Lomon Billions Group Co., Ltd 2019 Report March 2020 Full Text of 2019 Annual Report of Lomon Billions Group Co., Ltd. This document is a free translation of the annual report and consolidated financial statements of Lomon Billions Group Co Limited for 2019, produced for the convenience of English-speaking readers. In the event of any ambiguity or conflict between statements or other items contained herein and the original version which was prepared in Mandarin, the relevant statement or item of the original Mandarin version shall prevail. While all possible care has been taken to ensure that this translation is an accurate representation of the original document, this English language version has not been audited by the company’s statutory auditors and in all matters of interpretation of information, views or opinions expressed therein, only the original language version of the document in Mandarin is legally binding. As such, this translation may not be relied upon to sustain any legal claim, nor be used as the basis of any legal opinion, and Lomon Billions Group Co Limited expressly disclaims all liability for any inaccuracy herein. ii Cninfo www.cninfo.com.cn Full Text of 2019 Annual Report of Lomon Billions Group Co., Ltd. 1 Section I Important Notes, Contents and Definitions The Board of Directors, Board of Supervisors, directors, supervisors and senior executives of the Company warrant that the contents of the Annual Report are true, accurate and complete and do not contain false records, misleading statements or major omissions, for which they will assume several and joint legal liabilities. XU Gang, Chairman, SHEN Qingfei, Chief Financial Officer, and GUO Liangpo, Head of Accounts (accounting supervisor) declare that the financial statements in the Annual Report are true, accurate and complete. All directors have attended the board meeting to review the Report. The Company has described possible risks in detail herein. Investors are requested to refer to Item IX “Future Prospects of the Company” in Section IV “Discussion and Analysis of Business Conditions”. The Company plans neither to pay cash dividends or bonus shares nor raise capital with accumulation funds. iii Cninfo www.cninfo.com.cn Full Text of 2019 Annual Report of Lomon Billions Group Co., Ltd. Table of Contents 1 SECTION I IMPORTANT NOTES, CONTENTS AND DEFINITIONS........................................... III DEFINITIONS ......................................................................................................................................... 1 2 SECTION II COMPANY PROFILE AND MAJOR FINANCIAL INDICATORS .............................. 3 2.1 COMPANY PROFILE .................................................................................................................... 3 2.2 II. CONTACT PERSON AND CONTACT INFORMATION ..................................................................... 3 2.3 III. INFORMATION DISCLOSURE AND PREPARATION LOCATION ...................................................... 4 2.4 IV. REGISTRATION CHANGES ..................................................................................................... 4 2.5 V. OTHER RELEVANT INFORMATION ............................................................................................ 4 2.6 VI. MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS ........................................................ 5 2.7 VII. DIFFERENCES IN ACCOUNTING DATA UNDER THE DOMESTIC AND FOREIGN ACCOUNTING STANDARDS .......................................................................................................................................... 6 2.8 VIII. KEY FINANCIAL INDICATORS BY QUARTER ........................................................................... 6 2.9 IX. ITEMS AND AMOUNT OF NON-RECURRING PROFIT AND LOSS .................................................. 7 3 SECTION III BUSINESS OVERVIEW OF THE COMPANY .......................................................... 9 3.1 I. MAIN BUSINESS OF THE COMPANY DURING THE REPORTING PERIOD ........................................ 9 3.2 II. MAJOR CHANGES IN MAJOR ASSETS .................................................................................... 12 3.3 III. ANALYSIS OF CORE COMPETITIVENESS ................................................................................ 12 4 SECTION IV DISCUSSION AND ANALYSIS OF BUSINESS CONDITIONS ............................. 19 4.1 (I) ANALYSIS OF BUSINESS ENVIRONMENT ................................................................................. 19 4.2 (II) OVERALL OPERATIONS OF THE COMPANY ............................................................................ 20 4.3 III. ANALYSIS OF NON-MAIN BUSINESS ...................................................................................... 