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What changed in BGM Group Ltd.'s 20-F — 2023 vs 2024

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Paragraph-level year-over-year comparison of BGM Group Ltd.'s 2023 and 2024 20-F annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+535 added−522 removedSource: 20-F (2025-01-27) vs 20-F (2024-02-15)

Top changes in BGM Group Ltd.'s 2024 20-F

535 paragraphs added · 522 removed · 444 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

205 edited+11 added−21 removed333 unchanged
Biggest changeSelected Condensed Consolidating Statements of Operations Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Total revenues — — (1,260,840) 46,471,478 1,260,840 46,471,478 Including: Service fee revenue (loss absorbed) from the VIE ​ — ​ — ​ (1,333,066) ​ — ​ 1,333,066 ​ — Cost of revenues — — 3,255 44,716,729 — 44,719,984 Total operating expenses 649,697 — 307,155 2,143,901 1,260,840 4,361,593 Including: Service fee expense charged by the WFOE — — — (1,333,066) 1,333,066 — Share of (loss) income of subsidiary (1) (1,602,772) (1,602,772) — — 3,205,544 — Net income (loss) (7,780,620) (1,602,772) (1,602,772) (341,450) 3,205,544 (8,122,070) ​ 12 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Total revenues — — 7,440,476 64,468,807 (7,054,258) 64,855,025 Including: Service fee revenue from the VIE ​ — ​ — ​ 2,730,580 ​ — ​ (2,730,580) ​ — Cost of revenues — — 4,268,747 58,682,658 (4,323,677) 58,627,728 Total operating expenses 522,923 — 318,236 6,014,715 (2,730,580) 4,125,294 Including: Service fee expense charged by the WFOE — — — 2,730,580 (2,730,580) — Share of income of subsidiary(1) 2,720,596 2,720,596 — — (5,441,192) — Net income 3,050,625 2,720,596 2,720,596 21,632 (7,147,192) 1,366,257 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Total revenues — — 8,029,035 57,049,381 (7,978,532) 57,099,884 Including: Service fee revenue from the VIE ​ — ​ — ​ 2,835,032 ​ — ​ (2,835,032) ​ — Cost of revenues — — 4,828,584 51,776,270 (5,143,500) 51,461,354 Total operating expenses 212,705 — 135,316 5,737,496 (2,835,032) 3,250,485 Including: Service fee expense charged by the WFOE — — — 2,835,032 (2,835,032) — Share of income of subsidiary(1) 2,974,990 2,974,990 — — (5,949,980) — Net income 3,085,685 2,974,990 2,974,990 22,459 (5,949,980) 3,108,144 ​ Selected Condensed Consolidating Balance Sheets Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Cash and cash equivalents 277,218 — 322,834 ​ 6,876,195 ​ — ​ 7,476,247 Amount due from the Parent/WFOE(2) — — — ​ 4,125,329 ​ (4,125,329) ​ — Total current assets 15,230,237 — 369,857 ​ 23,037,856 ​ (4,125,329) ​ 34,512,621 Service fee receivable from the VIE — — 11,091,165 ​ — ​ (11,091,165) ​ — Investment in subsidiary(3) 10,693,672 10,693,672 — ​ — ​ (21,387,344) ​ — Other non-current assets — — 2,772,206 ​ 13,973,167 ​ — ​ 16,745,373 Total assets 25,923,910 10,693,672 14,233,228 ​ 37,011,023 ​ (36,603,839) ​ 51,257,994 Amounts due to the VIE and its subsidiaries(2) 575,793 — 3,549,536 ​ — ​ (4,125,329) ​ — Total current liabilities 575,793 — 3,539,555 ​ 6,670,120 ​ (4,125,329) ​ 6,660,139 Service fee payable to the WFOE — — — ​ 11,091,165 ​ (11,091,165) ​ — Other non-current liabilities — — — ​ 246,454 ​ — ​ 246,454 Total liabilities 575,793 — 3,539,555 ​ 18,007,739 ​ (15,216,494) ​ 6,906,593 Total equity 25,348,117 10,693,672 10,693,673 ​ 19,003,284 ​ (21,387,345) ​ 44,351,401 Total liabilities and equity 25,923,910 ​ 10,693,672 ​ 14,233,228 ​ 37,011,023 ​ (36,603,839) ​ 51,257,994 ​ 13 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Cash and cash equivalents 3,700,202 — 591,865 10,027,167 — 14,319,234 Amount due from the Parent/WFOE(2) — — — 3,764,354 (3,764,354) — Total current assets 3,725,202 — 633,191 29,439,950 (3,764,354) 30,033,989 Service fee receivable from the VIE — — 12,424,231 — (12,424,231) — Investment in subsidiary(3) 12,645,883 12,645,883 — — (25,291,766) — Other non-current assets 19,470,401 — 2,843,497 12,178,730 — 34,492,628 Total assets 35,841,486 12,645,883 15,900,919 41,618,680 (41,480,351) 64,526,617 Amounts due to the VIE and its subsidiaries(2) 575,793 — 3,241,620 — (3,817,413) — Total current liabilities 575,793 — 3,255,036 9,167,185 (3,817,413) 9,180,601 Service fee payable to the WFOE — — — 12,424,231 (12,424,231) — Other non-current liabilities — — — 382,480 — 382,480 Total liabilities 575,793 — 3,255,036 21,973,896 (16,241,644) 9,563,081 Total equity 35,265,693 12,645,883 12,645,883 19,644,784 (25,238,707) 54,963,536 Total liabilities and equity 35,841,486 12,645,883 15,900,919 41,618,680 (41,480,351) 64,526,617 ​ Selected Condensed Consolidating Cash Flows Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ The VIE and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ ​ US$ ​ US$ ​ US$ ​ US$ ​ US$ ​ US$ Net cash (used in) provided by operating activities ​ (635,467) ​ — ​ (268,752) ​ 1,203,435 ​ 12,993 ​ 312,209 Net cash used in by investing activities ​ (1,000,000) ​ — ​ (29,347) ​ (3,700,105) ​ (12,993) ​ (4,742,445) Net cash provided by (used in) financing activities ​ (1,787,517) ​ — ​ 56,711 ​ (1,190,278) ​ — ​ (2,921,084) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ The VIE and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ ​ US$ ​ US$ ​ US$ ​ US$ ​ US$ ​ US$ Net cash (used in) provided operating activities (527,971) — 280,889 12,901,270 — 12,654,188 Net cash (used in) provided by investing activities — — (1,341,994) (1,153,972) (762,986) (3,258,952) Net cash provided by (used in) financing activities — — (762,986) (5,937,529) 762,986 (5,937,529) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ The VIE and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ ​ US$ ​ US$ ​ US$ ​ US$ ​ US$ ​ US$ Net cash (used in) provided operating activities (217,260) — (1,560,244) 2,122,539 — 345,035 Net cash (used in) provided by investing activities (20,000,000) — (2,226,099) (1,781,618) (192,315) (24,200,032) Net cash provided by (used in) financing activities 24,445,434 — (768,108) 123,697 192,315 23,993,338 ​ 14 Table of Contents The following table represents the roll-forward of the investments in our subsidiaries, the VIE and the VIE’s subsidiaries: ​ ​ ​ ​ ​ USD As of September 30, 2020 6,966,081 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries 2,974,990 Effect of exchange rate ​ 6,858 As of September 30, 2021 9,947,929 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries 2,720,596 Effect of exchange rate ​ (22,641) As of September 30, 2022 ​ 12,645,883 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries ​ (1,602,772) Effect of exchange rate ​ (349,439) As of September 30, 2023 10,693,672 Notes (1) It represents the elimination of share of income by Qilian International from Qilian HK with the net income recognized at Qilian HK level, and share of income by Qilian HK from the WFOE with the net income recognized at the WFOE level, respectively.
Biggest changeSelected Condensed Consolidating Statements of Operations Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended September 30, 2024 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination(4) ​ Total ​ US$ US$ US$ US$ US$ US$ Total revenues — ​ — ​ 698,583 ​ 25,097,953 ​ (698,585) ​ 25,097,951 Including: Service fee revenue (loss absorbed) from the VIE ​ — ​ — ​ 698,585 ​ — ​ (698,585) ​ — Cost of revenues — ​ — ​ 7,807 ​ 20,975,389 ​ — ​ 20,983,196 Total operating expenses 820,606 ​ (3,694) ​ 358,251 ​ 4,198,253 ​ (694,890) ​ 4,678,526 Including: Service fee expense charged by the WFOE — ​ — ​ — ​ 698,585 ​ (698,585) ​ — Share of (loss) income of subsidiary (1) 80,506 ​ 76,813 ​ — ​ — ​ (157,319) ​ — Net income (loss) (1,522,700) ​ 80,506 ​ 76,813 ​ 5,534 ​ (157,315) ​ (1,517,161) ​ 11 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination(4) ​ Total ​ US$ US$ US$ US$ US$ US$ Total revenues — — (1,260,840) 46,471,478 1,260,840 46,471,478 Including: Service fee revenue (loss absorbed) from the VIE ​ — ​ — ​ (1,333,066) ​ — ​ 1,333,066 ​ — Cost of revenues — — 3,255 44,716,729 — 44,719,984 Total operating expenses 649,697 — 307,155 2,143,901 1,260,840 4,361,593 Including: Service fee expense charged by the WFOE — — — (1,333,066) 1,333,066 — Share of (loss) income of subsidiary (1) (1,602,772) (1,602,772) — — 3,205,544 — Net income (loss) (7,780,620) (1,602,772) (1,602,772) (341,450) 3,205,544 (8,122,070) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination(4) ​ Total ​ US$ US$ US$ US$ US$ US$ Total revenues — — 7,440,476 64,468,807 (7,054,258) 64,855,025 Including: Service fee revenue from the VIE ​ — ​ — ​ 2,730,580 ​ — ​ (2,730,580) ​ — Cost of revenues — — 4,268,747 58,682,658 (4,323,677) 58,627,728 Total operating expenses 522,923 — 318,236 6,014,715 (2,730,580) 4,125,294 Including: Service fee expense charged by the WFOE — — — 2,730,580 (2,730,580) — Share of income of subsidiary(1) 2,720,596 2,720,596 — — (5,441,192) — Net income 3,050,625 2,720,596 2,720,596 21,632 (7,147,192) 1,366,257 ​ Selected Condensed Consolidating Balance Sheets Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2024 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination(4) ​ Total ​ US$ US$ US$ US$ US$ US$ Cash and cash equivalents 1,856,344 ​ 1,058,635 ​ 2,427,472 ​ 4,474,803 ​ — ​ 9,817,254 Amount due from the Parent/WFOE(2) — ​ — ​ — ​ 5,128,511 ​ (5,128,511) ​ — Total current assets 10,191,931 ​ 1,113,335 ​ 2,464,159 ​ 15,999,790 ​ (5) ​ 29,769,210 Service fee receivable from the VIE — ​ — ​ 11,789,750 ​ — ​ (11,789,750) ​ — Investment in subsidiary(3) 11,141,678 ​ 11,141,678 ​ — ​ — ​ (22,283,356) ​ — Other non-current assets — ​ 3,328,215 ​ 6,139,822 ​ 16,016,484 ​ (2,250,003) ​ 23,234,518 Total assets 21,333,609 ​ 15,583,228 ​ 20,393,731 ​ 37,144,785 ​ (41,451,624) ​ 53,003,728 Amounts due to the VIE and its subsidiaries(2) (3,435,100) ​ 4,436,707 ​ 4,126,905 ​ — ​ (5,128,512) ​ — Total current liabilities — ​ 1,149 ​ 2,853,836 ​ 5,921,003 ​ (3) ​ 8,775,985 Service fee payable to the WFOE — ​ — ​ — ​ 11,789,750 ​ (11,789,750) ​ — Other non-current liabilities — ​ — ​ — ​ 134,394 ​ — ​ 134,394 Total liabilities (3,435,100) ​ 4,437,856 ​ 6,980,741 ​ 17,845,147 ​ (16,918,264) ​ 8,910,379 Total shareholders’ equity 24,768,709 ​ 11,145,373 ​ 13,412,990 ​ 19,299,638 ​ (24,533,361) ​ 44,093,349 Total liabilities and shareholders’ equity 21,333,609 ​ 15,583,228 ​ 20,393,731 ​ 37,144,785 ​ (41,451,625) ​ 53,003,728 ​ 12 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ The VIE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination(4) ​ Total ​ US$ US$ US$ US$ US$ US$ Cash and cash equivalents 277,218 ​ — ​ 322,834 ​ 6,876,195 ​ — ​ 7,476,247 Amount due from the Parent/WFOE(2) — ​ — ​ — ​ 4,125,329 ​ (4,125,329) ​ — Total current assets 15,230,237 ​ — ​ 369,857 ​ 23,037,856 ​ (4,125,329) ​ 34,512,621 Service fee receivable from the VIE — ​ — ​ 11,091,165 ​ — ​ (11,091,165) ​ — Investment in subsidiary(3) 10,693,672 ​ 10,693,672 ​ — ​ — ​ (21,387,344) ​ — Other non-current assets — ​ — ​ 2,772,206 ​ 13,973,167 ​ — ​ 16,745,373 Total assets 25,923,910 ​ 10,693,672 ​ 14,233,228 ​ 37,011,023 ​ (36,603,839) ​ 51,257,994 Amounts due to the VIE and its subsidiaries(2) 575,793 ​ — ​ 3,549,536 ​ — ​ (4,125,329) ​ — Total current liabilities 575,793 ​ — ​ 3,539,555 ​ 6,670,120 ​ (4,125,329) ​ 6,660,139 Service fee payable to the WFOE — ​ — ​ — ​ 11,091,165 ​ (11,091,165) ​ — Other non-current liabilities — ​ — ​ — ​ 246,454 ​ — ​ 246,454 Total liabilities 575,793 ​ — ​ 3,539,555 ​ 18,007,739 ​ (15,216,494) ​ 6,906,593 Total shareholders’equity 25,348,117 ​ 10,693,672 ​ 10,693,673 ​ 19,003,284 ​ (21,387,345) ​ 44,351,401 Total shareholders’liabilities and equity 25,923,910 ​ 10,693,672 ​ 14,233,228 ​ 37,011,023 ​ (36,603,839) ​ 51,257,994 ​ Selected Condensed Consolidating Cash Flows Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended September 30, 2024 ​ ​ ​ ​ ​ ​ ​ ​ The VIE and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Net cash (used in) provided by operating activities ​ (4,220,872) ​ 3,379,370 ​ 1,203,550 ​ 182,190 ​ — ​ 544,238 Net cash (used in) provided by investing activities ​ 5,800,000 ​ (1,078,215) ​ (1,404,938) ​ (2,333,429) ​ — ​ 983,418 Net cash used in financing activities ​ — ​ — ​ — ​ (491,728) ​ — ​ (491,728) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ The VIE and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Net cash (used in) provided by operating activities ​ (635,467) ​ — ​ (268,752) ​ 1,203,435 ​ 12,993 ​ 312,209 Net cash used in by investing activities ​ (1,000,000) ​ — ​ (29,347) ​ (3,700,105) ​ (12,993) ​ (4,742,445) Net cash provided by (used in) financing activities ​ (1,787,517) ​ — ​ 56,711 ​ (1,190,278) ​ — ​ (2,921,084) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ The VIE and ​ ​ ​ Consolidated ​ ​ Parent ​ Qilian HK ​ WFOE ​ subsidiaries ​ Elimination ​ Total ​ US$ US$ US$ US$ US$ US$ Net cash (used in) provided operating activities ​ (527,971) ​ — ​ 280,889 ​ 12,901,270 ​ — ​ 12,654,188 Net cash used in investing activities — — (1,341,994) (1,153,972) (762,986) (3,258,952) Net cash used in financing activities — — (762,986) (5,937,529) 762,986 (5,937,529) ​ 13 Table of Contents The following table represents the roll-forward of the investments in our subsidiaries, the VIE and the VIE’s subsidiaries: ​ ​ ​ ​ ​ USD As of September 30, 2020 6,966,081 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries 2,974,990 Effect of exchange rate ​ 6,858 As of September 30, 2021 9,947,929 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries 2,720,596 Effect of exchange rate ​ (22,641) As of September 30, 2022 12,645,883 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries (1,602,772) Effect of exchange rate ​ (349,439) As of September 30, 2023 ​ 10,693,672 Share of income of subsidiaries, the VIE and the VIE’s subsidiaries ​ 80,506 Effect of exchange rate ​ 367,500 As of September 30, 2024 11,141,678 Notes (1) It represents the elimination of share of income by BGM from Qilian HK with the net income recognized at Qilian HK level, and share of income by Qilian HK from the WFOE with the net income recognized at the WFOE level, respectively.
(3) As of September 30, 2023, the $4,125,329 intercompany balances included $575,793 loan due to the VIE and its subsidiaries from the Parent, $3,316,379 of receivable of the VIE and its subsidiaries from WFOE originated from purchase made by WFOE from the VIE and its subsidiaries and $233,157 of other payable to the VIE and its subsidiaries from WFOE.
As of September 30, 2023, the $4,125,329 intercompany balances included $575,793 loan due to the VIE and its subsidiaries from the Parent, $3,316,379 of receivable of the VIE and its subsidiaries from WFOE originated from purchase made by WFOE from the VIE and its subsidiaries and $233,157 of other payable to the VIE and its subsidiaries from WFOE.
The PCAOB has made such determination as mandated under the Holding Foreign Companies Accountable Act. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future.
The PCAOB has made such determination as mandated under the Holding Foreign Companies Accountable Act. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future.
Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC.
Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC.
On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
As such, we or our affiliated entities currently do not expect the draft measures by the CAC or other recent regulations will have an impact on ours and our affiliated entities’ business or results of operations, and we believe that we and our affiliated entities are compliant with the regulations and policies that have been issued by the CAC to date.
As such, we or our affiliated entities currently do not expect that the draft measures by the CAC or other recent regulations will have an impact on ours and our affiliated entities’ business or results of operations, and we believe that we and our affiliated entities are compliant with the regulations and policies that have been issued by the CAC to date.
According to the Revised Review Measures, if an “online platform operator” that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review.
According to the Revised Review Measures, if an “online platform operator” that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review.
Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators.
Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators.
Moreover, the CAC released the draft of the Regulations on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year.
Moreover, the CAC released the draft of the Regulations on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year.
Uncertainties still exist, however, due to the possibility that laws, regulations, or policies in the PRC could change rapidly in the future.
Uncertainties still exist, however, due to the possibility that laws, regulations, or policies in the PRC could change rapidly in the future.
Even though Chengdu QLS enjoys considerable advantages resulting from its access to high quality, low cost, and abundant local resources, supply chain fragmentation and local protectionism within China may cause disruption risks for the WFOE and the VIE its other subsidiaries.
Even though Chengdu QLS enjoys considerable advantages resulting from its access to high quality, low cost, and abundant local resources, supply chain fragmentation and local protectionism within China may cause disruption risks for the WFOE, the VIE and its other subsidiaries.
However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. ​ However, the recent developments would add uncertainties to our and the VIE and its subsidiaries’ operations and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. ​ The recent developments would add uncertainties to our and the VIE and its subsidiaries’ operations and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, , and thus, would reduce the time before our ordinary shares may be prohibited from trading or delisted. ​ 16 Table of Contents ● On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions.
Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, and thus, would reduce the time before our Ordinary Shares may be prohibited from trading or delisted. 15 Table of Contents ● On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions.
For instance, you may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands company. ​ You may experience difficulties in effecting services of legal process, enforcing foreign judgments or bringing actions in China against us or our management based on foreign laws. ​ We are an exempted company incorporated under the laws of the Cayman Islands; however, we do not conduct any businesses and all business operations are conducted by the WFOE and the VIE and its subsidiaries in China and most of our assets are located in China.
For instance, you may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands holding company. ​ You may experience difficulties in effecting services of legal process, enforcing foreign judgments or bringing actions in China against us or our management based on foreign laws. ​ We are an exempted company incorporated under the laws of the Cayman Islands; however, we do not conduct any businesses and all business operations are conducted by the WFOE and the VIE and its subsidiaries in China and most of our assets are located in China.
We cannot assure you that the VIE and its subsidiaries can maintain all required licenses, permits and certifications to carry on their business at all times. ● A significant portion of the VIE and its subsidiaries’ revenue is concentrated on a few large customers, and the WFOE, the VIE and its subsidiaries do not have long-term agreements with their key customers and rely upon their longstanding relationship with these customers.
We cannot assure you that the VIE and its subsidiaries can maintain all required licenses, permits and certifications to carry on their business at all times. ● A significant portion of the VIE and its subsidiaries’ revenue is concentrated in a few large customers, and the WFOE, the VIE and its subsidiaries do not have long-term agreements with their key customers and rely upon their longstanding relationship with these customers.
We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply, and such compliance or any associated inquiries or investigations or any other government actions may: ​ ● delay or impede our development; ​ ● result in negative publicity or increase our operating costs; ​ ● require significant management time and attention; and ● subject our Company to remedies, administrative penalties and even criminal liabilities that may harm the WFOE and the VIE and its subsidiaries’ business, including fines assessed for our current or historical operations, or demands or orders that our affiliated entities modify or even cease their business practices. ​ 29 Table of Contents The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information and important data worldwide is rapidly evolving in PRC and is likely to remain uncertain for the foreseeable future.
We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply, and such compliance or any associated inquiries or investigations or any other government actions may: ​ ● delay or impede our development; ​ ● result in negative publicity or increase our operating costs; ​ ● require significant management time and attention; and ● subject our Company to remedies, administrative penalties and even criminal liabilities that may harm the WFOE and the VIE and its subsidiaries’ business, including fines assessed for our current or historical operations, or demands or orders that our affiliated entities modify or even cease their business practices. ​ 28 Table of Contents The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information and important data worldwide is rapidly evolving in PRC and is likely to remain uncertain for the foreseeable future.
Other potentially competitive sources of improvement in oxytetracycline yields include improvements in specific biotechnology areas and information management. ​ The WFOE and the VIE and its subsidiaries have competitors in China that manufacture products similar to theirs. These companies sell similar products as ours and some of them may have more assets, resources and a larger market share.
Other potentially competitive sources of improvement in oxytetracycline yields include improvements in specific biotechnology areas and information management. ​ The WFOE and the VIE and its subsidiaries have competitors in China that manufacture products similar to theirs. These companies sell similar products to ours and some of them may have more assets, resources and a larger market share.
If some investors find our Ordinary Shares to be less attractive as a result, there may be a less active trading market for our Ordinary Shares and our stock price may be more volatile. ​ 48 Table of Contents If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. ​ Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
If some investors find our Ordinary Shares to be less attractive as a result, there may be a less active trading market for our Ordinary Shares and our stock price may be more volatile. ​ 46 Table of Contents If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. ​ Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. ​ To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies.
We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. ​ To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies.
Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us or our affiliated entities to obtain any additional licenses, permits or certifications that were previously not required for the WFOE and the VIE and its subsidiaries to operate their existing businesses, we cannot assure you that the WFOE and the VIE and its subsidiaries will successfully obtain such licenses, permits or certifications. ​ 45 Table of Contents Gan Di Xin ® , exclusively produced by Gansu QLS, is subject to continuing regulation by the National Medical Products Administration (the “NMPA”) in China.
Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us or our affiliated entities to obtain any additional licenses, permits or certifications that were previously not required for the WFOE and the VIE and its subsidiaries to operate their existing businesses, we cannot assure you that the WFOE and the VIE and its subsidiaries will successfully obtain such licenses, permits or certifications. ​ 43 Table of Contents Gan Di Xin ® , exclusively produced by Gansu QLS, is subject to continuing regulation by the National Medical Products Administration (the “NMPA”) in China.
Under the HFCA Act, Qilian International’s securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our Ordinary Shares being delisted. ​ If any such policies or deliberations were to materialize, the resulting legislation, if it were to apply to us, would likely have a material adverse impact on our and the VIE and its subsidiaries’ business and the price of our ordinary shares.
Under the HFCA Act, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our Ordinary Shares being delisted. ​ If any such policies or deliberations were to materialize, the resulting legislation, if it were to apply to us, would likely have a material adverse impact on our and the VIE and its subsidiaries’ business and the price of our ordinary shares.
As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer. ​ 49 Table of Contents Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer. ​ The Nasdaq Listing Rules requires listed companies to have, among other things, a majority of its board members be independent.
As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer. ​ 47 Table of Contents Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer. ​ The Nasdaq Listing Rules requires listed companies to have, among other things, a majority of its board members be independent.
