Response to Inquiry Letter from Zhongshen Zhonghuan CPA on Weitai's Cash Major Asset Purchase

Response to Inquiry Letter Regarding the Cash Major Asset Purchase of Shanghai Weitai Industrial Automation Co., Ltd.

Zhongshen Zhonghuan CPA (Special General Partnership) (hereinafter referred to as "our firm" or "we") is the auditing institution for the cash major asset purchase of Shanghai Weitai Industrial Automation Co., Ltd. (hereinafter referred to as "Weitai"). On July 15, 2025, we issued an unqualified audit report (Zhonghuan Audit No. 2025 3600271) and a review report (Zhonghuan Review No. 2025 3600005). On July 28, 2025, the Shenzhen Stock Exchange's Listed Company Management Department issued an inquiry letter regarding the cash major asset purchase of Weitai (M&A Restructuring Inquiry Letter [2025] No. 13) (hereinafter referred to as "Inquiry Letter"). Based on our audit or review of the relevant financial statements, we have conducted verification procedures on the questions requiring our response in the Inquiry Letter, and we hereby provide the verification results as follows:

Question 1

The report shows that as of the end of 2023, 2024, and the end of the first quarter of 2025, the book value of inventory for Zijiang New Materials was 130 million yuan, 148 million yuan, and 153 million yuan, respectively, with the proportion of goods dispatched being 18.88%, 32.10%, and 29.83%. The increase in dispatched goods at the end of 2024 compared to the end of 2023 was mainly due to the company's increased inventory reserves under the consignment model to meet customer supply chain production needs. From 2023 to the first quarter of 2025, the company's production and sales rate was approximately 100%, with consignment revenue accounting for 48.03%, 32.06%, and 35.66% of operating revenue, respectively.

1. Please list the main customers under the consignment model for the past three years, sales amounts, revenue recognition points and basis, and whether they comply with the provisions of enterprise accounting standards; explain the reasons and commercial rationale for having both direct sales and consignment sales models for important customers, and the specific reasons for increasing consignment inventory reserves leading to a significant increase in dispatched goods despite the decline in consignment revenue in 2024.
2. Please explain the distribution of inventory storage under the consignment model, whether there is inventory that has been long placed in customer warehouses, and describe the authenticity of the inventory based on specific inventory counting methods and whether physical counts were conducted; clarify whether the products in the consignment warehouse are customized for specific customers and whether there is a risk of product technology or process characteristics no longer meeting customer needs, leading to returns.
3. Please explain the specific situation of dispatched goods at the end of each period, including but not limited to sales objects, project acceptance, and post-period transfer situations, whether the dispatch period to acceptance deadlines matches the corresponding dispatched goods' aging, and whether there are cases where dispatched goods did not meet acceptance standards and revenue could not be recognized.
4. The report shows that the inventory impairment provision amounts at the end of each period were 0 yuan, 1.6307 million yuan, and 532,000 yuan, respectively. Please explain the specific calculations and basis for the inventory impairment provision based on inventory aging, orders on hand, and market price changes; whether the provision for inventory impairment is sufficient and reasonable in light of the company's declining gross profit margin, especially the reasons and rationale for not providing inventory impairment at the end of 2023. Please have independent financial advisors and accountants express verification opinions.

Response

1. Please list the main customers under the consignment model for the past three years, sales amounts, revenue recognition points and basis, and whether they comply with the provisions of enterprise accounting standards; explain the reasons and commercial rationale for having both direct sales and consignment sales models for important customers, and the specific reasons for increasing consignment inventory reserves leading to a significant increase in dispatched goods despite the decline in consignment revenue in 2024.