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"Jin Zhengyan" Southern Capital Center Luo Jiu/Author Nanjiang Yingwei/Risk Control

In March 2024, Zongmu Technology (Shanghai) Co., Ltd. (hereinafter referred to as “Zongmu Technology”) filed aStock ExchangesubmitProspectusThis is not the first time that Zongmu Technology has tried to enter the capital market.Science and Technology Innovation Board, and was later terminated due to the withdrawal of materials. After multiple rounds of financing, Zongmu Technology has not yet achieved profitability, with a cumulative loss of more than 1.5 billion yuan in the three years from 2021 to 2023.

The other side that has not yet made a profit, compared twiceListingThe personnel changes of Zongmu Technology are worthy of attention. Among them, during the application for the Science and Technology Innovation Board, two of the original four core technical personnel of Zongmu Technology may have resigned for this impact on the Hong Kong Stock Exchange. In addition, Qian Haibin, the executive identified when applying for the Science and Technology Innovation Board, may have resigned, and his appointment or resignation was not disclosed in this application for Hong Kong stocks. In addition, according to relevant regulations, foreign-funded enterprises cannot engage in surveying and mapping activities, and the actual controller of Zongmu Technology is an American citizen, and the subsidiary of Zongmu Technology that was cancelled in 2021 has surveying and mapping qualifications and was included in the scope of consolidation in 2019-2020. What is strange is that during the consolidation period, the shareholders of the subsidiary's industrial and commercial registration did not include Zongmu Technology.

1. The former senior executives’ resignation was not disclosed, and the senior executives of the two IPO plans determined that there was a “double standard”

In recent years, the autonomous driving industry has entered a period of great explosion, and the competition for talent is extremely fierce. It is worth noting that two of Zongmu Technology's four core technical personnel may have left, and at least five of its employees who were awarded incentives in 2021-2022 may have left.

1.1 Zongmu Technology has not yet made a profit and once planned to be listed on the Science and Technology Innovation Board. Two of the four core technical personnel may have left

In November 2022, Zongmu Technology's application for listing on the Science and Technology Innovation Board was accepted, but the application was withdrawn in September of the following year. In March 2024, Zongmu Technology submitted a listing prospectus to the Hong Kong Stock Exchange.

According to the prospectus submitted by Zongmu Technology to the Hong Kong Stock Exchange with the last practicable date of March 20, 2024 (hereinafter referred to as the "Stock Exchange Prospectus on March 20, 2024"), Zongmu Technology is a domestic advanced driver assistance system (ADAS) solution provider, and its R&D capabilities will be the main driving force for its long-term competitiveness and business prospects. From 2021 to 2023, Zongmu Technology's R&D expenses will be 272 million yuan, 335 million yuan, and 369 million yuan, respectively, accounting for 120.9%, 71.3%, and 73.9% of its revenue in the same period.

In 2021-2023, Zongmu Technology's annual losses were 434 million yuan, 588 million yuan and 564 million yuan respectively.

That is, Zongmu Technology had planned to be listed on the Science and Technology Innovation Board, but as of 2023, it had not yet made a profit.

According to the Science and Technology Innovation Board prospectus signed by Zongmu Technology on September 27, 2022 (hereinafter referred to as the "Science and Technology Innovation Board Prospectus signed on September 27, 2022"), as of the signing date, there are 4 core technical personnel in Zongmu Technology, namely Tang Rui, Wang Fan, Wu Zizhang, and Zhang Xiaodong. Among them, Tang Rui is the actual controller of Zongmu Technology and serves as the chairman and general manager of Zongmu Technology.

It should be pointed out that Zhang Xiaodong, Wang Fan and Wu Zizhang joined the company in 2013, 2016 and 2016 respectively. According to the core technical personnel's contribution disclosed in the Science and Technology Innovation Board prospectus signed on September 27, 2022, the number of authorized and under-examination invention patents contributed by Wang Fan, Wu Zizhang and Zhang Xiaodong totaled 63, 45 and 19 respectively.

According to the prospectus of the Hong Kong Stock Exchange on March 20, 2024, Wang Fan resigned from the position of supervisor in June 2023. In addition, public information shows that in the second half of 2023, Wang Fan resigned from Zongmu Technology.

According to the prospectus for the Science and Technology Innovation Board signed on September 27, 2022, as of the signing date, Wu Zizhang appeared as a partner in two employee shareholding platforms of Zongmu Technology. Data from the Market Supervision Administration showed that Wu Zizhang had withdrawn from the above-mentioned shareholding platforms on May 7 and 9, 2024.

