Source Public Number: Pre-IPO

Wen/Rui finance sun subo

"from the south, from the north, from Jiamusi and from Hegang".

with such a shout, CCTV's new year drama "going from south to north" started broadcasting. From the broadcast to the ending, it was well received by many viewers and earned everyone's laughter and tears.

This play has witnessed the development of China's railways for 40 years through the life of a train and the warmth and warmth of a group of neighbors. As Cai Xiaonian, a character in the play, said, "from the beginning of the steam locomotive, to the later diesel locomotive, to the present bullet train and high-speed rail, it can be said that it is the story of a car, and the life of a car is sweet, bitter and salty."

In the rapid development of China's railways, a number of enterprises have emerged to provide special products and supporting services for the rail transit industry. For example, China General (688009.SH), 712 (603712.SH), Tieda Technology (872541.BJ), which has been based on the-share market, and Beijing Xidian (430328.NQ), which has been listed on the new third board, and Century Oriental (430043.NQ), which has been terminated.

At the end of 2023, Century Oriental's brother company Beijing Century Oriental Zhihui Technology Co., Ltd. (hereinafter referred to as "Oriental Zhihui") submitted a prospectus to the Beijing Stock Exchange one year after its listing on the New Third Board, intending to raise 0.183 billion yuan.

With the publication of a prospectus, Tian Xiuchen, one of the actual controllers of Dongfang Zhihui, had bribed and involved in punishment, and was brought up again.

in 2014, century oriental withdrew from the stage of the new third board shortly after the announcement that Tian xiuchen, head of the company, was involved in criminal proceedings. At the same time, Dongfang Zhihui also dug up.

this time, Tian xiuchen was again associated with "bribery". the north stock exchange directly asked in the inquiry letter whether there was any commercial bribery in the controlled dongfang zhihui.

the 1. actual controller paid bribes and involved punishment, the first IPO failed

July 23, 2011. Forty Chinese people were killed in an accident on a Beijing-Fuzhou bullet train.

A few days after the accident, a research institute in Beijing, Beijing Quanlu Communication and Signal Research and Design Institute Co., Ltd. (hereinafter referred to as "Tonghaoyuan") was pushed to the forefront. On July 27, 2011, it published the "Letter of Apology" on the company's website, expressing its most sincere apologies to the accident victims and the families of the victims, and said that "dare to take responsibility, accept the punishment due to them, and deal with the responsible persons. Conduct serious accountability."

Just as the Tong Yuan experienced the impact of public opinion, Century Oriental, which has a close relationship with it, launched an impact on the capital market and submitted an application for listing on the GEM.

It is reported that the Tonghuayuan was established in 1953, and its superior unit is China Railway Communication and Signal Group Corporation (hereinafter referred to as "Communication Signal"), one of China's railway construction giants. In 2000, Tongsheng Group was decoupled from the Ministry of Railways and allocated to the State-owned Assets Supervision and Administration Commission of the State Council.

From July 1988 to August 2005, Tian Xiuchen, one of the actual controllers of Century Oriental, served successively as the director of the wireless room, the director of the wireless communication research and design institute, and the director of the communication research and design institute.

at the end of 2002, while still working in the general number institute, Tian xiuchen invested 330000 yuan to participate in the establishment of "Beijing century oriental national railway telecommunication technology co., ltd", the predecessor of century orient ".

1. century oriental impact gem IPO collapse

It is reported that Century Oriental's business is mainly the research and development, production and sales of dedicated wireless communication-related products in the railway and public utilities, especially the research and development, promotion and application of application software used in railway safety early warning and train dispatching systems. This is actually one of the businesses of the General Number Institute.

century oriental has just been established. Tian xiuchen holds 11% of the shares and is the legal representative and the second largest shareholder of the company. After several capital increases and equity transfers in 7 years, as of the beginning of 2009, it was listed on the new third board. Tian xiuchen and his younger brother Tian xiuhua directly hold 64.15 of the company's shares and indirectly hold 12.67 of the company's shares through Beijing qiangchen network technology co., ltd. (hereinafter referred to as "qiangchen network"), which is the actual controller of the company.

after landing on the new third board, from 2009 to 2011, century oriental's performance has maintained a growth trend, with revenue of 0.11 billion yuan, 0.172 billion yuan and 0.239 billion yuan respectively. But in 2012, its revenue increased by only 5% to 0.251 billion yuan, while its net profit fell 14% to 32.9406 million yuan. The following year, net profit rose, but still not back to 2011 levels.

