Mail Stop 6010 July 28,
2005
Isaac Cohen
President and Chief Executive Officer
Bionovo, Inc.
2200 Powell Street
Suite 675
Emeryville, California 94608
Re: Bionovo, Inc.
Registration Statement on Form SB-2
Filed July 5, 2005
File Number 333-126399
Dear Mr. Cohen:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. We note that you are planning to file a confidential treatment
request. Please be advised that after you file the application,
you
will receive comments on that application under separate cover.
All
confidential treatment issues must be resolved before we will
grant
effectiveness on the SB-2.
2. Please file as promptly as possible all exhibits that have not
yet
been filed.
3. Please note that where we provide examples to illustrate what
we
mean by our comments, they are examples and not exhaustive lists.
If
our comments are applicable to portions of the filing that we have
not cited as examples, make the appropriate changes in accordance
with our comments.
4. In your response letter, please state our comment and then
explain
each change that has been made in response to a comment. In
addition, you should also reference each page number in which
disclosure has been revised in response to a comment so that we
can
easily place your revised disclosure in its proper context.
Form SB-2
Cover page
5. The disclosure on this page is too detailed for a cover page.
Please abbreviate the disclosure to include only the information
that
is most material to investors and include any other disclosure in
the
prospectus itself.
Inside Front Cover Page
6. Please delete the disclosure contained below the table of
contents. The company is responsible for the accuracy of all
information contained in the registration statement.
Summary
Our Business, p. 1
7. We note your claim that you are "leading company seeking FDA
approval..." Please provide third-party substantiation for your
claim of leadership or delete the reference.
8. Please note that the instructions to Item 503 of Regulation S-B
state that the company should not merely repeat the information
contained in the prospectus or include all of the detailed
information in the prospectus. As currently written, the section
"Corporate History and Recent Financing Transactions" appears to
discuss prior transactions in great detail. While a brief summary
of
prior transactions is appropriate in the Summary, you should move
the
detailed information from the Summary to another section after the
Risk Factors.
9. In your summary, please include a brief section that summarizes
the risks and challenges that the company faces.
Merger With Lighten Up Enterprises International, page 4
10. Please disclose the amount paid and which entity paid for the
21
million shares purchased from Ms. Ross. Include the purchase
price
per share and how that related to the fair value of those shares
at
that time.
11. Please disclose the purchase price Ms. Ross paid for the
historical cookbook business. Include whether any gain or loss
resulted from this disposal.
Risk Factors, p. 8
General
12. When disclosing a risk factor, you should customize it with
specific reasons why you may be exposed to a particular risk so as
to
make the disclosure more meaningful. As one example only, the
disclosure on page 10 in "We face substantial competition...," you
should expand and customize the risk factor to disclose the exact
companies and products that will compete with your products if
your
products are approved. You should also disclose whether the
competing products have any advantages relative to your products."
As a few additional illustrative and not exhaustive examples of
risk
factors that should be customized, please consider the following:
? In the risk factor "Our business will expose us to product
liability risks..." you have not indicated whether the company
maintains product liability insurance;
? In the risk factor "Failure to secure patents..." you do not
specify the intellectual property that may be subject to the kinds
of
problems you describe; and
? In your risk factor "If we lose the services...," you do not
disclose whether either person has said that they will leave the
company or whether there are any facts or circumstances that
suggest
either person might leave the company.
Please review all of your risk factors to ensure that your
disclosure
is customized for the Company and is as specific as possible. In
your response letter, please identify all places where revisions
are
made in response to this comment.
13. Please consider adding a risk factor relating to market
acceptance of your products.
"We have a limited operating history...," p. 8
14. Please disclose your accumulated losses as of December 31,
2004
and your most recent quarter.
"We expect to rely heavily upon collaborative relationships..., p.
10
15. Please describe any collaborative relationships upon which the
company is materially dependent and file your agreements with
those
parties as exhibits to the registration statement. Please also
disclose any facts or circumstances that could lead to the
termination of those collaborations and the alternatives the
company
would face if a termination occurred.
