Shandong Lukang Pharmaceutical Co.Ltd(600789) : reply to the letter on making preparations for the meeting of Shandong Shandong Lukang Pharmaceutical Co.Ltd(600789) allotment examination committee

Shandong Lukang Pharmaceutical Co.Ltd(600789)

And

China Securities Co.Ltd(601066)

Reply to the letter on making preparations for the meeting of Shandong Shandong Lukang Pharmaceutical Co.Ltd(600789) allotment examination committee

Sponsor (lead underwriter)

April, 2002

Reply to the letter on making preparations for the meeting of Shandong Shandong Lukang Pharmaceutical Co.Ltd(600789) allotment examination committee

China Securities Regulatory Commission:

China Securities Co.Ltd(601066) (hereinafter referred to as the “sponsor”) received the letter on making preparations for the meeting of Shandong Shandong Lukang Pharmaceutical Co.Ltd(600789) allotment Issuance Examination Committee issued by your association on April 2, 2022, together with Shandong Lukang Pharmaceutical Co.Ltd(600789) (hereinafter referred to as the “company”, ” Shandong Lukang Pharmaceutical Co.Ltd(600789) ” and “issuer”) Shanghui Certified Public Accountants (special general partnership) (hereinafter referred to as the “issuer’s accountant”) and Beijing Tongshang law firm (hereinafter referred to as the “issuer’s lawyer”) have carefully checked and discussed the issues listed in the document one by one. Now, the implementation of relevant issues is replied in writing one by one as follows. Please review:

Note: the abbreviation in this reply has the same meaning as the abbreviation in the issuer’s share allotment manual. In this reply, there are differences in the mantissa between the sum of some total numbers and each addend, or there are differences in the mantissa between some proportion indicators and the results of direct calculation of relevant values. These differences are caused by rounding.

Question 1: about long-term and related party receivables

From 2018 to 2020, the book balance of accounts receivable of the applicant at the end of the period was 7283421 million yuan, 709063 million yuan and 742432 million yuan respectively. On September 30, 2021, the book balance of accounts receivable of the company was 7454498 million yuan. According to the feedback materials, the accounts receivable aged more than 3 years of the applicant are mainly due to historical reasons, accounts receivable aged more than 3 years since the end of 2018 and uncollected so far, as well as labtofams Accounts receivable from acuba and its affiliates. The net profit of the applicant after deducting non profits in 2020 is 10.493 million yuan.

The applicant is requested to: (1) list in detail the credit period, overdue time, aging, post period collection of accounts receivable of related parties and the provision for bad debts, and explain whether it constitutes capital occupation and whether the provision for bad debts is fully made; (2) Please explain the overdue situation of main accounts receivable aged more than 1 year, whether the collection after the period and the provision for bad debts are sufficient; (3) Accounts receivable aged more than 3 years, accounts receivable aged more than 3 years since the end of 2018 and uncollected so far, and accounts receivable from labiofams Whether the bad debt provision of accounts receivable of acuba and its related parties is sufficient.

The recommendation institution and the applicant’s accountant shall explain the verification basis and process, and express clear verification opinions. reply:

1、 List in detail the credit period, overdue time, account age, post period collection of accounts receivable of related parties and the provision for bad debts, and explain whether it constitutes capital occupation and whether the provision for bad debts is fully made

At the end of each reporting period, the issuer’s accounts receivable from related parties are as follows:

Unit: 10000 yuan

September 30, 2021

Name of related party receivable balance credit period overdue time aging due on September 30, 2021

Shandong Xinhua Pharmaceutical Trade 373.58 6 months overdue within 1 year is not applicable to 11.21 Co., Ltd

December 31, 2020

Name of related party receivable balance credit period overdue time aging due on September 30, 2021

Shandong Xinhua Pharmaceutical Trade Co., Ltd. 414.67 6 months overdue within 1 year

Shandong Lukang Zhonghe environmental protection Co., Ltd. within 6 months and 1 year overdue

