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The 18th Issuance Examination Committee 2021 8th Meeting Result Announcement

The 8th meeting of the 18th Issuance Examination Committee of the China Securities Regulatory Commission was held on January 14, 2021. The announcement of the meeting review is as follows:

　　I. Review Results

　　(I) Nan Qiao Food Group (Shanghai) Co., Ltd. (Initial Public Offering) was approved.

　　(II) Suzhou Linhua Medical Device Co., Ltd. (Initial Public Offering) was temporarily postponed for voting.

　　(III) Anhui Huasu Co., Ltd. (Initial Public Offering) was approved.

　　(IV) Shandong Zhongnong United Biotechnology Co., Ltd. (Initial Public Offering) was approved.

　　(V) Shandong Lianke Technology Co., Ltd. (Initial Public Offering) was approved.

　　II. Main Issues Raised at the Issuance Examination Committee Meeting

　　(I) Nan Qiao Food Group (Shanghai) Co., Ltd.

　　1. The baking oil and frozen dough business of Nan Qiao Oil, a wholly-owned subsidiary of the controlling shareholder Nan Qiao Investment Holding, is the same as that of the issuer. Please explain the following on behalf of the issuer: (1) Explain whether the market division method can achieve non-substitutability and competitiveness of the business, whether conflicts of interest can be avoided, and whether the issuer constitutes horizontal competition with the controlling shareholder; (2) Combine the issuer's historical evolution, assets, personnel, business and technology, procurement and sales channels, etc., with the relationship between the issuer's controlling shareholder and other enterprises controlled by the actual controller to explain whether it affects the issuer's independence; (3) Explain the negotiation mechanism for the purchase price of overlapping suppliers in both directions during the reporting period, whether the purchase price is negotiated with suppliers as a whole, and whether there are situations such as benefit transfer or conflict of interest; (4) Explain the specific measures taken by the issuer and the controlling shareholder to avoid or eliminate potential horizontal competition and their effectiveness. Please explain the basis and process of verification by the sponsor representative and express clear verification opinions.

　　2. The revenue generated by the issuer's distribution model accounts for a relatively high proportion of the main business revenue in each period, and there are some individual businesses and other non-legal entities. Please explain the following on behalf of the issuer: (1) The reasons and rationality for the relatively high proportion of the issuer's distribution model, and whether it complies with industry practices; (2) Whether there is a substantial or potential relationship between the main distributors and the issuer; (3) The reasons for the existence of non-legal entity distributors, the reasons and rationality for the increase or decrease in the number of non-legal entity distributors during the reporting period, whether the gross profit margin of sales of similar products to legal entity distributors and non-legal entity distributors is consistent, and the reasons and rationality for the differences; (4) Whether the free value-added services provided by the issuer are sufficient to fully explain the reasons and rationality for the distribution gross profit margin being higher than the direct sales gross profit margin; (5) The reasons for the existence of third-party returns in the distribution model, the types of third-party returns, and the standardized measures. Please explain the basis and process of verification by the sponsor representative and express clear verification opinions.

　　3. During the reporting period, there were related-party transactions between the issuer and Nan Qiao Investment Holding and its controlled companies. Please explain the following on behalf of the issuer: (1) After 2018, the reasons and rationality for the significant decline in the gross profit margin of imported dairy products when the issuer directly imported dairy products from Lakeland Dairy Sales Ltd; (2) Whether Shanghai Qiao Hao's increased investment in sales channels in 2017 matches its own production and operating capabilities, and whether the increased sales personnel and sales channels overlap with the issuer's sales system; (3) Whether the issuer's production site is mixed with related parties, whether it affects independence, and the fairness of related-party transaction pricing; (4) The changes in the operating performance of other businesses held by Nan Qiao Investment Holding from 2017 to January-June 2020, and the main factors and rationality of the changes; (5) Whether the indirect controlling shareholder of the issuer, Nan Qiao Investment Holding, and its other businesses have historically undertaken operating activities such as financing, business management, and research and development of Nan Qiao Food, and whether there are situations where they share costs and bear expenses for the issuer. Please explain the basis and process of verification by the sponsor representative and express clear verification opinions.

