熵基科技：熵基科技股份有限公司2023年年度报告英文版

ZKTeco 2023 Annual Report 1 ZKTECOCO., LTD. 2023 Annual Report Announcement No.: 2024-011 April 2024 ZKTeco 2023 Annual Report 2 Adhering to integrity, innovation and stable development, seeing far and wide to win the future ALetter to Shareholders The year 2023 is the first complete accounting year since the listing of ZKTeco. This year, we continue to adhere to the globalization strategy, and continuously improve our core competitiveness driven by innovation. In 2023, the Company achieved an operating revenue of RMB 1.9701837 billion, a YoY increase of 2.69%, and a net profit attributable to the owners of the parent company of RMB 177.2637 million, a YoY decrease of 7.92%. Excluding the impact of share-based payment fees, the net profit attributable to the owners of the parent company was RMB 215.4326 million, a YoY increase of 9.04%. ZKTeco is committed to becoming a world-class enterprise for technological innovation and sustainable development in the access control industry. Through continuous R&D investment and market expansion, it has achieved stable business growth and global layout. On behalf of the Board of Directors, I would like to express sincere gratitude to all colleagues, users, partners, as well as investors of the Company! In 2023, we still focused on the Company's main business, deeply cultivating the three major business sectors of smart entrance and exit, smart identity verification, and smart office. Driven by the market and consumers, we deepened our main business, refined our services, and expanded our ecosystem horizontally. In 2023, also known as the "Year of Artificial Intelligence", we officially entered the field of smart retail cloud services. It is an innovative business sector newly developed by ZKTeco, and we have integrated the Company's accumulated technology and business capabilities over the years, focusing on the "AI+Digital Signage" field and accelerating the transformation of traditional retail industry to data-driven smart retail.In the era of AI, ZKTeco continues to focus on edge based multimodal AI for small devices, empowering industries such as home, community, enterprise, and education with technologies such as human-computer interaction, knowledge learning, multimodal fusion, and offline proxy experts. The Company continues to invest in the research of multimodal hybrid biometric recognition algorithms, promoting technological innovation and product upgrades. We ensure ZKTeco 2023 Annual Report 3 continuous leadership in technology and R&D advantages. Looking ahead to 2024, stability, innovation and surpassing will be the main keynote of our development. 1. Being stable and practical, simple and responsible, focusing on customer value creation We always uphold the corporate spirit of simplicity, honesty and practicality, which is not only the cultural gene of the Company, but also the cornerstone of its stable development. In 2024, ZKTeco will continue to deeply cultivate the access control industry, continuously meeting and exceeding customer expectations by providing high-quality products and services. The Company will adhere to the development goals of "being more refined, wider and higher", and achieve continuous optimization and innovation of products and services through refined management and in-depth understanding of consumer needs. Meanwhile, ZKTeco will take on the social responsibility of the enterprise, not only pursuing profit maximization in commercial activities, but also focusing on creating long-term value for customers, employees, society and the environment. The Company will continue to promote sustainable development strategies, reduce environmental impact through the application of green production and environmental protection technologies, and achieve a win-win situation of economic benefits and social responsibility. 2. Leaping forward in innovation, adhering to and practicing dreams, enhancing core competitiveness We firmly believe that innovation is the core driving force for enterprise development. The Company will continue to increase R&D investment, especially in the fields of computer vision and edge side multimodal AI human-computer interaction technology. Through continuous technological innovation, ZKTeco will drive the upgrading of products and solutions, thereby enhancing its core competitiveness. 3. Surpassing while setting sail, deepening cultivation while constantly surpassing, seizing historical opportunities of multimodal AI We will still be committed to seizing the historic opportunities brought by multimodal AI technology in the "cloud-edge-end-server" for access control. The Company will continuously deepen its application in industries such as home furnishings, communities, enterprises and ZKTeco 2023 Annual Report 4 education, and achieve diversified development of products and services through technological innovation and cross-border cooperation. We will adhere to the strategy of "agile evolution", respond quickly to market changes and customer needs, and continuously explore innovative products and services. The Company will work together with its partners to build an agile ecosystem, achieving rapid innovation and market response through digital transformation and cross-organizational collaboration. We will grow together with our partners to achieve resource sharing and mutual benefit. Finally, thank all shareholders for their trust and support in the Company's management team! We will develop through the integration of core technology innovation and main business track innovation, and look forward to the power of vigorous and upward evolution, becoming a leading enterprise in world-class access control industries, and satisfying all investors! Chairman Che Quanhong ZKTeco 2023 Annual Report 5 2023 Annual Report Section IImportant Notes, Contents and Definitions The Board of Directors, the Board of Supervisors, directors, supervisors and senior managers guarantee that the information presented in this report is true, accurate and complete without any false records, misleading statements or material omissions, and will undertake individual and joint legal liabilities. The Company's legal representative, Jin Hairong, the person in charge of the accounting work, Wang Youwu, and the person in charge of accounting institution (accounting supervisor), Fang Li, hereby declare that the financial information in this report is true, accuracy and complete. All directors have attended the board meeting to review this report. The forward-looking statements regarding future plans in this annual report do not constitute substantial commitments of the Company to investors. Investors are advised to pay attention to investment risks. Investors are advised to refer to the full text of this annual report and pay special attention to the content of "Section IIIManagement Discussion and Analysis XI. Prospects for the Future Development of the Company (III) Possible Risks and Countermeasures" in this annual report. The profit distribution proposal passed upon deliberation at the meeting of the Board of Directors is set out as follows: Based on the total share capital on the registration date of future equity distribution, after deducting the ZKTeco 2023 Annual Report 6 repurchased shares in the Company's repurchase account, the Company proposed to distribute cash dividend of RMB 4.5 (tax inclusive) per 10 shares to all shareholders. There will be no bonus shares or conversion of capital reserve into share capital. ZKTeco 2023 Annual Report 7 Table of Contents Section IImportant Notes, Contents and Definitions ..........................................................................................5 Section IICompany Profile and Key Financial Indicators .................................................................................12 Section IIIManagement Discussion and Analysis ...............................................................................................18 Section IVCorporate Governance ........................................................................................................................92 Section VEnvironmental and Social Responsibility ............................................................................................115 Section VISignificant Events.................................................................................................................................116 Section VIIChanges in Shares and Information about Shareholders ...............................................................140 Section VIIIInformation of Preferred Shares .....................................................................................................155 Section IXBonds .....................................................................................................................................................156 Section XFinancial Report ....................................................................................................................................157 ZKTeco 2023 Annual Report 8 Documents Available for Inspection I. Financial statements affixed with official stamps and the signatures of the Company’s legal representative, the person in charge of accounting and the charge of accounting institution (accounting supervisor) of the Company. II. Original of the audit report affixed with the stamp of the accounting firm as well as stamps and signatures of the certified public accountants. III. All original copies of the Company's documents and the original drafts of the Company's announcements as disclosed on websites designated by the CSRC during the reporting period. IV. Other relevant documents. Place for document inspection: Office of the Company's Board of Directors ZKTeco 2023 Annual Report 9 Definitions Terms Refers to Definitions Company, our Company, joint-stock company, ZKTeco Refers to ZKTECOCO., LTD. ZKTeco Times Refers to Shenzhen ZKTeco Times Investment Co., Ltd., a controlling shareholder of the Company JYHYRefers to Shenzhen JYHYInvestment Enterprise (Limited Partnership), a shareholder of the Company JYSJRefers to Shenzhen JYSJInvestment Enterprise (Limited Partnership), a shareholder of the Company LXInvestment Refers to Dongguan LXInvestment Partnership Enterprise (Limited Partnership), a shareholder of the Company JYLXRefers to Shenzhen JYLXConsulting Enterprise (Limited Partnership), a shareholder of the Company JYQLRefers to Shenzhen JYQLInvestment Consulting Enterprise (Limited Partnership), a shareholder of the Company Fuhai Juanyong Refers to Shenzhen Fuhai Juanyong IVenture Investment Fund (Limited Partnership), a shareholder of the Company Yiwu Walden Refers to Yiwu Walden Yuanjing Venture Capital Center (Limited Partnership), a shareholder of the Company Qingdao Walden Refers to Qingdao Walden Zhongxiang Investment Center (Limited Partnership), a shareholder of the Company Guangdong ZKTeco Refers to ZKTECO (GUANGDONG) CO., LTD, a wholly-owned subsidiary of the Company Shenzhen ZKTeco Refers to Shenzhen ZKTeco Biometric Identification Technology Co., Ltd., a wholly-owned subsidiary of the Company Shenzhen Zhongjiang Refers to Shenzhen Zhongjiang Intelligent Technology Co., Ltd., a company holding 51% equity of the Company XIAMENZKTECORefers to XIAMENZKTECOCO., LTD., a wholly-owned subsidiary of the Company Zhongan Intelligent Control Refers to Shenzhen Zhongan Intelligent Control Technology Co., Ltd., previously a controlling subsidiary of the Company, with its equity in the Company transferred in 2019 Zokon Industry Refers to Shenzhen Zokon Industry Development Co., Ltd. Ministry of Public Security Refers to Ministry of Public Security of the PRC Company Law Refers to Company Law of the People's Republic of China Securities Law Refers to Securities Law of the People's Republic of China Articles of Association Refers to Articles of Association of ZKTECOCO., LTD. A shares Refers to RMB denominated ordinary shares RMB, RMB '0,000 Refers to RMB, RMB '0,000 Reporting Period Refers to 2023 End of Reporting Period Refers to December 31,2023 CVRefers to Computer Vision BioCVRefers to Biometrics & Computer Vision Biometrics Refers to A computer technology that utilizes the analysis of human biological characteristics to distinguish biological organisms. It is used for personal identification by a close combination of computer technology with high-tech methods such as optics, acoustics, biosensors, and biostatistics, and utilizing the inherent physiological characteristics of the human body (fingerprints, facial features, palm veins, iris, etc.) or behavioral characteristics (sound, gait, etc.) ZKTeco 2023 Annual Report 10 Computer Vision Refers to Used to simulate biological vision using cameras, computers, and related equipment; simulate human visual abilities, capture and process three-dimensional information of the scene by using optical systems and image processing tools, understand and command specific devices to execute decisions RF, RFIDRefers to Radio Frequency Identification (RFID), a wireless communication technology that can identify specific targets and read and write relevant data through radio signals without establishing mechanical or optical contact between the identification system and specific targets Internet of Things/IoTRefers to Used to connect any object to the network by using information sensing devices and following agreed protocols. The object exchanges and communicates information through information dissemination media to achieve intelligent recognition, positioning, tracking, supervision, and other functions GA/T 1012-2019 Technical Specifications for Fingerprint collection and Comparison of Resident Identity Card Refers to The national standard for resident identity cards issued by the Ministry of Public Security in 2019, stipulating the requirements for fingerprint collection and comparison of resident identity cards, as well as the technical indicators and testing methods of fingerprint algorithms GA450-2013 General Technical Requirements for Desktop Readers of the Resident IDCard Refers to The national standard for general technical requirements of ID card readers issued by the Ministry of Public Security in 2013, stipulating the technical requirements, test methods, inspection rules, marking, packaging, transportation and storage of desktop ID card readers GA/T1011-2012 General Technical Requirements for Fingerprint Capture Device of the Resident IDCard Refers to The national standard for General Technical Requirements for Fingerprint Capture Device of the Resident IDCard issued by the Ministry of Public Security in 2012, stipulating the technical requirements, test methods, inspection rules, marking, packaging, transportation and storage of ID card fingerprint capture devices 2nd-Generation IDCard, Resident ID Card Refers to 2nd-Generation Resident IDCard SMEDRefers to Single Minute Exchange of Die, a process improvement method that minimizes the product die exchange time, production startup time, or adjustment time of the die. It can significantly shorten the time required for machine installation and die exchange setting SaaSRefers to Software as a Service, a software application model that provides software services through the Internet CTIDRefers to Cyber Trusted Identity, an authoritative network identity certificate issued to individuals by the "Internet+" trusted identity authentication platform (CTIDPlatform) ZigBee Refers to A wireless network protocol for low speed short distance transmission IP65 Refers to A protection level for electrical equipment casings against foreign object intrusion, which can completely prevent dust from entering and wash with water without any harm PUSHRefers to The active push technology on the server side, enabling the timely transmission of data updates, which is characterized by high efficiency and low terminal energy consumption MRPMode Refers to Material Requirement Planning, the process in which a production enterprise gradually derives the production and procurement plans for the components, raw materials, and other materials required for the production of the main product based on the production plan, the structure of the main product, and the inventory situation SAMRefers to Secure Access Module, a module used for encrypting and decrypting identity card information ISO14001 Refers to International standards for environmental management systems developed by the International Organization for Standardization (ISO) Frost & Sullivan Refers to Frost & Sullivan Consulting, an independent third-party industry research and analysis institution. The Company purchased the professional report "Independent Market Research of the Global and ZKTeco 2023 Annual Report 11 Chinese Biometric Industry" from Frost & Sullivan SMTRefers to Surface Mount Technology, a circuit assembly technology used to install surface mounted components without pins or with short leads on the surface of printed circuit boards (PCBs) or other substrates, and then solder and assemble them through methods such as reflow soldering or immersion soldering PCBRefers to Printed Circuit Board, a substrate used for assembling electronic components PCBARefers to Printed Circuit Board Assembly, the process of soldering components onto a PCB substrate to form a printed circuit board (PCB) asmag Refers to A professional industry media company under the Messe Frankfurt Exhibition GmbH, aiming to provide market analysis, technical information, solution evaluation, industry forecasting, etc. for practitioners in smart security, smart life, smart transportation, smart buildings, IT communication, and networking AIRefers to Artificial Intelligence AIoTRefers to The Artificial Intelligence of Things IoTRefers to Internet of Things NB-IOTRefers to Narrow Band Internet of Things, NB-IoT Rebate Refers to The rebate the Company provides to dealers based on the rebate policy and the completion of dealer performance SDKRefers to Software Development Kit OCRRefers to Optical character recognition, the process of electronic devices (such as scanners or digital cameras) using image processing and pattern recognition techniques to examine characters on images, bills, or certificates and translate them into computer text WMRefers to Warehouse Management SAPRefers to System Applications and Products PDARefers to Personal Digital Assistant AGVRefers to Automated Guided Vehicle BioCode Refers to Biometric feature code, converted from encrypted biometric features QR code Refers to Two-dimensional barcode format: Quick Response Code, which can quickly read data Transformer Refers to Deep learning model based on attention mechanism Note: 1.If there is a discrepancy between the total count and the sum of the sub item values in any table of this annual report, it is due to rounding reasons. 2.This report has been prepared in both Chinese and English. Should there be any discrepancies or misunderstandings between the two versions, the Chinese version shall prevail. ZKTeco 2023 Annual Report 12 Section IICompany Profile and Key Financial Indicators I. Company Information Stock Abbreviation ZKTECOStock code 301330 Chinese name of the Company 熵基科技股份有限公司Chinese abbreviation of the Company 熵基科技English name of the Company (if any) ZKTECOCO., LTD. English abbreviation of the Company (if any) ZKTeco Legal representative of the Company Jin Hairong Registered address No.32, Pingshan Industrial Road, Tangxia Town, Dongguan, Guangdong, China Postal code of registered address 523710 Historical changes in the registered address of the Company The registered address of the Company has not changed since its listing Office address No.32, Pingshan Industrial Road, Tangxia Town, Dongguan, Guangdong, China Postal code of office address 523710 Company website E-mail ir@ZKTeco.com II. Contacts and Contact Information Board Secretary Securities Affairs Representative Name Guo Yanbo Wang Jia Contact address No.32, Pingshan Industrial Road, Tangxia Town, Dongguan, Guangdong, China No.32, Pingshan Industrial Road, Tangxia Town, Dongguan, Guangdong, China Tel.0769-826188680769-82618868 Fax 0769-826188480769-82618848 E-mail ir@ZKTeco.com ir@ZKTeco.com III. Information Disclosure and Place of the Report Website of the stock exchange where the Company discloses its Annual Report Shenzhen Stock Exchange Media and website for the disclosure of the Annual Report Securities Times, China Securities Journal, Shanghai Securities News, Securities Daily, and CNINFO ( Location for inspection of the Annual Report Office of the Board of Directors No.32, Pingshan Industrial Road, Tangxia Town, Dongguan, Guangdong, China ZKTeco 2023 Annual Report 13 IV. Other Relevant Information Accounting firm engaged by the Company Name of the accounting firm Dahua Certified Public Accountants (Special General Partnership) Office address of the accounting firm Room 1101, Building 7, No.16 West Fourth Ring Middle Road, Haidian District, Beijing Name of signing accountants Li Hanbing, Chen Ming Sponsor engaged by the Company to continuously perform its supervisory function during the reporting period Applicable □ Not applicable Name of sponsor Office address of sponsor Name of sponsor representative Period of continuous supervision UBSSecurities Co., Ltd. 12th floor (F1201-F1210, F1211B-F1215A, F1231-F1232) and 15th floor (F1519-F1521, F1523-F1531) Winland International Finance Center, No.7 Finance Street, Xicheng District, Beijing, China Luo Yong, Chen Chuan August 17,2022-December 31,2025 Financial advisor engaged by the Company to perform the duties of continuous supervision during the reporting period □ Applicable Not applicable V. Main Accounting Data and Financial Indicators Whether the Company performed a retroactive adjustment or restatement of the previous accounting data Yes □ No Reasons for retroactive adjustment or restatement of the previous accounting data Accounting policy change 2023 2022 YoY change 2021 Before adjustment After adjustment After adjustment Before adjustment After adjustment Operating revenue (RMB) 1,970,183,682.341,918,559,191.761,918,559,191.762.69% 1,955,286,516.101,955,286,516.10 Net profit attributable to shareholders of listed companies (RMB) 177,263,675.15192,239,793.75192,502,163.93 -7.92% 170,923,050.93170,890,113.76 Net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses (RMB) 178,122,838.64189,342,503.20189,604,873.38 -6.06% 148,069,383.85148,036,446.68 ZKTeco 2023 Annual Report 14 Net cash flows from operating activities (RMB) 236,000,890.21124,520,033.18124,520,033.1889.53% 98,120,441.8798,120,441.87 Basic EPS (RMB/share) 0.91761.50271.1307 -18.85% 1.53471.0961 Diluted EPS (RMB/share) 0.91331.52351.1275 -19.00% 1.53471.0961 Weighted average return on net assets 5.63% 9.39% 9.40% -3.77% 13.20% 13.20% At the end of 2023 At the end of 2022 Increase or decrease at the end of this year compared to the end of the previous year At the end of 2021 Before adjustment After adjustment After adjustment Before adjustment After adjustment Total assets (RMB) 3,923,900,732.703,655,960,456.303,664,679,907.157.07% 2,082,923,037.222,082,890,100.05 Net assets attributable to shareholders of listed companies (RMB) 3,265,413,589.203,057,467,189.683,057,662,843.226.79% 1,372,534,346.381,372,501,409.21 Reasons for changes in accounting policies and situations of correction of accounting errors 1. Changes in important accounting policies On November 30,2022, the Ministry of Finance issued and implemented the "Interpretation No.16 of the Accounting Standards for Business Enterprises", which stipulates that "deferred income tax related to assets and liabilities arising from individual transactions shall not be subject to the accounting treatment of initial recognition exemption". The Company shall implement it from January 1,2023. For the lease liabilities and right-of-use assets recognized due to the application of this regulation in the earliest period of financial statement presentation for the first time, as well as the estimated liabilities and corresponding assets related to the disposal obligation recognized, which generate taxable temporary differences and deductible temporary differences, the Company shall adjust the cumulative impact to present the initial retained earnings and other related financial statement items for the earliest period in the financial statements in accordance with this regulation and the provisions of "Accounting Standards for Enterprises No.18 - Income Tax". 2. During the reporting period, the Company increased its total share capital by RMB 44,547,615.00 due to the conversion of capital reserve to share capital, but it did not affect the amount of shareholder equity. According to the "Accounting Standards for Enterprises No.34- EPS", the latest share capital adjustments were made and the basic EPS and diluted EPS for the past three years were reported. The lower of the Company's net profit before and after deducting non-recurring profits and losses in the past three fiscal years is negative, and the audit report in the last year shows that there is uncertainty in the Company's ability to continue as a going concern □ Yes No The lower of the net profit before and after deducting non-recurring profits and losses is negative ZKTeco 2023 Annual Report 15 □ Yes No VI. Main Financial Indicators by Quarter Unit: RMB First quarter Second quarter Third quarter Fourth quarter Operating revenue 403,022,827.48534,159,842.52502,800,942.03530,200,070.31 Net profit attributable to shareholders of listed companies 31,690,542.2257,063,793.4049,889,198.2038,620,141.33 Net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses 30,281,180.2164,195,296.2950,126,505.6733,519,856.47 Net cash flows from operating activities 64,369,898.5566,360,128.5752,572,808.7552,698,054.34 Whether there is a significant difference between the above financial indicators or their total amount and the financial indicators related to the disclosed quarterly and semi-annual reports of the Company □ Yes No VII. Differences in Accounting Data under Domestic and Foreign Accounting Standards 1. Differences in net profit and net assets in financial reports disclosed in accordance with international accounting standards and Chinese accounting standards □ Applicable Not applicable During the reporting period, there were no differences in net profit and net assets between the financial reports disclosed in accordance with international accounting standards and Chinese accounting standards. 2. Differences in net profit and net assets in financial reports disclosed in accordance with foreign accounting standards and Chinese accounting standards □ Applicable Not applicable During the reporting period, there were no differences in net profit and net assets between the financial reports disclosed in accordance with foreign accounting standards and Chinese accounting standards. VIII. Items and Amounts of Non-recurring Gains and Losses Applicable □ Not applicable Unit: RMB Item Amount in 2023 Amount in 2022 Amount in 2021 Remarks Losses and gains from disposal of non-current -626,426.46 -353,911.28 -196,340.91 ZKTeco 2023 Annual Report 16 assets (including the offsetting portion of the provision for losses from impairment of assets) Government subsidies included in current profits and losses (except those closely related to the normal business of the Company, which are in line with national policies and regulations, enjoyed according to determined standards, and have a continuous impact on the Company's profits and losses) 6,119,808.4512,705,234.7115,928,005.99 Profits and losses from fair value changes arising from the holding of financial assets and financial liabilities by non-financial enterprises, as well as the gains and losses arising from the disposal of financial assets and financial liabilities except for effective hedging business related to the normal operation of the Company -2,644,568.64 -5,791,116.419,453,151.11 Mainly due to investment gains and losses and changes in fair value generated by partial forward exchange settlement to hedge against exchange rate fluctuations risk Capital occupancy fees charged to non-financial enterprises included in current profits and losses 50,222.6550,026.1345,991.54 Reversal of the provision on receivables with impairment test conducted on an individual basis 239,389.68 Other non-operating revenue and expenses other than the above items -4,210,700.05 -2,833,347.63 -695,883.75 Mainly due to material losses and other extraordinary losses Less: income tax impact -281,003.45722,071.621,079,847.30 Minority interest 67,892.57157,523.35601,409.60 ZKTeco 2023 Annual Report 17 impact (after tax) Total -859,163.492,897,290.5522,853,667.08 -- Details of other profit and loss items that meet the definition of non-recurring profits and losses: □ Applicable Not applicable The Company has no specific situation of other profit and loss items that meet the definition of non-recurring profits and losses. Description on defining the non-recurring profit and loss items listed in the "Explanatory Announcement for Information Disclosure by Companies that Issue Securities to the Public No.1 - Non-recurring Profits and Losses" as recurring profit and loss items □ Applicable Not applicable The Company has no situation where the non-recurring profit and loss items listed in the "Explanatory Announcement for Information Disclosure by Companies that Issue Securities to the Public No.1 - Non-recurring Profits and Losses" are defined as recurring profit and loss items. ZKTeco 2023 Annual Report 18 Section IIIManagement Discussion and Analysis I. Industry situation of the Company during the reporting period (I) Basic situation of the industry of the Company The Company is an international enterprise in the field of multimodal "Computer Vision and Biometrics" (BioCV), and is a national high-tech enterprise specializing in providing smart entrance and exit management, smart identity verification, smart office products, smart retail products and solutions. The Company is mainly committed to integrating core biometric technologies such as fingerprints, palm veins, palmprints, facial features, finger veins, and iris with computer vision, radio frequency, IoT, cloud computing and other technologies. It provides smart terminals, industry application software, and platforms with object detection, identity recognition and verification functions to multiple fields such as commerce, transportation, finance, education, healthcare, and government affairs. Relying on the global ecosystem of R&D, manufacturing, and sales services, the Company actively deploys the field of smart retail cloud services while deeply cultivating the three major business sectors of smart entrance and exit, smart identity verification, and smart office, providing digital products and services for users in the public service field, enterprises, and personal users. The downstream end users of the Company involve numerous industries, diverse customer types and a wide range of application scenarios. Therefore, there is no obvious periodicity. (II) Industry development status of the main application areas of the products 1. Global biometric industry situation in 2023 (1) Global market overview In 2023, the global biometric market reached a scale of USD 39 billion. Looking ahead, it is expected that the market size will reach USD 144 billion by 2032, and the compound annual growth rate (CAGR) from 2024 to 2032 will reach 15.2%. The continuous progress of technology and innovation, the strengthening of border controls and travel security, and the increasing focus on maintaining workplace security to reduce the risk of unauthorized access are some of the main factors driving the market. (Data source: IMARCGroup) The main driving factor in the global market is the increasing number of data theft incidents among numerous enterprises. This has encouraged some organizations to invest heavily in the deployment of biometric systems, thereby driving the development of the market. Meanwhile, continuous technological progress and the widespread integration of the Internet of Things (IoT) and biometric technology are creating positive market prospects. Due to the sudden outbreak of COVID-19, the demand for non-contact biometric solutions in the entire healthcare industry has rapidly increased. In addition, biometric technology is increasingly integrated into consumer electronics products, including smartphones and laptops, which largely supports global demand. With the emergence of cloud based automatic biometric systems (ABIS), law enforcement agencies and government agencies are also adopting biometric devices, which in turn is a major growth inducing factor. Other factors, including rapid urbanization and industrialization, sustained product innovation, and extensive R&D activities by key participants, also have a positive impact on the market. (2) Global development of biometric technology ZKTeco 2023 Annual Report 19 The demand for biometric technology continues to grow as it eliminates the need to remember passwords or carry ID cards, making authentication more convenient and driving market growth. The increasing integration of biometric technology in the medical field to ensure that only authorized medical staff can access sensitive patient records and reduce the risk of data leakage and medical ID theft presents a promising prospect for the market. The application of biometric technology in accessing vehicles and adjusting settings based on individual driver preferences is constantly increasing, which has a positive effect on the development of the market. In addition, increasing attention to maintaining workplace safety to reduce the risk of unauthorized access has also supported market growth. Moreover, the increasing popularity of online transactions on mobile devices has also promoted market growth. According to Juniper Research, we will see biometric technology used for payments in stores in 2024. One of the main reasons is the development of Amazon One, a biometric system with palm vein scanning function, which is expected to be widely used in supermarkets. Due to the uniqueness of the palm vein, it is less likely to be forged compared to palmprint, fingerprint and facial features. In addition, recognition does not require contact with the skin and is not affected by skin recognition. The pace of implementation of "palm brush" recognition technology is accelerating in 2024. With higher accuracy, reliability and security, multimodal biometric technology that integrates two or more biometric features has ushered in large-scale commercialization. The performance of multimodal biometrics in the market is outstanding, especially in member self-service scenarios such as retail, catering, and FMCG chains. Multiple retailers around the world have launched self-service retail solutions, all of which combine multimodal biometrics with computer vision, greatly improving customers' offline shopping experience. In addition, computer vision technology is also showcasing its capabilities in smart retail scenarios. Smart retail scenarios integrate front-end perception devices of computer vision technology, helping brand merchants achieve virtual interaction between intelligent devices and consumers from the four dimensions of sound, text, video and image, achieving highly personalized marketing. (3) The application situation of the global biometric industry The highlight of the main application scenarios of global biometrics in 2023 is the application of non-contact authentication and mixed online and offline authentication, which continues the trend of application in recent years, while others are still dominated by traditional applications. At the same time, biometric technology is developing towards diversified and vertical fields. According to a report by Grand View Research, a leading research organization in the United States, "Analyzing the Size, Share, and Trend of the Medical Biometric Market from the Perspective of Technology (Facial Recognition, Fingerprint Recognition, Iris Recognition, Vein Recognition) and Segmentation Prediction from 2013 to 2024". The report shows that the global medical biometric market is expected to reach USD 11.7 billion by 2024. According to CBInsights' Industry Analyst Consumer research, the global market for automotive biometric technology is expected to reach USD 303 million by 2024, with a compound annual growth rate of nearly 17%. Due to the significant differences in accuracy, security, stability, recognition speed, convenience, cost, power consumption, and other aspects among different biometric technologies, they also have their own unique characteristics and advantages and disadvantages in different application fields. We believe that the integration of multimodal biometric technology will be a major trend in the future. With the accelerated popularization of intelligent hardware technology and cloud computing applications, multimodal biometric technology has become one of the important technologies for the development of modern AI. Biometrics ZKTeco 2023 Annual Report 20 will have a broader market prospect, meet the business needs of various industries, serve socio-economic development, and further promote the construction of an honest society. 2. China's biometric industry situation in 2023 (1) Overview of China's biometric market According to data from S&PConsulting Group, the market size of China's biometric technology industry is expected to reach RMB 51.2 billion in 2023, a YoY increase of 28.1%. It is expected that by 2026, the market size of China's biometric technology industry will reach RMB 98 billion, with a compound annual growth rate (CAGR) of 24.8%. (2) China's development of biometric technology Multimodal biometric technology is a fusion application of various biometric technologies such as fingerprint recognition, facial recognition, palmprint recognition, palm vein recognition, finger vein recognition, iris recognition, voiceprint recognition, etc. Compared to single modal biometric systems, multimodal biometrics has significant advantages in recognition performance, accuracy, and reliability. From the perspective of technological applications, new features emerge in China's biometric market in 2023: Multimodal products have gradually become the mainstream choice in the market; non-contact palmprint and palm vein fusion recognition and iris recognition technology are moving towards commercialization; biometric technology is further integrated with industry scenarios, with more extensive applications in various fields. From the perspective of the interaction between the demand side and the supply side, the biometric intelligent access control with multimodal fusion will break through the function of access control. The integration of IoT, cloud computing and AI technology will form a series of solutions closely related to vertical industry application scenarios such as communities, parks, education, healthcare and transportation, further providing richer and more extensive contents and functions, which will bring broader growth space for market promotion and application. In the future, while placing higher demands on biometric technology, it also provides unprecedented opportunities. Biometric technology should leverage the rapid development of sensors, optics and other fields to shift towards miniaturization, mobility, multimodality and high throughput. According to IDC's forecast, China's biometric intelligent access control integrated machine market is expected to achieve rapid growth at a CAGR of 11.6% in the coming years, and the market size will exceed USD 870 million by 2027. IDC research also found that biometric intelligent access control will exhibit trends such as non-contact, multimodal recognition fusion, integration with other business systems, and product going overseas. (Data source: IDC "Market Analysis Report on China's Biometric Intelligent Access Control Integrated Machine") (3) The application situation of the Chinese biometric industry The rise of smartphones, smart door locks, portable smart devices, and wearable smart devices has improved the security and operation convenience of electronic products through biometric technology, driving the widespread application of biometric technology in consumer products. Identity authentication has always been a great necessity in today's society, and biometrics is the most convenient, secure, and reliable personal identity authentication technology. China's identity authentication has already expanded from public security needs to various industries, with applications covering transportation, hotels, finance, social security, education, and healthcare. In 2023, we see the rapid growth of biometric authentication applications. The Report to the 20th National Congress of the Communist Party of China proposes to accelerate the construction of a strong online country and a digital China. Vigorously promoting the construction of new types of infrastructure, accelerating the ZKTeco 2023 Annual Report 21 development of the digital economy, and promoting the deep integration of the digital economy and the real economy will help to continuously promote the widespread application of entrance and exit management equipment and digital identity verification solutions mainly based on multimodal biometric technology in parks, communities, construction sites and other scenarios. In recent years, these applications have shown a rapid growth trend, and the deep integration of entrance and exit management with biometric technology, AI, IoT, and cloud computing will become the development norm in the future. Promoting the application of electronic resident ID cards is an important measure to build a digital China and improve government service capabilities. In recent years, in order to improve the level of convenient services, various industries in various regions have vigorously promoted the application of electronic ID cards in various scenarios such as finance, education, healthcare, social security, taxation, etc., bringing more convenience in digital lives of the people. Although China's biometric market currently has a relatively low global share, as one of the countries with rapid global economic development, the size of the biometric market in the future will maintain rapid growth. 3. Development of the smart retail industry The increasing integration of technologies such as artificial intelligence (AI), virtual reality (VR), augmented reality (AR), and the Internet of Things (IoT) to enhance consumer shopping experience, promote accurate inventory management, and improve store operations is one of the significant trends driving the growth of the smart retail market. Especially, AR changes the retail industry by allowing brands to interact with consumers through mobile devices. Adopting AR in marketing helps establish consumer relationships, enhance customer experience, and subsequently drive sales. The significant increase in the number of retail stores in various regions has also driven the demand for advanced technology. In 2022, the global smart retail market is expected to grow at a CAGR of 29.1% from 2023 to 2030, with a market size of USD 30.25 billion. (Data source: Grand View Research "2023-2030 Smart Retail Market Size, Share and Trend Analysis Report") (III) Overview and development trends of major technologies in the industry in 2023 There are various types of biometric technologies, including fingerprint recognition, facial recognition, palmprint recognition, palm vein recognition, finger vein recognition, iris recognition, voiceprint recognition, etc. Due to the development of AI technology, big data, and cloud computing, biometrics is closely combined with computer vision, and it has developed from simple identification to the empathetic experience ecology of scene interaction such as "Who are you What kind of service should I provide for you" . 1. Overview and trends of global biometric technology development The global development of biometric technology, especially in developed Western countries, has always had a high market share in government level applications. The related biometric technology, especially multimodal biometric technology, is an important trend in biometric applications. The fusion application of two or more biometric technologies will greatly improve the computing speed, accuracy, security, and reliability of large systems. Multimodal biometrics will continue to be a key development direction for biometric application technology, and companies with multiple biometric technologies have a first mover advantage. The popularization and application of biometric technology in consumer electronics, such as applications in smartphones and other portable or wearable devices, as well as the use of smart door locks, smart homes, security devices, IoT, cars, game controllers and other products, are also a huge driving force for the development of biometric industry at present. Fingerprint recognition, facial recognition and palm recognition will, driven by these application needs, evolve iteratively towards ZKTeco 2023 Annual Report 22 miniaturized computing, low power consumption, low resource allocation, better robustness and ease of use, so that the application of these biometric technologies in consumer electronics will continue to improve rapidly. Another obvious trend in the global biometric industry is the continuous restructuring, mergers and acquisitions, or strategic cooperation among industry enterprises, especially well-known ones. For example, in 2023, American fingerprint biometrics provider Idex Biometrics announced an agreement with Eastern Bank (EBL) to jointly launch the first publicly available biometric metal card using Idex Pay technology; Thales is preparing to deploy its next-generation biometric payment card, Fingerprint Cards AB, which uses the T2 sensor module of fingerprint cards and a biometric payment software platform, providing users with advanced transaction speed, improved power efficiency and enhanced security. In addition to considering commercial interests, these mergers and acquisitions within and outside the relevant industry also have a special driving role in the development of biometric technology: different technological resources are integrated, gradually matching reasonably through trial and error, and achieving high-quality combinations to promote technological development, such as the strong combination of multimodal recognition in the above examples, and the continuous development and application of online behavioral characteristic recognition technology under capital support. The impact on the market structure of biometric technology and applications in recent years will continue to expand. In the coming years, non-contact technologies such as non-contact fingerprint, facial recognition, iris recognition, palmprint recognition, palm vein recognition, voiceprint recognition, etc. will continue to win priority development opportunities and achieve better technological progress. Due to the rapid development of technologies such as AI, IoT, big data and cloud computing, the integration of biometrics & computer vision has become more closely applied, making it highly efficient for large-scale image and data processing, with stronger real-time performance and faster responsiveness. From the perspective of application form, from the initial simple identification of identity, it has evolved to "Who are you What kind of service should I provide for you" . Especially in retail, catering, healthcare, elderly care, and other interactive scenarios, there are huge application and development spaces. 2. Overview and trends of China's biometric technology development Although China's biometric market currently has a relatively low global share, as one of the countries with rapid global economic development, the size of the biometric market in the future will maintain rapid growth. China's biometric technology has been widely applied in many fields, including banking, public security, social security, education, healthcare, finance, commercial security, transportation, online consumption, and so on. In the coming years, the following technologies and application development trends will become increasingly evident: Firstly, multimodal biometric technology will continue to become the mainstream of technological development and market applications. In various segmented application industries, multimodal biometric technology has been widely applied and successfully implemented due to its excellent performance in security, reliability, ease of use, and data management. In recent years, non-contact identity authentication and recognition will continue to become a rigid demand, and multimodal biometrics can provide sufficient flexibility for system design and deployment based on different application needs and scenario changes. With the continuous expansion of the market size in the biometric industry, new demands are also continuously emerging, and multimodal recognition self-service terminals are gradually entering industries such as government, finance, and hotels. Traditional physical security awareness is no longer sufficient to meet the current development of the biometric industry in the digital era. Due to the government's full investment in social security, the traditional security era of personal safety has come to an end. Instead, how to use the such dimensions as innovative technologies, products and services combining biometric technology ZKTeco 2023 Annual Report 23 and computer vision technology as OMO "empathetic micro scene ultimate experience" featuring "people-oriented, harmony of body and mind" for recognition. Especially in the fields of healthcare, retail, catering, transportation, education, government affairs, etc., there is enormous potential for application. The digital transformation vigorously promoted by the strategy for domestic new types of infrastructure and the construction of "digital China" means that there will be a great construction need in the digital infrastructure. Whether in the real physical world or the virtual world, security considerations and accurate identity authentication will be a necessary requirement for geometrics progression. Biometric technologies such as facial recognition, fingerprint recognition, palmprint recognition, palm vein recognition, iris recognition, voiceprint recognition, as well as emerging behavioral recognition technologies such as network usage habits and payment habits, will be widely applied in the synchronous operation of the real and virtual worlds. In addition, biometric technology is also one of the supporting technologies of AI, and it has transitioned from traditional algorithm driving to deep learning algorithm driving. The advancement of biometric technology is closely linked to the development of computer vision technology. As computer vision algorithms become more efficient and precise, biometric technology has also achieved significant improvements in recognition accuracy, processing speed and data processing. This not only enhances the core functionality of biometrics, but also promotes its effective integration with object detection and recognition technology, making the recognition of biometric and object features from images or videos more precise and reliable. By using AI technology to generate simulated biometric data, the accuracy and robustness of biometric algorithms can be effectively improved without violating personal privacy. Furthermore, the integration of biometric technology and AI algorithms has opened up new ways for technological innovation, especially in the field of intelligent robots. The integration of biometric technology, such as facial recognition and speech recognition, has become a key to providing personalized and enhanced security services. With the continuous progress of technology and the gradual acceptance of the market, the application of biometric technology in intelligent robots and other fields is expected to further expand, promoting the development of personalized services and intelligent automation to new levels, and its application scale will also grow rapidly. In summary, with the accelerated development of the AI market, technological innovation, and continuous increase in application scenarios, the biometric market will maintain a high-speed growth trend. It is expected that the domestic biometric industry market size will increase to RMB 60 billion by 2024. (Data source: Frost & Sullivan) II. Main Businesses Engaged by the Company During the Reporting Period (I) Basic situation of the Company's main businesses and products The Company is an international enterprise in the field of multimodal "Computer Vision and Biometrics" (BioCV), and is a national high-tech enterprise specializing in providing smart entrance and exit management, smart identity verification, smart office products, smart retail products and solutions. The Company is mainly committed to integrating core multimodal biometric technologies such as fingerprints, palm veins, palmprints, facial features, finger veins, and iris with computer vision, radio frequency, IoT, cloud computing and other technologies. It provides smart terminals, industry application software, and platforms with object detection, identity recognition and verification functions to multiple fields such as commerce, transportation, finance, education, healthcare, government affairs and retail. Relying on the global ecosystem of R&D, manufacturing, and sales services, the Company actively deploys the field of smart retail cloud services while deeply cultivating the three major business sectors of smart entrance and exit, smart identity verification, and smart office, providing digital products and services for users in the public service field, enterprises, and personal users. ZKTeco 2023 Annual Report 24 From the perspective of the main application scenarios of the product, the Company's main business during the reporting period mainly covered three major areas: smart entrance and exit management, smart identity verification, and smart office. The main business income obtained from the three major scenarios of the Company during the reporting period is as follows: Unit: RMB '0,000 Item 20232022 Amount Proportion Amount Proportion I. Smart entrance and exit management products 143,755.4873.29% 139,671.5272.99% II. Smart identity verification products 15,582.857.94% 18,803.789.83% III. Smart office products 36,812.5018.77% 32,880.0117.18% Total 196,150.83 100.00% 191,355.31100.00% 1. Smart entrance and exit management (1) Smart terminal products and functions During the reporting period, the Company's smart terminal products for smart entrance and exit management mainly include access control management, pedestrian channels, vehicle channels, security inspection products, intelligent videos, smart locks, elevator control, charging piles, and self-service visitor services. Product Category Product Name Product Description Product Image Access control products Access control The access control is a smart terminal that achieves single door access control permission verification and logical judgment through biometric information verification or other verification methods. According to different biometric verification methods, it can be divided into fingerprint, facial, palm vein, and palmprint recognition access control integrated machines, equipped with RFID cards, passwords, and other verification methods. The device supports unified management on the software platform. During the reporting period, the Company launched a new generation of multimodal palm recognition technology and under-screen fingerprint recognition technology, accelerating the implementation of technology products. ZKTeco 2023 Annual Report 25 Access controller The access controller is a smart terminal used to receive data from biometrics card readers, radio frequency card readers, and access control, and perform access permission verification and logical judgment. It is mainly used in large and medium-sized project locations with a large number of access points and high security requirements. Accessible collection methods include facial features, palms, fingerprints, RFID cards, QR codes and passwords. The device has professional access control function and supports unified management on the software platform. The Company actively deploys advanced access controllers and multiple-step controllers for large and medium-sized enterprises and public sector applications. Facial recognition card reader Facial recognition card readers are mainly used to collect and verify facial and card information of personnel, and transmit the comparison results to the access controller through Wiegand for access permission verification and logical judgment. Dual verification can greatly improve the security of the control area. With a 2 million pixel binocular live detection camera, it accurately resists various 2D and 3D simulation image and model attacks. By outputting data through Wiegand, most access controllers can be directly upgraded to facial verification methods, which has strong compatibility. RF card reader The RF card reader is mainly used for the collection and transmission of RFID technologies and passwords, and can send the collected data to the access controller for comparison and verification. The data information whose collection is supported includes RFID cards, passwords, etc. ZKTeco 2023 Annual Report 26 Elevator control Elevator controller The elevator controller supports two modes of online and offline operation, controlling a maximum of 128 floors. It has multiple verification methods such as face, palm, fingerprint, RFID card, QR code, etc. and can accurately identify elevator user instructions without the need for buttons, directly reaching the target floor. In addition, it also supports seamless integration with the visitor system, achieving one code interconnection for visitors. Multimodal acquisition terminal The multimodal acquisition terminal is an inductive terminal used to collect information such as the cardholder's face, fingerprint, palm, QR code, RFID card, password, etc., and transmit it to the access controller and elevator controller. It is used in conjunction with software to achieve single or multiple door access control permission verification. The multimodal acquisition terminal is equipped with a high-definition binocular camera, configured with a facial liveness algorithm, which can quickly capture faces and has strong anti-counterfeiting ability. The dustproof and waterproof level can reach IP65. Pedestrian channel Pedestrian gate The pedestrian gate is an intelligent device used to control the entry and exit of personnel. With the rapid development of digital technology, the application of intelligent pedestrian gates is becoming increasingly widespread. At present, schools, high-end residential areas, scenic spots, stations, customs, airports, terminals, office buildings, sports venues, and other places that require pedestrian flow management, identity recognition, and self-service fee management are all provided with automated channel gates instead of traditional manual ticket or admission verification. The Company's pedestrian gate products support the integrated integration of multimodal biometrics and radio frequency identification, and support various infrared passage detection functions for human and object, enabling intelligent control and management of the channel. With the extension of the Company's core technologies in video detection, image recognition, behavior analysis, and feature matching, and combined with the characteristics of various scenarios in pedestrian channels, the Company has developed self-service settlement and passage products and solutions that can meet the usage needs of multiple scenarios such as libraries, unmanned supermarkets, communities, schools, airports, subways, and stations, promoting convenient travel in the above passage scenarios. The video passage detection algorithm and device independently developed by the Company use AI technology to detect, alarm, and dissuade abnormal behaviors such as tailgating, intrusion, shoulder to shoulder, and hugging. This not only reduces the work pressure of staff, but also greatly improves ZKTeco 2023 Annual Report 27 the safety of control and the accuracy of passage data. During the reporting period, the Company promoted the integration and application of technologies such as pedestrian gates, multimodal recognition, and holographic projection according to the needs of high-end commercial scenarios. Vehicle channel License plate recognition all-in-one machine The license plate recognition all-in-one machine is mainly used to obtain and recognize license plate information such as license plate number, license plate color, and license plate logo type. The Company's license plate recognition all-in-one machine adopts an integrated structure of license plate recognition camera, control panel, display screen, fill light, automatic barrier, etc. It can realize voice broadcasting in local language and display information such as license plate numbers. The license plate recognition parking lot management system can help car owners to park automatically, support various mobile payment functions, and can set flexible and diverse charging rules to meet the needs of different scenarios. Automatic barrier The automatic barrier can be independently controlled to lift and lower the pole, or it can be accessed through the parking lot management system to lift and lower the pole. The Company's gate is composed of a reducer, motor, balancing device, chassis, gate pole support, gate rod and other parts. According to the application location of the gate, its gate poles can be divided into straight poles,90° curved arm poles, fence poles, anti-collision round poles, and other pole types. The gate with license plate recognition all-in-one machine is suitable for entrance and exit management of parking lots in different scenarios. Charging pile New energy vehicle charging piles can be fixed on the ground or walls, installed in public buildings (buildings, shopping malls, public parking lots, etc.), residential parking lots, and dedicated charging stations to provide charging and energy replenishment services for electric vehicles and hybrid vehicles. According to the output power of the charging pile, it is generally divided into various different power charging methods such as AC slow charging, DC fast charging, and overcharging to meet the charging needs of new energy vehicles in different scenarios. On the basis of iteratively upgrading the performance of the 7kWAC charging pile series, the Company has ZKTeco 2023 Annual Report 28 developed 30kW/60kW/120kW/160kWDC charging piles and other series products. The main focus is on application scenarios that require fast charging and energy replenishment, such as administrative agencies, enterprises and institutions, industrial parks, shopping centers, scenic spots, communities, public charging stations, etc. It supports functions such as card swiping charging, QR code scanning charging, mobile payment, self-service, online monitoring, cloud management, OTA remote upgrade, etc. (integrated management and service of charging and parking can be achieved with the Company's smart parking business). Security inspection products Walk through metal detector Intelligent walk through metal detector is a security inspection terminal that integrates identity verification, personnel access and metal detection. It is applied in public places with high pedestrian flow, such as stations, factories, public service departments and large conferences, for personnel identity verification, personnel access, and inspection of metal items carried by personnel. According to usage requirements, the product integrates multiple functions such as metal detection, thermal imaging temperature measurement, real-time monitoring, channel management, real name verification, and environmental gas detection. It is equipped with a 29 inch 21:9 ultra wide screen. Through a brand new software UI visualization platform and the integration of multiple functions and visualized display of data, the product has a wider range of applications. Smartphone detector The smartphone detector can detect the smartphone and provide audible and visual alarms. On the basis of excluding daily carry-on items such as wallets, glasses, watches, buckles, magnets, keys, cigarettes, lighters, etc., the detector can trigger alarms for smartphones, portable hard drives, laptops, tablets, digital cameras, cameras, etc. The product has the characteristics of high sensitivity, strong stability, easy installation, low power consumption and long service life. X-Ray Scanner The X-Ray Scanner is a detection device used to detect whether packages and other items contain specific prohibited items. The Company's X-Ray Scanner products have X-ray image acquisition and processing functions, which can intelligently identify, mark the items in the package, and alert for prohibited items such as knives, lighters, batteries, etc. The device can integrate functions such as people and bag association, intelligent video and security inspection management platform. ZKTeco 2023 Annual Report 29 Video surveillance Entrance and exit video device Intelligent video cameras have intelligent analysis functions that enable machines to possess the capabilities of the human brain. The cameras can meet the requirements of complex urban scene deployment, as well as the increasingly wide and in-depth analysis of target objects, promoting the era of visual intelligence in intelligent video. They are suitable for various entrance and exit scenarios such as residential areas, campuses and enterprises. Smart lock Biometrics smart lock Smart locks are mainly used for opening and closing control of doors in homes, hotels, offices, and other areas. The Company's biometrics smart lock products have the function of extracting and comparing various information such as fingerprints, faces, RFID cards, etc. They can be managed through software, smart speakers, or apps, and are compatible with lock bodies in line with national standards, American standards, European standards, and Korean standards. They support WiFi, NBIoT, ZigBee, and Bluetooth communication methods. Visitor Terminal Intelligent visitor terminal Cooperating with the One Card Solution Cube Visitor Management System, it can achieve "real name" + "real person" visitor authentication; support CTID trusted identity authentication; support mobile visitor appointment, dual screen display, QR code and OCR document scanning, barcode printer, and other functions. SDKs can be provided for customers to conduct secondary development to meet the visitor management needs of users in different industries. (2) ZKBio Access IVSIntegrated Entrance and Exit Management Platform V6000 The ZKBio Access IVSV6000, based on multimodal BioCV technology, provides an integrated entrance and exit management platform that integrates pedestrian, vehicle, and object inspection. It includes multiple business subsystems such as personnel, attendance, access control, visitors, consumption, patrol, parking lot, elevator control, channel, intelligent video, information screen, system management, etc. The platform adopts a micro-service development framework, which has the characteristics of high system performance, high service availability, module scalability, high communication security, and strong third-party integration scalability. At the same time, the platform provides a unified and open smart cloud platform for data unified management and mobile internet applications, creating a virtuous ecological loop of effective pre warning, quick response to ZKTeco 2023 Annual Report 30 incidents, and precise verification after the incident, providing effective security guarantees for people's production and life. (3) ZKBio Intelligent Integrated Management Platform V6600 ZKBio V6600, based on multimodal BioCV technology, focuses on intelligent integrated entrance and exit management, and provides an intelligent integrated management platform that integrates "pedestrian, vehicle, and object inspection". With the help of machine vision intelligent analysis technology, the platform realizes intelligent analysis and safety supervision to meet the needs of users for diversified and fragmentation application scenarios based on target recognition, intelligent scene algorithm and IoT perception technology, combined with business subsystems such as attendance, access control, visitors, consumption, patrol, parking lot, elevator control, channel, information screen, intelligent video, and smart scenarios. (4) Shang'an Yuntong Smart Park Integrated Management Platform V8800 The ZKBio V8800, based on multimodal BioCV technology, provides an integrated park management platform that integrates pedestrian, vehicle, and object inspection. The platform adopts a micro-service development framework, which has the characteristics of high system performance, high service availability, module scalability, high communication security, and strong third-party integration scalability. With the Company's long-term experience and user needs in the field of smart parks, we will comprehensively integrate intelligent video applications to empower entrance and exit businesses, providing comprehensive and security guarantees and office convenience for the production and life of the park. 2. Smart identity verification (1) Smart terminal products and functions During the reporting period, the Company's smart terminal products of smart identity verification mainly included multimodal biometrics products, card recognition and reading products, and industry smart terminals. Product Category Product Name Product Description Product Image Multimodal biometrics products Fingerprint scanner Fingerprint scanner has the characteristics of large capture area, high fingerprint image pixels, and good imaging effects for dry and wet fingerprints. It supports the development and use of systems such as Windows, Android, and Linux. Fingerprint scanner of the resident ID card The specialized fingerprint scanner of the resident ID cards complies with the "Technical Specifications for Fingerprint Acquisition and Comparison of Resident Identity Card" (GA/T 1012-2019) and the "General Technical Requirements for Fingerprint Scanner of the Resident ID Card" (GA/T 1011-2012). The device is small and exquisite in appearance. Combined with high-performance processors and international semiconductor fingerprint sensors, it has the characteristics of fast capture speed and excellent image quality. ZKTeco 2023 Annual Report 31 Finger vein capture device It can simultaneously collect fingerprint and finger vein information. Fingerprint and finger vein two-factor authentication can improve the anti-counterfeiting ability, and is mostly used in scenarios with high security requirements. It supports the development and use of systems such as Windows, Android, and Linux. Biometrics reader The biometrics reader is a smart terminal used to collect human biological characteristics, mainly used in access control systems. It can send the collected biometrics information to the access controller for comparison and verification. The data information whose collection is supported includes fingerprints, faces, RFID cards, etc. Palm information capture device The palm vein information capture device adopts a high-definition near-infrared dedicated lens, which supports near-infrared light compensation, and can obtain clear vein images. It supports palm recognition at large angles. Card recognition and reading products QR code module of CTID terminal A hardware level module designed for various application scenarios of CTID authentication certificates, fully supporting the recognition and reading of CTID authentication certificate QR codes, mainstream QR codes, and one-dimensional barcodes, with strong decoding and code verification capabilities for CTID authentication certificate. Trusted Digital Identity Authentication Terminal The built-in ID card reader complies with the "General Technical Requirements for Desktop Readers of the Resident IDCard" (GA 450-2013), and can support the recognition and reading of the 2nd-generation IDCard, Foreign Permanent Resident IDCard, and Residence Card for Hong Kong, Macao and Taiwan Residents. In addition, it supports recognition and reading of CTID authentication certificate QR codes, mainstream QR codes, and one-dimensional barcodes through docking, with strong CTID authentication certificate decoding, code verification, and other capabilities. ZKTeco 2023 Annual Report 32 ID card reader It complies with "General Technical Requirements for Desktop Readers of the Resident IDCard" (GA 450-2013), "Technical Specifications for Fingerprint collection and Comparison of Resident Identity Card" (GA/T 1012-2019), and "General Technical Requirements for Fingerprint Capture Device of the Resident IDCard" (GA/T 1011-2012). It is an ID card reader with fingerprint verification function, and can support the recognition and reading of the 2nd-generation IDCard, Foreign Permanent Resident IDCard and Residence Card for Hong Kong, Macao and Taiwan Residents. According to different application scenarios, the ID card reader can be divided into three types: desktop, built-in, and handheld. Desktop ID card reader can be directly connected to a computer for use, built-in ID card reader can be integrated into various terminal devices to achieve ID card machine reading function, and handheld ID card reader can be directly used offline. Smart Government Terminal A dual screen smart government terminal that integrates basic functions such as ID card recognition and reading, fingerprint collection and verification, and facial recognition. It is designed with dual screens and supports handwritten electronic signatures. Equipped with a built-in high-definition camera, it supports shooting up to A4 format and can capture and retain documents, certificates, invoices, etc., achieving paperless office. Industry Smart Terminal Human Certificate Verification Terminal ASmart Human Certificate Verification Terminal that integrates functions such as portrait collection, fingerprint collection, and 2nd-generation ID card reading. It can also support the recognition and reading of various documents such as 2nd-generation Resident IDCard, Foreign Permanent Resident IDCard, and Residence Card for Hong Kong, Macao and Taiwan Residents. According to different application scenarios, it can be divided into four types: wall mounted, handheld, desktop, and floor mounted. The Company's Human Certificate Verification Terminal is pre-installed with One Card Solution Cube Identity Authentication Software, which can be used in conjunction with the certificate One Card Solution Cube Backend Management System for unified use. Medical Insurance Identity Verification Terminal A desktop device that integrates various functions such as social security card, ID card reading, contact/non-contact smart card recognition and reading, one-dimensional/QR code electronic voucher recognition, fingerprint comparison recognition, etc. The built-in ID card reader meets the requirements of " General Technical Requirements for Desktop Readers of the Resident IDCard" (GA450-ZKTeco 2023 Annual Report 33 2013) and supports reading smart cards such as social security cards and bank cards. The device supports 4 sets of PSAM cards, has a multi-platform SDK, and supports USB (drive free). This product is suitable for scenarios in fields such as social security, health, medical insurance, pharmacies, industry and commerce, taxation, electricity, telecommunications, hotels, transportation, banking, insurance, and fast payment. (2) One Card Solution Cube Identity Authentication Management System The One Card Solution Cube Identity Authentication Management System is a "real person system" identity verification system independently developed by the Company based on multimodal biometric technology for "the integration of people and certificates". It consists of two parts: the Human Certificate One Card Solution Cube Terminal Software (APP) and the Identity Authentication Management Platform, integrating the Company's ZKLiveFace facial recognition algorithm and ZKFinger V15.0 ID card fingerprint comparison algorithm. The software can read 2nd-generation ID cards, Hong Kong and Macao resident residence permit, foreign permanent residence permit and other certificate information, compare the fingerprint or face of the holder on the spot for the "integration of people and certificates", and accurately and quickly verify user identity information. One Card Solution Cube Identity Authentication Management Platform has functions such as intelligent device management, personnel management, and black/white list monitoring, which can achieve real-time and comprehensive multi-dimensional monitoring and analysis of devices, personnel, and data. Moreover, the One Card Solution Cube Identity Authentication Management System supports access to large capacity facial recognition servers, CTIDPlatform (Trusted Identity Authentication Platform), and million-level large capacity facial backend verification and trusted identity authentication capabilities, providing authoritative, reliable, stable and secure identity authentication services for customers in different vertical fields, and providing a one-stop industry solution of "algorithm+smart terminal+authentication platform+application" for the identity authentication industry chain. The system topology diagram is as follows: ZKTeco 2023 Annual Report 34 (3) Biowhois CTIDPlatform Biowhois CTIDPlatform is an identity authentication SaaS service platform launched by the Company based on multimodal biometric technology and an "Internet+" CTIDPlatform. It can provide developers and industry users with multimodal biometrics, online identity authentication, real name offline identity authentication and other open, scalable, cross-platform multi-dimensional identity authentication services. The data interconnection between Biowhois CTIDPlatform and "Internet+" CTIDPlatform can provide users with authoritative, reliable, stable and secure online identity authentication services such as two real names, two real people, four real names, four real people, etc., which can not only intelligently upgrade the existing offline identity authentication scenarios in finance, medical care, government affairs, transportation, education, etc., but also is suitable for internet identity authentication scenarios such as e-commerce, online games, social networking sites, online education, online healthcare, and online live streaming in the digital economy. The system topology diagram is as follows: Third party system Visitor appointment Visitor QR code Other functions Visitor end Management end Scan the QR code for appointment Manual appointment Scan the QR code for passage QR code sign in QR code sign off Message notification Visitor's record Account cancellation Mobile end Application WeChat invitation Data dashboard Scan QR code for follow-up Scan QR code to sign off Access QR code Reception records Message notification Appointment approval Data Docking ERP system Data management Device management Personnel management Original records Statistical report Regional settings Device management Advertising management Ordinary personnel Whitelist Blacklist Department management Visitor management Identity authentication Visitor's record Traffic records Visitor devices Visitor settings Mini program management Human certificate verification Large capacity comparison server Third party device management system OA system Data Docking API interface Applicationlayer OneCardSolutionCubeManagement SystemServicelayer System settings Basic settings Change password User management Database backup Command monitoring Operation log HTTPS configuration Dictionary configuration Standard interface Nacos Application layer Service Register Config Register Basic framework Business services Basic components Redis PostgreSQLMQCMDOption Public Service Message Push Service Scheduled Tasks Service Product Adaptation Equipment Perception layer Data management Personnel management Whitelist Blacklist Server connection Authentication method Verification function Advertising management Visitor settings Visitor function ZKTeco 2023 Annual Report 35 (4) Scenario solutions During the reporting period, based on the existing rich identity verification products, the Company deeply integrated specific segmentation scenarios and incubated identity verification solutions for three major segmentation scenarios: "smart examination, smart healthcare, and smart correction". In terms of intelligent examination, solutions based on the needs of candidate identity verification can cover the entire business scenario of candidate information collection, candidate identity verification, and examination data analysis before, during and after the examination. The solutions can not only be self-contained and directly implemented, but also seamlessly connect with third-party standardized examination site construction plans, with competitive advantages such as intelligence, convenience and flexible deployment. In the medical field, the Company has launched a smart medical identity verification solution for identity verification scenarios such as newborn birth medical certificates and assisted reproductive management. The solution not only meets the information collection and identity verification needs of various windows in the hospital, but also can be securely integrated with the hospital and third-party systems to achieve the embedding of identity verification function modules, helping major medical institutions provide patients with high-quality and caring medical services. 3. Smart office (1) Smart terminal products and functions During the reporting period, the Company's smart terminal products of smart office mainly included attendance products and consumer products. Product Category Product Name Product Description Product Image Attendance product Attendance Smart Terminal A self service attendance terminal, mainly registering and comparing biometrics information, recording personnel attendance time data, and cooperating with backend software to scientifically and effectively manage enterprise personnel. The Company's biometrics attendance terminal can support multiple verification methods such as fingerprint, face, palm, RFID card, and password, and has personnel management functions such as self-service Finance Medical treatment Government affairs Traffic Education Control interface Authentication capabilities Mini programs and cloud platforms Information collection, detection, input and recognition Fingerprint comparison Large capacity fingerprint comparison Two real names Two real people Authentication certificate Data/Device Visual comparison Large capacity visual comparison Four real names Four real people QR code Human certificate verification Technical support Multimodal backend comparison system Privatization comparison server CTIDPlatform One Card Solution Cube Identity Authentication System Middleware Security management system O&M support system Standard system Service model Privatized hybrid biometric services Internet trusted identity authentication service Real name offline identity authentication service Biowhois CTIDPlatform ZKTeco 2023 Annual Report 36 scheduling and report generation. The product has fixed installation and handheld applications, combined with wireless communication technology, suitable for a wide range of application scenarios. Consumer product Consumer Smart Terminal Support face, RFID card, QR code and other verification methods; mainly used in consumption scenarios such as internal canteens, gyms, and schools within enterprises, supporting various consumption modes such as free amount deduction, count deduction, and fixed value deduction. The system can be equipped with mini programs to achieve convenient and intelligent consumption management. (2) E-ZKEco Pro Time & Security Refined Service Platform The E-ZKeco Pro Time & Security Refined Management Platform focuses on enterprise time and security management, combining the three core elements of internet applications: time, computing, and storage. It integrates multimodal BioCV, IoT perception technology, and connectivity into software and hardware to achieve standardization, modularization, and platformization of functions such as personnel, attendance, consumption, access control, visitors, meetings, assets, and salaries, and assists in the digital upgrading of enterprise management. Through the intelligent application of the E-ZKeco Pro Platform, enterprises can standardize their management processes, significantly improving their level of time and security refined management, while reducing the burden of tedious work such as human resources, administration, and finance, and helping enterprises reduce operating costs and improve operational efficiency. （3）ZKBioTime ZKBioTime is an independently developed attendance management software platform that supports remote, multi-branch, and multi-site attendance management based on the needs and characteristics of overseas markets. ZKBioTime can be stably connected to standard attendance PUSH devices of the Company. At the same time, employees perform various self-service office operations such as check-in, check-out, out of office check-in, leave approval, and self query reports through mobile apps and browsers. The platform can ultimately record employee attendance status and output attendance reports based on attendance rules. In addition, the software has gradually been localized in more than ten countries around the world, including localized language, attendance rules, attendance reports, and payroll rules. The interface between localization and third-party social security, tax, banking, and other institutions is seamlessly connected, greatly improving the efficiency of enterprise office operations and receiving high praise. (4) ZKTeco Interconnection Smart Office Digital Assistant ZKTeco Interconnection Smart Office Digital Assistant is a lightweight SaaS application for end customers in office scenes. Mobile end is a lightweight software application based on WeChat mini programs and mobile Apps, providing small and medium-sized enterprises (SMEs) with functions such as venue management, personnel management, attendance management, access control management, visitor management, device management, video management, etc. It accompanies micro and small enterprises from basic software to standardized software development, and creates a simple and easy-to-use digital assistant for micro and small enterprises. ZKTeco Interconnection includes an online O&M service system, positioned as a digital tool for collaborating intermediary service providers to develop from traditional operations to digital service operations, providing high-quality products and services to end customers, and working together with service provider partners to build online service and marketing channels. The ZKTeco Interconnection Platform leverages the front-end intelligent hardware product matrix of ZKTeco, the Paas base capability of the back-end ZKTeco IoT cloud platform MinervaIoT, and the comprehensive three-dimensional advantages of ZKTeco 2023 Annual Report 37 various Saas applications to provide "business premise management, comprehensive service management" solutions for SME customers. (II) The Company business model 1. Procurement model (1) Procurement execution In order to fully leverage the advantages of centralized procurement, reduce procurement costs, improve operational efficiency, and optimize procurement resources, the Company has a Procurement Center that manages the procurement of electronic materials, structural components, and other materials required in the production process. The Procurement Center consists of three departments: Resource Development Department, Executive Procurement Department, and Comprehensive Procurement Department. Among them, the Resource Development Department is mainly responsible for developing and managing supplier resources, following up on samples, and conducting business negotiations during the sampling period. The Executive Procurement Department is mainly responsible for executing purchase orders and following up on material delivery and reconciliation and payment request. The Comprehensive Procurement Department is mainly responsible for administrative, office, and fixed asset procurement, except for production materials. The Company mainly adopts the MRP procurement model. The material control specialist of the Company's Manufacturing Center mainly analyzes the raw material usage based on the production plan and the material structure of the product, formulates priority levels, allocates materials based on inventory, and gradually deduces the raw material procurement plan required for the production of the product. For some general materials, the Company has set up a minimum safe stocking point for inventory warning and replenishment. (2) Supplier selection and management The Company has established strict supplier selection and management measures. For newly introduced suppliers who need to develop new products, expand supply resources, and reduce costs, after the supplier submits basic information, the Resource Development Department of the Company's Procurement Center will organize the Material Certification Department, the Executive Procurement Department, the Manufacturing Center, and the R&DCenter to conduct on-site reviews of the supplier. For suppliers who pass the assessment, formal certification will be carried out for storage. In the daily procurement process, in order to ensure the quality of the Company's raw material supply, except for the SAM (security module) involved in the card business, which can only be purchased from Xingtang Communication Technology Co., Ltd., the only supplier selected by the Ministry of Public Security, the Company usually selects two or more suppliers that meet the Company's certification standards for the main raw materials for supply. The Company will also strengthen the management of suppliers by signing relevant "Supply Quality Agreement" and conducting monthly and annual reviews. Suppliers with scores below 60 for three consecutive months will be disqualified from being suppliers. 2. Production model From the perspective of process characteristics, the Company's smart terminal products are mainly produced by the production methods of processing and assembly. According to the different production planning methods, the production method can be divided into two production models: Make to Stock (MTS) and Make to Order (MTO). The MTS of the Company mainly combines historical sales data and the Company's sales strategy to predict and produce standardized products, and meets market demand in a timely manner by maintaining a certain amount of finished product inventory. The MTO is a production method according to personalized needs such as variety, model specifications, and performance based on customer orders. Once the product is produced, it can be directly sent to customers without the need to maintain finished product inventory. After successful development and testing, the Company's application software and platform products are delivered to users through CD or website distribution and download. Both the basic version software and the advanced version software and platform provide users with free trials. The basic version software provides free activation, while the advanced version software and platform require users to pay a software license fee before activation and use. For large-scale engineering projects, the Company ZKTeco 2023 Annual Report 38 will assign engineering personnel to the user's site for installation, debugging, and training services. The application software and platforms released by the Company are locally deployed, used, and managed by users. The Company does not provide operation services, but only provides necessary after-sales services according to the sales contract. 3. Marketing and management models The Company adopts a sales model that combines distribution and direct sales. (1) Distribution model In the distribution model, the Company's customers are mainly dealers, and the relationship between the Company and dealers belongs to a purchase and sales relationship, adopting a buyout sales method. (2) Direct sales model The Company's direct sales customers mainly include system integrators, engineering contractors, end users, etc. On the one hand, the Company can provide smart terminal devices and application software platforms to system integrators and engineering contractors, which can integrate or include the aforementioned products in products, systems, or engineering services sold to downstream end users. On the other hand, the Company can also directly sell to end users through offline direct sales or online self operated platforms. Normally, the Company's direct sales business can be divided into two categories based on whether installation and O&M are required: product sales and project implementation. For project implementation related businesses, the Company will customize its own smart terminals and application software platforms based on different engineering project requirements and provide O&M services. (III) Market position of the Company's products during the reporting period The Company has been listed as one of the "Top 50 Global Security Companies" by asmag for four consecutive years from 2020 to 2023. In 2023, it ranked 14th on the list and was awarded awards such as "Top 50 Innovation", "Top 10 Brands in Smart Parks", and "Top 10 Brands in Smart Office" in 2023 Global Industry Digital Innovation Ranking by asmag; it was selected by the organizing committee and relevant institutions of the 19th Security China as the "DCWorld - Top Enterprise of the DCWorld Awards", "3rd China Security Innovation Enterprise in 2023", and "11th China Intelligent Transportation Construction Recommended Brand in 2023"; it was selected by the organizing committee of the Huicong Brand Festival as the "AIoT Innovation Enterprise" and "Leading Brand in Access Control" of the 20th China IoTIndustry Conference and Brand Festival in 2023; it won the second place in the "2023 Top 10 Access Control Brands Award" awarded by Qianjia Smart Tech and other entities; it ranked first on the "Top 15 Access Control Brands" list by the Latin American security technology media SecuriTIC in 2023; it received the "Technology Innovation Award" in the field of physical security at the 2023 Security FESTA in South Korea; it was also selected as one of the "Top 100 Global Security Enterprises in 2023" by BOANEWS and Security World magazines. In May 2023, the Company's trusted digital identity QR code module ZKB10M was successfully shortlisted for the "Trusted Digital Identity Ecological Product Recommendation List" of Beijing Zhongdun Security Technology Development Co., Ltd. In June 2023, the Company's ZKTeco perception data gate was awarded the "Excellent Innovative Product Award" at the 16th China International Public Safety Products Expo. Internationally, the Company has won 6 industrial design industry awards, including 2 German Red Dot Awards and 4 iFDesign Awards. In addition, since 2016, the Company has been awarded the title of "Top 500 Manufacturing Enterprises in Guangdong Province" by Guangdong Manufacturers Association and other entities for 8 consecutive years. In 2023, the Company was rated by the General Administration of Customs of the People's Republic of China as a "Sample Enterprise of China Customs Trade Prosperity Survey (Export)". In 2023, the Company also joined industry organizations such as the Guangdong Chain Operations Association (GDCOA), the E-paper Industry Alliance (EPIA), and the China Chain-Store & Franchise Association (CCFA), becoming a new retail technology and service provider in the retail industry. Guangdong ZKTeco has been rated as a "SRDI small and medium-sized enterprise (SME)" by the Department of Industry and Information Technology of Guangdong Province. ZKTeco 2023 Annual Report 39 (IV) Key performance drivers 1. Accelerated development of multimodal biometric technology In recent years, biometrics products have mainly focused on single biometrics recognition. In many application scenarios, a single biometric technology (such as fingerprint recognition) can meet the needs of most customers, and many single biometric technology products have price advantages and can be easily installed. Although the accuracy and anti-counterfeiting performance of a single biometric technology have gradually improved, with the continuous development and evolution of deep learning algorithms and big data technologies, the importance of information security has become increasingly prominent, and higher requirements have been placed on the security and accuracy of identity recognition information. The development of multimodal biometric technology utilizing multiple biometric technologies has become a new trend in the field of biometrics. Multimodal recognition technology has better recognition performance than single biometric technology, greatly improving product security. Multimodal biometric technology is not a simple superposition of biometric technologies, but rather the R&D of new algorithms based on the characteristics of different biometrics to improve computational efficiency and accuracy. This requires enterprises to have a deep understanding of different biometric technologies and be able to innovate products through algorithm optimization. At present, multimodal biometrics, which integrates multiple biometric technologies, will become more flexible. Suitable fusion methods and weight decisions can be selected based on different application needs and scenario changes, which becomes a development trend in the biometric market. 2. The rise of non-contact biometric technology applications With the development of biometric technology, non-contact biometric technology has gradually matured. Due to its non-contact characteristics, which can avoid physical contact between users and machines, and have efficient and hygienic characteristics, its application in the global market has gradually emerged. In recent years, it has been further accepted by the market with market-oriented applications. Non-contact biometric technology mainly includes facial recognition, palm recognition, and iris recognition. With the development of big data and AI technologies, facial recognition has become increasingly mature in terms of recognition accuracy, and is applied in many scenarios such as real name verification. Its characteristic is that it does not require active cooperation from the recognition object, and the difficulty of information collection is low. The recognition accuracy can reach the same level as fingerprint recognition in specific situations. The palm and finger vein recognition technology currently mainly focuses on applications in medium and small scenes, such as ATM systems. With the development of wide dynamic image acquisition technology, the palm recognition technology has also entered a growth period, and its non-contact and concealment characteristics can avoid the risk of information leakage. Iris technology has the characteristics of high accuracy and high difficulty in information collection, and is generally applied in situations with high security requirements. Due to its high accuracy, it is also suitable for unified and standardized identity authentication and recognition at the national level. The Company promotes the application of non-contact palm recognition technology in financial and other fields by participating in the development of group standards related to non-contact palm recognition technology, and promotes the patent and technical layout of non-contact fingerprint capture devices. Non-contact fingerprint recognition has become an important development direction of traditional fingerprint recognition, and its non-contact characteristics will bring more security and better user experience. 3. The rise of mobile terminal biometric technology applications In recent years, the application of biometric technology on mobile terminal devices has gradually emerged. For example, fingerprint recognition, facial recognition, palm recognition, and iris recognition technologies are gradually used on mobile terminal devices to generate BioCode from these biometric methods and are integrated into entrance and exit access control, smartphones, tablets and other mobile devices in the form of QR codes, to provide convenient identity authentication, and improve the high security application functions such as users' independent storage of biometric templates. 4. National industrial policies provide a favorable development environment for industry development The "Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and Vision 2035 of the ZKTeco 2023 Annual Report 40 People's Republic of China" (hereinafter referred to as the "Outline of the 14th Five-Year Plan") released in March 2021 clearly states that new types of infrastructure will be an important component of China's modern infrastructure system, and the construction of traditional and new types of infrastructure will be promoted in a coordinated manner to create a complete, efficient, practical, intelligent, green, safe and reliable modern infrastructure system. In the "Outline of the 14th Five-Year Plan", the entire section of "Construction of new types of infrastructure" proposes requirements for the construction and development of new types of infrastructure: With the aim of strengthening the support for digital transformation, intelligent upgrade, and integrated innovation, we will build new types of infrastructure in such areas as information technology, integration, and innovation, and provide guidance on the development of industries such as intelligent home appliances, intelligent lighting, intelligent security, and intelligent video surveillance systems. In the context of new types of infrastructure, the Company will adhere to innovation driven and long-term principles, continue to strengthen multimodal BioCV core technology and precise investment in R&D, and enhance the core competitiveness of products and solutions. In addition, the Company will work with partners to promote global leadership and commercial scale applications and enhance customer value based on multimodal BioCV technology according to customer needs. 