Zhendong Pharmaceutical: 2025 Internal Control Evaluation Report

Shanxi Zhendong Pharmaceutical Co., Ltd.

2025 Internal Control Evaluation Report

All shareholders of Shanxi Zhendong Pharmaceutical Co., Ltd.:

In accordance with the provisions of the "Basic Standards for Enterprise Internal Control" and its supporting guidelines and other internal control regulatory requirements (hereinafter referred to as the "Enterprise Internal Control Standard System"), combined with the internal control system and evaluation methods of Shanxi Zhendong Pharmaceutical Co., Ltd. (hereinafter referred to as the "Company"), and based on daily supervision and special supervision of internal control, we evaluated the effectiveness of the company's internal control as of December 31, 2025.

1. Important statement

In accordance with the provisions of the enterprise's internal control normative system, it is the responsibility of the company's board of directors to establish, improve and effectively implement internal control, evaluate its effectiveness, and truthfully disclose the internal control evaluation report. The Audit Committee oversees the establishment and implementation of internal controls by the Board of Directors. The management is responsible for organizing and leading the daily operation of the enterprise's internal control. The company's board of directors, directors and senior managers guarantee that there are no false records, misleading statements or major omissions in this report, and bear individual and joint legal liability for the authenticity, accuracy and completeness of the report content.

The goal of the company's internal control is to reasonably ensure the legal compliance of operation and management, asset safety, the authenticity and completeness of financial reports and related information, improve operating efficiency and effectiveness, and promote strategic development. Due to the inherent limitations of internal control, it can only provide reasonable assurance for achieving the above objectives. In addition, since changes in circumstances may cause internal controls to become inappropriate, or the degree of compliance with control policies and procedures to be reduced, there is a certain risk in inferring the effectiveness of future internal controls based on the results of internal control evaluations.

2. Conclusion of internal control evaluation

According to the identification of major deficiencies in the company's internal control over financial reporting, there were no major deficiencies in internal control over financial reporting on the base date of the internal control evaluation report. The board of directors believes that the company has maintained effective internal control over financial reporting in all major aspects in accordance with the requirements of the corporate internal control standard system and relevant regulations.

According to the identification of major deficiencies in the company's internal control over non-financial reporting, the company found no major deficiencies in internal control over non-financial reporting on the base date of the internal control evaluation report.

There are no factors that affect the conclusion of the internal control effectiveness evaluation between the base date of the internal control evaluation report and the issuance date of the internal control evaluation report.

3. Internal control evaluation work

(1) Scope of internal control evaluation

The company determines the main units, businesses and matters as well as high-risk areas included in the evaluation scope in accordance with the risk-oriented principle. The main units included in the evaluation scope this time include: the company's subordinate departments, subsidiaries, branches, and subsidiary companies. The total assets of the units included in the evaluation scope account for 100% of the total assets of the company's consolidated financial statements, and the total operating income accounts for 100% of the total operating income of the company's consolidated financial statements.

The specific businesses and matters and high-risk areas included in the evaluation scope include: corporate governance structure, development strategy, audit supervision, corporate culture, human resources, financial management, supply chain management, production management, R&D management, sales management, contract management, fixed asset management, information systems, related transactions, external investment, information disclosure, etc.; among them, the high-risk areas that focus on mainly include: development strategy, financial management, R&D management, sales management, related transactions, external investment, etc.

The above-mentioned units, businesses, matters and high-risk areas included in the evaluation scope cover the main aspects of the company's operation and management, and there are no major omissions. The main businesses and matters included in the evaluation scope include:

1. Governance structure

In order to implement the relevant requirements of the newly revised "Company Law of the People's Republic of China" in 2024, the company completed the revision and upgrade of the "Articles of Association" and supporting governance documents in December 2025 to further improve a compliant and efficient modern corporate governance system. The company strictly complies with the Company Law of the People's Republic of China (hereinafter referred to as the "Company Law"), the Securities Law of the People's Republic of China (hereinafter referred to as the "Securities Law") and other relevant laws and regulations, combined with the updated Articles of Association, to standardize the establishment of the shareholders' meeting, the board of directors and the management level, and simultaneously revised and improved the "Rules of Procedure for the Shareholders' Meeting", "Rules of Procedure for the Board of Directors" and corresponding work rules to ensure that governance operations are consistent with the requirements of the new Company Law.

