related deferred income offsets the book value of intangible assets.

43) Other non-current liabilities

Item	Ending Balance	Beginning Balance
Other long-term loan	520,000.00	520,000.00
Total	520,000.00	520,000.00

44) Share capital

	Beginning Balance	Change in Current Period£¨+/-£©			Ending Balance
		Issuance of New Shares	Others	Sub-total
Total	548,589,600.00				548,589,600.00

45) Other equity instruments

Not applicable.

46) Capital reserves

Item	Beginning Balance	Increase in Current Period	Decrease in Current Period	Ending Balance
Stock premium	851,345,853.61			851,345,853.61
Other capital reserves	120,654,741.95		55,785,147.32	64,869,594.63
Total	972,000,595.56		55,785,147.32	916,215,448.24

The reduction of capital reserve is the acquisition of minority shareholders¡¯ equity by the Company¡¯spremium, and the premium partially offsets the capital reserve. For details, please refer to ¨DNote IX. Interestsin other entities, (2) Changes in the share of owners¡¯ equity in subsidiaries and control of transactions ofsubsidiaries, 2. Transactions on minority shareholders and ownership of owners¡¯ equity Impact¡¬.

47) Treasury stock

Not applicable.

48) Other Comprehensive Income

Item	Beginning Balance	Change in Current Period					Ending Balance
		Accrual before Income tax for the Current Period	Less: recognized as other comprehensive income for previous years and transferred in the profit or loss for the current year	Less: Income Tax Expenses	Attributable to Owners of the Parent Company	Attributable to Minority Shareholders

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

1. Other comprehensive income that cannot be reclassified in the loss and gain in the future	-43,487,893.99	-203,044.40		-7,809.40	-195,235.00		-43,683,128.99
Including: change in re-measurement of the net liabilities and net assets under defined benefit plan	-43,487,893.99	-203,044.40		-7,809.40	-195,235.00		-43,683,128.99
A share in other comprehensive income of investee that cannot be reclassified in the losses and gains under the equity method
2. Other comprehensive income that will be reclassified in the loss and gain in the future	-28,675,558.91	-3,342,406.51			-3,342,406.51		-32,017,965.42
Including: a share in other comprehensive income of investee that will be reclassified in the loss and gain under the equity method
Losses and gains on the change in fair value of available-for-sale financial assets	15,711,472.03	-3,314,916.23			-3,314,916.23		12,396,555.80
Held-to-maturity investments reclassified as losses and gains on available-for-sale financial assets
Effective portion of losses and gains on cash flow hedges
Foreign currency translation differences	-44,387,030.94	-27,490.28			-27,490.28		-44,414,521.22
Total other comprehensive income	-72,163,452.90	-3,545,450.91		-7,809.40	-3,537,641.51		-75,701,094.41

49) Special reserveNot applicable.

50) Surplus reserves

Item	Beginning Balance	Increase in current period	Decrease in current period	Ending Balance
Statutory surplus reserves	2,273,121.26			2,273,121.26
Discretionary surplus reserves	2,273,121.26			2,273,121.26
Total	4,546,242.52			4,546,242.52

51) Undistributed profits

Item	Reporting period	Same period of the previous year
Adjustments to undistributed profits as at December 31, 2017	692,241,691.51	494,754,465.24
Adjustments to total undistributed profits as at January 1, 2018 (¨D+¡¬ for increase, ¨D-¨D for decrease)
Adjusted undistributed profits as at January 1, 2018	692,241,691.51	494,754,465.24
Plus: net profit attributable to owners of the parent company for current period	140,828,047.20	197,487,226.27
Less: withdrawal of statutory surplus reserves
Withdrawal of discretionary surplus reserves
Withdrawal of general risk reserves
Ordinary share dividends payable
Ordinary share dividend transferred to share capital (paid-in capital)
Other	13,861,685.00
undistributed profits as at December 31, 2018	819,208,053.71	692,241,691.51

Note: Other reductions are the acquisition of minority shareholders¡¯ equity premiums by DA AG, asubsidiary of the Company, which offsets retained earnings.

52) Operating income and operating costs

Item	2018		2017
	Income	Cost	Income	Cost

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Main business	3,074,679,494.14	2,235,472,804.92	2,973,395,095.35	2,191,026,910.61
Other businesses	125,848,246.95	86,679,925.97	91,576,405.44	54,510,418.65
Total	3,200,527,741.09	2,322,152,730.89	3,064,971,500.79	2,245,537,329.26

53) Taxes and surcharges

Item	2018	2017
Urban maintenance and construction tax	2,026,701.31	3,841,225.33
Educational surtax	1,653,067.87	2,851,563.83
Property tax	3,875,635.78	4,557,720.89
land use tax	3,408,292.34	1,206,499.65
Vehicle and vessel tax	174,043.92	29,173.45
Stamp tax	976,763.08	794,782.50
Other	918,706.91	164,598.33
Total	13,033,211.21	13,445,563.98

54) Selling expenses

Item	2018	2017
Employee compensation	144,738,512.88	127,100,318.51
Fix and after-sale service charges	27,142,860.46	16,883,164.44
Office expenses	1,352,509.32	1,636,944.60
Travelling expenses	22,650,014.98	19,339,407.84
Transportation cost	28,614,220.14	23,818,035.11
Advertising expense	3,966,999.44	5,448,163.62
Commission	34,776,854.93	32,259,945.51
Leasing and storage charges	9,760,134.13	9,715,517.43
Insurance premium	1,875,695.42	1,305,233.66
Conference fees	127,812.64	1,420,907.90
Depreciation costs	2,996,905.44	2,137,262.39
Exhibition fees	2,961,522.90	6,697,223.82
Sample printed matter and product loss	12,726,208.62	11,978,393.15
Entertainment expenses	1,706,092.80	594,503.68
E-commerce service fee	1,180,310.00	226,972.23
Other	26,120,252.01	24,248,893.32
Total	322,696,906.11	284,810,887.21

55) General and administrative expenses

Item	2018	2017
Employee compensation	150,462,688.99	142,665,436.43
Office expenses	9,359,090.03	9,234,901.56
Water and electricity	1,636,587.92	1,134,181.97
Entertainment expenses	8,293,683.75	5,630,236.43
Property insurance premium	2,065,233.87	1,892,141.80
Conference fees	606,887.82	1,248,356.45
Travelling expenses	10,611,440.65	9,345,153.24
Depreciation costs	14,177,905.04	10,418,234.14
Repair charges	637,038.59	1,682,156.57
Transportation cost	1,445,861.81	1,624,137.32
Rental fees	10,724,657.60	4,955,542.72
Costs of board meetings and supervisors¡¯ meetings	547,472.11	523,146.21
Agency fees and advisory expenses	17,843,739.89	13,263,611.48
Litigation cost	234,967.57	738,687.57
Other	1,855,424.34	2,665,484.81
Total	230,502,679.98	207,021,408.70

56) R &D expenses

Item	2018	2017
Employee compensation	67,347,677.92	48,564,093.48

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Material consumption	24,860,961.88	29,796,060.27
Depreciation and amortization expenses	2,583,510.19	3,198,130.60
Others	2,855,507.58	2,791,971.05
Total	97,647,657.57	84,350,255.40

57) Financial expenses

Item	2018	2017
Interest expenses	14,154,020.93	13,537,239.17
Less: Interest income	-4,431,325.55	-12,388,093.76
Gains and losses on exchange	4,834,141.46	-6,945,484.64
Others	2,302,902.64	532,811.33
Total	16,859,739.48	-5,263,527.90

58) Losses from asset impairment

Item	2018	2017
Losses from bad debts	752,808.27	14,232,260.76
Losses from inventory impairment	9,068,644.01	9,538,291.98
Fixed asset impairment loss	409,415.30	2,427,110.04
Goodwill impairment loss	10,370,000.00
Total	20,600,867.58	26,197,662.78

59) Other gains

Item	2018	2017
Financial support fund	7,858,472.82	10,730,000.00
VAT refund	293,707.16	809,353.65
Special subsidies for employee education funds	194,940.70	31,010.22
Special funds for economic development	234,000.00	140,000.00
Trademarks and intellectual property, science and technology project related subsidies	1,080,800.00
Special subsidies for financing leases	278,600.00
Special subsidies for sewing equipment research and development projects	140,000.00
Others	109,984.55	2,810.88
Total	10,190,505.23	11,713,174.75

60) Investment income

Item	2018	2017
Long-term equity investments measured under equity method	-12,972,718.90	17,990,723.92
Investment income from disposal of long-term equity investment
investment income of a financial asset at its fair value and whose changes are included in the current profits and losses during the period of holding
Investment income obtained from the disposal of financial assets at fair value and their changes are included in the current profits and losses	45,148.42	16,690.26
Investment income of the held-to-maturity investment during the holding period
Investment income derived from available-for-sale financial assets
Investment income from disposal of available-for-sale financial assets	12,526,301.81	16,249,837.40
After the loss of control, the residual equity is measured at fair value		-7.64
Others
Item	13,159,536.73	11,350,015.35
Total	12,758,268.06	45,607,259.29

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

61) Gains from changes in fair valueNot applicable.

