HART & HART, LLC
ATTORNEYS AT LAW
1624 Washington Street
Denver, CO 80203
William T. Hart, P.C. ________ harttrinen@aol.com
Will Hart (303) 839-0061 Fax: (303) 839-5414
June 14, 2017
John Stickel
Mail Stop 3561
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
RE: The Diamond Cartel, Inc.
Registration Statement on Form S-1 Amend. #1
File No. 333-215884
This office represents The Diamond Cartel, Inc. (the "Company"). Amendment
No. 2 to the Company's Registration Statement has been filed with the
Commission. This letter provides the Company's responses to the comments
received from the staff by letter dated May 10, 2017. The paragraph numbers in
this letter correspond with the numbered paragraphs in the staff's comment
letter. The numbers under the "Page No." column refer to the pages in the
Company's Registration Statement where the Company's response to the particular
comment can be found.
Page No.
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1. Below is a listing of four companies that filed registration
statements with the Securities and Exchange Commission and
which indicated in their registration statements that they were
"blank check" companies.
Name Registration Number
---- -------------------
M.I. Acquisition, Inc. 333-212675
KLR Energy Acquisition Corp. 333-209041
Stellar Acquisition III. Inc. 333-212377
Forum Merger Corporation 333-216842
At the time the registration statements of these issuers were
filed, and at the time these registration statements became
effective, none of these issuers had net tangible assets above
$5,000,000. As a result, and in accordance with Rule 3a51-1 of
the Commission, the shares which were registered by these
companies were penny stocks. However, the Commission has adopted
the position that an issuer will not be deemed to issue penny stock
if it has a minimum of $5 million of net tangible assets
immediately following its IPO.
We believe the same principle should apply to the Company.
The Company plans to acquire another entity solely with shares of
its common stock. In its offering, the Company is not raising
any capital and none of the Company's shareholders are selling
their shares. At some point in time, after
1
the effective date of the Company's registration statement, the
Company will identify a business it wants to acquire and will
begin to negotiate the terms of the potential acquisition. Once the
terms have been agreed upon, the Company will sign an agreement with
the shareholders of the target entity reflecting the terms of
the acquisition.
Once the Company enters into an agreement to acquire the
target entity, the Company will file an 8-K report under Item
1.01 of Form 8-K, which will contain all the information required
by Rule 144(i)(2), as well as the number of shares the Company
proposes to issue in connection with the acquisition and the method
the Company used to determine the value of the target entity. The
Company will also file a post-effective amendment to its
registration statement disclosing the same information in the
8-K report, plus any other information required by the
instructions to Form S-1 and Regulation S-X.
The agreement with the shareholders of the target entity
will provide, among other things, that the Company's offer to
exchange shares of its common stock for shares of the target
entity is subject to:
o The shareholder's receipt of the post-effective
amendment;
o The shareholders of the target entity owning a
certain percentage of the outstanding shares
of the target entity affirming the exchange of
their shares for the shares of the Company's
common stock. The percentage required for
affirmation will be negotiated between the
Company and the target entity.
The agreement with the shareholders of the target entity will be with each
shareholder. No merger will be involved and it is not expected the target entity
will not call a meeting of its shareholders to approve the terms of the
agreement.
Once the Company completes the acquisition of the
target entity, the Company will file an 8-K report under Item
2.01 of Form 8-K.
The Company will not issue any of its securities until
the shareholders of the target entity, owning the minimum number
of shares required by the Company's agreement with the target
entity, have accepted the Company's offer with respect to the
exchange of their shares with the Company.
For the following reasons, we are of the opinion that
Rule 419 is not applicable to the Company's offering,
o when the Company enters into negotiations with
the target entity Section (a)(2)(i) will not
apply since the Company no longer has the
intention of acquiring an unidentified company;
o Section 2(b)(2) requires the deposit of proceeds
received from the shareholders which have purchased
securities offered by means of the registration
statement. In the case of the Company's offering,
there will be no deposit of funds since the Company
is not raising any cash by means of its offering;
2
o Section (e)(2) requires that the fair value of any
business to be acquired must be at least 80% of the
maximum offering proceeds. However, the Company is
not raising any cash by means of its offering;
o Section (b)(3) requires the deposit into an
escrow account of securities issued in connection
with the offering. Section (e)(3) provides for
conditions for the release of these securities, one
condition of which is the approval of the terms
of the offering (Section (e)(2)) by persons who
had previously invested in the offering. However,
in the case of the Company's offering an escrow
account serves no purpose since:
o The only "investors" will be the shareholders
of the target entity who have affirmed their
agreement to proceed with the share exchange;
o No securities will be issued until the
requisite number of shareholders of the
target entity have accepted the Company's
offer with respect to the exchange of their
shares for shares of the Company's common stock;
o Rule 419 was designed to allow investors, who
purchased shares of an issuer without knowing the
ultimate business of the issuer, to elect,
once the business of the issuer was determined,
to remain as shareholders of the issuer or to have
their investment returned. In the case of the
Company's offering, no one will become a shareholder
of the Company until the business of the Company is
known.
The staff has asked what rule permits the Company to
conduct the offering which the Company proposes to make. We
believe the better question is what rule prevents the Company
from conducting its proposed offering since Section 5 of
the Securities Act of 1933 requires the Company to register
the securities the Company plans to offer. We see no reason why
the Company cannot proceed with its offering as structured. N/A
2. The Registration Statement has been amended to
provide an analysis of the transaction the Company is
registering. The Company does not know when it will identify
a suitable acquisition candidate. 14, 15
3
3. Comment complied with. 9
4. The Company was incorporated on August 17, 2005.
The Company, through a network of independent
distributors, planned to offer to the public a broad
selection of high quality loose diamonds and fine jewelry,
including rings, wedding bands, earrings, pendants,
necklaces and bracelets. The Company planned to market
its jewelry through a network marketing program
comprised of independent distributors that would sell
jewelry directly to their customers. Each independent
distributor would have his or her own replicated Company
website which would showcase all the Company's jewelry
available for sale. To fund the development of its business,
the Company, in 2016 raised approximately $400,000 from the
sale of its common stock to private investors. The Company
abandoned its business plan relating to the jewelry business
in 2008.
In Footnote 172 to SEC Release 33-8869 the
Commission stated that a "startup company" was not a shell
company. When the Company was in the startup stage, it
sold approximately 250,000 shares of its common stock. N/A
5. Comment complied with. 19
6. Comment complied with. F-10
7. Comment complied with. Exhibit 23
If you should have any questions concerning the foregoing, please do not
hesitate to contact the undersigned.
Very Truly Yours,
HART & HART, LLC
/s/ William T. Hart
William T. Hart