The board of directors is responsible to the shareholders' meeting, exercises the company's operating decision-making power in accordance with the law, is responsible for the establishment and supervision of the company's internal control system, establishes and improves internal control policies and plans, supervises the implementation of internal control, and is responsible for the formulation and effective implementation of the company's internal control system. The board of directors currently consists of nine directors, including three independent directors. The board of directors has four special committees: Strategy and Development Committee, Audit Committee, Nomination Committee, and Remuneration and Appraisal Committee. The working rules of each professional committee have been updated simultaneously, clarifying the responsibilities, authority and working procedures of each professional committee.

2. Development strategy

The company formulates and adjusts development strategies based on macroeconomic policies, changes in market demand, industry development trends, etc. Under the brand strategy of "China Zhendong, innovating traditional Chinese medicine, and making the world fall in love with traditional Chinese medicine", the company adheres to the clinical value-oriented and patient-centered needs, continues to increase investment in research and development, builds a research and development system that pays equal attention to independent innovation and open cooperation, and focuses on the four major pipelines of oncology, skin, urology, and digestion. , accelerate the research and development of Class 1 new drugs and high-end preparations, promote the modernization and internationalization of traditional Chinese medicine, improve the quality control and digital operations of the entire industry chain, deepen the domestic market, expand global layout, build long-term competitiveness with core technologies and blockbuster products, and create a national innovative drug brand with international influence.

3. Audit supervision

The company's board of directors has established an audit committee, and the audit and supervision department independently exercises audit powers under the guidance of the audit committee of the board of directors. In 2025, the Audit Committee will perform core responsibilities such as financial supervision, compliance review, and supervision of the performance of directors and senior executives in accordance with the law, and regularly review the internal audit work plan, internal control evaluation report, and defect rectification plan. The internal audit department maintains a high degree of independence and professionalism, conducts routine audits, special verifications and internal control tests in an orderly manner throughout the year, supervises and inspects the effectiveness of the company and its subsidiaries' operations and management, financial status, key projects, internal controls and systems and processes, and makes reasonable evaluations of the authenticity, rationality and legality of its economic benefits. During the reporting period, the audit supervision system operated effectively, providing a solid guarantee for the company's healthy and orderly operations.

4. Corporate culture

The company attaches great importance to the construction of corporate culture and regards it as the core cornerstone of the internal control environment. The company continues to deepen the corporate culture system based on "sunshine, integrity, affinity, simplicity, and responsibility", practices the core values ​​of "sharing wealth with the people, prosperity with the family, and strength with the country", and integrates the concepts of compliance management, risk prevention and control, and honest practice into corporate governance and the code of conduct for all employees. Through multi-dimensional measures such as senior management taking the lead in setting an example, system publicity and implementation, internal control training, integrity education, and cultural activities, we strengthen the internal control awareness and responsibility of all employees, promote the deep integration of cultural concepts into the entire business process such as R&D, production, marketing, funding, bidding, etc., effectively prevent moral risks and compliance risks, and provide a solid cultural guarantee for the effective operation of the company's internal control system and the realization of high-quality and sustainable development.