62) Gains on disposal of assets

Item	2018	2017
Fixed assets	-104,177.97	23,963,103.89
Intangible assets	547,886.02
Total	443,708.05	23,963,103.89

63) Non-operating incomeNon-operating income

Item	2018	2017	Amount included in current non-recurring gains and losses
Government grants	838.00	148,710.23	838.00
Unpayable payables	3,150,715.12		3,150,715.12
Export trade rebate	2,103,953.87	2,131,628.81	1,222,714.92
Litigation gains	1,874,114.87		1,874,114.87
Others	749,082.64	6,912,409.04	749,082.64
Total	7,878,704.50	9,192,748.08	6,997,465.55

Government grants included in current profit and loss

Item	Reporting period	Same period of the previous year	Asset-related /Income-related
Shanghai old public housing management fee subsidies		85,710.23
Other	838.00	63,000.00	Income-related
Total	838.00	148,710.23

64) Non-operating expenses

Item	2018	2017	Amount included in current non-recurring gains and losses
Fixed asset disposal loss	1,728,803.67	412,623.36	1,728,803.67
Donations made	683,000.00	200,000.00	683,000.00
Amercement and overdue fine outlay	624,345.07	2,547,131.17	624,345.07
Others	1,029,505.75	606,594.16	1,029,505.75
Total	4,065,654.49	3,766,348.69	4,065,654.49

65) Income tax expenses

Item	2018	2017
Current income tax expenses	41,000,022.97	75,912,541.36
Deferred income tax expenses	4,789,812.70	7,016,328.30
Total	45,789,835.67	82,928,869.66

66) Other comprehensive incomeSee notes for details.

67) Items of the statement of cash flowsA. Cash received from other operating activities

Item	2018	2017
Current accounts and advances withdrawn	36,267,444.87	16,478,636.33
Special subsidies and grants	7,942,196.52	11,074,399.76
Interest income	4,472,642.90	12,937,203.19
Non-operating income:	2,449,391.77	6,570,902.72
Other	1,591,851.31	3,384,804.85
Total	52,723,527.37	50,445,946.85

B. Cash paid for other operating activities

Item	2018	2017
Current accounts paid	57,318,220.58	55,241,626.14
Selling expenses	159,093,616.25	121,033,239.46
General and administrative expenses	91,441,901.13	97,509,435.48
Non-operating expenses	752,722.87	2,744,339.67

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Others	3,640,691.54	3,809,248.10
Total	312,247,152.37	280,337,888.85

C. Cash received from other investing activities

Item	2018	2017
Received financial lease security deposit	393,810.60
Total	393,810.60

D. Cash paid from other investing activitiesNot applicable.E. Cash received from other financing activities

Item	2018	2017
Bank deposit, security deposit and other pledge, mortgage		2,947,447.51
Cash received from financing leas		950,250.00
Total		3,897,697.51

F. Cash paid from other financing activities

Item	2018	2017
Bank deposit, security deposit and other pledge, mortgage
Cash paid for finance lease	1,165,827.50
Total	1,165,827.50

68) Supplementary information to the statement of cash flowsA. Supplementary information to the statement of cash flows

Supplementary Information	Reporting period	Same period of the previous year
1. Net profit adjusted to cash flows from operating activities
Net profit	158,449,643.95	212,652,989.02
Plus: Provision for assets impairment	20,600,867.58	26,197,662.78
Depreciation of fixed assets and others	54,699,873.04	61,400,632.56
Amortization of intangible assets	25,747,235.24	23,812,401.29
Amortization of long-term deferred expenses	616,641.59	250,014.86
Losses on disposal of fixed assets, intangible assets and other long-term assets (¨D-¨D for gains)	-443,708.05	-23,963,103.89
Losses on write-off of fixed assets £¨¨D-¡¬ for gains£©	1,728,803.67	412,623.36
Losses from changes in fair value (¨D-¨D for gains)
Financial expenses (¨D-¡¬ for income)	10,120,291.46	-8,200,943.06
Investments losses (¨D-¨D for gains)	-12,758,268.06	-45,607,259.29
Decreases in the deferred income tax assets (¨D-¡¬ for increases)	-6,704,509.63	-4,481,358.32
Increases in the deferred income tax liabilities (¨D-¡¬ for decreases)	3,573,154.30	11,498,815.79
Decreases in inventories (¨D-¡¬ for increases)	-103,695,100.04	-53,078,397.74
Decreases in operating payables (¨D-¡¬ for increases)	-89,099,505.47	-76,119,802.22
Increases in operating payables (¨D-¡¬ for decreases)	18,592,566.59	-7,438,405.97
Others	-1,874,114.87
Net cash flows from operating activities	79,553,871.30	117,335,869.17
2. Significant investment and financing activities involving no cash receipts and payments
Conversion of debt into capital
Convertible corporate bonds maturing within one year
Fixed assets acquired under financial lease
3. Net change in cash and cash equivalents:
Ending balance of cash	558,241,622.39	713,813,720.45
Less: beginning balance of cash	713,813,720.45	750,357,929.63
Plus: ending balance of cash equivalents
Less: beginning balance of cash equivalents

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Supplementary Information	Reporting period	Same period of the previous year
Net increase in cash and cash equivalents	-155,572,098.06	-36,544,209.18

Note: The other item is that the company obtained 48% equity of Shanghai Pacific Industrial Co., Ltd.through litigation in February 2018. The company included it in the available-for-sale financial assets andrecognized the non-operating income according to the equity investment cost amount.

B. Net cash paid to acquire subsidiaries during the current period

	Amount
Cash or cash equivalents paid by the business combination in the current period	109,310,300.00
Among them: Richpeace	109,310,300.00
Less: the cash and cash equivalents held by the company on the date of purchase	15,128,534.13
Among them: Richpeace	15,128,534.13
Plus: Cash or cash equivalents paid in the current period for business combinations in the previous period
Obtain the net cash paid by the subsidiary	94,181,765.87

Note: On the purchase date, Richpeace opened a bank acceptance bill, and the bank acceptance billdeposit amounted to 15,000,000.00 yuan, which was included in the total amount of monetary funds but notincluded in the cash and cash equivalents on the purchase date.

C. Net cash received from disposal of subsidiaries during the current period

Not applicable.

D. Composition of cash and cash equivalents

Item	Ending Balance	Beginning Balance
1. Cash	558,241,622.39	713,813,720.45
Including: cash on hand	743,089.39	707,925.98
Unrestricted bank deposit	556,269,113.49	712,794,196.15
Other unrestricted monetary funds	1,229,419.51	311,598.32
Deposit in central bank available for payment
Deposits with banks and other financial institutions
Loans from banks and other financial institutions
2. Cash equivalents
Including: bond investments maturing within three months
3. Balance of cash and cash equivalents as at 31 December 2018	558,241,622.39	713,813,720.45
Including: cash and cash equivalents restricted for use by the parent company or subsidiaries within the group

69) Notes of items in Statement of Changes in Equity

Not applicable.

70) Assets with restricted ownership or use rights

Item	Book value at the end of period	Restricted reasons
Monetary funds	36,792,523.72	Various types of deposits and other restricted funds
Notes receivable	2,380,000.00	Bill pledge business
Inventary	2,398,160.00	Purchasing business with ownership retention
Fixed assets	14,875,120.33	Bank loan and ownership purchase business is mortgaged
Intangible assets	5,389,231.47	Bank loan is mortgaged
Investment property	27,257,000.00	Financing guarantee
Total	89,092,035.52	/

71) Monetary items in foreign currency

A. Monetary items in foreign currency

Item	Ending balance of foreign currency	Exchange rate	Ending balance of conversion into RMB
Monetary funds			19,314,581.64

	ÉϹ¤Éê±´£¨¼¯ÍÅ£©¹É·ÝÓÐÏÞ¹«Ë¾	Annual Report 2018
	Shang Gong Group Co., Ltd

Including: USD	1,774,848.24	6.8632	12,181,111.39
EUR	895,835.74	7.8473	7,029,891.91
JPY	1.00	0.0619	0.06
Íâ±ÒºËËã- Indonesian currency	2,193,373,789.00	0.000047	103,578.28

B. Description of overseas operating entitiesThe domicile of primary operation of the Company¡¯s subsidiary, DA AG, is in Germany, with Euro asfunctional currency for it is the applicable currency for the operation region.

