April 26, 2019
Jessica VerSteeg Lavrov
President
ParagonCoin Limited
6 Bayside Road
1st Floor - Unit 1.02
Gibraltar, Gibraltar GX11 1AA
Re: ParagonCoin Limited
Form 10-12G
Filed March 29, 2019
File No. 000-56040
Dear Ms. VerSteeg Lavrov:
We have reviewed your filing 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 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.
Form 10 filed March 29, 2019
General
1. We note that your website provides a copy of your white paper that
appears to be out of
date, particularly regarding the token crowdsale. We also note that your
website and the
white paper discuss ParagonSpace, but do not mention the fact that you
have determined
not to pursue this aspect of your initial business plan. Please revise
your website to clarify
that the available white paper is out-of-date and does not reflect your
current business or
provide an updated version. Your website should reflect current
information.
2. Please address the following with respect to your initial coin offering:
Tell us the rights conveyed to the token holders and the obligations
imposed on the
company at the time of your originial ICO. For example, clarify if
the issuance of
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
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tokens obligated the company to develop the track and trace
computer software or any
other application or provide token holders with refusal rights;
and
Explain to us whether the token holders were conveyed any rights
specific to software
under development by purchasing a token (e.g., royalties,
discounts, licenses, etc.).
3. As it relates to your decision to no longer pursue the cannabis
co-working space aspect of
your initial business plan, please provide us with your consideration
of the applicability of
ASC 205-20 (Presentation of Financial Statements - Discontinued
Operations) and held
for sale classification of the building in accordance with ASC
360-10-45-9.
Item 1. Business.
Overview, page 5
4. We note that you reference ParagonCoin, Paragon and ParagonSpaces as
being "affiliated
entities." Please expand your disclosure to clarify the affiliation
between these entities.
Creation of PRG Tokens
What was the result?, page 6
5. Please revise your disclosure to highlight that, currently, there are
no registered or
approved third-party exchanges or other platforms that support the
trading or transfer of
PRG tokens on the secondary market. Additionally, please state that a
public trading
market for the PRG tokens may never develop.
6. We note your disclosure that there are features that allow the number
of PRG tokens
available for circulation to be reduced, and that only 146,023,491 out
of 200,000,000 can
be issued. Please provide a breakdown of all of the tokens that were
reduced, explaining
the specific features that were utilized and how many tokens were
reduced pursuant to
each feature. Please also explain the rate at which the tokens will
continue to be reduced.
Use of Tokens
Track and Trace Computer Software, page 6
7. Please significantly revise this section of your Form 10 to provide
additional detail about
your primary business, including a complete description of your
blockchain and the
Ethereum platform upon which your tokens are based, how the tokens
will interact with it
and how transactions on the blockchain are validated. Please also
expand your disclosure
around the table presented on page 7 to explain in more detail how the
PRG "equivalent"
of fiat currency will be determined, how users will be notified of
changes in these prices
and who receives the payment (e.g., the validators, Paragon or both)
and in what amount
or percentage.
8. We note that users must use tokens to take action on your software
(i.e., use tokens to pay
"gas"). Please explain how the smart contract's prohibition of the
creation or issuance of
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
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additional tokens and the embedded formula that reduces the number of
tokens over
time will work with the software. Your response should address the
fact that users cannot
currently obtain more tokens or clarify how you intend for users to
obtain additional
tokens. If a user has a finite amount of tokens, please tell us how
you will continue to
expand and develop your platform, as well as whether you intend to
expand your user
base beyond those that purchased in the crowdsale.
9. We note your disclosure on page 7 that some parts of the program have
already been
completed. Please revise to clarify which parts have been completed,
and explain whether
people are currently using the completed aspects of the software.
10. We note that you maintain, or intend to maintain, a ledger for the
seed-to-sale operations.
Please also tell us whether you maintain a ledger for the ownership of
the PRG tokens.
Please expand your disclosure to describe the following:
Who is responsible for updating the ledger(s) to reflect
transactions in PRG tokens;
How holders to PRG tokens may ascertain their current balance and
the status of any
transfers; and
How transfers and other changes in holdings are communicated to
holders of PRG
tokens.
Please also clarify if the internal ledger will also be used to ensure
that transfers are being
conducted in compliance with the federal securities laws.
