The second mining machine stock Ebang International officially went public, and the tough battle behind ringing the bell on Nasdaq

Text | Edited by Nancy | Produced by Bi Tongtong | PANews

On the evening of June 26, during the Dragon Boat Festival holiday, the Hangzhou Hall of the InterContinental Hotel Hangzhou was crowded with people. Ebang International was holding its listing ceremony here. After two failures in the Hong Kong Stock Exchange, Ebang finally realized its dream of entering the capital market and was listed on the Nasdaq in the United States, becoming the second mining stock after Canaan Inc.

At 21:30, the mining machine manufacturer Ebang International was officially listed with the stock code "EBON". The issue price was set at US$5.23 per share, but it opened at US$4.6, which was lower than the issue price, and the lowest price after opening was US$4.5.

Amid the uncertainty of crypto assets and the confidence crisis of Chinese concept stocks caused by Luckin Coffee, Ebang’s debut was really a head-scratcher. On the same day, another Chinese concept stock, interactive cloud service provider Agora, was also listed on Nasdaq, but it recorded a 125% increase as soon as it opened.

"In the future, it will be more important to further enhance the company's core competitiveness and profitability, accelerate the company's industrial scale-up into the international market, and obtain greater economic benefits," said Hu Dong, founder of Yibang International, in his speech at the listing ceremony.

Behind Ebang International, which has officially listed on the Nasdaq Global Select Market, shrinking revenue, lawsuits, backward technology, tight cash flow... these are all tough battles that it cannot avoid and needs to fight.

The bumpy road to listing: delisting from the New Third Board, failure in Hong Kong stocks, and switching to US stocks

In 2010, Ebang International was established, mainly engaged in the development and sales of communication network access equipment, which had nothing to do with blockchain. Until 2104, when blockchain emerged, Ebang International chose to transform after several years of development and began to develop, produce and sell blockchain processors BPU, which is the "mining machine" we are familiar with.

Riding on the boom of mining machines, Ebang International was listed on the New Third Board on August 19, 2015. In the following two years, Ebang International's revenue and net profit have been soaring. In 2015, Ebang International's revenue was 92.14 million yuan and its net profit was 24.236 million yuan; in 2016, its revenue was 120 million yuan and its net profit was 124 million yuan; in 2017, its revenue was 978 million yuan and its net profit was 378 million yuan. In just three years, Ebang International's net profit has increased by 15.5 times, and its market share has accounted for about 11%, which has also made it the world's third largest Bitcoin mining machine manufacturer.

As the liquidity of the New Third Board could no longer meet the needs of Yibang International, in March 2018, Yibang International was delisted from the New Third Board and switched to Hong Kong stocks. On May 17, it was registered in the Cayman Islands and completed its business restructuring.

However, what Ebang International did not expect was that "not meeting the core principle of the Hong Kong Stock Exchange - suitability for listing" became a stumbling block, making its road to listing in Hong Kong bumpy. On June 24, 2018, Ebang International submitted its first listing application to the Hong Kong Stock Exchange, but the application expired in December of the same year; on December 20, 2018, Ebang International submitted its listing application to the Hong Kong Stock Exchange again, but on June 21, 2019, information disclosed by the Hong Kong Stock Exchange showed that its prospectus had expired again.

To make matters worse, Ebang International, which failed to obtain its listing application twice, has also seen its performance deteriorate year by year. In 2018, Ebang International's revenue was US$319 million and its net loss was US$11.8 million; in 2019, Ebang International's revenue was US$109 million and its net loss was US$41.1 million; in the first quarter of 2020, Ebang International's net loss had reached US$2.5 million.

Despite the setbacks, Yibang International, which is in trouble, still did not give up its dream of going public and chose to seek "survival" overseas. On February 14 this year, Yibang International submitted a listing application to the U.S. Securities and Exchange Commission (SEC) in a confidential manner, planning to list on the New York Stock Exchange or Nasdaq Global Market, and planned to raise up to US$100 million.

Now, Ebang International has successfully listed on the Nasdaq, issuing 19.3236 million shares at a price of US$5.23. At the same time, the planned fundraising amount has been increased from US$86.95 million to US$125 million.

This time, Yibang International rang the Nasdaq bell as it wished.