December 31, 2019

Name of related party receivable balance credit period overdue time aging due on September 30, 2021

Shandong Lukang Zhonghe Environmental Protection Technology Co., Ltd. for 6 months and more than 3 years in 2017

December 31, 2018

Name of related party receivable balance credit period overdue time aging due on September 30, 2021

Within 1 year

Shandong Lukang Zhonghe environmental protection 6.47 6 months 2017 1.56 6.47 1.06 Technology Co., Ltd. 2 to 3 years

four point nine one

As of the issuing date of this reply, the issuer’s accounts receivable from the related party Shandong Xinhua Pharmaceutical Trading Co., Ltd. on September 30, 2021 have been fully recovered.

At the end of each reporting period, the accounts receivable from related parties of the issuer are formed due to normal transactions. The accounts receivable from Shandong Xinhua Pharmaceutical Trade Co., Ltd. are formed by selling products, and the accounts receivable from Zhonghe environmental protection are formed by providing power and electromechanical engineering services. They are not occupied by related parties and the amount is small. Among the accounts receivable from related parties of the company at the end of 2018 and 2019, the account receivable of Zhonghe environmental protection was 49100 yuan, with a long aging, which was formed by the electromechanical engineering services provided by the company’s subsidiary Lukang electromechanical for Zhonghe environmental protection, and has been recovered in 2020; In addition, at the end of each reporting period, the aging of the accounts receivable from related parties of the company is less than 1 year, they are recovered normally, and the bad debt reserves have been fully accrued.

2、 Please explain the overdue situation of main accounts receivable aged more than 1 year, whether the collection after the period and the provision for bad debts are sufficient

At the end of each reporting period, the provision for bad debts of accounts receivable aged more than 3 years of the issuer is detailed in “III. whether the provision for bad debts of accounts receivable aged more than 3 years of the applicant, accounts receivable aged more than 3 years since the end of 2018 and uncollected so far, and accounts receivable from labiofams.acuba and its related parties is sufficient”.

At the end of each reporting period, the total amount of the issuer’s accounts receivable aged 1-2 years and 2-3 years was 617095 million yuan, 357432 million yuan, 420345 million yuan and 385843 million yuan respectively, accounting for 8.47%, 5.04%, 5.66% and 5.18% of the company’s accounts receivable balance, as follows:

Unit: 10000 yuan

September 30, 2021

Name proportion of accounts receivable in accounts receivable balance proportion of expected credit loss provision

1-2 years 240814 3.23% 842.85 35.00%

-Provision for impairment by portfolio 240814 3.23% 842.85 35.00%

-Provision for impairment by single item

2-3 years 145029 1.95% 114992 79.29%

-Provision for impairment by portfolio 119906 1.61% 899.30 75.00%

-The provision for impairment is 251.23% 0.34%, 250.62% and 99.76% respectively

December 31, 2020

Name proportion of accounts receivable in accounts receivable balance proportion of expected credit loss provision

1-2 years 250596 3.38% 103977 41.49%

-Provision for impairment by portfolio 225473 3.04% 789.15 35.00%

-The provision for impairment is 251.23% 0.34%, 250.62% and 99.76% respectively

2-3 years 169749 2.29% 130889 77.11%

-Provision for impairment by portfolio 154589 2.08% 115942 75.00%

-The provision for impairment is 151.60% 0.20% 149.48% 98.60% by single item

December 31, 2019

Name proportion of accounts receivable in accounts receivable balance proportion of expected credit loss provision

1-2 years 258074 3.64% 946.46 36.67%

-The provision for impairment is 249103 3.51% 871.86 35.00% by portfolio

-The impairment allowance is 89.71% 0.13%, 74.60% and 83.16% respectively

2-3 years 993.58 1.40% 730.24 73.50%

-Provision for impairment by portfolio 107.15 0.15% 80.36 75.00%

-The provision for impairment is 886.43 1.25% 649.88 73.31% by single item

December 31, 2018

Name proportion of accounts receivable in accounts receivable balance proportion of bad debt provision

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