Zhejiang Reclaim Construction Group Co.Ltd(002586) : Reply of zhongxinghua Certified Public Accountants (special general partnership) on Zhejiang Reclaim Construction Group Co.Ltd(002586) company Department attention letter [2022] No. 129

Zhongxinghua Certified Public Accountants (special general partnership) Z Ho ngxi ng Hua CE RT if I E D P UB l i c acco untant s l LP address: 20 / F, 20 / F, Tower B, Lize SOHO, 20 Lize Road, Fengtai District, Fengtai District, Beijing, Beijing PR China Tel (t e l): 0 1 0 – 5 1 4 2 3 8 1 8 fax (f a x): 0 1 0 – 5 1 4 2 3 8 1 6 about Zhejiang Reclaim Construction Group Co.Ltd(002586)

Company Department attention letter [2022] No. 129

Reply

Listed company management department I of Shenzhen Stock Exchange:

Your letter of concern on Zhejiang Reclaim Construction Group Co.Ltd(002586) (company department concern letter [2022] No. 129) transferred from Zhejiang Reclaim Construction Group Co.Ltd(002586) (hereinafter referred to as “company” or “Waihai shares”) has been received. According to your requirements, Zhongxinghua Certified Public Accountants (special general partnership) (hereinafter referred to as “we” or “accountant”) replied to the relevant questions raised by your department in the letter of concern that we need to express our opinions as follows:

2. On January 12, 2022, your company disclosed the announcement on the rectification report of Ningbo Securities Regulatory Bureau on taking administrative supervision measures against the company. Your company confirmed that the actual time point of Shanghai Millennium out of control was May 15, 2020, and one of the independent directors abstained from voting on the relevant proposals of the rectification report. The performance forecast shows that your company determines that it will resume control over Shanghai millennium on December 31, 2021, and takes the financial statements of Shanghai millennium from the date of obtaining control to the end of 2021 as the preparation basis. There is no amount in the income statement and cash flow statement of Shanghai millennium from the date of obtaining control to the end of the reporting period. The board of directors of your company is requested to conduct a detailed analysis and demonstration on the adequacy and prudence of confirming the actual time point of Shanghai Millennium out of control in combination with the opinions of relevant independent directors, and explain whether the financial data in the early stage of Shanghai Millennium out of control determined by your company should be included in the scope of your company’s consolidated financial statements, and whether the restoration of control matters involve the retrospective adjustment of the financial data of previous years, Whether the relevant accounting treatment complies with the provisions of the accounting standards for business enterprises. The annual audit accountant shall check and give opinions.

Accountant’s opinion:

We reviewed the relevant materials, implemented the verification procedures and replied to the attention letter of Waihai shares: 1. On May 6, 2020, Waihai shares sent a letter to the Shanghai Millennium board of directors to request the convening of the first extraordinary general meeting of shareholders of Shanghai Millennium 2020. On May 15, 2020, the Shanghai Millennium board of directors replied that it did not agree to convene the first extraordinary general meeting of shareholders of Shanghai Millennium 2020.

When Weihai shares acquired Shanghai millennium, it made arrangements for the members of the board of directors of Shanghai millennium. Weihai shares nominated three and the performance commitment party nominated two. Therefore, after the acquisition, Weihai shares occupied three seats in the board of directors of Shanghai millennium and can control the board of directors. However, at the Shanghai Millennium board of directors held on May 11, 2020, the two directors who should represent Waihai Co., Ltd. voted in favour of the “proposal on disapproving the holding of the first extraordinary general meeting of shareholders in 2020” of the Shanghai Millennium board of directors, which led to the adoption of the proposal, The board of directors of Shanghai Millennium made a clear resolution contrary to that of major shareholders, indicating that Weihai shares has lost control of the board of directors of Shanghai millennium.

2. It is impossible to know the real financial situation of Shanghai’s enterprises after the millennium and may 2020, so that it is impossible to judge the real financial situation of Shanghai’s enterprises after the millennium and may 2020.

3. On July 25, 2020, the Shanghai Millennium board of supervisors held the first extraordinary general meeting of shareholders of Shanghai Millennium 2020.

4. On August 3, 2020, Waihai Co., Ltd. held the first extraordinary general meeting of shareholders of Shanghai Millennium 2020, which deliberated and passed the following matters: Amending the articles of association, re electing the board of directors and the board of supervisors, and reissuing a new seal. However, according to the judgment of Shanghai Minhang District People’s court, the resolution of the Shanghai Millennium general meeting of shareholders convened by the Shanghai Millennium board of supervisors on July 25, 2020 is valid, and the resolution of the Shanghai Millennium general meeting of shareholders convened by Weihai shares on August 3, 2020 is invalid, that is, the resolutions on Amending the articles of association, electing the board of directors and the board of supervisors, replacing the business license with a new seal and other motions considered and adopted are invalid.

5. Convened by Weihai Co., Ltd., the first extraordinary general meeting of shareholders in 2021 was presided over by Shanghai Millennium board of supervisors on September 25, 2021, which considered and approved the re-election of the board of directors and the board of supervisors. However, on behalf of Shanghai Millennium Engineering Investment Management Co., Ltd. and Zhong Chengrong, some shareholders of Shanghai Millennium Engineering Investment Management Co., Ltd. made it clear in writing on October 11, 2021 that they would not cooperate with the amendment of the articles of association, the industrial and commercial filing of directors, supervisors and senior executives and the handover of relevant work.

