SEC Comment Letter for SHINECO, INC. (SISI) (CIK 0001300734) (SISI) — Oct 1, 2014
SHINECO, INC. (SISI) (CIK 0001300734)
Date: Oct. 1, 2014 · CIK: 0001300734 · Accession: 0000000000-14-049227
AI Filing Summary & Sentiment
Letter
September 30, 2014 Via E -mail Yuying Zhang Chief Executive Officer Shineco, Inc. Room 3106, Building B #39 East 3rd Ring Middle Road Chaoyang District Beijing 100022 People’s Republic of China
Re: Shineco, Inc. Draft Registration Statement on Form S -1 Submitted September 3, 2014 CIK No. 0001300734
Dear Mr. Zhang :
We have reviewed your draft registration statement 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 this letter by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR. If you do not believe our comments apply to your facts and circumst ances or do not believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments and your amended draft registration statement or filed registration statement, we may hav e additional comments.
General
1. Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications. Similarly, please supplementally provide us with any research reports about you that are published or distributed in reliance upon Section 2(a)(3) of the Secu rities
Yuying Zhang Shineco, Inc. September 30, 2014 Page 2
Act of 1933 added by Section 105(a) of the Jumpstart Our Business Startups Act by any broker or dealer that is participating or will participate in your offering.
2. If the preliminary prospectus will include pictures or graphics, please provide us with mock -ups of the affected pages, as well as any captions you plan to use, prior to printing. We may have comments after reviewing the materials.
Registration Statement Cover Page
3. We note form footnote 1 to the fee table that the registration fee is based on “the proposed maximum offering price of the securities .” In light of this please tell us why you rely on Rule 457(a) rather than 457(o).
Prospectus Cover Page
4. Please state the date the offering will end. Refer to Item 501( b)(8)(iii) of Regulation S -K.
Prospectus Summary, page 1
Overview, page 1
5. Please tell us the source of the information for your statement that “ China’s healthcare sector continues to develop at an astonishing rate: spending is projected to grow from $35 7 billion in 2011 to $1 trillion in 2020 .” In addition this projection appears to include forecasted rather than actual data for 2012 and 2013. Please tell us why you think this is still a meaningful forecast and why a more updated projection is not avai lable.
The Offering, page 6
6. We note next to the heading “Closing of the Offering” the sta tement that if you complete the offering you will issue placement agent warrants to purchase “up to 10%” of the aggregate number of shares of common stock sold in th e offering. However we note that you have this percentage as blank on the registration statement cover page, the prospectus cover page, page 7, and page 97. If this percentage is currently known , please revise to disclo se it throughout the prospectus or advise.
Placement Agent Warrants, page 7
7. Please revise to disclose the “nominal amount” at which you will sell your placement agent warrants.
Yuying Zhang Shineco, Inc. September 30, 2014 Page 3
Risk Factors, page 9
Our expansion into new business segments, page 9
8. Please clarify if you are referring t o expanding within your current business segments or if you referring to entering into additional, new business lines.
Our success depends on our ability to protect our intellectual property, page 10
9. Please revise to include a separate subheading, with its own risk factor disclosure, relating to the risk that many of your patents have been suspended due to unintentional late payment of annual dues.
Our Business, page 24
10. We note your products include Chinese herbal medicines and at various places you li st what some of these herbs ma y be used for , or conditions the herbs may treat. Examples include at the t op of page 32 which indicates, “Schisandra shrub, which is ingested to treat insomnia,” or at page 2 that yew trees can be used for the “production of anti-cancer medication.” Please expand your discussion under “Chinese Laws and Regulations,” to specifically discuss any regulatory process in China for companies to be able to make such claims as for the treatment uses for medicinal herbs within China. For example, what types of tests or regulatory submissions may be required on these traditional Chinese medicines that you discuss to show their potential effectiveness to treat ailments or make the claims that treat a condition or illness?
11. Similarly we note you discuss the health benefits of your textiles. Please expand to discuss any needed regulatory a pproval within China to state these claims regarding health benefits or advise.
We possess knowledge and experience, page 25
12. Please substantiate to u s that Tenet -Jove was one of t he first companies in China to “commercially develop the natural FIR -radiant properties of the Luobuma plant.”
Our Structure, page 27
13. Please explain , with text accompanying the chart , the meaning of the dotted lines relating to the subsidiary holdings of Ankang Longevity Pharmaceutical (Group) Co., Ltd.
