Great Wall International Acg Co.Ltd(000835) : special note on audit report with non-standard opinions

Great Wall International Acg Co.Ltd(000835)

Special note on audit report with non-standard opinions

Great Wall International Acg Co.Ltd(000835) (hereinafter referred to as “the company” or “Great Wall animation”) hired zhongtianyun Certified Public Accountants (special general partnership) (hereinafter referred to as “zhongtianyun”) as the auditor of the company’s 2021 annual financial report; Zhongtianyun issued an audit report [2022] SZ No. 90064 that could not express an opinion for the company’s 2021 financial report. According to the requirements of the Listing Rules of Shenzhen Stock Exchange, the rules for the preparation of information disclosure of companies offering securities to the public No. 14 – handling of non-standard unqualified audit opinions and matters involved, and the standards for the content and format of information disclosure of companies offering securities to the public No. 2 – the content and format of annual report, the company issued the following special instructions on the matters involved in the audit report that cannot express opinions:

1、 Matters involved in the issuance of audit reports that cannot express opinions

(I) audit report opinion

1、 Unable to express an opinion

We are entrusted to audit the financial statements of Great Wall International Acg Co.Ltd(000835) (hereinafter referred to as “Great Wall animation” or “the company”), including the consolidated and parent company’s balance sheet as of December 31, 2021, the consolidated and parent company’s income statement, consolidated and parent company’s cash flow statement, consolidated and parent company’s statement of changes in shareholders’ equity and notes to relevant financial statements in 2021.

We do not express an audit opinion on the attached financial statements of Great Wall animation merger and parent company (hereinafter referred to as “financial statements”). Due to the importance of the matters described in the section “forming the basis of unable to express an opinion”, we are unable to obtain sufficient and appropriate audit evidence as the basis for issuing an audit opinion on the financial statements.

(II) unable to express opinions on the contents of the matters involved

1. Going concern

The company has a serious loss of personnel and its business is basically at a standstill; The company’s total operating revenue in 2021 is

As of December 31, 2021, the total shareholders’ equity attributable to the parent company was -1033822000 yuan, and there was still 951128400 yuan of debt principal and interest overdue; Due to overdue debts and other matters, the company involved in many lawsuits, and some bank accounts and equity of some subsidiaries were frozen by justice. As stated in “(VIII) other important matters to be disclosed” of “XIV. Other important matters” in the notes to the financial statements, the draft reorganization plan of the company has not been approved by the creditors’ pre vote, and it is uncertain whether it can be finally approved by the creditors’ pre vote; Whether the company can complete the necessary pre-approval procedures for bankruptcy reorganization is still uncertain, and whether the company’s subsequent application to the court for bankruptcy reorganization can be accepted and whether it can be ruled by the court to enter the reorganization procedure is still uncertain.

As stated in “(II) going concern” of “II. Preparation basis of financial statements” in the notes to the financial statements, the management of the company plans to take measures to improve the company’s operating and financial conditions, but there are still significant uncertainties in the company’s going concern. We are unable to obtain sufficient and appropriate audit evidence to judge whether the financial statements prepared by Great Wall animation on the basis of going concern assumption are appropriate.

2. Litigation matters

As stated in “(II) Contingencies” of “XII. Commitments and Contingencies” in the notes to the financial statements, the company failed to repay its due debts due to lack of funds, resulting in many litigation matters. Although the company’s impact on some litigation matters is necessary to be reported in the financial statements, due to the complexity of litigation matters and the uncertainty of their results, such as the impact amount of litigation matters, the impact amount of liquidated damages and the integrity of litigation matters, we are unable to obtain sufficient and appropriate audit evidence to confirm the possible impact of litigation matters on the company’s financial statements.

3. Restricted correspondence

In accordance with the requirements of the auditing standards and the specific conditions of the company, we have designed and implemented the letter confirmation procedure. Due to the failure to provide the exact address and income of the contact person with the company, some correspondence procedures with the company cannot be implemented. As of the date of the audit report, 38 bank letters and 101 correspondence (including income) could not be issued; Among the 24 bank letters and 131 correspondences (including income) that have been issued, there are still 4 bank letters and 109 correspondences (including income) that have not been recovered. The alternative procedures we have implemented still cannot provide sufficient and appropriate audit evidence for the issuance of audit opinions. Therefore, we are unable to confirm the accuracy of the presentation of the financial statements of the company and the statement items related to the above letter.

