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United States securities and exchange commission logo
May 22, 2023
Yu Gong
Chief Executive Officer
iQIYI, Inc.
No. 21, North Road of Workers' Stadium
Chaoyang District, Beijing 100027
People s Republic of China
Re: iQIYI, Inc.
Form 20-F for
Fiscal Year Ended December 31, 2022
Filed March 22,
2023
Form 6-K Filed
February 22, 2023
File No. 1-38431
Dear Yu Gong:
We have reviewed your filings and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F for Fiscal Year Ended December 31, 2022
Introduction, page 1
1. Please revise to
include a definition of "China" and the "PRC." If your definitions of
"China" and the "PRC"
exclude the special administrative regions of Hong Kong and
Macau, please
additionally clarify that the legal and operational risks associated with
operating in China also
apply to operations in Hong Kong and Macau. This
clarification may
appear in the definition itself or in an appropriate discussion of legal and
operational risks.
Item 3. Key Information, page 3
2. We note your disclosure
on pages 4 and 5 regarding the legal and operational risks
associated with being
based in or having the majority of your operations in China. Your
Yu Gong
FirstName
iQIYI, Inc. LastNameYu Gong
Comapany
May NameiQIYI, Inc.
22, 2023
May 22,
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disclosure should make clear that 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. Please
also disclose the location
of your auditor s headquarters and discuss how the Consolidated
Appropriations Act
in 2023, and related regulations, will affect your company. Disclose
that trading in your
securities may be prohibited under the Holding Foreign Companies
Accountable Act, as
amended by the Consolidated Appropriations Act, 2023, and related
regulations if the
PCAOB determines that it cannot inspect or investigate completely your
auditor for a
period of two consecutive years, and that as a result an exchange may
determine to delist
your securities.
3. It appears that you have operations in, and, have at least one
director or officer located in,
Hong Kong. Please discuss here the applicable laws and regulations in
Hong Kong as
well as the related risks and consequences accordingly.
4. Please refer to the section captioned "Cash Flows through Our
Organization." We note
your disclosure that although the VIEs received "nil, nil and nil as
loans" for the years
ended December 31, 2020, 2021 and 2022, the VIEs also appear to have
repaid "RMB90.5
million, nil and nil" for the years ended December 31, 2020, 2021 and
2022,
respectively. Please address this discrepancy and clarify your
intentions to settle any
amounts owed under the VIE agreements. Additionally, for the transfers
made to the
Cayman Islands holding company, please state which entity made the
transfer and explain
the tax consequences. Describe any restrictions on foreign exchange
and your ability to
transfer cash between entities, across borders, and to U.S. investors.
Describe any
restrictions and limitations on your ability to distribute earnings
from the company,
including your subsidiaries and/or the consolidated VIEs, to the
parent company and U.S.
investors as well as the ability to settle amounts owed under the VIE
agreements. Provide
a cross-reference to your discussion of this issue in your summary
risk factors and risk
factors sections.
5. Please amend your disclosure here, in the summary risk factors, and
risk factors sections
to state that, to the extent cash or assets in the business is in the
PRC/Hong Kong or a
PRC/Hong Kong entity, the funds or assets may not be available to fund
operations or for
other use outside of the PRC/Hong Kong due to interventions in or the
imposition of
restrictions and limitations on the ability of you, your subsidiaries,
or the consolidated
VIEs by the PRC government to transfer cash or assets. In your Item 3
disclosure, provide
cross-references to the discussions in the summary risk factors and
risk factors sections.
6. Please refer to the section captioned "Cash Flows through Our
Organization." To the
extent you have cash management policies that dictate how funds are
transferred between
you, your subsidiaries, the consolidated VIEs or investors, summarize
the policies here,
and disclose the source of such policies (e.g., whether they are
contractual in nature,
pursuant to regulations, etc.); alternatively, state here that you
have no such cash
management policies that dictate how funds are transferred. Please
also include this
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FirstName
iQIYI, Inc. LastNameYu Gong
Comapany
May NameiQIYI, Inc.
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May 22,
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disclosure in Item 5. Operating and Financial Review and Prospects.
7. Please revise to provide here, as you do on page 90, disclosure that
the company uses a
structure that involves VIEs based in China and what that entails,
along with a diagram of
the company s corporate structure, identifying the person or entity
that owns the equity in
each depicted entity and using dashed lines without arrows to denote
relationships with
the VIEs. Please also revise your diagram of the company's corporate
structure on page
90 and use dashed lines without arrows to denote relationships with
the VIEs. Describe in
greater detail all contracts and arrangements through which you claim
to have economic
rights and exercise control that results in consolidation of the VIEs
operations and
financial results into your financial statements. Identify clearly the
entity in which
stockholders hold an interest and the entity(ies) in which the company
s operations are
conducted. Describe the relevant contractual agreements between the
entities and how
this type of corporate structure may affect investors and the value of
their investment,
including how and why the contractual arrangements may be less
effective than direct
ownership and that the company may incur substantial costs to enforce
the terms of the
arrangements. Disclose the uncertainties regarding the status of the
rights of the Cayman
Islands holding company with respect to its contractual arrangements
with the VIEs, its
founders and owners, and the challenges the company may face enforcing
these
contractual agreements due to legal uncertainties and jurisdictional
limits.