"Because we became public by means of a reverse merger...," p. 10
"Outstanding warrants may adversely affect the terms...," p. 13
"We do not anticipate paying cash dividends...," p. 13
16. Please disclose how the information in these risk factors
represents a risk to investors.
MD&A, p. 18
General
17. We note that in this section and in other parts of the
registration statement, you have referred to your products as
being
safe or effective (or have indicated that they may be safe or
effective). As the products are only in Phase I and Phase II of
clinical trials at this time, it is premature to describe the
products as being safe or effective or to indicate that they may
be
so. Instead, you should limit your comments to what has been
observed in trials to this point.
Overview, p. 13
18. Currently, your MD&A Overview discusses your incorporation and
your products. In a recent release called "Commission Statement
about Management`s Discussion and Analysis of Financial Condition
and
Results of Operations," the staff stated that "the development of
MD&A disclosure should begin with management`s identification and
evaluation of what information, including the potential effects of
known trends, commitments, events, and uncertainties, is important
to
providing investors and others an accurate understanding of the
company`s current and prospective financial position and operating
results." Release Nos. 33-8056; 34-45321; FR-61.
Accordingly, the MD&A overview should include disclosure on the
key
points that are covered in greater detail in the MD& A section,
with
emphasis on the key trend and analytical points as well as on the
"potential effects of known trends, commitments, events and
uncertainties..." We may have further comments on your revisions.
Research and Development
19. We believe that including disclosures about historical
research
and development expenses and estimated future expenses related to
your major research and development projects in the MD&A would be
useful for investors. Please refer to the Division of Corporation
Finance "Current Issues and Rulemaking Projects Quarterly Update"
under section VIII - Industry Specific Issues - Accounting and
Disclosure by Companies Engaged in Research and Development
Activities. You can find it at the following website address:
http://www.sec.gov/divisions/corpfin/cfcrq032001.htm. Please
disclose the following information for each of your major research
and development projects:
* The nature, timing and estimated costs of the efforts necessary
to
complete the project;
* The anticipated completion dates;
* The risks and uncertainties associated with completing
development
on schedule, and the consequences to operations, financial
position
and liquidity if the project is not completed timely; and finally
* The period in which material net cash inflows from significant
projects are expected to commence.
To the extent that information requested above is not known or
estimable, disclose that fact and the reason why it is not known.
Critical Accounting Policies and Estimates, page 19
20. Please note that your disclosures should address material
implications of uncertainties associated with the methods,
assumptions and estimates underlying the company`s critical
accounting measurements. Consistent with Section V of Financial
Reporting Release 72, Commission Guidance Regarding Management`s
Discussion and Analysis of Financial Condition and Results of
Operations, please consider the following disclosures:
* Disclose your analysis of the uncertainties involved in applying
a
principle at a given time or the variability that is reasonably
likely to result for its application over time.
* Specifically address why your accounting estimates or
assumptions
bear the risk of change.
* Please include a discussion that explains the judgments and
uncertainties surrounding the estimates and the potential impact
on
your financial statements such as potential material adverse
effects
for all critical estimates discussed
* Analyze, to the extent material, such factors as how accurate
the
estimate/assumption has been in the past, how it has changed in
the
past, and whether it is reasonably likely to change in the future.
* Analyze the estimate/assumption specific sensitivity to change,
based on other outcomes that are reasonably likely to occur and
would
have a material effect.
* Quantify and disclose the reasonably possible effects that a
change
in estimate as of the latest balance sheet date could have on your
financial position and operations
Stock-Based Compensation, page 19
21. In order for us to fully understand the equity fair market
valuations reflected in your financial statements, supplementally
please provide us with an itemized chronological schedule showing
each issuance of common stock, stock options, warrants, and other
equity instruments from January 1, 2004 through the date of your
response. Include the following information for each issuance or
grant:
* Number of shares issued or issuable
* Purchase price or exercise price per share
* Any restrictions or vesting terms
* Management`s fair value per share estimate
* How management determined the fair value estimate
* Identity of the recipient and relationship to the company
* Nature and terms of any concurrent transactions with the
recipient
* Accounting treatment, amount of any recorded compensation
element,
and accounting literature relied on
* How the grant or issuance was treated for purposes of computing
earnings per share
* Significant factors contributing to the difference between the
fair
value as of the date of each grant and fair value as of the date
of
your response; and,
* The valuation alternative selected and, if appropriate, the
reason
management chose not to obtain a contemporaneous valuation by and
unrelated valuation specialist.
