SEC Company Response from SUPERIOR GALLERIES INC (CIK 0001091539) — Dec 2, 2004
SUPERIOR GALLERIES INC (CIK 0001091539)
Date: Dec. 2, 2004 · CIK: 0001091539 · Accession: 0001019687-04-002716
AI Filing Summary & Sentiment
File numbers found in text: 333-119253
Letter
December 2, 2004 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0406 Attn: Matthew Benson, Esq.
Re: Superior Galleries, Inc. Registration Statement on Form SB-2 Commission File No. 333-119253 -----------------------------------
Dear Mr. Benson:
We are concurrently filing Amendment No. 1 to the Registration Statement on Form SB-2 of Superior Galleries, Inc., File No. 333-119253. This letter is in response to your comment letter of October 22, 2004. The paragraph numbers set forth below correspond to the paragraph numbers set forth in your October 22, 2004 letter. The page number references in the headings below are to the page numbers of the original Registration Statement, not this Amendment.
Registration Fee Table ----------------------
1. Regarding your comment pertaining to Rule 416, please note that the intent of footnote 1 under the Registration Fee Table was not to include in the Registration Statement shares issuable under a "floating conversion rate." Instead, that language is intended to address conventional antidilution adjustments, as described in Rule 416 and Telephone Interpretation No. 3S included in the March 1999 Supplement of the Telephone Interpretations Manual. The antidilution provisions include conventional "cheap stock" protections, which provide for an adjustment to the conversion ratio if the Company issues stock in the future at a price less than the current conversion price, but if there is no such issuance then no adjustment is made, other than for stock splits, stock dividends, etc. We have modified the language of footnote 1 under the Registration Fee Table and footnote 2 under the Principal and Selling Shareholders table on page 43 of the Prospectus in order to clarify this issue. Please see also our additional disclosure regarding adjustments in the conversion rate in the prospectus on pages 48 and 49.
<PAGE>
Securities and Exchange Commission December 2, 2004 Page 2
Cover Page ----------
2. We have made several changes to the cover page in response to this comment. However, please note that Stanford Venture Capital Holdings, Inc. does not presently intend to sell all of its shares of common stock, as suggested in your letter. The resale of these shares is being registered by the Company in order to comply with a contractual requirement to do so, and in order to provide Stanford with the flexibility to sell the shares at a future time should it wish to do so.
3. We have updated the closing stock price to the most recent practicable date. Please note that since this stock is very thinly traded, there may not be a closing sale price for every trading day.
Prospectus Summary, page 3 --------------------------
4. We have made the change you requested, on page 3.
5. We would like to retain the last sentence of the second paragraph under "Our Company," on page 3, so that it is clear to the reader that in making these references, we refer to both Superior Galleries, Inc., and its immediate predecessor, Tangible Asset Galleries, Inc. We believe that otherwise there is a possibility of confusion arising from the change in name and domicile of the Company that occurred on June 30, 2003.
The Offering, page 4 --------------------
6. We have deleted the third bullet point under footnote 2 on page 4, as it is unnecessary.
Risk Factors, page 5 --------------------
7. We have revised the risk factor subheadings, as requested.
8. We have eliminated the generic disclosures contained in the risk factors section, as requested.
9. We have added a new risk factor on page 11 regarding the potential adjustment of the conversion ratios for the Company's Series B Preferred Stock and Series D Preferred Stock.
10. As requested, we have relocated the risk factor regarding Stanford Venture Capital Holdings, Inc.'s control to page 6, as the fifth risk factor.
<PAGE>
Securities and Exchange Commission December 2, 2004 Page 3
11. We have added a new risk factor regarding the Company's indebtedness on page 6. It is not true, however, that the Company will need to incur more indebtedness to service its indebtedness, as the Company's current indebtedness is being serviced from cash flow from operations. Our risk factor captioned "If we are unable to obtain additional capital..." on page 8 discusses the possible effects of the Company's inability to raise additional capital. With respect to the last sentence of comment 11, the Company is currently in compliance with all terms of its indebtedness.
