/[Periodic Report] Huibo Medical: 2026 Semi-Annual Report

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[Periodic Report] Huibo Medical: 2026 Semi-Annual Report

NEEQ

2026/08/27

Huibo Medical NEEQ: 838460

Henan Huibo Medical Co., Ltd.

Semi-annual report

2026

Important tips

The company’s controlling shareholders, actual controllers, directors, supervisors and senior managers guarantee that the information contained in this report does not contain any false records,

misleading statements or major omissions, and shall bear individual and joint liability for the truthfulness, accuracy and completeness of its content.

The person in charge of the company, Zhu Tiangang, the person in charge of accounting work, Guo Likun, and the person in charge of the accounting department (accounting supervisor) Guo Likun guarantee that half of

The financial report in the annual report is true, accurate and complete.

3. This semi-annual report has been reviewed and approved by the board of directors of the listed company, and there are no directors who did not attend the review.

4. This semi-annual report has not been audited by an accounting firm.

This semi-annual report involves forward-looking statements such as future plans, which does not constitute the company’s substantive commitment to investors. Investors and relevant persons

Adequate risk awareness should be maintained and the differences between plans, forecasts and commitments should be understood.

This semi-annual report has reported on the company in "6. Analysis of major risks faced by the company" in "Section 2 Accounting Data and Operations".

The major risk factors during the reporting period are analyzed. Investors are advised to read carefully.

1. Business Overview

(1) Business model

The company is in the general health and medical industry and is a high-tech enterprise integrating R&D, production, sales and service. The products are mainly rehabilitation supplies, intelligent rehabilitation equipment, rehabilitation services, medical digitization, and discipline project construction, supplemented by diversified product lines such as medical information software, special medical (special diet) food, and personal care and home cleaning products, forming a diversified overall solution of "equipment + supplies + software + services", and integrating multiple disciplines integrated solutions based on clinical needs. Focusing on digital health as a focus, the company will dig deep into the market demand for advantageous products and increase market development; strengthen independent innovation and cultivate new development momentum; do a solid job in safety production management and improve safety management levels; focus on talent development and corporate culture construction to provide support for the company's sustainable development.

1. Business Overview

(1) Health supplies

Combining the current status of different product lines and market conditions, the health care products product line is positioned as an overall supplier of functional dressings and subject construction. The overall supplier of functional dressings relies on the R&D layout of the company's product line to become the most complete supplier of functional dressing products in China, creating the concept of "wound treatment closure". The products cover wound debridement, infection control, exudate management, skin edge protection, non-invasive closure, scar prevention and nutritional support throughout the entire cycle of wound treatment. It provides an efficient overall treatment plan for clinical acute and chronic wounds, and also provides patients with professional domestic products and services.

In the rehabilitation products product line, after years of accumulation, the company has formed a full range of products covering Class III medical devices, Class II medical devices and functional dressings. It has the most complete product supply system in China and can provide overall clinical solutions; it has a sales team with nationwide coverage, complete layout and rich experience. In particular, functional dressing products have formed a product portfolio with certain barriers.

(2) Intelligent rehabilitation equipment

The company's intelligent rehabilitation equipment products integrate neurological rehabilitation, pain rehabilitation, sports rehabilitation, musculoskeletal rehabilitation, postpartum rehabilitation, sleep rehabilitation and other therapeutic functions, integrating chronic disease treatment and personal health management to achieve comprehensive treatment solutions. With the rehabilitation hospital or the rehabilitation center of a tertiary hospital as the head of the medical consortium, with the digital health care center as an important breakthrough, and with new generation technologies such as digitalization and artificial intelligence as tools, we can link municipal hospitals, county hospitals, township health centers, key communities, and home-based patients to build an integrated network to realize the connection of medical and health care in the entire region and in all time periods, and provide digital system solutions for the medical and health care of residents in the jurisdiction. By building a digital rehabilitation management system, we will establish a complete new model of remote rehabilitation with data interconnection between hospitals, communities, and families, solve space problems, telemedicine problems, and limited medical insurance issues, open up the entire process of pre-hospital, in-hospital, and post-hospital rehabilitation diagnosis and treatment, and truly establish a new digital rehabilitation model. At the same time, we will carry out technical training for rehabilitation physicians, therapists and professional nurses in the region, and reserve space for remote consultation and online training in rehabilitation medicine to complete the training and promotion of new technologies and methods in rehabilitation medicine. With the help of various external and internal technical resources, we will form a scientific research support platform to carry out clinical research and application of rehabilitation medicine; integrate functional, psychological, social and other rehabilitation medicine theories, and cooperate with domestic and foreign experts to explore new technologies and methods of rehabilitation medicine to promote the sustainable development of rehabilitation.

(3)Digital sleep business

Hidik has built a digital sleep ecosystem that integrates sleep assessment, diagnosis, intervention and treatment around hospital, community, home and other scenarios. With the integrated digital platform as an important driver, it has created a development trend of foundation first, outstanding application, integration of points and aspects, and ecological innovation, and quickly realized national business expansion and marketing layout. Create a new field of rehabilitation specialty through the field of sleep and seize the top spot. Centering on the concept of "Specialization, Specialty and Innovation", the center integrates professional treatment methods, novel diagnostic and treatment equipment, and innovative therapies of traditional Chinese and Western medicine to provide patients with unique diagnosis and treatment plans and refined services to solve patients' sleep disorders caused by various reasons. The sleep center construction company can provide a complete set of construction plans and operation plans, provide one-on-one services starting from department planning, and customize decoration and equipment plans based on the actual situation and needs of the hospital. The company's self-developed digital sleep medicine center three-level management system can help hospitals improve the business process efficiency of sleep medicine centers (including assessment efficiency, scheduling efficiency, treatment efficiency, communication efficiency, scientific research efficiency, etc.), while helping patients reduce ineffective treatment time and optimize non-treatment processes, improve hospital service quality and greatly enhance the treatment satisfaction of patients and their families. By connecting data between hospitals, communities, and families, out-of-hospital (off-site) bed management and off-site data interaction can be achieved to achieve out-of-hospital treatment and management of patients, creating conditions for increased revenue for departments. At the same time, combined with patient resources, hospital basic conditions and physician resources in the region, we customize a complete set of sleep center operation plans for the hospital and establish a community of responsibility. By forming a dedicated operation team with rich clinical experience, we use a stationary approach to provide uninterrupted on-site operation and maintenance support, and collaborate with the department clinical team to continuously optimize the diagnosis and treatment process and improve patient satisfaction. Cooperate with all-round publicity and promotion methods to build online and offline publicity channels to achieve hospital brand empowerment and patient improvement.

At the same time, the company uses medical institutions to drive the development of the private market through the plan of medical care for the people. It mainly launches corresponding sleep construction plans at the community and home levels. For example, it can provide sleep space stations and sleep energy stations for communities, and it can provide intelligent deep sleep stations for homes. Bedroom construction projects can provide hotels with smart deep sleep themed hotel construction, etc., and embed sleep space stations and sleep energy stations into large health physical stores, confinement centers, health clubs, dry rest centers, labor unions, etc., and gradually build a digital sleep health ecosystem for thousands of cities and thousands of stations in various regions. In order to better promote the construction of thousands of cities and thousands of stations, the company has launched a digital human, which can serve customers online 24 hours a day, comprehensively answer professional questions related to sleep, and provide customers with comprehensive services through ten empowerment systems.

(4) Rehabilitation services

Focusing on the company's main products, rehabilitation supplies and rehabilitation equipment, the company has established a hospital management company in Beijing and established a professional service team to achieve professional rehabilitation services. The company has entered the mid-term smart medical industry through its dominant position in health care products across the country, supplemented by health care food and in-hospital wound centers. By expanding the layout of product lines, from in-hospital diagnosis and treatment to out-of-hospital monitoring, we have formed a closed loop of IoT data, supplemented by our multi-faceted in-hospital operations and patient management services, to continuously increase the number of project cooperation and improve the quality of after-sales services. At the same time, we also carry out Internet medical business to realize the integration of the whole diagnosis and treatment cycle chain of home health management, Internet medical care and in-hospital cooperation. Next year, the company is expected to integrate financial insurance, strong cooperation resources and various outstanding capitals to jointly build the construction of Huibo Group's full medical ecological chain.

(5) Medical digitalization

Digital innovation is accelerating, industrial restructuring and upgrading, and building a digital China is an important engine for promoting Chinese-style modernization in the digital era. With the continuous innovation of new generation information technologies such as cloud computing, big data, artificial intelligence, and the Internet of Things, the digital medical industry is booming and will become the "new driving force" for the rapid development of China's digital economy.

Huibo Medical, a provider of digital solutions for the health industry, gives full play to its digital resource allocation capabilities and technological innovation advantages, starting from smart hospital construction and national health management, relying on core technologies such as "cloud, big, physical, mobile, and intelligent" to create a smart platform, integrating its sleep health, global rehabilitation, nutrition management, medical and prevention integration, chronic disease management and other service systems to provide hospitals with comprehensive services. Patient relationship management, hospital core business, medical management, discipline construction, operation management, Internet hospital, consulting planning and other hospital information platforms are built to achieve seamless connection of the entire hospital business process. Based on the grading standards of hospital smart management, data resource integration and sharing are realized, truly allowing the hospital to have "data" in mind for management, "data" for decision-making, "effectiveness" for execution, and "power" for development.

Through the Internet hospital module, grassroots institutions at all levels are empowered in the form of family doctors, mobile patrols, and people-benefiting centers, expanding the service radius, further opening up the three-level service process of "hospital-community-family", covering the whole process of digital intelligent services before, during, and after diagnosis, realizing "people-centered" integrated full-course health management, helping the hospital to improve clinical business efficiency, reduce operating costs, enhance residents' sense of service acquisition and satisfaction, and meet the intelligent empowerment of the trinity of "medical care-service-management".

At the same time, by linking public health, civil affairs, health, medical insurance and other related systems, we collect health data such as medical and prevention integration, medical and nursing care, chronic disease management, etc., and use the big data center as a carrier to build a digital health service platform. Through data analysis and transformation, we serve health applications to form a smart integration within the hospital and comprehensive interconnection outside the hospital, promote regional health and medical data interconnection, promote regional "digital and real" integrated development, and help regional "health-centered" digital service upgrades.

2. Sales model

After more than 20 years of accumulation, Huibo Medical has formed a product ecosystem that coexists with multiple product lines such as functional dressings, nutritional foods, pressure therapy products, infection control and protection products, intelligent rehabilitation equipment, rehabilitation physiotherapy equipment, sleep equipment, and medical informatization. The sales model has also changed from the traditional single-product investment supply and sales to combining the company's overall product line to provide integrated overall solutions to clinical departments and patients. Combining customer needs and the company's accumulation in products and services, it can export sleep medicine centers, rehabilitation medicine centers, wound repair departments and other discipline construction and operation projects to customers. In the field of digitalization, the company exports digital health product solutions such as intelligent rehabilitation, digital sleep, combined medical and nursing care, smart hospitals, smart health care, and smart disease control to provide all-round assistance for the construction of medical digitalization. At the same time, the company takes advantage of product diversification and gives full play to its factory advantages. The company develops business in e-commerce, foreign trade, OEM, registration certificate buyout and other aspects. The group has formed a multi-mode and omni-channel sales layout through different product portfolios and multiple sales systems.

Integrating omni-channel resources, the medical institution side focuses on "dealer distribution + hospital direct sales" and serves more than 600 well-known hospitals; the C side focuses on "online e-commerce + offline retail", covering mainstream e-commerce platforms, national terminal drugstore chains and offline experience stores.

3. Procurement model

The MRP purchasing model is combined with the order point purchasing model.

Since the company's products are all based on market demand and under a certain safety stock, the sales department will make quantitative reserves based on market sales and expected sales. The company's production department will apply for the purchase of materials based on product reserve needs.

4. Production mode

(1) The company’s production model is a combination of “standardized production + customized orders + outsourced manufacturing”

The company's products have a wide range of customers. The sales department is the starting point of the company's production process and organizes production based on market expectations and certain safety stocking principles. The production plan is based on the product BOM compiled by the design department, planning production schedules and purchasing raw materials, and production is carried out completely based on market demand. Quality control involves the participation of all personnel from the quality management department and all departments in the production process, and runs through the entire process of design, procurement and manufacturing.

(2) Green production model:

The company pays attention to green development and has outstanding performance in efficient use of resources and energy, clean production process, waste recycling and construction of environmental management system, and won the title of "Provincial Green Factory" in 2024. In the future, we plan to further optimize production processes, introduce energy-saving and emission-reduction technologies, build a green supply chain, and lead the green development of the industry.

5. R&D model

The company has always adhered to independent research and development and innovation of technology and products. At the same time, it has actively carried out academic cooperation with well-known domestic universities and hospitals to form a market-oriented industry-university-research cooperation model to develop high-quality products that meet clinical needs. The R&D process complies with the requirements of the ISO13485 medical device quality management system, uses the integrated product development (IPD) model, implements the project manager responsibility system, and strictly carries out risk control at various stages such as product requirement definition, design input, design development, design verification, marketing plan and confirmation, design transfer, design confirmation and product release starting from product research to ensure that the R&D internal control process is effectively implemented. The R&D process and system can basically cover the management of the entire product life cycle.

During the reporting period, 4 first-time registration applications for Class II and III medical devices, 7 application changes for registration/filing of Class II and III medical devices, and 24 applications for renewal registration were made; a total of 4 initial registration certificates for medical devices, 2 approval documents for change registration/filing, and 17 renewal registrations were obtained, and production license changes were made 11 times throughout the year. So far, the group company has obtained a total of 36 registration certificates for Class I medical devices, 152 registration certificates for Class II and III medical devices, 42 registration certificates for disinfectants, 6 registration certificates for cosmetics, and 3 daily necessities.

In terms of intellectual property rights, this year, there were 3 new invention patent authorizations, 7 new utility model patents, and 3 new design patent authorizations; there were 32 new patent applications, including 30 new utility model patent applications, 0 design patent applications, and 2 invention patent applications; in terms of international patent applications, 0 PCT patent applications were submitted, and no new international patent authorizations were obtained. As of the end of 2025, the company has 41 domestically authorized invention patents, 257 authorized utility model patents, and 52 appearance patents; abroad, it has authorized 1 German invention, 1 British invention, 3 Belgian inventions, 1 Japanese invention patent, 1 German utility model patent, and 2 Australian utility model patents.

In terms of R&D achievements and honors, during the reporting period, Henan Huibo Medical Co., Ltd. maintained the title of Henan Province Green Factory (certified in 2024). Henan Huibo Medical Co., Ltd. passed the review of the national-level Specialized Special New Little Giant. The subsidiary Henan Xianfang Medical Protective Products Co., Ltd. passed the high-tech enterprise certification. The subsidiary Henan Huibo Medical Co., Ltd. passed the high-tech enterprise certification. Dick Kangyang Industrial Development Co., Ltd. was once again recognized as a software enterprise by the Henan Software and Service Industry Association. Its subsidiary Siddique Kangyang Industrial Development Co., Ltd. passed the review of "Henan Province Specialized, Special and New Small and Medium-sized Enterprises". 8 companies in the group were recognized as technology-based small and medium-sized enterprises; so far, the company has won 40 provincial and municipal scientific and technological achievements.

6. Profit model

The company's profit model is to cherish life and provide users with comprehensive solutions for digital rehabilitation.

The company mainly focuses on products in the general health field such as rehabilitation supplies, intelligent rehabilitation equipment, rehabilitation services, special medical foods, and healthy textiles. It provides customers with overall digital rehabilitation solutions around the construction of sleep centers, digital rehabilitation centers, and medical community operation suppliers. Some products are characterized by low cost and customization, and some products are highlighted by high technology and convenient operation to meet the needs of different customers.

7. Information model

During the reporting period, the company actively promoted the construction of comprehensive information management capabilities in accordance with the business development strategic plan. Under the guidelines of group unification, business integration, and process collaboration, the company continued to expand the coverage of information management, explore the depth of information management application, and improve information management control capabilities. Based on the previous informatization and the implementation of the performance management system, the performance appraisal management was optimized and adjusted to improve the efficiency and quality of performance appraisal.

Based on the actual situation of the company, the budget and expense control functions of the collaborative platform are enabled to achieve the preparation of the company's annual and monthly expense budgets and the precise control of expense standards, effectively control business risks, assist senior leaders to grasp the overall situation of corporate operations, make scientific decisions, and provide reference data for rapid budget preparation.

(2) Identification status related to innovation attributes

√Applicable □Not applicable

"Specialized, Specialized and New" certification √National level □Provincial (municipal) level

"Single Champion" recognition □National level □Provincial (municipal) level

"High-tech enterprise" certification √Yes

Details 1. Relying on the multi-dimensional evaluation of specialization, innovation ability, operation and management level and growth in the fields of biological dressings and intelligent rehabilitation equipment, the company was awarded the "Specialized, Specialized, New and Key Little Giant" recognized by the Ministry of Industry and Information Technology in July 2021, which is valid for three years; in September 2024, it passed the review of the "Specialized, Specialized, New and Key Little Giant", which is valid for three years.

It has been recognized as a national high-tech enterprise for many times in succession, and will obtain the high-tech enterprise certificate again in November 2025. The certification is valid for three years;
On December 26, 2014, it was recognized as the “Henan Provincial Trauma Polymer Dressing Engineering Technology Research Center” by the Henan Provincial Department of Science and Technology;
On April 20, 2015, it was approved by the Henan Provincial Development and Reform Commission as the "Henan Provincial Engineering Laboratory for Wound Repair Devices";
On December 31, 2015, it was recognized as a river worker by the Henan Provincial Department of Human Resources and Social Security.

The postdoctoral R&D base unit of Southern Province established the "Henan Postdoctoral R&D Base";

On January 30, 2019, it was recognized as “Henan Enterprise Technology Center” by the Henan Provincial Development and Reform Commission.

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2. Main accounting data and financial indicators

Unit: Yuan

Profitability Current period Same period last year Increase or decrease ratio % Operating income 24,774,147.60 31,928,928.11 -22.41% Gross profit margin % 35.67% 65.15% -

Net profit attributable to shareholders of listed companies -9,753,325.11 -5,241,372.77 -86.08%

Attributable to shareholders of the listed company -9,672,859.34 5,417,708.32 -278.54% after deducting non-recurring gains and losses

net profit

Weighted average return on net assets -26.38% -9.04% -

Rate % (based on ownership of listed companies)

Calculation of the company’s shareholders’ net profit)

Weighted average return on net assets -26.16% 9.34% -

Rate % (attributed to the listed company

Shareholders’ deduction for extraordinary losses

Calculation of net profit after earnings)

Basic earnings per share -0.1 -0.07 -42.86%

Solvency ability End of the current period End of the previous year Increase or decrease ratio% Total assets 236,522,769.19 262,589,605.36 -9.93% Total liabilities 204,547,936.41 220,816,269.89 -7.37% Attributable to shareholders of the listed company 32,099,281.79 41,852,606.90 -23.30%Net assets

0.33 0.43 -23.83% of net assets per share attributable to shareholders of listed companies

Asset-liability ratio % (parent company) 57.92% 58.07% -

Asset-liability ratio % (consolidated) 86.48% 84.09% -

Current ratio 0.84 0.82 -

Interest coverage ratio -1.81 -0.56 -

Operating conditions Current period Same period last year Increase/decrease percentage % Cash flow generated from operating activities 6,004,347.75 6,840,748.18 -12.23% Net amount

Accounts receivable turnover ratio 0.30 0.50 -

Inventory turnover rate 0.25 0.18 -

Growth situation for this period Same period last year Increase/decrease ratio % Total assets growth rate % -9.93% -9.06% -

Operating income growth rate% -22.41% -47.01% -

Net profit growth rate% -51.35% -1,345.62% -

3. Financial situation analysis

(1) Analysis of assets and liabilities

Unit: Yuan End of current period End of previous year

Item Percentage of change in total assets Percentage of change in total assets Amount

Proportion % Proportion %

Monetary funds 862,224.67 0.36% 817,928.09 0.31% 5.42% Notes receivable 0.00% 0.00%

Accounts receivable 49,059,953.23 20.74% 71,310,603.23 27.16% -31.2% Prepaid accounts 16,380,703.34 6.93% 5,898,446.74 2.25% 177.71% Other payables 6,391,106.20 2.70% 21,183,417.22 8.07% -69.83%Inventory 55,035,771.47 23.27% 48,905,722.09 18.62% 12.53%Fixed assets 49,422,140.80 20.90% 53,248,844.58 20.28% -7.19% Construction in progress 15,055,369.07 6.37% 15,055,369.07 5.73% 0% Intangible assets 17,573,754.94 7.43% 18,009,196.51 6.86% -2.42%Goodwill 9,277,306.71 3.92% 9,277,306.71 3.53% 0% Short-term borrowings 89,585,917.96 37.88% 98,990,399.28 37.70% -9.5% Long-term borrowings 47,729,915.99 20.18% 35,157,757.13 13.39% 35.76%Accounts payable 36,097,262.83 15.26% 44,659,240.67 17.01% -19.17%Other accounts payable 9,670,365.75 4.09% 14,077,774.72 5.36% -31.31% Non-financial securities due within one year

0 0.00% 6,290,910.93 2.40% -100% current liabilities

Reasons for major changes in the project

Accounts receivable decreased by 31.2% year-on-year, mainly due to the long period of accounts receivable and excessive provision for bad debts.
Long-term borrowings increased by 35.76% year-on-year, mainly due to the extension of loan terms after bank loans expired.
Non-current liability items due within one year decreased by 100% year-on-year. Liabilities such as long-term loans that were originally reclassified to this item in this period have become due and repaid.
Prepaid accounts increased by 177.71% year-on-year, mainly due to increased investment in prepayments for raw materials in this period.
Other receivables decreased by 69.83% year-on-year, mainly due to the recovery of some current accounts and related party accounts during the period; at the same time, the historical reserve funds and security deposits were cleared, and some accounts were written off, resulting in a significant reduction in the closing balance of other receivables.
Other payables decreased by 31.31% year-on-year, mainly due to the settlement of part of the current accounts during the period and the payment of part of the deposits, resulting in a corresponding decrease in the balance of other payables at the end of the period.

(2) Business situation and cash flow analysis

Unit: yuan for the current period and the same period last year

Change ratio items % of operating income % of operating income

Amount Amount Example%

Proportion of income % Proportion of income %

Operating income 24,774,147.60 - 31,928,928.11 - -22.41% Operating costs 15,936,388.36 64.33% 11,127,053.77 34.85% 43.22% Gross profit margin 35.67% - 65.15% - - Selling expenses 3,979,339.83 16.06% 3,949,554.02 12.37% 0.75% Administrative expenses 5,636,883.82 22.75% 7,074,734.21 22.16% -20.32% Research and development expenses 2,756,380.96 11.13% 2,168,222.52 6.79% 27.13%Financial expenses 3,665,838.91 14.80% 4,162,535.67 13.04% -11.93%Credit impairment loss -1,990,564.26 -8.03% -101,730.90 -0.32% 1,856.7% Asset impairment losses 58,548.00 0.24% 582,970.67 1.83% -89.96% Other income 37,613.93 0.15% 180,230.76 0.56% -79.13% Investment income - 0.00% -10,138,105.66 -31.75% 100% asset disposal income - 0.00% 923,763.11 2.89% -100% operating profit -9,759,694.42 -39.39% -6,059,134.12 -18.98% 61.07% non-operating income 240,757.76 0.97% 120,315.11 0.38% 100.11%Non-operating expenses 358,837.46 1.45% 461,059.78 1.44% -22.17%Net profit -9,877,774.12 -39.87% -6,526,588.12 -20.44% -51.35% Net cash flow from operating activities 6,004,347.75 6,840,748.18 -12.23%

Net cash flow generated from investing activities 125,000.00 43,900.30 184.74%

Net cash flow generated from financing activities -5,919,104.69 -6,626,095.46 -10.67%

Reasons for major changes in the project

Operating costs increased by 43.22% year-on-year, mainly due to the decline in revenue and low gross profit in the centralized procurement market.
The gross profit margin decreased by 29.48%, mainly due to the decline in revenue and the low gross profit in the centralized procurement market.
Credit impairment losses increased by 1,856.7% year-on-year, mainly due to the fact that accounts receivable are too long and bad debt provisions need to be accrued on a proportional basis.
Asset impairment losses decreased by 89.96% year-on-year, mainly due to the significant reduction in the scale of various asset impairments accrued in this period.
Other income decreased by 79.13% year-on-year, mainly due to the significant decrease in the amount of government subsidies and related tax refunds in this period compared with the previous period.
Investment income increased by 100% year-on-year, mainly because there was no increase in income from external investment in this period, while there was a corresponding increase in investment income in the same period last year.

