CHILCO RIVER HOLDINGS INC.
355 Lemon Avenue, Suite C
Walnut, CA 91789
May 5, 2006
Division of Corporate Finance
Securities and Exchange Commission
Mail Stop 7010
100 F Street, N.E.
Washington, D.C. 20549-0405
ATTN: Scott Anderegg
Re: Chilco River Holdings Inc. - SEC File No. 333-131946
Responses to the Securities and Exchange Commission
Staff Comments dated May 4, 2006 Regarding
Amendment No. 1 to the Registration Statement on Form SB-2
Filed on April 13, 2006
Ladies and Gentlemen:
This letter responds to the staff's comments set forth in the May 4, 2006
letter regarding the above-referenced Amendment No. 1 to Form SB-2 registration
statement. For your convenience, the staff's comments are included below and we
have numbered our responses accordingly.
In connection with our response to the staff's comments, we hereby
acknowledge that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff comments
do not foreclose the SEC from taking any action with respect to the
filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the SEC or any person under the federal
securities laws of the United States.
Our responses are as follows:
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 2
Prospectus Cover Page
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Staff Comment No. 1:
We note your response to comment 4 of our letter dated March 17, 2006.
However, we continue to note your use of parenthetical phrases where the
meaning is clear from the context. For example, you define National
Association of Security Dealers as ("NASD") on page 1, the Over-the-Counter
Bulletin Board as ("OTCBB") on page 1 and Chilco River Holdings as ("we,"
"us," ""Chilco," or "our company") on page 3. These are examples only,
please review your entire prospectus and revise. See Rule 421(c) of
Regulation C.
The Company's Response:
The Company has revised its prospectus to remove parenthetical phrases
where the meaning is clear from the context.
Our Mineral Exploration Business, page 33
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Staff Comment No. 2:
We note your response to comment 14 of our letter dated March 17, 2006.
Essentially, in response to our prior comments 3 and 14 you have responded
that you have exited the mineral exploration business and have abandoned
the PEG claim. Nevertheless, we note your statement on page 33 that you
"currently own all rights, title and interest in one property located in
British Canada." Further, in the same paragraph we note your statement that
since your inception, you "have been engaged in the business of acquiring
mineral exploration properties." If you have exited the mineral exploration
business, please revise your disclosure to reflect this fact. If you have
not fully exited, please revise your disclosure in accordance with our
relevant comments contained in our letter dated March 17, 2006.
The Company's Response:
The Company has revised the disclosure under "History - Our Abandoned
Mineral Exploration Business" at page 33 of the prospectus. The Company,
pursuant to Section (e) of the Acquisition Agreement, transferred ownership
of the property back to Nicholson & Associates Natural Resources
Development Inc., which terminated all future obligations under the
agreement.
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 3
Acquisition of Bruce Hotel and Casino, page 34
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Staff Comment No. 3:
We note your response to comment 17 of our letter dated March 17, 2006.
While it is helpful for investors to know that the acquisition was at
arms-length, our prior comment 17 concerned whether the acquisition was
from unaffiliated parties. For this reason, we reissue our prior comment
17.
The Company's Response:
The Company has added the following sentence under "Acquisition of Bruce
Hotel and Casino" at page 34 of the prospectus:
None of the shareholders of Kubuk International, Inc. were affiliates
of Chilco River Holdings, Inc. prior to this share exchange.
This sentence was added to clarify that the acquisition was from
unaffiliated parties.
Stock Subscription Agreement, page 36
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Staff Comment No. 4:
We note your response to comment 18 of our letter dated March 17, 2006. In
this regard, please provide a fuller discussion of the "certain debt
obligations" and identify the "lenders."
The Company's Response:
The Company has revised the disclosure under "Share Subscription Agreement"
at the bottom of page 36 to clarify that Chilco borrowed $100,000 in bridge
loan financing from United Triumph Inc. to satisfy current liabilities due
immediately prior to closing. United and Chilco agreed to convert the
bridge loan into shares of common stock of Chilco at $2.00 per share.
