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Interface News reporter | Yin Jingfei

On May 6th, it lost the net profit of the past seven years.ArcadegamesonlineZitian Technology (Rights Protection) (300280Arcadegamesonline.SZ) received a letter of inquiry from the exchange's annual report. The company's shares fell 1.48% to 26.66 yuan per share at the close of trading on May 7, with a market capitalization of 4.3 billion yuan.

Is there any financial fraud?

In the first three quarters of 2023, Zitian Technology achieved an operating income of 2.29 billion yuan, an increase of 128.11% over the same period last year, and a net profit belonging to shareholders of listed companies (hereinafter referred to as "net profit") of 206 million yuan, an increase of 122.70% over the same period last year.

According to the 2023 annual report, the company achieved an operating income of 2.188 billion yuan and a big loss of 1.21 billion yuan in 2023.

According to the inquiry letter, there are significant differences between the main financial indicators of Zitian Technology in each quarter of 2023 and the publicly disclosed interim reports, and the previous financial statements need to be corrected in a timely manner.

The inquiry letter asks, what are the specific matters involved in the correction of the relevant errors and the reasons and basis for the correction of the differences? Does this involve financial fraud such as inflated income, net profit and net assets, whether it has truly, accurately and completely reflected the impact of the relevant matters, and whether the company still needs to further correct the financial data for 2023 and previous years?

Internet business is in doubt

Behind the performance loss, Zitian's main business, the Internet business, has also been questioned.

According to the 2023 annual report, Zitian Technology will no longer carry out building advertising business in 2023, and all its business income will come from Internet advertising business, with a total operating income of 2.188 billion yuan and a gross profit margin of 2.79 percent, down 16.86 percent from the same period last year.

The inquiry letter asks, what are the reasons for the poor sustainability of Internet advertising business? What is rationality?

More importantly, is the revenue generated by the Internet advertising business real? In the development of Internet advertising business, Zitian Technology plays the role of the main responsible person or agent?

The interface news learned that there are obvious differences in accounting treatment between the responsible person and the agent.

Zitian Technology adopts the total amount method to recognize income. The total amount method is the opposite of the net method.

If Zitian Science and Technology adopts the total amount method to determine the revenue in the case that the Internet advertising business is an agent, its revenue may be in doubt. The inquiry letter of the Shenzhen Stock Exchange asks whether Zitian Technology is the main responsible person or the agent. And on this basis, it is required to explain that the company uses the total method to confirm the compliance of income.

Cloud service business is questioned again

According to the 2022 annual report, Zitian Technology has made a cross-border to cloud services business through an advance payment of up to 810 million yuan.

According to the announcement on the reply to the inquiry letter of Shenzhen Stock Exchange disclosed by Zitian Science and Technology on December 11, 2023, the specific model of the company's cloud service business is to book models from manufacturers by locking key channels in the way of capital match. and use the company's own financial advantage to purchase hardware to provide downstream customers with cloud services. By the end of September 2023, the company's cloud service business had achieved an operating income of 340 million yuan, a gross profit margin of 32.76%, and a cumulative refund of 92 million yuan as of November 2023.

Unexpectedly, on April 30, Zitian Technology erased the revenue. On the same day, the company said in the "announcement on the discrepancy between audited performance and performance expectations in 2023 and an apology from the Board of Directors" that Zitian originally recognized 340 million yuan in cloud service revenue in the first three quarters of 2023, and the audit confirmed that this part of the revenue and related profits were excluded by the net method.

The inquiry letter requires Zitian Technology to explain the actual development of cloud service business in 2023, the latest progress as of the reply date, and the reasons for the significant differences between Zitian Technology and the previous information disclosure documents. it also explains the reason and rationality of locking the server with large advance payment.

At the same time, Zitian Technology needs to explain the commercial reasonableness of each flow link of the prepaid funds involved in the cloud service business, and submit the written confirmation documents of the relevant suppliers and the bank flow records of the prepaid funds flow involved in the cloud service business.

The index of inventory and goodwill is in doubt.

The substantial increase in inventory and the substantial impairment of goodwill have attracted the attention of the Shenzhen Stock Exchange.

The book balance of inventory of Zitian Science and Technology increased from 0 yuan at the beginning of the period to 938 million yuan at the end of 2023, and there is no provision for inventory price decline.

The inquiry letter requires Zitian Technology to specify the inventory category, specific model and account value, acquisition method, storage time and storage location, and verify whether the relevant inventory exists and whether the measurement of the book value of the inventory is accurate. Verify whether the provision for inventory decline is adequate and reasonable.

In 2023, Zitian Technology set aside 569 million yuan for goodwill impairment of the previously acquired target, 186900 yuan for Ryan Media, and 76.1624 million yuan for "CLOCKWORKGOB LINTECHCORP". The inquiry letter questioned whether there was an intertemporal adjustment of profits in the company.

Whether the funds are occupied

The Shenzhen Stock Exchange inquiry letter also mentioned whether Zitian Technology has a variety of situations in which funds are occupied by non-operating purposes.