If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers. ​ As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. ​ 51 Table of Contents The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers. ​ As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. ​ The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we and our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to our, the VIE or its subsidiaries business operations, significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors, and cause our Ordinary Shares to significantly decline in value or become worthless”; ● On December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations jointly issued the revised Measures for Cybersecurity Review, or the “Revised Review Measures”, which became effective and replaced the existing Measures for Cybersecurity Review on February 15, 2022.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we and our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to our, the VIE or its subsidiaries business operations, significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors, and cause our Ordinary Shares to significantly decline in value or become worthless”; ● On December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations jointly issued the revised Measures for Cybersecurity Review, or the “Revised Review Measures”, which became effective and replaced the existing Measures for Cybersecurity Review on February 15, 2022.
Our holding company in the Cayman Islands, the VIE, and investors of our Company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our Company as a group. ​ 19 Table of Contents There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing the business operations of the VIE and its subsidiaries, or the enforcement and performance of our contractual arrangements with the VIE and its shareholders.
Our holding company in the Cayman Islands, the VIE, and investors of our Company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our Company as a group. ​ 18 Table of Contents There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing the business operations of the VIE and its subsidiaries, or the enforcement and performance of our contractual arrangements with the VIE and its shareholders.
The Chinese resident shareholders’ failure to comply with Circular 37 registration would not impose penalties on our Company, while it may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the Chinese resident shareholders who fail to complete Circular 37 registration, are also illegal.
The Chinese resident shareholders’ failure to comply with Circular 37 registration would not impose penalties on our Company, but it may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the Chinese resident shareholders who fail to complete Circular 37 registration, are also illegal.
Unless the WFOE and the VIE and its subsidiaries’ are able to pass on these increased labor costs to their customers by increasing the prices of their products and services, their financial conditions and results of operations could be materially and adversely affected. ​ Some of our shareholders are not in compliance with the PRC’s regulations relating to offshore investment activities by PRC residents, and as a result, the shareholders may be subject to penalties if we are not able to remediate the non-compliance.
Unless the WFOE and the VIE and its subsidiaries are able to pass on these increased labor costs to their customers by increasing the prices of their products and services, their financial conditions and results of operations could be materially and adversely affected. ​ Some of our shareholders are not in compliance with the PRC’s regulations relating to offshore investment activities by PRC residents, and as a result, the shareholders may be subject to penalties if we are not able to remediate the non-compliance.
We cannot assure you that each of our Chinese resident shareholders will in the future complete the registration process as required by Circular 37. ​ 38 Table of Contents The VIE is not in compliance with the PRC’s regulations relating to employee’s social insurance and housing funds, and as a result, Gansu QLS and its subsidiaries may be subject to penalties if it is not able to remediate the non-compliance. ​ Pursuant to the Social Security Law of the PRC, or the Social Security Law, which was promulgated by the SCNPC on October 28, 2010 and amended on December 29, 2018, employers shall pay the basic pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance for employees.
We cannot assure you that each of our Chinese resident shareholders will in the future complete the registration process as required by Circular 37. ​ The VIE is not in compliance with the PRC’s regulations relating to employee’s social insurance and housing funds, and as a result, Gansu QLS and its subsidiaries may be subject to penalties if it is not able to remediate the non-compliance. ​ Pursuant to the Social Security Law of the PRC, or the Social Security Law, which was promulgated by the SCNPC on October 28, 2010 and amended on December 29, 2018, employers shall pay the basic pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance for employees.
Should the PCAOB determine that it cannot inspect or fully investigate our auditor for three consecutive years, an exchange may determine to delist Qilian International’s securities. ​ On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in Mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
Should the PCAOB determine that it cannot inspect or fully investigate our auditor for three consecutive years, an exchange may determine to delist our securities. ​ On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in Mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations and the value of our Ordinary Shares and Ordinary Share equivalents would be materially negatively impacted and the WFOE and the VIE and its subsidiaries’ operations may cease. ​ 42 Table of Contents We, the VIE, and the VIE’s subsidiaries depend on certain key personnel, and loss of these key personnel could have a material adverse effect on the WFOE and the VIE and its subsidiaries’ business, financial condition and results of operations.
If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations and the value of our Ordinary Shares and Ordinary Share equivalents would be materially negatively impacted and the WFOE and the VIE and its subsidiaries’ operations may cease. ​ 40 Table of Contents We, the VIE, and the VIE’s subsidiaries depend on certain key personnel, and loss of these key personnel could have a material adverse effect on the WFOE and the VIE and its subsidiaries’ business, financial condition and results of operations.
These factors could also make it more difficult for us to attract and retain qualified members for our board of directors, particularly to serve on our audit committee and compensation committee, and to serve as qualified executive officers, generally. ​ 50 Table of Contents We do not intend to pay dividends for the foreseeable future. ​ We currently intend to retain any future earnings to finance the operation and expansion of the WFOE and the VIE and its subsidiaries’ business.
These factors could also make it more difficult for us to attract and retain qualified members for our board of directors, particularly to serve on our audit committee and compensation committee, and to serve as qualified executive officers, generally. ​ 48 Table of Contents We do not intend to pay dividends for the foreseeable future. ​ We currently intend to retain any future earnings to finance the operation and expansion of the WFOE and the VIE and its subsidiaries’ business.
Further, the competitors of the WFOE and the VIE and its subsidiaries may infringe their trademarks, or they may not have adequate resources to enforce their trademarks. 44 Table of Contents In addition, the WFOE and the VIE and its subsidiaries also have trade secrets, non-patented proprietary expertise and continuing technological innovation that they shall seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees and consultants.
Further, the competitors of the WFOE and the VIE and its subsidiaries may infringe their trademarks, or they may not have adequate resources to enforce their trademarks. 42 Table of Contents In addition, the WFOE and the VIE and its subsidiaries also have trade secrets, non-patented proprietary expertise and continuing technological innovation that they shall seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees and consultants.
Our auditors, ZH CPA, LLC and Friedman LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards.
Our auditors, ZH CPA, LLC and Enrome LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards.
For example, Qilian International faces risks associated with PRC governmental authorities’ significant oversight and discretion over the businesses and financing activities of the VIE, the requirement of regulatory approvals for offerings conducted overseas by and foreign investment in China-based issuers, the use of variable interest entities, the enforcement of anti-monopoly regime, the regulatory oversight on cybersecurity and data privacy as well as the risk of delisting due to if the PCAOB is unable to conduct inspection on our auditors, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange.
For example, BGM faces risks associated with PRC governmental authorities’ significant oversight and discretion over the businesses and financing activities of the VIE, the requirement of regulatory approvals for offerings conducted overseas by and foreign investment in China-based issuers, the use of variable interest entities, the enforcement of anti-monopoly regime, the regulatory oversight on cybersecurity and data privacy as well as the risk of delisting due to if the PCAOB is unable to conduct inspection on our auditors, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange.
If such claims are successful, our and the VIE and its subsidiaries’ business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in Qilian International and its affiliated entities’ favor, these claims, and the time and resources necessary to resolve them, could divert the resources of Qilian International and its affiliated entities’ management and adversely affect Qilian International and its affiliated entities’ business, brand and reputation and results of operations. ​ Being a public company and being subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
If such claims are successful, our and the VIE and its subsidiaries’ business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in BGM and its affiliated entities’ favor, these claims, and the time and resources necessary to resolve them, could divert the resources of BGM and its affiliated entities’ management and adversely affect BGM and its affiliated entities’ business, brand and reputation and results of operations. ​ Being a public company and being subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
In addition, changes in PRC laws and regulations or changes in interpretations thereof may materially and adversely affect the WFOE and the VIE and its subsidiaries’ business. ● We rely on contractual arrangements with the VIE and its subsidiaries in China for the VIE and its subsidiaries’ business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements. ● Gansu QLS’s shareholders may have potential conflicts of interest with us, which may materially and adversely affect Qilian International and its affiliated entities’ business and financial condition and the value of your investment in our shares.
In addition, changes in PRC laws and regulations or changes in interpretations thereof may materially and adversely affect the WFOE and the VIE and its subsidiaries’ business. ● We rely on contractual arrangements with the VIE and its subsidiaries in China for the VIE and its subsidiaries’ business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements. ● Gansu QLS’s shareholders may have potential conflicts of interest with us, which may materially and adversely affect BGM and its affiliated entities’ business and financial condition and the value of your investment in our shares.
Qilian International Trade (Chengdu) Co., LTD, or WFOE, has entered into contractual arrangements with the VIE and its shareholders, and such contractual arrangements enable us to exercise certain control over, receive substantially all of the economic benefits of, and have an exclusive option to purchase all or part of the equity interest and assets in the VIE when and to the extent permitted by PRC law.
Qilian International Trading (Chengdu) Co., Ltd., or WFOE, has entered into contractual arrangements with the VIE and its shareholders, and such contractual arrangements enable us to exercise certain control over, receive substantially all of the economic benefits of, and have an exclusive option to purchase all or part of the equity interest and assets in the VIE when and to the extent permitted by PRC law.
Since the CAC is still seeking comments on the Draft Regulation from the public as of the date of this annual report, the Draft Regulation (especially its operative provisions) and its anticipated adoption or effective date are subject to further changes with substantial uncertainty. 26 Table of Contents As of the date of this annual report, we or our affiliated entities have not engaged in the relevant businesses provided in the Draft Regulation.
Since the CAC is still seeking comments on the Draft Regulation from the public as of the date of this annual report, the Draft Regulation (especially its operative provisions) and its anticipated adoption or effective date are subject to further changes with substantial uncertainty. 25 Table of Contents As of the date of this annual report, we or our affiliated entities have not engaged in the relevant businesses provided in the Draft Regulation.
Taxation—United States Federal Income Tax Considerations—PFIC.” ​ 40 Table of Contents Risks Related to the WFOE and the VIE and its Subsidiaries’ Business ​ The WFOE and the VIE and its subsidiaries face significant competition in industries experiencing rapid technological change, and there is a possibility that their competitors may achieve regulatory approval and develop new product candidates before the WFOE and the VIE and its subsidiaries, which may harm our financial condition and the ability of the WFOE and the VIE and its subsidiaries to successfully market or commercialize any of their product candidates. ​ The pharmaceutical and chemical industries currently are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property.
Taxation—United States Federal Income Tax Considerations—PFIC.” ​ Risks Related to the WFOE and the VIE and its Subsidiaries’ Business ​ The WFOE and the VIE and its subsidiaries face significant competition in industries experiencing rapid technological change, and there is a possibility that their competitors may achieve regulatory approval and develop new product candidates before the WFOE and the VIE and its subsidiaries, which may harm our financial condition and the ability of the WFOE and the VIE and its subsidiaries to successfully market or commercialize any of their product candidates. ​ The pharmaceutical and chemical industries currently are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property.
Our auditors, ZH CPA, LLC and Friedman LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the U.S. and firms registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards.
Our auditors, ZH CPA, LLC and Enrome LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the U.S. and firms registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards.
Our auditors, ZH CPA, LLC and Friedman LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual reports, as auditors of companies that are traded publicly in the U.S. and firms registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards.
Our auditors, ZH CPA, LLC and Enrome LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual reports, as auditors of companies that are traded publicly in the U.S. and firms registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards.
We and our affiliated entities are also currently not required to obtain approval from Chinese authorities to list on U.S. exchanges, however, if we or our affiliated entities are required to obtain approval in the future and are denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors ​ We do not conduct any business operations.
However, if we or our affiliated entities are required to obtain approval in the future and are denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors ​ We do not conduct any business operations.
In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is possible in the future that, even if the VIE is identified as an FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment. ​ It may be difficult for overseas regulators to conduct investigation or collect evidence within China. ​ Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China.
In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is possible in the future that, even if the VIE is identified as an FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment. ​ 34 Table of Contents It may be difficult for overseas regulators to conduct investigation or collect evidence within China. ​ Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China.
For more information, see page 29 under “The PRC government may intervene or influence the WFOE or the VIE and its subsidiaries’ business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in the WFOE and the VIE and its subsidiaries’ business operations or the value of Qilian International’s securities.” Additionally, the governmental and regulatory interference could significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
For more information, see page 29 under “The PRC government may intervene or influence the WFOE or the VIE and its subsidiaries’ business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in the WFOE and the VIE and its subsidiaries’ business operations or the value of BGM’s securities.” Additionally, the governmental and regulatory interference could significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Under the 2015 FIL Draft, VIEs that are controlled via contractual arrangement would also be deemed as foreign invested enterprises, if they are ultimately “controlled” by foreign investors. ​ 35 Table of Contents On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January 1, 2020, repealing simultaneously the Law of the PRC on Chinese-foreign Equity Joint Ventures, the Law of the PRC on Wholly Foreign-owned Enterprises and the Law of the PRC on Chinese-foreign Cooperative Joint Ventures, together with their implementation rules and ancillary regulations.
Under the 2015 FIL Draft, VIEs that are controlled via contractual arrangement would also be deemed as foreign invested enterprises, if they are ultimately “controlled” by foreign investors. ​ On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January 1, 2020, repealing simultaneously the Law of the PRC on Chinese-foreign Equity Joint Ventures, the Law of the PRC on Wholly Foreign-owned Enterprises and the Law of the PRC on Chinese-foreign Cooperative Joint Ventures, together with their implementation rules and ancillary regulations.
On the basis that (i) Gansu QLS has opened the account for housing funds and deposited housing funds for staff since August 2019, and (ii) the local authorities had not taken enforceable measures to collect housing funds from local enterprises, we think it is unlikely that the overdue unpaid housing fund would be ordered to be recovered from Gansu QLS.
On the basis that (i) Gansu QLS has opened the account for housing funds and deposited housing funds for staff since August 2019, and (ii) the local authorities had not taken enforceable measures to collect housing funds from local enterprises, we believe it is unlikely that the overdue unpaid housing fund would be ordered to be recovered from Gansu QLS.
We will make this determination following the end of any particular tax year. ​ Although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise certain level of control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements.
We will make this determination following the end of any particular tax year. ​ 38 Table of Contents Although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise certain level of control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements.
We, the VIE and the VIE’s subsidiaries do not carry key man life insurance for any of the key personnel, nor do we foresee purchasing such insurance to protect against the loss of key personnel. ​ Qilian International and its affiliated entities’ may not be able to hire and retain qualified personnel to support their growth and if Qilian International and its affiliated entities’ are unable to retain or hire these personnel in the future, their ability to improve their products and implement their business objectives could be adversely affected. ​ Qilian International and its affiliated entities must attract, recruit and retain a sizeable workforce of technically competent employees.
We, the VIE and the VIE’s subsidiaries do not carry key man life insurance for any of the key personnel, nor do we foresee purchasing such insurance to protect against the loss of key personnel. ​ BGM and its affiliated entities’ may not be able to hire and retain qualified personnel to support their growth and if BGM and its affiliated entities’ are unable to retain or hire these personnel in the future, their ability to improve their products and implement their business objectives could be adversely affected. ​ BGM and its affiliated entities must attract, recruit and retain a sizeable workforce of technically competent employees.
These contractual arrangements enable Qilian International to (i) direct the activities that most significantly affect the economic performance of the VIE and its subsidiaries; (ii) receive substantially all of the economic benefits from the VIE and its subsidiaries in consideration for the services provided by the PRC Subsidiary; and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE or to all or part of the assets of the VIE, when and to the extent permitted by PRC law, or request any existing shareholder of the VIE to transfer all or part of the equity interest in the VIE to another PRC person or entity designated by Qilian International at any time in its discretion.
These contractual arrangements enable BGM to (i) direct the activities that most significantly affect the economic performance of the VIE and its subsidiaries; (ii) receive substantially all of the economic benefits from the VIE and its subsidiaries in consideration for the services provided by the PRC Subsidiary; and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE or to all or part of the assets of the VIE, when and to the extent permitted by PRC law, or request any existing shareholder of the VIE to transfer all or part of the equity interest in the VIE to another PRC person or entity designated by BGM at any time in its discretion.
If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless. ​ 39 Table of Contents You may face difficulties in protecting your interests and exercising your rights as a shareholder since we do not conduct any business and substantially all of the business operations are conducted by the WFOE and the VIE and its subsidiaries in China, and almost all of our officers and directors reside outside the U.S. ​ Although we are incorporated in the Cayman Islands, we do not conduct any business and substantially all of the business operations are conducted by the WFOE and the VIE and its subsidiaries in China.
If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless. ​ You may face difficulties in protecting your interests and exercising your rights as a shareholder since we do not conduct any business and substantially all of the business operations are conducted by the WFOE and the VIE and its subsidiaries in China, and almost all of our officers and directors reside outside the U.S. ​ Although we are incorporated in the Cayman Islands, we do not conduct any business and substantially all of the business operations are conducted by the WFOE and the VIE and its subsidiaries in China.
If the WFOE and the VIE and its subsidiaries fail to successfully promote and maintain their brand, or if they incur substantial expenses in an unsuccessful attempt to promote and maintain their brand, the VIE and its subsidiaries may fail to attract new customers or retain their existing customers, in which case Qilian International and its affiliated entities’ business, operating results and financial condition, would be materially adversely affected. ​ Any disruption in the supply chain of raw materials and the products of the WFOE and the VIE and its subsidiaries could adversely impact their ability to produce and deliver products. ​ Some products manufactured by the WFOE and the VIE and its subsidiaries are resource-based products.
If the WFOE and the VIE and its subsidiaries fail to successfully promote and maintain their brand, or if they incur substantial expenses in an unsuccessful attempt to promote and maintain their brand, the VIE and its subsidiaries may fail to attract new customers or retain their existing customers, in which case BGM and its affiliated entities’ business, operating results and financial condition, would be materially adversely affected. ​ Any disruption in the supply chain of raw materials and the products of the WFOE and the VIE and its subsidiaries could adversely impact their ability to produce and deliver products. ​ Some products manufactured by the WFOE and the VIE and its subsidiaries are resource-based products.
The availability of the competitors’ products could limit the demand, and the price the WFOE and the VIE and its subsidiaries are able to charge, for any products that they develop alone or with collaborators. ​ 41 Table of Contents The pharmaceutical business of the WFOE and the VIE and its subsidiaries is subject to inherent risks relating to product liability and personal injury claims.
The availability of the competitors’ products could limit the demand, and the price the WFOE and the VIE and its subsidiaries are able to charge, for any products that they develop alone or with collaborators. ​ 39 Table of Contents The pharmaceutical business of the WFOE and the VIE and its subsidiaries is subject to inherent risks relating to product liability and personal injury claims.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we or our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors, and cause Ordinary Shares to significantly decline in value or become worthless.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we or our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors, and cause Ordinary Shares to significantly decline in value or become worthless.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we, the VIE or its subsidiaries were to be subject to such oversight and control, it may result in a material adverse change to the VIE and its subsidiaries’ business operations, significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors, and cause its ordinary shares to significantly decline in value or become worthless” and “Item 3.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we, the VIE or its subsidiaries were to be subject to such oversight and control, it may result in a material adverse change to the VIE and its subsidiaries’ business operations, significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors, and cause its ordinary shares to significantly decline in value or become worthless” and “Item 3.
In the event that the PRC government expanded the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC, and we inadvertently concluded that relevant permissions or approvals were not required or that we or our affiliated entities did not receive or failed to maintain relevant permissions or approvals required and such permissions were subsequently rescinded, any action by the PRC government could significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.
In the event that the PRC government expanded the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC, and we inadvertently concluded that relevant permissions or approvals were not required or that we or our affiliated entities did not receive or failed to maintain relevant permissions or approvals required and such permissions were subsequently rescinded, any action by the PRC government could significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.
If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on March 31, 2024, which are more detailed and extensive than the forms available to a foreign private issuer.
If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on March 31, 2025, which are more detailed and extensive than the forms available to a foreign private issuer.
If Chengdu QLS fails to comply to PRC authorities’ order within the prescribed time limit, a court ordered compulsory enforcement may be adopted and a fine of no less than RMB10,000 but no more than RMB50,000 shall be imposed. ​ Since the VIE failed to make adequate social insurance and housing fund contributions, it may be subject to fines and legal sanctions, and Qilian International and its affiliated entities’ business, financial condition and results of operations may be adversely affected. ​ If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm the WFOE and the VIE and its subsidiaries’ business operations and our reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably. ​ Recently, U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC.
If Chengdu QLS fails to comply to PRC authorities’ order within the prescribed time limit, a court ordered compulsory enforcement may be adopted and a fine of no less than RMB10,000 but no more than RMB50,000 shall be imposed. ​ Since the VIE failed to make adequate social insurance and housing fund contributions, it may be subject to fines and legal sanctions, and BGM and its affiliated entities’ business, financial condition and results of operations may be adversely affected. ​ 37 Table of Contents If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm the WFOE and the VIE and its subsidiaries’ business operations and our reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably. ​ Recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC.
Under the current contractual arrangements, as a legal matter, if Gansu QLS or any of its shareholders executing the VIE contractual arrangements fails to perform its, his or her respective obligations under these contractual arrangements, Qilian International may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which Qilian International cannot assure investors will be effective.
Under the current contractual arrangements, as a legal matter, if Gansu QLS or any of its shareholders executing the VIE contractual arrangements fails to perform its, his or her respective obligations under these contractual arrangements, BGM may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which BGM cannot assure investors will be effective.
Any failure to obtain, or a delay in obtaining, the requisite governmental approval for an offering, or a rescission of such CSRC approval if obtained by us or our affiliated entities, may subject us or our affiliated entities to sanctions imposed by the relevant PRC regulatory authority, which could include fines and penalties on the operations of the WFOE and the VIE and its subsidiaries in China, restrictions or limitations on Qilian International’s ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect Qilian International and its affiliates’ business, financial condition, and results of operations. ​ Our PRC counsel has advised us that, based on its understanding of the current PRC laws and regulations, we or our affiliated entities will not be required to submit an application to the CSRC for the approval under the M&A Rules for an offering, because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether any follow-on offerings are subject to this regulation; and (ii) we did not acquire any equity interests or assets of a “PRC domestic company,” as such terms are defined under the M&A Rules. ​ 23 Table of Contents However, our PRC counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules.
Any failure to obtain, or a delay in obtaining, the requisite governmental approval for an offering, or a rescission of such CSRC approval if obtained by us or our affiliated entities, may subject us or our affiliated entities to sanctions imposed by the relevant PRC regulatory authority, which could include fines and penalties on the operations of the WFOE and the VIE and its subsidiaries in China, restrictions or limitations on BGM’s ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect BGM and its affiliates’ business, financial condition, and results of operations. ​ Our PRC counsel has advised us that, based on its understanding of the current PRC laws and regulations, we or our affiliated entities will not be required to submit an application to the CSRC for the approval under the M&A Rules for an offering, because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether any follow-on offerings are subject to this regulation; and (ii) we did not acquire any equity interests or assets of a “PRC domestic company,” as such terms are defined under the M&A Rules. ​ 22 Table of Contents However, our PRC counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules .
If the PRC government determines that these contractual arrangements do not comply with its restrictions on foreign investment in the internet business, if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, or if the PRC government otherwise finds that Qilian International, the VIE, or any of its subsidiaries is in violation of PRC laws or regulations or lack the necessary permits or licenses to operate the VIE and its subsidiaries’ business, the relevant PRC regulatory authorities, including but not limited to the MIIT, which regulates internet information service companies, would have broad discretion in dealing with such violations, including: ● revoking Gansu QLS and its subsidiaries’ business and operating licenses; ● discontinuing or restricting the VIE and its subsidiaries’ operations; 21 Table of Contents ● imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations; ● requiring us or our PRC affiliated entities to restructure the relevant ownership structure or operations; ● placing restrictions on our right to collect revenues; ● restricting or prohibiting Qilian International use of the proceeds from its initial public offering to finance the business and operations of the VIE; and ● taking other regulatory or enforcement actions that could be harmful to the VIE and its subsidiaries’ business.
If the PRC government determines that these contractual arrangements do not comply with its restrictions on foreign investment in the internet business, if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, or if the PRC government otherwise finds that BGM, the VIE, or any of its subsidiaries is in violation of PRC laws or regulations or lack the necessary permits or licenses to operate the VIE and its subsidiaries’ business, the relevant PRC regulatory authorities, including but not limited to the MIIT, which regulates internet information service companies, would have broad discretion in dealing with such violations, including: ● revoking Gansu QLS and its subsidiaries’ business and operating licenses; ● discontinuing or restricting the VIE and its subsidiaries’ operations; ● imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations; ● requiring us or our PRC affiliated entities to restructure the relevant ownership structure or operations; ● placing restrictions on our right to collect revenues; 20 Table of Contents ● restricting or prohibiting BGM’s use of the proceeds from its initial public offering to finance the business and operations of the VIE; and ● taking other regulatory or enforcement actions that could be harmful to the VIE and its subsidiaries’ business.
