Shengli Precision encountered trouble again and received an inquiry letter on its 2018 annual report

Another listed company in the industry chain received an inquiry letter from the Small and Medium-sized Board Company Management Department regarding its annual report. This company is Shengli Precision, which first received government relief funds last year and then recently sold the equity of its subsidiary.

According to the contents of the inquiry letter, the SME Board Company Management Department mainly inquired about the problem that Zhicheng Optics, a wholly-owned subsidiary of Shengli Precision, had not delivered the invoices it had issued to relevant customers; the company's provision for goodwill impairment; the substantial increase in bad debts in accounts receivable and the provision for impairment of inventory.

The following is a summary of the original content of the inquiry letter on Shengli Precision's 2018 annual report:

As of the end of 2018, Zhicheng Optics had issued a total of RMB 337,464,900 (tax included) invoices but had not yet delivered them to the relevant customers. Please list the specific time of issuance, amount, and accounting treatment of the above invoices. Please further explain the main reasons why it is believed that the relevant matters cannot be judged based on the above procedures and evidence. Please explain the specific measures that have been taken so far for the relevant matters of Zhicheng Optics, the specific progress of the investigation of the relevant matters, and the expected time for the elimination of the matters involved in the company's audit and internal control reservations. 

Please explain in detail the reasons and rationality for the sharp decline in Nanjing Delo's net profit this year, whether the company's goodwill impairment test on Nanjing Delo in 2017 was appropriate, and whether the amount of impairment provision was sufficient. Both Sunoor and JOT were newly merged subsidiaries of your company in 2018. Your company made large goodwill impairment provisions for the goodwill of the two subsidiaries within less than a year after the merger. Please explain in detail whether the valuation made when purchasing Sunoor and JOT's equity was reasonable, the reasons for the impairment of Sunoor and JOT's goodwill at the end of the reporting period, and whether your company's systems and internal controls related to foreign investment and mergers and acquisitions are effective. 

Please explain in detail the reasons and rationality for the mismatch between the growth rate of the book value of notes receivable and accounts receivable at the end of the period and the growth rate of operating income in combination with the sales policy, credit policy and customer collection of each business segment of your company. Please explain in detail the reasons and rationality for the substantial increase in bad debt provision for accounts receivable in combination with the collection of accounts receivable by your company's customers. Please explain in detail whether the amount of bad debt provision for accounts receivable in 2017 is sufficient (not considering the relevant accounts receivable of Zhicheng Optics for the time being) in combination with the collection of accounts receivable by your company at the end of 2017. Please ask the annual auditor to give a special opinion.

Please explain in detail the reasons and rationality for the substantial increase in the ending balance of inventory in combination with your company's orders on hand, sales plan, etc. Please also explain in detail the adequacy of the amount of your company's inventory impairment provision (not considering the relevant inventory of Zhicheng Optics for the time being). Please ask the annual auditor to give a special opinion.

In addition, please explain in detail the rationality of the growth of operating income from smart manufacturing products in combination with the development of the industry and the company's smart manufacturing business, etc. Further explain the business model of smart manufacturing products and the corresponding revenue recognition method and basis.

During the reporting period, there were large differences in the changes in the operating costs of your company's intelligent manufacturing products and new energy products. Please explain in detail the reasons and rationality for the large differences in the changes in the above items.

The Small and Medium-sized Board Company Management Department stated that Shengli Precision needs to make a written explanation on the above matters, submit the relevant explanatory materials to our department and disclose them to the public before May 22, and at the same time copy them to the Listed Company Supervision Department of the Jiangsu Securities Regulatory Bureau.