Flying Elephant Network (Zhi Xin / article) January 26 news, Leeco shares have resumed trading for two days, 24, 25 consecutive trading days closing price deviation of more than 20%. It closed at 12.42 yuan yesterday, with a daily turnover of 8014 lots and a turnover of 9.9534 million yuan, with a turnover rate of only 0.03%.

In this regard, Leeco announced yesterday that the company's controlling shareholders did not buy or sell the company's shares during the abnormal volatility of the company's stock trading. Based on the company's current operation, Leeco draws investors' attention to nine major investment risks:

1. The risk of possible change of the actual controller of the company

So far, Mr. Jia Yueting holds 102426.66 million shares in the company, accounting for 25.67% of the total share capital, of which 1.0195398 billion shares have been pledged to financial institutions. If the company's share price falls sharply and Mr. Jia Yueting is unable to make an additional guarantee in time, the financial institution will have the right to dispose of the pledged equity, which may lead to a change in the actual controller of the company.

2. there is a risk of recovery of some related party receivables.

Since 2016, the company has formed a large number of related receivables and prepayments by selling goods, providing services and other business operations to related parties controlled by Mr. Jia Yueting. As of November 30, 2017, the balance of related arrears of the above-mentioned related parties to listed companies reached 7.5314108 billion yuan (the above financial data have not been audited, and the final audit value shall prevail, the same below).

Although the company is actively collecting the arrears of the above-mentioned related parties, there is still a risk of recovery. Up to now, some related party receivables of the company have not been recovered, and there have been a lot of problems such as non-payment of a large number of arrears to upstream suppliers, a large number of debt defaults and litigation. If the above-mentioned receivables are difficult to recover in a large area, the company's cash flow will be extremely tight, endanger the company's credit system, cause financing channels to be blocked, and adversely affect the company's operation.

The management of the company has realized the seriousness and urgency of the problem, if there is no new capital to enter, the company will face operational difficulties. Based on the above situation, the company's shareholder Tianjin Jiarui Huixin Enterprise Management Co., Ltd. (hereinafter referred to as "Tianjin Jiarui") injected 1.79 billion yuan into the listed company by way of loan, which alleviated the capital demand pressure of the company and its subsidiaries to a certain extent.

3. The risk that Mr. Jia Yueting and Ms. Jia Yuefang fail to fulfill their loan commitments and lead to tight cash flow of the company.

At the end of 2014 and May 25, 2015, the company received "share reduction plan notification letters" from Ms. Jia Yuefang and Mr. Jia Yueting respectively, both of which promised to lend all or part of the funds obtained from the reduction of Leeco shares to the company as working capital. The loan will be used for the daily operation of the company, and the company can withdraw and use it according to the needs of working capital within a specified period of time. The term of the loan will be no less than 60 months, free of interest.

In December 2014 and February 2015, Ms. Jia Yuefang signed a "loan contract" with a listed company, respectively, promising to borrow no less than 1.678 billion yuan; in June and November 2015, Mr. Jia Yueting signed a "loan contract" with a listed company respectively, committing to borrow no less than 5.7 billion yuan. Up to now, the loan balance of Mr. Jia Yueting to the company is 0 yuan, and that of Ms. Jia Yuefang to the company is 110095 yuan.

The breach of commitment directly or indirectly leads to a serious gap in the company's operating capital arrangement, the company's cash flow is tight, and the company's business continues to deteriorate, which leads to a series of debt default and litigation risks.

4. the risk that the company's cash flow will be further strained due to the maturity of the company's existing debt.

The main sources of cash for the company's operation are company members, television sales, advertising and other business income, as well as bank loans, external loans and other financing channels. The change of the company's market environment and the impact of the unlisted business lead to the corresponding adjustment of the company's business scale and the decline of the business income level, while the decline of the business scale leads to the tightening of the bank credit line. the company is at risk of further tightening its cash flow due to debt maturity.

As of December 31, 2017, the company has financing loans and loan liabilities totaling 9.288 billion yuan, some of which will expire in 2018. If the size of the company's business cannot return to a higher level and the credit line resumes, the company will be under pressure to repay its debts due to further tight cash flow.

5. The risk of a sharp decline in the company's performance in 2017

Due to the failure of the related parties to repay the arrears effectively, the company's cash flow is extremely tight, the company's business is difficult, and it is unable to pay the purchase money to the upstream to form products and sell them, so the company's income level has dropped significantly.

In addition, due to a series of effects on the company's reputation and credit, such as the financial shortage of related parties, the liquidity storm, and the continuous fermentation and expansion of public opinion, the company's advertising revenue has dropped sharply. At the same time, due to the related party debt risk, cash flow tension spread to the company supplier cooperation system, from product supply to account period award and other negative pressure, the company terminal income and member income have a large decline.

Although the scale of some business revenues has declined significantly, the company's daily operating costs, such as CDN and bandwidth expenses, amortization expenses (copyright amortization), have not decreased accordingly, while financing costs have increased significantly.

At the same time, due to the possibility of partial recovery of related party receivables, the company has the risk of making a large provision for bad debts in 2017.

The above factors lead to the risk of a sharp decline in the company's operating performance in 2017.

6. The risk of significant uncertainty in part of the company's business performance

As of December 31, 2016, the company's advertising business has accounts receivable of 4.7842839 billion yuan, of which the recovery of some accounts receivable is expected to be uncertain. If the impairment of this part of the accounts receivable is calculated, it will have a certain impact on the advertising business performance of the company.

In addition, due to the rapid growth of business demand of Letv Cloud Computing Co., Ltd. (hereinafter referred to as "cloud computing") in the past, the cost has increased by a large margin. In the current situation of rapid changes in business scale, cloud computing costs can not be accurately recognized and adjusted in time, which will put great pressure on cloud computing business performance.

