United States securities and exchange commission logo
April 28, 2022
Zhanchang Xin
CEO
Qilian International Holding Group Ltd
Jiuquan Economic and Technological Development Zone
Jiuquan City, Gansu Province, 735000
People s Republic of China
Re: Qilian
International Holding Group Ltd
CIK 0001779578
Form 20-F for
Fiscal Year Ended September 30, 2021
Filed February 11,
2022 File No. 001-39805
Dear Mr. Xin:
We have reviewed your filing 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 these comments within ten business days by
providing the
requested information or advise us as soon as possible when you will
respond. If you do not
believe our comments apply to your facts and circumstances, please tell
us why in your
response. After reviewing your response to these comments, we may have
additional comments.
Form 20-F for Fiscal Year Ended September 30, 2021
Introduction, page 4
1. We note your discussion
on pages 8 and 10 regarding the Risks Related to Our Corporate
Structure. Please
prominently disclose here and at the onset of Item 3. that you are not a
Chinese operating
company but a Cayman Islands holding company with operations
conducted by your
subsidiaries and through contractual arrangements with a variable
interest entity (VIE)
based in China and that this structure involves unique risks to
investors. If true,
disclose that these contracts have not been tested in court. Explain
whether the VIE
structure is used to provide investors with exposure to foreign investment
in China-based
companies where Chinese law prohibits direct foreign investment in the
operating companies,
and disclose that investors may never hold equity interests in the
Chinese operating
company. Your disclosure should acknowledge that Chinese regulatory
authorities could
disallow this structure, which would likely result in a material change in
your operations and/or
a material change in the value of your securities, including that it
could cause the value
of your securities to significantly decline or become worthless.
Provide a
cross-reference to your detailed discussion of risks facing the company as a
Zhanchang Xin
FirstName LastNameZhanchang XinLtd
Qilian International Holding Group
Comapany
April NameQilian International Holding Group Ltd
28, 2022
April 228, 2022 Page 2
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FirstName LastName
result of this structure.
2. We note your discussion on pages 9 and 14 regarding the Holding
Foreign Companies
Accountable Act. Please prominently disclose here and at the outset
of Item 3. whether
your auditor is subject to the determinations announced by the PCAOB
on December 16,
2021 and whether and how the Holding Foreign Companies Accountable Act
and related
regulations, including the Accelerating Holding Foreign Companies
Accountable Act, if
enacted, will affect your company. In addition, disclose that trading
in your securities may
be prohibited under the Holding Foreign Companies Accountable Act if
the PCAOB
determines that it cannot inspect or investigate completely your
auditor, and that as a
result an exchange may determine to delist your securities.
3. You state on page 4 that [a]s used in this annual report on Form
20-F, we, us, our
company, or our refers to Qilian International Holding Group
Limited and its
subsidiaries, and, when describing our consolidated financial
information, also includes
the VIE and their subsidiaries in China. Clearly disclose how you
will refer to the
holding company, subsidiaries, and VIEs when providing the disclosure
throughout the
document so that it is clear to investors which entity the disclosure
is referencing and
which subsidiaries or entities are conducting the business operations.
Refrain from using
terms such as we or our when describing activities or
functions of a VIE. For
example, disclose, if true, that your subsidiaries and/or the VIE
conduct operations in
China, that the VIE is consolidated for accounting purposes but is not
an entity in which
you own equity, and that the holding company does not conduct
operations.
4. We note your discussion on pages 8 and 13 regarding permissions
needed. Please
prominently disclose here and at the outset of Item 3. each permission
or approval that
you, your subsidiaries, or the VIEs are required to obtain from
Chinese authorities to
operate your business and to offer securities to foreign investors.
State whether you, your
subsidiaries, or VIEs are covered by permissions requirements from the
China Securities
Regulatory Commission (CSRC), Cyberspace Administration of China (CAC)
or any
other governmental agency that is required to approve the VIE s
operations, and state
affirmatively whether you have received all requisite permissions or
approvals and
whether any permissions or approvals have been denied. Please also
describe the
consequences to you and your investors if you, your subsidiaries, or
the VIEs: (i) do not
receive or maintain such permissions or approvals, (ii) inadvertently
conclude that such
permissions or approvals are not required, or (iii) applicable laws,
regulations, or
interpretations change and you are required to obtain such permissions
or approvals in the
future.
5. We note your discussion on pages 34, 86, and 95 regarding distribution
of cash. Please
prominently disclose here and at the outset of Item 3. a clear
description of how cash is
transferred through your organization. Disclose your intentions to
distribute earnings or
settle amounts owed under the VIE agreements. Quantify any cash flows
and transfers of
other assets by type that have occurred between the holding company,
its subsidiaries, and
the consolidated VIEs, and direction of transfer. Quantify any
dividends or distributions
Zhanchang Xin
FirstName LastNameZhanchang XinLtd
Qilian International Holding Group
Comapany
April NameQilian International Holding Group Ltd
28, 2022
April 328, 2022 Page 3
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FirstName LastName
that a subsidiary or consolidated VIE have made to the holding company
and which entity
made such transfer, and their tax consequences. Similarly quantify
dividends or
distributions made to U.S. investors, the source, and their tax
consequences. Your
disclosure should make clear if no transfers, dividends, or
distributions have been made to
date. Describe any restrictions on foreign exchange and your ability
to transfer cash
between entities, across borders, and to U.S. investors. Describe any
restrictions and
limitations on your ability to distribute earnings from the company,
including your
subsidiaries and/or the consolidated VIEs, to the parent company and
U.S. investors as
well as the ability to settle amounts owed under the VIE agreements.
