SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
December 14, 1998
RE: YKD International Corporation ("Company")
File No. 24-4010-HQ
Dear Mr. Sloan:
Receipt is acknowledged of the Offering Statement on Form 1-A filed by the above-referenced Company with the Commission November 13, 1998.
The information in the document appears to be materially deficient in many respects, some of which are enumerated below in general terms. Therefore, detailed comments cannot be made until such time as the filing is amended. Meanwhile, consideration should be given to withdrawing the filing. In the event the offering is refiled, it should be responsive to the comments in this letter and only after careful revision by the Company.
Please revise to disclose the time frame in which this offering will be offered and if such offering maybe extended.
This is a Min/Max offering however there does not appear to be an escrow arrangement and or escrow agent. This issue should be noted as a risk factor section. Your attention is direction to Rule 15c(2) (4). If applicable a copy of the escrow agreement should be filed as an exhibit.
Jurisdiction of offering
With respect to utilizing the Internet or other electronic delivery means, your attention is directed to Commission Release No. 33-7233 (October 6, 1995). In the context of Regulation A, only written materials that are authorized for use after filing and prior to qualification of the exemption are the "tombstone ad" ( Rule 251(d)(1)(ii)(C) ) and the preliminary offering circular (Rule 255). After qualification, other written offers may be made but must be preceded by or accompanied with a final offering circular ((Rule 251(d)(1)(iii)). Such other material, such as might be used on a web page, would probably constitute additional sales material subject to Rule 256, and should be consistent with the disclosure in the offering circular.
Please advise if the Company intends to contact additional potential investors by direct e-mail solicitation. Supplementally, please advise whether or not the e-mail invitation will comply with Rule 134 under the Securities Act. If not, please explain the basis for this procedure under Release No. 33-7233.
Reference is made to the discussion in Release No. 33-7233 under "Use of Electronic Media-Guidance Regarding Electronic Delivery" and example 5 in the release regarding revocation of consents and the effects thereof on continued electronic delivery. Please discuss the effects if a subscriber revokes his/her consent during the offering or if a shareholder, following the issuance of shares, revokes his/her consent.
With respect to the electronic marketplace service, the Company should be aware that any direct or indirect securities activities that the Company may engage in may subject it to appropriate registration and other federal and state securities law considerations. Please advise us, supplementally, of the Company's intentions in this regard.
Plan of Distribution
Please identify by name and relationship to the Company each person who will offer and sell the shares on behalf of the Company. Such information should be presented on the cover page.
Please advise, if the persons offering the securities on behalf of the Company will rely on the safe harbor from brokerdealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934. Supplementally, please set forth the basis of their qualification with respect to each element of the safe harbor.
Limited State Registration
Please disclose in a bold-face legend a caption "Limited State Registration" and disclose hereon the states in which the Company's securities will be registered (or qualified) and indicate that purchasers in this offering and in any subsequent trading market must be residents of such states.
A risk factor should be added to detail the efforts the Company will undertake to insure that any state laws are not violated through the further sale of its securities. The states where investors may not be able to resell their securities should be disclosed in the risk factor so that investors are informed of such restrictions at the time of their investments decision.
Risk Involving the Legality of the Company's Operations
According to the filing the Company intends to provide a mechanism to enable the award of cash prizes as well as wagers on the game of Go on the Internet and the World Wide Web. The disclosure that follows with respect to wagering and "gambling in some jurisdictions and not in others etc. is materially deficient.
This section should be extensively revised to deal with the issue of jurisdiction. The revise disclosure should make clear
each major jurisdiction in which the Company intends to draw customers, such as the United States, in which such sovereign has a different belief, including each state government which has addressed the issue in the United States. Explain the various methods by which such governmental entities may assert jurisdiction over the activities of the Company. Disclose whether there is any case law which supports the Company' belief.
We note that the Company will confront legal challenges in each jurisdiction in which a user of the Company's services are located. Please discuss how the Company will control user locations.
Dependence Upon Offering
The currently provided disclosure regarding present and proposed activities appears vague and/or speculative. The discussion relative to each present and proposed activity should be substantially revised to provide disclosure of the precise activities to be engaged in, each material event or step required in the start-up operations until revenues are generated, the material risks, conditions or contingencies to the achievement of those events or steps (including the receipt of funding from this offering and material liquidity risks), and the manner for each present or proposed activity, please furnish a timetable for the commencement of revenue generating activity.
It appears that the disclosure and the tone of the disclosure with respect to the Company's business plans appear promotional and speculative. Proposed activities are disclosed without providing full and fair disclosure of the numerous steps and inherent risks in commencing and conducting such activities. Accordingly, please reconsider the offering circular disclosure in its entirety and provide a balanced, full and fair discussion of the Company's present state of operations and the effects of the receipt of minimal proceeds, the maximum amount and amounts in between. For each scenario, there should be included full and fair disclosure of the Company's activities, including the material steps necessary to achieve such activities and the material risks to the Company and investors in starting and conducting those activities. The promotional tone of the prospectus and speculative disclosures should be eliminated, as they are inappropriate for a prospectus.
Please advise whether the Company is aware of any news articles, press releases, wire releases, etc. which may have appeared in the last six months concerning the Company and its business and services, or this offering. If so, please provide copies supplementally.
The Need for Additional Financing
Please describe the circumstances under which loan financing will be sought, if any, and discuss the material risks in obtaining such loan financing and the material risks associated with substantial leverage.
Use of Proceeds
State the principal purposes for which the net proceeds the registrant from the securities to be offered are intended to be used and the approximate amount intended to be used for each such purpose. Where registrant has no current specific plan for the process, or a significant portion thereof, the registrant shall so state and discuss the principal reasons for the offering.
Please disclose the dollar amount of net offering proceeds that will or may be payable to promoters, management, principal shareholders or their affiliates in the event that a nominal amount of proceeds is received in the offering and discuss how such amount will increase depending upon the level of sales in the offering.
The filing indicates "conversion of the Company Preferred Stock into Common Stock... 11 No where in the filing is there mention of preferred stock.
The staff was unable to locate any material contracts or agreements, Articles of Incorporation of the Company, Bylaws of the Company, or Specimen of Common Stock filed as exhibits.
Any questions regarding the disclosure issues may be directed to Bill Underhill at (202) 942-2953. In this regard, please do not hesitate to contact Richard K. Wulff, Chief at (202) 942-2950 who supervised the review of your filing.
Richard K. Wulff, Chief
Office of Small Business