　　4. The issuer's gross profit margin is significantly different from that of its competitors during the reporting period. Please explain the following on behalf of the issuer: (1) Explain the reasons and rationality for the significant difference in gross profit margin compared with comparable companies in the same industry; (2) Explain the reasons and rationality for the significantly higher gross profit margin of the distribution model than the direct sales model; (3) Explain the selection criteria for direct sales customers and the separation measures for the two types of customers, and the sustainability of the relevant strategies; (4) Combine the differences in purchase prices of end customers under the two sales models, the sales strategies of competitors, and the price comparison of similar distribution products to explain the effectiveness of the relevant strategies. Please explain the basis and process of verification by the sponsor representative and express clear verification opinions.

　　(II) Suzhou Linhua Medical Device Co., Ltd.

　　None.

　　(III) Anhui Huasu Co., Ltd.

　　1. Regarding Wuwei Leida. Please explain the following on behalf of the issuer: (1) The reasons and rationality for investing in Wuwei Leida in the form of debt in essence, the historical income and financial accounting of the investment, and the actual control of Wuwei Leida; (2) Whether the investment holding and exit arrangements in Wuwei Leida have legally fulfilled the state-owned asset evaluation filing and approval procedures; whether the relevant arrangements comply with the requirements of state-owned asset supervision and management, and whether there is a risk of loss of state-owned assets; (3) The rationality of selling products to Wuwei Leida at a price lower than the market price for a long time, whether it harms the interests of the issuer, whether it involves benefit transfer, and whether there is a plan to adjust the relevant transaction pricing mechanism. Please explain the basis and process of verification by the sponsor representative and express clear verification opinions.

　　2. Regarding related-party transactions and accounts receivable. Please explain the following on behalf of the issuer: (1) The necessity and rationality of the relevant transactions, and the fairness of the pricing; (2) Combine the positioning, operation, and financial situation of the trading-type related parties to explain whether the issuer's purchase and sales business is independent, and whether the operation of the relevant related parties is heavily dependent on the issuer; (3) Explain whether the purchase of goods from the Huaibei Mining Group's subordinate enterprises to the issuer during the reporting period has achieved final sales, and whether there is a situation of adjusting the revenue recognition time point and conducting earnings management through related sales; (4) Explain the reasons and authenticity of the cancellation or transfer of some related parties during the reporting period, whether there are situations of cancellation or transfer due to major violations of laws and regulations, and whether there are situations of de-relatedization of related parties; (5) Explain the differences and rationality in the accounts receivable turnover rate compared with comparable companies in the same industry, whether large-amount bill transactions are industry practice, whether the changes in the acceptance amount are affected by cyclical factors and the risks involved, whether the relevant internal controls are effective, and whether the relevant risk disclosures are sufficient. Please explain the basis and process of verification by the sponsor representative and express clear verification opinions.

　　3. Regarding the lending matters and Huai Kuang Finance. Please have the issuer's representative explain: (1) Whether the re-lending behavior has a real commercial transaction background and final use; whether the loan principal and interest involved in the re-lending behavior are repaid in full on schedule, and whether there are disputes or potential disputes; whether the re-lending behavior constitutes a major violation of laws and regulations, and whether there is a risk of being subject to administrative penalties; (2) The reasons and basis for depositing and lending in Huai Kuang Finance during the reporting period, whether there is a situation where the issuer's funds are automatically transferred to Huai Kuang Finance Company at any time, whether there is a situation where the issuer's funds deposited in Huai Kuang Finance cannot be transferred, transferred, or recovered in a timely manner, and the risk prevention system and measures for the issuer's funds deposited in Huai Kuang Finance; (3) The differences in interest rates, fee rates, and other conditions between obtaining financial services from Huai Kuang Finance and obtaining financial services from third-party commercial banks and other financial institutions, and their rationality; (4) The impact of the above related transactions on the issuer's independent operation, the measures and effectiveness of regulating and reducing related transactions, whether the related transactions of financial services with Huai Kuang Finance lead to dependence on the controlling shareholder, and whether the relevant situation and risks are fully disclosed. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　4. During the reporting period, the issuer and its subsidiaries were subject to multiple administrative penalties in terms of safety production, environmental protection, etc. In 2017, the issuer was fined 20,226,600 yuan by the National Development and Reform Commission for anti-monopoly violations. Please have the issuer's representative explain: (1) Whether the issuer and its subsidiaries have obtained all the qualifications and licenses required for their production and operation; whether the issuer's production and construction projects during the reporting period have legally performed safety production evaluation and environmental impact assessment approval/filing and acceptance procedures, and whether the storage and disposal of the issuer's hazardous waste are legal and compliant; (2) The causes of the above-mentioned safety production accidents and environmental protection violations, whether rectification measures have been formulated for the above-mentioned problems, whether the rectification is effective, whether there are disputes or potential disputes in the handling of relevant safety production accidents and environmental protection matters, and whether there are other safety production and environmental protection accident hazards; (3) Whether the issuer's basis for determining that the anti-monopoly fine of 20,226,600 yuan does not constitute a major violation is sufficient. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　(IV) Shandong Zhongnong United Biotechnology Co., Ltd.

