Mail Stop 3561
August 29, 2018
Qi Chen
Chief Executive Officer
Meili Inc.
Zheshang Wealth Center, 12/F, Building No. 1, No. 99 Gudun Road
Xihu District, Hangzhou, 310012
People's Republic of China
Re: Meili Inc.
Draft Registration Statement on Form F-1
Submitted August 1, 2018
CIK No. 0001743971
Dear Mr. Chen:
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.
Qi Chen
Meili Inc.
August 29, 2018
Page 2
Prospectus Summary, page 1
2. Please revise to clarify whether you commissioned the April 2018 survey
conducted
by iResearch that you first reference on page 3, and supplementally
provide us with
that survey.
3. Please include in this section a statement concerning the enforceability
of civil
liabilities against foreign persons.
Our Challenges, page 3
4. Please add a brief description of any risks involved with investing in
your ADSs.
Corporate History and Structure, page 4
5. Since investors will be investing in a holding company that does not
directly own its
operations in China, please make this fact clear in your prospectus
summary. It must
be clear that the business you are describing is not the registrant's
business but is the
business of your variable interest entities. Please also disclose in
this section the fact
that the shareholders of your VIEs may have interests that conflict with
you, as you
state on page 36.
6. Please briefly disclose the significant restrictions on payment of
dividends imposed
under PRC law and disclose the circumstances under which the funds of
your
subsidiaries and VIEs are distributable as cash dividends to you. We
note the related
disclosure on pages 37, 88 and 117.
Corporate Information, page 6
7. Please clarify the status of your main website, as the address listed in
this section
appears to not be operational.
Conventions that Apply to this Prospectus, page 6
8. We note your definition of GMV on page 6. Please tell us your
consideration of
expanding your definition to address your inclusion or exclusion of
discounts, returns,
and shipping fees.
9. Your definition of the term "mobile MAUs" on page 7 clarifies that,
"[i]f a mobile
device accesses two different mobile apps or two different Mini Programs
of ours
over the course of a calendar month, it would, under this methodology,
be counted as
two mobile MAUs." Please revise your definition of "active buyers" on
page 6 to
Qi Chen
Meili Inc.
August 29, 2018
Page 3
clarify whether you use this same methodology for your calculation of
that metric,
and make similar clarifications where you discuss "average user time"
on pages 2 and
95.
Risk Factors
Risks Related to Our Business and Industry
Our limited operating history makes it difficult . . . , page 15
10. You state here that you "have a limited operating history across some
of [y]our
business lines." Please revise to identify the business lines to which
this disclosure
refers.
If we fail to obtain and maintain the licenses . . . , page 21
11. Please define the term "EDI license," upon first use.
Our business and operating results may be harmed by service disruptions . . . ,
page 23
12. You state here that your "technology, system, [and] networks . . . have
been subject to
. . . cyber-attacks, computer viruses, malicious code, phishing attacks
or information
security breaches . . . ." Please revise to discuss here any material
cybersecurity
attacks or breaches you have experienced, and quantify the related
costs you have
incurred and reasonably expect to incur here or elsewhere as
appropriate.
Alternatively, please confirm to us that you have not experienced any
material
cybersecurity attacks or breaches.
We rely on third-party payment service providers . . . ., page 27
13. Please revise your Business section to provide additional disclosure
about the third-
party online payment service providers with which you cooperate,
including whether
you are dependent upon any particular provider or providers for such
services. Refer
to Item 4.a of Form F-1 and Item 4.B.6 of Form 20-F. To the extent
material, provide
additional disclosure about the terms of any cooperation agreements
with these
providers.
Qi Chen
Meili Inc.
August 29, 2018
Page 4
Risks Related to Our ADSs and This Offering
We will incur increased costs ..., page 52
14. Please revise your disclosure to also state that as a result of your
election to take
advantage of the extended transition period for new or revised
accounting standards,
your financial statements may not be comparable to companies that comply
with
public company effective dates.
Capitalization, page 58
15. Please tell us your consideration of either revising the pro forma as
adjusted
capitalization table to reflect the conversion of the 157,047,506 Series
C-3 Preferred
Shares issued in July 2018 and the exercise of 87,990,491 stock options
in June 2018
or adding a footnote to the table that explains any material subsequent
events that are
not reflected in the actual, pro forma or pro forma as adjusted
capitalization tables,
such as the conversion of the 157,047,506 Series C-3 Preferred Shares
issued in July
2018 and the exercise of 87,990,491 stock options in June 2018.
Management's Discussion & Analysis
Key Factors Affecting Our Results of Operations, page 74
16. In your disclosure on page 73, you identify "[y]our ability to expand
[y]our user base,
in particular [y]our active buyers, and strengthen [y]our user
engagement" as a factor
that directly affects your results of operations. You also include
metrics such as
"active buyers" and "mobile MAUs" in various locations throughout your
prospectus.