5. Digital China construction provides new development opportunities for the Company On February 27,2023, the CPCCentral Committee and the State Council issued the "Overall Layout Plan for the Construction of Digital China" (hereinafter referred to as the "Plan"), pointing out that building a digital China is an important engine to promote Chinese path to modernization in the digital era and a strong support to build a new competitive advantage of the country. The "Plan" will propose to ensure capital investment, innovate funding support methods, strengthen the overall guidance of various funds, play the role of the national industry finance cooperation platform, guide financial resources to support digital development, encourage and guide capital in the construction of digital China in a standardized manner, and build an investment and financing system with effective participation of social capital. By 2025, the digital economy will enter a period of comprehensive expansion, with the added value of core industries in the digital economy accounting for 10% of GDP. According to the CAICT, the scale of China's digital economy is expected to reach RMB 56.1 trillion in 2023 and RMB 70.8 trillion in 2025. The digital economy policies, including the "Plan", will catalyze the further development of new smart city projects. In the wave of digital economy, the Company, as the driver and practitioner of digitalization and intelligence, actively explores, builds and improves the computer vision field, multi-dimensional perception smart terminals, scene interactive robots, scene cloud service software, AR digital twins, digital identity cards and other track industry chains, forms a digital ecosystem integrating upstream, downstream and cross industries, and works with Xingniu Fund to jointly establish an ecological innovation fund to accelerate product incubation, and assist in the ecological construction of the digital industry. 6. The driving force of AI technology on company business development With rapidly changing technologies today, AI technology, with its unique charm and unparalleled potential, is causing profound changes worldwide. The large language model represented by ChatGPT of OpenAI reveals that algorithm models with Transformer as the core architecture are steadily moving towards the direction of Artificial General Intelligence (AGI). This transformation not only promotes the depth and breadth of AI research in theory, but also demonstrates enormous potential and value in practical applications. Multimodal large models have become an important means for AI to perceive and understand the real world by integrating natural language, images, speech and various other signals. This integration approach not only improves the understanding ability of AI, but also endows it with stronger adaptability and wider application scope. It can be used in multiple fields such as image recognition, speech recognition, natural language processing, etc., greatly improving the practicality and efficiency of AI. Moreover, AIhas demonstrated its important application value in fields such as smart security and smart office. It implements automatic monitoring through image recognition technology to improve security efficiency. By using natural language processing technology, it achieves automated office work and improves work efficiency. In addition, AI is also highly valuable for the Company's smart business scenario based applications. By using AI technology, deep mining and analysis of business data can be achieved, thus providing more accurate basis for company decision-making. Through speech recognition, speech synthesis and Large Language Model (LLM), Q&A robots that interact with natural language can be developed to achieve ZKTeco 2023 Annual Report 41 intelligent frontend, intelligent customer service and other services. The Company has been committed to conducting in-depth research in the field of AI and has made significant breakthroughs in multiple directions. This includes continuous iteration and frontier tracking of the BioCVLLM and the BioCVVLM multimodal large model. Moreover, the Company actively leverages the power of the open source technology community to maintain synchronous development with the latest global technologies. These technological breakthroughs have provided strong impetus for the Company's new business development. Through continuous technological innovation and business expansion, the Company will be able to achieve greater breakthroughs in the field of AI, thus injecting stronger vitality into its development. III. Analysis of Core Competitiveness 1. Technological and R&D advantages (1) Mastering the core algorithms of biometrics, leading the industry in multimodal biometric technology After years of technological accumulation, the Company has built a core technology system focusing on single biometric technology and multimodal biometric technology. In the field of single biometric recognition, the Company has successfully developed biometric technologies such as fingerprints, palm veins, palmprints, facial features, finger veins and irises. Among them, the Company's resident ID card fingerprint recognition algorithm has been recognized by regulatory agencies and is listed in the "Qualified List of Quality Consistency Evaluation and Inspection of Resident IDCard Fingerprint Application Algorithms". The Company has become one of the seven recognized manufacturers. In the field of multimodal biometrics, the Company continues to innovate and has launched various multimodal biometric technologies such as "fingerprint+facial recognition", "facial+palm vein recognition", "fingerprint+finger vein recognition", "facial+iris recognition", and "fingerprint+palm+facial recognition". It has obtained 18 invention and utility model patents in the field of multimodal biometrics. The Company possesses core algorithms in the field of biometrics and has a strong competitive advantage. In addition, the Company also has a comprehensive industry incubation ability to combine various application technologies with biometric technology, providing support for the development of various industries. The Company combines basic R&D of biometrics with application R&D. As of December 31,2023, the Company has obtained a total of 858 patents, including 149 invention patents and obtained a total of 675 computer software copyrights and 67 work copyrights. (2) The Company's unique ultra short delay supercomputing technology provides innovative solutions for the deployment of edge and end devices in biometric technology, with three prominent advantages: Firstly, this technology is deployed on edge and end devices without being constrained by network quality and stability. This provides a more stable environment for applications and ensures efficient operation. Secondly, it can run on mid to low frequency chips (such as the ARM9 with 1GHz main frequency), which can effectively reduce power consumption and costs, and avoid high requirements for chip manufacturing processes. In the current fierce "chip war" environment, it has achieved the freedom of independent R&D. Most importantly, this technology minimizes the transmission and centralized storage of sensitive information, effectively avoiding the risk of leakage and malicious attacks and ensuring data security. In summary, the Company's ultra short latency supercomputing technology provides revolutionary advantages for the practical application of biometric technology, maximizing the performance of edge and end devices while ensuring data privacy and security. (3) Deep research on multimodal BioCVAI technology The Company has evolved from a single biometric technology to a pioneer in computer vision and biometric multimodal BioCVAI technology. It is no longer just about identifying "I'll tell you who you are", but about combining computer vision and biometrics to realize the multimodal AI attribute: "Who are you What kind of service should I provide for you" as well as the ZKTeco 2023 Annual Report 42 empathetic experience ecology of scene interaction. Minerva, an AIoT platform based on smart retail scenarios and independent intellectual property rights, has launched a ZKDIGIMAXLevel 3 digital marketing solution for traditional small and medium-sized retailers. This solution provides five core services, including Minerva IoT platform, machine vision analysis platform, big data analysis platform, AIGC platform, advertising production and distribution platform, as well as corresponding smart terminals. Relying on the IoT, big data and cloud computing technologies, the Company has delved into the field of smart retail and utilized machine vision analysis technology to integrate the interactive value of people and scenarios and the empowering value of scenarios into innovative value. The Company is committed to building a multi-dimensional intelligent business analysis platform based on the data lake, and creating a new service provider of boundless all-round, full scene and full chain retail platform. (4) Technological accumulation of computer vision AI technology and smart retail scenarios Computer vision, as an important branch of AI, has been widely applied in various industries. In the retail industry, computer vision technology has multiple functions such as supervising shelves, identifying and recommending products, analyzing passenger flow density, and supporting unmanned retail stores. The Company launched the research on BioCVLLM3.0 large model project through the research on the layout of large models, which is mainly used for the simulation and enhancement of small models and enables the smart retail scene on the edge computing side. Large model technology has emerged in recent years as a promising field that can be applied to smart shopping guidance, product advertising content generation, and online and offline interaction experiences. With the widespread application of large models in smart retail scenarios, they have gradually become an indispensable component in the field of AI. The Company closely tracks the latest development of large model technology and has achieved key technological reserves in lightweight and edge local deployment, which have been applied in multiple pilot projects. The Company has successfully implemented programming and validation of algorithms such as GPT and BERT, and trained them on medium-sized open corpus data, achieving the best level of advanced open source projects currently available. In the era of AI, the Company continuously innovates product service interaction experiences and enhances competitiveness. The application of digital humans in intelligent access control products is mainly reflected in providing more intelligent and interactive management methods. Based on advanced AI technology, digital human access control devices can recognize, verify and manage access of personnel, while providing customized virtual images and voice interaction functions. This application makes access control management more convenient and efficient, and provides enterprises with a more intelligent service experience. With the continuous development of technology, the application of digital humans in intelligent access control products will continue to expand and optimize, bringing richer functions and services to enterprises. (5) Advantages of R&D team and extension cooperation The biometric industry belongs to a technology intensive industry, and the R&D strength and industrialization ability largely determine whether the Company can occupy a commanding position in future market competition. Therefore, the Company attaches great importance to R&D investment. As of December 31,2023, the Company has 1,226 global R&D and engineering technicians, with R&DCenters in Dongguan, Shenzhen, Xiamen, Dalian, and India. The Company has been approved by the People's Government of Guangdong Province to establish the Guangdong Biometrics and Security Technology Engineering Technology Research Center, strengthen the introduction and training of biometrics engineering technicians, and improves the efficiency of technology transformation. The Guangdong Biometrics and Security Technology Engineering Technology Research Center is the only provincial-level engineering center in the biometric industry in Guangdong Province. Relying on the talent team and research equipment of ZKTeco, the center accelerates the transformation of scientific research achievements into real productivity with the goal of building a provincial-level first-class research platform for deep integration of biometrics by researching and developing key common technologies in the industry, thereby promoting industrial technological progress. The Company and Dongguan Institute of Optoelectronics, Peking University jointly established the Dongguan Key Laboratory of Multimodal Computer Vision and Biometric Recognition. Taking advantage of the advantages of both parties in cooperation, we actively carry out research on multimodal computer vision and biometric related technologies, timely realize the ZKTeco 2023 Annual Report 43 industrialization transformation of research results, provide a platform for the development dynamics of industry technology, and cultivate talents for enterprises. (6) Actively participate in the formulation of industry standards and norms, occupying the industry's commanding heights Participating in the formulation of industry standards and norms can enable the Company to grasp the forefront of industry development direction and carry out technology development and product layout in advance. Since its establishment, the Company has been focused on the R&D of biometric technology, and is one of the main participants in drafting and revising multiple technical standards and specifications in the industry. 2. Product array advantages The Company's products include hardware and software products, connecting different product combinations through digitalization and intelligence, and creating diversified smart solutions to meet the needs of numerous industries. With the increasing demand for downstream fragmentation, the Company continues to expand a rich product array, which can provide a full range of product services in various segmentation scenarios such as smart entrance and exit management, smart identity verification, smart office and smart retail. In terms of smart terminals, the Company can provide various products in the field of smart entrance and exit management, such as access control management, pedestrian channels, vehicle channels, security inspection products, intelligent videos, smart locks, elevator controls, charging piles, and self-service visitors; products in the field of smart identity verification, such as Human Certificate Verification Terminal, biometrics capture devices, biometrics modules, and card readers; products such as employee attendance, smart consumption, and smart conferences in the field of smart office; products such as employee attendance, smart consumption, and smart conferences in the field of smart office; digital signage, self-service machines, and POS machines in the field of smart retail. In terms of smart retail business, we provide smart commercial products, commercial display products, electronic tag products, and a series of products that apply AI technology. The commercial display product array of the smart commercial product includes two categories: indoor and outdoor. The information screens and advertising screens used indoors are mainly high brightness commercial LCDs and small pitch commercial LEDs; commercial outdoor waterproof LEDs are mainly used outdoors. The core advantage of the Company is a one-stop vertical solution from device application to platform management, providing a multi-end operation interface. The electronic tag product array of the smart commercial product includes color LCDs and multi-color e-ink screens, which are implemented through fully self-developed solutions. A series of smart business products that apply AI technology, including terminal devices that use self-developed machine vision algorithms for passenger flow counting and customer group analysis, have accurate statistical results. In terms of software systems and platforms, the Company has always attached great importance to the development and design of software and hardware linkage, focusing on building an AIoT ecosystem that integrates software and hardware. The Company can provide diversified, personalized and customized system software and platforms for different users, application scenarios, and vertical fields. On the one hand, the Company has laid out the ZKTeco cloud IoT platform Minerva IoT based on Amazon cloud technology as the technical foundation, providing deployment-free SaaS application products for smart office scenarios, smart entrance and exit scenarios, and smart home scenarios. Moreover, for system integration customers, the Company can provide ZKTeco Biowhois CTIDPlatform. For large park type enterprise customers, the Company can provide ZKBio Smart Park Integrated Management Platform V8800, ZKTeco ZKBio Intelligent Integrated Management Platform V6600, and ZKBio Access IVSIntegrated Entrance and Exit Management Platform V6000. For medium to large enterprise customers, the Company can provide E-ZKEco Pro Time & Security Refined Service Platform. For overseas customers, the Company can provide ZKTeco Cloud Attendance and Access Control Management System such as BioTime 8.0; on the other hand, the Company combines the mature technical modules and software middleware of the aforementioned platforms for application, providing users with flexible platform function customization and development services, thereby meeting their personalized needs and forming a good brand awareness. ZKTeco 2023 Annual Report 44 The Company's main products rely on multimodal BioCV technology. In the future, as the boundaries of user application scenarios continue to expand and extend, the Company will continue to enrich and improve its diversified product array to meet the needs of users in the field of multimodal BioCV applications and provide customers with comprehensive, professional and high-quality solutions. 3. Global marketing service network and localized service advantages After years of development, the Company has accumulated rich experience in operating channel products, has a large number of customer resources, and has established a relatively complete global marketing service network system. Sales channels and service networks cover major cities in China and in multiple countries and regions around the world. Moreover, the Company actively expands its online sales channels and has established a comprehensive online marketing network on major e-commerce platforms and self built shopping malls. The integration and complementarity of international, domestic, online, and offline channels have formed a strong marketing service network advantage. As of December 31,2023, the Company has established 28 branches,14 subsidiaries, and 193 service outlets in 31 provinces, cities, and autonomous regions across China, with a sales and service system covering the whole country. The Company has established a total of 47 controlling subsidiaries overseas, located in 31 countries and regions worldwide, with product sales covering over 100 countries and regions. During the reporting period, the Company continued to implement regional expansion and market lead strategies in China, worked together with core partners and distributor customers to continuously promote terminal image construction mainly focused on lightboxes, doors, car stickers, outdoor advertising, etc., actively participated in regional industry exhibitions and forums, and expanded precise brand coverage in multiple dimensions; accelerated the establishment of marketing service centers of ZKTeco and the establishment of digital marketing service platforms, and accelerated the sinking of marketing and service networks to county-level cities around the third, fourth and fifth tier cities in the region and core cities. The Company has deeply explored the innovative marketing model of "short video+live streaming+e-commerce". In the future, the Company will continue to develop the market in the third, fourth and fifth tier cities to build marketing and service outlets, and simultaneously promote the integration of online and offline channels. The Company always adheres to the concept of localized services in the process of developing global markets. During the reporting period, the Company continued to expand its marketing and service network to second and third tier cities in medium-sized and large countries. The Company has resident business, technical service personnel and marketers in the global market, which can provide customers with comprehensive pre-sales, in-sales, and after-sales support and services. The localized service system helps the Company quickly understand the personalized needs of local users based on factors such as local economic development level, social stability, religion, and culture, providing flexible software and hardware personalized customization services, thereby improving customer satisfaction and brand awareness, and enhancing customer viscosity. Based on a localized service team, the Company actively guides some overseas subsidiaries to transform from traditional channel sales to value-added development, expanding vertical and deep projects, and thereby improving the Company's sales revenue and profit level. 4. Production and manufacturing advantages (1) Integrated production process chain configuration The Company's rich product array benefits from its integrated production process chain and high-quality production supporting facilities. The Company has a complete process chain for injection molding, laser cutting, optical processing, sheet metal processing, SMT, plug-in welding, algorithm burning program, PCBA production, final assembly, testing, and packaging programs required for various products. The complete process depth provides favorable conditions for the Company to achieve pull production based on market demand. The Company's various process flows are closely connected, with smooth coordination between production capacity and production pace, and the Company has a strong competitive advantage in the industry. (2) Customized and flexible production capacity The Company can provide comprehensive product services in segmented scenarios such as smart entrance and exit management, smart identity verification, and smart office, and has the ability to quickly respond to customized needs in mass ZKTeco 2023 Annual Report 45 production. The Company's customized and flexible production capacity benefits from a professional R&D and engineering technical team, diverse product component production capabilities, and flexible product component coupling characteristics. The Company has achieved SMED in the production process, from SMT to injection molding, which can achieve rapid exchange of production equipment. In addition, the refined material supply system and lean line design in the assembly workshop can meet the flexible production needs of customers from different countries for small batches, multiple varieties, and customization. (3) Advantages of lean production The Company has achieved industry-leading lean production model in multiple production lines through overall planning of various processes in the product production process, and optimization of process flow. The lean production model can effectively reduce waste throughout the entire production and manufacturing process, reduce workers, improve labor productivity, improve output and product quality, shorten delivery cycles, and quickly meet customer needs while reducing manufacturing costs. (4) Advantages of automation and informatization The Company continues to promote and improve the automation and informatization of production processes, introducing the WM module of SAP system, achieving automatic posting of warehouse raw materials and finished products through PDA scanning, and utilizing AGV to achieve automatic handling function. Meanwhile, automation technology on the production line has also been widely applied, including automatic dispensing, locking screws, stacking and other processes. The combination of automation and informatization in the entire production process improves production efficiency and can quickly meet customer delivery needs. 5. Brand advantages The Company is committed to creating a high-quality brand image and always regards brand strategy as a systematic project. After years of deep cultivation, the Company's brand has been highly recognized by customers both domestically and internationally, and has received numerous honors both domestically and internationally. The Company has been listed as one of the "Top 50 Global Security Companies" by asmag for four consecutive years from 2020 to 2023. In 2023, it ranked 14th on the list and was awarded awards such as "Top 50 Innovation", "Top 10 Brands in Smart Parks", and "Top 10 Brands in Smart Office" in 2023 Global Industry Digital Innovation Ranking by asmag; it was selected by the organizing committee and relevant institutions of the 19th Security China as the "DCWorld - Top Enterprise of the DCWorld Awards", "3rd China Security Innovation Enterprise in 2023", and "11th China Intelligent Transportation Construction Recommended Brand in 2023"; it was selected by the organizing committee of the Huicong Brand Festival as the "AIoT Innovation Enterprise" and "Leading Brand in Access Control" of the 20th China IoTIndustry Conference and Brand Festival in 2023; it won the second place in the "2023 Top 10 Access Control Brands Award" awarded by Qianjia Smart Tech and other entities; it ranked first on the "Top 15 Access Control Brands" list by the Latin American security technology media SecuriTIC in 2023; it received the "Technology Innovation Award" in the field of physical security at the 2023 Security FESTA in South Korea; it was also selected as one of the "Top 100 Global Security Enterprises in 2023" by BOANEWS and Security World magazines. In May 2023, the Company's trusted digital identity QR code module ZKB10M was successfully shortlisted for the "Trusted Digital Identity Ecological Product Recommendation List" of Beijing Zhongdun Security Technology Development Co., Ltd. In June 2023, the Company's ZKTeco perception data gate was awarded the "Excellent Innovative Product Award" at the 16th China International Public Safety Products Expo. Internationally, the Company has won 6 industrial design industry awards, including 2 German Red Dot Awards and 4 iFDesign Awards. In addition, since 2016, the Company has been awarded the title of "Top 500 Manufacturing Enterprises in Guangdong Province" by Guangdong Manufacturers Association and other entities for 8 consecutive years. In 2023, the Company was rated by the General Administration of Customs of the People's Republic of China as a "Sample Enterprise of China Customs Trade Prosperity Survey (Export)". In 2023, the Company also joined industry organizations such as the Guangdong Chain Operations Association (GDCOA), the E-paper Industry Alliance (EPIA), and the China Chain-Store & Franchise Association (CCFA), becoming a new retail technology and service provider in the retail industry. Guangdong ZKTeco has been rated as a "SRDI small and medium-sized enterprise (SME)" by the Department of Industry and Information Technology of Guangdong Province. ZKTeco 2023 Annual Report 46 6. Advantages of management team and mechanism The core team of the Company has over two decades of industry experience, and has a deep understanding of the development trends of biometrics related technologies and products. They have a clear understanding of the Company's development strategy, product direction, technology roadmap, and marketing strategy. From user needs to solutions, from product architecture to software and hardware development, from product trial production to standardized mass production, from large-scale production organization to improved quality assurance system, from model market creation to global sales service network construction, the Company has accumulated rich operational management experience, laying a solid foundation for the Company's subsequent sound and rapid development. The core management team of the Company is stable, and currently, core team members and key employees also directly or indirectly hold shares in the Company. The Company will combine equity incentive policies in the future to achieve coordinated development between the Company and the management team. 7. Quality control advantages Leading quality management level is an important factor for the Company to gain customer recognition. Since its establishment, the Company has always attached great importance to product quality control, adhered to the close integration of quality management and production management, established a complete and strict product quality control system, and formed the advantage of product quality control. The Company has passed multiple management system certifications. The Company strictly adheres to the requirements of the quality system and the close integration of quality management and production management, implements the guiding ideology of management informatization, standardized process systems, professional personnel, and stable personnel in key positions, and comprehensively promotes quality management. The Company has established quality management systems including the "Design and Development Management Control Procedure", "Production Process Control Procedure", "Nonconforming Product Management Control Procedure", "Nonconformance Correction and Prevention Control Procedure", "Continuous Improvement Control Procedure", and "Change Management Control Procedure". The Quality Management Department strictly controls product quality throughout the entire process, including project approval review, development process, trial production review, design verification, material selection, production process, and after-sales service, to ensure product quality and meet customer needs. IV. Main Business Analysis 1. Overview See relevant contents of "II. Main Businesses Engaged by the Company During the Reporting Period". In 2023, the operating revenue and gross profit increased by RMB 51.6245 million and RMB 116.3954 million respectively, an increase of 2.69% and 13.65%, respectively. However, the net profit attributable to shareholders of the listed company decreased by RMB 15.2385 million or 7.92% compared to last year, due to the significant impact of share-based payment fees generated by the Company's equity incentives. In 2023, the share-based payment fees generated by the Company's equity incentives amounted to RMB 37.2854 million, an increase of RMB 32.6515 million or 704.62% compared to RMB 4.6339 million generated by the equity incentives in 2022. If the impact of share-based payment fees is excluded, the net profit attributable to shareholders of the listed company in 2023 is RMB 215.4326 million, an increase of RMB 17.8596 million or 9.04% compared to the previous year. 2. Revenue and costs (1) Composition of operating revenue Composition of revenue Unit: RMB ZKTeco 2023 Annual Report 47 20232022 YoY change Amount Proportion in operating revenue Amount Proportion in operating revenue Total operating revenue 1,970,183,682.34100% 1,918,559,191.76100% 2.69% By industry By product Smart office products 368,124,957.1018.68% 328,800,143.5217.14% 11.96% Smart entrance and exit management products 1,437,554,773.2072.97% 1,396,715,150.3072.80% 2.92% Smart identity verification products 155,828,574.297.91% 188,037,838.909.80% -17.13% Others 8,675,377.750.44% 5,006,059.040.26% 73.30% By region Domestic sales 643,710,059.4232.67% 719,564,575.3137.51% -10.54% Overseas sales 1,326,473,622.9267.33% 1,198,994,616.4562.49% 10.63% By sales model Distribution 1,347,955,344.4868.42% 1,284,940,494.6466.98% 4.90% Direct sales 613,552,960.1131.14% 628,612,638.0832.76% -2.40% Others 8,675,377.750.44% 5,006,059.040.26% 73.30% (2) Industries, products, regions, or sales models that accounted for more than 10% of the Company's operating revenue or profit Applicable □ Not applicable Unit: RMB Operating revenue Operating cost Gross profit margin YoY change of revenue YoY change of costs YoY change of gross profit margin By industry By product Smart office products 368,124,957.10151,678,099.4958.80% 11.96% -14.72% 12.90% Including: attendance products 232,446,335.40108,241,727.3353.43% 18.89% -7.22% 13.10% Other products 135,678,621.7043,436,372.1667.99% 1.80% -29.03% 13.91% Smart entrance and exit management products 1,437,554,773.20753,156,799.2347.61% 2.92% -3.74% 3.63% Including: access control products 895,951,790.36429,557,409.7752.06% 3.78% -6.20% 5.11% Other products 541,602,982.84323,599,389.4640.25% 1.54% -0.26% 1.08% Smart identity verification products 155,828,574.2996,033,286.1938.37% -17.13% -8.85% -5.60% Including: biometrics 57,573,145.7625,254,246.8256.14% -15.65% -12.51% -1.57% ZKTeco 2023 Annual Report 48 sensor products Card products 72,764,681.3464,433,475.7111.45% -12.40% -4.63% -7.21% Other products 25,490,747.196,345,563.6675.11% -30.57% -28.97% -0.56% Other products 8,675,377.750.00100.00% 73.30% 0.00% By region Domestic sales 643,710,059.42438,877,805.0031.82% -10.54% -11.51% 0.75% Overseas sales 1,326,473,622.92561,990,379.9157.63% 10.63% -1.35% 5.14% By sales model Distribution 1,347,955,344.48744,098,760.9844.80% 4.90% -3.23% 4.64% Direct sales 613,552,960.11256,769,423.9358.15% -2.40% -13.46% 5.35% Others 8,675,377.750.00100.00% 73.30% 0.00% In the event that the statistical scope of the Company's main business data is adjusted during the reporting period, the main business data of the Company has been adjusted according to the scope at the end of the reporting period in the past year □ Applicable Not applicable (3) Whether the Company's physical products sales greater than revenue from labor services Yes □ No Industry classification Item Unit 20232022 YoY change Computer, communication, and other electronic equipment manufacturing industry Sales volume Pcs./Set 2,688,5392,836,800 -5.23% Production Pcs./Set 2,681,5332,777,191 -3.44% Inventory Pcs./Set 461,673468,679 -1.49% Description of the reasons for the year-on-year change of over 30% in relevant data □ Applicable Not applicable (4) Performance status of major sales and procurement contracts signed by the Company as of this reporting period □ Applicable Not applicable (5) Composition of operating costs Unit: RMB Industry classification Item 20232022 YoY change Amount Proportion in operating costs Amount Proportion in operating costs Computer, communication, and other electronic equipment manufacturing industry Raw materials 905,130,307.3390.43% 981,136,835.2992.07% -7.75% Computer, communicationLabor cost 31,279,084.443.13% 29,057,564.722.73% 7.65% ZKTeco 2023 Annual Report 49 , and other electronic equipment manufacturing industry Computer, communication, and other electronic equipment manufacturing industry Manufacture cost 64,458,793.146.44% 55,444,719.425.20% 16.26% Total 1,000,868,184.91100.00% 1,065,639,119.43100.00% -6.08% Remarks No major change (6) Any change in consolidation scope during the reporting period Yes □ No S/NCompany Name Establishment Date Registered Capital Percentage of Shares (%) Reason for Change 1 RALVIEAIINC. August 22,2023 USD 10,000100.00 New establishment 2 ZKDIGIMAXPTE. LTD. March 7,2023 USD 20 million 80.00 New establishment 3 ZKDIGIMAXPANAMA, S.A. April 11,2023 USD 10,00080.00 New establishment 4 ZKDIGIMAXCOLOMBIASASApril 26,2023 COP 10 million 80.00 New establishment 5 ZKDIGIMAX (PTY) LTDMarch 14,2023 --- 80.00 New establishment 6 PT. ZKDIGIMAXEXCELNOBLEMay 25,2023 IDR 10.01 billion 56.00 New establishment 7 ZKDIGIMAXCHINACO., LTD. May 18,2023 USD 300,00080.00 New establishment 8 ZK TECHNOLOGYMOROCCO October 17,2023 MAD 100,000100.00 New establishment Note: ZKDIGIMAX (PTY) LTD uses the paid up capital as its registered capital, which has not been paid as of the end of the period; on August 7,2023, Xiamen ZKTeco Cloud Valley Design and Development Co., Ltd. was deregistered, and at the end of the period, the subsidiary was no longer included in the consolidation scope. (7) Significant changes or adjustments of the Company's business, products or services during the reporting period □ Applicable Not applicable (8) Major customers and suppliers Major sales customers of the Company ZKTeco 2023 Annual Report 50 Total sales amount of the top five customers (RMB) 234,894,344.56 Proportion of the total sales amount to the annual total sales amount among the top five customers 11.93% Proportion of related party sales to annual total sales among the top five customers 3.53% Information of top five customers of the Company S/NCustomer Name Sales Amount (RMB) Proportion to Annual Total Sales 1 Customer 175,844,465.863.85% 2 Customer 269,479,326.723.53% 3 Customer 331,265,809.711.59% 4 Paylocity 29,476,583.721.50% 5 Customer 528,828,158.551.46% Total -- 234,894,344.5611.93% Other information of major customers □ Applicable Not applicable Main suppliers of the Company Total procurement amount of the top five suppliers (RMB) 172,935,367.73 Proportion of the total procurement amount to the total annual procurement amount among the top five suppliers 18.87% Proportion of related party procurement amount to annual total procurement amount among the top five suppliers 0.00% Information of top five suppliers of the Company S/NSupplier Name Procurement Amount (RMB) Proportion to Annual Total Procurement Amount 1 Supplier 145,723,008.874.99% 2 Supplier 240,817,098.984.46% 3 Supplier 332,137,781.273.51% 4 Supplier 429,553,048.923.22% 5 Supplier 524,704,429.692.69% Total -- 172,935,367.7318.87% Other information of major suppliers □ Applicable Not applicable 3. Expenses Unit: RMB 20232022 YoY change Description of major changes Selling expenses 445,414,065.93361,264,181.1723.29% Mainly due to the increased advertising and promotional expenses for business expansion and exhibition expenses, the growth of overseas sales business, an increase in employee compensation due to the increase in personnel in international business groups, as well as an increase in share-based payment fees for the current period ZKTeco 2023 Annual Report 51 Administrative expenses 122,693,501.96106,748,932.3214.94% Mainly due to an increase in share-based payment fees and intermediary consulting fees in the current period Financial expenses -54,330,867.73 -40,928,834.96 -32.74% Mainly due to an increase in interest income from fund deposits and a decrease in exchange gains and losses caused by exchange rate fluctuations R&D expenses 213,613,414.56187,983,847.4213.63% Mainly due to an increase in salaries of R&D personnel, technical service fees and sample and prototype fees, as well as an increase in share-based payment fees in the current period 4. R&DInvestment Applicable □ Not applicable Main R&D Project Name Project Objective Project Progress Proposed Objective Expected Impact on the Company's Future Development BioCVVLM 2.0 Multimodal Computer Vision Model With the rapid development of computer vision and natural language processing, multimodal vision model has gradually become a popular research direction. The multimodal vision model combines computer vision and natural language processing, and can process images, videos and text information to achieve more efficient and intelligent image and video recognition and understanding. The Project aims to develop a model training technology with advanced multimodal visual representation capabilities, and train a universal base model. Based on this base model, it aims to improve the accuracy of current computer vision algorithms and biometric technology. In the research stage 1. Track the latest development of multimodal vision model technology, and continuously optimize and improve BioCV VLM 2.0, ensuring that the Company maintains a leading position in this field; 2. Based on this model, improve the accuracy of palm recognition algorithms and promote their commercialization; 3. Based on this model, improve other biometrics algorithms and computer vision algorithms; 4. Explore the application of multimodal vision models in various fields, such as security monitoring, smart home, office automation, etc., to provide technical support for the Company to expand into new business areas. 1. Improving the core technical capabilities of the Company's products in the field of computer vision and natural language processing, and providing customers with more intelligent and efficient solutions; 2. Promoting the Company's innovation and development in the field of AI, and providing technical support for the Company's long-term strategic goals; 3. Greatly accelerating the Company's algorithm development and iteration speed in the field of computer vision; 4. Having improved the Company's ability to apply computer vision algorithms in various scenarios, laying a solid foundation for expanding its business in the global market. ZKTeco Interconnection Cloud Scenario Service Platform V2.0.0 Based on the Company's core business of "smart office, smart entrance and exit, and smart multimodal BioCV", focusing on the SMB small and medium-sized enterprise customer group, serve the long tail market, leverage the comprehensive three-dimensional advantages of ZKTeco frontend intelligent hardware+backend offline smart account service system+Goddess Cloud Platform PaaS+SaaS application, provide a "business premises management Closed 1. Based on the base capacity of IoTPaaSPlatform, and focusing on the terminal needs of IoT scenario solutions and SME digital and reality integration, serve as the SME cloud scenario linker; 2. Through ZKTeco Interconnection (for small and medium-sized enterprise users) and ZKTeco Cloud Commerce (for intermediate service provider users), jointly establish a comprehensive operation system for IoT product research, sales, operation, and service through end-edge-management-cloud-use-1. Assisting the Company in leveraging its customer base in the long tail market, and creating a new performance growth model focusing on the needs of small and medium-sized enterprise customer base based on cloud service scenarios and the digital and reality integration; 2. By utilizing a digital and intelligent scenario solution of software+hardware+cloud services, laying out a new track in advance to meet the needs of the post-90s and post-00s for enterprise management and business management; ZKTeco 2023 Annual Report 52 scenario+business management scenario+service scenario" solution for the small and medium-sized enterprise customer group, accompany small and medium-sized enterprises in the growth, and provide multiple digital and intelligent "assistants" for enterprises from "rough" to "refined" management. service-operation; 3. Based on the precipitation of user scenario data, provide a market soil for commercial verification of customer foundation and operational transformation for SaaS subscription services. 3. Driving the sales of hardware or scenario solutions through cloud services, and bringing about changes in business models such as operational model validation through cloud service subscription models; 4. Through the precipitation of user data and scenario data, providing rich product R&D support for commercial transformation models. Research on the Application of Retail Scenario Detection and Recognition In the retail application of supermarkets, multi-dimensional perception of targets in the scenario is the foundation of intelligent application through computer vision technology. In the research stage Train detection and recognition algorithms for cigarette and bottled beverage products, with a detection accuracy of over 80% and a recognition accuracy of over 90%. Train detection and recognition algorithms for bulk weighing commodities, with a detection accuracy of over 80% and a recognition accuracy of over 90%. Satisfy the Company's computer vision technology needs in supermarket application scenarios, and better support the Company's smart retail related business. Cloud Attendance Scenario Service Platform V3.0 The Project aims to develop an enterprise level time management solution based on cloud architecture for Europe and America. In the research stage The Project integrates Workday, Synerion, Prime Point,3M and other software to provide enterprise level time management solutions for cloud architecture. Implement a solution for cloud time management to enhance the Company's cloud product capabilities. R&D of Technology and Device for Authentication Application Based on CTIDDigital Identity Card The Project plans to develop an identity authentication terminal device based on the CTID authentication certificate recognition technology, which can identify the information encrypted by the CTID digital identity card and complete the corresponding scenario applications. The identification device supports both the physical ID card and the electronic identity card, which can effectively guarantee the network data transmission security of the identity card information. In the research stage The Project aims to implement terminal device equipment based on authentication and verification methods such as CTID authentication certificate and physical identity card; this recognition device supports both physical and electronic identity cards, which not only ensures the convenience of physical identity cards, but also solves the problems of network data transmission security and personal privacy of identity card information. 1. Meeting the general trend of the construction of a digital China; 2. Improving the technical gap of digital identity card identification and information security transmission; 3. Improving the basic ability of digital identity card application technology, and laying a foundation for the subsequent development of digital identity card products; 4. Giving the Company a leading edge in the field of digital identity cards. BioCVLLM 3.0 NLP Model The NLP model has become one of the most promising and potential fields in recent years. With its widespread application in fields such as natural language processing, intelligent customer service, and intelligent translation, the NLP model has gradually become an indispensable part of the field of AI. The Project aims to track the latest development of the NLP model technology and Closed The Project achieves efficient fine-tuning training of models based on application scenario data and the research on related technologies in engineering implementation of NLP model applications. In the era of AI, continuous innovation in product service interaction experience lays the foundation for core technology capabilities and enhances the Company's competitiveness. ZKTeco 2023 Annual Report 53 prepare relevant technical reserves. R&D of Core Technology Platform and Device for Access Controller Based on IoT Video Technology The Project plans to develop a visual access control core technology platform and device based on IoT video technology, break through industrial level IoT communication access technology mainly based on the cloud platform, with BIOCV as the core technology, and audio and video as the core technology, especially based on hardware devices. Based on intelligent video+access controller, a multifunctional intelligent video access control box with a combination of access control and video linkage and with facial recognition capture supported in videos, solving the problem of independent two-part products in the current market, which greatly troubles customers in product selection and configuration operations, and greatly compresses the product cost of video+access control; it is widely used in residential communities, commercial buildings, logistics parks and other scenarios. Closed Taking user demands as the starting point, based on IoT video technology, access controller, and NVR technology, the Project develops an access control+video+gateway multi-functional control device relying on ZKBioCVSecurity offline software and cloud platform, achieving multiple door control, multiple video channels, access control events, alarms, and other functions, solving the problem of users' independent configuration of access control and video, and providing customers with a new choice. 1. Breaking through BioCV video access control terminal of audio and video, access control, and IoT communication access technologies, and breaking the current situation of on-site access control and video business separation in the industry; 2. Enriching the array of access control video products by highly integrating video and access control; 3. Providing new technological directions for access control video products and accumulating core technologies for the Company in building video access control capabilities. R&D of Structured Light Module for Face and Palm Hybrid Recognition Based on High Security and High Accuracy The Project aims to develop a recognition module based on face, palm, and 3D structural anti-counterfeiting technology, achieving simultaneous recognition of face and palm. The 3D live projection system has over 30,000 speckle points, and can decode 1 million 3D coordinate point clouds and complete comprehensive and secure recognition of face and palm databases, widely used in the equipment of manufacturers of face and palm applications. Closed The Project aims to solve the problem of high security for palms and faces. Face anti-counterfeiting can prevent electronic image attacks, live video attacks, synthetic video attacks,2D laser photo and ordinary photo attacks, hole digging photo attacks,3D mask attacks, injection attacks, etc. Palm anti-counterfeiting can prevent electronic image attacks, palm video attacks, synthetic video attacks,2D laser photo and ordinary photo attacks,3D palm attacks, injection attacks, etc. The face anti-counterfeiting covers and meets the requirements of face attack risk and UnionPay face live detection of GB/T 38427.1-2019 issued by the Ministry of Public Security in July 2020, and improves palm anti-counterfeiting ability, effectively enhances the competitiveness of the Company's products, enhances economic benefits, and drives the sound development of the industry's intelligent access control and attendance industries towards high-end technology industries. Wide Access IoT Perception Application Platform V1.0 (formerly known as ZKBioCV Relying on computer vision technology+multimodal BIOCV core technology as the core, implement security supervision linkage and joint defense and intelligent video analysis management, and build a reliable and stable security Closed Focusing on the actual needs of intelligence and scenario, the Project implements uniform monitoring of front-end and back-end devices, entrances and exits, application software, and perception data, implements the platform's intelligent analysis and 1. Relying on the accumulation and sedimentation of existing technology, the Project can quickly respond to market demand; 2. The Project can increase the share of products in enterprises, parks, shopping malls, hospitals, ZKTeco 2023 Annual Report 54 Security V1) integration and visualization platform and solution by utilizing intelligent video technology, based on access control, vehicle recognition, emergency alarm, perimeter defense, etc., combined with multiple business subsystems such as personnel, attendance, access control, visitor, consumption, patrol, elevator control, passage, storage cabinet, intrusion alarm, monitoring center, wide access, and system management. security management and control to meet the needs of diversified and fragmentation application scenarios of users. Build an intelligent security comprehensive management platform with intelligent security, collaborative efficiency, and scenario application, and enhance customers' intelligent perception and precise control capabilities in enterprises, parks, shopping malls, hospitals, factories, construction sites, and other venues. factories, construction sites and other scenes, integrate intelligent perception to improve precision management and control capabilities, and help the industry digital transformation; 3. The Project helps the Company further expand and consolidate its market position, bringing greater profits. ZLink (International Version) V2.0 (ZKTeco Interconnection Cloud Scenario Service Platform) Provide intelligent solutions for office scenes, supporting multi-user, multi-company, and multi-role SaaS software, thus providing users with better scenario adaptability, better user experience and lower costs. Closed Connect end/edge/cloud to enhance customer experience. Implement a solution for smart office scenarios to enhance the Company's cloud service capabilities. ZKDigimax-L3 V1.0 (Cloud Digital Retail Management Platform) In addition to the Company's traditional three core businesses of "smart office, entrance and exit, and smart identity recognition", we also focus on launching a new innovative business segment - smart retail. By integrating the resources, technology and business capabilities accumulated over the years by ZKTeco and DMMX, we focus on the "Al+Digital Signage" field in the retail and catering industries, providing digital infrastructure and smart business cloud services for front-end carriers, accelerating the transformation of traditional retail industry to data-driven smart retail, and helping global retail customers create greater commercial value. In the research stage 1. Based on the base capacity of Goddess's IoTPaaSPlatform in India, and focusing on the smart retail scenario, the cloud broadcasting system provided provides a one-stop solution to meet the terminal needs of integrating data and reality for small and medium-sized enterprises (SMEs), serving as the SME cloud scenario linker; 2. Integrate the rich AIoT hardware ecosystem, AI, big data, and cloud service capabilities of ZKTeco, and provide end/edge/cloud/server one-stop smart retail scenario solutions; 3. Based on the precipitation of user scenario data, provide a market soil for commercial verification of customer foundation and operational transformation of commercial advertising for SaaS subscription services. 1. Assist the Company in expanding its arsenal of smart retail business, provide more powerful weapons, and create a new performance growth model based on cloud services and hosting services around enterprise customer groups in the retail industry; 2. By utilizing a digital and intelligent scenario solution of cloud software+AI hardware+cloud hosting services, laying out a new track in advance for smart retail scenarios; 3. Providing long-term O&M services to increase the Company's service attributes, driving the sales of hardware or scenario solutions through cloud hosting services, and bringing about changes in business models such as operational model validation through cloud service subscription models; 4. Through the precipitation of user data and scenario data, creating richer product models for commercial transformation models. Continuous Capacity Building of the IoT Continuously build IoT platforms in accordance with the Company's end/edge/cloud strategy. Closed Continue to build capabilities based on the IoT platform, including device connectivity, payment, subscription, and video In the era of the Internet of Everything (IoE), providing infrastructure support for building a cloud/edge/end ecosystem and ZKTeco 2023 Annual Report 55 Platform (Minerva/Goddess Platform) V3.0 based multimodal processing capabilities. enhancing the competitiveness of IoT capabilities. R&D of Smart Terminal Based on LLM and Large Model Technology of Multimodal Computer Vision The Project plans to develop an intelligent AI robot based on AI scenarios, utilizing ChatGPT technology and the fusion of machine vision and speech recognition technology to achieve multiple interactive methods such as dialogue, vision and speech, thus achieving comprehensive intelligent applications in various scenarios. The content of the Project covers multiple aspects such as semantic understanding, emotional analysis, natural language generation, image recognition, speech recognition, intelligent recommendation, etc. It can achieve natural dialogue between humans and computers, provide a fast and efficient user experience, and has a wide range of application scenarios. In the research stage Integrate LLM technology and machine vision technology, develop an intelligent terminal that enables multiple interactive modes such as visual and voice between humans and computers, and provide a fast and efficient user experience. Integrate LLM technology and machine vision technology to enhance product interaction experience and enhance the Company's competitiveness. Research on Algorithms Related to Digital Human Generation In security and supermarket applications, people are often the most concerned visual targets. This project aims to explore the analysis and image generation methods of various facial features, in order to provide strong support for practical scenario based applications and achieve human-oriented computer vision applications In the research stage 1. Conduct attribute analysis based on an open facial image dataset for refined control of various attributes in digital human synthesis; 2. Implement augmented reality technologies such as makeup and wear testing to serve smart retail scenarios and enhance customer shopping experience; 3. Research on digital human generation technology based on AIGC; 4. Investigation and research on voice driven digital human speech video generation technology. Meet the Company's demand for digital human generation technology in smart retail scenarios, and better support the Company's basic business. R&D of Device for Collecting and Recognizing Mixed Images of Humans, Vehicles and Objects Based on Multispectral Analysis This project aims to develop a hybrid image acquisition and intelligent recognition device based on the application technology of target recognition for people, vehicles and objects in multispectral environments, achieving image acquisition and intelligent recognition of people, vehicles and objects in different environments and regions. At the same time, it can also have multi-channel, multi-Closed This project aims to use human, vehicle and object target recognition technology combined with sound and light warning interactive application technology to enhance the image acquisition and recognition ability in different environments, and to enhance the user experience and practicality through perceivable sound and light warnings and real-time voice interaction. At the same time, the linkage between storage devices 1. Wide market applications: This device can be widely used in multiple scenarios such as smart parks, smart communities, smart transportation, smart office, logistics, supermarkets, etc., to explore a wider market space for the Company; 2. Technological leadership and continuous innovation: The project involves numerous technical fields and requires continuous iteration and ZKTeco 2023 Annual Report 56 light source controllable sound and light warning functions, as well as real-time voice interaction, mobile interaction and other functions. On the end side, the use of embedded LINUX platform based NVR storage to collect images and alarm signal output can achieve linkage with the controller. It can be widely used in smart parks, smart communities, smart transportation, intelligent office, logistics, supermarkets and many other scenarios. and controllers can be triggered by the collected image signals, further enhancing the intelligence and practicality of the system. upgrading to maintain a competitive advantage. Therefore, this project helps to drive the Company's continuous technological R&D and innovation, thereby maintaining a leading position in market competition. Meanwhile, continuous technological innovation also helps the Company acquire more patents and technological barriers, and improve industry barriers and competitiveness. R&D of Smart Office Terminal Management Platform and Device Based on Cloud Service MinervaIoT platform The project plans to develop a smart office terminal management platform and device based on the cloud service MinervaIoT platform, mainly combining the ZKTeco Minerva IoT smart office cloud platform, with "time management+security management" as the key service core, cloud platform as the core, application as the carrier, and hardware devices as the foundation, archiving device data on a high security cloud platform for management, and providing a more refined enterprise smart office management mode; the feature is that the terminal device supports various biometric (fingerprint, face), RFID, QR code information collection, and video intercom capabilities, connecting smart office attendance, access control, visitors, videos, and other IoT devices, providing a one-stop O2O solution for enterprise smart office. It is mainly used in smart office scenarios. Closed This project aims to develop a smart office terminal management platform and device based on the cloud service MinervaIoT platform. This platform takes "time management+security management" as its core service, providing enterprises with a more refined smart office management model by integrating the ZKTeco MinervaIoT smart office cloud platform, applications, and hardware devices. 1. Connect IoT devices such as smart office attendance, access control, visitors, and videos to provide a one-stop O2O solution for enterprise smart office. It improved the management efficiency and security of the enterprise; 2. Provide support for the Company's digital cloud platform strategic layout. R&D of Mobile Access Solution Device Based on Multimodal BioCV Technology and Bluetooth/NFCNear-field This project plans to develop a mobile access control scheme device based on multimodal BioCV technology and Bluetooth/NFC near-field communication technology, which is mainly oriented to smart entrance and exit scenarios, integrates mobile Internet technology, realizes the integration scheme of mobile access control, and supports Closed The goal of the project is to develop a mobile access control solution based on multimodal BioCV technology and Bluetooth/NFC near-field communication technology, which aims to provide an integrated solution for smart entrance and exit scenarios, and achieve convenient access control solutions by integrating mobile Internet technology. The project adds a high security and privacy access authentication method to provide more options for scenario solutions. ZKTeco 2023 Annual Report 57 Communication Technology NFC&BLE mobile card swiping. The permission virtual card is managed uniformly by a credential management system developed based on the Goddess Platform. It can enable individuals to log in with multimodal biological templates on their own mobile App, implement the application of mobile access solutions for end users, and redefine the application of access control services in SMBG scenarios. R&D of Electromechanical Product O&M Platform Based on Bluetooth Near-field Communication Technology and IoT Cloud Platform This project is based on Bluetooth near-field communication technology, which enables data exchange between mobile devices and electromechanical products. Through IoT communication technology, it achieves a network topology of cloud, edge and end, enhancing cloud O&M attributes on the basis of electromechanical products such as brakes, achieving remote device O&M and control capabilities, greatly improving efficiency and reducing product maintenance costs. Closed This project aims to optimize electromechanical products using mobile IoT technology, and achieve unified management and control of mobile, IoT cloud, and device ends. This project improved equipment O&M capabilities and reduced management costs. 1. It increased the added value of electromechanical products and enhanced product competitiveness; 2. It realized data aggregation and created a digital ecosystem together with the Company's related products. R&D personnel of the Company 20232022 Change ratio Number of R&D staff (ppl) 1,2261,1258.98% Proportion of R&D personnel 29.86% 29.70% 0.16% Education background of R&D personnel Bachelor's degree 79470213.11% Master's degree 766615.15% Age composition of R&D personnel Under 30 years old 652665 -1.95% 30~40 years old 45937622.07% Amount of R&D investment and its proportion in operating revenue of the Company in the past three years 202320222021 R&D investment amount (RMB) 213,613,414.56187,983,847.42196,786,694.35 Ratio of R&D investment to operating revenue 10.84% 9.80% 10.06% Amount of R&D expenditure capitalization (RMB) 0.000.000.00 Ratio of capitalized R&D expenditure to R&D 0.00% 0.00% 0.00% ZKTeco 2023 Annual Report 58 investment Proportion of capitalized R&D expenditure to current net profit 0.00% 0.00% 0.00% Reasons and impacts of significant changes in the composition of R&D personnel in the Company □ Applicable Not applicable Reasons for significant changes in the proportion of total R&D investment to operating revenue compared to the previous year □ Applicable Not applicable Reasons for significant changes in the capitalization rate of R&D investment and their rationality explanation □ Applicable Not applicable 5. Cash flow Unit: RMB Item 20232022 YoY change Subtotal of cash inflows from operating activities 2,165,751,516.532,042,594,811.286.03% Subtotal of cash outflows from operating activities 1,929,750,626.321,918,074,778.100.61% Net cash flows from operating activities 236,000,890.21124,520,033.1889.53% Subtotal of cash inflows from investing activities 787,667,352.37101,984,070.59672.34% Subtotal of cash outflows from investing activities 718,997,205.911,118,723,941.52 -35.73% Net cash flows from operating activities 68,670,146.46 -1,016,739,870.93106.75% Subtotal of cash inflows from financing activities 171,289,430.521,496,730,622.16 -88.56% Subtotal of cash outflows from financing activities 237,940,435.6661,330,346.01287.97% Net cash flows from financing activities -66,651,005.141,435,400,276.15 -104.64% Net increase in cash and cash equivalents 239,412,294.92561,319,832.34 -57.35% Main influencing factors for significant year-on-year changes in relevant data Applicable □ Not applicable Description of reason: (1) The net cash flow generated from operating activities increased, mainly due to an increase in sales receipts in the current period and a decrease in payment for purchasing materials; (2) The increase in the subtotal of cash inflows from investing activities is mainly due to the increase in time deposits and redemption of financial products in the current period; (3) The net cash flow generated from investing activities decreased, mainly due to an increase in cash inflows from investing activities caused by the increase in time deposits and redemption of financial products in the current period, and an increase in cash outflows from investment payments due to the decrease in the purchase of financial products during the year; the cash inflow ZKTeco 2023 Annual Report 59 from investing activities is greater than the cash outflow from investing activities, resulting in an increase in the net cash flow generated from investing activities; (4) The decrease in net cash flow generated by financing activities is mainly due to the Company's initial public offering and listing of stocks in August 2022, the receipt of raised funds, and the payment of cash dividends for the 2022 profit distribution in the current period. Description of the significant difference between the net cash flow generated by the Company's operating activities and the net profit of the current year during the reporting period □ Applicable Not applicable V. Non-main Business Applicable □ Not applicable Unit: RMB Amount Proportion to Total Profit Description of Reason Sustainable or Not Investment income -599,875.51 -0.28% Mainly due to the gains and losses generated from the purchase of financial products and the mature delivery of forward foreign exchange settlement and sales contracts No Profits and losses from fair value changes 755,429.170.35% Mainly due to the gains and losses generated from the purchase of financial products and the mature delivery of forward foreign exchange settlement and sales contracts No Losses from impairment of assets -3,163,733.31 -1.47% Mainly due to the provision for depreciation of current inventory, long-term equity investments and provision for depreciation of contract assets No Non-operating revenue 834,759.260.39% Mainly due to government subsidies and other income received during the reporting period that are not related to production and operation No Non-operating expenditure 5,760,416.862.68% Mainly due to expenses for disposal of obsolescence materials and disposal of non-current assets during the reporting period No Other income 13,382,751.136.22% Mainly due to other income generated by government subsidies during the reporting period No Losses from credit impairment -6,426,264.03 -2.99% Mainly due to the provision of bad debt reserves for accounts receivable during the reporting period No Gains from disposal of assets -129,852.62 -0.06% Mainly due to income from disposal of fixed assets during the reporting period No ZKTeco 2023 Annual Report 60 VI. Analysis of Assets and Liabilities 1. Material changes of asset items Unit: RMB '0,000 At the end of 2023 At the beginning of 2023 Proportion increase or decrease Description of major changes Amount Proportion to total assets Amount Proportion to total assets Monetary funds 199,092.5050.74% 191,294.5052.20% -1.46% No major change Accounts receivable 47,980.3312.23% 40,349.7911.01% 1.22% Increase in overseas business, resulting in accounts receivable increase due to the relatively long collection cycle of overseas business Contract assets 28.220.01% 30.680.01% 0.00% No major change Inventories 37,271.489.50% 34,828.069.50% 0.00% No major change Investment real estate 2,314.550.59% 0.000.00% 0.59% Part of the properties of Xiamen ZKTeco Biometric Identification Technology Co., Ltd. were converted from self use to rent Long-term equity investment 2,978.190.76% 715.130.20% 0.56% Due to the increased capital for establishment of the ecological innovation fund by Xiamen Xingniu Yunyu Venture Capital Partnership Enterprise (Limited Partnership) in the current period Fixed assets 47,012.1811.98% 44,685.7512.19% -0.21% Due to transfer to fixed assets for the current period by the Hybrid Biometrics IoTIntelligent Industrial Base Project Construction in progress 13,898.653.54% 5,704.131.56% 1.98% Due to new investment in the Multimodal Biometrics Digitalization Industrial Base Construction Project and the Thai factory construction in current period Right-of-use asset 3,866.970.99% 5,064.071.38% -0.39% No major change Short-term loan 0.000.00% 985.500.27% -0.27% No major change Contract liabilities 6,533.111.66% 5,883.881.61% 0.05% No major change Long-term loan 781.040.20% 14.180.00% 0.20% No major change Lease liabilities 1,971.330.50% 2,825.670.77% -0.27% No major change Trading financial asset 8,098.022.06% 20,431.845.58% -3.52% Mainly due to the decrease in financial products High proportion of overseas assets Applicable □ Not applicable Unit: RMB '0,000 Specific content of assets Cause of formation Asset size Location Operation mode Control measures to ensure asset security Income Proportion of overseas assets to the Company's net assets Is there a significant impairment risk ZK INVESTMENTSINC. Wholly-owned subsidiary 12,663.97 America Overseas investment Subsidiary control 5,560.283.85% No ZKTeco 2023 Annual Report 61 ZK TECHNOLOGYLLC Controlling subsidiary 6,213.88 America Overseas sales Subsidiary control 7,185.211.89% No ZKTECOCO., LIMITED Wholly-owned subsidiary 44,403.04 Hong Kong Overseas sales Subsidiary control 2,079.3413.49% No Other explanations Note: Significant overseas assets mean that the assets of overseas individual companies exceed 10% of the consolidated assets or the net profit of overseas individual companies exceeds 10% of the consolidated net profit of the Group 2. Assets and liabilities measured at fair value Applicable □ Not applicable Unit: RMB Item Beginning balance Profits and losses from fair value changes in the current period Cumulative changes in fair value recognized in equity Impairment accrued in the current period Purchase amount in the current period Sales amount in current period Other changes Ending balance Financial assets 1. Trading financial assets (excluding derivative financial assets) 204,318,406.05662,811.35 74,559,524.77200,057,224.361,404,068.0080,887,585.81 2. Derivative financial assets 92,617.82 92,617.82 Subtotal of financial assets 204,318,406.05755,429.17 74,559,524.77200,057,224.361,404,068.0080,980,203.63 Others Total 204,318,406.05755,429.17 74,559,524.77200,057,224.361,404,068.0080,980,203.63 Financial liabilities 0.000.00 0.000.000.000.000.00 Other changes Other changes mainly include changes in funds and exchange rates on the e-commerce platform Yu EBao Has there been any major change in the measurement attributes of the Company's main assets during the reporting period □ Yes No 3. Assets right restrictions as of the end of the reporting period Please refer to "Section XFinancial Report VII. Notes to Consolidated Financial Statements 22. Assets with Restricted Ownership or Use Rights" in this report for details ZKTeco 2023 Annual Report 62 VII. Investment Analysis 1. Overall Applicable □ Not applicable Investment in 2023(RMB) Investment in 2022 (RMB) YoY 508,828,238.94468,954,619.828.50% 2. Significant equity investments obtained during the reporting period □ Applicable Not applicable 3. Significant non-equity investments during the reporting period Applicable □ Not applicable ZKTeco 2023 Annual Report 63 Unit: RMB Project Name Investment Mode Fixed Asset Assessment or Not Investment Project Industry Investment Amount During the Reporting Period Accumulated Actual Investment Amount as of the End of the Reporting Period Source of Funds Project Progress Expected Income Accumulated Realized Income as of the End of the Reporting Period Reasons for Not Achieving Planned Progress and Expected Benefits Disclosure Date (if any) Disclosure Index (if any) Hybrid Biometrics IoT Intelligent Industrial Base Project Self-built Yes Plant and supporting facilities 17,044,756.02225,311,420.32 Own funds, bank loans, and raised funds Under construction Not applicable 17,106,181.03 Not applicable Multimodal Biometrics Digitalization Industrial Base Construction Project Self-built Yes Plant and supporting facilities 84,434,465.7587,417,407.70 Own funds and raised funds Under construction Not applicable Not applicable Not applicable Thai factory construction and office buildings Self-built Yes Plant and supporting facilities 26,210,787.4026,210,787.40 Own funds Under construction Not applicable Not applicable Not applicable Total -- -- -- 127,690,009.17338,939,615.42 -- -- Not applicable -- -- -- ZKTeco 2023 Annual Report 64 4. Financial asset investment (1) Securities investment □ Applicable Not applicable There were no securities investments during the Company's reporting period. (2) Derivative investment Applicable □ Not applicable 1) Derivative investments for hedging purposes during the reporting period Applicable □ Not applicable Unit: RMB '0,000 Types of derivative investments Initial investment amount Opening amount Profits and losses from fair value changes in the current period Cumulative changes in fair value recognized in equity Purchase amount during the reporting period Sales amount during the reporting period Closing amount Ratio of ending investment amount to the Company's net assets at the end of the reporting period Forward foreign exchange settlement and sales 009.26030,657.8729,833.6824.270.25% Total 009.26030,657.8729,833.6824.270.25% Accounting policies and specific accounting principles for hedging business during the reporting period, as well as description on whether there have been significant changes compared to the previous reporting period No major change Description of actual profit and loss during the reporting period During the reporting period, the Company obtained investment income of RMB -8.6906 million through forward foreign exchange settlement and sales, and generated profits and losses from fair value changes of RMB 92,600 ZKTeco 2023 Annual Report 65 Description of hedging effect In the daily operation process of the Company, foreign currency transaction is involved. In order to prevent exchange rate fluctuation risks, it is necessary for the Company to carry out foreign exchange derivative trading business related to daily operation needs according to specific circumstances to reduce the risk of exchange rate or interest rate fluctuations that the Company continues to face. The Company's forward foreign exchange settlement and sales business can achieve the goal of locking in business contract profits at most time points, without significant risks, which achieves the purpose of hedging. Source of funding for derivative investment Own funds Risk analysis and control measures of derivatives positions during the reporting period (including but not limited to market risk, liquidity risk, credit risk, operational risk, legal risk, etc.) I. Risk analysis of the Company's hedging business Forward foreign exchange settlement and sales business can reduce the impact of exchange rate fluctuations on the Company's production and operation in the event of significant fluctuations in exchange rates, but there are still certain risks in conducting forward foreign exchange settlement and sales transactions: 1. Exchange rate fluctuation risk: In cases of significant fluctuations in exchange rate courses, exchange losses may occur when the exchange rate of the forward foreign exchange settlement and sales agreed in the confirmation letter for the forward foreign exchange settlement and sales is lower than the real-time exchange rate. 2. Risk of payment collection prediction: Business departments make payment prediction based on customer orders and expected orders. During the actual execution process, customers may adjust their own orders and predictions, resulting in inaccurate company payment prediction and the risk of delayed delivery of forward exchange settlement. 3. Internal control risk: Forward foreign exchange settlement and sales transactions are highly specialized and complex, which may result in risks due to imperfect internal control systems. 4. Customer default risk: If the customer's accounts receivable are overdue and the payment cannot be collected within the predicted payment period, it will cause a delay in forward exchange settlement and result in losses to the Company. 5. Transaction performance risk: Conducting financial derivative trading business carries the risk of default caused by the inability of counterparties to perform when the contract expires. II. Preparation work and risk control measures for hedging by the Company The Company follows the principle of hedging when conducting forward foreign exchange settlement and sales transactions, and does not engage in speculative arbitrage transactions. The main risk control measures are as follows: 1. When signing forward foreign exchange settlement and sales contracts, transactions are carried out in strict accordance with the Company's predicted collection amount, and all forward foreign exchange settlement and sales businesses have a true trade background. 2. The Company has formulated the "Management System for Forward Foreign Exchange Settlement and Sales of ZKTECOCO., LTD.", which clearly stipulates the amount, variety, approval authority, internal audit process, information disclosure, and other aspects of forward foreign exchange settlement and sales. Moreover, the Company has strengthened the business training and professional ethics of relevant personnel, improved the quality of relevant personnel, and established a timely reporting system for abnormal conditions to avoid the occurrence of operational risk to the maximum extent. 3. To prevent the delayed delivery of forward foreign exchange settlement and sales, the Company will attach great importance to the management of foreign currency accounts receivable, avoid the phenomenon of overdue accounts receivable, and strive to improve the accuracy of payment collection prediction and reduce prediction risks. Meanwhile, the Company has purchased credit insurance for some export products, thus reducing the customer default risk. 4. To control transaction performance risks, the Company carefully selects counterparties engaged in financial derivatives business. The Company only conducts financial derivative trading business with legally qualified large commercial banks and other financial institutions, and carefully reviews the contract terms signed with the counterparties to prevent credit and legal risks. Changes in market price or fair value of products during The Company's accounting for the fair value of derivatives mainly focuses on the unexpired contracts for forward foreign exchange settlement and sales transactions signed between the Company and banks during the reporting period. Trading financial assets or trading financial liabilities are recognized based on the difference between the quoted price of the unexpired forward foreign exchange settlement and sales contract at the end of the period and the forward ZKTeco 2023 Annual Report 66 the reporting period of the invested derivatives. The analysis of the fair value of derivatives shall disclose the specific methods used and the setting of relevant assumptions and parameters foreign exchange price. Litigation situation (if applicable) Not applicable Disclosure date of announcement by the Board of Directors for approval of derivative investment (if any) April 28,2023 Disclosure date of announcement by the Board of Shareholders for approval of derivative investment (if any) Special opinions of independent directors on the Company's derivative investment and risk control The Company's business of forward foreign exchange settlement and sales meets the Company's business development needs, and the Company has established corresponding internal control systems and risk management mechanisms. The feasibility analysis report issued by the Company for conducting forward foreign exchange settlement and sales complies with the provisions of laws and regulations and the Company's business development needs, and is feasible. 2) Derivative investments for speculative purposes during the reporting period □ Applicable Not applicable There were no derivative investments for speculative purposes during the Company's reporting period. 5. Use of raised funds Applicable □ Not applicable ZKTeco 2023 Annual Report 67 (1) Overall use of raised funds Applicable □ Not applicable Unit: RMB '0,000 Year of fundraising Fundraising method Total amount of raised funds Net amount of raised funds Total amount of raised funds used in this period Accumulated total amount of raised funds used Total amount of raised funds with changed purposes during the reporting period Accumulated total amount of raised funds with changed purposes Proportion of accumulated total amount of raised funds with change purposes Total amount of unused raised funds The purpose and destination of the raised funds that have not been used yet Amount of raised funds idle for more than two years 2022 Initial public offering of stocks 160,816.89145,729.8415,104.7152,903.0125,189.3228,537.0217.75% 95,816.81 Stored in the bank's special account for fundraising and wealth management 0 Total -- 160,816.89145,729.8415,104.7152,903.0125,189.3228,537.0217.75% 95,816.81 -- 0 Description of the overall use of raised funds 1. According to the approval of the "Reply CSRC to Approval for the Registration of Initial Public Offering of Stocks of ZKTECOCO., LTD." (ZJXK [2022] No.926), the Company has publicly issued 37,123,013 RMB denominated ordinary shares (A shares) with a face value of RMB 1.00 per share, an issuance price of RMB 43.32 per share, and a total amount of raised funds of RMB 1,608,168,923.16. After deducting the issuance expenses (excluding value-added tax) of RMB 150,870,545.46, the actual net amount of raised funds is RMB 1,457,298,377.70. The receipt date of the raised funds is August 12,2022. The availability of the raised funds has been verified by Baker Tilly China Certified Public Accountants (Special General Partnership) and a "Capital Verification Report" (TZYZ [2022] No.38658) has been issued. 2. All the raised funds mentioned above have been deposited in a special account for raised funds for management, and a regulatory agreement for raised funds has been signed with the sponsor and the commercial bank that deposited the raised funds. 3. As of December 31,2023, the Company has invested a total of RMB 529.0301 million in raised funds, with a total of RMB 958.1681 million in unused raised funds (including related interest income after deducting handling fees). (2) Committed projects with raised funds Applicable □ Not applicable ZKTeco 2023 Annual Report 68 Unit: RMB '0,000 Committed investment projects and the investment direction of over-raised funds Has the project been changed (including partial changes) Committed total investment amount of raised funds Adjusted total investment (1) Investment Amount During the Reporting Period Accumulated investment amount as of the end of the period (2) Investment progress as of the end of the period (3)=(2)/(1) Date when the project reaches its expected conditions for use Benefits achieved during this reporting period Accumulated benefits achieved as of the end of the reporting period Have the expected benefits been achieved Has there been a significant change in the feasibility of the project Committed investment projects 1. Tangxia Production Base Construction Project Yes 24,841.180000.00% Not applicable Not applicable Not applicable Yes 2. Hybrid Biometrics IoTIntelligent Industrial Base Project No 43,689.9443,689.943,136.5926,557.8660.79% August 31,20241,710.621,710.62 Not applicable No 3. American Manufacturing Factory Construction Project Yes 17,392.2114,392.658.46105.990.74% August 31,2026 Not applicable Not applicable Not applicable No 4. R&DCenter Construction Project No 18,240.5818,240.581,253.2810,274.3556.33% August 31,2024 Not applicable Not applicable Not applicable No 5. Global Marketing Service Network Construction Project No 26,802.0126,802.012,933.698,192.1230.57% August 31,2025 Not applicable Not applicable Not applicable No 6. Remaining funds after the previous change in the American Manufacturing Factory Construction Project Yes 02,999.56000.00% Not applicable Not applicable Not applicable No 7. Multimodal Biometrics Digitalization Industrial Base Construction Project Yes 039,605.17,772.697,772.6919.63% June 30,2026 Not applicable Not applicable Not applicable No Subtotal of committed -- 130,965.92145,729.8415,104.7152,903.01 -- -- -- -- ZKTeco 2023 Annual Report 69 investment projects Direction of over-raised fund investment direction Undetermined funds Yes 14,763.92000.000.00% Not applicable Not applicable Not applicable No Subtotal of over-raised fund investment direction -- 14,763.92000 -- -- -- -- Total -- 145,729.84145,729.8415,104.7152,903.01 -- -- -- -- Describe the situation and reasons why the planned progress and expected benefits have not been achieved by projects (including the reason for selecting "not applicable" for "whether the expected benefits have been achieved") The planned investment for the "Tangxia Production Project" is RMB 248.4118 million, with a construction period of 2 years. The Project plans to build a production base in Tangxia Town, Dongguan City to meet the Company's future business development needs, including the expansion of production capacity for access control products, biometrics module products, and card products, as well as the need for supporting production, office, and living facilities. As of December 31,2022, the Project has not yet started investment, and the difference between the actual use of the raised funds in the year of the investment project and the estimated use amount of the raised funds disclosed last time exceeds 30%. On January 18,2023, the Company held the 23rd Session of the Second Board Meeting and the 17th Session of the Second Supervisory Board Meeting. On February 6,2023, the Company held the Second Extraordinary General Meeting of 2023, and deliberated and approved the "Proposal on Changing the Investment Projects of Raised Funds, Changing the Special Account for Raised Funds, Increasing Capital and Providing Loans to Subsidiaries to Implement Investment Projects". This matter does not constitute a related party transaction. In order to further promote the development of the Company's business, accelerate production capacity planning and industrial layout, and improve the efficiency of the use of raised funds, the original investment project Tangxia Production Project has been changed to "Digitalization Base Project", and the Tangxia Production Project will no longer be constructed. The Tangxia Production Project was constructed by the Company as the main entity, while the Digitalization Base Project was constructed by Guangdong ZKTeco, a wholly-owned subsidiary of the Company, as the implementation entity. The total investment amount of the Digitalization Base Project is RMB 431.8689 million. The Digitalization Base Project uses the unused raised funds and over-raised funds of the Tangxia Production Project, as well as the corresponding fund returns. Among them, the raised funds of the Tangxia Production Project are RMB 248.4118 million, and the over-raised funds are RMB 147.6392 million. The actual income of the funds corresponding to these two parts shall be based on the net income of the funds corresponding to the transfer of relevant funds to the special account for the Digitalization Base Project after approval by the shareholders' meeting. The insufficient part will be invested by Guangdong ZKTeco with its own funds. Description of significant changes in project feasibility The original investment project (Tangxia Production Base Construction Project) was formulated in 2020, which was a comprehensive layout of the Company based on factors such as the market environment, industry development trends and the actual situation of the Company at that time. With the development of the Company and market changes, the planning of the original Tangxia Production Base Construction Project can no longer meet the current production and operation needs of the Company, and cannot reflect the development trend of new technologies and new formats. In order to further promote the development of the Company's business, accelerate production capacity planning and industrial layout, and improve the efficiency of the use of raised funds, the Company reviewed and approved relevant proposals during the reporting period to change the original investment project: Tangxia Production Base Construction Project to the Digitalization Base Project. The original Tangxia Production Base Construction Project will no longer be constructed, and the implementation entity of the Digitalization Base Project will be changed to the Company's wholly-owned subsidiary Guangdong ZKTeco. The specific reasons for the change are as follows: 1. At present, the Company's production sites are scattered. According to the overall plan of the Company at this stage, Guangdong ZKTeco will mainly undertake the Company's manufacturing functions, and will transfer the investment projects of production nature to Guangdong ZKTeco for implementation, facilitating the Company's centralized production management, saving management costs, and improving production efficiency. 2. As the current production model and capacity of Guangdong ZKTeco are not conducive to controlling the Company's costs, quality, and delivery time, and cannot meet the Company's future sustainable development needs after Guangdong ZKTeco mainly undertakes the Company's manufacturing function. The change of investment projects helps to ZKTeco 2023 Annual Report 70 enhance the Company's production capacity and technological process level, thereby improving product quality, production efficiency, and market competitiveness. 3. With the change of the market, multimodal biometrics and non-contact biometric technology have developed rapidly. Computer vision products such as edge computing and intelligent perception self-help of the IoT, intelligent robots and so on have entered the field of smart wide entrance and exit, and the business model has also been upgraded rapidly, from the original products and solutions to the subscription and cloud service model. The Company closely tracks cutting-edge technologies and standards in the market, continuously promotes production technology innovation, and conducts technological application engineering transformation based on biometrics core technology, continuously develops and designs products to meet market demand. The changes in investment projects are also necessary for the Company's business development and technological achievement transformation. In summary, firstly, it can meet the Company's production capacity and technical process requirements, improve the production capacity of core components, ensure product quality stability, reduce product production costs, and enhance product market competitiveness through the implementation of the Digitalization Base Project; secondly, it can fundamentally solve the problem of mismatch between the Company's development and production sites, unify the layout and scientific centralized management of production bases, improve production efficiency, and reduce costs; thirdly, it is beneficial for the Company to combine its acquired knowledge achievements with the latest industry technical standards, and achieve the industrialization of the Company's technological achievements. The amount, purpose, and progress of the over-raised funds Applicable The amount of over-raised funds from the Company's initial public offering of stocks was RMB 147.6392 million. On January 18,2023, the Company held the 23rd Session of the Second Board Meeting and the 17th Session of the Second Supervisory Board Meeting. On February 6,2023, the Company held the Second Extraordinary General Meeting of 2023, and deliberated and approved the "Proposal on Changing the Investment Projects of Raised Funds, Changing the Special Account for Raised Funds, Increasing Capital and Providing Loans to Subsidiaries to Implement Investment Projects". The Company agrees to use the over-raised funds of 147.6392 million to invest in the construction of the Digitalization Industrial Base Project. Changes in the implementation location of projects invested with raised funds Applicable Occurred during the reporting period On April 26,2023, the Company held the Second Session of the Third Board Meeting and the Second Session of the Third Supervisory Board Meeting. On May 19,2023, the Company held 2022 Annual General Meeting, and deliberated and approved the "Proposal on Changing the Implementation Location and Total Investment Amount of Some Raised Fund Investment Projects, and Adjusting Some Construction Contents", and adjusted the implementation location of the investment project "American Manufacturing Factory Construction Project" from "6775 Meadow Ln, Alpharetta, GA 30005" to "1600 Union Hill Rd, Alpharetta, GA 30005". Adjustment of implementation methods for projects invested with raised funds Applicable Occurred during the reporting period On April 26,2023, the Company held the Second Session of the Third Board Meeting and the Second Session of the Third Supervisory Board Meeting. On May 19,2023, the Company held 2022 Annual General Meeting, and deliberated and approved the "Proposal on Changing the Implementation Location and Total Investment Amount of Some Raised Fund Investment Projects, and Adjusting Some Construction Contents", and changed the construction method of the investment project "American Manufacturing Factory Construction Project" from purchase to self-construction. Advance investment and replacement of raised funds for investment projects Applicable The Company held the 19th Session of the Second Board Meeting and the 13th Session of the Second Supervisory Board Meeting on September 29,2022, and deliberated and approved the "Proposal on Using Raised Funds to Replace Self Raised Funds for Pre-invested Raised Investment Projects and Paid Issuance Expenses". It is agreed that the Company will use the raised funds to replace the self raised funds of RMB 358.6078 million invested in the raised investment project and paid issuance expenses as of August 21,2022, as well as the pre-paid issuance fees of RMB 13.8425 million (excluding value-added tax) with the self raised funds. On September 16,2022, the Company held the 18th Session of the Second Board Meeting and the 12th Session of the Second Supervisory Board Meeting, and deliberated and approved the "Proposal on Using Its Own Funds and Foreign Exchange to Pay for Part of the Funds Raised for Investment Projects and Exchanging Them with the Raised Funds in Equal Amounts". On January 18,2023, the Company held the 23rd Session of the Second Board Meeting and the 17th Session of the Second Supervisory Board Meeting. On February 6,2023, the Company held the Second Extraordinary General Meeting, and deliberated and approved the "Proposal on Changing the Investment Projects of Raised Funds, Changing ZKTeco 2023 Annual Report 71 the Special Account for Raised Funds, Increasing Capital and Providing Loans to Subsidiaries to Implement Investment Projects". The salaries, social insurance premiums, housing provident fund, utilities, etc. of domestic personnel of the Company in implementing the investment projects "Hybrid Biometrics IoTIntelligent Industrial Base Project", "R&DCenter Construction Project", "Global Marketing Service Network Construction Project" and the "Multimodal Biometrics Digitalization Industrial Base Construction Project" are planned to be paid by the Company or its subsidiary implementing the investment projects in advance with their own funds. The Company collected and calculated the aforementioned advance expenses incurred by each investment project on a monthly basis, and then transferred an equal amount of funds from the special account for investment to the Company's or its subsidiary's own fund account for implementing the investment projects. The implementation location of the Company's investment project "American Manufacturing Factory Construction Project" is in the United States, and the investment project construction funds need to be paid in USD. The Company's investment projects "Global Marketing Service Network Construction Project" and "R&DCenter Construction Project" include overseas construction content, and the operability of paying funds required for overseas construction directly from the special account for raised funds is poor. Therefore, the Company plans to use its own foreign exchange to pay the required funds for the overseas parts of the "Global Marketing Service Network Construction Project", "American Manufacturing Factory Construction Project", and "R&DCenter Construction Project". Subsequently, the amount of advance payments will be calculated monthly, and equal amounts will be transferred from the special account for raised funds to the Company's own fund account. As of December 31,2023, the Company has used its own funds and foreign exchange replaced with the raised funds to pay a portion of the funds raised for the investment project, totaling RMB 44.4275 million. Temporary replenishment of working capital with idle raised funds Not applicable The amount and reasons for the surplus of raised funds during project implementation Not applicable The purpose and destination of the raised funds that have not been used yet As of December 31,2023, the balance of the Company's unused IPO raised funds is RMB 958.1681 million (including interest income and deducting handling fees), including RMB 395.9781 million of demand deposit in the special account for raised funds and RMB 562.19 million of time deposit. The above financial products have high safety, meet the requirements of capital preservation, and have good liquidity, which does not affect the normal operation of the investment plan for raised funds. Problems or other situations in the use and disclosure of raised funds None ZKTeco 2023 Annual Report 72 (3) Change in the use of raised funds Applicable □ Not applicable Unit: RMB '0,000 Changed project Corresponding original committed projects The total amount of raised funds to be invested in the project after the change (1) Actual investment amount during this reporting period Actual accumulated investment amount as of the end of the period (2) Investment progress as of the end of the period (3)=(2)/(1) Date when the project reaches its expected conditions for use Benefits achieved during this reporting period Have the expected benefits been achieved Has there been a significant change in the feasibility of the project after the change Multimodal Biometrics Digitalization Industrial Base Construction Project Tangxia Production Base Construction Project 39,605.17,772.697,772.6919.63% June 30, 2026 Not applicable Not applicable No American Manufacturing Factory Construction Project American Manufacturing Factory Construction Project 14,392.658.46105.990.74% August 31,2026 Not applicable Not applicable No Total -- 53,997.757,781.157,878.68 -- -- -- -- Description of reasons for changes, decision-making procedures, and information disclosure (by specific project) 1. The Tangxia Production Base Construction Project has been changed to the Multimodal Biometrics Digitalization Industrial Base Construction Project. For details, please refer to "The situation and reasons for not achieving the planned progress or expected benefits" and "Explanations on major changes in project feasibility" columns in the "Comparison Table for the Use of Raised Funds". 2. On April 26,2023, the Company held the Second Session of the Third Board Meeting and the Second Session of the Third Supervisory Board Meeting for the American Manufacturing Factory Construction Project, and deliberated and approved the "Proposal on Changing the Implementation Location and Total Investment Amount of Some Raised Fund Investment Projects, and Adjusting Some Construction Contents". On May 19,2023, the Company held the 2022 Annual General Meeting, and deliberated and approved the "Proposal on Changing the Implementation Location and Total Investment Amount of Some Raised Funds Investment Projects and Adjusting the Construction Content of Some Projects". The Company adjusted the implementation location of the investment project "American Manufacturing Factory Construction Project" from "6775 Meadow Ln, Alpharetta, GA 30005" to "1600 Union Hill Rd, Alpharetta, GA 30005", and the construction method of the Project was changed from purchase to self-construction. After adjustment, the total investment of the Project increased by RMB 3.4814 million, and the total investment of the Project increased from RMB 140.4451 million to RMB 143.9265 million. After this change, the additional investment amount of RMB 3.4814 million for the Project was paid out of the previously reduced RMB 33.477 million for the Project. After this adjustment, the Project planned to use the raised funds of RMB 143.9265 million for investment and construction. The remaining funds after this change was changed to RMB 29.9956 million. Reason for change: The Company originally planned to purchase the property at "6775 Meadow Ln, Alpharetta, GA 30005" to build American Manufacturing Factory Construction Project. Due to the ZKTeco 2023 Annual Report 73 continuous rise in real estate prices in Georgia, the original planned purchase price of the factory building has been constantly adjusted. The adjusted purchase cost of the building has increased by more than 40% compared to the Company's initial budget, which has hindered the Company's purchase plan for the factory building. At the same time, the Company has been actively seeking suitable locations for the implementation of the American Manufacturing Factory Investment Project, but has not been able to find suitable properties for the construction of the investment project. Given the importance and urgency of implementing the US investment project, as well as considering various factors such as supply chain stability and security, the Company plans to adjust the implementation location of the US investment project from "6775 Meadow Ln, Alpharetta, GA 30005" to "1600 Union Hill Rd, Alpharetta, GA 30005", and to implement the US factory construction project from purchasing factory buildings to building new facilities on the US subsidiary's own premises. The situation and reasons for not achieving the planned progress or expected benefits (by specific project) Not applicable Description of significant changes in project feasibility after the change Not applicable VIII. Disposal of Significant Assets and Equity 1. Disposal of significant assets □ Applicable Not applicable There is no disposal of significant asset for the Company during the reporting period. 