April 6, 2007
By facsimile to (303) 777-3823 and U.S. Mail
Mr. Victor J. Yosha
President
V2K International, Inc.
1127 Auraria Parkway, Suite 204
Denver, CO 80204
Re: V2K International, Inc.
Registration Statement on Form SB-2
Filed March 9, 2007
File No. 333-141201
Dear Mr. Yosha:
We reviewed the filing and have the comments below.
Where indicated, we think that you should revise the document
in
response to the comments. If you disagree, we will consider your
explanation why a comment is inapplicable or a revision is
unnecessary. Be as detailed as necessary in your explanation. To
understand better your disclosure, we may ask you in some comments
to
provide us supplemental information. We may raise additional
comments after reviewing this information.
Our review`s purpose is to assist you in your compliance
with
applicable disclosure requirements and to enhance the overall
disclosure in your document. We look forward to working with you
to
achieve these objectives. We welcome any questions that you may
have
about comments or any other aspect of our review. You may call us
at
the telephone numbers listed at the end of this letter.
Registration Statement`s Facing Page
1. We note the phrase "or other distribution recapitalization or
similar event" under (iii) in footnote 2 to the calculation of
registration fee table. Rule 416(a) of Regulation C under the
Securities Act permits registration of additional securities only
"to
prevent dilution resulting from stock splits, stock dividends, or
similar transactions." Please revise to make clear that V2K
International, Inc. or V2K is registering additional securities
only
as permitted by the rule by using the rule`s exact language cited
above.
Prospectus Summary, page 3
2. Disclosure states that V2K intends to grow its business partly
through corporate license agreements and that V2K has license
opportunities in related fields. If V2K has not entered into
corporate license agreements or license agreements in related
fields
as of the date of the prospectus, please make that clear. We note
the disclosure on page 21 that V2K proposes to sell license
agreements.
Risk Factors, page 5
3. The first paragraph states: "The risks and uncertainties
described below are not the only ones we face. Additional risks
and
uncertainties not presently known to us or that we currently deem
immaterial may also harm our business." Since V2K must disclose
all
risks that it believes are material, please delete these two
sentences.
4. Include in each risk factor`s discussion information necessary
to
assess the risk, including its magnitude. For example:
* The first risk factor states that V2K has incurred losses.
Quantify V2K`s accumulated losses as of the latest balance sheet
data
in the registration statement.
* The second risk factor states that V2K will need financing to
continue its growth and the development of its business plan.
Quantify the known or estimated amount of financing that V2K will
need to continue its growth and the development of its business
plan.
* The third risk factor states that V2K`s growth strategy is
dependent upon its ability to sell franchises and license
agreements
and to have successful franchisees. Clarify that V2K`s existing
franchise base is too small to produce enough royalty revenue and
gross profit margin from sales of materials and supplies to
support
V2K`s operations. We note the disclosure in MD&A.
* The fourth risk factor states that V2K is dependent on outside
suppliers and that its three largest vendors constituted 68% of
materials and supplies for the fiscal year ended September 30,
2006.
Clarify whether V2K is materially dependent on any one supplier
and
whether V2K has any agreement with a supplier. If V2K has any
agreement with a supplier, advise what consideration V2K has given
to
filing the agreement as an exhibit to the registration statement.
See Item 601(b)(10) of Regulation S-B.
* The seventh risk factor states that the loss of any of V2K`s key
personnel could have an adverse effect on its operations and
system
development. Identify V2K`s key personnel whose loss could have
an
adverse effect on its operations and system development.
* The twelfth risk factor states that V2K will issue options to
its
officers, directors, or employees. State the number of
outstanding
options issued to officers, directors, and employees as of the
most
recent date practicable.
* The thirteenth risk factor states that V2K plans to apply to
have
its common stock quoted on the OTC Bulletin Board. Please clarify
that the OTC Bulletin Board may not approve the application.
5. In the third risk factor, describe briefly what policies,
procedures, and programs, if any, that V2K has developed and
implemented for achieving its objectives of selling franchises and
license agreements and having successful franchisees. Further,
clarify whether V2K has entered into any material license
agreement.
If V2K has entered into any material license agreement, advise
what
consideration V2K has given to filing the agreement as an exhibit
to
the registration statement. See Item 601(b)(10) of Regulation S-
B.
