Chongqing Lummy Pharmaceutical Co.Ltd(300006) : internal control evaluation report in 2021

Chongqing Lummy Pharmaceutical Co.Ltd(300006)

Internal control evaluation report in 2021

Chongqing Lummy Pharmaceutical Co.Ltd(300006) all shareholders:

In accordance with the provisions and requirements of the basic norms of enterprise internal control and supporting guidelines, gem stock listing rules, Shenzhen Stock Exchange self regulatory guidelines for listed companies No. 2 - standardized operation of GEM listed companies and other laws and regulations and relevant documents, in combination with the rules and regulations of Chongqing Lummy Pharmaceutical Co.Ltd(300006) (hereinafter referred to as the "company"), on the basis of daily supervision and special supervision, The company has evaluated the effectiveness of internal control as of December 31, 2021 (benchmark date of internal control evaluation report).

1、 Important statement

It is the responsibility of the board of directors of the company to establish, improve and effectively implement internal control, evaluate its effectiveness and truthfully disclose the internal control evaluation report in accordance with the provisions of the enterprise's internal control standard system. The board of supervisors shall supervise the establishment and implementation of internal control by the board of directors. Senior managers are responsible for organizing and leading the daily operation of the enterprise's internal control. The board of directors, the board of supervisors and the directors, supervisors and senior managers of the company guarantee that there are no false records, misleading statements or major omissions in the contents of this report, and bear individual and joint legal liabilities for the authenticity, accuracy and completeness of the contents of the report.

The objective of the company's internal control is to reasonably ensure the legal compliance of operation and management, asset safety, authenticity and integrity of financial reports and relevant information, improve operation efficiency and effect, and promote the realization of development strategy. Due to the inherent limitations of internal control, it can only provide reasonable assurance for the realization of the above objectives. In addition, as changes in circumstances may lead to inappropriate internal control or reduced compliance with control policies and procedures, there is a certain risk to speculate the effectiveness of internal control in the future according to the internal control evaluation results.

2、 Internal control evaluation conclusion

According to the identification of major defects in the company's internal control over financial reporting, there are no major defects in the internal control over financial reporting on the benchmark date of the internal control evaluation report. The board of Directors believes that the company has maintained effective internal control over financial reporting in all major aspects in accordance with the requirements of the enterprise's internal control standard system and relevant regulations. According to the identification of major defects in the company's internal control over non-financial reports, the company found no major defects in the company's internal control over non-financial reports on the benchmark date of the internal control evaluation report.

There are no factors affecting the evaluation conclusion of the effectiveness of internal control from the base date of the internal control evaluation report to the date of issuance of the internal control evaluation report.

(I) internal environment

1. Corporate governance

In accordance with the company law, the securities law and other relevant laws, regulations and the articles of association, the company has established a corporate governance structure composed of the general meeting of shareholders, the board of directors, the board of supervisors and the general manager, and formulated the rules of procedure of the general meeting of shareholders, the rules of procedure of the board of directors, the working system of independent directors, the rules of procedure of the board of supervisors and the working rules of the general manager. The company's "three meetings" system has made clear provisions on the nature, responsibilities and working procedures of the company's general meeting of shareholders, the board of directors, the board of supervisors and the general manager, as well as the qualifications, powers, obligations, assessment, rewards and punishments of the chairman, directors (including independent directors), supervisors and the general manager, defined the responsibilities and authorities in decision-making, implementation and supervision, and formed a scientific and effective division of responsibilities and check and balance mechanism.

The general meeting of shareholders is the highest authority of the company; The board of directors of the company is the operation decision-making body of the company, and the board of directors is responsible for the general meeting of shareholders; The board of supervisors of the company is the supervision organization of the company, which is responsible for the supervision and inspection of the company's operation and financial status, the performance of the company's directors and senior managers according to law, and is responsible to the general meeting of shareholders; Entrusted by the board of directors, the general manager is fully responsible for the operation and management of the company.

The board of directors of the company has four special committees: Strategy Committee, audit committee, nomination committee and salary and assessment committee, and each special committee is responsible to the board of directors. The company has established an independent director system, and the audit committee has a chairman, who is held by an independent director. Independent directors have the obligation of integrity and diligence to all shareholders of the company, perform their duties independently and fairly, and safeguard the overall interests of the company.

2. Organizational structure

The organizational structure of the company is as follows:

The company sets up an internal audit department, which is responsible to the audit committee of the board of directors and carries out audit work independently according to the provisions of the internal audit system. Under the leadership of the audit committee, the internal audit department shall supervise and inspect the construction and implementation of business activities and internal control system; Report the internal control defects found in the supervision and inspection in accordance with the company's internal audit procedures, and put forward corresponding improvement suggestions and handling opinions; The major defects of internal control found in the supervision and inspection can be directly reported to the board of directors and its audit committee to ensure the implementation of internal control and the normal operation of business activities.