It is not difficult to see that in 2023, Zongmu Technology's application for listing on the Science and Technology Innovation Board was terminated due to its withdrawal of materials. In March 2024, Zongmu Technology applied for listing on the Hong Kong Stock Exchange. At that time, two of the four core technical personnel who applied for listing on the Science and Technology Innovation Board may have left.

1.2 Of the 14 people who were granted incentives in 2021-2022, at least 5 have left the company

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, a total of 14 employees were ultimately granted stock option incentive plans for Zongmu Technology in 2021 and 2022, namely YUESHENG LU, Kang Baoguo, Jiang Weiping, Zhu Guangwei, Fang Xianchao, Zhu Jielin, You Zhenhui, HASHIMOTO MAMORU, Liu Zhongyao, Xiong Zhoubing, Li Shuang, Lan Haiyu, Tu Zhongfei, and Tao Jing.

According to the prospectus of the Hong Kong Stock Exchange on March 20, 2024, as of the last practicable date of March 20, 2024, Zhu Guangwei, Tu Zhongfei, Zhu Jielin, Xiong Zhoubing and Li Shuang have resigned.

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, as of the signing date, Fang Xianchao appeared as a partner in multiple direct or indirect employee shareholding platforms of Zongmu Technology. According to data from the Market Supervision Administration, Fang Xianchao withdrew from the aforementioned multiple shareholding platforms in April-May 2024.

According to the "Response to the Review Inquiry Letter on the Application Documents for the Initial Public Offering of Zongmu Technology and Listing on the Science and Technology Innovation Board" issued on March 28, 2023 (hereinafter referred to as the "Science and Technology Innovation Board First Round Inquiry Response"), Zhu Guangwei joined Zongmu Technology on January 1, 2022 as Vice President of Sales. Fang Xianchao joined Zongmu Technology on February 1, 2022 as Supply Chain Director. Tu Zhongfei joined Zongmu Technology on March 10, 2022 as Financial Manager.

It is not difficult to see that among the 14 people who were granted incentives in 2021-2022, at least 5 have resigned. In addition, another supply chain director, Fang Xianchao, also withdrew from multiple employee stock ownership platforms of Zongmu Technology.

1.3 Qian Haibin, the executive identified during the application for the Science and Technology Innovation Board, may have resigned. The impact on the HKEX’s failure to disclose his resignation

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, as of the signing date, the senior management of Zongmu Technology were Tang Rui, Wan Zhiqiang, Lin Kun, and Qian Haibin. Qian Haibin served as deputy general manager. When it came time to apply for listing on the Hong Kong Stock Exchange, the senior management of Zongmu Technology changed to Tang Rui, Zhang Shuang, Wan Zhiqiang, and Lin Kun, and no longer included Qian Haibin.

According to the Hong Kong Stock Exchange prospectus on March 20, 2024, Qian Haibin was the former sole director of the subsidiary Zongmu Dongyang. Zongmu Technology did not mention whether Qian Haibin had resigned.

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, as of the signing date, Qian Haibin was a partner in multiple employee shareholding platforms of Zongmu Technology. Data from the Market Supervision Administration showed that as of November 16, 2023, Qian Haibin had withdrawn from three of the shareholding platforms.

The Science and Technology Innovation Board prospectus signed on September 27, 2022 disclosed that before joining Zongmu Technology in March 2019, Qian Haibin served as R&D director of Chengyuan Electronics (Suzhou) Co., Ltd. (hereinafter referred to as "Suzhou Chengyuan").

Data from the Market Supervision Administration show that on October 20, 2023, the person in charge of Suzhou Chengyuan was changed to "Qian Haibin". As of the query date of August 1, 2024, Qian Haibin is the executive director and general manager of Suzhou Chengyuan.

That is to say, during the application for the Science and Technology Innovation Board, Qian Haibin was identified as a senior manager of Zongmu Technology and served as deputy general manager. In November 2023, Qian Haibin had withdrawn from the three holding platforms of Zongmu Technology and served as general manager of Suzhou Chengyuan as of the query date of August 1, 2024. However, it was not disclosed whether Qian Haibin had resigned in this impact on Hong Kong stocks.

1.4 According to the Hong Kong Stock Listing Rules, the management team should remain unchanged for nearly three years before listing.

This time, Zongmu Technology intends to list on the Main Board of the Hong Kong Stock Exchange, and the listing criteria selected are the market capitalization/revenue test under Rule 8.05(3) of the Listing Rules.