Our business of selling premium collectibles..., page 5 -------------------------------------------------------
12. We have added the requested disclosure regarding the Company's primary competitors. See the risk factor captioned "If we are unable to compete successfully..." on page 5.
Our success depends on our management team..., page 7 -----------------------------------------------------
13. The risk factor regarding the Company's management team has been revised as requested, and now pertains only to its CEO, Silvano DiGenova. See the risk factor captioned "The loss of the services of our Chief Executive Officer..." on page 7.
Our quarterly operating results may vary..., page 7 ---------------------------------------------------
14. The risk factor regarding variations in operating results has been revised to more clearly describe the risks we face. See the risk factor captioned "Our quarterly operating results may vary..." on pages 7-8.
Shares of our common stock eligible or to become eligible..., page 10 ---------------------------------------------------------------------
15. This risk factor has been revised to explain the volume limitations and other requirements of Rule 144. See the first risk factor on page 10.
Our common stock price is subject to significant volatility..., page 11 -----------------------------------------------------------------------
16. As requested, we have deleted the reference to securities analysts and the class action litigation from this risk factor. The disclosure regarding the reasons for potential volatility in our stock price have also been revised. See the risk factor captioned "Our common stock price is potentially..." on page 10.
Special Note Regarding Forward-Looking Statements, page 12 ----------------------------------------------------------
17. As requested, we have deleted the word "will" from the list of words appearing in the first sentence of the second paragraph under "Special Note Regarding Forward-Looking Statements."
<PAGE>
Securities and Exchange Commission December 2, 2004 Page 4
Price Range of Common Stock, page 14 ------------------------------------
18. We have deleted the reference to "NASD," as requested.
Management's Discussion and Analysis, page 17 ---------------------------------------------
19. Please refer to the substantial additional disclosure in the text regarding known trends and uncertainties. This disclosure appears in the Management's Discussion and Analysis section under "Trends and Uncertainties."
20. Please note that the Company is no longer an issuer of penny stock, since it has had average revenue of more than $6 million for the last three years, and thus is excluded from the definition of "penny stock" under Securities Exchange Act Rule 3a51-1(g)(2).
21. We have added a discussion of a critical accounting policy relating to inventory valuation. See "Critical Accounting Policies; Inventory Valuation" on page 18. We have added Schedule II - Valuation and Qualifying Accounts, as requested.
Years Ended June 30, 2004 and 2003, page 19 -------------------------------------------
22. We have added a definition of "hammer prices realized" in the first full paragraph under the table on page 19. This is the first reference in the prospectus to this term.
23. We have added a discussion of the seasonal aspects that affect the Company's results of operations, on page 22 in the last paragraph under "Years Ended June 30, 2004 and 2003; Total Revenue."
24. As requested, we have added information relating to the reasons for material changes in revenues, costs of sales and selling, general and administrative costs. Please be advised, however, that the Company is unable to quantify the cost benefits realized from its operational consolidation efforts, as these efforts have resulted in reductions in some fixed expenses, but increases in other fixed expenses and in variable expenses. Although there were cost savings resulting from the consolidation efforts, the Company's operations were simultaneously expanding due to a significant increase in its sales during that same period. It is not possible to separately quantify the cost savings achieved when the operations were growing at the same time. We have added disclosure regarding the impact of additional auction and customer advances on the Company's business under "Total Revenue."
25. We have revised the disclosure relating to factors that affect the Company's gross margins on pages 19, 21 and 22 under "Cost of Sales" and "Gross Profit." However, the Company is unable to specifically quantify the amounts of the various factors that affect gross margin.
<PAGE>
Securities and Exchange Commission December 2, 2004 Page 5
Gross margin analyses for this company are inherently unquantifiable because they are dependent on the Company's exposure over the relevant periods of time to opportunities to purchase rare coins at or below market value. These opportunities are unpredictable.