In conclusion, since May 15, 2020, Waihai Co., Ltd. has lost its control over the board of directors of Shanghai millennium, can not implement effective management and control activities for Shanghai Millennium through the board of directors, and can not restore its control over Shanghai millennium by replacing the directors, supervisors and senior managers of Shanghai Millennium. Therefore, we believe that, It is appropriate for Weihai Co., Ltd. to identify May 15, 2020 as the starting date for Shanghai Millennium out of control.

According to the accounting standards for business enterprises, the consolidation scope of consolidated financial statements shall be determined on the basis of control. After regaining control over Shanghai millennium, Weihai incorporated the financial statements after Shanghai Millennium regained control into the scope of consolidated financial statements, retroactively adjusted the consolidated financial statements in 2020, and incorporated the financial statements in the early stage of Shanghai Millennium out of control into the consolidated financial statements in 2020 (the financial statements in the period of loss of control are not included in the scope of consolidated financial statements), Comply with the provisions of the accounting standards for business enterprises.

4. Your company’s report for the third quarter of 2021 shows that your company achieved an operating revenue of 1.23 billion yuan in the first three quarters of 2021. The performance forecast shows that your company expects the operating revenue to be 2.36 billion yuan to 2.46 billion yuan in 2021. The change of the company’s profit over the same period last year is mainly due to the completion and acceptance of some subdivisional works of the Xiangshan Port Shelter anchorage construction project and supporting works in Fenghua District, Ningbo and the reclamation construction on both sides of Jiantang River in Hangzhou Bay New Area, Ningbo – (phased operation) handover project invested and constructed by your company in 2021, and the interest income during the construction period of BT project is recognized, Increase the company’s net profit by about 208 million yuan.

Please describe in detail the main composition of the operating revenue in the fourth quarter of 2021, analyze the main reasons and rationality of the significant increase in the operating revenue in the fourth quarter of 2021 compared with the first three quarters, and explain the relevant revenue recognition time point, in combination with the revenue recognition principle, project completion progress, estimated total investment amount, actual invested amount, delivery conditions, acceptance and certificate, etc Whether the amount and main accounting treatment process comply with the relevant provisions of the accounting standards for Business Enterprises No. 14 – income, whether the gross profit margin of the project is reasonable, and whether there is any sudden profit creation at the end of the year. The annual audit accountant shall check and give opinions.

Accountant’s opinion:

We have reviewed the project contract, reviewed the project completion acceptance appraisal report, and understood the accounting policies for revenue recognition of Weihai Co., Ltd. because our audit of the 2021 financial report of Weihai Co., Ltd. is still in progress, we need to further judge the appropriateness of correspondence, visit and revenue recognition of the project. After obtaining sufficient and appropriate audit evidence, We will give a clear reply to the above questions immediately.

5. The performance forecast shows that after the delisting risk warning was implemented, some projects showed signs of potential losses due to funds. Based on the consideration of relative prudence, the provision of credit impairment loss and contract asset impairment loss increased compared with the previous year. Please explain the estimated amount, judgment basis and main calculation process of impairment loss of main contract assets and receivables, and whether the provision of impairment loss in previous years is sufficient. The annual audit accountant shall check and give opinions.

Accountant’s opinion:

We checked the calculation process of impairment loss of contract assets and receivables of Weihai shares in 2021 and had a preliminary communication with the management. As our audit of the financial report of Weihai shares in 2021 is still in progress, after we implement further audit procedures on the matter and obtain sufficient and appropriate audit evidence, We will give a clear reply to the above questions immediately.

6. The performance forecast shows that your company has reached an implementation settlement agreement with Gu Wenju and reversed part of the estimated loss of 991316 million yuan confirmed in previous years. The estimated guarantee loss of pending litigation in 2021 is 177102 million yuan, which is 1184382 million yuan less than that in 2020. Please your company:

(1) In combination with the judgment or arbitration of the previous case and the implementation progress of the settlement agreement, explain your company’s calculation process of current funds and expected losses involved in Gu Wenju’s illegal guarantee case, the recognition basis of the expected losses reversed this time, whether your company still has the risk of assuming greater responsibility in the future, and whether the accounting treatment of the expected losses reversed by your company is prudent and reasonable, Whether it complies with the relevant provisions of the accounting standards for business enterprises. The annual audit accountant shall check and give opinions.

Accountant’s opinion:

We checked the guarantee contract, judgment document, settlement agreement and closing notice of relevant cases, understood the basis for the provision of guarantee matters and estimated liabilities, checked the calculation process of estimated guarantee loss, and understood the management’s judgment on the proportion of guarantee liability and other relevant accounting estimates, because our audit of the 2021 financial report of Weihai Co., Ltd. is still in progress, Further audit procedures need to be implemented for the payment, correspondence and interview of relevant matters. We will give a clear reply to the above questions immediately after obtaining sufficient and appropriate audit evidence.

Zhongxinghua Certified Public Accountants (special general partnership) February 28, 2022

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