8. We note the following disclosure:
"Our wholly-owned subsidiaries, Beijing QIYI Century and iQIYI
New Media, have
entered into contractual arrangements with the variable interest
entities and their
respective shareholders, and such contractual arrangements enable
us to impose
control over, receive the economic benefits of, and have an
exclusive option to
purchase all or part of the equity interest and assets in the
variable interest entities
when and to the extent permitted by PRC law."
"We have control over and are the primary beneficiary of
Beijing iQIYI, Shanghai
iQIYI and Shanghai Zhong Yuan through a series of contractual
arrangements."
"We have control and are the primary beneficiary of iQIYI
Pictures and Intelligent
Entertainment through a series of contractual arrangements."
"Such contractual arrangements enable us to impose control over
activities that most
significantly affect the economic performance of the variable
interest entities, receive
economic benefits of and absorb losses that potentially could be
significant to the
variable interest entities, and have an exclusive option to
purchase all or part of the
equity interest and assets in the variable interest entities when
and to the extent
permitted by PRC law. Because of these contractual arrangements,
we are the
primary beneficiary of the variable interest entities in mainland
China and hence
consolidate their financial results as our variable interest
entities."
Yu Gong
FirstName
iQIYI, Inc. LastNameYu Gong
Comapany
May NameiQIYI, Inc.
22, 2023
May 22,
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FirstName LastName
However, neither the investors in the holding company nor the holding
company itself
have an equity ownership in, direct foreign investment in, or control
of, through such
ownership or investment, the VIEs. Accordingly, please refrain from
implying that the
contractual agreements are equivalent to equity ownership in the
business of the VIEs.
Any references to control or benefits that accrue to you because of
the VIEs should be
limited to a clear description of the conditions you have satisfied
for consolidation of the
VIEs under U.S. GAAP. Additionally, your disclosure should clarify
that you are the
primary beneficiary of the VIEs for accounting purposes.
9. With respect to the Summary of Risk Factors that disclose the risks
related to your
corporate structure and being based in or having the majority of your
operations in China,
please revise your disclosure to provide specific cross-references
(title and page) to the
more detailed discussion of these risks in the prospectus.
10. Please refer to the sections captioned "Permissions Required from the
PRC Authorities for
Our Operations" and "Permissions Required from the PRC Authorities for
Overseas
Financing Activities." Please disclose each permission or approval
that you, your
subsidiaries, or the VIEs are required to obtain from Chinese
authorities to operate your
business and to offer the securities being registered to foreign
investors. State whether
you, your subsidiaries, or VIEs are covered by permissions
requirements from the China
Securities Regulatory Commission (CSRC), Cyberspace Administration of
China (CAC)
or any other governmental agency that is required to approve the VIEs'
operations, and
state affirmatively whether you have received all requisite
permissions or approvals and
whether any permissions or approvals have been denied. Please also
describe the
consequences to you and your investors if you, your subsidiaries, or
the VIEs: (i) do not
receive or maintain such permissions or approvals, (ii) inadvertently
conclude that such
permissions or approvals are not required, or (iii) applicable laws,
regulations, or
interpretations change and you are required to obtain such permissions
or approvals in the
future. With respect to the disclosure in these sections, we note that
you do not appear to
have relied upon an opinion of counsel with respect to your implied
conclusions that you
do not need any additional permissions and approvals to operate your
business and to
offer securities to investors. If true, state as much and explain why
such an opinion was
not obtained.
11. Please refer to the section captioned "Permissions Required from the
PRC Authorities for
Our Operations." We note your disclosure that you "have obtained the
requisite licenses
and permits from the PRC government authorities that are material" for
your
operations. The disclosure here should not be qualified by
materiality. Please make
appropriate revisions to your disclosure.
12. Please refer to the section captioned "Financial Information Related
to the Variable
Interest Entities." Please revise your condensed consolidating
schedule to separately
present your WFOE, Beijing QIYI Century Science & Technology Co., Ltd,
in the
condensed consolidating schedule. The schedule should disaggregate the
parent company,
the VIEs and its consolidated subsidiaries, the WFOEs that are the
primary beneficiary of
Yu Gong
FirstName
iQIYI, Inc. LastNameYu Gong
Comapany
May NameiQIYI, Inc.
22, 2023
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the VIEs, and an aggregation of other entities that are consolidated.
The objective of this
disclosure is to allow an investor to evaluate the nature of assets
held by, and the
operations of, entities apart from the VIEs, as well as the nature and
amounts associated
with intercompany transactions. Additionally, please revise your
tabular disclosure on
pages 11 and 13 to present major line items, such as revenue and cost
of goods/services,
and subtotals and disaggregated intercompany amounts, such as separate
line items for
intercompany receivables and investment in subsidiary.
