Reported to owe tens of millions in loans and not yet repaid. Jiecheng Co., Ltd. states that it does not meet the disclosure standards.

Economic Observer News reporter Zhang Bin As of the end of September 2020, Jicheng Co., Ltd. (300182, Stock Forum) (300182.SZ), which had participated in investments in film and television works such as Wolf Warrior 2, Operation Red Sea, and A Good Show, still had 258 million yuan in cash and cash equivalents on its books.

However, now, an insider surnamed Zhao Quan told Economic Observer News that Jicheng Co., Ltd. has not repaid overdue borrowings totaling tens of millions of yuan.

The materials provided by Zhao Quan on March 4, 2021 show that in 2020, Jicheng Co., Ltd. borrowed 30 million yuan from its content cooperation party, a Beijing education company, and 25 million yuan, 30 million yuan respectively from three other companies: a Tianjin technology company and a Beijing investment management company. Of the loans, Jicheng Co., Ltd. has already repaid the 25 million-yuan borrowing from the Tianjin technology company; the other two transactions are still outstanding.

In addition, the loan agreement between the aforementioned Beijing education company and Jicheng Co., Ltd. provided by Zhao Quan shows that if Jicheng Co., Ltd. fails to repay on time, Jicheng Co., Ltd. and its wholly owned subsidiary Xinjiang Juxiu Culture Media Co., Ltd. (hereinafter referred to as “Xinjiang Juxiu”) agree to expand the “exclusive cooperation in the field of mobile intelligent terminal education” stipulated in the “Content Cooperation Agreement” to “exclusive cooperation in the field of education.”

Borrowings worth tens of millions expired but not repaid

The loan agreement provided by Zhao Quan for Economic Observer News shows that Jicheng Co., Ltd., in 2020, entered into short-term loan agreements with the three companies mentioned above, with a total borrowing amount of 85 million yuan. Among them, in the borrowing agreement with the Beijing education company, Jicheng Co., Ltd.’s actual controller Xu Ziquan assumed joint and several liability guarantee responsibilities for the repayment obligations; Xinjiang Juxiu expanded the scope of its authorization toward the Beijing education company (“exclusive cooperation in the field of mobile intelligent terminal education” expanded to “exclusive cooperation in the field of education”); in the loan contract with the Tianjin technology company, besides Jicheng Co., Ltd., the borrower also included Beijing Jiecheng Shiji Digital Technology Co., Ltd., which is wholly owned by Xu Ziquan; in the loan contract with the Beijing investment management company, Xu Ziquan and Jicheng Co., Ltd.’s wholly owned subsidiary Jiecheng Huashiwangju (Changzhou) Culture Media Co., Ltd. (hereinafter referred to as “Huashiwangju”) assume joint and several liability guarantee responsibilities.

The materials provided by Zhao Quan indicate that after the three loans expired in January 2021, the aforementioned Beijing education company, Tianjin technology company, and Beijing investment management company all authorized law firms to issue demands for payment to Jicheng Co., Ltd., but at that time they did not receive any repayment.

Zhao Quan said that this year the three companies above have initiated judicial proceedings against Jicheng Co., Ltd. The “Application for Property Preservation” documents of the three companies provided by Zhao Quan show that Jicheng Co., Ltd., Beijing Jiecheng Shiji Digital Technology Co., Ltd., and related accounts or assets of Xu Ziquan are all facing the risk of judicial freeze.

A person related to Jicheng Co., Ltd.’s board of directors’ office frankly admitted to Economic Observer News that there indeed are judicial lawsuits involving these companies. However, because the amount involved in the litigation does not meet the information disclosure standards for companies listed on the ChiNext board, no announcement was made.

Zhao Quan said on March 5 that currently, Jicheng Co., Ltd. has already repaid the 25 million-yuan borrowing from the Tianjin technology company in February; the Beijing education company and the Beijing investment management company have not received any repayment.

Operating performance declines

Jicheng Co., Ltd.’s 2020 third-quarter report shows that as of the end of September 2020, the company had 258 million yuan in cash and cash equivalents on its books, while its short-term borrowings were 1.33B yuan, and non-current liabilities due within one year were 469 million yuan; total short-term debts were 1.8B yuan.

The cash ratio refers to the ratio of a company’s cash to its current liabilities, reflecting the company’s immediate ability to convert assets into cash and its capacity to repay debts due immediately. The higher the cash ratio, the stronger the company’s payment ability; generally, a cash ratio of over 20% is considered good.

