Securities Code: 002072 Securities Abbreviation: ST Kaizhong Announcement No.: 2021-L003 Kaizhong Holdings Co., Ltd. Announcement on Provision for Asset Impairment The Company and the entire Board of Directors guarantee the authenticity, accuracy, and completeness of the announcement, and that it contains no false records, misleading statements, or material omissions. Kaizhong Holdings Co., Ltd. (hereinafter referred to as the "Company") held the 30th meeting of the Seventh Board of Directors and the 14th meeting of the Seventh Supervisory Board on December 31, 2020, and deliberated and approved the "Proposal on Provision for Asset Impairment." In accordance with the "Shenzhen Stock Exchange Listed Company Standard Operation Guidelines," "Enterprise Accounting Standards," and other relevant regulations, the Company hereby announces the specific details of the provision for asset impairment as follows: I. Overview of the Provision for Asset Impairment
- Reason for the Provision for Asset Impairment The Company's provision for asset impairment is made in accordance with the "Enterprise Accounting Standards" and other relevant regulations. After a comprehensive inspection of all assets held by the Company and its subsidiaries as of December 31, 2020, and reasonable estimation of potential losses, it was determined that certain assets exhibited signs of impairment. Adhering to the principle of prudence, the Company has made provisions for asset impairment losses related to these assets.
- Scope, Total Amount, and Reporting Period of the Provision for Asset Impairment Following a comprehensive inventory and impairment test of all assets held by the Company and its subsidiaries as of December 31, 2020, the Company and its subsidiaries provided for asset impairment of RMB 198,420,662.60 in 2020. This amount represents 32.92% of the total assets, 841.31% of the net assets attributable to shareholders of the parent company, and 2323.11% of the net profit attributable to shareholders of the parent company in the most recent audited period. The details are as follows: Asset Name Provision for Bad Debts for Accounts Receivable Provision for Bad Debts for Other Receivables Provision for Impairment of Other Equity Instrument Investments Total: Book Value as of December 31, 2020 23,836,518.00 160,584,144.60 14,000,000.00 198,420,662.60 Amount of Provision in 2020 3.95% 26.64% 2.32% 32.92% Percentage of Total Assets Attributable to Shareholders of the Parent Company in 2019 Audited Period 279.08% 1880.12% 163.91% 2323.11% Percentage of Net Profit Attributable to Shareholders of the Parent Company in 2019 Audited Period 101.07% 680.88% 59.36% Percentage of Net Assets Attributable to Shareholders of the Parent Company in 2019 Audited Period The provision for asset impairment includes the provision for bad debts for accounts receivable and other receivables, which is analyzed on a case-by-case basis according to business nature and differentiated by the Company's accounting policies, including: (1) accounts receivable with individually significant amounts that are provided for separately; (2) accounts receivable with individually insignificant amounts that are provided for separately; and (3) accounts receivable provided for based on credit risk characteristics. The Company and its subsidiaries calculated and provided for bad debts for their accounts receivable. The calculation resulted in a provision for bad debts of RMB 184,420,662.60 for the full year 2020. Among these, the "Provision for Bad Debts for Other Receivables" includes an amount of RMB 170,938,699.00 owed by Mr. Zhang Peifeng, a former shareholder of the Company. Mr. Zhang Peifeng has overdue payments for the third and fourth installments. The third installment of RMB 27.72 million was due on September 15, 2020, with an actual payment of RMB 23.13 million. The fourth installment of RMB 27.72 million was due on December 15, 2020, and has not yet been paid as of the date of this announcement. Furthermore, Mr. Zhang Peifeng is currently under personal freedom restrictions due to illegal operations in the securities market. Therefore, based on the Company's comprehensive assessment of his repayment ability considering the latest developments in 2020 and adhering to the principle of prudence, it has been decided to make a provision of 100% for this receivable, as it is individually significant and fully provided for. The impairment of other equity instrument investments pertains to the Company's equity interest of RMB 28 million in Hangzhou Quanzhi Network E-commerce Co., Ltd. According to information obtained from Quanzhi Network, the company failed to achieve its business objectives for the full year 2020 due to reasons attributable to the Company itself, and its future business prospects are highly uncertain. Based on the principle of prudence and considering the aforementioned circumstances, the Company intends to provide for a 50% impairment on this equity investment.