United was arm's-length to Chilco and was not an affiliate.
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 4
Bruce Hotel and Casino Business, page 38
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Staff Comment No. 5:
We note your response to comment 23 of our letter dated March 9, 2006. We
further note the inclusion in your disclosure of your hotel occupancy rate.
Please revise your disclosure in accordance with the remainder of our prior
comment 23 concerning whether you are subject to seasonal fluctuations in
your business and whether you rent office space to others or if the office
space indicated is for your corporate offices only.
The Company's Response:
The Company has revised the disclosure under "Bruce Hotel and Casino
Business" at page 38 of the prospectus to include a table that provides the
average monthly occupancy rate during 2005 and the first three months of
2006. The Company does not believe that its hotel occupancy is subject to
seasonal fluctuation.
Liquidity and Capital Resources, page 41
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Staff Comment No. 6:
We note your response to our prior comment #28. However, due to the fact
that you did not address all of the issues raised, we reissue our prior
comment.
The Company's Response:
The Company has revised the disclosure under "Liquidity and Capital
Resources" beginning on page 47 of its prospectus to provide the requested
disclosure.
Staff Comment No. 7:
We have reviewed your reports and documents filed subsequent to the
acquisition. We note that your disclosures regarding your ability to
finance and complete the renovations of your casino, gaming room and
restaurant in a timely manner do not appear to have improved substantially
through the current date. That is, as this is the second quarter of fiscal
2006, it appears that you should be better able to estimate the likelihood
of reopening your casino, gaming room and restaurant in the second half of
fiscal 2006. You know that you require approximately $4,200,000 to renovate
and reopen the gaming room. Disclose the additional amounts you require to
renovate your restaurants and any other areas as well. You know that you
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 5
sold approximately $2,000,000 in "units" although only a portion of that
amount had been received in cash as of the most recent balance sheet
presented. Further, only half of the proceeds received for the units have
been allocated to renovation of the casino floor. Please update the
disclosures in your next amendment to provide your most current estimates
regarding your progress to date toward reopening each of these areas in
fiscal 2006. When preparing your estimates, you should take into account
the time necessary to complete the actual renovation process and to hire
and train adequate staff, as well as the likelihood of acquiring adequate
financing for your activities.
The Company's Response:
The Company has added the disclosure requested by the staff. The Company
continues to believe that, subject to obtaining sufficient financing, the
Company will be able to complete renovations in the second half of 2006.
The Company has described its contingency plan in the event that such funds
are not available.
Financial Statements
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Consolidated Statements of Operations and Comprehensive Income, page F-5
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Staff Comment No. 8:
One of the components of revenues is not captioned. We assume that the
first line item in under this heading should be captioned "Casino." Please
revise, as appropriate.
The Company's Response:
The Company confirms that the first line should read "Casino." The Company
has revised its Consolidated Statement of Operations and Comprehensive
Income to reflect such change.
Staff Comment No. 9:
Please provide us with a schedule of the material components of other
income/gains and other expenses/losses for each period presented.
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 6
The Company's Response:
The Company has attached the schedule requested by the staff as an
attachment to this response letter.
Note 1. Business Organization and Reorganization, page F-8
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Staff Comment No. 10:
Refer to your response to our prior comment 43. Although Chilco River
Holdings has participated in a reverse acquisition and the historical
financial statements of Kubuk are now considered to be those of Chilco
River Holdings, Inc., please respond to our previous comment. Prior to the
acquisition, Chilco River Holdings agreed to make advance royalty payments
of $25,000 each year commencing November 3, 2006 until the commencement of
commercial production. Regardless of whether you have suspended any mineral
exploration effort with respect to these claims, it appears that the
sellers (Nicholson & Associates Natural Resource Development, Inc.) may
have reason to look to the combined and/or successor entity for payment of
the advance royalty payments due under the Sale and Acquisition Agreement.