In fact, after the July 23 accident, high-speed rail concept stocks have also been affected to a certain extent. Century Oriental, which is related to the railway business, terminated its IPO process in May 2013.

2. Tian Xiuchen was investigated for criminal responsibility for bribery

In August of the following year, an announcement from Century East once again shocked the capital markets. The announcement shows that in order to sell the company's products, Tian Xiuchen, the direct person in charge of Century Oriental and the unit, paid bribes to state functionaries, which violated the provisions of Article 393 of the the People's Republic of China Criminal Law, and should be investigated for criminal responsibility for the crime of bribery by the unit.

At that time, Century Oriental stated that the trial time of the case was uncertain, and the final trial result was uncertain, and the impact on the company's profits could not be predicted for the time being.

however, the market did not wait for century east to disclose the follow-up situation of the case, but waited for the news of its termination of the listing of the new third board. On November 26, 2014, Century Oriental officially terminated its listing on the new third board.

3. build "new shell" and seek IPO

it is worth noting that half a year before the listing was terminated, century oriental wholly-owned 20 million yuan established the predecessor of oriental zhihui, "Beijing century oriental communication equipment co., ltd." (hereinafter referred to as "oriental communication").

Two years after the establishment of Oriental Communications, that is, starting in 2016, Century Oriental implemented a business restructuring, transferring its assets, business, technology and personnel related to its rail transit business to Oriental Communications.

at the same time, in December 2016, century oriental transferred its 93.2549 equity of oriental communications (accounting for 46,627,435 yuan's monetary contribution) to Tian xiuhua, ge yinglong, Leng shengxiang, Zhao wenwang, shengda technology, Chen lei, Liu yanni, Gao ruyang, Li fuchao, Xiong daoquan, guanlu investment, Wang qinxue, Jin Fang technology, Tianping investment and fuhui investment.

According to Rui Finance's "Pre-Trial IPO", the transferees are all the original shareholders of Century Oriental. Among them, natural person shareholders Tian Xiuhua, Ge Yinglong, Leng Shengxiang, Chen Lei, Liu Yanni, Gao Ruyang, Li Fuchao, Xiong Daoquan and Wang Qinxue are also members of Century Oriental's then or historical directors, supervisors and Gao. In addition, Zhao Wenwang is the son of Zhao Hengen (who has passed away), the former chairman of the Supervisory Board of Century Oriental.

it is also worth noting that Tian xiuchen was worried that he would have a negative impact on the image and development of century oriental due to his personal involvement in criminal proceedings. therefore, in October 2016, he entrusted his 32.66 per cent stake in century oriental and his 5 per cent stake in century oriental shareholder qiangchen network to his younger brother Tian xiuhua.

when Tian xiuhua transferred the equity interest held by century oriental in December 2016, the proportion of Tian xiuhua transferred was 65.39. Of this, 31.5 per cent is actually held by Tian Xiuhua and 33.88 per cent is held by Dai Tian Xiuchen.

After the formation of the above-mentioned shareholding, Dongfang Communication made several capital increases, and in September 2021, it was changed to a joint stock company, and the company name was also changed to "Beijing Century Dongfang Zhihui Technology Co., Ltd".

when it was changed to a joint stock limited company, Tian xiuhua's registered shareholding in dongfang zhihui was changed from 65.39 to 53.06 (corresponding to 53,115,179 shares), of which Tian xiuhua actually held 25.57 (corresponding to 25,591,308 shares) and Tian xiuchen held 27.4964 (corresponding to 27,523,871 shares).

