March 19, 2019
Adi Sideman
President, Chief Executive Officer and Director
YouNow, Inc.
245 5th Avenue, 6th Floor
New York, New York 10016
Re: YouNow, Inc.
Amendment No. 1 to
Draft Offering Statement on Form 1-A
Submitted December 21, 2018
CIK 0001725129
Dear Mr. Sideman:
We have reviewed your amended draft offering 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 offering statement or publicly filing your offering 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
any amendment
to your draft offering statement or filed offering statement and the
information you provide in
response to these comments, we may have additional comments. Unless we note
otherwise, our
references to prior comments are to comments in our November 29, 2018 letter.
Draft Offering Statement on Form 1-A/A
General
1. We note your response to comment 5 and your revisions to the offering
circular that
indicate that Props PBC, your wholly-owned subsidiary, will be engaging
in a secondary
distribution of Tokens. Please identify Props PBC as an underwriter in
connection with
your offering or provide us with your analysis as to why it would not be
considered an
underwriter. In this regard, we note that pursuant to Section 2(a)(11)
of the Securities Act
of 1933, "[t]he term 'underwriter' means any person who . . .
participates or has a direct or
indirect participation in [the distribution of any security] . . . ."
Please also file the
subscription agreement that Props PBC intends to use for its secondary
distribution or
advise.
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany2019
March 19, NameYouNow, Inc.
March 19, 2019 Page 2
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2. We note your disclosure that Props PBC is a wholly-owned subsidiary of
YouNow and
that Props PBC may sell Tokens for cash in a secondary distribution.
Please explain to us
how the sale of Tokens by a wholly-owned subsidiary for cash
reconciles with the
disclosure that you will not receive proceeds from the sale of Tokens
by Props PBC.
3. We note the use of technical jargon throughout your offering
statement. Please revise
your offering statement to include more detailed discussions of the
terms and platforms
you discuss. The list of items in need of further elaboration
includes, but is not limited to,
the following: sidechain, oracle, ERC-20, and blocks. For example,
when discussing that
the Tokens will be "'ERC-20' - compliant cyrptographic tokens," please
elaborate on what
that means for investors and identify the "widely-known conventions"
to which the
Tokens will adhere.
4. We note your disclosure on page 105 stating that the Form C filed in
connection with your
Regulation CF offering of DPAs "did not cover the Props Tokens
issuable pursuant to the
DPAs -- instead only referencing `Debt Securities' as the type of
securities being
offered," and that you are seeking to qualify the primary issuance of
the Props Tokens
pursuant to the DPAs under this offering circular. We further note
that it appears under
the Form of Debt Payable by Assets Agreement that purchasers of DPAs
do not have
discretion with respect to when, or whether, Tokens are issued to them
in satisfaction of
your repayment obligations under the DPAs. As a result, it appears
that purchasers of
DPAs made an investment decision with respect to the Props Tokens at
the time that they
made their decision to purchase DPAs. Refer to Securities Act Sections
Compliance and
Disclosure Interpretations Question 103.04 and the Commission's
guidance regarding the
date of sale in Securities Offering Reform Release No. 33-8591 (2005),
starting at
footnote 391. Please remove the primary issuance of the Tokens under
the DPAs from
your offering circular. Please also provide us with your detailed
legal analysis regarding
whether any exemptions from registration were available for the
offering of Props Tokens
at such time or, alternatively, provide us with your detailed legal
analysis regarding why
such an exemption was not required at that time.
5. We note your responses to comments 42 and 43. Please note that we
continue to evaluate
your responses. We may have further comment.
Cover Page
6. We note your disclosure stating "[t]he sum of the maximum 'aggregate
offering price' and
'aggregate gross sales', as those terms are defined in Rule 251(a) of
the Securities Act . . . ,
pursuant to the YouNow Offering, DPA Token Offering, and Props PBC
Offering
combined may not exceed $50,000,000 in any twelve month period." We
further note
your disclosure throughout the offering circular indicating that you
may in the future file
an amendment to this offering circular to qualify issuances of Tokens
to third party app
developers or their users. Additionally, we note your disclosure under
the heading "Token
Supply" on page 77 stating that, of the 400,000,000 Props Tokens
allocated to wallets
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany2019
March 19, NameYouNow, Inc.