4. Limited audit of important subsidiaries

(1) Shanghai Tianrui economic and Trade Co., Ltd. and its subsidiaries (hereinafter referred to as “Shanghai Tianrui”) had major defects in inventory management in 2019. We implemented letter of confirmation procedures for accounts receivable (including income) and accounts payable (including procurement), but failed to receive sufficient and effective letter of confirmation. The alternative procedures we implemented still can not provide sufficient and appropriate audit evidence for the issuance of audit opinions. Therefore, we are unable to determine the accuracy of the above related items in the 2019 financial statements of Shanghai Tianrui. The impact of these matters continues to 2021 and has not been improved. We are unable to determine the accuracy of the above related items in the financial statements of Shanghai Tianrui in 2021.

(2) Beijing Xinyu brothers Network Technology Co., Ltd. and its subsidiaries (hereinafter referred to as “Beijing Xinyu”) failed to carry out it audit in 2019 due to the return of leased houses, servers, personnel resignation and other reasons; Important data such as income cost settlement sheet, important cost contract and game customization handover confirmation sheet are missing. Due to the above restrictions on the audit, we are unable to perform the necessary audit procedures for Beijing Xinyu to obtain sufficient and appropriate audit evidence. Therefore, we are unable to judge the authenticity, fairness and integrity of the financial position, operating results and cash flow of Beijing Xinyu in 2019. The impact of these matters continues to 2021 and has not been improved. We cannot judge the authenticity, fairness and integrity of the financial statements of Beijing Xinyu in 2021. 2、 Special explanation of the board of directors of the company on audit opinions that cannot be expressed in the audit report

1. The board of directors of the company respects the independent judgment of accountants and agrees with the audit report issued by zhongtianyun Certified Public Accountants on the financial report of the company in 2021.

2. The board of directors of the company believes that the financial statements of the company are prepared in accordance with the accounting standards for business enterprises in all major aspects, and fairly reflect the financial position of the company as of December 31, 2021 and the operating results and cash flow of the company in 2021.

3. According to the self-examination and confirmation of the company, the company has no other major contract matters that should be approved and disclosed in time but have not been approved and disclosed in time.

3、 Possibility and specific measures to eliminate the above matters and their impact

The board of directors of the company attaches great importance to the matters involved in the issuance of unable opinions by the accounting firm, and has actively taken corresponding measures in 2021 to eliminate the relevant matters and their impact of unable opinions as soon as possible, so as to effectively safeguard the interests of the majority of investors.

Combined with the actual situation of the company, the measures taken and to be taken by the company are as follows:

1. Countermeasures for the continuous operation of the company

(1) Fully restart the main business

Facing the current situation of stagnant business and high debt, the board of directors of the company has guided the management to formulate a scientific, reasonable and practical business plan, and strive to fully restart the main business through the coordinated development and innovation integration of cultural industry and Internet data service industry, mainly as follows:

1) Fully restart and optimize animation, games and related businesses

By integrating and innovating the company’s animation game IP resources, restart and optimize animation game design, development, operation, distribution and other related businesses; By integrating business sectors such as animation, games and parks, we can open up the online entertainment, offline experience and derivatives markets of animation and games, and build an interactive entertainment ecosystem covering a variety of cultural and creative fields.

2) Fully resume and expand the toy and animation game derivatives business

Through the integration and expansion of business channels and resources, increase the commodity categories and sales channels of toys and animation game derivatives, make every effort to restore and expand the design, production and trade business of toys and animation game derivatives, and jointly build a complete cultural and creative industry chain system with animation and game business.

3) Fully explore and continuously develop Internet data service business

Taking the opportunity of the relevant policies of the national and local governments that attach great importance to the development of cultural industry and strategic emerging industries including digital economy in the next five years, and in combination with the company’s industry and its own characteristics, the board of directors has invested in new relevant subsidiaries to fully develop and continuously develop Internet data service businesses such as data information services, so as to form a synergistic development effect with animation games and related derivatives businesses, Achieve high-quality development of the company.

(2) Comprehensively promote debt and burden reduction

1) Continue to promote bankruptcy reorganization

In view of the heavy overall debt burden of the company at present, in order to safeguard the interests of all shareholders and creditors, avoid the bankruptcy liquidation of the company, and change the problem of insufficient sustainable operation ability of the company due to business difficulties, the board of directors and management have been authorized by the general meeting of shareholders to be fully responsible for handling the relevant matters of the company’s creditor’s rights and debts according to the actual situation of the company and relevant laws and regulations. The company will continue to promote bankruptcy reorganization and completely resolve its debts through judicial procedures and a package plan, leaving enough space for the company’s future development.

2) Completely eliminate the guarantee liability

With the full support of the controlling shareholder continental Entertainment Co., Ltd. and the actual controller Mr. Chen Tieming, the company has obtained the creditor’s unconditional, irrevocable and irrevocable debt exemption in the guarantee between Zhejiang Qingfeng original culture Co., Ltd. and natural person Weng yuan, and the risk that the company may bear the relevant guarantee liability has been completely eliminated.