First, Zitian science and technology accounts receivable concentrated in the top five defaulting parties, whether there is a tilt of interests.

According to the 2023 annual report, the book balance of accounts receivable at the end of the Zitian report is 1.884 billion yuan, and the proportion of the top five accounts receivable collected by the defaulting party is about 67%. The inquiry letter questioned whether the business corresponding to the above-mentioned accounts receivable actually occurred and whether there was a false increase in business income and accounts receivable. Whether there is a relationship or other relationship between the borrower and the company and its directors, supervisors, senior managers, shareholders holding more than 5%, and the actual controller or other relationships that may tilt their interests.

Second, Zitian Technology's other receivables amount to hundreds of millions of yuan, whether there is a tilt of interests.

According to the 2023 annual report, the balance of other receivables at the end of the Zitian report period was 120 million yuan, an increase of about 135% over the same period in 2022, of which 119 million yuan was borrowed by non-related parties. The inquiry letter questions whether there is a relationship or other relationship between the borrower and the company and its directors, supervisors, senior managers, shareholders holding more than 5%, and the actual controller.

Third, Zitian science and technology advance payment is also over-concentrated, the regulatory layer questioned whether the company's funds are suspected of being non-operating.

According to the 2023 annual report, the prepaid balance of Zitian Science and Technology report at the end of the period was 98 million yuan, of which the top five prepaid balances collected by the prepaid object totaled 84 million yuan, accounting for about 86%. The Shenzhen Stock Exchange questions whether there are cases in which funds are occupied by non-operating purposes or provide financial assistance to the outside world.

Fourth, whether other non-current financial assets of Zitian Technology are also suspected of being occupied by non-operating.

According to the 2023 annual report, the balance of other non-current financial assets of Zitian Technology is 300 million yuan. The asset was the company's participation in the establishment of Xinyu City Fire Line No. 1 Investment Center (hereinafter referred to as "Fire Line No. 1") in July 2017, with a subscription of 300 million yuan, accounting for 30% of the capital contribution.

However, the company is unable to obtain the financial data of Hangzhou Mengmi Technology Co., Ltd., Guangzhou Heli Zhengtong Information Technology Co., Ltd., which have a total investment of 763 million yuan.

The inquiry letter requires Zitian Science and Technology to verify the actual operation and the flow of investment funds of each investment target of Fireline 1, and on this basis to explain whether the relevant funds are non-operating occupied by controlling shareholders, actual controllers, directors, supervisors, senior managers and other related parties.

Fifth, Zitian science and technology and the controlling shareholder capital exchanges are in doubt.

According to the summary table on the occupation of non-operating funds and other related capital transactions of Fujian Zitian Media Technology Co., Ltd., during the reporting period, the total amount of capital transactions between Zitian Technology and its controlling shareholders, actual controllers and their affiliated enterprises was 255 million yuan, and the cumulative repayment amount was 486 million yuan.

The Shenzhen Stock Exchange said that the company is requested to explain the reasons for the formation, formation time, account age, repayment arrangements of the aforementioned transactions, as well as whether the corresponding review procedures and information disclosure obligations have been fulfilled in a timely manner, and on this basis, whether it constitutes the occupation of non-operating funds.

Audit institutions are questioned

Zitian Technology changed its auditor before the annual report was extended.

On February 22, Zitian Science and Technology disclosed that it planned to change the audit institution in 2023 from Asia-Pacific (Group) Accounting firm (referred to as "Asia-Pacific Institute") to Beijing Yatai International Accounting firm (referred to as "Yatai International").

Yatai International issued a standard and unqualified opinion for the 2023 annual report of Zitian Science and Technology, which was also questioned by the Shenzhen Stock Exchange.

For example, the company has the stagnation of building advertising, Internet advertising business model and frequent changes of customers, large amounts of bad debt losses of accounts receivable and so on. The inquiry letter of the exchange requires the audit institution to explain in detail the audit procedures, audit methods and scope and specific verification means adopted for the Internet advertising business of listed companies, and make clear opinions on the adequacy and effectiveness of the scope of verification and the authenticity and accuracy of related income, and submit the relevant audit evidence obtained.

For another example, in the face of high inventory in 2023, the inquiry letter requires Yatai International to explain in detail the means and scope of verification of the authenticity of the company's procurement from suppliers, including whether the contents of purchase orders, logistics orders, warehouse receipts and reconciliation vouchers are consistent, and whether there is a corresponding relationship with payment vouchers. Express clear opinions on the adequacy and effectiveness of the scope of verification, the authenticity of the company's related procurement, the accuracy and completeness of related costs and inventory accounting, and submit the relevant audit evidence obtained.

At the end of the annual report inquiry letter, the Shenzhen Stock Exchange said that in conjunction with its response to the above questions in this inquiry letter, Yatai International needs to indicate whether it maintains reasonable professional doubts about the company's annual audit project in 2023 and whether it has designed targeted audit procedures, whether sufficient and appropriate audit evidence has been obtained, whether there is no limitation of audit scope, and whether it remains independent and has issued an appropriate audit opinion.