The Board of Directors of Meisheng Cultural and Creative Co., Ltd. provides a special explanation regarding the audit report for 2023 issued by Zhongxi Accounting Firm (Special General Partnership) (hereinafter referred to as "the annual audit accountant" or "Zhongxi"). The audit report, dated April 29, 2024, states an inability to express an opinion (Zhongxi Audit No. 2024S01552). In accordance with the requirements of the Shenzhen Stock Exchange Listing Rules and other relevant regulations, the Board of Directors explains the matters related to the audit opinion as follows:
I. Explanation of the Matters Leading to the Inability to Express an Opinion
(1) Related Party Fund Misappropriation
As of December 31, 2023, the balance of funds misappropriated by Meisheng Holdings Group Co., Ltd. (hereinafter referred to as "Meisheng Holdings") and its related parties, controlled by the actual controller of Meisheng Cultural, amounted to 770.0437 million yuan, with a corresponding bad debt provision of 770.0437 million yuan. As of the date of this report, there is significant uncertainty regarding the repayment of the misappropriated funds by Meisheng Holdings and its related parties. The annual audit accountant was unable to obtain sufficient and appropriate audit evidence regarding the expected recoverability of these receivables, nor could they reasonably estimate the appropriateness of the bad debt provision amount and its impact on the financial statements.
(2) Large Fund Transfers to Zhonghe Guoxin (Hangzhou) Industrial Development Co., Ltd.
In June 2022, November 2022, and January 2023, Meisheng Cultural transferred a total of 131.669 million yuan to Zhonghe Guoxin (Hangzhou) Industrial Development Co., Ltd. (hereinafter referred to as "Zhonghe Guoxin"). As of December 31, 2023, the balance of other receivables from Zhonghe Guoxin was 131.669 million yuan, with a bad debt provision of 131.669 million yuan. Meisheng Cultural has filed a lawsuit against Zhonghe Guoxin for the return of 131.669 million yuan. Although the annual audit accountant performed audit procedures such as querying business information, reviewing litigation documents, sending confirmation letters to the litigation attorney, and sending confirmation letters to Zhonghe Guoxin, important procedures were not effectively executed due to the lack of response from Zhonghe Guoxin, and the litigation is still pending without a judgment. The annual audit accountant was unable to obtain sufficient and appropriate audit evidence regarding whether the receivable constituted related party fund misappropriation and its recoverability, nor could they reasonably estimate the appropriateness of the bad debt provision for the other receivables and its impact on the financial statements.