2. Disposal of significant equity □ Applicable Not applicable IX. Analysis of Major Holding and Joint-stock Companies Applicable □ Not applicable Major subsidiaries and partially-owned companies with an impact on the Company's net profit of over 10% Unit: RMB Company Name Company type Main business Registered Capital Total assets Net assets Operating revenue Operating profit Net profit ZK INVESTMENTS INC. Subsidiaries Established 2,049,570.00126,639,700.44126,639,700.440.0068,315,376.2455,602,758.92 ZK TECHNOLOGYLLC Subsidiaries Sales of goods 2,716,194.0062,138,769.0625,548,180.34150,842,020.3171,852,073.3971,852,073.39 ZKTECO CO., LIMITED Subsidiaries Sales of goods 104,469,000.00444,030,382.71267,761,165.40430,025,149.7924,623,871.2620,793,438.25 ZKTECO (GUANGDONG) CO., LTD Subsidiaries R&D, production, and sales of products 800,000,000.001,308,313,567.83879,157,652.69434,527,828.9939,679,411.9434,127,028.54 ZKTeco 2023 Annual Report 74 and software Acquisition and disposal of subsidiaries during the reporting period Applicable □ Not applicable Company Name Method of acquiring and disposing of subsidiaries during the reporting period Impact on overall production, operation, and performance RALVIEAIINC. New establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company ZKDIGIMAXPTE. LTD. New establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company ZKDIGIMAXPANAMA, S.A. New establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company ZKDIGIMAXCOLOMBIASASNew establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company ZKDIGIMAX (PTY) LTDNew establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company PT. ZKDIGIMAXEXCELNOBLENew establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company ZKDIGIMAXCHINACO., LTD. New establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company ZKTECHNOLOGYMOROCCONew establishment New establishment, with no significant impact on the overall production, operation, and performance of the Company Xiamen ZKTeco Cloud Valley Design and Development Co., Ltd. Cancellation With no significant impact on the overall production, operation, and performance of the Company Description of the main controlling and participating companies Please refer to the relevant content of "Section XFinancial Report - X. Equity in Other Entities" for details X. Structured Entities Controlled by the Company □ Applicable Not applicable XI. Outlook for the Future Development of the Company (I) Industry structure and trends Since its establishment, the Company has been focusing on providing smart terminals with identity recognition and verification functions, industry application software and platforms for three main application scenarios, namely smart entrance and ZKTeco 2023 Annual Report 75 exit management, smart identity verification, and smart office using multimodal "Computer Vision and Biometrics" (BioCV) as the core technology. During the reporting period, the Company expanded its smart retail business and continued to promote the layout of new businesses. The application and trends of biometric technology in relevant scenarios are as follows: (1) Application of biometric technology in the field of entrance and exit management The biometrics entrance and exit management achieves control and management of access permissions, identity recognition, fees, records, and alarms for people, vehicles, and objects by collecting, storing, analyzing, calculating, and processing data, images, and other information with the biometric technology. The application of biometric technology in the entrance and exit management industry mainly includes physical access control, pedestrian and vehicle channels, and smart locks. In recent years, with the increasing demand for safety, convenience, and intelligent management of entrances and exits in cities, communities, enterprises, parks, and hospitals, as well as the continuous promotion of various biometric technologies such as fingerprint recognition, facial recognition and palm recognition in the field of entrance and exit control management, the intelligent transformation and construction of many offline scenarios such as transportation, buildings, communities, parks, and parking areas have been accelerating, which enables the rapid development of the biometrics entrance and exit management market. In the future, based on the consideration of labor costs, the current combination of manual management and equipment management in the field of entrance and exit management and control will gradually develop towards self-service and unmanned direction. As an important market for biometrics equipment and supporting solutions, entrance and exit management will continue to maintain a rapid growth trend. The main product of biometrics entrance and exit management is access control products. China's access control market was initially dominated by keys and keyboard password locks. With the continuous expansion of market size and the development of biometric and sensor technologies, the access control product market has shown a trend of product diversification and intelligence. New access control management methods such as fingerprint door opening, face brushing door opening, code scanning door opening, and remote door opening are becoming increasingly common. With the maturity of biometric technology, it has become more and more outstanding in terms of security, convenience, non-contact, and ease of management, and its application fields are becoming wider and wider. With the development of the commercial intelligent buildings, as well as the promotion of the security industry and the further intelligent upgrading of access control products, the size of China's access control market is expected to grow from RMB 14.7 billion in 2020 to RMB 23.6 billion in 2024, with a compound annual growth rate of 12.6%. Overall, in the field of biometrics entrance and exit management, with the proposal of the national policy for new types of infrastructure, entrance and exit management equipment mainly based on multimodal biometric technology and digital identity verification solutions have been more widely applied in scenarios such as parks, communities, and construction sites, bringing new business needs and development opportunities for solution providers of intelligent entrance and exit management and smart identity verification scenarios. It is expected that the size of the domestic biometrics entrance and exit management market will reach RMB 14.2 billion by 2024. (Data source: Frost & Sullivan) (2) Application of biometric technology in the field of identity authentication The application of biometric technology in the field of information security has also started very early in the Chinese market. The application of information security starts with simple product forms such as fingerprint USB drives, fingerprint mice, and fingerprint hard drives (system and data access authorization, file encryption, etc.), and gradually occupies the market starting from the financial industry (internal personnel operation authorization). The development and promotion of authentication systems (platforms) that belong to infrastructure and are compatible with various biometric technology products started around 2014, and the initial progress was slow. Now, they have achieved fruitful results, and the number and strength of manufacturers involved in this application field have greatly increased. With the continuous maturity of biometric technology, biometric authentication is widely used in industries such as ZKTeco 2023 Annual Report 76 government affairs, public security, finance, social security, civil aviation, railways, hotels, etc. The continuous development of the IoT, cloud applications, intelligent devices, and gradually mature biometric technology are key factors driving the growth of the biometric authentication market. In addition, an increasing number of identity theft and fraud behaviors have made small and medium-sized enterprises and large enterprises realize the importance of identity verification, and they have begun to adopt biometric authentication solutions and services to combat these behaviors. According to a report by Frost & Sullivan, it is expected that the global market size for biometric authentication will increase at a compound annual growth rate of 13.9% from USD 4.1 billion in 2020 to USD 6.9 billion in 2024. The continuously expanding global market will also provide a favorable market environment and development opportunities for China's biometric authentication market. In addition, with the requirements of the real name system for various public services and the increasing awareness of safety requirements in society, China's identity verification is currently developing from the initial public security needs to various industries, including aviation, railways, hotels, finance, campuses, and hospitals. With the extension and expansion of industry applications, the size of the biometric authentication market will continue to increase. The market size of China's biometric authentication industry is expected to reach RMB 8 billion by 2024. Biometric authentication is the only large-scale commercial application of biometrics today. The application technology covers facial recognition, fingerprint recognition, iris recognition, etc., and the huge demand will inevitably promote the continuous iterative progress of these technologies. (3) Application of biometric technology in the office field The biometric office market is a series of intelligent office scene products and solutions that utilize technologies such as biometrics, AI, and cloud computing to create a new type of office system that is "safe, efficient, energy-saving, healthy, and intelligent". The main products include attendance machines, visitor machines, meeting attendance systems, and cloud attendance systems. With the improvement of enterprise informatization level and the increasing demand for intelligent office, as well as the continuous development and upgrading of biometric technology, the biometric office market has developed rapidly. In the future, based on the integrated development and application of various technologies such as biometric technology and the IoT, the global level of office intelligence will further improve, and the biometric office market will enter a broad development space. According to a report by Frost & Sullivan, the global biometric office market is expected to grow at a compound annual growth rate of 20.7%, from USD 1.6 billion in 2020 to USD 3.4 billion in 2024. With the application of biometric technology in various office smart devices such as attendance devices, meeting attendance devices, and visitor registration devices, the size of China's biometric office market has expanded. According to a report by Frost & Sullivan, with the further development of various biometric technologies and their application in the office field, the size of China's biometric office market will further expand to RMB 2.8 billion by 2024 in the future, with an annual compound growth rate of 21.1%. Attendance machines are important products for scientific human resource management in office scenes. New technologies are adopted for biometric attendance machines, cloud attendance solutions, etc. With the further improvement of administrative management requirements by enterprises, the improvement of intelligent office capabilities, and the further penetration and integration of biometric technology and IoT technology in the attendance field, the size of China's attendance market will increase from RMB 3.1 billion in 2020 to RMB 5.5 billion in 2024, with a compound annual growth rate of 15.4% according to statistics from CICCQixin. With the development of social economy and the improvement of living standards, people's demand for comfortable, convenient, and intelligent working methods has become more urgent. Higher requirements have been put forward in terms of intelligent and convenient office work, and intelligent attendance has become an industry trend. Currently, with the continuous development and improvement of biometric technology, its application in attendance scenarios has become very widespread. In the early days, biometric attendance machines mainly included fingerprint recognition attendance machines. However, with the development of other biometric technologies, facial recognition and palm recognition have gradually entered the attendance ZKTeco 2023 Annual Report 77 market due to their non-contact characteristics. In the overall attendance market, the proportion of biometric attendance market is also constantly increasing. In the future, with the acceleration of the construction of the biometric office industry, as well as the upgrading and integration of various biometric technologies, especially the development of non-contact biometric technology and cloud attendance software systems, the size of China's biometric attendance market is expected to further expand to RMB 2.5 billion by 2024 at a compound annual growth rate of 22.8% according to the report by Frost & Sullivan. (4) The application of computer vision and AIGC in the field of smart retail With the development of social economy and the acceleration of people's pace of life, convenience stores have become an indispensable part of people's daily lives. Convenience stores are popular among consumers for their convenience, speed, and 24-hour operation. Currently, the global convenience store market is showing a rapid growth trend. Especially in first tier cities, the number and scale of convenience stores are constantly expanding, and brand competition is becoming increasingly fierce. Meanwhile, the business model of convenience stores is constantly innovating, shifting from traditional single sales models to diversified and intelligent models. For example, many convenience stores have begun to introduce intelligent means such as self-service selling and mobile payments to improve service efficiency and user experience. However, the convenience store market also faces some challenges. On the one hand, with the rise of e-commerce, the traditional retail industry has been impacted to a certain extent, so do convenience stores. On the other hand, due to the relatively low entry threshold of the convenience store industry, there is a large amount of homogeneous competition in the market, making it difficult to form a differentiated competitive advantage. So, what is the future development trend of convenience stores Firstly, convenience stores will place greater emphasis on brand building. Building a brand image with differentiated competitive advantages through strengthening brand image and improving service quality is the key to the development of convenience stores. Secondly, convenience stores will place greater emphasis on intelligent development. With the advancement of technology, intelligent means will become an important means for convenience stores to improve service efficiency and user experience. For example, by introducing technologies such as self-service selling, mobile payment, and intelligent recommendation, intelligent service upgrades can be achieved. Finally, convenience stores will place greater emphasis on diversified development. In addition to traditional food and beverage products, convenience stores can also consider introducing more types of goods and services, such as coffee, quick meals, express delivery collection, etc., to meet the diversified needs of consumers. Computer vision refers to the technology that utilizes cameras and machine vision algorithms to classify, track and recognize target objects, allowing computers to replace the human eye and output structured event data in real time. The application of computer vision technology in traditional retail scenarios can obtain potential multi-dimensional data, such as passenger flow, customer group situation, regional hotspots, and movement trajectories, achieving scientific management of people, goods, and venues, improving operational decision-making efficiency, and improving sales per square foot. AIGC refers to Artificial Intelligence Generated Content, which can currently include text, videos, etc. In smart retail scenarios, the application of AIGC can quickly realize the implementation of marketing ideas, and through one click deployment of smart retail cloud solutions, greatly improve the production efficiency of the solution. With the rapid development of computer vision and AIGC technology, the smart retail business will also usher in opportunities. (II) The Company's future development strategy and specific plans 1. Overall development strategy of the Company The root cause for the development of biometric technology is to verify "who are you" and prove "I am me". Contemporary biometrics has undergone more than 50 years of technological progress and widespread commercial applications. In today's information and network society, the connotation and application of biometrics have begun to undergo a paradigm shift. ZKTeco provides insights into the trend of transformation, elevating the attribute of biometric technology from "I tell you ZKTeco 2023 Annual Report 78 who you are" to a combination of computer vision and biometric recognition: "I know who you are and I will serve you". From a simple technical switch function to an intelligent channel leading to personalized services, it has opened up a vast field of value-added services. The continuous development of information technology and the emergence of IoT have given rise to the arrival of the cyber-physical-human ternary universe (ternary universe refers to the physical world, human society, and cyberspace). The interaction and integration of the ternary universe constitute a complete and unified smart society. The essence of a smart society is the extension, expansion, and closed-loop evolution of human intelligence in the ternary universe. In the development and construction of a smart society, information technology plays an essential foundational role. The network and big data are the bonds of the ternary universe, while AI strengthens and accelerates the communication and interaction efficiency of the ternary universe. In the era of IoE, we believe that the innovative value of ZKTeco lies in the interaction value between people and scenes and the empowering value of scenes. This value is fully reflected in the interaction and integration of the ternary universe and the construction process of a smart society. The core technology of ZKTeco BioCV multimodal computer vision (including biometrics), is the most efficient intelligent means and tool for communicating with the ternary universe. ZKTeco has built an ecosystem of end, edge, cloud, and server technologies. These innovative elements of ZKTeco not only conform to the trend of technological and industry evolution, but also lay a solid foundation for the healthy development and technological leadership of the enterprise. Smart entrance and exit management makes the interaction smoother, safer, and more intelligent by reprocessing, integrating and mapping the original direct interaction process between people and the physical space in the cyberspace. In addition, the system loads and presents more information to bring more services and value to customers. Based on multimodal BioCV core technology, AI big model, audio and video technology, etc., ZKTeco smart entrance and exit system consolidates user scene needs and a warm space for longing for a better experience, as well as an implementation platform for cloud, edge and end all-round value-added services. With data as the core link, it creates true intelligent management and services, providing enterprises with a one-stop and all-round digital transformation and upgrading solution. Smart time management will integrate AI technology to substantially improve the level of digitization and intelligence based on years of deep cultivation and development. Digital employees can achieve precise time management by projecting data on social factors of people and job management factors into the cyberspace. In details such as working hour statistics, job compensation evaluation, time cost accounting, cost reduction and efficiency improvement, and fragmented time management, personal information, time data, management, and financial information are seamlessly integrated and comprehensively utilized, elevating the level of refined and intelligent management to a new level. 2. Specific plan for company development (1) Technological development planning Continuously promote the deep integration of various products and software platforms, create a scenario data connectivity ecosystem, and enhance the scenario customization and delivery capabilities of software platforms The Company will continue to deeply integrate multimodal BioCV with technologies such as AI and the IoT utilizing Cyberspace (3) Physical world Human society (2) ZKTeco 2023 Annual Report 79 independent intellectual property rights to meet the diverse management needs of users. The Company will collaborate with global localization technical service personnel to deeply explore user personalized needs, enhance the scene customization and delivery capabilities of software platforms in major regions around the world, and provide more diverse scene customization services to target customers worldwide. Accelerating the implementation of technical solutions for smart retail business is an important task currently. Increase investment in core technologies of multimodal biometrics and deepen the integration of computer vision and biometric technology The Company will continue to promote the iteration of core technologies of multimodal biometrics and computer vision on the basis of existing technologies, focusing on improving the accuracy of small models, training large models, and enhancing anti-counterfeiting capabilities, and accelerating the application of AIGC algorithm combined with smart retail scenarios. The Company will increase the investment in computer vision and AI research to achieve the ability to comprehensively use AI technology to conduct structured analysis on specific scene data. Accelerate the upgrading of product globalization engineering design capabilities and agile production capabilities, and enhance engineering integration capabilities The Company has a rich product line with a solid product foundation and huge integration potential. The Company will continue to improve product design and manufacturing processes, strengthen development team building, and enhance the intelligence level of equipment production lines. In the field of smart space entrance and exit for enterprise level applications, the Company will continuously improve its comprehensive capabilities in engineering integration, modular manufacturing, and linkage with global assembly plants, committed to becoming the largest manufacturer of front-end intelligent perception devices and a localized engineering service provider in the industry. (2) Market development plan On the basis of the existing marketing and service network layout, the Company will continue to increase the promotion of the investment project Global Marketing Service Network Construction Project based on domestic and international business and market conditions, improve the coverage of potential customers, and enhance the penetration rate of current key sales areas. (3) Continuously promoting intelligent manufacturing plans As a global provider of biometric products and solutions, the Company will fully promote the construction and operation of production oriented investment projects, including the Hybrid Biometrics IoTIntelligent Industrial Base Project, the ZKTeco Multimodal Biometrics Digitalization Industrial Base Construction Project, and the American Manufacturing Factory Construction Project. In addition, the Company will invest in the construction of a Thai factory project with its own funds to enhance global manufacturing capacity, satisfy global order delivery and provide strong global production capacity support for the Company's subsequent development. (4) Human resource development plan Human resource development is the support and guarantee for the Company's business development. The Company will focus on introducing professional technical personnel and expert senior talents as needed, optimizing the talent structure, and establishing a talent team that adapts to market development and technological upgrading needs. From the international aspects, the Company will continue to introduce international localized talents, strengthen the localization team, and achieve a soft landing in culture, management, talent, and business. The Company will carry out training on management, professional fields and job skills for senior managers, core technicians, middle managers and ordinary employees respectively; meanwhile, the Company will establish a human resource compensation system that is suitable for the development of the Company and employees, and make good use of equity incentive tools to achieve a virtuous cycle of company performance growth and employee personal wealth growth. (5) Information construction plan The Company will accelerate digital transformation and comprehensively promote the construction of information systems. In 2024, the Company will continue to be committed to promoting the development of information technology. The Company ZKTeco 2023 Annual Report 80 plans to further optimize the functionality and performance of the SAP system to meet ever-changing business needs. At the same time, we will strengthen training and technical support for employees to enhance their work abilities in the information environment. In addition, we will also explore new information technology and solutions to further enhance the digital transformation level of the enterprise. (III) Risks Faced by the Company and Countermeasures 1. Operational risk (1) Market competition risk After years of deep cultivation in the biometric industry, the Company has formed competitive advantages in the fields of smart entrance and exit management, smart identity verification, smart office, smart retail, and computer vision applications, including technological and R&D strength, flexible production capacity, brand influence, and marketing service network. However, in recent years, China's access control and management, identity authentication, office and other industries have shown an increasing number of market entities, increased industry concentration, and increasingly fierce market competition. The Company's main business products are facing competition pressure from various aspects such as quality, price, service and brand. Other competitors may compete for market share through different market positioning, strategies or cost controls, making the competition more intense. In order to maintain the Company's leading position in the industry, the Company has continuously increased its R&D investment in recent years, insisting on developing and optimizing single and multimodal biometrics and computer vision technology, continuously expanding and enriching the types of biometric and computer vision products and services, and paying more attention to the overall linkage design of product software and hardware, and strengthening competitiveness of multiple categories, thus consolidating the Company's leading position in the industry. However, with the increasing market competition, if the Company cannot continuously optimize product design, improve production quality, enhance brand competitiveness, expand and consolidate sales network, and Improve market penetration, the Company's existing industry and market position will be affected, and the Company will face the risk of declining market share and profitability. (2) Overseas business operational risks In 2023, the Company's overseas sales revenue from countries and regions was RMB 1.3264736 billion, accounting for 67.33% of the Company's main business income. The Company's overseas business income accounted for a relatively large proportion. In recent years, the global economy has been facing changes in trade policies of major economies, the rise of international trade protectionism, the deterioration of local economic environments, geopolitical conflicts and maritime restrictions caused by geopolitical conflicts, the depreciation of currencies in many countries around the world caused by the continuous interest rate hikes of the USD and geopolitical tensions, resulting in strong uncertainty in global trade policies. The Company's international sales business may face international trade friction, especially the risk of Trade disputes between China and the United States. Although China and the United States are still constantly trying to find solutions, if trade disputes between China and the United States worsen in the future, it may have a certain adverse impact on the Company's product sales, which in turn will affect the Company's future business performance. In addition, the Company's international business accounts for a relatively large proportion of exports to developing countries such as India, Mexico, and Indonesia. Although the overall political, financial, and economic systems of relevant countries are currently relatively stable, the economic development momentum is good, their infrastructure is relatively weak, and government efficiency is relatively inefficient, compared to developed countries, which poses potential social instability factors. If major changes occur in its political environment, economic environment, geopolitics, trade policies with China, tariff and non-tariff barriers, and industry standards in the future, it will have a negative impact on the Company's export business. In addition to the risks of global economic and political environment changes and trade frictions that the Company may face, the multinational enterprise business model of the Company will increase the difficulty of operating, financial management, and personnel management, and the operation will be influenced by the legal and regulatory environments and business environments of different countries and systems. Although the Company has accumulated rich experience in international business development, if the Company's management personnel and various systems cannot meet the requirements of global operation, cross regional ZKTeco 2023 Annual Report 81 management, and standardized operation, it will also affect its operational efficiency and profitability. (3) Tax compliance risks caused by transfer pricing arrangements between various tax entities within the Company both domestically and internationally As of December 31,2023, the Company has a total of 47 overseas controlling subsidiaries located in countries and regions such as Hong Kong, the United States, Mexico, the United Arab Emirates, and India. During the reporting period, there were cases where the Company sold products to overseas subsidiaries and sold them locally through these subsidiaries due to business needs between the Company and some overseas subsidiaries. There was a situation of transfer pricing in the above-mentioned transaction links. According to the Company's self inspection, there were no cases of the Company or its overseas subsidiaries being punished by the tax department due to transfer pricing issues during the reporting period. From the perspective of its own compliance, the Company regularly hires professional consulting agencies to analyze and demonstrate the transfer pricing strategies involved in the operation of the Company and some overseas subsidiaries, and issues special reports. If there are major changes in the tax policies of the Company in different tax jurisdictions in the future, or if the Company fails to be correctly or timely informed of the changes in tax policies, or if there are cases of tax recovery and fines due to the re-approval of transaction prices by the competent tax authorities, it may lead to adverse effects on the Company's operations. (4) Legal risks of the impact of industry regulatory policies related to personal information protection and data protection on company operations Laws, regulations, and industry norms such as the "Civil Code of the People's Republic of China", the "Cybersecurity Law of the People's Republic of China", the "Data Security Law of the People's Republic of China", the "Personal Information Protection Law of the People's Republic of China", and the "General Data Protection Regulation" all stipulate the collection and use of personal information by citizens, as well as the compliance obligations of personal information controllers, and emphasizes the legal liability for violating personal information protection and data security has been strengthened. The "Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Cases Relating to Processing of Personal Information by Using the Facial Recognition Technology" (FS [2021] No.15) provides detailed provisions on the behavior and civil liability of information processors who violate the personal rights and interests of individuals by processing facial information in violation of regulations. In recent years, personal information protection and data security have become regulatory priorities in various countries around the world, and regulatory policies related to them have been increasingly strengthened. If the Company fails to make timely and effective adjustments and responses to relevant policies and regulations in its future business operations, there may be potential legal risks in data compliance caused by changes in legislation or regulatory policies. Meanwhile, if the Company is unable to strictly comply with the relevant laws, regulations, and industry norms mentioned above in the future, and if employees violate the Company's internal regulations, or data collaborators, customers, etc. violate agreements or cause improper use or leakage of data due to other personal reasons, it/they may be subject to administrative penalties from relevant departments or complaints from users, and even lead to disputes such as litigation or arbitration, which may have adverse effects on the Company's reputation and business. 2. Technology and product innovation risks Driven by market demand and technological development, biometric technology has achieved rapid development globally. Biometric technology is gradually iterating towards non-contact and multimodal biometrics. In addition, with the development of cutting-edge technologies such as cloud computing, the IoT, and AI, users' personalized needs for smart terminal products and even ecological platforms are constantly increasing in the fields of biometric technology applications such as smart entrance and exit management, smart identity verification, and smart office where the Company is located. Industry technology is updated and iterated quickly, requiring industry enterprises to have strong technological innovation capabilities to adapt to the rapid development of the industry. The continuous innovation ability of products and technologies is increasingly becoming an important component of the core competitiveness of related product and solution suppliers. The Company always attaches great importance to technological innovation and new product R&D. In 2023, the Company's R&D expenses were RMB 213.6134 ZKTeco 2023 Annual Report 82 million, accounting for 10.84% of operating revenue. As of December 31,2023, the Company has 858 patents, including 149 invention patents; 675 computer software copyrights and 67 work copyrights, as well as strong sustained innovation capabilities. However, if the Company cannot keep up with the development trends of domestic and foreign biometric technology and related application products, and fully pay attention to the diverse individual needs of customers, and the subsequent R&D investment is insufficient, resulting in the Company's technology development and product upgrading not being able to adapt to industry technology iterations and market demand changes in a timely manner, it will face the risk of declining market competitiveness due to the inability to maintain sustained innovation capabilities. 3. Internal control risk (1) Management risks caused by future expansion of the Company's scale With the construction and production of investment projects, the Company's scale has rapidly expanded, and the number of sales, R&D, and management personnel has increased significantly, posing higher requirements for the Company's management level and system. Although the Company has established a series of relatively complete enterprise management systems, such as clear institutional processes in procurement, production, sales, R&D, and service, to ensure the competitiveness and reliability of the Company's products and services, if the Company's management ability cannot be further effectively improved, it may trigger corresponding management risks, hinder the Company's future development, and have a negative impact on the overall profitability of the Company. (2) Dealer management risk During the reporting period, the Company mainly adopted a sales model that combines distribution and direct sales, and the proportion of distribution was relatively high. In 2023, the Company achieved a revenue of RMB 1.3479553 billion through the distribution model, accounting for 68.72% of the Company's main business income of 2023. Except for business cooperation, each dealer is independent of the Company, and its business plan is determined independently based on its own business goals and risk preferences. Although the Company has established strict dealer management systems and effective and reasonable rebate policies, and maintains good cooperative relationships with major dealers, the coverage area of marketing and service networks will continue to expand in the future with the rapid development of the Company, and the difficulty of training, organizing, and risk management for dealers will also continue to increase. If the Company is unable to improve its management capabilities for dealers in a timely manner, and if dealers engage in disorderly management, poor management, illegal or irregular behavior, or if the Company cannot maintain good relationships with dealers in the future, resulting in dealers ceasing to cooperate with the Company, and the Company is unable to quickly obtain orders from other channels in the short term, or the incentive effect of the rebate policy decreases, it may lead to a regional decline in the sales of the Company's products, and have a negative impact on the Company's market promotion. 4. Financial risk (1) Risk of bad debt losses on accounts receivable At the end of the reporting period, the book balance of the Company's accounts receivable was RMB 514.2402 million, accounting for 26.10% of the current operating revenue. With the further expansion of the Company's business scale, the amount of accounts receivable may continue to increase. If there are changes in the macroeconomic environment, customer operating conditions, etc., and accounts receivable cannot be recovered in a timely manner, resulting in bad debt losses, the Company's operating results may be adversely affected. (2) Inventory depreciation risk With the growth of the Company's business scale, the inventory scale has been increasing year by year. At the end of the reporting period, the book value of the Company's inventory was RMB 372.7148 million, accounting for 12.33% of the total current assets at the end of the period. During the reporting period, the Company comprehensively considered factors such as expected selling price and inventory age, and made sufficient provision for inventory depreciation. At the end of the reporting period, the provision ratio for inventory depreciation was 4.05%. The Company's inventory mainly consists of raw materials, inventory goods, etc. The Company has always maintained a good cooperative relationship with raw material suppliers and ZKTeco 2023 Annual Report 83 customers, and reasonably arranged the inventory of raw materials and inventory goods. However, with the further growth of the Company's sales revenue and asset size, the Company's inventory also increases accordingly, which may lead to a decline in price, backlog, and unsold inventory due to market changes, resulting in the risk of deteriorating financial position and declining profitability. (3) Risk of RMB exchange rate fluctuations The Company's current business layout is highly internationalized, and there are many local controlling subsidiaries and participating companies in the overseas export market. The majority of export sales are settled in USD or EUR, resulting in significant exchange rate fluctuations in production and operation. On the one hand, the fluctuations of the RMB exchange rate will directly affect the sales prices of the Company's exported products, thereby affecting the price competitiveness of the Company's products; on the other hand, fluctuations of the RMB exchange rate may also affect exchange gains and losses of the Company. If the RMB appreciates in the future, it will have a significant adverse impact on the Company's operating performance. (4) Risk of exchange rate fluctuations in mainstream countries Due to the high degree of internationalization of the Company, with the increase in interest rates in the United States, currencies in many countries have depreciated, and countries with weak industrial capabilities may even implement foreign exchange controls, which will lead to longer payment collection times for downstream customers and increased risks. Although the Company has effectively reduced this risk through measures such as Sinosure in the past year, further interest rate hikes in the United States this year may further exacerbate the situation and pose risks to the Company's accounts receivable. 5. Risks related to raising funds to invest in projects (1) The risk of raising funds to invest in projects that do not yield expected returns The investment projects with raised funds are a prudent decision and planning made by the Company based on a thorough analysis of the current market situation, development speed, industrial environment, and future development trends of the industry, as well as the Company's existing technological level, management ability, and expected future customer needs combined with development prospects of the biometric industry and related application fields, as well as the expected changes in the international trade environment. However, if there are major changes in the future market demand, industry structure, industrial policies or the global economic and political situation, it may prevent the smooth implementation of investment projects with raised funds as planned or prevent them from achieving expected returns. (2) The risks of cross-border implementation of investment projects The American Manufacturing Factory Construction Project, R&DCenter Construction Project, and Global Marketing Service Network Construction Project among these investment projects with raised funds all involve overseas investment. Although the Company has accumulated rich experience in cross-border operations and management in overseas markets, including the United States, through various overseas subsidiaries, the construction progress of the Company's American Manufacturing Factory Construction Project, R&DCenter Construction Project, and Global Marketing Service Network Construction Project may be affected by multiple factors considering the global economic situation and the complex diversity of policies and cultures in various countries. Operations in various countries also face certain uncertainties. In addition, during the implementation process of the overseas investment projects, there may be a risk of delaying the implementation of the investment projects due to the need to increase or re-fulfill the filing or approval procedures due to subsequent needs, policy changes, and other reasons. The Company reminds investors to pay attention to the risks of cross-border investment projects. XII. Reception of Activities including Research, Communication and Interviews During the Reporting Period Applicable □ Not applicableZKTeco 2023 Annual Report 84 Reception time Reception location Reception methods Reception object type Reception object The main content of the discussion and the materials provided Index of basic information of research February 9,2023 Company Meeting Room Field research Institution CITICSecurities: Yan Li, Liang Nan, Liang Shilin, and Ni Yancheng Harmony Capital: Cui Danwei Beijing Xiaoying Investment Management Co., Ltd.: Deng Haocheng Yinhua Fund Management Co., Ltd.: Shao Zihao V-FUNDManagement Co., Ltd.: Zeng Jie ICBC-AXAAsset Management Co., Ltd.: Liu Shang Lion Fund Management Co, Ltd.: Lu Weicheng Shenzhen Self-knowledge Investment Management Co., Ltd .: Zhou Jie See CNINFO (o.com.cn) CNINFO , Announcement date: February 11,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No.2023-001) February 14,2023 Company Meeting Room Field research Institution Pacific Securities Co., Ltd.: Cao Pei Shanghai Qisheng Asset Management Co., Ltd.: He Zheng Guangdong Hengli Asset Management Co., Ltd.: Li Jinbo See CNINFO (o.com.cn) CNINFO , Announcement date: February 15,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No.2023-002) March 12, 2023 Online Meeting Others Institution Host: Joint Chief Analyst of Computer at CSC: Jin Ge Chief Analyst of AI at CSC: Yu Fangbo Other participating organizations: Hotland Innovation Asset Management Co., Ltd., HZBANKWEALTH MANAGEMENTCO., LTD., China Merchants Fund Management Co., Ltd., Shanghai Boomleading Investment Management Co., Ltd., Shanghai Mingyu Asset Management Co., Ltd., AXASPDBInvestment Managers Co., Ltd., RBCGlobal Asset Management (Asia) Limited, Sage Investment Management Co,. Ltd., Prudence Investment Management (Hong Kong) Ltd., Comein Finance, Truvalue Asset Management Co., Ltd., Western Leadbank Fund Management Co., Ltd., Beijing Longrising Asset Management Co., Ltd., HFTInvestment Management Co., Ltd., Harvest Fund Management Co., Ltd., China Post Life Insurance Company Limited, Guotai Junan Securities Co., Ltd., Shanghai Jiupeng Asset Management Center (Limited Partnership), CITICGroup Corporation, Shenzhen Mingda Capital Management Co., Ltd., Shanghai Xitai Investment Management Co., Ltd., Penghua Fund Management Co., Ltd., King Tower Asset Management Company Ltd., Pacific Asset Management Co., Ltd., China Capital Management See CNINFO (o.com.cn) CNINFO , Announcement date: March 13,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-003) ZKTeco 2023 Annual Report 85 Co., Ltd., Caitong Fund Management Co., Ltd., Fujian Haixia Bank Co., Ltd., China Universal Asset Management Co., Ltd., China International Fund Management Co., Ltd., PICCAsset Management Company Limited, Shanghai Harmony Huiyi Asset Management Co., Ltd., Changjiang Securities Company Limited, SWSMUFund Management Co., Ltd., AIACompany Limited Shanghai Branch, Huatai-PineBridge Fund Management Co., Ltd., Xi'an Curiosity Investment Management Co., Ltd., Dajia Asset Management Co., Ltd., Shanghai Chaser Asset Management Company Limited, Qian He Capital Management Co., Ltd., Shanghai Hexi Investment Management Co., Ltd., Kingsun (Shanghai) Investment Co., Ltd., Zhejiang Jingan Investment Management Co., Ltd., China Coal Energy Company Limited, Shanghai Chengshi Asset Management Co., Ltd., Jiangsu Ruihua Investment Holding Group Co., Limited, Soochow Asset Management Co., Ltd., Baoying Fund Management Co., Ltd., Beijing Zechang Asset Management Co., Ltd., Shenzhen Sandstone Fund Management Co., Ltd., Zhong Ou Asset Management Co., Ltd., Shanghai Panwen Investment Management Co., Ltd., Chang'an Fund Management Co., Ltd., Beijing Ren Bridge Asset Management Co., Ltd, Shanghai Quanxi Investment Management Co., Ltd., Customer of Wealth Management Department of CSCEconomic and Management Commission, Orient Fund Management Co., Ltd., Zhejiang BUTTONWOOD&RIGHTAsset Management Co., Ltd., Guotai Asset Management Co., Ltd., Huashang Fund Management Co., Ltd., China Southern Fund Management Co., Ltd., Hangzhou Yudi Investment Management Co., Ltd., Harfor Fund Management Co., Ltd., Beijing Derivative Sailing Investment Co., Ltd., Hua An Fund Management Co., Ltd., Xiamen JINHENGYUInvestment Managerment Co., Ltd., Gfund Management Co., Ltd., Three Gorges Capital Holding Co., Ltd., ABC-CAFund Management Co., Ltd., Huaxi Fund Management Co., Ltd., Shanghai Chengyi Private Equity Fund Management Center (Limited Partnership), Everbright Wealth Management Co., Ltd., The Green Le Investment management (Shanghai) Co., Ltd., Xiamen Zhonglue Investment Management Co., Ltd., ABCWealth Management Co., Ltd., Shanghai Feng Run Capital Company Ltd., Oriental Alpha Fund Management Co., Ltd., Zhongrong Fund Management Co., Ltd., China Life Asset Management Company Limited, ICBCCredit Suisse Asset Management Co., Ltd., Haijin (Dalian) Investment Management Co., Ltd., Yaokang Private Equity Fund (Hangzhou) Co., Ltd., Minsheng Royal Fund, Shanghai Eureka Investment Partner Co., Ltd., Beijing Eastern Smart Rock Asset Management Co., Ltd., Beijing Heju Investment Management Co., Ltd., GFFund Management Co., Ltd., Shanghai XCFund Management Co., Ltd., Qianhai Life Insurance Co., Ltd., Orient Securities Asset Management Company Limited, Chang Xin Asset Management Co., Ltd., Taikang ZKTeco 2023 Annual Report 86 Asset Management Co., Ltd., Fullerton Investment Management (Shanghai) Co., Ltd., Tongtai Fund Management Co., Ltd., China Securities (International) Finance Holding Company Limited, Zhejiang Longhang Asset Management Co., Ltd., Industrial Fund Management Co., Ltd., Invesco Great Wall Fund Management Co., Ltd., Securities Asset Management Branch of Sealand Securities Co., Ltd., Harvest Forever Capital Management (Beijing) Co., Ltd., Shanghai Jingxi Asset Management Co., Ltd., Yuance (Shanghai) Investment Management LLP, National Council for Social Security Fund, CCTFund Management Co., Ltd., Purekind Fund Management Co., Ltd., Yingda Insurance Asset Management Co., Ltd., Huatai Asset Management Co., Ltd., Shanghai Panjing Investment Center (Limited Partnership), Xinhua Asset Management Co., Ltd., and CCBLife Insurance Asset Management Company Limited. March 15, 2023 XIAMEN ZKTECO CO., LTD. Meeting Room Field research Institution China Securities Co., Ltd.: Jin Ge Shenzhen Minsen Investment Co., Ltd.: Li Yajun Shenzhen Upright Asset Management Co., Ltd.: Ma Li Shanghai Guotai Junan Securities Asset Management Co., Ltd.: Fan Ming Sunon Investment Management Co., Ltd.: Tang Heng See CNINFO (o.com.cn) CNINFO , Announcement date: March 17,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-004) March 22 and 23, 2023 Company Meeting Rooms and Online Meetings Online Communication on Online Platforms Institution Shenzhen Branch of Haiyin Wealth Management Co., Ltd., Haitong Securities Co., Ltd., Shenzhen Qianhai Decheng Asset Management Co., Ltd., Everbright Securities Co., Ltd., Shenzhen Qianhai Wanli Private Equity Fund Management Co., Ltd., Beijing Ding Investment Co., Ltd., China Merchants Securities Co., Ltd., Shenzhen Qianhai Deyun Investment Co., Ltd., Elitimes Capital Management Co., Ltd., :China Great Wall Securities Co., Ltd., Zheshang Securities Co., Ltd., Shenzhen Kingstone Investment Management Limited, Guangdong Branch of Shenwan Hongyuan Securities Co., Ltd., Shenzhen Hongliwan Investment Management Co., Ltd., Shenzhen Gaoyi Private Equity Fund Management Co., Ltd., Upright Asset, Mingfu Fund, Minmetals Securities Co., Ltd., Shenzhen Xinzheng Asset Management Co., Ltd., Tebon Securities Co., Ltd., Sinolink Securities Co., Ltd., CHINAMATEINTERNATIONALINVESTMENT HOLDINGSLIMITED, China Securities Co., Ltd., Huachuang Asset Management, China Capital Management, Shanghai Tourmaline Asset Management, Broad Fund, CICCFund, Sunrise Asset, QINCHENASSET, Soochow Self-management, Yuexi Investment, Guangzhou Xuan Yuan Investment, Fuyun Private Equity Fund, Tiancheng Investment, Valoran Investment, Songxi Private Fund, Hongsheng Asset, and CITIC-Prudential Fund See CNINFO (o.com.cn) CNINFO , Announcement date: March 24,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-005) May 8, 2023 Quanjing "Investor Online CommunicaOthers Investors participating in the 2022 annual performance briefing See CNINFO (CNINFO , ZKTeco 2023 Annual Report 87 Relations Interactive Platform" (w.net) tion on Online Platforms o.com.cn) Announcement date: May 12,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-006) May 29, 2023 Online Meeting Others Institution Host: Chief Analyst of AI at CSC: Yu Fangbo Researcher of AI at CSC: Chen Siyue Other participating organizations and personnel: Baoying Fund Management Co., Ltd., China Post Life Insurance Company Limited, Dajia Asset Management Co., Ltd., Mingshi Partners Private Equity Fund Management (Zhuhai) Co., Ltd., Shanghai Mingyu Asset Management Co., Ltd., CSOPAsset Management Limited, Huiquan Fund Management Co., Ltd., Chasing Securities Co., Ltd., Shanghai Xunbao Investment Management Co., Ltd., Springs Capital (Beijing) Limited, Xinghe Fund Management Co., Ltd., Fengyan Investment Management (Shanghai) Co., Ltd., Shanghai Chaos Investment (Group) Co., Ltd., Harvest Fund Management Co., Ltd., Shanghai Chaser Asset Management Company Limited, Shanghai Alluvium Asset Management (Limited Partnership), Changjiang Securities Company Limited, China Universal Asset Management Co., Ltd., Shanghai Qiyao Capital Management Partnership Limited, CITICGroup Corporation, Beijing Longrising Asset Management Co., Ltd., Shaanxi Baopu Rongyi Asset Management Co., Ltd., Tianjin Yixinan Asset Management Co., Ltd., CCBLife Insurance Asset Management Company Limited, Evergrande Life Insurance Co., Ltd., Bank of Beijing Scotiabank Asset Management Co., Ltd., Hangzhou Linnuo Private Equity Fund Management Co., Ltd., Shanghai Simike Materials Technology Co., Ltd., Zheshang Securities Co., Ltd., Guorong Securities Co., Ltd., First State Cinda Fund Management Co., Ltd., Kingsun (Shanghai) Investment Co., Ltd., Hainan Tuopu Private Equity Fund Management Co., Ltd., BOSERAFUNDSMANAGEMENTCO., LIMITED, Dacheng Fund Management Co., Ltd., Xiamen JINHENGYUInvestment Managerment Co., Ltd., Harfor Fund Management Co., Ltd., Donghai Securities Co., Ltd., ABC-CAFund Management Co., Ltd., Green Court Capital Management Ltd, Tebon Fund Management Co., Ltd., Wealth Management Department of CSC Economic and Management Commission, Broad VISIONInvestment Co., Ltd., Nanhua Fund Management Co., Ltd., Securities Asset Management Branch of Sealand Securities Co., Ltd., Tianhong Asset Management Co., Ltd., Guangzhou Loongzi Investment Management Co., Ltd., China Securities (International) Finance Holding Company Limited, Beihai Dizeng Investment Consulting Co., See CNINFO (o.com.cn) CNINFO , Announcement date: May 30,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-007) ZKTeco 2023 Annual Report 88 Ltd., Caitong Securities Co., Ltd.,Western Leadbank Fund Management Co., Ltd., Shenzhen Sandstone Fund Management Co., Ltd., Amundi BOCWealth Management Co., Ltd., Beijing Ziwei Private Fund Management Co., Ltd., AXA SPDBInvestment Managers Co., Ltd., Hangzhou Yudi Investment Management Co., Ltd., China Resources Yuanda Fund Management Co., Ltd., China Life Pension Company Limited, Shanghai Zhonglan Fund Management Co., Ltd., Shanghai Liling Private Fund Management Co., Ltd., Gelin Fund Management Co., Ltd., Zhejiang BUTTONWOOD&RIGHTAsset Management Co., Ltd., Soochow Asset Management Co., Ltd., GFFund Management Co., Ltd., Shanghai Eureka Investment Partner Co., Ltd., ZHONGCHUANFINANCECOMPANY LIMITED, Shanghai Kemai Asset Management Co., Ltd., China Capital Management Co., Ltd., Fuanda Fund Management Co., Ltd., Zhongke Richland Asset Management Co., Ltd., Jiangdong Holdings Group Co., Ltd.,Founder Securities Co., Ltd., China Guangfa Bank Co., Ltd., Hainan Fudao Private Equity Fund Management Co., Ltd., Cathay Lujiazui Life Insurance Company Limited, New China Fund Management Co., Ltd., Jinxin Fund Management Co., Ltd., Shanghai Xiangyi Asset Management Co., Ltd., and Fuzhou Development Zone Sanxin Asset Management Co., Ltd., etc. June 12 and 14, 2023 XIAMEN ZKTECO and ZKTeco Meeting Room Field research Institution COFCOFutures Co., Ltd., Nomura Orient International Securities Co., Ltd., Sunon Investment Management Co., Ltd., Beijing Suncapital Co., Ltd., Zheshang Securities Co., Ltd., Wisdomshire Asset Management Co., Ltd., Minsheng Royal Fund Management Co., Ltd., Khazanah Nasional Berhad, Matthews Asia, Modular Asset Management, Sunshine Life, Yiheng Capital, and UBS See CNINFO (o.com.cn) CNINFO , Announcement date: June 15,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-008) August 30,2023 Value Online (w.ir-online.cn/) Online Communication on Online Platforms Others Investors participating in the Company's 2023 semi-annual performance briefing online See CNINFO (o.com.cn) CNINFO , Announcement date: August 30,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No. 2023-009) September 4,2023 ZKTeco Meeting Room and Online Meetings Online Communication on Online Platforms Institution CICCYinhai (Hong Kong) Fund Co., Ltd., Happy Factorial (Hong Kong) Private Equity Fund, Shandong Futuo Private Equity Fund, Capital Securities Corporation Limited, Beijing Ziyi Private Equity Fund, Beijing Red Flag Bearer Investment Management Consulting Co., Ltd., Yuekai Securities Co., Ltd., Lion Fund Management Co, Ltd., Guorong Fund Management Co., Ltd., China Reform Securities Fund Management Co., Ltd., Beijing Midastouch Investment Co., Ltd., Shenzhen Gohedge Fund Management Co., Ltd., Xi'an Fengxiang Investment See CNINFO (o.com.cn) CNINFO , Announcement date: September 4,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No.2023-010) ZKTeco 2023 Annual Report 89 Management Co., Ltd., Hongyun Private Equity Fund Management (Hainan) Co., Ltd., Zhuhai Haize Equity Investment Fund Management Co., Ltd., Shenzhen Qianhai Julong Investment Co., Ltd., Jiangxi BoRun Investment Management Co., Ltd., and Zhuhai Heying Rongtong Investment Co., Ltd. September 5,2023 ZKTeco Meeting Room Field research Others Institutional investors: Zeng Yigang from ShenZhen Qian Hai Hua Lin He Chuang Asset Management Ltd. and Xiao Meng from Shenzhen Junhong Investment Co., Ltd. Individual investors: Jiang Zheng, Peng Chaohui, Li Yuchong See CNINFO (o.com.cn) CNINFO , Announcement date: September 5,2023, Investor Relations Activity Record Form of ZKTECOCO., LTD. (No.2023-11) September 19,2023 Quanjing "Investor Relations Interactive Platform" (w.net) Online Communication on Online Platforms Others Online investors See CNINFO (o.com.cn) CNINFO , Announcement date: September 19,2023, Investor Relations Activity Record Form of ZKTECO CO., LTD. (No.2023-12) September 21,2023 Shenzhen Stock Exchange Listing Hall and Shenzhen Stock Exchange "Easy to Interact" Platform (ninfo.com.cn) Others Others All investors participating in the "Digital Economy Vitality - 2023 Half Year Collective Performance Briefing of Shenzhen Private Listed Companies" See CNINFO (o.com.cn) CNINFO , Announcement date: September 21,2023, Investor Relations Activity Record Form of ZKTECO CO., LTD. (No.2023-13) November 13,2023 ZKTeco Meeting Room Field research Institution Guangdong Mingxi Investment Private Equity Fund Management Co., Ltd., Shenzhen Century Zhiyuan Private Securities Fund Management Co., Ltd., Xiamen International Bank Co., Ltd., Essence Securities Co., Ltd., and Shenzhen Hongyuan Jufu Asset Management Co., Ltd. See CNINFO (o.com.cn) CNINFO , Announcement date: November 13,2023, Investor Relations Activity Record Form of ZKTECO CO., LTD. (No.2023-14) ZKTeco 2023 Annual Report 90 November 23,2023 ZKTeco Meeting Room Field research Institution China Post Securities Co., Ltd., Ningbo Ruoxi Investment Management Co., Ltd., China Merchants Securities Asset Management Co., Ltd., Xiangcai Securities Co., Ltd., Guolian Securities Co., Ltd., Shenzhen Leader Investment Holdings Co., Ltd., and Prima Capital Investment Limited See CNINFO (o.com.cn) CNINFO , Announcement date: November 23,2023, Investor Relations Activity Record Form of ZKTECO CO., LTD. (No.2023-15) ZKTeco 2023 Annual Report 91 XIII. Implementation of the Action Plan for "Double Improvement of Quality and Return" Has the Company disclosed an action plan for "double improvement of quality and return". □ Yes No ZKTeco 2023 Annual Report 92 Section IVCorporate Governance I. Basic Situation of Corporate Governance During the reporting period, the Company continuously improved its corporate governance structure based on the specific situation of the Company, established and improved the internal management and control system of the Company, continuously carried out in-depth corporate governance activities, and promoted standardized operation of the Company in strict accordance with the requirements of laws, regulations, and normative documents such as the "Company Law", "Securities Law", "Code of Corporate Governance for Listed Companies", "Rules Governing the Listing of Shares on the ChiNext Market of Shenzhen Stock Exchange", "Shenzhen Stock Exchange Guideline No.2 on Self Regulation of Listed Companies - Normative Operation of Listed Companies on the Growth Enterprise Board". The Company has established a corporate governance structure composed of the board of shareholders, Board of Directors, Board of Supervisors, and management, established and improved the rules of procedure for board of shareholders, Board of Directors, Board of Supervisors, and independent director work system, and established an Audit Committee, Strategy and Development Committee, Salary and Assessment Committee, and Nomination Committee under the Board of Directors. During the reporting period, based on the revision of relevant laws and regulations and in combination with the actual situation of the Company, the Company improved its governance system and formulated the "Special Meeting System for Independent Directors of ZKTECOCO., LTD.", the "Registration Management System for Insider Information of ZKTECOCO., LTD.", and the "Selection System for Accounting Firms of ZKTECOCO., LTD.", and revised relevant regulatory governance systems, including the "Rules of Procedure for Shareholders' Meeting of ZKTECOCO., LTD.", the "Rules of Procedure of the Board of Directors of ZKTECOCO., LTD.", the "Independent Director System of ZKTECOCO., LTD.", the "Related Party Transaction Management System of ZKTECOCO., LTD.", the "Fundraising Management System of ZKTECOCO., LTD.", the "External Guarantee Management System of ZKTECOCO., LTD." the "Implementation Rules of the Audit Committee of the Board of Directors of ZKTECOCO., LTD.", the "Implementation Rules of the Nomination Committee of the Board of Directors of ZKTECOCO., LTD.", the "Implementation Rules of the Salary and Assessment Committee of the Board of Directors of ZKTECOCO., LTD.", the "Information Disclosure Management System of ZKTECOCO., LTD.", and the "Standardized Management System for Related Party Fund Transactions of ZKTECOCO., LTD." 1. Shareholders and shareholders' meeting The Company standardizes the convening of the shareholders' meeting in strict accordance with the requirements of the "Rules for the Shareholders' Meetings of Listed Companies", "Rules Governing the Listing of Shares on the ChiNext Market of Shenzhen Stock Exchange", "Articles of Association", "Rules of Procedure for Shareholders' Meeting" and other regulations, treats all shareholders equally, and creates convenient conditions for shareholders to participate in the shareholders' meeting as much as possible, enabling them to fully exercise their shareholder rights and protect the interests of all shareholders. Meanwhile, the Company hires professional lawyers to witness the shareholders' meeting, ensuring that the convening and voting procedures of the meeting comply with relevant laws and regulations, and safeguarding the legitimate rights and interests of shareholders. During the reporting period, the Company held one annual general meeting and four extraordinary general meetings of shareholders , all of which were held through a combination of on-site and online voting. The Company hired lawyers to attend and witness the General Meetings, and provides legal opinions on the convening and voting procedures of the General Meetings, fully respecting and safeguarding the legitimate rights and interests of all shareholders. 2. The Company and the controlling shareholders The Company has independent and complete business and independent management capabilities, which are separated from the controlling shareholders in terms of personnel, assets, finance, institutions, business, and other aspects. Each of them independently calculates and assumes responsibilities and risks. During the reporting period, major decisions of the Company were ZKTeco 2023 Annual Report 93 made by the board of shareholders and the Board of Directors in accordance with the law. The controlling shareholders exercised their shareholder rights through the board of shareholders, and there were no direct or indirect interventions beyond the shareholders' meeting in the Company's decision-making and operating activities. There were no violations of commitments, and there were no situations such as occupying company funds or requiring guarantees for them or others. 3. Directors and the Board of Directors The Company's Board of Directors has 7 directors, including 3 independent directors. The number of directors and personnel composition meet the requirements of laws, regulations, and the Company's Articles of Association. All directors fulfill their duties with integrity, diligence, and conscientiousness, attend meetings on time, actively participate in training, and continuously improve their performance level. The Board of Directors of the Company has four specialized committees: the Audit Committee, the Strategy and Development Committee, the Salary and Assessment Committee, and the Nomination Committee. Each specialized committee strictly performs its duties in accordance with relevant laws and regulations, the Company's "Articles of Association", and the rules of procedure of each specialized committee of the Board of Directors, and operates well. During the reporting period, the Company established a special meeting mechanism for independent directors of the Board of Directors to make decisions on relevant matters, which played a positive role in improving the Company's governance structure and standardizing operations, and safeguarding the interests of public shareholders. 4. Supervisors and the Board of Supervisors The Company's Board of Supervisors is composed of three supervisors, with one employee representative supervisor. The number of members, appointment and removal of members, composition and qualifications of the Board of Directors all comply with the requirements of the Company's "Articles of Association" and the "Rules of Procedure for the Board of Supervisors". The supervisors and Board of Supervisors of the Company strictly implement the relevant provisions of the Company's "Articles of Association" and the "Rules of Procedure for the Board of Supervisors", conscientiously fulfill their responsibilities, and are able to attend the supervisory board meetings, attend board meetings, and shareholders' meetings in a spirit of being responsible to shareholders; review the regular reports prepared by the Board of Directors and provide written verification opinions, effectively supervise the legality and compliance of the Company's major issues, financial position, and the performance of duties by directors and senior managers, and effectively safeguard the legitimate rights and interests of all shareholders. 5. Performance appraisal and incentive and restraint mechanisms The Company has gradually established and improved an enterprise performance evaluation and incentive system, and the appointment of senior managers is open and transparent, in accordance with laws and regulations. During the reporting period, the senior managers of the Company have conscientiously fulfilled their work responsibilities, as indicated by assessment. 6. Improve the quality of information disclosure and effectively protect the rights and interests of investors The Company truthfully, accurately, timely, fairly, and completely discloses relevant information in strict accordance with relevant laws and regulations, as well as the requirements of the "Articles of Association" and the "Information Disclosure Management System". The Board Secretary of the Company is designated to be responsible for information disclosure and investor relationship management, strengthen communication with investors through channels such as investor hotlines, faxes, dedicated email, exchange interactive platforms, and receiving shareholder visits, strictly implement the requirements for insider information management, ensure that all shareholders and investors of the Company can obtain information fairly, and continuously improve the transparency of the Company. 7. Regarding stakeholders The Company fully respects and safeguards the legitimate rights and interests of stakeholders, achieves coordination and balance of interests among shareholders, employees, society, and other parties, and jointly promotes the sustained and sound development of the Company. Are there significant differences between the actual situation of corporate governance and laws, administrative regulations, and the regulations on listed company governance issued by the CSRC □ Yes No ZKTeco 2023 Annual Report 94 There are no significant differences between the actual situation of corporate governance and laws, administrative regulations, and the regulations on listed company governance issued by the CSRC. II. Company's Independence in Assets, Personnel, Finances, Organizations and Businesses from Controlling Shareholders and Actual Controller The Company operates in strict accordance with relevant laws, regulations, and the requirements of the "Company Law", "Securities Law", and the "Articles of Association". It is independent of the controlling shareholders and actual controllers of the Company in terms of assets, personnel, finance, institutions, and business, and has a complete asset and business system and the ability to operate independently in the market. 1. Asset Completeness The ownership of the necessary assets for the Company's current business and production operations is fully enjoyed by the Company independently, with complete control and domination over all assets, and there is no situation of sharing with shareholder units. The Company has an independent R&D, procurement, production, and sales system, as well as a business system and main assets related to operations. 2. Personnel independence The Company shall appoint directors and supervisors in accordance with the relevant provisions of the "Company Law" and the "Articles of Association". The Board of Directors shall appoint senior managers, and the labor, personnel, and salary management of the Company shall be completely independent of the shareholder unit. The general manager, deputy general manager, CFO, and secretary of the Board of Directors and other senior managers of the Company have not held any positions other than directors or supervisors in other enterprises controlled by the controlling shareholder or actual controller, and have not received salaries in other enterprises controlled by the controlling shareholder or actual controller. The financial personnel of the Company do not work part-time in other enterprises controlled by the controlling shareholder or actual controller. 3. Financial independence The Company has established an independent financial accounting system, capable of making financial decisions independently, with standardized financial accounting systems and financial management systems for branches and subsidiaries. The Company has not shared bank accounts with controlling shareholders, actual controllers, and other enterprises under its control. 4. Independence in organizations The Company has established and improved its internal business management structure, independently exercising its business management powers, and there is no institutional confusion with other enterprises controlled by controlling shareholders or actual controllers. 5. Business independence The Company uses multimodal "Computer Vision and Biometrics" (BioCV) as its core technology and does not rely on shareholder units or their affiliated enterprises. There is no situation where shareholders intervene in the Company's business operations by retaining procurement and sales institutions, monopolizing business channels, etc. There is no horizontal competition or significantly unfair related party transactions between the Company and other enterprises controlled by the controlling shareholder or actual controller, and the controlling shareholder or actual controller has promised not to engage in any business or activity that constitutes or may constitute horizontal competition with ZKTeco and enterprises controlled by ZKTeco. III. Horizontal Competition □ Applicable Not applicable ZKTeco 2023 Annual Report 95 IV. Annual General Meetings and Extraordinary General Meetings Convened During the Reporting Period 1. General Meetings convened during this reporting period Meeting Meeting Type Proportion of participating investors Convening Date Disclosure Date Resolution of the Meeting The 1st Extraordinary General Meeting of Shareholders in 2023 Extraordinary General Meeting 70.96% January 16,2023 January 16, 2023 Deliberation and approval of the "Proposal on Renewing the Appointment of Accounting Firms" The 2nd Extraordinary General Meeting of Shareholders in 2023 Extraordinary General Meeting 70.97% February 6,2023 February 6, 2023 Deliberation and approval of the "Proposal on Changing the Investment Projects of Raised Funds, Changing the Special Account for Raised Funds, Increasing Capital and Providing Loans to Subsidiaries to Implement Investment Projects" The 3rd Extraordinary General Meeting of Shareholders in 2023 Extraordinary General Meeting 73.65% April 7, 2023 April 7, 2023 Deliberation and approval of the "Proposal on the Election and Nomination of Non-Independent Director Candidates for the Third Board of Directors", the "Proposal on the Election and Nomination of Independent Director Candidates for the Third Board of Directors", and the "Proposal on the Election and Nomination of Candidates for Non-employee Representative Supervisors of the 3rd Board of Supervisors" Annual General Meeting of 2022 Annual General Meeting 73.66% May 19, 2023 May 19, 2023 Deliberation and approval of the "Proposal on the 2022 Annual Report and Its Summary", the "Proposal on the 2022 Work Report of the Board of Directors", the "Proposal on the 2022 Work Report of the Board of Supervisors", the "Proposal on the 2022 Annual Financial Settlement Report", the "Proposal on the 2022 Profit Distribution proposal", the "Proposal on Changing the Registered Capital, Amending the Articles of Association, and Handling the Procedures for Changing Industrial and Commercial Registration", the "Proposal on Applying for Comprehensive Credit Line from Banks and Handling Bank Loans", the "Proposal on Using Idle Self-owned Funds to Purchase Financial Products", the "Proposal on 2023 Compensation Plan for Directors", the "Proposal on 2023 Compensation Plan for Supervisors", and the "Proposal on Changing the Implementation Location and Total Investment Amount of Some Raised Funds Investment Projects and Adjusting the Construction Content of Some Projects" The 4th Extraordinary General Meeting of Shareholders in 2023 Extraordinary General Meeting 70.36% November 27,2023 November 27,2023 Deliberation and approval of the "Proposal on Proposed Change of Accounting Firm" ZKTeco 2023 Annual Report 96 2. Extraordinary General Meetings Convened at the Request of Preferred Shareholders with Resumed Voting Rights □ Applicable Not applicable V. Arrangement for Differences in Voting Rights of the Company □ Applicable Not applicable VI. Governance of Red Chip Structured Companies □ Applicable Not applicable VII. Information about Directors, Supervisors, and Senior Managers 1. Basic information Name Gender Age Positions Tenure status Commencement of term of office Termination of term of office Shares held at the beginning of the period (shares) Shares increased during the period (shares) Shares decreased during the period (shares) Other changes in increase or decrease (shares) Shares held at the end of the period (shares) Reasons for changes in share increase or decrease Che Quanhong Male 55 Chairman Incumbent December 14,2007 April 6, 2026 26,171,0 00.00 7,851,3 00.00 34,022,3 00.00 Equity distribution Jin Hairong Male 42 Director Incumbent April 11, 2020 April 6, 2026 0.00 7,800.0 0 7,800.00 Registration of ownership of Class II restricted shares General manager Incumbent January 31,2019 April 6, 2026 Ma Wentao Male 41 Director Incumbent June 28, 2016 April 6, 2026 0.00 Deputy General Manager Incumbent June 28, 2016 April 6, 2026 Fu Zhiqian Male 40 Director Incumbent June 28, 2016 April 6, 2026 0.00 7,150.0 0 7,150.00 Registration of ownership of Class II restricted shares Dong Xiuqin Female 52 Independent director Incumbent June 3, 2020 April 6, 2026 0.00 Zhuo Shuyan Female 43 Independent director Incumbent April 11, 2020 April 6, 2026 0.00 Pang ChunliMale 53 Independent Incumbent January 12,2021 April 6, 2026 0.00 ZKTeco 2023 Annual Report 97 n director Jiang Wenna Female 41 Employee Representative Supervisor, Chairman of the Board of Supervisors Incumbent June 28, 2016 April 6, 2026 0.00 Wu Xinke Male 42 Supervisor Resigned April 11, 2020 April 7, 2023 0.00 Liu Jiajia Female 40 Supervisor Resigned June 28, 2016 April 7, 2023 0.00 Li Zhinong Male 51 Deputy General Manager Incumbent June 28, 2016 April 6, 2026 0.00 Guo Yanbo Female 43 Secretary of the board Incumbent April 15, 2020 April 6, 2026 0.00 Deputy General Manager Incumbent September 16,2022 April 6, 2026 0.00 Wang Youwu Male 58 CFO Incumbent April 15, 2020 April 6, 2026 0.00 Mu Wenting Female 37 Deputy General Manager Incumbent September 16,2022 April 6, 2026 0.00 11,700.00 11,700.0 0 Registration of ownership of Class II restricted shares Wang Huineng Male 36 Supervisor Incumbent April 7, 2023 April 6, 2026 0.00 Yang Xianfeng Male 40 Supervisor Incumbent April 7, 2023 April 6, 2026 0.00 Total -- -- -- -- -- -- 26,171,0 00.00 0.000.00 7,877,9 50.00 34,048,9 50.00 -- Any resignation of directors or supervisors and dismissals of senior managers during their term of office during the reporting period Yes □ No The Company's supervisors Liu Jiajia and Wu Xinke will no longer serve as supervisors from April 7,2023 due to the expiration of their terms of office. Changes of directors, supervisors, and senior managers of the Company Applicable □ Not applicable Name Positions Type Date Reasons Liu Jiajia Supervisor Resignation upon expiration of term April 7,2023 Resignation upon expiration of term Wu Xinke Supervisor Resignation upon expiration of term April 7,2023 Resignation upon expiration of ZKTeco 2023 Annual Report 98 term Yang Xianfeng Supervisor Elected April 7,2023 Newly appointed Wang Huineng Supervisor Elected April 7,2023 Newly appointed 2. Positions and Incumbency The professional background, main work experience, and current responsibilities of the Company's current directors, supervisors, and senior managers (1) Directors Mr. Che Quanhong, born in August 1968, Chinese nationality, without permanent residency abroad, holds a bachelor's degree. He graduated from Lanzhou University with a major in Semiconductor Physics in July 1991 and currently serves as the Chairman of the Company. Mr. Che Quanhong served as the Chairman and General Manager of the Company from December 2007 to January 2019, and has been serving as the Chairman of the Company since January 2019. Mr. Che Quanhong is currently a supervisor of Fujian Zhongkong Mining Co., Ltd. and a member of the First Council of Lanzhou University. Mr. Jin Hairong, born in July 1981, Chinese nationality, without permanent residency abroad, holds a bachelor's degree, and currently serves as the Legal Representative, Director, and General Manager of the Company. Mr. Jin Hairong served as the Sales Manager and General Manager Assistant of the Company from February 2008 to February 2014. From February 2014 to January 2019, he served as the General Manager of the Card Business Unit of the Global Marketing Center of the Company. From February 2019 to March 2020, he served as the General Manager and Legal Representative of the Company. From April 2020 to present, he has served as a Director, General Manager, and Legal Representative of the Company. Mr. Ma Wentao, born in August 1982, Chinese nationality, without permanent residency abroad, holds a bachelor's degree and currently serves as the Director and Deputy General Manager of the Company. Mr. Ma Wentao served as the European Regional Head of the Global Marketing Center and the Sales Director of the International Business Group from December 2007 to June 2016. From June 2016 to February 2020, he served as a Director and Deputy General Manager of the Company. From February 2020 to present, he has served as a Director, Deputy General Manager, and Head of the R&DCenter. Mr. Fu Zhiqian, born in February 1984, Chinese nationality, without permanent residency abroad, holds a bachelor's degree and currently serves as a Director of the Company. Mr. Fu Zhiqian served as the Marketing Manager of the Global Marketing Center from January 2008 to December 2009, President Assistant from January 2010 to December 2012, General Manager of the Security Division of the Global Marketing Center in China from January 2013 to December 2018, Director of the Company from June 2016 to December 2018, and Director and Head of the Global Marketing Center in China from January 2019 to present. Ms. Zhuo Shuyan, born in November 1980, Chinese nationality, without permanent residency abroad, holds a bachelor's degree and currently serves as an independent director of the Company. Ms. Zhuo Shuyan served as a legal assistant/lawyer at China Commercial Law Firm from June 2004 to March 2009, and as a lawyer at Guangdong Gaorui Law Firm from March 2009 to July 2015. From November 2017 to October 2020, she served as a Supervisor of Shenzhen Landa Investment Development Co., Ltd. She currently serves as an independent director of the Company, a partner of Shanghai GFLaw Firm (Shenzhen Branch), a Supervisor of Guangzhou Aiji Food Co., Ltd. and a Supervisor of Zizai Zhongxing Health Culture (Shenzhen) Co., Ltd. Ms. Dong Xiuqin, born in October 1971, Chinese nationality, without permanent residency abroad, holds a doctoral degree, is a CPA, and currently serves as an independent director of the Company. Ms. Dong Xiuqin has been a teacher at the School of Economics at Shenzhen University since August 1996. From November 2014 to October 2019, she served as an independent director of Shenzhen Tempus Global Business Service Group Holding Ltd. From February 2015 to August 2020, she served as an independent director of Shenzhen Invt Electric Co., Ltd. From October 2020 to April 2021, she served as an independent director of Shenzhen Soocas Technology Co., Ltd. From October 2018 to March,2024, she has served as an independent director of Shenzhen Longood Intelligent Electric Co., Ltd. From January 2019 to present, she has served as an independent director of Shenzhen Jingquanhua Technology Co., Ltd. From February 2021 to January,2024, she has served as an independent director of ZKTeco 2023 Annual Report 99 Colorlight Cloud Tech Ltd. From July 2021 to present, she has served as an independent director of Shenzhen Riland Industry Co., Ltd. Mr. Pang Chunlin, born in 1971, Chinese nationality, without permanent residency abroad, holds a master's degree and currently serves as an independent director of the Company. Mr. Pang Chunlin served as an engineer at Oriental STARMachine Manufacture Co., Ltd. from 1993 to 1996. From 1997 to 2000, he served as the Technical Manager of Murakami Shanghai Office. From 2000 to 2006, he served as the Deputy General Manager of Shenzhen Qingyi Photomask Limited. From 2007 to December 2017, he served as the Executive Director and Deputy Secretary General of the China Electronics Standardization Association. From November 2014 to March 2018, he served as an independent director of Zhuhai TOPSUNElectronic Technology Co., Ltd. From 2015 to December 2018, he served as the Deputy Secretary General of the Chinese Association of Automation. From September 2016 to June 2019, he served as the Director of Unicom Intelligent Network Technology Co., Ltd. From January 2015 to May 2021, he served as the independent director of Shenzhen Qingyi Photomask Limited. From February 2015 to present, he has served as the Legal Representative, General Manager and Executive Director of Chelian Innovation (Beijing) Science and Technology Center. From December 2016 to present, he has served as the Secretary General of the Zhongguancun Telematics Industry Application Alliance. From June 2018 to present, he has been serving as the Legal Representative and the Executive Director of Open Unmanned Farm Engineering Technology (Jiangsu) Co., Ltd. From November 2021 to present, he has been serving as the Legal Representative and Executive Director of the Whole Process Unmanned Operation Technology Promotion (Jiangsu) Co., Ltd. From December 2021 to present, he has served as a Director of Shanghai Pateo Electronic Equipment Manufacturing Co., Ltd. From May 2022 to April 2023, he has served as a Director of Shenzhen Qingyi Photomask Limited. From February 2023 to present, he has served as an Executive Director of Qiaosuan Information Technology (Beijing) Co., Ltd. From June 2023 to present, he has served as the General Manager, Legal Representative, and Executive Director of Onman Intelligent Machinery (Beijing) Co., Ltd. From August 2023 to present, he has served as the General Manager, Legal Representative, and Executive Director of Onman International Trade (Beijing) Co., Ltd. (2) Supervisors Ms. Jiang Wenna, born in February 1983, Chinese nationality, without permanent residency abroad, holds a bachelor's degree, and currently serves as the Chairman of the Company's Board of Supervisors. Ms. Jiang Wenna served as Assistant Manager, Marketing Specialist, Manager of International Comprehensive Department, Manager of International Human Resources Department, and Manager of Group Human Resources Center in Shenzhen ZKTeco Overseas Department from September 2007 to May 2016. From June 2016 to April 2018, he served as the Manager of the Company's Human Resources Center, and since April 2018, he has been the Head of the Company's Business and Tourism Department. Since June 2016, he has served as the Chairman of the Company's Board of Supervisors. Mr. Yang Xianfeng, born in December 1984, Chinese nationality, without permanent residency abroad, holds a bachelor's degree and currently serves as the Product Director of the Product Department of Xiamen ZKTeco International Business Group. Mr. Yang Xianfeng has held various positions such as Technical Supporter, Department Manager, and Product Manager in the Company since May 2010. He is currently the Product Director of the Global Marketing Center Armatura and the Global Market Product Sharing Center of the ZKTeco International Business Group. He has been serving as the Supervisor of the Company since April 7,2023. Mr. Wang Huineng, born in June 1987, Chinese nationality, without permanent residency abroad, holds a bachelor's degree and currently serves as the Manager of International Project and Ecological Cooperation Department of XIAMENZKTECO. Mr. Wang Huineng served as the Hardware Assistant Engineer, Testing Team Leader of the Pre-research Department, Software Testing Department Manager, and Testing Department Manager in Shenzhen ZKTeco from March 2010 to November 2013. From December 2013 to November 2017, he served as the Operations Director, General Manager of the Management Department, and Operations Director of the Biometric Card Business Unit of Xiamen ZKTeco Biometric Identification Technology Co., Ltd. From December 2017 to November 2019, he served as the Operations Director and General Manager of Guizhou Zhongjiang Intelligent Technology Co., Ltd. From February 2019 to January 2021, he served as the Head of the International Security and Project ZKTeco 2023 Annual Report 100 Services Department of the International Business Group of the Company's Global Marketing Center. Since February 2021, he has been serving as the Manager of the Armatura Global Marketing Center and Project and Ecological Cooperation Department of ZKTeco International Business Group. Since April 7,2023, he has been serving as the Supervisor of the Company. (3) Senior managers Mr. Jin Hairong is the Director and General Manager of the Company, and his resume can be found in "(1) Appointment of directors" in this section. Mr. Ma Wentao is the Director and Deputy General Manager of the Company, and his resume can be found in "(1) Appointment of directors" in this section. Mr. Li Zhinong, born in July 1972, Chinese nationality, without permanent residency abroad, holds a master's degree. Mr. Li Zhinong served as the Technical Director of Shenzhen ZKTeco from May 2006 to December 2007, the Technical Director of the Company from December 2007 to May 2016, and the Deputy General Manager and Technical Director of the Company from June 2016 to present. Mr. Wang Youwu, born in December 1965, Chinese nationality, without permanent residency abroad, holds a bachelor's degree. Mr. Wang Youwu served as the Investment Banking Headquarters Manager of Dongxing Securities Co., Ltd. from October 2007 to December 2009. From January 2010 to December 2015, he served as the Executive General Manager of the Enterprise Financing Department of Changjiang Securities Consignment Inward & Sponsoring Broker Co., Ltd. He joined the Company in January 2016 and served as a Director and Deputy General Manager from June 2016 to April 2020. Since April 2020, he has been serving as the Company's CFO and has also served as the Chairman Assistant of the Company since January 2022. Ms. Guo Yanbo, born in January 1981, Chinese nationality, without permanent residency abroad, holds a bachelor's degree, is Certified Management Accountant (CMA), and currently serves as the Secretary of the Board of Directors, Head of the Investment and Financing Department, and Deputy General Manager of the Company. Ms. Guo Yanbo served as the Head of the Company's Overseas Department, CFO, and the Head of HRDepartment from December 2007 to December 2015. From January 2016 to October 2017, she served as the Head of the Company's Audit Department. From October 2017 to March 2020, she served as the Head of the Audit and Investment and Financing Department. From April 2020 to September 2022, she served as the Secretary of the Company's Board of Directors and the Head of the Investment and Financing Department. From September 2022 to present, she has served as the Deputy General Manager, Secretary of the Company's Board of Directors, and the Head of the Investment and Financing Department. From February 2018 to October 2022, she served as a Supervisor of Xinhuaxin (Xi'an) Information Technology Co., Ltd. (formerly known as "Xi'an Huaxin Smart Digital Technology Co., Ltd."). Ms. Mu Wenting, born in December 1986, Chinese nationality, without permanent residency abroad, holds a bachelor's degree. From August 2010 to January 2017, Ms. Mu Wenting served as the Sales Representative for the Latin American Business Group of the International Sales Department, Project Management Specialist for the AFISProject Group of the R&DBusiness Group, Marketing Specialist and Department Manager for the International Market and Brand Strategy Department, and Manager for the Company's Brand Strategy Department. From February 2017 to February 2018, she served as the Director of the Chairman's Office and Chairman Assistant. From February 2018 to January 2022, she served as the General Manager of the Management Department of the Manufacturing Center. From January 2022 to September 2022, she served as the Director of the General Manager's Office and Chairman Assistant. From September 2022 to present, she has served as the Deputy General Manager, Director of the General Manager's Office, and Chairman Assistant of the Company. Employment in shareholder units □ Applicable Not applicable Positions held in other entities Applicable □ Not applicable Name Name of other entities Positions held in other entities Commencement of the term Termination of the term Compensation and allowance from the other entities ZKTeco 2023 Annual Report 101 Che Quanhong ZKTIMESCO., LIMITEDDirector December 30, 2016 March 3,2023 No Fujian Zhongkong Mining Co., Ltd. Supervisor March 26,2008 No Dong Xiuqin School of Economics, Shenzhen University Teacher August 1,1996 Yes Shenzhen Jingquanhua Technology Co., Ltd. Independent director January 10,2019 Yes Shenzhen Longood Intelligent Electric Co., Ltd. Independent director October 12,2018 March 27,2024 Yes Colorlight Cloud Tech Ltd. Independent director February 3,2021 January 19,2024 Yes Shenzhen Riland Industry Co., Ltd. Independent director July 13,2021 Yes Zhuo Shuyan Shanghai GFLaw Firm (Shenzhen Branch) Partner, Lawyer July 1,2015 Yes Guangzhou Aiji Food Co., Ltd. Supervisor October 1,2013 No ZiZai Zhongxing Health Culture (Shenzhen) Co., Ltd. Supervisor May 1,2019 No Pang Chunlin Qingyi Photomask Limited Director May 12,2022 April 4,2023 Yes Chelian Innovation (Beijing) Science and Technology Center Legal Representative, General Manager and Executive Director February 1,2015 No Zhongguancun Telematics Industry Application Alliance Secretary General December 9,2016 Yes Open Unmanned Farm Engineering Technology (Jiangsu) Co., Ltd. Legal representative and executive director June 1,2018 No Whole Process Unmanned Operation Technology Promotion (Jiangsu) Co., Ltd. Legal representative and executive director November 5,2021 No Shanghai Pateo Electronic Equipment Manufacturing Co., Ltd. Director December 2,2021 Yes Qiaosuan Information Technology (Beijing) Co., Ltd. Executive Director February 15,2023 No Onman Intelligent Machinery (Beijing) Co., Ltd. Legal Representative, General Manager and Executive Director June 9,2023 No Onman International Trade (Beijing) Co., Ltd. Legal Representative, General Manager and Executive Director August 7,2023 No Penalties imposed by securities regulatory authorities on current and resignation directors, supervisors, and senior managers of the Company in the past three years during the reporting period ZKTeco 2023 Annual Report 102 □ Applicable Not applicable 3. Remuneration of directors, supervisors and senior managers Decision making process, determination basis and actual payment situation of remuneration for directors, supervisors and senior managers The decision-making procedure for the remuneration of directors, supervisors and senior managers: In accordance with relevant provisions such as the "Articles of Association", the remuneration of directors and supervisors of the Company shall be determined by the board of shareholders of the Company after being deliberated and approved by the Board of Directors, and the remuneration of senior managers shall be determined by the Board of Directors of the Company. The basis for determining the remuneration of directors, supervisors and senior managers: Independent directors of the Company only receive allowances, with each person receiving RMB 120,000 per year. Mr. Che Quanhong, as the Full-time Chairman of the Company, receives the Chairman's salary, which is based on the salary standards of senior managers. Non-independent directors who hold other positions within the Company shall not receive additional director allowances in addition to their own position salary. Directors, supervisors, and senior managers serving in the Company shall receive compensation in accordance with the Company's relevant salary and performance evaluation management system based on their specific management positions in the Company. Salary is divided into basic salary and performance related pay. The basic salary is paid monthly based on fixed salary, while performance related pay is assessed based on annual business goals, and is determined and paid based on the annual achievement of benefits and personal work performance completion. The actual payment of compensation for directors, supervisors and senior managers: During the reporting period, the total compensation for directors, supervisors and senior managers of the Company was RMB 7.5094 million. Remuneration of directors, supervisors, and senior managers during the reporting period of the Company Unit: RMB '0,000 Name Gender Age Position Tenure status Total pre-tax compensation received from the Company Whether to receive remuneration from related parties of the Company Che Quanhong Male 55 Chairman Incumbent 122.47 No Jin Hairong Male 42 Director and General Manager Incumbent 60.92 No Ma Wentao Male 41 Director and Deputy General Manager Incumbent 57.43 No Fu Zhiqian Male 40 Director Incumbent 46.12 No Dong Xiuqin Female 52 Independent director Incumbent 12 No Zhuo Shuyan Female 43 Independent director Incumbent 12 No Pang Chunlin Male 53 Independent director Incumbent 12 No Jiang Wenna Female 41 Employee Representative Supervisor, Chairman of the Board of Supervisors Incumbent 22.76 No Wu Xinke Male 42 Supervisor Resigned 16.74 No Liu Jiajia Female 40 Supervisor Resigned 11.27 No Wang Huineng Male 36 Supervisor Incumbent 20.98 No Yang Xianfeng Male 40 Supervisor Incumbent 31.05 No ZKTeco 2023 Annual Report 103 Li Zhinong Male 51 Deputy General Manager Incumbent 149.26 No Guo Yanbo Female 43 Secretary of the Board of Directors and Deputy General Manager Incumbent 51.46 No Wang Youwu Male 58 CFOIncumbent 65.05 No Mu Wenting Female 37 Deputy General Manager Incumbent 59.43 No Total -- -- -- -- 750.94 -- Other explanations Applicable □ Not applicable In 2023, Li Zhinong, the Deputy General Manager of the Company, mainly engaged in R&D and its management work abroad. His salary for the year was RMB 1.4926 million, an increase of 136.55% compared to the previous year. In addition, the salaries of other directors (excluding independent directors), supervisors, and senior managers for the year 2023 have slightly increased compared to the previous year, consistent with the trend of slight increase in net profit attributable to the parent company after excluding share-based payment fees. VIII. Performance of Duties by Directors during the Reporting Period 1. The Board of Directors during this reporting period Session Convening Date Disclosure Date Resolution of the Meeting The 23rd Session of the Second Board Meeting January 18,2023 January 20,2023 See CNINFO "Announcement on the Resolutions of the 23rd Session of the Second Board Meeting" (Announcement No. 2023-002) The 24th Session of the Second Board Meeting March 21,2023 March 23,2023 See CNINFO "Announcement on the Resolutions of the 24th Session of the Second Board Meeting" (Announcement No. 2023-014) The 1st Session of the Third Board Meeting April 7,2023 April 7,2023 See CNINFO "Announcement on the Resolutions of the 1st Session of the Third Board Meeting" (Announcement No. 2023-027) The Second Session of the Third Board Meetin April 26,2023 April 28,2023 See CNINFO "Announcement on the Resolutions of the Second Session of the Third Board Meeting" (Announcement No.2023-031) The 3rd Session of the Third Board Meeting June 21,2023 June 21,2023 See CNINFO "Announcement on the Resolutions of the 3rd Session of the Third Board Meeting" (Announcement No. 2023-051) The 4th Session of the Third Board Meeting August 28,2023 August 30,2023 See CNINFO "Announcement on the Resolutions of the 4th Session of the Third Board Meeting" (Announcement No. 2023-064) The 5th Session of the Third Board Meeting October 13,2023 October 13,2023 See CNINFO "Announcement on the Resolutions of the 5th Session of the Third Board Meeting" (Announcement No. 2023-072) The 6th Session of the Third Board Meeting October 25,2023 Not applicable Deliberation and approval of the "Proposal on the Third Quarter Report of the Company in 2023" The 7th November 10,2023 November 11,2023 See CNINFO "Announcement on the Resolutions of the 7th ZKTeco 2023 Annual Report 104 Session of the Third Board Meeting Session of the Third Board Meeting" (Announcement No. 2023-077) The 8th Session of the Third Board Meeting December 22,2023 December 23,2023 See CNINFO "Announcement on the Resolutions of the 8th Session of the Third Board Meeting" (Announcement No. 2023-091) 2. Attendance of directors in Board Meetings and General Meetings Attendance of directors in board meetings and general meetings Name of director Board meeting presence required in the reporting period (times) Board meeting presence on site (times) Board meeting presence by telecom-communication (times) Board meeting presence through a proxy (times) Board meeting absence (times) Board meeting not attend in person for two consecutive times Presence at shareholders' meetings (times) Che Quanhong 101900 N 5 Jin Hairong 105500 N 5 Ma Wentao 108200 N 5 Fu Zhiqian 104600 N 5 Dong Xiuqin 1001000 N 5 Zhuo Shuyan 1001000 N 5 Pang Chunlin 1001000 N 4 Description of not attending the board meeting in person for two consecutive times Not applicable 3. Objections from Directors on Related Issues of the Company Do directors raise objections to relevant matters of the Company □ Yes No During the reporting period, the directors did not raise any objections to the relevant matters of the Company. 