6. Some risk factors include language like "We cannot assure,"
There
can be no assurance," and "There is no guarantee." For example,
refer to the first, second, and seventh risk factors. Since the
risk
is the situation described and not V2K`s ability to assure or
guarantee, please revise.
Management`s Discussion and Analysis or Plan of Operation, Results
of
Operations, page 9
Summary of Significant Accounting Policies, page 10
7. Please supplement your summary of significant accounting
policies
on page 10 to discuss estimates and assumptions that have a
material
impact on the financial statements and to provide greater insight
into the quality and variability of information regarding
financial
condition and operating performance. Ensure that this disclosure
includes the specific judgments and uncertainties affecting the
application of those policies and the likelihood that materially
different amounts would be reported under different conditions or
using different assumptions. For example, disclosure regarding
the
valuation of accounts receivable may include expected default
rates,
specific identification of problem accounts, and exposure to
certain
franchisees. For additional guidance and disclosure
considerations,
refer to SEC Release 33-8350, as well as Release 33-8098, located
on
the SEC`s website at www.sec.gov.
Results of Operations, page 11
8. Disclosure that V2K`s results of operations are impacted
primarily
by the sale of franchises appears inconsistent with disclosure
under
"Revenue Recognition" that revenue from materials and supplies
sales
represented 72% of V2K`s total revenue for the year ended
September
30, 2006. Please clarify and revise as necessary.
9. We note your disclosure that you decided to focus primarily of
developing the retail sales of existing franchises as opposed to
the
sale of franchise units. You believe, in turn, that this will
increase royalty revenues and sales of materials and supplies.
Tell
us and disclose the impact that you anticipate this change in
focus
will have on operations. It appears that the sale of materials
and
supplies is a significant portion of your business but has margins
in
the 2-3% range. Tell us and disclose how focusing on a lower
margin
business will impact operations. Ensure that your disclosure
discusses the nature of the costs involved and why margins tend to
be
so low.
10. We note your discussion of margins on the sale of franchise
units
and how they decreased from 54% to 45% during 2006. Tell us and
disclose the nature of the costs involved in selling franchise
units
and the factors that contributed to the decrease in margins during
2006.
Liquidity and Financial Condition, page 12
11. Please revise to present an enhanced analysis and explanation
of
the sources and uses of cash and material changes in particular
items
underlying the major captions reported in their financial
statements
rather than recitation of the items in the cash flow statements.
For
example, we note that your change in receivables has had a
material
impact on your operating cash flows. Please disclose your DSOs
for
each period and explain any variances. Revise to provide expanded
disclosure which will indicate the company`s ability to adjust its
future cash flows to meet needs and opportunities, both expected
and
unexpected. Refer to FRR 501.03 and SEC Release 33-8350.
12. Please revise your liquidity disclosure to include a more
detailed discussion of how you anticipate satisfying your cash
requirements and whether or not it will be necessary to raise
additional funds in the next 12 months. In light of the negative
operating cash flows, operating losses, and negative working
capital,
it is unclear how you plan to satisfy your financial obligations
and
what sources of liquidity you are relying on. Your disclosure
should
identify and separately describe internal and external sources of
liquidity and unused sources of liquidity. We note that you have
had
a bank facility for equipment, convertible debentures and bridge
loans; however, you have not fully described each source of
liquidity, the terms, covenants, and cross default provisions, if
any. Refer to Item 303(b)(1) of Regulation S-B.
13. With regards to your franchise agreements, tell us and
disclose
the nature of all significant commitments and obligations
resulting
from franchise agreements, including a description of the services
that you, the franchisor, have agreed to provide that have not yet
been substantially performed. Refer to the disclosure
requirements
in paragraph 20 of SFAS 45.
Plan of Operation, page 13
14. Disclosure states that V2K will likely add to its programming
staff and will likely add other employees to assist in the support
of
its franchisees. State the known or estimated number of employees
that V2K will likely add.
Business, Our Proprietary Software, page 15
15. Disclosure states that V2K plans to develop a web-based
version
of the software and a kiosk version of its technology and plans
also
to expand the existing software to provide a variety of interior
and
exterior design functions. Specify V2K`s schedule for
implementing
its plans. Clarify whether the development and expansion plans
require significant additional financing, and, if so, quantify the
known or estimated amount of financing required. We note the
disclosure in the second risk factor that V2K relies upon external
sources of financing to fund future growth and implementation of
its
business plan, including a complete re-write of its proprietary
software. Further, clarify whether there has been any
implementation
of the plans for developing the web-based and the kiosk versions
and
expanding the existing software. If so, clarify whether the
development and the expansion are in the planning stages, whether
prototypes exist, the degree to which design has progressed, and
whether further engineering is necessary. See Item 101(b)(3) of
Regulation S-B.