Risk Factors
Our business is subject to complex and evolving Chinese and international laws
and regulations
regarding cybersecurity . . ., page 19
13. Please state to what extent you believe that you are compliant with
the regulations or
policies that have been issued by the CAC to date.
Our ADSs may be prohibited from trading in the United States under the HFCAA in
the future . .
.., page 45
14. Please expand your disclosure here to disclose that the Holding
Foreign Companies
Accountable Act, as amended by the Consolidated Appropriations Act,
2023, decreases
the number of consecutive non-inspection years from three years
to two years, and
thus, reduces the time before your securities may be prohibited from
trading or delisted.
Additionally, we note that you have listed as a Commission-Identified
Issuer. Your
revised disclosure should explain why you were identified and provide
any additional
context necessary for investors to understand the meaning and
significance to your
operations of this determination. Update your disclosure to describe
the potential
consequences to you if the PRC adopts positions at any time in the
future that would
prevent the PCAOB from continuing that it is unable to inspect or
investigate completely
accounting firms headquartered in mainland China or Hong Kong.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections,
page 147
15. We note your statement that you reviewed your register of members and
public filings
made by your shareholders in connection with your required submission
under paragraph
(a). Please supplementally describe any additional materials that were
reviewed and tell us
whether you relied upon any legal opinions or third party
certifications such as affidavits
as the basis for your submission. In your response, please provide a
similarly detailed
discussion of the materials reviewed and legal opinions or third party
certifications relied
upon in connection with the required disclosures under paragraphs
(b)(2) and (3).
16. We note that your Ex. 8.1 identifies principal subsidiaries in
mainland China, Hong Kong,
and Singapore. Please note that 16I(b) requires that you provide
disclosures for yourself
and your consolidated foreign operating entities, including variable
interest entities or
similar structures.
Yu Gong
FirstName
iQIYI, Inc. LastNameYu Gong
Comapany
May NameiQIYI, Inc.
22, 2023
May 22,
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With respect to (b)(2), please supplementally clarify the
jurisdictions in which your
material consolidated foreign operating entities are organized or
incorporated and
confirm, if true, that you have disclosed the percentage of your
shares or the shares of
your consolidated operating entities owned by governmental
entities in each foreign
jurisdiction in which you have consolidated operating entities in
your supplemental
response. Alternatively, please provide this information in your
supplemental
response.
With respect to (b)(3), in your response please confirm that
you have addressed all
consolidated operating entities in mainland China, including your
subsidiaries, or
provide the information in your supplemental response.
17. In order to clarify the scope of your review, please supplementally
describe the steps you
have taken to confirm that none of the members of your board or the
boards, if any, of
your consolidated foreign operating entities are officials of the
Chinese Communist Party.
For instance, please tell us how board members current or prior
memberships on, or
affiliations with, committees of the Chinese Communist Party factored
into your
determination. In addition, please tell us whether you have relied
upon third party
certifications such as affidavits as the basis for your disclosure.
Financial Statements
Note 4. Long-Term Investments, page F-33
18. Please tell us your consideration of providing the information in Rule
4-08(g) of
Regulation S-X related to your equity method investments.
General
19. If you have one or more directors, officers or members of senior
management located in
the PRC or Hong Kong, please (i) state that this is the case and
identify the relevant
individuals and (ii) include a separate Enforceability section
that addresses whether or
not investors may bring actions under the civil liability provisions
of the U.S. federal
securities laws against you, your officers or directors who are
residents of a foreign
country, and whether investors may enforce these civil liability
provisions when your
assets, officers, and directors are located outside of the United
States. Please also include a
risk factor addressing the challenges of bringing actions and
enforcing
judgments/liabilities against such individuals.
Form 6-K Filed February 22, 2023
Exhibit 99.1, page 1
20. Please tell us why the reconciling items related to the loss on equity
method investments
in your reconciliation of net (loss) income to non-GAAP net (loss)
income of do not equal
Yu Gong
iQIYI, Inc.
May 22, 2023
Page 7
the loss from equity method investments presented in the condensed
consolidated
statements of (loss) income. Also, please clearly explain how you are
calculating the tax
effects of the non-GAAP adjustments presented. Refer to Question
102.11 of the
Compliance and Disclosure Interpretations on Non-GAAP Financial
Measures.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Tony Watson at (202) 551-3318 or Rufus Decker at (202)
551-3769 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Rucha Pandit at (202) 551-6022 or Cara Wirth at (202) 551-7127 with any
other
questions. Contact Jennifer Thompson at (202) 551-3737 or Dan Morris at (202)
551-3314 if
you have any questions about comments related to your status as a
Commission-Identified Issuer
during your most recently completed fiscal year.
FirstName LastNameYu Gong Sincerely,
Comapany NameiQIYI, Inc.
Division of
Corporation Finance
May 22, 2023 Page 7 Office of Trade &
Services
FirstName LastName