March 19, 2019 Page 3
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controlled by the Protocol Rewards Engine, you are qualifying up to
100,000,000 Props
Tokens for distribution with this offering circular and in the future
may issue the
remaining 300,000,000 Props Tokens pursuant to Regulation A. Please
revise to clarify
that the sum of the maximum aggregate offering price and the aggregate
sales for all of
your offerings pursuant to Regulation A may not exceed $50,000,000 in
any twelve month
period.
Offering Summary, page 1
7. We note your response to comment 8. Please revise to clarify if you
also intend to file an
offering circular supplement via Rule 253(g)(2) of Regulation A to
disclose a potential
replacement service or advise. Please also refer to Note to Paragraph
(a) of Rule 251 of
Regulation A and the requirement that the fair value of consideration
other than cash must
be determined by an "accepted standard."
The Props Token's Role in Helping to Align Incentives of Network Participants,
page 7
8. We note your disclosure in this section, stating "[i]n the future,
however, Props Tokens
may be allocated by the Protocol Rewards Engine to Props PBC--so that
Props PBC may
immediately make primary distributions of the Props Tokens as rewards
for usage of third
party Props Apps." Additionally, we note your disclosure on page 86,
stating "[i]n the
future, we may file an amendment to this offering circular to qualify
the issuance of Props
Tokens by YouNow to third party app developers." Please revise in both
sections for
consistency and to clarify whether you anticipate that Props PBC,
YouNow, or both will
issue Props Tokens to third party app developers in the future. Please
also revise to clarify
what you mean by "primary distributions" and provide us with your
analysis regarding
who will be the issuer of such Props Tokens.
Risks Related to our Business
Investors in Debt Payable by Asset agreements . . . , page 34
9. We note your response to comment 14. Please revise to address the
following:
Disclose who determines if the DPAs can be settled by delivery of
Props Tokens or
cash;
Disclose if the settlement options can change over the term of the
agreement;
Disclose the price per Props Token to be utilized in determining the
number of Props
Tokens to be issued upon settlement; and
Ensure the related DPA settlement discussions are consistent
throughout the
registration agreement, including the notes to the consolidated
financial statements.
It is unclear when and if federal or state regulators will allow registration
of a token exchange . . .
, page 41
10. We note your responses to comments 15 and 16. Please revise this risk
factor to remove
the statement that Sharespost received approval "from the SEC" to
operate an ATS.
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany2019
March 19, NameYouNow, Inc.
March 19, 2019 Page 4
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FirstName LastName
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
49
11. We note your disclosure on page 14 that you expect to receive a
valuation report from a
third-party appraisal firm that values your Tokens prior to launch at
$0.02 per Token. We
further note that you have entered into SAFT and DPA agreements based
on a $0.11 per
Token value and intend to qualify Tokens at an initial amount of $0.14
per token. Please
expand your disclosure to clearly disclose the three different price
points, explain which
amount you consider to be the current value of your Tokens, and
discuss the rationale
behind that conclusion.
Results of Operations, page 52
12. We note your response to comment 23. Please revise to provide a
discussion of material
year-over-year changes in your consolidated balance sheet accounts for
the periods
presented.
13. As part of your discussion of material year-over-year changes in your
consolidated
balance sheet accounts, please include a table for intangible assets
for each period
presented that provides the following:
For both developed technology and digital currencies, provide the
beginning balance,
additions, and reductions to arrive at the ending balance; and
Disclose the respective quantities of each digital currency
received, liquidated, and
outstanding at each period end.
14. Please revise to disclose the revenues generated from the sale of
virtual goods and from
advertising in each of the periods presented. In addition, your
disclosure indicates that you
expect the increasing revenue trend to decrease due to lower traffic
in your apps.
However, your discussion in the disclosure on page 55 under "Revenue
Trends" indicates
the sale of bars in the Video App is expected to increase in the
future due to a renewed
effort to focus on the revenue side of the business. Please revise to
reconcile these
disclosures.