Cannabis Co-Working Space, page 7
11. Please revise to indicate whether the property has been sold or when
you expect the sale to
be completed. Please revise to disclose whether you anticipate any
proceeds from the sale
and explain your expected uses of such proceeds, if any. Please also
revise your
disclosure on page 12 to reflect the current status of the co-working
space. In addition,
please address the following:
Tell us when the decision was made to discontinue pursuing this
aspect of your initial
business plan;
Clarify whether the change in focus required approval from anyone
other than
management and the Board of Directors, specifically, the PRG token
holders;
If approval from the token holders was required, tell us whether
they agreed and how
their approval was obtained;
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 4 2019 Page 4
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Explain how the original rights conveyed to the token holders and
obligations imposed
on the company were altered by the change in your business; and
Tell us what interests, if any, current holders have in your
blockchain technology.
12. Noting your disclosure on page 14 that revenue for 2018 was primarily
represented by
income from the co-working space, please explain what will be the
company's sources of
revenue after the sale of the property.
Government Regulation, page 9
13. Please expand your disclosure in this section to discuss the federal,
state and
local regulations that are applicable to your cannabis business. In
your revisions, please
specifically address each of the "operational modules" in your track
and trace program,
including the Paragon Wallet, B2B Paragon Marketplace, Paragon
Management, Paragon
Distribution, Paragon Cultivation, Paragon Laboratory, Paragon
Manufacturing and
Paragon Retail. Please also discuss the Gibraltar regulations
regarding Know Your
Customer/Anti Money Laundering Procedures, or explain why they are not
relevant to
you. Finally, please discuss whether you have or plan to register as a
money transmitter
or money services business.
Item 1A. Risk Factors., page 11
14. Please revise to state that you are a Smaller Reporting Company rather
than a Small
Business.
Item 2. Financial Information
Overview, page 12
15. We note your disclosure in the last sentence of the second paragraph
that you expect to
continue to incur losses associated with the development of the
software. Please revise
this discussion to also address the impact of the refund offering and
the civil fine.
16. Please revise your disclosure in the third paragraph to disclose the
due dates and the
remaining payment amounts of the civil fine.
Liquidity and Capital Resource
Financial Condition and Management's Plans, page 16
17. We note your discussion of management's actions taken in an effort to
secure funding by
sale of the ParagonSpaces building and generating revenue stream by
continuing and
finishing development of your computer software. We also note your
disclosure around
the various operational modules with expected completion dates on
pages 15 and 16.
Lastly, we note that the company is evaluating raising additional
capital and implementing
expense reductions. Please revise your disclosure to address the
following:
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 5 2019 Page 5
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FirstName LastName
Provide a timeline of the expected closing for the sale of the
ParagonSpaces building
and quantify the expected net proceeds to be received by the
company at the time of
sale;
Provide more detailed disclosure around the costs expected to be
incurred in order to
reach each of the expected module completion dates on time, and
when you expect to
begin generating revenues from the computer software;
Provide a detailed description of the expected demands for cash
over the 12 months
following the most recent balance sheet date presented in your
filing, along with how
your expected sources of cash will meet those demands; and
To the extent that there are any additional available sources for
raising capital or plans
to implement expense reductions, provide clear disclosure, and
quantify the impact, of
those plans on your expected cash sources and demands.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
PRG Tokens, page 19
18. We note that your beneficial ownership disclosure is as of June 30,
2018. Please revise
your disclosure throughout this section to include the information
required by Item 403 of
Regulation S-K as of the most recent practicable date. Please make
similar changes to
your disclosure in "Item 11. Description of Registrant's Securities to
be Registered."
Item 6. Executive Compensation
Summary Compensation Table, page 22
19. Please revise to fill in the table to reflect the compensation earned
by each of the named
executive officers for the relevant periods. You may continue to note
in the footnotes
amounts that have been accrued and unpaid. Refer to Item 402(n) of
Regulation S-K.
Stock Option Plan [or Equivalent for PRG Tokens] and other Employee Benefit
Plans, page 22
20. We note that you have "[i]nformally" reserved PRG tokens for issuance
under Employee
Benefit Plans. Please clarify what is meant by "informally" and what
your plans are with
respect to implementing an Employee Benefit Plan that will issue
tokens.
Item 8. Legal Proceedings, page 23
21. Please revise your disclosure in this section and in your Business
section to discuss in
detail the enforcement action and the reasons for filing this
registration statement. Please
revise to describe the terms of the refund offer in more detail,
including the company's
plans for addressing any shortfalls in its available cash and the
effect of a shortfall on
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 6 2019 Page 6
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FirstName LastName
token holders seeking a refund. In addition, clarify how holders who
subsequently
transferred the tokens at a loss will be made whole. In addition,
please address the rights
of any holders of PRG tokens that affirmatively reject or fail to
accept the refund offer.