Yuying Zhang Shineco, Inc. September 30, 2014 Page 4
Contractual Arrangements, page 28
14. You refer to the legal opinion issued by Da Cheng Law Offices to Tenet -Jove regarding the VIE a greements. Please file that as an exhibit.
15. You indicate that each VIE Agreement is described in detail below, but the description does not appear to clearly describe each agreement. Please revise or advise. Please also confirm you will file each of these ag reements as exhibits.
Equity Interest Pledge Agreements, page 29
16. Please explain to us why the shares of Yantai Agricultural cannot be pledged.
Manufacturing and Production Facilities, page 35
17. Please revise to discuss the current status of your “ major p roject to build a facility in Hefei .”
18. Refer to the last sentence in the second paragraph here. Please revise to balance the disclosure to indicate that there can be no guarantee that, what you believe are technological and productivity advances, will imp rove your competitive position.
The market, page 40
19. Please revise to explain the “ policies set forth in the government’s 12th five -year plan” and what you mean by their “ impact on the biomedical industry .”
Competition, page 40
20. Please r evise your discussion to further explain participation in the “Three Unities of Medicine” program . Please state how many other enterprises also act “ as essentially a preferred provider ” under this program. In addition please revise to disclose whether participation is for a set period of time and any procedures for maintaining or requalifying as a participant.
Use of Proceeds, page 50
21. If any additional funds will be needed to accomplish the goals listed in the table , please revise this section to discu ss the sources and amounts of those additional proceeds.
22. Please revise the table to separately state the use of net proceeds in dollar terms if the minimum or maximum amounts are raised.
Yuying Zhang Shineco, Inc. September 30, 2014 Page 5
Management’s Discussion and Analysis, page 56
Results of Operati ons for the Three Months Ended March 31, 2014 and March 31, 2013, page 59
23. We note that you transfered the wholesale and retail businesses of Ankang Longevity Industry and Ankang Longevity Chain to a joint venture pharmacy retail company called Shaanxi Pha rmacy Sunsimiao Drugstores Ankang Chain Co., Ltd. (“Sunsimiao Drugstores”), and a joint venture pharmaceutical wholesale distribution company named Shaanxi Pharmacy Holding Group Ankang Longevity Pharmaceutical Co., Ltd. (“Shaanxi Longevity Pharmacy”). As a result you only own a 49% equity stake in these joint ventures; and accordingly you could not consolidate the sales of the joint ventures in your consolidated financial statements, causing your sales to decrease. Please tell us and revise to disclosure what the business purpose of this transaction was and what the benefit to you was to transferring theses business over to a joint venture. Additionally, please revise Note 6. Investment in Unconsolidated Entities to disclose the transfer of the wholesale an d retail businesses of Ankang Longevity Industry and Ankang Longevity Chain to the Shaanxi Pharmacy Sunsimiao Drugstores Ankang Chain Co., Ltd. (“Sunsimiao Drugstores”) joint venture and the Shaanxi Pharmacy Holding Group Ankang Longevity Pharmaceutical Co ., Ltd. (“Shaanxi Longevity Pharmacy”) joint venture. Finally, please disclose your method for accounting for these joint ventures.
Liquidity and Capital Resources, page 67
24. Please revise your capital resources discussion to address what you refer to on page 35 as a “ major project to build a facility in Hefei ” or tell us why this is not necessary.
Description of Property, page 77
25. We note the statement that “t here is no private land ownership in China .” However several of the properties are listed as ei ther “Owned” or “Company Owned.” Please revise to clarify what you mean by these terms.
Board of Directors and Committees, page 80
26. Please revise to clarify which , if any, of your current directors are independent under the NASDAQ Capital Market standard .
Yuying Zhang Shineco, Inc. September 30, 2014 Page 6
Related Party Transactions, page 83
Payables to Related Parties, page 84
27. It appears that much of the information in this section is as of March 31, 2014. Please note that the disclosure in this section should not be limited to the end of the periods reported in your financial statements. In light of this please revise to disclose any additional transactions that may have occurred after March 31, 2014 .
Tax Matters Applicable to U.S Holders, page 91
28. We note that you plan to file as an exhibit a tax opinion. Please advise if you anticipate filing a short or long form tax opinion. We may have further comment upon reviewing your response.
Placement, page 97
29. Please name the Placement Agent / Underwrit er in the next amendment or advise.
Index to Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments, page F -10
30. We note your belief that since the carrying value of the equity method investments include the Company’s share of the investee’s earnings from the date of acquisition, they approximate fair value and that the carrying value of the Company’s new investment in an unconsolidated enti ty approximates fair value because the investment was made in 2014. Please tell us how this complies with ASC 820.