Given the recency of the issuance of the Revised Review Measures and their pending effectiveness, there is a general lack of guidance and substantial uncertainties exist with respect to their interpretation and implementation. 30 Table of Contents Qilian International has been advised by Gansu Quanyi Law Firm, our PRC counsel, that as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of any PRC authorities including the Cyberspace Administration of China (“CAC”) or the China Securities Regulatory Commission (“CSRC”) because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities affiliated to us were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC.
Given the recency of the issuance of the Revised Review Measures and their pending effectiveness, there is a general lack of guidance and substantial uncertainties exist with respect to their interpretation and implementation. 29 Table of Contents BGM has been advised by Gansu Quanyi Law Firm, our PRC counsel, that as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of any PRC authorities including the Cyberspace Administration of China (“CAC”) or the China Securities Regulatory Commission (“CSRC”) because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities affiliated to us were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC.
If they are deemed to be applicable to us, we cannot assure you that we or our affiliated entities will be compliant with such new regulations in all respects, and we or our affiliated entities may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may materially and adversely affect Qilian International and its affiliated entities’ business, financial condition, and results of operations.
If they are deemed to be applicable to us, we cannot assure you that we or our affiliated entities will be compliant with such new regulations in all respects, and we or our affiliated entities may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may materially and adversely affect BGM and its affiliated entities’ business, financial condition, and results of operations.
Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case. 32 Table of Contents If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow.
Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case. 31 Table of Contents If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow.
Qilian International and its affiliated entities’ results of operations could be materially and adversely affected if Gansu QLS’s tax liabilities increase or if it is required to pay late payment fees and other penalties. ​ 22 Table of Contents If we exercise the option to acquire equity ownership of Gansu QLS, the ownership transfer may subject us to certain limitation and substantial costs. ​ Pursuant to the VIE contractual arrangements, WFOE has the exclusive right to purchase all or any part of the equity interests in Gansu QLS from Gansu QLS’s shareholders for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request.
BGM and its affiliated entities’ results of operations could be materially and adversely affected if Gansu QLS’s tax liabilities increase or if it is required to pay late payment fees and other penalties. ​ 21 Table of Contents If we exercise the option to acquire equity ownership of Gansu QLS, the ownership transfer may subject us to certain limitation and substantial costs. ​ Pursuant to the VIE contractual arrangements, WFOE has the exclusive right to purchase all or any part of the equity interests in Gansu QLS from Gansu QLS’s shareholders for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request.
If any of these entities undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering WFOE, the VIE and its subsidiaries’ to operate their business, which could materially and adversely affect Qilian International and its affiliated entities’ business, financial condition and results of operations. ​ According to SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, promulgated on November 19, 2012 and amended on May 4, 2015, and the Provisions on the Foreign Exchange Administration of Domestic Direct Investment of Foreign Investors, effective on May 13, 2013, if any of our PRC Subsidiary, the VIE, or the VIE’s subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch.
If any of these entities undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering WFOE, the VIE and its subsidiaries’ to operate their business, which could materially and adversely affect BGM and its affiliated entities’ business, financial condition and results of operations. ​ 33 Table of Contents According to SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, promulgated on November 19, 2012 and amended on May 4, 2015, and the Provisions on the Foreign Exchange Administration of Domestic Direct Investment of Foreign Investors, effective on May 13, 2013, if any of our PRC Subsidiary, the VIE, or the VIE’s subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch.
The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination with respect to our status will be made on March 31, 2024.
The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination with respect to our status will be made on March 31, 2025.
Further, it is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. PRC regulatory authorities could disallow this structure, which would materially adversely affect the value of Qilian International’s ordinary shares, and could cause the value of such securities to significantly decline or become worthless.
Further, it is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. PRC regulatory authorities could disallow this structure, which would materially adversely affect the value of BGM’s ordinary shares, and could cause the value of such securities to significantly decline or become worthless.
In particular, recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly concerns, as well as the PCAOB’s ability to inspect our auditors, may impact Qilian International’s ability to conduct its business through the VIE and its subsidiaries, accept foreign investments, or be listed on a U.S. or other foreign stock exchange.
In particular, recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly concerns, as well as the PCAOB’s ability to inspect our auditors, may impact BGM’s ability to conduct its business through the VIE and its subsidiaries, accept foreign investments, or be listed on a U.S. or other foreign stock exchange.
Risk Factors - Risks Related to Doing Business in China - Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, hinder Qilian International’s ability and the ability of any holder of Qilian International’s securities to offer or continue to offer such securities, result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, and damage Qilian International and its subsidiaries’ reputation, which would materially and adversely affect Qilian International and its affiliates’ financial condition and results of operations and cause the Ordinary Shares to significantly decline in value or become worthless.” Qilian International has been advised by Gansu Quanyi Law Firm, our PRC counsel that as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of PRC authorities including the Cyberspace Administration of China (“CAC”) or the China Securities Regulatory Commission (“CSRC”) because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities (the WFOE, the VIE and its subsidiaries) were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC.
Risk Factors - Risks Related to Doing Business in China - Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, hinder BGM’s ability and the ability of any holder of BGM’s securities to offer or continue to offer such securities, result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, and damage BGM and its subsidiaries’ reputation, which would materially and adversely affect BGM and its affiliates’ financial condition and results of operations and cause the Ordinary Shares to significantly decline in value or become worthless.” 8 Table of Contents BGM has been advised by Gansu Quanyi Law Firm, our PRC counsel, that as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of PRC authorities including the Cyberspace Administration of China (“CAC”) or the China Securities Regulatory Commission (“CSRC”) because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities (the WFOE, the VIE and its subsidiaries) were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC.
For more detailed information, see “Risks Related to Doing Business in China — The PRC government may intervene and influence the WFOE and the VIE and its subsidiaries’ business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in the WFOE and the VIE and its subsidiaries’ business operations or the value of Qilian International’s securities.
For more detailed information, see “Risks Related to Doing Business in China — The PRC government may intervene and influence the WFOE and the VIE and its subsidiaries’ business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in the WFOE and the VIE and its subsidiaries’ business operations or the value of BGM’s securities.
Since the WFOE and the VIE and its subsidiaries do not have long-term customer supply agreements with such large customers and rely primarily upon their goodwill and reputation to sustain the business relationship, Qilian International and its affiliated entities’ results of operations may be adversely and materially impacted if one or more of these customers stop purchasing from the VIE or its subsidiaries.
Since the WFOE and the VIE and its subsidiaries do not have long-term customer supply agreements with such large customers and rely primarily upon their goodwill and reputation to sustain the business relationship, BGM and its affiliated entities’ results of operations may be adversely and materially impacted if one or more of these customers stop purchasing from the VIE or its subsidiaries.
Thus, these farmers may not have the ability to supply continuously and stably if environmental and climate change adversely affect their business. ​ The success of the WFOE and the VIE and its subsidiaries depends on their ability to protect their intellectual property.
Thus, these farmers may not have the ability to supply continuously and stably if environmental and climate changes adversely affect their business. ​ The success of the WFOE and the VIE and its subsidiaries depends on their ability to protect their intellectual property.
In addition, our shares may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of those entities that conduct a significant part of the VIE and its subsidiaries’ operations. ​ Qilian International relies on contractual arrangements with the VIE and VIE’s subsidiaries in China for its business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements. ​ Qilian International relies on and expect to continue to rely on its wholly owned PRC Subsidiary’s contractual arrangements with Gansu QLS and Gansu QLS’s shareholders to operate its business.
In addition, our shares may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of those entities that conduct a significant part of the VIE and its subsidiaries’ operations. ​ BGM relies on contractual arrangements with the VIE and VIE’s subsidiaries in China for its business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements. ​ BGM relies on and expects to continue to rely on its wholly owned PRC Subsidiary’s contractual arrangements with Gansu QLS and Gansu QLS’s shareholders to operate its business.
Further, foreign investment enterprises established by way of round-tripping shall complete the relevant foreign exchange registration formalities pursuant to the prevailing foreign exchange control provisions for direct investments by foreign investors, and disclose the relevant information such as actual controlling party of the shareholders truthfully. ​ There are a total of 151 Gansu QLS shareholders, who are PRC residents.
Further, foreign investment enterprises established by way of round-tripping shall complete the relevant foreign exchange registration formalities pursuant to the prevailing foreign exchange control provisions for direct investments by foreign investors, and disclose the relevant information such as actual controlling party of the shareholders truthfully. ​ 36 Table of Contents There are a total of 151 Gansu QLS shareholders, who are PRC residents.
In order for Qilian International to pay dividends to its shareholders, it will rely on payments made from the VIE and its subsidiaries to WFOE, pursuant to VIE agreements between them, and the distribution of such payments to Qilian HK as dividends from WFOE.
In order for BGM to pay dividends to its shareholders, it will rely on payments made from the VIE and its subsidiaries to WFOE, pursuant to VIE agreements between them, and the distribution of such payments to Qilian HK as dividends from WFOE.
There can be no assurance that the PRC government authorities, such as the Ministry of Commerce, or the MOFCOM, the MIIT, or other authorities that regulate Qilian International’s business and/or other participants in the relevant industry, would agree that Qilian International’s corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.
There can be no assurance that the PRC government authorities, such as the Ministry of Commerce, or the MOFCOM, the MIIT, or other authorities that regulate BGM’s business and/or other participants in the relevant industry, would agree that BGM’s corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.
Qilian International and its affiliated entities are also currently not required to obtain approval from Chinese authorities to list on U.S. exchanges, however, if they are required to obtain approval in the future and are denied permission from Chinese authorities to list on U.S. exchanges, Qilian International will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.” Financial Information Related to the VIE The following tables provide condensed consolidating schedules depicting the financial position, cash flows, and results of operations for the parent, subsidiaries, WFOE, the consolidated VIE, and any eliminating adjustments and consolidated totals as of and for the years ended September 30, 2023, 2022 and 2021.
BGM and its affiliated entities are also currently not required to obtain approval from Chinese authorities to list on U.S. exchanges, however, if they are required to obtain approval in the future and are denied permission from Chinese authorities to list on U.S. exchanges, BGM will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.” Financial Information Related to the VIE The following tables provide condensed consolidating schedules depicting the financial position, cash flows, and results of operations for the parent, subsidiaries, WFOE, the consolidated VIE, and any eliminating adjustments and consolidated totals as of and for the years ended September 30, 2024, 2023 and 2022.
However, Qilian International’s PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Foreign Investment Law (2019), Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules and the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry.
However, BGM’s PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Foreign Investment Law (2019), Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules and the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry.
These agreements make Qilian International their “primary beneficiary” for accounting purposes under U.S. GAAP. For descriptions of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Agreements with the VIE and its Shareholders.” Qilian International believes that its corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations.
These agreements make BGM their “primary beneficiary” for accounting purposes under U.S. GAAP. For descriptions of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Agreements with the VIE and its Shareholders.” BGM believes that its corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations.
Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors.
Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeLittle Giant Enterprise of Chengdu City Award According to the “Notice for Carrying out the Cultivation of High-Growth SMEs and Small Giant Enterprises in 2018” (Enterprise Division of Sichuan Provincial Economic and Information Commission [2018] No. 136) issued by the Sichuan Provincial Economic and Information Commission and Sichuan Provincial SME Bureau, the Chengdu City Economic and Information Commission is authorized to award the “Little Giant Enterprise of Chengdu City” Award according to the following qualifications, which include, but are not limited to: sizes of the applicants’ manufacturing capabilities, annual profits, tax contributions, and annual business income. 73 Table of Contents Petroleum and Chemical Industry “Specialized and Innovative” Small to Medium Enterprises (the “SME”) Award According to the “Measures for the Recognition of Petroleum and Chemical Industry “Specialized and Innovative” SMEs Award” and “Opinions on Promoting the Healthy Development of SMEs” issued by the General Office of the CPC Central Committee and General Office of the State Council, the China Petroleum and Chemical Industry Federation and China SME Development Committee are authorized to award Petroleum and Chemical Industry “Specialized and Innovative” SME Enterprises Award according to the following qualifications, which include, but are not limited to: well-known brand name within petroleum and chemical industry, strong R&D capacities, specialization and expertise in certain market segments, market competitiveness, ownership of certain highly competitive IPs, and management efficiencies.
Biggest changePetroleum and Chemical Industry “Specialized and Innovative” Small to Medium Enterprises (the “SME”) Award According to the “Measures for the Recognition of Petroleum and Chemical Industry “Specialized and Innovative” SMEs Award” and “Opinions on Promoting the Healthy Development of SMEs” issued by the General Office of the CPC Central Committee and General Office of the State Council, the China Petroleum and Chemical Industry Federation and China SME Development Committee are authorized to award Petroleum and Chemical Industry “Specialized and Innovative” SME Enterprises Award according to the following qualifications, which include, but are not limited to: well-known brand name within petroleum and chemical industry, strong R&D capacities, specialization and expertise in certain market segments, market competitiveness, ownership of certain highly competitive IPs, and management efficiencies. 71 Table of Contents Chengdu City’s Unicorn Enterprise Award According to the “Notice of the Chengdu City Municipal New Economy Committee on Cultivating New Economic Enterprise 2018” (Chengdu City Municipal New Economy Development Committee [2018] No. 247) issued by the Chengdu City Municipal New Economy Committee, the Chengdu City Municipal New Economy Committee, with the help of qualified industrial experts and financial experts, is authorized to award the “Chengdu City’s Unicorn Enterprise”.
As a result of the aforementioned termination, Chengdu Trade will no longer have contractual control over, nor receive the economic benefits of Gansu QLS.
As a result of the aforementioned termination, Chengdu Trade will no longer have contractual control over, nor receive the economic benefits of Gansu QLS.
For services rendered to Gansu QLS by Hainan Trade under this agreement, Hainan Trade is entitled to collect a service fee that shall be equal to 99.214% of the net profits of Gansu QLS.
For services rendered to Gansu QLS by Hainan Trade under this agreement, Hainan Trade is entitled to collect a service fee that shall be equal to 99.214% of the net profits of Gansu QLS.
The Hainan Exclusive Service Agreement shall remain in effect for ten years unless earlier terminated upon written confirmation from both Hainan Trade and Gansu QLS before expiration. Otherwise, this agreement shall be extended by another ten years automatically. The Hainan Exclusive Service Agreement does not prohibit related party transactions.
The Hainan Exclusive Service Agreement shall remain in effect for ten years unless earlier terminated upon written confirmation from both Hainan Trade and Gansu QLS before expiration. Otherwise, this agreement shall be extended by another ten years automatically. The Hainan Exclusive Service Agreement does not prohibit related party transactions.
However, we may in the future acquire upstream and downstream companies manufacturing traditional Chinese medicine pieces, and as result it is likely that the WFOE and the VIE and its subsidiaries’ production and operation would be subject to the Negative List. As a result, we would not be able to hold any equity of Gansu QLS and its subsidiaries.
However, we may in the future acquire upstream and downstream companies manufacturing traditional Chinese medicine pieces, and as a result it is likely that the WFOE and the VIE and its subsidiaries’ production and operation would be subject to the Negative List. As a result, we would not be able to hold any equity of Gansu QLS and its subsidiaries.
The capital of a foreign-invested enterprise and the Renminbi it obtained from foreign exchange settlement shall not be used for the following purposes: ● directly or indirectly used for expenses beyond its business scope or prohibited by relevant laws or regulations; ● directly or indirectly used for investment in securities unless otherwise provided by relevant laws or regulations; ● directly or indirectly used for entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; or ● directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises).
The capital of a foreign-invested enterprise and the Renminbi it obtained from foreign exchange settlement shall not be used for the following purposes, directly or indirectly: ● expenses beyond its business scope or prohibited by relevant laws or regulations; ● investment in securities unless otherwise provided by relevant laws or regulations; ● entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; or ● expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises).
For services rendered to Gansu QLS by WFOE under this agreement, WFOE is entitled to collect a service fee that shall be equal to 99.214% of the net profits of Gansu QLS, with such percentage determined in accordance with “ARTICLE 3 - SERVICE FEES” of the Amended Exclusive Service Agreement executed on August 27, 2019, as amended on February 25, 2021.
For services rendered to Gansu QLS by WFOE under this agreement, WFOE is entitled to collect a service fee that shall be equal to 99.214% of the net profits of Gansu QLS, with such percentage determined in accordance with “ARTICLE 3 - SERVICE FEES” of the Amended Exclusive Service Agreement executed on August 27, 2019, as amended on February 25, 2021.
In connection with such termination, Hainan Trade, a wholly-owned subsidiary of Qilian International (Hong Kong) Holdings Limited, entered into a certain exclusive service agreement with Gansu QLS (the “Hainan Exclusive Service Agreement”) on December 1, 2022, through which Hainan Trade obtained contractual control over Gansu QLS.
In connection with such termination, Hainan Trade, a wholly-owned subsidiary of Qilian International (Hong Kong) Holdings Limited, entered into a certain exclusive service agreement with Gansu QLS (the “Hainan Exclusive Service Agreement”) on December 1, 2022, through which Hainan Trade obtained contractual control over Gansu QLS.
Pursuant to the Hainan Exclusive Service Agreement, Hainan Trade provides Gansu QLS with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, business management and information.
Pursuant to the Hainan Exclusive Service Agreement, Hainan Trade provides Gansu QLS with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, business management and information.
For services rendered to Gansu QLS by Hainan Trade under this agreement, Hainan Trade is entitled to collect a service fee that shall be equal to 99.214% of the net profits of Gansu QLS.
For services rendered to Gansu QLS by Hainan Trade under this agreement, Hainan Trade is entitled to collect a service fee that shall be equal to 99.214% of the net profits of Gansu QLS.
The Hainan Exclusive Service Agreement shall remain in effect for ten years unless earlier terminated upon written confirmation from both Hainan Trade and Gansu QLS before expiration. Otherwise, this agreement shall be extended by another ten years automatically. The Hainan Exclusive Service Agreement does not prohibit related party transactions.
The Hainan Exclusive Service Agreement shall remain in effect for ten years unless earlier terminated upon written confirmation from both Hainan Trade and Gansu QLS before expiration. Otherwise, this agreement shall be extended by another ten years automatically. The Hainan Exclusive Service Agreement does not prohibit related party transactions.
In the opinion of Gansu Quanyi Law Firm, the Company’s PRC legal counsel, the Hainan Exclusive Service Agreement is valid, binding and enforceable under current PRC law. However, such agreement may not be as effective in providing control as direct ownership.
In the opinion of Gansu Quanyi Law Firm, the Company’s PRC legal counsel, the Hainan Exclusive Service Agreement is valid, binding and enforceable under current PRC law. However, such agreement may not be as effective in providing control as direct ownership.
There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulation regarding such contractual arrangements and their effectiveness. WFOE is currently managing Gansu QLS pursuant to the terms of the Exclusive Service Agreement.
There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulation regarding such contractual arrangements and their effectiveness. WFOE is currently managing Gansu QLS pursuant to the terms of the Exclusive Service Agreement.
WFOE has absolute authority relating to the management of Gansu QLS, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operational functions. The Exclusive Service Agreement does not prohibit related party transactions.
WFOE has absolute authority relating to the management of Gansu QLS, including but not limited to decisions with regard to expenses, salary raises and bonuses, hiring, firing and other operational functions. The Exclusive Service Agreement does not prohibit related party transactions.
Under the terms of the Equity Pledge Agreement, in the event that Gansu QLS breaches its contractual obligations under the Exclusive Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests.
Under the terms of the Equity Pledge Agreement, in the event that Gansu QLS breaches its contractual obligations under the Exclusive Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests.
The Gansu QLS Shareholders also agreed that upon occurrence of any event of default, as set forth in the Equity Pledge Agreement, WFOE is entitled to dispose of the pledged equity interest in accordance with applicable PRC laws.
The Gansu QLS Shareholders also agreed that upon occurrence of any event of default, as set forth in the Equity Pledge Agreement, WFOE is entitled to dispose of the pledged equity interest in accordance with applicable PRC laws.
Under the Call Option Agreement, WFOE may be able to acquire the equity interests or the assets in Gansu QLS any time to the extent permitted by the PRC Law.
Under the Call Option Agreement, WFOE may be able to acquire the equity interests or the assets in Gansu QLS any time to the extent permitted by the PRC Law.
In the event Gansu QLS breaches its contractual obligations under the Exclusive Service Agreement, WFOE will be entitled to foreclose on the Gansu QLS Shareholders’ equity interests in Gansu QLS and may (1) exercise its option to purchase or designate third parties to purchase part or all of their equity interests or the assets in Gansu QLS and in this situation, WFOE may terminate the Exclusive Service Agreement, Equity Pledge Agreement and Call Option Agreement after acquisition of all equity interests or assets in Gansu QLS or form new VIE structure with the third parties designated by WFOE; or (2) dispose the pledged equity interests or assets and be paid in priority out of proceed from the disposal in which case the VIE structure will be terminated.
In the event Gansu QLS breaches its contractual obligations under the Exclusive Service Agreement, WFOE will be entitled to foreclose on the Gansu QLS Shareholders’ equity interests in Gansu QLS and may (1) exercise its option to purchase or designate third parties to purchase part or all of their equity interests or the assets in Gansu QLS and in this situation, WFOE may terminate the Exclusive Service Agreement, Equity Pledge Agreement and Call Option Agreement after acquisition of all equity interests or assets in Gansu QLS or form new VIE structure with the third parties designated by WFOE; or (2) dispose of the pledged equity interests or assets and be paid in priority out of proceed from the disposal in which case the VIE structure will be terminated.
Call Option Agreement Under the Call Option Agreement, the Gansu QLS Shareholders irrevocably granted WFOE (or its designee) an exclusive right to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, a portion or whole of the equity interests or assets in Gansu QLS held by the Gansu QLS Shareholders.
Call Option Agreement Under the Call Option Agreement, the Gansu QLS Shareholders irrevocably granted WFOE (or its designee) an exclusive right to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, a portion or whole of the equity interests or assets in Gansu QLS held by the Gansu QLS Shareholders.
The purchase price should be no more than $1.00 subject to any appraisal or restrictions required by applicable PRC laws and regulations. The agreement remains effective until all the transferred equity or transferred asset of Gansu QLS is legally transferred under the name of WFOE and/or other entity or individual designated by it.
The purchase price should be no more than $1.00 subject to any appraisal or restrictions required by applicable PRC laws and regulations. The agreement remains effective until all the transferred equity or transferred asset of Gansu QLS is legally transferred under the name of WFOE and/or other entity or individual designated by it.
Shareholders’ Voting Rights Proxy Agreement and Powers of Attorney Under the Shareholders’ Voting Rights Proxy Agreement and each Power of Attorney, each Gansu QLS Shareholder authorizes WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a) the attendance of the shareholder’s meeting and the execution of relative Shareholder Resolution(s) of Gansu QLS; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Gansu QLS.
Shareholders’ Voting Rights Proxy Agreement and Powers of Attorney Under the Shareholders’ Voting Rights Proxy Agreement and each Power of Attorney, each Gansu QLS Shareholder authorizes WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including but not limited to: (a) the attendance of the shareholder’s meeting and the execution of relative Shareholder Resolution(s) of Gansu QLS; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Gansu QLS.
Each Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of its execution, so long as the relevant Gansu QLS Shareholder is a shareholder of Gansu QLS.
Each Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of its execution, so long as the relevant Gansu QLS Shareholder is a shareholder of Gansu QLS.
For example, we and our affiliated entities face risks associated with PRC governmental authorities’ significant oversight and discretion over the businesses and financing activities of the VIE, the requirement of regulatory approvals for offerings conducted overseas by and foreign investment in China-based issuers, the use of variable interest entities, the enforcement of anti-monopoly regime, the regulatory oversight on cybersecurity and data privacy as well as the risk of delisting due to if the PCAOB is unable to conduct inspection on our auditors, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange.
For example, we and our affiliated entities face risks associated with PRC governmental authorities’ significant oversight and discretion over the businesses and financing activities of the VIE, the requirement of regulatory approvals for offerings conducted overseas by and foreign investment in China-based issuers, the use of variable interest entities, the enforcement of anti-monopoly regime, the regulatory oversight on cybersecurity and data privacy as well as the risk of delisting if the PCAOB is unable to conduct inspection on our auditors, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange.
