/Chinese Health: 2025 Internal Control Evaluation Report

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Chinese Health: 2025 Internal Control Evaluation Report

Shenzhen Stock Exchange

2026/04/25

Anhui Chinese Health Pharmaceutical Co., Ltd.

2025 Internal Control Evaluation Report

All shareholders of Anhui Huaren Health 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 Anhui Huaren Health Pharmaceutical Co., Ltd. (hereinafter referred to as the "Company"), and on the basis of daily supervision and special supervision of internal control, we evaluated the effectiveness of the company's internal control on December 31, 2025 (the base date of the internal control evaluation report).

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 level is responsible for organizing and leading the daily operation of the enterprise's internal control. The company's board of directors, audit committee, directors and senior management personnel guarantee that there are no false records, misleading statements or major omissions in this report, and bear individual and joint legal responsibility for the authenticity, accuracy and completeness of the report content.

The goal of the company's internal control is to reasonably ensure legal compliance of operation and management, asset safety, authenticity and completeness of financial reports and related information, improve operating efficiency and effectiveness, and promote the realization of development strategies. 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 include: Anhui Huaren Health Pharmaceutical Co., Ltd. and its subsidiaries. The companies included in the evaluation scope are the same as the consolidation scope of the financial statements.
Main businesses and matters included in the evaluation scope

The main businesses and matters included in the evaluation scope as well as high-risk areas include: governance structure, organizational structure, human resources policies, development strategies and the control of various major businesses, including capital operation management, inventory management, asset management, procurement and payment management, sales and collection management, contract management, related transaction management, subsidiary management, etc.

(1) Control environment

①Company organizational structure

In accordance with the needs of business operations and management, the company has set up the shareholders' meeting, the board of directors, and the management level. Among them: the board of directors has the strategy committee, the nomination committee, the remuneration and assessment committee, and the audit committee; the president has the marketing center, the commercial procurement center, the personnel department, the finance department, the quality department, the administration department and other departments, and effectively monitors and manages the subsidiaries. It has clarified the responsibilities and authority of each department and implemented a performance-based compensation system based on monthly and annual performance appraisals; it has played a positive role in optimizing business processes, improving management efficiency, and implementing internal controls.

②Corporate governance

The company strictly complies with relevant regulations such as the Company Law, Securities Law, and Code of Governance for Listed Companies, and continuously improves the company's corporate governance structure to ensure the standardized operation of the company's shareholders' meeting, board of directors, special committees and other institutions, and to safeguard the interests of the company and investors. The company has formulated the "Articles of Association", "Rules of Procedure for Shareholders' Meetings", "Rules of Procedure for the Board of Directors", "Working System for Independent Directors", "Working Rules for the President", "Related Transaction Management System", "External Guarantee Management System", "Foreign Investment Management System", "Working Rules for the Secretary of the Board of Directors", etc. These systems are the code of conduct and action guide for the company's standardized operations. The shareholders' meeting, the board of directors, independent directors and the secretary of the board of directors can operate in a standardized manner in accordance with the Company Law, Securities Law and other relevant laws and regulations, the Articles of Association and the company's internal systems, and perform their respective rights and obligations in accordance with the law, without any violations of laws and regulations.

③Development strategy

According to the "Articles of Association", the company's board of directors has established a strategy committee, which is mainly responsible for researching and making recommendations on major matters such as the company's long-term development plan, business goals, development policies, business strategies, major investment and financing plans, and implementing follow-up inspections.

④Human resources management

The company has established a "Personnel Management System", which makes detailed provisions on the company's personnel management, including training management, recruitment management, salary management, performance evaluation management, etc.; by providing employees with various forms of training, it improves employees' business level and enhances the company's competitiveness; by standardizing employee recruitment, employment, use and other procedures, it improves the attraction of talents.

The formulation of the "Personnel Management System" has further improved the company's incentive and punishment mechanism. It adopts a method of position-based salary determination and linking bonuses with company benefits and employee work performance to enhance employees' competitive awareness; through objective evaluation of employees' work ability, work attitude and other aspects, incompetent personnel are eliminated, the management of employees is strengthened, and a sound and effective reward and punishment mechanism is established.

⑤Corporate culture construction

The company combines corporate culture construction with human resources management, attaches great importance to the cultivation of employee quality, and establishes a good internal image of the company. The company has established a complete employee training and development plan, giving employees full rights and responsibilities, actively creating a corporate cultural atmosphere suitable for talent competition and development, providing all employees with platforms and opportunities to display their talents and realize value, and instill the core content of corporate culture into employees' minds and reflect it in their behaviors, thus making the company a modern enterprise with a first-class talent team and a high degree of cohesion.

⑥Internal audit and control

In order to implement various rules and regulations, ensure the safety and integrity of assets, and ensure the accuracy of financial and non-financial information generated in operating activities, the company's Board of Directors Audit Committee has set up an internal audit department, which, in accordance with national laws, regulations and relevant company regulations, reviews the situation of important business links such as sales and procurement, handles and confirms existing problems, asset survival and other issues; and strengthens internal audit work for subsidiaries.

