Board of directors of Shanghai Lianying Medical Technology Co., Ltd.:
PricewaterhouseCoopers Zhongtian Certified Public Accountants (special general partnership) (hereinafter referred to as “we” or “PricewaterhouseCoopers”) accepted the entrustment of Shanghai Lianying Medical Technology Co., Ltd. (hereinafter referred to as “Lianying medical” or “your company”) to audit the financial statements of Lianying medical, including the consolidated and company balance sheets as of December 31, 2019, December 31, 2020 and December 31, 2021, 2019 The consolidated financial statements of the company for the year 2020, the consolidated statement of shareholders and the notes to changes in equity (hereinafter referred to as “the company’s consolidated financial statements for the year 2021”). We conducted our audit in accordance with the auditing standards for Chinese certified public accountants and issued an unqualified audit report with report no. PwC ztsz (2022) No. 11012 on March 14, 2022.
The management of your company is responsible for preparing and reporting financial statements in accordance with the accounting standards for business enterprises. Our responsibility is to express audit opinions on the declared financial statements on the basis of audit.
On January 22, 2022, your company received the examination and inquiry letter on the application documents of Shanghai Lianying Medical Technology Co., Ltd. for initial public offering and listing on the science and Innovation Board (szkss [2022] No. 45) (hereinafter referred to as the “examination and inquiry letter”) from the Shanghai Stock Exchange. Based on the above audit work we performed on the financial statements declared by your company, we put forward our opinions on your company’s reply to the questions raised in the audit inquiry letter that need to be explained by the reporting accountant. See the annex for details. Annex: PwC’s special comments on the reply of Shanghai Lianying Medical Technology Co., Ltd. to the questions that the audit inquiry letter needs to be explained by the reporting accountant PwC Zhongtian Certified Public Accountants (special general partnership)
March 18, 2022
Attachment: PwC’s special comments on the reply of Shanghai Lianying Medical Technology Co., Ltd. to the questions that need to be explained by the reporting accountant in the audit inquiry letter
Question 5: about the sales model 3q6: about customers 18 question 7: about revenue recognition Question 8: about intangible assets and development expenditure 59 question 9: About period expenses Question 10: about equity incentive 105 question 11: about inventory 116 question 12: about accounts receivable Question 13: about cost and gross profit margin one hundred and forty-five
Question 5: about sales model
According to the prospectus, the company adopts the sales mode combining direct selling and distribution, and the proportion of income under the distribution mode of the issuer in each period is 63.86%, 65.15%, 67.70% and 71.05% respectively. The end customers of the company’s products include hospitals, medical institutions and others.
Please explain to the issuer: (1) the basic information and level setting of the distribution mode, the entry, exit and survival of the distributor, and the return and exchange, inventory, rebate, credit policy and payment collection under the distribution mode; (2) Sales of distributors and terminal sales in relation to the issuer or other interest arrangements in each period of the reporting period; (3) Under the direct selling and distribution mode, the number of customers and revenue composition classified by the type of end customers in each period of the reporting period, and the relationship between the structural change of end sales customers in each period of the reporting period and the business development and revenue growth of the issuer; (4) The sales process and commercial compliance risk of the issuer’s products under the direct selling and distribution mode, the litigation involved in the reporting period and the issuer’s countermeasures.
The recommendation institution and the reporting accountant are requested to explain the verification method and proportion of customers and income under different sales modes, the verification method and proportion of terminal sales income under domestic and foreign distribution modes, and express clear opinions on the authenticity and accuracy of sales income. Ask the issuer’s lawyer to check question (4) and express clear opinions.
reply:
1、 Issuer description
(I) basic information and level setting of distribution mode, entry, exit and survival of dealers, return and exchange, inventory, rebate, credit policy and payment collection under distribution mode
1. Basic information and level setting of distribution mode, entry, exit and survival of dealers
(1) Basic information and level setting of distribution mode
Under the company’s distribution mode, the dealers carry out sales activities such as intention confirmation, business negotiation and bidding procurement, and the company carries out buyout sales to the dealers. Because the company’s products belong to large and medium-sized medical equipment with relatively high unit price, generally, in order to reduce the capital occupation and unsalable risk, the dealers often purchase equipment from the company after obtaining the terminal order or demand, The company shall deliver the goods to the designated end-user location according to the requirements of the distributor, and confirm the sales revenue after performing the obligations of equipment installation and commissioning according to the sales contract. The company makes full use of the location advantages and channel resources of dealers to shorten the development cycle of end customers and improve the company’s market penetration.
The company signed a cooperation agreement with the dealer, granted the dealer the right to promote and sell the company’s authorized products in the authorized area / hospital, and gave him guidance and supervision on product knowledge, sales skills, project management, staffing and other aspects related to sales, so as to promote him to become a long-term and stable product dealer. In terms of level setting, the company restricts the sublicense of dealers or the development of secondary dealers in principle.