The domicile of primary operation of the Company¡¯s subsidiary, DAP Vietnam Co., Ltd., is in Vietnam,with VND as functional currency for it is the applicable currency for the operation region.

72) Hedging

Not applicable.

73) Government grants

Type	Amount	Item	Amount recognized in current profits and losses
Development of service industry guidance funds	2,200,000.00	Reversing the value of intangible assets	220,000.00
Financial support funds	7,858,472.82	Other income	7,858,472.82
VAT refund	293,707.16	Other income	293,707.16
Special funds for economic development	234,000.00	Other income	234,000.00
Employee education subsidy	194,940.70	Other income	194,940.70
Trademarks and intellectual property, science and technology project related subsidies	1,080,800.00	Other income	1,080,800.00
Special subsidies for financing leases	278,600.00	Other income	278,600.00
Sewing equipment special subsidy	140,000.00	Other income	140,000.00
Other	110,822.55	Other income / Non-operating income	110,822.55

8. Change in the scope of consolidation

1) Business combinations not under common control

A. Business combinations not under common control in 2018

Name of the Acquiree	When the equity is acquired	Equity acquisition cost	Shareholding ratio (%)	Equity acquisition method	Purchase date	Basis for determining the purchase date	Revenue from the purchaser to the end of the period	Net profit of the purchaser from the date of purchase to the end of the period
SG Richpeace	2018/8/31	136,637,800.00	65.00	Business combinations not under common control	2018/8/31	Equity transfer completed	95,414,392.86	19,133,660.04

B. Merger costs and goodwill

Purchase cost	SG Richpeace
--Cash	136,637,800.00
-- Fair value of non-cash assets
Total purchase cost	136,637,800.00
Less: the fair value share of the identifiable net assets acquired	59,093,605.46
Goodwill	77,544,194.54

C. The identifiable assets and liabilities of the purchased party on the purchase date

	SG Richpeace
	Fair value at the date of purchase	Book value at the date of purchase
Assets:	300,978,046.76	228,798,958.38
Money funds	30,128,534.13	30,128,534.13
Receivables	35,094,545.97	35,094,545.97
Inventory	96,850,024.33	96,850,024.33
Fixed assets	54,285,087.90	47,665,430.23

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Intangible assets	69,322,139.69	3,762,708.98
Prepayments	12,867,504.34	12,867,504.34
Construction in progress	166,848.13	166,848.13
Long-term deferred expenses	483,686.63	483,686.63
Deferred income tax assets	1,710,937.76	1,710,937.76
Other current assets	68,737.88	68,737.88
Liabilities:	210,064,807.59	199,237,944.33
Loan	68,000,000.00	68,000,000.00
Payables	91,583,641.64	91,583,641.64
Deferred income tax liabilities	10,826,863.26
Receipt in advance	35,765,085.52	35,765,085.52
Employee compensation payable	712,514.48	712,514.48
Long-term payables	3,176,702.69	3,176,702.69
Net assets	90,913,239.17	29,561,014.05
Less: minority shareholders' equity
Net assets acquired	90,913,239.17	29,561,014.05

Method for determining the fair value of identifiable assets and liabilities:

Yinxin Assets Appraisal Co., Ltd. issued the Yinxin Caibao (2018) Shanghai No. 249 Asset AppraisalReport to determine the fair value of each identifiable asset on the purchase date.

2) Business combinations under common control

Not applicable.

3) Reverse purchase

Not applicable.

4) Disposal of subsidiaries

Not applicable.

5) Changes in consolidation scope with other reasons

Not applicable.

9. Equity in other entities

1) Equity in subsidiaries

A. Composition of enterprise groups

Name of Subsidiary	Major Places of Business	Registered Place	Business Nature	Shareholding Ratio (%)		Acquisition method
				Direct	Indirect
Shanghai Shanggong Butterfly Sewing Machine Co., Ltd.	Shanghai, China	Shanghai, China	Production and sales of sewing machines	100.00		Investment
DAP (Shanghai) Co., Ltd.	Shanghai, China	Shanghai, China	Sales of sewing machines	100.00		Investment
Shanghai SMPIC Imp. & Exp. Co., Ltd.	Shanghai, China	Shanghai, China	Sales, import and export of office equipment	100.00		Investment
Shanghai SGSB Electronics Co., Ltd.	Shanghai, China	Shanghai, China	Production and sales of electronic equipment	100.00		Investment
Shanghai SGSB Asset Management Co., Ltd.	Shanghai, China	Shanghai, China	Asset and property management	100.00		Investment
Shanghai Fengjian Property Co., Ltd.	Shanghai, China	Shanghai, China	Property Management	100.00		Business combinations under common control
Duerkopp Adler AG	Bielefeld, Germany	Bielefeld, Germany	Production and sales of sewing machines	100.00		In 2018, the company's second-level subsidiary, DAP Industrial AG, merged with the third-tier subsidiary DA AG and changed its name to DA AG.
Zhejiang	Taizhou,	Taizhou,	Production and	60.00		Investment

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ShangGong GEMSY CO., LTD.	Zhejiang, China	Zhejiang, China	sales of sewing machines
Shanghai Shensy Enterprise Development Co., Ltd.	Shanghai, China	Shanghai, China	Logistics, etc.	40.03		Business combinations not under common control
Shanghai ShangGong Financial Leasing Co., Ltd.	Shanghai, China	Shanghai, China	Financial Leasing	51.00	49.00	Investment
PFAFF Industrial Sewing Machine (Zhangjiagang) Co., Ltd.	Zhangjiagang, Jiangsu, China	Zhangjiagang, Jiangsu, China	Production and sales of sewing machines	30.25	69.75	The company directly holds 30.25% of the shares of PFAFF Sewing Machine (Zhangjiagang) Co., Ltd., and indirectly holds the remaining 69.75% equity through other subsidiaries. Since the company directly manages the business activities of PFAFF Industrial Sewing Machine (Zhangjiagang) Co., Ltd., this company is included in the direct scope of the company.
DAP Vietnam Co., Ltd.	Ho Chi Minh, Vietnam	Ho Chi Minh, Vietnam	Sales of sewing machines	100.00		Investment
ShangGong Sewing Equipment (Zhejiang) Co., Ltd.	Taizhou, Zhejiang, China	Taizhou, Zhejiang, China	Production and sales of sewing machines	100.00		Investment
D¨¹rkopp Adler Industrial Manufacturing (Shanghai) Co., Ltd.	Shanghai, China	Shanghai, China	Production and sales of sewing machines	51.00	49.00	During the reporting period, the Company invested in and increased the capital of DAMSH, with a shareholding ratio of 51. The chairman, general manager and chief financial officer are all dispatched by the Company to directly manage the business. DAMSH is included in the direct consolidation scope of the Company from the date of completion of the capital increase.
TIANJIN RICHPEACE AI CO., LIMITED	Tianjing, China	Tianjing, China	Production and sales of sewing and intelligent equipment	65.00		Business combinations not under common control

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B. Important non-wholly owned subsidiary

Name of subsidiary	Minority shareholders Shareholding%	Profit and loss attributable to minority shareholders for the current period	Other comprehensive income attributable to minority shareholders in this period	Balance of minority shareholders' equity at the end of the period
Zhejiang ShangGong GEMSY CO., LTD.	40.00%	1,278,618.68		85,650,027.87
Shanghai Shensy Enterprise Development Co., Ltd.	59.97%	8,510,494.83		156,283,940.73
TIANJIN RICHPEACE AI CO., LIMITED	35.00%	5,924,205.24		38,065,923.44