3) Clean up invalid assets

In view of the fact that some subsidiaries, such as Beijing Xinyu brothers Network Technology Co., Ltd., have been in overall stagnation and suffered large losses for many consecutive years due to factors such as changes in the macro environment, excessive debt burden and the resignation of all personnel in recent years. In accordance with relevant laws and regulations and the articles of association, the company will solidly promote the stripping of loss making assets, comprehensively clean up invalid assets, reduce the company’s operating burden, optimize the industrial structure and business layout, meet the needs of the company’s development strategy and improve the company’s overall competitiveness.

(3) Comprehensively rectify the internal control system

In view of the internal control defects left by the company due to historical reasons, the board of directors attaches great importance to and resolutely rectifies them, and has achieved remarkable results in 2021. The responsibilities of the Third Committee of the company, the special committees under the board of directors, independent directors and managers are clear, the procedures are standardized, and the power has been effectively and normally exercised. In the next step, the company will actively improve the corporate governance structure, establish and improve the company’s internal management and control system, and comprehensively improve the standard operation level of the company in accordance with the requirements of relevant laws and regulations.

In conclusion, the company has taken or will take more effective measures to improve its financial situation, reduce the pressure of working capital and corporate governance, and eliminate the impact of financial risks and internal control risks on the company’s sustainable operation as soon as possible. In view of the above measures, after careful evaluation, the company believes that although the company is temporarily facing great difficulties and risks, the above measures have been or are being vigorously implemented and achieved initial results. Through the effective implementation of the above measures, the company’s operating conditions and debt environment will soon return to normal, the financial expenses will be greatly reduced, the operating income will be significantly increased, and will be rejuvenated in a short time. While Solidly Promoting the above measures, the company will continue to strengthen management, increase revenue and reduce expenditure.

2. Countermeasures on litigation matters

The board of directors attached great importance to the company’s failure to disclose major litigation and arbitration violations in previous years. In 2021, it has organized personnel to comprehensively clean up and verify the litigation involving the company and its subsidiaries, hired professional lawyers to deal with the company’s litigation affairs, and disclosed relevant major litigation and Arbitration matters in time. After internal verification and inquiry through public channels, the board of directors found no other pending litigation and arbitration matters that should be disclosed but not disclosed. Next, the company will further strengthen the management of litigation matters and try its best to eliminate or reduce the negative impact of litigation matters on business activities.

3. Countermeasures against restricted correspondence

The limitation of Certified Public Accountants’ correspondence is mainly due to historical reasons such as the resignation of all former relevant responsible personnel of the company and relevant subsidiaries and the change of management. The board of directors has comprehensively strengthened the internal control and management of the company and its subsidiaries, and has basically completed the business registration change of the company and its subsidiaries through unremitting efforts. In the next step, the company will complete the renewal of relevant licenses and seals as soon as possible, and organize employees to conduct a comprehensive inventory of bank accounts and current accounts, so as to completely solve the problem of limited letters and certificates.

4. Countermeasures for limited audit of important subsidiaries

During the reporting period, the limited audit of Shanghai Tianrui and Beijing Xinyu continued from 2019 to 2021 and failed to be effectively improved, mainly because the two companies encountered major obstacles in relevant rectification work due to personnel turnover and other reasons.

In order to completely solve the problem of limited audit of Beijing Xinyu, the company proposed to transfer 100% of its equity on December 30, 2021 after deliberation and approval by the general meeting of shareholders. In view of the fact that the pledge of the equity of Beijing Xinyu has not been lifted, the relevant transfer work has not been completed. In the next step, the company will fully coordinate all parties to complete the transfer of the equity of Beijing Xinyu as soon as possible. Shanghai Tianrui has been applied for bankruptcy liquidation by its creditors and has been appointed bankruptcy administrator by the court. It will no longer be included in the scope of the company’s consolidated statements from January 6, 2022.

4、 Opinions of the board of supervisors

The company held the first meeting of the ninth board of supervisors in 2022 on March 23, 2022, and carefully reviewed the special notes on the audit report on non-standard opinions prepared by the board of directors. The board of supervisors put forward the following written audit opinions:

1. The company’s financial report objectively and fairly reflects the company’s financial position and operating results in 2021

2. The board of directors of the company issued a special statement on matters on which the accounting firm could not express its opinions. The board of supervisors considered that the special statement of the board of directors was objective, true and in line with the actual situation of the company, and agreed with the special statement issued by the board of directors.

3. As the company’s supervisor, we will actively supervise the work of the company’s board of directors, continue to pay attention to and urge the board of directors and management to promote the development of relevant work, and earnestly safeguard the interests of the company and investors, especially the legitimate rights and interests of minority shareholders.

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