Health.

Asset disposal income decreased by 100% year-on-year, mainly because there was no asset disposal business such as fixed assets and intangible assets in this period.
Non-operating income increased by 100.11% year-on-year, mainly due to the inflow of non-operating types such as liquidated damages and compensation payments in the current period. The operating income in the same period last year

The external income base is extremely low.

Net profit dropped by 51.35% year-on-year, mainly due to the decline in revenue and operating efficiency in the current period.

4. Investment status analysis

(1) Major holding subsidiaries and joint-stock companies

√Applicable □Not applicable

Unit: Princess Yuan Gong

Si Si wants

Registered capital Total assets Net assets Operating income Net profit Name Category Industry

weighing service

Xizi Rehabilitation 15,000,000.00 28,862,014.72 4,282,876.99 609,539.83 -673,005.49Di Gong Intelligent

Kesi equipment

Zheng Yan

State hair,

give birth to

produce,

for sale.

Xizi Rehabilitation 101,000,000.00 117,043,178.79 73,011,277.58 496,975.17 -3,617,975.57Di Gong Intelligent

Kesi equipment

Kangyan

nourish hair,

give birth to

produce,

for sale.

Huizi Medical 5,000,000.00 21,774,533.50 -13,849,166.43 5,486,640.83 323,758.70Bo Public Equipment

Medical Division Sales

therapy

Branch

technology

control

Business analysis of major participating companies

√Applicable □Not applicable

Company name Relevance to the company’s business Purpose of holding

Junyi Capital Joint Stock Company Expands Investment to Increase Income

(2) Investment in financial products

√Applicable □Not applicable

Unit: Yuan It is expected that the principal cannot be recovered or there are other types of financial management products. Source of funds. Undue balance. Overdue uncollected amount. Explanation of the impact of situations that may lead to impairment on the company. Bank financial products. Own funds 100 0 Does not exist.

Total - 100 0 -

(3) Structured entities controlled by the company

□Applicable √Not applicable

5. Corporate Social Responsibility

√Applicable □Not applicable

During the reporting period, the company actively fulfilled its corporate social responsibilities. The company standardizes governance and information disclosure, safeguards the legitimate rights and interests of shareholders and creditors; strictly abides by labor and employment regulations, ensures employee compensation and benefits and occupational health and safety, and organizes production safety and business training.

The company strictly implements the medical device quality management system, strictly controls product quality, safeguards the rights and interests of medical institutions and consumers, and adheres to fair and honest supply chain cooperation. As a provincial green factory, the company strictly abides by environmental protection regulations. No environmental administrative penalties were incurred during the reporting period, and it continues to implement energy conservation, consumption reduction, and green manufacturing-related work.

The company is rooted in local industrial parks, stably absorbs employment, and relies on its main business of medical and health care to help the development of grassroots medical and health care. There were no major public welfare donations during the reporting period. In the future, the company will continue to promote various social responsibility practices.

6. Analysis of major risks faced by the company

Name of major risk matters Brief description of major risk matters

At present, medical institutions across the country are actively preparing for the construction of rehabilitation departments. The support of national policies has played a role in promoting the company's intelligent rehabilitation equipment nationwide. As the country increasingly deepens institutional reform in the medical field, if the centralized procurement policy is fully implemented in the field of rehabilitation medical equipment, the company may face product price declines.

The risk of changes in national policies in the intelligent rehabilitation industry. In addition, the country will no longer vigorously promote intelligent rehabilitation devices in the future, which may have an adverse impact on the company's operating performance. Countermeasures: The company will vigorously develop a series of products related to intelligent rehabilitation equipment, continuously improve core technologies, expand product varieties, from medical rehabilitation to home care, continuously expand product coverage, and enhance the competitiveness of the company's products.

As the market matures and develops, there is a high degree of homogeneity in the functional medical dressing market. Although product quality varies, the basic product form and purpose are not very different. This puts the company under pressure from intensified industry competition, which may have an adverse impact on the company's operating results. Although the company's advantages in core technology and R&D team ensure its relative leading position and its market share is not easily replaced by its competitors, if the company

Risk of weakening market competitiveness

Failure to respond to market competition in a timely and effective manner will face the risk of weakening market competitiveness and declining market share. Countermeasures: The company will continue to attach importance to the research and development of new products and new technologies to meet the needs of the market and customers; increase the technological upgrading and transformation of old products, rely on excellent product quality to stabilize the market, and take the path of differentiated competition to increase market competitiveness.

The functional medical dressing industry and rehabilitation equipment industry are high-tech industries, and their products and core technologies constitute the company's core competitive advantages in the industry. Although the company has formed a core technology system through long-term R&D and production practices and mastered a large number of products,

Risks of core technology leakage The company has taken relevant effective measures and implemented patent protection for product formulas, production processes, production equipment design and other technologies. During the reporting period, the company has well protected the core technology and no leaks have occurred. However, if continuous and effective management cannot be implemented, there is still the possibility of core technology leaks. In order to deal with the above risks, the company will further strengthen the construction of confidentiality system, define the confidentiality level of core technology, clarify the company's core technology management mechanism, and reduce the risk of core technology loss of confidentiality.

Professional talents are the key to the company's technological development and innovation. After several years of development and technology accumulation, the company has established a relatively complete R&D team, formed strong independent innovation capabilities and possesses core technologies. Technology research and development work itself relies on professional talents, especially core technical personnel. Although the company's core technical personnel were stable during the reporting period,

Risk of loss of core technical personnel. However, if core technical personnel leave and the company cannot arrange suitable replacements or supplements in a timely manner, it will have a significant adverse impact on the company's production and operations. In order to cope with the above risks, the company will continue to actively promote various forms of integration of industry, academia and research, so that institutes and enterprises can establish long-term and stable cooperative relationships, increase the training of the company's technical personnel, and actively introduce outstanding technical talents.

With the rapid development of medical and health care, my country's requirements for functional medical dressings continue to increase, and market demand is also constantly changing. As a provider, we must keep up with market demand, constantly develop new products and put them on the market in a timely manner, so that we can better adapt to market changes and meet medical diagnosis needs. At the same time, functional medical dressing products have a large investment in research and development and a long research and development cycle. After successful research and development, they must go through product standard formulation and review, clinical trials, quality management system assessment, product registration and other approval procedures before they can obtain a product registration certificate issued by the national food and drug administration department.

New product research and development and registration risk certificate, so as to put it on the market. The cycle for obtaining the corresponding licenses and producing products to enter the market is generally more than 3 years. Failure to successfully develop new products or complete product registration in accordance with the R&D plan will affect the recovery of the company's early R&D investment and the realization of future benefits, causing greater losses to the company. In order to deal with the above risks, the company will adhere to the market orientation and aim to meet customer requirements, continue to increase investment in research and development, actively promote cooperation with universities and scientific research institutes, continue to develop new products that lead the development of the industry, and occupy the commanding heights of the market as soon as possible to enhance the company's comprehensive competitiveness.

The company's comprehensive gross profit margin for the first half of 2026 is 35.67%. One of the company's main businesses is the production and sales of Class II medical devices. Affected by industry factors, the gross profit of such products is generally high. Once the competitive environment of the industry changes adversely, the company's gross profit will drop significantly, and the company's profitability will therefore be weakened. for

Risk of decline in gross profit margin

In order to cope with the above risks, the company has always attached great importance to the improvement of its own research and development capabilities. On the one hand, it continues to improve the quality of its original products, and on the other hand, it continues to develop new products in related fields. Under the overall industry gross profit margin decline trend, the company's gross profit margin has declined compared with the same period.

The company is a high-tech enterprise and enjoys the preferential policy of paying corporate income tax at a 15% income tax rate from 2025 to 2028. If the company cannot continue to enjoy the high-tech enterprise income tax preferential treatment in the future, it will have a certain impact on the company's net profit. In order to cope with the above risks, on the one hand, the company will continue to increase research on

Risks of changes in preferential tax policies

We invest in R&D, actively promote cooperation with universities and scientific research institutes, and continuously promote the company's technological updates to meet the requirements of high-tech enterprises. On the other hand, the company strives to expand the market, improve the profitability of its main business, and reduce the impact of tax incentives on the company.

Zhu Tiangang, the company’s controlling shareholder and actual controller, directly holds 53.03% of the company’s shares.

Risk of improper control by the actual controller

shares, indirectly holds 14.42% of the voting rights through Huizhong Medical, and serves as the company's chairman and general manager at the same time, which can have a significant impact on the company's operation and management. There is a risk that the actual controller of the company will use its shareholding advantages to exercise voting rights and control the company's production and operations. The company has adopted the "Rules of Procedure for Shareholders' Meetings", "Rules of Procedure for Board of Directors", "Related Transaction Management Measures", "External Guarantee Management System", "Foreign Investment Management System" and other systems to improve the company's operation management and decision-making mechanism for major matters. At the same time, when electing members of the board of directors and chairman of the board of supervisors, the opinions of small and medium-sized shareholders will be fully considered to safeguard the interests of small and medium-sized shareholders. In the future, the company will consider continuing to introduce investors, optimize the company's equity structure, take effective measures to optimize internal management, continuously enhance the integrity and normative awareness of controlling shareholders and actual controllers through effective supervision mechanisms, and urge them to operate the company in compliance with relevant laws and regulations and faithfully perform their duties.

Have there been any significant changes in the major risks of the current period? No major changes have occurred in the major risks of the current period.

Section 3 Major Events

1. Index of major events

Matter Yes or No Index

Whether there is any litigation or arbitration matter √Yes □No 3.2. (1) Whether there is any provision of guarantee √Yes □No 3.2. (2) Whether it provides external loans □Yes √No

Is there any situation where shareholders and their related parties occupy or transfer the company’s funds, assets and other resources? □ Yes √ No 3.2. (3) Sources

Whether there are related transactions √ Yes □ No 3.2. (4) Whether there are acquisitions, sales of assets, or external investments that have been reviewed and approved by the shareholders’ meeting □ Yes √ No

and business mergers that occurred during the reporting period

Is there an equity incentive plan, employee stock ownership plan or other employee incentive measures? Yes √No

Is there any share repurchase matter □Yes √No

Whether there are any disclosed commitments √Yes □No 3.2.(5) Whether there are assets that have been sealed, detained, frozen or mortgaged or pledged √Yes □No 3.2.(6) Whether there are matters subject to investigation and punishment □Yes √No

Is there any breach of trust? □Yes √No

Is there any bankruptcy and reorganization matter □Yes √No

2. Details of major events

(1) Litigation and arbitration matters

Litigation and arbitration matters that occurred during the reporting period

Whether the cumulative amount involved in litigation and arbitration matters that occurred during the reporting period accounts for 10% or more of the net assets

√Yes □No

Unit: Yuan Nature Cumulative amount Proportion of net assets at the end of the period %

As plaintiff/applicant 0 0%

As defendant/respondent 8,804,607.63 27.54%

As a third party 0 0%

Total 8,804,607.63 27.54%

Major litigation and arbitration matters disclosed in the form of temporary announcements

Unit: Yuan Temporary Announcement Claim Whether the case is closed or not. Is there any pre-emption? Progress or nature of the case. Cause of action.

Cited Case Amount Calculated Liabilities Implementation Status 2026-075 Defendant/Applicant Loan Contract Dispute Yes 3,235,626.22 No In the process of implementation

Invite people

2026-042 Defendant/Respondent Loan contract dispute. No 5,147,759.41 No Under trial in court

Invite people

The impact of major litigation and arbitration matters on the company:

adversely affect the company's operations.

(2) Guarantee matters that occur in the company

The listed company and its subsidiaries within the scope of the consolidated statements have illegal guarantee matters, or the cumulative amount of guarantees performed and unfulfilled during the reporting period exceeds 10% of the absolute value of the audited net assets of the listed company's consolidated statements at the end of the year

√Yes □No

Unit: yuan quilt

guarantor

Guarantee period

Whether

To hang

Is the card public

Whether to control and perform

Actual performance has been

It is necessary to be held responsible for the guarantee

Serial number Guarantee amount Guarantee liability Decision taken by the guarantor Balance type Dong, actual

Amount of Supervisory Control Policy

Start, Stop, Measures and Implementation Sequence

and its

control

enterprise

industry

Sheedy

2025 2026 Done

Ke Kang

Year 11 and before Year 11 Not involved1 Farming 2,849,900 2,849,900 2,769,900 Joint and several No

Month 23 Month 3 hourly performance and career development

Day by day

Exhibition

Limited public service

Division

Sheedy

Ke Kang

2026 2027 Finished

Year 4 Year 4 ago and not involved in 2 Industry 9,650,000 9,650,000 9,650,000 Jointly No

March 30, 18th time and exhibition

Day by day

Limited public service

Division

Henan

Be on guard first

2024 2027 For medical use

Year 8 Year 8 and before 3 Protection 3,000,000 3,000,000 2,800,000 Joint and several No

June 4 Clothing and supplies

Day by day

limited

company

Sheedy

Ke Kang

2025 2026 Finished

Year 12 years ago and not involved in 4 industry development 2,400,000 2,400,000 2,400,000 Joint and several No

March 26th and 24th time and exhibition

Day by day

Limited public service

Division

Total - 17,899,900 17,899,900 17,619,900 - - - - - -

Performance of guarantee contracts that may bear or have assumed joint liability for repayment

None

Summary of guarantees provided by the company

Unit: Yuan

Summary of items Guarantee amount Guarantee balance Guarantees provided by listed companies during the reporting period (including guarantees for on-balance sheet subsidiaries) 17,899,900 17,619,900 The company and on-balance sheet subsidiaries provide guarantees for shareholders, actual controllers and related parties of listed companies 0 0

The company directly or indirectly provides guarantees for 0 0 guaranteed persons whose asset-liability ratio exceeds 70% (excluding the principal amount)

The amount of the company's total guarantee exceeding 50% of the net assets (excluding the original amount) 0 0 The company provides guarantees for companies that go off balance sheet during the reporting period 0 0

Guarantee situations that should be highlighted

□Applicable √Not applicable

(3) Occupation or transfer of company funds, assets and other resources by shareholders and their related parties

During the reporting period, the company did not have any shareholders or its related parties occupying or transferring the company's funds, assets and other resources.

(4) Related transactions of the company during the reporting period

Unit: Yuan

Daily related transactions Estimated amount Amount incurred Purchasing raw materials, fuel, power, and receiving services 20,000,000 1,483,535.31 Selling products and commodities, providing services 25,000,000 13,431,693.56 Types of daily related transactions that are applicable to the company as stipulated in the company's articles of association

Others 120,000,000 17,899,900

Other major related transactions Amount under consideration Transaction amount Acquisition and sale of assets or equity

Joint external investments with related parties

Provide financial assistance

provide guarantee

Entrusted financial management

Related transactions of enterprise group finance company Estimated amount Incurred amount deposit

loan

The necessity and continuity of major related transactions and their impact on the company’s production and operations

Transactions between the company and related parties occur based on meeting the company's operating needs and are conducive to the company's business development. There is no harm to the interests of the company and small and medium-sized shareholders. It will not affect the company's independence and normal operations. The company's main business will not be dependent on related parties due to the above-mentioned related transactions.

(5) Performance of commitments

Temporary Announcement Index Commitment Subject Commitment Type Commitment Start Date Commitment End Date Commitment Fulfillment Public Transfer Instructions Actual Controller or Horizontal Competition Commitment August 18, 2016 - In Progress Controlling Shareholder Date

Public Transfer Instructions Actual Controller or Capital Occupation Commitment August 18, 2016 - The date of the written letter is being fulfilled Controlling Shareholder

Public transfer description Actual controller or other commitments (please fill in the controlling shareholder’s own letter on August 18, 2016 - in progress) Date

Public Transfer Instructions Directors, Supervisors and Senior Executives Commitment to Competition in the Industry August 18, 2016 - The date of the written notice is being fulfilled

Public Transfer Instructions Directors, Supervisors and Senior Management Other Commitments (please fill in the letter of execution on August 18, 2016 by yourself) Date

Details of overdue and unfulfilled commitments

None

(6) Assets that have been seized, detained, frozen or mortgaged or pledged

Unit: Yuan Rights Restricted Category Ratio of Total Assets

Asset name Asset category Book value Reason for occurrence

Type Example%

Alipay deposit Monetary funds Account deposit 102,452.27 0.04% Store deposit Bank deposit Monetary funds Frozen 396,175.32 0.17% Litigation frozen warehousing-Yu (2018) Fixed assets

Nanyang City Real Estate Mortgage 3,053,131.82 1.29% CCB Mortgage No. 0004079

Office Building-Yu (2018) Fixed Assets

Nanyang City Real Estate Mortgage 4,539,653.71 1.92% CCB Mortgage No. 0004080

Patent "a method for preventing intangible assets

Compositions for treating scars

and preparation method thereof” Pledge 0 0% CCB mortgage (Patent application number:

2013104393804

Patent "hypertrophic scar intangible assets"

Repair film and its production

"Preparation Method" (Patent Application Pledge 0 0% CCB Mortgage Application Number:

2015106436305)

Boiler Room-Yu (2018) Fixed Assets

Nanyang City Real Estate Mortgage 24,064.4 0.01% Agricultural Bank of China Mortgage No. 0004074

Dormitory Building-(2018) Fixed Assets

Nanyang City Real Estate Mortgage 566,534.96 0.24% Agricultural Bank of China Mortgage No. 0004075

Warehousing-Yu (2018) Fixed assets

Nanyang City Real Estate Mortgage 864,777.69 0.37% Agricultural Bank of China Mortgage No. 0004076

Warehousing-Yu (2018) Fixed assets

Nanyang City Real Estate Mortgage 859,846.8 0.36% Agricultural Bank of China Mortgage No. 0004077

Land (Yu (2018) Intangible Assets

Nanyang City Real Estate Rights

No. 0004075,

No. 0004076,

Mortgage 5,883,453.48 2.49%

No. 0004077,

No. 0004078,

No. 0004079,

No. 0004080)

Office Building-Yu (2022) Fixed assets Mortgage 14,686,858.49 6.21% Bank of China mortgages Sheqi County real estate rights

No. 0074261

Workshop No. 1 and Car No. 2 Fixed assets

Jian-Yu (2022) Society

Banner County Real Estate Mortgage No. 362,435.37 0.15% Postal Mortgage No. 0074262,

No. 0074232

Warehouse-Yu (2022) Fixed Assets

Sheqi County real estate mortgage 3,407,246.74 1.44% Postal Mortgage No. 0074231

Sterilization workshop--Yu fixed assets

(2022) Sheqi County does not

Mortgage 2,228,028.17 0.94% Postal Mortgage Chattel No. 0074260

No.

Henan (2018) Nanyang City Fixed Assets

Real estate mortgage No. 4,594,011.03 1.94% Postal Mortgage No. 0004078

Land (Yu (2022) Intangible Assets

Sheqi County real estate rights

No. 0074231,

No. 0074261, Mortgage 9,730,293.66 4.11% No. 0074262,

No. 0074232,

No. 0074260)

Total - - 51,298,963.91 21.68% -

The impact of restricted asset rights on the company

The company's real estate and land use rights mortgages and patent pledges are used to obtain bank loans and provide guarantees for bank loans, which are conducive to the company's rapid financing and play a positive role in the company's development.

Section 4 Share changes and shareholder status

1. Common stock capital situation

(1) Common stock capital structure

Unit: Shares at the beginning of the period and at the end of the period

Nature of shares Changes in the current period

Quantity Proportion % Quantity Proportion % Total number of unrestricted shares 56,190,475 57.34% 838,900 57,029,375 58.19% Unlimited

Including: Controlling shareholder, actual control 12,985,325 13.25% 0 12,985,325 13.25% Sale note

people

stocks

Directors, supervisors, senior executives 13,646,874 13.93% 0 13,646,874 13.93% shares

Core employees 0% 0 0.00% Total number of restricted shares 41,809,525 42.66% -838,900 40,970,625 41.81% Limited

Including: Controlling shareholder, actual control 38,985,975 39.78% 0 38,985,975 39.78% Sale note

people

stocks

Directors, supervisors, senior executives 41,809,525 42.66% -838,900 40,970,625 41.81% shares

Core staff -

Total share capital 98,000,000 - 0 98,000,000 -

Number of common shareholders 73

Changes in share capital structure

√Applicable □Not applicable

The reasons for the changes in the shares of directors, supervisors and senior executives among the total number of shares without sales restrictions and the changes in the shares of directors, supervisors and senior managers among the total number of shares with sales restrictions are the same. At the end of the reporting period, Liu Ying, the outgoing supervisor, had been out of office for six months, and 838,900 shares with sales restrictions were converted into shares without sales restrictions.

(2) Information about the top ten shareholders of ordinary shares

Unit: Shares held at the end of the period

Held at the end of the period Held at the end of the period Held at the end of the period

Number of shares held at the beginning of the period Restricted shares Pledged shares with unrestricted shares Legal name Variable Share ratio %

Quantity Serving Quantity Serving Quantity Frozen Scale Moving

Number of settled shares 1 Zhu Tian 51,971,300 51,971,300 53.03% 38,985,975 12,985,325 40,726,200 0

steel

2 Nanyang 14,127,200 14,127,200 14.42% 14,127,200 10,412,000 0 Huizhong

medical

equipment

sales

Center

(Yes

Limited combination

Guy)

3 Yan Yu 9,800,000 9,800,000 10% 9,800,000 0

show

4 Wang Hong 3,877,000 3,877,000 3.96% 3,877,000 0

rain

5 Liu Yao 2,478,000 2,478,000 2.53% 1,858,500 619,500 0 6 Nanyang 2,089,713 2,089,713 2.13% 2,089,713 0 Jiang Sai

medical

equipment

sales

Center

(Yes

Limited combination

Guy)

7 Nanyang 1,729,000 1,729,000 1.76% 1,729,000 0 Huitong

medical

equipment

sales

Center

(Yes

Limited combination

Guy)

8 Zhou Zhen 1,702,419 1,702,419 1.74% 1,702,419 0

just

9 Ge Yong 1,540,140 1,540,140 1.57% 1,540,140 0

enter

10 Hanjin 1,095,499 1,095,499 1.12% 1,095,499 0 丽

Total 90,410,271 - 90,410,271 92.26% 40,844,475 49,565,796 51,138,200 0

Description of the top ten shareholders of common shares √Applicable □Not applicable

Natural person shareholder Yan Yuxian is the brother-in-law of shareholder Zhu Tiangang’s spouse; the general partner of shareholder Huizhong Medical is shareholder Zhu Tiangang, and Zhu Tiangang’s investment ratio in Huizhong Medical is 99.92%; Zhou Zhengang is the brother-in-law of shareholder Zhu Tiangang; Liu Ji is the brother-in-law of shareholder Zhu Tiangang. Except for the above, there are no other related relationships among the top ten shareholders of the company.