After being changed to a joint stock limited company, as the Company Law stipulates that shareholders shall not transfer their shares within one year from the date of establishment of the joint stock company, Dongfang Zhihui has planned to be listed on the new third board at that time. In order to speed up the progress of listing, Tian Xiuchen and Tian Xiuhua adopted arbitration to restore the shares and register the corresponding changes.

in April 2022, the Cangzhou Arbitration Commission ruled that Tian Xiuchen and Tian Xiuhua had dissolved their holding relationship and requested Tian Xiuhua to restore 27.4964 percent of the shares of Dongfang Zhihui held by Tian Xiuchen to Tian Xiuchen. At this point, the Tian brothers' shareholding relationship was dissolved.

2. the low-cost equity incentive before the delivery table, the chairman also reduced his holdings and cashed out

Since Century Oriental first increased its capital to Dongfang Zhihui in 2015, the registered capital of Dongfang Zhihui has not been paid in full until the company's capital reduction in 2020.

1. Century Oriental, Tian Xiuhua and others have increased their capital many times, but they have not paid in.

when it was first established, oriental communication had a registered capital of 20 million yuan and a paid-in capital of 20 million yuan. In December 2015, Century Oriental increased its capital to 30 million yuan, and the registered capital of the company increased to 50 million yuan, but the paid-in capital was only 30 million yuan. In May 2017, century Oriental, Tian Xiuhua, Ge Yinglong, Leng Shengxiang, Zhao Wenwang, Shengda Technology, Chen Lei, Liu Yanni, Gao Ruyang, Li Fuchao, Xiong Daoquan, Guanlu Investment, Wang Qinxue, Jin Fang Technology, Tianping Investment and Fuhui Investment (hereinafter collectively referred to as "Century Oriental, Tian Xiuhua and other shareholders") increased their capital to Dongfang Communications according to their equity ratio, and the registered capital increased to 0.1 billion yuan, however, it is still only paid in 30 million yuan; in January 2019, the registered capital of Oriental Communications increased to 0.256 billion yuan, and shareholders such as Century Oriental and Tian Xiuhua paid in proportion to their equity, and the paid-in capital is still 30 million yuan.

Note: The full name of Century Oriental is Beijing Century Oriental National Railway Technology Co., Ltd., which is "National Railway Technology" in the figure below ".

In July 2020, the registered capital of Oriental Communications was increased to $0.271 billion, with Wang Dong, Liu Feng, Shi Weiliang, Niu Zhihong, Zhang Fei, Peng Xiuying, Wang Lanqing, Lin Gan and Qiao Lixia (hereinafter referred to as "Wang Dong et al.") contributing $15.36 million with $11.988 million, but only contributing $1.8 million. After the capital increase, the paid-in capital of Dongfang Zhihui is 31.8 million yuan.

the following month after Wang dong and others increased their capital, the shareholders' meeting of oriental communication decided that the registered capital of the company should be reduced to a 31.8 million of paid-in registered capital, and the total outstanding capital contribution of each shareholder, 0.24 billion yuan, need not be paid again. So far, the registered capital of Dongfang Zhihui has been changed from 0.271 billion yuan to 31.8 million yuan.

Only two months after the capital reduction, Oriental Communications received the investment of China Car Capital, the cornerstone investment of Beijing Investment Development (600683.SH), the investment of Beijing Daxing Development, the investment of Xingxing Investment, Sitqi (300608.SZ) and Ritten Investment. At that time, the above five new shareholders subscribed a total of 65 million yuan to Dongfang Zhihui's new registered capital of 5.1675 million yuan, of which 5.1675 million yuan was included in the company's registered capital and the remaining 59.8325 million yuan was included in the company's capital accumulation fund.

At the same time, Orient Communications converted the Company's capital surplus capital premium of $63.1325 million to registered capital in proportion to each shareholder's shareholding. After all the capital increase is completed, the registered capital of Dongfang Communication is 100.1 million yuan.

on November 8, 2022, after the reform of the shareholding system and the restoration of the shares of Tian Xiuchen and Tian Xiuhua, Oriental Communications was officially listed on the new third board, with the securities referred to as "Oriental Zhihui" and the securities code "873914".

