Recently, Flashback Technology Co., Ltd. (hereinafter referred to as "Flashback Technology") submitted a prospectus to be listed on the Hong Kong Stock Exchange.
Titanium Media APP noticed that in the face of annual expenses of 60 million to 80 million yuan, Flashback Technology sells at least 1 million second-hand mobile phones every year, but it can't stop the pace of losses.
Millions of second-hand phones are sold every year and they are still losing money
According to Frost & Sullivan, Flashback Technology is the largest offline trade-in mobile phone recycling service provider in China and the third largest mobile phone recycling service provider in China, with market shares of approximately 8.4% and 1.5%, respectively, in terms of total recycling transactions from the consumer end in 2022.
From 2021 to 2022 and from January to September 2023 (hereinafter referred to as the "reporting period"), Flashback Technology achieved operating income of 749.731 million yuan, 919.112 million yuan, and 836.395 million yuan respectively, and a loss of 48.708 million yuan, 99.084 million yuan, and 99.114 million yuan during the year, with a total loss of 246.906 million yuan.
It should be pointed out that in the above-mentioned annual losses, the redemption of Flashback Technology was responsible for the change of book value of 46.088 million yuan, 69.383 million yuan and 90.164 million yuan respectively, and the change in the book value of redemption liabilities refers to the change in the redemption obligation arising from the priority of Flashback Technology investors.
If the change in the book value of the redemption is not considered, the profit of Flashback Technology may be -2.6 million yuan, -29.701 million yuan, and -8.95 million yuan, that is to say, Flashback Technology is still in a state of loss every year in operation.
From the product point of view, Flashback Technology is mainly the sale of second-hand mobile phones, other second-hand consumer electronics, etc., of which the sales revenue generated by the sale of second-hand mobile phones during the reporting period were 693.393 million yuan, 856.346 million yuan, and 775.44 million yuan, accounting for 92.5%, 93.2%, and 92.7% of the main business income in the current period, that is to say, Flashback Technology is mainly a company that sells second-hand mobile phones.
In fact, Flashback Technology is not very profitable to sell used phones. During the reporting period, the gross profit margin of Flashback Technology selling second-hand mobile phones was 6.7%, 4.9% and 5.9% respectively, and according to the calculation of 1000 yuan for second-hand mobile phones, Flashback Technology only made a few dollars by selling a second-hand mobile phone.
In terms of sales, during the reporting period, the number of second-hand mobile phones sold by Flashback Technology was 1.057 million units, 1.214 million units, and 737,100 units respectively.
Interestingly, during the reporting period, the sales and distribution expenses of Flashback Technology were 11.581 million yuan, 17.243 million yuan and 14.132 million yuan respectively, the administrative expenses were 42.161 million yuan, 45.683 million yuan and 41.915 million yuan respectively, the research and development expenses were 10.261 million yuan, 17.381 million yuan and 14.34 million yuan respectively, and the financial costs were 465,000 yuan, 537,000 yuan and 2.22 million yuan respectively, and the total of the above expenses was 64.468 million yuan. 80.844 million yuan and 72.607 million yuan. Combined calculation, the annual period cost of Flashback Technology will be 60 million to 80 million yuan. With low gross profit and high fees, Flashback Technology's profitability is far away.
In addition, Flashback Technology's operating cash flow is also terrible. During the reporting period, the net cash flow generated by Flashback Technology's operating activities was -6.499 million yuan, -43.736 million yuan and -81.372 million yuan respectively.
The main factor contributing to this phenomenon is the surge in trade and other receivables. As of the end of 2021, the end of 2022, and the end of September 2023, Flashback Technology's trade and other receivables were 39.956 million yuan, 89.254 million yuan, and 161.275 million yuan respectively, of which in the first three quarters of 2023, the company's trade and other receivables almost doubled.
Litigation doubts
In the declaration draft of Flashback Technology, the provision for litigation losses in the column of other income and income has attracted special attention from Titanium Media APP.