Changes in controlling shareholders and actual controllers There were no changes in controlling shareholders and actual controllers during the reporting period

3. Arrangements for special voting rights

□Applicable √Not applicable

Section 5 Changes in Directors, Supervisors, Senior Management and Core Employees

1. Directors, supervisors and senior managers

(1) Basic situation

Unit: Share

Start and end date of appointment Hold at the beginning of the period Ordinary at the end of the period

Gender Year of birth Number of shares held at the end of the period Common name Position Common shares Shareholding ratio Month Start date End date Number of shares held

Number of shares %

period period

Zhu Tiangang Director Male 1972 2025 2 2028 51,971, 0 51,971,300 53.03% Long-term, total October 7 February 6 300

manager,

director

Liu Yao Director, Male 1974 2025 2 2028 2,478,0 0 2,478,000 2.53% Deputy General Manager October 7 February 6 00

reason

Zhu Guixia Director Female 1970 20252 2028 0 0 0 0%

March 7th February 6th

Guo Likun Financial Manager Female 1997 20252 2028 0 0 0 0%

Person in charge February 7th February 6th

Guo Likun Director Female 1997 2025 7 2028 0 0 0 0%

February 25th February 6th

Lu Hongli Director, Female 1990 2025 7 2028 0 0 0 0% Board of Directors December 25 February 6

Secretary

Gao Shuna Board of Supervisors Female 1976 2025 2 2028 168,199 0 168,199 0.17%

Chairman June 7 February 6

Liu Rongli Employee Supervisor Female 1977 20252 2028 0 0 0 0%

Things March 7th February 6th

Dong Mingli Supervisor Female 1975 20252 2028 0 0 0 0%

October 7th February 6th

Relationship between directors, supervisors, senior managers and shareholders

There is no other relationship between directors, supervisors, senior managers and controlling shareholders and actual controllers.

(2) Changes

□Applicable √Not applicable

Professional background, main work experience, etc. of new directors, supervisors, and senior managers during the reporting period

□Applicable √Not applicable

(3) Equity incentives for directors and senior managers

□Applicable √Not applicable

2. Employee situation

(1) Basic information of current employees (the company and its holding subsidiaries)

Classification by nature of work Number of people at the beginning of the period Number of people at the end of the period

Administrative staff 28 18Production staff 128 105Technical staff 16 23Sales staff 74 49Financial staff 10 8

Total employees 256 203

(2) Basic situation and changes of core employees (the company and its holding subsidiaries)

□Applicable √Not applicable

Section 6 Financial Accounting Report

1. Audit report

Whether to audit No

2. Financial statements

(1) Consolidated balance sheet

Unit: Yuan

Item Notes June 30, 2026 Current assets as of December 31, 2025:

Monetary funds 5. 1 862,224.67 817,928.09 Settlement reserve fund

Loan funds

Trading financial assets 5. 2 100 100 Derivative financial assets

Notes receivable

Accounts receivable 5. 3 49,059,953.23 71,310,603.23 Accounts receivable financing

Prepayments V. 4 16,380,703.34 5,898,446.74 Premiums receivable

Reinsurance accounts receivable

Receivable reinsurance contract reserves

Other receivables 5.5 6,391,106.20 21,183,417.22 Including: interest receivable

Dividends receivable

Buy financial assets under resale agreements

Inventory 5.6 55,035,771.47 48,905,722.09 Including: data resources

Contract assets 179,452.00 Assets held for sale

Non-current assets due within one year

Other current assets 907,393.50

Total current assets 127,729,858.91 149,203,062.87 Non-current assets:

Granting loans and advances

debt investment

Other debt investments

long-term receivables

long term equity investment

Investment in other equity instruments V. 9 2,500,000.00 2,500,000.00 Other non-current financial assets

investment real estate

Fixed assets V. 10 49,422,140.80 53,248,844.58 Construction in progress V. 11 15,055,369.07 15,055,369.07 Productive biological assets

oil and gas assets

right-of-use assets

Intangible assets 5.12 17,573,754.94 18,009,196.51 Including: data resources

development expenditure

Among them: data resources

Goodwill V. 13 9,277,306.71 9,277,306.71 Long-term deferred expenses V. 14 1,456,898.56 1,788,385.42 Deferred income tax assets V. 15 13,122,440.20 13,122,440.20 Other non-current assets V. 16 385,000.00 385,000.00 Total non-current assets 108,792,910.28 113,386,542.49

Total assets 236,522,769.19 262,589,605.36 Current liabilities:

Short-term borrowings 5. 17 89,585,917.96 98,990,399.28 Borrowings from the Central Bank

borrowing funds

Trading financial liabilities

Derivative financial liabilities

Notes payable

Accounts payable 5. 18 36,097,262.83 44,659,240.67 Advance payments

Contract liabilities 5. 20 2,438,503.37 450,433.86 Financial assets sold and repurchased

Taking deposits and placing deposits with other banks

Agent for buying and selling securities

Agent underwriting securities funds

Employee benefits payable V. 21 9,780,450.70 9,647,677.04 Taxes payable V. 22 4,900,926.43 5,206,758.00 Other payables V. 23 9,670,365.75 14,077,774.72 Including: interest payable

Dividends payable

Handling fees and commissions payable

Reinsurance accounts payable

Liabilities held for sale

Non-current liabilities due within one year 6,290,910.93 Other current liabilities 2,221,787.95

Total current liabilities 152,473,427.04 181,544,982.45 Non-current liabilities:

insurance contract reserves

Long-term borrowings 5. 26 47,729,915.99 35,157,757.13 Bonds payable

Among them: preferred shares

perpetual bond

Lease liabilities V. 27 501,063.07

Long-term payables 5. 28 2,637,273.00 2,907,273.00 Long-term employee benefits payable

Estimated liabilities 5. 29 1,206,257.31 1,206,257.31 Deferred income

Deferred income tax liability

Other non-current liabilities

Total non-current liabilities 52,074,509.37 39,271,287.44

Total liabilities 204,547,936.41 220,816,269.89 Owners’ equity:

Share capital 5. 30 98,000,000.00 98,000,000.00 Other equity instruments

Among them: preferred shares

perpetual bond

Capital reserve V. 31 4,953,620.78 4,953,620.78 Less: treasury shares

other comprehensive income

special reserve

Surplus reserve V. 32 16,714,403.23 16,714,403.23 General risk reserve

Undistributed profits 5. 33 -87,568,742.22 -77,815,417.11 Total owners’ equity attributable to the parent company 32,099,281.79 41,852,606.90 Minority shareholders’ equity -124,449.01 -79,271.43 Total owners’ equity 31,974,832.78 41,773,335.47

Total liabilities and owners’ equity 236,522,769.19 262,589,605.36 Legal representative: Zhu Tiangang Person in charge of accounting work: Guo Likun Person in charge of accounting department: Guo Likun

(2) Balance sheet of the parent company

Unit: Yuan

Item Notes June 30, 2026 Current assets as of December 31, 2025:

Monetary funds 274,606.62 189,352.86 Trading financial assets 100.00 100.00 Derivative financial assets

Notes receivable

Accounts receivable 14.1 39,831,554.45 65,301,577.80 Accounts receivable financing

Prepayments 8,998,531.42 7,155,287.13 Other receivables 14.2 77,868,833.58 68,376,631.50 Including: interest receivable

Dividends receivable

Buy financial assets under resale agreements

Inventory 19,486,214.88 18,868,115.61 Including: data resources

contract assets

Assets held for sale

Non-current assets due within one year

Other current assets 219,101.31

Total current assets 146,459,840.95 160,110,166.21 Non-current assets:

debt investment

Other debt investments

long-term receivables

Long-term equity investment 14.3 155,371,454.96 155,317,254.96 Other equity instrument investments 2,500,000.00 2,500,000.00 Other non-current financial assets

investment real estate

Fixed assets 22,874,863.16 25,090,708.33 Construction in progress

productive biological assets

oil and gas assets

right-of-use assets

Intangible assets 7,473,539.73 7,689,938.43 Including: data resources

development expenditure

Among them: data resources

goodwill

Long-term deferred expenses 767,111.75 905,788.73 Deferred income tax assets 5,870,414.87 5,870,414.87 Other non-current assets

Total non-current assets 194,857,384.47 197,374,105.32

Total assets 341,317,225.42 357,484,271.53 Current liabilities:

Short-term borrowings 70,336,000.00 71,433,313.20 Trading financial liabilities

Derivative financial liabilities

Notes payable

Accounts payable 50,493,542.99 52,332,674.24 Advance receipts 0.00 Contract liabilities 3,311,690.44 1,253,526.57 Financial assets sold under repurchase

Employee benefits payable 4,408,231.25 4,491,357.64 Taxes payable 3,474,082.48 3,869,773.62 Other payables 46,569,737.30 54,459,016.35 Including: interest payable

Dividends payable

Liabilities held for sale

Non-current liabilities due within one year 4,690,687.86 Other current liabilities 162,958.45

Total current liabilities 178,593,284.46 192,693,307.93 Non-current liabilities:

Long-term borrowings 15,215,000.00 10,843,000.00 Bonds payable

Among them: preferred shares

perpetual bond

Lease liabilities 120,645.36

Long-term payables 2,637,273.00 2,907,273.00 Long-term employee benefits payable

Estimated liabilities 1,136,570.46 1,136,570.46 Deferred income

Deferred income tax liability

Other non-current liabilities

Total non-current liabilities 19,109,488.82 14,886,843.46

Total liabilities 197,702,773.28 207,580,151.39 Owners’ equity:

Share capital 98,000,000.00 98,000,000.00Other equity instruments

Among them: preferred shares

perpetual bond

Capital reserve 2,008,660.32 2,008,660.32 Less: treasury shares

other comprehensive income

special reserve

Surplus reserve 16,276,402.31 16,276,402.31 General risk reserve

Undistributed profits 27,329,389.51 33,619,057.51 Total owners’ equity 143,614,452.14 149,904,120.14

Total liabilities and owners’ equity 341,317,225.42 357,484,271.53

(3) Consolidated income statement

Unit: Yuan

Project Notes January-June 2026 January-June 2025

Total operating income 24,774,147.60 31,928,928.11 Including: operating income 5. 34 24,774,147.60 31,928,928.11 Interest income

Premiums earned

Fee and commission income

Total operating costs 32,639,439.69 29,435,190.21 Including: operating costs 5. 34 15,936,388.36 11,127,053.77 Interest expenses

Handling fees and commission expenses

surrender deposit

Net compensation expenses

Net withdrawal of insurance liability reserves

policy dividend payout

Reinsurance cost

Taxes and surcharges V. 35 664,607.81 953,090.02 Sales expenses V. 36 3,979,339.83 3,949,554.02 Administrative expenses V. 37 5,636,883.82 7,074,734.21 R&D expenses V. 38 2,756,380.96 2,168,222.52 Financial expenses 5. 39 3,665,838.91 4,162,535.67 Including: interest expenses 3,511,429.41 4,106,031.04

Interest income -129.93 -317.68 plus: other income V. 40 37,613.93 180,230.76 Investment income (losses are listed with "-") V. 41 -10,138,105.66 Including: investment income from associates and joint ventures

Financial assets measured at amortized cost are derecognised

Recognized gains (losses are listed with "-")

Exchange gains (losses are listed with "-")

Net exposure hedging income (losses are listed with a “-” sign)

Gains from changes in fair value (losses are listed with a “-” sign)

Credit impairment losses (losses are listed with "-") 5. 42 -1,990,564.26 -101,730.90 Asset impairment losses (losses are listed with "-") 5. 43 58,548.00 582,970.67

Asset disposal income (losses are listed with "-") 5. 44 0.00 923,763.11

Operating profit (losses are listed with "-") -9,759,694.42 -6,059,134.12 Plus: non-operating income V. 45 240,757.76 120,315.11 Less: non-operating expenses V. 46 358,837.46 461,059.78
Total profits (total losses are listed with "-") -9,877,774.12 -6,399,878.79 Less: income tax expenses 5. 47 0.00 126,709.33
Net profit (net loss is listed with "-") -9,877,774.12 -6,526,588.12 Among them: the net profit realized by the merged party before the merger

(1) Classification by business continuity: - - -

Net profit from continuing operations (net loss is listed with "-") -9,877,774.12 -6,526,588.12
Net profit from discontinued operations (net loss is listed with "-")

(2) Classification by ownership: - - -

Profit and loss of minority shareholders (net loss is listed with "-") -124,449.01 -1,285,215.35
Net profit attributable to owners of the parent company (net losses are listed with -9,753,325.11 -5,241,372.77 "-")

6. Net amount of other comprehensive income after tax

(1) Other comprehensive income attributable to owners of the parent company

net of tax

Other comprehensive income that cannot be reclassified into profit or loss

(1) Remeasurement of changes in defined benefit plan

(2) Other comprehensive income that cannot be transferred to profit or loss under the equity method

(3) Changes in fair value of other equity instrument investments

(4) Changes in the fair value of the company’s own credit risk

(5) Others

Other comprehensive income that will be reclassified into profit and loss

(1) Other comprehensive income that can be converted to profit or loss under the equity method

(2) Changes in fair value of other debt investments

(3) Financial assets are reclassified and included in other comprehensive income

Amount

(4) Credit impairment provisions for other debt investments

(5) Cash flow hedging reserve

(6) Translation differences of foreign currency financial statements

(7) Others

(2) After-tax other comprehensive income attributable to minority shareholders

net amount

Total comprehensive income -9,877,774.12 -6,526,588.12

(1) Total comprehensive income attributable to owners of the parent company -9,753,325.11 -5,241,372.77

(2) Total comprehensive income attributable to minority shareholders -124,449.01 -1,285,215.35

8. Earnings per share:

(1) Basic earnings per share (yuan/share) -0.10 -0.07

(2) Diluted earnings per share (yuan/share)

Legal representative: Zhu Tiangang Person in charge of accounting work: Guo Likun Person in charge of accounting department: Guo Likun

(4) Income statement of the parent company

Unit: Yuan

Project Notes January-June 2026 January-June 2025

Operating income 14. 4 9,662,806.61 22,447,151.21 Less: Operating costs 14. 4 8,187,887.80 11,823,741.89

Taxes and surcharges 389,306.63 656,620.64

Selling expenses 1,876,355.45 1,545,034.30 Administrative expenses 2,558,165.09 2,712,339.01 Research and development expenses 948,772.44 646,921.13 Financial expenses 1,915,147.57 2,069,723.14 Including: interest expenses 1,859,177.70 2,026,821.56

Interest income -34.97 -58.80 plus: other income 34,274.37 85,974.90 Investment income (losses are listed with "-") 14. 5 -131,810.32 Including: investment income from associates and joint ventures

Financial assets measured at amortized cost are derecognised

Recognized gains (losses are listed with "-")

Exchange gains (losses are listed with "-")

Net exposure hedging income (losses are listed with a “-” sign)

Gains from changes in fair value (losses are listed with a “-” sign)

Credit impairment losses (losses are listed with "-") 58,845.98 -189,983.32 Asset impairment losses (losses are listed with "-")

Asset disposal income (losses are listed with "-") 1,393.27

Operating profit (losses are listed with "-") -6,119,708.02 2,758,345.63 Plus: non-operating income 136,935.17 52,078.31 Less: non-operating expenses 306,895.15 347,212.81
Total profits (total losses are listed with "-") -6,289,668.00 2,463,211.13 Less: income tax expenses 0.00 108,660.43
Net profit (net loss is listed with "-") -6,289,668.00 2,354,550.70

(1) Net profit from continuing operations (net loss should be filled in with "-" -6,289,668.00 2,354,550.70)

(2) Net profit from discontinued operations (net loss is filled in with "-"

column)

5. Net amount of other comprehensive income after tax

(1) Other comprehensive income that cannot be reclassified into profit or loss

Remeasure the changes in defined benefit plan
Other comprehensive income that cannot be transferred to profit or loss under the equity method
Changes in fair value of other equity instrument investments
Changes in the fair value of the company’s own credit risk

5.Others

(2) Other comprehensive income that will be reclassified into profit and loss

Other comprehensive income that can be converted to profit or loss under the equity method
Changes in fair value of other debt investments
Financial assets are reclassified and included in other comprehensive income.

Credit impairment provisions for other debt investments
Cash flow hedging reserve
Translation differences of foreign currency financial statements

7.Others

Total comprehensive income -6,289,668.00 2,354,550.70

7. Earnings per share:

(1) Basic earnings per share (yuan/share)

(2) Diluted earnings per share (yuan/share)

(5) Consolidated cash flow statement

Unit: Yuan

Project Notes January-June 2026 January-June 2025

1. Cash flow generated from operating activities:

Cash received from selling goods and providing services 47,037,055.16 30,949,666.40 Net increase in customer deposits and deposits from banks

Net increase in borrowing from the central bank

Net increase in borrowing funds from other financial institutions

Cash received from premiums from the original insurance contract

Net cash received from reinsurance business

Net increase in policyholders’ savings and investment funds

Cash collected from interest, fees and commissions

Net increase in borrowing funds

Net increase in repurchase business funds

Net cash received from buying and selling securities on behalf of agents

Tax returns received 32,343.12 148,805.56 Other cash received related to operating activities V. 48 14,581,136.58 4,267,511.01

Subtotal of cash inflows from operating activities 61,650,534.86 35,365,982.97 Cash paid for purchasing goods and receiving services 35,646,408.86 4,646,889.16 Net increase in customer loans and advances

Net increase in deposits with central banks and inter-banks

Cash used to pay compensation from the original insurance contract

Net increase in financial assets held for trading purposes

Net increase in lending funds

Cash payments for interest, fees and commissions

Cash payment for policy dividends

Cash paid to and for employees 7,242,069.73 7,332,108.10 Various taxes paid 1,048,151.89 1,131,875.45 Cash paid for other operating activities related 5. 48 11,709,556.63 15,414,362.08 Subtotal of cash outflows from operating activities 55,646,187.11 28,525,234.79

Net cash flow generated from operating activities 6,004,347.75 6,840,748.18

2. Cash flow generated from investing activities:

Cash received from recovery of investment 0.00 30,835.43 Cash received from investment income 0.00

Net cash recovered from disposal of fixed assets, intangible assets and other long-term assets 125,000.00 45,000.00

Net cash received from disposal of subsidiaries and other business units 0.00 0.00 Cash received from other investment activities related to 0.00

Subtotal of cash inflows from investing activities 125,000.00 75,835.43 Payment for purchase and construction of fixed assets, intangible assets and other long-term assets

of cash

Cash paid for investment 0.00 31,935.13 Net increase in pledged loans 0.00 0.00 Net cash paid to acquire subsidiaries and other business units 0.00 0.00 Cash paid for other investment activities 0.00 0.00 Subtotal of cash outflows from investing activities 0.00 31,935.13

Net cash flow generated from investing activities 125,000.00 43,900.30

3. Cash flow generated from financing activities:

Absorbing cash received from investments

Including: cash received by subsidiaries from investment by minority shareholders

Cash received from borrowing 35,452,000.00 27,449,000.00 Cash received from issuing bonds

Other cash received related to financing activities

Subtotal of cash inflows from financing activities 35,452,000.00 27,449,000.00 Cash paid to repay debts 37,822,005.47 30,556,711.27 Cash paid to distribute dividends, profits or pay interest 3,549,099.22 3,518,384.19 of which: dividends and profits paid by subsidiaries to minority shareholders

Other cash payments related to financing activities

Subtotal of cash outflows from financing activities 41,371,104.69 34,075,095.46

Net cash flow generated from financing activities -5,919,104.69 -6,626,095.46

4. The impact of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents 210,243.06 258,553.02 Plus: opening balance of cash and cash equivalents 153,354.02 152,600.59
Balance of cash and cash equivalents at the end of the period 363,597.08 411,153.61 Legal representative: Zhu Tiangang Person in charge of accounting work: Guo Likun Person in charge of the accounting department: Guo Likun

(6) Cash flow statement of the parent company

Unit: Yuan

Project Notes January-June 2026 January-June 2025

1. Cash flow generated from operating activities:

Cash received from selling goods and providing services 36,996,000.49 17,852,428.26 Tax refunds received 29,844.83 0.00 Cash received from other operating activities 14,060,513.94 12,572,430.28

Subtotal of cash inflows from operating activities 51,086,359.26 30,424,858.54 Cash paid for purchasing goods and receiving services 11,577,485.44 3,677,230.11 Cash paid to and for employees 3,558,365.53 3,852,208.27 Various taxes and fees paid 650,249.09 559,363.85 Other cash payments related to operating activities 31,832,352.02 15,665,372.00

Subtotal of cash outflows from operating activities 47,618,452.08 23,754,174.23

Net cash flow generated from operating activities 3,467,907.18 6,670,684.31

2. Cash flow generated from investing activities:

Recover cash received on investments

Cash received from investment income

Proceeds from disposal of fixed assets, intangible assets and other long-term assets

Net cash returned

Net cash received from disposal of subsidiaries and other business units

Other cash received related to investing activities 1,946.10 0.00

Subtotal of cash inflows from investing activities 1,946.10 0.00 Expenses for purchase and construction of fixed assets, intangible assets and other long-term assets

paid in cash

Cash paid for investment 54,200.00 2,681,899.70 Net cash paid to acquire subsidiaries and other business units

Other cash payments related to investing activities 1,946.10 0.00 Subtotal of cash outflows from investing activities 56,146.10 2,681,899.70

Net cash flow generated from investing activities -54,200.00 -2,681,899.70

3. Cash flow generated from financing activities:

Cash received from investment 0.00 0.00 Cash received from borrowing 16,386,000.00 17,499,000.00 Cash received from issuing bonds

Other cash received related to financing activities

Subtotal of cash inflows from financing activities 16,386,000.00 17,499,000.00 Cash paid to repay debts 17,798,000.00 19,460,327.36 Cash paid to distribute dividends, profits or pay interest 1,884,482.36 1,928,666.07 Cash paid to other financing activities

Subtotal of cash outflows from financing activities 19,682,482.36 21,388,993.43

Net cash flow generated from financing activities -3,296,482.36 -3,889,993.43

Impact of exchange rate changes on cash and cash equivalents -31,971.06 28,015.15
Net increase in cash and cash equivalents 85,253.76 126,806.33 Plus: opening balance of cash and cash equivalents 189,352.86 54,079.72
Balance of cash and cash equivalents at the end of the period 274,606.62 180,886.05

3. Notes to Financial Statements

(1) Index of additional notes

Matter Yes or No Index 1. Have the accounting policies adopted in the semi-annual report changed from the financial statements of the previous year? □ Yes √ No 2. Have the accounting estimates used in the semi-annual report changed from the previous year’s financial statements? □ Yes √ No 3. Is there any error correction in the previous period? Yes √ No 4. Does the business operation have seasonal or cyclical characteristics? □ Yes √ No 5. Have there been any changes in related parties with controlling relationships? □Yes √No 6. Has the scope of consolidation in the consolidated financial statements changed? □ Yes √ No 7. Is there any issuance, repurchase and repayment of securities? Yes √ No 8. Is there any distribution of profits to owners? □Yes √No9. Whether segment reports are disclosed in accordance with the relevant provisions of accounting standards □ Yes √ No 10. Are there any non-adjusting matters between the semi-annual balance sheet date and the date when the semi-annual financial report is approved for issuance? Yes √ No

Are there any contingent liabilities and/or changes in assets that occurred after the balance sheet date of the previous year? Yes √ Are there any changes in assets?
Is there any change in corporate structure? □Yes √No13. Whether significant long-term assets are transferred or sold □Yes √No14. Have there been any changes in significant fixed assets and intangible assets? □Yes √No15. Is there any significant research and development expenditure □Yes √No16. Is there any significant asset impairment loss □Yes √No17. Are there estimated liabilities? √Yes □No

Additional Notes Index Explanation

The company accrues estimated liabilities, mainly due to the accrual of liquidated damages for litigation matters

(2) Notes to financial statement items

Henan Huibo Medical Co., Ltd.

Notes to the 2026 Semi-annual Financial Statements

(Unless otherwise specified, the following currency units are all RMB)

1. Basic situation of the company

Company profile

Henan Huibo Medical Co., Ltd. (hereinafter referred to as the "Company" or "the Company") is a limited liability company registered and established in November 2004. It was established as a joint-stock company by Zhu Tiangang and other shareholders in March 2016. In August 2016, the company was listed on the New Third Board of the Stock Exchange Company. The company's unified social credit code is 91411300767846255L.

The industry it belongs to is medical device manufacturing.

As of June 30, 2026, the company's registered capital is 98 million yuan, and the actual controller of the company is Zhu Tiangang.

