Mail Stop 3233
February 2, 2018
Via E-mail
Xiaolong Zhou
Chief Financial Officer
Victory Commercial Management Inc.
3rd Floor, 369 Lexington Ave
New York, NY 10017
Re: Victory Commercial Management Inc.
Draft Registration Statement on Form S-1
Submitted January 2, 2018
CIK No. 0001723083
Dear Mr. Zhou:
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 circumstances
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
have 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.
2. In your next amendment, please include the delaying amendment language
set forth in
Rule 473 of the Securities Act.
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 2
Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges
Renovation Plan, page 7
3. We note your disclosure on this page that the total anticipated cost of
the renovation is
approximately $11.2 million. We further note your disclosure on page 32
that the "cost
of renovation is approximately $95.1 million including approximately
$83.9 million for
repurchasing the rented units and $11.2 million for renovation." Please
revise for
consistency.
Implications of Our Being an "Emerging Growth Company", page 8
4. Please tell us why you believe you will be able to take advantage of the
longer phase-in
periods for the adoption of new or revised accounting standards
considering your
decision to early adopt ASC 842.
Risk Factors, page 11
5. We note your disclosure under the heading "Controls and Procedures" on
page 59 that
your management has concluded that neither your disclosure controls and
procedures nor
your internal control over financial reporting were effective as of
December 31, 2016,
and that management identified multiple material weaknesses in your
internal control
over financial reporting. Please include risk factor disclosure
addressing the risks arising
from these findings.
6. We note your disclosure on page 20 that your PRC subsidiaries are not
compliant with
the environmental, employment, and social security rules of China, and
they may face
penalties imposed by the PRC government. Please tell us how your
financial statements
reflect your liability relating to the above issues and the guidance
upon you which you
relied.
We are subject to certain risks related to litigation filed by or against us,
and adverse results may
harm our business and operation, page 14
7. We note your disclosure that, following DVPD's designation as a
"dishonest debtor,"
there may be restrictions affecting DVPD's ability to obtain commercial
loans and its
renovation or upgrade of properties. Please include risk factor
disclosure specifically
discussing the potential effects of DVPD's designation as a "dishonest
debtor" on the
company's ability to undertake the planned renovation of Victory Plaza,
or advise us why
this does not represent a material risk. Additionally, we note your
disclosure elsewhere,
including on page 11, that your existing cash resources will not be
sufficient to sustain
operations during the next twelve months. Please revise to specifically
discuss the
potential effects of DVPD's designation as a "dishonest debtor" on the
company's ability
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 3
to obtain funding sufficient to sustain its operations, or advise us why
this does not
represent a material risk.
Use of Proceeds, page 24
8. We note that there is no minimum number of shares of common stock that
must be sold
in order for the offering to proceed. We further note your disclosure on
page 32 that you
expect you will need approximately $95.1 million to complete the
renovation project.
Consequently, it appears that additional funds will be needed to
complete the renovation
project. Please state the amount and source of other funds. Please also
disclose the order
of priority for your intended use of proceeds. Refer to Instructions 1
and 3 to Item 504 of
Regulation S-K.
Dilution, page 24
9. It appears that the net negative tangible book value of the 24,450,000
shares to be
outstanding if 75% of the shares are sold is incorrect. Please revise as
appropriate.
10. We note your disclosure on page 26 that dilution per share is not
applicable. It appears
that dilution per share would be equal to the offering price minus the
pro forma net
negative tangible book value per share after the offering (e.g.,
negative $9.56 if 100% of
the shares are sold). Please revise as appropriate.
Description of Securities to be Registered, page 28
11. Please revise your disclosure in this section to clarify the rights that
will be applicable to
all outstanding shares of your common stock following the offering, not
just to the
current holder of your common stock. Refer to Item 202(a) of Regulation
S-K.
Information With Respect to the Registrant
Our Project: Renovation of Victory Plaza, page 32
12. We note your disclosure that the "estimated cost of renovation is
approximately $95.1
million including approximately $83.9 million for repurchasing the
rented units and
$11.2 million for renovation." Please add disclosure to clarify what you
mean by
"repurchasing the rented units." We further note your disclosure on page
33, stating "In
addition to the repurchase of scaled shops, the aggregate amount of
estimated costs to
purchase back individual shops scattered in Victory Plaza is RMB582.3
million
(approximately US$83.9 million)." Please revise to distinguish between
"the repurchase
of scaled shops" and the "purchase back [of] individual shops scattered
in Victory Plaza,"
and to clarify whether there are separate repurchase costs associated
with these respective
activities.
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 4
13. Please disclose the amounts and terms of the loans obtained for
renovating certain areas
into "food garden" and "beer garden" from the bank.
Our Rent Income and Management, page 33
14. We note your disclosure that, after renovation, you expect to have more
than 3,000
tenants "with most of them being anchor tenants." Please revise to
explain this statement.
15. We note your statement that your estimated current rent income is $4.2
million per year.
