Financial Overview - Qilian International Holding Group Limited raised approximately US$23.87 million in net proceeds from its initial public offering on January 12, 2021[273]. - The company transferred its Ordinary Shares from The Nasdaq Global Market to The Nasdaq Capital Market on December 15, 2023[275]. - A one-time special cash dividend of $0.05 per ordinary share was declared on February 16, 2023, and paid on March 6, 2023[306]. - The company has not declared or paid dividends in the past, nor does it have a fixed dividend policy, leaving the board with complete discretion on future distributions[308]. - For the year ended September 30, 2023, cash flow from VIE to WFOE includes payment of $39,508 for net payments for product sales and purchases, a decrease from $272,527 in 2022 and $1,263,906 in 2021[305]. - The company has a low asset-liability ratio of less than 70%, indicating strong financial health[366]. VIE Structure and Legal Risks - The company has no direct ownership in Gansu QLS due to PRC legal restrictions on foreign ownership in the pharmaceutical sector[285]. - The contractual arrangements with Gansu QLS allow the company to consolidate its financial results under U.S. GAAP, despite not having direct equity ownership[281]. - The company is subject to risks associated with its contractual arrangements with the VIE, which may not be as effective as direct ownership[282]. - There are significant legal and operational risks associated with the VIE structure, including potential changes in PRC regulations that could adversely affect business operations[298]. - The deconsolidation of the VIE could have a material adverse effect on the company's operations and significantly diminish the value of its Ordinary Shares[301]. - The contractual arrangements with the VIE are subject to risks, including potential penalties or loss of interests if found non-compliant with PRC laws[301]. Regulatory Environment - The company has been advised that its U.S. listing is not currently subject to PRC regulatory review, but uncertainties remain regarding future regulatory changes[300]. - Recent regulatory developments indicate that if an operator has personal information of over one million users and intends to be listed in a foreign country, it must undergo a cybersecurity review[309]. - The PCAOB has secured complete access to inspect and investigate registered public accounting firms in mainland China and Hong Kong, which may affect the trading of the company's securities[304]. - Cash transfers from the holding company are subject to PRC laws and regulations, which may delay or prevent the use of proceeds from future financing activities[305]. Product and Market Presence - The VIE and its subsidiaries operate a pharmaceutical and chemical company focusing on oxytetracycline products, licorice products, traditional Chinese medicine derivatives, heparin products, sausage casings, and fertilizers[312]. - The company’s products are sold in more than 20 provinces in China, indicating a significant market presence[312]. - Gan Di Xin® sold approximately 2.99 million pieces for the year ended September 30, 2023, reflecting its growing popularity in the market[322]. - Gansu QLS's Gan Di Xin® was awarded "Famous Trademark of Gansu Province" in 2011 and "China Chemical and Pharmaceutical Industry's Excellent Product Brand" in 2013, indicating strong brand recognition[322]. - Gansu QLS's Qilian Shan® Oxytetracycline Tablets are used to prevent and treat a wide range of diseases in livestock and humans, with sales across more than 20 provinces in China[324]. - Gansu QLS is the only producer in China manufacturing both oxytetracycline tablets and APIs, providing a competitive edge in the market[325]. Research and Development - The company has been recognized for its strong R&D capacities and market competitiveness[370]. - The company has established a Nationally Recognized Enterprise Technology Center, reflecting its strength in technological innovation and robust R&D activities[389]. - The R&D department has significantly improved the company's industry competitiveness and overall business outlook[389]. - The company invested approximately RMB 1,000,000 in a mutational breeding experiment of oxytetracycline-producing bacteria, increasing the average fermentation unit from 32,000 U/ml to 35,000 U/ml[391]. - The R&D department is developing nitrofurantoin enteric-coated tablets and vitacoenzyme as new products to meet market demands[392]. Intellectual Property - Gansu QLS currently holds 21 patents in China, with expiration dates ranging from 2026 to 2029[381]. - The company relies on a combination of patent, trademark, and trade secret laws to protect its proprietary rights[380]. - The WFOE and VIE subsidiaries do not rely on third-party licenses for intellectual property use[380]. - The company has filed multiple patent applications related to various technologies, including purification and coating technologies, with expiration dates extending to 2029 and beyond[384]. Taxation and Financial Regulations - The EIT Law imposes a 25% enterprise income tax rate on resident enterprises for income obtained in and outside the PRC[465]. - Non-resident enterprises with no institutions in the PRC pay a reduced enterprise income tax rate of 10% on PRC-sourced income[465]. - Companies incorporated in Hong Kong may benefit from a 5% withholding tax on dividends from PRC companies if they hold a 25% interest or more[466]. - Gansu GLS and its subsidiaries are subject to a 25% enterprise income tax rate as resident enterprises in the PRC[467].
Qilian International(QLI) - 2023 Q4 - Annual Report