Yibang and Zhongying Internet quarreled with each other and exposed A-share companies involved in cryptocurrency

Text | Hoho

Editor | Wen Dao

The two-year-long dispute between Zhongying Internet and Yibang finally broke out at the end of this year. The former is an A-share listed company, and the latter is a well-known Bitcoin mining machine manufacturer.

On December 19, Zhongying Internet announced that the Beijing Chaoyang Public Security Bureau had opened an investigation into Zhejiang Yibang and Yunnan Yibang for suspected contract fraud. Yibang responded by saying that it had reported to the China Securities Regulatory Commission under its real name that Zhongying Internet's information disclosure was false.

The announcement made by both parties not only revealed the contract dispute between this A-share company and the mining machine manufacturer, but also revealed the company's moves to develop its digital currency business in the past two years.

Zhongying Internet's 2018 financial report shows that not only has its gaming subsidiary Cailiang Technology added a new mining machine purchasing business, but the parent company's R&D investment also includes digital currency exchanges and mining pools.

Zhongying Internet is not the only listed company involved in blockchain and digital currency.

Fengchao Finance sorted out the information disclosed by many A-share companies and found that from September to October 2019 alone, 14 companies including Zhongying Internet have been involved in the blockchain or digital currency field, and specific products include digital currency wallets, mining machines and trading systems. Among them, Bitcoin mining and exchanges are important targets for participation.

A-share company Langke Technology already owns the cold wallet patent, and patents such as the trading system are under review; and Zhidu Holdings has a stake in another mining machine manufacturer, Bitmain.

As one of the focuses of listed companies, the mining industry has been in trouble this year. Now, trouble has appeared on the head of Yibang, which has always been low-key.

A contract dispute over 35,000 mining machines has turned former partners into enemies.

The buyer is the A-share listed company Zhongying Internet Technology Co., Ltd. (hereinafter referred to as "Zhongying Internet"), which was listed on the Shenzhen Stock Exchange on August 31, 2010 and transformed from a traditional manufacturing company to an online game e-commerce platform company in 2015.

The sellers are Zhejiang Ebang Communication Technology Co., Ltd. (hereinafter referred to as "Zhejiang Ebang") and Yunnan Ebang Information Technology Co., Ltd. (hereinafter referred to as "Yunnan Ebang"), the latter being a wholly-owned subsidiary of the former. In early 2016, Zhejiang Ebang launched its first self-branded mining machine, the Wingbit E9. People in the mining circle often refer to this company as Ebang International.

The dispute between the two parties escalated on December 19. Zhongying Internet issued an announcement stating that the Beijing Chaoyang Public Security Bureau has filed an investigation into the suspected contract fraud case of Zhejiang Yibang and Yunnan Yibang, and "the company has received the "Notice of Filing of Case" from the public security agency."

On the same day, Yibit Customer Service Number posted an "Emergency Statement" from Yibang, saying that it had provided relevant materials for the case as required by the public security authorities, and no personnel had been taken away for investigation. At the same time, Zhejiang Yibang also reported to the securities regulatory authorities that Zhongying Internet had made false disclosures in terms of the signing date of the sales contract, the amount of a single contract, and the provision for bad debts.

Zhongying Internet reported the case to the police, and Yibang reported it in return

Why would a listed company mainly engaged in gaming business be involved in a mining machine contract dispute? In fact, the trouble started in 2018, involving the sale of a mining machine. The dispute appeared many times in Zhongying Internet's 2018 annual financial report and 2019 quarterly and semi-annual financial reports.

According to Zhongying Internet's financial report, as early as March 2018, its subsidiary Cailiang Technology signed a "Product Sales Contract" with Zhejiang Yibang and Yunnan Yibang, purchasing 90,000 and 10,000 cloud computing servers from the two companies respectively, at a unit price of 5,040 yuan per unit, for a total of 504 million yuan. The so-called cloud computing servers are mining machines.

As of September 11 of that year, Cailiang Technology said it had paid 380 million yuan to Zhejiang Yibang and 20 million yuan to Yunnan Yibang, but it only received 65,000 machines from Zhejiang Yibang and did not receive any goods from Yunnan Yibang.

In response, Zhejiang Yibang and Yunnan Yibang stated that in May of that year, 100,000 servers had been handed over to designated personnel of Cailiang Technology, and the other party issued the corresponding delivery list and bank statement for confirmation.

The seller claimed that all the goods had been delivered, but the buyer claimed that not all of them had been received. The dispute became a Rashomon and the two parties filed a lawsuit.

In early 2019, Zhejiang Yibang and Yunnan Yibang filed lawsuits with Hangzhou Intermediate People's Court and Yunnan Baoshan Intermediate People's Court respectively, demanding that Cailiang Technology pay the balance of 104 million yuan and corresponding interest. Subsequently, Zhongying Internet filed a counterclaim against Yibang on the grounds of "not receiving the goods".

The lawsuit has not yet been concluded, and the whereabouts of the 35,000 mining machines involved remains a mystery. Honeycomb Finance called both parties, but received no response as of press time.

On December 20, after the dispute was exposed, Zhongying Internet's stock price fell 9.05% to close at 7.54 yuan per share. Compared with the opening price of 8.15 yuan per share, its market value evaporated by more than 400 million yuan.

The two-year tug-of-war over the contract dispute ended in nothing. Eventually, the "escalation of the battle" with one party calling the police and the other party reporting the incident attracted the attention of both shareholders and cryptocurrency investors. People discovered that this A-share company, which mainly operates in the gaming industry, also has a presence in the mining industry. In fact, it is more than that.