However, your consolidated statements of operations and other
comprehensive loss for
the year ended December 31, 2016 shows rental income of $3.9 million.
Please provide
the basis for your statement that your estimated current rent income is
$4.2 million per
year.
16. We note your statement that your estimated rent income will triple to
$12.6 million per
year after renovation. Please remove this statement or revise your
disclosure to explain
the basis for and limitations of this projection. Refer to Item 10(b)(2)
of Regulation S-K.
Additionally, we note that you do not currently have sufficient funds to
complete the
renovation and may not be able to secure additional financing to do so.
Please provide
balancing disclosure in this section regarding the uncertainties
associated with the
renovation.
17. Please revise to clarify whether you provide operation and management
services to
tenants leasing or occupying portions of the property that you do not
own. Please also
revise to provide insight into how your management fees are structured.
Description of Property, page 42
18. Please revise to provide additional information concerning the Victory
Plaza property,
including:
the percentage of the property that you own and the nature of your
ownership therein;
any material mortgages or other encumbrances to which your interest in
the property
is subject;
the general terms of the leases, buy back arrangements, and other
agreements relating
to the property or portions thereof and to which you are a party;
occupancy rate expressed as a percentage for each of the past five
years;
the number of tenants occupying 10% or more of the rentable square
footage and
principal nature of business of such tenant;
average effective annual rental per square foot or unit for each of the
last five years;
and
a schedule of the lease expirations for each of the ten years starting
with the year in
which the registration statement is filed, stating (i) the number of
tenants whose
leases will expire, (ii) the total area in square feet covered by
such leases, (iii) the
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 5
annual rental represented by such leases, and (iv) the percentage of
gross annual
rental represented by such leases.
19. Please revise your disclosure in this section to provide additional
information regarding
your ownership and lease of portions of the Victory Plaza property,
including the
percentages of the property by square foot that you own and lease,
respectively. Please
also disclose the material terms of your lease(s) of portions of Victory
Plaza.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Operating Expenses, page 48
20. We note your disclosure that the decrease in depreciation and
amortization expenses was
primarily due to expiration of leases term. Please expand your
disclosure to explain why
the expiration of leases caused a decrease in depreciation and
amortization expenses.
Other Income (Expenses), page 49
21. We note your disclosure in the first paragraph on page 50 that the gain
on expired leases
liability resulted from the expiration of leases, especially from
financing agreement
payable. Please expand your disclosure to explain why these transactions
resulted in
gain.
Liquidity and Capital Resources, page 50
22. Please revise to discuss your plans to address your going concern
uncertainty to remain
viable for at least the 12 months following the date of the financial
statements.
23. Please expand your disclosure to discuss the restrictions on foreign
exchange and your
ability to transfer cash between entities, across borders, and to U.S.
investors.
24. We note your statement that the "[l]oan payable due to shareholder
represents the
investment amount that Sino Pride received from its former shareholders,
which was
assigned to current shareholder Mr. Alex Brown." Please revise to
clarify the company's
responsibility for this loan and what you mean by the statement that it
was assigned to
Mr. Brown. We note that this loan payable is included as a liability on
your balance
sheet as of December 31, 2016.
25. We note your disclosure on page 51 that the Company provided rental
properties owned
by the Company as collateral to help unrelated individuals to acquire
bank loans. Please
revise to explain the business purpose of these actions. Please also
include risk factor
disclosure specifically discussing the impact of the Company providing
properties as
collateral to help unrelated individuals to acquire bank loans, or
advise us why this does
not represent a material risk.
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 6
Contractual Obligations, page 53
26. Please revise to disclose the past due amounts for Financing Obligation
and Finance
Leases and clarify that such past due amounts are not reflected in the
table.
Directors and Executive Officers
Related Party Transactions, page 61
27. We note from your disclosure on page 34 that Iven International Group
Limited, which is
controlled by Alex Brown, transferred ownership of Sino Pride
Development Limited to
Victory Commercial Investment Ltd., your wholly-owned subsidiary, on
September 4,
2017. Please provide the disclosures required by Item 404 of Regulation
S-K with
respect to this transaction. Please provide similar disclosure in the
section under the
heading "Certain Relationships and Related Transactions, and Director
Independence"
starting on page 67.
Consolidated Statements of Cash Flows, page F-6
28. Please tell us the nature of the line item "Increase in property
financing agreements
payable" and your basis for including it in operating activities.
29. Please tell us the nature of the line item "Decrease in liabilities
resulted from expired
leases" included in Non-Cash Investing and Financing Activities.
Note 1 Organization and Basis of Presentation
Organization, page F-7
30. Please provide us additional details regarding the history of Sino Pride
and Iven and
whether they were under common control of VCM's controlling shareholder
before Iven
acquired Sino Pride in November 2016 and then transferred it to VCI on
September 4,
2017. Also tell us how you accounted for the above November 2016 and
September 4,
2017 transactions and the guidance upon which you relied.