Zhanchang Xin based on the following standards, which include, but are not limited to: a candidate’s entrepreneurship and ability to lead their company with advanced management philosophy, and the annual income, profits, and status of regulatory compliance of those companies under the candidate’s leadership. 74 Table of Contents Qualifications Qualifications Individual or Entity Qualified Agency Issue Date Expiration Date National Permit for Industrial Products Manufacturers ​ Moshangfa ​ Gansu Provincial Bureau of Quality and Technical Supervision ​ January 2018 ​ August 5, 2026 (1) Production Permit for Disinfection Product Manufacturers ​ Ahan ​ Gansu Provincial Health and Family Planning Commission ​ June 2017 ​ June 14, 2025 (2) China’s High-tech Enterprise Certificate ​ Gansu QLS ​ Gansu Provincial Department of Science and Technology, Gansu Provincial Department of Finance, Gansu Provincial Department of Taxation, Gansu Provincial Local Taxation Bureau ​ October 2017 ​ October 2026 (3) Pollutant Discharge Permit ​ Gansu QLS ​ Jiuquan City Environmental Protection Bureau ​ December 2017 ​ December 28, 2025 (4) Gansu Province Fertilizer Official Registration Certificate ​ Moshangfa ​ Gansu Provincial Agriculture and Animal Husbandry ​ December 2017 ​ December 31, 2022 Pharmaceutical Production License ​ Gansu QLS ​ Gansu Provincial Food and Drug Administration ​ August 2018 ​ December 29, 2025 (5) Fertilizer Registration Certificate for Xiongguan® Organic Fertilizer ​ Moshangfa ​ Ministry of Agriculture and Rural Affairs ​ May 2020 ​ May 2025 Fertilizer Registration Certificate for Xiongguan® Organic-Inorganic Compound Fertilizer ​ Moshangfa ​ Ministry of Agriculture and Rural Affairs ​ May 2020 ​ May 2025 Notes: ​ (1) The original permit was valid until September 20, 2021.
Zhanchang Xin based on the following standards, which include, but are not limited to: a candidate’s entrepreneurship and ability to lead their company with advanced management philosophy, and the annual income, profits, and status of regulatory compliance of those companies under the candidate’s leadership. 72 Table of Contents Qualifications Qualifications Individual or Entity Qualified Agency Issue Date Expiration Date National Permit for Industrial Products Manufacturers ​ Moshangfa ​ Gansu Provincial Bureau of Quality and Technical Supervision ​ January 2018 ​ August 5, 2026 (1) Production Permit for Disinfection Product Manufacturers ​ Ahan ​ Gansu Provincial Health and Family Planning Commission ​ June 2017 ​ June 14, 2025 (2) China’s High-tech Enterprise Certificate ​ Gansu QLS ​ Gansu Provincial Department of Science and Technology, Gansu Provincial Department of Finance, Gansu Provincial Department of Taxation, Gansu Provincial Local Taxation Bureau ​ October 2017 ​ October 2026 (3) Pollutant Discharge Permit ​ Gansu QLS ​ Jiuquan City Environmental Protection Bureau ​ December 2017 ​ December 28, 2025 (4) Gansu Province Fertilizer Official Registration Certificate ​ Moshangfa ​ Gansu Provincial Agriculture and Animal Husbandry ​ December 2017 ​ December 31, 2022 Pharmaceutical Production License ​ Gansu QLS ​ Gansu Provincial Food and Drug Administration ​ August 2018 ​ December 29, 2025 (5) Fertilizer Registration Certificate for Xiongguan® Organic Fertilizer ​ Moshangfa ​ Ministry of Agriculture and Rural Affairs ​ May 2020 ​ May 2025 Fertilizer Registration Certificate for Xiongguan® Organic-Inorganic Compound Fertilizer ​ Moshangfa ​ Ministry of Agriculture and Rural Affairs ​ May 2020 ​ May 2025 Notes: ​ (1) The original permit was valid until September 20, 2021.
If the water pollutants discharged exceed national or local standards, the manufacturer would be subject to fines amounting between 0.1 million to 1 million RMB. In addition, the environmental protection authority has the right to order such manufacturer to correct their actions by reducing the amount of discharge during a stipulated period of time by restricting or suspending their operations.
If the water pollutants discharged exceed national or local standards, the manufacturer would be subject to fines amounting to 0.1-1 million RMB. In addition, the environmental protection authority has the right to order such manufacturer to correct their actions by reducing the amount of discharge during a stipulated period of time by restricting or suspending their operations.
It is more likely than not that the Company and its offshore subsidiary would be treated as a non-resident enterprise for PRC tax purposes. ​ 91 Table of Contents Value-added Tax Pursuant to the Provisional Regulations on Value-added Tax of the PRC, or the VAT Regulations, which were promulgated by the State Council on December 13, 1993, took effect on January 1, 1994, and were amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the Rules for the Implementation of the Provisional Regulations on Value-added Tax of the PRC, which were promulgated by the MOF on December 25, 1993, and were amended on December 15, 2008, and October 28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the People’s Republic of China are taxpayers of value-added tax.
It is more likely than not that the Company and its offshore subsidiary would be treated as a non-resident enterprise for PRC tax purposes. 88 Table of Contents Value-added Tax Pursuant to the Provisional Regulations on Value-added Tax of the PRC, or the VAT Regulations, which were promulgated by the State Council on December 13, 1993, took effect on January 1, 1994, and were amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the Rules for the Implementation of the Provisional Regulations on Value-added Tax of the PRC, which were promulgated by the MOF on December 25, 1993, and were amended on December 15, 2008, and October 28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the People’s Republic of China are taxpayers of value-added tax.
Pursuant to the Regulations on Sanitary and Safety Evaluation of Disinfectant Products issued by the National Health and Family Planning Committee on June 27, 2014, the Company shall file the sanitary and safety evaluation reports of its modified Ahan® antibacterial paste to the provincial health administrative branch before such product can be introduced to the Chinese market.
Pursuant to the Regulations on Sanitary and Safety Evaluation of Disinfectant Products issued by the National Health and Family Planning Committee on June 27, 2014, the Company shall file the sanitary and safety evaluation reports of its modified Ahan® antibacterial paste with the provincial health administrative branch before such product can be introduced to the Chinese market.
If no national or professional standards are available, an enterprise can formulate its own standards and use them in packing after obtaining the approval of the food and drug administration bureau at provincial level. Such enterprise must reapply with the relevant authorities if it needs to change its own packaging standards.
If no national or professional standards are available, an enterprise can formulate its own standards and use them in packing after obtaining the approval of the food and drug administration bureau at provincial level. Such enterprise must reapply to the relevant authorities if it needs to change its own packaging standards.
Fertilizer-pesticide mixtures and the homemade organic fertilizer produced by the farmers are also beyond the scope of fertilizer registration management. Homemade organic fertilizers are usually for self-use purpose and fertilizer-pesticide mixtures are controlled under China’s pesticide registration system. MOA Decree No. 32, the Administrative Measures of Fertilizer Registration in China by MOA, was published on June 23, 2006.
Fertilizer-pesticide mixtures and the homemade organic fertilizer produced by the farmers are also beyond the scope of fertilizer registration management. Homemade organic fertilizers for self-use purpose and fertilizer-pesticide mixtures are controlled under China’s pesticide registration system. MOA Decree No. 32, the Administrative Measures of Fertilizer Registration in China by MOA, was published on June 23, 2006.
Foreign investment enterprises shall be guaranteed that they could equally participate in the setting of standards, and the compulsory standards formulated by the State shall be equally applied. Fair competition for foreign investment enterprises to participate in government procurement activities shall be protected. The Foreign Investment Law also stipulates the protection on intellectual property rights and trade secrets.
Foreign investment enterprises shall be guaranteed that they could equally participate in the setting of standards, and the compulsory standards formulated by the State shall be equally applied. Fair competition for foreign investment enterprises to participate in government procurement activities shall be protected. The Foreign Investment Law also stipulates the protection of intellectual property rights and trade secrets.
From a registration prospective, fertilizers can be divided into 3 types: Exempted from Registration — Fertilizers that have been used for many years domestically and have been established with national or industrial product executive standard are exempted from registration: ammonia sulfate, urea, calcium cyanamide, ammonium phosphate (mono and di), phosphor nitrate, superphosphate, potassium chloride; potassium sulfate, potassium nitrate, ammonium chloride, ammonium bicarbonate, calcium magnesium phosphate, potassium dihydrogen phosphate, single microelement fertilizer, high concentration compound fertilizer; Registered with provincial agricultural department — compound fertilizer; formula fertilizer (no foliar fertilizer); refined organic fertilizer and soil acid regulating agents should be registered with provincial agricultural department and can be only sold within the administration area of the province.
From a registration prospective, fertilizers can be divided into 3 types: Exempted from Registration — Fertilizers that have been used for many years domestically and have been established with national or industrial product executive standard are exempted from registration: ammonia sulfate, urea, calcium cyanamide, ammonium phosphate (mono and di), phosphor nitrate, superphosphate, potassium chloride; potassium sulfate, potassium nitrate, ammonium chloride, ammonium bicarbonate, calcium magnesium phosphate, potassium dihydrogen phosphate, single microelement fertilizer, and high concentration compound fertilizer; Registered with provincial agricultural department — compound fertilizer, formula fertilizer (non foliar fertilizer), refined organic fertilizer, and soil acid regulating agents should be registered with provincial agricultural department and can be only sold within the administration area of the province.
A foreign-invested enterprise established through return investment shall complete relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration regulations on foreign direct investment and truthfully disclose information on the actual controller of its shareholders. ​ 89 Table of Contents If any shareholder who is a PRC resident (as determined by Circular No. 37) holds any interest in our SPV and fails to fulfil the required foreign exchange registration with the local SAFE branches, capital contribution to the SPV by the shareholder failing to comply with Circular No. 37, as well as the distribution of profits and dividends derived from the SPV to such shareholder may be prohibited.
A foreign-invested enterprise established through return investment shall complete relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration regulations on foreign direct investment and truthfully disclose information on the actual controller of its shareholders. 86 Table of Contents If any shareholder who is a PRC resident (as determined by Circular No. 37) holds any interest in our SPV and fails to fulfil the required foreign exchange registration with the local SAFE branches, capital contribution to the SPV by the shareholder failing to comply with Circular No. 37, as well as the distribution of profits and dividends derived from the SPV to such shareholder may be prohibited.
While we believe that one or more of the major customers of the WFOE and the VIE and VIE’s subsidiaries could account for a significant portion of their sales for the foreseeable future, we anticipate that the customer base of the WFOE and the VIE and its subsidiaries will continue to expand and that they will become less dependent on major customers. 69 Table of Contents Suppliers; Sources and Availability of Raw Materials The WFOE and the VIE and its subsidiaries research, design and manufacture their products at their manufacturing facilities located at Jiuquan City of Gansu Province and Qionglai City of Sichuan Province in China.
While we believe that one or more of the major customers of the WFOE and the VIE and VIE’s subsidiaries could account for a significant portion of their sales for the foreseeable future, we anticipate that the customer base of the WFOE and the VIE and its subsidiaries will continue to expand and that they will become less dependent on major customers. 67 Table of Contents Suppliers; Sources and Availability of Raw Materials The WFOE and the VIE and its subsidiaries research, design and manufacture their products at their manufacturing facilities located at Jiuquan City of Gansu Province and Qionglai City of Sichuan Province in China.
If the producer or distributor files a provincially registered fertilizer to the department at another province, the fertilizer can be sold in that province too. Other Fertilizers — Fertilizers that do not comply with the above two criteria should be registered with the MOA.
If the producer or distributor files a provincially registered fertilizer with the department at another province, the fertilizer can be sold in that province too. Other Fertilizers — Fertilizers that do not comply with the above two criteria should be registered with the MOA.
Qilian HK’s wholly owned subsidiary, Chengdu Qilian Trading Co., Ltd., formerly known as Qilian International Trade (Chengdu) Co., LTD, which we refer to as “WFOE”, was organized pursuant to PRC laws on May 15, 2019. Gansu Qilianshan Pharmaceutical Co.
Qilian HK’s wholly owned subsidiary, Qilian International Trading (Chengdu) Co., Ltd., formerly known as Chengdu Qilian Trading Co., Ltd., which we refer to as “WFOE”, was organized pursuant to PRC laws on May 15, 2019. Gansu Qilianshan Pharmaceutical Co.
As of the date of this annual report, we and our affiliated entities have not advertised for the WFOE and the VIE and its subsidiaries’ pharmaceutical products, thus not needing to apply for any approval. ​ 83 Table of Contents PRC Laws and Regulations on Disinfectant Products The SCNPC promulgated the Law of the PRC on Prevention and Treatment of Infectious Disease on February 21, 1989, which took effect on September 1, 1989, and revised it on August 28, 2004 as well as June 29, 2013.
As of the date of this annual report, we and our affiliated entities have not advertised for the WFOE and the VIE and its subsidiaries’ pharmaceutical products, thus not needing to apply for any approval. 80 Table of Contents PRC Laws and Regulations on Disinfectant Products The SCNPC promulgated the Law of the PRC on Prevention and Treatment of Infectious Disease on February 21, 1989, which took effect on September 1, 1989, and revised it on August 28, 2004 as well as June 29, 2013.
Spousal Consent The spouses of the Gansu QLS Shareholders agreed, via a spousal consent, to the execution of the “Transaction Documents” including: (a) the Call Option Agreement entered into with WFOE and Gansu QLS; (b) the Shareholders’ Voting Rights Proxy Agreement entered into with WFOE and Gansu QLS; (c) the Equity Pledge Agreement entered into with WFOE; and (d) the Power of Attorney executed by each Gansu QLS Shareholder, and the disposal of the equity interests of Gansu QLS held by each Gansu QLS Shareholder and registered in his/her name. 58 Table of Contents The spouses further undertake not to make any assertions in connection with the equity interests of Gansu QLS which are held by the Gansu QLS Shareholders.
Spousal Consent The spouses of the Gansu QLS Shareholders agreed, via a spousal consent, to the execution of the “Transaction Documents” including: (a) the Call Option Agreement entered into with WFOE and Gansu QLS; (b) the Shareholders’ Voting Rights Proxy Agreement entered into with WFOE and Gansu QLS; (c) the Equity Pledge Agreement entered into with WFOE; and (d) the Power of Attorney executed by each Gansu QLS Shareholder, and the disposal of the equity interests of Gansu QLS held by each Gansu QLS Shareholder and registered in his/her name. 56 Table of Contents The spouses further undertake not to make any assertions in connection with the equity interests of Gansu QLS which are held by the Gansu QLS Shareholders.
The audit committee of the registrant is required to review and approve in advance any related party transactions, including transactions involving WFOE or Gansu QLS. 57 Table of Contents Equity Pledge Agreement Under the Equity Pledge Agreement between WFOE and certain shareholders of Gansu QLS together holding 76,196,640 shares, or 99.214% of the total issued and outstanding shares, of Gansu QLS (“Gansu QLS Shareholders”), the Gansu QLS Shareholders pledged all of their equity interests in Gansu QLS to WFOE to guarantee the performance of Gansu QLS’ obligations under the Exclusive Service Agreement.
The audit committee of the registrant is required to review and approve in advance any related party transactions, including transactions involving WFOE or Gansu QLS. 55 Table of Contents Equity Pledge Agreement Under the Equity Pledge Agreement between WFOE and certain shareholders of Gansu QLS together holding 76,196,640 shares, or 99.214% of the total issued and outstanding shares, of Gansu QLS (“Gansu QLS Shareholders”), the Gansu QLS Shareholders pledged all of their equity interests in Gansu QLS to WFOE to guarantee the performance of Gansu QLS’ obligations under the Exclusive Service Agreement.
The Renminbi converted from the foreign capital will be kept in a designated account and if a foreign-invested enterprise needs to make any further payment from such account, it will still need to provide supporting documents and to complete the review process with its bank. 90 Table of Contents Furthermore, Circular 19 stipulates that foreign-invested enterprises shall make bona fide use of their capital for their own needs within their business scopes.
The Renminbi converted from the foreign capital will be kept in a designated account and if a foreign-invested enterprise needs to make any further payment from such account, it will still need to provide supporting documents and to complete the review process with its bank. 87 Table of Contents Furthermore, Circular 19 stipulates that foreign-invested enterprises shall make bona fide use of their capital for their own needs within their business scopes.
Data Requirements of Fertilizer Registration Application The registration application materials consist of an application form, credential documents, test reports, position paper/ evaluation form, safety data, product executive standard, label sample, enterprise information and product samples.
Data Requirements of Fertilizer Registration Application The registration application materials consist of an application form, credential documents, test reports, position paper/ evaluation form, safety data, product executive standard, label samples, enterprise information and product samples.
Chinese Herbal Anti-bacterial Paste ​ Wuhan Laowantong Biotechnology Co., Ltd.; Wuhan Runhe Biomedical Co., Ltd.; Jiangxi Jiarun Biotechnology Co., Ltd.; Jiangxi Cihetang Biotechnology Co., Ltd.; Jiangxi Jianyuantang Biotechnology Co., Ltd. ​ 70 Table of Contents Honors, Awards, and Qualifications Honors ​ ​ ​ ​ ​ ​ ​ ​ ​ Honors Individual or Entity Honored Agency Date Vice Presiding Entity of Northwestern Natural Herbal Medicine Technology Innovation Strategical Alliance ​ Gansu QLS ​ Northwestern Natural Herbal Medicine Technology Innovation Strategical Alliance ​ August 2010 Vice Presiding Entity for Gansu Province Medical Industry Association ​ Gansu QLS ​ Gansu Province Medical Industry Association ​ May 2013 The 3rd Governing Entity of China Narcotics Association ​ Gansu GLS ​ China Association of Narcotic Drugs ​ October 2014 Vice Presiding Entity for Jiuquan City Environmental Protection Industrial Association ​ Gansu QLS ​ Jiuquan City Environmental Protection Industrial Association ​ March 2015 Gansu Provincial Excellent Engineering Consulting Award (awarded to our CEO) ​ Zhanchang Xin, our CEO ​ Gansu Provincial Development and Reform Commission ​ August 2010 Gansu Province’s Famous Brand ​ Gansu QLS ​ Gansu Famous Brand Strategy Promotion Committee ​ December 2011 Suzhou District Science and Technology Progress Award ​ Gansu QLS ​ Government of Suzhou District, Jiuquan City ​ August 2012 2013 China Chemical and Pharmaceutical Industry’s Excellent Product Brand (awarded to the Gan Di Xin ® product) ​ Gansu QLS ​ China Chemical Pharmaceutical Industry Association, China Pharmaceutical Business Association, China Non-Prescription Drug Association, China Pharmaceutical Enterprise Development and Promotion Association ​ November 2013 Famous Trademark of Gansu Province (awarded to the VIE’s trademark Qilian Shan ®) ​ Gansu QLS ​ Gansu Provincial Administration for Industry and Commerce ​ November 2014 Gansu Province Circular Economy Exemplar Enterprise ​ Gansu QLS ​ Gansu Provincial Industry and Information Technology Commission ​ July 2015 Nationally Recognized Enterprise Technology Center Status, Provincial Level ​ Gansu QLS ​ Gansu Provincial Industry and Information Commission, Gansu Provincial Development and Reform Commission, Gansu Provincial Science and Technology Department, Gansu Provincial Finance Department, Gansu Provincial State Taxation Bureau, Gansu Provincial Local Taxation Bureau ​ December 2015 Famous Trademark of Gansu Province (awarded to the Gan Di Xin ® product) ​ Gansu QLS ​ Gansu Provincial Administration for Industry and Commerce ​ December 2015 Excellent Entrepreneur Award (awarded to our CEO) ​ Zhanchang Xin ​ China Petroleum and Chemical Industry Committee ​ July 2016 Gansu Province “Specialized New Technology” Enterprise ​ Gansu QLS ​ Gansu Provincial Industry and Information Technology Commission ​ November 2017 Strategic Emerging Growth Exemplar Enterprise ​ Gansu QLS ​ Gansu Provincial Development and Reform Commission ​ December 2018 Little Giant Enterprise of Chengdu City ​ Chengdu QLS ​ Sichuan Provincial Economic and Information Commission, Sichuan Provincial SME Bureau, Chengdu City Economic and Information Commission ​ December 2018 Petroleum and Chemical Industry “Specialized and Innovative” Small to Medium Enterprises (the “SME”) Award ​ Gansu QLS ​ China Petroleum and Chemical Industry Federation and China SME Development Committee ​ November 2019 Chengdu City’s Unicorn Enterprise Award ​ Chengdu QLS ​ Chengdu City Municipal New Economy Commission ​ June 2019 Sichuan Province “Specialized and Innovative” SME Award ​ Chengdu QLS ​ Sichuan Province Economic and Information Technology Commission ​ March 2020 Sichuan Province “High-growth” SME Award ​ Chengdu QLS ​ Sichuan Province Economic and Information Technology Commission ​ March 2020 Suzhou District “Tax Contribution Award” for 2019 ​ Gansu QLS ​ Suzhou District Committee and District Government ​ March 2020 2020 Gansu Provincial Technology Innovation Model Enterprise ​ Gansu QLS ​ Gansu Province Industry and Information Technology Commission, Gansu Province Department of Finance ​ August 2020 Jiuquan Leading Talent for Years 2020 to 2022 (awarded to our CEO) ​ Zhanchang Xin ​ Government of Jiuquan City and Jiuquan Municipal Committee of the Communist Party of China ​ November 2020 Excellent Entrepreneur Award (awarded to our CEO) ​ Zhanchang Xin ​ Government of Economic and Technological Development Zone of Jiuquan City ​ February 2021 ​ 71 Table of Contents Selective Criteria for the Awards Gansu Provincial Excellent Engineering Consulting Award (awarded to our CEO Mr.
Chinese Herbal Anti-bacterial Paste ​ Wuhan Laowantong Biotechnology Co., Ltd.; Wuhan Runhe Biomedical Co., Ltd.; Jiangxi Jiarun Biotechnology Co., Ltd.; Jiangxi Cihetang Biotechnology Co., Ltd.; Jiangxi Jianyuantang Biotechnology Co., Ltd. ​ 68 Table of Contents Honors, Awards, and Qualifications Honors ​ ​ ​ ​ ​ ​ ​ ​ ​ Honors Individual or Entity Honored Agency Date Vice Presiding Entity of Northwestern Natural Herbal Medicine Technology Innovation Strategical Alliance ​ Gansu QLS ​ Northwestern Natural Herbal Medicine Technology Innovation Strategical Alliance ​ August 2010 Vice Presiding Entity for Gansu Province Medical Industry Association ​ Gansu QLS ​ Gansu Province Medical Industry Association ​ May 2013 The 3rd Governing Entity of China Narcotics Association ​ Gansu GLS ​ China Association of Narcotic Drugs ​ October 2014 Vice Presiding Entity for Jiuquan City Environmental Protection Industrial Association ​ Gansu QLS ​ Jiuquan City Environmental Protection Industrial Association ​ March 2015 Gansu Provincial Excellent Engineering Consulting Award (awarded to our chairman of the board of directors) ​ Zhanchang Xin, our chairman of the board of directors ​ Gansu Provincial Development and Reform Commission ​ August 2010 Gansu Province’s Famous Brand ​ Gansu QLS ​ Gansu Famous Brand Strategy Promotion Committee ​ December 2011 Suzhou District Science and Technology Progress Award ​ Gansu QLS ​ Government of Suzhou District, Jiuquan City ​ August 2012 2013 China Chemical and Pharmaceutical Industry’s Excellent Product Brand (awarded to the Gan Di Xin ® product) ​ Gansu QLS ​ China Chemical Pharmaceutical Industry Association, China Pharmaceutical Business Association, China Non-Prescription Drug Association, China Pharmaceutical Enterprise Development and Promotion Association ​ November 2013 Famous Trademark of Gansu Province (awarded to the VIE’s trademark Qilian Shan ®) ​ Gansu QLS ​ Gansu Provincial Administration for Industry and Commerce ​ November 2014 Gansu Province Circular Economy Exemplar Enterprise ​ Gansu QLS ​ Gansu Provincial Industry and Information Technology Commission ​ July 2015 Nationally Recognized Enterprise Technology Center Status, Provincial Level ​ Gansu QLS ​ Gansu Provincial Industry and Information Commission, Gansu Provincial Development and Reform Commission, Gansu Provincial Science and Technology Department, Gansu Provincial Finance Department, Gansu Provincial State Taxation Bureau, Gansu Provincial Local Taxation Bureau ​ December 2015 Famous Trademark of Gansu Province (awarded to the Gan Di Xin ® product) ​ Gansu QLS ​ Gansu Provincial Administration for Industry and Commerce ​ December 2015 Excellent Entrepreneur Award (awarded to our chairman of the board of directors) ​ Zhanchang Xin ​ China Petroleum and Chemical Industry Committee ​ July 2016 Gansu Province “Specialized New Technology” Enterprise ​ Gansu QLS ​ Gansu Provincial Industry and Information Technology Commission ​ November 2017 Strategic Emerging Growth Exemplar Enterprise ​ Gansu QLS ​ Gansu Provincial Development and Reform Commission ​ December 2018 Little Giant Enterprise of Chengdu City ​ Chengdu QLS ​ Sichuan Provincial Economic and Information Commission, Sichuan Provincial SME Bureau, Chengdu City Economic and Information Commission ​ December 2018 Petroleum and Chemical Industry “Specialized and Innovative” Small to Medium Enterprises (the “SME”) Award ​ Gansu QLS ​ China Petroleum and Chemical Industry Federation and China SME Development Committee ​ November 2019 Chengdu City’s Unicorn Enterprise Award ​ Chengdu QLS ​ Chengdu City Municipal New Economy Commission ​ June 2019 Sichuan Province “Specialized and Innovative” SME Award ​ Chengdu QLS ​ Sichuan Province Economic and Information Technology Commission ​ March 2020 Sichuan Province “High-growth” SME Award ​ Chengdu QLS ​ Sichuan Province Economic and Information Technology Commission ​ March 2020 Suzhou District “Tax Contribution Award” for 2019 ​ Gansu QLS ​ Suzhou District Committee and District Government ​ March 2020 2020 Gansu Provincial Technology Innovation Model Enterprise ​ Gansu QLS ​ Gansu Province Industry and Information Technology Commission, Gansu Province Department of Finance ​ August 2020 Jiuquan Leading Talent for Years 2020 to 2022 (awarded to our chairman of the board of directors) ​ Zhanchang Xin ​ Government of Jiuquan City and Jiuquan Municipal Committee of the Communist Party of China ​ November 2020 Excellent Entrepreneur Award (awarded to our chairman of the board of directors) ​ Zhanchang Xin ​ Government of Economic and Technological Development Zone of Jiuquan City ​ February 2021 ​ Selective Criteria for the Awards Gansu Provincial Excellent Engineering Consulting Award (awarded to our chairman of the board of directors, Mr.