The above factors lead to the risk of significant uncertainty in the company's related business performance.

7. The risk of the company's foreign investment

In March 2016, the company's board of directors examined and approved the motion on the establishment of Shenzhen Letv Xingen M & A Fund Investment Management Enterprise (Limited Partnership) (hereinafter referred to as "Letv M & A Fund" or "Fund"). The purpose of the fund is to focus on the investment opportunities of relevant target companies in the upstream and downstream of Letv's ecological industrial chain, to serve the growth of Letv's ecology, to promote the value creation of Letv's ecology, and to lay out the content industries and fields related to Letv's ecology.

On April 12, 2016, the company's annual shareholders' meeting examined and passed the "proposal on providing buyback guarantee for the first Phase of Letv M & A Fund". Letv M & A Fund initiated the establishment of a M & A fund with a total size of 10 billion yuan. The scale of the first phase is about 4.8 billion yuan, including inferior share of about 1 billion yuan, secondary share of about 600 million yuan, and priority share of about 3.2 billion yuan. In order to ensure the smooth fund-raising and follow-up business of the Letv M & A fund, the company, Letv Holdings and Mr. Jia Yueting jointly provided a buyback joint guarantee for the principal and expected income of the first phase of the Letv M & A fund. It is estimated that the guarantee liability is about 5 billion yuan, including a 15% income commitment to the intermediate level and priority.

So far, the fund has contributed a total of 4.349 billion yuan, of which the inferior share is 1 billion yuan, the secondary share is 600 million yuan, and the priority share is 2.749 billion yuan. Since 2016, the fund has successively invested in TCL Multimedia Technology Holdings Co., Ltd., Coolpad Group Co., Ltd., Letv Chuangjing Technology (Beijing) Co., Ltd., Shenzhen Chaoduowei Technology Co., Ltd., Shenzhen Huixin Bridge Internet Financial Technology Service Co., Ltd., with a total investment of 3.425 billion yuan. At present, there are some problems in investment projects, such as book loss, project shutdown and so on, and the fund is at risk of loss.

In addition to the guarantee liability borne by Mr. Jia Yueting and Letv Holdings, Leeco assumes joint and several guarantee liability. If there is a serious loss of the fund as a whole, the company may face a substantial loss of profit level and cash flow because of the joint and several guarantee liability. As of June 30, 2017, the actual guarantee amount of the company is 5.0068 billion yuan.

8. Risk of change in the use of raised funds

During the period from August 2016 to November 2016, when the company used the funds raised by Letv in Tibet to purchase copyright from the copyright seller, some of the film and television works intended to purchase copyright were re-entered the negotiation period due to regulatory policies, changes in actors and other reasons, or some of the terms of the contract were proposed to be changed, resulting in a delay in payment.

The above-mentioned funds raised were not immediately transferred back to the special account of Ping an Bank, and were gradually transferred to the account of Leeco by Letv of Tibet, which was used to pay employees' wages, tax settlement and other supplementary liquidity purposes of listed companies. The total amount of funds raised involved in the above matters is 881020000 yuan. By the end of 2016, because it was determined that purchases could no longer be made in the short term after the above copyright negotiations, Letv in Tibet transferred a total of 881020000 yuan to the special account of Ping an Bank.

After the company disclosed this matter on April 20, 2017, it communicated with the regulatory authorities in a timely manner and actively took remedial measures: the 37th meeting of the third session of the board of directors of the company examined and adopted the "Bill on the use of idle funds to temporarily replenish current funds", complying with the procedures for raising funds to replenish current funds. The aforementioned situation of using idle raised funds to temporarily replenish current funds shall be submitted to the board of directors for deliberation, and the independent directors, the board of supervisors and the sponsor institution shall express their clear consent.

Although the company promptly transferred the funds raised and took remedial and corrective measures, and educated the company's internal personnel, if the company again adjusts the use of the funds raised without approval in the future, the company may face the risk of punishment as a result.

9. the risk of pledge and external guarantee by the equity of a subsidiary

On November 21, 2017, the company issued the announcement of the 50th meeting of the third session of the Board of Directors. In addition to evading the directors, the board of directors unanimously examined and passed the motion on the proposal of Leeco Information Technology (Beijing) Co., Ltd. to apply for a loan of 1.29 billion yuan from Tianjin Jiarui Huixin Enterprise Management Co., Ltd. And the motion on providing counter-guarantee and related party guarantee for the company's loan Ms. Sun Hongbin and Ms. Liu Shuqing, the associated directors, avoided voting, and the independent directors expressed their prior approval and agreed independent opinions.

The above proposal for borrowing and providing counter-guarantee is put forward by the board of directors and management of the company based on the fact that the company's current financial situation can no longer support the daily operating expenses. At present, the company has a large number of related party accounts receivable failed to recover, major shareholders promised loans to the company can not be in place, poor business management outside the system, brand impact makes it difficult for the company to apply for new financial institutions loans and the extension of the original loans and other problems, the above problems lead to the company's financial situation has been unable to support daily operating expenses, business operation is difficult to sustain. The company looks forward to the conclusion of the loan and counter-guarantee bill to continue the operation of the company.

The company provides guarantee or counter-guarantee with the equity of its subsidiary, while the new Letv Zhijia of the subsidiary uses the equity of its subsidiary to provide counter-guarantee for Leeco. If the debt is due and cannot be repaid, the company will face the risk that the guaranteed assets will be disposed of in accordance with the law due to the guarantor's failure to repay the debt in full and on time.

At the same time, the company will also strive to deal with related debts or guarantees by means of fund-raising repayment of other assets, loan extension, debt restructuring, etc., but if it cannot raise funds or reach repayment extension or debt restructuring by other means, the company will face the risk of change in the actual controller of the subsidiary.