5. Human resources

The company has always regarded human resource management as an important basis for the internal control system, and has built a standardized internal control mechanism covering the entire process of talent introduction, training, assessment, incentives and exit. In 2025, we will continue to streamline the organizational structure and effectively release organizational vitality; optimize the personnel academic structure, improve the overall academic level of functional teams, and accurately introduce highly specialized management cadres; deepen the business school system training model, carry out centralized and intensive training for the marketing team, consolidate professional capabilities, and fully implement the mentorship system, training system and internal professional title review mechanism. In terms of the salary and performance system, we have steadily promoted the implementation of the "three-level and nine-level" standards, and at the same time, combined with different business models, explored differentiated incentive mechanisms such as salary packages and bonus packages. Focusing on the core business tasks, relying on data-based platforms and intelligent analysis tools, we promote the refinement and digital transformation of personnel management, adhere to the concept of "recognizing morality, cultivating knowledge, and using talents to gather talents", and strive to build a high-quality, high-performance talent team to provide solid talent guarantee and organizational support for the implementation of the company's strategy. During the reporting period, the company's human resources internal control system operated effectively, providing a solid talent guarantee for the company's strategic implementation and high-quality development.

6. Financial management

The company strictly follows the "Basic Standards for Enterprise Internal Control", "Corporate Accounting Standards" and the financial and taxation regulatory requirements of the pharmaceutical industry, continues to improve the financial management internal control system with full coverage, hierarchical control, and closed-loop supervision, improves core systems such as fund management, comprehensive budgeting, accounting, cost and expense, tax compliance, related transactions, and financial report preparation, clarifies job responsibilities and approval authority, and implements key control measures such as separation of incompatible positions and hierarchical authorization of major funds. In 2025, the company will deepen integrated financial management and control, promote the centralized management of funds and the two-line model of revenue and expenditure, strictly control high-risk business processes such as large-amount fund payments, external guarantees, investment and financing, and ensure the safe and efficient operation of funds; comprehensively implement full-cycle budget management, strengthen pre-calculation, in-process monitoring, and post-assessment linkage to improve resources. Configuration efficiency; standardize the pharmaceutical industry's revenue recognition, R&D expense collection, production cost accounting, and marketing expense control processes, strictly adhere to the bottom line of invoice compliance management under the "two-invoice system", and prevent the risk of financial and taxation and business linkage; strictly implement full-chain quality control of financial report preparation, review, and disclosure to ensure that accounting information is true, accurate, complete, and timely. During the reporting period, the company's internal controls on financial management were reasonably designed and implemented effectively, effectively preventing financial compliance risks and asset losses, and laying a solid foundation for financial management and control for the company's stable operations, compliance governance and strategic implementation.

7. Supply chain management

The company has built an internal supply chain control system covering the entire chain of procurement, warehousing, logistics and supplier management. With compliance, stability and cost control as the core, it continues to optimize processes and risk prevention and control mechanisms. In 2025, the company further improved the full life cycle management of supplier admission, evaluation and exit, relying on digital management to establish a dynamic price monitoring model, supplier classification and quantitative scoring model to reduce procurement costs and shorten the procurement cycle; warehousing focused on digital transformation, through full digital traceability and visual management of inventory information, effectively revitalizing resources and reducing stagnation costs by 33%; logistics adhered to refined control and established a cost accounting model to split the costs of each link, achieving a 16% reduction in the annual average part cost. During the reporting period, the company's supply chain internal control did not cause major quality accidents, compliance risks or operating losses due to improper management, which provided solid support for the company's stable production and operation, reliable product quality and market supply guarantee.

8. Production management

The company regards the quality control of the entire production process as the core of internal control and builds a full-process internal control system covering production planning, material procurement, process execution, quality inspection, and equipment management. In 2025, various industrial units in-depth sorted out 227 process flows and 5,489 production steps, discovered 730 points for cost reduction and efficiency improvement, and established a standardized management model for process sorting; they continued to deepen technical reforms and implemented key projects, and the efficiency of multiple production lines was significantly improved; at the same time, the company took international certification as the lead, passing various inspections throughout the year, and all products were sampled and inspected. The results were all qualified; CNAS international certification and accreditation projects increased to 59, and testing capabilities were greatly enhanced. During the reporting period, production focused on "improving quality and efficiency, optimizing processes, strictly controlling costs, and releasing production capacity", continued to enrich the product matrix, accelerated iterative upgrades of equipment, comprehensively promoted digital, intelligent, and visual management and control, and continuously improved operational quality and efficiency and core competitiveness.

