November 16, 2018
Min Feng
Founder and Chairman
Ruhnn Holding Limited
4F, Building 1, Blue Collar Garment Industrial Park
7-1 North Hong Pu Road
Yu Hang District, Hangzhou 311100
People's Republic of China
Re: Ruhnn Holding Limited
Draft Registration Statement on Form F-1
Submitted on October 19, 2018
CIK No. 0001753268
Dear Mr. Feng:
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.
Draft Registration Statement on Form S-1, submitted October 19, 2018
Prospectus Summary
Overview, page 1
1. Please revise your overview to more clearly describe your business, what
a key opinion
leader, or KOL, is and how KOLs are part of your business model. In
doing so, please
provide disclosure similar to the second paragraph in Note 1 to the
financial statements of
Hanyi E-Commerce. Please also disclose, if true, that each KOL you
contract with has
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 2
Page 2
FirstName LastName
their own following on social media accounts that you manage, their
own online store that
you own and operate, and their own self-branded products that you
design and produce.
Please also disclose, if true, that consumers are generally unaware of
the KOL's affiliation
with you. Please make similar revisions to the "Business Overview"
section of your
filing beginning on page 94.
2. We note the discussion of your two revenue streams at the top of page
2. Please revise
your disclosure here or on page 1 to briefly describe each of the
full-service and platform
models. In doing so, please disclose that under the full-service model
you own and
operate online stores through which you sell your self-designed
products promoted by
KOLs. Please also disclose that under the platform model the KOLs
promote products
sold on third-party websites and you sell advertisements on the KOLs'
social media spaces
to third-party merchants. Please make similar revisions to the
"Business Overview"
section of your filing beginning on page 94.
3. We note your statement that you are the largest internet key opinion
leader facilitator in
China as measured by revenue, according to a Frost & Sullivan report.
We also note that
you make several references to the Frost & Sullivan report throughout
your draft
registration statement. Please supplementally provide us with a copy
of this
report.
Our History and Corporate Structure, page 5
4. Please also disclose in this section the fact that the shareholders of
your VIE may have
interests that conflict with you, as you state on page 34.
Conventions That Apply to This Prospectus, page 8
5. Please revise your definition of GMV to state whether it includes
shipping charges or the
merchandise value of items that are returned. For merchandise sold on
third-party online
stores to which you provide KOL sales services, please revise your
definition of GMV to
clarify if it includes the GMV of all products sold on that store or
only the products for
which you provided KOL sales services.
Summary Operating Data, page 14
6. Please refer to the table at the bottom of page 14 disclosing the
number of KOLs serving
each of your full-service and platform models. Footnote (1) to this
table states that certain
KOLs under your full-service model overlap with those under your
platform model, which
appears to explain why the sum of the number of KOLs serving each
model is greater than
the total number of KOLs for fiscal year 2018. However, this footnote
does not explain
why the sum of the number of KOLs serving each model is less than the
total number of
KOLs for fiscal year 2017. In order to improve your investors'
understanding of your key
operating data, please revise footnote (1) to also explain this matter
to your investors.
Please make similar revisions to your Selected Operating Data on page
69.
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 3
Page 3
FirstName LastName
Risk Factors
Risks Related to Our Business and Industry
A substantial portion of our GMV and revenue is generated from online
stores..., page 16
7. We note that a substantial portion of your GMV and revenues for the
fiscal years ended
2017 and 2018 were generated by your top-tier KOLs, particularly
online stores opened in
the name of Zhang Dayi. Please briefly disclose this fact in your
prospectus summary.
Capitalization, page 55
8. We note your discussion in other parts of your document regarding the
Equity
Restructuring that took place on October 4, 2018, such as on page 61.
Please tell us
whether and how you intend to show the impact of these transactions on
your
capitalization table. Also tell us whether and how your calculation of
net tangible book
value per share before this offering, seen on page 56, will reflect
the impact of the Equity
Restructuring. To assist us in understanding your response, please
confirm our
understanding, if true, that Ruhnn Holding issued shares in exchange
for the subscription
receivable, rather than promising to issue shares once the
subscription is paid, and that
investors will not pay the subscription receivable until some point
after the IPO. Also tell
us whether investors can cancel the subscription receivable, whether
the subscription
receivable has a stated maturity date, whether investors are legally
required to pay the
subscription receivable if they have not yet received the return of
their original investment
from Hangzhou Ruhnn, and how Ruhnn Holding accounted for this
partially paid share
issuance and subscription receivable.