　　1. During the reporting period, the issuer's operating income and net profit showed a trend of first rising and then falling. Please have the issuer's representative explain: (1) The reasons for the fluctuations in performance in each period of the reporting period, the reasons and rationality for the significant decline in net profit in 2019 while the income basically remained stable, and the reasons and rationality for the inconsistency between the downward trend of net profit and comparable companies in the same industry; (2) Whether there are obstacles to the performance of daily orders or major contracts, whether there are cancellations or large-scale reductions in foreign orders; whether the issuer's indirect export customers in the United States have reduced purchases due to Sino-US trade frictions, whether the adverse factors such as reduced downstream terminal demand, continuous decline in the price of main product raw materials, and reduced exports due to the COVID-19 pandemic have been eliminated, whether there is a risk of continued decline in performance, and whether it has a significant adverse impact on the issuer's sustainable profitability; (3) Whether there have been significant adverse changes in business indicators such as production capacity, production and sales volume, and new orders in 2020 compared with the same period of the previous year; (4) Whether the issuer's operating capacity or operating environment has changed, and explain whether the industry has strong cyclical characteristics in combination with the fluctuations in the industry in the past few years; (5) The relevant countermeasures taken by the issuer and their effectiveness, and whether the relevant risk disclosures are sufficient. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　2. During the reporting period, the issuer's comprehensive gross profit margin was higher than that of comparable companies in the same industry. Please have the issuer's representative explain: (1) The reasons and rationality for the significant decline in the issuer's comprehensive gross profit margin from 2019 onwards, while the average gross profit margin of comparable companies in the same industry basically remained stable in each period; (2) The process of the issuer passing on the cost of raw materials to downstream customers, whether the risk of rising raw material prices can be transferred to downstream customers, and the impact of the lag between changes in raw material costs and changes in product selling prices on the issuer's operating performance; (3) The reasons and rationality for the difference between the gross profit margin of the issuer's products and the gross profit margin level of the same type of products of comparable companies in the same industry; (4) Whether the gross profit margin of the issuer's main products still faces a continuous downward trend, whether it will have a significant adverse impact on the issuer's sustainable operation, the countermeasures taken by the issuer and their effectiveness, and whether the relevant risk disclosures are sufficient. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　3. The issuer mainly sells pesticide raw materials and preparations, adopts a direct sales model for pesticide and intermediate products, and mainly distributes preparations to external sales. Please have the issuer's representative explain: (1) The reasons and rationality for the increase or decrease in the number of direct sales customers and distribution customers during the reporting period; (2) The reasons and rationality for the significant increase in the purchase amount of some direct sales customers in 2018 and the rapid decrease thereafter, whether the purchase scale of the above-mentioned customers is consistent with their operating scale, and whether the change in purchase price is consistent with the change in market price of similar products; (3) Whether there are significant differences in the return and discount policies for the same products among different distributors, and whether there have been significant changes in the return and discount terms of the same distributor during the reporting period; (4) Whether there are differences between the return and discount agreed in the agreement and the actual execution, and the reasons and rationality for the differences; whether the issuer's basis for the expected return rate and discount rate is sufficient, and whether the relevant expectations are cautious; (5) Whether the return terms have a significant impact on the amount and timing of revenue recognition, and whether the accounting treatment of returns and discounts complies with the relevant provisions of the enterprise accounting准则. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　4. Among the enterprises under China National Agricultural Means of Production Group Corporation, the issuer and China National Agrochemicals Lihua Co., Ltd. are both engaged in the compounding, processing and sales of pesticide preparations. Please have the issuer's representative explain: (1) Whether there are obvious or substantial differences in the customer base, sales area and application field of the overlapping products between the issuer and China National Agrochemicals Lihua Co., Ltd.; (2) Whether the issuer's pesticide product sales business and China National Agrochemicals Lihua Co., Ltd.'s pesticide product distribution business and the compounding business of both parties constitute the same or similar business; (3) Whether the issuer has imitated the expired patent products of domestic and foreign agricultural enterprises, whether there may be new potential horizontal competition in the sales of imitation products, compounding business, etc., and how to effectively avoid this situation; (4) Whether the arrangement of the "Agreement on Avoiding Horizontal Competition" is reasonable and feasible. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　(V) Shandong Lianke Technology Co., Ltd.

