United States securities and exchange commission logo
July 15, 2022
Lei Chen
Chief Executive Officer
Pinduoduo Inc.
28/F, No. 533 Loushanguan Road, Changning District
Shanghai, 200051
People's Republic of China
Re: Pinduoduo Inc.
Form 20-F for the
Fiscal Year Ended December 31, 2021
File No. 001-38591
Dear Mr. Chen:
We have reviewed your filing 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 the Year Ended December 31, 2021
Introduction, page 1
1. Please clearly disclose
how you will refer to the holding company, subsidiaries, and VIEs
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. Please do not use terms such as we or our when
describing
activities or functions
of a VIE (i.e. "our VIE"). For example, disclose, if true, that your
subsidiaries and/or the
VIE conduct operations in China, that the VIE is consolidated for
accounting purposes but
is not an entity in which you own equity, and that the holding
company does not
conduct operations. Please disclose clearly the entity (including the
domicile) in which
public investors hold equity interests. Finally, in the defined terms on
page 1, please revise
your definition of China and the PRC to include Hong Kong and
Macau.
Lei Chen
FirstName
Pinduoduo LastNameLei Chen
Inc.
Comapany
July NamePinduoduo Inc.
15, 2022
July 15,
Page 2 2022 Page 2
FirstName LastName
Part I
Item 3. Key Information, page 3
2. We note your disclosure that the Cayman Islands holding company
controls and receives
the economic benefits of the VIE s business operations through
contractual agreements
between the VIE and your Wholly Foreign-Owned Enterprise (WFOE) and
that those
agreements are designed to provide your WFOE with the power, rights,
and obligations
equivalent in all material respects to those it would possess as the
principal equity holder
of the VIE. We also note your disclosure that the Cayman Islands
holding company is the
primary beneficiary of the VIE. 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 VIE.
Accordingly, please refrain
from implying that the contractual agreements are equivalent to equity
ownership in the
business of the VIE. Any references to control or benefits that accrue
to you because of
the VIE should be limited to a clear description of the conditions you
have satisfied for
consolidation of the VIE under U.S. GAAP. Additionally, your
disclosure should clarify
that you are the primary beneficiary of the VIE for accounting
purposes. Please also
disclose, if true, that the VIE agreements have not been tested in a
court of law.
3. We note your disclosure that you are not a Chinese operating company
but a Cayman
Islands holding company with operations conducted by your subsidiaries
and through
contractual arrangements with a variable interest entity (VIE) based
in China. Please
disclose that this structure involves unique risks to investors. If
true, disclose that these
contracts have not been tested in court. Explain whether the VIE
structure is used to
provide investors with exposure to foreign investment in China-based
companies where
Chinese law prohibits direct foreign investment in the operating
companies, and disclose
that investors may never hold equity interests in the Chinese
operating company. Your
disclosure should acknowledge that Chinese regulatory authorities
could disallow this
structure, which would likely result in a material change in your
operations and/or a
material change in the value of your securities, including that it
could cause the value of
such securities to significantly decline or become worthless. Provide
a cross-reference to
your detailed discussion of risks facing the company and the offering
as a result of this
structure.
4. We note your disclosure about the legal and operational risks
associated with being based
in or having the majority of the company s operations in China.
Please revise your
disclosure to make clear whether these risks could result in a
material change the value of
the 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 the use
of variable interest entities and 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. Finally, please disclose that your
auditor is subject to the
Lei Chen
FirstName
Pinduoduo LastNameLei Chen
Inc.
Comapany
July NamePinduoduo Inc.
15, 2022
July 15,
Page 3 2022 Page 3
FirstName LastName
determinations announced by the PCAOB on December 16, 2021 and how the
Holding
Foreign Companies Accountable Act and related regulations will affect
your company.