C. Main financial data of important non-wholly owned subsidiary

Name of subsidiary	Ending Balance						Beginning Balance
	Current assets	Non-current assets	Total assets	Current liabilities	Non-current liabilities	Total liabilities	Current assets	Non-current assets	Total assets	Current liabilities	Non-current liabilities	Total liabilities
Zhejiang ShangGong GEMSY CO., LTD.	262,049,874.07	98,559,165.52	360,609,039.59	146,483,969.92		146,483,969.92	180,972,291.99	102,795,535.43	283,767,827.42	72,699,304.44	140,000.00	72,839,304.44
Shanghai Shensy Enterprise Development Co., Ltd.	382,809,588.75	93,768,523.55	476,578,112.30	213,777,562.28	1,878,628.16	215,656,190.44	319,865,459.20	46,144,064.50	366,009,523.70	115,076,875.63	4,201,979.88	119,278,855.51
TIANJIN RICHPEACE AI CO., LIMITED	154,392,606.55	57,857,955.80	212,250,562.35	161,027,646.24	1,608,000.62	162,635,646.86

Name of subsidiary	2018				2017
	Operating income	Net profit	Total comprehensive income	Cash flow from operating activities	Operating income	Net profit	Total comprehensive income	Cash flow from operating activities
Zhejiang ShangGong GEMSY CO., LTD.	355,562,212.96	3,196,546.69	3,196,546.69	25,134,868.84	279,057,289.37	-4,495,201.96	-4,495,201.96	-3,638,394.34
Shanghai Shensy Enterprise Development Co., Ltd.	762,944,769.75	14,191,253.67	14,191,253.67	-41,275,319.88	768,874,679.88	7,005,860.61	7,005,860.61	78,188,474.68
TIANJIN RICHPEACE AI CO., LIMITED	95,414,392.86	19,133,660.04	20,053,901.44	15,063,349.86

D. Major restrictions on the use of group assets and liquidation of group debtNot applicable.

E. Financial support or other support provided to structured entities included in the scope of consolidated financial statementsNot applicable.

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2) Transaction that changes the shareholding ratio in subsidiaries but still controls the subsidiariesA. DesciptionThe company's wholly-owned subsidiary DAP Industrial AG acquired all minority shareholders'rightsand interests of DA AG, a third-class subsidiary, in this year, and absorbed and merged DA AG and renamedDA AG after the merger was completed.

B. Impact of the transaction on minority shareholders' equity and Total owners' equity attributable tothe parent company

	DA AG
Purchase cost/disposal consideration
-- Cash	131,529,513.17
-- Fair value of non-cash assets
Total purchase cost/disposal consideration	131,529,513.17
Less: Net assets of subsidiaries calculated according to the proportion of acquired/disposed equity	61,882,680.85
Difference	69,646,832.32
Among them: adjusting the capital reserve	55,785,147.32
Adjust surplus reserve
Adjust undistributed profit	13,861,685.00

3) Equity in joint operation and joint venture

A. Important joint operation and joint venture

Name of Joint Operation and Joint Venture	Domicile of Primary Operation	Registered Place	Business Nature	Shareholding Ratio (%)		Accounting Measurement for Investment in Joint Operation and Joint Venture
				Direct	Indirect
H. Stoll AG & Co. KG	Reutlingen, Germany	Reutlingen, Germany	Computerized flat knitting machine manufacturing		26.00	Equity method

B. Main financial information of joint operation and joint venture

Unit: 10,000 Yuan, Currency: RMB

	Ending Balance/ 2018	Beginning Balance/ 2017
	H. Stoll AG & Co. KG	H. Stoll AG & Co. KG
Current assets	144,632.52	168,299.51
Non-current assets	27,409.88	26,033.15
Total assets	172,042.4	194,332.66
Current liabilities	42,576.15	57,559.13
Non-current liabilities	34,124.11	33,250.28
Total liabilities	76,700.26	90,809.41
Operating income	137,588.47	195,797.19
Net profit	-4,989.50	8,659.06
Other comprehensive income
Total comprehensive income	-4,989.50	8,659.06
Dividends received from associates during the year	2,704.20

C. Description of major restrictions on the ability of a joint venture or an associate to transfer funds tothe company

Not applicable.

D. Excessive losses incurred by joint ventures or associates

Not applicable.

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E. Unconfirmed commitments related to investment in joint venturesNot applicable.F. Contingent liabilities related to investments in joint ventures or associatesNot applicable.4) Important common managementNot applicable.5) Equity in structured entities not included in the scope of consolidated financial statementsNot applicable.10. Risks related to financial instrumentsThe Company faces various financial risks in the course of its operations: credit risk, market risk andliquidity risk. The Board of Directors of the Company is fully responsible for the determination of riskmanagement objectives and policies, and assumes ultimate responsibility for risk management objectives andpolicies. The Board of Directors reviews the effectiveness of the implemented procedures and the rationalityof risk management objectives and policies through monthly reports submitted by the heads of functionaldepartments and subsidiaries. The Company's internal audit department will audit the risk managementpolicies and procedures and report the findings to the audit committee.

The overall goal of the Company's risk management is to formulate a risk management policy thatminimizes risks without excessively affecting the Company's competitiveness and resilience.

10.1 Credit risk

Credit risk refers to the risk that one party to a financial instrument fails to perform its obligations andcauses financial losses to the other. The Company's credit risk is mainly related to accounts receivable.

(1) Accounts Receivable

The accounts receivable of the Company are mainly exposed to the credit risk of customers caused bycredit sales. Before opening up new customers and signing new framework contracts, the Company willevaluate new customers' credit risks, including external credit ratings and, in some cases, bank creditcertificates (when this information is available).

For the sewing machine business and export trading business, the Company sets a credit limit for eachcustomer, which is the maximum amount that does not require additional approval. For sales that exceed thecredit limit, the Company only sells it on the premise of additional approval. Otherwise, it must demand thatit pay the corresponding amount in advance. For customers who have not completed payment in a timelymanner on the previous credit sale, the Company will no longer accept new product orders before recoveringaccounts receivable.

For the logistics business, the Company only deals with customers that have been approved and have agood reputation and have a certain scale. After the credit period expires, the Company will perform variousforms of collection for customers who have not paid on time. Due to the high dispersion of customers in thelogistics business, there is no significant concentration of credit risk.

As of the end of the report period, the top five customers' accounts receivable of the Companyaccounted for 15.62% of the ending balance, and the Company did not have significant credit risk.

(2) Other Receivables

The Company's other receivables mainly include export tax refund receivables, various types of depositsand deposits. The Company manages and monitors this type of payments together with related economicactivities to ensure that the Company does not have significant bad debt risks.

10.2 Market risk

The market risk of financial instruments refers to the risk that the fair value or future cash flow of

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	Shang Gong Group Co., Ltd

financial instruments fluctuates due to changes in market prices, including exchange rate risk, interest raterisk and other price risks.

(1) Interest Rate Risk

Interest rate risk refers to the risk that the fair value or future cash flow of a financial instrument willfluctuate due to changes in market interest rates. The interest rate risk that the Company may face is mainlyderived from bank loans that carry interest at floating rates.

As of 31 December 2018, the Company¡¯s short-term bank loans with Euribor as benchmark interest ratetotaled 3.105 million euros, and long-term loans with Euribor as benchmark interest rate totaled 43.198million euros. Supposing that other variables remain unchanged, a 50% benchmark change in interest rateswould have no significant impact on the Company's current profit or loss and shareholders' equity.

(2) Exchange Rate Risk

Exchange rate risk refers to the risk of loss due to exchange rate changes. The foreign exchange risk ofthe Company mainly includes the risk associated with the monetary assets and liabilities formed by theCompany and its subsidiaries and overseas customers through the settlement of non-standard currencies, aswell as the risk of translation differences in foreign currency statements. The former risk affects the currentperiod profit and loss, and the latter risk affects owner's equity (other comprehensive income).

See Note 7.77 for details of monetary items in foreign currency as of 31 December 2018.

Exchange rate risk sensitivity analysis:

With the other variables unchanged, the pre-tax impact of reasonable changes in exchange rates on thecurrent profit or loss and owner's equity is as follows:

Item	Exchange rate changes	2018		2017
		Impact on current profits and losses	Impact on owner's equity	Impact on current profits and losses	Impact on owner's equity
Foreign currency statement conversion	10% appreciation of RMB	9,134,416.91	90,779,097.87	18,052,832.71	91,994,946.53
Foreign currency statement conversion	10% depreciation of RMB	-9,134,416.91	-90,779,097.87	-18,052,832.71	-91,994,946.53
Foreign Currency Items	10% appreciation of RMB	8,591,797.27	8,591,797.27	6,211,726.82	6,211,726.82
Foreign Currency Items	10% depreciation of RMB	-8,591,797.27	-8,591,797.27	-6,211,726.82	-6,211,726.82

(3) Other Price Risks

The Company holds equity investments in other listed companies. The management of the Companybelieves that the market price risks faced by these investment activities are acceptable. The listed company¡¯sequity investment held by the Company is listed as follows:

Item	Ending Balance	Beginning Balance
Available-for-sale financial assets and trading financial assets	86,406,778.33	89,721,694.56
Total	86,406,778.33	89,721,694.56

If all other variables remain unchanged, if the value of the equity instrument increases or decreases by20%, the Company will increase or decrease the other comprehensive income by 17,281,355.67 yuan (31

st

December 2017: Others Comprehensive income of 17,944,757.88 yuan). The management of the Companybelieves that 20% reasonably reflects the reasonable range of possible changes in the value of equityinstruments in the next year.