Please also discuss whether you have performed any analysis regarding
the potential
payout to claimants and disclose the maximum amount payable. Please
make any
corresponding changes to your disclosure in Note 11.
Item 10. Recent Sales of Unregistered Securities, page 24
22. We note that the company offered and sold PRG tokens in a Crowdsale as
well as through
a Pre-Crowdsale and Simple Agreement for Future Tokens ("SAFT")
Agreements.
However, we do not see disclosure elsewhere in the filing explaining
the terms of the Pre-
Crowdsale or SAFT. Please revise to disclose the terms of those
offerings and provide us
with your accounting treatment and analysis for the respective
agreements.
Item 11. Description of Registrant's Securities to be Registered, page 25
23. Please significantly revise this section of your Form 10 to discuss
the rights
associated with the PRG tokens in more detail. Your disclosure should
include, but not
be limited to, the following information about the tokens:
Clarify the role, benefits and usability of the tokens;
Discuss the rights upon the company's liquidation, sale, merger or
similar fundamental
transaction;
Clarify the value, profit or similar incentive to which holders
would be entitled;
Confirm that the PRG tokens may be divided into fractions of a
token, and explain
whether there are any limits on their division;
Provide additional detail regarding the "technical specifications
outlined in the White
Paper" that were programmed into the smart contract and the
"ERC-20" standard upon
which the tokens were created including a brief summary of the
material standards
applied to the PRG tokens; and
Clarify whether the smart contract is subject to change and, if
so, by whom.
Item 12. Indemnification of Directors and Officers, page 25
24. Please revise the second paragraph to include indemnification for
liabilities arising under
the Exchange Act.
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 7 2019 Page 7
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Voting Rights of PRG Tokens, page 25
25. We note your disclosure that PRG token holders have no legal voting
rights. However,
we note that the last paragraph on page 19 describes voting power with
respect to the PRG
tokens. Please revise to resolve this discrepancy.
Exhibits, page 27
26. We note that you have only filed a Certificate of Incorporation for
ParagonCoin Limited.
Please file any other articles or bylaws, or confirm that there are
none.
27. Please file the PRG Tokens Notice and Claim Form as an exhibit to the
registration
statement.
28. To the extent that the smart contract defines the rights of the PRG
token holders, please
file the form of smart contract, or a written summary as an exhibit to
the registration
statement. Refer to Item 601 of Regulation S-K for guidance.
29. We note that Exhibits 4.1 and 4.2 both contain exclusive forum
provisions in Section 19.
Please revise your disclosure to clarify whether the provisions are
intended to apply to
claims under the federal securities laws.
30. Please refer to Exhibits 4.1 and 4.2 and Sections 15, 16 and 17
therein, which address
disclaimers, limitations of liability and releases, respectively.
Please clarify that none of
these provisions constitute waivers of any right under the federal
securities laws or
advise.
31. We note that Exhibits 4.1 and 4.2 each include mandatory arbitration
provisions,
waiver of trial by jury provisions and provisions limiting the ability
to bring class action
suits. Please revise your disclosure to:
Describe each such provision in more detail, including how each
such provision will
impact your investors;
Disclose whether you intend for arbitration to be the exclusive
means for resolving
disputes, including any circumstances under which you may elect
not to use
arbitration;
Describe any questions as to enforceability under federal and
state law;
Clarify whether these provisions apply to claims under the federal
securities laws;
Clarify whether these provisions will apply to secondary
purchasers; and
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 8 2019 Page 8
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FirstName LastName
To the extent these provisions apply to federal securities law
claims, please revise the
disclosure to state that by agreeing to each such provision,
investors will not be
deemed to have waived the company's compliance with the federal
securities laws and
the rules and regulations thereunder.
Item 15. Financial Statements and Exhibits
Combined Statements of Operations, page F-4
32. We note that the 2017 period presented does not reflect the full 12
months in 2017, rather
only includes the period from April 26, 2017 (inception) through
December 31, 2017.
Please revise the 2017 column header accordingly.
Notes to Combined Financial Statements
Note 1: Nature of Operations, page F-7
33. We note that your financial statements have been presented on a
combined basis
consisting of ParagonCoin Limited, Paragon Coin, Inc. and
ParagonSpaces LLC
(collectively, the "Entities") due to its common ownership, management
and integrated
operations. However, the financial statements and registration
statement are labeled as
belonging to ParagonCoin Limited. Please address the following:
Explain your basis for presenting combined financial statements
and direct us to the
authoritative guidance you used to support your accounting and
presentation;
Clarify whether any of the Entities have a direct equity interest
in each other;
Provide clear disclosure about how the Entities are managed
together, including shared
resources, employees, cash management and whether there are any
legal restrictions
on cash transfers between those Entities. For example, tell us
whether
cash held by ParagonSpaces may be used to satisfy liabilities of
ParagonCoin Limited
or Paragon Coin, Inc., and vice versa; and
Tell us whether any of the Entities are considered to be variable
interest entities due to
arrangements between each other. Refer to ASC 810-10 and provide
us with your
accounting analysis.