5. We note your disclosure that under PRC laws and regulations effective
as of the date of
the annual report, none of you, your PRC subsidiaries, the VIE or its
subsidiaries, is
required to go through a review by the CAC or obtain other permissions
from other
governmental agencies. Please discuss how you came to that conclusion,
why that is the
case, and the basis on which you made that determination.
6. We note your disclosure regarding the Holding Foreign Companies
Accountable Act
("HFCAA"). Please revise to also discuss the Accelerating HFCAA.
7. Please amend your disclosure here and in the summary risk factors and
risk factors
sections to state that, to the extent cash in the business is in the
PRC or a PRC entity, the
funds may not be available to fund operations or for other use outside
of the PRC 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. Please
provide cross-references to these other discussions.
8. We note your summary risk factors and disclosure of risks related to
doing business in
China. Please revise to include cross-references to the relevant
individual detailed risk
factors in that section.
Financial Information Related to Our VIE, page 9
9. Please revise your schedules to disaggregate the WFOEs that are the
primary beneficiary
of the VIEs. In addition, please revise your income information to
present major line
items, such as costs of revenues and share of results from
subsidiaries, the VIE and
subsidiaries of the VIE, and subtotals.
D. Risk Factors, page 13
10. Revise your risk factors to acknowledge that if the PRC government
determines that the
contractual arrangements constituting part of the VIE structure do not
comply with PRC
regulations, or if these regulations change or are interpreted
differently in the future, the
securities you are registering may decline in value or become
worthless if the
determinations, changes, or interpretations result in your inability
to assert contractual
control over the assets of your PRC subsidiaries or the VIEs that
conduct all or
substantially all of your operations.
11. We note your disclosure regarding the Chinese government's significant
oversight and
discretion over the conduct of your business. Given recent statements
by the Chinese
government indicating an intent to exert more oversight and control
over offerings that are
conducted overseas and/or foreign investment in China-based issuers,
acknowledge the
risk that any such action 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.
Lei Chen
Pinduoduo Inc.
July 15, 2022
Page 4
12. In light of recent events indicating greater oversight by the
Cyberspace Administration of
China (CAC) over data security, particularly for companies seeking to
list on a foreign
exchange, please revise your disclosure to explain how this oversight
impacts your
business and to what extent you believe that you are compliant with
the regulations or
policies that have been issued by the CAC to date.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations, page 88
13. Your discussion of online marketing services revenues identifies
multiple factors for
material changes in your revenues without quantifying the impact of
each. For each
period discussed, please quantify the change for each of the factors
that you cite. In
addition, you attribute the increase in transaction services revenue
in 2021 to increases in
GMV. The increase in transaction services revenue was 144% while the
increase in GMV
was 46% for the period. Please further explain the increase in
transaction services revenue
and quantify each factor cited. Refer to Item 303(b) of Regulation
S-K.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Organization, page F-12
14. On page F-17, you state that there are no consolidated VIE s assets
that are pledged or
collateralized for the VIE s obligations and which can only be used
to settle the VIE s
obligations, except for registered capital and the PRC statutory
reserves. Please revise to
quantify the registered capital and the PRC statutory reserves.
2. Summary of Significant Accounting Policies
(q) Research and development expenses, page F-23
FirstName LastNameLei Chen
15. Please explain to us why 85% of your depreciation expense and 49% of
your share-based
Comapany NamePinduoduo
compensation have beenInc.allocated to research and development
expense and detail how
July 15,such
2022costs
Pagequalify
4 as research and development activities. Refer to ASC
730.
FirstName LastName
Lei Chen
FirstName
Pinduoduo LastNameLei Chen
Inc.
Comapany
July NamePinduoduo Inc.
15, 2022
July 15,
Page 5 2022 Page 5
FirstName LastName
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 Nasreen Mohammed at 202-551-3773 or Joel Parker at
202-551-3651 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Alyssa Wall at 202-551-8106 or Dietrich King at 202-551-8071 with any
other questions.
Sincerely,
Division of
Corporation Finance
Office of Trade &
Services