2. Chairman Tian Xiuhua cashed out by equity incentive

Before listing, Tian Xiuchen and Tian Xiuhua together directly held 53.07 of the shares of Dongfang Zhihui and were the actual controllers of the company. After 8 years, the two brothers are once again based in the capital market.

After the listing, in May 2023, Dongfang Zhizao conducted a private placement. Beijing Gazelle Science and Technology Enterprise Venture Capital Center (Limited Partnership) (hereinafter referred to as "Gazelle Science and Technology") subscribed for 1.6695 million shares of Dongfang Zhizao at a price of 5.99 yuan per share.

It is worth noting that only a month later, Dongfang Zhizao released a draft employee stock ownership plan. According to the draft, Dongfang Zhizao intends to implement the employee shareholding plan through the shareholding platform Beijing Chuangxiangzhiyuan Management Consulting Partnership (Limited Partnership) (hereinafter referred to as "Chuangxiangzhiyuan"). Specifically, the participants indirectly hold 1.748 million shares of the company's stock, accounting for 1.72 of the company's total share capital, through the holding of the share of the company.

on July 3, 2023, chuangxiangzhiyuan completed the purchase of 1.748 million shares through the block trading platform of the national stock transfer system, with a transaction price of only 3.09 yuan per share and a total price of 5.401 million yuan. Since then, the implementation of the employee shareholding plan has been completed.

According to the relevant regulations, for the portion of the purchase price below the fair value, the enterprise shall pay for the shares and include them in the current profit and loss in instalments according to the lock-up period. The price of Chuangxiangzhiyuan's purchase of Dongfang Zhihui shares is lower than the price of 5.99 yuan/share of Gazelle Kechuang's capital increase two months ago. Therefore, Dongfang Zhizao confirmed the share payment amount of 5.0692 million yuan.

according to the penetrating prospectus of rui finance and economics "pre-trial IPO", the participants in the employee stock ownership plan also include Tian xiuhua, chairman and general manager of dongfang zhihui, and Xu Xiaogang, secretary of the board of directors. the two have subscribed for 1000 shares and 200000 shares respectively, with the subscription shares corresponding to 0.0010 and 0.1965 respectively. If Dongfang Zhihui goes public smoothly, the shares subscribed by the two will be worth 7320 yuan and 1.4384 million yuan respectively.

according to Rui Finance's "pre-trial IPO", it was found that in July 2023, Tian Xiuhua, chairman and general manager of Dongfang Zhihui, reduced his 1.748 million shares of Dongfang Zhihui through the transfer of bulk transactions.

However, in the announcement of the completion of the stock purchase of the employee stock ownership plan and the change of Tian Xiuhua's reduction of equity, Dongfang Zhizao did not disclose who the bulk trading objects of both parties were.

until this time, Tian Xiuhua and his brother Tian Xiuchen jointly controlled 50.23 percent of the shares of Dongfang Zhihui and were the actual controllers of the company.

among the top 10 shareholders of dongfang zhihui, except Tian xiuchen and Tian xiuhua, the remaining 8 are ge yinglong, stech, cornerstone investment, xingxing investment, Leng shengxiang, Zhao wenwang, shengda technology and Hao Xiaomei, with shareholding ratios of 4.27, 4.23, 4.23, 4.23, 3.89, 2.82, 2.59 and 1.97 respectively.

The authenticity of sales expenses is questioned 3. to the financing of notes with no real transaction background

The prospectus shows that from 2020 to 2022 and January to June 2023 (hereinafter referred to as the "reporting period"), Dongfang Zhihui's revenue was 0.284 billion yuan, 0.285 billion yuan, 0.365 billion yuan and 0.115 billion yuan respectively; The net profit to the mother was 17.3769 million yuan, 31.9038 million yuan, 32.2594 million yuan and -5.6703 million yuan respectively.

1. Nearly half of revenue was concentrated in the fourth quarter, and the exchange questioned revenue compliance

It can be seen that in the first half of 2023, Dongfang Zhihui suffered a loss. Strangely, it also incurred a loss of $10.9577 million in the first half of 2022, but achieved a net profit of $32.2594 million for the entire year of 2022.