4. Other descriptions for directors performing their duties Whether the directors' suggestions on the Company have been adopted Yes □ No Directors' explanation on whether the Company's relevant suggestions have been adopted or not During the reporting period, the directors of the Company were diligent and responsible in accordance with relevant laws and regulations, attended relevant meetings on time, carefully reviewed various proposals, objectively expressed their opinions and ideas, and the Company adopted all reasonable suggestions put forward by the directors. IX. The Special Committees under the Board of Directors during the Reporting Period Committee Name Members Number of MeetingConvening Date Meeting Content Important Opinions and Suggestions Proposed Other Performance of Specifics of Objection ZKTeco 2023 Annual Report 105 s Held Duties (if any) Nomination Committee of the Board of Directors Che Quanhong, Pang Chunlin, and Zhuo Shuyan 2 March 17, 2023 Deliberation and approval of the "Proposal on the Election and Nomination of Non-Independent Director Candidates for the Third Board of Directors" and the "Proposal on the Election and Nomination of Independent Director Candidates for the Third Board of Directors" The Nomination Committee strictly carried out its work in accordance with relevant laws and regulations, as well as the provisions of the Company's "Articles of Association" and the "Implementation Rules of the Nomination Committee". The qualifications of the Company's director candidates were reviewed and the relevant proposals were unanimously passed. None None April 4, 2023 Deliberation and approval of the "Proposal on the Appointment of the General Manager of the Company", the "Proposal on the Appointment of the Deputy General Manager of the Company", the "Proposal on the Appointment of the Secretary of the Board of Directors of the Company", and the "Proposal on the Appointment of CFO of the Company" The Nomination Committee strictly carried out its work in accordance with relevant laws and regulations, as well as the provisions of the Company's "Articles of Association" and the "Implementation Rules of the Nomination Committee". The qualifications of the Company's senior executives were reviewed and the relevant proposals were unanimously passed. None None Audit Committee of the Board of Directors Zhuo Shuyan, Dong Xiuqin, and Fu Zhiqian 5 April 14, 2023 Deliberation and approval of the "Proposal on the 2022 Annual Report and Its Summary", the "Proposal on the 2022 Annual Financial Settlement Report", the "Proposal on the 2022 Profit Distribution proposal", the "Proposal on the 2022 Internal Audit Work Summary and the 2023 Internal Audit Work Plan", the "Proposal on the 2022 Annual Internal Control Self Evaluation Report", the "Proposal on Applying for Comprehensive Credit Line from Banks and Handling Bank Loans", the "Proposal on Using Idle Self-owned Funds to Purchase Financial Products", and the "Proposal on Carrying out Forward Foreign Exchange Settlement and Sales in 2023" The Audit Committee carries out work in strict accordance with the "Company Law", the regulatory rules of the CSRC, the "Articles of Association", the "Rules of Procedure of the Board of Directors", and the "Implementation Rules of the Audit Committee of the Board of Directors". It is diligent and responsible, and after sufficient communication and discussion, unanimously adopts relevant proposals None None April 25, 2023 Deliberation and approval of the "Proposal on the 2023 Q1 Report of ZKTECOCO., LTD." The Audit Committee carries out work in strict accordance with the "Company Law", the regulatory rules of the CSRC, the "Articles of Association", the "Rules of Procedure of the None None ZKTeco 2023 Annual Report 106 Board of Directors", and the "Implementation Rules of the Audit Committee of the Board of Directors". It is diligent and responsible, and after sufficient communication and discussion, unanimously adopts relevant proposals August 17, 2023 Deliberation and approval of the "Proposal on the 2023 Half Year Report and Abstract" The Audit Committee carries out work in strict accordance with the "Company Law", the regulatory rules of the CSRC, the "Articles of Association", the "Rules of Procedure of the Board of Directors", and the "Implementation Rules of the Audit Committee of the Board of Directors". It is diligent and responsible, and after sufficient communication and discussion, unanimously adopts relevant proposals None None October 21, 2023 Deliberation and approval of the "Proposal on the 2023 Q3 Report of ZKTECOCO., LTD." The Audit Committee carries out work in strict accordance with the "Company Law", the regulatory rules of the CSRC, the "Articles of Association", the "Rules of Procedure of the Board of Directors", and the "Implementation Rules of the Audit Committee of the Board of Directors". It is diligent and responsible, and after sufficient communication and discussion, unanimously adopts relevant proposals None None November 6,2023 Deliberation and approval of the "Proposal on Proposed Change of Accounting Firm" The Audit Committee carries out work in strict accordance with the "Company Law", the regulatory rules of the CSRC, the "Articles of Association", the "Rules of Procedure of the Board of Directors", and the "Implementation Rules of the Audit Committee of the Board of Directors". It is diligent and responsible, and after sufficient communication and discussion, unanimously adopts relevant proposals None None Salary and Assessment Committee of the Board of Directors Jin Hairong, Pang Chunlin, and Zhuo Shuyan 1 April 14, 2023 Deliberation and approval of the "Proposal on 2023 Compensation Plan for Directors" and the "Proposal on the 2023 Compensation Plan for Senior Managers" The Salary and Assessment Committee carries out work in strict accordance with the "Company Law", the regulatory rules of the CSRC, the "Articles of Association", the "Rules of Procedure of the Board of Directors", and the None None ZKTeco 2023 Annual Report 107 "Implementation Rules of the Salary and Assessment Committee of the Board of Directors". It is diligent and responsible, and after sufficient communication and discussion, unanimously adopts all proposals according to the actual situation of the Company. X. Performance of Duties by the Board of Supervisors Were there any risks to the Company identified by Board of Supervisors when performing its duties during the reporting period □ Yes No The Board of Supervisors has no objection to the supervision matters during the reporting period. XI. Employee of the Company 1. Number, Professional Structure and Education Background of Employee Number of in-service employees of the parent company at the end of the reporting period 1,800 Number of in-service employees of the major subsidiaries at the end of the reporting period 2,306 Total number of in-service employees at the end of the reporting period 4,106 Total number of employees receiving salaries in current period 4,106 Number of retired employees requiring the parent Company and its subsidiaries to bear costs 20 Professional structure Type of professions Number of employees Production personnel 994 Sales personnel 1,568 Technical personnel 1,226 Financial personnel 79 Administrative personnel 239 Total 4,106 Education background Education background Number of employees PhD candidate 2 Master's degree 135 Bachelor degree 1,902 Other 2,067 Total 4,106 ZKTeco 2023 Annual Report 108 2. Remuneration policy In 2023, the Human Resources Department completed the SAP information system layout, and the Group's Human Resources Data Center was successfully established. The organization's personnel data achieved cross software process interconnection, significantly improving the efficiency and experience of human resources. At the same time, the salary and performance system has also been professionally and uniformly standardized, achieving automated salary calculation and further strengthening the correlation between performance and salary. A differentiated salary system based on performance and individual contributions has been implemented, achieving a close linkage between salary and individual, team and overall business performance of the Company. 3. Training plan This year, the Company organized a total of 1,081 specialized training sessions and completed the comprehensive deployment of online training platforms. The online learning and operation mechanism of employees have been significantly improved. Meanwhile, the Group Human Resources Center organized various departments to provide diversified vocational skills training and modern enterprise management development courses, broaden internal promotion channels, and encourage employees to continue learning and career growth. Through regular talent inventory and development plans, cross departmental communication and rotation were activated, and diverse talent training measures were taken to cultivate diverse and high potential teams, injecting inexhaustible momentum into the long-term stable development of the Company. 4. Labor outsourcing □ Applicable Not applicable XII. Profit Distribution and Conversion of Capital Reserve to Share Capital of the Company Formulation, implementation or adjustment of profit distribution policies of ordinary shares especially the cash dividend plan during the reporting period Applicable □ Not applicable During the reporting period, the Company reviewed and implemented the profit distribution proposal in strict accordance with the profit distribution policy stipulated in the Company's "Articles of Association". The relevant decision-making procedures and mechanisms were complete, and the profit distribution proposal was implemented within the specified time after being reviewed and approved, ensuring the interests of all shareholders. During the reporting period, the Company did not make any changes to its profit distribution policy. On April 26,2023 and May 19,2023, the Second Session of the Third Board Meeting and the 2022 Annual General Meeting held by the Company respectively deliberated and approved the "Proposal on the 2022 Profit Distribution proposal": to distribute a cash dividend of RMB 3.5 (including tax) per 10 shares to all shareholders based on the Company's total capital of 148,492,051 shares, with the total amount of RMB 51,972,217.85; at the same time, to convert capital reserves to share capital by converting 3 shares per 10 shares to all shareholders, with the total conversion of 44,547,615 shares. After the conversion, the total share capital of the Company will increase to 193,039,666 shares. On May 31,2023, the Company implemented the above profit distribution implementation plan. This profit distribution proposal complies with the provisions of the Company's "Articles of Association" and the requirements of the resolution on the General Meetings. Special explanation of cash dividend policy Whether it complies with the provisions of the Company's Yes ZKTeco 2023 Annual Report 109 Articles of Association or the requirements of the shareholders' meeting resolution: Whether dividend standards and ratio are definite and clear: Yes Whether the relevant decision-making procedures and mechanisms are complete: Yes Whether independent directors performed their duties and played their due role: Yes If the Company does not distribute cash dividends, specific reasons, as well as the measures to be taken next to enhance investor returns should be disclosed: Not applicable Whether minority shareholders have the opportunity to fully express their opinions and demands, and whether their legitimate rights and interests have been fully protected: Yes If the cash dividend policy is adjusted or changed, whether the conditions and procedures are compliant and transparent: Not applicable The profit distribution proposal and the plan for converting capital reserve into share capital during the reporting period of the Company are consistent with the relevant provisions of the Company's Articles of Association and dividend management measures Yes □ No □ Not applicable The profit distribution proposal and the plan for converting capital reserve into share capital during the reporting period of the Company comply with relevant regulations such as the Company's Articles of Association. Profit distribution and conversion of capital reserve into share capital for the current year Bonus issue per 10 shares (share) 0 Cash dividend per 10 shares (RMB) (tax inclusive) 4.5 Additional shares converted from capital reserves per 10 shares (share) 0 Total capital shares as the basis for the distribution proposal (share) 192,449,508 Cash dividend amount (RMB) (tax inclusive) 86,602,278.60 Cash dividend amount in other ways (such as repurchase of shares) (RMB) 784,685.00 Total cash dividends (including other ways) (RMB) 87,386,963.60 Distributable profit (RMB) 484,336,562.43 Proportion of total cash dividends (including other ways) to total profit distribution 100.00% Cash dividend of the reporting period If the Company is in a growth stage of development and there are significant capital expenditure arrangements, the minimum proportion of cash dividends in this profit distribution shall reach 20% Details of profit distribution or plan for converting capital reserve into share capital After the audit by Dahua Certified Public Accountants (Special General Partnership), the net profit attributable to the owners of the parent company in the 2023 consolidated statements of the Company was RMB 177,263,675.15, and the net profit realized by the parent company in 2023 was RMB 64,774,175.61. According to the provisions of the "Company Law" and the "Articles of Association", after withdrawing the statutory surplus reserve fund of RMB 6,477,417.56 from 10% of the parent company's net profit, the net profit available for distribution for the parent company in 2023 was RMB 58,296,758.05. As of the end of 2023, the accumulated undistributed profit of the Company's consolidated statements was RMB 907,583,024.38, while the accumulated undistributed profit of the parent company was RMB 484,336,562.43. According to the principle of profit distribution of whichever is lower in the consolidated statements or parent company's statements, the Company's profit available for distribution to shareholders in 2023 was RMB 484,336,562.43. According to the guidance of the CSRC on encouraging cash dividends for listed companies, the Company has formulated a profit distribution proposal for 2023 as follows based on the current operating conditions and profitability of the Company, while ensuring the normal operation and long-term development of the Company, taking into account shareholder returns and company ZKTeco 2023 Annual Report 110 development, according to the "Regulatory Guidelines for Listed Companies No.3 - Distribution of Cash Dividends of Listed Companies", the "Articles of Association", and the "Plan for Dividend Returns within Three Years after the Initial Public Offering and Listing of ZKTECOCO., LTD.": The Company plans to distribute a cash dividend of RMB 4.5 (including tax) per 10 shares to all shareholders based on the total share capital on the registration date of future equity distribution, after deducting the repurchased shares in the Company's repurchase special account. No bonus shares will be given, no capital reserve will be converted into share capital, and the remaining undistributed profits will be carried forward to future years. As of April 22,2024, the total share capital of the Company is 194,679,508 shares. After deducting 2,230,000 shares that have been repurchased in the Company's repurchase account, the total amount of cash dividends planned to be distributed for 2023 is RMB 86,602,278.60 (including tax). During the reporting period, the Company made profits and the parent company had a positive profit available for shareholder distribution, but no cash dividend distribution proposal was proposed □ Applicable Not applicable XIII. Implementation of the Company's Equity Incentive Plans, Employee Stock Ownership Plans, or Other Employee Incentive Plans Applicable □ Not applicable 1. Equity incentives On September 29,2022, the Company held the 19th Session of the Second Board Meeting and the 13th Session of the Second Supervisory Board Meeting. On October 17,2022, the Company held the second extraordinary general meeting of 2022, deliberated and approved the "Proposal on the Company's Restricted Share Incentive Plan 2022 (Draft) and its Abstract", the "Proposal on the Company's Restricted Share Incentive Plan Implementation Assessment Management Measures 2022", and the "Proposal on Submitting to the Shareholders' Meeting to Authorize the Board of Directors to Handle Matters Related to Equity Incentive" and other relevant proposals. During the period from September 29,2022 to October 9,2022, the Company publicly announced the names and positions of the incentive objects granted for the first time under this incentive plan. During the announcement period, the Company's board of supervisor did not receive any objections related to the proposed incentive objects of this incentive plan for the first time. On October 11,2022, the Company announced the "Statement and Verification Opinions of the Board of Supervisors on the Publicity of the List of Incentive Objects First Granted with the Incentive Plan of Restricted Share in 2022". According to the "Proposal on the Company's Restricted Share Incentive Plan 2022 (Draft) and its Abstract" and the authorization of the shareholders' meeting to the Board of Directors, the Company held the 21st Session of the Second Board Meeting and the 15th Session of the Second Supervisory Board Meeting on November 16,2022, and deliberated and approved the "Proposal on Adjusting the List of Incentive Objects of Restricted Share Incentive Plan in 2022 and the Number of Granted Objects" and the "Proposal on Granting Restricted Share to Incentive Objects of 2022 Restricted Share Incentive Plan for the First Time". The independent directors gave their opinions on the above equity incentive plan, adjustment and grant, and the Board of Supervisors verified the list of incentive objects granted with restricted share. The progress of the 2022 restricted share incentive plan during the reporting period is as follows: On June 21,2023, the Company held the Third Session of the Third Board Meeting and the Third Session of the Third Supervisory Board Meeting, and deliberated and approved the "Proposal on Adjusting the Granting Price and Quantity of 2022 Restricted Share Incentive Plan", "Proposal on Cancelling Some Granted but Not Affiliated Restricted Shares", and "Proposal on Granting Reserved Restricted Shares to the Incentive Objects of 2022 Restricted Share Incentive Plan". The Board of Directors of the Company believes that the reserved grant conditions stipulated in this incentive plan have been met, and agrees to determine June 21,2023 as the reserved grant date to grant reserved restricted shares to the incentive objects of the 2022 restricted share incentive plan. The independent directors gave their opinions on the above equity incentive adjustment, cancellation and reserved grant, and the Board of Supervisors verified the list of incentive objects granted with reserved restricted share. Please refer to the "Announcement on Adjusting the Granting Price and Quantity of 2022 Restricted Share Incentive Plan" (Announcement No. ZKTeco 2023 Annual Report 111 2023-053), "Announcement on Cancelling Some Granted but Not Affiliated Restricted Shares" (Announcement No.2023-054), and "Announcement on Granting Reserved Restricted Shares to the Incentive Objects of 2022 Restricted Share Incentive Plan" (Announcement No.2023-055) disclosed by the Company on the website of CNINFO ( on June 21, 2023. On November 10,2023, the Company held the 7th Session of the Third Board Meeting and the 7th Session of the Third Supervisory Board Meeting, and deliberated and approved the "Proposal on Cancelling Some Granted but Not Affiliated Restricted Shares" and the "Proposal on the Achievement of the Attribution Conditions for the First Attribution Period of the 2022 Restricted Share Incentive Plan". Due to the resignation, unqualified assessment, or voluntary abandonment of some incentive objects, a total of 53,603 restricted shares that have been granted but not yet attributed to the relevant incentive objects were invalidated; due to the achievement of the attribution condition for the first grant of the first attribution period under the Company's 2022 restricted share incentive plan, the Board of Directors has agreed to allocate a total of 1,639,842 shares to 466 incentive objects. The independent directors have expressed their agreement on the invalidation of some of the incentive object shares and the achievement of the attribution condition for the first grant of the first attribution period. The Board of Supervisors has verified the list of attribution for the first attribution period granted for the first time. Please refer to the "Announcement on Cancelling Some Granted but Not Affiliated Restricted Shares" (Announcement No.2023-080), and the "Announcement on the Achievement of Attribution Conditions for the First Attribution Period of the 2022 Restricted Share Incentive Plan" (Announcement No.2023-081) disclosed by the Company on the website of CNINFO ( on November 11,2023. The Company has completed the registration of the first attribution period of the 2022 restricted share incentive plan in accordance with relevant regulations, and the relevant shares were listed and circulated on November 22,2023. Please refer to the "Announcement on the Attribution Results of the First Attribution Period of the 2022 Restricted Share Incentive Plan and the Listing of Shares" (Announcement No.2023-087) disclosed by the Company on the website of CNINFO ( on November 17,2023. Equity incentives obtained by the directors and senior managers Applicable □ Not applicable Unit: share Name Position Number of stock options held at the beginning of the year Number of new stock options granted during the reporting period Exercisable shares during the reporting period Number of exercised shares during the reporting period Exercise price of exercised shares during the reporting period (RMB/share) Number of stock options held at the end of the period Market price at the end of the reporting period (RMB/share) Number of restricted shares held at the beginning of the period Number of unlocked shares in this period Number of newly granted restricted shares in the reporting period Grant price of restricted shares (RMB/share) Number of restricted sharess held at the end of the period Jin Hairong Director and General Manager 000000015,6007,800 14.127,800 Fu Zhiqian Director 000000014,3007,150 14.127,150 ZKTeco 2023 Annual Report 112 Mu Wenting Deputy General Manager 000000023,40011,700 14.1211,700 Total -- 0000 -- 53,30026,6500 -- 26,650 Remarks (if any) The restricted shares held by the above personnel are classified as Class II restricted shares. Due to the implementation of the 2022 annual equity distribution by the Company, the above "number of restricted shares held at the beginning of the period" and "grant price of restricted shares" are the adjusted number of shares and grant price based on the equity distribution situation. The "number of restricted shares held at the beginning of the period" and "number of restricted shares held at the end of the period" refer to the number of shares granted but not yet attributed, while "number of unlocked shares in this period" refers to the number of shares attributed to individuals in this period. Assessment and incentive mechanism of the senior managers The Board of Directors of the Company formulated the "Salary and Assessment Management System for Directors, Supervisors, and Senior Managers" on September 28,2020, and established a relatively complete performance evaluation system for senior managers. The salary of senior managers in the Company consists of basic salary and year-end bonus. The calculation formula is: annual salary=basic salary+year-end bonus. The basic salary is mainly determined based on factors such as position, responsibility, ability, and market salary level, while the year-end bonus is determined based on the Company's annual business performance, job performance evaluation, and other comprehensive factors. The assessment is annual assessment, and the final payment will be calculated based on the assessment results of the current year. During the reporting period, the Company strictly implemented the "Salary and Assessment Management System for Directors, Supervisors, and Senior Managers". 2. Implementation of employee stock ownership plan □ Applicable Not applicable 3. Other employee incentive plans □ Applicable Not applicable XIV. Construction and Implementation of Internal Control System during the Reporting Period 1. Construction and Implementation of Internal Control The Company has formed a relatively complete internal control system in accordance with the "Basic Norms for the Internal Control of Enterprises" and its supporting guidelines, as well as other regulatory requirements, and combined with the actual situation of the Company, and continuously optimized to adapt to the constantly changing external environment and internal management requirements. With the joint efforts of the Board of Directors, management, and all employees, the Company has established a relatively complete and effective internal control management system. From the company level to the business process level, a systematic internal control system and necessary internal supervision mechanisms have been established to provide reasonable guarantees for the legality and compliance of the Company's business management, asset safety, truthfulness and completeness of financial reports and related information, improvement of operational efficiency and effectiveness, and the implementation of development strategies. During the reporting period, the Company organized an internal control evaluation for 2023, and there were no significant or important deficiencies in internal control related to financial and non-financial reporting. 2. Particulars of material internal control defects detected during the reporting period □ Yes No ZKTeco 2023 Annual Report 113 XV. Management and Control of Subsidiaries During the Reporting Period of the Company Company Name Integration Plan Integration Progress Problems in Integration Solutions Taken Resolution Progress Subsequent Resolution Plan Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable XVI. Self-evaluation Report on Internal Control or Internal Control Audit Report 1. Self-evaluation report on internal control Disclosure date of the full text of the internal control evaluation report April 24,2024 Disclosure index of the full text of the internal control evaluation report CNINFO ( The proportion of the total assets of the unit included in the evaluation scope to the total assets of the Company in the consolidated financial statements 100.00% The proportion of operating revenue of the unit included in the evaluation scope to the operating revenue of the Company in the consolidated financial statements 100.00% Deficiency Identification Criteria Category Financial Reports Non-financial Reports Qualitative Criteria Significant deficiencies: control environment is ineffective; the supervision of internal control by the Company's Audit Committee and internal audit institutions is ineffective; discovering fraud by directors, supervisors, and senior managers; the Company has made significant corrections to the published financial statements; significant deficiencies that have been identified and reported to management have not been corrected within a reasonable time frame; other deficiencies that may affect the correct judgment of report users. Important deficiencies: failure to select and apply accounting policies in accordance with generally accepted accounting standards; invalid anti-fraud procedures and control measures; one or more deficiencies in the control of the final financial reporting process. Although the significant deficiency criteria have not been met, there is no reasonable guarantee that the financial statements prepared will achieve true and accurate objectives. General deficiencies: refer to other control deficiencies besides the Significant deficiencies: violation against national laws, regulations, or normative documents; lack of decision-making procedures or unscientific decision-making procedures, leading to significant errors; lack of institutional control or systematic failure of important businesses; the results of internal control evaluation, especially significant or important deficiencies, have not been rectified; other situations that have a significant impact on the Company. Important deficiencies: deficiencies in important business institutions or systems; important deficiencies in the results of internal control evaluation are not promptly rectified; other situations that have a significant negative impact on the Company, with a severity lower than significant deficiencies, but may still lead to the Company deviating from its control objectives. General deficiencies: refer to internal control deficiencies that do not constitute significant or important deficiencies. ZKTeco 2023 Annual Report 114 significant and important deficiencies mentioned above. Quantitative Criteria Significant deficiencies: misstated amount ≥ 1% of total assets; misstated amount ≥ 2% of main business income; misstated amount ≥ 5% of total profits Important deficiencies: 0.5% of total assets ≤ misstated amount < 1% of total assets; 1% of main business income ≤ misstated amount < 2% of total main business income; 2% of total profits ≤ misstated amount < 5% of total profits General deficiencies: misstated amount < 0.5% of total assets; misstated amount < 1% of total main business income; misstated amount < 2% of total profits Significant deficiencies: loss amount > RMB 10 million; important deficiencies: RMB 1 million＜ loss amount ≤ RMB 10 million; general deficiencies: loss amount ≤ RMB 1 million Number of significant deficiencies in financial reports 0 Number of significant deficiencies in non-financial reports 0 Number of important deficiencies in financial reports 0 Number of important deficiencies in non-financial reports 0 2. Internal control audit report Not applicable XVII. Special Rectification Actions for Self-inspected Problems of Listed Companies Not applicable. ZKTeco 2023 Annual Report 115 Section VEnvironmental and Social Responsibility I. Significant Environmental Issues Whether the Company or any of its subsidiaries should be categorized as a critical pollutant enterprise published by the environmental protection department □ Yes No Administrative penalties for environmental problems during the reporting period Name of company or subsidiary Reason for penalty Violations Penalty results The impact on the production and operation of listed companies Rectification measures of the Company Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Refer to other environmental information disclosed by key pollutant discharge units The Company and its subsidiaries are not listed as key pollutant discharge units by the environmental protection department. The Company and its subsidiaries conscientiously implement environmental protection laws and regulations such as the "Environmental Protection Law of the People's Republic of China", the "Law of the People's Republic of China on Prevention and Control of Water Pollution", the "Law of the People's Republic of China on the Prevention and Control of Atmospheric Pollution", the "Law of the People's Republic of China on Prevention and Control of Environmental Noise Pollution", and the "Law of the People's Republic of China on Prevention and Control of Environmental Pollution by Solid Waste" in their daily production and operation. The production and operating activities of the Company and its subsidiaries comply with the relevant national environmental protection requirements, and there are no cases of being punished for violations of laws and regulations. The Company has passed the ISO14001:2015 environmental management system certification, and has developed and implemented systems such as the "Environmental Factor Identification and Evaluation Procedure", the "Environmental Monitoring and Control Procedure", and the "Waste Management Specification". Measures taken to reduce carbon emissions during the reporting period and their effects □ Applicable Not applicable Reasons for not disclosing other environmental information Not applicable II. Social Responsibilities For specific information, please refer to the "2023 Environmental, Social and Corporate Governance (ESG) Report of ZKTECO CO., LTD." disclosed by the Company on April 24,2024, on CNINFO (. III. Efforts of Poverty Alleviation and Rural Revitalization For progress of consolidating and expanding poverty alleviation achievements and rural revitalization related work during the reporting period, please refer to the "2023 Environmental, Social and Corporate Governance (ESG) Report of ZKTECOCO., LTD." disclosed by the Company on April 24,2024, on CNINFO (. ZKTeco 2023 Annual Report 116 Section VISignificant Events I. Performance of Commitments 1. Commitments completed by actual controllers, shareholders, related parties, purchasers, orthe Company within the reporting period and commitments not fulfilled by the end of the reporting period Applicable □ Not applicableZKTeco 2023 Annual Report 117 Causes of Commitment Undertaking Party Commitment Type Commitment Content Date of commitments Term of commitments Performance IPO-related commitments ZKTeco Times Stock lockup 1. Within 36 months from the date of ZKTeco's initial public offering and listing, I will not transfer or entrust others to manage the previously issued shares of ZKTeco that the Company holds before the public offering, nor will ZKTeco repurchase such shares. 2. Within six months after ZKTeco's initial public offering and listing, if the closing price of ZKTeco's shares is lower than the issuance price of ZKTeco's initial public offering for twenty consecutive trading days (if ex-right or ex-dividend is carried out due to reasons such as cash dividend distribution, stock dividend, conversion to share capital, or issuance of new shares, corresponding adjustments must be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange), or the closing price is lower than the issuance price of ZKTeco's initial public offering of stocks at the end of the six-month period after listing (if that day is not a trading day, it is the first trading day after that day) (if ex-right or ex-dividend is carried out due to reasons such as cash dividends distribution, stock dividends, conversion to share capital, or issuance of new shares, corresponding adjustments must be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange), the lockup period for ZKTeco stocks the Company holds is automatically extended by six months. 3. The Company will faithfully fulfill the above commitments and bear corresponding legal responsibilities. If I fail to fulfill the obligations and responsibilities conferred by this commitment, the company will bear any losses suffered by ZKTeco, other shareholders or stakeholders of ZKTeco. The profits from illegal reduction of stocks will belong to ZKTeco. 4. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that the company should bear due to violating the above commitments, the company will voluntarily and unconditionally comply with these provisions. August 17, 2022 February 16, 2026 Strict performance IPO-related commitments Che Quanhong Stock lockup 1. Within 36 months from the date of ZKTeco's initial public offering and listing, I will not transfer or entrust others to manage the previously issued shares of ZKTeco that I directly or indirectly hold before the public offering, nor will ZKTeco repurchase such shares. 2. Within six months after ZKTeco's initial public offering and listing, if the closing price of ZKTeco's shares is lower than the issuance price of ZKTeco's initial public offering for twenty consecutive trading days (if ex-right or ex-dividend is carried out due to reasons such as cash dividend distribution, stock dividend, conversion to share capital, or issuance of new shares, corresponding adjustments must be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange), or the closing price is lower than the issuance price of ZKTeco's initial public offering of stocks at the end of the six-month period after listing (if that day is not a trading day, it is the first trading day after that day) (if ex-right or ex-dividend is carried out due to reasons such as cash dividends distribution, stock dividends, conversion to August 17, 2022 February 16, 2026 Strict performance ZKTeco 2023 Annual Report 118 share capital, or issuance of new shares, corresponding adjustments must be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange), the lockup period for ZKTeco stocks I hold directly or indirectly is automatically extended by six months. 3. After the expiration of the aforementioned stock lockup period, during my tenure as a director and senior manager of ZKTeco, I will not directly or indirectly transfer more than 25% of the total number of ZKTeco shares held by me each year. Within six months after resignation, I will not transfer or entrust others to manage ZKTeco shares I directly and indirectly hold. 4. I will faithfully fulfill the above commitments and bear corresponding legal responsibilities. If I fail to fulfill the obligations and responsibilities conferred by this commitment, I will bear any losses suffered by ZKTeco, other shareholders or stakeholders of ZKTeco. The profits from illegal reduction of company stocks will belong to ZKTeco. 5. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that I should bear due to violating the above commitments, I voluntarily and unconditionally comply with these provisions. IPO-related commitments LXInvestment Stock lockup 1. Within 36 months from the date of ZKTeco's initial public offering and listing, I will not transfer or entrust others to manage the previously issued shares of ZKTeco that the enterprise holds before the public offering, nor will ZKTeco repurchase such shares. 2. The enterprise will faithfully fulfill the above commitments and bear corresponding legal responsibilities. If I fail to fulfill the obligations and responsibilities conferred by this commitment, the enterprise will bear any losses suffered by ZKTeco, other shareholders or stakeholders of ZKTeco. The profits from illegal reduction of stocks will belong to ZKTeco. 3. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that the enterprise should bear due to violating the above commitments, the enterprise will voluntarily and unconditionally comply with these provisions. August 17, 2022 August 16,2025 Strict performance IPO-related commitments JYSJ and JYHY Stock lockup 1. The enterprise promises to lock in the shares of ZKTeco held in accordance with the following principles: (1) The shares held by the enterprise in ZKTeco are unlocked in four batches, with each batch unlocking one fourth of the shares held by the enterprise. The unlocking period is one year, two years, three years, and four years from the date of ZKTeco's initial public offering and listing. For the shares involved in the aforementioned lockup period arrangement that have not been unlocked, the enterprise will not transfer or entrust others to manage the shares already issued by ZKTeco before its public offering, nor will ZKTeco repurchase such shares. (2) For the newly added shares subscribed by the enterprise by participating in the capital increase of ZKTeco within 6 months prior to the completion of the initial public offering of shares by ZKTeco, the enterprise will not transfer or entrust others to manage the newly added shares held by the enterprise, nor will ZKTeco repurchase such shares within three years from the date of completing the industrial and commercial registration procedures for the August 17, 2022 February 17, 2027 Strict performance ZKTeco 2023 Annual Report 119 aforementioned capital increase. If a portion of the shares held by a Japanese enterprise whose lockup period expires earlier than the expiration date of the lockup period promised in the first item of this article, the corresponding lockup period for that portion of the shares shall be subject to the first item of this article. 2. The enterprise will faithfully fulfill the above commitments and bear corresponding legal responsibilities. If I fail to fulfill the obligations and responsibilities conferred by this commitment, the enterprise will bear any losses suffered by ZKTeco, other shareholders or stakeholders of ZKTeco. The profits from illegal reduction of stocks will belong to ZKTeco. 3. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that the enterprise should bear due to violating the above commitments, the enterprise will voluntarily and unconditionally comply with these provisions. IPO-related commitments JYLX and JYQL Stock lockup 1. The enterprise promises to lock in the shares of ZKTeco held in accordance with the following principles: (1) The shares held by the enterprise in ZKTeco are unlocked in four batches, with each batch unlocking one fourth of the shares held by the enterprise. The unlocking period is one year, two years, three years, and four years from the date of ZKTeco's initial public offering and listing. For the shares involved in the aforementioned lockup period arrangement that have not been unlocked, the enterprise will not transfer or entrust others to manage the shares already issued by ZKTeco before its public offering, nor will ZKTeco repurchase such shares. (2) For the newly added shares subscribed by the enterprise by participating in the capital increase of ZKTeco within 6 months prior to the completion of the initial public offering of shares by ZKTeco, the enterprise will not transfer or entrust others to manage the newly added shares held by the enterprise, nor will ZKTeco repurchase such shares within three years from the date of completing the industrial and commercial registration procedures for the aforementioned capital increase. If a portion of the shares held by a Japanese enterprise whose lockup period expires earlier than the expiration date of the lockup period promised in the first item of this article, the corresponding lockup period for that portion of the shares shall be subject to the first item of this article. 2. The enterprise is willing to bear legal responsibilities arising from violating the above commitments. 3. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that the enterprise should bear due to violating the above commitments, the enterprise will voluntarily and unconditionally comply with these provisions. August 17, 2022 February 17, 2027 Strict performance IPO-related commitments Qingdao Walden, Fuhai Juanyong and Yiwu Walden Stock lockup 1. If the period from the date of participating in the capital increase subscription of ZKTeco and completing the relevant industrial and commercial changes to the filing date of ZKTeco's initial public offering of stocks is less than 6 months, then within three years from the date of completing the industrial and commercial change registration procedures for the aforementioned August 17, 2022 August 16,2023 Fulfilled ZKTeco 2023 Annual Report 120 capital increase, the enterprise shall not transfer or entrust others to manage the abovementioned shares held by the enterprise, nor shall ZKTeco repurchase such shares. 2. If the newly added shares subscribed for by the enterprise by participating in the capital increase of ZKTeco are more than 6 months away from the filing date of ZKTeco's initial public offering, we will not transfer or entrust others manage the shares of ZKTeco held by the enterprise within one year from the date of ZKTeco's initial public offering and listing, nor shall ZKTeco repurchase such shares. The enterprise is willing to bear legal responsibilities arising from violating the above commitments. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that the enterprise should bear due to violating the above commitments, the enterprise will voluntarily and unconditionally comply with these provisions. IPO-related commitments Jin Hairong, Ma Wentao, Fu Zhiqian, Jiang Wenna, Wu Xinke, Liu Jiajia, Wang Youwu, Li Zhinong, and Guo Yanbo Stock lockup 1. Strictly abide by the stock lockup commitments made by myself and my shareholding platform, and during the stock lockup period, I will not transfer or entrust others to manage the previously issued shares of ZKTeco that I directly or indirectly hold before the public offering, nor will ZKTeco repurchase such shares; 2. During my tenure as a director/supervisor and/or senior manager of ZKTeco, the number of ZKTeco shares transferred annually shall not exceed 25% of the total number of ZKTeco shares held directly or indirectly by me. Within six months after my resignation, I will not transfer the ZKTeco shares held directly or indirectly by me. If I declare my resignation within six months from the date of the initial public offering of ZKTeco, I will not transfer the shares of ZKTeco that I directly or indirectly hold within eighteen months from the date of my resignation. If I declare the resignation between the seventh and twelfth months from the date of the initial public offering of ZKTeco, I will not transfer the ZKTeco shares directly or indirectly held by me within twelve months from the date of declaration for resignation. 3. If I reduce my holdings of ZKTeco stocks within two years after the expiration of the lockup period, the reduction price shall not be lower than the issuance price of ZKTeco's initial public offering (if an ex-right or ex-dividend is made due to the distribution of cash dividends, stock dividends, conversion into capital stock, or issuance of new shares after this issuance, corresponding adjustments shall be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange). 4. Within six months after ZKTeco's initial public offering and listing, if the closing price of ZKTeco's shares is lower than the issuance price of ZKTeco's initial public offering for twenty consecutive trading days (if ex-right or ex-dividend is carried out due to reasons such as cash dividend distribution, stock dividend, conversion to share capital, or issuance of new shares, corresponding adjustments must be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange), or the closing price is lower than the issuance price of ZKTeco's initial public offering of stocks at the end of the six-month period after listing (if August 17, 2022 Long term Strict performance ZKTeco 2023 Annual Report 121 that day is not a trading day, it is the first trading day after that day) (if ex-right or ex-dividend is carried out due to reasons such as cash dividends distribution, stock dividends, conversion to share capital, or issuance of new shares, corresponding adjustments must be made in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange), the lockup period for ZKTeco stocks I hold is automatically extended by six months. The commitment shall not be terminated due to job change or resignation. 5. I will faithfully fulfill the above commitments and bear corresponding legal responsibilities. If I fail to fulfill the obligations and responsibilities conferred by this commitment, I will bear any losses suffered by ZKTeco, other shareholders or stakeholders of ZKTeco. The profits from illegal reduction of stocks will belong to ZKTeco. 6. If I resign or change my position, it will not affect the validity of this commitment letter, and I will continue to fulfill the above commitments. 7. If there are different provisions in laws, regulations, normative documents, as well as the CSRC or Shenzhen Stock Exchange on the lockup period of the aforementioned shares and the relevant responsibilities that I should bear due to violating the above commitments, I voluntarily and unconditionally comply with these provisions. IPO-related commitments ZKTeco Times Commitment to avoid horizontal competition 1. The Company and/or any enterprise controlled by the Company, jointly controlled with others, or with significant influence, currently does not engage in any business or activity that constitutes or may constitute horizontal competition with ZKTeco and enterprises controlled by ZKTeco. The Company and/or enterprises controlled by the Company, jointly controlled with others, and with significant influence will not engage in any business or activities that constitute or may constitute horizontal competition with ZKTeco and enterprises controlled by ZKTeco in the future. 2. If, due to changes in national laws, policies, or other unavoidable reasons, the Company and/or enterprises controlled by the Company, jointly controlled with others, or with significant influence, constitute or may constitute horizontal competition with ZKTeco, the Company will cease the business and activities that exist in horizontal competition, or the entrusted management, contracted operation, or acquisition of such business that constitutes horizontal competition, and ZKTeco will enjoy priority under equal conditions. 3. If ZKTeco expands into new business areas in the future, ZKTeco enjoys priority. The Company and other enterprises or economic organizations controlled by the Company, jointly controlled with others, and with significant influence (excluding ZKTeco and its subsidiaries) will no longer develop similar businesses. The aforementioned commitment shall come into effect from the date of signing, and shall continue to be valid and irrevocable during the period when the Company serves as the controlling shareholder of ZKTeco. If the Company and other companies controlled by the Company violate the aforementioned commitments, the Company will bear the relevant losses suffered by ZKTeco, ZKTeco's other shareholders or stakeholders as a result. August 17, 2022 Long term Strict performance IPO-related Che Quanhong Commitmen 1. I and/or the enterprise controlled by me, jointly controlled with others, or with significant August 17, Long term Strict ZKTeco 2023 Annual Report 122 commitments t to avoid horizontal competition influence, currently does not engage in any business or activity that constitutes or may constitute horizontal competition with ZKTeco and enterprises controlled by ZKTeco. I and/or enterprises controlled by me, jointly controlled with others, and with significant influence will not engage in any business or activities that constitute or may constitute horizontal competition with ZKTeco and enterprises controlled by ZKTeco in the future. 2. If, due to changes in national laws, policies, or other unavoidable reasons, I and/or enterprises controlled by me, jointly controlled with others, or with significant influence, constitute or may constitute horizontal competition with ZKTeco, I will cease the business and activities that exist in horizontal competition, or the entrusted management, contracted operation, or acquisition of such business that constitutes horizontal competition, and ZKTeco will enjoy priority under equal conditions. 3. If ZKTeco expands into new business areas in the future, ZKTeco enjoys priority. I and other enterprises or economic organizations controlled by me, jointly controlled with others, and with significant influence (excluding ZKTeco and its subsidiaries) will no longer develop similar businesses. The aforementioned commitment shall come into effect from the date of signing, and shall continue to be valid and irrevocable during the period when I serve as the actual controller of ZKTeco. If I and other companies controlled by me violate the aforementioned commitments, I will bear the relevant losses suffered by ZKTeco, ZKTecos other shareholders or stakeholders as a result. 2022 performance IPO-related commitments ZKTeco Times Commitment to standardize and reduce related party transactions 1. The Company and/or enterprises controlled by the Company, jointly controlled with others, and with significant influence will make every effort to reduce related party transactions with ZKTeco and other enterprises under its control. 2. For necessary and unavoidable related party transactions, the Company guarantees that the related party transactions will be conducted under normal commercial conditions, and does not require ZKTeco and enterprises under its control to provide any conditions superior to those given to third parties in fair market transactions. The related party transactions involved will comply with relevant laws and regulations, the "Articles of Association", and the "Related Party Transaction Management System", and other relevant provisions of the relevant documents. The Company will timely disclose information to ensure that the legitimate rights and interests of ZKTeco and other shareholders are not harmed through related party transactions; 3. During the period when the Company serves as the controlling shareholder of ZKTeco, the Company will faithfully fulfill the above commitments and assume corresponding legal responsibilities. If the violation of the above commitments by the Company and other enterprises controlled by the Company results in damage to the interests of ZKTeco or the legitimate interests of other shareholders, the Company will bear corresponding compensation responsibilities in accordance with the law. August 17, 2022 Long term Strict performance IPO-related commitmentChe Quanhong Commitment to 1. I and/or enterprises controlled by me, jointly controlled with others, and with significant influence will make every effort to reduce related party transactions with ZKTeco and other August 17, 2022 Long term Strict performanZKTeco 2023 Annual Report 123 s standardize and reduce related party transactions enterprises under its control. 2. For necessary and unavoidable related party transactions, I guarantee that the related party transactions will be conducted under normal commercial conditions, and do not require ZKTeco and enterprises under its control to provide any conditions superior to those given to third parties in fair market transactions. The related party transactions involved will comply with relevant laws and regulations, the "Articles of Association", and the "Related Party Transaction Management System", and other relevant provisions of the relevant documents. The Company will timely disclose information to ensure that the legitimate rights and interests of ZKTeco and other shareholders are not harmed through related party transactions; 3. During the period when I serve as the actual controller of ZKTeco, the Company will faithfully fulfill the above commitments and assume corresponding legal responsibilities. If the violation of the above commitments by me and other enterprises controlled by me results in damage to the interests of ZKTeco or the legitimate interests of other shareholders, I will bear corresponding compensation responsibilities in accordance with the law. ce IPO-related commitments Che Quanhong, Jin Hairong, Ma Wentao, Fu Zhiqian, Dong Xiuqin, Pang Chunlin, Zhuo Shuyan, Jiang Wenna, Wu Xinke, Liu Jiajia, Wang Youwu, Li Zhinong, and Guo Yanbo Commitment to standardize and reduce related party transactions 1. I and my immediate family members/other enterprises controlled by me and my immediate family members will make every effort to reduce related party transactions with ZKTeco and other enterprises under its control. 2. For necessary and unavoidable related party transactions, I guarantee that the related party transactions will be conducted under normal commercial conditions, and do not require ZKTeco and enterprises under its control to provide any conditions superior to those given to third parties in fair market transactions. The related party transactions involved will comply with relevant laws and regulations, the "Articles of Association", and the "Related Party Transaction Management System", and other relevant provisions of the relevant documents. The Company will timely disclose information to ensure that the legitimate rights and interests of ZKTeco and other shareholders are not harmed through related party transactions; 3. I will faithfully fulfill the above commitments and bear corresponding legal responsibilities. If the violation of the above commitments by me and other enterprises controlled by me results in damage to the interests of ZKTeco or the legitimate interests of other shareholders, I will bear corresponding compensation responsibilities in accordance with the law. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Times and Che Quanhong Shareholding and intention to reduce holdings 1. The Company/I will strictly abide by the restrictions on the circulation of ZKTeco shares and the commitment to voluntary lockup issued by the Company/me, and strictly comply with the relevant provisions of laws, regulations, and normative documents. The Company/I will not reduce our holdings of ZKTeco shares during the lockup period. 2. Within two years after the expiration of the lockup period promised by the Company/me, if the Company/I plan(s) to reduce our holdings of ZKTeco shares, the reduction price will not be lower than the issuance price at the time of the initial public offering of the shares (if ZKTeco experiences dividends, stock dividends, or capital gains during this period) For matters such as the conversion of the reserve into shares and other ex-right and ex-dividend matters, the issuance price shall be adjusted accordingly. August 17, 2022 Long term Strict performance ZKTeco 2023 Annual Report 124 3. After the expiration of the lockup period promised by the Company/me, the Company/I will reduce our holdings of ZKTeco stocks in strict accordance with the relevant provisions of the "Company Law", "Securities Law", CSRC, and stock exchange. 4. If the Company/I obtain(s) (excess) income due to failure to fulfill the above commitments, the (excess) income shall belong to ZKTeco and shall be paid to the designated account of ZKTeco within five days of receiving the income. If the Company/I fail(s) to fulfill the above commitments and cause(s) losses to ZKTeco or other investors, the Company/I will bear compensation liability to ZKTeco or other investors in accordance with the law. IPO-related commitments JYSJ, JYHY and LX Investment Shareholding and intention to reduce holdings 1. The enterprise will not reduce its holdings of ZKTeco stocks during the lockup period in strict accordance with the commitments issued by the enterprise on the circulation restrictions and voluntary lockup of its holdings of ZKTeco shares, and with the relevant provisions of laws, regulations, and normative documents. 2. After the expiration of the lockup period promised by the enterprise, if the enterprise plans to reduce its holdings, it will notify ZKTeco of the reduction in accordance with the regulations of the CSRC and the Shenzhen Stock Exchange, and after the reduction is announced, it will reduce its holdings in accordance with the relevant regulations of the CSRC and the Shenzhen Stock Exchange. If the enterprise fails to fulfill the above commitments, it will agree to bear the legal liability arising from the violation of the above commitments. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Commitment to stabilizing stock prices Within three years from the date of the official listing of the Company's stocks, if there is a situation where the closing price of the stocks for 20 consecutive trading days is lower than the latest audited net assets per share of the Company, it will meet the starting conditions of the stable stock price plan. When the closing price of the Company's stock for 20 consecutive trading days is lower than the latest audited net assets per share of the Company, it reaches the starting condition of the stable stock price plan. The Company shall convene a board meeting within 10 trading days to review specific plans for stabilizing the Company's stock price, clarify the implementation period of such specific plans, and initiate the implementation of specific plans for stabilizing the stock price within 5 trading days after the approval of such plans by the shareholders' meeting. When the Company meets the starting conditions for the stable stock price plan, the Company, controlling shareholders, directors (excluding independent directors), and senior managers will carry out the implementation in the following order: ① Company repurchase; ② Increase in holdings by controlling shareholders; ③ Directors (excluding independent directors) and senior managers increase their holdings. Until the stopping conditions of the stable stock price plan are met. August 17, 2022 August 16,2025 Strict performance ZKTeco 2023 Annual Report 125 IPO-related commitments ZKTeco Times, Che Quanhong, Jin Hairong, Ma Wentao, Fu Zhiqian, Wang Youwu, Li Zhinong, and Guo Yanbo Commitment to stabilizing stock prices When the Company initiates a stock price stablizing plan in accordance with the "Plan for Stabilizing the Stock Price within Three Years after Listing", it will fulfill corresponding obligations in accordance with the law in strict accordance with the requirements of the stock price stablizing plan. August 17, 2022 August 16,2025 Strict performance IPO-related commitments Mu Wenting Commitment to stabilizing stock prices When the Company initiates a stock price stablizing plan in accordance with the "Plan for Stabilizing the Stock Price within Three Years after Listing", it will fulfill corresponding obligations in accordance with the law in strict accordance with the requirements of the stock price stablizing plan. September 16, 2022 August 16,2025 Strict performance IPO-related commitments ZKTeco Commitment letter on the absence of false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials There are no false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials of the Company's initial public offering of stocks and listing on the ChiNext. If it is determined by the CSRC, Shenzhen Stock Exchange, or other competent departments that there are false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials of the Company's initial public offering of stocks and listing on the ChiNext, which constitutes a significant and substantial impact on determining whether the Company meets the issuance conditions stipulated by law: Within 10 trading days from the date when the Shenzhen Stock Exchange or other competent departments determine that the Company has the aforementioned situation, the Company will convene a board meeting and propose to convene a shareholders' meeting to review the proposal to repurchase all shares issued for the initial public offering. The repurchase price will be determined based on the issuance price and with reference to relevant market factors. If it is determined by the CSRC, Shenzhen Stock Exchange, or other competent departments that there are false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials of the Company's initial public offering of stocks and listing on the ChiNext, resulting in losses to investors in securities trading, the Company will compensate investors for losses in accordance with the law according to the relevant decisions of the CSRC, Shenzhen Stock Exchange, or other competent departments. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Times and Che Quanhong Commitment letter on the absence of false records, misleading statements, or The prospectus and other information disclosure materials of ZKTeco's initial public offering of stocks and listing on the ChiNext are true, accurate, and complete, without any false records, misleading statements, or significant omissions. If it is determined by the CSRC, Shenzhen Stock Exchange, or other competent departments that ZKTeco has false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials of its initial public offering of stocks and listing on the ChiNext, resulting in losses to investors in securities issuance and trading, the Company/I will compensate investors for losses in accordance with the law according to the provisions of the August 17, 2022 Long term Strict performance ZKTeco 2023 Annual Report 126 significant omissions in the prospectus and other information disclosure materials relevant decisions of the CSRC, Shenzhen Stock Exchange or other authorized departments. If it is determined by the CSRC, Shenzhen Stock Exchange, or other competent departments that there are false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials of ZKTeco's initial public offering of stocks and its listing on the ChiNext, which constitutes a significant and substantial impact on determining whether ZKTeco meets the issuance conditions stipulated by law, the Company/I will urge ZKTeco to repurchase all new shares issued in the initial public offering in accordance with the law, and at the same time, the Company/I will repurchase the original restricted shares that have been transferred at the price in the secondary market in accordance with the law. When the Company/I repurchase(s) stocks, we will comply with the relevant provisions of the "Company Law", "Securities Law", CSRC and Shenzhen Stock Exchange, as well as the "Articles of Association". IPO-related commitments Che Quanhong, Jin Hairong, Ma Wentao, Fu Zhiqian, Dong Xiuqin, Pang Chunlin, Zhuo Shuyan, Jiang Wenna, Wu Xinke, Liu Jiajia, Wang Youwu, Li Zhinong, and Guo Yanbo Commitment letter on the absence of false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials There are no false records, misleading statements, or significant omissions in the prospectus and other information disclosure materials of the Company's initial public offering of stocks and listing on the ChiNext. If there are false records, misleading statements, or significant omissions in the Company's prospectus and other information disclosure materials, resulting in losses to investors in securities issuance and trading, I will compensate the investors for the losses in accordance with the law. If I fail to fulfill the above commitments, I will publicly explain the specific reasons for my failure in the Company's shareholders' meeting and newspapers and magazines designated by the CSRC, apologize to the Company's shareholders and public investors, and cease receiving salary, allowances, and shareholder dividends from the Company from the date of violating the above commitments. Meanwhile, my shares directly or indirectly held in the Company will not be transferred, until I take corresponding compensation measures according to the above commitments and implement them completely. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Times and Che Quanhong Commitment to fill in diluted immediate returns (1) Do not interfere with the Company's management activities beyond my authority, and do not encroach on the Company's interests. (2) From the date of issuance of this commitment letter to the completion of the Company's public offering of stocks, if the CSRC makes other new regulatory provisions on filling in return measures and commitments, and the above commitments cannot meet the requirements of the CSRC, the commitment will be issued in accordance with the latest regulations of the CSRC. I promise to effectively fulfill relevant measures for filling in returns in the Company's system and any commitments made on these measures. If I violate these commitments and cause losses to the Company or investors, I will be liable for compensation for the Company or investors in accordance with the law. August 17, 2022 Long term Strict performance IPO-related commitmentZKTeco, Che Quanhong, Jin Commitment on "In order to ensure the effective implementation of the Company's compensation measures, the Company, directors, and senior managers make the following commitments: August 17, 2022 Long term Strict performanZKTeco 2023 Annual Report 127 s Hairong, Ma Wentao, Fu Zhiqian, Dong Xiuqin, Pang Chunlin, Zhuo Shuyan, Wang Youwu, Li Zhinong, and Guo Yanbo guarantee measures for filling in the diluted immediate return (1) They will not transfer benefits to other units or individuals free of charge or under unfair conditions, nor will they damage the interests of the Company in other ways; (2) They will constrain duty consumption behavior; (3) They will not use company assets to engage in investment or consumption activities unrelated to their performance of duties; (4) They will actively promote the further improvement of the Company's compensation system, and fully support the linkage between the compensation system formulated by the Company's Board of Directors or compensation committee and the implementation of the Company's compensation measures; (5) If the Company launches an equity incentive plan in the future, I promise to make every effort within my own responsibilities and authority to link the exercise conditions of the equity incentive that the Company intends to announce with the implementation of the Company's compensation and return measures; (6) From the date of issuance of this commitment letter to the completion of the Company's public offering of stocks, if the CSRC makes other new regulatory provisions on filling in return measures and commitments, and the above commitments cannot meet the requirements of the CSRC, the commitment will be issued in accordance with the latest regulations of the CSRC. I promise to effectively fulfill relevant measures for filling in returns in the Company's system and any commitments made on these measures. If I violate these commitments and cause losses to the Company or investors, I will be liable for compensation for the Company or investors in accordance with the law." ce IPO-related commitments ZKTeco Commitment on relevant binding measures in case of failure to fulfill commitments If the Company fails to fulfill the commitments disclosed in the prospectus, the specific reasons for the failure will be disclosed through the Company's shareholders' meeting, securities regulatory authority, or designated channels of the Shenzhen Stock Exchange, as appropriate, and supplementary or alternative commitments will be proposed to the Company's investors to protect their rights and interests as much as possible. If investors suffer losses in securities trading due to the Company's failure to fulfill relevant commitments, the Company will compensate the investors for the relevant losses in accordance with the law. Within 10 days after the securities regulatory authority or other competent departments determine that the Company has the aforementioned situation, the Company will initiate relevant work to compensate investors for losses. Investor losses are determined based on the amount determined through consultation with investors, or based on methods or amounts recognized by securities regulatory authorities or judicial authorities. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Times Commitment on relevant binding measures in case of failure to 1. If the Company fails to fulfill the commitments disclosed in the prospectus, the specific reasons for the failure will be disclosed through ZKTeco's shareholders' meeting, securities regulatory authority, or designated channels of the Stock Exchange, as appropriate, and supplementary or alternative commitments will be proposed to ZKTeco's investors to protect their rights and interests as much as possible. 2. If investors suffer losses in securities trading due to the Company's failure to fulfill relevant August 17, 2022 Long term Strict performance ZKTeco 2023 Annual Report 128 fulfill commitments commitments, the Company will compensate the investors for the relevant losses in accordance with the law. 3. If the Company fails to bear the aforementioned compensation liability, the shares of ZKTeco held by the Company shall not be transferred until the Company has fulfilled the aforementioned compensation liability, and ZKTeco has the right to deduct the cash dividends distributed to the Company for bearing the aforementioned compensation liability. 4. During the period when the Company serves as the controlling shareholder of ZKTeco, if ZKTeco fails to fulfill the commitments disclosed in the prospectus and causes losses to investors, the Company promises to bear compensation liability in accordance with the law. IPO-related commitments Che Quanhong Commitment on relevant binding measures in case of failure to fulfill commitments 1. If I fail to fulfill the commitments disclosed in the prospectus, the specific reasons for the failure will be disclosed through ZKTeco's shareholders' meeting, securities regulatory authority, or designated channels of the Stock Exchange, as appropriate, and supplementary or alternative commitments will be proposed to ZKTeco's investors to protect their rights and interests as much as possible. 2. If investors suffer losses in securities trading due to my failure to fulfill relevant commitments, I will compensate the investors for the relevant losses in accordance with the law. 3. If I fail to bear the aforementioned compensation liability, the shares of ZKTeco held by me shall not be transferred until I have fulfilled the aforementioned compensation liability, and ZKTeco has the right to deduct the cash dividends distributed to me for bearing the aforementioned compensation liability. 4. During the period when I serve as the actual controller of ZKTeco, if ZKTeco fails to fulfill the commitments disclosed in the prospectus and causes losses to investors, I promise to bear compensation liability in accordance with the law. August 17, 2022 Long term Strict performance IPO-related commitments Che Quanhong, Jin Hairong, Ma Wentao, Fu Zhiqian, Dong Xiuqin, Pang Chunlin, Zhuo Shuyan, Jiang Wenna, Wu Xinke, Liu Jiajia, Wang Youwu, Li Zhinong, and Guo Yanbo Commitment on relevant binding measures in case of failure to fulfill commitments 1. If I fail to fulfill the public commitments made by myself in the prospectus of ZKTeco's initial public offering and listing on the ChiNext: (1) I will publicly explain the specific reasons for not fulfilling my commitments in the Company's shareholders' meeting and newspapers and magazines designated by the CSRC, and apologize to the Company's shareholders and public investors. (2) I will stop receiving my salary within 10 trading days from the date of the aforementioned event, and my shares directly or indirectly held in the Company (if any) shall not be transferred until I fulfill the relevant commitments. 2. If I fail to fulfill the relevant commitments, I will be liable for compensation to the Company or investors in accordance with the law. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Commitment to repurchase (1) The Company guarantees that there will be no fraudulent issuance of shares in this public offering and listing on the ChiNext. (2) If the securities regulatory authorities, stock exchanges, or judicial authorities determine that August 17, 2022 Long term Strict performance ZKTeco 2023 Annual Report 129 shares for fraudulent issuance and listing the Company has engaged in fraudulent issuance behavior, which has a significant substantive impact on determining whether the Company meets the issuance conditions stipulated by law, the Company will initiate the share repurchase procedure in accordance with relevant laws and regulations and the Company's Articles of Association within 5 working days after final determination by the securities regulatory authorities, stock exchanges, or judicial authorities to repurchase all new shares issued by the Company in this public offering. IPO-related commitments ZKTeco Times and Che Quanhong Commitment to repurchase shares for fraudulent issuance and listing (1) Guarantee that there will be no fraudulent issuance of shares in ZKTeco's public offering and listing on the ChiNext. (2) If the securities regulatory authorities, stock exchanges, or judicial authorities determine that ZKTeco has engaged in fraudulent issuance, the Company/I will initiate a share repurchase procedure within 5 working days after confirmation by the securities regulatory authorities, stock exchanges, or judicial authorities to repurchase all original restricted shares transferred by the Company/me. August 17, 2022 Long term Strict performance IPO-related commitments Che Quanhong, Jin Hairong, Ma Wentao, Fu Zhiqian, Dong Xiuqin, Pang Chunlin, Zhuo Shuyan, Jiang Wenna, Wu Xinke, Liu Jiajia, Wang Youwu, Li Zhinong, and Guo Yanbo Commitment to repurchase shares for fraudulent issuance and listing (1) I guarantee that there is no fraudulent issuance of ZKTeco's initial public offering and listing on the ChiNext. (2) If the securities regulatory authorities, stock exchanges, or judicial authorities determine that ZKTeco has engaged in fraudulent issuance behavior, causing investors to suffer losses in securities issuance and trading, I will compensate investors for their losses in accordance with the law after the securities regulatory authorities, stock exchanges, or judicial authorities determine the compensation liability. (3) If I violate the above commitments, I will publicly explain the specific reasons for my failure to fulfill them in the shareholders' meeting of ZKTeco and newspapers and magazines designated by the CSRC, and apologize to shareholders and public investors. Within 5 working days from the date of the violation of the above commitments, I will stop receiving salary or allowances and shareholder dividends from ZKTeco, and my shares in ZKTeco will not be transferred, until I take corresponding compensation measures according to the above commitments and implement them completely. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Special commitment on shareholder information disclosure The Company's shareholders include ZKTeco Times, Che Quanhong, LXInvestment, JYSJ, JYHY, JYLX, JYQL, Fuhai Juanyong, Yiwu Walden, and Qingdao Walden. Among them, Che Quanhong is the actual controller of the Company, ZKTeco Times is a limited liability company jointly held by Che Quanhong and his brother Che Quanzhong, LXInvestment is a limited partnership jointly held by Che Quanhong and his father Che Jun, and individual De Wang, and JYSJ, JYHY, JYLX and JYQL are the employee stock holding platform of the Company, and Fuhai Juanyong, Yiwu Walden and Qingdao Walden are investors introduced by the Company. Fuhai Junyong, Yiwu Walden and Qingdao Walden are private investment funds registered with the Asset Management Association of China (AMAC). The aforementioned entities all have the qualification to hold shares in the Company, and there is no situation where entities prohibited by laws and regulations from holding shares directly or indirectly hold shares in the Company. The intermediary or its responsible persons, senior managers, or handlers involved in this issuance do August 17, 2022 Long term Strict performance ZKTeco 2023 Annual Report 130 not directly or indirectly hold any shares or other interests of the Company. There is no situation where shareholders of the Company engage in improper transfer of benefits through the Company's equity. The Company and its shareholders have promptly provided truthful, accurate, and complete information to the intermediary involved in this issuance, actively and comprehensively cooperated with the intermediary involved in this issuance to conduct due diligence, and truthfully, accurately, and completely disclosed shareholder information in the application documents for this issuance in accordance with the law, fulfilling the obligation of information disclosure. IPO-related commitments ZKTeco Times and Che Quanhong Other commitments If a lawsuit, arbitration dispute, or administrative penalty occurs due to the Company's involvement in the installation and use of unauthorized software, we voluntarily and jointly bear all economic consequences and losses for the Company, and will not seek compensation from the Company under any conditions or methods. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Times and Che Quanhong Other commitments 1. If ZKTeco (including its predecessor) and its controlling subsidiaries fail to pay social insurance premiums and/or housing provident fund for employees in accordance with the law or in full, causing ZKTeco and/or its controlling subsidiaries to have a supplementary payment obligation or suffer any fines or losses, the Company/I will unconditionally and voluntarily bear such supplementary payment obligation, fines or losses to ensure that ZKTeco and its holding subsidiaries do not suffer any economic losses due to such matters. 2. If ZKTeco (including its predecessor) and its controlling subsidiaries use labor employment methods in certain positions, causing ZKTeco and/or its controlling subsidiaries to suffer any fines or losses, the Company/I will unconditionally and voluntarily bear such fines or losses to ensure that ZKTeco and its controlling subsidiaries do not suffer any economic losses due to such matters. The aforementioned commitments are unconditional and irrevocable. The Company/I will bear any losses suffered by stakeholders as a result of violating the aforementioned commitments. August 17, 2022 Long term Strict performance IPO-related commitments ZKTeco Times and Che Quanhong Other commitments If the Company is unable to continue using the defective property due to defects, or if the relevant government authorities require the demolition of the relevant property or impose penalties on the Company in the future, they will unconditionally bear all losses, costs, and expenses incurred by the Company arising therefrom. August 17, 2022 Long term Strict performance Whether the commitment is fulfilled on time Yes ZKTeco 2023 Annual Report 131 2. If there are assets or projects of the Company which have profit forecast while the reporting period is still in the profit forecast period, the Company shall state whether the assets or projects meet the original profit forecast and the reasons □ Applicable Not applicable II. Non Operating Occupation of Funds by Controlling Shareholders and Other Related Parties of Listed Company □ Applicable Not applicable During the reporting period, there was no non-operating occupation of funds by controlling shareholders or other related parties of the listed company. III. Illegal Provision of Guarantees for External Parties □ Applicable Not applicable There were no illegal external guarantees during the reporting period of the Company. IV. Explanation Given by the Board of Directors on the Latest "Non-standard Audit Report" □ Applicable Not applicable V. Explanation Given by the Board of Directors, Board of Supervisors, and Independent Directors (if any) on the "Non-standard Audit Report" Issued by the CPAFirm for the Current Reporting Period □ Applicable Not applicable VI. Explanation Given by the Board of Directors on Changes in Accounting Policies, Accounting Estimates, or Correction of Major Accounting Errors during the Reporting Period □ Applicable Not applicable VII. Explanation on Changes in the Scope of Consolidated Financial Statements Compared to the Financial Report for the Previous Year Applicable □ Not applicable During the reporting period, the Company established eight new subsidiaries within the consolidation scope, as shown below: S/NCompany Name Establishment Date Registered Capital Percentage of shares (%) Reason for Change 1 RALVIEAIINC. August 22,2023 USD 10,000100.00 New establishment 2 ZKDIGIMAXPTE. LTD. March 7,2023 USD 20 million 80.00 New establishment ZKTeco 2023 Annual Report 132 3 ZKDIGIMAXPANAMA, S.A. April 11,2023 USD 10,00080.00 New establishment 4 ZKDIGIMAXCOLOMBIASASApril 26,2023 COP 10 million 80.00 New establishment 5 ZKDIGIMAX (PTY) LTDMarch 14,2023 --- 80.00 New establishment 6 PT. ZKDIGIMAXEXCEL NOBLE May 25,2023 IDR 10.01 billion 56.00 New establishment 7 ZKDIGIMAXCHINACO., LTD. May 18,2023 USD 300,00080.00 New establishment 8 ZK TECHNOLOGY MOROCCO October 17,2023 MAD 100,000100.00 New establishment Note: ZKDIGIMAX (PTY) LTD uses the paid up capital as its registered capital, which has not been paid as of the end of the period; on August 7,2023, Xiamen ZKTeco Cloud Valley Design and Development Co., Ltd. was deregistered, and at the end of the period, the subsidiary was no longer included in the consolidation scope. VIII. Appointment and Dismissal of Accounting Firms Accounting firm currently employed Name of domestic accounting firms Dahua Certified Public Accountants (Special General Partnership) Remuneration of domestic accounting firms (RMB '0,000) 130 Continuous years of audit services of domestic accounting firms 1 Name of certified public accountant (CPA) of domestic accounting firms Li Hanbing, Chen Ming Continuous years of audit services provided by certified public accountant (CPA) of domestic accounting firms 1 Whether the accounting firm was changed in the reporting period Yes □ No Whether to hire a new accounting firm during the audit period □ Yes No Whether the replacement of the accounting firm follows the approval procedure Yes □ No Explanations on the appointment and dismissal of accounting firms Whereas the audit institution Baker Tilly China Certified Public Accountants (Special General Partnership) has provided audit services to the Company for 7 consecutive years, and in accordance with the relevant provisions of the "Notice on Issuing the Management Measures for the Selection of Accounting Firms for State-owned Enterprises and Listed Companies" (CK [2023] No. 4) issued by the Ministry of Finance of the People's Republic of China, the State-owned Assets Supervision and Administration Commission of the State Council, and the China Securities Regulatory Commission, in order to ensure the independence and objectivity of audit, and taking into account the Company's future business development, demand for audit services, personnel arrangements and work plans of the accounting firm, the Company held the 7th Session of the Third Board Meeting on November 10,2023 and the 4th Extraordinary General Meeting of Shareholders in 2023 on November 27,2023, which deliberated and approved the "Proposal on Proposed Change of Accounting Firm". They agreed to hire Dahua Certified Public Accountants (Special General Partnership) as the Company's audit institution for the year 2023. ZKTeco 2023 Annual Report 133 Appointment of audit accounting firms, financial advisors or sponsors for internal control □ Applicable Not applicable IX. Delisting after the Disclosure of the Annual Report □ Applicable Not applicable X. Matters Related to Bankruptcy Reorganization □ Applicable Not applicable There were no bankruptcy or restructuring related matters during the reporting period of the Company. XI. Material Litigation and Arbitration Applicable □ Not applicable Basic information of litigation (arbitration) Amount involved (RMB '0,000) Is there an estimated liability formed Progress of litigation (arbitration) Litigation (arbitration) trial results and effects Execution of litigation (arbitration) judgments Disclosure Date Disclosure Index Patent dispute filed by Hanwang Technology Co., Ltd. against the Company and its subsidiary XIAMEN ZKTECO 11,048.6 No The Beijing Intellectual Property Court has ruled to reject all lawsuits filed by the other party The court ruled to dismiss the other party's lawsuit, which has no impact on the Company Not involved June 30, 2023 "Announcement on the Progress of Litigation Matters" on CNINFO (Announcement No.: 2023-059) Unfair competition dispute filed by the Company against Zokon Industry 200 No The Guangdong Higher People's Court ruled on August 25,2023 to reject the application for retrial The second instance court ruled that Zokon Industry compensate the Company and Shenzhen ZKTeco for a loss of RMB 2 million The Company and Shenzhen ZKTeco submitted an "Application for Execution" to the Shenzhen Intermediate People's Court and was accepted by the Shenzhen Intermediate People's Court. As the other party had no property available for execution, the court ruled on September 25, 2023 to terminate the execution. On October 27,2023, the court notified the Company to freeze the execution fee of RMB 25,004.51 from Zokon August 30, 2023 CNINFO (nfo.com.cn) "2023 Half Year Report of ZKTECOCO., LTD." (Announcement No.2023-062) ZKTeco 2023 Annual Report 134 Industry Disputes filed by Zokon Industry over infringement of trademark rights and unfair competition against the Company and Shenzhen Xinjiacheng Intelligent Technology Co., Ltd. 60 Yes The Guangdong Higher People's Court issued a civil judgment (2022) YMZ No.4634 on December 29, 2023, rejecting the appeal of the Company and upholding the original judgment. The Company has suspended the description of "Zokon" on relevant platforms and compensated Zokon Industry with a total of RMB 600,000 for economic losses and reasonable expenses for rights protection; the judgment result has no significant impact on the Company's production and operation Not yet executed August 30, 2023 CNINFO (nfo.com.cn) "2023 Half Year Report of ZKTECOCO., LTD." (Announcement No.2023-062) Other lawsuits/arbitrations where the Company (including subsidiary companies in the consolidated financial statements) as the plaintiff fails to meet the disclosure standards for major lawsuits 1,688.2 No The Company strictly follows the progress of each case No significant impact The Company strictly follows the progress of each case August 30, 2023 CNINFO (nfo.com.cn) "2023 Half Year Report of ZKTECOCO., LTD." (Announcement No.2023-062) Other lawsuits/arbitrations where the Company (including subsidiary companies in the consolidated financial statements) as the defendant fails to meet the disclosure standards for major lawsuits 155.48 No The Company strictly follows the progress of each case No significant impact The Company strictly follows the progress of each case August 30, 2023 CNINFO (nfo.com.cn) "2023 Half Year Report of ZKTECOCO., LTD." (Announcement No.2023-062) ZKTeco 2023 Annual Report 135 XII. Punishment and Rectification □ Applicable Not applicable There were no penalties or rectifications during the reporting period of the Company. XIII. The Integrity of the Company, Its Controlling Shareholders, and Actual Controllers Applicable □ Not applicable During the reporting period, the Company, its controlling shareholders, and actual controllers were in good faith, and there were no instances of failure to fulfill effective court judgments or outstanding debts of significant amounts. XIV. Significant Related-Party Transactions 1. Related-party transactions related to daily operations □ Applicable Not applicable There were no related party transactions related to daily operations during the reporting period of the Company. 2. Related-party transactions arising from the acquisition and sale of assets or equity □ Applicable Not applicable There were no related party transactions related to asset or equity acquisitions or sales during the reporting period of the Company. 3. Related-party Transactions Arising from Joint Investments on External Parties □ Applicable Not applicable During the reporting period, the Company did not engage in any related party transactions related to joint foreign investment. 4. Related Credit and Debt Transactions □ Applicable Not applicable There were no current associated rights of credit and liabilities during the reporting period of the Company. 5. Transactions with Related Financial Companies □ Applicable Not applicable There is no deposit, loan, credit or other financial businesses between the Company and its affiliated financial companies and related parties. 6. Transactions between financial companies controlled by the Company and related parties □ Applicable Not applicable There is no deposit, loan, credit or other financial businesses between the financial company controlled by the Company and its affiliated parties. ZKTeco 2023 Annual Report 136 7. Other significant related party transactions □ Applicable Not applicable There were no other major related party transactions during the reporting period of the Company. XV. Significant Contracts and Their Performance 1. Custody, contracting, and leasing matters (1) Custody □ Applicable Not applicable There was no custody during the reporting period of the Company. (2) Contracting □ Applicable Not applicable There was no contracting during the reporting period of the Company. (3) Leasing Applicable □ Not applicable Explanations on leasing During the reporting period, the Company and its subsidiaries rented offices at relevant locations for business use due to operational needs, and both parties have signed housing rental contracts. Projects that bring profits and losses to the Company that exceed 10% of the total profit during the reporting period □ Applicable Not applicable There are no leasing projects that bring profits or losses to the Company during the reporting period that exceed 10% of the total profits of the Company during the reporting period. 2. Significant guarantee Applicable □ Not applicable Unit: RMB '0,000 External guarantees provided by the Company and its subsidiaries (excluding guarantees provided to subsidiaries) Name of guarantee object Disclosure date of guarantee limit related announcements Guarantee amount Actual occurrence date Actual guarantee amount Type of guarantee Collateral (if any) Counter guarantee (if any) Guarantee period Whether it has been fulfilled Whether to guarantee for related parties Guarantee of the Company to its subsidiaries Name of guaranteDisclosure date Guarantee Actual occurrenActual guaranteType of guaranteCollateral (if any) Counter guaranteGuarantee period Whether it has Whether to ZKTeco 2023 Annual Report 137 e object of guarantee limit related announcements amount ce date e amount e e (if any) been fulfilled guarantee for related parties ZKTECO (GUANGDONG) CO., LTD April 28, 2023 25,000 December 16, 2019 0.00 Joint and several liability guarantee 15 years No No Total approved guarantee amount for subsidiaries during the reporting period (B1) 100,000 Total actual amount of guarantee for subsidiaries during the reporting period (B2) 0 Total approved guarantee amount for subsidiaries at the end of the reporting period (B3) 100,000 Total actual guarantee balance for subsidiaries at the end of the reporting period (B4) 0 Guarantee provided by subsidiaries to subsidiaries Name of guarantee object Disclosure date of guarantee limit related announcements Guarantee amount Actual occurrence date Actual guarantee amount Type of guarantee Collateral (if any) Counter guarantee (if any) Guarantee period Whether it has been fulfilled Whether to guarantee for related parties Total amount of company guarantee (i.e. the total of the first three major items) Total approved guarantee amount during the reporting period (A1+B1+C1) 100,000 Total actual amount of guarantees incurred during the reporting period (A2+B2+C2) 0 Total approved guarantee amount at the end of the reporting period (A3+B3+C3) 100,000 Total actual guarantee balance at the end of the reporting period (A4+B4+C4) 0 Proportion of actual total guarantee amount (i.e. A4+B4+C4) to the Company's net assets 0.00% Including: Balance of guarantees provided to shareholders, actual controllers, and their related parties (D) 0 Balance of debt guarantee provided directly or indirectly for guaranteed objects with an asset liability ratio exceeding 70% (E) 0 Amount of the total guarantee exceeding 0 ZKTeco 2023 Annual Report 138 50% of net assets (F) Total amount of the above three guarantees (D+E+F) 0 Explanations of situations where there is a guarantee liability or evidence indicating the possibility of assuming joint and several liability for the unexpired guarantee contract during the reporting period (if any) Not applicable Explanations of providing external guarantees in violation of prescribed procedures (if any) Not applicable Explanations of the specific situation of using composite guarantee Not applicable 3. Entrustment of others to manage cash assets (1) Entrustment of financial management Applicable □ Not applicable Overview of entrusted financial management during the reporting period Unit: RMB '0,000 Specific types Source of funds for entrusted financial management Amount of entrusted financial management Outstanding balance Overdue uncollected amount Provision for impairment amount of overdue uncollected financial assets Bank financial products Own funds 5,571.682,965.6300 Bank financial products Own funds 1,902.111,902.1100 Bank financial products Own funds 42.38000 Bank financial products Own funds 145.9575.1200 Bank financial products Own funds 3,0003,00000 Bank financial products Fundraising 14,760000 Other categories Own funds 133.3579.6200 Total 25,555.478,022.4800 Specific situation of high-risk entrusted financial management with significant individual amounts, low safety, and poor liquidity □ Applicable Not applicable Expected inability to recover principal or other situations that may lead to impairment in entrusted financial management □ Applicable Not applicable (2) Entrusted loan □ Applicable Not applicable There were no entrusted loans during the reporting period of the Company. ZKTeco 2023 Annual Report 139 4. Other significant contracts □ Applicable Not applicable There were no other significant contracts during the reporting period of the Company. XVI. Other Significant Events □ Applicable Not applicable There are no other significant matters that need to be explained during the reporting period of the Company. XVII. Significant Events of the Company's Subsidiaries □ Applicable Not applicable ZKTeco 2023 Annual Report 140 Section VIIChanges in Shares and Information about Shareholders I. Changes in Shares 1. Changes in sharesZKTeco 2023 Annual Report 141 Unit: share Before the change Increase or decrease in this change (+, -) After this change Quantity Proportion Issue new shares Bonus Share transferred from capital reserve Others Subtotal Quantity Proportion I. Restricted shares 115,239,37677.61% 19,987 34,012,262 -20,944,46613,087,783128,327,15965.92% 1. Shares held by State 2. Shares held by state-owned legal persons 6,9960.00% -6,996 -6,9960 3. Shares held by other domestic enterprises 115,227,13877.60% 19,987 34,012,262 -20,932,22813,100,021128,327,15965.92% Including: shares held by domestic legal persons 89,051,89359.97% 26,160,962 -20,927,9835,232,97994,284,87248.43% Shares held by domestic natural persons 26,175,24517.63% 19,987 7,851,300 -4,2457,867,04234,042,28717.49% 4. Foreign shareholding 5,2420.00% -5,242 -5,2420 Including: shares held by overseas legal persons 5,1580.00% -5,158 -5,1580 Shares held by overseas natural persons 840.00% -84 -840 II. Shares not subject to trading restrictions 33,252,67522.39% 1,619,855 10,535,35320,944,46633,099,67466,352,34934.08% 1. RMB 33,252,67522.39% 1,619,855 10,535,35320,944,46633,099,67466,352,34934.08% ZKTeco 2023 Annual Report 142 denominated ordinary shares 2. Domestic listed foreign shares 3. Overseas listed foreign shares 4. Others III. Total shares 148,492,051100.00% 1,639,842 44,547,615 46,187,457194,679,508100.00% ZKTeco 2023 Annual Report 143 Reasons for changes in shares Applicable □ Not applicable 1、Reasons for changes in restricted shares On February 17,2023, the lockup period of the Company's initial public offering of offline restricted shares expired and the shares went public. The number of shareholders with the restrictions lifted was 5,361, with 1,865,168 shares, accounting for 1.26% of the Company's total share capital at the time of lifting the restrictions; On August 22,2023, some of the shares already issued before the Company's initial public offering and the strategic allocation shares in the initial public offering were lifted from restrictions and listed for circulation. The number of shareholders with the restrictions lifted was 9, with 19,079,298 shares, accounting for 9.8836% of the Company's total share capital at the time of lifting the restrictions; On November 22,2023, the shares obtained by Jin Hairong, the Director and General Manager of the Company, Fu Zhiqian, the Director, and Mu Wenting, the senior managers, from the first grant of the first attribution period under the 2022 restricted share incentive plan were locked up at a ratio of 75% in accordance with relevant regulations. A total of 19,987 restricted shares were added. 