Selected Operating Data, page 69
9. Please disclose in a footnote to the table presented in this section
that the "number of fans"
presented may include a single fan included multiple times if the fan
follows more than
one KOL, follows the same KOL across multiple platforms, or both.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Factors Affecting Our Results of Operations
Macroeconomic factors and regulatory environment and our ability to maintain
our leading
position in the industry, page 71
10. Please provide a basis for your statement that you are a reputable
industry leader or state
that it is management's belief, if true.
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 4
Page 4
FirstName LastName
Critical Accounting Policies
Revenue Recognition, page 76
11. You indicate that you sometimes recognize revenue on a gross basis and
you sometimes
recognize revenue on a net basis for product sales through the
full-service model. Please
tell us in more detail the circumstances under which you recognize
revenue from product
sales on a gross basis and the circumstances under which you recognize
this revenue on a
net basis. Also tell us what percentage of your product sales result
in gross revenue
recognition and what percentage result in net revenue recognition. If
the vast majority of
product sales revenue is recognized on a gross basis, please revise
your disclosure to
clarify this for your investors both here and in your revenue
recognition accounting policy
on page F-16.
12. Your discussion of revenue recognition under your full-service model
at the top of page
77 states that your shipping costs are presented as part of your cost
of revenues. However,
your description of cost of revenues under your full-service model at
the top of page 74
states that shipping and handling expenses are not included in cost of
revenues and your
description of fulfillment expenses on page 74 states that shipping
costs are included in
fulfillment expenses. You make similar contradictory disclosures in
the footnotes to your
audited financial statements when describing your revenue recognition,
cost of revenues
and fulfillment expense accounting policies. Please tell us which line
item on your
statement of comprehensive loss includes shipping costs and revise as
needed throughout
your filing to consistently disclose this.
13. We note your revenue recognition policy regarding services through the
platform model.
Please revise your accounting policy to more clearly explain how sales
and advertising
services differ, similar to your disclosure in the last bullet point
on page 101 or the first
paragraph on page 104. To better explain to your investors how you
generate revenue
from these services, please also disclose that for KOL sales services
you receive a service
fee based on GMV sold in the third-party online store and for KOL
advertising services
you receive a fixed and pre-determined service fee. Please make
similar revisions to your
revenue recognition accounting policy for services on page F-17.
Results of Operations, page 79
14. Please revise your analysis of changes in net revenues from product
sales to provide your
investors with a better understanding of why your net revenues
increased. In doing so,
please quantify or otherwise clearly indicate the relative
contribution of each of the
increase in the number of online stores, the increase in the number of
orders you fulfilled
and the increase in the GMV sold per KOL to the increase in your
product sales revenue.
Please also disclose the increase in orders fulfilled attributable to
the increase in stores and
if you can attribute increases in net revenues to an individual KOL, a
group of KOLs, or
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 5
Page 5
FirstName LastName
a tier of KOLs, please state as much and quantify the increase.
Additionally, please
provide your investors with greater insight into management's view of
the underlying
drivers behind the significant increase in the number of orders you
fulfilled and the
significant increase in the GMV sold per KOL. For example, it appears
from your key
operating data that the increase in the GMV sold per KOL may be
largely attributable to
your top-tier KOLs. If this is true, please clearly disclose this and
provide management's
insight into the trends and uncertainties that underlie the increase
in GMV sold by your
top-tier KOLs. We remind you that one of the principal objectives of
MD&A is to
provide information about the quality and potential variability of a
company's earnings
and cash flow so that readers can ascertain the likelihood that past
performance is
indicative of future performance.
Business
Overview, page 94
15. We note that you have an aggregate of 115.1 million fans across major
social media
platforms in China and your risk factor on page 20 which states that
you rely on a limited
number of online social media platforms and e-commerce platforms to
conduct your
business. To the extent a material number of fans are attributable to
a particular social
media platform or platforms, please identify the social media
platform(s) and the number
of fans attributed to the platform(s). Please also revise your risk
factor on page 20, as
applicable.