Please expand your MD&A disclosure to present these metrics and discuss
any
material trends in these and any other important metrics you use to
track user, buyer,
and merchant acquisition, engagement, and retention. Refer to Item 4.a
of Form F-1
and Item 5.D of Form 20-F. For guidance, refer to Section III.B of SEC
Release 33-
8350.
Key Components of Results of Operations
Revenues, page 75
17. Please revise your discussion of commission revenues to include the
range of
commission percentages that you may charge. Please refer to Item 4.a of
Form F-1
and Item 5.A of Form 20-F.
Qi Chen
Meili Inc.
August 29, 2018
Page 5
Results of Operations
Year ended March 31, 2018 compared to year ended March 31, 2017, page 79
18. We note the 12.3% decrease in revenues in the year ended March 31, 2018,
which
was due to a 35.6% decrease in marketing service revenues, partially
offset by
increases in commission revenues and other revenues. Please disclose
whether and to
what extent you expect these trends to be indicative of future operating
results. Refer
to Item 303(a)(3)(ii) of Regulation S-K and related Instructions.
19. Based on your disclosures in note 1(c) to the financial statements, we
note that
revenues of consolidated VIEs decreased significantly during the year
ended March
31, 2018 relative to the year ended March 31, 2017. Please tell us your
consideration
of explaining this change and similar to the preceding comment, whether
and to what
extent you expect this trend to be indicative of future operating
results.
Costs and expenses, page 80
20. Throughout your discussion of costs and expenses you often identify more
than one
factor underlying the changes in your results without quantifying the
impact of each
factor. Please quantify, to the extent practical, the impact of each
material factor
identified. Refer to Item 303(a)(3) of Regulation S-K and SEC Release
No. 34-48960.
Liquidity and Capital Resources, page 82
21. We note you disclose that 46% of your cash and cash equivalents were
held in China
and denominated in the Renminbi. Please expand your disclosure to
include material
amounts of cash and cash equivalents and short-term investments
disaggregated by
currency denomination in each jurisdiction in which your affiliated
entities are
domiciled.
Critical Accounting Policies, page 84
22. Given the significance of goodwill in your domestic business reporting
unit and the
qualitative considerations that the Group has suffered from accumulated
losses and
operating cash flow deficits, please tell us your consideration of
providing critical
accounting policy disclosure related to goodwill impairment testing with
the objective
of ensuring that investors are provided with information that allows for
an assessment
of the probability of a future material impairment charge. In
particular, it appears the
following disclosures might be warranted:
Qi Chen
Meili Inc.
August 29, 2018
Page 6
a. The percentage by which fair value exceeded carrying value as of
the date of
the most recent test;
b. The amount of goodwill allocated to the reporting unit;
c. A description of the methods and key assumptions used and how the
key
assumptions were determined;
d. A discussion of the degree of uncertainty associated with the key
assumptions.
The discussion regarding uncertainty should provide specifics to
the extent
possible (e.g., the valuation model assumes recovery from a
business
downturn within a defined period of time); and
e. A description of potential events and/or changes in circumstances
that could
reasonably be expected to negatively affect the key assumptions.
Business
How is Meili Different?
Unique content-driven approach to online shopping, page 96
23. You state here that the "combination of content with readily available
products is
highly effective in driving transactions." You also state on page 99
that "[y]our live
video broadcast function has . . . proven to be an effective means of
promoting
products to [y]our key user demographics," and that you "have
established a proven
approach to producing popular, original, short-form videos." You further
state on
page 100 that you have "a proven track record of launching simple and
fun social
features and other marketing campaigns that have developed into viral
internet
memes," and you characterize your professionally produced content as
"highly
popular" on page 102. Please revise to substantiate these claims or to
clarify that they
represent management's belief.
Our Online Platform, page 97
24. Please revise to quantify, if material, the degree to which "[a]n
increasing number of
[y]our users have been accessing [y]our mobile platform through Mini
Programs," as
you state on page 98.
Our Users
Fashion Influencers, page 98
25. We note your disclosure here that your fashion influencers directly earn
commissions
from your merchants and brand partners. We also note your discussion of
"cooperative agreements" with opinion leaders in this section, as well
as your earlier
Qi Chen
Meili Inc.
August 29, 2018
Page 7
reference to "cooperative relationships" with content creators in the
risk factor
disclosure on page 18. Please revise the disclosure in this section to
clarify whether
you also pay opinion leaders and content creators pursuant to your
cooperative
arrangements with them.
Integration with Social Network Platforms, page 100
26. You state here that your platform is "seamlessly integrated with the
functions of
major social network platforms in China in order to enable [y]our users
to make
purchases as part of their social activities." Please revise to quantify
here the
proportion of your buyer traffic that you source from social networks
generally and
from Weixin, specifically. Please provide similar disclosure in the risk
factor
discussing your use of social networks on page 20. Please also explain
in greater
detail the "mini-programs" within Weixin to which you refer throughout
the
prospectus and tell us whether the manner in which a buyer accesses your
platform
affects the way in which you derive revenues.