Other Income (Expense), page 55
15. We have considered your response to comment 25. We note you recognized
an
impairment charge of $1.4 million during the six months ended June 30,
2018. We further
note your disclosure that you expect to recognize additional
impairment charges in the
future. As such, please disclose the historical volatility of your
current digital asset
holdings to provide investors with enhanced transparency regarding
potential impairment.
Executive Compensation, page 64
16. Please revise to update your disclosure in this section for the year
ended December 31,
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany2019
March 19, NameYouNow, Inc.
March 19, 2019 Page 5
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2018. Refer to Item 11 of Part II of Form 1-A.
Principal Stockholders, page 70
17. Please revise to disclose the natural person(s) that controls the
voting and/or dispositive
rights for the shares held by Venrock, Union Square Ventures, Shatki
Group, and Zeev
Ventures II, L.P. by footnote or otherwise in your beneficial
ownership table.
Description of the Props Tokens Being Offered, page 73
18. We note that throughout your offering circular, you describe your
network and blockchain
technology as being in development. It is unclear whether the Token's
delivery is
dependent on the availability and functionality of your blockchain
technology and/or your
Props network. Please clarify how the development of the blockchain
will affect the
delivery of the Tokens. For example, please clarify whether the
development of the
Tokens is complete such that there will be no delay in the delivery of
Tokens due to the
need for further development upon qualification of this offering.
Receiving Props Tokens, page 74
19. Please expand your discussion of the steps that a user must take to
describe how a user
may open a "wallet" to receive the Tokens. For example, please clarify
the type of
compatible wallet(s) that a user may open and the process by which a
user opens one.
Functionality for Users, page 76
20. We note your disclosure in this section and elsewhere regarding
holders' ability to transfer
tokens within Props Apps to content creators, friends, or others.
Please clarify the
category of person(s) that comprise "other."
Token Supply, page 77
21. Please explain to us in more detail the allocation of Tokens to be
used for daily app
rewards or validator rewards and how it interacts with the potential
transfers and/or
resales of a Token. For example, please explain to us how the pool
allocation will be
monitored and whether you intend to use Tokens that have previously
been issued and
returned to you (i.e., Tokens that were used to purchase digital
goods) as part of that
allocation.
Third Party Token Modifications and Changes to Functionality, page 81
22. We note your disclosure that Props PBC, as the Controller, would
"abdicate further
control over the competing smart contract" in the event of a fork.
Please revise to clarify
the consequences of Props PBC's abdication of control for both the
competing smart
contract and Token holders.
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany2019
March 19, NameYouNow, Inc.
March 19, 2019 Page 6
Page 6
FirstName LastName
Description of the Props Token's Role in Helping to Align Incentives of Network
Participants
Sales by App Developers, page 84
23. We note your disclosure that Props App developers may distribute or
sell the Props
Tokens they receive. Please provide us with your analysis as to
whether such Props App
developers may be underwriters in connection with your offering. Refer
to Section
2(a)(11) of the Securities Act of 1933.
Description of the Props Network, page 87
24. We note your disclosure that Props PBC will be the initial Controller
of the Props
Network smart contracts. We further note your disclosure that you may
entrust Controller
responsibilities to a DAO or other third party in the future. Please
disclose the process
and criteria you will use to select a new Controller and at what point
and by what means
you intend to notify Token holders of the selection of a new
Controller.
Other Offerings and the DPAs, page 105
25. Please revise your table on page 106 of the total number of Tokens
issuable of
195,466,529 to include Advisor Agreements Tokens of 37,168,246.
White Papers, page 110
26. We note your response to comment 41 and the inclusion of your two
White Papers as
exhibits to this offering circular. In addition, we note that the
White Paper issued in
February 2018 remains available to the public on www.propsproject.com.
To the extent
you continue to provide public access to this Whiter Paper, please
revise to include the
legend required by Rule 255(b) of Regulation A.
