May 2, 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. 2 to
Draft Offering Statement on Form 1-A
Submitted April 3, 2019
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.
Draft Offering Statement on Form 1-A
General
1. Please refer to comment 10 in our letter dated November 29, 2018. Your
disclosure
continues to indicate that you do not believe the tokens "should be
characterized as either
debt or equity under the securities laws." Please refer to Rule 261(c)
and Rule 251(a) of
Regulation A and revise your offering circular accordingly.
2. We note your response to comment 4 and your revised disclosure,
including on page 34,
and we are unable to agree with your analysis. 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.
Adi Sideman
YouNow, Inc.
May 2, 2019
Page 2
3. We note your response to comment 42 in our letter dated November 29,
2018 with respect
to whether:
Etherium blockchain validators and Props Blockchain validators
that could receive
compensation in connection with completing transfers of Props
Tokens are broker-
dealers;
YouNow, Props PBC, the Ethereum blockchain, the Props Blockchain,
the validators
of the Ethereum blockchain and other, future-selected validators
of the Props
Blockchain are not required to register as transfer agents or
clearing agencies;
the Props Network, the Props Live Video App and the Game Show App
should not be
viewed as exchanges or ATSs;
Selling Props Tokens at the same time that you may receive Props
Tokens in
connection with the purchase by users of digital goods does not
violate Regulation M;
and
Neither you nor your affiliates are required to register as a
money transmitter or
money services business.
While we do not have any further comments about these issues at this
time, our decision
not to issue additional comments should not be interpreted to mean
that we either agree or
disagree with your response.
4. Please advise us of any interests Props PBC holds in subsidiaries,
including whether those
subsidiaries are wholly owned, majority owned or minority owned, and
provide us
supplementally with your analysis as to whether interests in any of
those subsidiaries
subject those entities to the Investment Company Act of 1940.
5. Please advise us supplementally whether YouNow, Inc. or Props PBC
intend or reserve
the right to repurchase any of the outstanding Props Tokens and, if
so, how the repurchase
price of such tokens would be determined.
6. We note the statement from your letter dated March 1, 2019, that
"YouNow and Props
PBC may at certain times hold significant portions of the total value
of their assets in
Props Tokens." Please advise us supplementally whether purchasers of
Props Tokens
profit from YouNow, Inc. and/or Props PBC holding Props Tokens.
The systems and devices of the Props Network may be the target of malicious
cyberattacks . . . ,
page 19
FirstName note your disclosure on pages 20 and 32 regarding a potential data
breach into your
7. We LastNameAdi Sideman
Comapany NameYouNow, Inc. revise these risk factors to discuss any significant
risks arising to
user data in 2017. Please
May 2,holders of your securities as a result of this potential data breach.
2019 Page 2
FirstName LastName
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany NameYouNow, Inc.
May 2, 2019
May 2, 2019 Page 3
Page 3
FirstName LastName
We could become "reporting companies" with significant additional reporting
obligations under
the Exchange Act . . . , page 43
8. We note your disclosure in this risk factor and on page 118 that you
do not intend to
engage a transfer agent in this offering, in part, because "the types
of activities a transfer
agent would normally engage in are performed automatically on the
blockchain." Please
provide us with a detailed analysis of the specific activities that
the blockchain will
perform in comparison to the activities typically performed by a
transfer agent.
Dilution 49, page 49
9. Disclose why you have not included the secondary distribution of
45,000,000 Props
Tokens in connection with the Props PBC Offering in your Dilution
Table
considering Props PBC is a wholly-owned subsidiary of YouNow, Inc. and
the inclusion
of these tokens in your Token Supply disclosure on page 81.
Current Assets, Liabilities and Stockholders Equity (Deficit), page 50
10. We note your response to comment 12. Please address the following:
Disclose the nature of undeposited funds of $1,444,735 and how, if
undeposited as of
December 31, 2017, these funds contributed to the reduction in
current assets as of
December 31, 2018;
Disclose the gross proceeds received in the sale of digital
currencies and the amount of
reductions related to impairments for the periods presented; and
Clarify that your deficit increase of $13,904,786 was due to your
2018 net loss.