Note 4. Property and Equipment, Net, page F -13
31. Please tell us and revise to disclose what the farmland leasehold improvement balance is com prised of.
Note 8. Short Term Loans, page F -16
32. We note footnote c which states that the loans from Agricultural Bank of China were guaranteed by loan credit guarantee parties which are not related to the Company. Please tell us and revise to disclose whe ther and how you compensate these loan credit guarantee parties for providing guarantees for you.
Yuying Zhang Shineco, Inc. September 30, 2014 Page 7
Exhibit Index
33. Please revise to file a form of the subscription agreement or please advise.
34. Please revise so that all agreements show the signatures or conformed signatures of all the parties to the agreements. It appears for example that the agreements filed as Exhibits 10.1, 10.3, 10.4, and 10.54 through 10.66 do not show signatures by all parties to the agreements .
General
If you intend to respo nd to these comments with an amended draft registration statement, please submit it and any associated correspondence in accordance with the guidance we provide in the Division’s October 11, 2012 announcement on the SEC website at http://www.sec.gov/divisi ons/corpfin/cfannouncements/drsfilingprocedures101512.htm.
Please keep in mind that we may publicly post filing review correspondence in accordance with our December 1, 2011 policy (http://www.sec.gov/divisions/corpfin/cfannouncements/edgarcorrespondence. htm). If you intend to use Rule 83 (17 CFR 200.83) to request confidential treatment of information in the correspondence you submit on EDGAR, please properly mark that information in each of your confidential submissions to us so we do not repeat or refe r to that information in our comment letters to you.
You may contact Aamira Chaudhry at (202) 551 - 3389 or Lynwood Shenk at (202) 551 - 3380 if you have questions regarding comments on the financial statements and related matters. Please contact John Dana Brown at (202) 551 -3859 or me at (202) 551-3210 with any other questions.
Sincerely,
/s/ Susan Block
Show Raw Text
September 30, 2014
Via E -mail
Yuying Zhang
Chief Executive Officer
Shineco, Inc.
Room 3106, Building B
#39 East 3rd Ring Middle Road
Chaoyang District
Beijing 100022
People’s Republic of China
Re: Shineco, Inc.
Draft Registration Statement on Form S -1
Submitted September 3, 2014
CIK No. 0001300734
Dear Mr. Zhang :
We have reviewed your draft registration statement 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 this letter by providing the requested information and either
submitting an amended draft registration statement or publicly filing your registration
statement on EDGAR. If you do not believe our comments apply to your facts and
circumst ances or do not believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these comments and
your amended draft registration statement or filed registration statement, we may hav e
additional comments.
General
1. Please supplementally provide us with copies of all written communications, as
defined in Rule 405 under the Securities Act, that you, or anyone authorized to do
so on your behalf, present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or not they retain copies of the communications.
Similarly, please supplementally provide us with any research reports about you
that are published or distributed in reliance upon Section 2(a)(3) of the Secu rities
Yuying Zhang
Shineco, Inc.
September 30, 2014
Page 2
Act of 1933 added by Section 105(a) of the Jumpstart Our Business Startups Act
by any broker or dealer that is participating or will participate in your offering.
2. If the preliminary prospectus will include pictures or graphics, please provide us
with mock -ups of the affected pages, as well as any captions you plan to use, prior
to printing. We may have comments after reviewing the materials.
Registration Statement Cover Page
3. We note form footnote 1 to the fee table that the registration fee is based on “the
proposed maximum offering price of the securities .” In light of this please tell us
why you rely on Rule 457(a) rather than 457(o).
Prospectus Cover Page
4. Please state the date the offering will end. Refer to Item 501( b)(8)(iii) of
Regulation S -K.
Prospectus Summary, page 1
Overview, page 1
5. Please tell us the source of the information for your statement that “ China’s
healthcare sector continues to develop at an astonishing rate: spending is
projected to grow from $35 7 billion in 2011 to $1 trillion in 2020 .” In addition
this projection appears to include forecasted rather than actual data for 2012 and
2013. Please tell us why you think this is still a meaningful forecast and why a
more updated projection is not avai lable.
The Offering, page 6
6. We note next to the heading “Closing of the Offering” the sta tement that if you
complete the offering you will issue placement agent warrants to purchase “up to
10%” of the aggregate number of shares of common stock sold in th e offering.
