UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF CORPORATION FINANCE
July 27, 1999
RE YKD 1nternationa1 Corporation ("Company")
File No. 24-4010-HQ
Form 1-A; Amendment #1
Received May 17, 1999
Dear Mr. Sloan:
The staff has reviewed the above captioned filing and we continue to believe that the most recent amendment and letter of response does not fully address the staff's earlier concerns. Therefore we are reissuing some of our previous comments and would appreciate a detail response which clearly addresses all issues.
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 broker-dealer 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.
Throughout the filing it makes reference to Underwriters, for example; and persons cannot sell shares without prior written consent of the underwriters; underwriter will receive compensation as is allowed by the NASD; there will be shares of common stock outstanding assuming no exercise of the Underwriters' over-allotment option and assuming no exercise after May 4, 1999; the initial public offering price will be determined through negotiations among the Company, the Selling Stockholders and their representatives of Underwriters. Please revise and advise.
According to the filing on page 18, the initial public offering price will be determined through Selling Stockholders however on page 21, it states that no shares are being offered by stockholders of the Company. Please reconcile.
According to the caption Shares Eligible for Future Sale, certain shareholders have agreed not to offer, sell or otherwise dispose of there shares for a period of 12 months after the effective date. Elsewhere it states that they will not sell for 180 days. Please reconcile this disclosure.
Since the offering period is for (1) one year from the date of effectiveness, it would appear that the lock-up agreements would not cover the entire offering period. Please advise.
Please file copies of the executed lock-up agreements 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 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.
Limited State Registration
The bold face legend on page 10 and risk factor section on page 12, indicates "Limited or No State Registration" is unclear. Either you have "No State Registration" or Limited State Registration. Please revise.
With respect to "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/warrants 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.
Part I - Notification -Item 4, it reflects New York and Japan as the jurisdictions for distribution. Please reconcile to the filing.
Since the Company is not registered to sell in a state or relying upon an exemption to sell in a particular state at this time, then it is requested that the filing identify the states or countries where the Company intends to distribute the shares.
Upon receipt we may have additional comments.
Risk Factors Section
Under the Risk Factors section a sub caption is listed that "No Assurance Shares Will be Purchased; No Escrow". It is disclosed that no escrow has been established except for residents of Maryland. Please revise and advise why this disclosure.
Under the Risk Factors - "Best Efforts", it is unclear what the second paragraph has to do with the Best Efforts Offering. Please revise.
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's belief.
Your attention is directed to the disclosure on page 21, in which YKD intends to engage in a venue on its Internet site for betting on games between top professionals in international tournaments.
Government Regulation
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 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.
For example, it does not appear from the disclosures provided that the Company has developed a detailed (quantified) business plan. The Company does not explain in any detail how it will generate revenues from the describe proposed activities.
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 disclose in a prominent manner that the Company may receive no or nominal proceeds in the offering and, if true, that such level of proceeds would significantly restrict the Company's operation and would have a substantial adverse effect on the Company and investors.
Please disclose this offering is not contingent on a minimum number of shares to be sold and it is on a first come, first served basis. If subscriptions exceed 150,000 Units, all excess subscriptions will be promptly returned to subscribers (with or without interest) and without deduction for commissions or expenses.
The Need for Additional Financing
Please describe any preliminary agreements or understandings with respect to loans or advances to the Company from officers, directors or principal shareholders. If there is a cap on the amount that may be loaned and the method of repayment should disclosed in the filing.
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.
Since this is a best efforts no minimum, please present how the net proceeds of the offering will be used, indicating the amount to be used for each purpose and the priority of each purpose, if substantially less that the maximum securities are not sold.
Indicate whether proceeds from this offering will satisfy the Company's cash requirements for the next 12 months, and whether it will be necessary to raise additional funds. State the source of additional funds.
Please disclose if true, that the Company reserves the right to vary the Use of Proceeds according to the actual amount raised and the timing thereof. Please advise how the Company will keep the investors aware of these changes.
According to the filing the Company intends to Use the Proceeds of the Offering for Working Capital and General Corporate Purposes. It is requested that a Use of Proceeds table be presented. If a substantial amount is allocated to Working Capital and General Corporate Purposes, set forth separate sub-categories for use of the funds in the Company's business; e.g. line items for Working Capital and General Corporate Purposes should be further clarified and expenses broken out.
The filing needs be revised to note if the proceeds may be used to pay salaries to officers and directors since they will devote a substantial amount of their time to the Company. Any preliminary agreements or understanding with respect to present employment agreements and in the future should be disclosed.
Facilities
Please clarify if the facilities are available to the Company on a rent free basis both now and in the future. Copies of any written agreements should be filed.
Company
According to the filing the city government of Fujisawa, Japan is negotiating an agreement to give YKD 5,000,000 yen to set up a server through which go can be played in and for Fujisawa by using this go-scoring software. Please update the status of the negotiations and copies of any written agreements should be filed as an exhibit.
In the seventh paragraph on page 20, it states that officers of YKD have been working on this problem for the past five years. Please reconcile this to the disclosure on page 22 which states they have been working on the problem for the past 20 years.
Key Employees
Please provide the salient issues with respect to Mr. Richard Bozulich role in the Company as an advisor. Copies of any consulting/advisor agreements between the Company and Mr. Bozulich should be filed as an exhibit.
It would appear that Mr. Bozulich intends to make available a mailing list of 40,000 players in various countries to the Company. Please clarify the use of the list.
What consideration has been given that Mr. Bozulich may be deemed a promoter. Please advise and revise.
Management and Executive officers and Directors
This information should be revised to provide a history. See Item 401 to Regulation S-B.
Accounting Comments - NONE
General
In order to facilitate the examination of your filing, the amendment should be accompanied by a covering letter which refers to our letter point-by-point. If complying with our comment, so indicate; if not, explain why not.
Seven copies of all amendments to the Offering Statement should be submitted with at least one amendment manually signed in accordance with the requirements of Rule 252(d). To assist in our review of the amendment, pleas underline or bracket all changes in red in three additional copies.
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.
Sincerely,
Richard K. Wulff, Chief
Office of Small Business