Current Application of Software, page 16
16. Disclosure states that V2K offers three, six, and 12 month no
payment, deferred interest consumer financing plans to customers
through a national financial institution. Clarify whether V2K
receives fees or commissions on the plans. If so, quantify the
amount of fees or commissions received during the periods
presented
in the financial statements.
Franchise and Licensing Operations, page 17
17. Disclosure states that "Entrepreneur" magazine rated V2K 50th
in
its top homebased franchises 2006 rankings and 189th in its
franchise
500 2006 rankings. Clarify whether you intend for a potential
investor to conclude from the disclosure that the magazine is
actively endorsing or promoting V2K.
18. Disclosure states that V2K may require franchisees to
participate
in a regional advertising cooperative and that all or part of the
fee
will be paid to the cooperative. State what the fee would be on a
monthly or an annual basis.
19. Disclose the retention rate of franchisees during the periods
presented in the financial statements. We note the disclosure in
MD&A that more of V2K`s franchisees were in business for a longer
period of time in 2006 and that this business experience resulted
in
more sales.
Manufacturing and Sourcing, page 22
20. Disclosure states that V2K acquired 68% of its materials and
supplies from three major vendors for the year ended September 30,
2006. Identify the three major vendors. See Item 101(b)(5) of
Regulation S-B.
Competition, page 22
21. Disclosure states that V2K is aware of four other companies
that
offer a software product having some of the functions of its
proprietary software. We note that the disclosure describes the
software product of two of the four companies. Expand the
disclosure
to describe briefly the software product of the two other
companies.
Alternatively, explain why you have not done so.
Facilities, page 23
22. Disclosure states that V2K leases its principal offices and
workroom facilities. Advise what consideration V2K has given to
filing the lease agreements as exhibits to the registration
statement. See Item 601(b)(10) of Regulation S-B.
Management, Conflicts of Interest, page 25
23. Disclosure states that members of V2K`s management are
associated
with other firms involved in a range of business activities.
Clarify
whether members of V2K`s management devote less than 100% of their
time to V2K and its business. If any member of V2K`s management
devotes less than 100% of his time to V2K and its business,
identify
the person and specify the amount of time that he devotes to V2K
and
its business.
Certain Relationships and Related Transactions, page 30
24. Disclosure on page 25 states that Messrs. Gordon E. Beckstead
and
Victor J. Yosha may be deemed to be "promoters" and "control
persons"
of V2K. Ensure that you have provided here all of the disclosures
required by Item 404(c) of Regulation S-B.
25. Disclosure under "Bridge Loan" states that each lender
received
125,000 shares of common stock and warrants to purchase 125,000
shares of common stock when he converted his loan on January 31,
2007. We note that the financial statements` notes 8 and 14 omit
the
one million warrants to purchase shares of common stock that were
received upon conversion. Please revise the notes to include the
one
million warrants to purchase shares of common stock that were
received upon conversion.
26. With regards to your agreement with Bob Leo in July 2004, tell
us
how you accounted for this "employee package" which included the
option to purchase a franchise for $10. Your disclosure indicates
that this benefit was worth approximately $44,500 but does not
discuss the accounting impact to the Company, if any. Cite the
authoritative guidance that supports your accounting treatment.
Selling Stockholders, page 33
27. Disclosure states that, except for eight shareholders, all of
the
shareholders purchased units in a private placement from September
2006 to January 2007. Identify the eight shareholders who did not
purchase units in the private placement, and describe briefly how
each of them acquired the securities being offered for resale.
28. Disclosure that six of the eight shareholders converted their
bridge loans to V2K into units on the same terms as those offered
in
the private placement is inconsistent with disclosure under
"Certain
Relationships and Related Transactions" that all of the lenders
converted their loans into securities on the same terms as those
offered in the private placement. Please reconcile the
disclosures.