2、Reasons for changes in total shares Conversion of capital reserve to share capital: On May 25,2023, the Company disclosed the "2022 Annual Equity Distribution Implementation Announcement". After deliberation and approval by the Company's 2022 Annual General Meeting, the Company converted 3 shares of capital reserve to all shareholders for every 10 shares. After the completion of the capital reserve conversion, the total share capital of the Company increased from 148,492,051 shares to 193,039,666 shares. On November 17,2023, the Company disclosed the "Announcement on the Attribution Results of the First Attribution Period of the 2022 Restricted Share Incentive Plan and the Listing of Shares". After deliberation and approval by the 7th Session of the Third Board Meeting, the attribution condition for the first grant of the first attribution period under the Company's 2022 Restricted Share Incentive Plan was met, and the number of attributed shares was 1,639,842 shares, which were listed for circulation on November 22,2023. After the completion of the attribution, the total share capital of the Company increased from 193,039,666 shares to 194,679,508 shares. Approval of changes in shares Applicable □ Not applicable The 2022 annual equity distribution proposal of the Company has been deliberated and approved by the 2022 annual general meeting held on May 19,2023, and the Company disclosed the "2022 Annual Equity Distribution Implementation Announcement" (Announcement No.: 2023-049) on CNINFO ( on May 25,2023; The attribution condition for the first attribution period of the first grant under the 2022 Restricted Share Incentive Plan of the Company has been met, and it has been approved by the 7th Session of the Third Board Meeting and the 7th Session of the Third Supervisory Board Meeting held on November 10,2023. In addition, the "Announcement on the Achievement of Attribution Conditions for the First Attribution Period of the 2022 Restricted Share Incentive Plan" (Announcement No.2023-081) was disclosed on November 11,2023 on CNINFO (. Transfer of changes in shares Applicable □ Not applicable The registration date for the Company's annual equity distribution in 2022 is May 30,2023, and the ex-dividend date is May 31,2023. The increased shares were registered in the shareholder's securities account on May 31,2023. The attribution condition for the first grant of the first attribution period under the Company's 2022 Restricted Share Incentive Plan was met, and the number of attributed shares was 1,639,842 shares. The shares attributed this time were registered in the relevant incentive object's securities account on November 21,2023. ZKTeco 2023 Annual Report 144 The impact of share changes on financial indicators such as basic EPS and diluted EPS for the most recent year and period, and net assets per share attributable to common shareholders of the Company Applicable □ Not applicable During the reporting period, due to the Company's implementation of converting capital reserve to share capital and the 2022 restricted share incentive plan granting the first attribution period of shares for the first time, the total share capital increased from 148,492,051 shares to 194,679,508 shares, resulting in corresponding dilution of EPS and net assets per share. The relevant data can be found in "V. Main Accounting Data and Financial Indicators" of "Section IICompany Profile and Key Financial Indicators" of the report. Other contents deemed necessary by the Company or required to be disclosed by the securities regulatory authority □ Applicable Not applicable 2. Changes in restricted shares Applicable □ Not applicable Unit: share Name of shareholder Number of restricted shares at the beginning of the period Increase in restricted shares during the period Number of shares released from trading restrictions in this period Number of restricted shares at the end of the period Reason for restrictions Date of releasing from trading restrictions Shenzhen ZKTeco Times Investment Co., Ltd. 45,000,00013,500,000058,500,000 Restricted shares before IPO February 17, 2026 Che Quanhong 26,171,0007,851,300034,022,300 Restricted shares before IPO February 17, 2026 Shenzhen JYSJ Investment Enterprise (Limited Partnership) 10,852,0003,255,6003,526,90010,580,700 Restricted shares before IPO One quarter of the shares will be unlocked from August 17,2023, until all shares are unlocked on August 17, 2026 Shenzhen JYHY Investment Enterprise (Limited Partnership) 10,708,5003,212,5503,480,26310,440,787 Restricted shares before IPO One quarter of the shares will be unlocked from August 17,2023, until all shares are unlocked on August 17, 2026 Dongguan LX Investment Partnership Enterprise 7,600,0002,280,00009,880,000 Restricted shares before IPO August 17, 2025 ZKTeco 2023 Annual Report 145 (Limited Partnership) Shenzhen JYLX Consulting Enterprise (Limited Partnership) 3,652,6001,095,7801,187,0953,561,285 Restricted shares before IPO One quarter of the shares will be unlocked from August 17,2023, until all shares are unlocked on August 17, 2026 Shenzhen Fuhai Juanyong I Venture Investment Fund (Limited Partnership) 2,009,646602,8942,612,5400 Restricted shares before IPO August 22, 2023 Huaxin Yuanchuang (Qingdao) Investment Management Co., Ltd. - Yiwu Walden Yuanjing Venture Capital Center (Limited Partnership) 1,406,752422,0251,828,7770 Restricted shares before IPO August 22, 2023 Huaxin Yuanchuang (Qingdao) Investment Management Co., Ltd. - Qingdao Walden Zhongxiang Investment Center (Limited Partnership) 2,612,540783,7623,396,3020 Restricted shares before IPO August 22, 2023 Shenzhen JYQL Investment Consulting Enterprise (Limited Partnership) 1,356,000406,800440,7001,322,100 Restricted shares before IPO One quarter of the shares will be unlocked from August 17,2023, until all shares are unlocked on August 17, 2026 Changjiang Wealth Asset Management - Bank of Nanjing - Changjiang Wealth - ZKTeco Employee 1,733,148519,9442,253,0920 Restricted shares after IPO August 22, 2023 ZKTeco 2023 Annual Report 146 Strategic Placement No.1 Collective Asset Management Plan Changjiang Wealth Asset Management - Bank of Nanjing - Changjiang Wealth - ZKTeco Employee Strategic Placement No.2 Collective Asset Management Plan 272,02281,607353,6290 Restricted shares after IPO August 22, 2023 Offline issuance restricted shares 1,865,16801,865,1680 Restricted shares after IPO February 17, 2023 Fu Zhiqian 05,36205,362 Executive lockup shares During the tenure of supervisors, directors and senior executives, 25% of the total number of shares held will be unlocked annually, while the remaining 75% will be automatically locked Jin Hairong 05,85005,850 Executive lockup shares During the tenure of supervisors, directors and senior executives, 25% of the total number of shares held will be unlocked annually, while the remaining 75% will be automatically locked Mu Wenting 08,77508,775 Executive lockup shares During the tenure of supervisors, ZKTeco 2023 Annual Report 147 directors and senior executives, 25% of the total number of shares held will be unlocked annually, while the remaining 75% will be automatically locked Total 115,239,37634,032,24920,944,466128,327,159 -- -- II. Issuance and Listing of Securities 1. Securities issuance (excluding preferred shares) during the reporting period Applicable □ Not applicable Type of stocks and derivative securities Issue Date Issue Price (or Interest Rate) Number of Issues Listing Date Listing approved amount (share) Transaction Termination Date Disclosure Index Disclosure Date Stock Category Restricted share November 22, 2023 RMB 14.12/share 1,639,842 November 22, 2023 1,639,842 "Announcement on the Attribution Results of the First Attribution Period of the 2022 Restricted Share Incentive Plan and the Listing of Shares of ZKTECO CO., LTD." (Announcement No.2023-087) on the website of CNINFO November 17,2023 Convertible corporate bonds, convertible corporate bonds with separate transactions and other derivative securities of corporate bonds Explanations on securities issuance (excluding preferred shares) during the reporting period Explanations on the Attribution Results of the First Attribution Period of the 2022 Restricted Share Incentive Plan and the Listing of Shares: On November 10,2023, the Company held the 7th Session of the Third Board Meeting and the 7th Session of the Third Supervisory Board Meeting, respectively, and deliberated and approved the "Proposal on the Achievement of the Attribution Conditions for the First Attribution Period of the 2022 Restricted Share Incentive Plan". The attribution condition for the first grant of the first attribution period under the Company's 2022 Restricted Share Incentive Plan was met. After being reviewed and approved by the Shenzhen Stock Exchange and China Securities Depository and Clearing Co., Ltd. Shenzhen Branch, the number ZKTeco 2023 Annual Report 148 of shares attributed this time was 1,639,842 shares, with an attributable price of RMB 14.12 per share. The listing and circulation date was November 22,2023. 2. Explanations on Changes in Total Share Capital, the Structure of Shareholders, and the Structure of Assets and Liabilities of the Company Applicable □ Not applicable During the reporting period, due to the implementation of the 2022 annual equity distribution proposal, the Company increased its total share capital from 148,492,051 shares to 193,039,666 shares by converting 3 shares per 10 shares to share capital for all shareholders; due to the share attribution when the attribution condition for the first grant of the first attribution period under the Company's 2022 Restricted Share Incentive Plan is met, the total share capital of the Company increased from 193,039,666 shares to 194,679,508 shares. As of the end of 2023, the total assets of the Company were RMB 3.9239007 billion, an increase of 7.07% compared to the end of 2022 (RMB 3.6646799 billion); the total liabilities were RMB 633.1114 million, an increase of 12.26% compared to the end of 2022 (RMB 563.9592 million), and the asset liability ratio was 16.13%, maintaining within a reasonable range. 3. Internal employee shares □ Applicable Not applicable III. Shareholders and Actual Controllers 1. Number of shareholders of the Company and shareholding Unit: share Total number of common shareholders at the end of the reporting period 20,213 Total number of common shareholders at the end of the previous month before the disclosure date of the annual report 19,470 Total number of preferred shareholders whose voting rights have been recovered at the end of the reporting period (if any) (see Note 9) 0 Total number of preferred shareholders whose voting rights have been recovered at the end of last month before the disclosure date of the annual report (if any) (see Note 9) 0 Total number of shareholders holding special voting shares (if any) 0 Particulars about shareholders holding more than 5% or the top 10 shareholders (excluding shares lent through refinancing) Name of shareholder Nature of shareholder Percentage of shares Total shares held at the end of the reporting period Changes in increase and decrease during the reporting Number of shares with trading restrictions Number of shares not subject to trading restrictions Pledge, marking or frozon Share status Amount ZKTeco 2023 Annual Report 149 period Shenzhen ZKTeco Times Investment Co., Ltd. Domestic non state-owned corporation 30.05% 58,500,00013,500,00058,500,0000 Not applicable 0 Che Quanhong Domestic individual 17.48% 34,022,3007,851,30034,022,3000 Not applicable 0 Shenzhen JYSJ Investment Enterprise (Limited Partnership) Domestic non state-owned corporation 7.25% 14,107,6003,255,60010,580,7003,526,900 Not applicable 0 Shenzhen JYHY Investment Enterprise (Limited Partnership) Domestic non state-owned corporation 7.15% 13,921,0503,212,55010,440,7873,480,263 Not applicable 0 Dongguan LX Investment Partnership Enterprise (Limited Partnership) Domestic non state-owned corporation 5.08% 9,880,0002,280,0009,880,0000 Not applicable 0 Shenzhen JYLX Consulting Enterprise (Limited Partnership) Domestic non state-owned corporation 2.42% 4,717,9101,065,3103,561,2851,156,625 Not applicable 0 Huaxin Yuanchuang (Qingdao) Investment Management Co., Ltd. - Qingdao Walden Zhongxiang Investment Center (Limited Partnership) Others 0.89% 1,742,121 -870,41901,742,121 Not applicable 0 Shenzhen JYQL Investment Consulting Enterprise (Limited Partnership) Domestic non state-owned corporation 0.89% 1,731,300375,3001,322,100409,200 Not applicable 0 Hong Kong Securities Clearing Company Limited Overseas corporation 0.65% 1,257,4301,257,43001,257,430 Not applicable 0 Shenzhen Gohedge Fund Management Co., Ltd. - Gohedge Pearl No.1 Private Equity Fund Others 0.36% 709,580709,5800709,580 Not applicable 0 Strategic investors or general corporations Not applicable ZKTeco 2023 Annual Report 150 become the top 10 shareholders due to the placement of new shares (if any) (see Note 4) Explanations on the above shareholder's association or concerted action Shareholder Che Quanhong is elder brother of shareholder Che Quanzhong from ZKTeco Times are brothers, and son of Che Jun, partner of LXInvestment. The shareholder Che Quanhong holds 76.02% of the equity of ZKTeco Times, being the controlling shareholder of ZKTeco Times. Meanwhile, Che Quanhong holds 1.18% of the property share of shareholder LXInvestment. Che Quanzhong, the younger brother of shareholder Che Quanhong, holds a 23.98% equity in ZKTeco Times. Che Jun, the father of shareholder Che Quanhong, holds 98.68% of the property share of LXInvestment. In addition, there is no affiliated relationship between the other shareholders of the Company. Explanations on the above shareholders' involvement in entrusting/entrusted voting rights and waiver of voting rights Not involved Special explanations on the existence of repurchased accounts among the top 10 shareholders (if any) (see Note 10) Not involved Particulars about the top 10 common shareholders that are not subject to trading restrictions Name of shareholder Number of shares not subject to trading restrictions held at the end of the reporting period Types of shares Types Amount Shenzhen JYSJInvestment Enterprise (Limited Partnership) 3,526,900 RMB denominated ordinary shares 3,526,900 Shenzhen JYHY Investment Enterprise (Limited Partnership) 3,480,263 RMB denominated ordinary shares 3,480,263 Huaxin Yuanchuang (Qingdao) Investment Management Co., Ltd. - Qingdao Walden Zhongxiang Investment Center (Limited Partnership) 1,742,121 RMB denominated ordinary shares 1,742,121 Hong Kong Securities Clearing Company Limited 1,257,430 RMB denominated ordinary shares 1,257,430 Shenzhen JYLX Consulting Enterprise (Limited Partnership) 1,156,625 RMB denominated ordinary shares 1,156,625 Shenzhen Gohedge Fund Management Co., Ltd. - Gohedge Pearl No.1 Private Equity Fund 709,580 RMB denominated ordinary shares 709,580 Shenzhen Fuhai Juanyong IVenture Investment Fund (Limited Partnership) 666,138 RMB denominated ordinary shares 666,138 Zhu Yongjian 610,484 RMB denominated ordinary shares 610,484 Changjiang Wealth Asset 418,092 RMB 418,092 ZKTeco 2023 Annual Report 151 Management - Bank of Nanjing - Changjiang Wealth - ZKTeco Employee Strategic Placement No.1 Collective Asset Management Plan denominated ordinary shares Shenzhen JYQL Investment Consulting Enterprise (Limited Partnership) 409,200 RMB denominated ordinary shares 409,200 Explanations on the association or concerted action between the top 10 shareholders of outstanding shares not subject to trading restrictions, as well as between the top 10 shareholders of outstanding shares not subject to trading restrictions and the top 10 shareholders The Company does not know whether there is a related relationship between the top 10 shareholders of shares not subject to trading restrictions, as well as between the top 10 shareholders outstanding shares not subject to trading restrictions and the top 10 shareholders, or whether they belong to persons acting in concert. Explanations on shareholders participating in margin trading (if any) (see Note 5) Among the top 10 shareholders not subject to trading restrictions, Shenzhen Gohedge Fund Management Co., Ltd. - Gohedge Pearl No.1 Private Equity Fund held a total of 709,580 shares of the Company at the end of the reporting period, including 584,520 shares held through ordinary securities accounts and 125,060 shares held through a margin account of CITICSecurities Co., Ltd. At the end of the reporting period, Zhu Yongjian held a total of 610,484 shares of the Company, including 0 share held through ordinary securities accounts and 610,484 shares held through a margin account of Industrial Securities Co., Ltd. Participation of Top Ten Shareholders in Lending of Shares Through Refinancing Business □ Applicable Not applicable Changes to Top Ten Shareholders Compared to the Previous Period Applicable □ Not applicable Unit: share Changes to Top Ten Shareholders Compared to the End of the Previous Period Name of shareholder (full name) Entries/exits during the reporting period Number of shares lent through refinancing and not yet repaid at the end of the period Number of shares held in the ordinary account and credit account of shareholders at the end of the period, as well as the shares lent through refinancing that have not yet been returned Total quantity Proportion to total share capital Total quantity Proportion to total share capital Shenzhen JYQL Investment Consulting Enterprise (Limited Partnership) Entry 00.00% 1,731,3000.89% Hong Kong Securities Clearing Company Limited Entry 00.00% 1,257,4300.65% Shenzhen Gohedge Fund Management Co., Ltd. - Gohedge Pearl No.1 Private Equity Fund Entry 00.00% 709,5800.36% ZKTeco 2023 Annual Report 152 Shenzhen Fuhai Juanyong IVenture Investment Fund (Limited Partnership) Exit Unknown Unknown 666,1380.34% Changjiang Wealth Asset Management - Bank of Nanjing - Changjiang Wealth - ZKTeco Employee Strategic Placement No.1 Collective Asset Management Plan Exit Unknown Unknown 418,0920.21% Huaxin Yuanchuang (Qingdao) Investment Management Co., Ltd. - Yiwu Walden Yuanjing Venture Capital Center (Limited Partnership) Exit Unknown Unknown Unknown Unknown Note: The Company is unaware of whether other shareholders other than the top ten shareholders have participated in the lending of shares through refinancing; the Company is unaware of the shareholding information of shareholders outside the list of top 200 shareholders issued by CSDC at the end of the period. Does the Company have voting right difference arrangements □ Applicable Not applicable Did the top 10 common shareholders and the top 10 shareholders of ordinary shares not subject to trading restrictions engage in agreed repurchase transactions during the reporting period □ Yes No The top 10 common shareholders and the top 10 shareholders of ordinary shares not subject to trading restrictions did not engage in any agreed repurchase transactions during the reporting period. 2. Controlling shareholders of the Company Nature of controlling shareholder: controlled by individual Type of controlling shareholder: corporation Name of controlling shareholder Legal representative Date of establishment Organizational code Main business Shenzhen ZKTeco Times Investment Co., Ltd. Wang Haitao July 13,201591440300335415347NInvestment Equity of other domestic and foreign listed companies controlled and participated in by controlling shareholders during the reporting period The controlling shareholders of the Company did not hold or participate in other domestic and foreign listed companies. Changes in controlling shareholders during the reporting period □ Applicable Not applicable There was no change in the controlling shareholder of the Company during the reporting period. ZKTeco 2023 Annual Report 153 3. Particulars about the Company’s Actual Controller & Concerted Parties Nature of actual controller: domestic individual Type of actual controller: individual Name of actual controller Relationship with actual controller Nationality Have you obtained residency in other countries or regions Che Quanhong Oneself China No Main occupation and position Che Quanhong is the Chairman of the Company. Please refer to "2. Appointment" in "II. Information on Directors, Supervisors, and Senior Managers" in "Section IVCorporate Governance" of this annual report for details. Domestic and foreign listed companies that have controlled in the past 10 years None Changes in actual controller during the reporting period □ Applicable Not applicable There has been no change in the actual controller of the Company during the reporting period. Block diagram of property rights and control relationship between the Company and actual controller The actual controller controls the Company through trust or other asset management methods □ Applicable Not applicable 4. The Company's Controlling Shareholder or the Largest Shareholder and its Concerted Action Person's Cumulative Pledged Shares Account for 80% of the Company's Shares Held by Them □ Applicable Not applicable 5. Particulars about Other Corporate Shareholders with Shareholding Proportion over 10% □ Applicable Not applicable Che Quanhong Shenzhen ZKTeco Times Investment Co., Ltd. ZKTECOCO., LTD. ZKTeco 2023 Annual Report 154 6. Restricted reduction of shares held by controlling shareholders, actual controllers, restructuring parties, and other committed entities □ Applicable Not applicable IV. Specific Implementation of Share Repurchase During the Reporting Period Implementation progress of share repurchase Applicable □ Not applicable Plan disclosure time Number of shares to be repurchased (shares) Proportion to total share capital Proposed repurchase amount (RMB '0,000) Proposed repurchase period Repurchase purpose Number of repurchased shares Proportion of repurchased quantity to the underlying shares involved in the equity incentive plan (if any) November 11,2023 Based on the upper limit of the repurchase price of RMB 48.07 per share (inclusive), the expected number of repurchased shares is 624,090 to 1,248,180 shares The proportion of 193,039,666 shares of the total share capital of the Company as of the disclosure date of the repurchase plan is 0.32% -0.65% Not less than RMB 30 million (inclusive) and not more than RMB 60 million (inclusive) November 10, 2023-November 9, 2024 Implement employee stock ownership plans or equity incentives 25,000 The Company held the 7th Session of the Third Board Meeting on November 10,2023, and deliberated and approved the "Proposal on Repurchasing Company Shares through Centralized Bidding Trading": it plans to use its own funds to repurchase some of the Company's shares through centralized bidding trading, for the implementation of employee stock ownership plans or equity incentives. The total amount of repurchase funds is not less than RMB 30 million and not more than RMB 60 million. As of February 1,2024, the share repurchase plan has been completed. The Company has repurchased a total of 2,230,000 shares of the Company through a dedicated securities account for share repurchases. The cumulative number of repurchased shares accounts for 1.1455% of the total share capital of the Company at that time, with a maximum transaction price of RMB 31.40 per share and a minimum transaction price of RMB 23.20 per share. The total transaction amount is RMB 59,683,228.10 (excluding transaction costs). Progress in implementing centralized bidding trading to reduce holdings and repurchase shares □ Applicable Not applicable ZKTeco 2023 Annual Report 155 Section VIIIInformation of Preferred Shares □ Applicable Not applicable There is no preferred share in the Company during the reporting period. ZKTeco 2023 Annual Report 156 Section IXBonds □ Applicable Not applicable ZKTeco 2023 Annual Report 157 Section XFinancial Report I. Audit Report Audit opinion Standard unqualified opinions Audit report signing date April 22,2024 Audit institution name Dahua Certified Public Accountants (Special General Partnership) Audit Report No. DHSZ [2024] No.0011001165 Name of CPALi Hanbing, Chen Ming Audit Report Text 1. Audit Opinion We have audited the financial statements of ZKTECOCO., LTD. (hereinafter referred to as "ZKTeco"), including the consolidated and parent company's balance sheet as of December 31,2023, the consolidated and parent company's profit statement, the consolidated and parent company's cash flow statement, the consolidated and parent company's Statement of Changes in Equity and notes to financial statements as of 2023. In our opinion, the accompanying financial statements have been prepared in accordance with the provisions of the Accounting Standards for Enterprises in all material aspects and fairly reflect the ZKTeco's consolidated and parent company's financial position as of December 31,2023, as well as the consolidated and parent company's operating results and cash flows as of 2023. 2. Basis for Opinion We conducted our audit in accordance with China Standards on Auditing ("CSAs"). The "CPA's Responsibility for the Audit of Financial Statements" section of the Audit Report further elaborates our responsibilities under these standards. We are independent of ZKTeco in accordance with the China Code of Ethics for Certified Public Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 3. Key Audit Matters Key audit matters are the most important matters we believe to audit the current financial statements according to our professional judgment. The response to these matters is based on the audit of the financial statements as a whole and the formation of an audit opinion, and we do not express an opinion on these matters separately. We have identified the following key audit matters that need to be communicated in the audit report. Revenue recognition (1) Description of matters ZKTeco is mainly engaged in the R&D, design, production, sales, and service of biometric technology and related products. The operating revenue of ZKTeco in 2023 was RMB 1.9701837 billion. Due to the fact that operating revenue is a key performance indicator of ZKTeco and its significant amount, the authenticity of revenue and whether revenue is included in the appropriate accounting period have a significant impact on ZKTeco's operating results, and there may be potential misstatements. Therefore, we consider the recognition of operating revenue of ZKTeco as a key audit matter. Please refer to Note V 34 and Note VII 42 for relevant information disclosure. ZKTeco 2023 Annual Report 158 (2) Audit response Our significant audit procedures for revenue recognition include: 1) Understand, evaluate, and test the effectiveness of internal control design and operation related to sales and collection of ZKTeco; 2) Understand revenue recognition policies through interviews with management, examine relevant clauses of major customer contracts, analyze and evaluate whether the actual revenue recognition policies are appropriate, and review whether relevant accounting policies have been consistently applied; 3) Implement analysis procedures for operating revenue, analyze the rationality of changes in the sales structure of major products, compare with the gross profit margin of the same industry in the same period of history, analyze the changes in gross profit margin of major products and major customers, and review the rationality of sales revenue; 4) Confirm the sales revenue of major customers combined with the audit of accounts receivable, and perform substitution test on customers who have not responded to the letter; 5) Check the major customer contracts, sales outbound orders, acceptance certificates, logistics documents, customs declarations, invoices, and statements of accounts to verify the authenticity of ZKTeco's revenue confirmation; 6) Conduct cut-off tests on revenue transactions recorded before and after the balance sheet date, select samples to verify with relevant supporting documents for revenue recognition under each sales model, to evaluate whether sales revenue is recorded in the appropriate accounting period. Based on the audit work performed, we believe that revenue recognition complies with the Accounting Standards for Enterprises and the Company's accounting policies for revenue recognition. 4. Other Information The management of ZKTeco is responsible for other information. The other information comprises the information included in the annual report for 2023, but does not include the financial statements and our audit report thereon. Our audit opinions published in the financial statements do not cover other information and we do not publish any form of assured conclusion on other information. In combination with our audit of the financial statements, our responsibility is to read other information. In the process, we consider whether there is significant inconsistency in other information with the financial statements or what we have learned during the audit process, or other material misstatement existed. Based on the work we have performed, if we determine that there is a material misstatement of other information, we should report that fact. In this regard, we have nothing to report. In this regard, we have nothing to report. 5. Responsibilities of Management and Those Charged with Governance for the Financial Statements The management of ZKTeco is responsible for the preparation of financial statements that give a fair view in accordance with the Accounting Standards for Enterprises and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the statements, management of ZKTeco is responsible for assessing ZKTeco's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern assumption unless the management either intends to liquidate ZKTeco or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing ZKTeco's financial reporting process. 6. CPA's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an audit report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material ZKTeco 2023 Annual Report 159 misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (1) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (2) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. (3) Evaluate the appropriateness of accounting policies selected by the Management Layer and the reasonableness of accounting estimates and related disclosures. (4) Conclude on the appropriateness of Management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on ZKTeco's ability to continue as a going concern. If we conclude that there is a material uncertainty, we are required to draw attention in our Audit Report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Audit Report. However, future events or conditions may cause ZKTeco to cease to continue as a going concern. (5) Evaluate the overall presentation, structure and content of the financial statements, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (6) Obtain sufficient appropriate audit evidence on the financial information of the entities or business activities within ZKTeco to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit on the Company, and we remain solely responsible for our audit opinion. We communicate with those charged with governance on, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide a statement to those charged with governance that we have complied with ethical requirements related to independence and communicate with those charged with governance all relationships and other matters that may reasonably be considered to affect our independence, as well as related precautions, if applicable. From the matters communicated with those charged with governance, we determine which matters are most important to the audit of the current financial statements, thus constituting key audit matters. We describe these matters in the audit report unless laws and regulations prohibit public disclosure of these matters, or in rare cases, if the negative consequences of communicating a matter in the audit report are reasonably expected to exceed the benefits in the public interest, we determine that the matter should not be communicated in the audit report. II. Financial Statements The unit of the financial statements in the financial notes is: RMB 1. Consolidated Balance Sheet Prepared by: ZKTECOCO., LTD. December 31,2023 Unit: RMB Item December 31,2023 January 1,2023 ZKTeco 2023 Annual Report 160 Current assets: Monetary funds 1,990,924,954.781,912,945,031.97 Deposit reservation for balance Lendings to banks and other financial institutions Trading financial asset 80,980,203.63204,318,406.05 Derivative financial assets Notes receivable Accounts receivable 479,803,313.66403,497,924.27 Receivable financing Prepayment 23,457,907.2430,954,685.58 Premiums receivable Reinsurance accounts receivable Reserves for reinsurance contract receivable Other receivables 32,744,574.2034,207,287.53 Including: interest receivable Dividends receivable Buying back the sale of financial assets Inventories 372,714,784.31348,280,641.59 Contract assets 282,186.31306,799.94 Held-for-sale assets Non-current assets due within one year 17,257,614.7410,025,638.89 Other current assets 25,865,809.2817,861,354.81 Total current assets 3,024,031,348.152,962,397,770.63 Non-current assets: Loans and advances to customers Debt investment 42,284,596.9012,331,160.29 Other debt investment Long-term receivables 2,447,228.230.00 Long-term equity investment 29,781,888.627,151,332.70 Other equity instrument investments Other non-current financial assets 0.00 Investment real estate 23,145,488.850.00 Fixed assets 470,121,791.29446,857,509.06 Construction in progress 138,986,483.7357,041,298.90 Productive biological assets Oil and gas assets Right-of-use asset 38,669,718.8650,640,675.59 Intangible assets 66,016,371.6868,110,512.79 Development expenditures Goodwill 504,803.72496,386.40 ZKTeco 2023 Annual Report 161 Long-term deferred expenses 3,768,847.813,056,310.34 Deferred income tax assets 67,257,559.0155,469,173.13 Other non-current assets 16,884,605.851,127,777.32 Total non-current assets 899,869,384.55702,282,136.52 Total assets 3,923,900,732.703,664,679,907.15 Current liabilities: Short-term loan 0.009,855,000.00 Borrowings from the Central Bank Borrowings from banks and other financial institutions Trading financial liabilities 0.000.00 Derivative financial liabilities Notes payable 122,573,544.0968,293,818.22 Accounts payable 245,084,182.32226,000,476.96 Advances from customer Contract liabilities 65,331,106.1758,838,840.39 Financial assets sold for repurchase Deposit from customers and interbank Acting trading securities Acting underwriting securities Payroll payable 56,630,101.9858,940,852.80 Taxes and dues payable 28,892,229.4422,621,805.04 Other payables 36,735,314.3631,429,478.43 Including: interest payable Dividends payable Handling charges and commissions payable Reinsurance accounts receivable Liabilities held for sale Non-current liabilities due within one year 21,094,682.3623,718,225.39 Other current liabilities 16,463,934.3521,173,620.79 Total current liabilities 592,805,095.07520,872,118.02 Non-current liabilities: Reserves for insurance contracts Long-term loan 7,810,405.04141,757.54 Bonds payable Including: preferred stock Perpetual bonds Lease liabilities 19,713,286.2128,256,717.44 Long-term payables Long-term payroll payable Estimated liabilities 600,000.00600,000.00 ZKTeco 2023 Annual Report 162 Deferred income 1,853,549.622,039,702.49 Deferred tax liability 10,329,053.4812,048,904.97 Other non-current liabilities Total non-current liabilities 40,306,294.3543,087,082.44 Total liabilities 633,111,389.42563,959,200.46 Owner's equity: Share capital 194,679,508.00148,492,051.00 Other equity instruments Including: preferred stock Perpetual bonds Capital reserve 2,075,479,375.132,061,172,912.28 Less: treasury stock 784,700.000.00 Other comprehensive income 28,000,959.195,250,890.36 Special reserve Surplus reserves 60,455,422.5053,978,004.94 General risk reserves Undistributed profits 907,583,024.38788,768,984.64 Total owner's equity attributable to the parent company 3,265,413,589.203,057,662,843.22 Minority interests 25,375,754.0843,057,863.47 Total owner's equity 3,290,789,343.283,100,720,706.69 Total liabilities and owner's equity 3,923,900,732.703,664,679,907.15 Legal Representative: Jin Hairong Person in charge of accounting work: Wang Youwu Person in charge of accounting institution: Fang Li 2. Balance Sheet of Parent Company Unit: RMB Item December 31,2023 January 1,2023 Current assets: Monetary funds 997,496,318.791,356,208,501.46 Trading financial asset 888,780.80147,962,384.55 Derivative financial assets 0.000.00 Notes receivable 0.000.00 Accounts receivable 674,768,619.85584,894,333.69 Receivable financing 0.000.00 Prepayment 16,580,313.5127,798,174.17 Other receivables 59,135,419.2233,980,555.26 Including: interest receivable 192,033.24122,433.25 Dividends receivable Inventories 220,338,772.92201,604,881.25 Contract assets 274,794.84297,021.59 Held-for-sale assets 0.000.00 Non-current assets due within one year 11,261,761.3810,025,638.89 Other current assets 2,221,965.934,880,995.15 Total current assets 1,982,966,747.242,367,652,486.01 Non-current assets: ZKTeco 2023 Annual Report 163 Debt investment 0.0010,670,541.33 Other debt investment 0.000.00 Long-term receivables 1,553,576.040.00 Long-term equity investment 1,273,046,481.87781,906,396.17 Other equity instrument investments 0.000.00 Other non-current financial assets 0.00 Investment real estate 0.000.00 Fixed assets 62,080,079.2866,876,094.68 Construction in progress 0.000.00 Productive biological assets 0.000.00 Oil and gas assets 0.000.00 Right-of-use asset 11,281,532.8114,733,170.98 Intangible assets 8,193,258.138,082,316.47 Development expenditures 0.000.00 Goodwill 0.000.00 Long-term deferred expenses 1,314,622.721,312,121.13 Deferred income tax assets 39,737,047.1829,799,536.02 Other non-current assets 15,725,991.210.00 Total non-current assets 1,412,932,589.24913,380,176.78 Total assets 3,395,899,336.483,281,032,662.79 Current liabilities: Short-term loan 0.000.00 Trading financial liabilities 0.000.00 Derivative financial liabilities 0.000.00 Notes payable 114,437,751.9871,337,129.13 Accounts payable 293,594,334.82268,538,611.36 Advances from customer 0.000.00 Contract liabilities 51,073,453.2929,070,869.80 Payroll payable 26,129,332.9231,351,658.90 Taxes and dues payable 4,029,704.541,986,839.30 Other payables 48,521,459.0286,241,351.29 Including: interest payable Dividends payable Liabilities held for sale 0.000.00 Non-current liabilities due within one year 6,036,995.127,376,143.83 Other current liabilities 17,818,576.0217,999,117.66 Total current liabilities 561,641,607.71513,901,721.27 Non-current liabilities: Long-term loan 0.000.00 Bonds payable 0.000.00 Including: preferred stock 0.000.00 Perpetual bonds 0.000.00 ZKTeco 2023 Annual Report 164 Lease liabilities 4,932,540.657,095,945.72 Long-term payables 0.000.00 Long-term payroll payable 0.000.00 Estimated liabilities 600,000.00600,000.00 Deferred income 400,966.62543,212.69 Deferred tax liability 4,529,736.455,231,980.02 Other non-current liabilities 0.000.00 Total non-current liabilities 10,463,243.7213,471,138.43 Total liabilities 572,104,851.43527,372,859.70 Owner's equity: Share capital 194,679,508.00148,492,051.00 Other equity instruments 0.000.00 Including: preferred stock 0.000.00 Perpetual bonds 0.000.00 Capital reserve 2,085,198,988.612,073,269,021.41 Less: treasury stock 784,700.000.00 Other comprehensive income 0.000.00 Special reserve 0.000.00 Surplus reserves 60,364,126.0153,886,708.45 Undistributed profits 484,336,562.43478,012,022.23 Total owner's equity 2,823,794,485.052,753,659,803.09 Total liabilities and owner's equity 3,395,899,336.483,281,032,662.79 3. Consolidated Income Statement Unit: RMB Item 20232022 I. Total operating revenue 1,970,183,682.341,918,559,191.76 Including: operating revenue 1,970,183,682.341,918,559,191.76 Interest income Premium earned Revenue from handling charges and commissions II. Total operating cost 1,753,903,528.911,699,753,810.25 Including: operating cost 1,000,868,184.911,065,639,119.43 Interest expenses Expenses from handling charges and commissions Surrender value Net payments for insurance claims Net provisions for reserves in insurance liability contracts Policy dividend expenses Reinsurance expenses Taxes and surcharges 25,645,229.2819,046,564.87 Selling expenses 445,414,065.93361,264,181.17 ZKTeco 2023 Annual Report 165 Administrative expenses 122,693,501.96106,748,932.32 R&D expenses 213,613,414.56187,983,847.42 Financial expenses -54,330,867.73 -40,928,834.96 Including: interest expenses 4,114,078.223,101,947.12 Interest income 59,489,145.4228,810,088.84 Plus: other income 13,382,751.1317,849,018.68 Investment income ( loss expressed with "-") -599,875.51 -2,429,189.18 Including: income from investment in associates and joint ventures 2,800,122.302,660,914.13 Gains from derecognition of financial assets measured at amortized cost 0.000.00 Gains from foreign exchange (loss expressed with "-") Gains from net exposure hedging (loss expressed with "-") Gains from changes in fair value (loss expressed with "-") 755,429.17 -701,013.10 Losses from credit impairment (loss expressed with "-") -6,426,264.03 -10,954,110.82 Losses from impairment of assets (loss expressed with "-") -3,163,733.31 -6,294,754.92 Gains from disposal of assets (loss expressed with "-") -129,852.6288,133.35 III. Operating profit (loss expressed with "-") 220,098,608.26216,363,465.52 Plus: non-operating revenue 834,759.26859,519.49 Less: non-operating expenditure 5,760,416.864,134,911.75 IV. Total profit (loss expressed with "-") 215,172,950.66213,088,073.26 Less: income tax expenses 18,328,946.098,754,314.92 V. Net profit (loss expressed with "-") 196,844,004.57204,333,758.34 (I) Classification by business continuity 1. Net profit from continuing operations (net loss expressed with "-") 196,844,004.57204,333,758.34 2. Net profit from discontinued operations (net loss expressed with "-") (II) Classification by ownership 1. Net profits attributable to shareholders of parent company 177,263,675.15192,502,163.93 2. Minority shareholders' profit and loss 19,580,329.4211,831,594.41 VI. Other comprehensive income - after tax 23,345,735.1632,564,473.55 Net of tax of other comprehensive income attributable to the owner of the parent company 22,750,068.8330,740,713.70 Other comprehensive income that ZKTeco 2023 Annual Report 166 cannot be transferred to profit or loss 1. Changes in re-measurement of the defined benefit plan 2. Other comprehensive income that cannot be transferred to profit or loss under the equity method 3. Changes in fair value of other equity instrument investments 4. Changes in the fair value of the Company's own credit risk 5. Other (2) Other comprehensive income that will be reclassified into profit or loss 22,750,068.8330,740,713.70 1. Other comprehensive income that can be transferred to profit or loss under the equity method 2. Changes in fair value of other debt investments 3. Amount of financial assets reclassified into other comprehensive income 4. Provision for credit impairment of other debt investments 5. Cash flow hedging reserve 6. Translation difference of foreign currency financial statements 22,750,068.8330,740,713.70 7. Others After-tax net amount of other comprehensive income attributable to the minority shareholders 595,666.331,823,759.85 VII. Total comprehensive income 220,189,739.73236,898,231.89 Total comprehensive income attributable to owners of the parent company 200,013,743.98223,242,877.63 Total comprehensive income attributable to minority shareholders 20,175,995.7513,655,354.26 VIII. EPS (I) Basic EPS 0.91761.1307 (II) Diluted EPS 0.91331.1275 In the event of a merger of enterprise under the same control in the current period, the net profit realized by the combined party before the merger is RMB , and the net profit realized by the combined party in the previous period is RMB . Legal Representative: Jin Hairong Person in charge of accounting work: Wang Youwu Person in charge of accounting institution: Fang Li 4. Parent Company's Profit Statement Unit: RMB Item 20232022 I. Operating revenue 1,434,036,070.911,542,538,719.71 Less: operating cost 1,036,126,707.811,144,810,483.95 Taxes and surcharges 6,684,004.737,105,264.81 Selling expenses 175,665,854.54164,958,281.03 Administrative expenses 67,623,578.4265,358,679.39 R&D expenses 144,342,341.95133,296,955.01 ZKTeco 2023 Annual Report 167 Financial expenses -38,859,429.21 -45,203,220.06 Including: interest expenses 586,120.76447,465.80 Interest income 34,186,238.2025,178,318.31 Plus: other income 3,629,196.237,416,424.52 Investment income ( loss expressed with "-") 16,583,880.3034,313,370.27 Including: income from investment in associates and joint ventures 0.000.00 Derecognition of income for financial assets measured at amortized cost (loss expressed with "-") 0.000.00 Gains from net exposure hedging (loss expressed with "-") 0.000.00 Gains from changes in fair value (loss expressed with "-") 92,617.82 -752,215.42 Losses from credit impairment (loss expressed with "-") -2,211,851.80 -1,228,959.32 Losses from impairment of assets (loss expressed with "-") -409,714.74 -1,832,657.66 Gains from disposal of assets (loss expressed with "-") -179,099.9512,558.50 II. Operating profit (loss expressed with "-") 59,958,040.53110,140,796.47 Plus: non-operating revenue 435,721.28758,163.67 Less: non-operating expenditure 3,911,338.963,619,836.60 III. Total profits (total losses expressed with "-") 56,482,422.85107,279,123.54 Less: income tax expenses -8,291,752.76 -6,682,392.19 IV. Net profit (net loss expressed with "-") 64,774,175.61113,961,515.73 (I) Net profit from continuing operations (net loss expressed with "-") 64,774,175.61113,961,515.73 (II) Net profit from discontinued operations (net loss expressed with "-") V. Net of tax of other comprehensive income Other comprehensive income that cannot be transferred to profit or loss 1. Changes in re-measurement of the defined benefit plan 2. Other comprehensive income that cannot be transferred to profit or loss under the equity method 3. Changes in fair value of other equity instrument investments 4. Changes in the fair value of the Company's own credit risk 5. Other (2) Other comprehensive income that will be reclassified into profit or loss ZKTeco 2023 Annual Report 168 1. Other comprehensive income that can be transferred to profit or loss under the equity method 2. Changes in fair value of other debt investments 3. Amount of financial assets reclassified into other comprehensive income 4. Provision for credit impairment of other debt investments 5. Cash flow hedging reserve 6. Translation difference of foreign currency financial statements 7. Others VI. Total comprehensive income 64,774,175.61113,961,515.73 VII. EPS: (I) Basic EPS (II) Diluted EPS 5. Consolidated Cash Flow Statement Unit: RMB Item 20232022 I. Cash flows from operating activities: Cash received from sale of goods and rendering of services 2,033,852,451.381,914,391,818.50 Net increase in deposits from customers and deposits in banks and other financial institutions Net increase in borrowings from the Central Bank Net increase in borrowings from banks and other financial institutions Cash received from receiving insurance premiums of original insurance contracts Net cash received from reinsurance business Net increase in deposits and investments from policyholders Cash received from interest, handling fees and commissions Net increase in borrowings from banks and other financial institutions Net capital increase in repurchase business Net cash received from vicariously traded securities Refund of taxes and surcharges 60,737,638.1751,679,360.47 Cash received from other operating activities 71,161,426.9876,523,632.31 Subtotal of cash inflows from operating activities 2,165,751,516.532,042,594,811.28 Cash paid for purchase of goods and 1,044,071,616.081,122,518,900.85 ZKTeco 2023 Annual Report 169 rendering of services 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 Net increase in lendings to banks and other financial institutions Cash paid for interest, handling fees and commissions Cash paid for policy dividends Cash paid to and for employees 561,085,387.58513,551,759.10 Payments of all types of taxes 82,583,436.9980,036,076.98 Other cash payments relating to operating activities 242,010,185.67201,968,041.17 Subtotal of cash outflows from operating activities 1,929,750,626.321,918,074,778.10 Net cash flows from operating activities 236,000,890.21124,520,033.18 II. Cash flows from investing activities: Cash received from disinvestment 783,138,035.71100,302,919.28 Cash received from investment income 4,208,115.071,111,481.30 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 321,201.59569,670.01 Net cash received from disposal of subsidiaries and other business units Cash received from other investing activities Subtotal of cash inflows from investing activities 787,667,352.37101,984,070.59 Cash paid to acquire and construct fixed assets, intangible assets and other long-term assets 182,155,154.0177,486,733.93 Cash paid for investments 528,151,496.901,034,748,807.59 Net increase in pledge loans Net cash paid to acquire subsidiaries and other business units Cash paid for other investing activities 8,690,555.006,488,400.00 Subtotal of cash outflows from investing activities 718,997,205.911,118,723,941.52 Net cash flows from operating activities 68,670,146.46 -1,016,739,870.93 III. Cash flows from financing activities: Cash received from investors 25,584,824.021,486,667,165.16 Including: cash received by subsidiaries from the absorption of minority shareholders' investments 2,430,254.980.00 Cash received from borrowings 7,938,955.9610,063,457.00 Cash received from other financing activities 137,765,650.540.00 Subtotal of cash inflows from financing activities 171,289,430.521,496,730,622.16 Cash paid for debt repayments 10,237,295.27467,504.08 ZKTeco 2023 Annual Report 170 Cash paid for distribution of dividends and profits or payment of interest 80,004,680.356,797,610.36 Including: dividends and profits paid to minority shareholders by subsidiaries 27,714,601.966,781,992.94 Cash paid for other financing activities 147,698,460.0454,065,231.57 Subtotal of cash outflows from financing activities 237,940,435.6661,330,346.01 Net cash flows from financing activities -66,651,005.141,435,400,276.15 IV. Effect of exchange rate changes on cash and cash equivalents 1,392,263.3918,139,393.94 V. Net increase in cash and cash equivalents 239,412,294.92561,319,832.34 Plus: beginning balance of cash and cash equivalents 1,077,608,258.10516,288,425.76 VI. Closing balance of cash and cash equivalents 1,317,020,553.021,077,608,258.10 6. Cash Flow Statement of Parent Company Unit: RMB Item 20232022 I. Cash flows from operating activities: Cash received from sale of goods and rendering of services 1,394,253,617.341,588,277,476.82 Refund of taxes and surcharges 55,671,157.4846,142,202.38 Cash received from other operating activities 59,485,236.93266,424,568.39 Subtotal of cash inflows from operating activities 1,509,410,011.751,900,844,247.59 Cash paid for purchase of goods and rendering of services 1,006,446,805.251,265,144,062.65 Cash paid to and for employees 248,840,477.65245,811,321.01 Payments of all types of taxes 8,266,181.8213,005,949.72 Other cash payments relating to operating activities 274,001,567.18326,385,829.93 Subtotal of cash outflows from operating activities 1,537,555,031.901,850,347,163.31 Net cash flows from operating activities -28,145,020.1550,497,084.28 II. Cash flows from investing activities: Cash received from disinvestment 677,121,784.4262,764,651.20 Cash received from investment income 24,931,563.6917,195,540.59 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 178,820.172,874,752.46 Net cash received from disposal of subsidiaries and other business units 0.000.00 Cash received from other investing activities 0.000.00 Subtotal of cash inflows from investing activities 702,232,168.2882,834,944.25 Cash paid to acquire and construct fixed assets, intangible assets and other long-term assets 24,779,496.762,241,859.00 Cash paid for investments 479,932,157.861,139,688,242.70 Net cash paid to acquire subsidiaries 0.000.00 ZKTeco 2023 Annual Report 171 and other business units Cash paid for other investing activities 8,690,555.006,488,400.00 Subtotal of cash outflows from investing activities 513,402,209.621,148,418,501.70 Net cash flows from operating activities 188,829,958.66 -1,065,583,557.45 III. Cash flows from financing activities: Cash received from investors 23,154,569.041,486,667,165.16 Cash received from borrowings 0.000.00 Cash received from other financing activities 131,789,487.540.00 Subtotal of cash inflows from financing activities 154,944,056.581,486,667,165.16 Cash paid for debt repayments 0.000.00 Cash paid for distribution of dividends and profits or payment of interest 51,972,217.850.00 Cash paid for other financing activities 120,453,358.0033,873,386.92 Subtotal of cash outflows from financing activities 172,425,575.8533,873,386.92 Net cash flows from financing activities -17,481,519.271,452,793,778.24 IV. Effect of exchange rate changes on cash and cash equivalents 710,387.293,470,318.23 V. Net increase in cash and cash equivalents 143,913,806.53441,177,623.30 Plus: beginning balance of cash and cash equivalents 731,506,487.43290,328,864.13 VI. Closing balance of cash and cash equivalents 875,420,293.96731,506,487.43 7. Consolidated Statement of Changes in Equity ZKTeco 2023 Annual Report 172 Amount in current period Unit: RMB Item 2023 Equity attributable to owners of the parent company Minority interests Total owner's equity Share capital Other equity instruments Capital reserve Less: treasury stock Other comprehensive income Special reserve Surplus reserves General risk reserves Undistributed profits Others Subtotal Preferred stock Perpetual bonds Others I. Ending balance of previous year 148,492,051.00 2,061,172,912.280.005,255,222.65 53,975,085.77 788,571,917.98 3,057,467,189.6843,025,126.303,100,492,315.98 Plus: changes in accounting policies 0.00 0.000.00 -4,332.29 2,919.17 197,066.66 195,653.5432,737.17228,390.71 Corrections of prior period errors 0.00 0.000.000.00 0.00 0.00 0.000.000.00 Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 II. Beginning balance of this year 148,492,051.00 2,061,172,912.280.005,250,890.36 53,978,004.94 788,768,984.64 3,057,662,843.2243,057,863.473,100,720,706.69 III. Amount increase/decrease of the current period (decrease expressed with "-") 46,187,457.00 14,306,462.85784,700.0022,750,068.83 6,477,417.56 118,814,039.74 207,750,745.98 -17,682,109.39190,068,636.59 (I) Total comprehensive income 0.00 0.000.0022,750,068.83 0.00 177,263,675.15 200,013,743.9820,175,995.75220,189,739.73 (II) Capital invested and reduced by the owners 1,639,842.00 59,277,005.39784,700.000.00 0.00 0.00 60,132,147.39 -10,143,503.1849,988,644.21 1. Common stock contributed by owners 1,639,842.00 21,514,727.04784,700.000.00 0.00 0.00 22,369,869.04 -10,499,575.1011,870,293.94 2. Capital invested 0.00 0.000.000.00 0.00 0.00 0.000.000.00 ZKTeco 2023 Annual Report 173 by holders of other equity instruments 3. Amount of share-based payments recognized in equity 0.00 36,929,284.990.000.00 0.00 0.00 36,929,284.99356,071.9237,285,356.91 4. Others 0.00 832,993.360.000.00 0.00 0.00 832,993.360.00832,993.36 (III) Profit distribution 0.00 0.000.000.00 6,477,417.56 -58,449,635.41 -51,972,217.85 -27,714,601.96 -79,686,819.81 1. Surplus reserves withdrawal 0.00 0.000.000.00 6,477,417.56 -6,477,417.56 0.000.000.00 2. Withdrawal of general risk preparation 0.00 0.00 3. Distribution to owners (or shareholders) 0.00 0.000.000.00 0.00 -51,972,217.85 -51,972,217.85 -27,714,601.96 -79,686,819.81 4. Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (IV) Internal carryover of owner's equity 44,547,615.00 -44,547,615.000.000.00 0.00 0.00 0.000.000.00 1. Capital surplus transfer to capital (or equity capital) 44,547,615.00 -44,547,615.000.000.00 0.00 0.00 0.000.000.00 2. Surplus reserve transfer to capital (or equity capital) 0.00 0.000.000.00 0.00 0.00 0.000.000.00 3. Surplus reserve offsetting losses 0.00 0.000.000.00 0.00 0.00 0.000.000.00 4. Changes in defined benefit plans carried forward to retained earnings 0.00 0.000.000.00 0.00 0.00 0.000.000.00 5. Retained income carried forward from other comprehensive 0.00 0.000.000.00 0.00 0.00 0.000.000.00 ZKTeco 2023 Annual Report 174 income 6. Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (V) Special reserve 0.00 0.000.000.00 0.00 0.00 0.000.000.00 1. Withdrawal in this period 0.00 0.000.000.00 0.00 0.00 0.000.000.00 2. Use in the current period 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (VI) Others 0.00 -422,927.540.000.00 0.00 0.00 -422,927.540.00 -422,927.54 IV. Ending balance of current period 194,679,508.00 2,075,479,375.13784,700.0028,000,959.19 60,455,422.50 907,583,024.38 3,265,413,589.2025,375,754.083,290,789,343.28 Amount of previous period Unit: RMB Item 2022 Equity attributable to owners of the parent company Minority interests Total owner's equity Share capital Other equity instruments Capital reserve Less: treasury stock Other comprehensive income Special reserve Surplus reserves General risk reserves Undistributed profits Others Subtotal Preferred stock Perpetual bonds Others I. Ending balance of previous year 111,369,038.00 636,363,658.400.00 -25,505,560.02 42,581,853.37 607,725,356.63 1,372,534,346.3836,170,791.651,408,705,138.03 Plus: changes in accounting policies 0.00 0.000.0015,736.68 -6,835.39 -55,548.96 -46,647.6713,710.50 -32,937.17 Corrections of prior period errors 0.00 0.000.000.00 0.00 0.00 0.000.000.00 Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 II. Beginning balance of this year 111,369,038.00 636,363,658.400.00 -25,489,823.34 42,575,017.98 607,669,807.67 1,372,487,698.7136,184,502.151,408,672,200.86 III. Amount increase/decrease of the current period (decrease 37,123,013.00 1,424,809,253.880.0030,740,713.70 11,402,986.96 181,099,176.97 1,685,175,144.516,873,361.321,692,048,505.83 ZKTeco 2023 Annual Report 175 expressed with "-") (I) Total comprehensive income 0.00 0.000.0030,740,713.70 0.00 192,502,163.93 223,242,877.6313,655,354.26236,898,231.89 (II) Capital invested and reduced by the owners 37,123,013.00 1,424,809,253.880.000.00 0.00 0.00 1,461,932,266.880.001,461,932,266.88 1. Common stock contributed by owners 37,123,013.00 1,420,175,364.700.000.00 0.00 0.00 1,457,298,377.700.001,457,298,377.70 2. Capital invested by holders of other equity instruments 0.00 0.000.000.00 0.00 0.00 0.000.000.00 3. Amount of share-based payments recognized in equity 0.00 4,633,889.180.000.00 0.00 0.00 4,633,889.180.004,633,889.18 4. Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (III) Profit distribution 0.00 0.000.000.00 11,402,986.96 -11,402,986.96 0.00 -6,781,992.94 -6,781,992.94 1. Surplus reserves withdrawal 0.00 0.000.000.00 11,402,986.96 -11,402,986.96 0.000.000.00 2. Withdrawal of general risk preparation 0.00 3. Distribution to owners (or shareholders) 0.00 0.000.000.00 0.00 0.00 0.00 -6,781,992.94 -6,781,992.94 4. Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (IV) Internal carryover of owner's equity 0.00 0.000.000.00 0.00 0.00 0.000.000.00 1. Capital surplus transfer to capital (or equity capital) 0.00 0.000.000.00 0.00 0.00 0.000.000.00 2. Surplus reserve transfer to capital (or equity capital) 0.00 0.000.000.00 0.00 0.00 0.000.000.00 3. Surplus reserve offsetting losses 0.00 0.000.000.00 0.00 0.00 0.000.000.00 4. Changes in defined 0.00 0.000.000.00 0.00 0.00 0.000.000.00 ZKTeco 2023 Annual Report 176 benefit plans carried forward to retained earnings 5. Retained income carried forward from other comprehensive income 0.00 0.000.000.00 0.00 0.00 0.000.000.00 6. Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (V) Special reserve 0.00 0.000.000.00 0.00 0.00 0.000.000.00 1. Withdrawal in this period 0.00 0.000.000.00 0.00 0.00 0.000.000.00 2. Use in the current period 0.00 0.000.000.00 0.00 0.00 0.000.000.00 (VI) Others 0.00 0.000.000.00 0.00 0.00 0.000.000.00 IV. Ending balance of current period 148,492,051.00 2,061,172,912.280.005,250,890.36 53,978,004.94 788,768,984.64 3,057,662,843.2243,057,863.473,100,720,706.69 8. Statement of Changes in Equity of the Parent Company Amount in current period Unit: RMB Item 2023 Share capital Other equity instruments Capital reserve Less: treasury stock Other comprehensive income Special reserve Surplus reserves Undistributed profits Others Total owner's equity Preferred stock Perpetual bonds Others I. Ending balance of previous year 148,492,051.00 2,073,269,021.410.000.00 53,883,789.28478,054,153.62 2,753,699,015.31 Plus: changes in accounting 0.00 0.000.000.00 2,919.17 -42,131.39 -39,212.22 ZKTeco 2023 Annual Report 177 policies Corrections of prior period errors 0.00 0.000.000.00 0.000.00 0.00 Others 0.00 0.000.000.00 0.000.00 0.00 II. Beginning balance of this year 148,492,051.00 2,073,269,021.410.000.00 53,886,708.45478,012,022.23 2,753,659,803.09 III. Amount increase/decrease of the current period (decrease expressed with "-") 46,187,457.00 11,929,967.20784,700.000.00 6,477,417.566,324,540.20 70,134,681.96 (I) Total comprehensive income 0.00 0.000.000.00 0.0064,774,175.61 64,774,175.61 (II) Capital invested and reduced by the owners 1,639,842.00 56,477,582.20784,700.000.00 0.000.00 57,332,724.20 1. Common stock contributed by owners 1,639,842.00 21,514,727.04784,700.000.00 0.000.00 22,369,869.04 2. Capital invested by holders of other equity instruments 0.00 0.000.000.00 0.000.00 0.00 3. Amount 0.00 34,962,855.160.000.00 0.000.00 34,962,855.16 ZKTeco 2023 Annual Report 178 of share-based payments recognized in equity 4. Others 0.00 0.000.000.00 0.000.00 0.00 (III) Profit distribution 0.00 0.000.000.00 6,477,417.56 -58,449,635.41 -51,972,217.85 1. Surplus reserves withdrawal 0.00 0.000.000.00 6,477,417.56 -6,477,417.56 0.00 2. Distribution to owners (or shareholders) 0.00 0.000.000.00 0.00 -51,972,217.85 -51,972,217.85 3. Others 0.00 0.000.000.00 0.000.00 0.00 (IV) Internal carryover of owner's equity 44,547,615.00 -44,547,615.000.000.00 0.000.00 0.00 1. Capital surplus transfer to capital (or equity capital) 44,547,615.00 -44,547,615.000.000.00 0.000.00 0.00 2. Surplus reserve transfer to capital (or equity capital) 0.00 0.000.000.00 0.000.00 0.00 3. Surplus reserve 0.00 0.000.000.00 0.000.00 0.00 ZKTeco 2023 Annual Report 179 offsetting losses 4. Changes in defined benefit plans carried forward to retained earnings 0.00 0.000.000.00 0.000.00 0.00 5. Retained income carried forward from other comprehensive income 0.00 0.000.000.00 0.000.00 0.00 6. Others 0.00 0.000.000.00 0.000.00 0.00 (V) Special reserve 0.00 0.000.000.00 0.000.00 0.00 1. Withdrawal in this period 0.00 0.000.000.00 0.000.00 0.00 2. Use in the current period 0.00 0.000.000.00 0.000.00 0.00 (VI) Others 0.00 0.000.000.00 0.000.00 0.00 IV. Ending balance of current period 194,679,508.00 2,085,198,988.61784,700.000.00 60,364,126.01484,336,562.43 2,823,794,485.05 Amount of previous period Unit: RMB Item 2022 ZKTeco 2023 Annual Report 180 Share capital Other equity instruments Capital reserve Less: treasury stock Other comprehensive income Special reserve Surplus reserves Undistributed profits Others Total owner's equity Preferred stock Perpetual bonds Others I. Ending balance of previous year 111,369,038.00 648,463,311.340.000.00 42,490,556.88375,515,011.98 1,177,837,918.20 Plus: changes in accounting policies 0.00 0.000.000.00 -6,835.39 -61,518.52 -68,353.91 Corrections of prior period errors 0.00 0.000.000.00 0.000.00 0.00 Others 0.00 0.000.000.00 0.000.00 0.00 II. Beginning balance of this year 111,369,038.00 648,463,311.340.000.00 42,483,721.49375,453,493.46 1,177,769,564.29 III. Amount increase/decrease of the current period (decrease expressed with "-") 37,123,013.00 1,424,805,710.070.000.00 11,402,986.96102,558,528.77 1,575,890,238.80 (I) Total comprehensive income 0.00 0.000.000.00 0.00113,961,515.73 113,961,515.73 (II) Capital invested and reduced by the owners 37,123,013.00 1,424,805,710.070.000.00 0.000.00 1,461,928,723.07 1. Common stock 37,123,013.00 1,420,175,364.700.000.00 0.000.00 1,457,298,377.70 ZKTeco 2023 Annual Report 181 contributed by owners 2. Capital invested by holders of other equity instruments 0.00 0.000.000.00 0.000.00 0.00 3. Amount of share-based payments recognized in equity 0.00 4,630,345.370.000.00 0.000.00 4,630,345.37 4. Others 0.00 0.000.000.00 0.000.00 0.00 (III) Profit distribution 0.00 0.000.000.00 11,402,986.96 -11,402,986.96 0.00 1. Surplus reserves withdrawal 0.00 0.000.000.00 11,402,986.96 -11,402,986.96 0.00 2. Distribution to owners (or shareholders) 0.00 0.000.000.00 0.000.00 0.00 3. Others 0.00 0.000.000.00 0.000.00 0.00 (IV) Internal carryover of owner's equity 0.00 0.000.000.00 0.000.00 0.00 1. Capital surplus transfer to capital (or equity capital) 0.00 0.000.000.00 0.000.00 0.00 2. Surplus reserve transfer to capital (or equity capital) 0.00 0.000.000.00 0.000.00 0.00 ZKTeco 2023 Annual Report 182 3. Surplus reserve offsetting losses 0.00 0.000.000.00 0.000.00 0.00 4. Changes in defined benefit plans carried forward to retained earnings 0.00 0.000.000.00 0.000.00 0.00 5. Retained income carried forward from other comprehensive income 0.00 0.000.000.00 0.000.00 0.00 6. Others 0.00 0.000.000.00 0.000.00 0.00 (V) Special reserve 0.00 0.000.000.00 0.000.00 0.00 1. Withdrawal in this period 0.00 0.000.000.00 0.000.00 0.00 2. Use in the current period 0.00 0.000.000.00 0.000.00 0.00 (VI) Others 0.00 0.000.000.00 0.000.00 0.00 IV. Ending balance of current period 148,492,051.00 2,073,269,021.410.000.00 53,886,708.45478,012,022.23 2,753,659,803.09 ZKTeco 2023 Annual Report 183 III. Basic Information of the Company 1. Company registration location, organizational form and headquarters address ZKTECOCO., LTD. (hereinafter referred to as "Company" or "the Company"), formerly known as Dongguan ZKTeco Electronic Technology Co., Ltd., was approved by the Dongguan Administration for Market Regulation on July 14,2016. It was jointly established by Shenzhen ZKTeco Times Investment Co., Ltd., Che Quanhong, and Che Jun. The Company was listed on the Shenzhen Stock Exchange on August 17,2022 and currently holds a business license with a unified social credit code of 914419006698651618. As of December 31,2023, the Company has issued a total of 194,679,508.00 shares of share capital after years of converting into share capital and issuing new shares, with a registered capital of RMB 194,679,508.00. The registered address is: No.32, Pingshan Industrial Road, Tangxia Town, Dongguan, Guangdong, China. The parent company is Shenzhen ZKTeco Times Investment Co., Ltd., and the actual controller is Che Quanhong. 2. Nature of business and main operating activities of the Company The Company belongs to the computer, communication and other electronic equipment manufacturing industries, mainly engaged in the R&D, design, production, sales and services of computer vision and biometric technology and related products. 3. Scope of consolidated financial statements There are 61 subsidiaries incorporated in the consolidation scope of the Company in current period, as detailed in Note X "Rights and Interests in Other Entities". Compared to the previous period, the number of entities included in the scope of consolidated financial statements in the current period increased by 8 and decreased by 1. For specific information on the entities subject to changes in the scope of consolidation, please refer to Note IXChanges in Consolidation Scope. 4. Approval of financial statements This financial statement was approved by the Board of Directors of the Company on April 22,2024. IV. Preparation Basis for Financial Statements 1. Basis of preparation Based on actual transactions and events, the Company recognizes and measures them in accordance with the "Accounting Standards for Enterprises - Basic Standards" issued by the Ministry of Finance, specific enterprise accounting standards, application guidelines for Accounting Standards for Enterprises, interpretations of Accounting Standards for Enterprises, and other relevant regulations (hereinafter collectively referred to as "Accounting Standards for Enterprises"). On this basis, we prepare financial statements in accordance with the provisions of the ZKTeco 2023 Annual Report 184 "Preparation Rules for Information Disclosure by Companies Offering Securities to the Public No.15 - General Provisions on Financial Reports" (revised in 2023) issued by China Securities Regulatory Commission. 2. Going concern The Company has evaluated the going-concern ability in 12 months from the end of the reporting period, and fails to find the significant suspicious matters or situations on going-concern ability. Therefore, the Financial Statements were prepared on the basis of going-concern hypothesis. V. Important Accounting Policies and Estimates Tips of specific accounting policies and estimates: The specific accounting policies and estimates formulated by the Company based on the actual production and operation characteristics include operating cycle, recognition and measurement of bad debt reserves for accounts receivable, inventory measurement, classification and depreciation methods of fixed assets, amortization of intangible assets, revenue recognition and measurement, etc. 1. Declaration of compliance with Accounting Standards for Business Enterprises The financial statement prepared by the Company meets the requirements of Accounting Standards for Enterprises, and authentically and completely reflects financial position, business performance, cash flow and other relative information on the Company during the reporting period. 2. Accounting period The accounting year is from January 1 to December 31 in calendar year. 3. Operating cycle The Company's operating cycle is 12 months. 4. Recording currency Renminbi is adopted as the recording currency. Overseas subsidiaries use the currency of the main economic environment in which they operate as the recording currency and convert it into RMB when preparing financial statements. ZKTeco 2023 Annual Report 185 5. Method for recognizing significance criteria and selection basis Applicable □ Not applicable Item Significance criteria Important construction in progress The amount of individual construction in progress exceeds 1% of the total assets Receivables with individual provision for significant items The amount of individual receivables exceeds 1% of the total assets Other important payables with an aging of over one year Other individual payables exceeding 1% of total assets Important accounts payable with an aging of over one year The amount of individual accounts payable exceeds 1% of the total assets Important partly-owned subsidiaries The proportion of total revenue and total profit exceeds 10% Important prepayments with an aging of over one year The amount of individual prepayments exceeds 1% of the total assets Important contract liabilities with an aging of over one year The amount of individual contract liabilities exceeds 1% of the total assets Important joint ventures or associates The carrying amount of long-term equity investment exceeds 5% of the total assets Significant cash flows from investing activities The amount of cash flows from individual investing activities exceeds 1% of the total assets 6. Accounting treatment methods of business merger under the common control and merger under different control The terms, conditions, and economic impact of various transactions related to the step by step implementation of various transactions in the process of business merger in one or more of the following circumstances usually indicate that multiple transactions shall be accounted for as a package deal 1) These transactions were entered into simultaneously or taking into account mutual influence; 2) These transactions as a whole can achieve a complete business result; 3) The occurrence of a transaction depends on the occurrence of at least one other transaction; 4) A transaction alone is not economical, but it is economic when considered with other transactions. (2) Business merger under the common control The enterprises involved in the combination are subject to the same party or ultimate parties before and after the merger, meanwhile the control is not temporary, this business combination is under the same control. The assets and liabilities obtained by the Company in the business merger shall be measured according to the book value of the assets and liabilities of the combined party (including the goodwill formed by the acquisition of the combined party by the ultimate controller) in the consolidated financial statements of the ultimate controller on the combination date. The stock premium in capital reserves is adjusted according to the difference between the book value of net assets acquired through combination and the book value of consideration paid for the combination (or ZKTeco 2023 Annual Report 186 total par value of shares issued). If the stock premium in capital reserves is insufficient to cover the difference, the remaining amount will be charged against retained earnings. If there is a contingent consideration and an estimated liability or asset needs to be recognized, the difference between the estimated liability or asset amount and the subsequent settlement amount of the contingent consideration shall be adjusted to the capital reserve (capital premium or share premium). If the capital reserve is insufficient, the retained earnings shall be adjusted. Where a business merger is ultimately achieved through multiple transactions, and it belongs to a "package deal", each transaction shall be treated as a transaction to obtain control for accounting treatment; if it does not belong to a "package deal", on the date of obtaining control, the difference between the initial investment cost of the long-term equity investment and the sum of the book value of the long-term equity investment before the merger plus the book value of the new payment for the shares obtained on the combination date shall be adjusted to the capital reserve; if the capital reserve is insufficient to offset, the retained earnings shall be adjusted. For equity investments held before the combination date, other comprehensive income recognized using the equity method or financial instrument recognition and measurement standards will not be subject to accounting treatment until the disposal of the investment is carried out on the same basis as the direct disposal of relevant assets or liabilities by the investee; other changes in owner's equity in the net assets of the investee recognized using the equity method, except for net profit or loss, other comprehensive income, and profit distribution, will not be accounted for until the investment is disposed of and transferred to the current profits and losses. (3) Business merger not under common control The enterprises involved in the combination are not subject to the same party or ultimate parties before and after the merger, this business combination is not under the same control. On the date of acquisition, the Company shall measure the assets paid, liabilities incurred or assumed as the consideration for business combination at fair value, and the difference between the fair value and its book value shall be included in current profits and losses. The difference between the merger cost and the fair value of the identifiable net assets obtained from the acquiree is recognized as goodwill by the Company. If the merger cost is less than the fair value share of the identifiable net assets obtained from the acquiree in the merger, the fair values of the identifiable assets, liabilities, and contingent liabilities obtained from the acquiree, as well as the measurement of the merger cost, are first reviewed. After review, if the merger cost is still less than the fair value share of the identifiable net assets obtained from the acquiree in the merger, the difference is included in current profits and losses. ZKTeco 2023 Annual Report 187 If the merger under different control achieved through multiple exchange transactions in steps belongs to a "package deal", each transaction shall be treated as a transaction to obtain control for accounting treatment; for equity investments held before the combination date that do not belong to a package deal and are accounted for using the equity method, the initial investment cost of the investment shall be the sum of the book value of the equity investment held by the acquiree before the date of acquisition and the new investment cost on the date of acquisition; other comprehensive income recognized through equity method accounting for equity investments held before the date of acquisition shall be accounted for on the same basis as the direct disposal of relevant assets or liabilities by the investee when disposing of the investment. If the equity investments held before the combination date are accounted for using financial instrument recognition and measurement standards, the initial investment cost on the combination date shall be the sum of the fair value of the equity investment on the combination date and the new investment cost. The difference between the fair value and book value of the originally held equity, as well as the cumulative fair value changes originally recognized in other comprehensive income, shall be fully transferred to the current investment income on the combination date. (4) Related expenses incurred for the merger The agency fees for auditing, legal services, evaluation and consulting, as well as other directly related expenses incurred for the merger of enterprises, shall be included in current profits and losses at the time of occurrence; the transaction costs of issuing equity securities for enterprise mergers can be directly attributed to equity transactions and deducted from equity. 7. Judgment criteria for control and preparation methods for consolidated financial statements (1) Judgment criteria for control Control means the investor has the power over the investee and enjoys the variable return through participating in activities related to the investee, and has the ability to the investor's return by using the power over the investee. The Company makes a judgment on whether to control the investee based on comprehensive consideration of all relevant facts and circumstances. Once changes in the related facts and circumstances have resulted in a variation to the relevant factors involved in the aforesaid control definition, the Company shall perform reappraisal. The relevant facts and situations mainly include: 1) The purpose of the establishment of the investee. 2) The relevant activities of the investee and how to make decisions on these activities. 3) Whether the rights enjoyed by the investor currently enable them to lead the relevant activities of the investee. 4) Whether the investor enjoys variable returns by participating in related activities of the investee. ZKTeco 2023 Annual Report 188 5) Whether the investor has the ability to exercise the power over the investee to affect its return amount. 6) The relationship between the investor and other parties. (2) Consolidation scope The consolidation scope of the Company's consolidated financial statements is determined based on control, and all subsidiaries (including separate entities controlled by the Company) are included in the consolidated financial statements. (3) Consolidation procedure The Company prepares consolidated financial statements based on the financial statements of itself and its subsidiaries, and other relevant information. The Company prepares consolidated financial statements, treating the entire enterprise group as one accounting entity. In accordance with the recognition, measurement, and presentation requirements of relevant Accounting Standards for Enterprises, and in accordance with unified accounting policies, we reflect the overall financial position, operating results, and cash flows of the enterprise group. The accounting policies and accounting periods adopted by all subsidiaries included in the scope of consolidated financial statements are consistent with those of the Company. If the accounting policy or accounting period of any subsidiary is different from that of the Company, the consolidated financial statements of the subsidiary, upon preparation, will be adjusted according to the accounting policy and accounting period of the Company. When consolidating financial statements, we offset the impact of internal transactions between the Company and its subsidiaries, as well as between subsidiaries, on the consolidated balance sheet, consolidated income statement, consolidated cash flow statement, and consolidated statement of changes in shareholders' equity. If the recognition of the same transaction from the perspective of the consolidated financial statements of the enterprise group is different from that of the accounting entity of the Company or its subsidiaries, the transaction shall be adjusted from the perspective of the enterprise group. The share of owners' equity, current net profit or loss and current comprehensive income of subsidiaries attributable to minority owners are respectively and separately presented under the owner's equity in the consolidated balance sheet, the net profit in the consolidated income statement, and the total comprehensive income in the consolidated income statement. If the current losses shared by a minority shareholder of a subsidiary exceed the balances arising from the shares enjoyed by the minority shareholder in the owners' equity of the subsidiary at the beginning of the period, minority shareholders' equity will be offset accordingly. For subsidiaries acquired through a merger of enterprises under the same control, adjustments are made to their financial statements based on the book value of their assets and liabilities (including goodwill formed by the ultimate controller's acquisition of the subsidiary) in the ultimate controller's financial statements. ZKTeco 2023 Annual Report 189 1) Increase of subsidiaries or business During the reporting period, if a subsidiary or business is added due to a merger of enterprises under the same control, the opening balance of the consolidated balance sheet shall be adjusted; the income, expenses, and profits of subsidiaries or businesses from the beginning of the current period to the end of the reporting period are incorporated into the consolidated income statement; the cash flows of subsidiaries or businesses from the beginning of the current period to the end of the reporting period are included in the consolidated cash flow statement, and the relevant items in the comparative statements are adjusted, as if the merged reporting entity has existed since the point when the ultimate controller began to control. If it is possible to exercise control over the investee under the same control due to additional investment or other reasons, it shall be deemed that the parties participating in the merger have made adjustments in their current state when the ultimate controller began to control. Equity investments held before obtaining the control over the combined party, relevant gains or losses and other comprehensive income recognized from the later of the date when the original equity is obtained or the date when the combining party and the combined party are under the same control to the combination date and other changes in net assets will respectively be used to offset the retained earnings at the beginning of period for the comprehensive financial statements or the current profit or loss. During the reporting period, if a subsidiary or business is added due to a merger under different control, the opening balance of the consolidated balance sheet shall not be adjusted; the income, expenses, and profits of subsidiaries or businesses from the date of acquisition to the end of the reporting period are incorporated into the consolidated income statement; the cash flows of subsidiaries or businesses from the date of acquisition to the end of the reporting period are included in the consolidated cash flow statement; the cash flows of the subsidiary or business from the date of acquisition to the end of the reporting period are included in the consolidated cash flow statement. If the control can be exercised over the investee not under common control as a result of additional investments and other reasons, the equity of the acquiree held before the date of acquisition will be remeasured by the Company at the fair value of such equity on the date of acquisition, and the difference between the fair value and book value of such equity will be included in the current investment income. If the equity of the acquiree held before the date of acquisition involves other comprehensive income accounted for under the equity method, as well as other changes in owner's equity other than net profit and loss, other comprehensive income, and profit distribution, the related other comprehensive income and other changes in owner's equity shall be converted into current investment income on the date of acquisition, except for other comprehensive income arising from the remeasurement of net liability or net asset changes of the defined benefit plan by the investee. 2) Disposal of subsidiaries or businesses ZKTeco 2023 Annual Report 190 ① General disposal method During the reporting period, if the Company disposed of a subsidiary or business, the income, expenses and profits of the subsidiary or business from the beginning of the period to the disposal date were included in the consolidated income statement; the cash flow of the subsidiary or business from the beginning of the period to the disposal date is included in the consolidated cash flow statement. In the event the Company loses the right of control over the investee due to disposal of partial equity investment or other reasons, the remaining equity investment shall be re-measured at the fair value on the date of loss of control. The difference by using the sum of value received from disposal of equity and fair value of the residual equity to deduct the difference between the share of net assets and the sum of goodwill continually counted from the acquisition date or combination date of the original subsidiary (calculated as per original share proportion) shall be recorded into the investment income of the current period in which the control right is lost. Other comprehensive income related to equity investments in existing subsidiaries or changes in owner's equity other than net profit or loss, other comprehensive income, and profit distribution shall be converted into current investment income when control is lost, except for other comprehensive income arising from the remeasurement of net liability or net asset changes in the defined benefit plan by the investee. ② Disposal of subsidiaries step by step For the various deals for step-by-step equity investment disposal that lead to the loss of control over the subsidiary, the terms, conditions, and economic impact of various transactions related to the disposal of equity investments in subsidiaries in one or more of the following circumstances usually indicate that multiple transactions shall be accounted for as a package deal: A. These transactions were entered into simultaneously or taking into account mutual influence; B. These transactions as a whole can achieve a complete business result; C. The occurrence of a transaction depends on the occurrence of at least one other transaction; D. A transaction alone is not economical, but it is economic when considered with other transactions. If all transactions involving the disposal of equity investment in subsidiaries until the loss of control right are treated as a package deal, the Company shall treat each transaction as the one involving the disposal of subsidiaries and the loss of control right for accounting treatment. However, the difference between each disposal price and the share of the subsidiary's net assets corresponding to the investment disposal before the loss of control right shall be recognized as other comprehensive income in the consolidated financial statements, and shall be transferred into the current profits and losses when the control right is lost. ZKTeco 2023 Annual Report 191 If various transactions on disposal of the equity investment of the Company until the loss of control do not belong to a package deal, before loss of control, accounting treatment shall be conducted as per the relevant policy of the disposal of part of equity investment in subsidiaries without loss of control; for loss of control, accounting treatment shall be conducted as per the general disposal method for subsidiaries. 3) Purchase of minority shares of subsidiaries For the difference between the newly increased long-term equity investment from the acquisition of minority equity and the share of net assets in the subsidiary calculated constantly from the date of acquisition (or combination date) as per the newly increased equity ratio, the share premium in capital reserves in the consolidated balance sheet shall be adjusted; where such share premium is insufficient to offset the difference, the retained earnings shall be adjusted. 4) Disposal of partial equity investment in subsidiaries without loss of control Without losing control, the difference between the disposal price obtained from the partial disposal of long-term equity investment in subsidiaries and the share of net assets continuously calculated by subsidiaries from the date of acquisition or the combination date corresponding to the disposal of long-term equity investment shall be adjusted for the share premium in the capital reserve in the consolidated balance sheet. If the share premium in the capital reserve is insufficient to offset, the retained earnings shall be adjusted. 8. Classification of joint venture arrangement and accountant treatment method of joint operation (1) Classification of joint venture arrangements The Company divides the joint venture arrangement into joint operation and joint venture based on factors such as the structure, legal form, provisions stipulated in the joint venture arrangement, other relevant facts and circumstances. Joint operations refer to an arrangement that the joint party enjoys the assets related to such arrangement and bears the liabilities related to such arrangement. Joint venture refers to a joint venture arrangement in which the joint venture party only has rights to the net assets of the arrangement. (2) Accounting treatment of joint operations The Company confirms the following items related to the share of interests in joint operations and conducts accounting treatment in accordance with the relevant Accounting Standards for Enterprises: 1) Recognize the assets held separately and the assets held jointly according to their shares; 2) Recognize the liabilities assumed separately and the liabilities assumed jointly according to their shares; 3) Recognize the income generated by the sale of its share of joint operating output; 4) Recognize the income generated by the sale of output in the joint operation according to its share; ZKTeco 2023 Annual Report 192 5) Recognize the expenses incurred separately and the expenses incurred in joint operation according to their share. 9. Recognition criteria of cash and cash equivalents When preparing the cash flow statement, the Company recognizes the cash on hand and deposits that can be used for payment at any time as cash. Investments with short term (generally due within three months from the date of acquisition), strong liquidity, easy conversion to known amounts of cash and little risk of value change (four conditions) are recognized as cash equivalents. 10. Foreign currency transactions and foreign currency statement translation (1) Foreign currency transaction When foreign currency transaction is initially recognized, the spot exchange rate on the transaction date is used as the conversion rate to convert the foreign currency amount into RMB for bookkeeping. The foreign currency monetary items on the balance sheet date are translated at the spot exchange rate on the balance sheet date; the resulting exchange differences are included in current profits and losses, except for the exchange differences arising from special foreign currency borrowings related to the acquisition and construction of assets eligible for capitalization, which are treated in accordance with the principle of capitalization of borrowing costs. Foreign currency non-monetary items measured at historical cost shall still be converted at the spot exchange rate on the date of transaction, and the amount of their recording currency shall not be changed. Foreign currency non-monetary items measured at fair value shall be translated at the spot exchange rate on the date when the fair value is determined. After conversion, the difference between the amount of bookkeeping functional currency and the amount of the original bookkeeping functional currency shall be treated as a change in fair value (including changes in exchange rates) and included in the current profits and losses or recognized as other comprehensive income. (2) Translation of foreign currency financial statements The asset items and liability items in the balance sheet shall be translated at the exchange rate of the balance sheet date; the owner's equity items, except for "undistributed profits", shall be translated at the spot rate when incurred. The income and expenses items in the Income Statement are translated at the average spot exchange rate. The translation difference of foreign currency financial statements arising from the above conversion is included in other comprehensive income. ZKTeco 2023 Annual Report 193 When disposing of overseas operations, the translation difference of foreign currency financial statements related to the overseas operations listed in other comprehensive income items on the balance sheet shall be transferred from other comprehensive income items to the current profit and loss for disposal. If the reduction of the proportion of interests held overseas but not losing control over overseas operations is resulted from the disposing of partial equity investment or other reasons, the translation balance of foreign currency statements related to such overseas operations shall be vested in minority interest and will not be transferred to current profits and losses. When disposing of part of the equity of an overseas operation as a joint venture or associate, the conversion difference of foreign currency statements related to the overseas operation shall be transferred to the disposed current profits and losses according to the proportion of the disposal of the overseas operation. 11. Financial instruments A financial asset or financial liability is recognized when the Company becomes a party to a financial instrument contract. The effective interest rate method refers to the method of calculating the amortized cost of financial assets or financial liabilities and allocating interest income or interest expenses to each accounting period. Actual interest rate refers to the interest rate used to discount the estimated future cash flows of a financial asset or financial liability over its expected lifespan into the book balance of the financial asset or the amortized cost of the financial liability. When determining the actual interest rate, it is necessary to estimate the expected cash flow based on all contract terms of financial assets or liabilities (such as early repayment, extension, call options, or other similar options), but do not consider expected credit losses. The amortized cost of a financial asset or financial liability is the accumulated amortization amount formed by deducting the repaid principal from the initial recognition amount of the financial asset or financial liability, plus or minus the difference between the initial recognition amount and the amount on the maturity date using the effective interest rate method, and then deducting the accumulated provision for losses (only applicable to financial assets). (1) Classification, recognition and measurement of financial assets The Company categorizes financial assets into the following three categories based on their business model and contractual cash flow characteristics: 1) Financial assets measured at the amortized cost. 2) Financial assets measured at fair value and whose changes are included in other comprehensive income. 3) Financial assets measured at fair value and whose changes are included in the current profits and losses. ZKTeco 2023 Annual Report 194 Financial assets are measured at fair value upon initial recognition, but if the accounts receivable or notes receivable arising from the sale of goods or provision of services do not include significant financing components or do not consider financing components for a period not exceeding one year, they are initially measured at the transaction price. For financial assets measured at fair value and whose changes are included in the current profits and losses, the related transaction expenses is directly included in current profits and losses. For other types of financial assets, related transaction costs are included in the initial recognition amount. The subsequent measurement of financial assets depends on their classification. All affected related financial assets are reclassified only when the Company changes its business model of managing financial assets. 1) Classified as financial assets measured at the amortized cost If the contract terms of a financial asset stipulate that the cash flows generated on a specific date are only payments of principal and interest based on the unpaid principal amount, and the business model for managing the financial asset is aimed at collecting contractual cash flows, then the Company classifies the financial asset as financial assets measured at the amortized cost. The Company classifies financial assets as financial assets measured at the amortized cost, including monetary funds, notes receivable, accounts receivable, other receivables, debt investments, long-term receivables, etc. The Company recognizes interest income for such financial assets using the effective interest rate method and subsequently measures them at amortized cost. Any gains or losses arising from impairment or derecognition or modification are included in current profits and losses. Except for the following situations, the Company determines interest income based on the book balance of financial assets multiplied by the actual interest rate: ① For financial assets that have been purchased or generated with credit impairment, the Company determines their interest income from initial recognition based on the amortized cost of the financial asset and the actual interest rate adjusted by credit. ② For the financial asset purchased or originated without credit impairment but with credit impairment in the subsequent period, the interest income shall be calculated and determined by the Company according to the amortized cost and the effective interest rate of the financial asset in the subsequent period. If the financial instrument no longer experiences credit impairment due to an improvement in its credit risk in subsequent periods, the Company will calculate and determine interest income by multiplying the actual interest rate by the book balance of the financial asset. 2) Classified as financial assets measured at fair value and whose changes are included in other comprehensive income ZKTeco 2023 Annual Report 195 If the contract terms of a financial asset stipulate that the cash flow generated on a specific date is only the payment of principal and interest based on the unpaid principal amount, and the business model for managing the financial asset is aimed at both collecting contractual cash flow and selling the financial asset, the Company classifies the financial asset as financial assets measured at fair value and whose changes are included in other comprehensive income. The Company recognizes interest income for such financial assets using the effective interest rate method. Except for interest income, impairment losses, and exchange differences recognized in current profits and losses, other fair value changes are recognized in other comprehensive income. At the derecognition of the financial asset, the accumulated profits and losses previously included in other comprehensive incomes are transferred and included in current profits and losses. Notes receivable and accounts receivable measured at fair value with changes recognized in other comprehensive income are reported as receivable financing, while other such financial assets are reported as other debt investments. Other debt investments that mature within one year from the balance sheet date are reported as non-current assets that mature within one year, and other debt investments that originally mature within one year are reported as other current assets. 3) Designated as financial assets measured at fair value and whose changes are included in other comprehensive income At initial recognition, the Company may irrevocably designate non-trading equity instrument investments as financial assets measured at fair value and whose changes are included in other comprehensive income based on individual financial assets. The fair value changes of such financial assets are recognized in other comprehensive income and do not require provision for impairment. At the derecognition of the financial asset, the accumulated profits and losses previously included in other comprehensive incomes are transferred from there to the retained earnings. During the investment period of the equity instrument held by the Company, when the right to receive dividends has been established and the economic benefits related to dividends are likely to flow into the Company, and the amount of dividends can be reliably measured, dividend income is recognized and included in current profits and losses. The Company reports this type of financial asset under other equity instrument investment items. If equity instrument investment meets one of the following conditions, it belongs to financial assets measured at fair value and whose changes are included in the current profits and losses: the main purpose of acquiring the financial asset is to sell it in the near future; at initial recognition, it is a part of the identifiable financial asset instrument portfolio under centralized management, and there is objective evidence to suggest the existence of short-ZKTeco 2023 Annual Report 196 term profit models in the near future; it belongs to derivative instruments (excluding derivative instruments that meet the definition of financial guarantee contracts and are designated as effective hedging instruments). 4) Classified as financial assets measured at fair value and whose changes are included in the current profits and losses Financial assets that do not meet the criteria for classification as financial assets measured at fair value and whose changes are included in other comprehensive income, and are not designated as financial assets measured at fair value and whose changes are included in other comprehensive income, are classified as financial assets measured at fair value and whose changes are included in the current profits and losses. Financial assets that are measured at fair value and whose changes are included in the current profits and losses of the Company will be subsequently measured at fair value; and the gains or losses resulting from changes in fair value, as well as dividends and interest income related to the financial assets, shall be included in current profits and losses. The Company reports such financial assets as trading financial assets and other non-current financial assets based on their liquidity. 