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February 25, 2019
Sing Wang
Chief Executive Officer
CM Seven Star Acquisition Corporation
Suite 1306, 13/F, AIA Central, Connaught Road
Central, Hong Kong
Re: CM Seven Star Acquisition Corporation
Amendment No. 1 to
Preliminary Proxy Statement on Schedule 14A
Filed January 30, 2019
File No. 001-38261
Dear Mr. Wang:
We have reviewed your January 30, 2019 response to our comment letter and
your
amended proxy statement, and we 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 these comments within ten business days by providing
the requested
information or advise us as soon as possible when you will respond. If you do
not believe our
comments apply to your facts and circumstances, please tell us why in your
response.
After reviewing your response to these comments, we may have additional
comments. Unless we note otherwise, our references to prior comments are to
comments in our
December 19, 2018 letter.
Amendment No. 1 to Preliminary Proxy Statement on Schedule 14A
Kaixin Auto Group Summary Financial Information
Summary Operating Data, page 16
1. We note your response to comment 6 and the related revisions to your
disclosures. It
appears that the difference between GMV and Kaixin's revenue primarily
relates to cars
owned by Kaixin. Please tell us in more detail why GMV for the six months
ended
December 31, 2017 and June 30, 2018 significantly exceeds automobile
sales revenue for
the year ended December 31, 2017 and the six months ended June 30, 2018.
In doing so,
please clarify the extent to which this difference relates to value added
tax and the extent
to which this difference relates to other factors.
Sing Wang
FirstName LastNameSing Wang
CM Seven Star Acquisition Corporation
Comapany NameCM Seven Star Acquisition Corporation
February 25, 2019
February 25, 2019 Page 2
Page 2
FirstName LastName
Comparative Per Share Information, page 17
2. We note your response to comment 17 and the related revisions to your
filing. While you
have provided historical and pro forma per share data for CM Seven
Star, you do not
appear to have provided historical and equivalent pro forma per share
data for Kaixin.
Please tell us how your current disclosure complies with Item
14(b)(10) of Schedule 14A,
or revise.
The Business Combination Proposal
General Description of the Business Combination, page 75
3. We note your response to comments 10 and 13 and your statements that
these third parties
"did not provide an opinion, report or appraisal." We also note your
disclosure that the
board received "information" from its "financial advisors, as well as
other third-party
resources" and your response to comment 13 that you received a
"summary" of the
information provided by the two consulting firms. Please provide a
detailed analysis as to
why you believe that the support provided and the function served by
Early Bird Capital
and the third party firms did not constitute a report, opinion, or
appraisal under Item 1015
of Regulation M-A. In this regard, we note that synthesizing and
summarizing materials
compiled by other evaluators to assess industry data and the target's
financial results
necessarily involves value judgments and determinations regarding the
materiality and
placement of information materially related to the transaction. Your
analysis should also
specifically address the nature of the "information" and "summaries"
provided, and
provide additional detail regarding the role of the financial advisors
and third party
professional firms in preparing the materials referenced in your
response and disclosure.
As a related matter, at your first reference of EarlyBirdCapital,
please amend your
disclosure to include the substance of your response to comment 10
with regards to your
business relationship.
CM Seven Star's Board's Reasons for the Approval of the Business Combination,
page 79
4. We note your response to comment 15 and your amended disclosure. While
you have
provided disclosure regarding management's determination that the
merger consideration
is fair, we cannot find disclosure explaining how you arrived at the
amount of
consideration and additional shares in the merger consideration. In
this regard, we note
your revised disclosure that "Kaixin's ratio is slightly higher than
that of Uxin, but much
lower than the ratios of CarMax and Carvana" and that Uxin's stock
price represented a
discount from its IPO price at the end of June 2018. However, based on
your revised
disclosure, it is unclear how you considered these ratios and the Uxin
stock price in
determining your merger consideration. Please amend your filing to
clearly explain how
you arrived at the transaction consideration, including the 33 million
shares at a deemed
price of $10 per share.
Sing Wang
FirstName LastNameSing Wang
CM Seven Star Acquisition Corporation
Comapany NameCM Seven Star Acquisition Corporation
February 25, 2019
February 25, 2019 Page 3
Page 3
FirstName LastName
As a related matter, please also revise your filing where you first
disclose the per share
exchange ratio and provide a reference to the page number and/or
section of your proxy
statement that discloses how you determined the number of shares to be
issued as
consideration.
Unaudited Pro Forma Condensed Combined Financial Information, page 132
5. You state under the heading "Certain Developments" on page 11 that
Kaixin recently
borrowed US$20 million under a convertible loan, and upon completion
of the business
combination, this convertible loan will be converted into units of CM
Seven Star. Please
include this transaction in your pro forma balance sheet and earnings
per share, or tell us
why inclusion is not consistent with Article 11 of Regulation S-X.
