On September 5, 2019, the STAR Market Stock Listing Committee of Shanghai Stock Exchange (SSE) held the 21st Review Meeting to review the application of Beijing UCAS Technology Co., Ltd. (UCAS) for issuance and listing, and formed the deliberation opinion of disapproving the issuance and listing of the company after panel discussion. According to the “SSE Rules for Issuance and Listing Review of Stocks on SSE STAR Market”, the SSE has decided to terminate the review of UCAS for issuance and listing on the SSE STAR Market based on the deliberation opinion of the Listing Committee.
On April 12, 2019, the SSE accepted the application of UCAS for the issuance and listing on the SSE STAR Market, and then carried out three rounds of review inquiries. In the process of the open review based on inquiries, the SSE focused on information disclosure, and paid special attention to the following three issues. First, the issuer's ability to conduct independent and continuous operation directly oriented toward market. One of the issuer's main business models is undertaking the research for major special projects, and these businesses were based on the plans and arrangements of the relevant state departments, with the tasks divided and assigned by the issuer's related party (Institution D, whose name was not disclosed by the issuer according to the exemption rule for information disclosure), and the research funds allocated level by level by the relevant departments and Institution A (whose name was not disclosed by the issuer according to the exemption rule for information disclosure). The relevant contracts were not signed. The issuer's business incomes from undertaking the research for major special projects were the result of the disbursement of funds, and the incomes from this business accounted for 35.38%, 25.08% and 31.84% of the issuer's total revenues in the last three fiscal years respectively. Second, the regulation situation of the issuer's basic accounting work and the effectiveness of the issuer’s internal control system. When the issuer was listed on the China Beijing Equity Exchange (CBEX) for financing in March 2019, the net profit disclosed in the audited 2018 financial report of the parent company was RMB27.8644 million, but in the parent company's financial report submitted in April 2019 for applying for listing on the SSE STAR Market, the net profit stood at RMB17.9053 million, with a difference of RMB9.9591 million. The main reason for the above-mentioned difference between the net profits is that the issuer adjusted the returned corporate income taxes for the previous years received in December 2018 and the deferred income tax assets confirmed for the losses to be covered from one-off inclusion in the profits and losses for 2018 to distribution to corresponding accounting periods in the reporting period. Specifically, the 2018 income tax expense adjusted up was RMB3.5751 million, and the deferred income tax expense was RMB6.8136 million, with the total impact on the net profit for 2018 at RMB-10.3887 million. The age division of the issuer's accounts receivable and the division of cost expenses are not accurate enough, resulting in the differences in a number of cost and expense items in the two submitted financial statements. There was only a difference of two months between the two submissions, and the audit reports were issued by the same audit institution. Third, the fairness of the connected transactions. The issuer's business development was highly dependent on its related parties Institution A and Institution D. Specifically, the amounts of the related sales with Institution A in the past three fiscal years were RMB42.1668 million, RMB32.4898 million and RMB60.5104 million respectively, accounting for 66.82%, 25.73%, and 32.35% of the total sales revenues respectively. The issuer failed to fully explain the fairness of the pricing of the above-mentioned connected transactions.
After deliberation, the SSE STAR Market Listing Committee considered that the issuer had high proportions of connected transactions, significantly depended on the related parties in developing the businesses. The issuer also cannot explain the fairness of the prices of the connected transactions, and it obtained the businesses of undertaking the research in a non-market-based manner, had the incomes derived from the disbursement of funds, and failed to meet the requirements for the business completeness and the ability to conduct independent and continuous operations directly oriented toward the market. In addition, the issuer failed to fully disclose the business model of undertaking the research for major special projects in the initial application, with omissions in the disclosure of the information about the related parties, and was unable to fully provide the information necessary for the investors to make value judgments and investment decisions about the issuer. There were significant differences between the financial data in the listing on the CBEX in March 2019 and in the current application, and the issuer's financial data were remarkably adjusted in a short period of time, with a difference of RMB9.9591 million in the net profit between the parent company's statements, reflecting the issuer's circumstances of the unsound internal control system and the weakness in the basic accounting work.
According to the relevant institutional arrangements, in the review of the companies applying for issuance and listing on the SSE STAR Market, the SSE shall examine and judge whether an issuer meets the conditions for issuance and listing and the requirements for information disclosure based on the functions of the SSE STAR Market. The “Measures for the Administration of Registration-based Initial Public Offering on SSE STAR Market (for Trial Implementation)” stipulates that to issue and list shares on the SSE STAR Market, the issuer shall meet the issuance conditions, including the completeness of business and the ability to conduct independent and continuous operations directly oriented toward the market, as well as the regulated basic accounting work and the sound and effectively implemented internal control system, etc. The understanding and implementation of these issuance conditions need to be grasped in light of the factual circumstances presented by the issuer through information disclosure. The termination of the issuance and listing review for the UCAS was the decision made after prudent judgment on the issuer's business independence, standardization of the basic accounting work and other matters on the basis of the circumstances disclosed by the issuer in the prospectus and the replies to the review inquiries.
The case of the UCAS has been the first termination of review as a result of the disapproval of the application for issuance and listing since the registration-based IPO system was piloted on the SSE STAR Market. Earlier, there were 8 companies applying for issuance and listing on the SSE STAR Market that had the review terminated after voluntarily requesting the withdrawal of their applications following one or more rounds of inquiries. According to the existing rules and procedures for the review of issuance and listing on the SSE STAR Market under the registration-based IPO system, it is normal in the review to approve or disapprove the issuance and listing, or even have the review terminated for voluntary withdrawal or other reasons.
The SSE will stick to the orientation toward the market and rule of law, insist on the functions of the SSE STAR Market, continue to focus on information disclosure, and effectively implement the inclusive institutional arrangements for the issuance and listing on the SSE STAR Market. In addition, the SSE will give full play to the role of the open review based on inquiries in improving the quality of issuers' information disclosure and the quality of intermediaries' practice, and well keep the “entrance” to the market, which is also the realistic requirement for the SSE to fulfill its responsibility for issuance and listing review according to law under the registration-based IPO system.