10.3 Liquidity risk

Liquidity risk refers to the risk of shortage of funds when performing obligations settled by way ofdelivery of cash or other financial assets. The Company's policy is to ensure that it has sufficient cash torepay the debts due. Liquidity risk is centrally controlled by the Company's financial department. Bymonitoring cash balances, marketable securities that can be realised at any time, and rolling forecasts of cash

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flows for the next 12 months, the financial department ensures that the Company has sufficient funds torepay debts under all reasonably foreseen circumstances.

The Company's external sources of funds mainly include bank loans. As of 31 December 2018, theCompany's unused bank loan quota was 8 million euros (is equivalent to 62.78 million yuan at the end of theperiod) and 420.86 million yuan. The Company's own funds are relatively abundant and liquidity risk isrelatively small.

11. Disclose of fair value

1) The fair value at end of current period of assets and liabilities measured at fair value

Item	Fair value at the end of reporting period
	Measured at the fair value of the first level	Measured at the fair value of the second level	Measured at the fair value of the third level	Total
1. Measurement at fair value based on going concern
(1) Financial assets measured at fair value through current profit and loss
A. Financial assets held for trading
a. Investment in debt instruments
b. Investments in equity instruments
c. Derivative financial assets
B. Financial assets designated to be measured at fair value through current profit and loss
a. Investment in debt instruments
b. investments in equity instruments
(2) Available-for-sale financial assets	86,406,778.33			86,406,778.33
a. Investment in debt instruments
b. Investments in equity instruments	86,406,778.33			86,406,778.33
c. Others
(3) Investment property
A. Use right of leased land
B. Leased buildings
C. Land use right held for transfer upon appreciation
(4) Biological assets
A. Consumable biological assets
B. Productive biological assets
Total amount of assets measured at fair value based on going concern	86,406,778.33			86,406,778.33
(5) Financial liabilities held for trading
Including: issued bonds held for trading
Derivative financial liabilities
Others
(6) Designated financial liabilities measured at fair value through current profit and loss
Total amount of liabilities measured at fair value based on going concern
2. Measurement at fair value based on going concern
(1) Assets held for sale

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Item	Fair value at the end of reporting period
	Measured at the fair value of the first level	Measured at the fair value of the second level	Measured at the fair value of the third level	Total
Total amount of assets measured at fair value not based on going concern
Total amount of liabilities measured at fair value not based on going concern

The input values used for fair value measurement are divided into three levels:

The first level of input is an unadjusted quote for the same asset or liability that can be obtained on themeasurement date in an active market.

The second level input value is an input value that is directly or indirectly observable for related assetsor liabilities other than the first level input value.

The third level input value is the unobservable input value of the relevant asset or liability.

The level to which the fair value measurement result belongs is determined by the lowest level to whichthe input value of the fair value measurement is significant.

2) Basis for determination of market price for measurement of fair value of the first level basedon going concern and not based on going concern

The fair value at end of reporting period of available-for-sale financial assets was determined on thebasis of the closing price of Shenzhen Stock Exchange and Shanghai Stock Exchange on the last trading dayin 2018.¡£

12. Related party and related party transaction

1) The parent company of the Company

The Company is a listed company with no controlling shareholder and no actual controller.

2) The subsidiaries of the Company

See the Note 9 Equity in Other Entities for the details.

3) The joint operation and joint ventures of the Company

See the Note 9 Equity in Other Entities for the details.

4) Other related parties

Name of Other Related Parties	Relationship with the Company
Shanghai Hirose Precision Industrial Co., Ltd.	Other related party
Shanghai Fuji Xerox Co., Ltd.	Other related party
Shanghai Kaile Investment Management Co., Ltd.	Other related party
Zhejiang GEMSY Electromechanical Co., Ltd.	Other related party
Shenzhen Yingning Venture Capital Co., Ltd.	Other related party
Tianjin Tongshang Software Co., Ltd.	Other related party
Stoll Electronics Co., Ltd.	Other related party

5) Related transactions

A. Related transactions for purchase and sale of goods, receiving and rendering of services

Table of purchase of goods / receipt of services

Related Party	Content of Related Transaction	2018	2017
Stoll Electronics Co., Ltd.	Purchase of goods / Receiving of service	18,531,706.20	19,673,427.20

Table of sales of goods /rendering of services

Related Party	Content of Related Transaction	2018	2017
Shanghai Fuji Xerox Co., Ltd.	Sales of goods	17,427,907.76	21,610,693.53
Zhejiang Gemsy Mechanical and Electrical Co., Ltd.	Sales of goods		317,000.00
Stoll Electronics Co., Ltd.	Sales of goods	722,873.75	664,436.40

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B. Associated trusteeship/contracting and entrusted management/outsourcingNot applicable.

C. Related leaseThe Company acted as lessor:

Name of leasee	Type of leased asset	Rental recognized in report period	Rental recognized in last period
Shanghai Hirose Precision Industrial Co., Ltd.	Machinery equipment	250,000.00	250,000.00

D. Related guaranteesNot applicable.

E. Related party funds lendingNot applicable.F. Related party assets transfer and debt reorganizationNot applicable.G. Compensation for key managers

Unit: RMB 10,000 YUAN

Item	2018	2017
Compensation for key managers	434.55	638.57

Note: In 2018, the Company's key management personnel include 10 directors, supervisors, presidents,vice presidents and board secretary (17 in 2017).

6) Receivables and payables from related parties

A. Receivables

Item	Related party	Ending Balance		Beginning Balance
		Book balance	Provision for bad debts	Book balance	Provision for bad debts
Accounts receivable	Shanghai Fuji Xerox Co., Ltd.	1,688,554.30	84,427.72	2,365,537.24	118,276.86
Accounts receivable	Stoll Electronics Co., Ltd.	57,950.27
Prepayment	Zhejiang Gemsy Mechanical and Electrical Co., Ltd.	6,147,650.83		6,147,650.83
Other receivables	Zhejiang Gemsy Mechanical and Electrical Co., Ltd.	697,279.69	367,679.69	617,279.69

B. Payables

Item	Related party	Ending Balance	Beginning Balance
Account payables	Stoll Electronics Co., Ltd.	1,696,195.46	1,630,680.70
Other payables	Shenzhen Yingning Venture Capital Co., Ltd.	35,116,900.00
Other payables	Tianjin Tongshang Software Co., Ltd.	24,810,600.00
Other payables	H. Stoll AG & Co. KG	23,675,820.92

7) Related party commitments

Not applicable.

13. Share payment

Not applicable.

14. Commitments and contingencies

1) Important commitments

Not applicable.

2) Contingencies

A. Important contingent events at the balance sheet date

(1) Contingent liabilities formed by debt guarantees provided by the Company for its subsidiary DA AGas of 31 December 2018

Guarantee

Guarantee

Commencement Date

Expiration Date of

Whether the Guarantee has

No

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	Amount	of Guarantee	Guarantee	been Fulfilled or not	te
Industrial and Commercial bank Shanghai Hongkou Branch	EUR 7.878 million	21st December 2015	21st December 2020	No	Note

Note 5: on 21st December 2015, the Company's wholly owned subsidiary, DAP Industrial AG, appliedto the Frankfurt Branch of ICBC for a loan of no more than 7.878 million euro so as to pay the acquisitionfee to Stoll KG. ICBC Shanghai Hongkou Branch issued a financing guarantee letter for the funds, and theCompany issued an unconditionally irrecoverable corporate letter of guarantee for self-using fix assets whereNo.603 Dapu Road as counter guarantee for the abovementioned financing guarantee letter.

In 2018, DAP Industrial AG merged and merged with DA AG and changed its name to DA AG. Thename of the financing guarantee was changed to DA AG. The financing guarantee provided by Industrial andCommercial Bank of China Shanghai Hongkou Sbranch AND the counter guarantee provided by thecompany continues to be valid.

As of 31 December 2018, there is no outflow of economic benefits arising from the abovecontingencies.