For that reason, it appears that this contingent obligation should be
disclosed whether or not the historical financial statements of the
pre-acquisition entity are included in the filing. Please revise or provide
support for your apparent conclusion that the sellers will not attempt to
exercise their legal rights under the sales contract.
The Company's Response:
As indicated in the Company's response to Comment 2, no advance royalties
are due under the agreement with Nicholson & Associates Natural Resources
Development, Inc. as the Company terminated the agreement in accordance
with Section (e). Accordingly, the Company does not believe any additional
disclosure is required.
Note 9. Share-Based Consulting Payment, page F-17
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Staff Comment No. 11:
It appears that you have issued all of the shares to Clear Channel upon
entering into the contract and that these shares are non-forfeitable.
Please clarify in the filing. In addition, if our assumptions are correct,
please explain the business reasons for structuring a three year service
contract in this manner.
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 7
The Company's Response:
The Company confirms that all shares issued to Clear Channel under the
consulting agreement are non-forfeitable. The Company has added disclosure
under "Transactions with Clear Channel" at page 20 of the prospectus to
state that the shares are non-forfeitable. The Company has added similar
disclosure in Note 9 - Share Base Consulting Payment, at page F-17 of its
financial statements.
The consulting agreement was for an initial term of one year; however, due
to delays in the Company's ability to raise capital and complete the
renovations of its hotel and slot room, the Company and Clear Channel
agreed to delay the implementation of the Company's marketing efforts and
business development program. In addition, because of the delay in
reopening the Company's casino, the Company was not in a position to hire
or appoint officers due to the lack of sufficient cash-flow from
operations. As a result of the decision to delay implementation of the
Company's marketing and business development efforts, the parties agreed to
extend the term of the consulting agreement to three years. The shares
issued to Clear Channel were issued under the assumption that the term of
the agreement would be only for a term of one year. Consequently, the
shares are not subject to forfeiture.
Exhibit 5.1
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Staff Comment No. 12:
We note your response to comment 49 of our letter dated March 17, 2006. We
also note the assumption and qualifications to your opinion. Please revise
to clearly state that the shares will be validly issued, duly authorized,
fully paid and non-assessable when issued under the laws of the State of
Nevada.
The Company's Response:
The Company has received a revised opinion letter from Nevada counsel. The
opinion letter is attached as Exhibit 5.1.
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 8
Thank you for your review of the filing. If you should have any questions
regarding the amended SB-2 or our response letter, please do not hesitate to
contact Kenneth Sam at Dorsey & Whitney LLP at (303) 629-3445.
Respectfully submitted,
/s/ Tom Liu
Tom Liu
Chief Executive Officer
Securities and Exchange Commission
File No. 333-131946
May 5, 2006
Page 9
Chilco River Holdings
Other Income/Expense
2004 & 2005
Slot
Machine Casino Accrual
Cash Cash Loss on Impair- A/R Adjustment
Count Count Disposal ment Loss Notarization & for Pension & Additional
(short)/ (short)/ of Assets on Processing Payroll Bank Penalties Gaming
Total over over (1) Assets(2) charge (3) Taxes(4) Charge (5) Tax (6) Subsidies Misc
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2005
OTHER
INCOME 2,879 17,989 3,286
2005
OTHER
EXPENSES 228,014 93,384 134,630
2004
OTHER
INCOME 138,152 57,481 35,080 44,088 10,713 1,503 47,720
2004
OTHER
EXPENSE 135,679 28,705 6,061 78,667 22,246
(1) Loss on disposal of casino equipment, furniture and fixtures
(2) Reconized impairment loss on assets
(3) Costs related to notarization and processing fees charged in
connection accounts receivables in Peru.
(4) Adjustment for unapplied pension and tax withholding
(5) Government assessed penalty fees
(6) Additional gaming taxes and interest on 2003 slot machine and
table game revenues as a result of retroactive tax law changes in
2004.