Highlight transactions with unrelated parties, if any, that
management believes to be particularly evident of an objective
fair
market value per share determination, and progressively bridge
management`s fair value per share determinations to the current
estimated IPO price per share. Include when the company began
discussions with the underwriter. We may have further comments.
Business, p.22
General
22. We note that you have included numerous statistics in this
section. In many cases, you have cited third party sources in
support of these figures. However, in other cases you have not
provided this support. Please revise the registration statement
to
cite any third party sources for the statistics you provide. If
the
statistics are based upon estimates made by the company, please
explain how you arrived at those estimates. Finally, please
provide
us with copies of any third party materials that you are citing or
are using in your estimates, as the case may be.
23. Similarly, we note that you have made a number of qualitative
statements regarding the company and its management. As a few
examples only, you refer to:
? Drs. Tagliaferri and Cohen as "pioneers in the development
and
design of clinical trials for natural compounds..." on page 25;
? Your consulting agreements with "leading academic
scientists...," on page 26; and
? "distinguished scientists and clinicians...with important
contacts" on page 26.
Please provide third-party support for these contentions or delete
them.
24. We note your reference to various relationships and
collaborations. For any agreement that is material to the
company,
please describe all material provisions in the agreements that
govern
these relationships. Please also file the agreements as exhibits
to
the registration statement, if you have not already done so.
25. For any agreement that you include in the business section in
accordance with the comments set forth above, please be sure to
include the following information:
* Material rights acquired and obligations incurred;
* Total amounts paid to date;
* Financial terms or other terms relating to consideration;
* Aggregate amount of potential payments, if applicable;
* Expiration date;
* Termination provisions; and
* Any other material terms.
We note that in your description of the UBC agreement, your
description of the agreement only describes who is responsible for
liabilities and for obtaining regulatory approval. Please revise
that description to include the information set forth above.
We also note that you have not described the arrangements you have
made to manufacture the products you need to conduct clinical
trials.
Please provide this information on page 31.
Executive Compensation, page 34
26. Based on the disclosure in the notes to this table, it does
not
appear as if the company recorded any expense in connection to the
services offered by Mr. Cohen and Ms. Tagliaferri. Please explain
to
us how the company considered the guidance of Topic 1B(1) of the
Staff Accounting Bulletins in determining whether to record any
expense related to these services.
Certain Relationships and related transactions, p. 39
27. Please file any agreements that govern the transactions
described
in this section as exhibits to the registrations statement.
Selling Stockholders, p. 40
28. We call to your attention the requirements of Item 507
(selling
shareholders). We note that certain broker dealers listed as
selling
shareholders in the Selling Securityholder Table may have obtained
the shares other than as compensation for services. In that
event,
such selling shareholders are acting as underwriters under the
Securities Act of 1933 and you should revise your registration
statement to state that they are underwriters in the section
titled
"Plan of Distribution" and in such other places that would be
appropriate.
Furthermore, if there are affiliates of broker-dealers identified
as
Selling Shareholders, you should provide the following
representations in the prospectus: (i) the Selling Shareholder
purchased in the ordinary course of business and (ii) at the time
of
the purchase, the Selling Shareholder had no agreements or
understanding to distribute securities. Alternatively, if you
cannot
provide these representations, these selling shareholders are
underwriters and should be described as such in the Plan of
Distribution and in such other places that would be appropriate.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure, page 58
29. Disclose the actual date your relationship with your former
auditor ended. Also, indicate whether the decision to change
auditors was recommended or approved by your board of directors.
30. Please revise your disclosure about disagreements with your
former auditors to specifically reference the last to year ends by
date and extend that disclosure through the interim period dated
the
same time as their actual dismissal.
31. Disclose whether the former auditor`s report on your financial
statements for either of the past two years contained an adverse
opinion, a disclaimer of opinion, or was qualified or modified as
to
uncertainty, audit scope or accounting principles and, if so,
describe the nature of each adverse opinion, disclaimer of
opinion,
modification or qualification.
