SSE Star Market IPO Review on Papaya Mobile Terminated

08 Jul 2019

Recently, the Shanghai Stock Exchange (SSE) reviewed the request of Beijing Papaya Mobile Technology Inc. (the “Papaya Mobile” or the “Issuer” for short) and its sponsor for withdrawing its application for issuance and listing, which is hereby approved in accordance with relevant rules, and it has been decided according to law to terminate the review on Papaya Mobile for its issuance and listing on the SSE Star Market.

On March 29, 2019, the SSE accepted the application of Papaya Mobile for issuance and listing on the SSE Star Market. On June 28, after two rounds of review inquiries and replies, the SSE Review Center held a review meeting, and formed the review report on the company's application for issuance and listing, which was planned to be submitted to the Listing Committee for consideration, while sending a letter requiring the Issuer and its sponsor to submit the draft of the prospectus to be examined at the review meeting. On July 4, the company and its sponsor submitted the request for withdrawing the application for issuance and listing.

In the earlier review, the SSE Review Center issued the first and second rounds of inquiry letters on April 11 and June 4, 2019 respectively, and received the replies of Papaya Mobile and its intermediary to the first and second rounds of inquiries on May 22 and June 19, 2019. The two rounds of review inquiries focused on the following factors: the first factor was the advancement of the Issuer's core technologies and its production and operation mainly relying on core technologies. Papaya Mobile currently owns 1 US patent and no domestic patent, its R&D investments accounted for 4.94%, 1.20% and 0.71% of its incomes respectively in the report periods, and the comprehensive gross profit margin of each report period was 20.31%, 6.24% and 4.38% respectively. In the inquiries, the SSE required the Issuer to explain what core technologies it owned, whether the technologies were the basic ones for conducting businesses in the industry, and the role of related technologies in providing overseas marketing services to the customers; the SSE called for the Issuer to further disclose whether the company's core technologies are advanced and can be effectively transformed into operating results according to the trend of the changes in the gross profit margin in the reporting period, the R&D investments, and technological levels of comparable companies in the same industry. The second factor was the essence of the Issuer's business and its business model. In the prospectus Papaya Mobile positions itself as a company that relies on independently developed technologies for big data processing and analysis, mainly using global big data resources and big data processing and analysis technologies to provide overseas marketing services. Paying attention to the accuracy of the Issuer's industry positioning and classification, the SSE required the Issuer to fully explain and disclose whether the company's industry positioning is accurate on the basis of the industry classification catalogues and guidelines issued by the relevant departments, the specific business activities of the company, the sources and acquisition of big data, the application scenarios of the technologies, the relationship between the businesses of the Issuer and the big data, the similarity of the main business with those of the comparable companies, and other situations. The third factor was whether the Issuer fully disclosed the risk factors that might have a significant impact on its capacity for continuous operation. In 2018, Papaya Mobile's purchases from Facebook accounted for 91.99% of the annual total, the realization of related incomes also mainly relied on the Facebook channel, its purchases accounted for a small proportion of Facebook's revenue in Asia and total advertising revenue, the relevant terms of the contract had an adverse impact on the sustainability of its operation, and the company failed to fully disclose the adverse effects of the above-mentioned situations on the company's ability of continuous operation in the prominent position of the prospectus. The fourth factor was the adequacy, consistency and comprehensibility in disclosing relevant important information. Papaya Mobile disclosed earlier on the National Equities Exchange and Quotations (NEEQ) that its main businesses included the game business, the gross profit of the game business still exceeded 30% of the total in 2016, which was not clearly disclosed in the prospectus, and Papaya Mobile indicated that the company did not have major changes in its main businesses during the report periods; in the replies to the inquiries, it was disclosed that the Issuer’s purchases from Facebook accounted for 21% of Facebook’s Asian revenue in 2018, which was inconsistent with the calculation results based on Facebook’s publicly disclosed data on the NASDAQ exchange. The SSE’s review inquiries and the replies of the Issuer and the intermediary are part of the application documents for issuance and listing and have been publicly disclosed in accordance with the prescribed procedures. It is worth noting that once the application documents for issuance and listing are accepted and the replies to the review inquiries are disclosed, they will be legally binding on the issuer and related institutions, and the legal liability for authenticity, accuracy and integrity of the information disclosure documents will not be mitigated or annulled because of the termination of the review. If there have been violations in the issuer's information disclosure and the practice of the intermediary before the termination of the review, the SSE will handle the matter in accordance with relevant rules.

Withdrawing the application for issuance and listing is the independent judgment and normal behavior of the applying companies, which is respected by the SSE. At present, the first batch of the companies to be listed on the SSE Star Market have been determined, and the issuance and listing review of other applying companies is being advanced in an organized way based on the basic requirements for launching the SSE Star Market and piloting the registration-based IPO system, the review standards and the prescribed procedures. In the issuance and listing review, the SSE will, on the basis of giving full play to the functions of the open inquiry-characterized review, make review judgments about whether an issuer meets the conditions for issuance, the listing conditions and requirements for information disclosure, and form the review opinion. The SSE will continue to adhere to the focus on information disclosure, grasp the positioning of the SSE Star Market, pay special attention to the issuers’ attribute of sci-tech innovation, technological advancement, use of advanced technologies in production and operation, main business and technological risks and other major issues, urge the issuers to fully disclose relevant information, so that the market participants can effectively judge the issuer's attribute of sci-tech innovation and investment value.