　　1. The issuer had "re-lending" behavior during the reporting period. Please have the issuer's representative explain: (1) The reasons and rationality for the difference between the unit transferring out the same loan and the unit transferring in, and whether the unit transferring out and the unit transferring in are related; (2) The reasons and rationality for the "re-lending" funds being transferred back to the issuer after flowing through multiple units, and the long interval between the time when some "re-lending" funds are transferred out and the time when they are transferred in, and whether there is a situation of using "re-lending" behavior to provide fund lending to the issuer's controlling shareholder, actual controller and its related parties; whether the relevant information disclosure is true, accurate and complete; (3) Whether there is a situation of using "re-lending" behavior to conduct off-book fund circulation to embellish performance; (4) Whether the loan principal and interest involved in the "re-lending" behavior are repaid in full on schedule, and whether there are disputes or potential disputes; whether the relevant matters constitute major violations of laws and regulations, and whether there is a risk of being subject to administrative penalties. Please have the sponsor representative explain the basis and process of verification and express clear verification opinions.

　　2. During the reporting period, there were certain changes in the issuer's top five suppliers, with Haoxing Silicon Industry being the second largest supplier of soda ash to the issuer. Please have the issuer's representative explain: (1) the reasons for the actual controller Wu Xiaolin's withdrawal from Haoxing Silicon Industry, whether the equity transfer price is fair, whether there is a nominal transfer but still substantial control or shareholding to avoid related-party transactions, and whether there are disputes and potential disputes; (2) the rationality and necessity of purchasing from Haoxing Silicon Industry during the reporting period; whether the relevant transaction prices are fair, and whether Haoxing Silicon Industry has any circumstances of sharing costs, bearing expenses, or other transfer of benefits for the issuer; (3) whether the changes in the main suppliers of quartz sand and sulfuric acid are reasonable, and whether the fluctuation of the purchase unit price during the reporting period is normal. Please have the sponsor representative explain the basis and process of verification, and express clear verification opinions.

　　3. The issuer's net profit attributable to the parent company after deducting non-recurring gains and losses, the net profit margin of revenue, and the net cash flow generated from operating activities fluctuated greatly during the reporting period. Please have the issuer's representative explain: (1) the reasons for the significant fluctuations in the issuer's net profit attributable to the parent company, the net profit margin of revenue, and the net cash flow generated from operating activities during the reporting period, whether the relevant factors have been eliminated, whether they will have a significant adverse impact on the issuer's ability to continue operating, and whether the relevant risks are fully disclosed; (2) the specific reasons for the significant fluctuations in the sales unit price of the main products during the reporting period, whether they are consistent with market price trends, whether the issuer has the ability to cope with the risk of fluctuations in product and raw material prices, and whether the relevant information disclosure is sufficient and accurate; (3) whether the trade-type customers are in line with industry practices, and whether the relevant revenue is truly realized. Please have the sponsor representative explain the basis and process of verification, and express clear verification opinions.

　　4. Please have the issuer's representative explain: (1) the reasons and rationality for Zheng Zaiwang and Sai Lin (Hong Kong) transferring the issuer's equity to Lianke Group at zero consideration, and whether it complies with foreign exchange and tax supervision regulations; whether the investment and equity transfer behavior of the relevant foreign shareholders are genuine, and whether there are situations such as entrusted shareholding or trust relationships; (2) whether there is a situation of supplying goods to Zheng Zaiwang and Sai Lin (Hong Kong) for agency sales at lower prices, and if so, whether it constitutes Lianke Group's disguised encroachment on the issuer's interests, whether it harms the interests of the issuer's creditors, and whether there are potential disputes; (3) the reasons for Lianke New Materials' delisting from the National Equities Exchange and Quotations, whether there are disputes or potential disputes with other minority shareholders, and whether there are undisclosed benefit arrangements; (4) whether the related-party transaction prices between the issuer and Lianke New Materials were fair during the reporting period; the reasons why related parties were not fully discovered and disclosed when Lianke New Materials was listed on the New Third Board, whether there are defects in the relevant internal control system, and whether it is effective for related-party transactions and disclosure. Please have the sponsor representative explain the basis and process of verification, and express clear verification opinions.

　　　　　　　　　　　　　　　　　　　　　　　Issuance Supervision Department

　　　　　　　　　　　　　　　　　　　　　　January 14, 2021