Company address: West section of Industrial Avenue, Industrial Cluster Zone, Sheqi County, Nanyang.

Main business activities: The company's main business activities are the production of antibacterial agents (liquids, pastes, gels); the production of Class II 6823 and 6864 medical devices; the research and development and technical services of medical consumables and dressings; the import and export of various commodities and technologies; house leasing and property services. This financial statement was approved by the company's board of directors on August 26, 2026.

2. Basis for preparation of financial statements

Basics of preparation

The Company's financial statements are based on going concern, based on actual transactions and events, in accordance with the "Accounting Standards for Business Enterprises" and related regulations promulgated by the Ministry of Finance, as well as the China Securities Regulatory Commission's "Information Disclosure and Preparation Rules No. 15 for Companies that Offer Securities to the Public - General Provisions on Financial Reports" (2014 Revision), and are prepared based on the important accounting policies and accounting estimates described below. The Company's accounting is based on the accrual basis. Except for certain financial instruments, these financial statements are measured on the basis of historical cost. If an asset is impaired, corresponding impairment provisions will be made in accordance with relevant regulations.

Continued operations

The company has the ability to continue operating for at least 12 months from the end of the reporting period, and there are no major events that affect its ability to continue operating.

3. Important accounting policies and accounting estimates

Specific accounting policies and accounting estimation tips:

The following disclosures cover the specific accounting policies and accounting estimates formulated by the Company based on actual production and operation characteristics. See the descriptions below for details.

Statement on compliance with corporate accounting standards

The financial statements prepared by the company comply with the requirements of the "Accounting Standards for Business Enterprises" and truly and completely reflect the company's financial status, operating results, cash flow and other relevant information during the reporting period.

Accounting period

The company's fiscal year is the Gregorian calendar year, that is, from January 1 to December 31 of each year. This reporting period is from January 1, 2026 to June 30, 2026.

Business cycle

The normal operating cycle refers to the period from the purchase of assets for processing to the realization of cash or cash equivalents. The company uses 12 months as an operating cycle and uses it as the liquidity classification standard for assets and liabilities.

Accounting standard currency

The Company uses RMB as its functional accounting currency.

Accounting treatment methods for business combinations under the same control and those not under the same control

Business merger refers to a transaction or event that combines two or more separate enterprises to form a reporting entity. Business mergers are divided into business combinations under the same control and business combinations not under the same control.

(1) Business merger under common control

If the enterprises participating in the merger are ultimately controlled by the same party or the same parties before and after the merger and the control is not temporary, it is a business merger under the same control. In the case of a business merger under the same control, the party that obtains control over other companies participating in the merger on the merger date is the merging party, and the other companies participating in the merger are the merged parties. The merger date refers to the date when the merging party actually obtains control over the merged party.

For business mergers under common control, the assets and liabilities of the merged party acquired by the company as the merging party in the merger, except for adjustments due to different accounting policies, are measured based on the book value of the merged party in the consolidated financial statements of the ultimate controlling party on the merger date. The difference between the book value of the merger consideration paid by the company (or the total face value of the shares issued) and the book value of the net assets obtained in the merger is adjusted to the capital reserve. If the capital reserve is insufficient for offset, the retained earnings are adjusted.

Intermediary fees such as auditing, legal services, evaluation and consulting, and other related management fees incurred by the company during the merger are included in the current profit and loss when incurred. Transaction costs directly related to the issuance of equity instruments as consideration for the merger will be offset against the capital reserve (equity premium). If the capital reserve (equity premium) is insufficient to offset it, the surplus reserve and undistributed profits will be offset in sequence. Transaction costs directly related to the issuance of debt instruments as merger consideration shall be included in the initial recognition amount of the debt instruments.

(2) Business combination not under common control

If the parties involved in the merger are not ultimately controlled by the same party or the same parties before and after the merger, it is a business merger not under the same control. For a business combination not under common control, the party that obtains control over other companies participating in the merger on the acquisition date is the purchaser, and the other companies participating in the merger are the purchased parties. The purchase date refers to the date when the purchaser actually obtains control over the purchased party.

For business combinations not under common control, the merger cost of the company as the merging party is the sum of the fair value of the assets paid, liabilities incurred or assumed, and equity securities issued by the company on the acquisition date to obtain control of the purchased party. The intermediary fees such as auditing, legal services, evaluation consulting and other related management fees incurred by the company for the business merger shall be included in the current profit and loss when incurred. The transaction costs of equity instruments or debt instruments issued by the company as consideration for the merger shall be included in the initial recognition amount of the equity instruments or debt instruments. The contingent consideration involved is included in the merger cost according to its fair value on the purchase date. If new or further evidence of the existing conditions on the purchase date arises within 12 months after the purchase date and the contingent consideration needs to be adjusted, the combined goodwill will be adjusted accordingly.

The merger costs incurred by the Company in a merger not under common control and the identifiable net assets obtained in the merger are measured at the fair value on the purchase date. The difference between the merger cost and the fair value of the acquiree's identifiable net assets on the purchase date is recognized as goodwill; the difference between the merger cost and the identifiable net assets acquired in the merger is less than the fair value of the acquiree's identifiable net assets obtained in the merger If the fair value share of the identifiable net assets of the acquiree is recognized, the Company will first review the fair value of the acquiree's identifiable assets, liabilities and contingent liabilities and the measurement of the merger costs. If the merger cost is still less than the fair value share of the acquiree's identifiable net assets acquired in the merger after the review, the difference shall be included in the current profit and loss.

Preparation method of consolidated financial statements

(1) Scope of consolidated financial statements

The company includes all subsidiaries controlled by the company (including separate entities controlled by the company) into the scope of consolidated financial statements, including enterprises controlled by the company, divisible parts of investee units and structured entities. Control means that the company has power over the investee, enjoys variable returns by participating in the investee's relevant activities, and has the ability to use its power over the investee to affect the amount of returns. (2) Unify the accounting policies of the parent company and its subsidiaries, and unify the balance sheet dates and accounting periods of the parent company and subsidiaries

If the accounting policies or accounting periods adopted by a subsidiary and the Company are inconsistent, when preparing consolidated financial statements, necessary adjustments will be made to the financial statements of the subsidiary in accordance with the Company's accounting policies or accounting periods.

(3) Offset matters in consolidated financial statements

The consolidated financial statements are based on the financial statements of the Company and its subsidiaries, and are prepared by the Company based on other relevant information. When preparing consolidated financial statements, all significant balances, transactions and unrealized profits between the Company and its subsidiaries and between subsidiaries are eliminated. The company prepares consolidated financial statements, treating the entire enterprise group as an accounting entity, and reflecting the overall financial status, operating results and cash flow of the enterprise group in accordance with the recognition, measurement and presentation requirements of relevant accounting standards for enterprises and in accordance with unified accounting policies. The share of the subsidiary's owner's equity that does not belong to the company, as minority shareholders' equity, is separately listed as "minority shareholders' equity" under the owner's equity item in the consolidated balance sheet. The share of minority shareholders' equity in the current period's net profit and loss of a subsidiary is listed as the "minority shareholders' profit and loss" item under the net profit item in the consolidated income statement. If a subsidiary's losses shared by minority shareholders exceed the minority shareholders' share of the subsidiary's opening shareholders' equity, the minority shareholders' equity will still be offset. The subsidiary's long-term equity investment held by the company is regarded as the treasury stock of the enterprise group. As a deduction from the owner's equity, it is listed as "less: treasury stock" under the owner's equity item in the consolidated balance sheet.

(4) Accounting treatment of subsidiaries acquired through merger

For subsidiaries acquired through business combinations under the same control of the Company, it is deemed that the business combination has occurred when the ultimate controlling party begins real-time control. The opening balance of the consolidated balance sheet is adjusted, and the income, expenses and profits from the beginning of the current period of the subsidiary or business combination to the end of the reporting period are included in the consolidated income statement. The cash flow of the subsidiary or business combination from the beginning of the current period to the end of the reporting period is included in the consolidated cash flow statement. At the same time, relevant items in the comparative statement are adjusted.

For subsidiaries acquired through business combinations not under common control, the opening balance of the consolidated balance sheet will not be adjusted, and the income, expenses and profits of the subsidiary or business from the date of purchase to the end of the reporting period will be included in the consolidated income statement; the cash flow of the subsidiary or business from the date of purchase to the end of the reporting period will be included in the consolidated cash flow statement.

(5) Accounting treatment method for disposing of subsidiary equity until loss of control

①General treatment methods

During the reporting period, if the company disposes of a subsidiary or business, the income, expenses and profits of the subsidiary or business from the beginning of the period to the date of disposal will be included in the company's consolidated income statement; the cash flow of the subsidiary or business from the beginning of the period to the date of disposal will be included in the company's consolidated cash flow statement.

When the company loses control over the investee due to the disposal of part of the equity investment or other reasons, the company will remeasure the remaining equity investment after the disposal according to its fair value on the date of loss of control. The company will include the difference between the sum of the consideration obtained from the disposal of the equity and the fair value of the remaining equity, minus the sum of the share of the original subsidiary's net assets calculated continuously from the date of purchase or merger based on the original shareholding ratio and the sum of goodwill, into the investment income in the period when control is lost, and at the same time offset the goodwill. Other comprehensive income related to the equity investment in the original subsidiary will be converted into investment income for the current period when the company loses control.

② Disposal of subsidiaries step by step

If the company disposes of its equity investment in a subsidiary step by step through multiple transactions until it loses control, if the terms, conditions and economic impact of each transaction to dispose of the equity investment in the subsidiary meet one or more of the following conditions, the company will account for the multiple transactions as a package deal:

A． the transactions were entered into simultaneously or with consideration of their effects on each other;

B. Only these transactions as a whole can achieve a complete business result;

C. The occurrence of one transaction depends on the occurrence of at least one other transaction;

D． A transaction that is uneconomical on its own is economical when considered together with other transactions.

If the various transactions involving the disposal of equity investments in subsidiaries until the loss of control belong to a package transaction, the Company will account for each transaction as a transaction in which the subsidiary is disposed of and the control is lost; however, the difference between the price of each disposal and the share of the net assets of the subsidiary corresponding to the disposal investment before the loss of control is recognized as other comprehensive income in the consolidated financial statements, and is transferred to the profit and loss of the current period when control is lost.

If the various transactions involving the disposal of equity investments in subsidiaries until the loss of control do not constitute a package deal, before the loss of control, the Company shall conduct accounting treatment in accordance with the relevant policies for partial disposal of equity investments in subsidiaries without losing control; upon loss of control, the Company shall conduct accounting treatment in accordance with the general treatment method for disposing of subsidiaries.

(6) Purchase of minority shares in subsidiaries

The difference between the company's newly acquired long-term equity investment cost due to the purchase of minority shares and the share of the subsidiary's net assets calculated continuously from the purchase date (or merger date) based on the new shareholding ratio shall be adjusted to the equity premium in the capital reserve in the consolidated balance sheet. If the equity premium in the capital reserve is insufficient to offset, the retained earnings shall be adjusted.

(7) Partially dispose of equity investments in subsidiaries without losing control

The difference between the disposal price obtained by the Company from partial disposal of the long-term equity investment in the subsidiary without losing control and the share of the subsidiary's net assets calculated continuously from the date of purchase or merger corresponding to the disposal of the long-term equity investment shall be adjusted to the equity premium in the capital reserve in the consolidated balance sheet. If the equity premium in the capital reserve is insufficient to offset, the retained earnings shall be adjusted.

Determination standards for cash and cash equivalents

The cash determined by the company when preparing the cash flow statement refers to the company's cash on hand and deposits that can be used for payment at any time. The cash equivalents determined by the Company when preparing the cash flow statement refer to investments held by the Company with short term, strong liquidity, easy conversion into known amounts of cash, and low risk of value changes.

Foreign currency business and foreign currency statement conversion

(1) Foreign currency business conversion

The Company's foreign currency transactions are recorded in the functional currency using the spot exchange rate on the date of the transaction.

On the balance sheet date, the company uses the spot exchange rate on the balance sheet date to translate foreign currency monetary items. The resulting exchange differences are included in the current profit and loss, except for: ① The exchange differences arising from special foreign currency borrowings related to the acquisition and construction of assets that qualify for capitalization are treated in accordance with the principle of capitalization of borrowing costs; ② The exchange differences arising from changes in the book balances of foreign currency monetary items available for sale other than amortized costs are included in other comprehensive income, and are included in the current profit and loss.

For foreign currency non-monetary items measured at historical cost, the company still uses the spot exchange rate on the date of transaction to translate them, without changing the amount in the recording currency. Foreign currency non-monetary items measured by value are converted using the spot exchange rate on the date when the fair value is determined. The difference between the converted accounting functional currency amount and the original accounting functional currency amount is treated as a change in fair value (including exchange rate changes), and is included in the current profit and loss or recognized as other comprehensive income.

(2) Conversion of foreign currency financial statements

If the company's controlled subsidiaries, joint ventures, associates, etc. use a different accounting standard currency than the company, their foreign currency financial statements must be converted before accounting and preparation of consolidated financial statements.

The company's assets and liabilities in the foreign currency balance sheet are translated using the spot exchange rate on the balance sheet date. Owner's equity items, except for the "undistributed profits" items, are translated using the spot exchange rate at the time of occurrence. Income and expense items in the foreign currency income statement are translated using the spot exchange rate on the date of transaction. The translation differences of foreign currency financial statements arising from the translation are listed under other comprehensive income under the owner's equity item in the balance sheet.

If foreign currency cash flows are determined in accordance with systematic and reasonable methods, they will be converted using the spot exchange rate on the date of transaction. The impact of exchange rate changes on cash is presented separately in the cash flow statement.

When an overseas operation is disposed of, the translation difference of foreign currency statements related to the overseas operation shall be transferred to the current profit and loss of the disposal in full or in proportion to the disposal of the overseas operation.

Financial instruments

A financial instrument refers to a contract that forms a financial asset of one party and a financial liability or equity instrument of another party. A financial asset or financial liability or equity instrument is recognized when the company becomes a party to a financial instrument contract.

(1) Classification, recognition and measurement of financial assets

When initially recognizing financial assets, the company divides financial assets based on the business model of managing financial assets and the contractual cash flow characteristics of financial assets into: financial assets measured at amortized cost; financial assets measured at fair value with changes included in other comprehensive income; financial assets measured at fair value with changes included in current profits and losses.

Financial assets are measured at fair value upon initial recognition. For financial assets measured at fair value and whose changes are included in the current profit and loss, the relevant transaction costs are directly included in the current profit and loss; for other types of financial assets, the relevant transaction costs are included in the initial recognition amount. For accounts receivable or notes receivable arising from the sale of products or provision of services that do not include or take into account significant financing components, the amount of consideration that the company is expected to be entitled to receive shall be regarded as the initial recognition amount.

Debt instruments held by the company:

①Financial assets measured at amortized cost

The Company's business model for managing such financial assets aims to collect contractual cash flows, and the contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements, that is, the cash flows generated on a specific date are only payments of principal and interest based on the outstanding principal amount. The Company recognizes interest income for such financial assets based on the actual interest rate method and conducts subsequent measurement based on amortized cost. Gains or losses arising from amortization or impairment are included in the current profits and losses. The Company lists debt investments and long-term receivables that mature within one year (including one year) from the balance sheet date as non-current assets that mature within one year; debt investments that mature within one year (including one year) at the time of acquisition are listed as other current assets.

②Financial assets measured at fair value with changes included in other comprehensive income

The Company's business model for managing such financial assets aims at both collecting contractual cash flows and selling them, and the contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. Such financial assets are measured at fair value and changes in them are included in other comprehensive income, but impairment losses or gains, exchange gains and losses and interest income calculated according to the effective interest method are included in the current profit and loss. The Company lists other debt investments that mature within one year (including one year) from the balance sheet date as non-current assets that mature within one year; other debt investments that mature within one year (including one year) when acquired are listed as other current assets.

③Financial assets measured at fair value and changes included in current profits and losses

The Company classifies the financial assets other than the above-mentioned financial assets measured at amortized cost and financial assets measured at fair value through other comprehensive income as financial assets measured at fair value through profit or loss for the current period, and lists them as trading financial assets. In addition, at the time of initial recognition, in order to eliminate or significantly reduce accounting mismatches, the Company designated some financial assets as financial assets measured at fair value and whose changes are included in current profits and losses. For such financial assets, the company uses fair value for subsequent measurement, and changes in fair value are included in the current profit and loss. Assets that mature more than one year from the balance sheet date and are expected to be held for more than one year are listed as other non-current financial assets. 2) The company’s equity instrument investment

The Company classifies equity instrument investments over which it has no control, joint control or significant influence as financial assets measured at fair value with changes included in current profits and losses, and listed as trading financial assets; those expected to be held for more than one year from the balance sheet date are listed as other non-current financial assets.

In addition, the Company designates some non-trading equity instrument investments as financial assets at fair value through other comprehensive income and lists them as other equity instrument investments, and this designation cannot be revoked once made. The company includes the relevant dividend income of this type of financial assets in the current profit and loss, and the changes in fair value are included in other comprehensive income. When the financial asset is derecognised, the accumulated gains or losses previously included in other comprehensive income will be transferred from other comprehensive income to retained earnings and will not be included in the current profit or loss.

(2) Classification, recognition and measurement of financial liabilities

The company classifies the financial instrument or its components as financial liabilities or equity instruments upon initial recognition based on the contractual terms of the financial instruments issued and the economic substance reflected rather than just the legal form, combined with the definitions of financial liabilities and equity instruments.

The Company classifies financial liabilities upon initial recognition into financial liabilities measured at fair value with changes included in current profits and losses and other financial liabilities.

Financial liabilities measured at fair value and whose changes are included in the current profit and loss are subsequently measured at fair value. Gains or losses caused by changes in fair value and interest expenses related to the financial liabilities are included in the current profit and loss.

Other financial liabilities are subsequently measured at amortized cost using the actual interest rate method. The Company's other financial liabilities are mainly financial liabilities measured at amortized cost, including notes and accounts payable, other payables, loans and bonds payable, etc. Such financial liabilities are initially measured based on their fair value minus transaction costs, and are subsequently measured using the effective interest method. Those with a maturity of less than one year (including one year) are listed as current liabilities; those with a maturity of more than one year but due within one year (including one year) from the balance sheet date are listed as non-current liabilities due within one year; the rest are listed as non-current liabilities.

(3) The distinction between financial liabilities and equity instruments and related treatment methods

The Company distinguishes financial liabilities from equity instruments in accordance with the following principles: ① If the Company cannot unconditionally avoid delivering cash or other financial assets to fulfill a contractual obligation, then the contractual obligation meets the definition of financial liabilities. Although some financial instruments do not explicitly contain terms and conditions for the obligation to deliver cash or other financial assets, they may indirectly form contractual obligations through other terms and conditions. ② If a financial instrument must or can be settled with the company's own equity instruments, it is necessary to consider whether the company's own equity instruments used to settle the instrument are used as a substitute for cash or other financial assets, or to enable the holder of the instrument to enjoy the remaining equity in the company's assets after deducting all liabilities. If it is the former, the instrument is the company's financial liability; if it is the latter, the instrument is the company's equity instrument. In some cases, a financial instrument contract stipulates that the company must or can use its own equity instruments to settle the financial instrument, and the amount of the contractual rights or contractual obligations is equal to the number of its own equity instruments that can be obtained or required to be delivered multiplied by its fair value at the time of settlement. Regardless of whether the amount of the contractual rights or obligations is fixed or is based entirely or partially on changes in variables other than the market price of the company's own equity instruments (such as interest rates, the price of a certain commodity or the price of a certain financial instrument), the contract is classified as a financial liability.

The Company takes into account all terms and conditions agreed between group members and holders of financial instruments when classifying financial instruments (or components thereof) in the consolidated statements. An instrument shall be classified as a financial liability if the Group as a whole has an obligation as a result of the instrument to deliver cash, other financial assets, or to settle in another manner that causes the instrument to become a financial liability.

If a financial instrument or its component is a financial liability, the Company shall include related interest, dividends (or dividends), gains or losses, and gains or losses arising from redemption or refinancing into the current profits and losses.

If a financial instrument or its component is an equity instrument, when it is issued (including refinancing), repurchased, sold or canceled, the company will treat it as a change in equity; the company will not recognize changes in the fair value of equity instruments, and transaction costs related to equity transactions will be deducted from equity; the company's distribution to equity instrument holders will be treated as profit distribution, and stock dividends issued will not affect the total shareholders' equity.

(4) Recognition basis and measurement method of financial asset transfer

The Company will derecognize a financial asset that meets one of the following conditions: ① The contractual right to receive cash flows from the financial asset terminates; ② The financial asset has been transferred, and almost all the risks and rewards of the ownership of the financial asset are transferred to the transferee; ③ The financial asset has been transferred, and although the company neither transfers nor retains almost all the risks and rewards of the ownership of the financial asset, it has given up control of the financial asset. If the company neither transfers nor retains substantially all risks and rewards of ownership of a financial asset, and does not give up control of the financial asset, the relevant financial assets will be recognized to the extent of its continued involvement in the transferred financial assets, and the relevant liabilities will be recognized accordingly. The degree of continued involvement in the transferred financial assets refers to the level of risk faced by the enterprise due to changes in the value of the financial assets.

When other equity instrument investments are derecognised, the Company will include the difference between its book value and the sum of the consideration received and the cumulative amount of changes in fair value that was directly included in other comprehensive income into retained earnings; when the remaining financial assets are derecognised, the difference between its book value and the sum of the consideration received and the cumulative amount of changes in fair value that was originally directly included in other comprehensive income will be included in the current profit and loss.

When the company sells financial assets with recourse, or endorses and transfers financial assets it holds, it needs to determine whether substantially all the risks and rewards of ownership of the financial assets have been transferred. If almost all the risks and rewards of the ownership of the financial asset have been transferred to the transferee, the financial asset will be derecognised; if almost all the risks and rewards of the ownership of the financial asset have been retained, the recognition of the financial asset will not be deactivated; if almost all the risks and rewards of the ownership of the financial asset have neither been transferred nor retained, the company will continue to judge whether the enterprise retains control over the asset, and perform accounting treatment according to the principles described in the previous paragraphs.

(5) Derecognition of financial liabilities

If the current obligation of a financial liability (or part thereof) has been discharged, the Company shall terminate the recognition of the financial liability (or part thereof). The company (borrower) signs an agreement with the lender to replace the original financial liability by assuming a new financial liability, and if the contract terms of the new financial liability are substantially different from the original financial liability, the original financial liability will be terminated and a new financial liability will be recognized at the same time. If the company makes substantial modifications to the contract terms of the original financial liability (or part thereof), it will terminate the recognition of the original financial liability and recognize a new financial liability in accordance with the modified terms.

If a financial liability (or part thereof) is derecognised, the Company will include the difference between its book value and the consideration paid (including non-cash assets transferred out or liabilities assumed) into the current profit and loss.

(6) Offset of financial assets and financial liabilities

When the company has the legal right to offset the recognized amount of financial assets and financial liabilities, and the legal right is currently enforceable, and the company plans to settle on a net basis or realize the financial assets and pay off the financial liabilities at the same time, the financial assets and financial liabilities will be listed in the balance sheet as the net amount after offsetting each other. Otherwise, the Company's financial assets and financial liabilities are presented separately in the balance sheet and are not offset against each other.

(7) Determination method of fair value of financial assets and financial liabilities

Fair value refers to the price that can be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. If there is an active market for a financial instrument, the Company determines its fair value using the quoted price in the active market. Quotes in active markets refer to prices that are easily obtainable on a regular basis from exchanges, brokers, industry associations, pricing service agencies, etc., and represent the prices of market transactions that actually occur in fair transactions. If there is no active market for a financial instrument, the Company uses valuation techniques to determine its fair value. Valuation techniques include reference to prices used in recent market transactions between parties who are familiar with the situation and voluntary transactions, reference to the current fair value of other financial instruments that are substantially the same, discounted cash flow methods and option pricing models, etc. When valuing, the company adopts valuation techniques that are applicable under the current circumstances and supported by sufficient available data and other information, selects input values that are consistent with the characteristics of the assets or liabilities considered by market participants in transactions of related assets or liabilities, and gives priority to the use of relevant observable input values whenever possible. Unobservable input values are used when relevant observable input values cannot be obtained or are impracticable to obtain.