Risk Factors—Risks Related to Doing Business in China—We are not in compliance with the PRC’s regulations relating to employee’s social insurance and housing funds, and as a result, Gansu QLS and its subsidiaries may be subject to penalties if we are not able to remediate the non-compliance.” In accordance with the Regulations on Management of Housing Provident Fund, which were promulgated by the State Council on April 3, 1999 and last amended on March 24, 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds.
Risk Factors—Risks Related to Doing Business in China—We are not in compliance with the PRC’s regulations relating to employee’s social insurance and housing funds, and as a result, Gansu QLS and its subsidiaries may be subject to penalties if we are not able to remediate the non-compliance.” 90 Table of Contents In accordance with the Regulations on Management of Housing Provident Fund, which were promulgated by the State Council on April 3, 1999 and last amended on March 24, 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds.
After years of continued development, the R&D department of the WFOE and the VIE and its subsidiaries has become the core of their technological innovation efforts, dramatically improving their R&D capabilities, enhancing their industry competitiveness, and, we believe, improving the Company’s overall business outlook. 78 Table of Contents R&D Achievements The research and development activities of the WFOE and the VIE and its subsidiaries are project based and the number of projects they work on varies annually.
After years of continued development, the R&D department of the WFOE and the VIE and its subsidiaries has become the core of their technological innovation efforts, dramatically improving their R&D capabilities, enhancing their industry competitiveness, and, we believe, improving the Company’s overall business outlook. 75 Table of Contents R&D Achievements The research and development activities of the WFOE and the VIE and its subsidiaries are project-based and the number of projects they work on varies annually.
For imported fertilizers, qualification/identity of overseas producers and business relationship with its domestic agent are particularly reviewed. Technical data and sample requirements may vary depending on product nature, as summarized in the table. ​ 85 Table of Contents An enterprise should submit a renewal application of its registration certificate six months before such registration expires.
For imported fertilizers, qualification/identity of overseas producers and business relationship with its domestic agent are particularly reviewed. Technical data and sample requirements may vary depending on product nature, as summarized in the table. ​ 82 Table of Contents An enterprise should submit a renewal application of its registration certificate six months before such registration expires.
As a result of these regulations, the holder of a new medicine certificate has the exclusive right to manufacture the new medicine during the monitoring period. 82 Table of Contents The NMPA has a variety of enforcement actions available to enforce its regulations and rules, including fines and injunctions, recall or seizure of products, the imposition of operating restrictions, partial suspension or complete shutdown of production and criminal prosecution.
As a result of these regulations, the holder of a new medicine certificate has the exclusive right to manufacture the new medicine during the monitoring period. 79 Table of Contents The NMPA has a variety of enforcement actions available to enforce its regulations and rules, including fines and injunctions, recall or seizure of products, the imposition of operating restrictions, partial suspension or complete shutdown of production and criminal prosecution.
The State also establishes information reporting system and national security review system according to the Foreign Investment Law. PRC Laws and Regulations on Wholly Foreign-owned Enterprises The establishment, operation and management of corporate entities in China are governed by the PRC Company Law, which was promulgated by the SCNPC on December 29, 1993 and became effective on July 1, 1994.
The State also establishes information reporting national security review systems according to the Foreign Investment Law. PRC Laws and Regulations on Wholly Foreign-owned Enterprises The establishment, operation and management of corporate entities in China are governed by the PRC Company Law, which was promulgated by the SCNPC on December 29, 1993 and became effective on July 1, 1994.
Chengdu Qilianshan Biotechnology Co., Ltd. can still legally use this property even without a property ownership certificate. In addition, as of September 30, 2023, the WFOE and the VIE and its subsidiaries leased two properties as employee housing with a total area of approximately 226 square meters, all of which are in Sichuan Province.
Chengdu Qilianshan Biotechnology Co., Ltd. can still legally use this property even without a property ownership certificate. In addition, as of September 30, 2024, the WFOE and the VIE and its subsidiaries leased two properties as employee housing with a total area of approximately 226 square meters, all of which are in Sichuan Province.
History and Development of the Company- Our Holding Company Structure and Contractual Arrangements” in this annual report on Form 20-F. 56 Table of Contents Contractual Arrangements between WFOE and Gansu QLS Due to PRC legal restrictions on foreign ownership in the pharmaceutical sector, neither we nor our subsidiaries own any equity interest in Gansu QLS.
History and Development of the Company- Our Holding Company Structure and Contractual Arrangements” in this annual report on Form 20-F. 54 Table of Contents Contractual Arrangements between WFOE and Gansu QLS Due to PRC legal restrictions on foreign ownership in the pharmaceutical sector, neither we nor our subsidiaries own any equity interest in Gansu QLS.
We believe that our, the VIE and its subsidiaries’ current facilities are adequate and suitable for their operations, but we or our affiliated entities may seek additional space as needed to accommodate future growth. 80 Table of Contents Legal Proceedings We and our affiliated entities are currently not a party to any material legal or administrative proceedings.
We believe that our, the VIE and its subsidiaries’ current facilities are adequate and suitable for their operations, but we or our affiliated entities may seek additional space as needed to accommodate future growth. 77 Table of Contents Legal Proceedings We and our affiliated entities are currently not a party to any material legal or administrative proceedings.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we and our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors, and cause its ordinary shares to significantly decline in value or become worthless” and “Item 3.
If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we and our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors, and cause its ordinary shares to significantly decline in value or become worthless” and “Item 3.
Risk Factors —Risks Related to Doing Business in China— The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we and our affiliated entities cannot predict whether or how soon we will be able to obtain such approval.” On July 6, 2021, the relevant PRC governmental authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law.
Risk Factors —Risks Related to Doing Business in China— The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we and our affiliated entities cannot predict whether or how soon we will be able to obtain such approval.” 59 Table of Contents On July 6, 2021, the relevant PRC governmental authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law.
And the WFOE and the VIE and its subsidiaries do not violate existing patent rights of any other party. ​ 76 Table of Contents The following table sets forth a brief description of the Company’s issued and pending patents in China, including their respective publication numbers, application filing date, issue date, expiration date and title.
And the WFOE and the VIE and its subsidiaries do not violate existing patent rights of any other party. ​ 73 Table of Contents The following table sets forth a brief description of the Company’s issued and pending patents in China, including their respective publication numbers, application filing date, issue date, expiration date and title.
Its Production License for Industrial Products covers Moshangfa’s organic-inorganic compound fertilizer, which is subject to the regulations for chemical fertilizers. 84 Table of Contents Fertilizer Registration Fertilizers cannot be imported, produced, sold, or advertised without prior registration with the competent authorities at a ministerial or provincial level.
Its Production License for Industrial Products covers Moshangfa’s organic-inorganic compound fertilizer, which is subject to the regulations for chemical fertilizers. 81 Table of Contents Fertilizer Registration Fertilizers cannot be imported, produced, sold, or advertised without prior registration with the competent authorities at a ministerial or provincial level.
In the event that the PRC government expanded the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC, and we or our affiliated entities inadvertently concluded that relevant permissions or approvals were not required or that we or our affiliated entities did not receive or failed to maintain relevant permissions or approvals required and such permissions were subsequently rescinded, any action by the PRC government could significantly limit or completely hinder Qilian International’s ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.
In the event that the PRC government expanded the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC, and we or our affiliated entities inadvertently concluded that relevant permissions or approvals were not required or that we or our affiliated entities did not receive or failed to maintain relevant permissions or approvals required and such permissions were subsequently rescinded, any action by the PRC government could significantly limit or completely hinder BGM’s ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless.
The VIE and its subsidiaries’ Qilian Shan ® Oxytetracycline APIs are used by pharmaceutical companies in the manufacturing of medications that use oxytetracycline as an active ingredient. ● TCMD product includes Ahan ® antibacterial paste, which is made from a mixture of 11 traditional Chinese herbal ingredients.
The VIE and its subsidiaries’ Qilian Shan ® Oxytetracycline APIs are used by pharmaceutical companies in the manufacturing of medications that use oxytetracycline as an active ingredient. ● TCMD product, Ahan ® antibacterial paste, is made from a mixture of 11 traditional Chinese herbal ingredients.
Gansu QLS, Moshangfa and Chengdu QLS currently does not have any trademarks applications pending in China. ​ ​ ​ ​ ​ ​ ​ ​ Trademark Number Issue Date Expiration Date* Trademark Title 6084468 ​ February 14, 2010 ​ February 13, 2030 ​ 祁 连山 (Qilian Shan)** 3792776 ​ March 14, 2006 ​ March 13, 2026 ​ 甘帝欣 (Gan Di Xin) 13679211 ​ March 7, 2015 ​ March 6, 2025 ​ 沙 门果 (Shamen Guo) 13679213 ​ March 7, 2015 ​ March 6, 2025 ​ 甘帝康 (Gan Di Kang) 13679212 ​ March 7, 2015 ​ March 6, 2025 ​ 阿含 (Ahan) 22534753 ​ April 7, 2018 ​ April 6, 2028 ​ 阿含 斋 (Ahan Zhai) 20810590 ​ September 21, 2017 ​ September 20, 2027 ​ 陌上 发 (Moshangfa) 10336012 ​ February 28, 2013 ​ February 27, 2033 ​ 雄 关 (Xiongguan)*** 27770670 ​ November 14, 2018 ​ November 13, 2028 ​ 猪小常 (Zhuxiaochang) 37873604 ​ March 7, 2020 ​ March 6, 2030 ​ 祁連國際 (Qilian Guoji) * Trademark expiration dates are routinely subject to dispute in trademark infringement actions.
Gansu QLS, Moshangfa and Chengdu QLS currently does not have any trademarks applications pending in China. ​ 74 Table of Contents ​ ​ ​ ​ ​ ​ ​ Trademark Number Issue Date Expiration Date* Trademark Title 6084468 ​ February 14, 2010 ​ February 13, 2030 ​ 祁 连山 (Qilian Shan)** 3792776 ​ March 14, 2006 ​ March 13, 2026 ​ 甘帝欣 (Gan Di Xin) 13679211 ​ March 7, 2015 ​ March 6, 2025 ​ 沙 门果 (Shamen Guo) 13679213 ​ March 7, 2015 ​ March 6, 2025 ​ 甘帝康 (Gan Di Kang) 13679212 ​ March 7, 2015 ​ March 6, 2025 ​ 阿含 (Ahan) 22534753 ​ April 7, 2018 ​ April 6, 2028 ​ 阿含 斋 (Ahan Zhai) 20810590 ​ September 21, 2017 ​ September 20, 2027 ​ 陌上 发 (Moshangfa) 10336012 ​ February 28, 2013 ​ February 27, 2033 ​ 雄 关 (Xiongguan)*** 27770670 ​ November 14, 2018 ​ November 13, 2028 ​ 猪小常 (Zhuxiaochang) 37873604 ​ March 7, 2020 ​ March 6, 2030 ​ 祁連國際 (Qilian Guoji) * Trademark expiration dates are routinely subject to dispute in trademark infringement actions.
As of September 30, 2023, the WFOE and the VIE and its subsidiaries had 17 research and development professionals, three of whom have advanced degrees in Medicine and Traditional Medicine. The director of the R&D department, Mr. Zhanchang Xin, is also the chairman and legal representative of Gansu QLS. Under Mr.
As of September 30, 2024, the WFOE and the VIE and its subsidiaries had 17 research and development professionals, three of whom have advanced degrees in Medicine and Traditional Medicine. The director of the R&D department, Mr. Zhanchang Xin, is also the chairman and legal representative of Gansu QLS. Under Mr.
Among other things, such a permit sets forth the permit number, the name, legal representative and registered address of the enterprise, the site and scope of production, issuing institution, date of issuance and effective period. 81 Table of Contents Each Pharmaceutical Manufacturing Permit issued to a pharmaceutical manufacturing enterprise is effective for a period of five years.
Among other things, such a permit sets forth the permit number, the name, legal representative and registered address of the enterprise, the site and scope of production, issuing institution, date of issuance and effective period. 78 Table of Contents Each Pharmaceutical Manufacturing Permit issued to a pharmaceutical manufacturing enterprise is effective for a period of five years.
Risk Factors - Risks Related to Doing Business in China - Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, hinder Qilian International’s ability and the ability of any holder of Qilian International’s securities to offer or continue to offer such securities, result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, and damage Qilian International and its subsidiaries’ reputation, which would materially and adversely affect Qilian International and its affiliates’ financial condition and results of operations and cause the Ordinary Shares to significantly decline in value or become worthless.” 59 Table of Contents Qilian International has been advised by Gansu Quanyi Law Firm, our PRC counsel, as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of any PRC authorities including the Cyberspace Administration of China (“CAC”) or the China Securities Regulatory Commission (“CSRC”) because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities affiliated to us were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC.
Risk Factors - Risks Related to Doing Business in China - Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, hinder BGM’s ability and the ability of any holder of BGM’s securities to offer or continue to offer such securities, result in a material adverse change to the WFOE and the VIE and its subsidiaries’ business operations, and damage BGM and its subsidiaries’ reputation, which would materially and adversely affect BGM and its affiliates’ financial condition and results of operations and cause the Ordinary Shares to significantly decline in value or become worthless.” 57 Table of Contents BGM has been advised by Gansu Quanyi Law Firm, our PRC counsel, as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of any PRC authorities including the Cyberspace Administration of China (“CAC”) or the China Securities Regulatory Commission (“CSRC”) because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities affiliated to us were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC.
They undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the agreements. D. Property, Plants and Equipment See “—B. Business Overview—Facilities.” ​ ITEM 4.A. UNRESOLVED STAFF COMMENTS ​ Not applicable. ​ 96 Table of Contents
They undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the agreements. D. Property, Plants and Equipment See “—B. Business Overview—Facilities.” 93 Table of Contents ​ ITEM 4.A. UNRESOLVED STAFF COMMENTS ​ Not applicable. ​
The following list outlines the current products of the VIE and its subsidiaries under six categories— oxytetracycline products, licorice products, TCMD product, heparin product, sausage casings, and fertilizers. ​ Product Product ​ ​ Category ​ Name ​ Intended Use ​ Government Agency Approval Licorice Products ​ Gan Di Xin ® (1) ​ Used orally as antitussive and expectorant medicine. ​ Pharmaceutical Manufacturing Permit approved by Gansu Food and Drug Administration on August 14, 2018.
The following list outlines the current products of the VIE and its subsidiaries under six categories— oxytetracycline products, licorice products, TCMD product, heparin product, sausage casings, and fertilizers. 61 Table of Contents ​ Product Product ​ ​ Category ​ Name ​ Intended Use ​ Government Agency Approval Licorice Products ​ Gan Di Xin ® (1) ​ Used orally as antitussive and expectorant medicine. ​ Pharmaceutical Manufacturing Permit approved by Gansu Food and Drug Administration on August 14, 2018.
Zhanchang Xin’s leadership, the R&D department of the WFOE and the VIE and VIE’s subsidiaries contributed to the following recent accomplishments: In the beginning of October 2016, Ahan established a TCMD research project borrowing ideas from medicines of Chinese Dai ethnicities.
Zhanchang Xin’s leadership, the R&D department of the WFOE and the VIE and VIE’s subsidiaries contributed to the following recent accomplishments: At the beginning of October 2016, Ahan established a TCMD research project borrowing ideas from medicines of Chinese Dai ethnicities.
Our WFOE is not prohibited from distributing its profits and dividends to Qilian International or Qilian HK or from carrying out other subsequent cross-border foreign exchange activities because WFOE has completed the foreign exchange registration formalities as required upon its establishment.
Our WFOE is not prohibited from distributing its profits and dividends to BGM or Qilian HK or from carrying out other subsequent cross-border foreign exchange activities because WFOE has completed the foreign exchange registration formalities as required upon its establishment.
As of September 30, 2023, Chengdu QLS leases a production facility from a third-party lessor with an aggregate area of approximately 6,000 square meters for an annual rent of RMB200,000 (US$30,969), which Chengdu QLS sublet to Rugao for an annual rent of RMB200,000 (US$30,969).
As of September 30, 2024, Chengdu QLS leases a production facility from a third-party lessor with an aggregate area of approximately 6,000 square meters for an annual rent of RMB200,000 (US$30,969), which Chengdu QLS sublet to Rugao for an annual rent of RMB200,000 (US$30,969).
In particular, recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly concerns, as well as the PCAOB’s ability to inspect our auditors, may impact Qilian International’s ability to conduct its business through the WFOE and the VIE and its subsidiaries, accept foreign investments, or be listed on a U.S. or other foreign stock exchange.
In particular, recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly concerns, as well as the PCAOB’s ability to inspect our auditors, may impact BGM’s ability to conduct its business through the WFOE and the VIE and its subsidiaries, accept foreign investments, or be listed on a U.S. or other foreign stock exchange.
Further, it is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. PRC regulatory authorities could disallow this structure, which would materially adversely affect the value of Qilian International’s ordinary shares, and could cause the value of such securities to significantly decline or become worthless.
Further, it is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. PRC regulatory authorities could disallow this structure, which would materially adversely affect the value of BGM’s Ordinary Shares, and could cause the value of such securities to significantly decline or become worthless.
Manufactured through environmental-friendly processes, Moshangfa’s product is expected to have the following benefits— high nutrient utilization efficiency, the capability to improve crop yield and quality, and the ability to improve soil’s physical and chemical properties. 67 Table of Contents The two products in development must be registered with the PRC Ministry of Agriculture before they can be produced, sold, or advertised.
Manufactured through environmental-friendly processes, Moshangfa’s product is expected to have the following benefits— high nutrient utilization efficiency, the capability to improve crop yield and quality, and the ability to improve soil’s physical and chemical properties. The two products in development must be registered with the PRC Ministry of Agriculture before they can be produced, sold, or advertised.
However, even if such shareholder fails to fulfil the required foreign exchange registration with the local SAFE branches, Qilian International and Qilian HK are not restricted in their ability to contribute additional capital to WFOE.
However, even if such shareholder fails to fulfil the required foreign exchange registration with the local SAFE branches, BGM and Qilian HK are not restricted in their ability to contribute additional capital to WFOE.
However, there is no guarantee that this will continue to be the case in the future in relation to Qilian International’s future offerings or the continued listing of Qilian International’s securities on a U.S. securities exchange, or even in the event such permission or approval is required and obtained, it will not be subsequently revoked or rescinded.
However, there is no guarantee that this will continue to be the case in the future in relation to BGM’s future offerings or the continued listing of BGM’s securities on a U.S. securities exchange, or even in the event such permission or approval is required and obtained, it will not be subsequently revoked or rescinded.
No assurance can be given that third parties infringing the WFOE and the VIE and its subsidiaries’ patents will not dispute the expiration dates of their patents or that they will be successful in defending against such disputes. ** Utility model patents 77 Table of Contents Gansu QLS currently has seven trademarks in China.
No assurance can be given that third parties infringing the WFOE and the VIE and its subsidiaries’ patents will not dispute the expiration dates of their patents or that they will be successful in defending against such disputes. ** Utility model patents Gansu QLS currently has seven trademarks in China.
Heparin sodium has been widely used as an anticoagulant in the world since its first use in 1935. Chengdu QLS, a subsidiary of the VIE, purchases healthy, locally raised pigs and extracts heparin-rich organic materials from their small intestinal mucosa.
Heparin sodium has been widely used as an anticoagulant in the world since its first use in 1935. 64 Table of Contents Chengdu QLS, a subsidiary of the VIE, purchases healthy, locally raised pigs and extracts heparin-rich organic materials from their small intestinal mucosa.
Any limitation on the ability of Qilian’s affiliated entities to make payments to it could have a material adverse effect on Qilian International’s ability to maintain its business.” In addition, cash transfers from our holding company are subject to applicable PRC laws and regulations on loans and direct investment. For details, see “Item 3. Key Information—D.
Any limitation on the ability of BGM’s affiliated entities to make payments to it could have a material adverse effect on BGM’s ability to maintain its business.” In addition, cash transfers from our holding company are subject to applicable PRC laws and regulations on loans and direct investment. For details, see “Item 3. Key Information—D.
Therefore, investors of Qilian International and its business conducted by the WFOE and the VIE and its subsidiaries face potential uncertainty from the PRC government. Changes in China’s economic, political or social conditions or government policies could materially adversely affect Qilian International and its affiliated entities’ business and results of operations.
Therefore, investors of BGM and its business conducted by the WFOE and the VIE and its subsidiaries face potential uncertainty from the PRC government. Changes in China’s economic, political or social conditions or government policies could materially adversely affect BGM and its affiliated entities’ business and results of operations.
As of September 30, 2023, we had leased employee dormitories with a total area of approximately 226 square meters, all of which are in Sichuan Province.
As of September 30, 2024, we had leased employee dormitories with a total area of approximately 226 square meters, all of which are in Sichuan Province.
Risk Factors — Risks Related to Doing Business in China — Qilian International is a holding company and it relies for funding on dividend payments from its affiliated entities by contracts, which are subject to restrictions under PRC laws.
Risk Factors — Risks Related to Doing Business in China — BGM is a holding company and it relies for funding on dividend payments from its affiliated entities by contracts, which are subject to restrictions under PRC laws.
Quality Control and Assurance In China, each pharmaceutical manufacturer is required to obtain Pharmaceutical Manufacturing Permits granted by the NMPA or its local branches before it engages in any pharmaceutical manufacturing and distribution. Gansu QLS has obtained its Pharmaceutical Manufacturing Permit with the product manufacturing scopes covering the WFOE and the VIE and its subsidiaries’ licorice products and oxytetracycline products.
Quality Control and Assurance In China, each pharmaceutical manufacturer is required to obtain Pharmaceutical Manufacturing Permits granted by the NMPA or its local branches before it engages in any pharmaceutical manufacturing and distribution. 66 Table of Contents Gansu QLS has obtained its Pharmaceutical Manufacturing Permit with the product manufacturing scopes covering the WFOE and the VIE and its subsidiaries’ licorice products and oxytetracycline products.
Fertilizer Registration Certificate of The People’s Republic of China approved by PRC Ministry of Agriculture on May 19, 2020. (1) This product is manufactured by the VIE,Gansu GLS. 64 Table of Contents (2) This product is manufactured by the VIE’s subsidiary, Ahan. (3) This product is manufactured by the VIE’s subsidiary, Chengdu QLS.