Zhongying Internet, which was listed in 2010, is considered a veteran A-share market company. European game e-commerce platform MMOGA and Cailiang Technology are its two major subsidiaries, which are also its core assets and profit sources.

It is not difficult to find out from Zhongying Internet's 2018 annual report that Cailiang Technology, which is engaged in game promotion and mobile Internet advertising business, is like a commando for Zhongying Internet to enter the field of digital currency. Since 2018, Cailiang Technology has begun to deploy mining, including the technology of servers in the field of digital cloud computing, mine construction, equipment installation, and debugging, which is called "a package of business such as mining machine procurement services" in the financial report.

However, judging from the full-year revenue situation, Zhongying Internet's revenue share in the field of digital currency mining is not high.

In 2018, the revenue from agency procurement business of Zhongying Internet accounted for 2.82%

In 2018, Cailiang Technology's agency procurement business revenue was 22.34 million yuan, with a gross profit margin of 100%. This revenue accounted for 2.82% of Zhongying Internet's annual operating income, a year-on-year increase of 189.57% compared with 2017.

Zhongying Internet revealed the business logic of Cailiang Technology's entry into the mining circle, "In 2019, with the country's crackdown on backward production capacity and strict management, it is inevitable that large-scale power-consuming industries will go overseas, which will definitely bring about a new wave of opportunities for overseas mines."

In addition to the mining machine purchasing business, in the "R&D Investment" column of Zhongying Internet's 2018 annual report, it also carried out the research and development and layout of digital currency exchanges and mining pool management systems.

The financial report shows that the exchange developed by Zhongying Interconnect is a currency-to-currency and OTC trading platform focusing on mainstream digital currencies such as BTC and ETH. As of the end of October 2018, the project has completed the development of all major functions. On the other hand, the mining pool management system also completed the acceptance of outsourced research and development at the end of 2018, and most of the mining machines in the mine have been connected.

As of now, Zhongying Internet has not disclosed the specific brand and operation of its exchange.

Zhongying Internet's R&D investment in 2018

In terms of R&D investment, Zhongying Internet also provided financial support to Cailiang Technology, the "cryptocurrency team". In 2018, Zhongying Internet's investment cost exceeded 23.5968 million yuan, an increase of 61.38% compared with 14.6218 million yuan in 2017. As for the reason for the increase in investment, Zhongying Internet pointed out that "it was mainly due to the R&D expenses of its subsidiary Cailiang Technology".

Judging from the financial report disclosures, this A-share listed company has never concealed its entry into the cryptocurrency industry since 2018, engaging in mining machine procurement business, developing exchanges and mining pool management systems.

The quarrel between Yibang and Zhongying Internet exposed the "currency-related" companies in the A-share market. In fact, Zhongying Internet is not the only listed company that is optimistic about blockchain.

According to the public information of some A-share companies, Fengchao Finance found that many companies including Meisheng Culture and Keda Holdings disclosed their involvement in blockchain business in September and October this year. Among them, China Media Group and Feitian Chengxin started blockchain-related business as early as March 2016.

According to the disclosed information, the main areas of blockchain business involved by A-share companies include digital currency wallets, media, mining machines and digital currency trading systems. Langke Technology also owns two patents for cold wallets and trading systems, and Zhidu Holdings also holds a stake in the mining machine manufacturer Bitmain.

Fengchao Finance compiled based on the public information of some A-share companies

At the same time, the "mining circle", as a blockchain hardware industry that A-share companies pay attention to, has been in a turbulent time this year. Mining machine manufacturers, the top link in the food chain of the mining circle, have also been plagued by internal and external wars.

In October, the industry leader Bitmain was hit by internal turmoil. Wu Jihan, as the founder and chairman of the board of directors of Bitmain, dismissed Zhan Ketuan from all his positions in Bitmain. A month later, Zhan Ketuan hired lawyers from multiple places and took the initiative to hold a shareholders' meeting to launch a counterattack.

At the same time, Shenma Mining Machine, a rising star that is catching up with Bitmain in the market, also encountered problems. After its founder Yang Zuoxing was taken away by the police, new developments emerged. He was arrested by the Shenzhen Procuratorate on suspicion of embezzlement. The asset dispute between Shenma Mining Machine and Bitmain has escalated from a civil lawsuit to a criminal case.

While Bitmain was engaged in internal and external fighting, on December 11, another mining machine manufacturer, Canaan Inc. (Nasdaq: CAN), finally landed on the Nasdaq. The opening price of $12.6 soon began to decline, and at one point fell below the issue price of $9. The recent stock price is still hovering around the issue price.

Now, the unstable situation has finally come to the always low-key Yibang International.

Previously, according to data from Bernstein and iResearch, among the three largest Bitcoin mining machine manufacturers in the world, Ebang International ranked third in market share with a share of 11%. Therefore, Ebang International, Bitmain and Canaan Creative are also known as the three largest mining machine manufacturers in China.

It is worth mentioning that Yibang International submitted a prospectus to the Hong Kong Stock Exchange at the end of last year. According to the information, two A-share listed companies purchased 700 million yuan of mining machines last year, namely Zhongying Internet and an undisclosed Xinjiang company. The two major customers contributed 700 million yuan in payments to Yibang. Among them, the unnamed Xinjiang company purchased a total of 340 million yuan of mining machines, and Zhongying Internet purchased 360 million yuan of mining machines. These two payments accounted for about 34% of Yibang International’s total revenue last year.

Now, the customer and the supplier have fallen out. No matter what the outcome of the lawsuit is, Yibang will lose a big customer.