31. With respect to DVPD and DVBM please provide to us additional details
regarding the
nature and structure of, and your interest in, these entities and your
basis for
consolidating them. Provide us a full evaluation of the guidance upon
which you relied
for consolidation. Also, tell us how you considered any restrictions
under the PRC laws
that may impact the legality of the structure of these entities as they
relate to foreign
investment/ownership of companies in China.
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 7
Note 3 - Summary of Significant Accounting Policies
Rental Income and Management Fee Income, page F-9
32. Please tell us the terms of the agreements relating to your management
fee income and
expense recoveries, the specific point in time that you recognize each
of these revenues
and the guidance upon which you relied. Also, tell us how you considered
expense
recoveries in your adoption of ASC 842.
33. With respect to expense recoveries, tell your basis for gross reporting
and how you
considered the guidance in ASC 605-45-45.
Rental Properties, page F-10
34. We note your disclosure relating to Sold Rental Properties with
Financing Agreement,
Leaseback, and ROU Assets and Liabilities. Please explain to us the
accounting process
for each of these transactions from the initiation of the transaction
through the point when
you have no further obligations under the arrangement/transaction.
35. With respect to the above transactions, please provide to us a full
analysis of ASC 842 (as
lessor and lessee) showing how your accounting (including your
classification of leases),
recognition, measurement, financial statement presentation, disclosure
and
implementation approach meets the requirements of this standard.
36. With respect to the property financing agreements payable, please revise
to disclose with
more specificity how you calculate the interest expense and how your
financial
statements reflect the accrued interest payable and expense.
37. Please revise to disclose how you measure the gain resulting from the
removal of the
asset and related financing agreement payable (including accrued
interest) upon
expiration of the purchase-back option.
38. With respect to rental properties sold with financing agreement, please
tell us whether
these properties were operating at the time of the sale. If so, explain
your basis for not
continuing to include their results of operations on your books and the
guidance upon
which you relied.
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 8
Impairment of Long-Lived Assets, page F-12
39. We note that no impairment losses were recognized as of December 31,
2016 and 2015.
We also note on page F-18 that a majority of your leases will expire
within one year and
your disclosure on page F-8 regarding your going concern uncertainty.
Please tell us how
you considered these conditions in determining that no impairment loss
was required to
be recognized.
Note 5 Rental Properties, net, page F-16
40. We note your disclosure relating to land use rights on page F-17. Please
provide to us
more details of the nature of these rights, including your obligation
during the term of the
rights. Also, tell us how you considered these rights in your adoption
of ASC 842.
Note 10 Property Financing Agreement Payable, page F-23
41. Please revise to disclose the difference between Total purchase back
payable at maturity
date and Property financing agreement payable and the nature of the
difference.
Note 12 Leases Payable, page F-25
42. Please revise to disclose the interest expense on the lease liability.
Note 13 Other Payables, page F-25
43. Please revise to separately disclose the amount of terminated leases
payable and
purchase-back payable, and reconcile such amounts with your disclosure
in the third
paragraph on page F-8, the first paragraph on page F-24 and the first
paragraph on page
F-29.
Note 17 - Commitments and Contingencies
Legal Proceeding, page F-29
44. We note your disclosure in the fourth paragraph on page F-8 that
management cannot
predict with certainty the cost of defense, the cost of prosecution, or
the ultimate outcome
of litigation and other proceedings filed by or against DVPD, including
remedies, damage
awards, and penalties. If there is at least a reasonable possibility
that a loss exceeding
amounts already recognized may have been incurred, please either
disclose an estimate
(or, if true, state that the estimate is immaterial in lieu of providing
quantified amounts)
of the additional loss or range of loss, or state that such an estimate
cannot be
made. Please refer to ASC 450-20-50.
Xiaolong Zhou
Victory Commercial Management Inc.
February 2, 2018
Page 9
45. If you conclude that you cannot estimate the reasonably possible
additional loss or range
of loss, please supplementally: (1) explain to us the procedures you
undertake to attempt
to develop a range of reasonably possible loss for disclosure and (2)
for each material
matter, what specific factors are causing the inability to estimate and
when you expect
those factors to be alleviated. We recognize that there are a number of
uncertainties and
potential outcomes associated with loss contingencies. Nonetheless, an
effort should be
made to develop estimates for purposes of disclosure, including
determining which of the
potential outcomes are reasonably possible and what the reasonably
possible range of
losses would be for those reasonably possible outcomes.
46. Please revise to disclose your accounting policy for accruing legal
fees. Please refer to
ASC 450-20-S99-2.
You may contact Jorge Bonilla, Staff Accountant, at 202-551-3414 or
Shannon Sobotka,
Staff Accountant, at 202-551-3856 if you have questions regarding comments on
the financial
statements and related matters. Please contact Sara von Althann,
Attorney-Advisor, at 202-551-
3207 or me at 202-551-3466 with any other questions.
Sincerely,
/s/ Coy Garrison
Coy Garrison
Special Counsel
Office of Real
Estate and
Commodities
cc: Arila Zhou, Esq.
Hunter Taubman Fischer & Li LLC