(2) As of December 31, 2018, contingent liability from providing guarantee by SGG for SG Richpeace

On November 22, 2018, SG Richpeace, a subsidiary of the Company, signed a ¨DComprehensive CreditContract¡¬ with China Minsheng Bank Shanghai Branch. The company fulfills the repayment obligationsunder the credit contract and provides a guarantee of up to RMB 60 million for SG Richpeace. The otherminority shareholders of SG Richpeace provided counter-guarantee for 35% of the Company's guaranteewith 35% stake of SG Richpeace.

As of 31 December 2018, there is no outflow of economic benefits arising from the abovecontingencies.

(3) The Agreement to Increase Capital to Shanghai Shensy Enterprise Development Co., Ltd.

According to the capital increase agreement of Shanghai Shensy Enterprise Development Co., Ltd., by30 June 2018, if SHENSY has not realized IPO and listed independently in A shares market, the personsacting in concert, Shanghai Pudong New Industrial Investment Co., Ltd., will be entitled to require theCompany and another shareholder, Zhang Ping, to repurchase all or some of the shares that Shanghai PudongNew Industrial Investment Co., Ltd. holds in cash, within 3 months after it requests in writing. And assist itin the approval process of State-owned Assets Supervision and Administration Commission, commercialregistration, etc. Per the agreement, the Company and Zhang Ping will respectively assume 50% of the abovementioned amount, and the Company bears unconditional joint responsibility to repurchase the shares thatShanghai Pudong New Industrial Investment Co., Ltd. holds.

If Shanghai Pudong New Industrial Investment Co., Ltd. has not listed in A shares market by 30 June2018, it has 6 months (e.g. before 31 December 2018) to request our company and Zhang Ping to repurchasethe shares which it holds in Shanghai Shensy Enterprise Development Co., Ltd.. If not, our company andZhang Ping will not assume the above mentioned repurchase responsibility.

As of 30 June 2018, SHENSY has failed to complete its IPO and be listed on the A-shares independently.The company has negotiated with Shanghai Pudong New Industrial Investment Co., Ltd. on repurchasematters. The repurchase matters still need to complete the approval and listing of the state assets, so the

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	Shang Gong Group Co., Ltd

parties have not signed a follow-up repurchase agreement on the repurchase. There is considerableuncertainty in the share repurchase. Before the completion of the repurchase, Shanghai Pudong NewIndustrial Investment Co., Ltd. will still maintain a concerted relationship with the company.

(4) Arbitration on investment of 26% equity in H. Stoll AG & Co. KGAccounting to the Contract signed on 29th August 2015 by SGE, the calculation of share price is basedon the net assets of STOLL's audited consolidated statement in 2014, and the parties agreed that share pricewill be adjusted according to the net assets of STOLL's audited consolidated statement in 2015 and relatedclauses in the Contract. Now the parties have disputes on the calculation of net assets of STOLL's auditedconsolidated statement in 2015 and the understanding of the relevant terms of the Contract, resulting in adifference of approximately 4.26 million euro in the calculation of the price adjustment. SGE has receivedthe Application for Arbitration submitted by Michael Stoll, Corinna Stoll and other 10 limited partners ofSTOLL KG on 20 July 2017. SGE will, in accordance with the terms of the contract, settle the dispute byarbitration in accordance with German legal procedures.

As of the date of this report, the arbitration is in process and with great uncertainty.(5) Shanghai Shensy Enterprise Development Co., Ltd., a second-level subsidiary of the Company,borrowed 40,000,000.00 yuan from Bank of Communications Shanghai Baoshan Branch, borrowed RMB54,900,000.00 from China Construction Bank Shanghai Baosteel Baoshan Branch, and borrowed RMB10,000,000.00 from Shanghai Bank Fumin Branch. The third-level subsidiary Shanghai Shensy KaileInternet of Things Co., Ltd. provides joint liability guarantee.

As of 31 December 2018, there is no outflow of economic benefits arising from the above guarantee.(6) Labor Arbitration and Pending Litigation with the Staff of Li FuquanThe family members of Li Fuquan, a employee of the company's subsidiary Shanghai Shensy EnterpriseDevelopment Co., Ltd. Harbin Branch, submitted to the labor arbitration for work injury compensation. Thecase has been terminated by the Labor and Personnel Dispute Arbitration Committee of the Harbin ForeignTrade Zone, which was held on March 22, 2019. According to the HWLRZZ (2019) No. 2 Arbitral Report,SHENSY Harbin Branch is required to paid Li Fuquan's family members various types of work-relatedinjury compensation totaled 702,720.00 yuan .

Shanghai Shensy Enterprise Development Co., Ltd. Harbin Branch will apply to the HarbinIntermediate People's Court for revocation of the above ruling, and has deducted the corresponding estimatedliabilities according to the amount of the arbitral award after deducting the prepaid compensation.

(7) As of December 31, 2018, Shanghai Shensy Enterprise Development Co., Ltd., a second-tiersubsidiary of the Japanese company, provided contingent liabilities for the debt guarantee provided by thethird-level subsidiary Mudanjiang Kailehui Logistics Co., Ltd.

The company's third-level subsidiary Mudanjiang Kailehui Logistics Co., Ltd. and ProLogis FinancialLeasing (Shanghai) Co., Ltd. signed a financing sale and leaseback contract. Shanghai Shensy EnterpriseDevelopment Co., Ltd., a second-level subsidiary of the Company, is jointly and severally liable for allpayment obligations under the financing sale and leaseback contract.

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	Shang Gong Group Co., Ltd

As of December 31, 2018, Shanghai Shensy Enterprise Development Co., Ltd. has not yet experiencedthe outflow of economic benefits due to the above guarantees, and the amount of financing leases that havenot yet been settled amounts to 383,176.52 yuan.

15. Post balance sheet event

1) Important non-adjusting events

¢Ù Capital increase in SG Richpeace

According to the agreement of the equity purchase agreement signed by the Company and othershareholders of SG Richpeace in 2018, the completion of the equity delivery of SG Richpeace and thesettlement of all acquisitions After the related parties' remittances, all shareholders jointly increased thecapital of RMB 3,000 million in Richpeace, of which the company increased the capital by RMB 19.5 billion,and the other shareholders increased the capital by RMB 10,500,000. As of the date of issuance of thefinancial statements, all shareholders have completed the payment of all the capital increase, and Richpeacehas completed all the registration procedures related to the capital increase.

¢Ú Capital increase in Shanghai ShangGong Financial Leasing Co., Ltd.

The Company and its subsidiary DA AG plans to jointly increase capital with Oriental Hengxin CapitalHolding Group Co., Ltd. to Shanghai ShangGong Financial Leasing Co., Ltd.; the Company will increase itscapital by USD 2.10 million, DA AG will increase its capital by USD 2.6 million, and Oriental HengxinCapital Holdings Group Co., Ltd.will increased its capital by USD 15.53 million. Upon completion of thecapital increase, Oriental Hengxin Capital Holdings Group Co., Ltd. will hold a 51.00% stake in ShanghaiShangGong Financial Leasing Co., Ltd. The Company will lose control of Shanghai ShangGong FinancialLeasing Co., Ltd. and will no longer include Shanghai ShangGong Financial Leasing Co., Ltd. in the scopeof consolidation of the Company. As of the date of issuance of the financial statements, the capital increasehas not yet completed the required government filing or approval work and registration procedures, and thecapital increase of each shareholder has not been paid in place.

¢Û Equity incentive plan

The Company plans to implement equity incentives to the company's directors, senior management andother key personnel in business and management positions, in the form of stock options. At the time ofexercise, the Company will issue RMB A shares of common stock to the incentive object. The equityincentive plan is valid for five years. The exercise period is 36 months after the grant of equity, and the lockoption period is 12 months after the stock option grant. The stock option is valid to meet the performancerequirements announced by the company. The equity incentive plan is to be awarded 13,204,200.00 stockoptions, with a total of 318 people granted for the first time, and the exercise price is RMB 7.90/share.

The equity incentive plan was approved by the 10th meeting of the 8th Board of Directors of theCompany on February 28, 2019, and was approved by the company's first extraordinary shareholdersmeeting in 2019 on March 18, 2019. As of the date of issuance of the financial statements, the equityincentive plan has not yet reached the exercise period.

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	Shang Gong Group Co., Ltd

2) Profit distributionAccording to the resolution of the Company¡¯s 11th Meeting of the 8th Board of Directors on 12 April2019, no dividends of 2018 will be distributed, neither the transferring of capital reserves into share capital.