Fertilizer Registration Certificate of The People’s Republic of China approved by PRC Ministry of Agriculture on May 19, 2020. (1) This product is manufactured by the VIE,Gansu GLS. (2) This product is manufactured by the VIE’s subsidiary, Ahan. (3) This product is manufactured by the VIE’s subsidiary, Chengdu QLS.
ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Our Holding Company Structure and Contractual Arrangements ​ Qilian International Holding Group Limited is not a Chinese operating company but a Cayman Islands holding company with its business operations conducted by Gansu Qilianshan Pharmaceutical Co., Ltd. (the “VIE”, “Gansu QLS”) and its subsidiaries established in the PRC.
ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Our Holding Company Structure and Contractual Arrangements ​ BGM Group Ltd is not a Chinese operating company but a Cayman Islands holding company with its business operations conducted by Gansu Qilianshan Pharmaceutical Co., Ltd. (the “VIE”, “Gansu QLS”) and its subsidiaries established in the PRC.
The unique manufacturing process adopted by Gansu QLS, the abundance of local source materials, and the geographical location of Gansu QLS are crucial elements contributing to the success Gansu QLS’s Gan Di Xin ® . 65 Table of Contents Gansu QLS introduced Gan Di Xin ® to the Chinese market in 2004.
The unique manufacturing process adopted by Gansu QLS, the abundance of local source materials, and the geographical location of Gansu QLS are crucial elements contributing to the success Gansu QLS’s Gan Di Xin ® . Gansu QLS introduced Gan Di Xin ® to the Chinese market in 2004.
The Catalogue and the Negative List contains specific provisions guiding market access for foreign capital and stipulates in detail the industry sectors grouped under the categories of encouraged industries, restricted industries and prohibited industries. Any industry not listed on the Negative List is a permitted industry unless otherwise prohibited or restricted by other PRC laws or regulations.
The Catalogue and the Negative List contain specific provisions guiding market access for foreign capital and stipulate in detail the industry sectors grouped under the categories of encouraged industries, restricted industries and prohibited industries. Any industry not listed on the Negative List is a permitted industry unless otherwise prohibited or restricted by other PRC laws or regulations.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

54 edited+29 added−28 removed68 unchanged
Biggest changeThe following table summarizes our cash flow data for the years ended September 30, 2023, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ September 30, ​ 2023 2022 2021 Net cash provided by operating activities ​ $ 312,209 ​ $ 12,654,188 345,034 Net cash used in investing activities ​ (4,742,445) ​ (3,258,953) (24,200,032) Net cash provided by (used in) financing activities ​ (2,921,084) ​ (5,937,529) 23,993,338 Effect of exchange rate on cash ​ (151,446) ​ (1,086,067) 601,903 Net (decrease) increase in cash, cash equivalents and restricted cash ​ $ (7,502,766) ​ $ 2,371,640 740,243 ​ Operating Activities Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, accounts receivable and inventory reserve, deferred tax, unrealized gain(loss) from trading securities and adjusted for the effect of working capital changes.
Biggest changeThe following table summarizes our cash flow data for the years ended September 30, 2024, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years ended ​ ​ September 30, ​ 2024 2023 2022 Net cash provided by operating activities ​ $ 544,238 ​ $ 312,209 ​ 12,654,188 Net cash provided by (used) in investing activities ​ ​ 983,418 ​ ​ (4,742,445) ​ (3,258,953) Net cash used in financing activities ​ ​ (491,728) ​ ​ (2,921,084) ​ (5,937,529) Effect of exchange rate on cash ​ ​ 1,305,079 ​ ​ (151,446) ​ (1,086,067) Net (decrease) increase in cash, cash equivalents and restricted cash ​ $ 2,341,007 ​ $ (7,502,766) ​ 2,371,640 ​ Operating Activities Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, accounts receivable and inventory reserve, deferred tax, unrealized gain(loss) from trading securities and adjusted for the effect of working capital changes. 104 Table of Contents Net cash provided by operating activities was approximately $0.5 million for the year ended September 30, 2024, an increase of $0.2million in cash provided by operating activities, or 74%, compared to net cash provided by operating activities of $0.3 million for the year ended September 30, 2023.
See “—Net Revenue—Heparin Products and Sausage Casings” and “—Cost of Revenue and Gross Profit—Heparin Products and Sausage Casings.” Net Income (loss) Attributable to Our Shareholders As a result of the above, our net income attributable to our shareholders decreased by $8.9 million, or 823%, from $1.1 million for the year ended September 30, 2022 to net loss attributable to our shareholders of $7.8 million for the year ended September 30, 2023. ​ 103 Table of Contents EBITDA The following table sets forth of the calculation of our EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ September 30, ​ Changes ​ ​ 2023 2022 Amount % ​ Net income ​ $ (8,122,070) ​ $ 1,366,257 ​ $ (9,488,327) (694) % Interest income (expense) ​ (99,190) ​ (24,860) ​ (74,330) 299 % Income tax provision ​ 219,166 ​ 194,302 ​ 24,864 13 % Depreciation & Amortization ​ 1,143,064 ​ 1,224,672 ​ (81,608) (7) % EBITDA ​ $ (6,859,030) ​ $ 2,760,371 ​ $ (9,619,401) (348) % Percentage of EBITDA to revenue ​ (14.8) % 4.3 % (19.1) % ​ ​ Our EBITDA was $(6.9) million for the year ended September 30, 2023, a decrease of $9.6 million, or 348%, compared to $2.8 million for the year ended September 30, 2022.
See “—Net Revenue—Heparin Products and Sausage Casings” and “—Cost of Revenue and Gross Profit—Heparin Products and Sausage Casings.” Net Income (loss) Attributable to Our Shareholders As a result of the above, our net income attributable to our shareholders decreased by $8.9 million, or 823%, from $1.1 million for the year ended September 30, 2022 to net loss attributable to our shareholders of $7.8 million for the year ended September 30, 2023. 103 Table of Contents EBITDA The following table sets forth of the calculation of our EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Changes ​ ​ 2023 2022 Amount % ​ Net income ​ $ (8,122,070) ​ $ 1,366,257 ​ $ (9,488,327) (694) % Interest expense ​ (99,190) ​ (24,860) ​ (74,330) 299 % Income tax provision ​ 219,166 ​ 194,302 ​ 24,864 13 % Depreciation & Amortization ​ 1,143,064 ​ 1,224,672 ​ (81,608) (7) % EBITDA ​ $ (6,859,030) ​ $ 2,760,371 ​ $ (9,619,401) (348) % Percentage of EBITDA to revenue ​ (14.8) % 4.3 % (19.1) % ​ ​ Our EBITDA was $(6.9) million for the year ended September 30, 2023, a decrease of $9.6 million, or 348%, compared to $2.8 million for the year ended September 30, 2022.
Chengdu QLS and its subsidiaries manufacture our heparin products and sausage casings.
Chengdu QLS and its subsidiaries manufacture our heparin products and sausage casings.
Investing Activities Net cash used in investing activities was approximately $4.7 million for the year ended September 30, 2023, an increase of $1.5 million, or 46%, compared to $3.3 million net cash used in investing activities for the year ended September 30, 2022.
Net cash used in investing activities was approximately $4.7 million for the year ended September 30, 2023, an increase of $1.5 million, or 46%, compared to $3.3 million net cash used in investing activities for the year ended September 30, 2022.
Financing Activities Net cash used in financing activities was approximately $2.9 million for the year ended September 30, 2023, a decrease of $3.0 million, or 51%, compared to $5.9 million for the year ended September 30, 2022.
Net cash used in financing activities was approximately $2.9 million for the year ended September 30, 2023, a decrease of $3.0 million, or 51%, compared to $5.9 million for the year ended September 30, 2022.
This was mainly due to the decrease in net income resulting from decreased gross profit as well as the loss from investment due to the fair value change discussed above. The percentage of EBITDA to revenue was (14.8) % and 4.3% for the years ended September 30, 2023 and 2022, respectively.
This was mainly due to the decrease in net income resulting from decreased gross profit as well as the loss from investment due to the fair value change discussed above. The percentage of EBITDA to revenue was (14.8) % and 4.3% for the years ended September 30, 2023 and 2022, respectively. B.
The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our PRC subsidiary. Appropriation to the other two reserve funds are at our PRC subsidiary’s discretion.
The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our PRC subsidiary. Appropriation to the other two reserve funds is at our PRC subsidiary’s discretion.
Selling, General and Administrative, Research and Development Expenses Selling, general and administrative, research and development expenses primarily consist of salaries and benefits for employees, shipping expense, utilities, maintenance and repairs expenses, insurance expense, depreciation and amortization expenses, research and development expense, selling and marketing expenses, professional fees, and other operating expenses. ​ 98 Table of Contents Non-GAAP Financial Measures - EBITDA Management uses certain financial measures to evaluate our operating performance which is calculated and presented on the basis of methodologies other than in accordance with GAAP (“Non-GAAP”).
Selling, General and Administrative, Research and Development Expenses Selling, general and administrative, research and development expenses primarily consist of salaries and benefits for employees, shipping expense, utilities, maintenance and repairs expenses, insurance expense, depreciation and amortization expenses, research and development expense, selling and marketing expenses, professional fees, and other operating expenses. 95 Table of Contents Non-GAAP Financial Measures - EBITDA Management uses certain financial measures to evaluate our operating performance which is calculated and presented on the basis of methodologies other than in accordance with GAAP (“Non-GAAP”).
Risk Factors—Risks Related to Doing Business in China— PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC Subsidiary.” As a result, there is uncertainty with respect to Qilian International’s ability to provide prompt financial support to the PRC Subsidiary when needed.
Risk Factors—Risks Related to Doing Business in China— PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC Subsidiary.” As a result, there is uncertainty with respect to BGM’s ability to provide prompt financial support to the PRC Subsidiary when needed.
Cash was used to pay for the investment in trading securities. 108 Table of Contents Although our management believes that the cash generated from operations will be sufficient to meet our normal working capital needs for at least the next twelve months, our ability to repay our current obligations will depend on the future realization of our current assets.
Cash was used to pay for the investment in trading securities. Although our management believes that the cash generated from operations will be sufficient to meet our normal working capital needs for at least the next twelve months, our ability to repay our current obligations will depend on the future realization of our current assets.
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ September 30, ​ Changes ​ 2023 2022 Amount % ​ Net revenue ​ $ 46,471,478 ​ $ 64,855,025 ​ $ (18,383,547) (28) % Cost of revenue ​ 44,719,984 ​ 58,627,728 ​ (13,907,744) (24) % Gross profit ​ 1,751,494 ​ 6,227,297 ​ (4,475,803) (72) % Selling, general and administrative, research and development expenses ​ 4,361,593 ​ 4,125,294 ​ 236,299 6 % Income from operations ​ (2,610,099) ​ 2,102,003 ​ (4,712,102) (224) % Interest income (expense) ​ 99,190 ​ 24,860 ​ 74,330 299 % Other income (expense) ​ (5,391,995) ​ (566,304) ​ (4,825,691) 852 % Income (loss) before income tax provision ​ (7,902,904) ​ 1,560,559 ​ (9,463,463) (606) % Provision for income taxes ​ 219,166 ​ 194,302 ​ 24,864 13 % Net income (loss) ​ (8,122,070) ​ 1,366,257 ​ (9,488,327) (694) % Less: net income (loss) attributable to noncontrolling interest ​ (341,450) ​ 289,564 ​ (631,014) (218) % Net income (loss) attributable to Qilian International Holding Group Limited ​ $ (7,780,620) ​ $ 1,076,693 ​ $ (8,857,313) (823) % ​ Net Revenue ​ The following table sets forth the breakdown of our net revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ Changes ​ ​ Amount % Amount % Amount % ​ Net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oxytetracycline & licorice products and TCMD ​ $ 29,152,228 63 % $ 40,305,988 62 % $ (11,153,760) (28) % Heparin products and sausage casing ​ $ 15,318,798 33 % $ 23,460,467 36 % $ (8,141,669) (35) % Fertilizer ​ $ 2,000,452 4 % $ 1,088,570 2 % $ 911,882 84 % Total ​ $ 46,471,478 100.0 % $ 64,855,025 100.0 % $ (18,383,547) (28) % ​ Compared with net revenue for the year ended September 30, 2022, our net revenue decreased by $18.4 million, or 28%, for the year ended September 30, 2023, which was primarily attributable to a $11.2 million decrease in sales from Oxytetracycline & licorice products and TCMD, and a $8.1 million decrease in sales from heparin products and sausage casing, offset by $0.9 million increased sales from Fertilizer product. 100 Table of Contents Oxytetracycline & Licorice Products and TCMD The sales of oxytetracycline products, licorice products and TCMD accounted for 95%, 5% and 0%, respectively, of this segment’s total sales for the year ended September 30, 2023, and 98%, 2% and 0%, respectively, of such segment’s total sales for the year ended September 30, 2022.
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ September 30, ​ Changes ​ 2023 2022 Amount % ​ Net revenue ​ $ 46,471,478 ​ $ 64,855,025 ​ $ (18,383,547) (28) % Cost of revenue ​ 44,719,984 ​ 58,627,728 ​ (13,907,744) (24) % Gross profit ​ 1,751,494 ​ 6,227,297 ​ (4,475,803) (72) % Selling, general and administrative, research and development expenses ​ 4,361,593 ​ 4,125,294 ​ 236,299 6 % Income from operations ​ (2,610,099) ​ 2,102,003 ​ (4,712,102) (224) % Interest income ​ 99,190 ​ 24,860 ​ 74,330 299 % Other expense ​ (5,391,995) ​ (566,304) ​ (4,825,691) 852 % Income (loss) before income tax provision ​ (7,902,904) ​ 1,560,559 ​ (9,463,463) (606) % Income tax expense ​ 219,166 ​ 194,302 ​ 24,864 13 % Net income (loss) ​ (8,122,070) ​ 1,366,257 ​ (9,488,327) (694) % Less: net income (loss) attributable to non-controlling interest ​ (341,450) ​ 289,564 ​ (631,014) (218) % Net income (loss) attributable to BGM Group Ltd ​ $ (7,780,620) ​ $ 1,076,693 ​ $ (8,857,313) (823) % ​ Net Revenue The following table sets forth the breakdown of our net revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ Changes ​ ​ Amount % Amount % Amount % ​ Net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oxytetracycline & licorice products and TCMD ​ $ 29,152,228 63 % $ 40,305,988 62 % $ (11,153,760) (28) % Heparin products and sausage casing ​ $ 15,318,798 33 % $ 23,460,467 36 % $ (8,141,669) (35) % Fertilizer ​ $ 2,000,452 4 % $ 1,088,570 2 % $ 911,882 84 % Total ​ $ 46,471,478 100.0 % $ 64,855,025 100.0 % $ (18,383,547) (28) % ​ 100 Table of Contents Compared with net revenue for the year ended September 30, 2022, our net revenue decreased by $18.4 million, or 28%, for the year ended September 30, 2023, which was primarily attributable to a $11.2 million decrease in sales from Oxytetracycline & licorice products and TCMD, and a $8.1 million decrease in sales from heparin products and sausage casing, offset by $0.9 million increased sales from Fertilizer product.
Through the VIE Agreements, WFOE is deemed as the primary beneficiary of Gansu QLS for accounting purpose and is able to consolidate the VIE’s financial statements under the U.S. GAAP. Based on the VIE Agreements, Gansu QLS is considered a VIE of Qilian Chengdu/Hainan Trade under U.S. GAAP.
Through the VIE Agreements, WFOE is deemed as the primary beneficiary of Gansu QLS for accounting purpose and is able to consolidate the VIE’s financial statements under the U.S. GAAP. 94 Table of Contents Based on the VIE Agreements, Gansu QLS is considered a VIE of Qilian Chengdu/Hainan Trade under U.S. GAAP.
Our management has considered the historical experience, the economy, trends in the pharmaceutical industry, the expected collectability of accounts receivable and the realization of the inventories as of September 30, 2023.
Our management has considered the historical experience, the economy, trends in the pharmaceutical industry, the expected collectability of accounts receivable and the realization of the inventories as of September 30, 2024.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended September 30, 2023 that are reasonably likely to have a material effect on our net revenues, income, profitability, 111 Table of Contents liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended September 30, 2024 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information and external market information. Actual results may differ from these estimates.
While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information and external market information.
The decrease of net cash inflow was a result of the following: 1. Decrease in net income of $9.5 million, from $1.4 million to net loss of 8.1 million. Net loss excluding non-cash items were $0.8 million, compared to $3.9 million of net income, which represented a decrease of cash inflow of $4.7 million 2.
The decrease of net cash inflow was a result of the following: 1. Decrease in net income of $9.5 million, from $1.4 million to net loss of 8.1 million. Net loss excluding non-cash items were $0.8 million, compared to $3.9 million of net income, which represented a decrease of cash inflow of $4.7 million 105 Table of Contents 2.
Results of Operations for the years ended September 30, 2022 and 2021 The following table sets forth a summary of our consolidated results of operations for the years ended September 30, 2022 and 2021.
Results of Operations for the years ended September 30, 2023 and 2022 The following table sets forth a summary of our consolidated results of operations for the years ended September 30, 2023 and 2022.
Change in account payable was $1.6 million net cash outflow for the year ended September 30, 2023. For the year ended September 30, 2022, the change in account payable was $0.8 million net cash outflow, which led to a $0.8 million increase in net cash outflow from operating activities. 109 Table of Contents 7.
Change in account payable was $1.6 million net cash outflow for the year ended September 30, 2023. For the year ended September 30, 2022, the change in account payable was $0.8 million net cash outflow, which led to a $0.8 million increase in net cash outflow from operating activities. 7.
Liquidity and Capital Resources Liquidity and Capital Resources As of September 30, 2023, we had cash of approximately $7.5 million. We have funded our working capital and other capital requirements primarily by cash flow from operations, and bank loans. In the year ended September 30, 2021, we received approximately $24 million as proceeds from our initial public offering.
Liquidity and Capital Resources Liquidity and Capital Resources As of September 30, 2024, we had cash of approximately $9.8 million. We have funded our working capital and other capital requirements primarily by cash flow from operations, and bank loans. In the year ended September 30, 2021, we received approximately $24 million as proceeds from our initial public offering.
Oxytetracycline & Licorice Products and TCMD The sales of oxytetracycline products, licorice products and TCMD accounted for 98%, 2% and 0%, respectively, of this segment’s total sales for the year ended September 30, 2022, and 98%, 2% and 0%, respectively, of such segment’s total sales for the year ended September 30, 2021.
Oxytetracycline & Licorice Products and TCMD The sales of oxytetracycline products, licorice products and TCMD accounted for 95%, 5% and 0%, respectively, of this segment’s total sales for the year ended September 30, 2023, and 98%, 2% and 0%, respectively, of such segment’s total sales for the year ended September 30, 2022.
We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because the information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate and (2) changes in the estimate could have a material impact on our financial condition or results of operations.
Actual results may differ from these estimates. 107 Table of Contents We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because the information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate and (2) changes in the estimate could have a material impact on our financial condition or results of operations.
Qilian International conducts its operations primarily through its subsidiaries, the VIE and the VIE’s subsidiaries in China. As a result, Qilian International’s ability to pay dividends depends upon dividends paid by our PRC Subsidiary.
BGM conducts its operations primarily through its subsidiaries, the VIE and the VIE’s subsidiaries in China. As a result, BGM’s ability to pay dividends depends upon dividends paid by our PRC Subsidiary.
The capital expenditure for the year ended September 30, 2024 is estimated to be $2.6 million for the new facility to be built in Chongqing city for producing our heparin products, and the construction of the new facility. Holding Company Structure Qilian International Holding Group Limited (“Qilian International”) is a holding company with no material operations of its own.
The capital expenditure for the year ended September 30, 2024 is estimated to be $2.2 million for the new facility to be built in Chongqing city for producing our heparin products, and the construction of the new facility. Holding Company Structure BGM Group Ltd (“BGM”) is a holding company with no material operations of its own.
The decrease was mainly a result of $4.8 million decrease from net cash repaid for bank loan and bank notes payable, offset by a $1.8 million increase in dividend paid.
The decrease was mainly a result of $0.7 million decrease from net cash repaid for bank loan and bank notes payable, and a $1.8 million decrease in dividend paid.
For the year ended September 30, 2021, the change in account payable was $2.0 million net cash inflow, which led to a $2.8 million increase in net cash outflow from operating activities. 7. Change in contract liabilities was $1.8 million net cash outflow for the year ended September 30, 2022.
Change in account payable was $0.4 million net cash inflow for the year ended September 30, 2024. For the year ended September 30, 2023, the change in account payable was $1.6 million net cash outflow, which led to a $2.0 million increase in net cash inflow from operating activities. 8.
For the year ended September 30, 2021, the change in account receivable was $0.5 million net cash outflow, which led to a $1.5 million increase in net cash inflow from operating activities. 3. Change in bank acceptance note receivable was $8.7 million net cash inflow for the year ended September 30, 2022.
Change in bank acceptance note receivable was $0.9 million net cash inflow for the year ended September 30, 2024. For the year ended September 30, 2023, the change in bank acceptance note receivable was $1.7 million net cash outflow, which led to a $2.6 million increase in net cash inflow from operating activities.
The change was a result of the increase of net income of Chengdu QLS, which is partially owned by non-controlling interest holders. Chengdu QLS and its subsidiaries had net income of approximately $1.5 million for the year ended September 30, 2022 and it experienced a net loss of approximately $0.2 million for the year ended September 30, 2021.
The decrease was a result of the decrease of net loss of Chengdu QLS, which is partially owned by non-controlling interest holders. Chengdu QLS and its subsidiaries experienced a net loss of approximately $0.3 million for the year ended September 30, 2024 and it experienced a net loss of approximately $1.6 million for the year ended September 30, 2023.
Non-GAAP EBITDA (as defined below) for the year ended September 30, 2023 was $(6.9) million, representing a decrease of $9.6 million, or 348%, from $2.8 million for the year ended September 30, 2022. For additional information on EBITDA, please see the subsection “—EBITDA” below.
Non-GAAP EBITDA (as defined below) for the year ended September 30, 2024 was $(0.3) million, representing an increase of $6.6 million, or (96%), from $(6.9) million for the year ended September 30, 2023. For additional information on EBITDA, please see the subsection “—EBITDA” below.
Net loss attributable to our shareholders for the year ended September 30, 2023 was $7.8 million, representing a decrease of $8.9 million, or 823%, from $1.1 million net income attributable to our shareholders for the year ended September 30, 2022.
Net loss attributable to our shareholders for the year ended September 30, 2024 was $1.4 million, representing a decrease of $6.3 million, or 81.5%, from $7.8 million net loss attributable to our shareholders for the year ended September 30, 2023.
For the year ended September 30, 2021, the change in contract liabilities was $1.2 million net cash outflow, which led to a $0.6 million increase in net cash outflow from operating activities. 8. Change in tax payable was $0.6 million net cash inflow for the year ended September 30, 2022.
Change in account receivable was $0.4 million net cash inflow for the year ended September 30, 2024. For the year ended September 30, 2023, the change in account receivable was $1.2 million net cash outflow, which led to a $1.6 million increase in net cash inflow from operating activities. 4.
Other Income (loss) Other loss was $0.6 million for the year ended September 30, 2022, as compared to $1.0 million of other income for the year ended September 30, 2021, which primarily consisted of government grants and investment loss.
Other Expense Other expense was $0.9 million for the year ended September 30, 2024, as compared to $5.4million for the year ended September 30, 2023, which primarily consisted of government grants and investment loss.
Heparin Products and Sausage Casings Sales from heparin products and sausage casing increased by $0.3 million, or 1%, from $23.2 million for the year ended September 30, 2021, to $23.5 million for the year ended September 30, 2022.
Heparin Products and Sausage Casings Sales from heparin products and sausage casing decreased by $13.1 million, or 85%, from $15.3 million for the year ended September 30, 2023, to $2.2 million for the year ended September 30, 2024.
For the year ended September 30, 2021, the change in prepayment to suppliers was $0.9 million net cash outflow, which led to a $0.9 million increase in net cash inflow from operating activities. 6. Change in account payable was $0.8 million net cash outflow for the year ended September 30, 2022.
Change in contract liabilities was $0.6 million net cash outflow for the year ended September 30, 2024. For the year ended September 30, 2023, the change in contract liabilities was $0.5 million net cash inflow, which led to a $1.1 million decrease in net cash outflow from operating activities. 9.