(2) Entry, exit and existence of dealers
The survival, entry and exit of the company’s dealers in each period of the reporting period are as follows:
20212020 2019
Proportion of project quantity and amount to quantity and amount to quantity and amount to (home) (10000 yuan) (home) (10000 yuan) to (home) (10000 yuan)
Current surviving dealers ① 49933584552 71.26% 32323677035 61.39% 21912490586 65.33%
Dealers in this period ② 44913546935 28.74% 46614888139 38.61% 2776628621 34.67%
Quit dealers in this period ③ 2905833568-173 Pony Testing International Group Co.Ltd(300887) 1-1151704141 –
In each period of the report period, 26723132536, 49.08%, 26722915992, 59.42%, 26715030549 and 78.61% of Yi’s existing dealers ④ were handed over
Current dealers (① + ②) 94847131487 100% 78938565174 100% 49619119207 100%
Note 1: the standard of current period existence / entry / exit is whether the purchase and sales amount occurred in the current year and the previous year. Current period existence refers to the dealers who purchased and sold in the previous year and this year. Since the company’s products are mainly large-scale medical equipment and the purchase and sales frequency is low, the comparison with the previous year is selected as the standard of existence; Entry in this period refers to the dealers who did not purchase and sell in the previous year and purchased and sold in this year; Withdrawal in the current period refers to the dealers who have purchased and sold in the previous year and have not purchased and sold in the current year; Note 2: the amount of existing dealers and the amount of new dealers in this period are the sales amount of the current year, and the amount of exiting dealers in this period is the sales amount of the previous year
The average income generated by surviving dealers, entering dealers and exiting dealers in each period of the reporting period is as follows: unit: 10000 yuan
Project 20212020 2019
The average income of surviving dealers in this period is 673.04 733.04 570.35
The average income of dealers in this period was 301.71 319.49 239.30
The average income generated by exiting dealers in this period was 201.65 173.92 148.19
The surviving dealers with transactions in each period of the reporting period generated an average income of 866.39 858.28 562.94
The average income of dealers in this period was 497.17 488.79 385.47
It can be seen from the above table that, in general, the number of dealers of the company shows an upward trend, which is consistent with the growth trend of main business income. There are 496, 789 and 948 respectively in each period of the reporting period.
From the change of dealers’ existence, from 2019 to 2021, the number of existing dealers in that year was 219, 323 and 499 respectively, and the revenue generated was 1249058600 yuan, 2367703500 yuan and 3358455200 yuan respectively, accounting for 65.33%, 61.39% and 71.26% of the distribution revenue respectively. From the beginning to the end, it was the main contribution to the revenue, and the average revenue generated was much higher than that of new dealers and exiting dealers. In addition, The income proportion and income generation level of exiting dealers are low every year, which are lower than those of newly entering dealers. The number of existing dealers with transactions in each period of the reporting period was 267, and the sales amount was 1503054900 yuan, 2291599200 yuan and 2313253600 yuan respectively, accounting for 78.61%, 59.42% and 49.08% of the distribution income respectively, accounting for a relatively high but declining trend, mainly due to the addition of more dealers in 2020 and 2021. The average income of such dealers was higher, 5629400 yuan, 8582800 yuan and 8663900 yuan respectively. To sum up, during the reporting period, the income contribution and income generation level of the company’s surviving dealers were high, the average income generation level of new dealers was higher than that of exiting dealers, and the change of dealers was in the adjustment process of overall continuous optimization, which was reasonable.
2. Return and exchange, inventory and rebate under distribution mode
Under the distribution mode, the dealer purchases medical equipment from the company according to the needs of end customers. The sales contract signed between the company and the dealer does not stipulate the dealer’s right to return and replace goods except for product quality problems. The company will not return and replace goods for non quality problems. The company has tested the product performance item by item during product installation and commissioning and confirmed by the end user. During the reporting period, the company did not return or exchange goods.
Under the distribution mode, dealers usually purchase medical equipment from the company after signing sales agreements with end users such as hospitals or determining the product needs of end users. Since the company’s products are professional large-scale medical imaging or treatment equipment, after the completion of the company’s production, the sales equipment that needs to be installed and debugged by the company shall be directly transported to the installation place of the end customer and installed and debugged by the company; The equipment that does not need to be installed and debugged by the company shall be transported to the designated place by the company according to the agreement. Under the distribution mode, the dealer does not have inventory backlog.
During the reporting period, the company did not provide rebates to dealers.
3. Credit policy and payment collection under distribution mode
Considering the credit qualification, historical cooperation and bargaining power of customers, the company has formulated corresponding and reasonable credit periods for different sales orders. Due to the high value and long production cycle of some large-scale equipment sold by the company, the company generally requires customers to pay 100% advance payment before delivery. For some dealers with good credit qualifications, the sales contract with the customer generally stipulates that the customer will pay part of the payment before delivery, usually ranging from 10% to 30% of the contract amount. A certain proportion of the payment will be paid after delivery, installation and commissioning, and some customers will agree to pay the remaining balance after the warranty period. At the end of each reporting period, the company’s distribution mode post period payment collection is as follows:
Unit: 10000 yuan
Date: original value of accounts receivable from dealers amount after period collection amount collection proportion
December 31, 20214631569550923 11.89%
December 31, 202035472613031846 85.47%
December 31, 201955252915213051 94.35%
Note: the collection amount of accounts receivable after the period is counted to February 28, 2022
(II) dealer sales and terminal sales in each period of the reporting period with associated relationship or other interest arrangements with the issuer
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