4. Human resources policy

The company takes "talent oriented, people make the best use of their talents" as the employment concept, and adheres to the employment principle of "morality first, quality first and behavior-oriented", so that employees and the company can grow together and achieve win-win results. According to the labor law and relevant laws and regulations, the company has established a relatively perfect personnel management system for employee employment, training, education, assessment, reward and punishment, promotion and elimination, so as to ensure that employees in different positions have corresponding work competence and effectively improve their professional ethics and professionalism. Scientific and effective personnel management mechanism provides a strong guarantee for the company to attract and retain high-quality talents.

5. Corporate culture

The company takes "providing innovative, excellent and effective drugs and technologies for human health" as its mission, takes "self-discipline, care, trust and struggle" as its core values, adheres to the business philosophy of "meeting health needs, expanding health cause, advocating health concept and creating health value", advocates the enterprise spirit of "integrity, professionalism and pursuit of excellence", makes pragmatic innovation, keeps pace with the times, and pursues high-quality, efficient and sustainable operation.

(II) risk assessment

According to the company's development strategy and industry characteristics, the company always pays attention to the external environment such as economic situation, market competition and relevant laws and regulations. The company maintains good communication with the government and regulatory authorities, and learns the changes of external information such as industrial policy, regulatory requirements, economic form and financing environment in time. By collecting relevant information, analyzing and discussing, the company identified the main risks brought by covid-19 epidemic, such as operation risk, industry policy risk, technology development risk, drug price reduction risk, foreign investment risk, product quality and safety risk and so on. The company comprehensively uses the strategies of risk avoidance, risk reduction, risk sharing and risk tolerance, and takes appropriate and effective control measures to deal with these risks.

(III) control activities

According to the risk assessment results, the company has taken corresponding control measures to control the risk within the tolerable range. Specifically, according to the management requirements of modern enterprise system, the company has established a series of internal management systems for various production and operation links, such as sales and collection process management, procurement and payment process management, production and storage process management, personnel and salary management, financing and investment management, monetary fund management and so on, so as to ensure that all work has rules to follow and form a standardized management system.

1. Control measures

(1) Incompatible job separation control

The company shall reasonably set up division of labor, scientifically divide responsibilities and authorities, implement the principle of separation of incompatible positions and that each person's work can automatically check the work of another person or more people, and form a mutual check and balance mechanism.

Incompatible positions mainly include: authorization approval and business handling, business handling and accounting records, accounting records and property custody, business handling and business audit, authorization approval and supervision and inspection, etc.

(2) Authorization approval control

In addition to the provisions on the authority of the board of directors, the board of supervisors and the general meeting of shareholders, the company has made clear the scope, authority, procedures, responsibilities and other relevant contents of authorization and approval for the chairman, general manager and other senior managers of the company and department heads. The management at all levels within the unit must exercise the corresponding authority within the scope of authorization, and the handling personnel must also handle economic business within the scope of authorization.

(3) Accounting system control

In accordance with the requirements of the company law, accounting law, accounting standards for business enterprises and other laws and regulations and their supplementary provisions, the company has formulated an accounting system and financial management system suitable for the company, established a post responsibility system, and equipped with qualified accounting practitioners, giving full play to the supervision function of accounting. The company has clearly stipulated the processing procedures of accounting vouchers, accounting books and financial accounting reports, and continuously strengthened the basic work of accounting to ensure the authenticity and integrity of accounting materials.

(4) Property protection control

The company strictly restricts the direct contact of unauthorized personnel with property, and takes measures such as property records, physical storage, regular inventory, account verification and property insurance to ensure the safety of property.

(5) Budget control

The company prepares the annual plan and budget, strengthens the management of budget implementation, analysis and assessment, analyzes and controls budget differences, and takes improvement measures to ensure budget implementation.

(6) Operational analysis

In the actual operation process, the company's operation and management team comprehensively uses the information of production, purchase and sales, finance and other aspects, and regularly carries out operation analysis through factor analysis, comparative analysis, trend analysis and other methods, so as to find problems and improve them in time.

(7) Performance appraisal control

The company formulates and strictly implements the salary system of performance evaluation, implements the evaluation method of combining monthly, quarterly and annual, constantly optimizes and revises various evaluation indicators of employees, and strives to be scientific, objective and fair. For the repeated problems in the assessment, the personnel department communicates with the employees of relevant departments, makes performance diagnosis, and looks for continuous and effective improvement methods, so as to achieve the purpose of motivating employees and improving overall performance.