3) Sales returnNot applicable.4) OthersNot applicable.

16. Other significant events1) Correction of previous accounting errorsNot applicable.2) Debt reorganizationNot applicable.3) Asset replacementNot applicable.4) Annuity planNot applicable.5) Discontinued operationsNot applicable.6) Division informationA. Basis for determining the report divisionAccording to the Company's development strategy, four report divisions are identified according to thenature of the business: sewing equipment & intelligent equipment, logistics services, export trade and otherbusiness segments. Each of the Company's reporting segments offers different products and services.

B. Report division¡¯s financial information

Item	Sewing equipment division	Logistics service division	Export trade division	Other business segments	Offset between divisions	Total
1. Operating income	2,730,956,602.44	762,944,769.75	101,416,874.14	107,956,220.41	502,746,725.65	3,200,527,741.09
Including: External transaction income	2,250,341,508.42	762,944,769.75	101,171,704.50	86,069,758.42		3,200,527,741.09
Inter-segment transaction income	480,615,094.02	-	245,169.64	21,886,461.99	502,746,725.65	-
2. Investment income from associates and joint ventures	-10,161,995.93	-	-	-	2,810,722.97	-12,972,718.90
asset impairment losses	17,016,440.98	180,207.75	-768,073.82	974,523.30	-3,197,769.37	20,600,867.58
4. Depreciation and amortization	67,079,259.92	2,874,029.43	220,020.85	10,890,439.67		81,063,749.87
5. Total profit	169,325,209.15	19,388,903.30	1,583,616.03	15,036,463.72	1,094,712.58	204,239,479.62
6. Income tax expenses	36,355,827.94	5,197,649.63	-	4,905,207.25	668,849.15	45,789,835.67
7. Net profit	132,969,381.21	14,191,253.67	1,583,616.03	10,131,256.47	425,863.43	158,449,643.95
8. Total assets	3,266,086,230.29	476,578,112.30	22,456,759.09	1,737,974,683.76	1,358,968,623.39	4,144,127,162.05
9. Total liabilities	1,848,822,323.49	215,656,190.44	15,074,207.66	169,713,658.31	617,094,885.46	1,632,171,494.44

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	Shang Gong Group Co., Ltd

10. Other important non-cash items

17. Notes to mains items of the financial statements of the parent company1) Notes receivable and Accounts receivable

Item	Ending Balance	Beginning Balance
Notes receivable	8,713,253.21	18,619,880.00
Accounts receivable	40,853,861.26	36,846,572.06
Total	49,567,114.47	55,466,452.06

Notes receivableA. Disclosure of classification of notes receivable

Item	Ending Balance	Beginning Balance
Bank Acceptance Bill	8,713,253.21	18,619,880.00
Total	8,713,253.21	18,619,880.00

B. Notes receivable that the company has endorsed or discounted and has not yet expired on thebalance sheet date

Item	Amount confirmed at the end of the reporting period	Amount not confirmed at the end of the reporting period
Bank Acceptance Bill	1,100,000.00
Total	1,100,000.00

Accounts receivable

A. Disclosure of classification of accounts receivable

Type	Ending Balance					Beginning Balance
	Book balance		Provision for bad debts		Book value	Book balance		Provision for bad debts		Book value
	Amount	Proportion (%)	Amount	Proportion (%)		Amount	Proportion (%)	Amount	Proportion (%)
Accounts receivable with significant single amount and provision for bad debt made on an individual basis	15,224,682.99	14.25	10,457,069.39	68.68	4,767,613.60	15,115,630.80	13.88	5,561,028.32	36.79	9,554,602.48
Accounts receivable with provision for bad debt made on a portfolio with similar risk credit characteristics basis	64,602,975.75	60.47	46,768,063.44	72.39	17,834,912.31	80,650,765.60	74.09	61,342,035.96	76.06	19,308,729.64
Accounts receivables with insignificant single amount and provision for bad debt made on an individual basis	27,011,365.22	25.28	8,760,029.87	32.43	18,251,335.35	13,092,694.77	12.03	5,109,454.83	39.03	7,983,239.94
Total	106,839,023.96	100.00	65,985,162.70	61.76	40,853,861.26	108,859,091.17	100.00	72,012,519.11	66.15	36,846,572.06

Accounts receivable with significant single amount and provision for bad debts made on an individualbasis at the end of report period

Accounts receivable (By entity)	Ending Balance
	Accounts receivable	Provision for bad debts	Provision ratio (%)	Reason for provision
Customer C	5,570,630.90	5,529,005.67	99.25	Impaired according to the separate test
Customer D	4,974,724.60	248,736.23	5.00	Impaired according to the separate test
Customer E	4,679,327.49	4,679,327.49	100.00	Impaired according to the separate test
Total	15,224,682.99	10,457,069.39	68.68	/

Accounts receivable with provision for bad debt made using the aging analysis method among the

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portfolios:

Aging	Ending Balance
	Accounts receivable	Provision for bad debts	Provision ratio
Within 1 year	18,688,560.79	934,428.03	5.00
1 to 2 years	96,464.02	19,292.80	20.00
2 to 3 years	7,216.67	3,608.34	50.00
Over 3 years	45,810,734.27	45,810,734.27	100.00
Total	64,602,975.75	46,768,063.44	72.39

B. Bad debt provision recovered or reversed in report periodThe amount of provision for bad debts was 49,948.84 yuan in current period; the amount of bad debtprovision recovered or reversed in the current period was 279,811.08 yuan.

C. Accounts receivable actually written off in current period

Item	Write-off amount
Accounts receivable actually written off	6,018,561.06

Note: Due to the liquidation and cancellation of Shanghai SMPIC Photosensitive Material Factory, theCompany's President's Office Meeting agreed to write off the accounts receivable totaling RMB3,436,227.61; the Company's President's Office Meeting agreed to write off the accounts receivable of theindustrial sewing machine branch that have been determined to be uncollectible and have been fullywithdrawn for bad debts totaling RMB 2,582,333.45.

D. Top five accounts receivable by the ending balance of the borrowers

Company name	Ending Balance
	Accounts receivable	Proportion in total accounts receivable (%)	Provision for bad debts
Customer A	11,530,775.39	10.79	11,530,775.39
Customer B	7,480,189.67	7.00	7,480,189.67
Customer C	5,570,630.90	5.21	5,529,005.67
Customer D	4,974,724.60	4.66	248,736.23
Customer E	4,679,327.49	4.38	4,679,327.49
Total	34,235,648.05	32.04	29,468,034.45

E. Receivables derecognized due to transfer of financial assets

Not applicable.

F. Transfer of accounts receivable and continued involvement in the formation of assets, liabilities

Not applicable.

2) Other receivables

Item	Ending Balance	Beginning Balance
Interest receivable
Dividends receivable	1,050,356.92
Other receivables	153,706,592.29	107,954,125.03
Total	154,756,949.21	107,954,125.03

Interest receivable

Not applicable.

Dividends receivable

Investee	Ending Balance	Beginning Balance
Shanghai ShangGong Butterfly Sewin Machine Co., Ltd.	1,050,356.92
Total	1,050,356.92

Other receivables

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	Shang Gong Group Co., Ltd

A. Disclosure of classification of other receivables

Type	Ending Balance					Beginning Balance
	Book balance		Provision for bad debts		Book Value	Book balance		Provision for bad debts		Book Value
	Amount	%	Amount	%		Amount	%	Amount	%
Other receivables with significant single amount and provision for bad debt made on an individual basis	60,016,216.10	25.37	60,016,216.10	100.00		61,325,622.45	32.26	61,325,622.45	100.00
Other receivables with provision for bad debt made on a portfolio with similar risk credit characteristics basis	172,013,467.01	72.71	22,818,725.66	13.27	149,194,741.35	125,819,372.64	66.20	20,769,399.12	16.51	105,049,973.52
Other receivables with insignificant single amount and provision for bad debt made on an individual basis	4,529,575.94	1.92	17,725.00	0.39	4,511,850.94	2,925,886.51	1.54	21,735.00	0.74	2,904,151.51
Total	236,559,259.05	100.00	82,852,666.76	35.02	153,706,592.29	190,070,881.60	100.00	82,116,756.57	43.20	107,954,125.03

Other receivables with significant single amount and provision for bad debts made on an individualbasis at the end of report period

Other receivables (By entity)	Ending Balance
	Other receivables	Provision for bad debts	Proportion of provision (%)	Reason for provision
Customer C	46,028,699.80	46,028,699.80	100.00	Impaired according to the separate test
Customer E	13,987,516.30	13,987,516.30	100.00	Impaired according to the separate test
Total	60,016,216.10	60,016,216.10	100.00	/

Other receivables with provision for bad debts made using the aging analysis method among thoseportfolios

Aging	Ending Balance
	Other Receivables	Provision for Bad Debts	Proportion of Provision (%)
Within 1 year	153,677,376.65	7,683,868.82	5.00
1 to 2 years	902,835.50	180,567.10	20.00
2 to 3 years	185,896.00	92,948.00	50.00
Over 3 years	14,861,341.74	14,861,341.74	100.00
Total	169,627,449.89	22,818,725.66	13.45

Other receivables with provision for bad debts made using other methods among those portfolios

Name	Amound	Provision for bad debts	Proportion of provision (%)
Receivables from government agencies and institutions	1,547,836.20
Cash pledge and security deposit	181,200.00
Employee Standby Fund and Employee Collection and Payment	656,980.92
Total	2,386,017.12

B. Other receivables classified by nature of payment

Not applicable.

