Core Viewpoint - The company is responding to inquiries from the Shenzhen Stock Exchange regarding its stock issuance application, addressing issues related to investor lawsuits, sales promotion consultant models, profitability stability, cash flow, and financial investments [1] Investor Lawsuit Impact - The company received an investor lawsuit on March 4, 2025, claiming economic damages of 221,800 yuan and legal fees of 15,000 yuan due to past information disclosure violations. The case is currently in the material supplement stage after one court hearing [2] - The maximum potential compensation could reach 16.82 million yuan, but it is not expected to significantly impact the company's operations or financial status. The company has removed the statement regarding the event being incidental and added relevant risk disclosures [2] Sales Promotion Consultant Model Analysis - During the reporting period, the company paid sales service fees to sales promotion consultants amounting to 146.84 million yuan, 127.91 million yuan, and 152.01 million yuan, primarily to individuals. These consultants assist in market channel development, contract signing, and payment tracking [3] - The company maintains this business model due to historical reasons and plans to expand its sales team starting from the end of 2023, aligning with industry practices [3] Profitability Stability and Sustainability Discussion - The company's main business gross margin has been declining, recorded at 10.93%, 10.92%, and 10.29% during the reporting period, influenced by industry competition and raw material price fluctuations. The company’s gross margin is slightly below the industry average but follows a similar trend [4] - Despite the challenges, the company’s future profitability is expected to remain stable and sustainable due to the large market size of the wire and cable manufacturing industry, emerging opportunities from new industries, and ongoing investments in research and development [4] Cash Flow Discrepancy and Risk Analysis - There is a significant discrepancy between the net cash flow from operating activities and net profit, with negative cash flow in 2024 and the first half of 2025, primarily due to business expansion and a higher growth rate of receivables compared to payables [5] - The company shows improving accounts receivable and inventory turnover rates, indicating better inventory management and a low risk of deteriorating cash flow [5] Financial Investment Compliance - As of June 2025, the company's investment in a subsidiary is classified as a financial investment, but its book value is zero. The company has not made actual investments in its film subsidiary, as the related contributions are for bankruptcy liquidation purposes [6] Additional Information - No significant public opinion or media scrutiny has arisen that could affect the current stock issuance since its acceptance by the Shenzhen Stock Exchange [7]

Core Viewpoint - The company has provided detailed responses to the Shenzhen Stock Exchange's inquiry regarding its stock issuance, addressing issues related to its sales promotion consultant model, gross profit margin, operating cash flow, and recognition of financial investments [1]. Sales Promotion Consultant Model - The company paid sales service fees to consultants amounting to 146.84 million, 127.91 million, and 152.01 million yuan during the reporting period. These consultants are primarily responsible for market channel development, assisting in contract signing, and payment collection [2]. - The reliance on local sales consultants is due to the widespread application of the cable industry and the need for experienced local representatives. This model has been historically established in the industry, and the company plans to expand its sales team starting at the end of 2023 [2]. - The sales promotion consultant model is considered reasonable and aligns with industry practices, with the company's service fees as a percentage of revenue being comparable to peers despite some variations [2]. Stability and Sustainability of Main Business Profitability - The company's gross profit margins during the reporting period were 10.93%, 10.92%, and 10.29%, showing a downward trend [3]. - The cable industry faces intense competition and price fluctuations in raw materials, with an overall gross margin of approximately 10%-12%. The company's gross margin is slightly below the average but comparable to some peers [3]. - The company focuses on specialty cables, which significantly influence its gross margin. Despite a stable product structure, the gross margins of major products have declined [3]. - The market for wire and cable manufacturing exceeds one trillion yuan, with emerging industries creating new demand. The company is expected to maintain stable and sustainable profitability due to its strong customer base, brand influence, and increased R&D investment [3]. Operating Cash Flow Situation - The net cash flow from operating activities for the company was 30.64 million, 76.43 million, and -59.59 million yuan during the reporting period, with the recent negative cash flow attributed to business expansion and an increase in operating receivables [4]. - The company has shown an upward trend in accounts receivable turnover and inventory turnover, indicating improved inventory management. The risk of deteriorating cash flow is considered low due to strong customer credit and collection capabilities [4]. - The recognition of financial investments is compliant with regulations, with the company's investment in Electric Science Chengding being classified as a financial investment with a book value of zero as of June 2025 [4].