SME IPO FAQ

Program Advantages

 

Q. What makes the SME IPO program unique from other offshore IPO's?

A. USCI uses an F-1 SEC registration statement designed for foreign companies to register their offshore company shares with the U.S. Securities and Exchange Commission ("SEC"). Chinese companies will be listed in the US without VIE structures under SME IPO Program. Share structure is clearer and simpler. Companies listed in the US through this program are still qualified to be listed directly and simultaneously in China, which saves the time for share restructuring and enables companies to enjoy the benefits of capital markets in both countries.

 

Q. What is the primary benefit of this new approach?

A. There are three key benefits.

1. This Innovative approach preserves the legal rights of the Chinese company to dual list its shares on the Beijing 3rd tier exchange (NEEQ).

2. It allows the Chinese company to reposition a portion of its assets to America for building a U.S. subsidiary and acquiring U.S. assets.

3. It creates greater liquidity in the Chinese company shares for current shareholders and executives who wish to realize cash for shares, and use the traded shares as currency for acquiring assets in both China and America.

 

Q. Why list shares in America? Why not just list our shares in China?

A. The SME IPO program accomplishes a listing in both America and China. The American NASDAQ and OTC small cap stock exchange are much larger in both share and dollar volume than its Chinese counterpart NEEQ. This means important issues of company valuation, share liquidity and brand credibility and recognition will be better served with the innovative SME IPO dual listing approach.

 

Q. Will we save money by using the SME IPO dual list approach with USCI?

A. Yes. The USCI SME IPO approach will save a considerable amount of time and expense for companies wishing to list in America compared with some alternative approaches, but cost about the same as acquiring a public shell in the U.S.

 

Q. How does this new approach compare to the old approach of buying a U.S. public shell and reverse merging?

A. Although the reverse takeover approach continues to serve some clients well, like all new innovations, the SME IPO program offers a faster, less expensive approach with greater Chinese control and higher returns on your long term investment. See the online presentation for more detail.

 

Process Questions

 

Q. Does USCI guarantee the IPO listing in America?

A. Yes. USCI will guarantee the Chinese shares listing on the U.S. stock exchange or refund its USCI fees.

 

Q. What U.S. stock exchange do the shares list on?

A. The OTCQB, OTCQX International or NASDAQ.

 

Q. Who completes the paperwork?

A. USCI uses our law firm in China to assist the company in China to prepare the company to file the F-1 registration statement at the U.S. SEC with help from a U.S. law firm to register the Chinese company shares in America.

 

Q. Are there other Chinese companies listed on the OTC or NASDAQ?

A. Yes. There are thousands of global companies listed on the OTC and NASDAQ, notably Bank of China, BYD and Tencent from China.

 

Q. How long does it take to list Chinese company shares?

A. Approximately four months to list on a U.S. stock exchange in New York. There is a full description online at the USCI website.

 

Q: How long after we list on the U.S. stock exchange will we list our company on the Chinese NEEQ?

A: USCI recommends that the company commence the NEEQ listing process immediately after they list on the U.S. stock exchange, as it will take approximately six to ten months to complete the listing. Both USCI and Law Firm will assist you in the process. The filing period will be advantageous because USCI and the investor relations team will use the 6-10 months to build the company stock price, share trade volume and the company brand reputation in the financial markets in both the U.S and China, which will increase the Company's likelihood of a successful NEEQ listing. 

 

Q: Who performs the depository trust or clearing services for all stock trades on the U.S. stock exchange under the SME IPO Program?

A: The Depository Trust Company located in New York, NY USA will maintain a current roster of all global shareholders and perform all clearing services for both individual stockholders and broker-dealers who trade the shares.  Chinese companies who list and their shareholders can access their share ownership data online and get reports real time. In China, Law Firm will arrange to have China Securities Depository and Clearing Company Limited" clear share trades for USCI clients.

 

Q. Once the company is listed on U.S. stock exchange in the U.S., it will have foreign shareholders. Does it affect its qualification to be listed on NEEQ? Can NEEQ listed companies have foreign shareholders?

A. NEEQ listed companies can have foreign shareholders. Foreign shareholders will not disqualify the company from a NEEQ listing.

 

Q. How long does it take CSRC to approve the listing of a Chinese company with foreign shareholders?

A. The U.S listing should speed the process for Chinese regulators, so generally about 6 months, depending on the complexity of the business and application.

 

Q. What Chinese regulators besides CSRC have to review NEEQ listing with foreign shareholders?

A. It requires at least the approval from Commercial bureau, and if it involves a sensitive/restrictive industry, the approval from the relevant authorities supervising the specific industry may also be required.

 

Q: What is the USCI process if a company wants to execute a reverse takeover (RTO) with an existing U.S public company (“PubCo”)?

A: USCI is an expert in the RTO business and provides a turnkey, full service solution outlined below:

Week 1:

1. USCI identifies the available PubCos in USA for takeover (3-7 business days)

2. USCI reviews the PubCo options with the company and selects the best possible choice.

3. The company signs the USCI contract and pays the fixed fee.

4. USCI then controls the shell with a refundable deposit subject to successful due diligence.

Week 2/3:

5. The USCI law firm performs the due diligence on the PubCo and reviews with USCI and company.

6. USCI and Law Firm form the offshore or U.S. acquisition entity for the company if required.

7. USCI negotiates the final merger agreement between the PubCo and the Company.

Week 3/4:

8. USCI, PubCo and company close the merger and the final payment is made with exchange of controlling shares.

Post Merger Activity:

9. USCI works to raise additional capital after the merger is complete.

10. USCI works to assist company to identify and acquire strategic partners and additional U.S. assets.

 

Legal Questions

 

Q. Can a Chinese entity be listed in US?

A. Yes, they can.

 

Q. What approval does a Chinese entity need to obtain to be listed in US?

A. It needs approval from CSRC and supervisory department of the industry if required. CSRC announced new rules regarding the approval for oversea listing in 2014 and 2015. It no longer requires examination on companies' financial reports and auditing reports (no more preconditions on scale of business, profits, capital raising. Cancelled requirements including "net assets not less than RMB 400 million," "after-tax profit of the preceding year not less than RMB 60 million," "proceeds to be financed from IPO not less than USD 50 million") and reduced the number of documents from 13 to 7, which greatly increases the efficiency and saves companies time and money. As China strives to renovate its financial market, the IPO market is moving away from an approval-style system to a U.S.-style registration system and speeding up the process. Since 2015, no approval took more than 20 days. For more information, please visit CSRC website

http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201505/t20150522_277657.html

 

Q. What documents does CRSC require to approve IPO in the US?

A. The majority of the information required by the Chinese Government is also required by the U.S SEC, and thus will be included in the SME IPO due diligence process for the U.S filing conducted by our Law Firm. According to information provided by CSRC,

http://www.csrc.gov.cn/pub/zjhpublic/G00306214/200804/t20080430_23384.htm

1. Application report and relevant documents. Application report should include the history of company and its business, share structure, corporate governance, financial status and profitability, risk, strategy, purpose of fund raising, an explanation that the company meets the requirement to be listed on oversea stock exchange, IPO and listing plan, etc. Relevant documents include the decision of shareholders' meeting and board, business license, articles of corporation, contact of IPO and listing agent.

2. Opinions of industry regulation department (if applicable)

3. Approvals from state-owned property administration department about deduction or transfer of state-owned shares (if applicable)

4. Approval, examination or record of projects where fund raised will be invested in (if applicable)

5. Taxation records in recent three years (main board) or two years (board for startups)

6. Onshore legal opinions

7. Prospectus draft

 

Offering and Listing

 

Q. If the Chinese company is already listed in USA, and wants to list on NEEQ, how do they accomplish this? Do they have to delist from US exchange, go private first, and then list in China?

A. The Chinese company, when listed on the U.S. OTC exchange, does not have to delist to list on the NEEQ. Nor do they have to “go private’ first. There are three primary reasons:

a. This is because neither the OTC or the NEEQ require the company to declare a primary exchange for trading. The OTC allows a company to dual list on all three Chinese exchanges including NEEQ, Shenzhen and Shanghai.

b. And all three Chinese exchanges allow companies to list on any U.S. exchange with permission from the CSRC.

c. Technically, the Chinese company is already a listed company once it lists on the U.S. exchange under the USCI program. The USCI program trades the same class of shares on both the Chinese and U.S. exchanges. Therefore, the company would simply apply to list its shares on the NEEQ as a second exchange where it would trade its shares.

* Please note that the USCI IPO program does not employ a “VIE” structure so there is no offshore party to close prior to the NEEQ listing.

 

Q. If the Chinese company is already listed in the USA, and then qualifies to list on the Shenzhen or Shanghai exchange, what is the process and how can they do it (i.e. must they delist and go private first?)

A.

a. In the Chinese company is listed on OTC, there is no need to delist from the U.S. exchange to list on either the Shenzhen or Shanghai exchange. The Shenzhen and Shanghai exchanges are considered as “Qualified Foreign Exchanges” under OTC, and therefore companies who qualify for the Shenzhen and Shanghai exchanges automatically qualify for OTC and can list immediately with the Chinese exchange subject to CSRC approval. The Chinese company simply files its notice with China CSRC, and makes its application to the Shenzhen or Shanghai exchange for listing.

b. Currently it is not possible for a company to list on both the primary exchanges in the U.S. and China (i.e. NASDAQ, NYSE, Shenzhen and Shanghai). This is because a listed company must declare their primary exchange as one or the other. So if a company is listed first on NASDAQ or NYSE, and wanted to list closer to its mainland business, they would apply to list in Hong Kong, and use the HK connect with both Shenzhen and Shanghai to facilitate easy onshore / offshore access to the Chinese listed companies.

 

Q. If the Chinese company is listed on both a USA exchange and NEEQ, and qualifies to up list to SZ and SH exchange, what is the process how do they accomplish this (i.e. delist and go private first?).

A. The Chinese company would simply apply to list on the Shenzhen or Shanghai exchange with China CSRC. This is because the Shenzhen and Shanghai exchanges are considered as “Qualified Foreign Exchanges” under OTC, and therefore companies who qualify for Shenzhen or Shanghai automatically qualify for OTC and can list immediately. The Chinese company simply files its notice with China CSRC, and makes its application to the Shenzhen or Shanghai exchange for listing.

*Please see the link to OTC Qualified Foreign Exchanges.

http://syndicate.pinksheets.com/services/companies/otcqx-international/q...

 

Q: Is there any dilution to the original Chinese company shareholders when the company transfers shares to list and trade on the U.S. exchange like the OTC or NASDAQ?

A: No – the shares that trade are the same type and class of shares that the Chinese company would trade on the Chinese NEEQ or other exchanges.

 

Q: If the company issues new shares to raise money in America when listing on the U.S. exchange, would the company then experience dilution for current shareholders in China?

A: Yes - When the company issues new shares to raise money in either America or China, current shareholders would suffer some dilution. This is true under the innovative USCI program because the company trades the same share class in both China and the USA.

 

Q: What financial strategies or capital raising structures does USCI employ to minimize the effects of the dilution to current shareholders when selling new shares in America as part of listing the company on a U.S exchange?

A: When we do the U.S. capital raise - we will do so in 4 ways to minimize the dilution and delay the dilutive impact for 12-18 months: 1) find strategic investors who will value the company shares more highly; and 2) use a convertible share offering which will give the shares time to rise and gain traction in the market before conversion; and 3) we will issue shares on a staged basis over the first year thereby minimizing the overall dilution; and 4) We can then institute a share buyback at a certain price with a call feature allowing the companies to repurchase the shares above a certain price point when the company starts succeeding. 

 

Q: When we list our company in America, is this considered a “private placement”?

A: No

 

Q: Is the company allowed to issue new company shares in America when it lists on a U.S. exchange, and would this be considered an IPO, secondary offering or a private placement?

A: Yes - the company is allowed to issue new shares in both China and the U.S, so long as they the company meets the U.S SEC and/or China CSRC filing and reporting regulations. Depending on the financial needs of the company, the company has the option to structure its offering as an IPO (if it’s never issued shares prior) or; a secondary offering if it issued shares to the general public in an IPO prior to the secondary offering or; the company may execute a private placement of its shares, whether registered or not.

 

Q: If the company trades on two different exchanges (i.e. NEEQ and OTC), how does this effect the company capital structure or market capitalization of the company?

A: First – it does not affect the company capital structure, as the same type and class of company shares trade on both exchanges (i.e. NEEQ and OTC). Further, the market capitalization is not affected in a negative way, however an investor may need to examine both exchanges to calculate the total market capitalization of the company. The dual listing strategy is designed to increase market capitalization by taking advantage of the benefits of both China and U.S. exchanges simultaneously.

 

Financial Questions

 

Q. How much does this program cost? What services does the fee cover?

A. The company will pay a one-time fixed consulting fee in USD or RMB. Please contact your local USCI representative for current information on pricing. The consulting fee includes a full service turn-key package including services such as all government filing fees, U.S. stock exchange listing fees and EDGAR filing costs, all legal expenses and all merchant banking and investor relations fees for 12 months.  

 

Q. Is there a money back guarantee on the SME IPO program? If so, what are the conditions for a refund?

A. The Company would be eligible to receive a refund of all USCI fees other than legal fees if the U.S. SEC denies their F-1 registration within 180 days and they comply fully with all reasonable requests made by USCI, the Law Firm, the auditors and U.S. securities legal counsel in a timely manner with accurate information, and diligently pursue all of the steps necessary for the F-1 registration statement to be declared effective by the SEC.

 

Q. What will happen in the 180 days from the date the F-1 registration statement and all related Company documents were submitted to the SEC?

A. SEC will review the registration statement evaluating the disclosure from a potential investor’s perspective and asking questions that an investor might ask when reading the document. When the staff identifies instances where it believes a company can improve its disclosure or enhance its compliance with the applicable disclosure requirements, it provides the company with comments. The range of possible comments is broad and depends on the issues that arise in a particular filing review. In comments, the staff may request that a company provide additional supplemental information. A company generally responds to each comment in a letter to the staff and, if appropriate, by amending its filings. When a company has resolved all SEC comments, the SEC provides the company with a letter to confirm that its review of the filing is complete and gives public notice on the SEC’s EDGAR system that the registration statement is effective. SEC completes many filing reviews without issuing any comments. In cases that do involve comments and responses in the review process, usually all comments are resolved within two rounds of dialogue and 2 to 3 months. 180 days will allow for three to four rounds of dialogue for complicated cases.

 

Q. Is it possible that the U.S. SEC would refuse the F-1 registration statement? If so, on what grounds?

A. In the US, SEC adopts a registration system instead of an approval system currently used in China. As long as the company’s disclosure is complete and accurate there should be no issue and the approval is just a matter of time. Only in the case of fraud does the SEC issue a Stop Order regarding the F-1 Registration statement, and then the Company must refile the F-1 statement with accurate information.  

 

Q. When does the SME IPO Program participant have to pay USCI the SME IPO Fee?

A. The SME IPO Program fees are paid in full at the time the client signs the SME IPO Consulting Agreement with USCI.

 

Q. Does USCI accept payment of the SME IPO Service Fee in USD as well as RMB and HKD? Does the payment go to a company account?

A. Yes USCI can accept multiple currencies. For all clients who wish to pay onshore in RMB, all fees are paid directly to our Chinese representative in China. If the company wishes to pay offshore in USD or HKD, our USCI corporate accounts are held at HSBC and East West Bank in Hong Kong and America, and we accept USD and HKD. If the SME IPO Program participant elects to pay the SME IPO Service Fees in Chinese RMB onshore, they would be responsible for any applicable VAT USCI or our onshore representative  incurs when transferring the RMB to USD and transferring the USD to the U.S.A.

 

Q: If our company currently has an unpaid or underfunded tax liability from the past, will this prohibit us from listing on the U.S. stock exchange? What about listing on the NEEQ?

A: The U.S. stock exchange will require the company auditor to record the underfunded tax as a liability on the company financial statements – but this does not disqualify the company from listing In the U.S. All tax liabilities must be paid in full in all Chinese jurisdictions in order to list and commence trading shares on the NEEQ. One of the benefits to list on the U.S stock exchange first is to raise the capital to pay the tax owed in China – then finalize the China NEEQ listing. 

 

Q: Is the SME IPO fixed Consulting Fee change based on the revenue size or profit level of the company?

A: Not for a company we list on the OTCQB or OTCQX International. Companies that chose to list direct on NASDAQ may incur additional listing fees.

 

Q: Is it more expensive to list on NASDAQ than the OTC?

A: Yes – the company would pay extra fees to list on NASDAQ versus the OTC. NASDAQ costs $50,000 and up; the OTC costs no more than $25k in year one. If you qualify for a NASDAQ listing,  then it means you already have the money necessary to afford the fees.

 

Q: Does the company pay the Chinese audit fee and company lawyer fee separately?

A: Yes.

 

Q: If the company wishes to raise capital after listing in America through USCI, does it pay an extra fee to raise the capital?

A: Yes – USCI will assist the company to raise capital in the USA and China, and charges a standard capital raising fee of 8% commission and a 2% non-accountable expense allowance upon a successful raise.

 

Q: How do you decide what U.S. stock exchange to list the company on at the start?

A: We evaluate the company qualifications based on multiple criteria like revenue, profits, shareholder base and trade history to determine the highest level exchange that the company will qualify for. If the company has a strong preference for a certain exchange and it qualifies for that exchange, USCI will honor their request.

 

Investment Immigration

 

Q. How soon after the SME IPO takes pace in America can the company owners and executive investors apply for a U.S. business visa in conjunction with the program?

A. A business visa to manage your U.S. company is available within 15 days; plus USCI can arrange to have the SME IPO participants and their family in the USA within 30 days on an extended business related visa. Once the SME IPO Program clients are in America the participants and their families will have all the benefits of living and working in America with few restrictions.

 

Q. Will the applicant’s spouse be able to go to the U.S. and work in the U.S.?

A. Yes – and children will be able to attend great public schools in America as well.

 

Q. What is the process for the SME IPO Program and immigration application and are there any special requirements for the applicant?

A. The applicant completes the SME IPO and becomes active in the new U.S. subsidiary of the Chinese company formed during the SME IPO Program. The visa application will be filed immediately by U.S. immigration legal counsel at Law Firm. The immigration visas are awarded shortly thereafter. There are no special requirements to apply. Law Firm will conduct a brief check to ensure that the applicant is not on the INTERPOL list, which would disqualify them for the program. Once this check is completed, there are no other background checks or qualifications to participate in the program. There are no “proof of funds” investigations or reports and no minimum educational requirements.

 

Q. Is a family-based immigration visa applied for by an individual or by the whole family? How many children under 18 years old can the investor bring to the U.S.?

A. When an SME IPO Program participant applies for a business visa, their spouse and all children under 18 are allowed to accompany the participants to America. It takes about 30-60 days to obtain your business visa.

 

Q. How long can I stay in America on an L1 visa?

A. Generally an L1 non-resident visa allows for up to 7 years in the USA to manage your business. Then depending on the program participant’s wishes, anytime during their L1 visa stay, the investor may elect to convert their L1 visa to a permanent resident visa in the U.S. On the SME IPO Program, the company owner, executives and investors may stay as long as 7 years on an L1 business visa before electing permanent residence in the USA, which then places no limitation on your stay.

 

Q. Can you list the criteria needed for L1 business visa?

A. The application requirements are online at http://www.uscis.gov. All legal and immigration related fees are paid by the applicant.  An L1 visa takes between 30-60 days to acquire. Our expert immigration lawyers at Law Firm handle all paperwork for the SME IPO Program participant and their family.

 

Q. When investing in the SME IPO Program, does the applicant incur additional consultant/legal fees related to the investment immigration process?

A. The applicant pays the legal fees related to an immigration visa direct to the law firm.