Recently, the China Securities Regulatory Commission (CSRC) required Shenzhen Tianma Microelectronics Co., Ltd. (hereinafter referred to as "Tianma") to conduct careful discussion and verification of the issues raised in the issued "Letter on Requesting Preparation for the Pre-IPO Review Committee Meeting of Tianma Microelectronics Co., Ltd." (hereinafter referred to as the "Letter of Notice"). Tianma was also required to respond to questions regarding the deposit status of the monetary fund balance at the end of 2019, whether there were any situations involving joint fund management and bank account aggregation with controlling shareholders and related parties, as well as the reasons for the significant difference between the "net cash flow generated from operating activities" and net profit.

Shentianma stated that as of the end of 2019, the company's monetary fund balance was RMB 3,219,240,364.67, including RMB 26,864.45 in cash on hand and RMB 3,219,213,500.22 in bank deposits. All of the company's bank deposits are held in bank accounts opened by the company itself. The company has not signed any agreements with banks for fund co-management or bank account aggregation. The funds in these accounts are used independently according to the company's operating conditions. The company does not engage in fund co-management or bank account aggregation with controlling shareholders or related parties.

Regarding the significant discrepancy between the "net cash flow from operating activities" and net profit, Shenzhen Tianma stated that the company's net profit for 2019 was 829 million yuan, while the net cash flow from operating activities in the cash flow statement was 4.761 billion yuan. The discrepancy between net cash flow and net profit amounted to 3,931,295,824.23 yuan. The main influencing factors included asset depreciation and amortization of 3,415,043,478.97 yuan in expenses not actually paid in cash, inventory loss of 298,805,770.70 yuan, financial expenses of 732,579,323.66 yuan not belonging to operating activities, and long-term asset impairment of 145,969,249.23 yuan. In terms of changes in operating receivables and payables, the increase in operating payables was -430,409,923.88 yuan, and the decrease in inventory was -204,927,964.18 yuan.

In addition, Shenzhen Tianma acquired 100% of the equity of Xiamen Tianma and 60% of the equity of Tianma Organic Luminescence in 2018. Tianma Organic Luminescence did not achieve expected benefits in both 2018 and 2019. The China Securities Regulatory Commission (CSRC) required Shenzhen Tianma to explain the reasons and rationality for not making an impairment provision for the goodwill of Tianma Organic Luminescence in 2018 and making an impairment provision in 2019, as well as whether there was any profit manipulation.

Shenzhen Tianma stated that the failure of Tianma OLED to achieve expected benefits in 2018 was primarily due to lower-than-expected operating income and gross profit margin, as well as higher-than-expected management expenses (mainly R&D investment). Specifically, Tianma OLED was still in the critical period of introducing major customers in 2018, and the review and certification periods were longer than expected, which delayed sales growth and affected the achievement of operating income in 2018. The lower-than-expected gross profit margin was due to the lower operating income, which did not achieve scale effects, resulting in higher fixed operating costs and a lower-than-expected gross profit margin. At the same time, Tianma OLED decided to upgrade and renovate its production line in 2018, which to some extent affected the realization of production capacity, leading to actual production capacity being lower than expected. In terms of management expenses, Tianma OLED's 5.5-generation AMOLED production line was the company's first AMOLED mass production line, undertaking the main functions of testing and research and development for new AMOLED products and technologies. In order to overcome the technology of AMOLED products, maintain the technological advancement of products, and accelerate the occupation of the AMOLED market, Tianma OLED's own R&D investment increased significantly in that year, exceeding expectations.

The failure of Tianma OLED to achieve expected benefits in 2019 was primarily due to lower-than-expected operating income and gross profit margin. On the one hand, the shipments to major downstream customers of Tianma OLED's 5.5-generation AMOLED production line did not meet expectations, affecting the release of some production capacity and leading to lower-than-expected operating income in 2019. On the other hand, in order to enhance the company's overall AMOLED technology strength, Tianma OLED, as the company's R&D center in the AMOLED field, assumed the function of testing and researching new AMOLED products and technologies. This testing and research occupied part of the production capacity and also affected the release of production capacity, resulting in lower-than-expected operating income in 2019.

Shenzhen Tianma Microelectronics Co., Ltd. (Tianma) stated that the goodwill of Tianma OLED was not impaired in 2018 mainly because, at the time of the goodwill impairment test in 2018, the company, taking into account the industry environment, market trends, and its own development plan, anticipated that the factors affecting the unrealized expected benefits in 2018 were of a certain contingent and temporary nature, and thus the goodwill of Tianma OLED was not impaired. The impairment of Tianma OLED's goodwill in 2019 was primarily due to two reasons. Firstly, its operating income and gross profit margin for two consecutive years were lower than expected, indicating signs of impairment. Secondly, Tianma OLED faced significant changes in the downstream market environment, with its 5.5-generation AMOLED production line having limited capacity and a limited market space for rigid AMOLED products. The company decided to partially adjust the positioning of Tianma OLED's 5.5-generation AMOLED production line to focus on experimentation and research and development functions, and correspondingly adjusted its future profit forecast assumptions. In 2019, the impairment amount of Tianma OLED's goodwill was RMB 49.7671 million, accounting for 4.86% of the total profit of listed companies in 2019, which had a minor impact on the profits of listed companies. Therefore, the non-impairment of Tianma OLED's goodwill in 2018 and the impairment in 2019 are reasonable, and there is no profit manipulation involved.