Note 5: Digital Assets - Cryptocurrencies, page F-11
34. We note your tabular rollforward disclosing the activities of your
cryptocurrency assets
through December 31, 2017 and 2018. Please revise your table to
provide separate
rollforward information for each cryptocurrency (e.g., Ether, Bitcoin,
etc.) held for each
period presented.
35. We note that you recognized a realized gain on cryptocurrency holdings
of $4,336,187
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 9 2019 Page 9
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FirstName LastName
during 2017, which increased the balance of the asset on your combined
balance sheet at
December 31, 2017. We also note your accounting policy disclosure on
page F-9 that
cryptocurrencies are recorded at the lower of cost or fair value and
that you realize gains
upon sale of transfer of cryptocurrencies. Please explain to us why
the realized gain
during 2017 caused an increase to your cryptocurrency asset balance if
it relates to the sale
or transfer of such cryptocurrencies.
Note 6: PRG Token Obligation, page F-12
36. We note your disclosure stating that the PRG tokens, when sold,
represent an obligation of
the company and that you account for such obligation as akin to a debt
security in
accordance with ASC 320 Investments Debt and Equity Securities. ASC
320 applies to
investments in debt securities and not to financial liabilities. Given
that you have
concluded that the sale of PRG tokens creates an obligation for the
company to the token
holders, please provide us with your alternative accounting analysis
that identifies and
supports the nature of the liability you recognized (e.g., derivative
liability, financial
liability, contract liability, other nonfinancial liability) with
citation to the accounting
literature that governs its measurement and recognition. Tell us how
you considered the
following in your analysis:
Clarify for us how you considered the fact that token holders can
present PRG tokens
for settlement in cash as a result of your Settlement Agreement;
Tell us your consideration of whether token holders are customers
under ASC 606-10-
15 and whether a contract exists in accordance with ASC
606-10-25-1;
If you do not believe token holders are customers, tell us your
consideration of
whether the sale of tokens to non-customers should be evaluated
under ASC 610-20
Gains and Losses from the Derecognition of Nonfinancial Assets;
and
If you believe that the sale of the tokens is within the scope of
ASC 606-10 or ASC
610-20, explain how you considered constraining estimates of
variable consideration
(e.g., given your obligation to refund token purchases).
37. We also note that you indicated that the Project represents a "funded
software
arrangement." Please clarify whether you are evaluating the costs to
fulfill the PRG
Token Obligation as a "funded software arrangement" in accordance with
ASC 985-20
Software - Costs of Software to be Sold, Leased, or Marketed. Please
address the
following with respect to your accounting:
Provide us with your accounting analysis explaining in detail,
with reference to
authoritative literature governing "funded software arrangements,"
including how you
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 10 2019 Page 10
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FirstName LastName
contemplated whether your arrangements are in the scope of ASC
985-20 and whether
you have achieved technological feasibility;
Given your conclusion that the PRG tokens represent an obligation
of the company at
the time of issuance, explain to us why you also believe they
represent a funded
software arrangement;
Clarify whether the payments made on software development for
performance
obligations of $129,695 and $748,237 during 2017 and 2018,
respectively, represent
payments for assets where technological feasibility has already
been established;
Clarify for us whether you have concluded that you have achieved
technological
feasibility with respect to all software projects funded by token
holders or whether you
believe you have only achieved technological feasibility with
respect to certain aspects
or modules of your software projects. Revise to disclose the
aspects or modules of
your software projects where technological feasibility has been
established;
Explain to us whether your token agreement obligates you to create
a software
technology platform. If so, clarify for us how the obligation to
create a platform is
impacted by redemption of tokens for cash; and
Tell us what other authoritative literature, if any, you
considered in your accounting
analysis.
38. To the extent you have determined that you have not achieved
technological feasibility
with respect to some of the software projects funded by token holders,
explain to us how
you have also considered the guidance in ASC Topic 730-10 Research and
Development
regarding whether you have incurred research and development costs
that should be
charged to expense when incurred. Explain also how you considered ASC
730-20
Research and Development Arrangements, including whether or not the
Company has an
obligation to repay the PRG token holders.
