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In 2016, Qingshuiyuan acquired 100% of the equity of Henan Tongsheng Environmental Engineering Co., Ltd. (hereinafter referred to as "Tongsheng Environment") held by Zhong Sheng and Song Yingbiao for RMB 495 million through a major asset reorganization, and completed the shareholder change in the same year.

After that, Tongsheng Environment experienced internal discord, and at one point executives of the parent and subsidiary companies dismissed each other from their board seats.

In 2019, Qingshuiyuan said that during the routine audit of Tongsheng Environment, it was discovered that the former management had used their position to illegally infringe on the company's interests, so it reported the case to the public security organs.

For many years thereafter, Qingshuiyuan suffered losses, and the 2023 annual report was issued with a qualified opinion by the auditing agency due to related criminal proceedings.

Finally, on the evening of July 23, 2024, the company disclosed the final judgment of the case, and the impact of the internal struggle that had lasted for several years may have come to an end.

The announcement showed that the Jiyuan Branch of the Henan Provincial People's Procuratorate charged the defendants Song Yingbiao and Zhong Sheng with contract fraud, embezzlement, and breach of trust damaging the interests of listed companies, and filed a public prosecution with the Jiyuan Intermediate People's Court.

After accepting the case, the Jiyuan Intermediate People's Court formed a collegial panel in accordance with the law, held an open hearing to hear the case, and made a first-instance judgment on July 13, 2023.

Because Song Yingbiao and Zhong Sheng appealed to the Henan Higher People's Court against the first-instance judgment, the Henan Higher People's Court opened a trial on April 1, 2024. Qingshuiyuan recently received the "Criminal Judgment" issued by the Henan Higher People's Court.

The Criminal Judgment clearly stated that the appellant Song Yingbiao was guilty of embezzlement in office and sentenced to eight years in prison; he was guilty of breach of trust and damaging the interests of a listed company and sentenced to six months in prison and a fine of 500,000 yuan. The decision was to execute a sentence of eight years and three months in prison and a fine of 500,000 yuan.

The sentence will be calculated from the date of execution of the judgment. If the person is detained before the execution of the judgment, one day of detention will be deducted from the sentence, that is, from December 9, 2020 to March 8, 2029. The fine shall be paid within 30 days after the judgment takes effect.

Appellant Zhong Sheng was convicted of embezzlement and sentenced to seven years in prison.

The sentence will be calculated from the date of execution of the judgment. If the person is detained before the execution of the judgment, one day of detention will be deducted from the sentence, that is, from January 19, 2021 to January 18, 2028.

Qingshuiyuan is one of the leading companies in China that focuses on the production, research and development, and services of water treatment agents.In the production of water treatment chemicals, there are about 10 to 20 domestic companies engaged in the production of water treatment chemicals with a production capacity of more than 10,000 tons. Among them, Taihe Technology and Qingshuiyuan are listed companies with leading scale advantages.

Tongsheng Environment is an important wholly-owned subsidiary of the listed company, with relevant qualifications, personnel and technical reserves for the design and construction of 8 sewage treatment plants and municipal engineering projects.

At the beginning of the merger and acquisition, Tongsheng Environment's performance growth once drove Qingshuiyuan's performance upward.

Past financial reports show that from 2016 to 2018, Qingshuiyuan achieved operating income of 479 million yuan, 841 million yuan and 1.71 billion yuan, respectively, a year-on-year increase of 20.28%, 75.69% and 103.55%; net profit was 45.24 million yuan, 113 million yuan and 247 million yuan, a year-on-year increase of 15.63%, 150.37% and 118.1% respectively.

However, in 2019, as Zhong Sheng and Song Yingbiao took Tongsheng Environment to court, the conflicts between the parties became apparent.

At that time, Qingshuiyuan announced that after the new management of Tongsheng Environment took office, when handling the work handover, it was discovered that all official seals, business licenses, financial seals and bank U-shiels of Tongsheng Environment and its subsidiaries were lost, and some production and operation materials and financial vouchers were missing.

On July 18, 2019, Tongsheng Environment issued a "Notice on Requesting the Return of All Company Seals, including the Official Seal, Financial Seal, Business License, etc." to Zhong Sheng and Song Yingbiao, and contacted Zhong Sheng and Song Yingbiao many times through telephone, text messages, WeChat, express delivery, email, etc., to go to the company to handle the work handover procedures, sign the document transfer list, cooperate with the company and the new management of Tongsheng Environment to do a good job in the management of Tongsheng Environment, and ensure that the new management of Tongsheng Environment performs their duties normally.

As internal problems evolved, Shimizu began to suffer losses in 2020.

In 2023, the company achieved operating income of 1.131 billion yuan, a decrease of 37.31% from the same period last year; and achieved a net profit of -0.56 billion yuan.The 2023 annual auditor also issued a qualified opinion on Qingshuiyuan’s financial statements. The matters with qualified opinions mainly involved the criminal proceedings triggered by the company’s acquisition of Tongsheng Environment.

Regarding the "Criminal Judgment" received this time, Qingshuiyuan also said that this judgment is the final judgment. The company will correct the errors in the financial report based on the facts found in the case and the opinions of the auditing agency. At the same time, the company will also pursue the corresponding civil liability of the other party according to the judgment results. The company reserves the right to request a retrial of the judgment result. There is a certain degree of uncertainty about the impact of related matters on the company's current and post-period profits.

Editor: Chen Lixiang

Proofread by: Tang Haocheng