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 Consolidated and company income statement, consolidated and company cash flow statement, consolidated and company statement of changes in shareholders’ equity and notes to financial statements for 2020 and 2021 (hereinafter referred to as “reported financial statements”). 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 (s.k.s. [2022] No. 45) (hereinafter referred to as the “first round 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 supplemented and revised your reply to the questions raised in the first round of audit inquiry letter that need to be explained by the reporting accountant, and put forward our opinions. See the annex for details. Annex: special opinions of PWC on the supplement and revision of the reply of Shanghai Lianying Medical Technology Co., Ltd. to the first round of audit inquiry letter PwC Zhongtian Certified Public Accountants (special general partnership)
March 31, 2022
Font of this supplementary revision note:
Bold: questions listed in the inquiry letter
Song typeface: the original reply to the questions listed in the inquiry letter
Bold italics: supplement and revision of the reply to the questions listed in the inquiry letter
There may be slight difference between the sum of individual data in some tables and the total of tables in this supplementary and revised instructions, which is caused by rounding in the calculation process. Reply to question 7 of the first round of audit inquiry letter: about revenue recognition
7.1 according to the prospectus and application materials, 1) for products requiring installation and commissioning, under the distribution mode, the issuer shall recognize the income after completing the equipment installation and commissioning and obtaining the installation and commissioning report (preliminary acceptance stage); Under the direct selling mode, the issuer recognizes the income after completing the equipment installation and commissioning and obtaining the acceptance report. For products that do not need to be installed and debugged, the issuer shall recognize the revenue after the buyer accepts the products and signs it. This part is mainly the purchase order of international aid agencies or during the epidemic. 2) The issuer’s main business income accounted for 38.15% in the fourth quarter of 2020.
The issuer is requested to explain: (1) the sales quantity, revenue amount and customers of products that do not need installation and commissioning in each period of the reporting period; (2) Under the distribution and direct selling mode, the main links, time cycle, main performance obligations of the issuer in each link from the signing of the contract to the confirmation of revenue, the difference between the installation and commissioning link and the final acceptance link, the amount and proportion of revenue confirmed according to different methods, and whether the revenue confirmed in the preliminary acceptance stage complies with the accounting standards for business enterprises and industry practices. The recommendation institution and the reporting accountant are requested to: (1) explain the completeness of the issuer’s income recognition documents and express clear opinions on whether the income recognition methods comply with the provisions of the accounting standards for business enterprises; (2) Explain the verification of the accuracy of the deadline for sales revenue in the fourth quarter of 2020 and the verification conclusion.
1、 Issuer description
(I) sales quantity, revenue amount and customers of products that do not need installation and commissioning in each period of the reporting period
1. Sales quantity, revenue amount and customers of products that do not need installation and commissioning
Unit: 10000 yuan / set
Project 20212020 2019
Quantity amount quantity amount
Solve Medical 10 1,898.05 – – – –
Boston Ivy Healthcare Solution (P) Limited 14 1,579.59 – – – –
Tengri LLC LLP 13 1,308.25 – – – –
China International Medical and health Co., Ltd. – 80615044 —
Project 20212020 2019
Quantity amount quantity amount
China Resources Hubei pharmaceutical Co., Ltd. – 150343805 —
Wuhan Huakang Century Medical Co., Ltd. – 1 Alpha Group(002292) 04 —
Others 13175705 6 397.35 2 522.15
Total 50654294 3361227788 2 522.15
Accounting for 1.56%, 0.90%, 10.31%, 2.13%, 0.12%, 0.18% of operating revenue
During the reporting period, the company sold fewer products without installation and commissioning, and the overall proportion was relatively low.
The products that do not need installation and commissioning are mainly the centralized purchased products used for China’s anti epidemic and international assistance during the epidemic period, as well as the sales of products signed with some large overseas dealers that do not need the company to be responsible for installation and commissioning. There is no need to install and debug. The sales agreement stipulates that the buyer will complete the delivery of products after signing, and the company will recognize the income accordingly.
(II) under the distribution and direct selling mode, the main links, time cycle, main performance obligations of the issuer in each link from the signing of the contract to the recognition of revenue, the differences between the installation and commissioning link and the final acceptance link, the amount and proportion of revenue recognized according to different methods, and whether the revenue recognized in the initial inspection stage complies with the accounting standards for business enterprises and industry practices
1. Under the distribution and direct selling mode, the main links, time cycle, main performance obligations of the issuer in each link from the signing of the contract to the confirmation of revenue, and the differences between installation and commissioning and final acceptance
The customers under the distribution mode of the issuer are dealers. The main links, time cycle and performance obligations of the issuer from the signing of the contract to the recognition of revenue are as follows:
Main link time period main performance obligations of the issuer
After signing the contract 1-7 days after delivery / arrival, the issuer will arrange logistics to transport the goods to the destination agreed in the contract (usually the equipment installation site of the end user) according to the customer’s requirements.