34 4.4 IV. ANALYSIS OF STATUS OF ASSETS AND LIABILITIES ............................................................... 34 4.5 V. ANALYSIS OF INVESTMENT STATUS ...................................................................................... 36 4.6 VI. SALE OF MAJOR ASSETS AND EQUITY ................................................................................. 39 4.7 VII. ANALYSIS OF MAJOR HOLDING AND PARTICIPATING COMPANIES ......................................... 39 4.8 VIII. STRUCTURED SUBJECTS CONTROLLED BY THE COMPANY .................................................. 41 4.9 IX. PROSPECTS FOR THE COMPANY’S FUTURE DEVELOPMENT .................................................. 41 4.10 X. RECEPTION OF SURVEY, COMMUNICATION, INTERVIEW AND OTHER ACTIVITIES ...................... 47 5 SECTION V IMPORTANT PARTICULARS ................................................................................. 48 5.1 I. DISTRIBUTION OF RETURN ON COMMON SHARES AND TRANSFER OF CAPITAL RESERVE INTO EQUITY OF THE COMPANY ................................................................................................................................ 48 5.2 II. PROFIT DISTRIBUTION AND TRANSFER OF CAPITAL RESERVE INTO SHARE CAPITAL DURING THE REPORTING PERIOD ............................................................................................................................. 52 5.3 III. FULFILLMENT OF COMMITMENTS .......................................................................................... 53 iv Cninfo www.cninfo.com.cn Full Text of 2019 Annual Report of Lomon Billions Group Co., Ltd. 5.4 IV. NON-BUSINESS CAPITAL OCCUPYING IN THE LISTED COMPANY BY CONTROLLING SHAREHOLDER AND ITS RELATED PARTIES .................................................................................................................. 54 5.5 V. EXPLANATION OF THE BOARD OF DIRECTORS, THE BOARD OF SUPERVISORS AND INDEPENDENT DIRECTORS (IF ANY) ON THE “NON-STANDARD AUDIT REPORT” ISSUED BY THE ACCOUNTING FIRM FOR THE REPORTING PERIOD ............................................................................................................................ 54 5.6 VI. EXPLANATION OF CHANGES IN ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND ACCOUNTING METHODS COMPARED WITH THOSE SET OUT IN THE PREVIOUS YEAR’S FINANCIAL REPORT 54 5.7 VII. EXPLANATION OF MAJOR ACCOUNTING ERROR CORRECTIONS DURING THE REPORTING PERIOD THAT NEED TO BE RETROSPECTIVELY RESTATED .................................................................................. 54 5.8 VIII. DESCRIPTION OF CHANGES IN THE SCOPE OF CONSOLIDATED STATEMENTS COMPARED WITH THE PREVIOUS YEAR’S FINANCIAL REPORT ........................................................................................... 55 5.9 IX. APPOINTMENT AND DISMISSAL OF ACCOUNTING FIRM .......................................................... 55 5.10 X. DESCRIPTION OF SUSPENSION AND TERMINATION OF LISTING AFTER DISCLOSURE OF ANNUAL REPORT .............................................................................................................................................. 56 5.11 XI. MATTERS CONCERNING BANKRUPTCY REORGANIZATION ..................................................... 56 5.12 XII. MAJOR LAWSUITS AND ARBITRATIONS ................................................................................ 56 5.13 XIII. PUNISHMENT AND RECTIFICATION ..................................................................................... 56 5.14 XIV. DESCRIPTION ON INTEGRITY OF THE COMPANY AND ITS CONTROLLING SHAREHOLDER AND ACTUAL CONTROLLER ......................................................................................................................... 56 5.15 XV. DESCRIPTION ON IMPLEMENTATION OF THE COMPANY’S EQUITY INCENTIVES PLAN, EMPLOYEE STOCK OWNERSHIP PLAN OR OTHER EMPLOYEE INCENTIVES................................................................ 57 5.16 XVI. MAJOR RELATED PARTY TRANSACTIONS .......................................................................... 59 5.17 XVII. MAJOR CONTRACTS AND THEIR PERFORMANCE ............................................................... 60 5.18 XVIII. OVERVIEW OF SOCIAL RESPONSIBILITY ........................................................................... 68 5.19 XIX. DESCRIPTION OF OTHER MAJOR MATTERS ....................................................................... 81 5.20 XX. MAJOR MATTERS OF THE COMPANY’S SUBSIDIARIES .......................................................... 84 6 SECTION VI CHANGES IN SHARES AND PROFILE OF SHAREHOLDERS ........................... 87 6.1 I. CHANGES IN SHARES ............................................................................................................ 87 6.2 II. ISSUANCE AND