Management's Discussion and Analysis of Financial Condition and Results of
Operations,
Year ended December 31, 2017 Compared to Year ended December 31, 2018, page 53
11. We note that revenues declined from $15,409,155 in 2017 to $12,377,332
in 2018 due to a
decline in user spend on digital goods on the YouNow platform and that
you expect that
digital goods revenue related to the sale of Bars will decrease in the
future due to
declining traffic trends. In order to provide investors with
visibility into your revenue
trends, please disclose the number of users and average spend per
user, as well as
information on the declining traffic trends for the periods presented.
Critical Accounting Policies and Significant Judgments and Estimates, page 62
12. Please provide us with information which describes the ordinary course
of business
activities of the entity, including an understanding of the Company's
current and future
plans to derive revenue from the sale of digital goods purchased by
users to support the
Company's broadcasters and through advertising. Specifically, please
address whether the
Company's issuance of Props Tokens will supplement, amend or replace
its existing sales
of digital goods and advertising.
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany NameYouNow, Inc.
May 2, 2019
May 2, 2019 Page 4
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FirstName LastName
13. Please address whether there are any circumstances where the Company
is obligated to or
may elect to purchase the tokens back from a token holder. If so,
please describe the
circumstances and how the Company would account for the purchased and
held tokens.
14. We observe the Company's reference to ASC 606 by analogy as well as
the Company's
determination that the token issuances are within the scope of ASC
606. Please provide
the Company's analysis for evaluating the scope of ASC 606 for the
token issuances and
whether the Company believes the guidance is directly applicable or
applied by analogy.
Please also tell us how the Company considered alternatively whether
the token issuances
should be accounted for under ASC 610-20 as the sale or transfer of
non-financial assets
to counterparties that are not customers, or under ASC 985-20 as a
funded software
development arrangement (i.e., ASC 985-20-25-12).
To the extent you have determined that you have not achieved
technological feasibility
with respect to 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.
15. Please describe the rights of the token holders and obligations the
Company has to
perform under the token offering. We note the "Offering Summary"
references token
features, including: Application-Specific Premium Features, Tipping,
Voting and Network
Status. Please clarify whether these features, and any other features,
are current rights of
the token holder or possible future rights. Specifically, please tell
us what obligation, if
any, the Company has under the terms of the token to provide features
or services to the
token holder.
16. With respect to the token issuances, please tell us what promises in
the contract, the
Company identified (i.e., ASC 606-10-25-16 through 25-18) as well as
the Company's
basis for whether those promises are distinct and thus represent
individual performance
obligations or represent a single combined performance obligation
(i.e., ASC 606-10-25-
19 through 25-22).
17. We observe that token holders may be entitled to discounts for the
purchase of other
goods or services from the Company (i.e., purchase of in-app virtual
goods). Please
confirm for us whether this is a current right of the token holder or
potential future right.
Further, provide the Company's analysis regarding whether this feature
represents a
material right in accordance with ASC 606-10-55-41 through 55-45.
18. We further observe that the token holder may be entitled to an
additional share of revenue
based on the number of tokens held. Please confirm for us whether this
is a current right
of the token holder or potential future right. Further, please provide
an illustrative
example of how this feature will impact the revenue arrangement with
related content
providers. To the extent not discussed in response to the comment
above, discuss how
this feature was considered in the Company's evaluation of promises
and performance
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany NameYouNow, Inc.
May 2, 2019
May 2, 2019 Page 5
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FirstName LastName
obligations related to the token issuance.
19. We understand the Company recognizes revenue immediately upon the
distribution of
Props Tokens. Please clarify when the Company's identified performance
obligations are
satisfied. Specifically, in your analysis, address how the Company
considered the fact
that tokens may be held by token holders (rather than consumed within
days of issuance),
as well as the right to future discounts, premium status and other
features provided to the
token holder.