29. Disclosure under "Certain Relationships and Related
Transactions"
states that each bridge loan lender received 125,000 shares of
common
stock and warrants to purchase 125,000 shares of common stock when
he
converted his loan into securities. Since disclosure in the table
here indicates that Messrs. Gordon E. Beckstead, Glen Henglefelt,
George A. Johnson, and Robert M. Nieder are offering 500,000
shares
of common stock for resale, indicate by footnote or otherwise how
each of them acquired the additional shares being offered for
resale.
We note the disclosure under "Convertible Debentures" in the
certain
relationships and related transactions section that Mr. Beckstead
converted his debenture into 250,000 shares of common stock on
January 31, 2007 and that these shares are being registered for
resale in this registration statement.
30. Confirm that none of the selling stockholders is a broker-
dealer
or a broker-dealer`s affiliate.
31. State that V2K will file a prospectus supplement to name
successors to any named selling stockholders who are able to use
this
prospectus to resell the securities.
Plan of Distribution, page 35
32. Conform the disclosure of the offering price here to that on
the
prospectus` outside front cover page: "The selling shareholders
have
set an offering price of $0.20 until our shares are quoted on the
OTC
Bulletin Board and thereafter at prevailing market prices or
privately negotiated prices."
33. Expand the disclosure to address Regulation M issues. For
guidance, you may wish to refer to the Division of Market
Regulation`s staff legal bulletin 9 that is available on the
Commission`s website at http://www.sec.gov.
Legal Matters, page 37
34. Identify the officer and shareholder of Dill Dill Carr
Stonbraker
& Hutchings, P.C. to whom Mr. Gordon E. Beckstead is married.
Additional Information, page 37
35. If a contract or other document filed as an exhibit to the
registration statement is discussed in the prospectus, you are
required to include all material provisions of the contract or
other
document in the prospectus. Thus, please clarify what you mean by
the "not necessarily complete" language.
Report to Stockholders, page 37
36. The statement that "As a result of filing the registration
statement, we are subject to the reporting requirements of the
federal securities laws" is imprecise. Since V2K will become
subject
to the federal securities laws` reporting requirements upon the
registration statement`s effectiveness, please revise.
Three Months Ended December 31, 2006
Note 5. Private Placement, page F-9
37. We note your private placement dated September 6, 2006 of
units
consisting of one share of common stock and one purchase warrant.
Tell us how you accounted for this transaction, including your
consideration as to whether the warrants are derivative
instruments
pursuant to paragraphs 6-9 and 11.a of SFAS 133 and paragraphs 12-
32
of EITF 00-19; how you valued the warrants; and the assumptions
used
in valuing the warrants. Also, expand Note 2 to discuss the
treatment of the warrants for one million shares issued to the
lenders.
Twelve Months Ending September 30, 2006
Note 1. Summary of Significant Accounting Policies
Revenue Recognition, page FF-9
38. We note your disclosure on pages 10 and FF-9 which states that
you collect an advertising fee from your franchises and any
advertising expenses incurred on behalf of a franchisee is paid
from
this account. However, you disclose that you do not include
advertising expenses on behalf of the franchisee in your statement
of
operations. Tell us the nature of the advertising fees that you
recognize as revenue. Are these fees the amounts you collect for
the
National/Regional/Local advertising fund or are these the
administrative fees you collect from the fund? To the extent the
fees recognized as revenue in your statement of operations are
fees
paid to the fund, tell us how you determined that not recognizing
any
of the related advertising expenses on behalf of your franchisee
is
appropriate.
39. We note your sales of materials and supplies that you account
for
on a gross basis on your statement of operations. Please provide
us
your EITF 99-19 analysis discussing each of the factors and how
you
determined that gross recognition of these sales is appropriate.
Note 2. Accounts and Notes Receivable, page FF-15
40. We note that your accounts receivable balance is approximately
50% of total assets. Tell us why your receivable balance is so
significant and address the extent to which you have successfully
collected these amounts subsequent to the balance sheet date.
Tell
us and disclose in the MD&A whether there are any collectibility
or
billing problems with any franchisees. Discuss significant changes
in
credit terms, collection efforts, credit utilization, and/or
delinquency policies. Provide a similar analysis of your accounts
receivable balance at December 31, 2006.
41. We note you have a notes receivable balance recorded at each
balance sheet date from franchisees. Tell us what this relates to
and how these receivables from franchisees differ from the trade
receivables recorded. Tell us the terms of these receivable, how
you
determined they were collectible and that revenue recognition
under
paragraph 5 of SFAS 45 was appropriate.