9. R&D management

The company strictly follows the requirements of the "Drug Administration Law of the People's Republic of China", "Good Practice for Drug Research and Development (GCP)" and "Basic Standards for Enterprise Internal Control", with "innovation-led, compliance-controllable, and achievement transformation" as the core, and builds an R&D internal control system covering the entire process of R&D project establishment, clinical research, process development, achievement transformation, and intellectual property protection. It clarifies job responsibilities, approval authority and control standards for each link, and prevents various risks such as R&D compliance, technology, and funding. The company introduced the IPD (Integrated Product Development) management model in 2024, and will continue to deepen the implementation of this model in 2025, deeply integrating market demand, R&D innovation, production implementation, marketing and other aspects, further optimizing the R&D project management and control process, improving R&D efficiency and the quality of achievement transformation, and promoting the standardization and refinement upgrade of the R&D management system. On this basis, the company continues to increase investment in research and development, steadily promotes the implementation of research and development projects, and achieves remarkable results in research and development highlights. Ongoing research projects in key fields such as oncology, dermatology, digestion, and urology are advanced in an orderly manner, and major breakthroughs in the research and development of innovative drugs have been achieved. At the same time, we standardize the full life cycle management of R&D projects, strictly implement the project demonstration, mid-term review and final acceptance system, optimize the collection and control of R&D expenses, and ensure the compliance and efficient use of R&D funds. During the reporting period, the deepening and implementation of the IPD management model further consolidated the foundation of R&D internal control, effectively ensured the implementation of R&D strategies, highlighted the results of R&D highlights, and laid a solid foundation for the iterative upgrade of the company's products and the improvement of core competitiveness.

10. Sales management

The company continues to optimize and strictly implement the internal control system that is compatible with clinical, OTC, grassroots, e-commerce and other sales models. Focusing on the core strategy of professional promotion and based on the characteristics of each sales channel, the company has set clear control nodes in key aspects such as customer access, credit assessment, contract approval, delivery management, payment tracking, and compliance with marketing activities. In 2025, the company will continue to strengthen receivable management and optimize distribution rate control; strengthen production and marketing coordination, strictly control nodes to ensure on-time supply; optimize the business channel structure, and achieve significant results in price maintenance; promote logistics cost reduction and efficiency improvement, and achieve breakthroughs in scale growth and cost optimization. At the same time, the company regularly inspects and evaluates the implementation of internal controls in each sales unit, focusing on the prevention of commercial bribery risks and the authenticity and reasonableness of marketing expenses. During the reporting period, the company closely adhered to the strategy of breaking through the situation and laid a solid foundation for improving the quality and efficiency of the marketing system and making breakthroughs in all areas through personnel organization to strengthen the foundation, ten major projects to tackle key issues, three-month precision marketing to improve efficiency, marketing training for advanced players to make up for shortcomings, and product "advance, use, upgrade" strategy and skills.

11. Contract management

Relying on the contract management system, the company has built a contract internal control management system covering the entire life cycle of contract drafting, review, signing, performance, and archiving. It clarifies the control standards, approval authority and job responsibilities of each link to ensure that contract management is standardized, orderly, compliant and controllable. In 2025, the company will continue to improve contract management-related systems, rely on the management system to optimize the contract review process, focus on strengthening the compliance review of specialty contracts in the pharmaceutical industry, and prevent risks such as contract fraud, defective clauses, and breach of contract performance; it will strictly implement the contract signing authorization and approval system through the system, eliminate the situation of signing contracts without authorization or exceeding authorization, standardize the online application and control of contract seals, and realize the traceability and verification of the entire contract signing process. At the same time, relying on the contract management system to achieve standardization, electronic filing management and convenient query of original contracts, audit materials, performance records and other files, greatly improve the efficiency of contract management. In addition, we will strengthen contract compliance-related training, improve the system operation capabilities and contract compliance awareness of personnel in relevant positions, carry out special inspections of contract management internal controls on a regular basis, and promote closed-loop rectification of contract management issues. During the reporting period, the in-depth application of the contract management system further consolidated the foundation of internal control, effectively prevented contract risks, and ensured that the company's business activities were carried out in a legal, compliant and orderly manner.

