Zhengzhou Huajing Diamond Co., Ltd. 2021 Consolidated Financial Statements and Audit Report
Audit Report
Audit Report No. 04041 (2022)
To all shareholders of Zhengzhou Huajing Diamond Co., Ltd.:
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Unable to Express an Opinion We have been entrusted to audit the financial statements of Zhengzhou Huajing Diamond Co., Ltd. (hereinafter referred to as "the Company"), including the consolidated and company balance sheets as of December 31, 2021, the consolidated and company income statements for the year 2021, the consolidated and company cash flow statements, the consolidated statement of changes in equity, and the notes to the financial statements. We do not express an audit opinion on the attached financial statements of the Company. Due to the significance and pervasiveness of the matters described in the "Basis for Unable to Express an Opinion" section, we were unable to obtain sufficient and appropriate audit evidence to provide a basis for an audit opinion on the financial statements.
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Basis for Unable to Express an Opinion (1) Inability to Obtain Audit Evidence Related to Major Asset Balances As disclosed in Note 12, Other Important Matters, the Company is under investigation by the China Securities Regulatory Commission for suspected violations of information disclosure laws. In 2020, the CSRC reported on the investigation of the Company's information disclosure violations and issued an "Administrative Penalty and Market Entry Prohibition Notice" on August 9, 2021. The notice disclosed the following suspected illegal facts:
- From 2017 to 2019, the Company inflated revenue and profit through various business activities as follows:
Business Type 2017 Amount 2018 Amount 2019 Amount Total Amount Jewelry Revenue 225,550,914.58 108,258,472.02 12,549,075.31 346,358,461.91 Jewelry Profit 26,589,088.12 32,712,310.56 4,058,121.74 63,359,520.42 Non-Jewelry Revenue 88,164,327.44 104,136,405.98 27,173,302.51 219,474,035.93 Non-Jewelry Profit 28,274,284.77 24,391,944.18 2,944,127.29 55,610,356.24 Equity Transfer Profit 31,766,251.80 - - 31,766,251.80 -
As of the end of 2019, the inflated inventory, fixed assets, and non-current assets were as follows:
Item 2019-12-31 Inflated Amount Inflated Inventory 628,133,252.58 Inflated Fixed Assets 406,450,000.00 Inflated Other Non-Current Assets 821,418,131.45 Total 1,856,001,384.03 -
The Company's former actual controller and related parties occupied non-operating funds from the listed company in the amounts of 137,331,793.14 yuan, 601,088,154.11 yuan, 2,162,085,250.84 yuan, and 268,980,823.45 yuan from 2016 to 2019, totaling 3,169,486,021.54 yuan. The former management was unable to provide details of the non-operating fund occupation and any potential repayment details, and the Company has not corrected the opening balances regarding the suspected illegal facts mentioned in the notice. Due to the close interrelationship of the above matters, we are unable to verify the amounts involved in the suspected illegal facts against the Company's financial records. These matters involve multiple financial statement items and are significant, impacting the year-end balances for 2021.
(2) Significant and Pervasive Uncertainty Related to Going Concern As of December 31, 2021, due to illegal guarantees and litigation matters, most of the Company's bank accounts, receivable land compensation, interest on financial products, operating land, office and production buildings, machinery and equipment, and equity investments are frozen or sealed due to litigation. Bank loans and financing lease payments are overdue and the Company is severely insolvent. The management continues to prepare the 2021 financial statements based on the going concern assumption and disclosed measures to improve going concern ability in Note 12, Other Important Matters. However, we were still unable to obtain sufficient and appropriate audit evidence regarding the feasibility of the aforementioned measures, and therefore cannot determine whether the financial statements prepared based on the going concern assumption are fair.