5) Designated as financial assets measured at fair value and whose changes are included in the current profits and losses At initial recognition, in order to eliminate or significantly reduce accounting mismatches, the Company may irrevocably designate financial assets as financial assets measured at fair value and whose changes are included in the current profits and losses on an individual financial asset basis. If a mixed contract contains one or more embedded derivative instruments, and its main contract does not belong to the above financial assets, the Company may designate it as a financial instrument measured at fair value with its changes included in current profits and losses. Except for the following situations: ① Embedded derivative instruments will not cause significant changes to the cash flow of the mixed contract. ② When determining for the first time whether a similar mixed contract needs to be spun off, it is almost impossible to determine whether the embedded derivative instruments included shall not be spun off without analysis. If embedded in the early repayment right of a loan, the holder is allowed to repay the loan in an amount close to the amortized cost, and this early repayment right does not need to be split. Financial assets that are measured at fair value and whose changes are included in the current profits and losses of the Company will be subsequently measured at fair value; and the gains or losses resulting from changes in fair value, as well as dividends and interest income related to the financial assets, shall be included in current profits and losses. ZKTeco 2023 Annual Report 197 The Company reports such financial assets as trading financial assets and other non-current financial assets based on their liquidity. (2) Classification, recognition and measurement of financial liabilities The Company classifies financial instruments or their components as financial liabilities or equity instruments at initial recognition based on the contract terms of the issued financial instruments and the economic substance reflected, rather than solely in legal form, combined with the definitions of financial liabilities and equity instruments. Financial liabilities are classified at initial recognition as financial liabilities measured at fair value and whose changes are included in the current profits and losses, other financial liabilities, and derivative instruments designated as effective hedging instruments. Financial liabilities are measured at fair value at initial recognition. For the financial liabilities measured at fair value and whose changes are included in the current profits and losses, related transaction costs shall be directly included in current profits and losses. For other financial liabilities, related transaction costs shall be recorded into the initially recognized amount. The subsequent measurement of financial liabilities depends on their classification: 1) Financial liabilities measured at fair value and whose changes are included in the current profits and losses This type of financial liability includes trading financial liabilities (including derivative instruments belonging to financial liabilities) and financial liabilities measured at fair value and whose changes are included in the current profits and losses at initial recognition. If one of the following conditions is met, it belongs to trading financial liabilities: the main purpose of assuming relevant financial liabilities is to sell or repurchase them in the near future; it belongs to part of a identifiable financial instrument portfolio under centralized management, with objective evidence indicating that the Company has recently adopted a short-term profit model; it belongs to derivative instruments, except for derivative instruments designated as effective hedging instruments and derivative instruments that comply with financial guarantee contracts. Trading financial liabilities (including derivatives that are financial liabilities) are subsequently measured at fair value. In addition to related to hedge accounting, changes in fair value are included in current profits and losses. At initial recognition, in order to provide more relevant accounting information, the Company irrevocably designates financial liabilities that meet one of the following conditions as financial liabilities measured at fair value and whose changes are included in the current profits and losses: ① It is possible to eliminate or significantly reduce accounting mismatches. ② Management and performance evaluation are conducted for the financial liability portfolio or the portfolio of financial assets and financial liabilities based on fair value in accordance with the enterprise risk management or ZKTeco 2023 Annual Report 198 investment strategy specified in the official written documents, and report to the key management personnel on this basis inside the enterprise. The Company adopts fair value for subsequent measurement of such financial liabilities. Except for fair value changes caused by changes in the Company's own credit risk, which are included in other comprehensive income, other fair value changes are included in current profits and losses. Unless fair value changes caused by changes in the Company's own credit risk are included in other comprehensive income, which would cause or expand accounting mismatches in profit or loss, the company will include all fair value changes (including the amount affected by changes in its own credit risk) in current profits and losses. 1) Other financial liabilities Except for the following items, the Company classifies financial liabilities as financial liabilities measured at amortized costs, and adopts the effective interest rate method for subsequent measurement at amortized cost. Gains or losses arising from derecognition or amortization are included in current profits and losses. ① Financial liabilities measured at fair value and whose changes are included in the current profits and losses. ② The transfer of financial assets does not meet the conditions for derecognition or continues to involve financial liabilities formed by the transferred financial assets. ③ Financial guarantee contracts that do not fall under the first two categories of this article, as well as loan commitments for loans at interest rates lower than the market rate that do not fall under the first category of this article. A financial guarantee contract refers to a contract in which the issuer is required to pay a specific amount to the contract holder who has suffered losses when the specific debtor is unable to pay its debts at maturity in accordance with the terms of the original or revised debt instrument. Financial guarantee contracts that do not belong to financial liabilities measured at fair value and whose changes are included in the current profits and losses shall be measured at the higher of the loss provision amount or the initial recognition amount minus the accumulated amortization amount during the guarantee period after initial recognition. (3) Derecognition of financial assets and financial liabilities 1) If a financial asset meets one of the following conditions, it shall be derecognized and written off from its account and balance sheet: ① The contractual rights for collecting the cash flow of the financial asset are terminated; ② The financial asset has been transferred and the transfer meets the requirements for derecognition of financial assets. ZKTeco 2023 Annual Report 199 If the current obligation of a financial liability (or part of it) has been discharged, the recognition of the financial liability (or part of it) shall be terminated. If the Company signs an agreement with the lender to replace the original financial liability by assuming a new financial liability, and the contract terms of the new financial liability are substantially different from those of the original financial liability, or if there are substantial modifications to the contract terms of the original financial liability (or a part of it), the recognition of the original financial liability shall be terminated, and a new financial liability shall be recognized. The difference between the book value and the consideration paid (including non cash assets transferred out or liabilities assumed) shall be included in current profits and losses. If the Company repurchases a portion of its financial liabilities, the overall book value of the financial liability shall be allocated based on the proportion of the fair value of the continuously recognized part and the derecognized part on the repurchase date to the overall fair value. The difference between the book value distributed to the derecognized part and the consideration paid (including non-cash assets transferred out or liabilities undertaken) shall be included in current profits and losses. (4) The recognition basis and measuring method for transfer of financial assets When the Company transfers financial assets, it evaluates the degree of risk and reward in retaining ownership of the financial assets, and treats them separately in the following situations: 1) If almost all risks and rewards related to the ownership of financial assets have been transferred, the recognition of the financial asset shall be terminated, and the rights and obligations arising or retained during the transfer shall be separately recognized as assets or liabilities. 2) If almost all risks and rewards related to ownership of financial assets are retained, the recognition of the financial asset will continue. 3) If there is neither transfer nor retention of almost all risks and rewards related to the ownership of financial assets (i.e. other situations except for (1) and (2) of this article), the following situations shall be treated based on whether the control over the financial assets has been retained: ① If control over the financial asset is not retained, the recognition of the financial asset shall be terminated, and the rights and obligations arising or retained in the transfer shall be separately recognized as assets or liabilities. ② If control over the financial asset is retained, the relevant financial asset shall be recognized based on its continued involvement in the transferred financial asset, and corresponding liabilities shall be recognized. The degree of continued involvement in the transferred financial assets refers to the degree to which the Company bears the risk or reward of changes in the value of the transferred financial assets. ZKTeco 2023 Annual Report 200 The principle of "substance over form" shall be adopted in judging whether the transfer of financial assets meets the above-mentioned conditions for derecognition. The Company divides the transfer of financial assets into entire transfer and partial transfer. 1) If the entire transfer satisfies the derecognition condition, the difference between the following amount shall be included in current profits and losses: ① The book value of the transferred financial asset on the date of derecognition. ② The sum of the consideration received for the transfer of financial assets and the amount corresponding to the derecognized part of the cumulative fair value changes originally recognized in other comprehensive income (the financial assets involved in the transfer are financial assets measured at fair value and whose changes are included in other comprehensive income). 2) If a financial asset is partially transferred and the transferred part as a whole meets the conditions for derecognition, the book value of the entire financial asset before the transfer shall be apportioned between the derecognized part and the continuously recognized part (in which case, the retained service asset shall be considered as part of the continuously recognized financial asset) according to their respective relative fair values on the transfer date, and the difference between the following two amounts shall be included in current profits and losses: ① The book value of the derecognized part on the date of derecognition. ② The sum of the consideration received from the derecognized part and the amount corresponding to the derecognized part of the cumulative fair value changes originally recognized in other comprehensive income (the financial assets involved in the transfer are financial assets measured at fair value and whose changes are included in other comprehensive income). If the financial assets transferred does not meet the conditions of derecognition, the financial assets shall continue to be recognized and the consideration received shall be recognized as a financial liability. (5) Determination methods for fair value of financial assets and financial liabilities The fair value of financial assets or liabilities with an active market shall be determined based on the quoted price in the active market, unless there is a restricted share trade period for the asset itself. For financial assets subject to restrictions on the sale of the asset itself, the compensation amount requested by market participants for bearing the risk of not being able to sell the financial asset in the open market within a specified period shall be determined based on the quoted price in the active market. Active market quotes include quotes that are easily and regularly obtained from exchanges, traders, brokers, industry groups, pricing agencies, or regulatory agencies for relevant assets or liabilities, and can represent actual and frequent market transactions on an arm's length basis. ZKTeco 2023 Annual Report 201 The fair value of initially acquired or derived financial assets or assumed financial liabilities is determined based on market transaction prices. For a financial asset or financial liability without active market, its fair value shall be recognized by adopting the estimation technique. During estimation, the Company adopts the estimation technique that is currently applicable and is supported by sufficient available data and other information, and selects the input value with characteristics consistent with the assets or liabilities considered by market participants in relevant transactions of assets or liabilities. The related observable input value is preferred. The non-observable input value can be used only when it is impossible or not feasible to obtain relevant observable input value. (6) Impairment of financial instruments The Company conducts impairment accounting and recognizes loss provisions based on expected credit losses for financial assets measured at the amortized cost, financial assets measured at fair value and whose changes are included in other comprehensive income, lease receivables, contract assets, loan commitments other than financial liabilities measured at fair value and whose changes are included in the current profits and losses, financial liabilities other than financial liabilities measured at fair value and whose changes are included in the current profits and losses, as well as financial guarantee contracts formed by financial asset transfers that do not meet the derecognition conditions or continue to be involved in transferred financial assets. Expected credit losses refer to the weighted average value of credit losses of financial instruments weighted by the risk of default. Credit loss refers to the difference between all contractual cash flows receivable from the contract and all cash flows expected to be received by the Company at the original effective interest rate, that is, the present value of all cash shortages. Among them, the financial assets that have been credit-depreciated by the Company or purchased by the Company shall be discounted according to the effective interest rate adjusted by the financial assets. The Company measures loss provisions for all contract assets and accounts receivable formed by transactions regulated by revenue standards at an amount equivalent to the expected credit loss over the whole duration. For financial assets purchased or originated by the Company that have suffered credit impairment, only the cumulative changes in expected credit losses during the whole duration after initial recognition are recognized as loss reserves on the balance sheet date. On each balance sheet date, the change amount of expected credit loss during the whole duration shall be included in the current profits and losses as impairment losses or gains. Even if the expected credit loss determined on the balance sheet date for the whole duration is less than the amount of the expected credit loss reflected in the estimated cash flow at the time of initial recognition, the favorable change in the expected credit loss is recognized as impairment gains. ZKTeco 2023 Annual Report 202 For other financial assets other than those that have been measured using simplified measurement methods and those that have been purchased or incurred credit impairment, the Company assesses on each balance sheet date whether the credit risk of the relevant financial instruments has significantly increased since initial recognition, and measures the loss provision and recognizes expected credit losses, and their changes according to the following circumstances: 1) If the credit risk of the financial instrument has not significantly increased since initial recognition and is in the first stage, the loss provision shall be measured at an amount equivalent to the expected credit loss of the financial instrument in the next 12 months, and interest income shall be calculated based on the book balance and actual interest rate. 2) If the credit risk of the financial instrument has significantly increased since initial recognition but has not yet experienced credit impairment, and it is in the second stage, the loss provision shall be measured at an amount equivalent to the expected credit loss of the financial instrument throughout its duration, and interest income shall be calculated based on the book balance and actual interest rate. 3) If the financial instrument has experienced credit impairment since initial recognition and is in the third stage, the Company measures its loss provision at an amount equivalent to the expected credit loss for the whole duration of the financial instrument, and calculates interest income at amortized cost and actual interest rate. The increase or reversal of the provision for credit losses on financial instruments shall be included in current profits and losses as impairment losses or gains. Except for financial assets classified as financial assets measured at fair value and whose changes are included in other comprehensive income, the provision for credit losses is offset against the book balance of financial assets. For financial assets classified as financial assets measured at fair value and whose changes are included in other comprehensive income, the Company recognizes their provision for credit losses in other comprehensive income without reducing the book value of the financial asset on the balance sheet. The Company has already measured the loss provision in the previous accounting period at an amount equivalent to the expected credit loss for the whole duration of the financial instrument. However, on the current balance sheet date, if the financial instrument is no longer subject to a significant increase in credit risk since initial recognition, the Company measures the loss provision in the financial instrument at an amount equivalent to the expected credit loss for the next 12 months on the current balance sheet date. The reversal amount of the resulting provision for losses is included in current profits and losses as impairment gains. 1) Significant increase in credit risk The Company utilizes available and reasonable forward-looking information to determine whether the credit risk of financial instruments has significantly increased since initial recognition by comparing the risk of default on ZKTeco 2023 Annual Report 203 the balance sheet date with the risk of default on the initial recognition date. For financial guarantee contracts, when applying impairment provisions for financial instruments, the date on which the Company becomes the party making an irrevocable commitment shall be regarded as the initial recognition date. When evaluating whether credit risk has significantly increased, the Company will consider the following factors: ① Whether there has been a significant change in the actual or expected operating results of the debtor; ② Whether there have been significant adverse changes in the regulatory, economic, or technological environment in which the debtor is located; ③ Whether there has been a significant change in the value of collateral as collateral for debt collateral or the quality of collateral or credit enhancement provided by third parties, which is expected to reduce the economic motivation of the debtor to repay within the period stipulated in the contract or affect the probability of default; ④ Whether there have been significant changes in the debtor's expected performance and repayment behavior; ⑤ Whether there have been changes in the Company's credit management methods for financial instruments. On the balance sheet date, if the Company determines that the financial instrument only has a lower credit risk, the Company assumes that the credit risk of the financial instrument has not significantly increased since initial recognition. Where the Company determines that the default risk of financial instruments is low, the borrower has a strong ability to fulfill its contractual cash flow obligations in a short term, and the borrower's ability to fulfill its contractual cash flow obligations will not be necessarily reduced even if there are adverse changes in the economic situation and operating environment for a long period of time, the financial instrument can be regarded as having low credit risk. 2) Financial assets that have experienced credit impairment When one or more events that the expected future cash flow of a financial asset has an adverse impact occur, the financial asset becomes a financial asset with credit impairment. Evidence of credit impairment of financial assets includes the following observable information: ① Significant financial difficulties of the issuer or the debtor; ② The debtor violates the contract, such as default or overdue payment of interest or principal; ③ The creditor grants concessions that the debtor would not otherwise make for economic or contractual reasons related to the debtor's financial difficulties; ④ The debtor is likely to go bankrupt or undergo other financial restructuring; ⑤ The financial difficulties of the issuer or the debtor lead to the disappearance of the active market of the financial asset; ZKTeco 2023 Annual Report 204 ⑥ A financial asset is purchased or originated at a substantial discount that reflects the fact that a credit loss has occurred. The credit impairment of financial assets may be caused by the joint action of multiple events, not necessarily by individually identifiable events. 3) Determination of expected credit losses The Company evaluates the expected credit losses of financial instruments based on individual and combination evaluations. When evaluating expected credit losses, the Company considers reasonable and evidence-based information about past events, current conditions, and future economic forecasts. The Company divides financial instruments into different portfolios based on common credit risk characteristics. The common credit risk characteristics adopted by the Company include: financial instrument type, credit risk rating, aging portfolio, overdue aging portfolio, contract settlement period, debtor's industry, etc. The individual evaluation criteria and combined credit risk characteristics of relevant financial instruments are detailed in the accounting policies of relevant financial instruments. The Company determines the expected credit losses of related financial instruments using the following methods: ① For financial assets, credit loss is the present value of the difference between the contractual cash flows that the Company should receive and the expected cash flows to receive. ② For lease receivables, credit loss is the present value of the difference between the contractual cash flows that the Company should receive and the expected cash flows to receive. ③ For financial guarantee contracts, credit loss is the present value of the difference between the expected payment amount that the Company will make to the contract holder for the credit loss incurred and the expected amount that the Company will collect from the contract holder, debtor, or any other party. ④ For financial assets that have experienced credit impairment on the balance sheet date but whose credit impairment has not occurred upon purchase or origination, credit loss is the difference between the book balance of the financial asset and the present value of estimated future cash flows discounted at the original effective interest rate. The factors reflected in the Company's method of measuring expected credit losses of financial instruments include: the unbiased probability weighted average amount determined by evaluating a range of possible outcomes; the time value of money; reasonable and evidence-based information about past events, current conditions, and future economic forecasts that can be obtained without unnecessary additional costs or efforts on the balance sheet date. 4) Write down financial assets ZKTeco 2023 Annual Report 205 Where the Company does not reasonably expect that the contract cash flow of financial assets can be recovered in whole or in part, it shall directly write down the book balance of financial assets. This write down constitutes the derecognition of related financial assets. (7) Offset of financial assets and financial liabilities Financial assets and financial liabilities are listed separately in the balance sheet and do not offset each other. However, if the following conditions are met at the same time, the net amount after mutual offset shall be listed in the balance sheet: 1) The Company has the legal right to offset the recognized amount, and this legal right is currently enforceable; 2) The Company plans to settle at a net amount, or realize the financial assets and settle the financial liabilities at the same time. 12. Notes receivable The recognition method and accounting treatment method for the expected credit loss of the Company's notes receivable are detailed in Note V 11.6. Impairment of financial instruments. For notes receivable with significantly different credit risks compared to portfolio credit risks, the Company provides expected credit losses on a single basis. The Company separately determines the credit loss of notes receivable that provide sufficient evidence to evaluate expected credit losses at a reasonable cost at the individual instrument level. When there is insufficient evidence to evaluate expected credit losses at a reasonable cost at the individual tool level, the Company divides notes receivable into several portfolios based on credit risk characteristics with reference to historical credit loss experience, combining current conditions with judgments of future economic conditions, and calculates expected credit losses on the basis of the portfolio. Basis for determining portfolio: Portfolio Name Basis for determining portfolio Accrual method Banker's acceptance portfolio The acceptor has a high credit rating, has not defaulted on bills in history, has extremely low credit loss risk, and has a strong ability to fulfill its cash flow obligations under payment contracts in the short term With reference to historical credit loss experience, combined with the current situation and the prediction of future economic conditions, the Company shall measure the bad debt reserve Commercial acceptance bill portfolio According to the credit rating of the acceptor With reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, the Company shall prepare a comparison table between the aging of notes receivable and the expected credit loss rate to calculate the expected credit loss. The comparison table between the aging of commercial acceptance bills and the expected credit loss rate is as follows: ZKTeco 2023 Annual Report 206 Aging Expected credit loss rate of notes receivable (%) Within 1 year 5.00 1-2 years 10.00 2-3 years 30.00 Over 3 years 100.00 The aging of notes receivable is calculated using the first in, first out method (FIFO). 13. Accounts receivable The recognition method and accounting treatment method for the expected credit loss of the Company's accounts receivable are detailed in Note V 11.6. Impairment of financial instruments. The Company separately determines the credit loss of accounts receivable that provide sufficient evidence to evaluate expected credit losses at a reasonable cost at the individual instrument level. When there is insufficient evidence to evaluate expected credit losses at a reasonable cost at the individual tool level, the Company divides accounts receivable into several portfolios based on credit risk characteristics with reference to historical credit loss experience, combining current conditions with judgments of future economic conditions, and calculates expected credit losses on the basis of the portfolio. Basis for determining portfolio: Portfolio Name Basis for determining portfolio Accrual method Related party portfolio Accounts receivable from related parties within the scope of the Company's consolidated financial statements Expected credit loss rate is calculated with reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, through default risk exposure and the expected credit loss rate of the entire duration Aging portfolio Including accounts receivable other than the above portfolio With reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, the Company shall prepare a comparison table between the aging of accounts receivable and the expected credit loss rate to calculate the expected credit loss. The comparison table between the aging of aging portfolios and the expected credit loss rate is as follows: Aging Expected credit loss rate of accounts receivable (%) Within 1 year 5.00 1-2 years 10.00 2-3 years 30.00 Over 3 years 100.00 The aging of accounts receivable is calculated using the first in, first out method (FIFO). ZKTeco 2023 Annual Report 207 14. Receivable financing Notes receivable classified as measured at fair value with changes recognized in other comprehensive income, with a maturity period of one year (including one year) from the initial recognition date, are listed as receivable financing; if the maturity period is more than one year from the initial recognition date, they shall be listed as other debt investments. The relevant accounting policies are detailed in Note V 11. The recognition method and accounting treatment method for the expected credit loss of the Company's receivable financing receivable are detailed in Note V 11.6. Impairment of financial instruments. 15. Other receivables The recognition method and accounting treatment method for the expected credit loss of the Company's other receivables are detailed in Note V 11.6. Impairment of financial instruments. For other receivables with significantly different credit risks compared to portfolio credit risks, the Company provides expected credit losses on a single basis. The Company separately determines the credit loss of other receivables that provide sufficient evidence to evaluate expected credit losses at a reasonable cost at the individual instrument level. When there is insufficient evidence to evaluate expected credit losses at a reasonable cost at the individual tool level, the Company divides other receivables into several portfolios based on credit risk characteristics with reference to historical credit loss experience, combining current conditions with judgments of future economic conditions, and calculates expected credit losses on the basis of the portfolio. Basis for determining portfolio: Portfolio Name Basis for determining portfolio Accrual method Aging portfolio This portfolio takes the aging of accounts receivable as the credit risk characteristics. With reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, the Company shall prepare a comparison table between the aging of other accounts receivable and the expected credit loss rate to calculate the expected credit loss. Related party portfolio This portfolio includes accounts receivable from subsidiaries and other related parties within the consolidation scope. Expected credit loss rate is calculated with reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, through default risk exposure and the expected credit loss rate within the following 12 months Portfolio of deposits, security deposits, employee loans, etc. This portfolio features deposits, security deposits and employee loans as credit risk characteristics. Expected credit loss rate is calculated with reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, through default risk exposure and the expected credit loss rate within the following 12 months The comparison table between the aging of aging portfolios and the expected credit loss rate is as follows: Aging Expected credit loss rate of other receivables (%) Within 1 year 5.00 ZKTeco 2023 Annual Report 208 1-2 years 10.00 2-3 years 30.00 Over 3 years 100.00 The aging of other receivables is calculated using the first in, first out method (FIFO). 16. Contract assets The Company has transferred the right to receive the consideration for commodities to the customers, and such right depends on the factors other than the passage of time shall be recognized as the contract assets. The Company's unconditional (i.e., only depending on the time lapses) right to collect consideration from the customers shall be listed separately as receivables. The recognition method and accounting treatment method for the expected credit loss of the Company's contract assets are detailed in Note V 11.6. Impairment of financial instruments. The Company separately determines the credit loss of contract assets that provide sufficient evidence to evaluate expected credit losses at a reasonable cost at the individual instrument level. When there is insufficient evidence to evaluate expected credit losses at a reasonable cost at the individual tool level, the Company divides contract assets into several portfolios based on credit risk characteristics with reference to historical credit loss experience, combining current conditions with judgments of future economic conditions, and calculates expected credit losses on the basis of the portfolio. Basis for determining portfolio: Portfolio Name Basis for determining portfolio Accrual method Related party portfolio Accounts receivable from related parties within the scope of the Company's consolidated financial statements With reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, the Company shall calculate the expected credit loss Aging portfolio Including accounts receivable other than the above portfolio Expected credit loss rate is calculated with reference to historical credit loss experience, combined with the current situation and the forecast of future economic conditions, through default risk exposure and the expected credit loss rate of the entire duration 17. Inventory (1) Inventory category, valuation method for issuing inventory, inventory taking system, amortization method for low value consumables and packaging materials 1) Inventory category Inventories refer to finished products or commodities held by the Company for sale in daily activities, products in process of production, and materials consumed in the process of production or provision of labor services. Mainly ZKTeco 2023 Annual Report 209 including raw materials, products in process, goods in stock, goods in transit, consigned processing materials, contract performance costs, etc. 2) Valuation method for issuing inventory Inventory is initially measured at cost upon acquisition, including procurement costs, processing costs, and other costs. Inventory is valued using the weighted average method when issued. 3) Inventory taking system Inventory taking system of the company is a perpetual inventory system. 4) Amortization method for low value consumables and packaging materials ① Low value consumables are amortized by the one-off write-off method; ② Packaging materials are amortized by the one-off write-off method; ③ Other turnover materials are amortized using the one-off write-off method. (2) Recognition conditions and accrual method of inventory depreciation reserves After conducting a comprehensive inventory at the end of the period, the provision for inventory depreciation shall be withdrawn or adjusted based on the lower of the cost and net realizable value of the inventory. For goods inventories directly used for sale, such as finished products and materials for sale, during the normal production and operation process, the net realizable value shall be recognized by the estimated selling price of the inventory minus the estimated selling and distribution expenses and related taxes; for material inventories to be processed, during the normal production and operation process, the net realizable value shall be recognized by the estimated selling price of the finished products produced minus the estimated costs to be incurred upon completion, estimated selling and distribution expenses and relevant taxes. The net realizable value of the inventory held for execution of the sales contract or service contract is calculated on the basis of the contract price; if the quantity of inventory held is more than the quantity ordered in the sales contract, net realizable value for the excess of the inventory is calculated based on the general sales price. At the end of the period, the inventory falling price reserves are accrued according to individual inventory items; however, for the inventory with large quantity and low unit price, the inventory falling price reserves shall be accrued according to the inventory category; and for inventories that are related to product series produced and sold in the same region, have the same or similar end use or purpose, and are difficult to be measured separately from other items, the inventory falling price reserves shall be accrued on a consolidated basis. 18. Held-for-sale assets (1) Recognition standards for classifying as held-for-sale assets ZKTeco 2023 Annual Report 210 The Company will recognize non-current assets or disposal groups that meet the following conditions as held-for-sale components: (1) In accordance with the practice of selling such assets or disposal groups in similar transactions, they can be sold immediately under current conditions; (2) The sale is highly likely to occur, as the Company has already made a resolution on a sale plan, obtained approval of regulatory authorities, and obtained a confirmed purchase commitment. It is expected that the sale will be completed within one year. The determined purchase commitment refers to the legally binding purchase agreement signed between the Company and other parties, which contains important clauses such as transaction price, time and sufficiently severe penalty for breach of contract, so that the possibility of major adjustment or cancellation of the agreement is extremely small. (2) Accounting method for held-for-sale assets The Company does not provide depreciation or amortization for non-current assets or disposal groups held for sale. If the book value is higher than the net amount of fair value minus selling expenses, the book value shall be written down to the net amount of fair value minus selling expenses. The written down amount is recognized as losses from impairment of assets and included in current profits and losses. At the same time, a provision for impairment of held-for-sale assets is made. For non-current assets or disposal groups that are classified as held for sale on the acquisition date, the initial measurement amount and the net amount of fair value (assuming that they are not classified as held for sale) minus selling expenses shall be compared, and the lower amount shall be measured at the initial measurement. The above principles apply to all non-current assets, but do not include Investment real estate measured using the fair value model for subsequent measurement, biological assets measured using the net amount of fair value minus selling expenses, assets formed by employee compensation, deferred income tax assets, financial assets regulated by accounting standards related to financial instruments, and rights arising from insurance contracts regulated by accounting standards related to insurance contracts. 19. Debt investment The recognition method and accounting treatment method for the expected credit loss of the Company's debt investment are detailed in Note V 11.6. Impairment of financial instruments. ZKTeco 2023 Annual Report 211 20. Other debt investments The determination method and accounting treatment method for the expected credit loss of other debt investments by the company are detailed in Note 5,11.6. Impairment of financial instruments. 21. Long-term receivables The recognition method and accounting treatment method for the expected credit loss of the Company's long-term receivables are detailed in Note V 11.6. Impairment of financial instruments. 22. Long-term equity investment (1) Recognition of initial investment cost 1) The specific accounting policies for long-term equity investments formed by business mergers are detailed in Note V 6. Accounting treatment methods of business merger under the common control and merger under different control. 2) Long-term equity investments obtained through other means For long-term equity investment acquired by cash payment, the actual purchase price shall be regarded as the initial investment cost. The initial investment cost includes expenses, taxes and other necessary expenses directly related to the acquisition of long-term equity investment. For the long-term equity investment obtained by issuing equity securities, the fair value of the issued equity securities shall be taken as the initial investment cost. The transaction costs incurred when issuing or acquiring equity instruments can be directly attributed to equity transactions and deducted from equity. On the premise that the non-monetary asset exchange has commercial substance and the fair value of the assets received or exchanged can be reliably measured, the initial investment cost of the long-term equity investment received from the non-monetary asset exchange is determined based on the fair value of the exchanged assets, unless there is conclusive evidence that the fair value of the exchanged assets is more reliable; for non-monetary asset exchanges that do not meet the above conditions, the book value of the exchanged assets and the relevant taxes and fees payable shall be used as the initial investment cost for the long-term equity investment received. The initial investment cost of long-term equity investments obtained through debt restructuring is determined based on fair value. (2) Subsequent measurement and profit and loss recognition 1) Cost method ZKTeco 2023 Annual Report 212 The long-term equity investments that the Company is able to control over the investee are accounted for using the cost method and are valued at the initial investment cost. The cost of long-term equity investments is adjusted by adding or recovering investments. Except the declared but not released cash dividends or profits which are included in actual amount or consideration paid for acquiring investments, the profit distribution or cash dividends declared by the investees are recognized as the current investment income by the Company. 2) Equity method The Company adopts the equity method to account for long-term equity investments in associates and joint ventures; for equity investments in joint ventures indirectly held through venture capital institutions, mutual funds, trust companies, or similar entities including investment linked insurance funds, fair value measurement is adopted and changes are included in profits and losses. If the cost of initial investment of long-term equity investment exceeds the difference of the identifiable fair value of net assets of the investee sharable at investment, cost of initial investment of long-term equity investment shall not be adjusted; if the cost of initial investment of long-term equity investment is less than identifiable fair value of net assets of the investee sharable at investment, the difference is included in current profits and losses when it is incurred. After the Company obtains the long-term equity investment, the investment income and other comprehensive income shall be recognized respectively according to the share of net profit and loss and other comprehensive income realized by the investee that should be enjoyed or shared, and the book value of the long-term equity investment shall be adjusted; the Company shall calculate the attributable part according to the profits or cash dividends declared to be distributed by the investee, and reduce the book value of long-term equity investment accordingly; the Company shall adjust the book value of long-term equity investment and include it in the owner's equity for other changes in the owner's equity of the invested entity other than net profits and losses, other comprehensive income and profit distribution. In recognition of the share of the net profit or loss of the investee entity by the Company, the net profit of the investee shall be adjusted and confirmed on the basis of the fair value of the identifiable assets of the investee entity when the investment is made. The unrealized profits or losses arising from the intra-company transactions amongst the Company and its associates and joint ventures are eliminated in proportion to the Company's equity interest in the associates and joint ventures, and then based on which the investment profits and losses are recognized. When the Company confirms that it shall share the losses incurred by the investee, it shall handle them in the following order: firstly, offset the book value of long-term equity investments. Secondly, if the book value of long-ZKTeco 2023 Annual Report 213 term equity investments is not sufficient to offset, investment losses shall be recognized to the extent of other long-term equity book values that essentially constitute net investments in the investee, and the book value of long-term accounts receivable shall be offset. Finally, after the above processing, if the enterprise still bears additional obligations as stipulated in the investment contract or agreement, the expected liabilities shall be recognized based on the expected obligations and included in the current investment loss. If the investee realizes profits in the future period, the Company shall handle it in the opposite order after deducting the unrecognized loss sharing, write down the book balance of the recognized expected liabilities, restore the book value of other long-term equity and long-term equity investments that essentially constitute the net investment in the investee, and then restore the recognition of investment income. (3) Conversion of accounting methods for long-term equity investments 1) Fair value measurement to equity method accounting For equity investments held by the Company that do not have control, joint control, or significant impact over the investee and are accounted for according to the financial instrument recognition and measurement standards, if they can exert significant impact or implement joint control over the investee but do not constitute control due to additional investment or other reasons, the fair value of the original equity investment determined in accordance with "Accounting Standards for Enterprises No.22 - Recognition and Measurement of Financial Instruments" plus the additional investment cost shall be used as the initial investment cost accounted for using the equity method. For the difference between the initial investment cost calculated using the equity method and the fair value share of the identifiable net assets of the investee on the date of the additional investment, calculated based on the new shareholding percentage after the additional investment, the book value of the long-term equity investment shall be adjusted and included in the current non-operating revenue. 2) Fair value measurement or equity method accounting to cost method accounting For equity investments held by the Company that do not have control, joint control, or significant impact on the investee and are accounted for according to financial instrument recognition and measurement standards, or for long-term equity investments held by the Company in associates or joint ventures that can exert control over the investee under different control due to additional investments or other reasons, when preparing individual financial statements, the initial investment cost calculated using the cost method is the sum of the book value of the original equity investment held and the additional investment cost. The other comprehensive income recognized by the equity investment held on the date of acquisition due to the equity method is used for accounting treatment on the same basis as the direct disposal of related assets or liabilities by the investee when the asset is disposed of. ZKTeco 2023 Annual Report 214 If the equity investments held before the date of acquisition are accounted for in accordance with the relevant provisions of the "Accounting Standards for Enterprises No.22 - Recognition and Measurement of Financial Instruments", the cumulative fair value changes originally recognized in other comprehensive income are transferred to the current profits and losses when the cost method is used for accounting. 3) Equity method accounting to fair value measurement Where the joint control or significant impact on the investee is lost due to the disposal of part of the equity investment or other reasons, and the remaining equity after disposal shall be accounted for in accordance with the "Accounting Standards for Enterprises No.22 - Recognition and Measurement of Financial Instruments", the difference between the fair value and the book value of the remaining equity on the date of loss of joint control or significant impact is included in current profits and losses. The other comprehensive income recognized by the original equity investment due to the equity method is used for accounting treatment on the same basis as the direct disposal of related assets or liabilities by the investee when the equity method is terminated. 4) Cost method to equity method When the Company loses control over the investee due to partial disposal of equity investment and the residual equity after disposal can implement joint control over or significant impact on the investee at the time of preparing individual financial statements, the equity method is adopted, and the residual equity is adjusted deeming to have been accounted for with the equity method since its acquisition. 5) Cost method to fair value measurement If the Company loses control over the investee due to the disposal of some equity investments or other reasons, and the remaining equity after disposal cannot exercise joint control or have a significant impact on the investee in the preparation of individual financial statements, the accounting treatment shall be carried out in accordance with the relevant provisions of the "Accounting Standards for Enterprises No.22 - Recognition and Measurement of Financial Instruments". The difference between the fair value and the book value on the date of loss of control shall be included in current profits and losses. (4) Disposal of long-term equity investments When disposing of long-term equity investment, the balance between the book value and actual price for acquisition shall be included in current profits and losses. For long-term equity investments accounted for using the equity method, when disposing of the investment, the accounting treatment for the portion originally recognized in other comprehensive income shall be carried out on the same basis as the direct disposal of relevant assets or liabilities by the investee in a corresponding proportion. ZKTeco 2023 Annual Report 215 The terms, conditions, and economic impact of various transactions related to the disposal of equity investments in subsidiaries in one or more of the following circumstances usually indicate that multiple transactions shall be accounted for as a package deal: 1) These transactions were entered into simultaneously or taking into account mutual influence; 2) These transactions as a whole can achieve a complete business result; 3) The occurrence of a transaction depends on the occurrence of at least one other transaction; 4) A transaction alone is not economical, but it is economic when considered with other transactions. If the control over the original subsidiary is lost due to the disposal of some equity investments or other reasons, which is not a package deal, relevant accounting treatment shall be distinguished between individual financial statements and consolidated financial statements: 1) In individual financial statements, the difference between the book value of the disposed equity and the actual acquisition price is included in current profits and losses. If the remaining equity after disposal can exercise joint control or have a significant impact on the investee, it shall be accounted for using the equity method, and the remaining equity shall be adjusted as if it was accounted for using the equity method at the time of acquisition; if the remaining equity after disposal cannot exercise joint control or have a significant impact on the investee in the preparation of individual financial statements, the accounting treatment shall be carried out in accordance with the relevant provisions of the "Accounting Standards for Enterprises No.22 - Recognition and Measurement of Financial Instruments". The difference between the fair value and the book value on the date of loss of control shall be included in current profits and losses. 2) In the consolidated financial statements, for all transactions before the loss of control over the subsidiary, the difference between the disposal price and the corresponding share of net assets of the subsidiary calculated continuously from the date of acquisition or combination date for the disposal of long-term equity investments, the capital reserve (share premium) shall be adjusted. If the capital reserve is insufficient to offset, the retained earnings shall be adjusted; when losing control over a subsidiary, the remaining equity shall be remeasured at its fair value on the date of loss of control. The difference between the sum of the consideration obtained from the disposal of equity and the fair value of the remaining equity minus the share of the net assets of the original subsidiary continuously calculated from the date of acquisition calculated according to the original shareholding percentage shall be included in the investment income of the current period when the control right is lost, and the goodwill shall be offset. Other comprehensive income related to equity investments in the original subsidiary shall be converted into current investment income when control is lost. ZKTeco 2023 Annual Report 216 If all transactions related to the disposal of equity investments in subsidiaries until the loss of control belong to a package deal, each transaction shall be treated as a transaction related to the disposal of equity investments in subsidiaries and the loss of control, and relevant accounting treatment shall be distinguished between individual financial statements and consolidated financial statements: 1) In individual financial statements, the difference between the disposal price and the book value of the long-term equity investment corresponding to the disposed equity before the loss of control is recognized as other comprehensive income and transferred to the current profits and losses when the control is lost. 2) In the consolidated financial statements, the difference between the disposal price and the net asset share of the subsidiary corresponding to the disposal investment before the loss of control is recognized as other comprehensive income, and is transferred to the current profits and losses when the control is lost. (5) Judgment standard for common control and significant impact If the Company collectively controls a certain arrangement with other participants in accordance with relevant agreements, and any activity decision that has a significant impact on the return of the arrangement requires the unanimous consent of the participants who share control, it shall be deemed that the Company and other participants jointly control a certain arrangement, which is a joint venture arrangement. When a joint venture arrangement is reached through a separate entity, and it is determined based on relevant agreements that the Company has rights to the net assets of the separate entity, the separate entity shall be treated as a joint venture and accounted for using the equity method. If it is determined according to relevant agreements that the Company does not have the right to the net assets of the separate entity, the separate entity shall be considered as an entity in joint operation, and the Company shall recognize the items related to the share of joint operation interests and conduct accounting treatment in accordance with the relevant Accounting Standards for Enterprises. Significant impact means that the investor has the power to participate in the decision-making of the financial and operating policies of the investee, but is not able to control or jointly control the formulation of these policies with other parties. After considering all facts and circumstances, the Company determines that it has a significant impact on the investee through one or more of the following circumstances: (1) Having representatives on the Board of Directors or similar authorities of the investee; (2) Participating in the process of formulating financial and operational policies for the investee; (3) Significant transactions occur with the investee; (4) Dispatching management personnel to the investee; (5) Providing key technical information to the investee. 23. Investment real estate Measurement model of investment real estate Cost method measurement ZKTeco 2023 Annual Report 217 Depreciation or amortization method The investment real estate refers to the properties held for earning rentals or capital appreciation or both, including the land use right which has already been leased out, land use right which is held for transfer after its appreciation and buildings which have already been leased out. Moreover, idle buildings owned by the Company ready for operating lease, with the written announcement from the Board of Directors, that it has an explicit intention to hold the buildings for operating lease and such intention will not change in short-term, are disclosed as investment real estate as well. The investment real estate of the Company is used as the entry value at its cost, and the cost of purchasing investment real estate includes the purchase price, relevant taxes, and other expenses directly attributable to the asset; the cost of self constructing investment real estate is composed of the necessary expenses incurred before the construction of the asset reaches its expected conditions for use. The impairment test method and impairment provision method for investment real estate are detailed in Note V 28. Long-term assets impairment. When investment real estate is converted for self-use, such real estate shall be converted into fixed assets or intangible assets since the date of conversion. When properties for self-use are converted for earning rents or capital appreciation, the fixed assets or intangible assets shall be converted into investment real estate since the date of conversion. When conversion occurs, the book value prior to conversion shall be the entry value after conversion. When an investment real estate is disposed of, or permanently withdrawn from use and is not expected to obtain economic benefits from its disposal, the recognition of the investment real estate shall be terminated. The amount of proceeds on sale, transfer, retirement or damage of any investment real estate net of the book value of the investment real estate and the relevant taxes shall be included in current profits and losses. 24. Fixed assets (1) Recognition conditions Fixed assets mean the tangible assets held for producing commodities, providing services, renting or operating management, with a service life in excess of one accounting year. Fixed assets shall be recognized when the following the conditions are met simultaneously: 1) Economic benefits associated with such fixed assets are likely to flow into the Company; 2) Cost of such fixed assets can be measured reliably. (2) Depreciation methods ZKTeco 2023 Annual Report 218 Category Depreciation method Depreciation Life (year) Residual value rate (%) Annual depreciation rate (%) Houses and buildings Straight-line method 20-5051.90-4.75 Machinery equipment Straight-line method 5-1059.50-19.00 Electronic equipment and others Straight-line method 3-5519.00-31.67 Transportation vehicles Straight-line method 4523.75 25. Construction in progress The construction in progress projects constructed by the Company are priced at actual cost, which is composed of necessary expenses incurred before the construction of the asset reaches its expected conditions for use, including the cost of engineering materials, labor costs, relevant taxes and fees paid, capitalized borrowing costs, and indirect expenses to be shared. All expenses incurred before the asset reaches its expected conditions for use in construction in progress projects shall be recognized as the entry value of fixed assets. If the construction in progress has reached the expected conditions for use but has not yet completed the final settlement, from the date of reaching the expected conditions for use, the estimated value shall be transferred to fixed assets based on the project budget, cost, or actual project cost, and the depreciation of fixed assets shall be calculated according to the Company's fixed asset depreciation policy. After completing the final settlement, the original estimated value shall be adjusted according to the actual cost, but the depreciation amount already calculated shall not be adjusted. The impairment test method and impairment provision method for construction in progress are detailed in Note V 28. Long-term assets impairment. 26. Borrowing costs (1) Recognition principles for capitalization of borrowing costs Borrowing costs of the Company which can be classified directly as expenses for the acquisition, construction or production activities for preparing an asset eligible for capitalization, shall be capitalized and booked into cost of capital; other borrowing costs shall be defined upon occurred as expenses on the basis of the amount and included in current profits and losses. The assets meeting the capitalization conditions refer to the fixed assets, investment properties and inventories that need a substantially long period for acquisition, construction or production to be ready for their intended use or sale. The borrowing costs shall be capitalized when all of the following conditions are satisfied: ZKTeco 2023 Annual Report 219 1) Expenditures on an asset have been incurred, and expenditures on the asset comprise payments in cash, transfer of non-cash assets or assumption of debts with interest for acquisition and construction or production of the asset qualifying for capitalization; 2) The borrowing costs have already been incurred; 3) Acquisition, construction or production activities necessary to bring the asset to reach expected conditions for use or sale are in progress. (2) Period of capitalization of borrowing costs Period of capitalization refers to the period from the beginning time point of capitalization to the end time point of capitalization. The suspension period of capitalization of borrowing costs shall be excluded. When the acquisition, construction or production of assets that meet the capitalization conditions is ready for its intended use or sale, the capitalization of borrowing costs will cease. When a portion of the assets that meet the capitalization conditions are completed and can be used separately, the capitalization of the borrowing costs for that portion of the assets shall cease. If each part of the purchased or produced asset is completed separately, but can only be used or sold to the outside world after the overall completion, the capitalization of borrowing costs shall be stopped when the entire asset is completed. (3) Suspension period of capitalization Where the acquisition, construction or production of eligible assets is interrupted abnormally and the interruption period lasts for more than 3 months, capitalization of the borrowing costs shall be suspended; if the interruption is a necessary step for making the eligible assets under acquisition, construction or production reach the expected serviceable or marketable state, the capitalization of the borrowing costs shall be continued. The borrowing costs incurred during the period of cease will be determined as current profit and loss, and the borrowing costs will continue to be capitalized after the acquisition, construction or production activities of the assets are resumed. (4) Calculation methods for capitalized amount of borrowing costs The interest expenses of special loans (excluding interest income obtained from unused loan funds deposited in banks or investment income obtained from temporary investments) and their auxiliary expenses shall be capitalized before the purchased or produced assets that meet the capitalization conditions reach their expected conditions for use or sale. The amount of capitalization of the interest amount shall be determined by multiplying the weighted average of difference between accumulative assets expenditure and assets expenditure of specially borrowed loans by the ZKTeco 2023 Annual Report 220 capitalization rate of general borrowings. The capitalization rate is calculated and determined based on the weighted average interest rate of general borrowings. If there is a discount or premium on the loan, the amount of discount or premium to be amortized for each accounting period shall be determined using the effective interest rate method, and the interest amount for each period shall be adjusted. 27. Intangible assets (1) Useful life and its determination basis, estimated situation, amortization method or review procedure Intangible assets are identifiable non-monetary assets without physical substance owned or controlled by the Company, including land use rights, software, others, etc. 1) Initial measurement of intangible assets Costs of purchased intangible assets include purchase price, related taxes as well as other expenditures directly attributable to making such assets ready for intended use. Where the payment of the acquisition price for intangible assets is delayed beyond the normal credit terms, for those with financing nature, the cost of intangible assets is determined at the present value of the acquisition price. For intangible assets from debt restructuring used by the debtor to offset debts, its entry value is determined based on the fair value of the intangible asset. The difference between the book value of the restructured debt and the fair value of the intangible asset used to offset debts is included in current profits and losses. On the premise that the non-monetary asset exchange has commercial substance and the fair value of the assets received or exchanged can be reliably measured, the entry value of the intangible asset received from the non-monetary asset exchange is determined based on the fair value of the exchanged assets, unless there is conclusive evidence that the fair value of the exchanged assets is more reliable; for non-monetary asset exchanges that do not meet the above conditions, the book value of the exchanged assets and the relevant taxes and fees payable shall be used as the cost for the intangible asset received, and no profit or loss shall be recognized. The entry value of intangible assets obtained by absorption and merger of enterprises under the same control shall be determined according to the book value of the merged party; the entry value of intangible assets obtained by absorption and merger of enterprises not under the same control shall be determined at fair value. The costs of intangible assets developed internally include: materials, service costs and registration fees consumed in the development of the intangible assets, amortization of other patents and franchise used in the development process, interest costs that meet the capitalization conditions, as well as other direct costs incurred before the achievement of intended use of intangible asset. ZKTeco 2023 Annual Report 221 2) Subsequent measurement of intangible assets The Company analyzes and determines the useful life of intangible assets when acquiring them, and divides them into intangible assets with limited or uncertain useful lives. ① Intangible assets with limited useful life For intangible assets with limited useful lives, they are amortized using the straight-line method within the period of bringing economic benefits to the enterprise. The estimated life and basis for intangible assets with limited useful life are as follows: Item Estimated Useful Lives Basis Software 2-10 years Benefit period Land use rights From obtaining the land use right to the termination date of the land use right Benefit period At the end of the period, the useful life and amortization method of intangible assets with limited useful life shall be reviewed, and adjustments shall be made if necessary. ② Tangible assets with unclear useful life If it is impossible to foresee the period within which intangible assets will bring economic benefits to the enterprise, it shall be regarded as an intangible asset with an uncertain useful life. At the end of the period, the useful life of intangible assets with uncertain service life shall be reviewed. If there is evidence that the period of intangible assets bringing economic benefits to the enterprise is foreseeable, the useful life shall be estimated and amortized according to the amortization policy of intangible assets with limited useful life. The impairment test method and impairment provision method for intangible assets are detailed in Note V 28. Long-term assets impairment. (2) The scope of R&D expenditure collection and related accounting treatment methods 1) Specific standards for dividing the research stage and development stage of the company's internal research and development projects Research stage: the stage of original planned investigation and research activities to acquire and understand new scientific or technical knowledge. Development stage: the stage where research results or other knowledge are applied to a plan or design to produce new or substantially improved materials, devices, products and other activities before commercial production or use. Expenditures of internal research and development projects during research stage are included in current profits and losses upon occurrence. 2) Expenditures at the development stage meet the specific standards for capitalization ZKTeco 2023 Annual Report 222 Expenses incurred during the development phase of internal research and development projects are recognized as intangible assets when the following conditions are met: ① Complete such intangible asset to make it usable or salable with technical feasibility; ② Intention of completing such intangible asset for use or sale; ③ Method for intangible assets to produce economic benefits, including the ability to prove that the products from such intangible assets exist in the market or that the intangible assets themselves exist in the market, and the ability to prove the serviceability of the intangible asset if used internally; ④ There is sufficient support from technical, financial resources and other resources, to complete development of such intangible assets, and the ability of using or selling such intangible assets; ⑤ The expenditures attributable to development stage of such intangible assets shall be measured reliably. Expenditures in the development stage that do not meet the above conditions shall be included in the current profits and losses when incurred. If expenditure in research stage and expenditure in development stage fail to be divided, generated research expenditure shall be concluded in current profits and losses when they are incurred. The cost of intangible assets formed by internal development activities only includes the total expenditure incurred from the time when the capitalization conditions are met until the intangible assets reach their intended use. Expenditures for the same intangible asset that have been expensed and included in profit or loss before reaching the capitalization conditions during the development process will not be adjusted. 28. Long-term assets impairment The Company inspects long-term equity investments, fixed assets, construction in progress, intangible assets with determined useful lives, and any signs of potential impairment on each balance sheet date. If there are signs of impairment in long-term assets, the Company shall estimate their recoverable amount based on individual assets; if it is difficult to estimate the recoverable amount of a single asset, the recoverable amount of the asset group shall be determined based on the asset group to which the asset belongs. The estimate of the recoverable amount of an asset is determined based on the higher of its fair value minus disposal expenses and the present value of the expected future cash flows of the asset. The measurement results of the recoverable amount indicate that if the recoverable amount of an asset is lower than its book value, the book value of the long-term asset shall be written down to the recoverable amount. The written down amount is recognized as losses from impairment of assets and included in current profits and losses. At the same time, a corresponding provision for losses from impairment of assets shall be made. Once the losses from impairment of assets are recognized, they shall not be reversed in subsequent accounting periods. ZKTeco 2023 Annual Report 223 After the losses from impairment of assets are recognized, the depreciation or amortization expenses of the impaired assets shall be adjusted accordingly in the future, so that the adjusted book value of the assets can be systematically amortized within the remaining useful life of the assets (deducting the expected net residual value). Intangible assets with uncertain goodwill and useful life formed by business mergers shall undergo impairment test annually, regardless of whether there are signs of impairment. During the impairment test of the goodwill, the book value of the goodwill is divided to the asset group or portfolio of asset groups that are expected to benefit from the business merger synergies. When conducting impairment tests on the related asset portfolio or portfolio of asset groups that contain(s) goodwill, if there are indications of impairment, test the asset groups or groups of asset groups that do(es) not contain goodwill firstly and calculate the recoverable amount, and compare it with the related book value to confirm the corresponding impairment loss. Then conduct an impairment test on the asset group or asset group portfolio containing goodwill, and compare the book value (including the book value of the apportioned goodwill) of these relevant asset groups or asset group portfolios with their recoverable amount. If the recoverable amount of the relevant asset group or asset group portfolios is lower than its book value, the impairment loss of goodwill shall be recognized. 29. Long-term unamortized expenses Long-term deferred expenses refer to all expenses which have occurred and shall be amortized by the Company in more than one year in the current period and subsequent period. Long-term deferred expenses are amortized over the benefit period using the straight-line method. 30. Contract liabilities The Company recognizes the obligation to transfer goods to customers for consideration received or receivable as contract liabilities. 31. Employee compensation (1) Accounting treatment methods for short-term compensation Short-term remuneration refers to the remuneration of employees that the Company needs to pay in full within 12 months after the end of the annual reporting period for employees to provide relevant services, except for post employment benefits and termination benefits. During the accounting period when employees provide services, the Company recognizes the short-term remuneration payable as liabilities, and includes it in the relevant asset costs and expenses according to the beneficiary of the services provided by employees. ZKTeco 2023 Annual Report 224 (2) Accounting treatment method for post employment benefits Post employment benefits refer to various forms of remuneration and benefits provided by the Company after the retirement of employees or the termination of labor relations with the enterprise in order to obtain the services provided by employees, except short-term remuneration and dismission welfare. The post employment welfare plan of the Company includes a defined contribution plan and a defined benefit plan. The defined contribution plan for the post employment benefit mainly involves participating in social basic pension insurance, unemployment insurance, etc. organized and implemented by labor and social security institutions in various regions; during the accounting period when employees provide services to the Company, the amount of deposit payable calculated according to the defined contribution plan will be recognized as a liability and included in current profits and losses or related asset costs. After the Company regularly pays the above-mentioned funds in accordance with national standards, it has no further payment obligations. (3) Accounting treatment method for dismissal benefits The dismission welfare refers to the compensation given by the Company to terminate the labor relationship with employees before the expiration of their labor contracts, or propose compensation to encourage employees to voluntarily accept layoffs. When the Company cannot unilaterally withdraw the termination plan or layoff proposal, or when the Company recognizes the costs and expenses related to the restructuring involving the payment of dismission welfare, whichever is earlier, the liabilities arising from the compensation for the termination of the labor relationship with employees are recognized and included in current profits and losses. 32. Estimated liabilities (1) Recognition standards for estimated liabilities When the obligation related to product quality assurance contingency is a current obligation undertaken by the Company, and the fulfillment of this obligation is likely to result in the outflow of economic benefits, and the amount of this obligation can be reliably measured, it is recognized as an estimated liability. (2) Measurement method for estimated liabilities Estimated liabilities of the Company shall be measured initially pursuant to the optimal estimate of expenditure required to perform relevant current obligations. ZKTeco 2023 Annual Report 225 When determining the optimal estimate, the Company shall comprehensively consider such factors as relevant risks and uncertainties related to contingencies and the time value of currency. If there is significant effect on time value of money, the best estimate is determined by discounting the relevant future cash outflow. The best estimate is handled in the following situations: If there is a continuous range (or interval) of required expenses and the likelihood of various outcomes occurring within that range is the same, the best estimate is determined based on the average of the upper and lower limits of the range. If there is no continuous range (or interval) of required expenses, or although there is a continuous range, the likelihood of various outcomes occurring within that range is different, in the event that there is a contingency involving a single item, the best estimate shall be determined based on the amount most likely to occur; if the contingency involves multiple items, the best estimate shall be determined based on various possible outcomes and related probabilities. If all or part of the expenditures to pay off estimated liabilities by the Company are expected to be compensated by third parties, once it is basically certain that compensation amount can be received, that amount can be recognized as asset individually but will not exceed book value of estimated liabilities. 33. Share-based payments (1) Types of share-based payments The share-based payment of the Company is divided into equity settled share-based payment and cash settled share-based payment. (2) Method for determining the fair value of equity instruments For equity instruments such as options granted in an active market, their fair value is determined based on the quoted price in the active market. For equity instruments such as options granted without an active market, the fair value is determined using option pricing models, etc. The selected option pricing model considers the following factors: 1) The exercise price of the option; 2) The validity period of the option; 3) The current price of the underlying shares; 4) The expected volatility of stock price; 5) The expected dividend of the shares; 6) The risk-free interest rate during the validity period of the option. When determining the fair value of equity instruments on the grant date, the Company shall consider the impact of market conditions and non-vesting conditions specified in the share-based payment agreement. If there are non-vesting conditions for share-based payment, as long as the employee or other party meets all non-market conditions ZKTeco 2023 Annual Report 226 (such as service period, etc.) of the vesting conditions, it is confirmed that the corresponding cost of the service has been received. (3) Basis for confirming the best estimate of exercisable equity instruments On each balance sheet date during the waiting period, the best estimate is made based on the latest changes in the number of eligible employees and subsequent information, and the estimated number of eligible equity instruments is revised. On the vesting date, the final estimated number of exercisable equity instruments is consistent with the actual number of exercisable equity instruments. (4) Accounting treatment method 1) Accounting treatment for equity settlement and cash settlement of share-based payments The share-based payment settled by equity shall be measured at the fair value of the equity instruments granted to employees. If the right is exercisable immediately after the grant, it shall be included in the relevant costs or expenses according to the fair value of the equity instruments on the grant date, and the capital reserve shall be increased accordingly. If the right can be exercised only after completing the services within the waiting period or meeting the prescribed performance conditions, on each balance sheet date within the waiting period, the services obtained in the current period shall be included in the relevant costs or expenses and capital reserves on the basis of the best estimate of the number of equity instruments exercisable and according to the fair value on the grant date of equity instruments. After the exercisable date, the recognized relevant costs or expenses and the total amount of owner's equity will not be adjusted. Cash-settled share-based payment will be measured according to the fair value of liabilities borne by the Company which is calculated and recognized based on shares or other equity instruments. If the right is exercisable immediately after the grant, the fair value of the Company's liabilities shall be included in the relevant costs or expenses on the date of grant, and the liabilities shall be increased accordingly. For cash settled share-based payment that can be exercised only after completing the services in the waiting period or meeting the prescribed performance conditions, on each balance sheet date in the waiting period, based on the best estimate of the exercisable rights, the services obtained in the current period shall be included in the cost or expenses and the corresponding liabilities according to the fair value amount of the Company's liabilities. On each balance sheet date and settlement date before the settlement of relevant liabilities, the fair value of liabilities shall be re-measured, and the changes shall be included in the current profits and losses. 2) Accounting treatment for modification of terms and conditions of share-based payment For adverse modifications, the Company considers that the change has never occurred and continues to account for the services obtained. ZKTeco 2023 Annual Report 227 For favorable modifications, the Company shall handle them in accordance with the following provisions: if the modification increases the fair value of the equity instruments granted, the enterprise shall recognize the increase in services obtained accordingly based on the increase in fair value of the equity instruments. If the modification occurs during the waiting period, the fair value of the services obtained between the confirmation of the modification date and the modified vesting date shall include both the service amount determined based on the fair value of the original equity instrument on the grant date during the remaining original waiting period and the increase in the fair value of the equity instrument. If the modification occurs after the vesting date, the increase in the fair value of the equity instrument shall be immediately recognized. If the share-based payment agreement requires employees to only obtain the modified equity instrument after completing a longer period of service, the enterprise shall recognize the increase in the fair value of the equity instrument throughout the waiting period. If the modification increases the number of equity instruments granted, the enterprise will recognize the fair value of the increased equity instruments as an increase in the acquisition of services. If the modification occurs during the waiting period, the fair value of the services obtained between the confirmation of the modification date and the vesting date of the added equity instruments shall include both the service amount determined based on the fair value of the original equity instrument on the grant date during the remaining original waiting period and the increase in the fair value of the equity instrument. If the enterprise modifies its vesting conditions in a way that benefits its employees, such as shortening the waiting period, and changing or canceling performance conditions (rather than market conditions), the Company shall consider the modified vesting conditions when dealing with them. 3) Accounting treatment for cancellation of share-based payment If the equity instruments granted are canceled within the waiting period, the Company shall regard cancellation of the equity instruments granted as acceleration of exercising the rights. The amount which shall be recognized within the remaining waiting period shall be included in current profits and losses immediately, and the capital reserve shall be recognized simultaneously. If employees or other parties are able to choose to meet non-vesting conditions but fail to do so during the waiting period, the Company will treat them as cancellation of equity instruments granted. 34. Revenue The Company's revenue mainly comes from selling goods. (1) General principles for revenue recognition ZKTeco 2023 Annual Report 228 The Company has fulfilled its contractual obligations by recognizing revenue based on the transaction price allocated to the performance obligation when the customer obtains control of the relevant goods or services. Performance obligation refers to the commitment made by the Company in the contract to transfer goods or services that can be clearly distinguished to customers. Obtaining the control power over the relevant goods means being able to dominate the use of such goods and obtain almost all economic benefits from them. The Company evaluates the contract from the commencement date, identifies the individual performance obligations included in the contract, and determines whether each individual performance obligation is to be performed within a certain period of time or at a certain point in time. If one of the following conditions is met, it belongs to the performance obligation fulfilled within a certain period of time, and the Company recognizes revenue within a certain period of time according to the performance progress: 1) The customer obtains the contract at the same time as the Company fulfills the contract. Consuming the economic benefits of the Company's performance; 2) The customer can control the goods under construction in the Company's performance; 3) The products produced during the Company's performance are irreplaceable, and the Company has the right to receive the payment for completed part of the performance in the entire contract period. Otherwise, the Company recognizes the revenue when the consumer obtains the control power over relevant goods or services. For performance obligations performed within a certain period of time, the Company adopts the input method to determine the appropriate progress of performance based on the nature of goods and services. The input method is to determine the progress of performance based on the investment made by the Company to fulfill its obligations. If the performance progress cannot be reasonably determined and the costs incurred are expected to be compensated, the Company will recognize the revenue according to the amount of costs incurred until the performance progress can be reasonably determined. (2) Specific methods of revenue recognition 1) The principle for recognizing domestic offline sales revenue of products: If the Company sells its products to engineering contractors, dealers, and end customers, and the contract is signed without installation, the Company will send the goods to the customer or the customer will pick them up at their doorstep according to the delivery method agreed in the sales contract. The customer receives the goods and accepts them as qualified. The revenue is recognized when the Company obtains the customer's receipt certificate. 2) The principle for recognizing revenue from overseas offline sales of products: For domestic companies that directly export and sell products, FOB terms are adopted. For those that declare and export through sea and air freight, the export customs declaration procedures are completed, the customs declaration form is obtained, and the revenue is recognized when obtaining the bill of lading. For customs declaration and export through express delivery, revenue ZKTeco 2023 Annual Report 229 shall be recognized based on the date of the customs declaration. If the overseas subsidiary sells overseas, the goods shall be delivered to the customer or picked up at the customer's doorstep according to the agreed delivery method with the customer. Revenue shall be recognized when the customer receives the goods and the acceptance is qualified. 3) The principle for recognizing sales revenue through online self operation mode of products: In self operation mode, the Company mainly sells products directly to consumers through domestic e-commerce platforms (Tmall, Taobao, JD, PDD, Suning) and overseas e-commerce platforms (Amazon, Lazada, Shoppe). The Company confirms online self operated business revenue when sending out goods, either directly confirmed by consumers or automatically confirmed by the system's default delivery time and meeting the return period terms. 4) Principle for recognizing sales revenue of system integration: The sales of company system integration products include providing customers with supporting products, installation, debugging, and system trial operation, and other supporting services. After passing the acceptance inspection, sales revenue is recognized. 5) Software sales revenue recognition principle: The software is directly provided to the buyer and requires a dedicated software authorization code to be used. After the software authorization code is provided to the buyer, the realization of software sales revenue is recognized. If the company contract stipulates that the software needs to be installed, debugged, or inspected, the software sales revenue will be recognized after the installation, debugging, or inspection are completed and an acceptance report is obtained. (3) Principles for income processing of specific transactions 1) A contract with quality assurance clauses attached The Company shall assess whether the quality assurance provides a separate service beyond ensuring that the products sold meet established standards to customers. If the Company provides additional services, it shall be treated as a single performance obligation and subject to accounting treatment in accordance with the income standards; otherwise, the quality assurance responsibility shall be accounted for in accordance with the accounting standards for contingencies. 2) Main responsible persons and agents The Company determines whether it the main responsible person or agent when engaging in transactions based on whether it has control over the goods or services before transferring them to customers. If the Company is able to control the goods or services before transferring them to customers, it is the main responsible person and recognizes revenue based on the total amount of consideration received or receivable; otherwise, the Company acts as an agent and recognizes revenue based on the expected amount of commission or handling fees entitled to receive. This amount is determined by deducting the total amount of consideration received or receivable from the amount payable to other relevant parties. ZKTeco 2023 Annual Report 230 35. Contract cost (1) Contract performance cost If the cost incurred by the Company in performing the contract does not fall within the scope of other Accounting Standards for Enterprises (except revenue standards), it shall be recognized as an asset as contract performance cost when the following conditions are met simultaneously: 1) The cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing expenses (or similar expenses), costs clearly borne by the customer and other costs incurred solely as a result of the contract; 2) This cost increases the resources that the enterprise will use to fulfill its performance obligations in the future; 3) The cost is expected to be recovered. The asset is reported in inventory or other non-current assets based on whether its initial recognition amortization period has exceeded a normal operating cycle. (2) Contract acquisition cost If the incremental cost incurred by the Company for acquiring the contract is expected to be recovered, it shall be recognized as an asset as the contract acquisition cost. Incremental cost refers to the cost (such as sales commission) that will not be incurred if the company does not obtain the contract. For amortization periods not exceeding one year, they are included in current profits and losses when incurred. (3) Amortization of contract costs The assets related to contract costs mentioned above are recognized on the same basis as the revenue from goods or services related to the asset, and are amortized at the time of performance or according to the progress of performance, and are included in current profits and losses. (4) Impairment of contract costs If the book value of the assets related to contract costs mentioned above is higher than the difference between the expected remaining consideration for the transfer of goods related to the asset and the estimated cost to be incurred for the transfer of the related goods of the Company, the excess shall be subjected to provision for impairment and recognized as losses from impairment of assets. After the provision for impairment has been made, if the factors causing impairment in the previous period change, resulting in a difference between the above two items higher than the book value of the asset, the original provision for impairment of the asset shall be reversed and included in current profits and losses. However, the reversed book value of the asset shall not exceed the book value of the asset on the reversal date assuming no provision for impairment. ZKTeco 2023 Annual Report 231 36. Government subsidies (1) Type Government subsidies refer to monetary and non-monetary assets acquired by the Company from the government for free. According to the subsidy target specified in the government documents, government subsidies are divided into government subsidies related to assets and government subsidies related to income. For government subsidies that are not clearly defined in government documents, the Company divides them into government subsidies related to assets or government subsidies related to income based on the actual subsidy targets. The relevant judgment basis is explained in Note VII 35. Deferred income/48. Other income. Asset-related governmental subsidies refer to the governmental subsidies that are obtained by the Company and used for constructing long-term assets, or forming the long-term assets in other ways. The government subsidies related to income refer to other government subsidies other than those related to assets. (2) Recognition of government subsidies If there is evidence at the end of the period that the Company can meet the relevant conditions stipulated in the financial support policy and is expected to receive financial support funds, government subsidies shall be recognized based on the receivable amount. In addition, government subsidies are recognized upon actual receipt. If a government subsidy is a monetary asset, it shall be measured at the amount received or receivable. If government subsidies are non-monetary assets, they shall be measured at fair value. If the fair value cannot be obtained reliably, it shall be measured at the nominal amount Government subsidies measured at their nominal amounts (RMB 1) are directly included in the current profits and losses. Government subsidies measured at their nominal amounts are directly included in the current profits and losses. (3) Accounting treatment method Based on the essence of economic transactions, the Company determines whether a certain type of government subsidy business shall be accounted for using the gross price method or the net amount method. Normally, the Company only uses one method for similar government subsidy businesses, and consistently applies this method for that business. Item Accounting content Government subsidy categories accounted for using the gross price method Other government subsidies except for government interest subsidies Government subsidy categories accounted for using the net amount method Government interest subsidies Government subsidies related to assets shall be used to offset the book value of the related assets or recognized as deferred incomes. Government subsidies related to assets are recognized as deferred income and included in the ZKTeco 2023 Annual Report 232 profits and losses in stages within the useful life of the assets constructed or purchased in a reasonable and systematic way. Government subsidies related to income used to compensate related costs or losses in later periods shall be recognized as deferred income, and included in current profits and losses or to write off related costs during the period of recognition of related costs or losses. Relevant costs or losses incurred for compensation shall be directly included in current profits and losses or to write off related costs. The government subsidies related to the enterprise's daily activities shall be included in other income or offset against relevant costs; and the government subsidies unrelated to the enterprise's daily activities shall be included in non-operating revenue and expenditure. Government subsidies related to policy preferential loan interest subsidies are received to offset related borrowing costs; if a policy preferential interest rate loan provided by the lending bank is obtained, the actual received loan amount shall be used as the entry value of the loan, and the relevant borrowing costs shall be calculated based on the loan principal and the policy preferential interest rate. When confirmed government subsidies need to be returned, if the book value of the relevant assets is offset at the initial recognition, the book value of the assets shall be adjusted; if there is a balance of related deferred income, it shall be offset against the book balance of related deferred income, and the excess shall be included in current profits and losses; if there is no relevant deferred income, it shall be directly included in current profits and losses. 37. Deferred income tax assets/deferred income tax liabilities Deferred income tax assets and deferred income tax liabilities are calculated and recognized based on the differences (temporary differences) between the tax bases of assets and liabilities and their book values. On the balance sheet date, the deferred income tax assets and deferred income tax liabilities shall be measured according to the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be paid off. (1) Basis for recognizing deferred income tax assets The Company recognizes deferred income tax assets arising from deductible temporary differences to the extent that it is likely to obtain taxable income that can be used to offset deductible temporary differences, deductible losses that can be carried forward to future years, and tax deductions. However, deferred income tax assets arising from the initial recognition of assets or liabilities in transactions with the following characteristics are not recognized: (1) The transaction is not a business merger; (2) At the time of transaction, neither accounting profit nor taxable income (or deductible loss) will be affected. ZKTeco 2023 Annual Report 233 For deductible temporary differences related to the investments of associates, the corresponding deferred income tax assets are recognized if the following conditions are met: the temporary differences are likely to be reversed in the foreseeable future, and the taxable income amount used to offset the deductible temporary differences is likely to be obtained in the future. (2) Basis for recognizing deferred income tax liabilities The Company recognizes temporary differences in taxable income between the current and previous periods as deferred income tax liabilities. But it does not include: 1) Temporary differences formed by the initial recognition of goodwill; 2) Transactions or events that are not formed by business mergers and do not affect accounting profits or temporary differences in taxable income (or deductible losses) at the time of their occurrence; 3) The temporary taxable difference related to the subsidiaries and associates, whose time of the reverse can be controlled and which is unlikely to be reversed in the excepted future. (3) When the following conditions are met simultaneously, the deferred income tax assets and deferred income tax liabilities shall be presented as the net amount after offsetting 1) The enterprise has the legal right to carry out the net settlement for the current tax assets and current tax liabilities; 2) Deferred income tax assets and deferred income tax liabilities are related to the income tax levied by the same tax collection and management department on the same taxpayer or different taxpayers. However, in each future period in which significant deferred income tax assets and deferred income tax liabilities are reversed, the involved taxpayers intend to settle current income tax assets and current income tax liabilities at net amount or acquire assets and settle liabilities at the same time. 38. Leasing (1) Accounting treatment method for leasing as a lessee On the commencement date of the lease term, except for short-term leases and low value asset leases that apply simplified processing, the Company recognizes right-of-use assets and lease liabilities for leases. 1) Short-term leases and low-value asset leases Short-term leases are leases with a lease term of 12 months or less, excluding the purchase option. Low value asset lease refers to the lease with lower value when the single leased asset is a brand-new asset. ZKTeco 2023 Annual Report 234 The Company does not recognize the right-of-use assets and lease liabilities for the following short-term leases and low-value asset leases, and the relevant lease payments are included in the relevant asset costs or current profits and losses according to the straight-line method in each period of the lease term. The Company recognizes right-of-use assets and lease liabilities for short-term leases and low value asset leases other than those mentioned above. 