Mail Stop 4561
October 18, 2005
Mr. Cai Danmei
Chief Executive Officer
New Taohuayuan Culture Tourism Co., Ltd
1# Dongfeng Road
Xi`an Weiyang Tourism Development District
Xi`an, China 0086-29-86671555
Re: New Taohuayuan Culture Tourism Co., Ltd
Amendment No. 1 to Form SB-2
Filed September 23, 2005
File No. 333-121187
Dear Mr. Danmei:
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 any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General Comments
1. We note that your responses to our comments in your letter
dated
October 10, 2005, are extremely brief and that in a number of
instances the page numbers that you cite do not agree with the
page
numbers in the prospectus. Please note that a detailed response
letter with accurate page references greatly facilitates our
review.
2. The basis for comparative factual assertions and for
management`s
belief in qualitative statements must be clear from the text of
the
registration statement or provided to us. Revise the disclosure
throughout the document to disclose the measurements you are using
to
support your statements, or advise us as necessary. In providing
support, clearly mark the location of the information you believe
is
supportive of the statement referenced. We note, for example, and
without limitation on page 24 you state that, "[w]e believe our
Taohuayuan Inn ranks as one of the top ten hotels in Xi`an."
Prospectus Cover Page
3. We note the disclosure regarding your intention to apply to
list
the shares on the AMEX. Please refer to the note to Item 202 of
Regulation S-K and advise or revise.
Risk Factors, page 4
4. Please add a risk factor noting the risk of control by Chen
Jingmin given that he is the Chairman of your Board, your largest
shareholder (including the shares he controls through Shaanxi New
Taohuayuan Economy Trade Co., Ltd.), and given the management fees
you generate from companies controlled by Chen Jingmin.
We Have Negative Working Capital Which Could Limit Our Ability To
Grow Our Operations, page 4
5. We note that Moores Rowland Mazars, in its audit opinion on
page
F-1, has expressed substantial doubt about your ability to
continue
as a going concern. Please revise this risk factor subheading and
narrative to note Moores Rowland Mazars` substantial doubt about
your
ability to continue as a going concern.
Our Revenues May Be Higher If We Managed Properties For
Unaffiliated
Companies, page 6
6. We note your response to comment 11. Please revise this risk
factor`s subheading to ensure that the subheading clearly
identifies
the material risk disclosed in the narrative (i.e., that you would
have no management revenues without the related party transactions
and that your rights under the related party agreements might be
difficult to enforce).
Management`s Discussion and Analysis or Plan of Operation, page 12
Results of Operation for the Six Months Ended June 30, 2005
Compared
to June 30, 2004
Operating Revenues, page 13
7. Please revise to disclose your occupancy rates for the six
months
ended June 30, 2005 and 2004 and include any other factors which
lead
to the net decrease in revenue during the six months ended June
30,
2005 compared to the previous year. For instance, you experienced
a
26% decline in your occupancy rate during the first quarter of
2005
but only experienced a 7% decline in hotel and related services
revenues during the six months ended June 30, 2005.
Liquidity and capital resources, page 17
8. We reissue comment 22 in part. Please revise this section to
disclose the amounts paid for each stage of development and
estimates
for future payment regarding your Lantian and New Hainan
properties.
Also, for each property, discuss the specific sources for payments
made and any specific sources of funds for future expenditures.
9. We reissue comment 23. Refer to the discussion of your
required
statutory reserves on page 18. We note that as a result of the
Transaction, Shaanxi New Taohuayuan Culture Tourism Company
Limited
has become your wholly owned subsidiary. Please disclose and
quantify any limitations that New Tao may have on accessing the
cash
flow and assets of Shaanxi New Taohuayuan Culture Tourism Company
Limited and any inability to use cash earned by Shaanxi New
Taohuayuan Culture Tourism Company Limited for your own liquidity
needs.
10. Please expand your disclosure to address why you believe that
your agreement with local PRC government agencies limiting your
tax
liability may not be valid.
Critical Accounting Policies, page 19
11. We read your response to comment 29 and cannot locate your
revised critical accounting policy related to the provision for
income and other taxes. Your provision for income and other taxes
is
subject to significant judgment that could materially impact your
financial statements. As such, we reissue our prior comment 29.
Please enhance your discussion to include the significant
estimates
or assumptions used, including how they are determined, how they
may
change and what impact a change in your assumptions may have on
the
financial statements. Please refer to SEC Release 33-8350 for
additional guidance.