However we note that you have this percentage as blank on the registration
statement cover page, the prospectus cover page, page 7, and page 97. If this
percentage is currently known , please revise to disclo se it throughout the
prospectus or advise.
Placement Agent Warrants, page 7
7. Please revise to disclose the “nominal amount” at which you will sell your
placement agent warrants.
Yuying Zhang
Shineco, Inc.
September 30, 2014
Page 3
Risk Factors, page 9
Our expansion into new business segments, page 9
8. Please clarify if you are referring t o expanding within your current business
segments or if you referring to entering into additional, new business lines.
Our success depends on our ability to protect our intellectual property, page 10
9. Please revise to include a separate subheading, with its own risk factor disclosure,
relating to the risk that many of your patents have been suspended due to
unintentional late payment of annual dues.
Our Business, page 24
10. We note your products include Chinese herbal medicines and at various places
you li st what some of these herbs ma y be used for , or conditions the herbs may
treat. Examples include at the t op of page 32 which indicates, “Schisandra shrub,
which is ingested to treat insomnia,” or at page 2 that yew trees can be used for
the “production of anti-cancer medication.” Please expand your discussion under
“Chinese Laws and Regulations,” to specifically discuss any regulatory process in
China for companies to be able to make such claims as for the treatment uses for
medicinal herbs within China. For example, what types of tests or regulatory
submissions may be required on these traditional Chinese medicines that you
discuss to show their potential effectiveness to treat ailments or make the claims
that treat a condition or illness?
11. Similarly we note you discuss the health benefits of your textiles. Please expand
to discuss any needed regulatory a pproval within China to state these claims
regarding health benefits or advise.
We possess knowledge and experience, page 25
12. Please substantiate to u s that Tenet -Jove was one of t he first companies in China
to “commercially develop the natural FIR -radiant properties of the Luobuma
plant.”
Our Structure, page 27
13. Please explain , with text accompanying the chart , the meaning of the dotted lines
relating to the subsidiary holdings of Ankang Longevity Pharmaceutical (Group)
Co., Ltd.
Yuying Zhang
Shineco, Inc.
September 30, 2014
Page 4
Contractual Arrangements, page 28
14. You refer to the legal opinion issued by Da Cheng Law Offices to Tenet -Jove
regarding the VIE a greements. Please file that as an exhibit.
15. You indicate that each VIE Agreement is described in detail below, but the
description does not appear to clearly describe each agreement. Please revise or
advise. Please also confirm you will file each of these ag reements as exhibits.
Equity Interest Pledge Agreements, page 29
16. Please explain to us why the shares of Yantai Agricultural cannot be pledged.
Manufacturing and Production Facilities, page 35
17. Please revise to discuss the current status of your “ major p roject to build a facility
in Hefei .”
18. Refer to the last sentence in the second paragraph here. Please revise to balance
the disclosure to indicate that there can be no guarantee that, what you believe are
technological and productivity advances, will imp rove your competitive position.
The market, page 40
19. Please revise to explain the “ policies set forth in the government’s 12th five -year
plan” and what you mean by their “ impact on the biomedical industry .”
Competition, page 40
20. Please r evise your discussion to further explain participation in the “Three Unities
of Medicine” program . Please state how many other enterprises also act “ as
essentially a preferred provider ” under this program. In addition please revise to
disclose whether participation is for a set period of time and any procedures for
maintaining or requalifying as a participant.
Use of Proceeds, page 50
21. If any additional funds will be needed to accomplish the goals listed in the table ,
please revise this section to discu ss the sources and amounts of those additional
proceeds.
22. Please revise the table to separately state the use of net proceeds in dollar terms if
the minimum or maximum amounts are raised.
Yuying Zhang
Shineco, Inc.