Provide cross-
references to the condensed consolidating schedule and the
consolidated financial
statements.
Part I
Item 3. Key Information
D. Risk Factors, page 8
6. We note your discussion on pages 9 and 10 regarding legal and
operational risks
associated with being based in or having the majority of the company's
operations in
China. Please add disclosure discussing how recent statements and
regulatory actions by
China s government, such as those related to the use of variable
interest entities and data
security or anti-monopoly concerns, have or may impact the company s
ability to conduct
its business, accept foreign investments, or list on a U.S. or other
foreign exchange.
7. We note your discussion on page 14 regarding the Cyberspace
Administration of China.
In light of recent events indicating greater oversight by the
Cyberspace Administration of
China (CAC) over data security, particularly for companies seeking to
list on a foreign
exchange, please revise your disclosure to explain how this oversight
impacts your
business and your securities and to what extent you believe that you
are compliant with
the regulations or policies that have been issued by the CAC to date.
In addition, please
update the disclosure in this risk factor to reflect that the final
version of the revisions to
the existing Measures for Cybersecurity Review came into effect on
February 15, 2022.
Item 4. Information on the Company
Our Corporate Structure, page 36
8. We note your diagram of the corporate structure on page 36. Please
identify the person or
entity that owns the equity in each depicted entity, including your
VIE. Describe all
contracts and arrangements through which you claim to have economic
rights and exercise
control that results in consolidation of the VIE s operations and
financial results into your
financial statements. Identify clearly the entity in which investors
are purchasing their
interest and the entity(ies) in which the company s operations are
conducted. Describe the
relevant contractual agreements between the entities and how this type
of corporate
structure may affect investors and the value of their investment,
including how and why
the contractual arrangements may be less effective than direct
ownership and that the
Zhanchang Xin
FirstName LastNameZhanchang XinLtd
Qilian International Holding Group
Comapany
April NameQilian International Holding Group Ltd
28, 2022
April 428, 2022 Page 4
Page
FirstName LastName
company may incur substantial costs to enforce the terms of the
arrangements. Disclose
the uncertainties regarding the status of the rights of the Cayman
Islands holding company
with respect to its contractual arrangements with the VIE, its
founders and owners, and the
challenges the company may face enforcing these contractual agreements
due to legal
uncertainties and jurisdictional limits.
Item 5, page 73
9. We note that the consolidated VIEs constitute a material part of your
consolidated
financial statements. Please revise your filing to provide in tabular
form a condensed
consolidating schedule that disaggregates the operations and depicts
the financial position,
cash flows, and results of operations as of the same dates and for the
same periods for
which audited consolidated financial statements are required. The
schedule should present
major line items, such as revenue and cost of goods/services, and
subtotals and
disaggregated intercompany amounts, such as separate line items for
intercompany
receivables and investment in subsidiary. The schedule should also
disaggregate the
parent company, the VIEs and its consolidated subsidiaries, the WFOEs
that are the
primary beneficiary of the VIEs, and an aggregation of other entities
that are consolidated.
The objective of this disclosure is to allow an investor to evaluate
the nature of assets held
by, and the operations of, entities apart from the VIE, as well as the
nature and amounts
associated with intercompany transactions. Any intercompany amounts
should be
presented on a gross basis and when necessary, additional disclosure
about such amounts
should be included in order to make the information presented not
misleading. Please also
provide a roll-forward of the investment in subsidiaries and VIEs line
item to be presented
in the condensed consolidating schedule.
General
10. We note your disclosure on pages 8, 10-11, and 36 that the Cayman
Islands holding
company controls and receives the economic benefits of the VIE s
business operations
through contractual agreements between the VIE and your Wholly
Foreign-Owned
Enterprise (WFOE) and that those agreements are designed to provide
your WFOE with
the power, rights, and obligations equivalent in all material respects
to those it would
possess as the principal equity holder of the VIE. We also note your
disclosure that the
Cayman Islands holding company is the primary beneficiary of the VIE.
However, neither
the investors in the holding company nor the holding company itself
have an equity
ownership in, direct foreign investment in, or control of, through
such ownership or
investment, the VIE. Accordingly, please refrain from implying that
the contractual
agreements are equivalent to equity ownership in the business of the
VIE. Any references
to control or benefits that accrue to you because of the VIE should be
limited to a clear
description of the conditions you have satisfied for consolidation of
the VIE under U.S.
GAAP. Additionally, your disclosure should clarify that you are the
primary beneficiary
of the VIE for accounting purposes. Please also disclose, if true,
that the VIE agreements
have not been tested in a court of law.
Zhanchang Xin
Qilian International Holding Group Ltd
April 28, 2022
Page 5
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff. You may contact Al Pavot at 202.551.3738 or Terence
O'Brien at
202.551.3355 if you have questions regarding comments on the financial
statements and related
matters. Please contact Michael Davis at 202.551.4385 or Jason Drory at
202.551.8342 with any
other questions.
FirstName LastNameZhanchang Xin Sincerely,
Comapany NameQilian International Holding Group Ltd
Division of
Corporation Finance
April 28, 2022 Page 5 Office of Life
Sciences
FirstName LastName