39. We note from your disclosure on pages 14 and F-3 that you incurred
$2,040,880 for the
cost of the PRG offering, which was primarily marketing and
commissions on sales. We
also note that you determined that the sale of PRG Tokens (i.e., the
Token
Crowdsale) was akin to debt securities in accordance with ASC 320, as
discussed on page
F-14. Please tell us whether you considered the $2,040,880 cost of the
PRG offering could be viewed as debt issuance costs. Refer to ASC
835-30 and provide
us with your accounting analysis.
40. We note from your disclosure on page F-13 that you issued 3,603,522
PRG tokens to
advisors in the Token Crowdsale. Please address the following:
Jessica VerSteeg Lavrov
FirstName LastNameJessica VerSteeg Lavrov
ParagonCoin Limited
Comapany NameParagonCoin Limited
April 26, 2019
April 11 2019 Page 11
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FirstName LastName
Explain your accounting treatment for this transaction. In this
regard, tell us where
this transaction is reported in your combined financial statements
(i.e., combined
balance sheets, statements of operations, and statements of cash
flows). It might also
be helpful to provide us with illustrative journal entries;
Revise Note 3 (Summary or Significant Accounting Policies) and
your critical
accounting policies and estimates discussion in MD&A (pages 17 and
18) to disclose
your accounting policy for PRG tokens issued to vendors and cite
the authoritative
guidance your used to support your accounting treatment (i.e.,
initial recognition,
measurement and remeasurement, as applicable); and
Clarify whether you believe PRG tokens issued to vendors should be
accounted for as
a funded software arrangement and explain the basis for your
conclusion.
41. We note your disclosure that you have reserved "10,000,000 PRG tokens
held in a
community controlled reserve to be used for the best startup ideas as
voted by the PRG
community." Please define a "community controlled reserve." Tell us
who controls it,
how and where the tokens are currently being held. Please describe the
voting process. In
addition, please tell us how any transfers conducted under this
program will conducted in
compliance with the federal securities laws.
42. The amounts listed in the coin activity table do not appear to match
the amounts you have
disclosed elsewhere in the filing. On page 24, you state that you
issued 3,830,345 PRG
tokens to non-U.S. consultants and advisors, but only disclose
3,603,522 on the table. You
also do not include in the table the 353,628 tokens that you say you
issued in connection
with promotional codes and referrals. In addition, on page 6, you
state that you do not
have more than 146,023,491 PRG tokens that can be issued, but state in
the table that
Paragon Group holds 146,023,828 tokens. Please advise.
Note 8: Deficiency in Owner's Equity, page F-16
43. Please revise to define the term "our founder".
Note 11: Contingencies
SEC Enforcement Action and Settlement, page F-17
44. We note the terms of your settlement agreement, specifically the
requirements to provide
potential claimants a refund of the amount of consideration paid for
PRG tokens, plus
interest, less the amount of any income received thereon. Please
revise to clarify the form
of consideration (e.g., cash), if any, that will be repaid.
45. We note your disclosure that upon receipt of the cryptocurrencies that
you recorded a
liability (i.e., PRG Performance Obligation) for approximately $12.1
million. We also
note that the obligation was later reduced by $129,695 and $748,237
during 2017 and
Jessica VerSteeg Lavrov
ParagonCoin Limited
April 26, 2019
Page 12
2018, respectively, as a result or your accounting treatment as a
funded software
arrangement. Please expand your disclosure to clarify that the
potential liability related to
the refund offer, if any, could exceed the token obligation reported
in your combined
balance sheets.
46. We note that you are unable to reasonably estimate the amount of
interest that will be paid
and that you have not recorded a related liability in the accompanying
combined financial
statements, however your disclosure does not address any reasonably
possible losses in
excess of amounts accrued, if any. Please expand your disclosure to
provide an estimate
of the reasonably possible losses or range of loss in excess of amount
accrued or a
statement that such an estimate cannot be made. Refer to ASC
450-20-50-4(b).
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Robert Klein, Staff Accountant, at (202) 551-3847 or
Hugh West,
Accounting Branch Chief, at (202) 551-3872 if you have questions regarding
comments on the
financial statements and related matters. Please contact Erin Purnell, Staff
Attorney, at (202)
551-3454 or Erin E. Martin, Legal Branch Chief, at (202) 551-3391 with any
other questions.
FirstName LastNameJessica VerSteeg Lavrov Sincerely,
Comapany NameParagonCoin Limited
Division of
Corporation Finance
April 26, 2019 Page 12 Office of
Financial Services
FirstName LastName