September 30, 2014
Page 5
Management’s Discussion and Analysis, page 56
Results of Operati ons for the Three Months Ended March 31, 2014 and March 31, 2013,
page 59
23. We note that you transfered the wholesale and retail businesses of Ankang
Longevity Industry and Ankang Longevity Chain to a joint venture pharmacy
retail company called Shaanxi Pha rmacy Sunsimiao Drugstores Ankang Chain
Co., Ltd. (“Sunsimiao Drugstores”), and a joint venture pharmaceutical wholesale
distribution company named Shaanxi Pharmacy Holding Group Ankang
Longevity Pharmaceutical Co., Ltd. (“Shaanxi Longevity Pharmacy”). As a result
you only own a 49% equity stake in these joint ventures; and accordingly you
could not consolidate the sales of the joint ventures in your consolidated financial
statements, causing your sales to decrease. Please tell us and revise to disclosure
what the business purpose of this transaction was and what the benefit to you was
to transferring theses business over to a joint venture. Additionally, please revise
Note 6. Investment in Unconsolidated Entities to disclose the transfer of the
wholesale an d retail businesses of Ankang Longevity Industry and Ankang
Longevity Chain to the Shaanxi Pharmacy Sunsimiao Drugstores Ankang Chain
Co., Ltd. (“Sunsimiao Drugstores”) joint venture and the Shaanxi Pharmacy
Holding Group Ankang Longevity Pharmaceutical Co ., Ltd. (“Shaanxi Longevity
Pharmacy”) joint venture. Finally, please disclose your method for accounting for
these joint ventures.
Liquidity and Capital Resources, page 67
24. Please revise your capital resources discussion to address what you refer to on
page 35 as a “ major project to build a facility in Hefei ” or tell us why this is not
necessary.
Description of Property, page 77
25. We note the statement that “t here is no private land ownership in China .”
However several of the properties are listed as ei ther “Owned” or “Company
Owned.” Please revise to clarify what you mean by these terms.
Board of Directors and Committees, page 80
26. Please revise to clarify which , if any, of your current directors are independent
under the NASDAQ Capital Market standard .
Yuying Zhang
Shineco, Inc.
September 30, 2014
Page 6
Related Party Transactions, page 83
Payables to Related Parties, page 84
27. It appears that much of the information in this section is as of March 31, 2014.
Please note that the disclosure in this section should not be limited to the end of
the periods reported in your financial statements. In light of this please revise to
disclose any additional transactions that may have occurred after March 31, 2014 .
Tax Matters Applicable to U.S Holders, page 91
28. We note that you plan to file as an exhibit a tax opinion. Please advise if you
anticipate filing a short or long form tax opinion. We may have further comment
upon reviewing your response.
Placement, page 97
29. Please name the Placement Agent / Underwrit er in the next amendment or advise.
Index to Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments, page F -10
30. We note your belief that since the carrying value of the equity method
investments include the Company’s share of the investee’s earnings from the date
of acquisition, they approximate fair value and that the carrying value of the
Company’s new investment in an unconsolidated enti ty approximates fair value
because the investment was made in 2014. Please tell us how this complies with
ASC 820.
Note 4. Property and Equipment, Net, page F -13
31. Please tell us and revise to disclose what the farmland leasehold improvement
balance is com prised of.
Note 8. Short Term Loans, page F -16
32. We note footnote c which states that the loans from Agricultural Bank of China
were guaranteed by loan credit guarantee parties which are not related to the
Company. Please tell us and revise to disclose whe ther and how you compensate
these loan credit guarantee parties for providing guarantees for you.
Yuying Zhang
Shineco, Inc.
September 30, 2014
Page 7
Exhibit Index
33. Please revise to file a form of the subscription agreement or please advise.
34. Please revise so that all agreements show the signatures or conformed signatures
of all the parties to the agreements. It appears for example that the agreements
filed as Exhibits 10.1, 10.3, 10.4, and 10.54 through 10.66 do not show signatures
by all parties to the agreements .
General
If you intend to respo nd to these comments with an amended draft registration
statement, please submit it and any associated correspondence in accordance with the
guidance we provide in the Division’s October 11, 2012 announcement on the SEC
website at
http://www.sec.gov/divisi ons/corpfin/cfannouncements/drsfilingprocedures101512.htm.
Please keep in mind that we may publicly post filing review correspondence in
accordance with our December 1, 2011 policy
(http://www.sec.gov/divisions/corpfin/cfannouncements/edgarcorrespondence. htm). If
you intend to use Rule 83 (17 CFR 200.83) to request confidential treatment of
information in the correspondence you submit on EDGAR, please properly mark that
information in each of your confidential submissions to us so we do not repeat or refe r to
that information in our comment letters to you.
You may contact Aamira Chaudhry at (202) 551 - 3389 or Lynwood Shenk at
(202) 551 - 3380 if you have questions regarding comments on the financial statements
and related matters. Please contact John Dana Brown at (202) 551 -3859 or me at (202)
551-3210 with any other questions.
Sincerely,
/s/ Susan Block
Susan Block
Attorney Advisor
cc: Anthony W. Basch, Esq.
Kaufman & Canoles, P.C.