(8) Impairment of financial assets

The Company recognizes loss provisions based on expected credit losses for financial assets measured at amortized cost, debt investments measured at fair value with changes included in other comprehensive income, contract assets, lease receivables, loan commitments and financial guarantee contracts, etc.

Measurement of expected credit losses

The company considers reasonable and well-founded information about past events, current conditions and predictions of future economic conditions, weights the risk of default, calculates the probability-weighted amount of the present value of the difference between the cash flow receivable in the contract and the cash flow expected to be received, and recognizes expected credit losses.

On each balance sheet date, the Company measures the expected credit losses of financial instruments at different stages respectively. If the credit risk of a financial instrument has not increased significantly since initial recognition, it is in the first stage, and the Company will measure loss provisions based on the expected credit losses within the next 12 months; if the credit risk of a financial instrument has increased significantly since initial recognition but no credit impairment has occurred, it is in the second stage, and the Company will measure loss provisions based on the expected credit losses throughout the entire duration of the instrument; if a financial instrument has experienced credit impairment since initial recognition, it is in the third stage, and the Company will measure loss provisions based on the expected credit losses throughout the entire duration of the instrument.

For financial instruments with low credit risk on the balance sheet date, the company assumes that its credit risk has not increased significantly since initial recognition, and measures loss provisions based on expected credit losses within the next 12 months.

For financial instruments in the first and second stages and with lower credit risk, the company calculates interest income based on its book balance before impairment provisions and actual interest rate. For financial instruments in the third stage, interest income is calculated based on the amortized cost and actual interest rate after the book balance minus the provision for impairment.

For notes receivable, accounts receivable, contract assets and receivables financing resulting from daily operating activities such as selling goods and providing services, the Company measures loss provisions based on expected credit losses throughout the entire duration, regardless of whether there is a significant financing component.

A. Accounts receivable:

For bills receivable, accounts receivable, other receivables, receivables financing, contract assets and long-term receivables where there is objective evidence of impairment, and other bills receivable, accounts receivable, other receivables, contract assets and long-term receivables that are subject to individual assessment, individual impairment tests are conducted, expected credit losses are confirmed, and individual impairment provisions are made. For notes receivable, accounts receivable, other receivables and receivables financing that do not have objective evidence of impairment or when a single financial asset cannot assess expected credit losses at a reasonable cost, the company divides notes receivable, accounts receivable, other receivables, receivables financing, contract assets and long-term receivables into several combinations based on credit risk characteristics, and calculates expected credit losses on the basis of the combinations. The basis for determining the combination is as follows: a. The basis for determining the combination of notes receivable is as follows:

Project Basis for determining combination

Portfolio 1 - Commercial Acceptance Bills For the notes receivable classified into Portfolio 1 by enterprises with higher credit risks, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and the expected credit loss rate throughout the duration.

b. The basis for determining the combination of accounts receivable is as follows:

Item Basis for determining combination 1 Accounts receivable from external customers

Portfolio 2 Other low-risk accounts receivable For accounts receivable classified into Portfolio 1, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, prepares a comparison table between the number of days overdue of accounts receivable and the expected credit loss rate throughout the duration, and calculates expected credit losses. For accounts receivable classified into Portfolio 2, which have lower credit risks, generally no provision for bad debts is made.

The expected credit loss rate is as follows:

Aging Expected credit loss rate of accounts receivable (%) Within 1 year (including 1 year, the same below) 4.00

1 to 2 years 15.00

2 to 3 years 12.00

3 to 4 years 45.00

4 to 5 years 100.00

More than 5 years 100.00

c. The basis for determining the combination of other receivables is as follows:

Item Basis for determining combination 1 Other accounts receivable

Portfolio 2 Accounts receivable from related parties For other receivables classified into Portfolio 1, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and expected credit loss rate within the next 12 months or the entire duration. For other receivables classified into Portfolio 2, which have lower credit risks, generally no provision for bad debts is made. Expected credit loss rate:

Aging Expected credit loss rate of other receivables (%) Within 1 year (including 1 year) 8.00

1 to 2 years (including 2 years) 6.00

2 to 3 years (including 3 years) 28.00

3 to 4 years (including 4 years) 100.00 4 to 5 years (including 5 years) 100.00 More than 5 years 100.00 d. The basis for determining the combination of receivables financing is as follows:

Project Basis for determining combination

Combination 1--Bank acceptance bill Bank with lower credit risk

For receivables financing classified as Portfolio 1, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and the expected credit loss rate throughout the duration. e. The basis for determining the combination of contract assets is as follows:

Project Basis for determining combination

Portfolio 1--Related party portfolio Contract assets of related parties with low credit risk

Portfolio 2 - Aging Portfolio Taking the aging of contract assets as the credit risk characteristic, contract assets classified as Portfolio 1 have lower credit risks and generally no provision for bad debts is made.

For the contract assets classified into Portfolio 2, the Company refers to historical credit loss experience, combined with current conditions and predictions of future economic conditions, and calculates expected credit losses through default risk exposure and the expected credit loss rate throughout the duration.

Aging Expected credit loss rate of contract assets (%)

Within 1 year (including 1 year) 4.00

1 to 2 years (including 2 years) 15.00

2 to 3 years (including 3 years) 12.00

3 to 4 years (including 4 years) 45.00

4 to 5 years (including 5 years) 100.00

More than 5 years 100.00

B. Debt investment and other debt investments

For debt investments and other debt investments, the Company calculates expected credit losses based on the nature of the investment, various types of counterparties and risk exposures, and through the default risk exposure and the expected credit loss rate within the next 12 months or throughout the duration.

Has lower credit risk

If the default risk of a financial instrument is low, the borrower has a strong ability to fulfill its contractual cash flow obligations in the short term, and even if there are adverse changes in the economic situation and operating environment in the longer term, it may not necessarily reduce the borrower's ability to fulfill its contractual cash flow obligations, the financial instrument is considered to have lower credit risk.

Credit risk increases significantly

The Company compares the default probability of the financial instrument within the expected duration determined on the balance sheet date with the default probability within the expected duration determined at the time of initial recognition to determine the relative change in the default probability of the financial instrument during the expected duration to assess whether the credit risk of the financial instrument has increased significantly since the initial recognition.

When determining whether credit risk has increased significantly since initial recognition, the Company considers reasonable and supportable information, including forward-looking information, that is available without unnecessary additional cost or effort. Information considered by the Company includes:

A. Whether there are significant changes in internal price indicators caused by changes in credit risk;

B. Whether there are any adverse changes in the business, financial or economic conditions that are expected to cause significant changes in the debtor's ability to fulfill its debt repayment obligations; C. Whether there are actual or expected significant changes in the debtor's operating results; whether there are significant adverse changes in the regulatory, economic or technological environment in which the debtor is located;

D. Whether the value of the collateral used as collateral for the debt or the quality of the guarantee or credit enhancement provided by a third party has changed significantly. These changes are expected to reduce the debtor's economic incentives to repay within the contractual period or affect the probability of default;

E. Whether there is a significant change in the economic motivation that is expected to reduce the debtor's repayment within the contract period;

F. Anticipated changes in the loan contract, including whether anticipated breaches of the contract may result in the exemption or revision of contractual obligations, the granting of interest-free periods, jumps in interest rates, requirements for additional collateral or guarantees, or other changes to the contractual framework of financial instruments;

G. Whether the debtor’s expected performance and repayment behavior have changed significantly;

H. Whether the contract payment is overdue for more than 30 days (inclusive).

Depending on the nature of the financial instrument, the Company evaluates whether the credit risk has increased significantly on the basis of a single financial instrument or a combination of financial instruments. When evaluating based on a portfolio of financial instruments, the Company may classify financial instruments based on common credit risk characteristics, such as overdue information and credit risk ratings.

Typically, the Company determines that the credit risk of a financial instrument has increased significantly if it is more than 30 days past due. Unless the Company can obtain reasonable and substantiated information without undue cost or effort, proving that although the payment period stipulated in the contract has exceeded 30 days, the credit risk has not increased significantly since the initial recognition.

④ Financial assets that have suffered credit impairment

The Company assesses whether credit impairment has occurred on financial assets measured at amortized cost and debt investments measured at fair value through other comprehensive income on the balance sheet date. When one or more events that have an adverse impact on the expected future cash flows of a financial asset occur, the financial asset becomes a credit-impaired financial asset. Evidence that a financial asset has been credit-impaired includes the following observable information: the issuer or the debtor encounters major financial difficulties; the debtor breaches the contract, such as default or overdue payment of interest or principal; the creditor gives the debtor a period of time due to economic or contractual considerations related to the debtor's financial difficulties; Concessions that would not be made under any other circumstances; It is probable that the debtor will go bankrupt or undergo other financial reorganization; Financial difficulties of the issuer or debtor will result in the disappearance of an active market for the financial asset; Purchase or origination of a financial asset at a substantial discount that reflects the fact that a credit loss has occurred.

⑤ Presentation of expected credit loss provisions

In order to reflect changes in the credit risk of financial instruments since initial recognition, the company remeasures expected credit losses on each balance sheet date, and the resulting increase or reversal of loss provisions shall be included in the current profit and loss as impairment losses or gains. For financial assets measured at amortized cost, the loss provision is deducted from the book value of the financial asset listed in the balance sheet; for debt investments measured at fair value with changes included in other comprehensive income, the company recognizes its loss provision in other comprehensive income and does not deduct the book value of the financial asset.

⑥Writing off

If the company no longer reasonably expects that the contractual cash flows of a financial asset can be fully or partially recovered, it will directly write down the book balance of the financial asset. Such write-down constitutes the derecognition of the relevant financial assets. This situation typically occurs when the Company determines that the debtor does not have the assets or sources of income to generate sufficient cash flow to repay the amount that will be written down. If a financial asset that has been written down is later recovered, the reversal of the impairment loss will be included in the profit and loss of the current period of recovery.

Notes receivable

For details on the determination method and accounting treatment method of expected credit losses of notes receivable, please refer to Note 3.9, (8) Impairment of financial assets.

Accounts receivable

For the determination method and accounting treatment method of expected credit losses of accounts receivable, please refer to Note 3.9, (8) Impairment of Financial Assets for details.

Accounts receivable financing

For notes receivable and accounts receivable that have contractual cash flow characteristics that are consistent with basic lending arrangements, and the company's business model for managing such financial assets aims at both collecting contractual cash flows and selling them, the company classifies them as receivables financing and measures them at fair value with changes in them included in other comprehensive income.

For details on the determination method and accounting treatment method of expected credit losses in accounts receivable financing, please refer to Note III.9, (8) Impairment of Financial Assets.

Other receivables

For details on the determination method and accounting treatment method of expected credit losses of other receivables, please refer to Note III. 9. (8) Impairment of Financial Assets.

Inventory

(1) Classification of inventory

Inventories refer to the finished products or commodities held by the company for sale in daily activities, products in progress during the production process, materials and supplies consumed in the production process or the provision of labor services, etc. It mainly includes raw materials, turnover materials, shipped goods, work in progress, finished goods (inventory goods), materials in transit, etc.

(2) Valuation method of inventory

The actual cost of inventory is determined based on the weighted average method at the end of the month.

(3) Method of accruing inventory depreciation provisions

On the balance sheet date, inventories are measured at the lower of cost and net realizable value.

For inventories such as finished goods, commodities and materials for sale that can be directly used for sale, the net realizable value is determined based on the estimated selling price of such inventories minus estimated sales expenses and related taxes; for inventories such as materials held for production, the net realizable value is determined based on the estimated selling price of finished goods produced minus the estimated amount of money to be issued upon completion. The amount is determined after the incurred costs, estimated sales expenses and relevant taxes; for inventories held for the execution of sales contracts or labor contracts, the net realizable value is calculated based on the contract price. If the quantity of inventory held by the enterprise is greater than the quantity ordered in the sales contract, the net realizable value of the excess inventory is calculated based on the general sales price.

The Company accrues inventory depreciation provisions based on individual inventory items. However, if certain inventories are related to product series produced and sold in the same region, have the same or similar end use or purpose, and are difficult to measure separately from other items, the cost and net realizable value can be measured together; for inventories with large quantities and low unit prices, the cost and net realizable value can be measured according to the inventory category.

On the balance sheet date, if the inventory cost is higher than its net realizable value, a provision for inventory depreciation is made and included in the current profit and loss. If the factors that caused the previous write-down of the inventory value have disappeared, the amount of the write-down will be restored and reversed within the amount of the inventory devaluation provision that was originally accrued, and the reversed amount will be included in the current profit and loss.

(4) Inventory inventory system

The company's inventory inventory system is a perpetual inventory system.

(5) Amortization method for turnover materials (low-value consumables and packaging materials)

Low-value consumables and packaging materials are amortized using the one-time write-off method.

Contract assets

The Company presents as receivables the right to receive consideration from customers that is unconditional (i.e., dependent only on the passage of time) and the right to receive consideration that has been transferred to the customer and is dependent on factors other than the passage of time as contract assets. When two clearly distinguishable goods are sold to a customer and the company has the right to receive payment because one of the goods has been delivered, but the collection of the payment is also dependent on the delivery of the other goods, the company treats the right to receive payment as a contract asset.

For contract assets formed from daily operating activities such as selling goods and providing labor services, the Company measures loss provisions based on expected credit losses throughout the entire duration, regardless of whether there is a significant financing component.

Contract costs

Contract performance costs refer to the costs incurred by the company to perform the contract. This cost does not fall within the scope of standards other than the revenue standard and meets the following conditions at the same time:

(1) The cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing overhead (or similar expenses), costs clearly borne by the customer, and other costs incurred solely because of the contract;

(2) This cost increases the company’s resources for fulfilling its performance obligations in the future;

(3) The cost is expected to be recovered.

The following expenditures of the Company are included in the current profits and losses when incurred:

(1) Management expenses.

(2) Abnormal consumption of direct materials, direct labor and manufacturing expenses (or similar expenses), which are incurred to fulfill the contract but are not reflected in the contract price.

(3) Expenditures related to the fulfilled part of the performance obligations.

(4) Relevant expenditures that cannot be distinguished between performance obligations that have not yet been performed and those that have been performed.

The incremental costs incurred by the company to obtain the contract are expected to be recovered, and are recognized as an asset as the contract acquisition cost; if the amortization period of the asset does not exceed one year, it will be included in the current profit and loss when incurred. Incremental costs refer to costs that the company would not incur without obtaining the contract (such as sales commissions, etc.). Other expenses incurred by the company to obtain the contract, other than the incremental costs expected to be recovered (such as travel expenses that will be incurred regardless of whether the contract is obtained, etc.), are included in the current profit and loss when incurred, except for those that are clearly borne by the customer.

The company's assets related to contract costs shall be amortized on the same basis as the commodity revenue recognition related to the assets and included in the current profits and losses.

If the book value of the company's assets related to contract costs is higher than the difference between the following two items, impairment provisions will be made for the excess and recognized as asset impairment losses:

The remaining consideration that the company expects to obtain from the transfer of goods related to the asset;
Estimate the costs that will be incurred to transfer the relevant goods.

If the factors for impairment in the previous period subsequently change, causing the difference between 1) minus 2) above to be higher than the book value of the asset, the company will reverse the asset impairment provision that was originally made and include it in the current profit and loss, but the book value of the asset after the reversal will not exceed the book value of the asset on the date of reversal assuming no provision for impairment is made.

Long-term equity investment

Long-term equity investment refers to the long-term equity investment in which the company has control, joint control or significant influence on the invested unit.

(1) Determination of initial investment cost

① For long-term equity investments obtained through a business merger, if it is a business merger under the same control, the share of the book value of the owner's equity of the merged party shall be recognized as the initial cost; if it is a business merger not under the same control, the merger cost determined on the acquisition date shall be recognized as the initial cost;

② For other equity investments other than long-term equity investments formed through business mergers, for long-term equity investments obtained by paying cash, the initial investment cost is the actual purchase price paid; for long-term equity investments obtained by issuing equity securities, the initial investment cost is the fair value of the equity securities issued; for long-term equity investments obtained through debt restructuring, the initial investment cost shall be determined in accordance with the relevant provisions of the "Accounting Standards for Business Enterprises No. 12 - Debt Restructuring"; for non-monetary assets obtained in exchange, the initial investment cost shall be determined in accordance with the relevant provisions of the standards.

(2) Subsequent measurement and profit and loss recognition methods

① Cost method accounting

Long-term equity investments in which the investor can exercise control over the investee shall be accounted for using the cost method. For long-term equity investments accounted for using the cost method, the book value generally remains unchanged except for additional investments or withdrawals. When the profit distribution or cash dividend is declared, the share due is calculated and investment income is recognized.

② Equity method accounting

The Company adopts the equity method to account for long-term equity investments in associates and joint ventures. When accounting using the equity method, if the initial investment cost of a long-term equity investment is greater than the fair value share of the investee's identifiable net assets at the time of investment, the initial investment cost of the long-term equity investment will not be adjusted; if the initial investment cost is less than the fair value share of the investee's identifiable net assets at the time of investment, the difference will be included in the current profit and loss, and the cost of the long-term equity investment will be adjusted at the same time.

When accounting using the equity method, the company recognizes investment income and other comprehensive income respectively according to its share of the net profit or loss and other comprehensive income realized by the invested unit, and adjusts the book value of the long-term equity investment at the same time; calculates the share of the profits or cash dividends declared by the investee to be distributed, and reduces the book value of the long-term equity investment accordingly; for other changes in the owner's equity of the investee other than net profits and losses, other comprehensive income and profit distribution, the company adjusts the book value of the long-term equity investment and includes it in the capital reserve. When confirming the share of the investee's net profits and losses, the net profit of the investee is adjusted and recognized based on the fair value of the investee's identifiable assets when the investment is obtained. If the accounting policies and accounting periods adopted by the invested unit are inconsistent with those of the Company, the financial statements of the invested unit shall be adjusted in accordance with the Company's accounting policies and accounting periods, and investment income and other comprehensive income shall be recognized accordingly.

When the company recognizes that it should share the net losses incurred by the investee, it shall reduce the book value of the long-term equity investment and other long-term interests that essentially constitute the net investment in the investee to zero. In addition, if the company has an obligation to bear additional losses to the investee, it will recognize estimated liabilities based on the estimated obligations and include them in the current investment losses. If the invested unit realizes net profit in the subsequent period, the company will resume recognition of the income sharing amount after the income sharing amount makes up for the unrecognized loss sharing amount.

(3) Conversion of long-term equity investment accounting methods

① Conversion from fair value measurement to equity method accounting: If the company's original equity investment in the investee (without control, joint control or significant influence) is accounted for in accordance with the financial instrument recognition and measurement standards, the shareholding ratio increases due to additional investment and other reasons, and it is able to control the investee If the unit exerts joint control or significant influence, when switching to equity method accounting, the company shall add the fair value of the original equity investment determined in accordance with the standards for recognition and measurement of financial instruments plus the fair value of the consideration payable to obtain the new investment as the initial investment cost to switch to equity method accounting.

② Conversion from fair value measurement or equity method accounting to cost method accounting: equity investments originally held by the company that have no control, joint control or significant influence over the invested unit and are accounted for in accordance with the financial instrument recognition and measurement standards, or long-term equity investments originally held in associates and joint ventures that are able to exercise control over the invested unit due to additional investment or other reasons, shall be accounted for as long-term equity investments formed by the merger of relevant enterprises.

③ Conversion from equity method accounting to fair value measurement: If the long-term equity investment originally held by the company that has joint control or significant influence on the invested unit decreases due to partial disposal and other reasons, and the shareholding ratio decreases, and it can no longer exercise joint control or significant influence on the invested unit, the remaining equity investment will be accounted for in accordance with the financial instrument recognition and measurement standards. The difference between its fair value and book value on the date of loss of joint control or significant influence shall be included in the current profit and loss.

④ Conversion from cost method to equity method or fair value measurement: If the company loses control of the invested unit due to disposal of part of the equity investment or other reasons, when preparing individual financial statements, if the remaining equity after disposal can jointly control or exert significant influence on the invested unit, the company will switch to the equity method for accounting, and the remaining equity will be deemed to have been acquired since the time of acquisition. Adjustments are made using equity method accounting; if the remaining equity after disposal cannot jointly control or exert significant influence on the invested unit, the company will conduct accounting treatment in accordance with the relevant provisions of "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments", and the difference between its fair value and book value on the date of loss of control shall be included in the current profit and loss. When preparing consolidated financial statements, accounting treatment should be carried out in accordance with the relevant provisions of "Accounting Standards for Business Enterprises No. 33 - Consolidated Financial Statements". (4) Basis for determining joint control and significant influence on the invested unit

Joint control refers to the shared control over an arrangement in accordance with relevant agreements, and the relevant activities of the arrangement must be decided only with the unanimous consent of the parties sharing control rights. All parties or a group of parties are said to collectively control an arrangement if they must act in concert to determine the relevant activities of the arrangement. When judging whether there is joint control, first judge whether the arrangement is collectively controlled by all participants or a combination of participants, and secondly whether decisions on activities related to the arrangement must be unanimously agreed upon by the participants who collectively control the arrangement. If a combination of two or more parties can collectively control an arrangement, it does not constitute joint control. When determining whether joint control exists, the protective rights enjoyed are not taken into account.

Significant influence means that the investor has the power to participate in decision-making on the financial and operating policies of the invested unit, but it is not able to control or jointly control the formulation of these policies with other parties. When the company determines whether it can exert significant influence on the investee, it considers the impact of the voting shares held directly or indirectly by the investee and the current executable potential voting rights held by the company and other parties after they are assumed to be converted into equity in the investee, including the impact of current convertible warrants, share options and convertible corporate bonds issued by the investee.

When the company directly or indirectly through subsidiaries owns more than 20% (including 20%) but less than 50% of the voting shares of the invested unit, it is generally considered to have a significant impact on the invested unit. Unless there is clear evidence that it cannot participate in the production and operation decisions of the invested unit under such circumstances, it will not have a significant impact.

The company usually judges whether it has a significant impact on the investee through one or more of the following situations:

① Have representatives on the board of directors or similar authority of the investee;

② Participate in the formulation process of financial and operating policies of the invested unit;

③ Important transactions occur with the invested unit;

④ Dispatch management personnel to the invested unit;

⑤ The invested unit provides key technical information.

The existence of one or more of the above situations does not mean that the company must have a significant impact on the investee. The company needs to comprehensively consider all facts and circumstances to make appropriate judgments.

(5) Impairment testing method and impairment provision accrual method

On the balance sheet date, the company checks whether there are any signs of possible impairment of long-term equity investments. When there are signs of impairment, an impairment test should be conducted to confirm the recoverable amount, and impairment provisions will be made based on the part where the recoverable amount is lower than the book value. Once the impairment loss is made, it will not be reversed in subsequent accounting periods.

The recoverable amount is determined based on the higher of the net fair value of the long-term equity investment sold and the present value of the expected future cash flows. (6) Disposal of long-term equity investment

When the company disposes of a long-term equity investment, the difference between the book value of the investment and the actual price obtained is included in the current profit and loss. When disposing of a long-term equity investment accounted for using the equity method, the same basis as the investee's direct disposal of relevant assets or liabilities will be used, and the portion originally included in other comprehensive income will be accounted for in a corresponding proportion.

Fixed assets

(1) Recognition conditions and measurement of fixed assets

Fixed assets refer to tangible assets held for the production of goods, provision of labor services, leasing or operation and management and with a useful life of more than one accounting year. It will be confirmed when the following conditions are met at the same time:

① The economic benefits related to the fixed asset are likely to flow into the enterprise;

② The cost of the fixed asset can be measured reliably.

Subsequent expenditures related to fixed assets that meet the above recognition conditions will be included in the cost of the fixed assets, and the book value of the replaced part will be derecognized; otherwise, they will be included in the current profit and loss when incurred.