32. Please revise your Form 8-K filed May 27, 2005 for any of the
above revisions that may be applicable specifically extending the
date through which there were no disagreements through May 25,
2005.
Please include a new letter from your former auditor as exhibit 16
that covers the changes made to the disclosures.
Financial Statements, page F-1
33. Please revise your financial statements to reflect the capital
structure that resulted from the recapitalization described in
note
12.
Statements of Operations, page F-4
34. Please revise your disclosure of "Net Loss Per Share" to be
rounded to the nearest cent.
Statements of Stockholders` Deficit, page F-5
35. Please explain to us what the "Issuance of Common Stock
Restated
for Recapitalization on June 17, 2004" represents. Clarify why
you
did not receive any proceeds at that time as well as what
recapitalization took pace on June 17, 2004. Please note that a
typical recapitalization transaction is reflected as if it took
place
before each period presented.
(1) Business and Summary of Significant Accounting Policies, page
F-
7
Patent Costs, page F-8
36. Please tell us why you did not amortize these assets in the
periods presented. Include references to the specific paragraphs
within the accounting literature upon which you relied that
support
this treatment.
(7) Convertible Notes, page F-15
37. We have the following questions concerning your accounting for
the bridge financing:
* Please revise the disclosure to reflect only the current
applicable
conversion price because the current dual presentation is
confusing.
* Please tell us what you determined the fair value of your common
stock to be that was used in determining the accounting treatment
to
be applied. Include a discussion of the methodology used in this
determination.
* Provide to us your analysis that supports that no beneficial
conversion feature existed under the guidance of complied with
EITF
98-5 and 00-27 at the time of issuance.
* Provide to us your analysis that supports the assignment of $0
fair
value to the warrants issued in connection with these notes.
Include
the significant assumptions used in your valuation model.
(10) License Agreement, page F-20
38. Please indicate in general the milestone events that will
trigger
the milestone payments under this agreement, the aggregate amount
of
payments, and clarify which party will perform the work that
triggers
them. Also clarify for us how you calculated the revenues earned
under this agreement for the periods presented in accordance with
your revenue recognition policy described in note 1.
(12) Subsequent Events, page F-20
39. Please expand your discussion of the clinical services
agreement
to better clarify the impact this agreement will have such as your
obligations and the timing of the payments.
Exhibits
40. Please include in your filing a statement regarding your
computation of per share earnings as required by Item 601 of
regulation S-B.
41. We note that exhibit 5.1 is the Form of Opinion of Greenberg
Traurig. Please replace the form of opinion with an actual,
executed
opinion.
Form 8-K/A Amendment No. 3. filed on June 27, 2005
Pro Forma Condensed Combined Statements of Operations
42. Please explain to us why it is appropriate to include the
historical operations of the cookbook on a pro forma basis when
those
operations were disposed of as part of the recapitalization
transaction.
43. Please revise your presentation to reflect the forgiveness of
related party loans as equity transactions or tell us why your
current presentation is appropriate. Please refer to APB Opinion
26
paragraph 20, footnote 1. In addition, please make sure that
terms
and manner of settlement of amounts due to/from related parties
are
disclosed in all filings as required by SFAS 57(2)(d).
As appropriate, please amend your filing in response to
these
comments. You may wish to provide us with marked copies of the
amendment to expedite our review. Please furnish a cover letter
with
your amendment that keys your responses to our comments and
provides
any requested supplemental information. Detailed cover letters
greatly facilitate our review. Please file your cover letter on
EDGAR under the form type label CORRESP. Please understand that we
may have additional comments after reviewing your amendment and
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
*****
You may contact Ibolya Ignat at (202) 551-3656 or James Atkinson
at
(202) 551-3674 if you have questions regarding comments on the
financial statements and related matters. Please contact Zafar
Hasan
at (202) 551-3653 or me at (202) 551-3715 with any other
questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: Robert Cohen
Greenberg Traurig LLP
200 Park Avenue - 15th Floor
New York, NY 10166
F: 212-801-6400
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