⑦External influence

The external environment that affects the company mainly includes the supervision and review of relevant regulatory agencies, the economic situation and industry trends, etc. The company can continuously enhance internal control awareness, strengthen and improve internal control policies and procedures in a timely manner according to changes in the external environment.

(2) Risk assessment

In order to promote the company's sustainable, healthy and stable development and achieve the company's business goals, the company has established a multi-dimensional risk management system that includes the board of directors, company management and various functional departments to conduct risk assessments on all aspects of the company's decision-making and operation processes. Relevant departments collect and study external risk factors such as economic situation, industrial policy, market competition, and internal risk factors such as financial status, capital status, quality management, and operation management to provide a basis for the board of directors, company management and various functional departments to formulate risk response strategies.

(3) Control activities

In order to reasonably ensure the realization of the company's business objectives, the company has established relevant control policies and procedures, which mainly include the following aspects:

①Marketing management

The company has formulated the "Daily Management System of the Marketing Center", which strictly regulates the formulation of market development and sales policies, customer credit rating evaluation and credit management, order and contract management, product pricing, product delivery and returns, payment collection, contract execution monitoring and contract document management, and uses The parent company Anhui Huaren Health Pharmaceutical Co., Ltd. is the product output platform, the subsidiary Anhui Guosheng Pharmacy Chain Co., Ltd. is the retail direct operation platform, the subsidiary Anhui Quanfang Pharmaceutical is the supply chain delivery platform, and the pharmacy business school is the service platform to realize the integration of product output, supply and service.

②Purchasing management

The company has formulated the "Daily Procurement Management System" based on its own production and operation characteristics, etc., which stipulates the operational procedures for the development and review of suppliers, the establishment and maintenance of supplier databases and material databases, the signing of material procurement contracts, the ordering and acceptance of materials, the handling of defective and sluggish materials, and financial processing. According to the purchase price, the company's material purchases are divided into bulk materials and labor services. , the procurement of general materials and labor services and the procurement of small sporadic materials or labor services. It also stipulates that the procurement of bulk materials and labor services must adopt the method of open bidding. The procurement of general materials and labor services and the procurement of small sporadic materials or labor services shall be compared with three companies and evaluated from the quality, price, service, delivery time and other aspects of the materials, so as to reasonably ensure the quality of the purchased goods, improve the logistics speed, and control the procurement cost.

③Investment management

The company has formulated the "Foreign Investment Management System", which stipulates the scope of foreign investment, the approval authority for foreign investment, the management of foreign investment projects and the disposal of foreign investment projects, so as to improve the level of investment management and prevent investment risks.

④Financial management

The company believes that a good and effective accounting system can ensure the safety and integrity of assets, standardize financial accounting management behavior, and strengthen financial and accounting accounting. Therefore, it has done a lot of work in many aspects such as system standardization, financial personnel, and major accounting procedures.

The company has formulated a "Financial Management System" and has also issued supporting implementation measures such as expense budgets, expense approval authority and expense standards. The "Financial Management System" has specific provisions on current assets, fixed assets, intangible assets and other assets, investment management, financing management, operating income, costs and expenses, profits and their distribution, foreign currency business, and basic accounting work.

Through the construction of the financial management system, the company has basically achieved the organic integration of financial and accounting system construction, implementation, supervision, feedback and other aspects.

⑤Quality management

The company has established a complete quality management system in accordance with the requirements of the "Drug Administration Law" and combined with the company's actual situation. The company has always adhered to the quality policy of "safety, standardization, high quality and efficiency" and carried out all business activities in strict accordance with GSP requirements. From the selection of drug suppliers to the final flow of drugs into the market, every link is strictly controlled and has successfully passed the provincial GSP certification. The company has a relatively complete quality assurance system, taking into account GSP and product characteristics requirements from drug procurement, appearance design, quality management system construction and full process control of outbound delivery.

(4) Information and communication

The information and communication system is the nervous system of internal control and the guarantee for the effective implementation of internal control. It directly affects the implementation of corporate internal control and the realization of corporate business goals and overall strategic goals.

The company has formulated management systems such as the "Information Disclosure Management System" and "Insider Information Insider Registration Management System" to standardize the collection, processing and transmission of information and the screening, verification and analysis management mechanism of information to ensure the rapid transmission and effective management of information both internally and externally. The company has formulated a "Public Opinion Management System" that clearly stipulates the response and handling mechanisms for major emergencies, establishes and improves rapid response and emergency disposal mechanisms, and effectively protects the legitimate rights and interests of investors.