The Company's fixed assets are initially measured at cost. The cost of a fixed asset generally includes the purchase price, relevant taxes, and other expenses directly attributable to the asset, such as transportation fees, installation fees, etc., incurred before the fixed asset reaches its intended usable condition. However, if the purchased fixed assets are deferred beyond normal credit conditions, the cost of the fixed assets will be determined based on the sum of the present values of the payments in each installment. The difference between the actual price paid and the present value of the purchase price shall be included in the current profit and loss during the credit period, except for those that should be capitalized in accordance with "Accounting Standards for Business Enterprises No. 17 - Borrowing Costs".

(2) Fixed asset classification and depreciation method

The company's fixed assets are mainly divided into: houses and buildings, machinery and equipment, transportation equipment, office equipment and others; the depreciation method adopts the straight-line method. According to the nature and usage of various types of fixed assets, the service life and estimated net residual value of fixed assets are determined. At the end of the year, the service life, estimated net residual value and depreciation method of fixed assets will be reviewed. If there are differences from the original estimates, corresponding adjustments will be made. Except for fixed assets that have been fully depreciated and are still in use and land that is separately valued and accounted for, the Company accrues depreciation for all fixed assets.

Asset category Depreciation method Estimated service life (years) Estimated net salvage value rate (%) Annual depreciation rate (%) Houses and buildings Year-average method 20.00 5.00 4.75

Machinery and equipment Average age method 5-10 5.00 9.50-19.00 Transportation equipment Average age method 5.00 5.00 19.00

Office equipment and others Straight-line method 3-5 5.00 19.00-31.67 (3) Impairment testing method and impairment provision accrual method for fixed assets

On the balance sheet date, the company checks whether there are any signs of possible impairment of fixed assets. When there are signs of impairment, an impairment test should be conducted to confirm the recoverable amount. An impairment provision will be made based on the part where the recoverable amount is lower than the book value. Once the impairment loss is made, it will not be reversed in subsequent accounting periods.

(4) Fixed asset disposal

When a fixed asset is disposed of or when no economic benefits are expected to be generated through use or disposal, the fixed asset is derecognised. The difference between the disposal income from the sale, transfer, scrapping or damage of fixed assets after deducting their book value and relevant taxes is included in the current profit and loss.

Projects under construction

(1) Measurement of projects under construction

The cost of the company's construction-in-progress is determined based on actual project expenditures, including various necessary project expenditures incurred during the construction period, borrowing costs that should be capitalized before the project reaches its intended usable state, and other related expenses.

(2) Standards and timing for transfer of projects under construction to fixed assets

The company's construction-in-progress will be transferred to fixed assets when the project is completed and reaches the intended usable state. The criteria for judging the intended usable status should meet one of the following conditions:

①The physical construction (including installation) of fixed assets has been completed or substantially completed;

② Trial production or trial operation has been carried out, and the results show that the asset can operate normally or can stably produce qualified products, or the trial operation results show that it can operate normally or operate;

③The amount of expenditure on fixed assets for this construction is very small or almost no longer occurs;

④The fixed assets purchased and constructed have met the design or contract requirements, or are basically consistent with the design or contract requirements.

If the project constructed by the company has reached the intended usable state, but the final accounts for completion have not yet been processed, from the date it reaches the intended usable state, the estimated value will be transferred to fixed assets based on the project budget, cost or actual project cost, etc., and the depreciation of the fixed assets will be accrued in accordance with the company's fixed asset depreciation policy. After the completion of the final accounts, the original estimated value will be adjusted according to the actual cost, but the originally accrued depreciation amount will not be adjusted.

(3) Impairment testing method and impairment provision accrual method for projects under construction

On the balance sheet date, the company checks whether there are any signs of possible impairment of projects under construction. When there are signs of impairment, an impairment test should be conducted to confirm its recoverable amount, and impairment provisions will be made based on the part where the recoverable amount is lower than the book value. Once the impairment loss is made, it will not be reversed in subsequent accounting periods.

The recoverable amount of the construction in progress is determined based on the higher of the net amount of the asset's fair value minus disposal costs and the present value of the asset's expected future cash flows.

Borrowing costs

(1) Recognition principles for capitalization of borrowing costs

The company's borrowing costs include borrowing interest, amortization of discounts or premiums, auxiliary expenses, and exchange differences arising from foreign currency borrowings. If the borrowing costs incurred by the company can be directly attributed to the acquisition, construction or production of assets that meet the capitalization conditions, they will be capitalized and included in the cost of the relevant assets; other borrowing costs will be recognized as expenses based on the amount incurred when they are incurred and included in the current profits and losses. Assets that meet the conditions for capitalization refer to fixed assets, investment real estate, inventories and other assets that require a considerable period of acquisition, construction or production activities to reach the intended usable or salable state.

(2) Calculation method of capitalization amount

Capitalization period: refers to the period from the time when borrowing costs start to be capitalized to the time when capitalization stops. Periods during which the capitalization of borrowing costs is suspended are not included.

The company's borrowing costs begin to be capitalized when the following conditions are met at the same time: ① Asset expenditures have occurred, and asset expenditures include expenditures in the form of cash payments, transfers of non-cash assets, or interest-bearing debts for the acquisition, construction or production of assets that meet the capitalization conditions; ② Borrowing costs have occurred; ③ The acquisition, construction or production activities necessary to bring the assets to the intended usable or salable state have begun. When the acquisition, construction or production of assets that meet the capitalization conditions reaches the intended usable or salable state, the capitalization of borrowing costs ceases. Suspended capitalization period: If an abnormal interruption occurs during the construction or production process, and the interruption lasts for more than 3 months, the capitalization period of the borrowing costs shall be suspended.

Calculation of capitalization amount: ① Borrowing of special borrowings shall be determined based on the actual interest expense of the special borrowings in the current period, minus the interest income obtained from depositing unused borrowed funds in the bank or the investment income obtained from temporary investment; ② The amount of general borrowings occupied shall be determined based on the accumulated asset expenditure exceeding the amount of special borrowings. The weighted average asset expenditure of the borrowing part is calculated and determined by multiplying the capitalization rate of the occupied general borrowings, and the capitalization rate is the weighted average interest rate of the general borrowings; ③ If there is a discount or premium on the borrowing, the amount of discount or premium that should be amortized in each accounting period is determined according to the actual interest rate method, and the interest amount of each period is adjusted.

Right-of-use assets

Right-of-use assets refer to the company's right as a lessee to use the leased assets during the lease period. On the start date of the lease period, the Company, as the lessee, recognizes right-of-use assets and lease liabilities for the lease, except for short-term leases and low-value asset leases that are simplified.

The company's right-of-use assets are initially measured at cost, which includes:

(1) The initial measurement amount of the lease liability;

(2) For lease payments paid on or before the start date of the lease period, if there are lease incentives, the amount related to the lease incentives already enjoyed will be deducted;

(3) The initial direct costs incurred by the company as a lessee;

(4) The costs that the company expects to incur to dismantle and remove the leased assets, restore the site where the leased assets are located, or restore the leased assets to the state agreed upon in the lease terms.

The Company uses the average life method to calculate depreciation on right-of-use assets. If the company can reasonably determine that it will obtain ownership of the leased asset when the lease term expires, depreciation will be accrued over the remaining useful life of the leased asset. If it is not reasonably certain that the ownership of the leased asset will be obtained at the expiration of the lease term, the Company will accrue depreciation during the shorter of the lease term and the remaining useful life of the leased asset.

In accordance with the provisions of "Accounting Standards for Business Enterprises No. 8 - Impairment of Assets", the Company determines whether the right-of-use assets are impaired and performs accounting treatment for the identified impairment losses.

When the company remeasures lease liabilities in accordance with the standards, it adjusts the book value of the right-of-use assets accordingly. If the book value of the right-of-use asset has been reduced to zero, but the lease liability still needs to be further reduced, the remaining amount will be included in the current profit and loss.

If the change in the lease results in a reduction in the scope of the lease or a shortening of the lease period, the company will reduce the book value of the right-of-use assets accordingly, and include the gains or losses related to the partial or complete termination of the lease into the current profits and losses. If other lease changes result in the remeasurement of lease liabilities, the company will adjust the book value of the right-of-use assets accordingly.

Intangible assets

Intangible assets refer to identifiable non-monetary assets without physical form owned or controlled by the company, which are recognized when the following conditions are met at the same time:

① The economic benefits related to the intangible assets are likely to flow into the company;

②The cost of the intangible asset can be measured reliably.

(1) Measurement of intangible assets

The Company's intangible assets are initially measured at cost. The actual cost of purchased intangible assets is based on the actual price paid and related expenditures; the actual cost of intangible assets invested by investors is determined based on the value stipulated in the investment contract or agreement, but if the value stipulated in the contract or agreement is unfair, the actual cost is determined based on the fair value; self-developed For intangible assets, the cost is the total expenditure incurred before reaching the intended use; for intangible assets owned by the acquiree acquired in a merger not under common control but not recognized in its financial statements, when the assets of the acquiree are initially recognized, they are recognized as intangible assets at fair value.

The subsequent measurement of the company's intangible assets is as follows: ① Intangible assets with limited service life are amortized using the straight-line method. At the end of the year, the service life and amortization method of the intangible assets are reviewed. If there are differences with the original estimates, corresponding adjustments are made. ② Intangible assets with indefinite service life are not amortized, but at the end of the year, the service life will be reviewed. When there is conclusive evidence that its service life is limited, its service life will be estimated and amortized according to the straight-line method.

(2) Basis for judgment of uncertain service life

The company determines intangible assets such as intangible assets that cannot foresee the period during which the asset will bring economic benefits to the company, or whose useful life is uncertain, as intangible assets with an indefinite useful life.

The basis for judging the uncertain service life: ① It comes from contractual rights or other legal rights, but there is no clear service life stipulated in the contract or law; ② Based on the situation in the same industry or the argumentation of relevant experts, it is still impossible to judge the period during which the intangible assets can bring economic benefits to the company.

At the end of each year, the Company reviews the useful lives of intangible assets with uncertain useful lives. It mainly adopts a bottom-up approach. Departments related to the use of intangible assets conduct basic reviews to evaluate whether there are changes in the basis for determining uncertain useful lives.

(3) Impairment testing method and impairment provision accrual method for intangible assets

On the balance sheet date, the company checks whether there are any signs of possible impairment of intangible assets. When there are signs of impairment, an impairment test should be conducted to confirm its recoverable amount. An impairment provision will be made based on the part where the recoverable amount is lower than the book value. Once the impairment loss is made, it will not be reversed in subsequent accounting periods.

The recoverable amount of an intangible asset is determined based on the higher of the asset's fair value minus disposal costs and the present value of the asset's expected future cash flows.

(4) Specific standards for the research phase and development phase of internal research and development projects, as well as specific standards for development phase expenditures that meet the capitalization conditions

Expenditures in the research phase of internal research and development projects are included in the current profit and loss when incurred; expenditures in the development phase are recognized as intangible assets if they meet the following conditions: ① It is technically feasible to complete the intangible asset so that it can be used or sold; ② There is the intention to complete the intangible asset and use or sell it; ③ The way intangible assets generate economic benefits includes the ability to Prove that there is a market for the products produced using the intangible asset or that the intangible asset itself has a market, and that the intangible asset will be used internally, and its usefulness can be proven; ④ It has sufficient technical, financial and other resource support to complete the development of the intangible asset, and has the ability to use or sell the intangible asset; ⑤ Expenditures attributable to the development stage of the intangible asset can be measured reliably.

If it is impossible to distinguish between expenditures in the research stage and expenditures in the development stage, all R&D expenditures incurred will be included in the current profit and loss.

Long-term deferred expenses

The company's long-term deferred expenses refer to various expenses that have been incurred but have a benefit period of more than one year (excluding one year). Long-term deferred expenses are amortized evenly over the benefit period of the expense item. If a long-term deferred expense item cannot benefit future accounting periods, all the amortized value of the item that has not been amortized will be transferred to the current profit and loss.

Contract liabilities

Contract liabilities refer to the company's obligation to transfer goods to customers for consideration it has received or receivable from customers. If the customer has paid the contract consideration or the company has obtained the unconditional right to receive payment before the company transfers the goods to the customer, the company will list the amount received or receivable as a contract liability at the earlier of the customer's actual payment and the due payment. The Company presents contract assets and contract liabilities under the same contract as a net amount, and contract assets and contract liabilities under different contracts are not offset.

Employee compensation

Employee compensation refers to various forms of remuneration and other related expenses given by the company for the services provided by employees, including short-term salary, post-employment benefits, dismissal benefits and other long-term benefits.

(1) Accounting treatment method for short-term compensation

The company's short-term remuneration includes short-term wages, bonuses, allowances, subsidies, employee welfare fees, housing provident funds, labor union funds and employee education funds, medical insurance premiums, work-related injury insurance premiums, maternity insurance premiums, short-term paid absences, short-term profit sharing plans, etc. During the accounting period when employees provide services, the company recognizes the actual short-term remuneration payable as a liability, and includes it into the current profit and loss or related asset costs in accordance with the beneficiary object and the accrual basis principle.

(2) Accounting treatment of post-employment benefits

Post-employment benefits mainly include basic pension insurance premiums, enterprise annuities, etc., which are classified into defined contribution plans and defined benefit plans according to the risks and obligations assumed by the company.

Defined contribution plan: The deposits paid to a separate entity on the balance sheet date in exchange for the services provided by employees during the accounting period are recognized as liabilities, and included in the current profit and loss or related asset costs according to the beneficiary object.

Defined benefit plan: Actuarial valuations are conducted by independent actuaries at the half-year and annual balance sheet dates to determine the cost of providing benefits using the expected accumulated benefit unit method. The employee compensation costs caused by the company's defined benefit plan include the following components: ① Service costs, including current service costs, past service costs and settlement gains or losses. Among them, the current service cost refers to the increase in the present value of the defined benefit obligation caused by the provision of services by employees in the current period; the past service cost refers to the increase or decrease in the present value of the defined benefit obligation related to employee services in previous periods caused by the modification of the defined benefit plan; ② the interest expense of the defined benefit obligation; ③ the change caused by the remeasurement of the defined benefit plan liability. Unless other accounting standards require or allow employee benefit costs to be included in asset costs, the company will include the above items ① and ② in the current profit and loss; item ③ will be included in other comprehensive income and will not be transferred back to profit or loss in subsequent accounting periods.

(3) Accounting treatment method for dismissal benefits

Dismissal benefits refer to the company terminating the labor relationship with employees before the employee's labor contract expires, or making suggestions for compensation in order to encourage employees to voluntarily accept layoffs. When the company cannot unilaterally withdraw the dismissal benefits provided by the termination of labor relations plan or layoff proposal, or when it recognizes the costs or expenses related to the restructuring involving the payment of dismissal benefits (whichever is earlier), the employee compensation liabilities arising from the dismissal benefits are recognized and included in the current profit and loss.

Lease liabilities

On the start date of the lease period, the Company, as the lessee, recognizes right-of-use assets and lease liabilities for the lease, except for short-term leases and low-value asset leases that are simplified. The Company's lease liabilities are initially measured based on the present value of the unpaid lease payments at the beginning of the lease term. When calculating the present value of lease payments, the Company uses the interest rate implicit in the lease as the discount rate; if the interest rate implicit in the lease cannot be determined, the Company (i.e. the lessee) incremental borrowing rate is used as the discount rate.

The interest rate implicit in the lease refers to the interest rate that makes the sum of the present value of the lessor's lease receipts and the present value of the unguaranteed residual value equal to the sum of the fair value of the leased asset and the lessor's initial direct costs. The incremental borrowing interest rate of the lessee refers to the interest rate that the company, as a lessee, must pay to borrow funds under similar mortgage conditions during a similar period to obtain assets close to the value of the right-of-use assets in a similar economic environment.

The company calculates the interest expense of the lease liability in each period during the lease term based on a fixed periodic interest rate, and includes it in the current profit and loss or asset cost.

After the start date of the lease period, if the evaluation results of the company's lease renewal option, lease termination option or purchase option change, the lease payment will be re-determined, and the lease liability will be re-measured based on the present value of the changed lease payment and the revised discount rate:

After the start date of the lease period, if the amount payable based on the guaranteed residual value changes, or if the future lease payment changes due to changes in the index or ratio used to determine the lease payment, the company will remeasure the lease liability based on the present value of the lease payment after the change. Under these circumstances, the discount rate used by the Company remains unchanged; however, if changes in lease payments result from changes in floating interest rates, a revised discount rate is used.

Estimated liabilities

(1) Recognition standards for estimated liabilities

When the obligation related to a contingency is a current obligation borne by the company, and the performance of the obligation is likely to result in an outflow of economic benefits, and the amount can be measured reliably, the obligation is recognized as a provisional liability.

(2) Measurement method of estimated liabilities

The Company's estimated liabilities are initially measured based on the best estimate of the expenditures required to fulfill relevant current obligations. If the required expenditures exist in a continuous range, and the likelihood of various outcomes within the range is the same, the best estimate is determined based on the middle value within the range; if multiple projects are involved, the best estimate is calculated and determined based on various possible outcomes and related probabilities.

The Company reviews the book value of estimated liabilities on the balance sheet date. If there is conclusive evidence that the book value cannot truly reflect the current best estimate, the book value will be adjusted based on the current best estimate.

If all or part of the expenses required to settle estimated liabilities are expected to be compensated by a third party, the compensation amount will be recognized separately as an asset when it is basically certain that it will be received, and the recognized compensation amount will not exceed the book value of the estimated liabilities.

Income

(1) Accounting policies adopted for revenue recognition and measurement

When the contract between the company and the customer meets the following conditions at the same time, revenue is recognized when the customer obtains control of the relevant goods: the parties to the contract have approved the contract and promised to perform their respective obligations; the contract clarifies the rights and obligations of the parties to the contract related to the transferred goods or the provision of labor services; the contract has clear payment terms related to the transferred goods; the contract has commercial substance, that is, the performance of the contract will change the risk, time distribution or amount of the company's future cash flows; the consideration that the company is entitled to receive for transferring goods to the customer is likely to be recovered.

On the contract inception date, the Company identifies each individual performance obligation that exists in the contract, and allocates the transaction price to each individual performance obligation in accordance with the relative proportion of the stand-alone selling price of the goods promised by each individual performance obligation. When determining the transaction price, the company considers the impact of variable consideration, significant financing components in the contract, non-cash consideration, consideration payable to customers and other factors.

For each individual performance obligation in the contract, if one of the following conditions is met, the company will recognize the transaction price allocated to the individual performance obligation as revenue during the relevant performance period according to the performance progress: the customer obtains and consumes the economic benefits brought by the company's performance while the company performs the contract; the customer can control the goods under construction during the company's performance; the goods produced during the company's performance have irreplaceable uses, and the company has the right to collect payment for the cumulative performance part that has been completed so far during the entire contract period. The progress of contract performance is determined using the input method or the output method according to the nature of the transferred goods. When the progress of contract performance cannot be reasonably determined and the costs incurred by the company are expected to be compensated, revenue will be recognized based on the amount of costs incurred until the progress of contract performance can be reasonably determined.

If one of the above conditions is not met, the company will recognize revenue at the transaction price allocated to the individual performance obligation at the point when the customer obtains control of the relevant goods. When judging whether the customer has obtained control of the goods, the company considers the following signs: the company has the current right to receive payment for the goods, that is, the customer has current payment obligations for the goods; the company has transferred the legal ownership of the goods to the customer, that is, the customer already has the legal ownership of the goods; the company has The physical transfer of the commodity to the customer means that the customer has physically taken possession of the commodity; the company has transferred the main risks and rewards of ownership of the commodity to the customer, which means the customer has obtained the main risks and rewards of ownership of the commodity; the customer has accepted the commodity; other signs indicate that the customer has obtained control of the commodity.

(2) Specific method of revenue recognition

The main source of the company's business income during the reporting period is product sales revenue. Specifically, for domestic sales business, the company will confirm the sales revenue is realized after the products are shipped and accepted; for foreign sales business, the company will confirm the sales revenue is realized after the goods are declared for export and shipped.

Government subsidies

(1) Types of government subsidies

Government subsidies refer to the monetary assets or non-monetary assets that the company obtains from the government for free (but does not include the capital invested by the government as the owner). It is mainly divided into two types: asset-related government subsidies and income-related government subsidies. If the government subsidy is a monetary asset, it shall be measured according to the amount received or receivable. If the government subsidy is a non-monetary asset, it shall be measured at fair value; if the fair value cannot be obtained reliably, it shall be measured at the nominal amount. Government subsidies measured according to the nominal amount are directly included in the current profit and loss.

(2) Accounting treatment method for asset-related government subsidies

Asset-related government subsidies refer to government subsidies obtained by the company and used to purchase, construct or otherwise form long-term assets. The company's government subsidies related to assets will offset the book value of the relevant assets or recognize them as deferred income. If it is recognized as deferred income, it will be included in the current profit and loss in installments according to a reasonable and systematic method within the useful life of the relevant assets (if it is related to the company's daily activities, it will be included in other income; if it is not related to the company's daily activities, it will be included in non-operating income).

(3) Accounting treatment of government subsidies related to income

Government subsidies related to income refer to government subsidies obtained by the company other than government subsidies related to assets. If the company's income-related government subsidies are used to compensate the company's related costs or losses in subsequent periods, they are recognized as deferred income, and included in the current profit and loss during the period when the relevant costs or losses are recognized (if they are related to the company's daily activities, they are included in other income; if they are not related to the company's daily activities, they are included in other income). If it is used to compensate for the relevant costs or losses incurred by the company, it will be directly included in the current profit and loss (if it is related to the company's daily activities, it will be included in other income; if it is not related to the company's daily activities, it will be included in non-operating income) or offset the relevant costs or losses.

The policy-based preferential loan interest discounts obtained by the company are divided into the following two situations and are accounted for separately:

① If the finance department allocates interest subsidy funds to the lending bank, and the lending bank provides loans to the company at policy-based preferential interest rates, the company will use the actual loan amount received as the entry value of the loan, and calculate the relevant borrowing costs based on the loan principal and the policy-based preferential interest rate. ② If the finance department directly allocates interest discount funds to the company, the company will offset the corresponding interest discount against related borrowing costs.

(4) Judgment basis for distinguishing between asset-related government subsidies and income-related government subsidies

① If the government document clarifies the specific project for which the subsidy is targeted, the expenditure amount to form assets and the expenditure amount to be included in the expenses will be divided according to the relative proportion of the expenditure amount formed as assets in the budget of the specific project. The division ratio shall be reviewed on each balance sheet date and changed when necessary.

② If the purpose in the government document is only a general statement and no specific project is specified, it will be regarded as a government subsidy related to income. (5) Confirmation time of government subsidies

Government subsidies measured according to the amount receivable shall be recognized at the end of the period when there is conclusive evidence that the relevant conditions stipulated in the financial support policy can be met and the financial support funds are expected to be received.

In addition to government subsidies measured according to the amount receivable, other government subsidies will be recognized when the company actually receives the subsidy payment.

Deferred income tax assets/deferred income tax liabilities

The Company's deferred income tax assets and deferred income tax liabilities are calculated and recognized based on the difference (temporary difference) between the tax bases of assets and liabilities and their book values.

(1) The Company recognizes deferred income tax assets for deductible temporary differences to the extent of the taxable income that is likely to be obtained in the future period to offset the deductible temporary differences. For deductible losses and tax credits that can be carried forward to future years, the corresponding deferred income tax assets are recognized to the extent that it is probable that the future taxable income will be used to offset the deductible losses and tax credits. For taxable temporary differences, deferred income tax liabilities are recognized except in special circumstances.

(2) The recognition of the company's deferred income tax assets is limited to the amount of taxable income that is likely to be used to offset the deductible temporary differences. On the balance sheet date, if there is conclusive evidence that sufficient taxable income is likely to be obtained in the future period to offset the deductible temporary differences, deferred income tax assets that have not been recognized in previous accounting periods will be recognized. If it is likely that sufficient taxable income will not be available in the future to offset the deferred income tax assets, the book value of the deferred income tax assets will be reduced.