Negative storms continue: 4.3 billion P2P thunderstorm and mysterious disappearance of 35,000 mining machines

Debt collection and rights protection, litigation disputes, Yibang International's road to listing is still bumpy and full of unknowns.

On July 18, 2018, Yindou.com officially announced that the company's actual controller, Li Yonggang, had fled. At that time, Yindou.com had a total outstanding amount of 4.33 billion yuan and 23,464 lenders to be collected. In October of the same year, Yibang International was visited by victims of the Yindou.com case to collect debts. According to the victims, from December 2017 to February 2018, Cui Hongwei, the wife of Li Yonggang, the actual controller of Yindou.com, transferred a total of RMB 524.9 million to Yibang International, and from March to April 2018, Yibang International transferred a total of RMB 380 million to Cui Hongwei, and the whereabouts of the remaining RMB 144.9 million were unknown. They believe that Yibang International inflated sales revenue or collected deposits to fabricate sales contracts in order to whitewash financial statements and achieve the purpose of a smooth listing.

At the same time, in the equity change records of Hangzhou Yibang Hongfa Technology Co., Ltd., the parent company of Yibang International, some rights defenders found that the name of Yindou.com Finance was prominently listed. This makes people doubt whether Yibang International and Yindou.com are really just a cooperative relationship?

In this regard, the relevant person in charge of Ebang International said that the matter was not true, and the remaining more than 100 million yuan had been used to purchase equipment, which was a normal contract payment. However, as for the reason for the refund of 380 million yuan, the person in charge said it was inconvenient to disclose. According to Wang Hongyong, vice president of Ebang International, 389 million yuan was the deposit for Yindou.com to purchase cloud computing servers, and Yindou.com Finance was indeed a shareholder of Ebang Company.

In addition, Yibang International is also deeply involved in a case of suspected contract fraud. In December 2019, the listed company Zhongying Internet issued an announcement stating that Zhejiang Yibang and its wholly-owned subsidiary Yunnan Yibang were suspected of contract fraud in a sales contract dispute with Xincailiang. Subsequently, Yibang International issued an emergency statement on the public account "Yibit Customer Service Number" stating that Zhongying Internet, as a listed company, had serious misrepresentations in information disclosure and was suspected of violating laws and regulations, and that the reporting materials had been accepted by the above-mentioned departments in accordance with the law.

From cooperation to mutual lawsuits, the Rashomon caused by this 500 million yuan business was exposed to the public. The matter dates back to March 2018, when Xincailiang purchased 100,000 cloud computing servers from Zhejiang Yibang and Yunnan Yibang for a total of 504 million yuan. However, Xincailiang claimed that it only received 65,000 units, and the remaining 35,000 units were not delivered, while Yibang claimed that all 100,000 mining machines had been delivered. The mysterious disappearance of 35,000 mining machines has put the two sides in a stalemate.

According to the disclosure in the "Legal Procedure" section of Ebang International's prospectus, these cases are still under further trial. But for Ebang International, these lawsuits are like time bombs, making its stock price face great uncertainty.

Relying on major customers and facing tight cash flow, can borrowing from related parties solve the urgent problem?

Yibang International's business mainly relies on large customers. According to the prospectus, Yibang International's sales are mainly to enterprises and individuals. As of December 31, 2018 and December 31, 2019, 33% and 15% of Yibang International's total accounts receivable came from the same customer, respectively, while approximately 71% and 42% of the accounts receivable came from three customers, respectively.

At the same time, in 2018 and 2019, the top three customers of Yibang International contributed 34% of revenue, while the top ten customers contributed about 57% and 58% of revenue. On the revenue side, revenue from Chinese market customers accounted for 91.4% of total revenue in 2018, and reached 87.5% in 2019.

For Ebang International, is heavy reliance on major customers and the Chinese market a "double-edged sword"? Xie Dan, former technical director of Bitmain and general manager of Chengdu Xinmai Microelectronics, told PANews, "Mining machines need to be sold to mining farms, and mining farms are distributed like this. There is no problem with this. The risk is not big."

Affected by its operating performance, Yibang International has long been heavily in debt. In 2018, the total debt was US$81.627 million; in 2019, the total debt was US$57.04 million. At the same time, Yibang International's accounts receivable and inventory shrank year-on-year. In 2019, Yibang International's accounts receivable fell by 62% and inventory fell by 80%. In addition, the prospectus also shows that as of the end of 2019, Yibang International had other payables of 13.739 million and accounts payable of US$11.832 million.