In August of CT products, the issuer arranged engineers to complete the hardware assembly and software and hardware debugging of the equipment on site. The specific package of MI products in June and July includes:
Installation and commissioning of Mr products 1. On July 1, the issuer’s engineers completed the installation of the equipment according to the installation and commissioning procedures of different product standards; On February 2, 0 of RT products, the issuer’s engineers tested each performance index of the equipment item by item, and recorded each work item by item in the report of installation and commissioning record. During commissioning, the possible problems were solved by assembling XR products, adjusting and replacing accessories in January and March.
The report of “installation and commissioning record” details the installation work contents and corresponding results of the product, including whether the physical appearance inspection, installation tool inspection, physical installation, system configuration and commissioning and other parameters meet the standards. All equipment status, output parameters and other indicators are within the normal range of the enterprise’s product description (reaching the enterprise standard), which shall be signed and confirmed by the issuer’s engineer on site. The clinical engineer of the end user (hospital) shall inspect the physical appearance, spare parts and system parameter performance of the equipment and complete the handover of product data at the same time, and then sign on the installation and commissioning record report, which shall be signed and confirmed by the procurement or user department of the end user.
According to the sales contract signed between the issuer and the distributor, the issuer will complete the product delivery obligation to the distributor’s customers immediately after the installation and commissioning, and the control of the products will be transferred to the customers at this point. The issuer recognizes the product sales revenue at this point.
After the installation and commissioning is completed, the company needs to carry out corresponding equipment operation training for end users (mainly hospital technicians) according to the contract. The training time required for each product type varies, usually 2 to 10 days. According to the contract, training does not constitute the premise of completing the obligation of product delivery, and the company’s limited investment in product training (mainly the on-site time and travel investment of Engineers) does not constitute a major separate obligation to perform the contract. Therefore, the training link does not have a significant impact on the revenue recognition of the company.
After installation and commissioning, the dealer shall perform relevant obligations in the acceptance link organized by the hospital. The main contents of the acceptance link and the obligations to be performed by the dealer are as follows:
Main link time cycle (month) main obligations of dealers
CT products 1.1 all relevant departments within the end-user hospital (user department, equipment department or general affairs department, representative of the president’s office, etc.) organize acceptance. The main contents and obligations of the dealer include:
Mi product 2.0 1. Accept the physical appearance of the equipment, complete the acceptance of spare parts, user manuals, technical data and other items, and hand over Mr products;
1.4 2. According to the provisions of the bidding document and the procurement contract, combined with the preliminary installation and commissioning report, check whether the RT product 2.4 equipment is inconsistent with the contract or has missing configuration and function;
3. After the on-site acceptance meeting, the acceptance results shall be submitted to the president’s office by the equipment department. The hospital will hold an in-hospital office meeting for XR products 1.5 at a selected time, and the acceptance process will be officially completed after being approved by the in-hospital office meeting.
Note: this time period is the time required for the end user acceptance of the equipment distributed by the issuer during the reporting period. The end user acceptance information is obtained by the issuer from the dealer, and the issuer does not directly participate in the acceptance link between the dealer and the end user
After the acceptance, the dealer shall collect the payment from the hospital according to the contract.
The customers under the direct selling mode of the issuer are terminal hospitals or other medical institutions. According to the contract between the issuer and customers, in addition to completing the above delivery, installation and commissioning links, the issuer’s main performance obligations in the product acceptance link of the hospital are as follows:
Main link time period (month) main performance obligations of the issuer
CT products 1.1 all relevant departments within the end-user hospital (user department, equipment department or general affairs department, representative of the president’s office, etc.) organize acceptance. The main contents and obligations performed by the issuer include:
Acceptance of MI products 2.0 1. Acceptance of physical appearance of equipment, completion of handover of spare parts, user manuals, technical data and other items of Mr products;
1.4.2. According to the provisions of the bidding documents and the procurement contract, and in combination with the preliminary installation and commissioning report, check
Main link time period (month) main performance obligations of the issuer
Whether RT product 2.4 equipment is inconsistent with the contract or has missing configuration and function;
3. Docking warranty matters;
XR products 1.5 4. After the on-site acceptance meeting, the acceptance results shall be submitted by the equipment department to the president’s office