2) Accounting policies for right-of-use assets The Company initially measures the right-of-use assets at cost, which includes: ① The initial measurement amount of lease liabilities; ② For the lease payment paid on or before the commencement date of the lease term, if there is lease incentive, the relevant amount of lease incentive enjoyed shall be deducted; ③ Initial direct expenses incurred by the Company; ④ The costs expected to be incurred by the Company to dismantle and remove the leased assets, restore the site where the leased assets are located or restore the leased assets to the state agreed in the lease terms, but excluding the costs incurred for the production of inventories. After the commencement date of the lease term, the Company adopts a cost model for subsequent measurement of the right-of-use asset. If the lessee can be reasonably determined that the ownership of the leased asset can be obtained when the lease term expires, depreciation shall be accrued by the Company during the remaining useful life of the leased asset. If it cannot be reasonably determined that the ownership of the leased asset can be obtained when the lease term expires, depreciation shall be accrued by the Company during the shorter period of the lease term and the remaining useful life of the leased asset. For right-of-use assets with provision for impairment, depreciation shall be calculated in future periods based on the book value after deducting the impairment provision in accordance with the above principles. The Company determines whether the right-of-use assets have been impaired and accounts for any identified impairment losses according to the "Accounting Standards for Enterprises No.8 - Losses from Impairment of Assets ". Please refer to Note (XXVIII) Long-term assets impairment for details. 3) Accounting policies for lease liabilities Lease liabilities are initially measured by the Company according to the present value of the unpaid lease payments on the commencement date of the lease term. In calculating the present value of the lease payment, the Company adopts the embedded interest rate of the lease as the discount rate; if the embedded interest rate of the lease ZKTeco 2023 Annual Report 235 cannot be determined, the incremental borrowing rate of the Company shall be used as the discount rate. Lease payments include: ① The fixed payment amount and substantial fixed payment amount after deducting the amount related to lease incentives; ② Variable lease payments depending on index or ratio; ③ When the Company reasonably determines that the option will be exercised, the lease payment amount includes the exercise price of the purchase option; ④ When the lease term reflects that the Company will exercise the right to terminate the lease, the lease payment amount includes the amount that needs to be paid to exercise the right to terminate the lease; ⑤ The amount expected to be paid according to the residual value of the guarantee provided by the Company. The Company calculates the interest expenses of the lease liability in each period of the lease term according to the fixed discount rate and records it into the current profits and losses or the cost of relevant assets. The amount of variable lease payments not included in the measurement of lease liabilities shall be included in current profits and losses or relevant asset costs when actually incurred. (2) Accounting treatment method for leasing as a lessor 1) Classification of leases On the lease commencement date, the Company divides the lease into financial lease and operating lease. The finance lease means almost all leases that substantially transfer all risks and rewards related to the ownership of a leased asset, the ownership of which may be finally transferred or may not be transferred. Operating leases refer to leases other than financial leases. If a lease involves one or more of the following situations, the Company usually classifies it as a financing lease: ① At the expiration of the lease term, the ownership of the leased asset is transferred to the lessee; ② The lessee has the right to choose to purchase the leased asset; the established purchase price is expected to be much lower than the fair value of the leased asset when exercising the right of choice, and hence it can be reasonably determined that the Company will exercise this right of choice on the lease beginning date. ③ Even if the ownership of the asset is not transferred, the lease term accounts for the majority of the useful life of the leased asset. ④ On the lease commencement date, the present value of the lease proceeds is almost equivalent to the fair value of the leased asset. ⑤ The leased asset is of a special nature. Only the lessee can use the leased asset without major transformation. If a lease shows one or more of the following signs, the Company may also classify it as a financing lease: ZKTeco 2023 Annual Report 236 ① If the lessee cancels the lease, the losses incurred by the lessor due to the cancellation of the lease shall be borne by the lessee. ② The gains or losses arising from fluctuations in the fair value of residual assets are attributable to the lessee. ③ The lessee has the ability to continue leasing at a rent significantly lower than the market level until the next period. 2) Accounting treatment of financial leasing On the lease commencement date, the Company recognizes the finance lease receivables for the finance lease and terminates the recognition of the finance lease assets. At the initial measurement of receivable financing lease payments, the sum of the unguaranteed residual value and the present value of lease payments not yet received on the commencement date of the lease term discounted at the implicit interest rate of the lease shall be used as the entry value of receivable financing lease payments. The lease receipt amount includes: ① The fixed payment amount and substantial fixed payment amount after deducting the amount related to lease incentives; ② Variable lease payments depending on index or ratio; ③ When it is reasonably determined that the lessee will exercise the purchase option, the lease receipt amount includes the exercise price of the purchase option; ④ When the lease term reflects that the lessee will exercise the right to terminate the lease, the lease receipt amount includes the amount that needs to be paid by the lessee to exercise the right to terminate the lease; ⑤ The residual value of the guarantee provided by the lessee, the party related to the lessee, and an independent third party with the ability to fulfill the guarantee obligation to the lessor. The Company calculates and recognizes interest income for each period of the lease term based on a fixed lease interest rate. Variable lease payments that are not included in the net lease investment measurement are included in current profits and losses when actually incurred. 3) Accounting treatment of operating leases The Company adopts the straight-line method or other systematic and reasonable methods to recognize the rental income from operating leases during each period of the lease term; the capitalization of initial direct expenses related to operating leases shall be amortized over the lease term on the same basis as the recognition of rental income, and shall be included in current profits and losses in installments; the variable lease payments related to operating leases that are not included in the lease income are included in current profits and losses when actually incurred. ZKTeco 2023 Annual Report 237 39. Other important accounting policies and estimates None 40. Changes of significant accounting policies and accounting estimates (1) Significant accounting policy changes Applicable □ Not applicable Unit: RMB Contents and reasons for changes in accounting policies Name of report items that are significantly affected Affected amount 1) The impact of implementing Interpretation No.16 of the Accounting Standards for Business Enterprises on the Company On December 13,2022, the Ministry of Finance issued the "Interpretation No.16 of the Accounting Standards for Business Enterprises" (CK [2022] No.31, hereinafter referred to as "Interpretation No.16"). The provision "deferred income tax related to assets and liabilities arising from individual transactions shall not be subject to the accounting treatment of initial recognition exemption" of Interpretation No.16 was implemented from January 1, 2023, allowing the enterprise to execute it ahead of schedule from the year of publication. The Company implemented accounting treatment related to this matter in the current year. For the lease liabilities and right-of-use assets recognized due to the application of Interpretation No.16 in the earliest period of financial statement presentation for the first time (i.e. January 1,2022), as well as the estimated liabilities and corresponding assets related to the disposal obligation recognized, which generate taxable temporary differences and deductible temporary differences, the Company shall adjust the cumulative impact to present the initial retained earnings and other related financial statement items for the earliest period (i.e. January 1,2022) in the financial statements in accordance with Interpretation No.16 and the provisions of "Accounting Standards for Enterprises No.18 - Income Tax". According to the relevant provisions of Interpretation No.16, the Company has adjusted the cumulative impact of financial statement related items as follows: Item January 1,2022 Original reported amount Cumulative impact amount January 1,2022 Adjusted reported amount Deferred income tax assets 37,494,061.225,549,831.2343,043,892.45 Deferred tax liability 3,150,369.305,582,768.408,733,137.70 Other comprehensive income -25,505,560.0215,736.68 -25,489,823.34 Surplus reserves 42,581,853.37 -6,835.3942,575,017.98 Undistributed profits 607,725,356.63 -55,548.96607,669,807.67 ZKTeco 2023 Annual Report 238 Item January 1,2022 Original reported amount Cumulative impact amount January 1,2022 Adjusted reported amount Minority interests 36,170,791.6513,710.5036,184,502.15 For the lease liabilities and right-of-use assets recognized due to the application of Interpretation No.16 from the earliest period of financial statement presentation for the first time (January 1,2022) to the implementation date of the Implementation (i.e. January 1,2023), as well as the estimated liabilities and corresponding assets related to the disposal obligation recognized, the Company shall handle in accordance with Interpretation No.16. According to Interpretation No.16, the Company has adjusted the relevant items on the balance sheet as follows: Balance Sheet Items December 31,2022 Before the change Cumulative impact amount After the change Deferred income tax assets 46,749,722.288,719,450.8555,469,173.13 Deferred tax liability 3,557,844.838,491,060.1412,048,904.97 Other comprehensive income 5,255,222.65 -4,332.295,250,890.36 Surplus reserves 53,975,085.772,919.1753,978,004.94 Undistributed profits 788,571,917.98197,066.66788,768,984.64 Minority interests 43,025,126.30 32,737.1743,057,863.47 According to Interpretation No.16, the Company has adjusted the relevant items on the income statement as follows: Income statement items 2022 Before the change Cumulative impact amount After the change Income tax expenses 9,035,711.77 -281,396.858,754,314.92 2) On October 25,2023, the Ministry of Finance issued the "Interpretation No.17 of the Accounting Standards for Enterprises" (CK [2023] No.21, hereinafter referred to as "Interpretation No.17"), and the Company implemented the "Accounting Treatment for Sale and Leaseback Transactions" from October 25,2023. The implementation of the "Accounting Treatment for Sale and Leaseback Transactions" has no significant impact on the financial statements for the current period. (2) Changes in significant accounting estimates □ Applicable Not applicable (3) Implementation of new accounting standards adjustment for the first time starting from 2023. Relevant project information on financial statements at the beginning of the year Applicable □ Not applicable Explanations on adjustment situation: Please refer to Note V 40 (1) Changes in significant accounting policies ZKTeco 2023 Annual Report 239 41. Others None VI. Taxation 1. Main tax types and tax rates Tax Type Tax Basis Tax rates VAT Selling goods or providing taxable services 13.00%,9.00%,6.00%,5.00%, 3.00%, and applicable value-added tax rate for overseas subsidiaries in their registered location Urban maintenance and construction tax Paid turnover tax amount 7.00%、5.00% Education surcharge Paid turnover tax amount 3% Local education surcharges Paid turnover tax amount 2% Property tax Based on 70% of the original value of the property (or rental income) as the tax benchmark 1.2%、12% Disclosure of information on taxpayers with different corporate income tax rates Name of Taxpayer Income tax rate ZKTECOCO., LTD.15% Xiamen ZKTeco Biometric Identification Technology Co., Ltd.25% Shenzhen ZKTeco Biometric Identification Technology Co., Ltd. 20% ZKINVESTMENTSINC.21% ZKTECHNOLOGYLLCNot applicable ZKTeco Sales Co., Ltd.25% Hangzhou ZKTeco Hanlian E-commerce Co., Ltd.20% ZKCserv Technology Limited Co., Ltd.25% Dalian ZKTeo CO., Ltd.20% XIAMENZKTECOCO., LTD.15% ZKTeco Huayun (Xiamen) Integrated Circuit Co., Ltd.25% Xiamen ZKTeco Cloud Valley Design and Development Co., Ltd. 25% ZKTECOVIETNAMTECHNOLOGYCOMPANYLIMITED 20% ZKTECO (GUANGDONG) CO., LTD 15% Xi'an ZKTeco Co., Ltd.20% Shenzhen Zhongjiang Intelligent Technology Co., Ltd.25% ZKTECOCO., LIMITED 16.50%、8.25% ZKTECOTURKEYELEKTRONIKSANAYIVETICARET LIMITEDSIRKETI. 25% ZKTECOLATAM, S.A. DEC.V.30% ZKSOFTWAREDEMEXICO, S.A. DEC.V.30% ZKTECOCOLOMBIASAS 31% ZKTECO (M) SDN. BHD.24% ZKTECOBIOMETRICSINDIAPRIVATELIMITED 25.00%、15.00% ZKTECOEUROPESL 25% ZKTECOIRELANDLIMITED 12.5% ZKTECODeutschland GmbH 31.225% ZKTECOITALIAS.R.L.27.9% ZKTECOUKLTD 19%、25% ZKTECOPERUSOCIEDADANONIMACERRADA 29.5% ZKTECOTHAICO., LTD.20%、15%、0% ZKTeco 2023 Annual Report 240 ZKTECOChile SpA 27% SOLUCIONESINTEGRALESYSISTEMASSpA 27% ZKTECOSECURITYL.L.C 0% ZKTECOARGENTINAS.A.25.00%、30.00%、35.00% Limited Liability Company "ZKTeco biometrics and security" 20% ZKTeco Investment Inc.21% ZKTECOUSALLCNot applicable ARMATURALLC. Not applicable Armatura Co., Ltd.25.00%、22.00%、20.00%、10.00% RALVIEAIINC.38% ZKTeco Japan Co., Ltd.15.00%、23.20% PT. ZKTECOBIOMETRICSINDONESIA 22.00%、11.00% ZKINVESTIMENTOSDOBRASILLTDA.25.00%、15.00% ZKTECODOBRASILS.A.25.00%、15.00% ZKTeco Latam R&DS.A.25.00%、30.00%、35.00% NGTECOCO., LIMITED 16.50%、8.25% ZKTECOBIOMETRICLIMITED 30% ZKTECOPANAMA, S.A.5.00% ZKINTELLIGENTSOLUTIONS (PTY) LTD 27.00%、28.00% ZKTECOBIOMETRICSKENYALIMITED 30% ZKTECOROMANIAS.R.L 16% Hubei ZKTeco Co., Ltd.20% Wuhan ZKTeco Perception Technology Co., Ltd.20% ZKTECOSGINVESTMENTPTE. LTD.17.00%、4.25% ZKTECOSINGAPOREPTE. LTD.17.00%、4.25% ZKDIGIMAXPTE. LTD.4.25%、8.5%、17% ZKDIGIMAXPANAMA, S.A.25% Armatura Tech Co., Ltd.20%、15%、0% ZKDIGIMAX (PTY) LTD 27% PT. ZKDIGIMAXEXCELNOBLE 0.5%、22% ZKDIGIMAXCHINACO., LTD.25% ZKDIGIMAXCOLOMBIASAS 35% 2. Tax incentives (1) Article 28 of the "Law of the People's Republic of China on Enterprise Income Tax" stipulates that high-tech enterprises that require key support from the state shall be subject to corporate income tax at a rate of 15%. 1) In December 2021, the Company obtained a high-tech enterprise certificate (No. GR202144002274), which is valid for three years. 2) In November 2022, XIAMENZKTECOCO., LTD. obtained a high-tech enterprise certificate (No. GR202235100737), which is valid for three years. 3) In December 2022, ZKTeco (Guangdong) Co., LTD obtained a high-tech enterprise certificate (No. GR202244002616), which is valid for three years. (2) According to the relevant provisions of the "Notice of the Ministry of Finance and the State Administration of Taxation on Value-added Tax Policies for Software Products" (CS [2011] No.100) and the "Notice on Questions of Policies on Encouraging the Development of the Software and Integrated Circuit Industries" (CS [2000] No.25), ZKTeco 2023 Annual Report 241 from January 1,2011, for general taxpayers of value-added tax who sell software products developed and produced by themselves, after value-added tax is levied at the applicable tax rate, a policy of taxation and drawback has been implemented for the portion of its actual value-added tax burden exceeding 3.00%. (3) According to the "Announcement on Further Supporting the Development of Micro and Small Enterprises and Individual Industrial and Commercial Households" (Announcement No.12 of the State Administration of Taxation of the Ministry of Finance,2023), from January 1,2023 to December 31,2027, small-scale value-added tax taxpayers, small and micro profit enterprises, and individual industrial and commercial households can reduce resource tax by half (excluding water resource tax), urban maintenance and construction tax, property tax, urban land use tax, stamp duty (excluding securities transaction stamp duty), farmland occupation tax, education surcharge, and local education surcharge. The policy of reducing the taxable income of small and micro profit enterprises by 25% and paying corporate income tax at a rate of 20% will continue to be implemented until December 31,2027. This policy is applicable to Shenzhen ZKTeco Biometric Identification Technology Co., Ltd., Hangzhou ZKTeco Hanlian E-commerce Co., Ltd., Xi'an ZKTeco Co., Ltd., Hubei ZKTeco Co., Ltd., and Wuhan ZKTeco Perception Technology Co., Ltd., and Dalian ZKTeo CO., Ltd. 3. Others When the total taxable income of ZKINVESTIMENTOSDOBRASILLTDA. and ZKTECODOBRASILS.A. is below 240,000 Reals, the tax rate is 15.00%; an additional 10.00% will be levied on the portion exceeding 240,000 Reals. LLC type companies are not required to pay corporate income tax, and the profits of LLC companies are summarized to C-corp type company shareholders or individual shareholders, and then shareholders pay income tax. If the accumulated taxable net income of ZKTECOARGENTINAS.A. and ZKTECOLatam R&DS.A. exceeds 5 million pesos, they will be taxed at a tax rate of 25.00%; those between 5 million and 50 million pesos will be taxed at a tax rate of 30.00%; those exceeding 50 million pesos will be taxed at a tax rate of 35.00%. Coexistence of two types of corporate income tax of ZKTECOBIOMETRICSINDIAPRIVATELIMITED: (1) Normal Tax corporate income tax rate is 25.00%; (2) MATTax: In 2023, the MATTax rate was 15.00%. When the Company's tax payable is less than 15.00% of its book profit, the minimum alternative tax is paid, calculated as 15.00% of its book profit; Normal Tax and MATTax, whichever is higher. The corporate income tax rate for ZKTeco Deutschland GmbH in 2023 is 31.225%. ZKTECOTHAICO., LTD. and Armatura Tech Co., Ltd. are small and medium-sized enterprises (SMEs) that meet the following two conditions: (1) As of the last day of the accounting cycle, the paid in capital shall not exceed ZKTeco 2023 Annual Report 242 THB 5 million; (2) The total annual revenue from selling goods or providing services shall not exceed THB 30 million. Applicable to tax rates of 20%,15%, and 0%, specifically including: accounting profits below THB 300,000.00, with a tax rate of 0.00%; from THB 300,000.00 to THB 3,000,000.00, with a tax rate of 15.00%; above THB 3,000,000.00, with tax rate is 20.00%. If the above two conditions are not met, the tax rate is applicable at 20.00%. The corporate income tax rate of ZKTECOTURKEYELEKTRONIKSANAYIVETICARETLIMITED SIRKETI for the year 2023 was 25%. PT. ZKTECOBIOMETRICSINDONESIA, an Indonesian subsidiary, applies the corporate income tax rate for the year 2023 as follows: (1) When the total sales revenue does not exceed IDR 4.8 billion, the applicable income tax rate is 11.00%; (2) When the total sales exceed IDR 4.8 billion and do not exceed IDR 50 billion, the taxable income of IDR 4.8 billion accounting for the proportion of total sales shall be calculated at a tax rate of 11.00%, and the taxable income of the part exceeding IDR 4.8 billion accounting for the proportion of total sales shall be calculated at a tax rate of 22.00%; (3) When the total sales exceed IDR 50 billion, the applicable income tax rate is 22.00%. Armatura Co., Ltd. has an income tax rate of 10.00% for sales between KRW 0.00 to KRW 200 million; 20.00% for KRW 200 million to 20 billion; 22.00% for KRW 20-300 billion, and 25.00% for over KRW 300 billion. The applicable income tax rates for ZKTECOCO., LIMITED and NGTECOCO., LIMITED are 8.25% and 16.50% respectively; the tax rate is 8.25% for accounting profits of HKD 2 million, and the tax rate is 16.50% for those exceeding HKD 2 million. ZKTECOPANAMA, S.A. obtained the letter of authorization for the Colon Free Zone, Panama on August 30, 2021. In 2022, export income of enterprises within the zone was exempt from corporate income tax. From January to February 2022, the corporate income tax rate for sales revenue in Panama was 25.00%. On March 3,2022, they obtained the SEM license, and from March 2022, the corporate income tax rate for sales revenue in Panama was 5.00%. The applicable income tax rates for ZKTECOSGINVESTMENTPTE. LTD. and ZKTECOSINGAPOREPTE. LTD. in 2023 were 4.25% and 17.00% respectively; the income tax rate was 4.25% for those within SGD 100,000, and 17.00% for those exceeding SGD 100,000. ZKTeco 2023 Annual Report 243 The applicable income tax rates for ZKDIGIMAXPTE.LTD. in 2023 were 4.25%,8.5% and 17.00% respectively; the taxable income rate was 4.25% for those within SGD 10,000,8.5% for those between SGD 10,000 and SGD 200,000, and 17% for the excess. PT.ZKDIGIMAXEXCELNOBLE was established in May 2023, with tax incentives for the first year. The tax rate is 0.5% for income below IDR 4.8 billion, and 22% for excess tax. The applicable corporate income tax rate for ZKTECOUKLTD in 2023 is as follows: Starting from April 2023, if the profit exceeds GBP 250,000, the income tax rate is 25%; if the profit is below GBP 50,000,19% still applies; if the profit is between GBP 50,000 and GBP 250,000,25% applies, and marginal relief is implemented. The applicable corporate income tax rate for RALVIEAIINC. in 2023 is as follows: The basic tax rate for federal income tax is 38%. After deducting the tax exemption items specified in Section 149 (1) (t) of the "Law of the People's Republic of China on Enterprise Income Tax", enterprises can enjoy a 10% federal tax credit for income obtained in various provinces (or territories) of Canada, which is a preferential tax rate of 28%. However, for income sourced from outside Canada, the 10% credit policy is not applicable. If the registered capital of ZKTeco Japan Co., Ltd. is less than JPY 100 million and there is no capital fund, the corporate tax rate (income tax) is 15.00% for the income of less than JPY 8 million; for income exceeding JPY 8 million, the corporate tax rate (income tax) is 23.20%. For ZKINTELLIGENTSOLUTIONS (PTY) LTD, the corporate income tax rate for residents on or after March 31,2023 is 27%, and for the period from April 1,2022 to March 30,2023, the corporate income tax rate is 28%. VII. Notes to Consolidated Financial Statements 1. Monetary fund Unit: RMB Item Ending Balance Beginning Balance Cash on hand 1,401,947.052,646,715.85 Cash in bank 1,921,774,208.611,876,652,122.37 Other monetary funds 67,748,799.1233,646,193.75 Total 1,990,924,954.781,912,945,031.97 Including: total amount deposited abroad 269,209,971.66200,783,792.34 Other explanations: ZKTeco 2023 Annual Report 244 Note 1: The funds deposited overseas mainly refer to the monetary funds of subsidiary companies ZK INVESTEMENTSINC., ZKTECOCO., LIMITED, ZKTECOEUROPESL, ZKTeco Investment Inc., ZK TECHNOLOGYLLC, ZKTECOSECURITYL.L.C and Armatura Tech Co., Ltd., as shown in the table below: Item Ending Balance Beginning Balance ZKINVESTMENTSINC.50,836,806.935,488,562.65 ZKTECOCO., LIMITED 21,156,346.8815,460,746.98 ZKTECOEUROPESL 31,524,794.4313,570,285.55 ZKTeco Investment Inc.14,446,108.5812,478,045.71 ZKTECHNOLOGYLLC 14,890,877.7749,108,592.44 ZKTECOSECURITYL.L.C 30,848,104.4817,077,386.32 Armatura Tech Co., Ltd.22,185,840.8433,067,155.46 Total 185,888,879.91146,250,775.11 Note 2: As of December 31,2023, in the ending balance of bank deposits, the principal ending balance of the time deposit was RMB 598,547,190.12, and the unearned interest receivable amount was RMB 20,402,541.16, which does not belong to cash and cash equivalents. Please refer to "VII. Notes to Main Items in the Consolidated Financial Statements Note 59. Supplementary information of cash flow statement" for details. Note 3: Details of restricted monetary capital are as follows: Item Ending Balance Beginning Balance Margin of bank acceptance draft 46,693,268.67 30,551,118.11 Non withdrawable funds on e-commerce platforms --- 8,000.00 Pledged guarantee time deposits --- 2,243.32 Frozen litigation funds 800,000.00 18.71 Funds in transit 7,461,401.81 557,108.80 Total 54,954,670.4831,118,488.94 2. Trading financial assets Unit: RMB Item Ending Balance Beginning Balance Financial assets measured at fair value and whose changes are included in the current profits and losses 80,980,203.63204,318,406.05 Including: Financial products 80,887,585.81204,318,406.05 Forward foreign exchange settlement and sales 92,617.82 Including: Total 80,980,203.63204,318,406.05 Other explanations: ZKTeco 2023 Annual Report 245 3. Accounts receivable (1) Disclosure by aging Unit: RMB Aging Closing book balance Opening book balance Within 1 year (including 1 year) 465,244,619.74408,148,527.11 1-2 years 41,128,894.3419,594,239.86 2-3 years 4,763,523.901,938,043.20 Over 3 years 3,103,189.241,922,892.18 3-4 years 1,424,766.06539,762.25 4-5 years 377,084.95752,784.17 Over 5 years 1,301,338.23630,345.76 Total 514,240,227.22431,603,702.35 (2) Disclosure by bad debt accrual method Unit: RMB Category Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Amount Proportion Amount Accrual proportion Amount Proportion Amount Accrual proportion Accounts receivable with individual provision for bad debts 7,025,009.3 1 1.37% 6,009,009.3185.54% 1,016,000.005,430,619.601.26% 5,430,619.60100.00% 0.00 Including: Accounts receivable with insignificant single amount and bad debt reserve withdrawn separately 7,025,009.3 1 1.37% 6,009,009.3185.54% 1,016,000.005,430,619.601.26% 5,430,619.60100.00% 0.00 Receivable with combined provision for bad debt reserve 507,215,217.91 98.63% 28,427,904.255.60% 478,787,313.66 426,173,082.75 98.74% 22,675,158.4 8 5.32% 403,497,924.2 7 Including: Aging portfolio 507,215,217.91 98.63% 28,427,904.255.60% 478,787,313.66 426,173,082.75 98.74% 22,675,158.4 8 5.32% 403,497,924.2 7 ZKTeco 2023 Annual Report 246 Total 514,240,227.22 100.00% 34,436,913.566.70% 479,803,313.66 431,603,702.35 100.00% 28,105,778.0 8 6.51% 403,497,924.2 7 Bad debt reserve made individually: 6,009,009.31 Unit: RMB Name Beginning Balance Ending Balance Book balance Bad debt reserve Book balance Bad debt reserve Accrual proportion Reasons for provision Hainan Jialing Digital Technology Co., Ltd. 2,032,000.001,016,000.0050.00% Risk in payment collection Shanghai Leqi Automation Technology Co., Ltd. 490,186.63490,186.63521,950.00521,950.00100.00% Expected non-recoverable Noble ITSolutions Co., Ltd 408,557.71408,557.71415,485.70415,485.70100.00% Expected non-recoverable Zicom Electronic Securit 365,258.45365,258.45371,452.20371,452.20100.00% Expected non-recoverable Al Asma Technology 346,077.38346,077.38353,391.81353,391.81100.00% Expected non-recoverable Guizhou Zhongjiang Intelligent Technology Co., Ltd. 334,800.21334,800.21334,800.21334,800.21100.00% Expected non-recoverable Shenzhen Xuhui Information Technology Co., Ltd. 326,350.00326,350.00326,350.00326,350.00100.00% Expected non-recoverable TIMEWATCH INFOCOMPVT. LTD. 295,708.98295,708.98300,723.36300,723.36100.00% Expected non-recoverable Northwood Investors LLC 240,696.58240,696.58244,778.11244,778.11100.00% Expected non-recoverable Gansu Fourth Construction Group Co., Ltd. 224,676.00224,676.00224,676.00224,676.00100.00% Expected non-recoverable VENDEMMIA COMERCIO INTERNACIONAL LTDA 197,665.93197,665.93201,017.79201,017.79100.00% Expected non-recoverable Hainan Zhongkong IOT Technology Co., Ltd. 199,579.00199,579.00200,089.00200,089.00100.00% Expected non-recoverable Tianjin Eagle Eye Biotechnology Co., Ltd. 193,330.00193,330.00178,130.00178,130.00100.00% Expected non-recoverable ASIA IDENTIFICATION ANDSECURITY TECHNOLOGY COMPANYLIMITED 165,065.90165,065.90167,864.95167,864.95100.00% Expected non-recoverable Wanqiao Information Technology Co.,Ltd. 165,900.00165,900.00165,900.00165,900.00100.00% Expected non-recoverable Baoneng Urban Development and Construction Group Co., Ltd. 155,292.00155,292.00155,292.00155,292.00100.00% Expected non-recoverable Logile 105,108.97105,108.97100.00% Expected non-recoverable PONTORHJEIRELI - ME 98,393.1598,393.15100,061.62100,061.62100.00% Expected non-recoverable SEDASSAULT SYSTEMES 241,994.64241,994.64 Green Electricity Renewable Energy Co., Ltd., of Nanhai, Foshan 98,024.6498,024.64 SECUZAASECURITY SOLUTIONSLAB PRIVATELIMITED 96,587.0296,587.0298,224.8798,224.87100.00% Expected non-recoverable Qianxinan Mengku 74,672.0074,672.0074,672.0074,672.00100.00% Expected non-ZKTeco 2023 Annual Report 247 Business Service Co., Ltd. recoverable INTELLISMART TECHNOLOGYINC. 73,253.6673,253.6674,495.8474,495.84100.00% Expected non-recoverable RBBTechnologies Private Limited 61,422.9761,422.9762,167.1262,167.12100.00% Expected non-recoverable Yichang Anlian Intelligent Technology Development Co., Ltd. 56,085.0056,085.0056,085.0056,085.00100.00% Expected non-recoverable Dongguan Yukong Security Technology Co., Ltd. 53,703.0053,703.0053,703.0053,703.00100.00% Expected non-recoverable Others 467,338.75467,338.75206,589.76206,589.76100.00% Expected non-recoverable Total 5,430,619.605,430,619.607,025,009.316,009,009.31 Bad debt reserve made by portfolio: 28,427,904.25 Unit: RMB Name Ending Balance Book balance Bad debt reserve Accrual proportion Within 1 year 465,109,048.3023,255,452.655.00% 1-2 years 39,314,648.703,931,464.8710.00% 2-3 years 2,215,048.83664,514.6530.00% Over 3 years 576,472.08576,472.08100.00% Total 507,215,217.9128,427,904.25 Explanations on the basis for determining the portfolio: Provision for bad debts by combination: Unit: RMB Name Ending Balance Book balance Bad debt reserve Accrual proportion Aging portfolio 507,215,217.9128,427,904.255.60% Total 507,215,217.9128,427,904.25 Explanations on the basis for determining the portfolio: If the bad debt reserve of accounts receivable is made according to the general model of expected credit losses: □ Applicable Not applicable (3) Bad debt reserves withdrawn, recovered or reversed in the current period Provision for bad debt reserves in current period: Unit: RMB Category Beginning Balance Current period change amount Ending Balance Provision Return or reversal Redeem/redemption Others Accounts receivable with insignificant 5,430,619.601,115,424.44213,475.99477,491.31 -153,932.576,009,009.31 ZKTeco 2023 Annual Report 248 single amount and bad debt reserve withdrawn separately Aging portfolio 22,675,158.485,499,770.96 47,308.74 -300,283.5528,427,904.25 Total 28,105,778.086,615,195.40213,475.99524,800.05 -454,216.1234,436,913.56 The amount of bad debt reserves recovered or reversed in the current period is significant: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves (4) Actual verification of accounts receivable in the current period Unit: RMB Item Write-off amount Accounts receivable actually written off 524,800.05 Important accounts receivable verification status: Unit: RMB Company name Nature of accounts receivable Write-off amount Write-off reason Verification and cancellation programs that have been performed Whether the payment is incurred due to related transactions Explanations on accounts receivable verification: (5) Accounts receivable and contract assets from top five borrowers classified based on the ending balance Unit: RMB Company name Ending balance of accounts receivable Ending balance of contract assets Ending balance of accounts receivable and contract assets Proportion in the total ending balance of accounts receivable and contract assets Ending balance of bad debt reserves for accounts receivable and impairment provision for contract assets Customer 139,268,877.47 39,268,877.477.63% 1,963,443.92 Customer 230,641,091.96 30,641,091.965.95% 1,543,793.44 Customer 315,485,450.49 15,485,450.493.01% 859,347.75 Customer 414,478,991.27 14,478,991.272.81% 976,184.42 Customer 513,980,571.77 13,980,571.772.72% 982,553.50 Total 113,854,982.96 113,854,982.9622.12% 6,325,323.03 ZKTeco 2023 Annual Report 249 4. Contract assets (1) Contract asset situation Unit: RMB Item Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Quality guarantee deposit receivable 321,793.7839,607.47282,186.31329,942.1223,142.18306,799.94 Total 321,793.7839,607.47282,186.31329,942.1223,142.18306,799.94 (2) Disclosure by bad debt accrual method Unit: RMB Category Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Amount Proportion Amount Accrual proportion Amount Proportion Amount Accrual proportion Withdrawing bad debt reserves by individual item 0.000.00% 0.000.00% 0.000.000.00% 0.000.00% 0.00 Including: Bad debt reserve withdrawn by portfolio 321,793.78100.00% 39,607.4712.31% 282,186.31329,942.12100.00% 23,142.187.01% 306,799.94 Including: Aging portfolio 321,793.78100.00% 39,607.4712.31% 282,186.31329,942.12100.00% 23,142.187.01% 306,799.94 Total 321,793.78100.00% 39,607.4712.31% 282,186.31329,942.12100.00% 23,142.187.01% 306,799.94 Provision for bad debt reserve based on a general model of expected credit losses □ Applicable Not applicable (3) Bad debt reserves withdrawn, recovered or reversed in the current period Unit: RMB ZKTeco 2023 Annual Report 250 Item Provision in current period Recovery or reversal in the current period Charged or written off in current period Reasons Aging portfolio 16,465.290.000.00 Provision of bad debts by aging portfolio Total 16,465.290.000.00 —— The amount of bad debt reserves recovered or reversed in the current period is significant: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves Other explanations: 5. Other receivables Unit: RMB Item Ending Balance Beginning Balance Other receivables 32,744,574.2034,207,287.53 Total 32,744,574.2034,207,287.53 (1) Other receivables 1) Classification of other receivables based on nature of payment Unit: RMB Payment nature Closing book balance Opening book balance Current account 14,563,843.7611,109,121.37 Guarantee deposit 14,264,601.5214,623,016.19 Reserve funds and loans 5,408,335.708,156,672.47 Collection and payment on behalf of others 3,604,884.91826,216.46 Withholding and paying social security and capital reserve on behalf of others 1,784,200.951,664,032.00 Export tax refund 3,537,610.999,631,295.37 Others 1,840,576.77694,798.92 Total 45,004,054.6046,705,152.78 2) Disclosure by aging Unit: RMB Aging Closing book balance Opening book balance Within 1 year (including 1 year) 19,030,462.6019,689,275.63 1-2 years 1,949,905.244,470,977.43 2-3 years 3,010,293.841,529,919.42 ZKTeco 2023 Annual Report 251 Over 3 years 21,013,392.9221,014,980.30 3-4 years 1,467,967.799,890,703.33 4-5 years 9,492,724.329,786,089.34 Over 5 years 10,052,700.811,338,187.63 Total 45,004,054.6046,705,152.78 3) Disclosure by bad debt accrual method Applicable □ Not applicable Unit: RMB Category Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Amount Proportion Amount Accrual proportion Amount Proportion Amount Accrual proportion Withdrawing bad debt reserves by individual item 12,384,636.6727.52% 10,624,147.1885.78% 1,760,489.4912,737,453.0827.27% 10,976,963.5986.18% 1,760,489.49 Including: Bad debt reserve withdrawn by portfolio 32,619,417.9372.48% 1,635,333.225.01% 30,984,084.7133,967,699.7072.73% 1,520,901.664.48% 32,446,798.0 4 Including: Aging portfolio 2,920,550.056.49% 1,635,333.2255.99% 1,285,216.831,997,242.124.28% 1,520,901.6676.15% 476,340.46 Portfolio of deposits, security deposits, employee loans, etc. 29,698,867.8865.99% 29,698,867.8831,970,457.5868.45% 31,970,457.5 8 Total 45,004,054.60100.00% 12,259,480.4027.24% 32,744,574.2046,705,152.78100.00% 12,497,865.2526.76% 34,207,287.5 3 Bad debt reserve made individually: 10,624,147.18 Unit: RMB Name Beginning Balance Ending Balance Book balance Bad debt reserve Book balance Bad debt reserve Accrual proportion Reasons for provision Shenzhen Zhongan Intelligent Control Technology Co., Ltd. 7,772,552.266,012,062.777,772,552.266,012,062.7777.35% Risk in payment collection Shenzhen Zhikongtaike Biometric Technology Co., Ltd. 2,500,000.002,500,000.002,500,000.002,500,000.00100.00% Expected non-recoverable CNB TECHNOLOGY 1,268,009.091,268,009.091,289,511.781,289,511.78100.00% Expected non-recoverable ZKTeco 2023 Annual Report 252 INC. Guizhou Zhongjiang Intelligent Technology Co., Ltd. 397,428.70397,428.70397,428.70397,428.70100.00% Expected non-recoverable Green Electricity Renewable Energy Co., Ltd., of Nanhai, Foshan 125,565.41125,565.41 New bio 339,221.01339,221.01375,838.74 375,838.74 100.00% Expected non-recoverable ZKTeco Africa R & DLtd 260,575.01260,575.01 Others 74,101.6074,101.6049,305.1949,305.19100.00% Expected non-recoverable Total 12,737,453.0810,976,963.5912,384,636.6710,624,147.18 Bad debt reserve made by portfolio: aging portfolio Unit: RMB Name Ending Balance Book balance Bad debt reserve Accrual proportion Within 1 year 1,281,287.1764,064.265.00% 1-2 years 42,496.204,249.6210.00% 2-3 years 42,496.2012,748.8630.00% Over 3 years 1,554,270.481,554,270.48100.00% Total 2,920,550.051,635,333.22 Explanations on the basis for determining the portfolio: Bad debt reserve made by portfolio: deposits, security deposits, employee loans, etc. Unit: RMB Name Ending Balance Book balance Bad debt reserve Accrual proportion Within 1 year 17,703,793.42 1-2 years 1,907,409.04 2-3 years 2,644,528.72 Over 3 years 7,443,136.70 Total 29,698,867.88 Explanations on the basis for determining the portfolio: Provision for bad debt reserve based on a general model of expected credit losses: Unit: RMB Bad debt reserve Stage 1 Stage 2 Stage 3 Total Expected credit loss in the future 12 months Expected credit loss within whole duration (no credit impairment occur) Expected credit loss within whole duration (credit impairment has occurred) Balance as of January 1,2023 1,520,901.66 10,976,963.5912,497,865.25 Balance as of January ZKTeco 2023 Annual Report 253 1,2023 in the current period Provision in current period 5,076.30 45,382.0150,458.31 Reversals in the current period 25,913.6925,913.69 Canceled after verification in the current period 170,677.68170,677.68 Other changes -109,355.26 201,607.0592,251.79 Balance as of December 31,2023 1,635,333.22 10,624,147.1812,259,480.40 Classification basis and bad debt reserve provision ratio for each stage Changes in book balance with major changes in loss reserves during the current period □ Applicable Not applicable 4) Bad debt reserves withdrawn, recovered or reversed in the current period Provision for bad debt reserves in current period: Unit: RMB Category Beginning Balance Current period change amount Ending Balance Provision Return or reversal Write-off or cancellation Others Withdrawing bad debt reserves by individual item 10,976,963.5945,382.0125,913.69170,677.68201,607.0510,624,147.18 Bad debt reserve made by aging portfolio 1,520,901.665,076.30 -109,355.261,635,333.22 Total 12,497,865.2550,458.3125,913.69170,677.6892,251.7912,259,480.40 The significant amount of bad debt reserves reversed or recovered in the current period: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves 5) Other accounts receivable actually written off in the current period Unit: RMB ZKTeco 2023 Annual Report 254 Item Write-off amount Other receivables actually written off 170,677.68 Other major receivable written off: Unit: RMB Company name Nature of other accounts receivable Write-off amount Write-off reason Verification and cancellation programs that have been performed Whether the payment is incurred due to related transactions Explanations on writing off other receivables: 6) Other accounts receivable with the top five ending balances collected by the debtor Unit: RMB Company name Nature of payment Ending Balance Aging Proportion to the total ending balance of other accounts receivable Ending balance of bad debt reserve No.1 Current account 7,772,552.26 Over 3 years 17.27% 6,012,062.77 No.2 Guarantee deposit 4,800,000.00 Over 3 years 10.67% No.3 Export tax refund 3,537,610.99 Within 1 year 7.86% No.4 Current account 2,500,000.00 Over 3 years 5.56% 2,500,000.00 No.5 Current account 1,628,759.08 Within 1 year,1-2 years,2-3 years, more than 3 years 3.62% 1,520,393.77 Total 20,238,922.33 44.98% 10,032,456.54 6. Prepayments (1) Prepayments listed by aging Unit: RMB Aging Ending Balance Beginning Balance Amount Proportion Amount Proportion Within 1 year 22,706,163.0196.80% 30,444,433.0898.35% 1-2 years 580,816.582.48% 343,416.741.11% 2-3 years 20,400.640.09% 135,428.000.44% Over 3 years 150,527.010.63% 31,407.760.10% Total 23,457,907.24 30,954,685.58 Explanations on the reasons why prepayments with an aging of over 1 year and significant amounts were not settled in a timely manner: None ZKTeco 2023 Annual Report 255 (2) Prepayments of the top five ending balances collected by prepayment object Company name Ending Balance Proportion to total prepayment (%) Prepayment time Reasons for unsettlement Supplier 13,262,764.6013.912023 Project unsettled Supplier 2 3,087,787.6013.162023 Project unsettled Supplier 3 2,578,545.2310.992023 Project unsettled Supplier 4 1,149,601.614.902023 Project unsettled Supplier 5 900,000.003.842023 Project unsettled Total 10,978,699.0446.80 --- --- Other explanations: 7. Inventory Whether the Company needs to comply with disclosure requirements in the real estate industry No (1) Inventory classification Unit: RMB Item Ending Balance Beginning Balance Book balance Inventory depreciation reserves or contract performance cost impairment reserves Book value Book balance Inventory depreciation reserves or contract performance cost impairment reserves Book value Raw materials 131,431,792.722,989,549.95128,442,242.7795,807,941.082,700,265.8993,107,675.19 Products in process 8,583,812.25 8,583,812.2522,655,606.68 22,655,606.68 Inventory goods 238,881,580.2612,576,970.86226,304,609.40233,342,447.3711,987,915.23221,354,532.14 Contract performance cost 240,067.45 240,067.45 Sending goods 9,129,100.21174,341.278,954,758.949,566,960.1280,028.519,486,931.61 Consigned processing materials 429,360.95 429,360.951,435,828.52 1,435,828.52 Total 388,455,646.3915,740,862.08372,714,784.31363,048,851.2214,768,209.63348,280,641.59 (2) Inventory depreciation reserves and contract performance cost impairment reserves Unit: RMB Item Beginning Balance Increase in current period Decrease in current period Ending Balance Provision Others Reversal or Others ZKTeco 2023 Annual Report 256 reselling Raw materials 2,700,265.89280,194.919,347.35258.20 2,989,549.95 Inventory goods 11,987,915.232,433,168.46301,614.422,145,727.25 12,576,970.86 Sending goods 80,028.51152,305.40 57,992.64 174,341.27 Total 14,768,209.632,865,668.77310,961.772,203,978.09 15,740,862.08 Provision for inventory depreciation made by portfolio Unit: RMB Portfolio Name End of the period Opening Ending Balance Revaluation reserve Provision ratio for inventory depreciation Beginning Balance Revaluation reserve Provision ratio for inventory depreciation Provision standards for inventory depreciation reserves made by portfolio (3) Explanations on the capitalized amount of borrowing costs included in the ending balance of inventory (4) Explanations on the current amortization amount of contract performance cost 8. Non-current assets due within one year Unit: RMB Item Ending Balance Beginning Balance Debt investment due within one year 16,902,617.8310,025,638.89 Other creditor's right investment due within one yea 0.000.00 Long-term receivables due within one year 354,996.910.00 Total 17,257,614.7410,025,638.89 (1) Debt investment due within one year Applicable □ Not applicable 1) Information on debt investment due within one year Unit: RMB Portfolio Name Ending Balance Beginning Balance Book balance Impairment provision Book value Book balance Impairment provision Book value Certificates of Deposit（CD） 11,060,888.54 11,060,888.5410,025,638.89 10,025,638.89 Term deposits 5,841,729.29 5,841,729.29 Total 16,902,617.83 16,902,617.8310,025,638.89 10,025,638.89 Changes in provision for depreciation of debt investments due within one year in the current period ZKTeco 2023 Annual Report 257 Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance 2) Important debt investments due within one year at the end of the period Unit: RMB Item Face value Coupon rate Due Date Effective interest rate Overdue principal Ending Balance Beginning Balance Ending Balance Beginning Balance CD of Bank of China 10,000,000.003.85% April 7,2024 Total 10,000,000.00 Other explanations: On April 20,2022, the Company signed a transfer confirmation letter with Jiangmen Haoxin New Energy Co., Ltd. for a CD issued by the Bank of China on April 7,2021, with the CD number CD003210407143640620, the CD amount of RMB 10,000,000.00, the YTM of 3.85%, and the maturity date of April 7,2024, as a time deposit product from 2022 to 2024. The principal of the Company corresponds to the face value of the CD of RMB 10,000,000.00 and the interest paid from April 7,2021 to April 19,2022 of RMB 397,833.00. 9. Other current assets Unit: RMB Item Ending Balance Beginning Balance Income tax prepaid amount presented as net amount after offsetting 6,221,029.2410,774,743.22 Value added tax deduction amount 19,249,699.105,880,824.30 Other prepaid taxes 395,080.941,205,787.29 Total 25,865,809.2817,861,354.81 Other explanations: 10. Debt investment (1) Information on debt investment Unit: RMB Item Ending Balance Beginning Balance Book balance Impairment provision Book value Book balance Impairment provision Book value Bank CD - Principal 57,795,333.29 57,795,333.2922,022,831.83 22,022,831.83 Bank CD - Interest 1,391,881.44 1,391,881.44333,967.35 333,967.35 Debt investment due within one year -16,902,617.83 -16,902,617.83 -10,025,638.89 -10,025,638.89 Total 42,284,596.90 42,284,596.9012,331,160.29 12,331,160.29 Changes in provision for depreciation of debt investments in the current period Unit: RMB ZKTeco 2023 Annual Report 258 Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance (2) Important debt investments at the end of the period Unit: RMB Debt items Ending Balance Beginning Balance Face value Coupon rate Effective interest rate Due Date Overdue principal Face value Coupon rate Effective interest rate Due Date Overdue principal (3) Actual verification of debt investments in the current period Unit: RMB Item Write-off amount Information on important debt investment verification Explanations on debt investment verification: Changes in book balance with major changes in loss reserves during the current period □ Applicable Not applicable Other explanations: 11. Long-term receivables (1) Information on long-term receivables Unit: RMB Item Ending Balance Beginning Balance Discount rate range Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Employee housing loan 2,802,225.14 2,802,225.14 4.2%-4.3% Long-term receivables due within one year -354,996.91 -354,996.91 Total 2,447,228.23 2,447,228.23 (2) Disclosure by bad debt accrual method Unit: RMB Category Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Amount Proportion Amount Accrual proportiAmount Proportion Amount Accrual proportiZKTeco 2023 Annual Report 259 on on Including: Including: Provision for bad debt reserve based on a general model of expected credit losses Unit: RMB Bad debt reserve Stage 1 Stage 2 Stage 3 Total Expected credit loss in the future 12 months Expected credit loss within whole duration (no credit impairment occur) Expected credit loss within whole duration (credit impairment has occurred) Balance as of January 1,2023 in the current period Classification basis and bad debt reserve provision ratio for each stage (3) Bad debt reserves withdrawn, recovered or reversed in the current period Unit: RMB Category Beginning Balance Current period change amount Ending Balance Provision Return or reversal Write-off or cancellation Others The significant amount of bad debt reserves reversed or recovered in the current period: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves Other explanations: (4) Long-term receivables actually written off in the current period Unit: RMB Item Write-off amount Information on important long-term receivable verification: Unit: RMB Company name Payment nature Write-off amount Write-off reason Verification and cancellation programs that have been performed Whether the payment is incurred due to related transactions Explanations on long-term receivable verification: ZKTeco 2023 Annual Report 260 12. Long-term equity investment Unit: RMB Investee Beginning balance (book value) Beginning balance of impairment provision Increase or decrease in the current period Ending balance (book value) Ending balance of impairment provision Additional investment Reduced investment Investment profit or loss recognized under equity method Other comprehensive income adjustments Changes in other equities Cash dividends or profits declared to pay Impairment provision Others I. Joint ventures Subtotal II. Joint venture Silk ID SystemsInc. 1,557,356.71 - 422,927.54 - 175,710.11 - 422,927.54 - 281,599.25 20,139.61 274,331.8 8 281,599.25 CV Squared,Inc. 3,689,002.99 - 9,901.7 9 62,507.46 3,741,608.66 PT. ZKTECO SECURITY INDONESIA 91,727.34 - 92,836.19 1,108.8 5 ZKTECO SMART CITY (THAILAND) CO., LTD. 1,813,245.66 - 77,671.49 30,373.91 1,765,948.08 Xiamen Xingniu Yunyu Venture Capital Partnership Enterprise (Limited Partnership) 24,000,00 0.00 24,000,00 0.00 Subtotal 7,151,332.70 24,000,00 0.00 - 422,927.54 - 356,119.58 - 422,927.54 - 281,599.25 114,129.83 29,781,88 8.62 281,599.25 Total 7,151,332.70 24,000,00 0.00 - 422,927.54 - 356,119.58 - 422,927.54 - 281,599.25 114,129.83 29,781,88 8.62 281,599.25 The recoverable amount is determined based on the net amount after deducting disposal expenses from fair value □ Applicable Not applicable The recoverable amount is determined based on the present value of expected future cash flows □ Applicable Not applicable Reasons for significant discrepancies between the above information and the information or external information used in impairment tests of previous years Reasons for significant discrepancies between the information used in the Company's impairment tests of previous year and the actual situation of that year Other explanations: The Company, professional investment institutions, and related parties registered and established Xiamen Xingniu Yunyu Venture Capital Partnership Enterprise (Limited Partnership) for Ecological Innovation Fund in August 2023, and invested RMB 24 million in September 2023. ZKTeco 2023 Annual Report 261 13. Investment real estate (1) Investment real estate adopting cost measurement model Applicable □ Not applicable Unit: RMB Item Houses and buildings Land use rights Construction in progress Total I. Original book value 1. Beginning Balance 2. Increase in current period 34,416,026.15 34,416,026.15 (1) Outsourcing (2) Transferred from inventory, fixed assets, and construction in progress 34,416,026.15 34,416,026.15 (3) Increase in business merger 3. Decrease in current period (1) Disposal (2) Other transfers out 4. Ending balance 34,416,026.15 34,416,026.15 II. Accumulated depreciation and accumulated amortization 1. Beginning Balance 2. Increase in current period 11,270,537.30 11,270,537.30 (1) Provision or amortization 547,057.36 547,057.36 (2) Fixed assets transfer-in 10,723,479.94 10,723,479.94 3. Decrease in current period (1) Disposal (2) Other transfers out 4. Ending balance 11,270,537.30 11,270,537.30 ZKTeco 2023 Annual Report 262 III. Provision for impairment 1. Beginning Balance 2. Increase in current period (1) Provision 3. Decrease in current period (1) Disposal (2) Other transfers out 4. Ending balance IV. Book value 1. Ending book value 23,145,488.85 23,145,488.85 2. Beginning book value 0.00 The recoverable amount is determined based on the net amount after deducting disposal expenses from fair value □ Applicable Not applicable The recoverable amount is determined based on the present value of expected future cash flows □ Applicable Not applicable Reasons for significant discrepancies between the above information and the information or external information used in impairment tests of previous years Reasons for significant discrepancies between the information used in the Company's impairment tests of previous year and the actual situation of that year Other explanations: (2) Investment real estate adopting fair value measurement model □ Applicable Not applicable (3) Investment real estate without completed property ownership certificate Unit: RMB Item Book value Reasons for not completing the property ownership certificate Other explanations: ZKTeco 2023 Annual Report 263 14. Fixed assets Unit: RMB Item Ending Balance Beginning Balance Fixed assets 470,167,242.89446,391,810.26 Disposal of fixed assets -45,451.60465,698.80 Total 470,121,791.29446,857,509.06 (1) Status of fixed assets Unit: RMB Item Houses and buildings Machinery equipment Transportation vehicles Electronic equipment and others Total I. Original book value: 1. Beginning Balance 419,672,406.0249,603,033.579,813,482.9592,362,437.18571,451,359.72 2. Increase in current period 52,760,047.405,395,577.343,470,613.2415,999,436.0477,625,674.02 (1) Purchase 8,419,129.205,312,676.213,336,016.7818,198,128.8935,265,951.08 (2) Transferred from construction in progress 42,880,907.16 42,880,907.16 (3) Increase in business merger (4) Differences in foreign currency statement translation 1,460,011.0482,901.13134,596.46 -2,198,692.85 -521,184.22 3. Decrease in current period 36,130,404.941,073,852.87314,621.043,319,008.3640,837,887.21 (1) Disposal or retirement 1,073,852.87314,621.043,319,008.364,707,482.27 (2) Transferred to investment real estate 34,416,026.15 34,416,026.15 (3) Other decreases 1,714,378.79 1,714,378.79 4. Ending balance 436,302,048.4853,924,758.0412,969,475.15105,042,864.86608,239,146.53 II. Accumulated depreciation 1. Beginning Balance 37,089,625.8922,647,760.077,317,412.3258,004,751.18125,059,549.46 2. Increase in current period 12,919,001.094,740,652.18971,248.499,348,544.6127,979,446.37 (1) Provision 12,818,509.345,071,111.33944,660.6012,176,171.7631,010,453.03 (2) Differences in foreign currency statement 100,491.75 -330,459.1526,587.89 -2,827,627.15 -3,031,006.66 ZKTeco 2023 Annual Report 264 translation 3. Decrease in current period 10,723,479.94867,126.72297,107.623,079,377.9114,967,092.19 (1) Disposal or retirement 867,126.72297,107.623,079,377.914,243,612.25 (2) Transferred to investment real estate 10,723,479.94 10,723,479.94 4. Ending balance 39,285,147.0426,521,285.537,991,553.1964,273,917.88138,071,903.64 III. Provision for impairment 1. Beginning Balance 2. Increase in current period (1) Provision 3. Decrease in current period (1) Disposal or retirement 4. Ending balance IV. Book value 1. Ending book value 397,016,901.4427,403,472.514,977,921.9640,768,946.98470,167,242.89 2. Beginning book value 382,582,780.1326,955,273.502,496,070.6334,357,686.00446,391,810.26 (2) Temporarily idle fixed assets Unit: RMB Item Original book value Accumulated depreciation Impairment provision Book value Remarks (3) Fixed assets leased out through operating leases Unit: RMB Item Ending book value (4) Fixed assets without completed property ownership certificate Unit: RMB Item Book value Reasons for not completing the property rights certificate Houses and buildings of Hybrid Biometrics IoTIntelligent Industrial Base Project 199,029,492.12 In progress Other explanations: ZKTeco 2023 Annual Report 265 (5) Impairment test of fixed assets □ Applicable Not applicable (6) Disposal of fixed assets Unit: RMB Item Ending Balance Beginning Balance Machinery equipment 461,708.97 Electronic equipment 2,457.35 Transportation vehicles -45,451.60 Other equipment 1,532.48 Total -45,451.60465,698.80 Other explanations: 15. Project under construction Unit: RMB Item Ending Balance Beginning Balance Construction in progress 138,986,483.7357,041,298.90 Engineering materials 0.000.00 Total 138,986,483.7357,041,298.90 (1) Construction in progress Unit: RMB Item Ending Balance Beginning Balance Book balance Impairment provision Book value Book balance Impairment provision Book value Hybrid Biometrics IoT Intelligent Industrial Base Project 22,612,110.240.0022,612,110.2448,448,261.380.0048,448,261.38 Multimodal Biometrics Digitalization Industrial Base Construction Project 87,417,407.700.0087,417,407.702,982,941.950.002,982,941.95 Equipment 0.000.000.005,610,095.570.005,610,095.57 American Manufacturing Factory Construction Project 2,746,178.390.002,746,178.390.000.000.00 Thai factory construction 26,210,787.400.0026,210,787.400.000.000.00 ZKTeco 2023 Annual Report 266 and office buildings Total 138,986,483.730.00138,986,483.7357,041,298.900.0057,041,298.90 (2) Current changes in important construction in progress Unit: RMB Project Name Budget amount Beginning Balance Increase in current period Amount transferred to fixed assets in the current period Other decreases in the current period Ending Balance Proportion of accumulated project investment to budget Engineering progress Accumulated amount of interest capitalization Including: current interest capitalized amount Current interest capitalization rate Source of Funds Hybrid Biometrics IoT Intelligent Industrial Base Project 214,042,000.0048,448,261.3817,044,756.0242,880,907.160.0022,612,110.24110.15% Under construction 2,359,113.420.000.00% 1 Multimodal Biometrics Digitalization Industrial Base Construction Project 284,566,264.912,982,941.9584,434,465.750.000.0087,417,407.7030.72% Under construction 0.00 0.00% 2 Thai factory construction and office buildings 109,095,400.000.0026,210,787.400.000.0026,210,787.4024.03% Under construction 0.000.000.00% Other 3 Total 607,703,664.9151,431,203.33127,690,009.1742,880,907.160.00136,240,305.34 2,359,113.420.000.00% Note: 1. Source of funds for the Hybrid Biometrics IoTIntelligent Industrial Base Project: fundraising, self owned funds, and bank loans 2. Source of funds for the Multimodal Biometrics Digitalization Industrial Base Construction Project: fundraising and self owned funds 3. Source of funds for Thai factory construction and office buildings: self owned funds (3) Current provision for impairment of construction in progress Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance Reason for provision Other explanations: (4) Impairment test of construction in progress □ Applicable Not applicable ZKTeco 2023 Annual Report 267 16. Right-of-use assets (1) Information on right-of-use assets Unit: RMB Item Houses and buildings Transportation vehicles Electronic equipment and others Total I. Original book value 1. Beginning Balance 95,533,396.631,487,226.0723,200.9397,043,823.63 2. Increase in current period 16,890,130.661,264,992.26 18,155,122.92 Lease 15,186,402.141,502,834.73 16,689,236.87 Exchange differences arising from foreign currency transactions 1,703,728.52 -237,842.47 1,465,886.05 3. Decrease in current period 8,255,079.27139,191.23 8,394,270.50 Lease expiration 7,744,905.95139,191.23 7,884,097.18 Lease change 510,173.32 510,173.32 4. Ending balance 104,168,448.022,613,027.1023,200.93106,804,676.05 II. Accumulated depreciation 1. Beginning Balance 45,566,705.77827,935.308,506.9746,403,148.04 2. Increase in current period 28,820,827.45638,299.344,640.2029,463,766.99 (1) Provision 27,814,896.48827,863.744,640.2028,647,400.42 Exchange differences arising from foreign currency transactions 1,005,930.97 -189,564.40 816,366.57 3. Decrease in current period 7,592,766.61139,191.23 7,731,957.84 (1) Disposal Lease expiration 7,289,043.34139,191.23 7,428,234.57 Lease change 303,723.27 303,723.27 4. Ending balance 66,794,766.611,327,043.4113,147.1768,134,957.19 III. Provision for impairment 1. Beginning Balance 2. Increase in current period (1) Provision 3. Decrease in current period (1) Disposal 4. Ending balance ZKTeco 2023 Annual Report 268 IV. Book value 1. Ending book value 37,373,681.411,285,983.6910,053.7638,669,718.86 2. Beginning book value 49,966,690.86659,290.7714,693.9650,640,675.59 (2) Impairment test of right-of-use assets □ Applicable Not applicable Other explanations: 17. Intangible assets (1) Intangible assets Unit: RMB Item Land use rights Patent rights Non-patent technology Software Others Total I. Original book value 1. Beginning Balance 72,034,013.37 12,835,073.96104,614.5484,973,701.87 2. Increase in current period -44,544.08 1,027,040.5611,418.31993,914.79 (1) Purchase 290,677.8113,539.81304,217.62 (2) Internal R&D (3) Increase in business merger (4) Differences in foreign currency statement translation -44,544.08 736,362.75 -2,121.50689,697.17 3. Decrease in current period 559,828.44 559,828.44 (1) Disposal 559,828.44 559,828.44 4. Ending balance 71,989,469.29 13,302,286.08116,032.8585,407,788.22 II. Accumulated amortisation 1. Beginning Balance 10,102,827.54 6,719,776.6540,584.8916,863,189.08 2. Increase in current period 1,242,153.91 1,817,058.1510,160.323,069,372.38 (1) Provision 1,242,153.91 1,680,592.8211,435.332,934,182.06 ZKTeco 2023 Annual Report 269 (2) Differences in foreign currency statement translation 136,465.33 -1,275.01135,190.32 3. Decrease in current period 541,144.92 541,144.92 (1) Disposal 541,144.92 541,144.92 4. Ending balance 11,344,981.45 7,995,689.8850,745.2119,391,416.54 III. Provision for impairment 1. Beginning Balance 2. Increase in current period (1) Provision 3. Decrease in current period (1) Disposal 4. Ending balance IV. Book value 1. Ending book value 60,644,487.84 5,306,596.2065,287.6466,016,371.68 2. Beginning book value 61,931,185.83 6,115,297.3164,029.6568,110,512.79 The proportion of intangible assets formed through internal R&D of the company to the balance of intangible assets at the end of this period is 0.00%. 18. Goodwill (1) Original book value of goodwill Unit: RMB Name of invested entity or matters forming goodwill Beginning Balance Increase in the current period Decrease in the current period Ending Balance Formed by business merger Exchange rate fluctuations Disposals Exchange rate fluctuations ZKTECO (M) SDN. BHD. 170,261.90 2,887.17 173,149.07 ZK INVESTIMENTOSDO BRASIL LTDA. 326,124.50 5,530.15 331,654.65 Total 496,386.40 8,417.32 504,803.72 ZKTeco 2023 Annual Report 270 (2) Provision for impairment of goodwill Unit: RMB Name of invested entity or matters forming goodwill Beginning Balance Increase in the current period Decrease in the current period Ending Balance Provision Disposals Total (3) Information related to the asset group or portfolio of asset groups where goodwill is located Name Composition and basis of the asset group or portfolio to which it belongs Operating segments and basis Is it consistent with previous years ZKTECO (M) SDN.BHD It can bring independent cash flow and can be recognized as a separate asset group Not applicable Yes ZKINVESTIMENTOSDO BRASILLTDA It can bring independent cash flow and can be recognized as a separate asset group Not applicable Yes Changes in asset group or asset portfolio Name Composition before change Composition after change Objective facts and basis that lead to changes Other explanations: Book value of goodwill Asset group or portfolio of asset groups Main components Book value Determination method Has there been any change in the current period 173,149.07 ZKTECO（M）SDN.BHD. 828,719.06 An asset group or portfolio of asset groups that can independently generate cash flow, taking into account the synergistic effects of business mergers and the management's management or monitoring of production and operating activities Conversion rate changes, no other changes 331,654.65 ZKINVESTIMENTOSDOBRASIL LTDA. 2,940,003.92 An asset group or portfolio of asset groups that can independently generate cash flow, taking into account the synergistic effects of business mergers and the management's management or monitoring of production and operating activities Conversion rate changes, no other changes (4) Specific method for determining the recoverable amount The recoverable amount is determined based on the net amount after deducting disposal expenses from fair value □ Applicable Not applicable The recoverable amount is determined based on the present value of expected future cash flows □ Applicable Not applicable ZKTeco 2023 Annual Report 271 Reasons for significant discrepancies between the above information and the information or external information used in impairment tests of previous years Reasons for significant discrepancies between the information used in the Company's impairment tests of previous year and the actual situation of that year (5) Completion of performance commitments and corresponding impairment of goodwill When goodwill is formed, there is a performance commitment and the reporting period or the previous period in the reporting period is within the performance commitment period □ Applicable Not applicable Other explanations: 19. Long-term deferred expenses Unit: RMB Item Beginning Balance Increase in current period Amortization amount for the current period Other reduced amounts Ending Balance Decoration works 2,528,270.501,040,682.531,075,331.52 -19,425.992,513,047.50 Employee housing loan deferred interest 708,393.5266,735.92 641,657.60 Others 528,039.84389,670.55301,485.072,082.61614,142.71 Total 3,056,310.342,138,746.601,443,552.51 -17,343.383,768,847.81 Other explanations: 20. Deferred income tax assets/deferred income tax liabilities (1) Deferred income tax assets not offset Unit: RMB Item Ending Balance Beginning Balance Deductible temporary difference Deferred income tax assets Deductible temporary difference Deferred income tax assets Provision for impairment of assets 36,366,162.245,804,206.9832,373,054.685,178,158.90 Unrealized profits from internal transactions 98,721,713.0217,452,699.9175,228,978.6114,665,616.31 Deductible losses 207,081,168.5831,091,802.32144,679,629.1921,701,944.38 Withholding rebates 15,007,767.782,143,716.1719,110,934.942,746,709.94 Estimated liabilities 600,000.0090,000.00600,000.0090,000.00 Share-based payments 7,866,303.641,177,039.862,925,355.23438,714.49 Provision for inventory write-down 11,003,159.271,906,570.779,624,621.361,622,622.89 ZKTeco 2023 Annual Report 272 Deferred income 1,853,549.62278,032.442,039,702.49305,955.37 Lease liabilities 35,689,297.387,313,490.5647,124,132.028,719,450.85 Total 414,189,121.5367,257,559.01333,706,408.5255,469,173.13 (2) Non-offsetting deferred income tax liabilities Unit: RMB Item Ending Balance Beginning Balance Taxable temporary difference Deferred tax liability Taxable temporary difference Deferred tax liability Changes in fair value of trading financial instruments 755,429.17113,314.3721,836.713,275.51 Accelerated depreciation of fixed assets 22,133,567.263,320,431.5523,697,128.763,554,569.32 Right-of-use asset 34,457,850.986,895,307.5635,399,341.508,491,060.14 Total 57,346,847.4110,329,053.4859,118,306.9712,048,904.97 (3) Deferred income tax assets or liabilities listed at net amount after offset Unit: RMB Item Amount of mutual offset between deferred income tax assets and liabilities at the end of period Ending balance of deferred income tax assets and liabilities after offset Amount of mutual offset between deferred income tax assets and liabilities at the beginning of period Beginning balance of deferred income tax assets and liabilities after offset Deferred income tax assets 67,257,559.00 55,469,173.13 Deferred tax liability 10,329,053.48 12,048,904.97 (4) Details of unconfirmed deferred income tax assets Unit: RMB Item Ending Balance Beginning Balance Deductible temporary difference 12,690,171.0417,753,649.06 Deductible losses 67,373,596.5178,251,101.86 Total 80,063,767.5596,004,750.92 (5) The deductible losses of unrecognized deferred income tax assets will expire in the following years Unit: RMB Year Closing amount Opening amount Remarks 2023 22,728,613.61 202415,985,752.5719,643,972.43 20256,481,611.288,690,163.50 20263,921,974.116,092,224.82 202710,275,824.6811,597,031.35 202814,889,082.61 20292,887,686.36 ZKTeco 2023 Annual Report 273 20302,282,920.00 20311,251,676.88604,137.52 20322,515,226.48427,900.39 2033245,967.32 2037 2,388,691.10 20386,482,774.72 Infinite carry forward 153,099.506,078,367.14 Total 67,373,596.5178,251,101.86 Other explanations: 21. Other non-current assets Unit: RMB Item Ending Balance Beginning Balance Book balance Impairment provision Book value Book balance Impairment provision Book value Prepayment for decoration 787,973.040.00787,973.04563,981.710.00563,981.71 Prepaid equipment payment 370,641.600.00370,641.60563,795.610.00563,795.61 Prepayment for software 15,725,991.210.0015,725,991.210.000.000.00 Total 16,884,605.850.0016,884,605.851,127,777.320.001,127,777.32 Other explanations: None 22. Assets with restricted ownership or use right Unit: RMB Item End of the period Opening Book balance Book value Restricted type Restricted situation Book balance Book value Restricted type Restricted situation Monetary funds 54,954,670.4854,954,670.48 Deposit, funds in transit, frozen funds Bank acceptance bill margin of RMB 46,693,268.67, funds in transit of RMB 7,461,401.81, frozen litigation funds of RMB 800,000.00 31,118,488.9431,118,488.94 Deposit, funds in transit, frozen funds, etc. The bill deposit is RMB 30,551,118.11, the funds in transit are RMB 557,108.80, the frozen litigation funds are RMB 18.71, the restricted funds of e-commerce platform stores are RMB 8,000.00, and bank guarantees are provided to customers. A pledge right of ZKTeco 2023 Annual Report 274 RMB 2,243.32 is established for short-term time deposits; Fixed assets 204,397,423.28199,029,492.12 Mortgage See other explanations 161,516,516.12159,995,332.53 Mortgage Loan mortgage Intangible assets 49,453,695.0043,848,942.89 Mortgage See other explanations 49,453,695.0044,838,016.80 Mortgage Loan mortgage Construction in progress 110,185,544.37110,185,544.37 Mortgage See other explanations 51,431,203.3351,431,203.33 Mortgage Loan mortgage Bond investment 67,092.7567,092.75 Guarantee pledge Provide bank guarantees to customers and establish pledge rights for long-term time deposits Total 418,991,333.13408,018,649.86 293,586,996.14287,450,134.35 Other explanations: On December 16,2019, the subsidiary of the Company, ZKTECO (GUANGDONG) CO., LTD, signed a "Fixed Asset Loan Contract" with the number of DY (3100) 2019 GDZi No.013346 and a maximum mortgage contract with the number of DY (3100) 2019 GDZi No.024957 with the Dongguan Branch of Bank of Dongguan Co., Ltd., agreeing to a loan amount of RMB 206 million and a loan term from December 16,2019 to December 15,2029, and agree that the land with the number Y (2018) DGBDCQNo.0259880 is used as collateral, and the Company has signed a contract with Dongguan Branch of Bank of Dongguan Co., Ltd. with the number DY (3100) 2019 ZGBZi No.024956, with a maximum guarantee amount of RMB 250 million. Considering that the land area of the Company's collateral has changed and a new real estate certificate has been obtained for the collateral, on October 19, 2020, the subsidiary of the Company, ZKTECO (GUANGDONG) CO., LTD, has signed a supplementary agreement with the number 20201013001 with Dongguan Branch of Bank of Dongguan Co., Ltd., which stipulates to change the collateral to Y (2020) DGBDCQNo.0248681 land. 23. Short-term loan (1) Classification of short-term loans Unit: RMB Item Ending Balance Beginning Balance Discounted domestic letters of credit that cannot be derecognized before expiration 0.009,855,000.00 Total 0.009,855,000.00 Explanations on short-term loan classification: (2) Information of overdue and unpaid short-term loans The total amount of overdue and unpaid short-term loans at the end of this period is RMB , among which the important overdue ZKTeco 2023 Annual Report 275 and unpaid short-term loans are as follows: Unit: RMB Borrower Ending Balance Loan interest rate Overdue time Overdue interest rate Other explanations: 24. Notes payable Unit: RMB Category Ending Balance Beginning Balance Bank acceptance bill 122,573,544.0968,293,818.22 Total 122,573,544.0968,293,818.22 The total amount of unpaid notes payable at the end of this period is RMB 0.00. 25. Accounts payable (1) Listing of accounts payable Unit: RMB Item Ending Balance Beginning Balance Material payment 217,082,802.45210,894,468.56 Equipment payment 932,731.163,130,476.79 Service fee 4,834,986.05742,705.27 Project payment 18,294,116.3810,886,449.82 Others 3,939,546.28346,376.52 Total 245,084,182.32226,000,476.96 (2) Important accounts payable with aging over 1 year or overdue Unit: RMB Item Ending Balance Reasons for non-repayment or carry-forward Other explanations: None 26. Other payables Unit: RMB Item Ending Balance Beginning Balance Other payables 36,735,314.3631,429,478.43 Total 36,735,314.3631,429,478.43 1) List of other payables by nature of money Unit: RMB Item Ending Balance Beginning Balance Employee reimbursement 5,222,956.926,747,819.07 ZKTeco 2023 Annual Report 276 Payment to be settled 3,980,996.119,597,128.66 Withholding and paying social security and capital reserve on behalf of others 331,708.8166,013.83 Current account 7,424,919.783,561,040.08 Collection and payment on behalf of others 328,337.90208,657.13 Guarantee deposit 3,653,667.643,321,927.78 Others 15,792,727.207,926,891.88 Total 36,735,314.3631,429,478.43 2) Other payables of the top five ending balances collected by counterparties Other explanations: 27. Contract liabilities Unit: RMB Item Ending Balance Beginning Balance Advances on sales 65,331,106.1758,838,840.39 Total 65,331,106.1758,838,840.39 Significant contract liabilities with an aging of over 1 year Unit: RMB Item Ending Balance Reasons for non-repayment or carry-forward Amount and reasons for significant changes in book value during the reporting period Unit: RMB Item Change amount Reasons for changes 28. Payroll payable (1) List of payroll payable Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance I. Short-term compensation 58,505,505.72534,528,539.80536,626,145.9756,407,899.55 II. Post-employment welfare - defined contribution plan 325,697.8831,875,263.6031,978,759.05222,202.43 III. Dismissal benefit 109,649.2012,000.00121,649.20 Total 58,940,852.80566,415,803.40568,726,554.2256,630,101.98 (2) List of short-term compensation Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance ZKTeco 2023 Annual Report 277 1.Salary, bonus, allowance and subsidy 56,728,600.85501,465,425.86503,678,474.5254,515,552.19 2. Employee benefits 155,656.429,624,996.849,317,452.06463,201.20 3.Social insurance 344,455.5317,285,117.1817,433,202.63196,370.08 Including: medical insurance premium 308,232.5415,799,702.2915,912,120.15195,814.68 Work-related injury insurance premium 1,888.88648,863.62650,197.10555.40 Birth insurance premium 34,334.11836,551.27870,885.38 4. Housing fund 80,431.855,536,580.155,562,772.9154,239.09 5. Labor union expenditure and personnel education fund 1,196,361.07615,642.08633,466.161,178,536.99 6. Others 777.69777.69 Total 58,505,505.72534,528,539.80536,626,145.9756,407,899.55 (3) List of defined contribution plan Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance 1. Basic endowment insurance expenses 322,188.3630,882,474.7230,990,489.47214,173.61 2.Unemployment insurance 3,509.52992,788.88988,269.588,028.82 Total 325,697.8831,875,263.6031,978,759.05222,202.43 Other explanations: 29. Taxes and dues payable Unit: RMB Item Ending Balance Beginning Balance VAT 7,538,983.476,423,184.92 Consumption tax 34,079.54 Enterprise income tax 15,364,635.1912,861,731.77 Individual income tax 3,712,496.391,582,183.19 Urban maintenance and construction tax 243,439.39423,601.95 Property tax 496,029.92499,264.69 Land use tax 7,368.538,200.43 Stamp duty 499,102.75195,980.34 Education surcharge 234,127.14449,094.47 Others 761,967.12178,563.28 Total 28,892,229.4422,621,805.04 Other explanations: ZKTeco 2023 Annual Report 278 30. Non-current liabilities due within one year Unit: RMB Item Ending Balance Beginning Balance Long-term loans due within one year 957,265.7254,873.94 Long-term payables due within one year Lease liabilities due within one year 20,137,416.6423,663,351.45 Total 21,094,682.3623,718,225.39 Other explanations: 31. Other current liabilities Unit: RMB Item Ending Balance Beginning Balance Sales rebates payable 15,007,767.7819,110,934.94 Tax to be transferred to output tax 1,456,166.572,062,685.85 Total 16,463,934.3521,173,620.79 Changes in short-term bonds payable: Unit: RMB Bond name Face value Coupon rate Issue Date Bond duration Issue amount Beginning Balance Current issue Accruing interest at face value Amortization of excess and discount Current repayment Ending Balance Whether it is a breach of contract Total Other explanations: 32. Long-term loan (1) Classification of long-term loans Unit: RMB Item Ending Balance Beginning Balance Credit borrowings 8,758,524.27162,002.06 Unexpired interest payable 9,146.4934,629.42 Long-term loans due within one year -957,265.72 -54,873.94 Total 7,810,405.04141,757.54 Explanations on long-term loan classification: Other explanations, including interest rate range: The increase in credit loans for long-term loans in this period is mainly due to the technology innovation fund syndicated loan obtained by XIAMENZKTECOCO., LTD., a subsidiary of the Company. The contract ZKTeco 2023 Annual Report 279 stipulates that the borrower shall use each fund withdrawn for the Company's R&D investment, with a loan term of 36 months. The interest shall be paid on a quarterly basis. The ending balance of loan principal is RMB 8.315 million. 33. Lease liabilities Unit: RMB Item Ending Balance Beginning Balance Lease payment amount 43,637,253.8959,266,343.29 Unrecognized financing charges -3,786,551.04 -7,346,274.40 Lease liabilities due within one year -20,137,416.64 -23,663,351.45 Total 19,713,286.2128,256,717.44 Other explanations: 34. Estimated liabilities Unit: RMB Item Ending Balance Beginning Balance Cause of formation Pending litigation 600,000.00600,000.00 The main reason for the pending litigation is the estimated liabilities provided from the trademark infringement dispute between the Company and Shenzhen Zokon Industry Development Co., Ltd. Total 600,000.00600,000.00 Other explanations, including important assumptions and estimation explanations related to important estimated liabilities: 35. Deferred income Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance Cause of formation Government subsidies 2,039,702.49 186,152.871,853,549.62 Financial allocation Total 2,039,702.49 186,152.871,853,549.62 Other explanations: Deferred income related to government subsidies The government subsidies of the Company are detailed in Note XIGovernment subsidies 2. Liability items involving government subsidies. ZKTeco 2023 Annual Report 280 36. Share capital Unit: RMB Beginning Balance Increase/decrease in this change (+, -) Ending Balance Issue new shares Bonus Share transferred from capital reserve Others Subtotal Total Shares 148,492,051.001,639,842.00 44,547,615.00 46,187,457.00194,679,508.00 Other explanations: Explanations on changes in share capital: 1. The Company converts 3 shares of capital reserve to all shareholders for every 10 shares, increasing the total share capital by RMB 44,547,615.00 and reducing the capital reserve - share premium by RMB 44,547,615.00; 2. In 2023, the Company's stock equity incentive increased the share capital by RMB 1,639,842.00 due to the eligible exercise of the incentive objects, and increased the capital reserve - share premium by RMB 21,514,727.04. The above-mentioned changes in share capital have been verified by a Capital Verification Report issued by Baker Tilly China Certified Public Accountants (Special General Partnership) (TZYZ [2023] No.49775). 37. Capital reserve Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance Capital premium (share capital premium) 1,988,225,327.9355,275,747.7644,547,615.001,998,953,460.69 Other capital reserves 72,947,584.3536,929,284.9933,350,954.9076,525,914.44 Total 2,061,172,912.2892,205,032.7577,898,569.902,075,479,375.13 Other explanations, including changes in current period and reasons for changes: 1. The increase in the capital reserve - share premium in the current period is due to: ① In 2023, Class II restricted share equity incentive of the Company increased the share premium by RMB 21,514,727.04 due to the eligible exercise of the incentive object; ② Due to the exercise of Class II restricted share equity incentive, the premium transferred from other capital reserves to share capital increased by RMB 32,928,027.36; ③ Subsidiary ZKTECOCO., LIMITED acquired a minority equity to increase its share premium by RMB 832,993.36. The decrease in the current period is due to the conversion of capital reserves into share capital, resulting in a decrease in share premium of RMB 44,547,615.00; ZKTeco 2023 Annual Report 281 2. The increase in the capital reserve - other capital reserves in the current period is due to the confirmation of share-based payments for Class II restricted shares of RMB 36,929,284.99, while the decrease in the current period is due to the exercise adjustment of RMB 32,928,027.36 and changes in other equity of associates of RMB 422,927.54. 38. Treasury stock Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance Reduce registered capital repurchase 784,700.00 784,700.00 Total 0.00784,700.00 784,700.00 Other explanations, including changes in current period and reasons for changes: According to the "Proposal on Repurchasing Company Shares through Centralized Bidding Trading" approved by the Board of Directors, the Company uses its own funds to repurchase the issued RMB denominated ordinary shares of the Company through centralized bidding trading, for employee stock ownership plans or equity incentives, with a total increase of RMB 784,700.00 in treasury shares. 39. Other comprehensive income Unit: RMB Item Beginning Balance Amount incurred in the current period Ending Balance Amount incurred before income tax in the current period Less: Profit and loss included in other comprehensive income at early stage and transferred in the current period Less: the net amount that is included in other comprehensive profits of prior period and retained earnings transferred into the current profits and loss Less: income tax expenses Attributable to parent company after tax Attributable to minority shareholder after tax I. Other comprehensive income to be reclassified into profits and losses 5,250,890.3623,353,274.19 22,750,068.83595,666.3328,000,959.19 Translation difference of foreign 5,250,890.3623,353,274.19 22,750,068.83595,666.3328,000,959.19 ZKTeco 2023 Annual Report 282 currency financial statements Total of other comprehensive income 5,250,890.3623,353,274.19 22,750,068.83595,666.3328,000,959.19 Other explanations, including adjusting the effective portion of cash flow hedging gains and losses to the initial recognition amount of the hedged item: 40. Surplus reserves Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance Legal surplus reserve 53,978,004.946,477,417.56 60,455,422.50 Total 53,978,004.946,477,417.56 60,455,422.50 Explanations on surplus reserves, including changes in current period and reasons for changes: The increased surplus reserves in the current period are statutory surplus reserve funds provisioned by the parent company based on 10% of net profit. 41. Undistributed profit Unit: RMB Item Current period Previous period Undistributed profits before adjustment at end of the previous period 788,571,917.98607,725,356.63 Total undistributed profits in the adjustment beginning period (increase in "+", decrease in "–") 197,066.66 -55,548.96 Undistributed profit at the end of the adjustment period 788,768,984.64607,669,807.67 Plus: Net profits attributable to parent company in this period 177,263,675.15192,502,163.93 Less: withdrawal of legal surplus reserves 6,477,417.5611,402,986.96 Dividends payable on ordinary shares 51,972,217.85 Undistributed profit at the end of the period 907,583,024.38788,768,984.64 Details of undistributed profits at the beginning of the adjustment period: 1) Due to the retrospective adjustment of the "Accounting Standards for Enterprises" and related new regulations, the undistributed profit at the beginning of the period was affected by RMB 197,066.66. 2) Due to changes in accounting policies, the undistributed profit at the beginning of the period was RMB 197,066.66. 3) Due to significant accounting error correction, the undistributed profit at the beginning of the period was RMB 0.00. 4) Due to changes in the scope of consolidation caused by the same control, the undistributed profit at the beginning of the period was RMB 0.00. ZKTeco 2023 Annual Report 283 5) The total impact of other adjustments on the undistributed profit at the beginning of the period was RMB 0.00. 42. Operating revenue and operating cost Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Revenue Cost Revenue Cost Main business 1,961,508,304.591,000,868,184.911,913,553,132.721,065,639,119.43 Other businesses 8,675,377.75 5,006,059.04 Total 1,970,183,682.341,000,868,184.911,918,559,191.761,065,639,119.43 Is the lower of net profit before and after deducting non-recurring profits and losses audited negative □ Yes No Breakdown information of operating revenue and operating costs: Unit: RMB Contract classification Division 1 Division 2 Operating revenue Total Operating revenue Operating cost Operating revenue Operating cost Operating revenue Operating cost Operating revenue Operating cost Business type Including: Smart office products 368,124,957.10151,678,099.49368,124,957.10151,678,099.49 Smart entrance and exit management products 1,437,554,773.20753,156,799.231,437,554,773.20753,156,799.23 Smart identity verification products 155,828,574.2996,033,286.19155,828,574.2996,033,286.19 Others 8,675,377.75 8,675,377.75 Classification by region of operation Including: Domestic sales 643,710,059.42438,877,805.00643,710,059.42438,877,805.00 Overseas sales 1,326,473,622.92561,990,379.911,326,473,622.92561,990,379.91 Market or customer type Including: Distribution 1,347,955,344.48744,098,760.981,347,955,344.48744,098,760.98 Direct sales 613,552,960.11256,769,423.93613,552,960.11256,769,423.93 Others 8,675,377.75 8,675,377.75 Type of contract Including: Classification by time of transfer of ZKTeco 2023 Annual Report 284 goods Including: Classification by contract term Including: Classification by sales channel Including: Total 1,970,183,682.341,000,868,184.911,970,183,682.341,000,868,184.91 Information related to performance obligations: Item Time for fulfilling performance obligations Important payment terms Nature of goods that the Company promises to transfer Is it the main responsible person Expected refunds to customers borne by the Company Types of quality assurance provided by the Company and related obligations Other explanations: The Company, as the main responsible person in accordance with the contract, timely fulfills the supply obligations according to the customer's requirements for the category, standards and time. The Company provides a certain credit period of 30-90 days based on the customer's industry status, financial strength, credit status and cooperation history. For overseas customers, the Company will also refer to the credit report issued by Sinosure to the customer. Information related to the transaction price allocated to the remaining performance obligations: The corresponding income amount for performance obligations that have been signed but have not yet been fulfilled or completed at the end of this reporting period is RMB 0.00. Information related to variable consideration in the contract: Significant contract changes or significant transaction price adjustments Unit: RMB Item Accounting treatment method Amount of impact on income Other explanations: 43. Tax and surcharges Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Urban maintenance and construction tax 3,184,784.343,193,940.53 Education surcharge 2,042,493.502,128,701.68 Property tax 3,074,798.732,846,813.65 Land use tax 298,326.75106,384.86 ZKTeco 2023 Annual Report 285 Stamp duty 1,304,334.77964,342.89 Local education surcharges 1,083,514.291,415,907.22 Other taxes and fees for overseas companies 14,630,968.498,365,735.32 Others 26,008.4124,738.72 Total 25,645,229.2819,046,564.87 Other explanations: 44. Administrative expenses Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Employee remuneration 55,985,922.4556,013,706.43 Taxes 1,516,305.361,454,391.49 Office allowance 3,732,967.283,796,088.25 Depreciation and amortization 9,563,920.799,165,472.53 Business entertainment expenses 2,181,639.951,656,274.22 Repair fee 623,935.88521,617.42 Travel expenses 2,294,921.811,681,329.66 Rent and utilities 3,343,577.953,913,363.05 Car expenses 1,153,626.561,648,594.21 Low-value consumables 485,661.27198,337.81 Agency fees 9,725,385.607,357,020.27 Communications fee 1,435,143.821,496,049.38 Depreciation and amortization of right-of-use assets 8,215,349.268,134,347.68 Share-based payments 5,796,156.11763,691.57 Others 16,638,987.878,948,648.35 Total 122,693,501.96106,748,932.32 Other explanations: 45. Selling expenses Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Employee remuneration 263,649,628.44236,617,683.30 Depreciation and amortization 7,353,199.365,743,382.82 Exhibition and conference fees 8,906,402.846,391,411.66 Transport cost 1,635,613.271,662,004.78 Maintenance and testing fees 5,696,784.105,077,448.63 Service fees and commissions 18,394,250.4914,982,316.55 Rental expenses 5,218,203.194,453,303.67 Business entertainment expenses 3,350,710.922,225,867.93 Travel expenses 25,614,976.8318,980,805.21 Office allowance 7,861,715.276,169,710.05 Insurance premium 5,627,042.245,209,135.96 Agency fees 9,444,573.038,428,564.29 Advertising expenses 21,164,669.1015,590,300.37 Depreciation and amortization of right-of-use assets 15,232,460.8213,459,130.31 Share-based payments 14,025,913.221,633,697.55 Others 32,237,922.8114,639,418.09 ZKTeco 2023 Annual Report 286 Total 445,414,065.93361,264,181.17 Other explanations: 46. R&D expenses Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Employee remuneration 158,052,507.71150,553,917.43 Depreciation and amortization 4,429,001.994,252,503.03 Office allowance 735,318.39584,001.49 Travel expenses 5,013,751.622,717,699.76 Business entertainment expenses 79,446.3532,132.91 Rental fees and utilities 1,136,494.86949,867.41 R&D material costs 5,516,851.518,240,298.32 Software and technical service fees 10,305,794.578,945,903.92 Testing and certification fees 1,844,771.631,817,748.28 Depreciation and amortization of right-of-use assets 1,914,549.282,477,285.95 Share-based payments 14,172,736.251,288,530.21 Others 10,412,190.406,123,958.71 Total 213,613,414.56187,983,847.42 Other explanations: 47. Financial expenses Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Interest expenses 4,114,078.223,101,947.12 Less: interest income 59,489,145.4228,810,088.84 Exchange profits and losses -1,409,799.93 -16,566,918.67 Bank charge 2,397,607.321,346,372.88 Others 56,392.08 -147.45 Total -54,330,867.73 -40,928,834.96 Other explanations: 48. Other income Unit: RMB Sources of other income generation Amount incurred in the current period Amount incurred in the previous period Government subsidies related to daily activities of the enterprise 13,164,367.4217,703,715.35 Other items related to daily activities 218,383.71145,303.33 Including: refund of individual income tax handling fee 218,383.71145,303.33 Total 13,382,751.1317,849,018.68 49. Gains from changes in fair value Unit: RMB ZKTeco 2023 Annual Report 287 Sources of gains from changes in fair value Amount incurred in the current period Amount incurred in the previous period Trading financial asset 755,429.17 -701,013.10 Including: gains from changes in fair value generated by derivative financial instruments 92,617.82 -802,315.17 Total 755,429.17 -701,013.10 Other explanations: 50. Investment income Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Long-term equity investment income accounted by equity method 2,800,122.302,660,914.13 Investment income obtained from financial products 5,290,557.191,398,296.69 Forward foreign exchange settlement and sales contract -8,690,555.00 -6,488,400.00 Total -599,875.51 -2,429,189.18 Other explanations: 51. Credit impairment loss Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Bad debt losses on accounts receivable -6,401,719.41 -9,854,307.18 Bad debt losses on other receivables -24,544.62 -1,099,803.64 Total -6,426,264.03 -10,954,110.82 Other explanations: 52. Losses from impairment of assets Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period I. Inventory depreciation loss and contract performance cost impairment loss -2,865,668.77 -6,322,267.18 II. Loss from long-term equity investment impairment -281,599.25 III. Impairment loss from contract assets -16,465.2927,512.26 Total -3,163,733.31 -6,294,754.92 Other explanations: 53. Gains from disposal of assets Unit: RMB ZKTeco 2023 Annual Report 288 Source of gains from disposal of assets Amount incurred in the current period Amount incurred in the previous period Income from disposal of non-current assets - fixed assets -162,260.896,255.32 Income from disposal of non-current assets - right-of-use assets 32,408.2781,878.03 Total -129,852.6288,133.35 54. Non-operating revenue Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Amount included in current non-recurring profit and loss Gains from scrapping and damaging non-current assets 453.17850.14453.17 Payment not required 249,822.340.00249,822.34 Penalty income 10,861.121,100.0010,861.12 Others 573,622.63857,569.35573,622.63 Total 834,759.26859,519.49834,759.26 Other explanations: 55. Non-operating expenditure Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Amount included in current non-recurring profit and loss External donations 205,000.00229,024.07205,000.00 Extraordinary losses 4,603,052.112,234,814.594,603,052.11 Inventory loss 21,554.4633.7721,554.46 Non-current assets damage and retirement loss 497,027.01442,894.77497,027.01 Penalty expenses 49,041.7142,440.2649,041.71 Others 384,741.571,185,704.29384,741.57 Total 5,760,416.864,134,911.755,760,416.86 Other explanations: 56. Income tax expenses (1) Income tax expenses statement Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Current income tax expenses 31,675,881.5617,540,609.91 Deferred income tax expenses -13,346,935.47 -8,786,294.99 Total 18,328,946.098,754,314.92 (2) Accounting profit and income tax expenses adjustment process Unit: RMB Item Amount incurred in the current period ZKTeco 2023 Annual Report 289 Total profits 215,172,950.66 Income tax expenses calculated based on statutory/applicable tax rates 22,722,294.22 The impact of different tax rates applicable to subsidiaries 10,455,338.01 The impact of adjusting previous period income tax 4,366,794.60 The impact of non-taxable income -473,436.28 The impact of non-deductible costs, expenses, and losses 2,928,245.21 The impact of deductible losses on unrecognized deferred income tax assets in the prior period of use -800,989.72 The impact of deductible temporary differences or deductible losses on unrecognized deferred income tax assets in the current period 2,531,876.60 Deduction of technology development expenses -23,361,880.97 Salary paid for the placement of disabled individuals with additional deductions -47,287.23 The impact of tax rate changes on the beginning deferred income tax 7,991.65 Income tax expenses 18,328,946.09 Other explanations: 57. Other comprehensive income Please refer to Note 39. Other comprehensive income for details. 