12. Fixed asset management

The company has established an internal control management system covering the entire life cycle of fixed assets acquisition, acceptance, registration, use, maintenance, depreciation, inventory and disposal. In 2025, the company will continue to improve the fixed assets management system, optimize the acquisition approval process, strictly implement the project demonstration, bidding and procurement, and acceptance registration system, focusing on strengthening the compliance and practicality review of key fixed assets such as production equipment and R&D instruments to prevent acquisition risks; relying on information management methods, it will establish fixed asset ledgers and realize electronic management and control of asset information. Strengthen the use and maintenance management of fixed assets, formulate daily maintenance and regular calibration plans for equipment, focus on ensuring the stable operation of GMP compliance-related equipment and R&D testing instruments in the production workshop, and improve asset utilization efficiency; strictly implement the regular inventory system of fixed assets, carry out comprehensive inventory and special spot inspections, promptly discover and dispose of idle and scrapped assets, standardize the asset disposal approval process, and prevent asset loss. During the reporting period, the company's internal controls related to fixed asset management were able to effectively ensure the safety, integrity and efficient operation of the company's assets.

13. Information system

The company adheres to the high-quality development of digitally empowered businesses and the establishment of a secure internal control line of defense as its core, and builds a full life cycle management and control system covering system planning, R&D and construction, operation and maintenance, and safety management. In 2025, the company continued to deepen its digital transformation, focusing on core business areas such as procurement, sales, finance, R&D, production, and human resources, and steadily promoted the construction and iterative upgrades of key information systems such as ERP, CRM, DMS, WMS, LIMS, and ELN, effectively breaking through cross-link data barriers, realizing online business processes, refined process control, and visualization of operating data, and comprehensively empowering each business unit to reduce costs, increase efficiency, and standardize operations. In terms of system operation, maintenance and security, the company continues to consolidate its digital infrastructure, build a compliance protection and dynamic monitoring system that fits business scenarios, and strictly implements key measures such as hierarchical protection rectification, network boundary isolation, and data lifecycle security control to ensure the safe and stable operation of core information systems and active defense capabilities, and effectively prevent security risks such as cyber attacks and data leaks. During the reporting period, the internal controls related to the company's information system management can provide reliable technical support for the company's digital transformation and operation management.

14. Related transactions

The company continues to strengthen risk prevention and control throughout the life cycle of related party transactions, and clarifies key management and control standards such as related party identification, transaction approval, fair pricing, and information disclosure to ensure that related party transactions are compliant, transparent, fair, and just. In 2025, the company will continue to improve the related party transaction management system, dynamically update the list of related parties, and comprehensively prevent the risk of non-related party transactions; all related transactions will strictly implement review procedures, adhere to fair market pricing, and strengthen compliance review of procurement, sales, capital transactions, etc.; standardize the disclosure of related party transaction information to ensure that the disclosure is true, accurate, and complete. During the reporting period, there were no illegal transactions, transfer of interests or disclosure violations, effectively safeguarding the legitimate rights and interests of the company and all shareholders.

15. Foreign investment

In order to strengthen the company's investment management, standardize external investment behavior, and improve the economic benefits of investment, the company has formulated a management system related to investment decisions and established a standardized process from project establishment, due diligence, financial calculations to hierarchical approval to ensure the scientificity and compliance of investment decisions. Strictly fulfill information disclosure obligations. We attach great importance to post-investment management, establish a normalized tracking and monitoring mechanism, and regularly evaluate the operation and risk status of the target. Standardize the investment exit process to ensure the safety of investment funds and the realization of returns.