Thus, the financial results presented here include those of the VIE and the VIE’s subsidiaries from the first period presented. Refer to our Risk Factors under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.” As of the date of this annual report, there are 35,750,000 Ordinary Shares issued and outstanding.
Thus, the financial results presented here include those of the VIE and the VIE’s subsidiaries from the first period presented. Refer to our Risk Factors under “Item 3. Key Information—D.
Net cash provided by operating activities was approximately $12.7 million for the year ended September 30, 2022, an increase of $12.3 million in cash provided by operating activities, compared to net cash provided by operating activities of $0.4 million for the year ended September 30, 2021. The increase of net cash inflow was a result of the following: 1.
Investing Activities Net cash provided by investing activities was approximately $1.0 million for the year ended September 30, 2024, an increase of $5.7million, or (121%), compared to $4.7 million net cash used in investing activities for the year ended September 30, 2023.
If we are not able to obtain equity or debt financing, we and our affiliates may not be able to execute the development and expansion plans, which could have material adverse effect on our, the VIE and its subsidiaries’ future business performance and operating results. 97 Table of Contents Our net revenue for the year ended September 30, 2023 was $46.5 million, representing a decrease of $18.4 million, or 28%, from $64.9 million for the year ended September 30, 2022.
If we are not able to obtain equity or debt financing, we and our affiliates may not be able to execute the development and expansion plans, which could have material adverse effect on our, the VIE and its subsidiaries’ future business performance and operating results.
Fertilizer Cost of revenue for our fertilizer products was approximately $0.8 million for the year ended September 30, 2022, an increase of approximately $0.3 million, or 64%, from approximately $0.5 million for the year ended September 30, 2021.
Fertilizer Cost of revenue for our fertilizer products was approximately $0.6 million for the year ended September 30, 2024, a decrease of approximately $0.5 million, or 48%, from approximately $1.1 million for the year ended September 30, 2023.
Net Income (loss) Attributable to Non-controlling interest Net income attributable to non-controlling interest was approximately $0.3 million for the fiscal year ended September 30, 2022, compared to $45,000 of net loss attributable to non-controlling interest for the year ended September 30, 2021.
Net Loss Attributable to Non-controlling interest Net loss attributable to non-controlling interest was approximately $74,331 for the fiscal year ended September 30, 2024, a decrease of $0.3 million, or 78%, from approximately $0.3 million of net loss attributable to non-controlling interest for the year ended September 30, 2023.
For the year ended September 30, 2022, the WFOE and the VIE and its subsidiaries’ sales translated into USD for oxytetracycline products, licorice products and TCMD increased by approximately $6.8 million, or 20%, from approximately $33.5 million for the year ended September 30, 2021 to approximately $40.3 million for the year ended September 30, 2022.
For the year ended September 30, 2024, the WFOE and the VIE and its subsidiaries’ sales translated into USD for oxytetracycline products, licorice products and TCMD decreased by approximately $7.2 million, or 24%, from approximately $29.2 million for the year ended September 30, 2023 to approximately $22.0 million for the year ended September 30, 2024.
Selling, General and Administrative, Research and Development Expenses Selling, general and administrative, research and development expenses were $4.1 million for the year ended September 30, 2022, an increase of approximately $0.9 million, or 27%, from $3.3 million for the year ended September 30, 2021.
Selling, General and Administrative, Research and Development Expenses Selling, general and administrative expenses were $4.7 million for the year ended September 30, 2024, representing an increase of approximately $0.3 million, or 7%, from $4.4 million for the year ended September 30, 2023. The increase was mainly attributable to an increase of legal fees of $0.2 million in the parent company.
For the year ended September 30, 2021, the change in accrued expenses and other payables was $0.9 million net cash outflow, which led to a $1.2 million increase in net cash inflow from operating activities.
For the year ended September 30, 2023, the change in other current assets was $1.4 million net cash inflow, which led to a $2.9 million decrease in net cash outflow from operating activities. This is mainly because the input tax was reclassified to other current assets in 2024. 7.
The increase was mainly due to the increase of investment in short term investment of $1 million, purchase of intangible assets of $1.8 million, increase of payment made for construction of $0.5 million, offset by the decreased purchase of property and equipment for $1.8 million. 110 Table of Contents Net cash used in investing activities was approximately $3.3 million for the year ended September 30, 2022, a decrease of $20.9 million, or 87%, compared to $24.2 million net cash used in investing activities for the year ended September 30, 2021.
The increase was mainly due to the increase of investment in short term investment of $1 million, purchase of intangible assets of $1.8 million, increase of payment made for construction of $0.5 million, offset by the decreased purchase of property and equipment for $1.8 million.
For the year ended September 30, 2021, the change in bank acceptance note receivable was $0.4 million net cash inflow, which led to a $8.3 million increase in net cash inflow from operating activities. 4. Change in inventory was $2.2 million net cash inflow for the year ended September 30, 2022.
Change in unrealized gain from marketable securities was $0.8 million for the year ended September 30, 2024. For the year ended September 30, 2023, the change in unrealized gain from marketable securities was $5.5 million net cash inflow, which led to a $4.7 million decrease in net cash outflow from operating activities.
For the year ended September 30, 2021, the change in inventory was less than $0.1 million net cash inflow, which led to a $2.2 million increase in net cash inflow from operating activities. 5. Change in prepayment to suppliers was less than $0.1 million net cash inflow for the year ended September 30, 2022.
The increase of net cash inflow was a result of the following: 1. Decrease in net loss of $6.6 million, from net loss of $8.1 million to net loss of $1.5 million. 2. Change in inventory reserve was $0.8 million net cash outflow for the year ended September 30, 2024.
For the year ended September 30, 2022, the cash used in financing activities mainly includes net cash paid for bank note payable of $6.1 million. Capital Expenditures Our capital expenditures were $3.7 million, $3.2 million and $3.5 million in fiscal years ended September 30, 2023, 2022 and 2021, respectively.
The decrease was mainly a result of $4.8 million decrease from net cash repaid for bank loan and bank notes payable, offset by a $1.8 million increase in dividend paid. 106 Table of Contents Capital Expenditures Our capital expenditures were $3.9 million, $3.7 million and $3.2 million in fiscal years ended September 30, 2024, 2023 and 2022, respectively.
This was mainly due to the decrease in net income resulting from increase of selling, general and administrative, research and dvelopement expense and other expenses. The percentage of EBITDA to revenue was 4.3% and 8.1% for the years ended September 30, 2022 and 2021, respectively. B.
This was mainly due to the increase in net income resulting from increased the loss from investment due to the fair value change discussed above for the years ended September 30, 2023. The percentage of EBITDA to revenue was (1.0) % and (14.8)% for the years ended September 30, 2024 and 2023, respectively.
Heparin Products and Sausage Casings Cost of revenue for our heparin products and sausage casings was $21.7 million for the year ended September 30, 2022, a decrease of $1.0 million, or 4%, from $22.6 million for the year ended September 30, 2021.
Our net revenue for the year ended September 30, 2024 was $25.1 million, representing a decrease of $21.4 million, or 46%, from $46.5 million for the year ended September 30, 2023.
Net cash used in financing activities was approximately $5.9 million for the year ended September 30, 2022, compared to $24 million of cash provided by financing activities for the year ended September 30, 2021. In the year 2021, we received $23.9 million net cash received as proceeds from our initial public offering.
Financing Activities Net cash used in financing activities was approximately $0.5 million for the year ended September 30, 2024, a decrease of $2.4 million, or 83%, compared to $2.9 million for the year ended September 30, 2023.
For the year ended September 30, 2021, the change in tax payable was $1.1 million net cash outflow, which led to a $1.6 million increase in net cash inflow from operating activities. 9. Change in accrued expenses and other payables was $0.3 million net cash inflow for the year ended September 30, 2022.
For the year ended September 30, 2023, the change in inventory reserve was $0.4 million net cash inflow, which led to a $1.2 million decrease in net cash outflow from operating activities. It’s because the inventory reserve was provisioned in previous years was sold in 2024, so the inventory reserve made in previous years was written off in 2024. 3.
Operating Results Overview We are engaged in the research, development, and production of licorice products, oxytetracycline products, TCMD product, heparin product, sausage casings, and fertilizers. We were originally incorporated in the Cayman Islands on February 7, 2019. Our business is mainly conducted by Gansu QLS, the VIE in the PRC, and its subsidiaries, using RMB, the currency of China.
Our business is mainly conducted by Gansu QLS, the VIE in the PRC, and its subsidiaries, using RMB, the currency of China.
This was primarily attributable to the increase of gross margin of 5.4%, from 2.3% for the fiscal year ended September 30, 2021, to 7.7% for the year ended September 30, 2022.
This was primarily attributable to the decreased sales of $1.1 million, or 55%, for the year ended September 30, 2024 compared to the fiscal year ended September 30, 2023.
Interest income for the year ended September 30, 2022 was less than $0.1 million, compared to interest expense for approximately $0.1 million for the year ended September 30, 2021. This is due to limited loan balance outstanding during 2022, offset by the interest income earned from the cash deposited in bank.
Interest Income, net Interest expense, net for the year ended September 30, 2024, increased by approximately $0.7 million. The increase of the balance is due to interest expense of Gansu QLS of prior years were adjusted in 2024.
The decrease is due to the investment loss from our investment in available-for-sale securities. 107 Table of Contents Income Taxes Provision Provision for income taxes decreased by $0.1 million, or 24%, from $0.3 million for the year ended September 30, 2021 to $0.2 million for the year ended September 30, 2022, as a result of the decreased income before income tax provision.
The sales of sausage casing decreased by $2 million mainly due to the impact of the national centralized procurement policy, resulting in a decrease in the company’s production. 97 Table of Contents Fertilizer Sales from fertilizer decreased by $1.1 million, or 55%, from $2.0 million for the year ended September 30, 2023 to $0.9 million for the year ended September 30, 2024.
Decrease in net income of $1.7 million, from $3.1 million to net income of 1.4 million. Net income excluding non-cash items were $3.9 million, compared to $4.0 million of net income, which were flat in both years; 2. Change in account receivable was $1.0 million net cash inflow for the year ended September 30, 2022.
With the decrease in sales volume, the corresponding notes receivable have also declined. 5. Change in inventory was $1.0 million net cash inflow for the year ended September 30, 2024.
Removed
COVID-19 The COVID-19 pandemic has significantly affected the economic and business activities within China. To contain the spread of the COVID-19 virus, the Chinese government has adopted restrictive measures such as city lockdowns, travel restrictions, and closures of business activities. Since December 2022, many businesses in China have resumed normal operations as government officials started to ease the restrictive measures.
Added
Operating Results Overview We are engaged in the research, development, and production of licorice products, oxytetracycline products, TCMD product, heparin product, sausage casings, and fertilizers. We also have a strategic focus on the technology fields of AI application, intelligent robots, algorithmic computing power, cloud computing, and biopharmaceuticals.
Removed
The WFOE and the VIE and its subsidiaries’ manufacturing activities depend on a wide array of raw materials such as soybeans, corn starch, glycyrrhiza glabra plant, pig intestines, and many others. Therefore, they experienced substantive diminutions in raw material supplies due to the COVID-19 pandemic and ensuing lockdowns.
Added
In terms of AI application implementation, we rely on big data mining and AI Agent technology, and utilize the two platforms of Du Xiao Bao and Bao Wang to provide comprehensive and professional AI solutions and intelligent robot services for insurance companies, insurance brokers, and consumers.
Removed
For the year ended September 30, 2023, 2022 and 2021, as COVID-19 was under control in China, cost of raw material was relatively stable, compared to the drastic increase in 2020. The COVID-19 pandemic has caused significant uncertainty in global market and demand as well as the logistics and transportation.
Added
Its services cover multiple key scenarios such as sales and marketing, underwriting assessment, claims processing, and customer service. We are capable of analyzing consumer data, building consumer profiles, accurately predicting insurance needs, and providing highly customized services for consumers.
Removed
Although the WFOE and the VIE and its subsidiaries do not serve customers oversea directly, COVID-19 related export restrictions has led to excessive supply of our competitors’ products in the domestic markets, resulting in a decrease in selling prices of some of the WFOE and the VIE and its subsidiaries’ products and lower gross margin.
Added
In the field of biopharmaceuticals, we deeply integrate AI-assisted decision-making into every link of production and manufacturing, achieving supply chain optimization, process efficiency improvement, and market trend prediction. This provides scientific decision-making basis for our management and offers high-quality products and precise services for consumers. We were originally incorporated in the Cayman Islands on February 7, 2019.
Removed
The extent of future impact of COVID-19 pandemic on the VIE and its subsidiaries’ operations or those of our third-party vendors and customers, including those customers that distribute to Europe and other jurisdictions outside of mainland China, is still uncertain, as the COVID-19 pandemic continues to adversely affect the global economy and the potential for resurgences remain. ​ 99 Table of Contents Results of Operations for the years ended September 30, 2023 and 2022 The following table sets forth a summary of our consolidated results of operations for the years ended September 30, 2023 and 2022.
Added
Risk Factors—Risks Related to Our Corporate Structure.” As of the date of this annual report, there is an aggregate of 97,222,141 ordinary shares, consisting of 77,222,141 Class A ordinary shares, par value of US$0.00833335 each, and 20,000,000 Class B ordinary shares, par value of US$0.00833335 each.
Removed
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Changes ​ 2022 2021 Amount % Net revenue ​ $ 64,855,025 ​ $ 57,099,884 ​ $ 7,755,141 14 % Cost of revenue ​ 58,627,728 ​ 51,461,354 ​ 7,166,374 14 % Gross profit ​ 6,227,297 ​ 5,638,530 ​ 588,767 10 % Selling, general and administrative, research and development expenses ​ 4,125,294 ​ 3,250,485 ​ 874,809 27 % Income from operations ​ 2,102,003 ​ 2,388,045 ​ (286,042) (12) % Interest income (expense) ​ 24,860 ​ (57,671) ​ 82,531 (143) % Other income (expense) ​ (566,304) ​ 1,032,903 ​ (1,599,207) (155) % Income before income tax provision ​ 1,560,559 ​ 3,363,277 ​ (1,802,718) (54) % Provision for income taxes ​ 194,302 ​ 255,133 ​ (60,831) (24) % Net income ​ 1,366,257 ​ 3,108,144 ​ (1,741,887) (56) % Less: net income (loss) attributable to noncontrolling interest ​ 289,564 ​ (44,724) ​ 334,288 (747) % Net income attributable to Qilian International Holding Group Limited ​ $ 1,076,693 ​ $ 3,152,868 ​ $ (2,076,175) (66) % ​ Net Revenue The following table sets forth the breakdown of our net revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ Changes ​ Amount % Amount % Amount % ​ Net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oxytetracycline & licorice products and TCMD ​ $ 40,305,988 62 % $ 33,451,159 59 % $ 6,854,829 20 % Heparin products and sausage casing ​ $ 23,460,467 36 % $ 23,162,554 40 % $ 297,913 1 % Fertilizer ​ $ 1,088,570 2 % $ 486,171 1 % $ 602,399 124 % Total ​ $ 64,855,025 100.0 % $ 57,099,884 100.0 % $ 7,755,141 14 % ​ 104 Table of Contents Compared with net revenue for the year ended September 30, 2021, our net revenue increased by $7.8 million, or 14%, for the year ended September 30, 2022, which was primarily attributable to a $6.8 million increase in sales from oxytetracycline & Licorice products and TCMD, a $0.3 million increase in sales from heparin products and sausage casings, and $0.6 million increase in sales from fertilizer.
Added
Results of Operations for the years ended September 30, 2024 and 2023 The following table sets forth a summary of our consolidated results of operations for the years ended September 30, 2024 and 2023.
Removed
The increase in sales in this segment is due to significant increase in the quantity of oxytetracycline products sold by 14%, or $6.7 million, compared to that of 2021.The ease of COVID-19 pandemic globally leads to loosen travel, transportation and logistics restriction.
Added
The historical results presented below are not necessarily indicative of the results that may be expected for any future period. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ ​ September 30, ​ Changes ​ 2024 2023 Amount % Net revenue ​ $ 25,097,951 ​ $ 46,471,478 ​ $ (21,373,527) (46) % Cost of revenue ​ 20,983,196 ​ 44,719,984 ​ (23,736,788) (53) % Gross profit ​ 4,114,755 ​ 1,751,494 ​ 2,363,261 135 % Selling, general and administrative, research and development expenses ​ 4,678,526 ​ 4,361,593 ​ 316,933 7 % Loss from operations ​ (563,771) ​ (2,610,099) ​ 2,046,328 (78) % Interest income ​ (639,511) ​ 99,190 ​ (738,701) (745) % Other expense ​ (933,860) ​ (5,391,995) ​ 4,458,135 (83) % Loss before income tax provision ​ (2,137,142) ​ (7,902,904) ​ 5,765,762 (73) % Income tax expense/(benefit) ​ (619,981) ​ 219,166 ​ (839,147) (383) % Net loss ​ (1,517,161) ​ (8,122,070) ​ 6,604,909 (81) % Less: net loss attributable to non-controlling interest ​ (74,331) ​ (341,450) ​ 267,119 (78) % Net loss attributable to BGM Group Ltd ​ $ (1,442,830) ​ $ (7,780,620) ​ $ 6,337,790 (81) % ​ 96 Table of Contents Net Revenue The following table sets forth the breakdown of our net revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended ​ ​ ​ ​ ​ ​ September 30, ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ Changes ​ Amount % Amount % Amount % ​ Net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Oxytetracycline & licorice products and TCMD ​ $ 21,961,282 87 % $ 29,152,228 63 % $ (7,190,946) (24) % Heparin products and sausage casing ​ $ 2,230,759 9 % $ 15,318,798 33 % $ (13,088,039) (85) % Fertilizer ​ $ 905,910 4 % $ 2,000,452 4 % $ (1,094,542) (55) % Total ​ $ 25,097,951 100 % $ 46,471,478 100 % $ (21,373,527) (46) % ​ Compared with net revenue for the year ended September 30, 2023, our net revenue decreased by $21.4 million, or 46%, for the year ended September 30, 2024, which was primarily attributable to a $7.2 million decrease in sales from Oxytetracycline & licorice products and TCMD, a $13.1 million decrease in sales from heparin products and sausage casing, and $1.1 million decreased sales from Fertilizer product.
Removed
Although the WFOE and the VIE and its subsidiaries do not serve customers oversea directly, COVID-19 related export restrictions has led to strong demand in the markets. For the year ended September 30, 2022, we developed 30 new customers in this segment which contributed $4.1 million of net increased sales during the year.
Added
Oxytetracycline & Licorice Products and TCMD The sales of oxytetracycline products, licorice products and TCMD accounted for 76%, 21% and 3%, respectively, of this segment’s total sales for the year ended September 30, 2024, and 95%, 5% and 0%, respectively, of such segment’s total sales for the year ended September 30, 2023.
Removed
The increase of the WFOE and the VIE and its subsidiaries’ sales of heparin products for $0.8 million was mainly driven by increased demand from pharmaceutical customers. Due to the COVID-19 pandemic, global demand for prescription medicines, vaccines and medical devices increased. The demand for heparin, a widely used medication, also increased significantly during the pandemic.
Added
The decrease in sales in this segment is due to a decrease of oxytetracycline product for $10.9 million, offset by 3.3 million of increase from sales of licorice product.
Removed
In 2021, the WFOE and the VIE and its subsidiaries increased investment in this segment and added new sales force. We also built new production line for heparin product and increase our production capacity. On the other hand, the WFOE and the VIE and its subsidiaries’ sales of sausage casings decreased by $0.5 million.
Added
The reasons for the decrease in sales of oxytetracycline products are due to that :1) oxytetracycline products has halved, resulting in a decrease in sales from November 2023; 2) the price of the company’s oxytetracycline products is relatively high compared to other companies in the market.
Removed
The WFOE and the VIE and its subsidiaries reduced the sales of refined sausage casing with higher selling price but lower margin, and increase the sales of raw sausage casing with lower selling price but higher margin.
Added
The increase in sales of licorice products is due to that: 1) the sales price of licorice products has increased.
Removed
Fertilizer Sales from fertilizer increased by $0.6 million, or 124%, from $0.5 million for the year ended September 30, 2021 to $1.1 million for the year ended September 30, 2022.
Added
Because of one or two raw materials of licorice products being monopolized by the market, the price of this material has risen, resulting in an increase in the market sales price of licorice products; 2) the favorable market environment has led to an increase in the sales volume of licorice products; 3) the company signed a general agency agreement for licorice products in May 2024 and implemented an exclusive sales policy; 4) the company developed new products, licorice liquid extract and licorice extract powder in November 2023, which sold well and accounted for 72.8% of licorice revenue.
Removed
In the fiscal year ended September 30, 2021, the WFOE and the VIE and its subsidiaries expanded their manufacturing capacity and the production of fertilizer was interrupted for almost ten months.
Added
The decrease of $10 million in sales of heparin products is mainly due to four reasons: 1) Our country issued a centralized procurement policy for heparin products in hospitals, and the procurement price decreased by 50-70% compared to before.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

27 edited+32 added−12 removed19 unchanged
Biggest changeThese shares, however, are not included in the computation of the percentage ownership of any other person. ​ ​ ​ ​ ​ ​ ​ ​ Ordinary Shares ​ ​ Beneficially Owned ​ ​ Number Percent * Directors and Executive Officers†: ​ ​ Zhanchang Xin (1) 13,839,000 38.71 % Haiping Shi (2) 7,131,000 19.95 % Dingqian Liu (4) 6,717,000 18.79 % Ming Jing ​ ​ ​ Song Gao ​ ​ ​ All directors and executive officers as a group: 27,687,000 77.45 % ​ ​ ​ ​ ​ ​ 5% Shareholders: ​ ​ ​ Zhijiu Holdings Limited (3) 7,131,000 19.95 % Gandikang Holdings Limited (4) 6,717,000 18.79 % Ahanzhai Development Limited (5) 1,839,000 5.14 % Notes: * For each person included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person by the voting power of all of our Ordinary Shares as a single class. † Unless otherwise indicated, the address of our directors and executive officers is Jiuquan Economic and Technological Development Zone, Jiuquan City, Gansu Province, People’s Republic of China.
Biggest changeThese shares, however, are not included in the computation of the percentage ownership of any other person. 114 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ % of Beneficial Ownership ​ ​ ​ ​ Ordinary ​ Ordinary ​ (of total Class A Ordinary Shares and ​ ​ ​ Shares Shares Class B Ordinary Shares) % of Aggregate Voting Power** Directors and Executive Officers†: ​ ​ ​ ​ ​ ​ Zhanchang Xin (1) 2,767,800 ​ 10,200,000 ​ 13.3 49.2 Furong Cao (2) — ​ 9,800,000 ​ 10.1 47.2 Waihua Xu — ​ — ​ — — Ming Jing — ​ — ​ — — Maofan Tang — ​ — ​ — — Chen Xin ​ * ​ — ​ * ​ * Yaxuan Zhai ​ — ​ — ​ — ​ — All directors and executive officers as a group: 3,028,492 ​ 20,000,000 ​ 23.7 96.4 ​ ​ ​ ​ ​ ​ ​ ​ ​ 5% Shareholders: ​ ​ ​ ​ ​ ​ ​ Ahanzhai Development Limited (3) 367,800 ​ 10,200,000 ​ 10.9 49.1 LX Management Company Limited (4) ​ — ​ 9,800,000 ​ 10.1 ​ 47.2 CISG Holdings Ltd (5) 69,995,661 ​ — ​ 72.0 3.4 Notes: * Less than 1% of our total outstanding Ordinary Shares. ** For each person included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person by the voting power of all of our Ordinary Shares. † Unless otherwise indicated, the address of our directors and executive officers is No. 152 Hongliang East 1st Street, No. 1703, Tianfu New District, Chengdu, 610200 People’s Republic of China.
The audit committee is responsible for, among other things: ● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing any audit problems or difficulties and management’s response with the independent auditors; 114 Table of Contents ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; ● reviewing and approving all proposed related party transactions; ● meeting separately and periodically with management and the independent auditors; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
The audit committee is responsible for, among other things: ● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing any audit problems or difficulties and management’s response with the independent auditors; ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; ● reviewing and approving all proposed related party transactions; ● meeting separately and periodically with management and the independent auditors; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. 111 Table of Contents Compensation Committee .
For the fiscal year ended September 30, 2023, the VIE failed to make full contributions to social insurance and housing funds for part of our employees. Please see “Item 3. Key Information—D.
For the fiscal year ended September 30, 2024, the VIE failed to make full contributions to social insurance and housing funds for part of our employees. Please see “Item 3. Key Information—D.
