July 11, 2019
Zhanchang Xin
Chief Executive Officer
Qilian International Holding Group Ltd
Jiuquan Economic and Technological Development Zone
Jiuquan City, Gansu Province
People's Republic of China
Re: Qilian International Holding Group Ltd
Draft Registration Statement on Form F-1
Submitted June 17, 2019
CIK No. 0001779578
Dear Mr. Xin:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form F-1
Prospectus Summary
Our Competitive Advantages
Recognized Brand Name, page 5
1. We note your disclosure here and throughout the prospectus that you have
received many
awards from government agencies and organizations, such as "Specialized
New
Technology" Enterprise Status. Please briefly explain the criteria for
selection for this
award as well as the other awards disclosed throughout your prospectus
so that investors
can understand the significance of these awards.
Zhanchang Xin
FirstName LastNameZhanchang Xin
Qilian International Holding Group Ltd
Comapany NameQilian International Holding Group Ltd
July 11, 2019
July 11, 2019 Page 2
Page 2
FirstName LastName
Our Business Strategies, page 6
2. Please disclose the estimated costs to achieve your business
strategies for Gan Di Xin,
Qiliam Shan Oxytetracycline API, Xiongguan organic fertilizer and
heparin sodium
preparation, and disclose the working capital required to implement
your business plan
and R&D efforts in your risk factor on page 13, which addresses your
limited sources of
working capital and your need for substantial additional financing. In
addition, please
briefly disclose the process of enrolling in the National Essential
Medicines Category and
the National Medical Insurance Coverage Program and explain what you
mean by
"acquire more market shares" in your Our Business Strategies for
Qilian Shan
Oxtetracycline API section.
3. We note your disclosure on page 5 that you intend to "grow untapped
Chinese markets."
However, your Industry section states that licorice, certain types of
oxytetracyline
products and heparin sodium products are already widely available in
China and that the
pharmaceutical market is highly fragmented. Please balance your
disclosure in your
prospectus summary to disclose the highly fragmented nature of your
industries and, if
true, the availability throughout China of similar products to the
ones you offer.
Implications of Being an Emerging Growth Company and a Foreign Private Issuer,
page 8
4. Please provide us with copies of all written communications, as
defined in Rule 405 under
the Securities Act, that you, or anyone authorized to do so on your
behalf, present to
potential investors in reliance on Section 5(d) of the Securities Act,
whether or not they
retain copies of the communications.
Risk Factors, page 12
5. We note that Section 117 of your Articles of Association, filed as
Exhibit 3.2, provides
that any cause of action between the company, its members, directors,
alternate directors,
officers, agents, managers, employees or trustees shall be subject to
the sole jurisdiction
and venue of the Courts of the Cayman Islands. Please disclose in your
Risk Factors
section and in your Description of Share Capital section whether this
provision applies to
actions arising under the Exchange Act and the Securities Act. If so,
please
address the uncertainty as to whether a court would enforce such
provision, and state that
stockholders will not be deemed to have waived the company's
compliance with federal
securities laws and the rules and regulations thereunder. If the
provision does not apply to
actions arising under the Exchange Act and the Securities Act, please
also ensure that the
disclosure in your Risk Factors and Description of Share Capital
sections in your
prospectus and the exclusive forum provision in your Articles of
Association state this
clearly. In addition, in your Risk Factors section, please disclose
the material risks to
investors caused by your exclusive forum provision.
Risks Related to Our Business
Failure to make adequate contributions, page 17
Zhanchang Xin
FirstName LastNameZhanchang Xin
Qilian International Holding Group Ltd
Comapany NameQilian International Holding Group Ltd
July 11, 2019
July 11, 2019 Page 3
Page 3
FirstName LastName
6. Please disclose the aggregate amount you may be required to pay due to
Gansu QLS's and
Chengdu QLS's failure to make the necessary contributions to employee
benefit plans as
required by PRC regulations. In addition, please clarify in the third
paragraph in your
Employees section on page 73 that you have failed to make the
necessary contributions to
employee benefit plans. Also, please disclose whether this failure
could be considered a
breach of your Exclusive Services Agreement with Gansu QLS.
Risks Related to Doing Business in China
Substantial uncertainties exist with represent to the interpretation of the PRC
Foreign Investment
Law, page 27
7. Please expand this risk factor to disclose the effect on your VIE and
related agreements if
your VIE is identified as a FIE. In addition, disclose the effect of
the PRC Foreign
Investment Law on your business and your shareholders if you are
identified as a FIE or if
you acquire upstream and downstream companies manufacturing
traditional Chinese
medicine pieces.