Intellectual Property, page 105
27. We note your disclosure here that you own one registered patent. Please
revise to
specify the nature and duration of this patent and to describe the
extent to which your
business depends on it, or confirm to us that the patent is not material
to your
business. Refer to Item 4.a of Form F-1 and Item 4.B.6 of Form 20-F.
Related Party Transactions
Business Cooperation Agreement and Transactions with Tencent, page 133
28. Please expand the disclosure here to specify the material terms of your
strategic
cooperation framework agreement with Tencent. Refer to Item 4.a of Form
F-1 and
Item 7.B. of Form 20-F. Please also revise your disclosure throughout
the prospectus,
including the prospectus summary, to more clearly disclose your
relationship with
Tencent and the extent to which you are dependent upon Tencent platforms
to
conduct your business, or tell us why you do not believe such disclosure
is required.
In this regard, we note that you derive user traffic from Weixin, Weixin
Pay, and QQ
Wallet, that you utilize Tencent's payment platform to settle
transactions on your
website, and that you rely on Tencent Cloud to store your data.
Qi Chen
Meili Inc.
August 29, 2018
Page 8
Limitations on Obligations and Liability to ADS Holders
Limits on our obligations and the obligations of the depositary; limits on
liability to ADR
holders and holders of ADSs, page 153
29. We note your disclosures on page 154 that each party to the deposit
agreement
"irrevocably waives, to the fullest extent permitted by applicable law,
any right it may
have to a trial by jury in any lawsuit or proceeding against the
depositary or [y]our
company related to [y]our shares, the ADSs or the deposit agreement,"
and on page
156 indicating that shareholders may be subject to arbitration on all
matters related to
the deposit agreement. Please revise to clarify whether these provisions
apply to
claims made under the federal securities laws.
Index to Consolidated Financial Statements
Notes to the Consolidated Financial Statements
2 Summary of Significant Accounting Policies
(gg) Segment reporting, page F-23
30. Please tell us your consideration of whether the terminated operations
of the cross-
border business reporting unit should be classified as discontinued
operations
pursuant to ASC 205-20.
(hh) Recent accounting pronouncements, page F-23
31. We note your disclosure that you will adopt the guidance in ASU 2016-01
in the year
ended March 31, 2021 and interim periods in the year ended March 31,
2022. We
would expect your adoption date, using the emerging growth company
accommodation, to be the same as the required adoption date for
non-public entities
and this does not appear to be the case. Please revise or otherwise
advise.
11 Investments, page F-33
Equity Method Investment, page F-34
32. Please tell us in more detail the basis in GAAP for the recognition of a
RMB158,627
gain on the contribution of an assembled workforce in exchange for the
equity
interest in JM Weshop. In determining the proper accounting, please tell
us how you
considered the substantial continuing involvement in the transferred
assets and that
the usual risks and rewards of ownership of the assets hadn't been fully
Qi Chen
Meili Inc.
August 29, 2018
Page 9
transferred. Tell us any alternative accounting guidance that was
considered along
with the reasons these alternatives were deemed not applicable. In
responding to the
comment, please be sure to address your consideration of deferring all
or part of the
gain. Please also provide support for your determination that the
assembled
workforce that was transferred constitutes a business.
17 Ordinary Shares
Class C Ordinary Shares, page F-43
33. We note your discussion here regarding Class C Ordinary Shares which
entitle their
beneficial owner to thirty votes for each Class C Ordinary Share. We
also note that
any ordinary shares beneficially owned by Chen Qi will be automatically
converted
into Class C Ordinary Shares on a 1:1 basis upon commencement of such
beneficial
ownership, and that any Class C Ordinary Shares shall be automatically
converted
into Class A Ordinary Shares once Mr. Qi ceases to beneficially own
those shares.
Please provide disclosure discussing the disparate voting power and
influence held by
Mr. Qi through his beneficial ownership of Class C Ordinary Shares and
their
automatic conversion terms in your prospectus summary and description of
share
capital, and also revise your prospectus cover page, selling shareholder
table and the
risk factor on page 47 regarding disparate voting rights, accordingly.
You may contact Scott Stringer, Staff Accountant, at (202) 551-3571 or
Robyn
Manuel, Staff Accountant, at (202) 551-3823 if you have questions regarding
comments on
the financial statements and related matters. Please contact Parhaum J. Hamidi,
Special
Counsel, at (202) 551-3421, Jennifer L pez, Staff Attorney, at 202-551-3792 or
me at (202)
551-3720 with any other questions.
Sincerely,
/s/ Jennifer L pez
for
Mara L. Ransom
Assistant Director
Office of Consumer
Products