It can be seen that Yibang International's cash flow is not sufficient. As its losses further expand, Yibang International's increase in the maximum fundraising amount also reflects, to a certain extent, Yibang International's urgent desire for short-term funds.

In its listing press release, Ebang International stated that at present, Ebang has completed the design of 8nm and 7nm ASIC chips, and has begun to focus on the development of 5nm ASIC chips and other non-Bitcoin cryptocurrency mining machines.

"Now that we have entered the 7/5nm stage, the design + production requirements are so high, and the industry threshold is so high. In addition, Yibang did not make enough money in the last cycle, so it does require more funds," Xie Dan pointed out.

In fact, the prospectus revealed that at present, Ebang International has only 5.778 million in cash, cash equivalents and restricted cash. Due to future business development needs, additional cash resources may be required. If cash resources are insufficient, it may seek to issue additional equity or debt securities or expand credit lines.

In fact, in the past, Yibang International mainly relied on shareholder contributions and bank loans to meet its funding needs. For example, as of December 31, 2019, Yibang International borrowed $1.05 million from Hu Dong's brother-in-law Qian Shubo and $2.081 million from his sister Hu Jun. At present, the total outstanding loans of Yibang International are $31.1 million. Judging from the $749,900 borrowed from founder Hu Dong when Yibang International repaid the loan to Haitong International Credit on January 10 this year, Yibang International's cash flow has been very tight.

When talking about Hu Dong, we have to mention him and the Hu family behind him. Compared with Bitmain's Wu Jihan and Canaan Creative's Zhang Nangeng, Hu Dong is relatively low-key. He is rarely seen in public in the circle and is considered a "hermit" among the mining machine bosses.

The Hu family, with Hu Dong as the core, has always been the largest shareholder of Yibang International. According to the latest prospectus, Hu Dong holds 46,738,276 common shares, accounting for 41.82% of the total share capital. The affiliated companies of Hu Dong's brother-in-law Qian Shubo and sister Hu Jun hold 9,755,392 common shares, accounting for 8.73% of the total share capital. After the listing, Hu Dong will hold 35.7% of the shares and have 91.7% of the voting rights, while Qian Shubo and Hu Jun will hold 7.4% of the shares and have 1% of the voting rights.

His wife Jiang Aiqun and father Jiang Ruhui all directly or indirectly hold shares in Yibang. It can be said that the Hu family holds absolute say.

In addition, the prospectus shows that Yibang International is divided into 380,000,000 shares, of which 111,771,000 shares have been issued and are in the hands of external investors. The prospectus mentioned that at the beginning of the Cayman company registration, Yibang International issued common shares to 51 companies (as shown above), of which 9 companies have direct relations with Yibang International.

Source: Blue Whale Finance

It is worth mentioning that according to Blue Whale Finance, in 2018, Ebang International raised funds on the NEEQ equity crowdfunding platform Zhongtoubang, and many retail investors also hold its shares. After Ebang International goes public, it may face selling pressure and its stock price may fluctuate.

There are tigers in front and pursuers behind. It is not easy to be the second blockchain stock.

Ebang International is losing the high-end market and computing power pricing power.

The data in the prospectus shows (as shown above) that in 2018, Ebang International's Ebit sold 139,764 E9+ units at a unit price of US$721; 231,351 E9 series units at a unit price of US$178; and 44,815 E10 series units at a unit price of US$3,676.

In 2019, Ebang International Yibit sold 2,000 E9+ units at a unit price of US$102; 151,233 E9 series units at a unit price of US$74; 87,293 E10 series units at a unit price of US$341; and 49,427 E12 series units at a unit price of US$948.

From the data, both the sales volume and average unit price of each series of mining machines have dropped significantly. Among them, the E9 and E10 series account for nearly 80% of the shipments.

The Ebit E12 series is the most advanced machine sold by Ebang International, but its computing power of 44 Th/s and energy efficiency of 57W/t are only comparable to the energy efficiency of Bitmain's previous generation of major volume machines, the T17. It is understood that the Antminer T17 has a single computing power of 40 Th/s and an energy efficiency ratio of 55J/T.