6. We note from disclosures elsewhere in your filing that in connection
with the Ji'nan
Dealership investigation, Kaixin expects to write off all or a portion
of the inventory and
advances to suppliers of this dealership, which totaled US$6.4 million
and US$16.8
million respectively as of June 30, 2018. Please tell us in reasonable
detail how you will
determine the amount of any impairments and the timing of such
impairments. To the
extent that these assets were not fully impaired as of December 31,
2018, please explain to
us in detail why. Also, tell us how you have reflected impairment of
these assets in your
pro forma financial statements, or tell us why you do not believe
reflecting such
impairment is consistent with Article 11 of Regulation S-X.
Kaixin Auto Group Financial Statements for the Years Ended December 31, 2015,
2016 and
2017
Note 2. Summary of Significant Accounting Policies
Revenue recognition, page F-23
7. We have read your response to comment 31 and have the following
comments:
We note Kaixin entered into the ancillary agreements in 2018.
Please confirm our
assumption and disclose to your investors, if true, that
automobile sales revenue for
2018 was primarily generated from transactions under these
ancillary agreements and
that you expect future automobiles sales revenue to be primarily
generated from
transactions under these ancillary agreements. If our assumption
is not correct, please
explain this matter to us in more detail.
Your response indicates that the ancillary agreements were entered
into for tax
efficiency purposes. We note you similarly disclose on page 163
that the agreements
are designed for tax optimization purposes. Please tell us how
placing the legal title
and automobile registration in the names of Jieying Executives and
Dealership
employees results in tax efficiency. In doing so, please briefly
describe to us the
relevant PRC tax laws and regulations. Also, tell us how the tax
efficiency resulting
Sing Wang
FirstName LastNameSing Wang
CM Seven Star Acquisition Corporation
Comapany NameCM Seven Star Acquisition Corporation
February 25, 2019
February 25, 2019 Page 4
Page 4
FirstName LastName
from these agreements is reflected in the rate reconciliation
within Kaixin's income tax
footnote.
Please describe to us a representative set of transactions under
the ancillary
agreements, including the journal entries that Kaixin records. If
you record a
receivable from the Jieying Executive, please tell us the basis in
GAAP for recording
this asset given your description of this loan as non-substantive.
Specifically, your
response appears to indicate that the Jieying Executive does not
control how the funds
loaned to him are spent, has no substantive risk related to the
loan, and has no
substantive control over the vehicle asset acquired with the loan.
If our understanding
of the substance of these loans is incorrect, please explain this
matter to us in more
detail. Additionally, please tell us any other GAAP literature you
considered when
concluding it is appropriate to record the vehicle purchased in
the Jieying Executive's
name as your inventory. These transactions do not appear to be
within the scope of
ASC 470-40 given that Kaixin is not receiving financing to fund
its purchase of
vehicles and instead is providing financing to the Jieying
Executive. As part of your
response, please confirm our assumption, if true, that these
agreements give Kaixin the
ability to direct the legal title and registration of the vehicle
to be transferred from the
Jieying Executive and Dealership employee to other individuals or
into one of its legal
entity's names.
Your disclosures on pages 163-164 indicate that Shanghai Jieying
"provides loans to
the relevant Jieying Executive" and "[f]unds for the purchase are
available to the
Jieying Executive." However, your response appears to indicate
that the loans are
non-substantive as the Jieying Executive has no substantive risks
related to the loan
and no substantive control over the vehicle asset acquired with
the loan. Please revise
your disclosures throughout your filing as necessary to more
clearly convey the
substance of these ancillary agreements to your investors. For
example, you may wish
to disclose information similar to that contained in the first
paragraph on page 16 of
your response.
We note that under your Affiliated Network Dealer model, the legal
title and
automobile registration are placed in the names of Jieying
Executives and Dealership
employees, similar to the process under the ancillary agreements.
Your response
indicates this is done mainly for tax efficiency purposes. Given
that you do not record
these vehicles as inventory, please tell us in more detail how
placing the legal title and
automobile registration in the names of Jieying Executives and
Dealership employees
creates tax efficiency for you.
Sing Wang
CM Seven Star Acquisition Corporation
February 25, 2019
Page 5
You may contact Robert Babula, Staff Accountant, at 202-551-3339 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
Katherine
Bagley, Staff Attorney, at 202-551-2545 or Jennifer L pez-Molina, Staff
Attorney, at 202-551-
3792 with any other questions.
Sincerely,
FirstName LastNameSing Wang
Division of
Corporation Finance
Comapany NameCM Seven Star Acquisition Corporation
Office of Consumer
Products
February 25, 2019 Page 5
cc: Giovanni Caruso
FirstName LastName