16. Please disclose how you determined that "interactions between [y]our
KOLs and their
fans significantly increased the likelihood of their fans placing
orders" with you. We note
that this statement also appears on pages 1 and 98.
17. Please disclose how you define "repeat purchase." In this regard, we
note that 38% of
customers of your online stores made repeat purchases.
18. Please disclose the basis for your statement that your KOLs' fans are
"loyal customers and
have strong emotional bonding with [y]our KOL brands" or state that it
is management's
belief, if true.
Strengths
Highly engaged and loyal fan base, page 98
19. We note that your top-tier KOLs' posts over the last 12 months on
Weibo resulted in over
11 million interactions with fans. Please clarify whether you are
referring to "social
interactions," which you define on page 88.
Strong strategic shareholders and visionary management team, page 99
20. We note that you benefit from your relationships with strategic
shareholders. Please
expand your disclosure to disclose the strategic shareholders you are
referencing and
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 6
Page 6
FirstName LastName
to briefly describe how you work with such shareholders to align your
interests.
Expand and diversify our KOL pool, enlarge their fan base and improve fan
engagement, page
100
21. Please revise your disclosure to define "hit rate."
Our Business Models
Full-Service Model, page 102
22. Please briefly describe the way in which your cooperation and
employment agreements
differ, and briefly describe the material terms of these agreements.
In doing so, please
disclose the number of KOLs party to cooperation and employment
agreements
respectively. Moreover, please clarify whether KOLs are entitled to
service fees, or an
equivalent, under an employment agreement and whether the terms or
service fees vary
materially between a cooperation agreement and an employment
agreement.
23. For each tier of your existing KOLs, please disclose an average or
range of the percentage
of service fees to which your KOLs are entitled. In this regard, we
note that service fees
constitute approximately 20% of your costs of revenues.
24. We note your disclosure that your KOLs agree to use their images and
social networks
accounts solely for the promotion and sale of products designed by
you. We also note that
some of your KOLs also serve as KOLs under the platform model and
promote third-party
branded products. Please briefly describe the risk, if any, that KOLs
serving as platform
KOLs will be less efficient brand ambassadors for the sale of products
designed by you.
Our KOLs, page 104
25. Please revise your disclosure regarding the cooperation agreements you
enter into with
your KOLs to state whether your KOLs can terminate the agreement prior
to the end of
the contractual term or whether your KOLs can decline any automatic
renewal at the end
of the initial contract term.
Case Studies
Full-Service Model, page 105
26. We note that ZHANG Dayi was recognized as the "celebrity with the most
commercial
value." Please disclose the source of this recognition.
Our Customers, page 109
27. Please provide a basis for your statements regarding your competitive
position within your
industry appearing throughout this section or state they are based on
management's belief,
if true. For example, we note your statements that your founders were
among the earliest
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 7
Page 7
FirstName LastName
entrepreneurs in China to identify and capture the commercial
opportunities created by the
emergence of KOLs in China, that you were one of the first in China to
systematically
facilitate the KOL economy, and that you pioneered a new business
model for the
commercialization of the KOL ecosystem. Please refer to Item 4.B.7 of
Form 20-F.
28. We note your disclosure that your order cancellation rate is
approximately 23.3%. Please
briefly describe your order cancellation policies, including the time
frame in which orders
may be cancelled.
Description of American Depositary Shares
American Depositary Shares, page 147
29. We note that your deposit agreement identifies state and federal
courts in New York as the
exclusive forums for proceedings arising out of or based on the
deposit agreement. Please
add a risk factor discussing the risks of this provision for your ADR
holders.
Limitations on Obligations and Liability to ADR Holders
Limits on our obligations and the obligations of the depositary; limits on
liability to ADR holders
and holders of ADSs, page 155
30. We note 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 suit, action or
proceeding against the depositary and/or [you] directly or indirectly
arising out of or
relating to the ordinary shares or other deposited securities, the
ADSs or the ADRs, the
deposit agreement or any transaction contemplated therein," and, your
disclosure on page
159, indicated that shareholders may be subject to arbitration on all
matters related to the
deposit agreement or any transactions contemplated thereby. Please
revise to clarify
whether these provisions apply to claims made under the federal
securities laws.
