Important Statement
According to the provisions of the "Basic Norms for Enterprise Internal Control" and its supporting guidelines, as well as other internal control regulatory requirements (hereinafter referred to as the "Enterprise Internal Control Normative System"), combined with the internal control system and evaluation methods of Shandong Molong Petroleum Machinery Co., Ltd. (hereinafter referred to as the "Company"), we have evaluated the effectiveness of the Company's internal controls as of December 31, 2025 (the benchmark date for the internal control evaluation report).
The establishment, improvement, and effective implementation of internal controls, as well as the truthful disclosure of the internal control evaluation report, are the responsibilities of the Company's board of directors. The audit committee of the board supervises the establishment and implementation of internal controls, while the management is responsible for organizing and leading the daily operations of internal controls. The board of directors and senior management guarantee that the content of this report does not contain any false records, misleading statements, or significant omissions, and they bear individual and joint legal responsibility for the truthfulness, accuracy, and completeness of the report's content.
The objective of the Company's internal controls is to reasonably ensure that business management is legal and compliant, assets are secure, financial reporting and related information are true and complete, operational efficiency and effectiveness are improved, and the Company achieves its development strategy. Due to the inherent limitations of internal controls, they can only provide reasonable assurance for achieving the above objectives. Furthermore, changes in circumstances may render internal controls inappropriate or reduce compliance with control policies and procedures, making it risky to infer the future effectiveness of internal controls based on evaluation results.
Internal Control Evaluation Conclusion
Based on the identification of significant deficiencies in financial reporting internal controls, as of the benchmark date of the internal control evaluation report, the Company has no significant deficiencies in financial reporting internal controls. The board believes that the Company has maintained effective financial reporting internal controls in all material respects in accordance with the requirements of the Enterprise Internal Control Normative System and related regulations.
According to the identification of significant deficiencies in non-financial reporting internal controls, as of the benchmark date of the internal control evaluation report, the Company has not identified any significant deficiencies in non-financial reporting internal controls. No significant changes in internal controls that would materially affect the evaluation conclusions have occurred between the benchmark date of the internal control evaluation report and the date of issuance of the report.
Internal Control Evaluation Work Situation
1. Scope of Internal Control Evaluation
The Company determines the main units, businesses, and matters to be included in the evaluation scope based on a risk-oriented principle, as well as high-risk areas. The main units included in the evaluation scope are: Shandong Molong Petroleum Machinery Co., Ltd., Shouguang Molong Logistics Co., Ltd., Shandong Molong Trading Co., Ltd., and Shandong Molong Import and Export Co., Ltd. The total assets of the units included in the evaluation scope account for 90.03% of the total assets in the consolidated financial statements, and the total operating income accounts for 99.98% of the total operating income in the consolidated financial statements.
The main businesses included in the evaluation scope are: the production and sales of seamless pipes, oil pumps, oil rods, and the development of petroleum machinery and related products, as well as import and export of goods. The main matters included in the evaluation scope are: governance structure, organizational structure, human resources, social responsibility, financial activities, procurement business, sales business, guarantee business, contract management, internal supervision, and financial reporting. The high-risk areas focused on include: procurement business, sales business, guarantee business, and financial reporting.