Jing has been a professor, doctorate degree tutor and associate Dean of the School of Pharmacy at Gansu University of Traditional Chinese Medicine and published more than seventy research papers on prominent science journals such as Science Citation Index (SCI) and Chinese Science Citation Database (CSCD). To date, Mr.
From 2003 to present, Mr. Jing has been a professor, doctorate degree tutor and associate Dean of the School of Pharmacy at Gansu University of Traditional Chinese Medicine and published more than seventy research papers on prominent science journals such as Science Citation Index (SCI) and Chinese Science Citation Database (CSCD). To date, Mr.
We believe that we and the VIE and its subsidiaries maintain a good working relationship with their employees, and we and our affiliates are not in the process of any labor disputes. 117 Table of Contents E.
We believe that we and the VIE and its subsidiaries maintain a good working relationship with their employees, and we and our affiliates are not in the process of any labor disputes. E.
Compensation Committee . Our compensation committee consists of Maofan Tang, Song Gao, and Ming Jing. Ming Jing is the chairman of our compensation committee. We have determined that Maofan Tang, Song Gao, and Ming Jing satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Our compensation committee consists of Maofan Tang, Waihua Xu, and Ming Jing. Ming Jing is the chairman of our compensation committee. We have determined that Maofan Tang, Waihua Xu, and Ming Jing satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Nominating and Corporate Governance Committee . Our nominating and corporate governance committee currently consists of Ming Jing, Maofan Tang, and Song Gao. Song Gao is the chairperson of our nominating and corporate governance committee. Ming Jing, Maofan Tang, and Song Gao satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Nominating and Corporate Governance Committee . Our nominating and corporate governance committee currently consists of Ming Jing, Maofan Tang, and Waihua Xu. Waihua Xu is the chairperson of our nominating and corporate governance committee. Ming Jing, Maofan Tang, and Waihua Xu satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Our audit committee consists of Maofan Tang, Song Gao, and Ming Jing. Maofan Tang is the chairman of our audit committee. We have determined that Maofan Tang, Song Gao, and Ming Jing satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Maofan Tang is the chairman of our audit committee. We have determined that Maofan Tang, Waihua Xu, and Ming Jing satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Exchange Act.
Zhanchang Xin has been our Chairman of the Board and Chief Executive Officer since our incorporation. Since August 2006, Mr. Xin has served as Chairman of the Board of Gansu QLS. Mr. Xin has over 30 years of research and engineering in the pharmaceutical industry.
Zhanchang Xin has been our Chairman of the Board since our incorporation and had served as the Chief Executive Officer from 2019 to 2024. Since August 2006, Mr. Xin has served as Chairman of the Board of Gansu QLS. Mr. Xin has over 30 years of research and engineering in the pharmaceutical industry.
Board Diversity Matrix Country of Principal Executive Offices: China Foreign Private Issuer Yes Disclosure Prohibited under Home Country Law No Total Number of Directors 5 Female Male Non- Binary Did Not Disclose Gender Part I: Gender Identity Directors 1 4 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction 1 LGBTQ+ 0 Did Not Disclose Demographic Background 0 ​ Family Relationships None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K. 113 Table of Contents B.
Board Diversity Matrix Country of Principal Executive Offices: China Foreign Private Issuer Yes Disclosure Prohibited under Home Country Law No Total Number of Directors 5 Female Male Non- Binary Did Not Disclose Gender Part I: Gender Identity Directors 2 3 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction 1 LGBTQ+ 0 Did Not Disclose Demographic Background 0 ​ Family Relationships None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K, except that Mr.
The nominating and corporate governance committee is responsible for, among other things: ● identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; ● reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us; ● identifying and recommending to our board the directors to serve as members of committees; ● advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. 115 Table of Contents Duties and Functions of Directors Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties.
The nominating and corporate governance committee is responsible for, among other things: ● identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; ● reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us; ● identifying and recommending to our board the directors to serve as members of committees; ● advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
Under these agreements, we agreed to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company. C. Board Practices Board of directors Our board of directors consists of five directors, including three independent directors.
Under these agreements, we agreed to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
Committees of the board of directors We have established the following committees in our board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. The committees operate in accordance with terms of reference established by our board of directors. ​ Audit Committee .
Committees of the board of directors We have established the following committees in our board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. The committees operate in accordance with terms of reference established by our board of directors. Audit Committee . Our audit committee consists of Maofan Tang, Waihua Xu, and Ming Jing.
(1) Represents 12,000,000 Ordinary Shares directly held by Mr. Zhanchang Xin and 1,839,000 Ordinary Shares held by Ahanzhai Development Limited, which is 100% owned by Mr. Zhanchang Xin. The registered address of Ahanzhai Development Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands.
(3) Represents 367,800 Class A Ordinary Shares and 10,200,000 Class B Ordinary Shares held by Ahanzhai Development Limited, which is 100% owned by Mr. Zhanchang Xin. The registered address of Ahanzhai Development Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands.
The functions and powers of our board of directors include, among others, (i) convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends and other distributions, and (iii) appointing officers and determining their terms of offices and responsibilities.
The functions and powers of our board of directors include, among others, (i) convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends and other distributions, (iii) appointing officers and determining their terms of offices and responsibilities; (iv) exercising the borrowing powers of our company and mortgaging the property of our company; and (v) approving the transfer of shares in our company, including the registration of such shares in our share register.
Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report. ​ ​ ​ ​ ​ Name Age Position(s) Zhanchang Xin ​ 57 ​ Chairman of the Board of Directors and Chief Executive Officer Song Gao ​ 55 ​ Independent Director Ming Jing ​ 62 ​ Independent Director Maofan Tang ​ 27 ​ Independent Director Dingqian Liu ​ 55 ​ Executive Director ​ Mr.
Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report. ​ ​ ​ ​ ​ Name Age Position(s) Zhanchang Xin ​ 58 ​ Chairman of the Board of Directors Waihua Xu ​ 31 ​ Independent Director Ming Jing ​ 63 ​ Independent Director Maofan Tang ​ 28 ​ Independent Director Furong Cao ​ 54 ​ Director Chen Xin ​ 32 ​ Chief Executive Officer Yaxuan Zhai ​ 31 ​ Chief Financial Officer ​ Mr.
The registered address of Gandikang Holdings Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. 118 Table of Contents (5) Represents 1,839,000 Ordinary Shares held by Ahanzhai Development Limited, which is 100% owned by Mr. Zhanchang Xin. The registered address of Ahanzhai Development Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands.
(1) Represents 2,400,000 Class A Ordinary Shares directly held by Mr. Zhanchang Xin as well as 367,800 Class A Ordinary Shares and 10,200,000 Class B Ordinary Shares held by Ahanzhai Development Limited, which is 100% owned by Mr. Zhanchang Xin. The registered address of Ahanzhai Development Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands.
Tang received his postgraduate degree in Finance and Big Data from the University of Sydney in 2019. He received his Bachelor’s Degree in Banking and Finance from Monash University in 2017. Mr. Dingqian Liu has served as our executive director since June 2023.
Tang received his postgraduate degree in Finance and Big Data from the University of Sydney in 2019. He received his Bachelor’s Degree in Banking and Finance from Monash University in 2017. 108 Table of Contents Ms. Furong Cao has served as our director since May 2024. Ms. Cao is an experienced professional in business management.
He received his Associate Degree in Economic Management from Gansu Provincial College in July 2003. Board Diversity The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
Board Diversity The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
As of September 30, 2023, there were 236 employees in Gansu QLS, 33 employees in Moshangfa, 5 employees in Chengdu QLS, 9 employees in Rugao, 8 employees in Chengdu Trade and 7 employees in Hainan Trading and they work in the following capacities: management, administration, supplement, production, quality control, R&D, strain cultivation, chemical residue cleaning, ingredient combination, disinfection, tablet making, drug preparation, packaging, equipment operator, plate framing, boiler management, bottle making, biochemistry monitoring, powder making, crystalizing, decolorization, docking, product loading, facility repair, air compressor management, water pump management, water treatment, plumbing, welding, hygiene, intestine cleaning, salting, salt disintegration, vehicle management and financial management. ​ 116 Table of Contents The following table sets forth a breakdown of employees by activity in Jiuquan City and Qionglai City for Gansu QLS, Moshangfa and Chengdu QLS as of September 30, 2023: ​ ​ ​ ​ Number of Gansu QLS Employees General Management 41 Manufacturing Management 27 Operators 155 Sales Department 13 Total 236 ​ ​ ​ ​ ​ Number of Moshangfa Employees General Management 10 Sales Department 3 Drivers 3 Operators 17 Total 33 ​ ​ ​ ​ ​ Number of Chengdu QLS Employees General Management 3 Financial Department 2 Total 5 ​ ​ ​ ​ ​ Number of Rugao Employees General Management 7 Production and Quality Control Department 1 Sales department 1 Total 9 ​ ​ ​ ​ ​ Number of Chengdu Trade Employees General Management ​ 2 Financial Department ​ 6 Total ​ 8 ​ ​ ​ ​ Hainan Trade Employees General Management 7 ​ As required by PRC laws and regulations, we and our affiliated entities participate in various employee social security plans that are organized by municipal and provincial governments, including housing, pension, medical insurance and unemployment insurance programs.
The following table sets forth a breakdown of employees by activity in Jiuquan City and Qionglai City for Gansu QLS, Moshangfa and Chengdu QLS as of September 30, 2024: ​ ​ ​ ​ Number of Gansu QLS Employees General Management 39 Manufacturing Management 27 Operators 196 Sales Department 12 Total 274 ​ ​ ​ ​ ​ Number of Moshangfa Employees General Management 4 Sales Department 3 Drivers 3 Operators 8 Total 18 ​ 113 Table of Contents ​ ​ ​ ​ Number of Chengdu QLS Employees General Management 4 Financial Department 2 Total 6 ​ ​ ​ ​ ​ Number of Chongqing Employees General Management 3 Production and Quality Control Department 5 Sales department 1 Total 9 ​ ​ ​ ​ ​ Number of Chengdu Trade Employees General Management ​ 3 Financial Department ​ 6 Total ​ 9 ​ ​ ​ ​ Hainan Trade Employees General Management 7 Total 7 ​ As required by PRC laws and regulations, we and our affiliated entities participate in various employee social security plans that are organized by municipal and provincial governments, including housing, pension, medical insurance and unemployment insurance programs.
Compensation Compensation For the fiscal year ended September 30, 2023, we paid an aggregate of $80,178 in cash to our directors and executive officers, and we paid an aggregate of US$31,460 cash compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers.
We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers.
In fulfilling their duty of care to us, our directors must ensure compliance with our amended articles of association, as amended and restated from time to time. We have the right to seek damages if a duty owed by any of our directors is breached.
Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time.
The calculations in the table below are based on 35,750,000 Ordinary Shares issued and outstanding as of the date of this annual report. Beneficial ownership is determined in accordance with the rules and regulations of the SEC.
The calculations in the table below are based on an aggregate of 97,222,141 ordinary shares, consisting of 77,222,141 Class A ordinary shares, par value of US$0.00833335 each, and 20,000,000 Class B ordinary shares, par value of US$0.00833335 each. Beneficial ownership is determined in accordance with the rules and regulations of the SEC.
All of our executive officers are appointed by and serve at the discretion of our board of directors. D. Employees We had 298, 344, and 283 employees in total as of September 30, 2023, 2022 and 2021, respectively.
Employees We had 323, 298, and 344 employees in total as of September 30, 2024, 2023 and 2022, respectively.
As of the date of this annual report, we do not have registered holder in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company . ​
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company . 115 Table of Contents F. Disclosure of Action to Recover Erroneously Awarded Compensation Not applicable. ​
Xin received his Master Degree in Business Administration from Beijing Technology and Business University in December 2004. Ms. Haiping Shi has served as our director since December 2020 and as our Chief Financial Officer since June 15, 2020. Since April 2018, Ms. Shi has served as the Chief Financial Officer and Head of Financial Department for Gansu QLS.
Xin received his Master Degree in Business Administration from Beijing Technology and Business University in December 2004. Ms. Waihua Xu has served as our independent director since May 2024. Ms. Xu has acquired a wealth of experience in marketing and public relations. Since Auguest 2023, Ms.
(2) Represents 7,131,000 Ordinary Shares held by Zhijiu Holdings Limited, which is 100% owned by Ms. Haiping Shi. The registered address of Zhijiu Holdings Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. (3) Represents 7,131,000 Ordinary Shares held by Zhijiu Holdings Limited, which is 100% owned by Ms. Haiping Shi.
(5) Represents 69,995,661 Class A Ordinary Shares held by CISG Holdings Ltd, which is 100% owned by AIX Inc. AIX Inc. is a company listed on the Nasdaq Global Select Market. The registered address of CISG Holdings Ltd is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.
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From February 2014 to March 2018, Ms. Shi served as the Head of Financial Department for Gansu QLS. From February 2012 to January 2014, Ms. Shi served as the Deputy General of Financial Department of Gansu QLS. Ms. Shi received a Three-Year College Degree from Gansu Radio and Television University in July 1995.
Added
Xu has been the head of social media and UGC community teams at Shenzhen Geruidi Technology, Ltd., responsible for content operations. From June 2021 to August 2023, Ms. Xu worked at Shenzhen Yiyu Technology, Ltd., as the head of overseas new media operations. From August 2016 to June 2021, Ms.
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She received an Accounting Intermediate Qualification Certificate awarded by China’s Ministry of Human Resources and Social Security and China’s Ministry of Finance in May 2008. 112 Table of Contents Ms. Song Gao has served as our independent director since July 2023. Since July 2020, Ms. Gao has served as the Chairwoman of Shenzhen Deyin International Culture Media Co., Ltd.
Added
Xu worked as the customer manager at HomilyChart Canada Inc, responsible for developing and implementing marketing plan. Ms. Xu obtained her master’s degree in Leadership from Trinity Western University in 2019 and her bachelor’s degree in English from Hunan Institute of Engineering in 2016. Mr. Ming Jing has served as our independent director since December 2020.
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From March 2017 to March 2020, Ms. Gao served as the President of Asia Times (Shenzhen) Co., Ltd. and the Chairwoman of Asia America Consulting (Shenzhen) Co., Ltd. Since 2004, Ms. Gao has been a career manager, adeptly navigating through different sectors and industries. She has experience in high-level organizational design, equity structuring, and business model development.
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She has acquired a wealth of business management experience across a diverse range of industries, such as medical technology, pharmaceuticals, finance, and management consulting. Since July 2021, Ms. Cao has served as the director of operations of Shenzhen Financial Investment Service Co., Ltd., responsible for overseeing the investment strategies. From July 2017 to June 2021, Ms.
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Between 1987 and 2004, Ms. Gao served at Ping An Insurance Company, where she progressed through roles in secretarial work, human resources, underwriting management, and regional management. With her extensive experience in operational management, Ms. Gao brings a wealth of expertise and valuable insights to the table, enabling her to drive success in a variety of business environments. Ms.
Added
Cao served as the business director of Shenzhen Beida Sequoia Business Management Co., Ltd., where she was responsible for financial project planning and investment risk assessment. Ms. Cao obtained her bachelor’s degree in Medical Profession from Shanghai Second Medical College in 1993. Mr. Chen Xin has served as our chief executive officer since May 2024. Mr.
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Gao obtained a master’s degree in Economic Management from Tianjin University. Mr. Ming Jing has served as our independent director since December 2020. From 2003 to present, Mr.
Added
Xin worked as an algorithm engineer at Geely Auti Holdings Limited from August 2022 to February 2024, where he led a team in developing perception algorithms for autonomous driving systems. From June 2021 to August 2022, he was an algorithm engineer at Shenzhen DJ Innovatives, where he engineered on image processing algorithms for autonomous driving vehicles. Mr.
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He has been serving as the general manager for Gansu Qilianshan Pharmaceutical Co., Ltd. since August 2006, leading the execution of the board of directors’ decisions at the business level, formulating the production and operation plans, and ensuring the completion of production goals. Since January 2019, Mr.
Added
Xin obtained his bachelor’s degree in Physics from Sichuan University in 2016 and his master’s degree in Physics from National University of Singapore in 2019. ​ Ms. Yaxuan Zhai has served as our chief financial officer since May 2024 and had served as the finance manager at the Company from October 2023 to May 2024.
Removed
Liu has been serving as the Chairman of the Supervisory Board for Gansu Qilianshan Pharmaceutical Co., Ltd., examining financial conditions, supervising executives’ conduct, and safeguarding the company’s business welfare in general. Mr. Liu graduated from the Central Academy of Education of China with a Bachelor’s Degree in Economic Management in July 2006.
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She worked as an auditor at Baker Tilly China Certified Public Accountants from November 2022 to October 2023. Ms. Zhai obtained her bachelor’s degree in Investment from Fujian Jiangxia University in 2018 and her master’s degree in Finance from The University of Sheffield in 2021.
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The Companies Act (Revised) of the Cayman Islands imposes a number of statutory duties on a director.
Added
Zhanchang Xin is the father of Mr. Chen Xin. 109 Table of Contents B. Compensation Compensation For the fiscal year ended September 30, 2024, we paid an aggregate of $63,122 in cash to our directors and executive officers, and we paid an aggregate of US$26,650 cash compensation to our non-executive directors.
Removed
A Cayman Islands director’s fiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties: (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty.
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Share Incentive Plan On April 8, 2024, we adopted an equity incentive plan (the “2024 Plan”), by written resolutions of all the directors of the Company, pursuant to which up to 5,362,500 ordinary shares with par value of US$0.00166667 each of the Company (the “Overall Share Limit”) may be issued.
Removed
The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills.
Added
On January 7, 2025, we approved the increase of the Overall Share Limit to 1,072,500 class A ordinary shares of par value of US$0.00833335 each (the “New Overall Share Limit”) by written resolutions of all the directors of the Company to reflect the share consolidation of the Company at a ratio of five-for-one, effective on June 21, 2024.
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Terms of Directors and Officers Each of our directors holds office until a successor has been duly elected and qualified unless the director was appointed by the board of directors, in which case such director holds office until the next following annual meeting of shareholders at which time such director is eligible for reelection.
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As of the date of this annual report, none of the awards under the 2024 Plan has been granted. The following paragraphs summarize other key terms of the 2024 Plan: Types of Awards . The 2024 Plan permits the awards of options. Plan Administration .
Removed
The registered address of Zhijiu Holdings Limited is OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. (4) Represents 6,717,000 Ordinary Shares held by Gandikang Holdings Limited, which is 100% owned by Mr. Dingqian Liu.
Added
Our board of directors or a committee of one or more members of the board of directors will administer the 2024 Plan.
Added
The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award under the 2024 Plan. Award Agreement .
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Awards granted under the 2024 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award. Eligibility .
Added
We may grant awards to employees, directors and consultants of the Company under the 2024 Plan. In addition, under the 2024 Plan, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our subsidiaries. Vesting Schedule .
Added
Under the 2024 Plan, in general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement. 110 Table of Contents Exercise of Options . Under the 2024 Plan, the option shall be exercisable during its term (prior to the earlier of the expiration date or option termination set forth in the option agreement.
Added
The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. Transfer Restrictions .
Added
Under the 2024 Plan, Unless otherwise determined by the administrator, the option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) in any manner otherwise than by will or by the laws of descent or distribution, shall not be subject to sale under execution, attachment, levy or similar process and may be exercised during the lifetime of the optionee only by the optionee.
Added
The terms of the 2024 Plan and the awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution. Termination and Amendment .
Added
Unless terminated earlier, the 2024 Plan has a term of ten years. Our board of directors has the authority to amend or terminate the 2024 Plan.
Added
Except with respect to amendments made by the plan administrator, no termination, amendment or modification may adversely affect in any material way any awards previously granted pursuant to the 2024 Plan unless agreed by the participant. C. Board Practices Board of directors Our board of directors consists of five directors, including three independent directors.
Added
Duties and Functions of Directors Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose.
Added
We have the right to seek damages if a duty owed by any of our directors is breached. 112 Table of Contents Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs.
Added
Terms of Directors and Officers Pursuant to our third amended and restated memorandum and articles of association, a director may be appointed by ordinary resolution of the shareholders of our company or by the directors of the Company. Any appointment may be to fill a vacancy or as an additional director of the Company.
Added
Without prejudice to the Company’s power to appoint a person to be a director pursuant to the articles of association, the board of directors shall have power at any time to appoint any person who is willing to act as a director, either to fill a vacancy or as an addition to the existing board of directors, subject to the total number of directors not exceeding any maximum number fixed by or in accordance with the articles of association.
Added
Any director so appointed shall, if still a director, retire at the next annual general meeting after his appointment and be eligible to stand for election as a director at such meeting.
Added
Unless re-appointed or removed from office pursuant to the provisions of the articles of association, each director shall be appointed for a term expiring at the next-following annual general meeting of the Company. At any such annual general meeting, directors will be elected by ordinary resolution of the shareholders of the Company.
Added
At each annual general meeting of the Company, each director elected at such meeting shall be elected to hold office for a one-year term and until the election of their respective successors in office or removal pursuant to the articles of association All of executive officers are appointed by and serve at the discretion of our board of directors. D.
Added
As of September 30, 2024, there were 274 employees in Gansu QLS, 18 employees in Moshangfa, 6 employees in Chengdu QLS, 9 employees in Chongqing Shengfu Biological Technology Co., Ltd (“Chongqing”), 9 employees in Chengdu Trade and 7 employees in Hainan Trading and they work in the following capacities: management, administration, supplement, production, quality control, R&D, strain cultivation, chemical residue cleaning, ingredient combination, disinfection, tablet making, drug preparation, packaging, equipment operator, plate framing, boiler management, bottle making, biochemistry monitoring, powder making, crystalizing, decolorization, docking, product loading, facility repair, air compressor management, water pump management, water treatment, plumbing, welding, hygiene, intestine cleaning, salting, salt disintegration, vehicle management and financial management.
Added
(2) Represents 9,800,000 Class B Ordinary Shares held by LX Management Company Limited, which is 100% owned by Ms. Furong Cao. The registered address of LX Management Company Limited is Flat 1512, 15/F, Lucky Centre, No.165-171 Wan Chai Road, Wan Chai, 999077, Hong Kong.
Added
(4) Represents 9,800,000 Class B Ordinary Shares held by LX Management Company Limited, which is 100% owned by Ms. Furong Cao. The registered address of LX Management Company Limited is Flat 1512, 15/F, Lucky Centre, No.165-171 Wan Chai Road, Wan Chai, 999077, Hong Kong.
Added
The principal business address of AIX Inc. is 60F, Pearl River Tower, No. 15 West Zhujiang Road, Zhujiang New Town, Tianhe, Guangzhou, Guangdong Province, People’s Republic of China. As of the date of this annual report, we do not have registered holder in the United States.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

3 edited+1 added−0 removed1 unchanged
Biggest changeBoard Practices—Terms of Directors and Officers.” ​ Employment Agreements and Indemnification Agreements ​ See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Employment Agreements and Indemnification Agreements.” ​ C. Interests of Experts and Counsel ​ Not applicable . ​
Biggest changeCompensation—Employment Agreements and Indemnification Agreements.” ​ Share Incentive Plan ​ See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.” ​ C. Interests of Experts and Counsel Not applicable . ​
Organizational Structure—Contractual Arrangements between WFOE and Gansu QLS.” ​ Material Transactions with Related Parties ​ During the normal course of business, we may make sales to our affiliated companies controlled by our major shareholders or subsidiaries. For the years ended September 30, 2022 and 2021, we made sales to our affiliated companies in the amount of $122,189 and $31,587, respectively.
Organizational Structure—Contractual Arrangements between WFOE and Gansu QLS.” ​ Material Transactions with Related Parties ​ During the normal course of business, we may make sales to our affiliated companies controlled by our major shareholders or subsidiaries. For the year ended September 30, 2022, we made sales to our affiliated companies in the amount of $122,189.
As of September 30, 2022, we had advances from affiliated companies in the amount of $8,740. For the year ended and as of September 30, 2023, there was no related party transaction and related party balance outstanding. ​ Terms of Directors and Officers ​ See “Item 6. Directors, Senior Management and Employees—C.
As of September 30, 2022, we had advances from affiliated companies in the amount of $8,740. For the year ended and as of September 30, 2023, there was no related party transaction and related party balance outstanding.
Added
For the year ended and as of September 30, 2024, there was no related party transaction and related party balance outstanding. ​ Terms of Directors and Officers ​ See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Terms of Directors and Officers.” ​ Employment Agreements and Indemnification Agreements ​ See “Item 6. Directors, Senior Management and Employees—B.