The company adopts various methods such as the Internet, emails, telephone conferences, routine meetings, special reports, surveys and studies, employee handbooks, education and training, etc. to establish an effective information collection system and information communication channels, which run through the entire enterprise from top to bottom and bottom up, to achieve accurate and timely transmission and sharing of required internal and external information within the enterprise, and to ensure effective communication between the board of directors, management and employees of the enterprise. The company has also established good external communication channels, such as communicating with customers through customer symposiums and customer visits, and communicating with suppliers through supplier meetings, business negotiations, etc., so as to record suggestions, complaints and other information received from external parties, and handle and provide feedback in a timely manner.

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 based on the enterprise's internal control normative system, internal control system and evaluation methods, and on the basis of daily supervision and special supervision of internal control.

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:

Standards for identifying deficiencies in internal control over financial reporting

(1) The quantitative standards for the evaluation of internal control deficiencies in financial reporting determined by the company are as follows:

Major deficiencies: A single internal control deficiency or a combination of multiple internal control deficiencies may cause the company's financial report misstatement to be greater than 1% of the total operating income of the consolidated financial statements, or greater than 1% of the total assets of the company's consolidated financial statements.

Important defects: A single internal control defect or a combination of multiple internal control defects may cause the company's financial report misstatement to be greater than 0.5% of the total operating income in the consolidated financial statements but not more than 1% of the total operating income, or greater than 0.5% of the total assets in the company's consolidated financial statements but not more than 1% of the total assets.

General defects: A single internal control defect or a combination of multiple internal control defects may cause the misstatement of the company's financial report to not exceed 0.5% of the total operating income of the consolidated financial statements, or not to exceed 0.5% of the total assets.

(2) The qualitative standards for the evaluation of internal control deficiencies in financial reporting determined by the company are as follows:

Identification criteria for major deficiencies: refers to a combination of one or more control deficiencies that may cause the company to seriously deviate from the control objectives. When there are any one or more major deficiencies in internal control, a conclusion that internal control is ineffective should be made in the internal control evaluation report, which mainly includes the following situations:

①Fraud by directors and senior managers;

② Correct the major errors in the announced financial reports;

③The CPA discovered that there was a material misstatement in the current financial report, but the internal control failed to detect the misstatement during operation;

④The audit committee and the internal audit department are ineffective in supervising the internal control of financial reporting.

The identification standard of important defects: refers to the combination of one or more control defects, whose severity is lower than that of major defects, but may still cause the company to deviate from the control objectives. The severity of important defects is lower than that of major defects and will not seriously endanger the overall effectiveness of internal control, but it should also attract the full attention of the board of directors and management. It mainly includes the following situations:

① Failure to select and apply accounting policies in accordance with generally accepted accounting principles;

② Failure to establish anti-fraud procedures and control measures;

③ Important defects after communication were not corrected within a reasonable period;

④ There are one or more deficiencies in the control of the period-end financial reporting process and there is no reasonable guarantee that the prepared financial statements will achieve true and accurate goals.

(3) General deficiencies in financial reports refer to other control deficiencies other than the above-mentioned major deficiencies and important deficiencies.

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

Non-financial reporting internal control deficiencies: refers to internal control design and operational deficiencies that cannot reasonably guarantee the achievement of other objectives other than financial reporting objectives, including strategic objectives, operating objectives, compliance objectives, etc.

(1) The quantitative standards for the evaluation of non-financial reporting internal control deficiencies determined by the company are as follows:

Major defects: A single internal control defect or a combination of multiple internal control defects may cause the company to lose no less than RMB 10 million.

Important defects: A single internal control defect or a combination of multiple internal control defects may cause the company to lose no less than RMB 1 million and less than RMB 10 million.

General defects: A single internal control defect or a combination of multiple internal control defects may cause the company to lose less than 1 million yuan.

(2) The qualitative standards for the evaluation of non-financial reporting internal control deficiencies determined by the company are as follows:

① The company’s decision-making process leads to major mistakes;

② Negative news frequently appears in the media, covering a wide range of areas and the negative impact has not been eliminated;

③The company’s important business lacks institutional control or the institutional system fails;

④ Major or important defects in the company’s internal control have not been rectified.

① The company’s decision-making process leads to general errors;

② The company has suffered serious loss of business personnel in key positions;

③ There are defects in the company’s important business systems or systems;

④ Important or general defects in the company’s internal control have not been rectified.

(3) General deficiencies in non-financial reporting refer to other control deficiencies other than the above-mentioned major deficiencies and important deficiencies, which mainly include the following situations:

①The company violated internal regulations but did not cause losses;

② There are defects in the company’s general business rules or systems;

③The company’s general defects have not been rectified;

④The company has other defects.

(3) Identification and rectification of internal control deficiencies

Identification and rectification of internal control deficiencies in financial reporting

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

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.

4. Description of other major matters related to internal control

During the reporting period, the company had no other significant matters related to internal control.

Board of Directors of Anhui Huaren Health Pharmaceutical Co., Ltd.

April 25, 2026