C. Withdrawal, recovery or reversal of provision for bad debt

The provision for bad debts in current period was 1,275,590.18 yuan, and the amount of provision forbad debt recovered or reversed this period was 0 yuan.

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	Shang Gong Group Co., Ltd

D. Other receivables actually written off in current period

Item	Write off amount
Other receivables actually written off	534,288.45

E. Top five other receivables by the ending balance of the borrowers

Company name	Nature of fund	Ending balance	Aging	Proportion in total other receivable (%)	Ending balance of provision for bad debts
Customer A	Current accounts	65,851,054.68	Within 1 year	27.84	3,292,552.73
Customer B	Current accounts	51,500,000.00	Within 1 year	21.77	2,575,000.00
Customer C	Current accounts	46,028,699.80	From within 1 year to over 3 years	19.46	46,028,699.80
Customer D	Current accounts	20,544,256.86	Within 1 year	8.68	1,027,212.84
Customer E	Current accounts	13,987,516.30	From within 1 year to over 3 years	5.91	13,987,516.30
Total	/	197,911,527.64	/	83.66	66,910,981.67

F. Receivables involving government grantsNot applicable.G. Other receivables derecognized due to the transfer of financial assetsNot applicable.H. Transfer of other receivables and continued involvement in the formation of assets, liabilitiesNot applicable.3) Long-term equity investments

Item	Ending Balance			Beginning Balance
	Book balance	Provision for impairment	Book value	Book balance	Provision for impairment	Book value
Investment in subsidiaries	801,448,021.03	5,500,000.00	795,948,021.03	644,810,221.03	5,500,000.00	639,310,221.03
Total	801,448,021.03	5,500,000.00	795,948,021.03	644,810,221.03	5,500,000.00	639,310,221.03

A. Investment in subsidiaries

Name	Beginning balance	Increase in current period	Decrease in current period	Ending balance	Provision for impairment provided in current period	Ending balance of provision for impairment
DAP (Shanghai) Co., Ltd.	59,046,675.86			59,046,675.86
Shanghai Shanggong Butterfly Sewing Machines Co., Ltd	79,000,000.00			79,000,000.00
Duerkopp Adler AG	142,370,693.64			142,370,693.64
Shanghai SMPIC Imp. & Exp. Co., Ltd.	12,000,000.00			12,000,000.00
Shanghai SGSB Asset Management Co., Ltd.	60,000,000.00			60,000,000.00		5,000,000.00
Shanghai SGSB Electronics Co., Ltd	20,000,000.00			20,000,000.00
Shanghai Fengjian Property Co., Ltd.	500,000.00			500,000.00		500,000.00
Shanghai Shensy Enterprise Development Co., Ltd.	86,083,077.64			86,083,077.64
Zhejiang ShangGong GEMSY CO., LTD.	129,600,000.00			129,600,000.00
Shanghai ShangGong Financial Leasing Co.,Ltd.	33,452,430.00			33,452,430.00
PFAFF Industrial Sewing Machine (Zhangjiagang) Co., Ltd.	12,553,070.89			12,553,070.89
DAP Vietnam Co., Ltd.	204,273.00			204,273.00
ShangGong Sewing Equipment (Zhejiang) Co., Ltd.	10,000,000.00			10,000,000.00
D¨¹rkopp Adler Industrial Manufacturing (Shanghai)		20,000,000.00		20,000,000.00

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Co., Ltd.
TIANJIN RICHPEACE AI CO., LIMITED		136,637,800.00		136,637,800.00
Total	644,810,221.03	156,637,800.00		801,448,021.03		5,500,000.00

B. Investment in associates and joint venturesNot applicable.

4) Operating income and operating costs

Item	2018		2017
	Income	Cost	Income	Cost
Main Business	325,847,704.74	244,390,700.79	167,723,172.35	124,224,886.12
Other Business	42,112,962.53	14,808,501.40	39,895,020.71	15,258,267.48
Total	367,960,667.27	259,199,202.19	207,618,193.06	139,483,153.60

5) Investment income

Item	2018	2017
Long-term equity investment measured at cost method	1,050,356.92	4,000,000.00
Long-term equity investment measured at equity method
Investment income from disposal of long-term equity investments
Investment income from holding of financial assets measured at fair value through current profit and loss
Investment income from disposal of financial assets measured at fair value through current profit and loss	45,148.42	16,690.26
Investment income from holding of available-for-sale financial assets
Investment income from holding of available-for-sale financial assets	12,526,301.81	16,249,837.40
Investment income from disposal of available-for-sale financial assets
Gains from re-measurement of residual equity at fair value after the loss of control right
Others
Long-term equity investment measured at cost method	13,550,203.90	10,441,937.48
Total	27,172,011.05	30,708,465.14

18. Supplementary information1) Extraordinary profit or loss for current period

Item	Amount	Note
Profits or losses from disposal of non-current assets	-1,285,095.62
Tax returns, deduction and exemption approved beyond the authority or without official approval documents
Government grants included in current profits and losses (except for government grants closely related to the enterprise business, obtained by quota or quantity at unified state standards)	9,897,636.07
Payment for use of state funds received from non-financial institutions recorded in current profits and losses
Gains from the difference between the investment costs of acquisition of subsidiaries, associates and joint ventures and share in the net fair value of the identifiable assets of the investee when investing
Gains or losses from non-monetary asset exchange
Gains or losses from entrusting the investments or management of asset
Impairment provision for force majeure such as natural calamities
Gains or losses from debt restructuring
Restructure expenses, such as the compensation for employee relocation and integration costs
Gains or losses from transactions with obvious unfair transaction price
Year-to-date net profits or losses of subsidiaries arising from business combinations under common control
Profits or losses arising from contingencies not related to the company¡¯s normal business
Except for effective hedging business related to the normal business of the company, profits or losses from fair value changes in held-for-trading financial assets and held-for-trading financial	12,601,058.35

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	Shang Gong Group Co., Ltd

liabilities, and investment income from disposal of held-for-trading financial assets, held-for-trading financial liabilities and available-for-sale financial assets
Reversal of the impairment provision for receivables subject to separate impairment test
Profits or losses from entrusted loans	603,626.80
Profits or losses from fair value changes in investment property subsequently calculated with the fair value mode
Impacts of one-time adjusting the current profits or losses in accordance with requirements of tax and accounting laws and regulations on the current profits and losses
Custodian income from entrusted management
Other non-operating income and expenditure except for the above items	4,659,776.73
Other profits or losses which can be deemed as non-recurring profits or losses
Income tax effects	-6,037,254.76
Minority interest effects	-4,268,282.88
Total	16,171,464.69

2) Return on equity and earnings per share

Profit in Report Period	Weighted average return on equity (%)	Earnings per share
		Basic earnings per share	Diluted earnings per share
Net profit attributable to common shareholders of the company	6.3561	0.2567	0.2567
Net profit attributable to common shareholders of the company after deducting non-recurring gains and losses	5.6262	0.2272	0.2272

3) Differences in accounting data under domestic and overseas accounting standardsNot applicable.

Chapter 12 Documents for Reference

1. Financial Statements signed by the legal representative, chief accountant andaccounting manager and sealed by the Company.

2. Audit report signed by certified public attantants and sealed by the accountingfirm.

3. Original documentation and announcements published by the Company in thenewspaper appointed by CSRC within the report period.

Shang Gong Group Co., Ltd.Chairman of Board of Directors: Zhang Min

April 12, 2019