In addition, Bitmain announced two new S19 series Antminers, of which the S19 Pro Antminer has a maximum computing power of 110TH/S and a power consumption of 30W/T. At the same time, Shenma Miner also released the Shenma M30 series of new products this year. Among them, M30S++ and M30S+ are benchmarked against Bitmain's Ant S19 Pro and S19 respectively, and M30S++ is even better than S19 Pro in computing power.

In fact, in the past year, Ebang International has been living off its old products and has not launched any new products. Many miners told PANews that few people are using Ebit mining machines, and most miners choose to use Antminer S17, Shenma mining machines, etc. for mining.

Under this circumstance, Ebang International's R&D expenses are also decreasing. In 2018, the R&D expenses were US$43.5 million, and in 2019, they were only US$13.4 million. It should be noted that Canaan Technology's R&D expenses in the same period were US$24.14 million.

Water can carry a boat, but it can also capsize it. Facing aggressive competitors, Ebang International's backward Bitcoin mining machine energy efficiency can only lead to its market share being continuously eroded. Especially after the flood season, old mining machines with low mining efficiency and low returns will be gradually eliminated.

Perhaps aware of this, Ebang International revealed in its prospectus that they are focusing on developing mining machines with 5nm ASIC chips with independent intellectual property rights for non-Bitcoin cryptocurrencies such as Litecoin and Monero. Although the market for Litecoin and Monero is not that large compared to Bitcoin mining machines, this may be a new path.

In addition, Ebang International also disclosed in its prospectus that it will establish a cryptocurrency exchange outside China to provide cryptocurrency trading-related services to the cryptocurrency community. Compared with mining machines, exchanges are a quick money-making business. However, at a time when the market competition pattern is almost set, Ebang International may not be able to gain an advantage by grabbing the meat.

In addition to facing the huge challenge of business growth, the trust crisis caused by Chinese concept stocks in the United States has also added some haze to Ebang International's listing. PANews once mentioned in the article "Policies are tightened! Chinese concept stocks in the United States are facing a big stranglehold, and the "going overseas" listing of crypto companies is becoming more difficult" that due to the fraud of Luckin Coffee, Nasdaq announced some new requirements for IPOs, such as the company's IPO fundraising amount must reach more than 25 million US dollars, or at least reach a quarter of the market value after listing. For companies going public in the United States, these requirements are invisible thresholds.

The atmosphere in the United States seems to have become less friendly. In April this year, SEC Chairman Jay Clayton said that investors should pay attention to information disclosure issues based on Chinese companies listed in the United States, and when adjusting their positions, they should not invest in Chinese company stocks listed in the United States. In May this year, Trump pressured American pension funds to withdraw from Chinese concept stocks. And this month, he ordered a review of violations of US regulatory standards in Chinese concept stocks.

As the US market becomes more and more stringent in regulating Chinese concept stocks, the current situation of Chinese concept stocks in the US can be described as "walking on thin ice". Take Canaan Inc., also located in Hangzhou, as an example. Although Canaan Inc. has been lucky enough to successfully list in the US, its stock price has continued to fall since its listing, except for being shorted twice. It has now fallen below $2, hitting the lowest level since its listing in November last year. At the beginning of its listing, Canaan Inc.'s issue price was $9.

Will Ebang International follow the old path of Canaan Technology? At least in terms of single business model, continuous decline in performance, backward technology, etc., the two have great similarities. In Xie Dan's view, Ebang International previously asked VeriSilicon to make chips. Chip design service companies are difficult to be competitive because they rarely consider costs and chips need profits. At present, Ebang International and Canaan Technology have insufficient accumulation in chip design, and the biggest risk is that the 7/5nm chips are not good enough.

However, Xie Dan believes that it is not a big problem for Ebang not to go AI. If Ebang wants to be competitive, it must have its own team to make chips. Considering the technical threshold of low power consumption of Bitcoin chips, it is best if the chip team has experience in the Bitcoin chip industry. The best way is to poach some people from Bitmain or BitMicro (either resigned or in service), solve the core technology, or jointly develop with others, cooperate in various business models, and share risks.

On the left is the relentless pressure from its peers in the mining machine industry, and on the right is the crisis of confidence in Chinese stocks listed in the US. For Ebang International, going public is just the beginning, and a more difficult battle is yet to come.

PANews Zheng Yi also contributed to this article.