According to the requirements of (a) and (b) of Listing Rules 8.05(3), a new applicant must have a trading record of not less than 3 financial years, and the management must remain unchanged for at least the previous 3 financial years. If the directors and management of the new applicant have sufficient (at least 3 years) and satisfactory experience in the business and industry of the new applicant, and the management has remained unchanged for the most recent audited financial year, the Exchange will accept a shorter trading record period for the issuer on the condition that the management of the issuer is substantially similar.

Moreover, the Hong Kong Stock Exchange prospectus on March 20, 2024 shows that in the driverless industry, competition for highly skilled employees is becoming increasingly fierce. Any changes in the management team will disrupt Zongmu Technology's business operations, which may lead to interruptions in business operations and inefficient execution of development plans. Zongmu Technology's future success depends largely on its ability to attract, motivate and retain key talents.

Based on the above, according to the Hong Kong stock listing rules, the management of new applicants should remain unchanged for the past three years. Qian Haibin, the former senior executive, may have resigned from Zongmu Technology, but Zongmu Technology did not disclose this in its prospectus for its Hong Kong stock listing. In addition, of the four core technical personnel identified by Zongmu Technology during its application for the Science and Technology Innovation Board, two of them may have resigned as of this Hong Kong stock listing, and at least five of the personnel granted incentives in 2021-2022 have resigned.

In contrast, Zongmu Technology stated that Qian Haibin was identified as a senior manager when the company applied for listing on the Science and Technology Innovation Board, but was not identified as a senior manager when applying for listing on the Hong Kong stock market. The resignation of relevant personnel was mainly due to personal reasons and did not have an adverse impact on the company's daily research and development, production and operations.

Obviously, during the two attempts to go public, Zongmu Technology's identification of senior management personnel changed. Whether the changes in senior management will have an impact on Zongmu Technology's daily R&D, production and operations remains to be verified over time.

2. The actual controller is a Chinese American with surveying and mapping qualifications. The subsidiary was deregistered after the “consolidation”

According to relevant regulations, the country implements a surveying and mapping qualification management system for units engaged in surveying and mapping activities.

It is worth noting that the actual controller of Zongmu Technology is an American citizen, and its subsidiary that was "consolidated" in 2019-2020 may have surveying and mapping qualifications. In addition, there are "contradictions" in the business registration information of the shareholders of the former subsidiary.

2.1 The actual controller of Zongmu Technology is an American citizen. According to regulations, foreign-invested enterprises are not allowed to engage in surveying and mapping activities.

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, Zongmu Technology is mainly engaged in the research and development, production and sales of automotive intelligent driving systems.

In January 2013, Zongmu Technology was established with capital provided by Tang Rui's mother Li Xiaoling. In September 2016, Zongmu Technology was restructured into a joint-stock enterprise, with the overseas enterprise Hong Kong Zongmu Technology Co., Ltd. (hereinafter referred to as "Hong Kong Zongmu") holding 53.6% of the shares. The restructuring was approved for foreign investment in August of the same year.

As of the date of signing of the prospectus on September 27, 2022, Hong Kong Zongmu is the controlling shareholder of Zongmu Technology, and Tang Rui is the actual controller of Zongmu Technology, and Tang Rui and his spouse are American citizens.

That is, at least since September 2016, Zongmu Technology has been a foreign-invested enterprise.

According to the response to the first round of inquiries from the Science and Technology Innovation Board, according to relevant regulations, the country implements a surveying and mapping qualification management system for units engaged in surveying and mapping activities. Among them, ground mobile measurement and navigation electronic map compilation are prohibited areas for foreign investment. Domestic enterprises that have obtained surveying and mapping qualifications in these professional categories should strictly implement relevant national regulations.

Some of the high-level intelligent driving functions developed by Zongmu Technology require high-precision maps as a basis. Given that Zongmu Technology does not have surveying and mapping qualifications, under the premise of complying with regulations, Zongmu Technology has commissioned units with surveying and mapping qualifications to carry out surveying and mapping activities. The demand for electronic maps during the research and development process was obtained through cooperation with map suppliers with surveying and mapping qualifications.

2.2 Subsidiary Xiamen Yunchen has surveying and mapping qualifications and was once "consolidated" but was cancelled in 2021

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, Xiamen Yunchen Technology Co., Ltd. (hereinafter referred to as "Xiamen Yunchen") was established on June 28, 2018. It is a wholly-owned subsidiary of Zongmu Technology established in Xiamen. Its business scope includes surveying and mapping services, software development, etc. Later, due to adjustments in its business strategy, Xiamen Yunchen was deregistered on March 19, 2021.

From 2019 to 2020, Xiamen Yunchen was a subsidiary within the scope of the consolidated financial statements of Zongmu Technology, and will no longer be consolidated from 2021.