Rui Finance's "Pre-Trial IPO" penetration prospectus found that Dongfang Zhihui's customers concentrated acceptance mainly in the second half of the year, especially in the fourth quarter. In 2020-2022, the amount of revenue recognized by Dongfang Zhihui in the fourth quarter accounted for about half of its main revenue.

In this regard, the North Stock Exchange also raised relevant questions, asking Dongfang ZhiThe remittance describes its customer acquisition methods and compliance, the status of major customers, and the compliance of revenue recognition.

From January to September 2023, Dongfang Zhihui achieved revenue of 0.16 billion yuan, basically the same as the same period last year; net profit was -15.8349 million yuan, a decrease of 4.03 from the same period last year.

Regarding the company's losses in the first three quarters of 2023, Dongfang Zhihui explained that the company's revenue was affected by seasonal fluctuations. The company's product and service revenue was mainly concentrated in the fourth quarter, and operating inputs such as period expenses occurred evenly throughout the year. This led to the company's losses in the first three quarters.

2. higher selling expenses and higher selling rates than peer averages

The period expenses of Dongfang Zhihui were $81.475 million, $0.104 billion, $0.107 billion and $56.0557 million for each of the reporting periods, accounting for 28.64 per cent, 36.65 per cent, 29.27 per cent and 48.94 per cent of operating income, respectively.

Among them, the sales expenses of Dongfang Zhihui were 31.888 million yuan, 39.8814 million yuan, 40.5982 million yuan and 22.602 million yuan respectively, accounting for 11.21 percent, 13.99 percent, 11.12 percent and 19.73 percent of the operating income respectively.

The average cost of sales ratio of comparable companies in the reporting period was 8.22, 8.58, 10.19 and 7.63, respectively. During the same period, the sales expense rate of Dongfang Zhihui was as high as 11.21 per cent, 13.99 per cent, 11.12 per cent and 19.73 per cent, respectively.

In terms of the composition of selling expenses, labor costs were $15.3895 million, $19.4161 million, $20.454 million and $12.8299 million for each period, accounting for 48.26 per cent, 48.68 per cent, 50.38 per cent and 56.76 per cent of selling expenses, respectively.

There is also a higher proportion of the item for product quality costs, reporting period of 5.8212 million yuan, 5.6984 million yuan, 7.3028 million yuan and 2.2902 million yuan, respectively, accounting for 18.26 per cent, 14.29 per cent, 17.99 per cent and 10.13 per cent of the cost of sales.

regarding the higher sales expenses and the "product quality expenses" during the period of dongfang zhihui, the north stock exchange questioned the authenticity and verification of its sales expenses, and asked it to explain the rationality of the salary of the sales staff, whether there is a large amount of return and exchange, whether there is a relationship and interest arrangement between the object of payment of sales expenses and the issuer, whether the relevant price is fair, and whether there is commercial bribery. Until now, Dongfang Zhihui has not responded.

3. Financing with notes with no real trading background, questioned by the exchange

In the inquiry letter, the North Exchange also questioned the effectiveness of Dongfang Zhihui's financial internal control.

It is reported that in 2020, the Oriental Wisdom Exchange to the bank acceptance draft, commercial acceptance draft endorsement of the way to the Century Oriental split funds accumulated 2.8244 million yuan, and the bill endorsement to obtain behavior has no real trading background. After obtaining the note, Dongfang Zhihui has endorsed it in full to the company's suppliers for payment of the purchase price.

The Exchange requires Dongfang Zhihui to explain whether the above-mentioned bill financing without real transaction background constitutes capital occupation, the rectification situation and the effectiveness of the rectification, and whether the relevant accounting is accurate; and whether there are other bill financing situations without real transaction background, or other financial internal control irregularities.

Attached: List of Intermediaries for Listing and Issuing of Dongfang Zhihui

Sponsor and Underwriter: East Asia Qianhai Securities Co., Ltd.

Law Firm: Beijing Jindu Law Firm

Accounting firm: Dahua Certified Public Accountants (Special General Partnership)