20. We observe that the Company has determined that the issuance of Props
Tokens to
vendors, employees, users, broadcasters, etc. will be expensed at the
time of issuance
unless subject to a vesting schedule whereby the expense will be
recognized pro rata over
the vesting term. Please clarify whether the issuance of Prop Tokens
to vendors,
employees, users, broadcasters, etc. (i.e., non-customer
counter-parties) has already
occurred or if such issuances are contemplated for a future date.
Please also describe the
proposed accounting for such issuances (including discussion of the
credit side of any
expenses recognized by the Company).
Description of the Props Tokens Being Offered
Terms of the Token Contract, page 76
21. Please revise to clarify the purpose of the "bondable" rule associated
with the token
contract and the necessity of a 45-day waiting period to "unbond" the
tokens.
Token Supply, page 82
22. We note that approximately 260,000,000 tokens will be allocated to
wallets controlled by
YouNow for the purposes of issuance to equity investors and current
and future
employees. You also indicate that you may determine to use such tokens
for other
purposes "including distribution pursuant to this offering circular."
Please revise to clarify
that to the extent you intend to reallocate these tokens for issuance
under this offering
circular, you will file a post-qualification amendment. Refer to note
to Rule 253(b) of
Regulation A.
Token Transfers, Generally, page 83
23. Please tell us how you intend to enable subsequent transfers of the
Props Tokens being
issued in this offering in compliance with the federal securities
laws. In addition, in all
instances wherein you discuss the potential secondary trading of the
tokens, including, for
example, the discussion of secondary trading on page 130, please
revise to clearly indicate
that currently there are no registered or approved third-party
platforms to support the
secondary trading of your tokens.
24. We note that YouNow intends to pay the Ether "gas" fee associated with
any transfer of
greater than fifty Props Tokens. Please clarify who is responsible for
paying the gas fee
Adi Sideman
YouNow, Inc.
May 2, 2019
Page 6
for transactions in smaller amounts. Please also discuss the factors
that YouNow will take
into consideration when determining whether to pay the gas fees for
smaller transactions
or for transactions that occur on third party apps.
Description of Business
Assignment, Decentralization, page 112
25. We note your response to comment 24 and your disclosure in this
section stating that you
may in the future entrust the account with the ability to effect
changes to the Props
Network smart contract to a DAO and that such a change would "require
the approval of
the board of directors of Props PBC and the substantial support of the
our [sic] community
of users." Please revise to disclose how you would communicate such a
change to your
community of users and how such users' input would be solicited and
given.
Pricing, page 130
26. We note your response to comment 28 and your analysis as to whether
your future pricing
structure will constitute an "at the market" offering. We do not have
any follow up
comments about this issue at this time. Our decision not to issue
additional comments
should not be interpreted to mean that we either agree or disagree
with your response. In
addition, please revise your disclosure to clarify that you will
announce any changes to
your price in either a post-qualification amendment or supplement,
depending on the facts
and circumstances at the time of the change. In this regard, we refer
you to Rule
252(f)(2)(ii) and Rule 253(g)(2) of Regulation A for further guidance.
Independent Auditors' Report, page F-2
27. Please have your auditor revise the audit opinion to include its
signature as required.
Notes to Consolidated Financial Statements
(H) Intangible Assets Other Than Goodwill
Digital Assets, page F-8
28. You state that as of December 31, 2018, the cost basis of your digital
currencies was in
FirstName LastNameAdi Sideman
excess of the fair market value. Please revise to disclose the amount of
the cost basis in
Comapany NameYouNow, Inc. address the reasons for not recording this difference
as an
excess of the fair value and
May 2,impairment 6
2019 Page loss.
FirstName LastName
Adi Sideman
FirstNameInc.
YouNow, LastNameAdi Sideman
Comapany NameYouNow, Inc.
May 2, 2019
Page 7
May 2, 2019 Page 7
FirstName LastName
You may contact Michelle Miller, Staff Accountant, at (202) 551-3368 or
Marc Thomas,
Staff Accountant, at (202) 551-3452 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.
Sincerely,
Division of
Corporation Finance
Office of Financial
Services