2. Key control activities

(1) Management and control of foreign investment

The company has formulated the foreign investment management system, which defines the main contents of major investment decisions, decision-making procedures and authority allocation, as well as the implementation and supervision of decisions. Study whether the investment project conforms to the enterprise strategic planning and whether it is feasible, review the results of the feasibility study, and implement the decision-making according to the approval procedures. (2) External guarantee management control

In order to safeguard the interests of investors, standardize the company's guarantee behavior and control the operation risk of the company's assets, according to the notice on regulating the external guarantee behavior of listed companies issued by the CSRC, the company has formulated the external guarantee management system, which clearly stipulates the review, approval procedures, management and information disclosure of external guarantees. For example, it is stipulated that the company's external guarantee shall be subject to unified management. Without the approval of the board of directors or the general meeting of shareholders, no one has the right to sign contracts, agreements or other similar legal documents for external guarantee in the name of the company.

(3) Management and control of related party transactions

According to the articles of association of Shenzhen Stock Exchange, it has formulated the rules on the non disclosure of related party transactions of related companies and related party transactions of related companies to ensure that the related party transactions of non listed companies and related party transactions are conducted in accordance with the principles of the articles of association of Shenzhen Stock exchange.

(4) Information disclosure control

The company has formulated the information disclosure management system, the accountability system for major errors in annual report information disclosure, the annual report working procedures of the audit committee, the annual report working procedures of independent directors, the working system of the Secretary of the board of directors, the investor relations management system and other systems, from the aspects of information disclosure institutions and personnel, disclosure documents, affairs management, disclosure procedures, information reports, confidentiality measures, file management Detailed provisions have been made on accountability and other aspects.

(5) Sales and collection management control

The company has set up a sales department to engage in sales business such as selling goods and providing labor services, as well as sales logistics management. The developed sales and collection management system defines the rights and responsibilities of relevant posts and mutual restriction requirements, and formulates a series of measures, covering all links from customer credit investigation and evaluation to final collection and write off of bad debts, including post and authority setting, sales plan, customer sales credit evaluation and credit policy, record and custody of customer data, contract negotiation, record and approval, contract custody, delivery and collection procedures, Customer return, revenue recognition, reconciliation and collection, aging analysis and bad debt loss approval, bill collection, discount and overdue recourse, etc.

(6) Management and control of raised funds

The company has formulated the raised funds management system to further specify the storage, approval, use, change, management and supervision of the raised funds, so as to ensure that the storage and use of the raised funds comply with the relevant laws and regulations such as the Shenzhen Stock Exchange gem stock listing rules, Shenzhen Stock Exchange listed companies self regulatory guidance No. 2 - standardized operation of GEM listed companies Laws, regulations and normative documents, there is no illegal use or disguised change of the purpose of the raised funds and damage to the interests of shareholders, so as to ensure that the actual use of the raised funds of the company is consistent with the disclosure.

(7) Control of R & D activities

The company has set up a R & D Technology Center for full-time product R & D. The company has formulated the scientific research project management manual to clarify the process and approval procedures of scientific research projects from new drug screening, project application, project research and development, intermediate evaluation and adjustment of projects, project conclusion to production technology transfer; It has also formulated patent management system, trademark management measures, copyright management system, confidentiality and competition management system and other systems.

(8) Internal control of subsidiaries

The company appoints directors, supervisors and important senior managers to the subsidiaries to ensure that the subsidiaries operate in accordance with the company law and other relevant laws and regulations, and strictly abide by the articles of association and other relevant provisions. The company has formulated the management system of holding subsidiaries to standardize the business behavior of subsidiaries through regular reports, implementation of business assessment, internal audit and other management means, and maintain good information communication, so as to achieve effective supervision of subsidiaries. (9) Internal audit management control

The board of directors of the company has set up an audit committee, which has set up an internal audit department, formulated the work regulations of the audit committee of the board of directors and the internal audit system, and designated full-time personnel to supervise and inspect the business activities, the design and implementation of the internal control system and the effectiveness of the internal control. The internal audit department reports the internal control defects found in the supervision and inspection in accordance with the company's internal audit procedures, puts forward corresponding improvement suggestions and treatment opinions, and has the right to directly report the major internal control defects found in the supervision and inspection to the board of directors and its audit committee, so as to ensure the implementation of internal control and the normal operation of business activities.

(IV) information and communication

The company formulates information communication systems such as information disclosure management system, accountability system for major errors in annual report information disclosure, insider registration system, emergency response system for emergencies and crises, internal notification system of major information, management system of holding subsidiaries, etc., defines the collection, processing and transmission procedures and transmission scope of information related to internal control, and reasonably screens and transmits information Check, analyze and integrate to ensure timely and effective information communication.

The company uses Kingdee K/