16. Information disclosure

The company strictly complies with securities laws and regulations, establishes an internal control system for the information disclosure process, and clarifies the management and control standards for the entire process of review, approval, release, and archiving to ensure that information disclosure is true, accurate, complete, timely, and fair. In 2025, the company will continue to improve the information disclosure management system, strictly implement the internal review process, and implement the "pre-review, in-process management and control, and post-review" mechanism; strictly implement the insider information registration system, standardize insider information management, and prevent insider trading risks; strengthen compliance training for position personnel to enhance professional capabilities and sense of responsibility.

The above-mentioned units, businesses, matters and high-risk areas included in the evaluation scope cover the main aspects of the company's operation and management, and there are no major omissions.

(2) Internal control evaluation work basis and internal control defect identification standards

The company organizes and carries out internal control evaluation work in accordance with relevant regulations such as the "Basic Standards for Enterprise Internal Control", "Guidelines for the Application of Enterprise Internal Control", "Guidelines for Enterprise Internal Control Evaluation" and the company's internal control system.

The company's board of directors differentiated between financial reporting internal control and non-financial reporting internal control based on the company's internal control standard system's identification requirements for major defects, important defects and general defects, combined with company size, industry characteristics, risk preference and risk tolerance and other factors, and studied and determined the specific identification standards for internal control defects applicable to the company, which are consistent with previous years. The standards for identifying internal control deficiencies determined by the company are as follows:

1. Standards for identifying deficiencies in internal control over financial reporting

Recognition standards

Defect Defect Definition Remarks Quantitative Standard Qualitative Standard

① Directors and senior managers commit fraud and cause losses to the company;

②The financial report that has been announced refers to a

Correction of misstatements for major errors;

or multiple controls

The amount of misstatement in the financial statements falls into the following situations: ③ There is a material misstatement in the current financial report and the preparation is defective

Lower range: Internal control fails to detect significant combinations during operation, and may

① The misstatement is ≥ 5% of the total profit; the misstatement;

Defects can lead to

② Misstatement ≥ 3% of total assets; ④ The audit committee and internal audit department are seriously biased

③ Misstatement ≥ 5% of operating income. Ineffective supervision of internal control over financial reporting; out of touch with control objectives

⑤The accounting firm issues financial reports.

Unable to express opinions or negative opinions;

⑥The accounting firm issued an internal control certificate

An assurance report expressing an opinion.

Recognition standards

Defect Defect Definition Remarks

Quantitative standards Qualitative standards

refers to a

① Failure to select and respond to one or more controls in accordance with generally accepted accounting principles

Use accounting policies;

defective

① 3% of total profit ≤ misstatement < profit ② Anti-fraud procedures and control measures have not been established; combination, other

5% of the total profit; ③The severity of accounting for irregular or special transactions

Important ② 1% of total assets ≤ misstatement < information. Corresponding control mechanism is not established or is less than significant.

Defects 3% of total output; not implemented;

flaws, but

③3% of operating income ≤ misstatement < ④ It is still possible to control the period-end financial reporting process

5% of operating income. There are one or more deficiencies that cannot reasonably cause the enterprise to

Ensure that the prepared financial statements achieve true and accurate deviation control

accurate goal.

Target.

refers to weight removal

① The company’s general business rules or systems have major flaws,

① Misstatement <3% of total profit; Defect;

General important defects

② Misstatement <1% of total assets; ② The company’s general defects have not been rectified; other than defects

③ Misstatement <3% of operating income. ③The company has other control deficiencies other than those mentioned above.

sink.

trap.

2. Standards for identifying deficiencies in internal control over non-financial reporting

Recognition standards

Defect Defect Definition Remarks

Quantitative standards Qualitative standards

It refers to a company that lacks democratic decision-making procedures;

② The company's improper decision-making procedures lead to major mistakes; ③ The company's directors, senior managers and major technical personnel may have abnormal major changes in the amount of direct property losses; defects may cause the company to lose ≥ 5% of the total profit ④ The company's important business lacks system control or the system fails due to serious deviations in the system;

⑤ No major or important defects in the company's internal control have been identified. be rectified.