12. We note your disclosure in Note 8(b) on page F-16 where you
state
"prior to the conversion into a wholly foreign owned
enterprise...Shaanzi THY had certain arrangements with the local
government." Please disclose here and in Note 8(b) whether your
arrangement with the local government is still in effect or if you
plan to file and pay the PRC enterprise income tax and business
tax
in accordance with the national laws and regulations in the PRC
commencing with the effective date of your conversion. In light
of
the risk factor discussed on page 6, please also disclose the
timeframe in which you plan to settle this contingent liability
with
the PRC.
13. Further to our previous comment, please tell us if you are
aware
of similar arrangements with other local companies and whether the
PRC has enforced its enterprise income and business tax in these
circumstances. In addition, please tell us whether you have made
an
attempt to contact the relevant branch of government who has
authority over the PRC enterprise income and business tax
regarding
payment of the amount owed or have received any communications
from
such branch.
Business, page 20
Taohuayuan Inn, page 20
14. In the first paragraph, you state the "Taohuayuan Inn is a PRC
rated five-star hotel." Please provide us with support for the
ratings granted by the PRC. Also, please provide us with support
for
the assertion that the hotel rating granted by the PRC is
equivalent
to a five-star rating in the U.S.
15. We reissue comment 34. Please provide us support for your
assertion that you price your rooms "at approximately 20% below
the
competitive five-star hotels in the Xi`an metropolitan area."
16. On page 5, you state that the PRC Government controls the rate
you charge for rooms. In the penultimate paragraph of this
section,
you state that you "price [your] room rates at approximately 20%
below that of competitive five-star hotels." Please revise this
section to note that the PRC Government sets your room rates.
PRC Laws and Regulations Affecting Our Business, page 24
17. We reissue comment 41 in part. Please substantially revise
this
section to highlight and clarify how the PRC laws and regulations
differ from those of the U.S. and the impact on your business.
For
example only, please revise to discuss the following:
* The restrictions on foreign ownership;
* The general restrictions on hotel resorts and restaurants,
including the fact that room rates are set by the government; and
* The regulation of foreign currency exchange and dividend
distribution.
Executive Compensation, page 29
18. We note that your Chairman, during 2002-2004, and your Chief
Executive, during 2002-2003 were not compensated for their
employment. Please advise us whether they received compensation
from
another party for serving as your officers.
Principal Shareholders, page 30
19. We note your response to comment 47. Please revise the
Principal
Shareholder Table so that the number of shares owned by Chen
Jingin
includes the shares he beneficially owns through Shaanxi New
Taohuayuan.
Selling Shareholders and Plan of Distribution, page 30
20. We reissue comment 47 in part. For each selling stockholder
that
is a non-natural person, please identify the natural persons who
have
voting and investment power over the shares held by the entity.
Refer to Telephone Interpretation 4S to Item 507 of Regulation S-K
(March 1999 Supplement).
Related Party and Other Material Transactions, page 55
21. We reissue comment 53 in part. Please revise your discussion
regarding the amount that you owed to Shaanxi New Taohuayuan
Economy
Trade Co., to include how the terms of the agreement were
determined
by the parties and any other ongoing contractual or other
commitment
that arose as a result of the arrangement.
Part II
Item 26. Recent Sales of Unregistered Securities, page II-1
22. We note your response to comment 78. In this section, you
state
that your issuance of shares in the merger transaction "were
nevertheless exempt from the registration requirements of the
Securities Act of 1933 by virtue of Release 4708, which was the
predecessor to Regulation S." Reliance upon Securities Act
Release
No. 4708 and the no-action and interpretive letters relating
thereto
is not appropriate. Refer to Release No. 33-6863 (April 24,
1990).
Please provide us with a detailed analysis of how the issuance of
your shares in conjunction with the merger was exempt from
registration under Regulation S.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please understand
that we may have additional comments after reviewing your
amendment
and responses to our comments.
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 Josh Forgione, Accountant, at (202) 551-3431
or
Rachel Zablow, Accountant, at (202) 551-3428 if you have questions
regarding comments on the financial statements and related
matters.
Please contact David Roberts, Staff Attorney, at (202) 551-3856 or
the undersigned at (202) 551-3852 with any other questions.
Sincerely,
Michael E. McTiernan
Special Counsel
cc: William T. Hart, Esq. (via facsimile)
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Mr. Cai Danmei
New Taohuayuan Culture Tourism Co., Ltd
October 18, 2005
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