Flashback Technology stated in the prospectus that the specific circumstances of its provision for litigation losses of RMB 6 million are mainly as follows:
The above situation, simply put, is that Beijing Yiying Jiamei Technology Co., Ltd. (hereinafter referred to as "Yiying Jiamei") sued Flashback Technology and demanded that Flashback Technology compensate 6 million yuan in liquidated damages.
However, is the reality really that simple?
According to the China Judgment Network, since July 26, 2021, Yiying Jiamei and Flashback Technology began to formally negotiate the quotation and agreement of the mobile phone products involved in the case. Subsequently, Yiying Jiamei and Flashback Technology reached an agreement and signed a relevant cooperation agreement. The agreement stipulates that within one month from the date of winning the bid, Flashback Technology will choose to pay according to the location of the mobile phone inventory, and deliver the goods after Elite Jiamei completes the locking setting of the mobile phone for which Flashback Technology has paid. If it is not completed due to Flashback Technology, Jardine Jiamei has the right to pursue 30% of the total amount of the Flashback Technology Agreement for liquidated damages. Flashback Technology submitted a one-time offer of $25000990 to Jardine Jiamei for the agreement.
On July 30, 2021, Yiying Jiamei purchased the product according to the quotation of Flashback Technology and notified Flashback Technology, after learning that Yiying Jiamei won the bid to purchase the product, Flashback Technology suddenly questioned the model and performance of the agreement product, and Yiying Jiamei urged Flashback Technology to pay and pick up the goods as soon as possible in accordance with the agreement arrangement on August 3, but Flashback Technology asked Yiying Jiamei to reduce the price of the agreed product to 21.2 million yuan, and in the case of Yiying Jiamei's clear refusal to reduce the price, Yiying Jiamei did not make actual payment and delivery. Because the market price of electronic products is greatly affected by the time factor, Flashback Technology has so far not paid for the agreed products involved in the case, and has exceeded the agreement on the delivery period of the payment products, and Flashback Technology has breached the contract. Flashback's default significantly reduced the market value and selling price of the products involved in the case, causing Jardine to miss an important transaction opportunity. Now, on the basis of the agreed price of 25000990 yuan between Jardine and Flashback Technology, Jardine can no longer find a suitable buyer. Flashback Technology's malicious breach of contract not only failed to obtain the expected benefits, but also incurred huge losses.
As a result, Elite filed a lawsuit against Flashback Technology.
In addition, according to Tianyancha, the above-mentioned litigation cases also led to Flashback Technology becoming the person subject to execution.
In this regard, a lawyer told Titanium Media APP that in civil litigation, when a judgment is determined, if the losing party refuses to perform the obligation of the court judgment, and the obligation is stipulated by law or agreed by the parties, then the winning party can apply to the court for enforcement. At this time, the losing party becomes the person subject to enforcement. To put it simply, the person subject to enforcement refers to the party who fails to perform the judgment obligation after the court has made a judgment.
So, what exactly did Flashback Technology become an executor? Is it because of malicious breach of contract? If it is a malicious breach of contract, will it have an adverse impact on the company's reputation in the market, thereby affecting the company's performance?
In fact, in terms of reputation, Flashback Technology has been repeatedly complained by consumers. It is reported that Flashback Technology has two major businesses, "Flash Recycling" and "Flashback Youpin" - the former is to carry out offline recycling business and recycle second-hand consumer electronic products from individual consumers through upstream resource partners, and the latter is to sell second-hand consumer electronic products purchased by Flashback Technology to customers on its own online platform and/or its own online store on third-party e-commerce platforms.
Titanium Media APP searched for flash recycling on the black cat complaint platform, and the number of complaints was as high as 190, including many flash recycling malicious price reduction, consumer fraud and other phenomena. (This article was first published in Titanium Media APP, author|Deng Haotian)