Recognition standards

Defect Defect Definition Remarks

Quantitative standards Qualitative standards

refers to a

or multiple controls ① The improvement of the company’s democratic decision-making process that exists but is not complete enough;

combination, which ② improper decision-making procedures of the company lead to errors of ordinary severity;

Important 3% of total profit ≤ loss < profit

Less than major ③ There are defects in the company’s important business systems or systems 5% of the total amount

defective, but defective;

It is still possible that ④ the company's key positions of business personnel are severely lost; causing the company ⑤ important or general defects in the company's internal control to be rectified without deviation from control.

Target.

refers to weight removal

Major defects: ① The company's general business systems or systems have shortcomings;

Loss <3% of total profit

Defects other than ②The company's general defects have not been rectified; other control deficiencies ③The company has other defects other than the above. trap.

(3) Identification and rectification of internal control deficiencies

1. Identification and rectification of internal control deficiencies in financial reporting

According to the above-mentioned identification standards for internal control deficiencies in financial reporting, the company had

The number of major flaws in the internal control of financial reporting was 0, and the number of important flaws was 1.

Defect 1: There are important defects regarding the accrual of sales expenses.

(1) Nature and impact of defects

This defect has not had a significant impact on the authenticity and completeness of the company's financial reports, nor has it resulted in

The company deviated from the core objective of internal control, but affected the standardization and accuracy of financial accounting.

It does not comply with the relevant requirements of the Accounting Standards for Business Enterprises and the company's financial management system.

(2) Defect rectification status

In response to the above important deficiencies, the company's management and financial department have attached great importance to them and immediately initiated systematic rectification work during the evaluation process.

1. Improve the internal control system and standardize the accrual process. Revise the "Company Financial Provision Management System" to ensure that the provision work is in accordance with rules and evidence-based, and complies with the "Accounting Standards for Business Enterprises" and regulatory requirements. Establish a pre-consultation and dynamic communication mechanism for financial accrual, proactively communicate with the audit agency before accounting processing, fully demonstrate the compliance and rationality of the treatment plan, and continue to make follow-up adjustments to ensure that the entire accrual processing is controllable.

2. Strengthen personnel training and improve professional capabilities. Organize all personnel of the Planning and Finance Department to carry out special training on the Accounting Standards for Business and the company's financial provision management system to enhance the professional judgment and compliance awareness of financial personnel, ensure that financial personnel accurately understand provision requirements and avoid provision deviations.

3. Improve the supervision and inspection mechanism and strengthen the implementation of internal control. The Audit and Supervision Department includes the financial provision link as a key supervision scope, conducts penetrating inspections on the compliance of the provision process, the adequacy of the provision basis, and the accuracy of the provision amount, promptly discovers and corrects problems that arise during the implementation process, and ensures that the provision work is carried out in a standardized manner.

2. Identification and rectification of internal control deficiencies in non-financial reporting

According to the above-mentioned identification standards of internal control deficiencies in non-financial reporting, no major deficiencies or important deficiencies in the company’s internal control over non-financial reporting were found during the reporting period.

According to the above-mentioned identification standards for internal control deficiencies in non-financial reporting, the company has taken corresponding rectification measures and improved them for the general deficiencies discovered during the company's internal control evaluation process.

4. Description of other major matters related to internal control

The company has no other statements on major matters related to internal control.

In 2026, the company will focus on key business areas such as production, sales, R&D, finance, and information systems, continue to optimize internal control processes, strengthen the application of digital management and control tools, and improve the level of refined and intelligent internal control management; improve risk warning and prevention and control mechanisms, and carry out internal control on a regular basis. Special audits and supervisory inspections are carried out to promote closed-loop rectification of internal control deficiencies; we strengthen internal control and compliance training for all employees, cultivate a corporate culture of "everyone is compliant and observe internal control in everything", continue to consolidate the foundation of internal control management, ensure the implementation of the company's strategy and high-quality development, and effectively safeguard the legitimate rights and interests of all shareholders.

Board of Directors of Shanxi Zhendong Pharmaceutical Co., Ltd.

April 21, 2026