Note 7. Bridge Loan, page FF-17
42. With regards to the 1,000,000 warrants issued to the bridge
loan
holders, tell us and disclose the terms of your registration
rights
agreement, how you are accounting for the warrants and
registration
rights agreement, and how you considered SFAS 133, EITF 00-19 and
FSP
EITF 00-19-2.
Note 9. Stockholders` Equity
Common Stock, page FF-18
43. We note that during 2005 and 2006 you accepted the rescission
of
approximately 200,000 shares of common stock. Tell us the nature
of
and circumstances surrounding the rescission of these shares and
whether or not the rescission right is a feature of any or all of
your outstanding common stock. Tell us the terms of the
rescissions,
how you are accounting for and classifying any securities with
rescission rights and cite the authoritative guidance that
supports
your accounting treatment.
Note 11. Segment Information, page FF-20
44. You indicate that you operate in three industry segments,
Windows, Technology, and Manufacturing; however, you also present
an
International segment. Please tell us the factors used to
identify
your reportable segments and how you considered paragraphs 10-17
of
SFAS No. 131. See also paragraph 26 of SFAS 131.
45. Please revise to provide a reconciliation of your total
segment
income (loss) from operations to the consolidated income (loss)
from
operations as required by paragraph 32(b) of SFAS 131.
Undertakings, page II-3
46. Include the undertaking required by Item 512(g)(2) of
Regulation
S-B.
Exhibits
47. Include an exhibit index immediately before the exhibits filed
with the registration statement. See Rule 102(d) of Regulation S-
T.
Exhibit 10.2
48. Absent an order granting confidential treatment, Item
601(b)(10)
of Regulation S-B requires the filing of material contracts,
including attachments, in their entirety. Attachments include,
for
example, annexes, appendices, exhibits, and schedules. Since you
did
not file appendix A and exhibits 1, 2, and 3 to exhibit 10.2,
please
refile the exhibit in its entirety.
Closing
File an amendment to the SB-2 in response to the comments.
To
expedite our review, V2K may wish to provide us three marked
courtesy
copies of the amendment. Include with the filing any supplemental
information requested and a cover letter tagged as correspondence
that keys the responses to the comments. If V2K thinks that
compliance with any of the comments is inappropriate, provide the
basis in the letter. We may have additional comments after review
of
the amendment, the responses to the comments, and any supplemental
information.
We urge all persons responsible for the accuracy and adequacy
of
the disclosure in the registration statement reviewed by us to
ensure
that they have provided all information investors require for an
informed decision. Since V2K and its management are in possession
of
all facts relating to the disclosure in the registration
statement,
they are responsible for the adequacy and accuracy of the
disclosures
that they have made.
If V2K requests acceleration of the registration statement`s
effectiveness, V2K should furnish a letter at the time of the
request, acknowledging that:
* Should the Commission or the staff acting by delegated authority
declare the registration statement effective, it does not
foreclose
the Commission from taking any action on the filing.
* The action of the Commission or the staff acting by delegated
authority in declaring the registration statement effective does
not
relieve V2K from its full responsibility for the adequacy and
accuracy of the registration statement`s disclosures.
* V2K may not assert our comments or the declaration of the
registration statement`s effectiveness as a defense in any
proceedings initiated by the Commission or any person under the
United States` federal securities laws.
The Commission`s Division of Enforcement has access to all
information that V2K provides us in our review of the registration
statement or in response to our comments on the registration
statement.
We will consider a written request for acceleration of the
registration statement`s effectiveness under Rule 461 of
Regulation C
under the Securities Act as confirmation that those requesting
acceleration are aware of their responsibilities under the
Securities
Act and the Exchange Act as they relate to the proposed public
offering of the securities specified in the registration
statement.
We will act on the request and by delegated authority grant
acceleration of the registration statement`s effectiveness.
You may direct questions on accounting comments to Melissa N.
Rocha, Staff Accountant, at (202) 551-3854 or Terence S. O`Brien,
Accounting Branch Chief, at (202) 551-
3355. You may direct questions on other comments and disclosure
issues to Edward M. Kelly, Senior Counsel, at (202) 551- 3728 or
Lesli L. Sheppard, Staff Attorney, at (202) 551-3708.
Very truly yours,
Pamela A. Long
Assistant Director
cc: Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, CO 80203
Mr. Victor J. Yosha
April 6, 2007
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE