Correspondence 0001213900-23-075543 from CHINA PHARMA HOLDINGS, INC. (CPHI) (CIK 0001106644) (CPHI)
CHINA PHARMA HOLDINGS, INC. (CPHI) (CIK 0001106644)
Date: Sept. 8, 2023 · CIK: 0001106644 · Accession: 0001213900-23-075543
AI Filing Summary & Sentiment
File numbers found in text: 001-34471
Referenced dates: July 25, 2023
Letter
VIA EDGAR TRANSMISSION United States Securities and Exchange Commission Division of Corporation Finance Office of Life Sciences Re: China Pharma Holdings, Inc. Form 10-K for Fiscal Year Ended December 31, 2022 Filed March 30, 2023 File No. 001-34471
Dear Messrs. Hagius and McCann:
This letter is being furnished in response to the comments of the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) that was contained in the Staff’s letter dated July 25, 2023 (the “Comment Letter”), to China Pharma Holdings, Inc (the “Company”) with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Commission on March 30, 2023 (the “Original Form 10-K”).
This letter provides the Company’s responses to the Staff’s comments contained in the Comment Letter. The text of the Staff’s comments is set forth in bold below, followed by the responses of the Company. Amendment No. 1 to the Form 10-K/A (the “Amended 10-K”), furnished hereto as Annex A, is for the purpose of demonstrating the proposed revised disclosure. Once the comments are cleared, with the permission of the Staff, to the extent applicable, the Company will incorporate such disclosure to the upcoming Annual Report on Form 10-K for the year ended December 31, 2023 to be filed with the Commission publicly.
Form 10-K for Fiscal Year Ended December 31, 2022
Part I
Item 1. Business, page 1
1. At the onset of Part I, please disclose prominently that you are not a Chinese operating company but a Nevada holding company with operations conducted by your subsidiaries.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 1 of the Amended 10-K.
2. Provide prominent disclosure about the legal and operational risks associated with being based in or having the majority of the company’s operations in China. Your disclosure should make clear whether these risks could result in a material change in your operations and/or the value of your securities or could significantly limit or completely hinder your ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Your disclosure should address how recent statements and regulatory actions by China’s government, such as those related to data security or anti-monopoly concerns, have or may impact the company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign exchange.
Response: In response to the Staff’s comment, the Company has revised its disclosure on pages 4 and 5 of the Amended 10-K. Disclosure regarding data security has been previously disclosed on pages 34 and 35 of the Original Form 10-K.
3. Please prominently disclose whether your auditor is subject to the determinations announced by the PCAOB on December 16, 2021 and whether and how the Holding Foreign Companies Accountable Act, as amended by the Consolidated Appropriations Act, 2023, and related regulations will affect your company.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 15 of the Amended 10-K.
4. Clearly disclose how you will refer to the holding company and subsidiaries when providing the disclosure throughout the document so that it is clear to investors which entity the disclosure is referencing and which subsidiaries or entities are conducting the business operations. For example, disclose, if true, that your subsidiary conducts operations in China.
Response: In response to the Staff’s comment, the Company has revised its disclosure throughout the Amended 10-K.
5. Provide a clear description of how cash is transferred through your organization. Disclose your intentions to distribute earnings. Quantify any cash flows and transfers of other assets by type that have occurred between the holding company and its subsidiaries, and direction of transfer. Quantify any dividends or distributions that subsidiaries have made to the holding company and which entity made such transfer, and their tax consequences. Similarly quantify dividends or distributions made to U.S. investors, the source, and their tax consequences. Your disclosure should make clear if no transfers, dividends, or distributions have been made to date. Describe any restrictions on foreign exchange and your ability to transfer cash between entities, across borders, and to U.S. investors. Describe any restrictions and limitations on your ability to distribute earnings from the company, including your subsidiaries, to the parent company and U.S. investors.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 4 of the Amended 10-K. Restrictions and limitations on its ability to distribute earnings from its subsidiaries in China has been previously disclosed on pages 14, 32, 39 and 40 of the Original Form 10-K.
6. Disclose each permission or approval that you or your subsidiaries are required to obtain from Chinese authorities to operate your business and to offer securities to foreign investors. State whether you or your subsidiaries are covered by permissions requirements from the China Securities Regulatory Commission (CSRC), Cyberspace Administration of China (CAC) or any other governmental agency that is required to approve your operations, and state affirmatively whether you have received all requisite permissions or approvals and whether any permissions or approvals have been denied. Please also describe the consequences to you and your investors if you or your subsidiaries: (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and you are required to obtain such permissions or approvals in the future.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 5 of the Amended 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 46
7. Please address the following regarding your accounts receivable and related allowance for doubtful accounts:
● Tell us and revise to clearly state your write-off policy. Identify the point in time at which you write off a receivable, including the extent to which write-offs are made on a specific versus general basis.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 52 of the Amended 10-K.
● To the extent you do conduct write-offs of uncollectible accounts receivables, explain why write-offs are not separately quantified in your roll forward of the allowance at the top of page 50.
Response: In response to the Staff’s comment, other than additional disclosure on pages 51 and 52 of the Amended 10-K, the Company notes to the Staff that the Company has no write-off in fiscal years ended December 31, 2022 and 2021.
● You provide an aging distribution breakdown at the bottom of page 50 for four different aging segments of your receivable portfolio by percentage. Revise to provide a similar aging distribution both for your gross accounts receivables as well as your allocated allowance for doubtful accounts in dollars.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 51 of the Amended 10-K.
● You disclose on page 50 that deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are common. Revise to discuss the relative collectability of receivables separately from each of these customer classes and to discuss the extent to which your allowance methodology differentiates between these customers. Identify any other significant customer classes.
Response: In response to the Staff’s comment, other than additional disclosure on page 51 of the Amended 10-K, the Company notes to the Staff that deferred payments by state-owned hospitals and local medicine distributors is the reason for the Company’s relatively long credit term, as the customers’ payments to the Company are contingent on their receipt of the payments from state-owned hospitals and local medicine distributors. The Company, through its wholly owned subsidiary, Helpson, a GMP certified drug manufacturer, can directly sell its own drugs to hospitals. However, Helpson, like most other pharmaceutical companies, sells substantially all of its drugs products to hospitals through local GSP (Good Supply Practice) certified drug distributors. As there is only one class of customers, the Company adopts a unified policy for bad debt allowance reserves.
● To the extent state-owned hospitals reflect a different collectability pattern from local medicine distributors, consider breaking out your aging distribution between these two customer types, and provide a breakdown of revenue by customer class.
Response: In response to the Staff’s comment, the Company notes to the Staff that as its main customers are drug distributors, not state-owned hospital, the Company adopts a unified policy for bad debt allowance reserves and collectability pattern.
● To the extent you do not receive payments on receivables from state-owned hospitals, discuss the way you determine such payments are omitted due to credit quality issues versus other reasons such as pricing discounts, contractual adjustments, or other allowance adjustments to revenue.
Response: In response to the Staff’s comment, the Company notes to the Staff that as answered in previous responses, the Company’s main customers are drug distributors, not state-owned hospitals, therefore, the Company does not receive payments directly from hospitals.
● Tell us the reasons for the fluctuations in your allowance as a percentage of accounts receivable and the reasons for the changes in your negative bad debt expense for the periods presented. Revise accordingly to more clearly address such fluctuations.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 51 of the Amended 10-K.
General
8. Prominently disclose the risks that your corporate structure and being based in or having the majority of the company’s operations in China poses to investors. In particular, describe the significant regulatory, liquidity, and enforcement risks. For example, specifically discuss risks arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with little advance notice; and the risk that the Chinese government may intervene or influence your operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in your operations and/or the value of your securities. Acknowledge any risks that any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder your ability to offer or continue to offer securities to investors and cause the value of your securities to significantly decline or be worthless
Response: In response to the Staff’s comment, the Company has revised its disclosure on pages 1, 4 and 5 of the Amended 10-K. Risks related to the service of process, enforceability of foreign judgements, and corporate structure have been previously disclosed on pages 31 of the Original 10-K.
9. Given the significant oversight and discretion of the government of the People’s Republic of China (PRC) over the operations of your business, please describe any material impact that intervention or control by the PRC government has or may have on your business or on the value of your securities. We remind you that, pursuant to federal securities rules, the term “control” (including the terms “controlling,” “controlled by,” and “under common control with”) means “the possession, direct or indirect, of the po
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CORRESP
1
filename1.htm
China
Pharma Holdings, Inc.
Second
Floor, No. 17, Jinpan Road
Haikou,
Hainan Province, China, 570216
September
8, 2023
VIA
EDGAR TRANSMISSION
United
States Securities and Exchange Commission
Division
of Corporation Finance
Office
of Life Sciences
100
F Street NE
Washington,
D.C. 20549-3561
Attn:
Dillon Hagius and Joe McCann
Re: China
Pharma Holdings, Inc.
Form
10-K for Fiscal Year Ended December 31, 2022
Filed
March 30, 2023
File
No. 001-34471
Dear
Messrs. Hagius and McCann:
This
letter is being furnished in response to the comments of the staff (the “Staff”) of the Division of Corporation Finance
of the Securities and Exchange Commission (the “Commission”) that was contained in the Staff’s letter dated
July 25, 2023 (the “Comment Letter”), to China Pharma Holdings, Inc (the “Company”) with respect
to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Commission on March 30,
2023 (the “Original Form 10-K”).
This letter provides the Company’s
responses to the Staff’s comments contained in the Comment Letter. The text of the Staff’s comments is set forth in bold below,
followed by the responses of the Company. Amendment No. 1 to the Form 10-K/A (the “Amended 10-K”), furnished hereto
as Annex A, is for the purpose of demonstrating the proposed revised disclosure. Once the comments are cleared, with the permission of
the Staff, to the extent applicable, the Company will incorporate such disclosure to the upcoming Annual Report on Form 10-K for the year
ended December 31, 2023 to be filed with the Commission publicly.
Form
10-K for Fiscal Year Ended December 31, 2022
Part
I
Item
1. Business, page 1
1. At
the onset of Part I, please disclose prominently that you are not a Chinese operating company
but a Nevada holding company with operations conducted by your subsidiaries.
Response: In response to the
Staff’s comment, the Company has revised its disclosure on page 1 of the Amended 10-K.
2. Provide
prominent disclosure about the legal and operational risks associated with being based in
or having the majority of the company’s operations in China. Your disclosure should
make clear whether these risks could result in a material change in your operations and/or
the value of your securities or could significantly limit or completely hinder your ability
to offer or continue to offer securities to investors and cause the value of such securities
to significantly decline or be worthless. Your disclosure should address how recent statements
and regulatory actions by China’s government, such as those related to data security
or anti-monopoly concerns, have or may impact the company’s ability to conduct its
business, accept foreign investments, or list on a U.S. or other foreign exchange.
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on pages 4 and 5 of the Amended 10-K. Disclosure regarding data security has been previously disclosed on pages 34 and 35 of
the Original Form 10-K.
3. Please
prominently disclose whether your auditor is subject to the determinations announced by the PCAOB
on December 16, 2021 and whether and how the Holding Foreign Companies Accountable Act, as amended
by the Consolidated Appropriations Act, 2023, and related regulations will affect your company.
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on page 15 of the Amended 10-K.
4. Clearly
disclose how you will refer to the holding company and subsidiaries when providing the disclosure
throughout the document so that it is clear to investors which entity the disclosure is referencing
and which subsidiaries or entities are conducting the business operations. For example, disclose,
if true, that your subsidiary conducts operations in China.
Response:
In response to the Staff’s comment, the Company has revised its disclosure throughout the Amended 10-K.
5. Provide
a clear description of how cash is transferred through your organization. Disclose your intentions
to distribute earnings. Quantify any cash flows and transfers of other assets by type that have
occurred between the holding company and its subsidiaries, and direction of transfer. Quantify
any dividends or distributions that subsidiaries have made to the holding company and which entity
made such transfer, and their tax consequences. Similarly quantify dividends or distributions
made to U.S. investors, the source, and their tax consequences. Your disclosure should make clear
if no transfers, dividends, or distributions have been made to date. Describe any restrictions
on foreign exchange and your ability to transfer cash between entities, across borders, and to
U.S. investors. Describe any restrictions and limitations on your ability to distribute earnings
from the company, including your subsidiaries, to the parent company and U.S. investors.
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on page 4 of the Amended 10-K. Restrictions and limitations on its ability to distribute earnings from its subsidiaries in
China has been previously disclosed on pages 14, 32, 39 and 40 of the Original Form 10-K.
6. Disclose
each permission or approval that you or your subsidiaries are required to obtain from Chinese
authorities to operate your business and to offer securities to foreign investors. State whether
you or your subsidiaries are covered by permissions requirements from the China Securities Regulatory
Commission (CSRC), Cyberspace Administration of China (CAC) or any other governmental agency that
is required to approve your operations, and state affirmatively whether you have received all
requisite permissions or approvals and whether any permissions or approvals have been denied.
Please also describe the consequences to you and your investors if you or your subsidiaries: (i)
do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such
permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations
change and you are required to obtain such permissions or approvals in the future.
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on page 5 of the Amended 10-K.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations, page 46
7. Please
address the following regarding your accounts receivable and related allowance for doubtful accounts:
● Tell
us and revise to clearly state your write-off policy. Identify the point in time at which
you write off a receivable, including the extent to which write-offs are made on a specific
versus general basis.
Response:
In response to the Staff’s comment, the Company has revised its disclosure on page 52 of the Amended 10-K.
2
● To
the extent you do conduct write-offs of uncollectible accounts receivables, explain why write-offs
are not separately quantified in your roll forward of the allowance at the top of page 50.
Response:
In response to the Staff’s comment, other than additional disclosure
on pages 51 and 52 of the Amended 10-K, the Company notes to the Staff that the Company has no write-off in fiscal years ended December
31, 2022 and 2021.
● You
provide an aging distribution breakdown at the bottom of page 50 for four different aging
segments of your receivable portfolio by percentage. Revise to provide a similar aging distribution
both for your gross accounts receivables as well as your allocated allowance for doubtful
accounts in dollars.
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on page 51 of the Amended 10-K.
● You
disclose on page 50 that deferred payments to pharmaceutical companies by state-owned hospitals
and local medicine distributors are common. Revise to discuss the relative collectability
of receivables separately from each of these customer classes and to discuss the extent to
which your allowance methodology differentiates between these customers. Identify any other
significant customer classes.
Response:
In response to the Staff’s comment, other than additional disclosure
on page 51 of the Amended 10-K, the Company notes to the Staff that deferred payments by state-owned hospitals and local medicine distributors
is the reason for the Company’s relatively long credit term, as the customers’ payments to the Company are contingent on their
receipt of the payments from state-owned hospitals and local medicine distributors. The Company, through its wholly owned subsidiary,
Helpson, a GMP certified drug manufacturer, can directly sell its own drugs to hospitals. However, Helpson, like most other pharmaceutical
companies, sells substantially all of its drugs products to hospitals through local GSP (Good Supply Practice) certified drug distributors.
As there is only one class of customers, the Company adopts a unified policy for bad debt allowance reserves.
● To
the extent state-owned hospitals reflect a different collectability pattern from local medicine
distributors, consider breaking out your aging distribution between these two customer types,
and provide a breakdown of revenue by customer class.
Response:
In response to the Staff’s comment, the Company notes to the Staff that as its main customers are drug distributors, not state-owned
hospital, the Company adopts a unified policy for bad debt allowance reserves and collectability pattern.
● To
the extent you do not receive payments on receivables from state-owned hospitals, discuss
the way you determine such payments are omitted due to credit quality issues versus other
reasons such as pricing discounts, contractual adjustments, or other allowance adjustments
to revenue.
Response:
In response to the Staff’s comment, the Company notes to the Staff that as answered in previous responses, the Company’s
main customers are drug distributors, not state-owned hospitals, therefore, the Company does not receive payments directly from hospitals.
● Tell
us the reasons for the fluctuations in your allowance as a percentage of accounts receivable
and the reasons for the changes in your negative bad debt expense for the periods presented.
Revise accordingly to more clearly address such fluctuations.
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on page 51 of the Amended 10-K.
3
General
8. Prominently
disclose the risks that your corporate structure and being based in or having the majority
of the company’s operations in China poses to investors. In particular, describe the
significant regulatory, liquidity, and enforcement risks. For example, specifically discuss
risks arising from the legal system in China, including risks and uncertainties regarding
the enforcement of laws and that rules and regulations in China can change quickly with little
advance notice; and the risk that the Chinese government may intervene or influence your
operations at any time, or may exert more control over offerings conducted overseas and/or
foreign investment in China-based issuers, which could result in a material change in your
operations and/or the value of your securities. Acknowledge any risks that any actions by
the Chinese government to exert more oversight and control over offerings that are conducted
overseas and/or foreign investment in China-based issuers could significantly limit or completely
hinder your ability to offer or continue to offer securities to investors and cause the value
of your securities to significantly decline or be worthless
Response:
In response to the Staff’s comment, the Company has revised its
disclosure on pages 1, 4 and 5 of the Amended 10-K. Risks related to the service of process, enforceability of foreign judgements, and
corporate structure have been previously disclosed on pages 31 of the Original 10-K.
9. Given
the significant oversight and discretion of the government of the People’s Republic
of China (PRC) over the operations of your business, please describe any material impact
that intervention or control by the PRC government has or may have on your business or on
the value of your securities. We remind you that, pursuant to federal securities rules, the
term “control” (including the terms “controlling,” “controlled
by,” and “under common control with”) means “the possession, direct
or indirect, of the po