Plan of Distribution, page 124
27. We note your response to comment 44. We note that each of the
contemplated offerings
subject to this offering circular include a delay between
subscription, closing, and delivery
of the Tokens. Please revise to clarify in more detail the rights that
each subscriber has
during each stage. For example, we note that the settlement of Tokens
that YouNow may
issue will "occur at one or more closings . . . in its complete
discretion" and that, in
general, closings may take up to 30 days. In addition, we note that
the ownership of
Tokens will not be recorded on the blockchain until delivery. Please
revise to clarify with
more specificity the rights of subscribers between the date of
subscription, closing, and
delivery of the Tokens, including what happens if the company
dissolves or liquidates, or
if the offering is terminated, prior to a closing and/or delivery.
Pricing, page 129
28. We note your response to comment 6. Please provide us with a detailed
legal analysis as
to how your proposed future pricing structure does not constitute an
"at the market"
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany2019
March 19, NameYouNow, Inc.
March 19, 2019 Page 7
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FirstName LastName
offering, which is impermissible under Rule 253(d)(3)(ii) of
Regulation A. In addition,
we note your disclosure stating that, under certain circumstances, you
will change the
price at which you are offering Tokens: "YouNow and Props PBC will
value the tokens
paid to developers at the average closing bid price for the tokens
during that calculation
month until the end of the next calculation month" [emphasis added].
Please revise to
clarify that the average closing bid price valuation, if and when
applicable, will also apply
to cash sales and distributions.
(E) Accounts Receivable and Allowance for Doubtful Accounts, page F-8
29. We note your response to comment 51. Please revise to disclose the
payment terms of the
accounts receivable recorded for the sales of digital goods. In
addition, revise to also
disclose an aging of the accounts receivable (i.e., 0-30 days, 31-60
days, 61-90 days, and
greater than 90 days) for the periods presented.
Note 7. Token Obligations, page F-13
30. Please revise to include additional disclosure regarding the general
character of your
Token obligations in accordance with ASC Topic 210-10-S99-22. Your
revised
disclosure should include the following:
Clarify whether the SAFT agreements have been further extended
beyond the current
termination date of March 4, 2019;
The amount of U.S. dollars and digital currencies, both Bitcoin
and Ethereum,
received as payments for the SAFT agreements;
The total Tokens issuable under the agreements; and
The price per Token utilized in calculating the number of issuable
Tokens in
accordance with the terms of the agreements.
Note 8 Notes Payable, page F-29
31. We note your response to comment 54 and your revised disclosure on
page F-29. In order
to provide additional detail about the general character of your note
payable, please
expand your disclosure to clarify how you determined the number of
Tokens reserved to
satisfy the outstanding DPA of $714,007. In that regard, it is unclear
how the reserved
Tokens of 6,884,779.65 equates to the outstanding DPA plus interest
using a price of
$0.14 per Token. Reference is made to ASC Topic 210-10-S99-22.
Part III - Exhibits, page II-1
32. Please file the Protocol Rewards Engine smart contract as an exhibit
to the offering
statement pursuant to Item 17 of Form 1-A, or advise us why you do not
believe you are
required to do so.
33. We note your response to comment 59. Please disclose whether these
provisions apply to
Adi Sideman
YouNow, Inc.
March 19, 2019
Page 8
actions arising under the Securities Act. We note that Section 22 of
the Securities Act
creates concurrent jurisdiction for federal and state courts over all
suits brought to enforce
any duty or liability created by the Securities Act or the rules and
regulations thereunder.
If these provisions do not apply to claims arising under the Exchange
Act or Securities
Act, please also ensure that the exclusive forum provision in the
governing documents
states this clearly.
You may contact Marc Thomas, Staff Accountant, at 202-551-3452 or
Michelle Miller,
Staff Accountant, at 202-551-3368 if you have questions regarding comments on
the
financial statements and related matters. Please contact Sara von Althann,
Staff Attorney, at
202-551-3207 or Erin E. Martin, Legal Branch Chief, at 202-551-3391 with any
other questions.
FirstName LastNameAdi Sideman Sincerely,
Comapany NameYouNow, Inc.
Division of
Corporation Finance
March 19, 2019 Page 8 Office of
Financial Services
FirstName LastName