Use of Proceeds, page 31
8. Please disclose how far the proceeds from this offering will allow you
to reach in each of
the specified uses. If you will require additional funds to complete
the listed uses of the
proceeds, please disclose the aggregate amount necessary and how you
intend to raise
additional funds. Also, if you know which products you intend to
develop, please identify
the products and disclose how far in the development you expect to
achieve with the
proceeds of this offering. In addition, we note that you intend to use
the remainder of the
proceeds to acquire companies manufacturing traditional Chinese
medicine pieces. Please
disclose whether you have any present commitments or agreements to
purchase any such
companies.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations, page 37
9. We note your disclosure on page 59 that you independently developed
all ten of your
currently manufactured products within your research and development
department and
that you have products currently in development as disclosed on page
64. However, we do
not see any research and development costs presented on your
Consolidated Statements of
Income and Comprehensive Income. Please revise to explain your
accounting policy for
these costs, whether they are allocated to products, and if material,
quantify for
each period presented.
10. We note your description of the products included in the "
oxytetracycline & Licorice
products and TCMD " segment as disclosed on page 60. Please revise to
disclose whether
there were any material changes in net revenue or cost of sales due to
any specific product
within this segment. Explain the primary factors underlying the
changes for each period
Zhanchang Xin
FirstName LastNameZhanchang Xin
Qilian International Holding Group Ltd
Comapany NameQilian International Holding Group Ltd
July 11, 2019
July 11, 2019 Page 4
Page 4
FirstName LastName
presented. In addition, disclose your reasonably likely expectation
for future trends.
Business
Our History and Corporate Structure
Contractual Arrangements between WFOE and Gansu QLS
Exclusive Service Agreement, page 56
11. We note your disclosure on page 56 that WFOE is entitled to collect a
service fee in
accordance with the services actually provided. However, you also
state that the amount
of service fees shall be the remaining amount of Gansu QLS's profit
before tax after
deducting relevant costs and reasonable expenses. Please revise for
clarity and
consistency. In addition, please explain what you mean by "relevant
costs" and disclose
whether WFOE determines the the amount of "relevant costs" and
"reasonable
expenses."
Our Products
Our Licorice Products
Gan Di Xin, page 61
12. In an appropriate section of your prospectus, please describe the
approval process for
China's State Category V New Drug, and the significance of Gan Di Xin
classification as
such, as well as the significance of its national medicine quality
standard of WS1-(X-
001)-2015Z, which is disclosed on page 72. Also, disclose the approval
process with the
CFDA and any other regulatory bodies for the development and
modification of Gan Di
Xan, which you plan to accomplish by adding additional Chinese herbal
ingredients. In
addition, please disclose the basis for your statement on page 61
that, because your Gan
Di Xin tablets dissolve slowly in the mouth, the tablets'
bioavailability, stability and
effectiveness have been drastically increased.
Products Currently in Development, page 64
13. Please disclose the regulatory process for your two products in
development and, if
relevant, which regulatory phase or phases you have completed for each
of these
products. In this regard, we note your disclosure on page 70 regarding
the different
regulatory processes for different types of fertilizers.
Regulations, Certificates and Permits, page 70
14. Please provide translations for your nine Chinese trademarks.
R&D Development Plan, page 72
15. Please disclose the approval process necessary before you can market
and sell your Ahan
antibacterial paste if you modify the product to suit different skin
types. In addition, we
note your disclosure on page 78 that Ahan has not yet been issued the
certificate of filing
Zhanchang Xin
FirstName LastNameZhanchang Xin
Qilian International Holding Group Ltd
Comapany NameQilian International Holding Group Ltd
July 11, 2019
July 11, 2019 Page 5
Page 5
FirstName LastName
and that the certificate of filing is necessary before the product can
be used. However, on
page 72, you state that you have sold Ahan since November 2017. Please
explain how
you have sold Ahan despite your failure to obtain a certificate of
filing.
Research and Development
R&D Achievements, page 72
16. We note that since May 2016 you worked with Tsinghua University Wuxi
Institute of
Applied Technologies on exploring ways to increase the fermentation
yield of
oxytetracycline and that you have now increased the yield from 32,000
U/ml to 35,000
U/ml, and that you are still in the early development stage of your
cooperative breeding
experiment. Please disclose the material terms of your agreement with
Tsinghua
University Wuxi Institute of Applied Technologies, including any
royalty payments and
the term of the agreement, and, if required by Item 601 of Regulation
S-K, please file the
agreement as an exhibit to your registration statement.
Employees, page 73
17. Please please provide a breakdown of employees by activity in Jiuquan
City and Qionlai
City for Gansu QLS, Qiming and Chengdu QLS pursuant to Item 6.D of
Form 20-F.
Regulations
PRC Laws and Regulations on Foreign Investment, page 81
18. We note your disclosure on pages 55 and 81 that the acquisition of
upstream and
downstream companies manufacturing traditional Chinese medicine pieces
would be
subject to the Negative List, which would (i) prevent you from holding
any equity of
Gansu QLS and its subsidiaries and (ii) prohibit you from foreign
capital investment. We
note that you do not hold any equity securities in Gansu QLS, but,
instead, control the
company through contractual arrangements. Please disclose how the
acquisition of
companies involved in the manufacturing of traditional Chinese
medicine pieces will
affect your organizational structure, including your contractual
arrangements with Gansu
QLS and the Gansu QLS shareholders and how Gansu QLS will be able to
obtain
equity, debt financing, or other financing in the future. To the
extent that you would (i)
have to terminate these contractual arrangements, (ii) be unable to
receive dividends from
Gansu QLS and its subsidiaries or (iii) be unable to provide capital
to Gansu QLS, please
disclose at the beginning of your prospectus summary section and in
your Risk Factors
section.
PRC Laws and Regulations on Foreign Exchange
Circular No. 37 and Circular No. 13, page 83
19. Please tell us whether all of the Gansu QLS shareholders will complete
registration in
accordance with Circular 37 prior to effectiveness. If they will not,
please disclose this in
your prospectus summary and in your Risk Factors section.
Zhanchang Xin
FirstName LastNameZhanchang Xin
Qilian International Holding Group Ltd
Comapany NameQilian International Holding Group Ltd
July 11, 2019
July 11, 2019 Page 6
Page 6
FirstName LastName
Consolidated Financial Statements, page F-1
20. Please note that the audited financial statements should be as of a
date no later than 12
months at the date of filing as specified in Item 8.A.4 of Form 20-F.
Also refer to
Instructions to Item 8.A.4.
Note 1 - Organization and Description of Business, page F-6
21. Please revise to disclose your accounting policy for non-controlling
interests, including
how you recognize and measure this item.
Note 7 Bank Loans, page F-17
22. We note that your $3,639,911 of bank loans with the Agricultural Bank
of China, which
expired in January to May of 2019, were fully repaid at expiration and
new loans were
obtained after the repayments. Please tell us your consideration of
disclosing the terms of
the new loans in your Subsequent Events footnote.
Note 11 Equity, page F-21
23. We note the cash and stock dividends that were declared March 5, 2018
and paid during
2018. Please explain the following statements that appear to conflict,
and reconcile any
apparent inconsistencies:
Page 21: "We do not intend to pay dividends for the foreseeable
future."
Page 26: "We are a holding company and we rely for funding on
dividend payments
from our subsidiaries, which are subject to restrictions under PRC
laws."
Page 32: We intend to keep any future earnings to finance the
expansion of our
business, and we do not anticipate that any cash dividends will be
paid in the
foreseeable future."
General
24. Please provide us mockups of any pages that include any additional
pictures or graphics to
bepresented, including any accompanying captions. Please keep in mind,
in scheduling
your printing and distribution of the preliminary prospectus, that we
may have comments
after our review of these materials.
You may contact Bonnie Baynes at (202) 551-4924 or Sharon Blume,
Accounting
Branch Chief, at (202) 551-3474 if you have questions regarding comments on the
financial
statements and related matters. Please contact Sonia Bednarowski at (202)
551-3666 or Dietrich
King at (202) 551-8071 with any other questions.
Sincerely,
Zhanchang Xin
Qilian International Holding Group Ltd
July 11, 2019
FirstName LastNameZhanchang Xin
Page 7
Comapany NameQilian International Holding Group Ltd
Division of Corporation
Finance
July 11, 2019 Page 7 Office of Healthcare &
Insurance
FirstName LastName