Judging from Jicheng Co., Ltd.’s cash ratios in recent years, as of the end of 2016 and the end of 2017, this ratio was 55% and 29%, respectively. However, starting in 2018, Jicheng Co., Ltd.’s cash ratio fell sharply; as of the end of 2018, the end of 2019, and the end of the 2020 third-quarter report, Jicheng Co., Ltd.’s cash ratio was 11%, 4%, and 7%, respectively.

In addition, in the past two years, Jicheng Co., Ltd.’s performance indicators have declined across the board.

In 2019, Jicheng Co., Ltd. suffered its first loss since listing; that year, operating revenue was 3.65 billion yuan, down 28.3% year over year; net profit attributable to shareholders was a loss of 2.38 billion yuan, down 2,641.87% year over year.

On the evening of January 29, 2021, Jicheng Co., Ltd. released a 2020 performance preannouncement, stating that the company’s net profit loss in 2020 was expected to reach 330 million yuan to 480 million yuan. The main reason was that the repayment cycle of the company’s downstream customers lengthened, and the company expected to accrue impairment provisions for various assets of 680 million yuan to 830 million yuan.

The performance preannouncement immediately drew a letter of inquiry from the exchange. On February 1, 2020, the management department of the Shenzhen Stock Exchange’s ChiNext board issued a letter of inquiry, asking Jicheng Co., Ltd. to provide additional explanations regarding the specific situation of the bad debt provisions for accounts receivable corresponding to the performance preannouncement, including the names of the customers involved, the amounts of accounts receivable, the formation timeline and reasons, the aging analysis, the specific details of bad debt provisions accrued in previous years, whether the provision method changed significantly compared with previous years, and the specific situation of other assets for which impairment is expected to be accrued; to verify and explain the specific timing when impairment indicators appeared; the basis for this impairment provision accrual, the calculation process and reasonableness; the adequacy and reasonableness of the impairment provision accruals for the aforementioned assets in prior periods and the current period, and so on.

Jicheng Co., Ltd. replied that in 2020 it accrued asset impairment of 680 million yuan to 830 million yuan, including bad debt of 150 million yuan to 190 million yuan for dramas such as Huo Qubing and A Good Show; inventory impairment of 300 million yuan to 340 million yuan, etc. (of which inventory impairment for film and television was 270 million yuan to 300 million yuan, and inventory impairment for the technology segment was 30 million yuan to 40 million yuan).

Suspicion around content cooperation in the education field

Jicheng Co., Ltd. listed on the ChiNext board in 2011. Its main business rapidly expanded from its initial audio and video technology business to multiple lines including film and television content production and distribution, new media copyright operations, and digital education. In the digital education business, Jicheng Co., Ltd.’s cooperation partners include educational channels of iQIYI, Youku, Tencent, Xiaomi TV, Huawei Video, and others.

In its 2019 annual report, Jicheng Co., Ltd. stated that its digital education business developed rapidly and had been推广普及 and piloted in primary and secondary schools across more than 40 cities. Its Jiecheng Smart Education Cloud platform is an end-to-end platform integrating education management, campus teaching, online learning, and co-cultivation between home and school. It has already covered more than 6,000 primary and secondary schools, providing regular and smart teaching services for nearly 10 million teachers, students, and parents.

Zhao Quan told reporters that the aforementioned Beijing education company has long been a cooperation partner of Jicheng Co., Ltd. in its digital education business. The loan agreement reached between the company and Jicheng Co., Ltd. shows that if Jicheng Co., Ltd. repays late, Jicheng Co., Ltd. and its wholly owned subsidiary Xinjiang Juxiu agree to expand the “exclusive cooperation in the field of mobile intelligent terminal education” stipulated in the “Content Cooperation Agreement” to “exclusive cooperation in the field of education.”

If there is a loan default, according to the contract, will Jicheng Co., Ltd. lose the exclusive right to apply education-field copyrights? Would cooperation agreements in the education field with iQIYI, Youku, Tencent, Huawei, and others need to be renegotiated? A person from Jicheng Co., Ltd.’s board of directors’ office did not provide a reply and said the matter is handled by the company’s legal department.

(At the interviewee’s request, Zhao Quan in the article is an alias.)

(Editor: Ji Liyang HN003)

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