Hunan Hualing Wire & Cable Co., Ltd.
Reply to the Audit Inquiry Letter Regarding the Application for Issuance of Convertible Corporate Bonds for Asset Acquisition and Raising of Supporting Funds
Wuyige Zi [2026] No. 27-00009
Wuyige Certified Public Accountants LLP
Reply to the Audit Inquiry Letter Regarding Hunan Hualing Wire & Cable Co., Ltd.'s Issuance of Convertible Corporate Bonds for Asset Acquisition and Raising of Supporting Funds
To: Audit Center of the Shenzhen Stock Exchange
In accordance with the requirements of the "Audit Inquiry Letter Regarding Hunan Hualing Wire & Cable Co., Ltd.'s Issuance of Convertible Corporate Bonds for Asset Acquisition and Raising of Supporting Funds" (Audit Inquiry Letter [2026] No. 130004) (hereinafter referred to as the "Inquiry Letter") issued by your office, Wuyige Certified Public Accountants LLP (hereinafter referred to as "we") as the M&A auditor for Hunan Hualing Wire & Cable Co., Ltd. (hereinafter referred to as the "Listed Company"), has conducted a verification of the relevant issues involving accountants in the Inquiry Letter and hereby provides the following reply for your review.
The financial data and financial indicators cited in this reply are based on the consolidated financial statements, unless otherwise specified.
In this reply, if there are any discrepancies between the sum of the sub-items and the total due to rounding, they are caused by rounding.
Question 2: Regarding the Compliance of the Target Assets
The application documents show: (1) As of the end of the reporting period, the target assets have no real estate or land use rights; the land and factory buildings used by the production plant are leased, and some of the factory and dormitory leases have expired but have not yet been renewed. (2) During the reporting period, the company and its subsidiaries used labor dispatch and labor outsourcing, and there were instances where the proportion of dispatched workers exceeded 10%. (3) During the reporting period, the target assets had instances of insufficient payment of social insurance and housing provident funds for some employees. The target assets have formulated a rectification plan and are in the process of implementation, but there is still a risk of being ordered to pay or being subject to administrative penalties by competent authorities after the rectification is completed. (4) The "High-precision MC Connector Injection Molding Parts 800 Million Sets/Year" production line renovation project was approved in September 2022, and the environmental impact assessment was approved in January 2024. (5) During the reporting period, Wuxi Santiao Control Technology Co., Ltd. (hereinafter referred to as "Wuxi Santiao") was one of the top five customers of the target assets, but it was not identified as a related party. (6) As of the end of the reporting period, the target assets' borrowing balance was 1.9194 million yuan, accounting for 59.79% of the ending balance of accounts receivable. Among them, the borrowing from the counterparty Wu Genhong was 1.0281 million yuan. As of the signing date of the report, Wu Genhong has repaid the above borrowings. (7) Shanghai Santiao Electrical Equipment Co., Ltd. (hereinafter referred to as "Shanghai Santiao") sources all its purchases from the target assets and has no independent external business. It also undertakes the payment of salaries for some sales, procurement, and R&D personnel of the target assets. To regulate related-party transactions and resolve issues of mixed business entities and overlapping job responsibilities, the target assets have established a subsidiary, Santiao Technology (Shanghai) Co., Ltd. (hereinafter referred to as "Santiao Technology"), and transferred all of Shanghai Santiao's business to it. As audited, the net assets of Shanghai Santiao as of July 31, 2025, were -7.106 million yuan. (8) The core business of Santiao Technology (Huizhou) Co., Ltd. (hereinafter referred to as "Huizhou Santiao") is to provide processing services and some customer after-sales services for the target assets, which is part of the daily operation system of the target assets. On July 28, 2025, Wu Genhong and Jiang Yuan transferred their 95% and 5% equity in Huizhou Santiao to the target assets at a price of 0 yuan, respectively.