According to the notice issued by the Fujian Provincial Department of Natural Resources on April 7, 2020, in order to standardize the behavior of surveying and mapping units, the Fujian Provincial Department of Natural Resources randomly selected 156 units for the provincial-level surveying and mapping results quality supervision inspection, surveying and mapping qualification inspection, and surveying and mapping results confidentiality inspection in 2020. Among them, Xiamen Yunchen is one of the inspected units, with a qualification level of Class B, and the planned supervision and inspection items are surveying and mapping quality, surveying and mapping qualifications, and confidentiality management.

According to the notice on engineer qualifications issued by the Xiamen Municipal Human Resources and Social Security Bureau on October 10, 2020, the list of Xiamen Engineers (Comprehensive Category) who passed the 2019 review includes Huang Zhiqiang and Wang Jianping from Xiamen Yunchen.

In short, Xiamen Yunchen, which was established in 2018, may have had surveying and mapping qualifications, and was included in the merger scope of Zongmu Technology from 2019 to 2020. However, Xiamen Yunchen may have had surveying and mapping qualifications, but it was cancelled in 2021.

2.3 According to industrial and commercial information, Xiamen Yunchen was held by Zongmu Technology employees and others, and before liquidation, it was held by Zongmu Technology.

According to the change information disclosed by the Market Supervision Administration, Xiamen Yunchen was established with sole capital from Li Xuyang, and was later changed to be jointly held by Li Xuyang, Xu Kang, Qiu Zongde and Liu Xin on July 13, 2018. Later on June 5, 2019, Xu Kang and Qiu Zongde withdrew their shareholdings.

On December 31, 2020, Li Xuyang and Liu Xin transferred all of their shares in Xiamen Yunchen toEquityAfter the equity transfer, Zongmu Technology holds 100% equity of Xiamen Yunchen.

The cancellation registration shows that Xiamen Yunchen established a liquidation group on January 5, 2021, registered the liquidation group on January 6, 2021, and officially completed the cancellation on March 19, 2021.

It should be pointed out that Xiamen Yunchen’s original shareholder Li Xuyang and former shareholder Liu Xin may be employees of Zongmu Technology.

According to the Science and Technology Innovation Board prospectus signed on September 27, 2022, the employee representative supervisor of Zongmu Technology is named "Liu Xin". In 2016, Liu Xin joined Zongmu Technology and served as the employee representative supervisor of Zongmu Technology and general manager of the aftermarket product division as of the signing date.

According to information released by Tongji University on December 10, 2020, the 37th "Tongchexing" lecture was held at Tongji University on the afternoon of December 8, 2020. Li Xuyang, vice president of ZongMu Technology and general manager of the intelligent sensor business unit, was invited to give a speech.

From the above, we can see that from 2019 to 2020, Zongmu Technology included Xiamen Yunchen in the scope of merger, but the industrial and commercial information shows that it was not until December 31, 2020 that Zongmu Technology became a shareholder of Xiamen Yunchen and achieved 100% control. Before December 31, 2020, Xiamen Yunchen may have been held by natural persons such as Zongmu Technology employees. In contrast, regarding the equity information of Xiamen Yunchen, the Science and Technology Innovation Board prospectus may "confront" with the data of the Market Supervision Administration.

Zongmu Technology stated that Zongmu Technology originally planned to use Xiamen Yunchen as the main body to carry out millimeter-wave radar research and development work. Later, due to the company's business strategy adjustment, it stopped engaging in surveying and mapping related work, and Xiamen Yunchen was deregistered on March 19, 2021. The "Interim Provisions on the Management of Automotive Radar Radios" involving the production and sales of radar products officially came into effect in March 2022. The company applied for and obtained the "Radio Transmitter Equipment Model Approval Certificate" issued by the Ministry of Industry and Information Technology as soon as the regulations came into effect. The company does not have the situation of unqualified production and operation.

In general, according to regulations, foreign-invested enterprises are not allowed to engage in surveying and mapping activities, while the subsidiary Xiamen Yunchen, which was consolidated in 2019-2020 by Zongmu Technology, which is controlled by Chinese Americans, may have surveying and mapping qualifications. Moreover, the shareholders registered with the industrial and commercial registration of Xiamen Yunchen only became Zongmu Technology a few months before the cancellation of the company. That is, Xiamen Yunchen, which was "consolidated" by Zongmu Technology in 2019-2020, had "other people" as shareholders disclosed in the industrial and commercial registration at that time, and some shareholders may have been employees of Zongmu Technology at that time.