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July 23, 2018
Xiaoping Chen
Chairman and Chief Executive Officer
Viomi Technology Co., Ltd
Wansheng Square, Rm 1302 Tower C
Xingang East Road, Haizhu District
Guangzhou, Guangdong, 510220
People's Republic of China
Re: Viomi Technology Co., Ltd
Draft Registration Statement on Form S-1
Submitted June 26, 2018
CIK No. 0001742770
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.
Draft Registration Statement on Form S-1, submitted on June 26, 2018
Prospectus Summary, page 1
1. We note your use of "IoT" and "IoT-enabled" throughout your prospectus
to describe your
products, markets and financial results. We also note your disclosure on
page 1 that IoT
products are IoT-enabled smart home products and your statement on page
5 that
references to "IoT-enabled" are to Internet-of-things-enabled. Please
clarify how you
define Internet-of-things (IoT), and thus "IoT-enabled." Clarify whether
these definitions
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Viomi Technology Co., Ltd
Comapany NameViomi Technology Co., Ltd
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apply across all contexts in which you use them.
2. We also note your references to "household users" and "IoT products
shipped" throughout
the prospectus. Please provide disclosure that explains how you define
and calculate these
metrics. Also explain how these metrics are meaningful for
understanding your business
or financial results.
3. Please balance your disclosure to explain that you have only recently
expanded into
selling IoT products and your own branded products.
4. To provide further context regarding your relationship with Xiaomi,
please disclose the
extent of Xiaomi's ownership in you. Also disclose that you generated
84.7% and 95.9%
of net revenues in 2017 and 2016 from Xiaomi and its affiliates
primarily for the sales of
Xiaomi-branded products. Disclose that these products consisted of
water purification
systems, water purifier filters, and other complimentary products such
as kettles and water
quality meters. Disclose the extent to which these products were
IoT-enabled as you
define this term.
Corporate History and Structure, page 4
5. Please disclose why you do not directly own your operations in China,
but use contractual
arrangements with VIEs instead. Disclose that, if your PRC VIEs and
their
shareholders fail to perform their obligations under the contractual
arrangements, you
could be limited in your ability to enforce the contractual
arrangements that give you
effective control. Further, if you are unable to maintain effective
control, you would not
be able to continue to consolidate the VIEs' financial results with
your financial results.
Disclose the percentage of revenues in your consolidated financial
statements that are
derived from your VIEs. Disclose that you rely on dividends and other
distributions paid
to you by PRC subsidiary, which in turn depends on the service fees
paid to your PRC
subsidiary. Disclose the amount of dividends and fees that you expect
to collect. Disclose
that this does not mean that you are able to have unfettered access to
your PRC
subsidiary's and VIEs' revenues due to PRC legal restrictions on the
payment of
dividends by PRC companies, foreign exchange control restrictions, and
the restrictions
on foreign investment, among others.
6. Please revise your corporate structure chart to indicate the structure
upon the completion
of your initial public offering. Include the percentage ownership in
the registrant by
public shareholders and material beneficial owners. Also disclose in
the chart the names
of the individuals who have direct ownership and control over the
operating entities in
China.
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Viomi Technology Co., Ltd
Comapany NameViomi Technology Co., Ltd
July 23, 2018
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Risk Factors
Xiaomi is our strategic partner and our most important customer., page 12
7. Please revise your final paragraph of this risk factor to clarify that
Xiaomi is now a public
company by virtue of its recent Hong Kong listing. Revise, as
appropriate, to address that
Xiaomi would consider in addition to the interests you have already
included, those of its
public shareholders. Please revise to clarify briefly any process in
place to address
apparent conflicts of interests.
8. Please revise here, or under a separate risk factor heading, to
discuss the Business
Cooperation Agreement with Xiaomi, specifically addressing its
expiration in August,
2018, subject to automatic renewal. Please address that the agreement
may be terminated
by Xiaomi with 30 days written notice prior to the expiration of the
then-current term.
Please also discuss whether the Youpin Commission Sales Agreement
discussed at page
142 may be extended beyond its December 31, 2018 expiration date.
Uncertainties with respect to the PRC legal system and changes in laws and
regulations in China
could adversely affect us., page 31
9. Please clarify why the draft Foreign Investment Law may materially
impact the viability
of your current corporate structure, corporate governance and business
operations if it is
enacted.
We face certain risks relating to the real properties that we lease., page 38
10. Please revise to specify how many ownership certificates or other
proof of leased
properties have not been provided to the company by the relevant
lessors.
We will incur increased costs as a result of being a public company., page 47
11. To the extent determinable, please provide an estimate of the
increased costs you expect to
incur by virtue of being a public company.
Use of Proceeds, page 51
12. We note that you intend to use the net offering proceeds for purposes
that relate to your
operations conducted in the PRC. We also note that you are only
permitted under PRC
laws and regulations to provide funding to your PRC subsidiary through
loans and capital
contributions and to your VIEs through loans, subject to applicable
government
registration and approval requirements. To provide context, please
quantify how much of
your net offering proceeds would likely be available for investment in
your PRC
operations. For example, quantify the current statutory limits on your
ability to loan or
make capital contributions to your PRC subsidiary and to make loans to
your VIEs. Also
disclose, if true, that you expect the IPO proceeds to be used in
China in the form of RMB
and, therefore, your PRC subsidiary, VIEs and their subsidiaries will
need to convert any
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Viomi Technology Co., Ltd
Comapany NameViomi Technology Co., Ltd
July 23, 2018
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capital contributions or loans from U.S. dollars to RMB. Lastly,
discuss how long it would
take and how likely it would be that you would receive the necessary
approvals to use the
proceeds for the intended purposes.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources, page 77
13. Please disclose the amount of restricted assets of your PRC
subsidiaries as well as the
unrestricted portion, or amounts otherwise available for transfer in
the form of dividends,
loans or advances as of December 31, 2016 and 2017. We refer you to
Section IV of SEC
Release 33-8350.
Holding Company Structure, page 80
14. To provide context to this discussion, please disclose the percentage
of revenues in your
consolidated financial statements that are derived from your Hong Kong
subsidiary, PRC
subsidiary and your VIEs. Disclose that you rely on dividends and
other distributions paid
to you by your PRC subsidiary, which in turn depends on the service
fees paid to your
PRC subsidiary by your VIEs in China. Disclose the amount of fees paid
to your PRC
subsidiary from your VIEs in the last two fiscal years. Disclose
whether you expect these
levels to continue in the future.
Business, page 94
15. Please disclose which products use your Home OS platform.
Omnichannel F2C New Retail Platform, page 110
16. You disclose that, as of March 31, 2018, you have established a
network of over 700
Viomi offline experience store, "including those in operation or under
renovation." Please
disclose how many are in operation. Also clarify whether Viomi offline
experience stores
are stand-alone stores or areas within other stores.
Intellectual Property, page 114
17. Please revise to indicate the expiration dates of your patents, both
within and outside
China. Given the number of patents the company holds, we would not
object to your
indicating this data by disclosing the number of patents that expire
each year over the
several year time period needed to cover them.
Regulations, page 120
18. Please revise this section to specifically state how the regulations
discussed apply to the
company and its affiliated entities and the extent to which the
company and its affiliated
entities are in compliance with each regulation. As just a few
examples:
Xiaoping Chen
FirstName LastNameXiaoping Chen
Viomi Technology Co., Ltd
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Disclose whether you have obtained the required permits and
licenses for value-added
telecommunications services and which entity or entities hold the
permits and licences.
Disclose whether your operations in China are in encouraged,
restricted or prohibited
industries.
Discuss how you verify that the manufacturing contractors you
employ have the
necessary industrial product production licenses.
Experts, page 187
19. We note on page 85 that your estimated fair value of the ordinary
shares was determined
with the assistance of an independent valuation firm. While you are
not required to make
reference to this independent third-party, when you do you should also
disclose the name
of the expert and include a consent of the expert. Please revise
accordingly and advise us.
Report of Independent Registered Public Accounting Firm, page F-2
20. Please have your registered public accounting firm revise their report
to indicate that the
firm conducted its audits in accordance with the ``standards of the
Public Company
Accounting Oversight Board (United States). The reference in the
report to the
``auditing standards of the Public Company Accounting Oversight
Board and "in
accordance with auditing standards generally accepted in the United
States of America" is
not consistent with the requirements of PCAOB AS 3101.
Consolidated Statements of Comprehensive (Loss) Income, page F-5
21. Please present cost of revenue to related party and third party
separately in your financial
statements. Refer to Rule 5-03.2 of Regulation S-X.
Note 1. Organization and Principal Activities
(b) VIE Arrangements between the VIEs and the Company's PRC subsidiary, page
F-9
22. Please describe in greater detail how the right to provide technical
and business support
services in the exclusive consultation and service agreements conveys
the economic
benefits to the Company. For example, explain whether the agreements
provide that
the VIEs pay annual service fees to the WOFE in an amount that is
equivalent to all of
their net income.
23. We note your disclosure of the contractual agreements that provide the
Company with
effective control over the VIEs, presumably enabling the Company to
have power to
direct the activities that most significantly affect the economic
performance of the VIEs.
Please clarify how the contractual agreements convey power to direct
the activities of the
VIEs and what those powers entail.
Xiaoping Chen
Viomi Technology Co., Ltd
July 23, 2018
Page 6
Note 2. Significant Accounting Policies
(l) Revenue recognition, page F-17
24. We note your hardware products are "IoT-enabled" and include a "Home
Operating
System." Please tell us if your contracts with customers include an
obligation to provide
updates to the software embedded in your hardware products. If so,
please describe for us
the terms associated with your obligation to provide updates and tell
us how you
considered the impact of this obligation on your allocation of
transaction price and timing
of revenue recognition.
(y) Segment reporting, page F-26
25. We note you apparently operate in one segment. In light of your gross
profit and gross
profit margin table by "business line" on pages 10, 66 and 72 and your
related
explanations, please tell us in detail how you considered the guidance
in ASC 280 and
specifically, whether these businesses or product lines are operating
segments.
Note 15. Related Party Transactions, page F-46
26. Please disclose the nature of your relationship with Xiaomi and
summarize significant
terms of the contractual arrangements and transactions including
remaining contractual
duration, as described on pages 141-143. Refer to ASC 850-10-50-1.
General
27. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 of the Securities Act, that you, or anyone authorized to do
so on your behalf,
presents to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
28. We note that you cite to an industry report you commissioned in
connection with your
filings, the "iResearch Report." Please provide us with a marked copy
of this report,
clearly cross-referencing a statement in your prospectus with the
underlying factual
support.
You may contact Joseph Cascarano, Staff Accountant, at 202-551-3376 or
Robert
Littlepage, Accountant Branch Chief, at 202-551-3361 if you have questions
regarding
comments on the financial statements and related matters. Please contact Paul
Fischer, Staff
Attorney, at 202-551-3415 or Kathleen Krebs, Special Counsel, 202-551-3350 with
any other
questions.
FirstName LastNameXiaoping Chen
Comapany NameViomi Technology Co., Ltd
Division of
Corporation Finance
July 23, 2018 Page 6 Office of
Telecommunications
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