Consolidated Financial Statements of Hangzhou Hanyi E-Commerce Co. Ltd.
Notes to the Consolidated Financial Statements
1. Organization and Principal Activities
History of the Group and Equity Restructuring, page F-11
31. We note your disclosure in step 3 that the equity restructuring
contemplates that Hanyi E-
Commerce will repay in installments the amounts due to Hangzhou Ruhnn,
Hangzhou
Ruhnn will use these funds to return its capital to the investors and
the investors will
consequently pay the subscription price of shares to Ruhnn Holding.
Please tell us the
sources of the funds that Hanyi E-Commerce will use to repay the
amounts due to
Hangzhou Ruhnn and disclose this matter to your investors in
appropriate locations in
your filing such as your analysis of Liquidity and Capital Resources
beginning on page
81.
3. Business Combination, page F-21
Min Feng
FirstName LastNameMin Feng
Ruhnn Holding Limited
Comapany 16, 2018
November NameRuhnn Holding Limited
November 16, 2018 Page 8
Page 8
FirstName LastName
32. Please tell us more about Weimai's business and its relationship to
some or all of the
accounts on WeChat to assist us in understanding why you recorded
WeChat accounts as
your acquired intangible asset.
11. Income Tax, page F-25
33. We note you recorded income tax expense for each of fiscal 2017 and
2018. Please tell us
how you have complied with the disclosure requirements of ASC
740-10-50-9(a) and (b).
12. Non-controlling Interest, page F-26
34. Please refer to the changes in your non-controlling interest that
occurred in fiscal 2018 as
depicted in this footnote, in your Consolidated Statements of
Shareholders' Deficit, and in
your Consolidated Statements of Cash Flows. This footnote describes
these changes as
your acquisition of additional common shares of your subsidiaries
Yitong and Hanli from
unrelated third parties, and the Consolidated Statements of Cash Flows
indicates that the
consideration you paid to acquire these subsidiary shares was cash in
the amount of RMB
1,343,500. Please tell us more about your accounting for these
transactions including how
these transactions resulted in an increase to your non-controlling
interest account of RMB
1,769,600 as seen on your Consolidated Statements of Shareholders'
Deficit.
14. Commitments and Contingencies, page F-28
35. We note the disclosures on page 110 regarding the framework agreements
you enter with
fabric suppliers, wholesale clothing providers and manufacturers. To
assist us in
understanding why these agreements are not disclosed in your footnote,
please tell us in
more detail the terms of these agreements and clarify whether these
contracts obligate you
to make any minimum level of purchases of goods from your suppliers.
15. Segment Information, page F-28
36. We note that other places in your prospectus disclose that products
sold in your online
stores mainly include women's apparel, cosmetics, shoes and handbags,
such as on page
102 in your Business section. Please tell us how you considered
providing revenue from
external customers for each product or service or each group of
similar products or
services. Refer to ASC 280-10-50-40.
17. Subsequent Events, page F-29
37. We note that your subsidiary Dayi declared a dividend of RMB 30
million, half of which
will be distributed to Ms. Zhang. Please tell us when this dividend
will be paid and the
sources of the funds that Dayi will use to pay this dividend, and
disclose this matter to
your investors in appropriate locations in your filing, such as your
analysis of Liquidity
and Capital Resources beginning on page 81.
Min Feng
Ruhnn Holding Limited
November 16, 2018
Page 9
General
38. 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.
You may contact Lisa Sellars, Staff Accountant, at (202) 551-3348 or
Jennifer
Thompson, Accounting Branch Chief at (202) 551-3737 if you have questions
regarding
comments on the financial statements and related matters. Please contact Danilo
Castelli, Staff
Attorney, at (202) 551-6521 or Lisa Kohl, Legal Branch Chief, at (202) 551-3252
with any other
questions.
Sincerely,
FirstName LastNameMin Feng
Division of
Corporation Finance
Comapany NameRuhnn Holding Limited
Office of Consumer
Products
November 16, 2018 Page 9
cc: Chris Lin
FirstName LastName