(3) The Company recognizes deferred income tax liabilities for taxable temporary differences related to investments in subsidiaries and associates, unless the Company is able to control the timing of the reversal of the temporary differences and the temporary differences are unlikely to be reversed in the foreseeable future. The Company recognizes deferred income tax assets for deductible temporary differences related to investments in subsidiaries and associates when it is likely that the temporary differences will be reversed in the foreseeable future and it is likely to obtain taxable income in the future that can be used to offset the deductible temporary differences.

(4) The company does not recognize corresponding deferred income tax liabilities for temporary differences arising from the initial recognition of goodwill. For temporary differences arising from the initial recognition of assets or liabilities in transactions other than business combinations that affect neither accounting profits nor taxable income (or deductible losses), corresponding deferred income tax assets and deferred income tax liabilities are not recognized. On the balance sheet date, the Company's deferred income tax assets and deferred income tax liabilities are measured at the applicable tax rate during the period when the asset is expected to be recovered or the liability is settled.

(5) Deferred income tax assets and deferred income tax liabilities that meet the following conditions are presented at the net amount after offsetting:

① Deferred income tax assets and deferred income tax liabilities are related to income taxes levied by the same tax collection and administration department on the same taxpayer within the company;

②The tax payer within the company has the legal right to settle current income tax assets and current income tax liabilities on a net basis.

Leasing

Lease refers to a contract in which the lessor transfers the right to use an asset to the lessee for a consideration within a certain period of time.

On the contract commencement/change date, the Company assesses whether the contract is a lease or contains a lease. A contract is or contains a lease if one party transfers the right to control the use of one or more identified assets for a certain period in exchange for consideration. The Company does not reassess whether a contract is a lease or contains a lease unless the terms and conditions of the contract change.

If the contract contains multiple separate leases at the same time, the lessee and lessor will split the contract and conduct accounting treatment for each separate lease. If the contract contains both lease and non-lease parts, the lessee and lessor shall separate the lease and non-lease parts.

(1) The company serves as the lessee

Right-of-use assets

The company's right-of-use assets are initially measured at cost, which includes:

①The initial measurement amount of the lease liability;

② From the lease payment amount paid on or before the start date of the lease period, if there is a lease incentive, the amount related to the lease incentive that has been enjoyed will be deducted; ③ The initial direct costs incurred by the company as a lessee;

④ The cost that the company expects to incur to dismantle and remove the leased assets, restore the site where the leased assets are located, or restore the leased assets to the state agreed upon in the lease terms.

Lease liabilities

Short-term leasing and leasing of low-value assets

The company chooses not to recognize right-of-use assets and lease liabilities for short-term leases and low-value asset leases. A short-term lease is a lease with a term of not more than 12 months on the commencement date and without an option to purchase. Low-value asset lease refers to a lease with a low value when the single leased asset is a new asset. The company will include the lease payments of short-term leases and low-value asset leases into current profits and losses or related asset costs on a straight-line basis during each period of the lease term.

Lease changes

If a lease changes and the following conditions are met at the same time, the company will account for the lease change as a separate lease: a. The lease change expands the scope of the lease by adding the right to use one or more leased assets;

b. The increased consideration is equivalent to the amount of the individual price of the expanded part of the lease scope adjusted according to the circumstances of the contract.

If the lease change is not accounted for as a separate lease, on the effective date of the lease change, the company re-allocates the consideration of the contract after the change, re-determines the lease term, and re-measures the lease liability based on the present value of the lease payment after the change and the revised discount rate. If the change in the lease results in a reduction in the scope of the lease or a shortening of the lease period, the company will reduce the book value of the right-of-use assets accordingly, and include the gains or losses related to the partial or complete termination of the lease into the current profits and losses. If other lease changes result in the remeasurement of lease liabilities, the company will adjust the book value of the right-of-use assets accordingly.

(2) The company serves as the lessor

Classification of leasing

On the lease commencement date, the Company, as the lessor, divides the lease into finance lease and operating lease. Finance lease refers to a lease that substantially transfers almost all risks and rewards related to the ownership of the leased asset, regardless of whether the ownership is ultimately transferred. Operating leases refer to leases other than finance leases. When the Company acts as a sublease lessor, it classifies the sublease based on the right-of-use assets generated by the original lease. 2) The company records operating leasing business as the lessor

During each period during the lease period, the Company uses the straight-line method to recognize the lease receipts from operating leases as rental income. The Company's initial direct expenses related to operating leases are capitalized when incurred, amortized during the lease period on the same basis as rental income recognition, and included in the current profit and loss in installments. The variable lease receipts obtained by the company related to operating leases that are not included in the lease receipts are included in the current profit and loss when they actually occur.

Accounting treatment method of finance lease

On the commencement date of the lease period, the Company recognizes finance lease receivables for finance leases and derecognizes related assets. When the Company initially measures the financial lease receivables, the net lease investment is regarded as the entry value of the financial lease receivables. The net investment in a lease is the sum of the unguaranteed residual value and the present value of the lease payments that have not yet been received at the start of the lease term, discounted at the interest rate implicit in the lease.

The Company calculates and recognizes interest income in each period during the lease term based on fixed periodic interest rates. The derecognition and impairment of finance lease receivables are accounted for in accordance with “Note 3.9, Financial Instruments”. Variable lease payments that are not included in the measurement of net lease investment are included in the current profit and loss when actually incurred.

For financial leases where the company acts as a manufacturer or distributor and also acts as a lessor, on the start date of the lease term, the company recognizes revenue based on the lower of the fair value of the leased asset and the present value of the lease receipts discounted at market interest rates, and carries forward the balance of the book value of the leased asset after deducting the present value of the unguaranteed residual value as the cost of sales. The costs incurred by the company as a manufacturer or distributor and as a lessor to obtain financial leases are included in the current profit and loss on the start date of the lease period.

Lease changes

If the financial lease of the Company as the lessor changes and the following conditions are met at the same time, the Company will account for the change as a separate lease:

a. The change expands the scope of the lease by adding the right to use one or more leased assets;

b. The increased consideration is equivalent to the amount of the individual price of the expanded part of the lease scope adjusted according to the circumstances of the contract.

If the change in the financial lease is not accounted for as a separate lease, the company, as the lessor, will handle the changed lease under the following circumstances:

a. If the change takes effect on the lease commencement date, and the lease will be classified as an operating lease, the Company, as the lessor, will account for it as a new lease from the effective date of the lease change, and use the net lease investment before the effective date of the lease change as the book value of the leased asset;

b. If the change takes effect on the lease commencement date, the lease will be classified as a finance lease, and the company, as the lessor, will conduct accounting treatment in accordance with the provisions of "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments" regarding modification or renegotiation of contracts. That is, if the modification or renegotiation of the lease contract does not result in the derecognition of the financial lease receivable, but results in changes in future cash flows, the book balance of the financial lease receivable will be recalculated, and the relevant gains or losses will be included in the current profit and loss. When recalculating the book balance of financial lease receivables, the present value of the cash flows discounted based on the renegotiated or modified lease contract is determined at the original discount rate of the financial lease receivables or the recalculated discount rate (if applicable) in accordance with Article 23 of the Accounting Standards for Business Enterprises No. 24 One-Period Accounting (2017). For all costs and expenses incurred by modifying or renegotiating the lease contract, the Company adjusts the book value of the modified finance lease receivable and amortizes it over the remaining term of the modified finance lease receivable.

If the operating lease of the Company as the lessor changes, the Company will account for it as a new lease from the effective date of the change, and the amount of lease payments received in advance or receivable related to the lease before the change shall be regarded as the payment amount of the new lease.

(3) Sale and leaseback transactions

The Company evaluates and determines whether the asset transfer in the sale and leaseback transaction is a sale in accordance with the principles described in "Note 3.28. Revenue" of this note. A. As the seller and lessee:

If the asset transfer in a sale and leaseback transaction is a sale, the company, as the lessee, measures the right-of-use assets formed by the sale and leaseback based on the part of the original asset's book value related to the right of use obtained through the leaseback, and only recognizes relevant gains or losses for the rights transferred to the lessor; if the asset transfer in the sale and leaseback transaction is not a sale, the company, as the lessee, continues to recognize the transferred assets and at the same time recognizes a financial liability equal to the transfer income. For details on the accounting treatment of financial liabilities, please refer to "Note 3.9. Financial Instruments" in this note.

B. The company acts as the buyer and lessor

If the asset transfer in a sale and leaseback transaction is a sale, the company, as the lessor, will account for the asset purchase and perform accounting treatment on the asset leasing in accordance with the policy of ("2) The Company as a Lessor" mentioned above; if the asset transfer in the sale and leaseback transaction is not a sale, the company, as the lessor, will not recognize the transferred asset, but will recognize a financial asset equal to the transfer income. For details on the accounting treatment of financial assets, please refer to "Note 3.9, Financial Instruments" in this note.

Changes in important accounting policies and accounting estimates

(1) Changes in important accounting policies

There were no significant changes in accounting policies during the reporting period.

(2) Changes in important accounting estimates

There were no significant changes in accounting estimates during the reporting period.

4. Taxes

(1) Main tax types and tax rates

Type of tax Tax calculation basis Tax rate

Value-added tax: 13% based on the taxable value-added amount

Corporate income tax: 15%, 25%, 29%-48% based on taxable income

Urban maintenance and construction tax: 7%, 5% based on the actual value-added tax paid

Education surcharge is levied at 3% based on the actual value-added tax paid

Local education surcharge is levied at 2% based on the actual value-added tax paid

Explanation of income tax rates for different taxpayers:

Name of tax payer Income tax rate Henan Huibo Medical Technology Holdings Co., Ltd. 25% Henan Huibo Medical Co., Ltd. 15% Henan Huiyuan Special Medical Formula Food Co., Ltd. 15% BELGIUM H AND ZEDICAL S.A (Chinese name: BELGIUM H AND ZEDICAL S.A.

29%-48% company)

Hidik Rehabilitation Industry Development Co., Ltd. 15% Henan Xianfang Medical Protective Products Co., Ltd. 25% Hidik (Zhengzhou) Intelligent Rehabilitation Equipment Co., Ltd. 25% Huibo (Nanyang) Health Technology Co., Ltd. 25% Zhengzhou Saifut Electronic Equipment Co., Ltd. 15% Nanyang Hidik Medical Technology Co., Ltd. 25% Hidik (Shenzhen) Rehabilitation Technology Co., Ltd. 25% Nanyang Mileshu Medical Technology Co., Ltd. 25% Beijing Hidik Rehabilitation Medical Research Institute Co., Ltd. 15% Siddique (Nanyang) Health Technology Co., Ltd. 25% (2) Tax preferential policies and basis

On November 4, 2025, the company headquarters obtained the qualification of a high-tech enterprise. The high-tech enterprise certificate number is GR202541002129. It enjoys a preferential corporate income tax rate of 15% this year.

On November 22, 2023, Hidik Healthcare Industry Development Co., Ltd. (hereinafter referred to as Hidik Healthcare) obtained the qualification of a high-tech enterprise. The high-tech enterprise certificate number is GR202341000031. It enjoys a preferential corporate income tax rate of 15% this year. On November 4, 2025, Zhengzhou Saifu Electronic Equipment Co., Ltd. (hereinafter referred to as Saifu) obtained the qualification of a high-tech enterprise. The high-tech enterprise certificate number is GR202541002219. It enjoys a preferential corporate income tax rate of 15% this year. On December 8, 2025, Henan Huiyuan Food Formulas for Special Medical Purposes Co., Ltd. (hereinafter referred to as Huiyuan Food) obtained the qualification of a high-tech enterprise. The high-tech enterprise certificate number is GR202541002664. It enjoys a preferential corporate income tax rate of 15% this year. On October 26, 2023, Beijing Hidick Rehabilitation Medical Research Institute Co., Ltd. (hereinafter referred to as Beijing Hidick) obtained the qualification of a high-tech enterprise. The high-tech enterprise certificate number is GR202311001616. It enjoys a preferential corporate income tax rate of 15% this year.

5. Notes on Consolidated Financial Statement Items

(1) Notes on balance sheet items

Monetary funds

Item Closing balance Previous year's closing balance Cash on hand

53,743.90 11,412.90 Bank deposit

573,229.77 678,482.35 Other monetary funds

235,251.00 128,032.84Total

862,224.67 817,928.09 At the end of the period, the company's restricted monetary fund balance was 498,627.59 yuan, of which 102,452.27 was the platform margin and 396,175.32 was frozen restricted funds in the bank account. Except for the above matters, the Company does not have any other monetary funds that are mortgaged, pledged or frozen, or are stored abroad and the repatriation of funds is restricted.

Trading financial assets

Item Closing balance Previous year’s closing balance Trading financial assets

100.00 100.00

Among them: financial products

100.00 100.00

total

100.00 100.00

Accounts receivable

(1) Disclosure based on aging

Aging Closing balance Last year’s closing balance Within 1 year (including 1 year)

7,811,373.20 25,413,337.38 1 to 2 years (including 2 years)

5,403,894.01 21,700,674.66 2 to 3 years (including 3 years)

31,283,957.02 23,123,257.42 3 to 4 years (including 4 years)

20,894,495.85 21,376,059.40 4 to 5 years (including 5 years)

5,959,523.04

More than 5 years

1,000,907.55 1,000,907.55 Subtotal

72,354,150.67 92,614,236.41 Less: provision for bad debts

23,294,197.44 21,303,633.18 total

49,059,953.23 71,310,603.23 (2) Classified disclosure based on bad debt accrual method

Category Ending Balance

Book balance Bad debt provision

Book value expected credit losses

Amount Ratio (%) Amount

Loss rate (%)

Provision for bad debts on an individual basis

19,547,397.25 27.01 11,731,257.25 60.01 7,816,140.00 Among them: the single amount is significant and the single amount is consolidated

Accounts receivable with provision for bad debts

19,547,397.25 27.01 11,731,257.25 60.01 7,816,140.00

Although the individual amount is not significant, the individual amount

Accounts receivable with provision for bad debts

Provision for bad debts on a portfolio basis

52,806,753.42 72.99 11,562,940.19 21.89 41,243,813.23 Including: accounts receivable from external customers

52,806,753.42 72.99 11,562,940.19 21.89 41,243,813.23Total

72,354,150.67 100.00 23,294,197.44 49,059,953.23 continued:

Balance at the end of the previous year

Book balance Bad debt provision

1. Original book value:

Opening balance 76,231,386.55 54,643,063.34 529,065.07 20,267,951.74 151,671,466.70 2. Increase in current period

11,326.55 11,326.55 amount

(1) Purchase 11,326.55 11,326.55 3. Decrease in current period

0.00 amount

(1) Dispose or report

0.00 waste

Closing balance 76,231,386.55 54,643,063.34 529,065.07 20,279,278.29 151,682,793.25

2. Accumulated depreciation

Opening balance 38,678,933.17 31,289,580.28 442,413.51 16,750,671.48 87,161,598.44 2. Increase in current period

1,811,913.42 1,208,368.88 38,019.78 779,728.25 3,838,030.33

(1) Provision 1,811,913.42 1,208,368.88 38,019.78 779,728.25 3,838,030.33 3. Decrease in funds for the current period

(1) Dispose or report

waste

Closing balance 40,490,846.59 32,497,949.16 480,433.29 17,530,399.73 90,999,628.77

3. Impairment provision

Balance at the beginning of the period 11,261,023.68 11,261,023.68 2. Increase in the current period

Reduction of funds in this period

Closing balance 11,261,023.68 11,261,023.68

4. Book value

Closing book price

35,740,539.96 10,884,090.50 48,631.78 2,748,878.56 49,422,140.80 value

Book price at the beginning of the period

37,552,453.38 12,092,459.38 86,651.56 3,517,280.26 53,248,844.58 value

There are no temporarily idle fixed assets at the end of the period

11.Construction in progress

(1) Details of projects under construction

Ending balance Last year's end balance

minus

Project

value

Book balance Net book value Book balance Impairment provision Net book value

Prepare

Training building 195,136.02 195,136.02 195,136.02 195,136.02 Sheqi Comprehensive Office Building (Sheqi

8,558,149.1 Banner office building construction and installation 8,558,149.10 8,558,149.10 10,985,847.96 2,427,698.86

Engineering, Sheqi Comprehensive Building)

Wet method special medical powder project-sheng 3,306,637.1

3,306,637.17 3,306,637.17 3,306,637.17

Production Line 7Special Medical Food Production Workshop

216,084.45 216,084.45 216,084.45 216,084.45Construction

2,779,362.3 R&D center building 2,779,362.33 2,779,362.33 2,779,362.33

Smart walker technology

15,055,369. Total 15,055,369.07 15,055,369.07 17,483,067.93 2,427,698.86

(2) Changes in important construction projects under construction

This issue

transfer in

Other deductions for this period

Project name Budget amount Beginning balance Increase amount in this period Fixed Amount of decrease in ending balance

assets

Amount

Training building 3,268,085.00 195,136.02 195,136.02

Sheqi comprehensive office

Building (Sheqi Office Building

22,591,596.95 10,985,847.96 10,985,847.96 Construction and installation projects,

Sheqi Comprehensive Building)

3,306,637.17 Wet method special medical powder items

8,000,000.00 3,306,637.17

Mesh-Production Line

216,084.45Special medical food production

1,000,000.00 216,084.45

Workshop construction

R&D center building 5,798,593.88 2,779,362.33 2,779,362.33

Total 40,658,275.83 17,483,067.93 17,483,067.93 Changes in important projects under construction (continued):

Total project investment

Project name Budget number Project progress Source of funds

% of budget

Training building 3,268,085.00 5.97% 5.97 Self-owned funds Sheqi comprehensive office building (Sheqi office building construction

22,591,596.95 48.63% 48.63 Self-owned funds for construction and installation projects, Sheqi comprehensive building)

Wet method special medical powder project - production line 8,000,000.00 41.33% 41.33 Construction of special medical food production workshop with own funds 1,000,000.00 21.61% 21.61 R&D center building with own funds 5,798,593.88 47.93% 47.93 Total own funds 40,658,275.83

Intangible assets

(1) Intangible assets

Project Land use rights Patented technology franchise Software Trademark rights Total

1. Original book value:

Opening balance 19,518,416.65 3,935,432.61 2,098,480.50 5,700.00 25,558,029.76 2. Increase in the current period

(1) Purchase

(2) Transfer of projects under construction

enter

Reduction amount in this period

(1) Disposal or scrapping

(2) Business merger less

less

Closing balance 19,518,416.65 3,935,432.61 2,098,480.50 5,700.00 25,558,029.76

2. Accumulated amortization

Opening balance 3,709,485.37 3,105,204.25 728,510.20 5,633.43 7,548,833.25 2. Increase in the current period

(1) Provision 195,184.14 96,162.36 144,028.50 66.57 435,441.57 3. Decrease amount in the current period

(1) Disposal or scrapping

(2) Business merger less

less

Closing balance 3,904,669.51 3,201,366.61 872,538.70 5,700.00 7,984,274.82

3. Impairment provision

Opening balance
Increase amount in this period

(1) Provision

Reduction amount in this period

(1) Disposal or scrapping

Ending balance

4. Book value

Book value at the end of the period 15,613,747.14 734,066.00 1,225,941.80 0.00 17,573,754.94 2. Book value at the beginning of the period 15,808,931.28 830,228.36 1,369,970.30 66.57 18,009,196.51

13.Goodwill

(1) Original book value of goodwill

Increase in this period Decrease in this period

The name of the invested unit or the goodwill formed

enterprise

Beginning Balance Closing Balance Matters

Consolidation Others Disposal Others

form

Assets of Siddique Healthcare Industry Development Co., Ltd.

20520079.46 20520079.46 group

(2) Goodwill impairment provision

The name of the invested unit or the goodwill formed

Increase in this period Decrease in this period

Beginning Balance Closing Balance Matters

Provision Other Disposal Other

Assets of Siddique Healthcare Industry Development Co., Ltd.

11,242,772.75 11,242,772.75 group

Long-term deferred expenses

Additional money in this period

Item Beginning balance Amortization amount for the period Other reduction amounts Closing balance

Renovation project 357,748.61 194,173.08 163,575.53 Renovation project 882,887.86 68,510.14 814,377.72 Factory greening 110,186.21 22,978.32 87,207.89 Repair project 307,143.33 32,783.36 274,359.97 Growth of North and South workshops

130,419.41 13,041.96 117,377.45 Expected amortization

Others 0.00 0.00Total 1,788,385.42 331,486.86 1,456,898.56

Deferred income tax assets and deferred income tax liabilities

(1) Deferred income tax assets and deferred income tax liabilities without offset

Ending balance Last year's end balance

Project

Deductible/taxable deferred income tax assets Deductible/taxable deferred income tax assets

Temporary differences/liabilities Temporary differences/liabilities Deferred income tax assets:

Credit impairment provision

31,881,012.51 5,007,565.54 31,881,012.51 5,007,565.54 Asset impairment provision

24,922,887.01 4,304,641.03 24,922,887.01 4,304,641.03 Difference in expenses under the new lease standards

120,645.36 18,096.80 120,645.36 18,096.80 Estimated liabilities

Deductible losses

22,887,933.74 3,987,072.70 22,887,933.74 3,987,072.70 Unrealized profits from internal transactions

Amortization of investment in proprietary technology

Subtotal

79,812,478.62 13,317,376.07 79,812,478.62 13,317,376.07 Deferred income tax liabilities:

tax accelerated depreciation

1,299,579.11 194,936.87 1,299,579.11 194,936.87 Fair value resulting from business combination

change

Cost differences under the new lease standard

Subtotal

1,299,579.11 194,936.87 1,299,579.11 194,936.87 (2) Deferred income tax assets or liabilities presented as net amount after offset

Deferred income tax after offsets Deferred income tax assets and Deferred income taxes after offsets Deferred income tax assets and

Items Assets or liabilities at the end of the period. Liabilities offset each other at the end of the previous year. Assets or liabilities offset each other at the end of the previous year.

