[Chart: Pan-China logo]
Audit Report
Pan-China Audit [2026] No. 414
To the Shareholders of Zhejiang Xinxin Tools Co., Ltd.:
I. Audit Opinion
We have audited the financial statements of Zhejiang Xinxin Tools Co., Ltd. (hereinafter referred to as "Xinxin Tools"), which comprise the consolidated and parent company balance sheets as of December 31, 2023, December 31, 2024, and December 31, 2025, the consolidated and parent company income statements, cash flow statements, and statements of changes in owners' equity for the years 2023, 2024, and 2025, as well as the notes to the financial statements.
In our opinion, the accompanying financial statements have been prepared in all material respects in accordance with the Accounting Standards for Business Enterprises, and fairly present the consolidated and parent company financial position of Xinxin Tools as of December 31, 2023, December 31, 2024, and December 31, 2025, and the consolidated and parent company operating results and cash flows for the years 2023, 2024, and 2025.
II. Basis for Audit Opinion
We conducted our audit in accordance with the Auditing Standards for Certified Public Accountants of China. Our responsibilities under these standards are further described in the "Certified Public Accountant's Responsibilities for the Audit of Financial Statements" section of the audit report. In accordance with the Code of Ethics for Certified Public Accountants of China and the independence requirements, we are independent of Xinxin Tools and have fulfilled our other ethical responsibilities. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
III. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the years 2023, 2024, and 2025. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.
(I) Revenue Recognition
- Matter Description
The operating revenue of Xinxin Tools is primarily derived from the sales of circular and solid carbide cutting tool series, magnetic drills, fixtures, and other products. For relevant disclosures, please refer to Notes III (23) and V (2) 1 to the financial statements. The operating revenue of Xinxin Tools for the years 2023, 2024, and 2025 was 425.27 million yuan, 467.27 million yuan, and 511.64 million yuan, respectively. According to the sales contracts between Xinxin Tools and its customers, revenue is recognized when the customer obtains control of the goods.
Since operating revenue is one of the key performance indicators for Xinxin Tools, there is an inherent risk that the management (hereinafter referred to as "Management") may recognize revenue inappropriately to achieve specific targets or expectations. Therefore, we identified revenue recognition as a key audit matter.
- Audit Response
Our audit procedures for revenue recognition mainly included:
(1) Understanding and testing the key internal controls related to revenue recognition, evaluating the design of these controls, determining whether they were implemented, and testing the operating effectiveness of relevant internal controls;
(2) Understanding the business operations and product sales model of Xinxin Tools, examining sales contracts to understand major terms or conditions, and evaluating the appropriateness of the revenue recognition method;
(3) Performing analytical procedures on operating revenue by product and customer to identify any significant or unusual fluctuations, and investigating the causes; performing comparative analysis of the gross profit margins of major products with those of companies in the same industry to determine if there are any anomalies;
(4) For domestic sales, selecting samples to inspect supporting documents related to revenue recognition, including sales orders, sales invoices, delivery notes, and customer receipt notes; for sales involving export declarations, obtaining electronic port information and customs export declarations and reconciling them with accounting records; selecting samples to inspect sales orders, export declarations, shipping documents, packing lists, and sales invoices;