58. Cash flow statement items (1) Cash relating to operating activities Other cash received related to operating activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Interest income 44,383,418.0823,512,457.10 Received government subsidies 5,931,157.4314,002,267.31 Current account 19,620,625.5011,104,272.06 Restricted funds such as restricted guarantee deposit and funds in transit 27,155,933.36 Others 1,226,225.97748,702.48 Total 71,161,426.9876,523,632.31 Explanations of other cash received relating to operating activities: Other cash paid relating to operating activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Expenses payment 203,811,342.55167,491,966.00 Current account 28,942,938.4930,365,380.88 Restricted funds such as restricted 6,565,746.561,870,861.48 ZKTeco 2023 Annual Report 290 guarantee deposit and funds in transit Others 2,690,158.072,239,832.81 Total 242,010,185.67201,968,041.17 Explanations on other cash paid relating to operating activities: (2) Cash relating to investing activities Other cash received related to investment activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Significant cash received relating to investing activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Time deposit and wealth management 783,138,035.71100,302,919.28 Total 783,138,035.71100,302,919.28 Explanations on other cash received relating to investing activities: Other cash paid relating to investment activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Investment losses on forward foreign exchange settlement and sales 8,690,555.006,488,400.00 Total 8,690,555.006,488,400.00 Significant cash paid relating to investing activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Time deposit and wealth management 492,027,131.111,034,748,807.59 Purchase minority equity 12,124,365.79 Foreign investment in partnership enterprises 24,000,000.00 Total 528,151,496.901,034,748,807.59 Explanations on other cash paid relating to investing activities: (3) Cash relating to financing activities Other cash received related to financing activities Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Bill deposit 137,765,650.540.00 Total 137,765,650.540.00 Explanations on other cash received relating to financing activities: Other cash paid in connection with financing activities Unit: RMB ZKTeco 2023 Annual Report 291 Item Amount incurred in the current period Amount incurred in the previous period Lease liability payment amount 31,230,265.9029,105,104.03 IPO issuance expenses 24,960,127.54 Bill deposit 115,683,494.14 Share repurchase 784,700.00 Total 147,698,460.0454,065,231.57 Explanations on other cash paid relating to financing activities: Information on changes in liabilities arising from financing activities Applicable □ Not applicable Unit: RMB Item Beginning Balance Increase in the current period Decrease in the current period Ending Balance Cash changes Non cash changes Cash changes Non cash changes Short-term loan 9,855,000.00 145,000.0010,000,000.00 Non-current liabilities due within one year 23,718,225.39 21,290,192.9423,443,687.06470,048.9121,094,682.36 Long-term loan 141,757.548,643,835.19140,500.9979,810.851,035,877.837,810,405.04 Lease liabilities 28,256,717.44 18,698,763.377,786,578.8419,455,615.7619,713,286.21 Total 61,971,700.378,643,835.1940,274,457.3041,310,076.7520,961,542.5048,618,373.61 (4) Explanations on cash flows presented as net amount Item Related facts Basis for reporting net amount Financial impact (5) Significant activities and financial impacts that do not involve current cash inflows and outflows but affect the financial position of the enterprise or may affect the cash flow of the enterprise in the future 59. Supplementary information of cash flow statement (1) Supplementary information of cash flow statement Unit: RMB Supplementary information Amount in current period Amount of previous period 1. Reconciliation of net profit to cash flows from operating activities Net profit 196,844,004.57204,333,758.34 Plus: provision for losses from impairment of assets 9,589,997.3417,248,865.74 Depreciation of fixed assets, consumption of oil and gas assets and productive biological assets 31,557,510.3925,015,873.26 Depreciation of right of use assets 28,647,400.4227,141,695.03 Amortization of intangible assets 1,945,108.152,074,371.52 Long-term unamortized expenses 1,443,552.512,671,892.05 ZKTeco 2023 Annual Report 292 Loss from disposal of fixed assets, intangible assets and other long-term assets (gains expressed with "-") 129,852.62 -88,133.35 Loss on retirement of fixed assets (gains expressed with "-") 496,573.84442,044.63 Loss from changes in fair value (gains expressed with "-") -755,429.17701,013.10 Financial expenses (gains expressed with "-") -12,383,912.51 -1,587,290.64 Investment loss (gains expressed with "-") 3,399,997.816,223,097.99 Decrease of deferred income tax assets (increase expressed with "-") -11,788,385.88 -17,684,830.66 Increases of deferred income tax liabilities (decrease expressed with "-") -1,719,851.498,898,535.67 Decrease of inventory (increase expressed with "-") -28,429,295.2773,754,064.85 Decreases of operational receivables (increase expressed with "-") -130,159,538.85 -71,663,669.41 Increases of operating payables (decrease expressed with "-") 109,897,948.82 -157,595,144.12 Others 37,285,356.914,633,889.18 Net cash flows from operating activities 236,000,890.21124,520,033.18 2. Major investment and financing activities not relating to cash deposit and withdrawal Conversion of debt into capital Convertible corporate bonds due within one year Fixed assets under financing lease 16,689,236.8735,417,269.99 3. Net change of cash and cash equivalents: Ending balance of cash 1,317,020,553.021,077,608,258.10 Less: beginning balance of cash 1,077,608,258.10516,288,425.76 Plus: ending balance of cash equivalents Less: beginning balance of cash equivalents Net increase in cash and cash equivalents 239,412,294.92561,319,832.34 (2) Net cash paid for acquiring subsidiaries in the current period Unit: RMB Amount Including: Including: ZKTeco 2023 Annual Report 293 Including: Other explanations: (3) Net cash received from disposal of subsidiaries in the current period Unit: RMB Amount Including: Including: Including: Other explanations: (4) Composition of cash and cash equivalents Unit: RMB Item Ending Balance Beginning Balance I. Cash 1,317,020,553.021,077,608,258.10 Including: Cash on hand 1,401,947.052,646,715.85 Bank deposit available for payment at any time 1,302,024,477.331,072,431,575.41 Other monetary funds available for payment at any time 13,594,128.642,529,966.84 III. Ending balance of cash and cash equivalents 1,317,020,553.021,077,608,258.10 (5) Information on reporting assets with limited scope of use but still classified as cash and cash equivalents Unit: RMB Item Amount in current period Amount of previous period Reasons for still being classified as cash and cash equivalents (6) Monetary funds that do not belong to cash and cash equivalents Unit: RMB Item Amount in current period Amount of previous period Reasons for still being classified as cash and cash equivalents Principal of time deposits and outstanding interest receivable 618,949,731.28804,218,284.93 Not meeting the standards for cash and cash equivalents Margin of bank acceptance draft 46,693,268.6730,551,118.11 Not meeting the standards for cash and cash equivalents Non withdrawable funds on e-commerce platforms 8,000.00 Not meeting the standards for cash and cash equivalents Pledged guarantee time deposits 2,243.32 Not meeting the standards for cash and cash equivalents Frozen litigation funds 800,000.0018.71 Not meeting the standards for cash and cash equivalents Funds in transit 7,461,401.81557,108.80 Not meeting the standards for cash and cash equivalents ZKTeco 2023 Annual Report 294 Total 673,904,401.76835,336,773.87 Other explanations: (7) Other significant activity explanations 60. Notes to items in the statement of changes in owner's equity Explain the names and adjusted amounts of "other" items that have been adjusted to the ending balance of the previous year: None 61. Foreign currency monetary items (1) Foreign currency monetary items Unit: RMB Item Ending foreign currency balance Conversion rate Ending equivalent RMB Balance Monetary funds 399,960,359.63 Including: USD 40,329,619.947.0827285,642,599.05 EUR 6,208,474.767.859248,793,636.61 HKD 1,046,481.710.9062948,350.20 ARS 43,744,180.190.0088383,461.00 AUD 6,566.894.848431,838.86 BRL 517,584.341.4596755,488.50 DNS 14,545,788.901.932628,110,520.63 DZD 11,400.000.0531605.68 RUB 8,542,424.590.0803685,686.90 COP 506,540,967.870.0018926,091.30 KRW 104,571,958.000.0055576,598.80 CAD 439,472.245.36732,358,778.78 KES 831,104.140.045137,493.38 MYR 554,686.221.5415855,073.56 PEN 11,743.091.91822,523.26 MAD 395,233.000.7145282,394.15 MXN 5,524,369.790.41812,310,002.31 ZAR 19,647,399.230.38197,503,876.27 NGN 3,033,885.370.007923,942.17 JPY 43,927,044.000.05022,205,767.39 THB 18,028,790.000.20743,738,473.81 TRL 1,803,922.790.2405433,859.50 SGD 154,866.385.3772832,748.52 INR 53,632,136.910.08514,566,562.11 IDR 5,492,227,206.920.00052,530,607.10 GBP 188,358.419.04111,702,967.42 VND 3,853,877,740.000.00031,125,602.47 CLP 321,733,756.200.0082,574,182.61 UYU 200.000.1836.00 PYG 602,000.000.001591.29 Accounts receivable 458,189,580.61 Including: USD 46,272,183.777.0827327,731,995.97 EUR 2,838,850.107.859222,311,090.71 HKD VND 170,503,278.060.000349,798.91 ZKTeco 2023 Annual Report 295 KRW 1,934,583,654.440.005510,667,090.93 CLP 207,234,697.650.0081,658,078.91 ZAR 8,319,987.480.38193,177,629.56 MXN 36,428,435.080.418115,232,496.10 MYR 1,240,463.971.54151,912,230.57 ARS 859,532.140.00887,534.65 NGN 253,121,921.170.00791,997,533.85 INR 117,164,693.770.08519,976,105.41 BRL 2,224,655.451.45963,247,203.35 JPY 10,356,821.240.0502520,081.67 PEN 1,247,466.341.9182,392,642.29 DNS 22,058,699.951.932642,630,643.53 THB 54,436,878.090.207411,288,031.04 TRL 2,850,360.470.2405685,537.08 COP 880,699,280.290.00181,610,151.99 IDR 1,050,147,703.260.0005483,867.68 SGD 113,411.825.3772609,836.41 Other receivables 15,578,879.11 Including: VND 200,877,218.790.000358,670.23 USD 761,454.477.08275,393,153.57 KRW 82,190,007.040.0055453,187.06 CLP 72,948,891.280.008583,662.00 ZAR 102,353.730.381939,091.67 MXN 4,519,915.780.41811,889,996.08 MYR 56,786.901.541587,539.54 ARS 4,314,391.170.008837,819.91 NGN 17,168,222.030.0079135,484.53 INR 12,752,847.310.08511,085,853.98 EUR 77,759.707.8592611,129.03 BRL 385,151.711.4596562,184.10 JPY 6,766,959.340.0502339,811.94 PEN 446,298.411.918856,001.02 DNS 603,023.451.93261,165,403.11 THB 7,016,675.440.20741,454,977.82 TRL 111,370.670.240526,785.64 COP 199,686,583.710.0018365,080.06 IDR 30,000,072.920.000513,822.88 SGD 54,233.935.3772291,625.92 RUB 938,399.960.080375,323.88 CAD 5,050.005.367327,104.86 KES 553,924.180.045124,989.04 HK$ 200.000.9062181.24 Accounts payable 8,202,657.82 Including: USD 183,094.687.08271,296,804.69 CLP 55,286,237.250.008442,343.61 ZAR 597,965.410.3819228,379.26 MXN 3,378,887.220.41811,412,876.68 MYR 45,689.061.541570,431.72 ARS 668,414.780.00885,859.32 NGN 11,418,541.520.007990,110.42 INR 8,400,282.710.0851715,250.50 EUR 73,346.757.8592576,446.78 BRL 243,692.261.4596355,703.77 PEN 135,948.171.918260,748.79 DNS 1,076,293.991.93262,080,045.77 THB 3,018,647.860.2074625,946.82 ZKTeco 2023 Annual Report 296 COP 5,026,792.000.00189,190.31 IDR 65,560,725.410.000530,207.86 RUB 3,010.150.0803241.62 KES 45,882.930.04512,069.90 Other payables 6,520,975.76 Including: VND 2,160,097.840.0003630.90 USD 485,575.367.08273,439,184.60 EUR 127,098.207.8592998,890.17 KRW 47,486,902.660.0055261,837.79 CLP 12,690,101.050.008101,533.14 ZAR 20.030.38197.65 MXN 587,442.450.4181245,638.19 MYR 22,149.991.541534,145.20 ARS 3,951,482.370.008834,638.65 NGN 4,388,030.080.007934,628.52 INR 1,114,778.690.085194,918.95 BRL 136,069.241.4596198,612.55 JPY 7,017,651.840.0502352,400.80 PEN 4,205.971.9188,067.05 DNS 21,077.351.932640,734.09 THB 1,900,373.890.2074394,061.53 TRL 49,478.400.240511,900.00 IDR 299,999,974.260.0005138,228.45 SGD 16,361.225.377287,977.33 MAD 60,098.210.714542,940.20 Long-term loan 336,258.52 Including: ZAR 506,120.510.3819193,301.19 MYR 92,736.421.5415142,957.33 Other explanations: (2) Explanations on overseas operating entities, including for important overseas operating entities, disclosure of their main overseas operating location, recording currency, and selection basis. Reasons for changes in the recording currency should also be disclosed. Applicable □ Not applicable Subsidiaries Registered place of business Recording currency Basis for adopting recording currency ZKTECOCO.,LIMITEDHong Kong USDSales and procurement are mainly priced in USD Armatura Tech Co.,Ltd. Thailand THBCurrency used in the place of operation ZKTECOSECURITYL.L.CDubai DNSCurrency used in the place of operation ZKTECOEUROPESLSpain EURCurrency used in the place of operation ZKTECHNOLOGYLLCAmerica USDCurrency used in the place of operation ZKTECOUSALLCAmerica USDCurrency used in the place of operation ZKTECOBIOMETRICSINDIAPRIVATELIMITEDIndia INRCurrency used in the place of operation ZKTECOPANAMA ,S.A. Panama USDSales and procurement are mainly priced in USD ZKTeco 2023 Annual Report 297 ZKTECOLATAM, S.ADEC.V. Mexico MXNCurrency used in the place of operation ZKINTELLIGENTSOLUTIONS (PTY) LTDSouth Africa ZARCurrency used in the place of operation NGTECOCO.,LIMITEDHong Kong USDSales and procurement are mainly priced in USD Note: Starting from 2023, ZKTECOSECURITYL.L.C. will replace its recording currency from USD to dirhams. The main reason is that dirham is a commonly used settlement currency in the local area, and the proportion of dirhams in sales settlement is higher. VIII. R&D expenditures Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Employee remuneration 158,052,507.71150,553,917.43 Depreciation and amortization 4,429,001.994,252,503.03 Office allowance 735,318.39584,001.49 Travel expenses 5,013,751.622,717,699.76 Business entertainment expenses 79,446.3532,132.91 Rental fees and utilities 1,136,494.86949,867.41 R&D material costs 5,516,851.518,240,298.32 Software and technical service fees 10,305,794.578,945,903.92 Testing and certification fees 1,844,771.631,817,748.28 Depreciation and amortization of right-of-use assets 1,914,549.282,477,285.95 Share-based payments 14,172,736.251,288,530.21 Others 10,412,190.406,123,958.71 Total 213,613,414.56187,983,847.42 Including: Expensed R&D expenditures 213,613,414.56187,983,847.42 IX. Changes to the scope of consolidation 1. Changes in the scope of consolidation due to other reasons Explanations on changes in the scope of consolidation caused by other reasons (for example, establishing new subsidiaries, liquidating subsidiaries, etc.) and their related situations: S/NCompany Name Establishment Date Registered Capital Percentage of Shares (%) Reason for Change 1 RALVIEAIINC. August 22,2023 USD 10,000100.00 New establishment 2 ZKDIGIMAXPTE. LTD. March 7,2023 USD 20 million 80.00 New establishment 3 ZKDIGIMAXPANAMA, S.A. April 11,2023 USD 10,00080.00 New establishment 4 ZKDIGIMAXCOLOMBIASASApril 26,2023 COP 10 million 80.00 New establishment 5 ZKDIGIMAX (PTY) LTDMarch 14,2023 --- 80.00 New establishment 6 PT. ZKDIGIMAXEXCEL NOBLE May 25,2023 IDR 10.01 billion 56.00 New establishment ZKTeco 2023 Annual Report 298 7 ZKDIGIMAXCHINACO., LTD. May 18,2023 USD 300,00080.00 New establishment 8 ZKTECHNOLOGY MOROCCO October 17,2023 MAD 100,000100.00 New establishment Note: ZKDIGIMAX (PTY) LTD uses the paid up capital as its registered capital, which has not been paid as of the end of the period; on August 7,2023, Xiamen ZKTeco Cloud Valley Design and Development Co., Ltd. was deregistered, and at the end of the period, the subsidiary was no longer included in the consolidation scope. 2. Others None X. Equity in other entities 1. Equity in subsidiaries (1) Composition of the enterprise group Unit: RMB Name of Subsidiaries Registered Capital Main business place Registration place Nature of business Percentage of shares Acquisition method Direct Indirect 1. Xiamen ZKTeco Biometric Identification Technology Co., Ltd. 38,500,000.00 Xiamen Xiamen Software development 100.00% 0.00% Acquisition 2. Shenzhen ZKTeco Biometric Identification Technology Co., Ltd. 1,000,000.00 Shenzhen Shenzhen Sales of goods 100.00% 0.00% Acquisition 2.1.ZK INVESTMENTSINC. USD 300,000.00 America America Established 0.00% 100.00% by investment 2.1.1.ZK TECHNOLOGYLLC USD 300,000.00 America America Sales of goods 0.00% 76.92% by investment 3. ZKTeco Sales Co., Ltd. 50,000,000.00 Dongguan Dongguan Sales of goods 100.00% 0.00% by investment 4. Hangzhou ZKTeco Hanlian E-commerce Co., Ltd. 2,000,000.00 Hangzhou Hangzhou E-commerce 100.00% 0.00% by investment 5. ZKCserv Technology Limited Co., Ltd. 1,000,000.00 Shenzhen Shenzhen Software development 51.00% 0.00% by investment 6. Dalian ZKTeo CO., 3,000,000.00 Dalian Dalian Software development 100.00% 0.00% by investment ZKTeco 2023 Annual Report 299 Ltd. and sales 7. XIAMEN ZKTECOCO., LTD. 100,000,000.00 Xiamen Xiamen Software development and sales 100.00% 0.00% by investment 7.1 ZKTECO Huayun (Xiamen) Integrated Circuit Co., Ltd. 10,000,000.00 Xiamen Xiamen Software development 0.00% 51.00% by investment 7.2.ZKTECO VIETNAM TECHNOLOGYCOMPANY LIMITED USD 200,000.00 Vietnam Vietnam Sales of goods 0.00% 100.00% by investment 8. ZKTECO (GUANGDONG) CO., LTD 800,000,000.00 Dongguan Dongguan Production and sales of goods 100.00% 0.00% by investment 9. Xi'an ZKTeco Co., Ltd. 1,060,000.00 Xi'an Xi'an Sales of goods 100.00% 0.00% Acquisition 10. Shenzhen Zhongjiang Intelligent Technology Co., Ltd. 10,000,000.00 Shenzhen Shenzhen Project construction and sales 51.00% 0.00% by investment 11. ZKTECO CO., LIMITED USD 15,000,000.00 Hong Kong, China Hong Kong, China Sales of goods 100.00% 0.00% by investment 11.1.ZKTECO TURKEY ELEKTRONIK SANAYIVE TICARET LIMITED SIRKETI. TRL 1,200,000.00 Turkey Turkey Sales of goods 0.00% 88.09% by investment 11.2.ZKTECO LATAM, S.A. DEC.V. MXN 44,260,000.00 Mexico Mexico Sales services 0.00% 100.00% by investment 11.3.ZK SOFTWARE DEMEXICO, S.A. DEC.V. MXN 3,748,688.33 Mexico Mexico R&D services 0.00% 100.00% Capital increase and equity investment 11.4.ZKTECO COLOMBIA SAS USD 525,000.00 Columbia Columbia Sales services 0.00% 100.00% by investment 11.5.ZKTECO （M） SDN. BHD. MYR 646,000.00 Malaysia Malaysia Sales of goods 0.00% 51.00% Acquisition 11.6.ZKTECO BIOMETRICS INDIA PRIVATE LIMITED IDR 132,765,240.00 India India Sales of goods 0.00% 99.15% Capital increase and equity investment 11.7.ZKTECO EUROPESL EUR 538,500.00 Spain Spain Sales of goods 0.00% 75.69% Acquisition 11.7.1.ZKTECO IRELAND LIMITED EUR 60,000.00 Ireland Ireland Sales services 0.00% 75.69% by investment ZKTeco 2023 Annual Report 300 11.7.2.ZKTeco Deutschland GmbH EUR 100,000.00 Germany Germany Sales of goods 0.00% 75.69% by investment 11.7.3.ZKTECO ITALIAS.R.L. EUR 350,000.00 Italy Italy Sales of goods 0.00% 71.37% by investment 11.7.4.ZKTECO UKLTD GBP 500,000.00 UKUK Sales of goods 0.00% 75.69% by investment 11.8.ZKTECO PERU SOCIEDAD ANONIMA CERRADA USD 503,900.48 Peru Peru Sales services 0.00% 100.00% Acquisition 11.9.ZKTECO THAICO., LTD. THB 10,000,000.00 Thailand Thailand Sales of goods 0.00% 99.80% Acquisition 11.10.ZKTeco Chile SpA USD 225,000.00 Chile Chile Sales services 0.00% 100.00% by investment 11.10.1.SOLUCIONES INTEGRALES YSISTEMAS SpA CLP 60,000,000.00 Chile Chile Sales services 0.00% 100.00% by investment 11.11.ZKTECO SECURITY L.L.C AED 147,000.00 Dubai Dubai Sales of goods 0.00% 100.00% Acquisition 11.12.ZKTECO ARGENTINA S.A. USD 247,756.00 Argentina Argentina Sales of goods 0.00% 60.00% Acquisition 11.13.Limited Liability Company "ZKTeco biometrics and security" RUB 17,850,554.80 Russia Russia Sales of goods 0.00% 100.00% by investment 11.14.ZKTeco Investment Inc. USD 7,084,934.7 America America Established 0.00% 100.00% by investment 11.14.1.ZKTECOUSALLC USD 250,000.00 America America Sales of goods 0.00% 80.00% by investment 11.14.2.Armatura Co., Ltd. USD 100,000.00 Korea Korea Sales of goods 0.00% 90.00% Acquisition 11.14.3.ZKTeco Japan Co., Ltd. USD 784,611.82 Japan Japan Sales of goods 0.00% 100.00% by investment 11.14.4.ARMATURALLC. USD 1,000,000.00 America America Sales of goods 0.00% 100.00% by investment 11.14.5.RALVIEAIINC. USD 10,000.00 Canada Canada Sales of goods 0.00% 100.00% by investment 11.15.PT. ZKTECO BIOMETRICS INDONESIA USD 200,000.00 Indonesia Indonesia Sales of goods 0.00% 95.00% by investment 11.16.ZK INVESTIMENTOSDO BRASILLTDA. BRL 4,131,712.79 Brazil Brazil Established 0.00% 99.68% Acquisition 11.16.1.ZKTECODOBRASIL S.A. BRL 4,605,675.86 Brazil Brazil Sales of goods 0.00% 74.76% Acquisition ZKTeco 2023 Annual Report 301 11.17.ZKTeco Latam R&D S.A. USD 73,514.00 Argentina Argentina Sales of goods 0.00% 99.20% by investment 11.18.NGTECO CO., LIMITED HKD 10,000.00 Hong Kong, China Hong Kong, China Sales of goods 0.00% 100.00% by investment 11.19.ZKTECO BIOMETRIC LIMITED NGN 102,029,950.71 Nigeria Nigeria Sales of goods 0.00% 60.00% by investment 11.20.ZKTECO PANAMA, S.A. USD 323,500.00 Panama Panama Sales of goods 0.00% 99.86% by investment 11.21.ZK INTELLIGENT SOLUTIONS (PTY) LTD ZAR 3,097,057.33 South Africa South Africa Sales of goods 0.00% 100.00% by investment 11.22.ZKTECO BIOMETRICS KENYA LIMITED KES 10,910,000.00 Kenya Kenya Sales of goods 0.00% 100.00% by investment 11.23.ZKTECO ROMANIA S.R.L RON 250.00 Romania Romania Sales of goods 0.00% 100.00% by investment 12. Hubei ZKTeco Co., Ltd. 10,000,000.00 Wuhan Wuhan Sales of goods 100.00% 0.00% by investment 13. Wuhan ZKTeco Perception Technology Co., Ltd. 1,000,000.00 Wuhan Wuhan Sales of goods 0.00% 51.00% by investment 14.ZKTECO SG INVESTMENT PTE. LTD. USD 100,000.00 Singapore Singapore Sales of goods 100.00% 0.00% by investment 14.1.ZKTECO SINGAPORE PTE. LTD. USD 365,000.00 Singapore Singapore Sales of goods 0.00% 100.00% by investment 14.2.Armatura Tech Co., Ltd. THB 337,223,776.99 Thailand Thailand Production and sales of goods 0.00% 99.99% Acquisition 14.3.ZKDIGIMAXPTE. LTD. USD 20,000,000 Singapore Singapore Sales of goods 0.00% 80.00% by investment 14.3.1.ZKDIGIMAX PANAMA, S.A. USD 10,000.00 Panama Panama Sales of goods 0.00% 80.00% by investment 14.3.2.ZKDIGIMAX COLOMBIA SAS COP 10,000,000.00 Columbia Columbia Sales of goods 0.00% 80.00% by investment 14.3.3.ZKDIGIMAX (PTY) LTD South Africa South Africa Sales of goods 0.00% 80.00% by investment 14.3.4.PT. ZKDIGIMAX EXCEL NOBLE IDR 10,010,000,00.00 Indonesia Indonesia Sales of goods 0.00% 56.00% by investment 14.3.5 USD 300,000.00 Xiamen Xiamen Sales of 0.00% 80.00% by ZKTeco 2023 Annual Report 302 ZKDIGIMAX CHINACO., LTD. goods investment 14.3.6.ZK TECHNOLOGYMOROCCO MAD 100,000.00 Morocco Morocco Sales of goods 0.00% 100.00% by investment Explanations on the fact that shareholding percentage is different from the proportion of voting rights in the subsidiaries: Basis for holding half or less of the voting rights but still controlling the investee, and holding more than half of the voting rights but not controlling the investee: For important structured entities included in the consolidation scope, the basis for control is: Basis for determining whether the Company is an agent or principal: Other explanations: The Russian subsidiary of the Company, Limited Liability Company "ZKTeco biometrics and security", is currently undergoing liquidation and cancellation; ZKDIGIMAX (PTY) LTD uses the paid up capital as its registered capital, which has not been paid as of the end of the period. (2) Important partly-owned subsidiaries Unit: RMB Name of Subsidiaries Minority shareholding percentage Profit and loss attributable to minority shareholders in current period Dividends declared for distribution to minority shareholders in the current period Closing balance of minority interest ZKTECHNOLOGYLLC 23.08% 21,738,055.0727,490,290.006,851,418.40 ZKTECOUSALLC 20.00% -108,837.6535,243.965,062,572.63 Explanations on the fact that shareholding percentage is different from the proportion of voting rights for minority shareholders in the subsidiaries: Other explanations: ZKTeco 2023 Annual Report 303 (3) Main financial information of important partly-owned subsidiaries Unit: RMB Name of Subsidiaries 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 ZK TECHNOLOGYLLC 61,698,439.58440,329.4862,138,769.0636,590,588.71 36,590,588.7171,976,229.041,110,736.1473,086,965.1828,686,703.92475,387.1629,162,091.08 ZKTECO USALLC 34,544,702.45845,428.0435,390,130.499,526,303.95116,606.179,642,910.1240,257,368.661,147,107.7841,404,476.4415,808,239.19272,710.1316,080,949.32 Unit: RMB Name of Subsidiaries Amount incurred in the current period Amount incurred in the previous period Operating revenue Net profit Total comprehensive income Cash flow from operating activities Operating revenue Net profit Total comprehensive income Cash flow from operating activities ZKTECHNOLOGYLLC 150,842,020.3171,852,073.3873,257,606.2575,770,624.11105,152,101.0140,799,217.2143,681,037.3245,981,089.51 ZKTECOUSALLC 51,841,360.16 -544,188.18 -150,043.832,621,831.2382,261,486.985,833,234.647,950,859.052,703,493.03 Other explanations: ZKTeco 2023 Annual Report 304 (4) Significant restrictions on the use of enterprise group assets and the repayment of enterprise group debts (5) Financial or other support provided to structured entities included in the scope of consolidated financial statements Other explanations: 2. Transactions resulting in change of owners' equity in subsidiaries and the subsidiaries still being under control (1) Change of owners' equity in subsidiaries 1) Our subsidiary ZKTECOCO., LIMITED will acquire 17.07% of the shares (700 shares) held by the foreign shareholder FERNANDODUCAYREAL in the sub-subsidiary of the Company ZKTECOEUROPESL at a price of EUR 2,149.71 per share. After the acquisition is completed, ZKTECOCO., LIMITED held 68% of the equity in ZKTECOEUROPESL, while the foreign shareholder FERNANDODUCAYREAL held 32% of the equity. In December 2023, ZKTECOCO., LIMITED made a new investment of USD 3.02889952 million in ZKTECO EUROPESL. After the capital increase was completed, ZKTECOCO., LIMITED made a cumulative investment of USD 11.60667706 million in ZKTECOEUROPESL, and the shareholding percentage increased from 68% to 75.69%. 2) Our subsidiary ZKTECOCO.,LIMITED and the sub-subsidiary of the Company ZKTECOLATAM, S.ADE C.V. signed an agreement with the foreign shareholder SARAHí ZúIGARUIZ to acquire 49% of the shares (1,836,858 shares) of the sub-subsidiary of the Company ZKSOFTWAREDEMEXICO, S.A. DEC.V. held by the foreign shareholder at a price of MXN 1 per share. After the acquisition is completed, ZKTECOCO., LIMITED held 99% equity in ZKSOFTWAREDEMEXICO, S.A. DEC.V., and ZKTECOLATAM, S.ADEC.V. held 1% of the equity in ZKSOFTWAREDEMEXICO, S.A. DEC.V. 3) Our subsidiary ZKTECOCO.,LIMITED and the sub-subsidiary of the Company ZKTeco Investment Inc. signed an agreement with the foreign shareholder LEEKYUWHAN to acquire 100% of the shares (23,792 shares) of the sub-subsidiary of the Company Armatura Co., Ltd. held by the sub-subsidiary of the Company ZKTeco Investment Inc. at a price of KRW 3,819 per share. After the acquisition was completed, ZKTECOCO., LIMITED held 90% of the equity in Armatura Co., Ltd.; LEEKYUWHAN held 10% of the equity in Armatura Co., Ltd. 4) ZKTECOEUROPESL, a sub-subsidiary of the Company, has increased its capital by EUR 250,000 to ZKTECOITALIAS.R.L., a sub-subsidiary of the Company, based on its own profits (with no increase from foreign shareholders); after the capital increase was completed, ZKTECOEUROPESL held 94.28% of the equity of ZKTECOITALIAS.R.L., while the foreign shareholders TERRANOVAROBERTO, ALPINILUCA, DELLA CHIESASTEFANO, and CALBOLIROBERTO each held 1.43% of the equity of ZKTECOITALIAS.R.L. ZKTeco 2023 Annual Report 305 (2) Effect of transactions on minority equity and owners' equity attributable to the parent company Unit: RMB ZKTECOEUROPESL ZKSOFTWAREDE MEXICO, S.A. DEC.V. Acquisition cost/disposal consideration --Cash 32,704,983.17769,466.26 -- Fair value of non-cash assets Total cost/disposal consideration 32,704,983.17769,466.26 Less: Net assets of the subsidiaries calculated based on the proportion of assets acquired/disposed 33,334,979.15972,463.65 Difference 629,995.98202,997.39 Including: Adjustment to the capital reserves 629,995.98202,997.39 Adjustment to surplus reserve Adjustment to undistributed profit Other explanations: 3. Equity in joint arrangements or associates (1) Important joint ventures or associates Name of joint venture or associate Main business place Registration place Nature of business Percentage of shares Accounting treatment methods for investments in joint ventures or associates Direct Indirect Xinhuaxin (Xi'an) Information Technology Co., Ltd. Xi'an Xi'an Software and information technology services industry 19.89% Long-term equity investment Explanations on the fact that shareholding percentage is different from the proportion of voting rights in the joint ventures or associates: Basis for holding less than 20% of voting rights but having significant impact, or holding 20% or more of voting rights but not having significant impact: (2) Main financial information of important joint ventures Unit: RMB Ending balance/current amount incurred Beginning balance/amount incurred in the previous period Current assets Including: Cash and cash equivalents ZKTeco 2023 Annual Report 306 Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Minority interests Shareholders' equity attributable to the parent company Net asset share calculated based on shareholding percentage Adjustment matters --Goodwill --Unrealized profits from internal transactions --Others Book value of equity investment in joint ventures Fair value of equity investment in joint ventures with public offer Operating revenue Financial expenses Income tax expenses Net profit Net profit from discontinued operations Other comprehensive income Total comprehensive income Dividends received from joint ventures of current year Other explanations: (3) Main financial information of important associates Unit: RMB Ending balance/current amount incurred Beginning balance/amount incurred in the previous period Current assets 7,510,080.969,875,903.92 Non-current assets 307,582.522,116,980.59 Total assets 7,817,663.4811,992,884.51 Current liabilities 20,381,375.8619,966,606.53 Non-current liabilities 337,468.89 Total liabilities 20,381,375.8620,304,075.42 Minority interests Shareholders' equity attributable to the -12,563,712.38 -8,311,190.91 ZKTeco 2023 Annual Report 307 parent company Net asset share calculated based on shareholding percentage -2,498,470.10 -1,652,796.67 Adjustment matters --Goodwill --Unrealized profits from internal transactions --Others Book value of equity investment in associates Fair value of equity investments in associates with public offers Operating revenue 13,220,558.9615,177,322.02 Net profit -4,282,521.88 -9,790,310.97 Net profit from discontinued operations Other comprehensive income Total comprehensive income Dividends received from associates this year Other explanations: (4) Excess losses incurred by joint ventures or associates Unit: RMB Name of joint venture or associate Accumulated unrecognized losses accumulated in the previous period Unrecognized losses in the current period (or net profit shared in the current period) Accumulated unrecognized losses at the end of this period Xinhuaxin (Xi'an) Information Technology Co., Ltd. -12,164,220.89 -851,639.43 -13,015,860.32 ZKTECOSOLUTIONSINC. -538,127.48 -178,340.92 -716,468.40 PT. ZKTECOSECURITY INDONESIA -14,844.38 -412,645.80 -427,490.18 Other explanations: 4. Others XI. Government Subsidies 1. Government subsidies recognized by accounts receivable at the end of the reporting period □ Applicable Not applicable Reasons for not receiving the expected amount of government subsidies at the expected time point □ Applicable Not applicable ZKTeco 2023 Annual Report 308 2. Liability items involving government subsidies Applicable □ Not applicable Unit: RMB Accounting Subject Beginning Balance Newly added subsidy amount in current period Amount included in non-operating revenue for the current period Amount of other income transferred in the current period Other changes in the current period Ending Balance Assets/Income-related Deferred income 2,039,702.49 186,152.87 1,853,549.62 Assets-related Total 2,039,702.49 186,152.87 1,853,549.62 3. Government subsidies included in current profits and losses Applicable □ Not applicable Unit: RMB Accounting Subject Amount incurred in the current period Amount incurred in the previous period Value added tax is collected and refunded immediately 4,905,473.025,143,783.97 Value added tax credit 2,139,085.95 Dongguan Economic and Information Technology Bureau "Human Replacement by Machine" Fund 58,999.1058,999.06 Automation Project Subsidy of Dongguan Bureau of Industry and Information Technology 60,596.7560,596.78 Industrial Support and Transformation and Upgrading Special Fund (Integration of Informatization and Industrialization) of Dongguan Bureau of Industry and Information Technology 22,650.2225,330.17 Subsidy for Residency and Decoration of Management Committee of Xiamen Torch High-Tech Industry Development Zone 27,848.409,282.80 Subsidy for Exhibition Hall Decoration of Management Committee of Xiamen Torch High-Tech Industry Development Zone 16,058.402,676.40 Stabilization allowance 146,679.07337,478.73 Value added tax deduction 2,498.1520,596.19 Employment value-added tax reduction 41,600.00 Rewards for high-tech enterprise recognition 310,000.0050,000.00 Economic Development Bureau of Zhangmutou Town, Dongguan City - Issuing rewards, publicity subsidies, and verification of electronic consumption vouchers on behalf of others 50,000.00 2022 Innovation Enterprise R&D Investment Subsidy of Dongguan 1,000,000.00 ZKTeco 2023 Annual Report 309 Science and Technology Bureau Dongguan Enterprise Vocational Skill Level Recognition Award and Subsidy 50,000.00 One-time job expansion subsidy 45,000.00109,500.00 The 23rd China Patent Award and the 9th Guangdong Patent Award (China Patent Excellence Award) 500,000.00 2022 Dongguan "Double Growth Plan" Service Package Award of Dongguan Finance Bureau Treasury Payment Center 663,500.00 Subsidy Funds from Dongguan Administration for Market Regulation 489,906.38 Fujian Province Patent Award Bonus (National Patent Award Part) 200,000.00 Subsidies for enterprise R&D expenses 760,800.00 Development Award of Management Committee of Xiamen Torch High-Tech Industry Development Zone 100,000.00 Special Subsidy for Encouraging Enterprise Application of the Management Committee of Xiamen Torch High-Tech Industry Development Zone 70,000.00 Support Fund for Increasing R&D Investment of the Management Committee of Xiamen Torch High-Tech Industry Development Zone 1,727,200.00 Contribution Award of Two Zones from the Management Committee of Xiamen Torch High-Tech Industry Development Zone 740,317.00 Supporting Expenses for the China Patent Award of Xiamen Municipal Market Supervision Bureau 100,000.00 Singapore Employment Support Scheme 258,163.62 One-time Training Subsidy for Retention of Workers of Social Security Bureau 149,500.001,202,550.00 2022 Employment Support Scheme 163,331.30 Government subsidies 97,648.46 Policy Funding for Software and Emerging Digital Industries 177,800.00 The 8th Guangdong Patent Award City Fund Supporting Award of Dongguan Administration for Market Regulation 200,000.00 2022 Provincial Special Fund for Promoting High Quality Economic Development of Bureau of Commerce of Dongguan City 955,805.29 2022 Dongguan Municipal Special Fund for Promoting High Quality Development of Open Economy of Bureau of Commerce of Dongguan City 1,977,600.00 Funds for the Second Batch of High-tech Enterprise Recognition and Support Projects in Shenzhen in 2020 100,000.00 Reduction and Exemption of Value- 1,043.10 ZKTeco 2023 Annual Report 310 added Tax for Small-scale Enterprises Graduates' Social Security Subsidies 75,634.1914,048.70 The government encourages enterprises to recruit workers 7,500.00 Subsidy from the Social Security Bureau to replace work with training 6,000.0015,540.00 National High-tech Subsidies of Management Committee of Xiamen Torch High-Tech Industry Development Zone 250,000.00 Dongguan Administration for Market Regulation - Special Fund for Promoting High-quality Development in 2023 to Support Enterprise Standard Projects. 125,000.00 Bureau of Commerce of Dongguan City - Special Fund for New Round of Economic Stability and Enterprise Relief of Bureau of Commerce of Dongguan City (Third Batch of Export Credit Insurance in 2023. 510,863.00 Received the Industrial Design Award bonus from Dongguan Bureau of Industry and Information Technology 200,000.00 2023 High Value Patent Cultivation Layout Center Construction Project 300,000.00 Special Fund for Promoting High Quality Development of Economy in 2023 (Promoting the Development of Foreign Trade) 1,101,719.86 Special Fund for 2023 Central Foreign Economic and Trade Development of Guangdong Province (Promoting Foreign Investment Cooperation) - Policy Credit Insurance Subsidy 46,993.00 2023 Innovation Enterprise R&D Investment Subsidy 669,543.00 2022 Dongguan International Trademark Registration Project 34,439.59 2022 Dongguan Invention Patent Funding Project 24,000.00 Provincial Funds for Ensuring Stability in Foreign Trade (the Second Batch of Projects Supporting Enterprises to Grab Orders in 2022) 15,361.00 2023 Dongguan Special Fund for Promoting High Quality Economic Development - Intellectual Property Protection - Enterprise and Individual Intellectual Property Rights Protection Assistance Project 10,000.00 Notice on the Second Batch of Funds for Promoting High Quality Development of Open Economy in Dongguan City (Business Service Special Fund - External Investment Cooperation Matters) for the Year 2023 (2023 Project) 11,519.00 Economic Development Bureau's RMB 362,069.00 ZKTeco 2023 Annual Report 311 100 Billion Enterprise Cultivation Fund Funding from Zhangmutou Town Economic Development Bureau 30,000.00 The Second Batch of Enterprise R&D Expenses Subsidies from Xiamen Science and Technology Bureau in 2022 400,000.00 2022 National Intellectual Property Advantage Enterprise Award of Xiamen Municipal Market Supervision Bureau 200,000.00 2023 Provincial Special Fund for Promoting High Quality Economic Development (Consumer Hub Construction Project) - Reward for Supporting Stable Growth of Retail Industry/Bureau of Commerce of Dongguan City 500,000.00 Employment Subsidies for Poverty Alleviation Population 55,200.00 Subsidies for a Growth of over 20% in Output Value in 2023 Q1 50,000.00 Social Security Subsidies for Individuals Facing Employment Difficulties of Dongguan Social Security Bureau 29,052.21 Employment Post Subsidy of Dongguan Human Resources and Social Security Bureau Tangxia Branch 26,172.95 Others 246,411.56221,117.40 Total 13,164,367.4217,703,715.35 Other explanations: XII. Risks Related to Financial Instruments 1. Various risks arising from financial instruments 1. Credit risk Credit risk refers to the risk of financial losses incurred by the Company due to the counterparty's failure to fulfill contract obligations. The management has established appropriate credit policies and continuously monitors the exposure to credit risk. The Company has adopted a policy of only trading with reputable counterparties. In addition, the Company evaluates the credit qualifications of customers based on their financial position, the possibility of obtaining guarantees from third parties, credit records, and other factors such as current market conditions, and sets corresponding credit periods. The Company continuously monitors the notes receivable, accounts receivable balance, and collection. For customers with poor credit records, the Company will use written reminders, shorten or cancel credit periods, etc. to ensure that the Company does not face significant credit losses. In addition, the Company reviews the recovery of financial assets on each balance sheet date to ensure that sufficient provisions for expected credit losses have been made for the relevant financial assets. ZKTeco 2023 Annual Report 312 The credit risk of other financial assets of the Company, including monetary funds, other receivables, debt investments, etc., arises from counterparty defaults, and the maximum credit risk exposure is the carrying amount of each financial asset on the balance sheet. The Company has not provided any other guarantee that may expose the Company to credit risk. The monetary funds held by the Company are mainly deposited in state-owned holding banks and other large and medium-sized commercial banks and other financial institutions. The management believes that these commercial banks have a high reputation and good asset status, there is no significant credit risk, and there will be no significant losses caused by the default of the counterparty. The Company's policy is to control the amount of deposits held in deposits based on the market reputation, business scale, and financial background of well-known financial institutions, in order to limit the credit risk amount to any individual financial institution. As part of the Company's credit risk asset management, the Company uses aging to assess impairment losses on accounts receivable and other receivables. The Company's accounts receivable and other receivables involve a large number of customers, and the aging information can reflect the solvency and bad debt risk of these customers for accounts receivable and other receivables. The Company calculates the historical actual bad debt rate for different aging periods based on historical data, and takes into account current and future economic forecasts, such as forward-looking information like national GDP growth rate, total infrastructure investment, and national monetary policy, to adjust the expected loss rate. For long-term receivables, the Company takes into account the settlement period, payment period stipulated in the contract, the financial position of the debtor, and the economic situation of the debtor's industry, and adjusts the expected credit loss based on the forward-looking information mentioned above. As of December 31,2023, the book balances and expected credit impairment losses of related assets are as follows: Item Book balance Impairment provision Accounts receivable 514,240,227.22 34,436,913.56 Other receivables 45,004,054.60 12,259,480.40 Debt investment 42,284,596.90 0.00 Long-term receivables (including payments due within one year) 2,802,225.14 0.00 Total 604,331,103.86 46,696,393.96 Due to the fact that the Company's receivable risk points are distributed among multiple partners and customers, as of December 31,2023,22.14% (December 31,2022: 25.08%) of the Company's receivables came from the top five customers with outstanding balances, and the Company did not have significant credit concentration risks. The Company's maximum credit risk exposure is the book value of each financial asset in the balance sheet. ZKTeco 2023 Annual Report 313 For the bank financial products invested by the Company, the counterparty must have a credit rating higher than or equal to that of the Company. Given the good credit rating of the counterparty, the Company's management does not anticipate that the counterparty will be unable to fulfill its obligations. 2. Liquidity risk The liquidity risk refers to the risk of capital shortage of the Company taking place in the course of cash payment or settlement via other financial assets. The policy of the Company is to ensure that there is sufficient cash for the payment of the matured debts. Each member enterprise of the Company is responsible for its cash flow forecast. The Finance Department under the Company continuously monitors the Company's short-term and long-term funding needs at the company level based on the cash flow forecast results of each member enterprise, to ensure the maintenance of sufficient cash reserves; simultaneously, the Finance Department continuously monitors whether it complies with the provisions of the loan agreement and obtain commitments from major financial institutions to provide sufficient reserve funds to meet short-term and long-term funding needs. In addition, the Company has entered into financing and credit agreements with major correspondent banks to provide support for the Company's obligations related to commercial bills. As of December 31,2023, the Company has obtained credit lines from multiple domestic banks, with a total amount of RMB 962.9158 million, of which RMB 134.4149 million has been used. As of December 31,2023, the Company's financial liabilities and off balance sheet guarantee items are presented as undiscounted contract cash flows over the remaining term of the contract as follows: Item Ending Balance Within 1 year 1-5 years Over 5 years Total Notes payable 122,573,544.09 --- --- 122,573,544.09 Accounts payable 245,084,182.32 --- --- 245,084,182.32 Other payables 36,735,314.36 --- --- 36,735,314.36 Non-current liabilities due within one year 21,094,682.36 --- --- 21,094,682.36 Other current liabilities 15,007,767.78 --- --- 15,007,767.78 Lease liabilities --- 19,713,286.21 --- 19,713,286.21 Long-term loan --- 7,810,405.04 --- 7,810,405.04 Total 440,495,490.9127,523,691.25 --- 468,019,182.16 3. Market risk (1) Exchange rate risk The main business of the Company is operated within the territory of China, which is settled in RMB. However, there are still exchange risks in the foreign currency assets and liabilities recognized and future foreign currency ZKTeco 2023 Annual Report 314 transactions of the Company (the valuation currency for foreign currency assets and liabilities, as well as foreign currency transactions, is mainly USD). The Finance Department of the Company is responsible for monitoring the scale of foreign currency transactions and foreign currency assets and liabilities to minimize the exchange rate risk faced. The foreign currency financial assets and foreign currency financial liabilities of the Company at the end of the period are presented in Note VNote 61. Foreign currency monetary items. (2) Interest rate risk The Company's interest rate risk mainly arises from bank loans, etc. Floating-rate financial liabilities expose the Company to cash flow interest rate risk while fixed-rate financial liabilities expose the Company to fair value interest rate risk. The Company determines the relative proportion of contracts with fixed interest rate and contracts with floating interest rate according to the current market environment. The Finance Department of the Company continuously monitors the Company's interest rate level. The increases in interest rate will increase the costs of the new interest-bearing debts and the interest expenses of interest-bearing debts failing to be paid up by the Company and subject to the interest calculation at floating interest rate, and will, significantly and adversely, affect the Company's financial results; the management will make an adjustment according to the latest market conditions to reduce the interest rate risks. XIII. Disclosure of Fair Value 1. Ending fair value of assets and liabilities measured at fair value Unit: RMB Item Fair value at the end of the period First level fair value measurement Second level fair value measurement Third level fair value measurement Total I. Continuous fair value measurement -- -- -- -- (I) Trading financial assets 80,980,203.63 80,980,203.63 1. Financial assets measured at fair value and whose changes are included in the current profits and losses 80,980,203.63 80,980,203.63 (1) Debt instrument investment 80,887,585.81 80,887,585.81 (2) Equity instrument investment (3) Derivative financial assets 92,617.82 92,617.82 (III) Other equity instrument investments Total assets continuously measured at fair value 80,980,203.63 80,980,203.63 ZKTeco 2023 Annual Report 315 II. Continuous fair value measurement -- -- -- -- 2. Basis for determining the market value of continuous and non-continuous first level fair value measurement items None 3. Qualitative and quantitative information on valuation techniques and important parameters used for continuous and non-continuous second level fair value measurement items The Company divides its bank financial products into financial assets measured at fair value and whose changes are included in the current profits and losses, and subsequently measures them at fair value. At the end of the period, the expected income is calculated based on the expected return rate of the bank financial products, and it is used as the fair value with the principal at the end of the period. 4. Qualitative and quantitative information on valuation techniques and important parameters used for continuous and non-continuous third level fair value measurement items The third level fair value measurement items of the Company include other non-current financial assets. Other non-current financial assets are "three no equity investments" held by the Company without control, joint control, and significant impact. The determination of fair value is based on the input value of the third level. Where there is insufficient recent information to determine fair value, or where there is a wide range of estimates of fair value, and the cost represents the best estimate of fair value within that range, the cost may represent an appropriate estimate of fair value within that range. 5. Information on adjustment between beginning book value and ending book value of items subject to Level 3 on a going fair value measurement and sensitivity analysis of non-observable parameters None 6. Continuous fair value measurement items that undergo conversion between different levels during the current period, the reasons for conversion, and the policy for determining the conversion time point None 7. Changes in valuation techniques and reasons for such changes during the current period None ZKTeco 2023 Annual Report 316 8. Fair value of financial assets and liabilities not measured at fair value Financial assets and liabilities not measured at fair value mainly include accounts receivable, short-term loans, payables, non-current liabilities due within one year, and long-term loans. The difference between the carrying amounts of financial assets and liabilities not measured at fair value and fair value is very small. 9. Other None XIV. Related Parties and Related Party Transactions 1. Information of the parent company of the enterprise Name of the parent company Registration place Nature of business Registered Capital Share proportion held by parent company in the enterprise Proportion of voting rights of the parent company to the Company Shenzhen ZKTeco Times Investment Co., Ltd. Shenzhen Established RMB 9 million 30.05% 30.05% Explanations on the parent company of the enterprise The ultimate controller of this enterprise is Che Quanhong. Other explanations: 2. Subsidiaries of the enterprise The situation of the Company's subsidiaries is detailed in Note X 1. Equity in subsidiaries. 3. Information of joint ventures and associates of the enterprise For important joint ventures or associates of the enterprise, please refer to Note X 3. Equity in joint venture arrangements or associates. Related party transactions with the Company occurred in the current period, the information of other joint ventures or associates that have formed balances through related party transactions with the Company in the early stage is as follows: Name of joint venture or associate Relationship with the enterprise ZKTECOSMARTCITY (THAILAND) CO., LTD. Joint venture PT. ZKTECOSECURITYINDONESIAJoint venture ZKTECOSOLUTIONSINC. Joint venture CVSquared, Inc. Joint venture Guizhou Zhongjiang Intelligent Technology Co., Ltd. Joint venture Xinhuaxin (Xi'an) Information Technology Co., Ltd. Joint venture Xiamen Xingniu Yunyu Venture Capital Partnership Enterprise (Limited Partnership) Joint venture Silk IDSystems Inc. Joint venture Other explanations: ZKTeco 2023 Annual Report 317 4. Conditions of other affiliated parties Names of other related parties Relationship between other related parties and the enterprise TVCENLINEA.COMSADECV An enterprise controlled by minority shareholders of subsidiary ZKSOFTWAREDEMEXICO, S.A. DEC.V. PSDSECURITY, S.L. An enterprise controlled by the minority shareholder Fernando Ducay Real of subsidiary ZKTECOEUROPESL; Fernando Ducay Real also holds 27.38% of the capital contribution share of JYLX, which holds 2.42% of the Company's shares (as of December 31,2023) Liu Jiajia Former supervisor Shenzhen Huijiang Industrial Group Co., Ltd. A shareholder holding 49.00% equity in subsidiary Shenzhen Zhongjiang Wu Xinke Former supervisor Yang Xianfeng Supervisor Wu Xiongxiong Supervisor of the controlling shareholder ZKTeco Times Other explanations: Acquired all the minority shareholders' equity of subsidiary ZKSOFTWAREDEMEXICO, S.A. DEC.V. in the period. At the end of the period, TVCENLINEA.COMSADECV was not a related party. 5. Related party transactions (1) Related party transactions for purchasing and selling goods, providing and receiving labor services Table of Purchasing Goods/Accepting Labor Services Unit: RMB Related party Content of related party transaction Amount incurred in the current period Approved transaction limit Does it exceed the transaction limit Amount incurred in the previous period TVCENLINEA.COMSADECV Purchasing goods 2,666,620.763,300,000.00 No 3,188,128.36 PSDSECURITY, S.L. Purchasing goods 9,065.715,000.00 Yes 2,338.21 ZKTECOSMART CITY (THAILAND) CO., LTD. Purchasing goods 109,591.55 Yes 56,390.11 Silk IDSystems Inc. Technology license fee 0.000.00 No 201,308.93 Xinhuaxin (Xi'an) Information Technology Co., Ltd. Service fee 1,240,186.518,100,000.00 No 268,419.29 PT. ZKTECO SECURITY INDONESIA Marketing expenses 511,976.96500,000.00 Yes 426,544.55 Total 4,537,441.4911,905,000.00 4,143,129.45 Selling goods/rendering labor service Unit: RMB Related party Content of related party Amount incurred in the Amount incurred in the ZKTeco 2023 Annual Report 318 transaction current period previous period Xinhuaxin (Xi'an) Information Technology Co., Ltd. Selling goods 24,333.040.00 PT. ZKTECOSECURITY INDONESIA Selling goods 1,316,828.081,444,138.35 ZKTECOSMARTCITY (THAILAND) CO., LTD. Selling goods 1,964,067.811,755,587.44 TVCENLINEA.COMSADE CV Selling goods 69,479,326.7233,887,845.85 PSDSECURITY, S.L. Selling goods 3,505,729.157,351,670.43 ZKTECOSOLUTIONSINC. Selling goods 7,940,059.2111,418,513.01 Total 84,230,344.0155,857,755.08 Explanations on related party transactions for purchasing and selling goods, providing and receiving labor services Note: The expected daily related party transaction limit of the Company is the maximum amount that both parties may sign a contract, and the actual amount incurred is determined based on the business development of both parties, resulting in a certain difference between the actual amount incurred and the expected amount. The difference in amount is relatively small and does not meet the criteria for review by the Board of Directors. The daily related party transactions of the Company in 2023 were based on the normal production and operation needs of the Company. The related party transactions comply with the principles of fairness, openness, and impartiality, and there is a certain difference between the actual amount incurred and the expected amount. This is mainly due to the Company's appropriate adjustments based on business conditions, and there is no situation that damages the Company and shareholders' rights and interests, which will not affect the independence of the Company. (2) Related entrusted management/contracting and entrusted management/outsourcing situation Table of entrusted management/contracting situation of the Company: Unit: RMB Name of Principal/Outsourcer Name of Trustee/Contractor Type of Entrusted/Contracted Assets Start Date of Entrusting/Contracting Termination Date of Entrusting/Contracting Pricing Basis for Custody Income/Contracting Income Custody Income/Contracting Income Recognized in Current Period Explanations on related custody/contracting situation The Company's Entrusted Management/Outsourcing Situation: Unit: RMB Name of Principal/Outsourcer Name of Trustee/Contractor Entrusted/Outsourced Asset Type Start Date of Entrusting/Outsourcing Termination Date of Entrusting/Outsourcing Pricing Basis for Custody Fee/Outsourcing Fee Custody Fee/Contracting Fee Recognized in Current Period Explanations on related management/outsourcing situation ZKTeco 2023 Annual Report 319 (3) Related leasing The Company as lessor: Unit: RMB Name of leasee Types of leased assets Confirmed rental income in the current period Rental income recognized in the previous period PT. ZKTECOSECURITY INDONESIA Houses and buildings 278,516.50178,667.91 The Company as lessee: Unit: RMB Name of lessor Types of leased assets Simplified rental fees for short-term leases and low value asset leases (if applicable) Variable lease payments not included in the measurement of lease liabilities (if applicable) Rent paid Interest expenses on lease liabilities assumed Increased right-of-use assets Amount incurred in the current period Amount incurred in the previous period Amount incurred in the current period Amount incurred in the previous period Amount incurred in the current period Amount incurred in the previous period Amount incurred in the current period Amount incurred in the previous period Amount incurred in the current period Amount incurred in the previous period Che Quanzhong Houses and buildings 17,500.00 1,282,566.121,039,994.8671,065.137,890.962,481,817.752,676,066.19 Xinhuaxin (Xi'an) Information Technology Co., Ltd. Houses and buildings 168,256.20109,000.002,461.2410,310.19 -189,265.21257,801.80 Total 17,500.00 1,450,822.321,148,994.8673,526.3718,201.152,292,552.542,933,867.99 Information of related leasing situation (4) Related guarantee As the guarantor, the Company Unit: RMB Guaranteed party Guarantee amount Guarantee start date Guarantee expiration date Has the guarantee been fulfilled As the guarantor, the Company Unit: RMB Guarantor Guarantee amount Guarantee start date Guarantee expiration date Has the guarantee been fulfilled Explanations on related party guarantees ZKTeco 2023 Annual Report 320 (5) Related party fund borrowing and lending Unit: RMB Related party Lending amount Start Date Due Date Remarks Borrowing Lending ZKTECO SOLUTIONSINC. March 28, 2021 December 31,2024 The subsidiary of the Company, ZKTECOCO., LIMITED, signed a loan agreement with ZKTECOSOLUTIONSINC. on March 29,2021, agreeing to provide a maximum loan of USD 240,000.00; on March 31,2021, the amount of the loan remitted was USD 50,000.00, with an exchange rate of 6.5713 for the loan on the same day, which was converted into RMB 328,565.00. Both parties agreed to repay the loan within 12 months after its expiration, with an interest rate of 3.00%. After the expiration, both parties will negotiate to extend until December 31,2024, and as of December 31,2023, ZKTeco SOLUTIONSINC. has repaid the loan. (6) Asset transfer and debt restructuring of related parties Unit: RMB Related party Content of related party transaction Amount incurred in the current period Amount incurred in the previous period (7) Compensation for key management personnel Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Remuneration of key management personnel 7,509,402.656,078,614.43 (8) Other related party transactions Transaction type Names of affiliated parties Amount incurred in the current period Amount incurred in the previous period Remarks Equity investment Xiamen Xingniu Yunyu Venture Capital Partnership Enterprise (Limited Partnership) 24,000,000.00 --- Note 1 Total 24,000,000.00 Note 1: On June 21,2023, the Company held the Third Session of the Third Board Meeting and the Third Session of the Third Supervisory Board Meeting, and deliberated and approved the "Proposal on Establishing Ecological Innovation Fund and Related Party Transactions through Cooperation with Professional Investment Institutions". It was agreed that the Company and related parties would invest in the establishment of an ecological innovation fund. The Company planned to contribute RMB 48 million, the related party Mr. Che Quanhong planned to contribute RMB 12 million, and other investors planned to contribute a total of RMB 60 million, with a total ZKTeco 2023 Annual Report 321 investment of RMB 120 million, to establish an ecological innovation fund, namely Xiamen Xingniu Yunyu Venture Capital Partnership Enterprise (Limited Partnership). As of December 31,2023, the Company has actually contributed RMB 24 million. 6. Accounts receivable and payable to related parties (1) Accounts receivable Unit: RMB Project Name Related party Ending Balance Beginning Balance Book balance Bad debt reserve Book balance Bad debt reserve Accounts receivable PT. ZKTECOSECURITY INDONESIA 4,972,664.59499,062.114,038,062.35287,436.39 Accounts receivable TVCENLINEA.COMSA DECV 18,800,631.46940,031.57 Accounts receivable ZKTECOSMARTCITY (THAILAND) CO., LTD. 1,377,973.6168,898.68453,023.7622,651.19 Accounts receivable ZKTECOSOLUTIONS INC. 15,485,450.49859,347.7514,290,503.53714,525.18 Accounts receivable Guizhou Zhongjiang Intelligent Technology Co., Ltd. 334,800.21334,800.21334,800.21334,800.21 Accounts receivable PSDSECURITY, S.L. (formerly PROFESSIONAL SOFTWARE DEVELOPMENT,S.L.) 1,196,725.7359,836.292,833,385.37141,669.27 Other receivables Che Quanhong 131,771.27 Other receivables Guizhou Zhongjiang Intelligent Technology Co., Ltd. 397,428.70397,428.70397,428.70397,428.70 Other receivables Xinhuaxin (Xi'an) Information Technology Co., Ltd. 31,395.00 Other receivables Yang Xianfeng 28,208.34 Other receivables ZKTECOSOLUTIONS INC. 366,547.8736,132.41 Other receivables Liu Jiajia 20,893.80 (2) Accounts payable Unit: RMB Project Name Related party Closing book balance Opening book balance Accounts payable TVCENLINEA.COMSADECV 428,030.88 Accounts payable ZKTECOSMARTCITY (THAILAND) CO., LTD.26,708.721,379.34 Accounts payable Xinhuaxin (Xi'an) Information Technology Co., Ltd. 268,420.07 Other payables PSDSECURITY, S.L.8,079.96 Other payables Shenzhen Huijiang Industrial Group Co., Ltd.1,800,000.001,800,000.00 ZKTeco 2023 Annual Report 322 Other payables Wu Xinke 61,071.1618,525.84 Other payables Wu Xiongxiong 62,109.13 Other payables PT. ZKTECOSECURITYINDONESIA 295,856.20 Contract liabilities CVSquared,Inc.1,275,140.001,275,140.00 Contract liabilities Silk IDSystems Inc.53,387.0652,496.86 7. Commitments of related parties None. 8. Others None. XV. Share-based Payment 1. Overall information of share-based payment Applicable □ Not applicable Unit: RMB Grant object category Current grant Current exercise Unlocked in current period Expired in current period Quantity Amount Quantity Amount Quantity Amount Quantity Amount Directors, senior managers, middle managers and core technology (business) backbone employees of the Company (including branches and subsidiaries) 273,036.007,012,900.001,639,842.0032,928,027.361,639,842.0032,928,027.36136,608.002,760,866.69 Total 273,036.007,012,900.001,639,842.0032,928,027.361,639,842.0032,928,027.36136,608.002,760,866.69 Outstanding stock options or other equity instruments at the end of the period Applicable □ Not applicable Grant object category Outstanding stock options at the end of the period Outstanding other equity instruments at the end of the period Range of exercise price Remaining term of the contract Range of exercise price Remaining term of the contract Directors, senior managers, middle managers and core technology (business) backbone employees of the Company (including branches and subsidiaries) The exercise price for the first grant of stock options issued by the Company in 2022 is RMB 14.12 per share, while the exercise price for the reserved grant of stock options issued by the Company in The remaining term of the share option contracts issued by the Company for the first time in 2022 is from January 1,2024 to November 16,2024. The remaining term of the share option ZKTeco 2023 Annual Report 323 2022 is RMB 14.12 per share. contracts issued by the Company for the reserved grant in 2022 is from January 1,2024 to June 21,2025. Other explanations: According to the authorization of the second extraordinary general meeting of shareholders in 2022, the Company held the Third Session of the Third Board Meeting on June 21,2023, and deliberated and approved the "Proposal on Adjusting the Granting Price and Quantity of 2022 Restricted Share Incentive Plan", "Proposal on Cancelling Some Granted but Not Affiliated Restricted Shares", and "Proposal on Granting Reserved Restricted Shares to the Incentive Objects of 2022 Restricted Share Incentive Plan". Considering that the Company has announced the implementation of the 2022 annual equity distribution, corresponding adjustments have been made to the grant price and number of restricted shares in the 2022 restricted share incentive plan. The initial and reserved grant prices have been adjusted from RMB 18.70 per share to RMB 14.12 per share, and the number of restricted shares granted for the first time has been adjusted from 2.6559 million shares to 3.45267 million shares. The number of reserved restricted shares that are granted has been adjusted from 210,028 shares to 273,036 shares. At the same time, the reserved grant conditions stipulated in the 2022 restricted share incentive plan of the Company have been met. The Board of Directors has agreed to determine June 21,2023 as the reserved grant date, and has agreed to grant 273,036 restricted shares to 46 incentive objects who meet the grant conditions. On November 10,2023, the Company held the 7th Session of the Third Board Meeting and the 7th Session of the Third Supervisory Board Meeting, and deliberated and approved the "Proposal on the Achievement of the Attribution Conditions for the First Attribution Period of the 2022 Restricted Share Incentive Plan". To handle the attribution related matters for 466 eligible incentive objects,1,639,842 restricted shares can be attributed. Whereas ① Yang Xianfeng, the incentive object, was elected as the Supervisor of the Company on April 7, 2023, and according to relevant regulations, the Supervisor cannot be the incentive object, the total number of 7,020 Class II restricted shares granted to him but not yet attributed shall not be attributed and shall be invalidated by the Company; ② Among the incentive objects,29 of them do not meet the incentive qualifications due to resignation. The corresponding 124,670 shares of Class II restricted shares that have been granted but have not yet been attributed cannot be attributed and will be invalidated by the Company; ③ In the 2023 individual level performance assessment, 6 incentive objects were evaluated as "D-unqualified", and their corresponding total of 1,170 restricted shares for the year were not attributable and were invalidated by the Company; ④ For the first grant of incentive objects,10 incentive objects voluntarily relinquish part or all of the restricted share rights granted by the Company during the first attribution period due to personal reasons. All 3,748 restricted shares that have been granted but have not yet been attributed shall not be attributed and shall be invalidated by the Company. (Note: The number of invalidated shares as mentioned above is the number of shares adjusted according to the Company's 2023 equity distribution proposal.) 2. Equity settled share-based payments Applicable □ Not applicable ZKTeco 2023 Annual Report 324 Unit: RMB Method for determining the fair value of equity instruments on the grant date Determination of Fair Value Based on the Black Scholes Model Basis for Determining the Number of Exercisable Equity Instruments On each balance sheet date during the waiting period, the Company predicts based on the latest number of exercisable rights, completion of performance indicators, personal assessment status, and other subsequent information Reasons for significant differences between the current estimate and the previous estimate None Accumulated amount of equity settled share-based payments recognized in capital reserve 41,919,246.09 The total amount of expenses recognized for equity settled share-based payments in this period 37,285,356.91 Other explanations: On November 16,2022, the Company held the 21st Session of the Second Board Meeting, and deliberated and approved the "Proposal on Granting Restricted Share to Incentive Objects of 2022 Restricted Share Incentive Plan for the First Time". The independent directors of the Company expressed relevant opinions on this matter, and believed that the conditions for granting stipulated in the Company's incentive plan had been met, the determined grant date was in line with relevant regulations, the scope of incentive objects stipulated in the Company's restricted share incentive plan, and its subject qualification as the incentive object of the Company's restricted share incentive plan was legal and effective. The Board of Supervisors verified the list of incentive objects granted on the grant date and issued verification opinions. On June 21,2023, the Company held the Third Session of the Third Board Meeting, and deliberated and approved the "Proposal on Adjusting the Granting Price and Quantity of 2022 Restricted Share Incentive Plan", "Proposal on Cancelling Some Granted but Not Affiliated Restricted Shares", and "Proposal on Granting Reserved Restricted Shares to the Incentive Objects of 2022 Restricted Share Incentive Plan". The independent directors of the Company have expressed relevant opinions on this matter, believing that the grant date complies with the relevant provisions of the "Management Measures" and the Company's restricted share incentive plan on the grant date. The Company and the incentive objects of reserved grant have not experienced any circumstances where rights and interests cannot be granted, and the grant conditions stipulated in the Company's incentive plan have been met. The Board of Supervisors verified the list of incentive objects granted on the grant date and issued verification opinions. 3. Cash settled share-based payments □ Applicable Not applicable 4. Share-based payment fees in the current period Applicable □ Not applicable Unit: RMB Grant object category Equity settled share-based payment fees Cash settled share-based payment fees Directors, senior managers, middle 37,285,356.91 ZKTeco 2023 Annual Report 325 managers and core technology (business) backbone employees of the Company (including branches and subsidiaries) Total 37,285,356.91 Other explanations: 5. Modification and termination of share-based payment Considering that the Company has announced the implementation of the 2022 annual equity distribution, corresponding adjustments have been made to the grant price and number of restricted shares in the 2022 restricted share incentive plan. The initial and reserved grant prices have been adjusted from RMB 18.70 per share to RMB 14.12 per share, and the number of restricted shares granted for the first time has been adjusted from 2.6559 million shares to 3.45267 million shares. The number of reserved restricted shares that are granted has been adjusted from 210,028 shares to 273,036 shares. 6. Others None. XVI. Commitments and Contingencies 1. Significant commitments Significant commitments on the balance sheet date There are no significant commitments that need to be disclosed by the Company. 2. Contingencies (1) Significant contingencies on the balance sheet date Contingencies arising from pending litigation or arbitration and their financial impact 1) Lease contract dispute with Guizhou Yiyun Big Data Service Co., Ltd. The associate of the Company, Guizhou Zhongjiang Intelligent Technology Co., Ltd., has been sued for a leasing dispute with Guizhou Yiyun Big Data Service Co., Ltd. As of the date of approval for the financial statements, this case has been adjudicated in the second instance and is currently in the application for compulsory enforcement. The controlling subsidiary of the Company, Shenzhen Zhongjiang Intelligent Technology Co., Ltd. and He Siting, as a shareholder of Guizhou Zhongjiang Intelligent Technology Co., Ltd., bear joint and several liability, with a litigation amount of ① RMB 501,307.00 and the penalty for overdue payment (based on unpaid rent and calculated ZKTeco 2023 Annual Report 326 at an annual interest rate of 3.85%, from April 23,2020 to the date when the rent is fully paid); ② Pay a rent free period loss of RMB 100,000.00. As of the date of approval for these financial statements, the controlling subsidiary of the Company, Shenzhen Zhongjiang Intelligent Technology Co., Ltd., has become insolvent and the Company is currently applying for compulsory liquidation. Except for the above contingencies, as of December 31,2023, the Company does not have other important contingencies that should be disclosed but not disclosed. (2) The Company shall also provide a description if there are no important contingencies that need to be disclosed There are no significant contingencies that need to be disclosed by the Company. 3. Others XVII. Events after the Balance Sheet Date 1. Important non adjustment matters Unit: RMB Item Content Number of impacts on financial position and operating results The reason for the inability to estimate the number of impacts 2. Profit distribution Proposed distribution of dividends per 10 shares (RMB) 4.50 Proposed distribution of bonus shares per 10 shares (share) 0 Proposed distribution of additional shares converted from capital reserves per 10 shares (share) 0 Profit distribution proposal The Company plans to distribute cash dividends of RMB 4.5 (including tax) per 10 shares to all shareholders based on the total share capital deducted from the repurchased shares in the Company's repurchase special account on the registration date of equity distribution. No bonus shares will be given, and no capital reserve will be converted into share capital. The remaining undistributed profits will be carried forward to future years. As of April 22,2024, the total share capital of the Company is 194,679,508 shares.2,230,000 shares have been repurchased in the Company's repurchase account, and the total amount of cash dividends planned to be distributed for 2023 is RMB 86,602,278.60 (including tax). The proposal still needs to be reviewed and approved by the Board of Shareholders. If there is a change in the total amount of the Company's share capital or shares in the repurchase special account from the approval of the profit distribution ZKTeco 2023 Annual Report 327 proposal by the Board of Directors and the Board of Shareholders to the implementation, the Company will adjust the distribution proposal accordingly according to the principle of "fixed total cash dividends". 3. Explanations on other events after the balance sheet date XVIII. Other Important Events 1. Other important transactions and matters that have an impact on investors' decisions (1) ZKTeco filed a lawsuit against Zhongan Intelligent Control, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen on a loan contract dispute On July 31,2019, the Company filed a lawsuit against Shenzhen Zhongan Intelligent Control Technology Co., Ltd. (hereafter referred to as "Zhongan Intelligent Control"), Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen in the Third People's Court of Dongguan City, Guangdong Province on a loan contract dispute, requesting judgment that Zhongan Intelligent Control repay the loan of RMB 7,757,380.00 and pay interest of RMB 262,560.75 (calculated from April 1,2019 at an annual interest rate of 8.70% and temporarily recorded until July 31,2019); request judgment that Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen bear joint and several payment responsibilities for the loan and interest; request that Zhongan Intelligent Control, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen pay an attorney fee of RMB 240,000.00, a guarantee fee of RMB 8,200.00, and all legal costs in this case in the judgment. The cause of action was in December 2017. Zhongan Intelligent Control borrowed RMB 7,000,000.00 from the Company for business development reasons, with a repayment deadline of May 9,2018. Afterwards, Zhongan Intelligent Control was unable to repay the aforementioned loan, and after negotiation, the repayment date was changed to January 10,2019. In October 2018, due to a shortage of working capital, Zhongan Intelligent Control proposed to advance the mold opening fee of RMB 757,380.00 to the Company, and the Company once again provided a loan of RMB 757,380.00 to Zhongan Intelligent Control. In April 2019, the Company signed a supplementary agreement with Zhongan Intelligent Control, stipulating that the loan and interest would be repaid on a monthly basis starting from April 2019. Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen would bear unlimited joint and several guarantee liability. After the contract was signed, Zhongan Intelligent Control did not repay on time. The case has been accepted by the Third People's Court of Dongguan City, Guangdong Province. The case number is (2019) Y 1973 MCNo.12578. On October 31,2020, Zhongan Intelligent Control was sentenced to repay the loan of RMB 7,757,380.00 and interest (with RMB 7,757,380.00 as the principal, calculated at an annual interest rate of 8.70% from April 1,2019 to the actual payment date). Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen ZKTeco 2023 Annual Report 328 bear joint and several liability for the repayment of the above-mentioned debt scope. At the same time, Zhongan Intelligent Control shall bear the actual attorney fee of RMB 240,000.00 and preservation and guarantee service fees of RMB 8,200.00 in this lawsuit. On October 29,2020, the People's Court of Longgang District, Shenzhen City, Guangdong Province accepted the bankruptcy liquidation case of Zhongan Intelligent Control, with case number (2020) Y 0307 PSNo.33, and designated the bankruptcy administrator for the case. According to the (2020) Y 0307 PNo.30-1 "Civil Ruling" issued by the People's Court of Longgang District, Shenzhen on May 14,2021, it was determined to confirm the creditor's rights recorded in the "Debt Statement of Shenzhen Zhongan Intelligent Control Technology Co., Ltd.", and the amount of the Company's ordinary creditor's rights was RMB 9,150,710.78. On July 2,2021, the People's Court of Longgang District, Shenzhen City issued the (2020) Y 0307 PNo.30-4 "Civil Ruling", declaring Zhongan Intelligent Control's bankrupcy; on July 14,2021, the People's Court of Longgang District, Shenzhen City issued the (2020) Y 0307 PNo.30-5 "Civil Ruling", approving the bankruptcy property distribution proposal of Zhongan Intelligent Control. After the completion of the bankruptcy property distribution proposal, the assets under the name of Zhongan Intelligent Control were insufficient to repay all of its debts, and the Company did not receive repayment. On July 20,2021, the People's Court of Longgang District, Shenzhen City, Guangdong Province issued the (2020) Y 0307 PNo.30-8 "Civil Ruling", ruling to terminate the bankruptcy proceedings of Zhongan Intelligent Control. As of the date of approval of the financial report, Zhongan Intelligent Control has not yet been deregistered. (2) ZKTeco filed a lawsuit against Zhikongtaike, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen in the case on equity transfer dispute On July 31,2019, the Company filed a lawsuit against Shenzhen Zhikongtaike Biometric Technology Co., Ltd. (hereinafter referred to as "Zhikongtaike"), Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen in a dispute over equity transfer with the Third People's Court of Dongguan City, Guangdong Province, requesting that Zhikongtaike pay the remaining equity transfer fee of RMB 2,500,000.00 and interest of RMB 84,616.44 (calculated from April 1, 2019 at an annual interest rate of 8.70% and temporarily recorded until July 31,2019), as well as liquidated damages of RMB 1,020,000.00 for non fulfillment of the agreement; request a judgment that Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen bear joint and several payment responsibilities for the loan, interest, and liquidated damages; request the judgment that Zhikongtaike, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen pay the attorney fee of RMB 110,000.00, the guarantee fee of RMB 3,600.00, and all legal costs in this case in the judgment. The cause of action was in August 2016, when the Company and Zhikongtaike jointly invested to establish Shenzhen Zhongan Intelligent Control Technology Co., Ltd. with a registered capital of RMB 10,000,000.00, the Company contributed RMB 5,100,000.00, holding 51.00% of the shares, and Zhikongtaike contributed RMB ZKTeco 2023 Annual Report 329 4,900,000.00, holding 49.00% of the shares. After the establishment of Shenzhen Zhongan Intelligent Control Technology Co., Ltd., due to conflicts between the Company's and Zhongan Intelligent Control's business philosophy, after mutual consultation, the Company withdrew from Shenzhen Zhongan Intelligent Control Technology Co., Ltd. and transferred its equity to Zhikongtaike. On April 22,2019, both parties signed an "Equity Transfer Agreement" and a "Guarantee Contract" on the transfer of equity. It was agreed that the Company would transfer its 51% equity to Zhikongtaike for RMB 5,100,000.00, and Zhikongtaike would pay RMB 2,600,000.00 in advance. The remaining RMB 2,500,000.00 would be paid and interest calculated over 21 months, and Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen would bear unlimited joint and several guarantee liability for the payable amount. After the contract was signed, both parties completed the equity transfer procedures as agreed, but Zhikongtaike did not make the remaining equity transfer payment as agreed. The case has been accepted by the Third People's Court of Dongguan City, Guangdong Province, with case number (2019) Y 1973 MCNo.12579. On October 13,2020, the court ruled that Zhikongtaike should pay the Company an equity transfer fee of RMB 2,500,000.00 and interest, as well as liquidated damages of RMB 1,020,000. Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen shall be jointly and severally liable for the above-mentioned debt scope. At the same time, Zhikongtaike, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen shall bear the attorney fee of RMB 110,000.00 in this lawsuit. On January 8,2021, the Company submitted an application for compulsory execution to the Third People's Court of Dongguan City, requesting the enforcement of the (2019) Y 1973 MCNo.12579 judgment against Zhikongtaike, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen. They shall repay the loan of RMB 2,500,000.00 and interest to the Company (with RMB 2,500,000.00 as the principal, calculated at an annual interest rate of 8.70% from April 1,2019 to the actual repayment date), and pay liquidated damages of RMB 1,020,000.00, the attorney fee of RMB 110,000.00, and the guarantee fee of RMB 3,600.00 to the Company, and double the debt interest during the delayed performance period. On June 24,2021, the Company reached an "Implementation Settlement Agreement" (hereinafter referred to as the "Original Agreement") with Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen, agreeing that Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen shall bear joint and several liability for the equity transfer payment of RMB 2,500,000.00 and interest (with RMB 2,500,000.00 as the principal, and calculated at an annual interest rate of 8.7% from April 1,2019) and liquidated damages of RMB 1,020,000 for Zhikongtaike to the Company within one year from the date of signing the settlement agreement. At the same time, they shall pay the attorney fee of RMB 110,000.00 and the guarantee fee of RMB 3,600.00. ZKTeco 2023 Annual Report 330 The Company submitted an Implementation Settlement Agreement for compulsory measures against Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen to the Third People's Court of Dongguan City, Guangdong Province. On July 21,2021, the Company applied to withdraw the enforcement application against Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen. On the same day, the Third People's Court of Dongguan City, Guangdong Province issued an enforcement notice (2021) Y 1973 ZNo.3006 to the Company, informing that the Company had not yet discovered any other property available for enforcement in Zhikongtaike, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen. The court requested the Company to provide it with property clues available for enforcement within three days after receiving the enforcement notice, and if it failed to provide them within the time limit and did not provide other opinions in writing, the execution procedure would be terminated. On September 9,2021, the Company received the (2021) Y 1973 ZNo.3006-1 document of ruling issued by the Third People's Court of Dongguan City, Guangdong Province on July 22,2021, ruling to terminate this execution procedure. On June 24,2022, the Company signed a settlement extension agreement with Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen, agreeing to extend the payment term by 6 months on the basis of the Original Agreement. Before December 24,2022, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen shall pay all the payable amounts to the Company. The debt interest during the delayed performance period shall be subject to the Original Agreement. If Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen fail to fulfill their payment obligations on time, the Company has the right to apply to the court to resume compulsory enforcement measures against them. On December 24,2022, the Company signed a settlement extension agreement with Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen, agreeing to extend the payment term by 1 year on the basis of the Original Agreement. Before December 24,2023, Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen shall pay all the payable amounts to the Company. The debt interest during the delayed performance period shall be subject to the Original Agreement. If Liu Yuntian, Yan Pingjin, Zhang Peng, and Wang Gen fail to fulfill their payment obligations on time, the Company has the right to apply to the court to resume compulsory enforcement measures against them. 2. Others XIX. Notes to Main Items in the Financial Statements of the Parent Company 1. Accounts receivable (1) Disclosure by aging Unit: RMB Aging Closing book balance Opening book balance ZKTeco 2023 Annual Report 331 Within 1 year (including 1 year) 561,799,833.99584,084,680.04 1-2 years 119,294,578.247,182,125.21 2-3 years 2,319,840.33987,195.33 Over 3 years 2,226,726.861,397,263.74 3-4 years 919,305.4570,004.12 4-5 years 59,185.72700,525.86 Over 5 years 1,248,235.69626,733.76 Total 685,640,979.42593,651,264.32 (2) Disclosure by bad debt accrual method Unit: RMB Category Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Amount Proportion Amount Accrual proportion Amount Proportion Amount Accrual proportion Accounts receivable with individual provision for bad debts 5,262,403.880.77% 4,246,403.8880.69% 1,016,000.003,224,671.150.54% 3,224,671.15100.00% Including: Accounts receivable with insignificant single amount and bad debt reserve withdrawn separately 5,262,403.880.77% 4,246,403.8880.69% 1,016,000.003,224,671.150.54% 3,224,671.15100.00% Receivable with combined provision for bad debt reserve 680,378,575.5499.23% 6,625,955.690.97% 673,752,619.85590,426,593.1799.46% 5,532,259.480.94% 584,894,333.69 Including: Related party portfolio 566,000,672.0582.55% 566,000,672.05492,232,071.1182.92% 492,232,071.11 Aging portfolio 114,377,903.4916.68% 6,625,955.695.79% 107,751,947.8098,194,522.0616.54% 5,532,259.485.63% 92,662,262.58 Total 685,640,979.42100.00% 10,872,359.571.59% 674,768,619.85593,651,264.32100.00% 8,756,930.631.48% 584,894,333.69 Bad debt reserve made individually: 4,246,403.88 Unit: RMB Name Beginning Balance Ending Balance Book balance Bad debt reserve Book balance Bad debt reserve Accrual proportion Reasons for provision Hainan Jialing Digital Technology Co., Ltd. 0.000.002,032,000.001,016,000.0050.00% Expected non-recoverable Shanghai Leqi Automation Technology Co., Ltd. 490,186.63490,186.63521,950.00521,950.00100.00% Expected non-recoverable Noble ITSolutions Co., Ltd 408,557.71408,557.71415,485.70415,485.70100.00% Expected non-recoverable ZKTeco 2023 Annual Report 332 Zicom Electronic Securit 365,258.45365,258.45371,452.20371,452.20100.00% Expected non-recoverable Shenzhen Xuhui Information Technology Co., Ltd. 326,350.00326,350.00326,350.00326,350.00100.00% Expected non-recoverable Gansu Fourth Construction Group Co., Ltd. 224,676.00224,676.00224,676.00224,676.00100.00% Expected non-recoverable VENDEMMIA COMERCIO INTERNACIONAL LTDA 197,665.93197,665.93201,017.79201,017.79100.00% Expected non-recoverable Tianjin Eagle Eye Biotechnology Co., Ltd. 193,330.00193,330.00178,130.00178,130.00100.00% Expected non-recoverable Hainan Zhongkong IOTTechnology Co., Ltd. 176,179.00176,179.00176,689.00176,689.00100.00% Expected non-recoverable Wanqiao Information Technology Co.,Ltd. 165,900.00165,900.00165,900.00165,900.00100.00% Expected non-recoverable Baoneng Urban Development and Construction Group Co., Ltd. 155,292.00155,292.00155,292.00155,292.00100.00% Expected non-recoverable PONTORHJEIRELI - ME 98,393.1598,393.15100,061.62100,061.62100.00% Expected non-recoverable Guizhou Zhongjiang Intelligent Technology Co., Ltd. 77,919.4677,919.4677,919.4677,919.46100.00% Expected non-recoverable Qianxinan Mengku Business Service Co., Ltd. 74,672.0074,672.0074,672.0074,672.00100.00% Expected non-recoverable INTELLISMART TECHNOLOGYINC. 73,253.6673,253.6674,495.8474,495.84100.00% Expected non-recoverable Dongguan Yukong Security Technology Co., Ltd. 53,703.0053,703.0053,703.0053,703.00100.00% Expected non-recoverable KWKCELLPHONE ANDACCESSORIES 36,880.4136,880.4137,505.8037,505.80100.00% Expected non-recoverable Iss Facility Services (Shanghai) Ltd. 28,152.0028,152.0028,152.0028,152.00100.00% Expected non-recoverable ELECTRONICA GHANALIMITED 0.000.0022,911.4722,911.47100.00% Expected non-recoverable Nanjing Xianji Technology Co., Ltd. 31,850.0031,850.0015,570.0015,570.00100.00% Expected non-recoverable Gansu Liujiaxia Construction and Installation Engineering Co., Ltd. Linxia Branch 0.000.006,490.006,490.00100.00% Expected non-recoverable Guangdong Pinjun Express Co., Ltd. 0.000.001,980.001,980.00100.00% Expected non-recoverable Entropy Electronic Technology Yangzhou Co., Ltd. 31,122.6631,122.66 Others 15,329.0915,329.09 Total 3,224,671.153,224,671.155,262,403.884,246,403.88 Bad debt reserve made by portfolio: 6,625,955.69 Unit: RMB Name Ending Balance ZKTeco 2023 Annual Report 333 Book balance Bad debt reserve Accrual proportion Within 1 year 105,382,270.695,269,113.545.00% 1-2 years 7,936,199.83793,619.9910.00% 2-3 years 708,872.59212,661.7830.00% Over 3 years 350,560.38350,560.38100.00% Total 114,377,903.496,625,955.69 Explanations on the basis for determining the portfolio: Provision for bad debts by combination: Unit: RMB Name Ending Balance Book balance Bad debt reserve Accrual proportion Related party portfolio 566,000,672.05 Aging portfolio 114,377,903.496,625,955.695.79% Total 680,378,575.546,625,955.69 Explanations on the basis for determining the portfolio: If the bad debt reserve of accounts receivable is made according to the general model of expected credit losses: □ Applicable Not applicable (3) Bad debt reserves withdrawn, recovered or reversed in the current period Provision for bad debt reserves in current period: Unit: RMB Category Beginning Balance Current period change amount Ending Balance Provision Return or reversal Redeem/redemption Others Accounts receivable with insignificant single amount and bad debt reserve withdrawn separately 3,224,671.15964,160.3930,685.8631,916.80 -120,175.004,246,403.88 Accounts receivable with significant individual amounts and separate provision for bad debt reserves Accounts receivable with consolidated provision for bad debt 5,532,259.481,275,680.7661,809.55 120,175.006,625,955.69 ZKTeco 2023 Annual Report 334 reserves according to the credit risk characteristics Total 8,756,930.632,239,841.1592,495.4131,916.80 10,872,359.57 The amount of bad debt reserves recovered or reversed in the current period is significant: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves (4) Actual verification of accounts receivable in the current period Unit: RMB Item Write-off amount Accounts receivable actually written off 31,916.80 Important accounts receivable verification status: Unit: RMB Company name Nature of accounts receivable Write-off amount Write-off reason Verification and cancellation programs that have been performed Whether the payment is incurred due to related transactions Entropy Electronic Technology Yangzhou Co., Ltd. Goods payment 31,916.80 Nonrecoverable No Total 31,916.80 Explanations on accounts receivable verification: (5) Accounts receivable and contract assets from top five borrowers classified based on the ending balance Unit: RMB Company name Ending balance of accounts receivable Ending balance of contract assets Ending balance of accounts receivable and contract assets Proportion in the total ending balance of accounts receivable and contract assets Ending balance of bad debt reserves for accounts receivable and impairment provision for contract assets Customer 1322,103,055.77 322,103,055.7746.96% Customer 291,299,909.04 91,299,909.0413.31% Customer 328,398,539.91 28,398,539.914.14% Customer 421,903,309.82 21,903,309.823.19% Customer 519,494,312.74 19,494,312.742.84% ZKTeco 2023 Annual Report 335 Total 483,199,127.28 483,199,127.2870.44% 2. Other receivables Unit: RMB Item Ending Balance Beginning Balance Interest receivable 192,033.24122,433.25 Other receivables 58,943,385.9833,858,122.01 Total 59,135,419.2233,980,555.26 (1) Interest receivable 1) Classification of interest receivable Unit: RMB Item Ending Balance Beginning Balance Interest on related party loans 192,033.24122,433.25 Total 192,033.24122,433.25 2) Significant overdue interest Unit: RMB Borrower Ending Balance Overdue time Overdue reason Whether impairment occurred and its judgment basis Other explanations: 3) Bad debt reserves withdrawn, recovered or reversed in the current period Unit: RMB Category Beginning Balance Current period change amount Ending Balance Provision Return or reversal Write-off or cancellation Other changes The amount of bad debt reserves recovered or reversed in the current period is significant: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves Other explanations: ZKTeco 2023 Annual Report 336 4) Interests receivable actually written off in the current period Unit: RMB Item Write-off amount Information on important interests receivable verification Unit: RMB Company name Payment nature Write-off amount Write-off reason Verification and cancellation programs that have been performed Whether the payment is incurred due to related transactions Explanations on writing off: Other explanations: (2) Other receivables 1) Classification of other receivables based on nature of payment Unit: RMB Payment nature Closing book balance Opening book balance Current account 55,874,629.3226,728,933.46 Guarantee deposit 1,865,135.741,910,792.36 Reserve funds and loans 3,250,242.133,231,834.22 Collection and payment on behalf of others 1,863,217.32286,952.43 Withholding and paying social security and capital reserve on behalf of others 1,032,014.38960,569.04 Export tax refund 3,537,610.999,631,295.37 Others 477,297.03 Total 67,900,146.9142,750,376.88 2) Disclosure by aging Unit: RMB Aging Closing book balance Opening book balance Within 1 year (including 1 year) 41,743,089.7215,916,616.20 1-2 years 13,945,238.2914,792,826.76 2-3 years 715,606.32409,311.13 Over 3 years 11,496,212.5811,631,622.79 3-4 years 257,284.302,747,578.23 4-5 years 2,637,357.008,133,140.36 Over 5 years 8,601,571.28750,904.20 Total 67,900,146.9142,750,376.88 3) Disclosure by bad debt accrual method Unit: RMB ZKTeco 2023 Annual Report 337 Category Ending Balance Beginning Balance Book balance Bad debt reserve Book value Book balance Bad debt reserve Book value Amount Proportion Amount Accrual proportion Amount Proportion Amount Accrual proportion Withdrawing bad debt reserves by individual item 10,645,126.3715.68% 8,884,636.8883.46% 1,760,489.4910,599,744.3624.79% 8,839,254.8783.39% 1,760,489.49 Including: Bad debt reserve withdrawn by portfolio 57,255,020.5484.32% 72,124.050.13% 57,182,896.4932,150,632.5275.21% 53,000.000.16% 32,097,632.52 Including: Related party portfolio 45,178,889.6166.54% 45,178,889.6116,080,112.2837.62% 16,080,112.28 Portfolio of deposits, security deposits, employee loans, etc. 11,640,649.9317.14% 11,640,649.9316,017,520.2437.47% 16,017,520.24 Aging portfolio 435,481.000.64% 72,124.0516.56% 363,356.9553,000.000.12% 53,000.00100.00% Total 67,900,146.91100.00% 8,956,760.9313.19% 58,943,385.9842,750,376.88100.00% 8,892,254.8720.80% 33,858,122.01 Bad debt reserve made individually: 8,884,636.88 Unit: RMB Name Beginning Balance Ending Balance Book balance Bad debt reserve Book balance Bad debt reserve Accrual proportion Reasons for provision Shenzhen Zhongan Intelligent Control Technology Co., Ltd. 7,772,552.266,012,062.777,772,552.266,012,062.7777.35% Expected non-recoverable Shenzhen Zhikongtaike Biometric Technology Co., Ltd. 2,500,000.002,500,000.002,500,000.002,500,000.00100.00% Expected non-recoverable Guizhou Zhongjiang Intelligent Technology Co., Ltd. 323,268.92323,268.92323,268.92323,268.92100.00% Expected non-recoverable Dongguan Zhenyu Hardware Products Co., Ltd. 42,305.4642,305.46100.00% Expected non-recoverable Shenzhen Xinyuantong Electronics Co., Ltd. 3,500.003,500.003,500.003,500.00100.00% Expected non-recoverable Shenzhen Shanjing Optics Co., Ltd. 1,839.601,839.60100.00% Expected non-recoverable ZKTeco 2023 Annual Report 338 Shenzhen Great-island Technology Co., Ltd. 456.00456.00100.00% Expected non-recoverable Wang Jinpeng 403.18403.18403.18403.18100.00% Expected non-recoverable Guilin Boyou Electronic Technology Co., Ltd. 400.95400.95100.00% Expected non-recoverable Shenzhen Mercedes Technology Co., Ltd. 380.00380.00100.00% Expected non-recoverable Liu Mingyang 20.0020.0020.0020.00100.00% Expected non-recoverable Total 10,599,744.368,839,254.8710,645,126.378,884,636.88 Bad debt reserve made by portfolio: 72,124.05 Unit: RMB Name Ending Balance Book balance Bad debt reserve Accrual proportion Related party portfolio 45,178,889.61 Portfolio of deposits, security deposits, employee loans, etc. 11,640,649.93 Aging portfolio 435,481.0072,124.0516.56% Total 57,255,020.5472,124.05 Explanations on the basis for determining the portfolio: Provision for bad debt reserve based on a general model of expected credit losses: Unit: RMB Bad debt reserve Stage 1 Stage 2 Stage 3 Total Expected credit loss in the future 12 months Expected credit loss within whole duration (no credit impairment occur) Expected credit loss within whole duration (credit impairment has occurred) Balance as of January 1,2023 53,000.00 8,839,254.878,892,254.87 Balance as of January 1,2023 in the current period Provision in current period 19,124.05 45,382.0164,506.06 Balance as of December 31,2023 72,124.05 8,884,636.888,956,760.93 Classification basis and bad debt reserve provision ratio for each stage Changes in book balance with major changes in loss reserves during the current period □ Applicable Not applicable 4) Bad debt reserves withdrawn, recovered or reversed in the current period Provision for bad debt reserves in current period: ZKTeco 2023 Annual Report 339 Unit: RMB Category Beginning Balance Current period change amount Ending Balance Provision Return or reversal Write-off or cancellation Others Other receivables with significant individual amounts and separate provision for bad debt reserves 6,012,062.77 6,012,062.77 Other receivables with provision for bad debt reserves based on a combination of credit risk characteristics 53,000.0019,124.05 72,124.05 Other receivables with insignificant individual amounts but separate provision for bad debt reserves 2,827,192.1045,382.01 2,872,574.11 Total 8,892,254.8764,506.06 8,956,760.93 The significant amount of bad debt reserves reversed or recovered in the current period: Unit: RMB Company name Accounts recovered or transferred back Reason for reversal Recovery method The basis and rationality for determining the provision ratio of original bad debt reserves 5) Other accounts receivable actually written off in the current period Unit: RMB Item Write-off amount Other major receivable written off: Unit: RMB Company name Nature of other accounts Write-off amount Write-off reason Verification and cancellation Whether the payment is ZKTeco 2023 Annual Report 340 receivable programs that have been performed incurred due to related transactions Explanations on writing off other receivables: No other accounts receivable actually written off in the current period. 6) Other accounts receivable with the top five ending balances collected by the debtor Unit: RMB Company name Nature of payment Ending Balance Aging Proportion to the total ending balance of other accounts receivable Ending balance of bad debt reserve No.1 Current account 31,256,738.98 Within 1 year 46.03% No.2 Current account 7,772,552.26 Over 3 years 11.45% 6,012,062.77 No.3 Current account 6,580,000.001-2 years 9.69% No.4 Export tax refund 3,537,610.99 Within 1 year 5.21% No.5 Current account 2,500,000.00 Over 3 years 3.68% 2,500,000.00 Total 51,646,902.23 76.06% 8,512,062.77 3. Long-term equity investment Unit: RMB Item Ending Balance Beginning Balance Book balance Impairment provision Book value Book balance Impairment provision Book value Investment in subsidiaries 1,249,046,481.87 1,249,046,481.87781,906,396.17 781,906,396.17 Investment in affiliated and joint ventures 24,000,000.00 24,000,000.00 Total 1,273,046,481.87 1,273,046,481.87781,906,396.17 781,906,396.17 (1) Investment in subsidiaries Unit: RMB Investee Beginning balance (book value) Beginning balance of impairment provision Increase or decrease in the current period Ending balance (book value) Ending balance of impairment provision Additional investment Reduced investment Impairment provision Others Shenzhen ZKTeco Biometric Identification Technology Co., Ltd. 12,608,518.14 0.0012,608,518.14 Hangzhou 2,011,694.58 67,603.342,079,297.92 ZKTeco 2023 Annual Report 341 ZKTeco Hanlian E-commerce Co., Ltd. ZKTeco CO., LIMITED 133,541,486.20 35,568,322.82 688,835.33169,798,644.35 XIAMEN ZKTeco CO., LTD. 100,650,998.35 4,903,988.85105,554,987.20 ZKTeco (GUANGDONG) CO., LTD 436,416,752.35 364,000,000.00 3,240,281.37803,657,033.72 ZKTeco Sales Co., Ltd. 133,778.92 20,000,000.00 1,040,141.3421,173,920.26 Xiamen ZKTeco Biometric Identification Technology Co., Ltd. 38,986,734.80 0.0038,986,734.80 ZKCserv Technology Limited Co., Ltd. 510,000.00 0.00510,000.00 Dalian ZKTeo CO., Ltd. 3,075,306.01 933,681.314,008,987.32 Xi'an ZKTeco Co., Ltd. 78,563.62 327,885.62406,449.24 Shenzhen Zhongjiang Intelligent Technology Co., Ltd. 5,100,000.00 0.005,100,000.00 Hubei ZKTeco Co., Ltd. 3,510,708.76 5,510.683,516,219.44 ZKTECOSG INVESTMENT PTE. LTD. 45,281,854.44 36,363,835.04 0.0081,645,689.48 Total 781,906,396.17 455,932,157.86 11,207,927.841,249,046,481.87 (2) Investment in affiliated and joint ventures Unit: RMB Investee Beginning balance (book value) Beginning balance of impairment provision Increase or decrease in the current period Ending balance (book value) Ending balance of impairment provision Additional investment Reduced investment Investment profit or loss recognized under equity method Other comprehensive income adjustments Changes in other equities Cash dividends or profits declared to pay Impairment provision Others I. Joint ventures II. Joint venture Xiamen Xingniu Yunyu Venture Capital 24,000,0 00.00 24,000,0 00.00 ZKTeco 2023 Annual Report 342 Partnership Enterprise (Limited Partnership) Subtotal 24,000,000.00 24,000,000.00 Total 24,000,000.00 24,000,000.00 The recoverable amount is determined based on the net amount after deducting disposal expenses from fair value □ Applicable Not applicable The recoverable amount is determined based on the present value of expected future cash flows □ Applicable Not applicable Reasons for significant discrepancies between the above information and the information or external information used in impairment tests of previous years Reasons for significant discrepancies between the information used in the Company's impairment tests of previous year and the actual situation of that year (3) Other explanations In the current period, a capital increase of RMB 35,568,322.82 was made to its subsidiary ZKTECOCO., LIMITED, RMB 364,000,000.00 was made to its subsidiary ZKTeco (Guangdong) Co., LTD, RMB 20,000,000.00 was made to its subsidiary ZKTeco Sales Co., Ltd., and RMB 36,363,835.04 was made to its subsidiary ZKTECOSG INVESTMENTPTE. LTD. Class II restricted share equity incentive amount of RMB 11,207,927.84 was granted to the incentive objects of the subsidiary. 4. Operating revenue and operating cost Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Revenue Cost Revenue Cost Main business 1,432,704,035.861,036,126,707.811,540,809,415.401,144,810,483.95 Other businesses 1,332,035.05 1,729,304.31 Total 1,434,036,070.911,036,126,707.811,542,538,719.711,144,810,483.95 Breakdown information of operating revenue and operating costs: Unit: RMB Contract classification Division 1 Division 2 Operating revenue Total Operating revenue Operating cost Operating revenue Operating cost Operating revenue Operating cost Operating revenue Operating cost Business type Including: ZKTeco 2023 Annual Report 343 Smart office products 211,069,861.57153,388,927.14211,069,861.57153,388,927.14 Smart entrance and exit management products 1,094,668,407.94780,220,971.411,094,668,407.94780,220,971.41 Smart identity verification products 126,965,766.35102,516,809.26126,965,766.35102,516,809.26 Others 1,332,035.05 1,332,035.05 Classification by region of operation Including: Domestic sales 623,936,577.02541,185,608.25623,936,577.02541,185,608.25 Overseas sales 810,099,493.89494,941,099.56810,099,493.89494,941,099.56 Market or customer type Including: Distribution 1,289,163,287.35936,468,996.901,289,163,287.35936,468,996.90 Direct sales 143,540,748.5199,657,710.91143,540,748.5199,657,710.91 Others 1,332,035.05 1,332,035.05 Type of contract Including: Classification by time of transfer of goods Including: Classification by contract term Including: ZKTeco 2023 Annual Report 344 Classification by sales channel Including: Total 1,434,036,070.911,036,126,707.811,434,036,070.911,036,126,707.81 Information related to performance obligations: Item Time for fulfilling performance obligations Important payment terms Nature of goods that the Company promises to transfer Is it the main responsible person Expected refunds to customers borne by the Company Types of quality assurance provided by the Company and related obligations Other explanations: Information related to the transaction price allocated to the remaining performance obligations: The corresponding income amount for performance obligations that have been signed but have not yet been fulfilled or completed at the end of this reporting period is RMB 0.00. Significant contract changes or significant transaction price adjustments Unit: RMB Item Accounting treatment method Amount of impact on income Other explanations: 5. Investment income Unit: RMB Item Amount incurred in the current period Amount incurred in the previous period Income from long-term equity investment accounted with cost method 24,000,000.0040,000,000.00 Investment income from financial products 1,274,435.30801,770.27 Forward foreign exchange settlement and sales contract -8,690,555.00 -6,488,400.00 Total 16,583,880.3034,313,370.27 6. Others XX. Supplementary Information 1. Detailed statement of non-recurring profits and losses in the current period Applicable □ Not applicable ZKTeco 2023 Annual Report 345 Unit: RMB Item Amount Remarks Losses and gains from disposal of non-current assets -626,426.46 Government subsidies included in current profits and losses (except those closely related to the normal business of the Company, which are in line with national policies and regulations, enjoyed according to determined standards, and have a continuous impact on the Company's profits and losses) 6,119,808.45 Profits and losses from fair value changes arising from the holding of financial assets and financial liabilities by non-financial enterprises, as well as the gains and losses arising from the disposal of financial assets and financial liabilities except for effective hedging business related to the normal operation of the Company -2,644,568.64 Mainly due to investment gains and losses and changes in fair value generated by partial forward exchange settlement to hedge against exchange rate fluctuations risk Capital occupancy fees charged to non-financial enterprises included in current profits and losses 50,222.65 Reversal of the provision on receivables with impairment test conducted on an individual basis 239,389.68 Other non-operating revenue and expenses other than the above items -4,210,700.05 Mainly due to material losses and other extraordinary losses Less: income tax impact -281,003.45 Minority interest impact (after tax) 67,892.57 Total -859,163.49 -- Details of other profit and loss items that meet the definition of non-recurring profits and losses: □ Applicable Not applicable The Company does not have other specific conditions of profit and loss items that meet the definition of non-recurring profits and losses. Explanations on classifying any non-recurring gain/loss item mentioned in the "Explanatory Announcement for Information Disclosure by Companies that Issue Securities to the Public No.1 - Non-recurring Gains and Losses" as recurring gain/loss item □ Applicable Not applicable 2. Net return on assets and EPS Profit during the reporting period Weighted average return on net assets EPS Basic EPS (RMB/share) Diluted EPS (RMB/share) Net profit attributable to common shareholders of the Company 5.63% 0.91760.9133 Net profit attributable to common shareholders of the Company after deducting non-recurring profits and losses 5.66% 0.92210.9178 ZKTeco 2023 Annual Report 346 3. Differences in accounting data under domestic and foreign accounting standards (1) Differences in net profit and net assets in financial reports disclosed in accordance with international accounting standards and Chinese accounting standards □ Applicable Not applicable (2) Differences in net profit and net assets in financial reports disclosed in accordance with foreign accounting standards and Chinese accounting standards □ Applicable Not applicable (3) Explanations on the reasons for differences in accounting data between domestic and foreign accounting standards. If differences in data audited by an overseas audit institution have already been adjusted, the name of the overseas institution shall be indicated □ Applicable Not applicable