Amount Amount Closing balance deferred income tax assets

194,936.87 13,122,440.20 194,936.87 13,122,440.20 Deferred income tax liabilities

194,936.87 194,936.87

Other non-current assets

Ending balance Last year's end balance

Project

Book balance Impairment provision Book value Book balance Impairment provision Book value Prepaid equipment payment

Prepaid project payment

385,000.00 385,000.00 385,000.00 385,000.00Total

385,000.00 385,000.00 385,000.00 385,000.00

Short-term borrowing

Item Closing balance Guaranteed loan balance at the end of the previous year

38,538,519.67 Credit borrowings

9,470,000.00 2,932,883.08 Credit + guaranteed loan

13,365,917.96

Pledge + guaranteed loan

66,750,000.00 57,518,996.53 Total

89,585,917.96 98,990,399.28

18.Accounts payable

Item Ending balance Last year’s end balance Payment for goods

20,377,798.79 28,610,410.59 Equipment and project funds

6,415,127.53 6,441,636.73 Others

9,304,336.51 9,607,193.35 total

36,097,262.83 44,659,240.67

Advance payments

Item Closing balance Last year's closing balance Advance payment for goods received

0.00 0.00

20.Contract liabilities

Item Ending balance Last year’s end balance Payment for goods

2,438,503.37 450,433.86

Employee compensation payable

Item Opening balance Increase in the current period Decrease in the current period Ending balance Short-term compensation

9,628,221.81 8,428,705.20 8,323,386.85 9,733,540.16 Post-employment benefits - setting

14108.85 901,881.14 909,079.45 6,910.54 Withdrawal plan

Termination benefits

0 50,000.00 10,000.00 40,000.00Total

9,642,330.66 9,380,586.34 9,242,466.30 9,780,450.70 (1) Short-term salary

Item Opening balance Increase in the current period Decrease in the current period Ending balance wages, bonuses, allowances and subsidies 9,559,359.95 7,636,061.90 7,488,357.30 9,707,064.55 Employee welfare fees 0.00 109,438.10 152,537.90 -43,099.80Social insurance premium 6,385.32 533,971.99 538,142.72 2,214.59Including: Basic medical insurance premium 6,259.89 482,736.79 487,235.03 1,761.65Work-related injury insurance premium 223.58 42,122.29 42,185.03 160.84 Maternity insurance premium -98.15 9,112.91 8,722.66 292.10

supplementary medical insurance premium

Housing provident fund 501.98 116,709.52 115,928.75 1,282.75 Trade union funds and employee education funds 61,974.56 32,523.69 28,420.18 66,078.07 Short-term profit sharing plan

Total 9,628,221.81 8,428,705.20 8,323,386.85 9,733,540.16

Taxes payable

Taxes Ending balance Last year's end balance Corporate income tax 52,245.78 69,690.03 Value-added tax 3,723,906.99 3,880,065.58 Water resources tax 400.00 Land use tax 332,186.64 266,706.38 Property tax 625,947.97 541,060.66 Urban maintenance and construction tax 161,207.63 159,918.78 Education fee surcharge 162,484.41 165,941.56 Local education fee surcharge 107,500.07 107,076.02 Personal income tax -286,411.33 3,804.83 Stamp tax 22,128.27 12,094.16 Employment security fund for persons with disabilities 0.00

Environmental protection tax 450.00

Vehicle and vessel tax -720.00

Total 4,900,926.43 5,206,758.00

Other payables

Item Ending Balance Last Year Ending Balance Deposit Guarantee Deposit

2,296,272.15 2,256,472.15 Current accounts

6,427,997.41 10,808,602.31 Others

946,096.19 1,012,700.26Total

9,670,365.75 14,077,774.72

Non-current liabilities due within one year

Item Closing balance Last year’s closing balance Long-term borrowings due within 1 year

5,629,732.72 Long-term payables due within 1 year

Lease liabilities due within 1 year

661,178.21 total

6,290,910.93

25.Other current liabilities

Item Closing balance Last year's closing balance Amount of output tax to be reversed

2,221,787.95

Long-term borrowing

Item Closing balance Pledge loan with balance at the end of the previous year

19,031,666.67 credit borrowings

7,200,000.00

guaranteed loan

21,755,823.18 Mortgage and guaranteed loans

40,529,915.99

Subtotal

Less: Long-term borrowings due within one year

5,629,732.72 total

47,729,915.99 35,157,757.13

Lease liabilities

Item Closing Balance Previous Year’s Closing Balance Houses and Buildings

501,063.07

Subtotal

Less: Lease liabilities due within one year

total

501,063.07

Long-term payables

Item Closing balance Last year's closing balance Long-term payables

2,637,273.00 2,907,273.00 Subtotal

2,637,273.00 2,907,273.00 Less: Long-term payables due within one year

total

2,637,273.00 2,907,273.00

Estimated liabilities

Item Ending balance Beginning balance Estimated liabilities

1,206,257.31 1,206,257.31

Equity capital

Item Opening balance Increase in the current period Decrease in the current period Ending balance Total number of shares

98,000,000.00 98,000,000.00

31.Capital reserve

Item Opening balance Increase in the current period Decrease in the current period Ending balance Equity premium

4,953,620.78 4,953,620.78

Surplus reserve

Item Opening balance Increase in the current period Decrease in the current period Ending balance Statutory surplus reserve

16,714,403.23 16,714,403.23

Undistributed profits

Withdrawal or item Amount of the current period Amount of the previous period

Undistributed profits at the end of the previous period before adjustment of distribution ratio

-77,815,417.11 -59,052,944.80

Adjust the total amount of undistributed profits at the beginning of the period (increase +, decrease -)

0.00 0.00

Adjusted opening undistributed profits

-77,815,417.11 -59,052,944.80

Add: Net profit attributable to owners of the parent company for the current period

-9,753,325.11 -18,762,472.31

Less: Withdrawal from statutory surplus reserve

Withdraw discretionary surplus reserve

Dividends payable on common shares

Undistributed profit at the end of the period

-87,568,742.22 -77,815,417.11

(2) Notes on income statement items

Operating income and operating costs

Items of current period's previous period's amount

Revenue Cost Revenue Cost Main Business

23,654,570.87 15,566,932.33 31,299,992.80 10,739,854.42 Other businesses

1,119,576.73 369,456.03 628,935.31 387,199.35Total

24,774,147.60 15,936,388.36 31,928,928.11 11,127,053.77

Taxes and surcharges

Item Amount incurred in the current period Amount incurred in the previous period Urban maintenance and construction tax 13,943.51 123,014.22 Education fee surcharge 4,122.78 72,789.18 Local education fee surcharge 48,526.17 Real estate tax 419,675.12 473,610.65 Land use tax 206,203.26 206,203.26 Vehicle and vessel tax 720.00 720.00 Stamp tax 19,032.54 27,529.72 Water resources tax

Environmental protection tax 910.60 696.82

Total 664,607.81 953,090.02 For details on the calculation and payment standards of various taxes and surcharges, please refer to Note 4. Taxes.

Selling expenses

Item Amount for the current period Amount for the previous period

2,237,247.10

Employee compensation 1,414,597.18

261,120.97

Travel expenses 273,576.51

122,837.89

Sample fee 295,185.91

11,149.39

Business entertainment expenses 50,913.05

633.29

Marketing fee 676.00

1,158.84

Bidding fee 5,255.66

189,662.76

Conference fees 67,492.61

3,395.72

Office expenses 65,695.80

209,734.54

Advertising fee 310,619.78 Consulting service fee 35,644.91 61,047.16

91,027.25

Labor costs 333,369.18

116,297.00

Depreciation and amortization 123,455.56 Others 699,430.17 947,669.62

Total 3,979,339.83 3,949,554.02

Administrative expenses

Item Amount for the current period Amount for the previous period

1,377,545.92

Employee compensation 1,660,644.65

108,066.34

Business entertainment expenses 175,529.39

63,363.61

Office expenses 57,278.84

14,486.59

Travel expenses 29,004.33

340,485.24

Water, electricity and property fees 526,880.26

19,343.64

Vehicle expenses 31,530.12 Advertising expenses 30.66

66,037.74

Consulting service fee 218,743.05

30,070.88

Labor fee 169,999.75

2,159,901.57

Depreciation and amortization 2,813,772.29

68,234.42

Lease fee 340,355.62

82,666.76

Technical service fee 64,637.10

1,306,681.11

Others 986,328.15 Total 5,636,883.82 7,074,734.21

Research and development expenses

Items Amount incurred in the current period Employee compensation incurred in the previous period 2,310,563.91 1,731,244.74 Direct material investment 120,587.27 107,675.23 Depreciation expenses 168,670.25 206,763.47 Inspection and maintenance fees 2,238.94 Service fees 132,225.47 15,344.62 Other related expenses 24,334.06 104,955.52 Total 2,756,380.96 2,168,222.52

39.Financial charges

Item Amount for the current period Amount for the previous period

interest expense

3,511,429.41 4,106,031.04 Less: Interest income

-129.93 -317.68 Exchange loss

31,971.06 -29,863.88 bank fees

122,568.37 86,686.19 total

3,665,838.91 4,162,535.67

Other income

Subsidy items (sources of other income) Amount incurred in the current period Amount incurred in the previous period Government subsidies 37,613.93 180,230.76 Input tax plus deduction

Personal income tax withholding fees

Others

Total 37,613.93 180,230.76 For specific information on government subsidies, please see Note 8. Government subsidies.

Investment income

Item Amount for the current period Amount for the previous period Long-term equity investment income calculated using the equity method

Investment income from disposal of long-term equity investments

0.00 -10,138,105.66 Investment income from bank financial products

total

0.00 -10,138,105.66

Credit impairment losses (losses are listed with “—”)

Item Amount incurred in the current period Amount incurred in the previous period Bad debt losses on notes receivable

Bad debt losses on accounts receivable

-1,990,564.26 -81,384.72 Bad debt losses on other receivables

-20,346.18 Bad debt loss on long-term receivables

total

-1,990,564.26 -101,730.90

Asset impairment losses (losses are listed with “—”)

Item Amount incurred in the current period Amount incurred in the previous period Impairment losses on contract assets

58,548.00

Inventory depreciation loss

Impairment losses on projects under construction

582,970.67 Goodwill impairment loss

total

58,548.00 582,970.67

Income from asset disposal (losses are listed with “-”)

Item Amount for the current period Amount for the previous period Profit from disposal of fixed assets (losses are listed with “-”)

0.00 208,588.97 Profit and loss from disposal of right-of-use assets

0.00 715,174.14Total

0.00 923,763.11

45.Non-operating income

Included in non-recurring profit and loss items for the current period Amount incurred in the current period Amount incurred in the previous period

The amount of profit gained

fine income

Unable to make payment

Scrap money

Logistics compensation payment

Others

240,757.76 120,315.11 240,757.76Total

240,757.76 120,315.11 240,757.76

46.Non-operating expenses

Included in non-recurring profit and loss items for the current period Amount incurred in the current period Amount incurred in the previous period

The amount of charitable donation expenditures

Inventory obsolescence

201,644.62 388,824.94 201,644.62 loss

compensation

Fines and late fees

4,819.38

Others

157,192.84 64,730.56 157,192.84Total

358,837.46 461,059.78 358,837.46

Income tax expenses

(1) Details of income tax expenses

Item Amount incurred in the current period Amount incurred in the previous period Current income tax expense

126,709.33 Deferred income tax expense

total

0.00 126,709.33

(3) Notes on cash flow statement items

Notes on cash flow statement items

(1) Receive other cash related to operating activities

Item Amount for the current period Amount for the previous period Other current accounts

14,480,970.83 4,052,654.64 Deposit and security deposit

0.00 0.00Government subsidies related to income

0.00 180,230.76Interest income

129.93 34,625.61 Others

100,035.82

total

14,581,136.58 4,267,511.01

(2) Payment of other cash related to operating activities

Item Amount for the current period Amount for the previous period Other current accounts

7,871,771.52 15,074,600.32 Deposit and security deposit

Pay cash

3,665,968.84 261,244.29

Bank fees

Others

171,816.27 78,517.47

total

11,709,556.63 15,414,362.08

Supplementary information to cash flow statement

(1) Supplementary information for cash flow statement

Supplementary information Amount for the current period Amount for the previous period

Adjust net profit to cash flow from operating activities:

net profit

-9,877,774.12 -6,526,588.12 plus: asset impairment loss

-58,548.00 -582,970.67Credit impairment loss

1,990,564.26 101,730.90 Depreciation of fixed assets

3,838,030.33 3,640,456.74 Depreciation of right-of-use assets

0.00 -8,219,553.59 Amortization of intangible assets

435,441.57 717,502.89 Amortization of long-term deferred expenses

331,486.86 683,101.34 Loss (gain) from disposal of fixed assets, intangible assets and other long-term assets

0.00 -923,763.11 (please fill in with "-")

Loss from scrapping of fixed assets (income is listed with "-")

Loss from changes in fair value (income is listed with a “-” sign)

Financial expenses (income is listed with "-")

3,665,838.91 4,106,031.04 Investment losses (income is listed with "-")

0.00 10,138,105.66 Decrease in deferred income tax assets (increases are indicated with "-")

Increase in deferred income tax liabilities (decreases are indicated with "-")

Decrease in inventory (increases are listed with "-")

6,130,049.38 8,237,981.26 Decrease in operating receivables (increases are indicated with "-")

5,869,666.27 -6,041,721.96 Increase in operating payables (decreases are listed with "-")

-6,320,407.71 1,510,435.80 Others

Net cash flow from operating activities

6,004,347.75 6,840,748.18

Major investments and financing activities that do not involve cash receipts and payments:

debt to capital

Convertible corporate bonds due within one year

Financing leased fixed assets

New right-of-use assets in the current period

Net changes in cash and cash equivalents:

Closing balance of cash

363,597.08 411,153.61 Less: Opening balance of cash

153,354.02 152,600.59 plus: Closing balance of cash equivalents

Less: Opening balance of cash equivalents

Net increase in cash and cash equivalents

210,243.06 258,553.02 (2) Composition of cash and cash equivalents

Item Ending amount Beginning amount

1. Cash

363,597.08 153,354.02 Including: cash on hand

53,743.90 11,412.90 Bank deposits that can be used for payment at any time

177,054.45 81,408.28 Other monetary funds that can be used for payment at any time

132,798.73 60,532.84 Amounts deposited with the central bank that can be used for payment

Deposit funds from other banks

Funds placed with other banks

2. Cash equivalents

Including: Bond investments due within three months

3. Closing balance of cash and cash equivalents

363,597.08 153,354.02 50. Foreign currency monetary items

(1) Foreign currency monetary items

Items Foreign currency balance at the end of the period Conversion exchange rate Conversion of RMB balance at the end of the period Monetary Funds

45,294.52 6.82 308,759.15 Of which: USD

45,294.52 6.82 308,759.15 Euros

Accounts receivable

Of which: US dollars

6. R&D expenditures

R&D expenditures

Amount for the current period Amount for the previous period

Expensed amount Capitalized amount Expensed amount Capitalized amount Labor cost

2,310,563.91 1,731,244.74 Material fee

120,587.27 107,675.23 Depreciation and amortization expenses

168,670.25 206,763.47 Inspection and maintenance fees

2,238.94 service fee

132,225.47 15,344.62 Other related expenses

24,334.06 104,955.52 total

2,756,380.96 2,168,222.52

7. Interests in other entities

Interests in subsidiaries

Main business, shareholding ratio %, name of subsidiary company, place of registration, nature of business

camp direct indirect way

medical device

Henan Huibo Medical Technology Holdings Co., Ltd. Nanyang, Henan 100.00% establishment and sales

Special Medical Food

Henan Huiyuan Food Formulas for Special Medical Purposes Co., Ltd.

Henan Nanyang R&D and production 100.00% Establishment Department

Production and sales

BELGIUM H AND ZEDICAL S.A (Chinese name: Pharmaceutical Products

Belgium Belgium 100.00% Establishment of Belgian Sidco Co., Ltd.) Sales

medical device

Xidike Health Industry Development Co., Ltd. Nanyang, Henan R&D and production 95.05% M&A

protective products

Henan Xianfang Medical Protective Products Co., Ltd. R&D and 100.00% established production in Nanyang, Henan

medical device

Hidick (Zhengzhou) Intelligent Rehabilitation Equipment Co., Ltd. Zhengzhou, Henan 95.05% Established for R&D and sales

medical device

Zhengzhou Saifu Electronic Equipment Co., Ltd. Henan Zhengzhou R&D and production 95.05% M&A

medical device

Nanyang Xidike Medical Technology Co., Ltd. Nanyang, Henan 95.05% Established for R&D and sales

Special Medical Food

Nanyang Maiershu Medical Technology Co., Ltd. Nanyang, Henan R&D and production 100.00% Establishment of production and sales

medical device

Hidick (Shenzhen) Rehabilitation Technology Co., Ltd. Shenzhen Shenzhen 95.05% Established for R&D and sales

Other technologies

Huibo (Nanyang) Health Technology Co., Ltd. Nanyang, Henan 100.00% establishment promotion services

medical device

Beijing Hidick Rehabilitation Medical Research Institute Co., Ltd. Beijing Beijing 95.05% Established for R&D and sales

Other technologies

Siddique (Nanyang) Health Technology Co., Ltd. Nanyang, Henan 95.05% Establishment Promotion Services

Interests in joint arrangements or associated enterprises

(1) Associated enterprise information

Joint ventures or associates Main managers Shareholding ratio (%) Opportunities to invest in associates

Place of registration Nature of business

Company name Camp Direct Indirect Accounting method Associates

None

8. Government subsidies

Government subsidies included in current profits and losses using the total amount method

Asset-related/receipt subsidy items Amount incurred in the current period Amount incurred in the previous period

Interested parties: Ministry of Finance, State Administration of Taxation, Veterans Affairs

5,674.37 Income-Related Ministry Announcement No. 14 of 2023》

Personal tax fee refund 2,767.13 65,166.48 Related to income

Value-added tax input tax additional deduction 572.43 26,290.73 Related to income

Special funds for corporate R&D financial subsidies 31,616.00 Related to income

Value-added tax refundable immediately upon collection 57,157.55 related to income

Small and medium-sized enterprise incentive and subsidy funds 28,600.00 related to income

Total 37,613.93 180,230.76 Related to income

9. Related parties and related transactions

(1) Information about the company’s parent company

The actual controller of the company is Zhu Tiangang.

(2) Information about the company’s subsidiaries

For details of subsidiaries, please see Note 7. Equity in other entities.

(3) Information about the Company’s associates

For details of associates, please see Note 7. Equity in other entities.

(4) Information about other related parties of the company

Name of related party Relationship with the company

Nanyang Huizhong Medical Device Sales Center (Limited Partnership) Shareholders holding more than 5% of the company's shares

Zhou Zhenxiu, wife of actual controller Zhu Tiangang

Zhu Tiangang’s nephew Liu Rongliang and Nanyang Zhixing Safety Protection Equipment partner Henan Timely Star Emergency Rescue Equipment Co., Ltd.

Enterprises (limited partnerships) hold 100% of the total shares

Nanyang Yixintong Pharmaceutical Technology Co., Ltd. Zhu Tiangang’s nephew Liu Chaoyun and nephew Li Heng collectively hold 100% of the shares

Nanyang Huizhong Medical Device Sales Center (Limited Partnership) holds shares in Nanyang Huikang Food Technology Co., Ltd.

100%

Henan Yaoxiang Medical Technology Co., Ltd. Zhu Tiangang’s nephew holds 100% of the shares

Li Heng Key Management Personnel

Zhengzhou Xianfang Times Health Management Co., Ltd. Retired supervisor Liu Ying holds 100% of the shares

(5) Related transactions

Related guarantees

(1) The company as the guaranteed party

Whether the guarantee has been fulfilled by the guarantor, the guarantee amount, the guarantee starting date, the guarantee ending date

Completed Zhu Tiangang + Zhou Zhenxiu 9,499,000.00 February 19, 2025 February 19, 2027 No Zhu Tiangang 10,500,000.00 September 25, 2025 September 25, 2026 No Zhu Tiangang 8,000,000.00 March 6, 2026 March 5, 2027 No Zhu Tiangang 5,000,000.00 March 26, 2026 March 26, 2027 No Zhu Tiangang + Zhou Zhenxiu 1,316,000.00 September 27, 2024 September 26, 2027 No Zhu Tiangang + Zhou Zhenxiu 8,086,000.00 April 2, 2026 March 1, 2027 No Zhu Tiangang + Zhou Zhenxiu 6,900,000.00 June 28, 2026 June 27, 2027 No Zhu Tiangang + Zhou Zhenxiu 8,650,000.00 June 28, 2026 September 24, 2026 No Zhu Tiangang + Zhou Zhenxiu 18,000,000.00 October 29, 2025 October 28, 2026 No Zhu Tiangang 5,000,000.00 November 28, 2024 November 26, 2025 No Zhu Tiangang + Zhou Zhenxiu 2,400,000.00 December 26, 2025 December 24, 2026 No Zhu Tiangang + Zhou Zhenxiu 9,600,000.00 April 30, 2026 April 18, 2027 No Zhu Tiangang 2,769,917.96 November 13, 2025 November 3, 2026 No Zhu Tiangang + Zhou Zhenxiu 19,000,000.00 November 22, 2023 November 13, 2025 No Zhu Tiangang + Zhou Zhenxiu 9,400,000.00 March 9, 2026 March 9, 2028 No

(6) Accounts receivable and payable from related parties

Amounts payable to related parties

Project name Related parties Ending balance Previous year's end balance Other payables Li Heng 178,910.00 347,244.89 Other payables Liu Ying 20,179.37 10,934.59 Accounts payable Zhengzhou Xianfang Times Health Management Co., Ltd. 3,206.80 12,293,579.04 Advance accounts received Zhengzhou Xianfang Times Health Management Co., Ltd. 30,523.76

Henan Yaoxiang Medical Technology Co., Ltd.

Other payables 5,000.00 5,000.00 Other payables Nanyang Huikang Food Technology Co., Ltd. 205,800.00 0.00

Accounts receivable from related parties

Project name Related parties Closing balance Other receivables Balance at the end of the previous year Nanyang Huikang Food Technology Co., Ltd. 1,994,420.00 1,994,420.00 Prepaid account Nanyang Huikang Food Technology Co., Ltd. 2,458,884.54 3,563,884.54 Accounts receivable Zhengzhou Xianfang Times Health Management Co., Ltd. 7,180,927.85 20,459,015.31

Prepaid accounts Zhengzhou Xianfang Times Health Management Co., Ltd. 53,624.00

Other receivables are due to the fact that some of the products provided by Huikang Food in the early stage failed to pass the quality inspection and could not meet our research and development experimental use requirements, and the corresponding returns of some goods were reclassified.

10. Commitments and contingencies

(1) Important commitments

As of June 30, 2026, the company has no commitments that should be disclosed.

11. Events after the balance sheet date

As of August 27, 2026, the company has no post-balance sheet events that should be disclosed.

12. Notes on main items of the parent company’s financial statements

Accounts receivable

(1) Disclosure based on aging

Aging Closing balance Last year’s closing balance Within 1 year (including 1 year)

1,101,835.97 27,793,642.82 1 to 2 years (including 2 years)

7,790,179.07 17,263,197.74 2 to 3 years (including 3 years)

27,792,550.25 19,106,430.15 3 to 4 years (including 4 years) 20,676,513.87 19,091,172.30 4 to 5 years (including 5 years) 364,494.52 -

Subtotal

57,725,573.68 83,254,443.01 Less: provision for bad debts

17,894,019.23 17,952,865.21 total

39,831,554.45 65,301,577.80

(2) Classified disclosure according to bad debt accrual method

Ending balance

Book balance Bad debt provision

13. Supplementary information

Detailed statement of non-recurring profits and losses for the current period

Item Government subsidies whose amount is included in current profits and losses

37,613.93 Gains and losses from disposal of non-current assets

Other non-operating income and expenses other than the above

-118,079.70

Other profit and loss items that meet the definition of non-recurring profits and losses

Total non-recurring gains and losses

-80,465.77

Less: Income tax impact

Amount of impact on minority shareholders’ equity (after tax)

Net non-recurring gains and losses

-80,465.77

Return on equity and earnings per share

earnings per share

Profit for the reporting period Weighted average return on equity

Basic earnings per share Diluted earnings per share

Net profit attributable to the company’s ordinary shareholders

-26.38 -0.10 -0.10 After deducting non-recurring gains and losses, it belongs to the company’s ordinary

-26.16 -0.10 -0.10 net profit for shareholders

Henan Huibo Medical Co., Ltd. (official seal)

Appendix I of August 27, 2026: Adjustments and Differences in Accounting Information

Changes in accounting policies, changes in accounting estimates, or correction of major errors, etc.

(1) Retrospective adjustments or restatements of accounting data

□Changes in accounting policies □Correction of accounting errors □Other reasons √Not applicable

(2) Reasons and effects of changes in accounting policies, accounting estimates or correction of major accounting errors □Applicable √Not applicable

2. Non-recurring profit and loss items and amounts

Unit: Yuan

Item Amount Gains and losses on disposal of non-current assets

Government subsidies included in the current profit and loss, but closely related to the company's normal business operations 37,613.93, in compliance with national policies and regulations, enjoyed in accordance with determined standards, and to the public

Except for government subsidies that have a lasting impact on the company's profits and losses

Investment income from disposal of long-term equity investments

Other non-operating income and expenses other than the above items -118,079.70

Total non-recurring gains and losses -80,465.77 minus: income tax impact

Amount of impact on minority shareholders’ equity (after tax)

Net non-recurring gains and losses -80,465.77

3. Differences in accounting data under domestic and overseas accounting standards

□Applicable √Not applicable

Appendix II Financing situation

Issuance of common shares and use of raised funds during the reporting period

(1) Stock issuance during the reporting period

□Applicable √Not applicable

(2) Usage of raised funds that lasted to the reporting period

□Applicable √Not applicable

2. Relevant information on preference shares surviving to the current period

□Applicable √Not applicable

3. Bond financing that lasts to the current period

□Applicable √Not applicable

4. Convertible bonds surviving to the current period

□Applicable √Not applicable