- Approval Procedure for the Provision for Asset Impairment The provision for asset impairment was deliberated and approved by the 30th meeting of the Seventh Board of Directors and the 14th meeting of the Seventh Supervisory Board of the Company. The independent directors have issued their independent opinions on this matter. The provision for asset impairment is subject to approval by the shareholders' general meeting. II. Impact of the Provision for Asset Impairment on the Company The total provision for asset impairment is RMB 198,420,662.60, which will reduce the net profit attributable to shareholders of the parent company for 2020 by RMB 198,420,662.60. The consolidated net assets attributable to owners of the parent company will decrease by RMB 198,420,662.60. The provision for asset impairment made by the Company has not been audited by the accounting firm. The final figures are subject to the audited financial data from the accounting firm. III. Explanation of the Provision for Individually Significant Asset Impairment In accordance with the requirements of the "Shenzhen Stock Exchange Listed Company Standard Operation Guidelines (2020 Revision)," for provisions for individual assets made from the beginning of the year to the reporting period, if the amount exceeds 30% of the absolute value of the net profit audited in the most recent accounting year and the absolute amount exceeds RMB 10 million, it shall be listed and explained. The details are as follows: Asset Name Book Value Recoverable Amount Calculation Process for Recoverable Amount Basis for Provision Amount of Provision Reason for Provision Provision for Bad Debts for Accounts Receivable 20,000,000.00 8,000,000.00 According to accounting policy, accounts overdue for more than 3 years are subject to a 60% provision for bad debts. RMB 12 million was provided for, RMB 1 million has been provided, and RMB 11 million is provided this time. 11,000,000.00 Signs of impairment, expected unrecoverable based on book value. Provision for Bad Debts for Other Receivables 170,938,699.00 0.00 Due to failure to repay on time and forced execution of shares, according to accounting policy, it is recognized as individually significant and fully provided for. RMB 24,950,869.90 has been provided, and RMB 145,987,829.10 is provided this time. 145,987,829.10 According to "Enterprise Accounting Standards" and the Company's accounting policy. Other Equity Instrument Investments 28,000,000.00 14,000,000.00 According to the impairment standard, 50% impairment provision of RMB 14 million is made. 14,000,000.00 IV. Statement of the Board of Directors on the Reasonableness of the Provision for Asset Impairment The Company's provision for asset impairment complies with and conforms to the requirements of "Enterprise Accounting Standards" and other relevant regulations, and meets the principle of accounting prudence and the Company's actual situation. After this provision, the Company's financial position, asset value, and operating results as of December 31, 2020, can be reflected more fairly, making the Company's accounting information more truthful, reliable, and reasonable. V. Statement of the Supervisory Board on the Reasonableness of the Provision for Asset Impairment The Company's provision for asset impairment in accordance with "Enterprise Accounting Standards" and other relevant regulations reflects the principle of accounting prudence and conforms to the Company's actual situation. After the provision, the Company's financial position, asset value, and operating situation as of December 31, 2020, can be reflected more fairly. This does not harm the interests of the Company and its shareholders. The resolution procedure for this matter by the Board of Directors is legal and compliant. The Supervisory Board agrees with the Company's provision for asset impairment. VI. Statement of Independent Directors on the Reasonableness of the Provision for Asset Impairment The Company's provision for asset impairment complies with "Enterprise Accounting Standards" and other relevant regulations, reflects the principle of accounting prudence, is well-supported by evidence, and follows a standardized decision-making process. It can more fairly reflect the Company's financial position, asset value, and operating situation as of December 31, 2020, and provides investors with more reliable accounting information. It does not harm the interests of the Company and all shareholders, especially small and medium shareholders. The independent directors of the Company