Impairment of Goodwill, page 20 -------------------------------
26. We have identified the SGBH auction unit as "Superior Galleries Beverly Hills," under "Impairment of Goodwill" on page 22.
Liquidity and Capital Resources, page 21 ----------------------------------------
Financing Activities, page 21 -----------------------------
27. We have provided the requested disclosure relating to the $2,500,000 loan from a private investor, including the absence of any accrued interest, the status of negotiations with the lender, a discussion of the associated risk factors and the effect on the Company's financial condition if this line of credit is called. See the fourth and eighth paragraphs under "Financing Activities--Debt."
28. We have provided the requested disclosure regarding the Company's subordinated note payable to its CEO. This discussion does not include a discussion of the effect of the Company's liquidity if the CEO were to request payment of the note, as the Company has already received a commitment from the CEO to extend the term of this note, as described in this new disclosure.
29. We have incorporated the Commercial Loan and Security Agreement as a material exhibit, as referred to in Exhibit 10.7. A discussion of the risks related to this loan agreement appears under "Risk Factors - The high level of our debt..." and "--if we are unable to pay our secured debt..." on page 6.
30. As requested, we have identified the purchasers of the Company's Series B Preferred Stock and Series D Preferred Stock. See "Financing Activities--Equity" on page 26.
31. As requested, we have disclosed that the Company is currently in compliance with all of its financial covenants in the last paragraph under "Financing Activities--Debt" on page 26.
Contractual Obligations Table, page 24 --------------------------------------
32. We have revised the table regarding contractual obligations on page 27 to provide additional information in the footnotes regarding the interest requirements of the debt that has been identified. Please note
<PAGE>
Securities and Exchange Commission December 2, 2004 Page 6
that we are unable to provide meaningful estimates of future interest that will be payable because the principal amount of this debt is likely to fluctuate significantly. Please also note that we believe the table need not meet the technical requirements of Regulation S-K, Item 303(a)(5), as the Company is a small business issuer and its disclosure is governed by Regulation S-B. As requested, we confirm that the table includes all the required categories of the Company's contractual obligations.
With respect to your question regarding the Guaranteed Liquidity and Buyback at Grade Warranty, note that we have added footnote 4 to this table, which describes why we do not include any estimate of future payments under this warranty.
Business, page 25 -----------------
Background of the Coin and Collectibles Industry, page 26 ---------------------------------------------------------
33. As requested, we have deleted several phrases which may be considered "promotional."
34. As requested, we have deleted the reference to Sotheby's Holdings and its stock symbol.
Auction Operations, page 28 ---------------------------
35. While the Company believes that the statement regarding the relative size of Superior Galleries is true, we have deleted it from the disclosure, nonetheless.
Competition, page 29 --------------------
36. As requested, we have described in further detail the methods of competition used by the Company. See "Business--Competition" on page 32. Please note that the disclosure pertains to the Company's methods of competition, which may apply equally to the Company's competitors. We do not believe that this disclosure implies that the Company is the only competitor that engages in these competitive activities, but only that these are the more important methods of competition that apply to the industry generally.
Regulation, page 29 -------------------
37. We have added additional disclosure regarding the possible ramifications from the potential adoption of new regulations, as described in the "Regulation" section. The new disclosure appears on pages 32 and 33, under "Business - Regulation."
<PAGE>
Securities and Exchange Commission December 2, 2004 Page 7
Management, page 32 -------------------
38. Under "Management - Directors and Executive Officers," we have revised Mr. DiGenova's biography as requested.
39. Similarly, we have modified the biography for Mr. Wolfe.
40. As requested, we have modified the biography of Mr. Biberkraut.
41. As requested, we have also modified the biography of Mr. Ittner.
Employment Agreements, page 34 ------------
Show Raw Text
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<FILENAME>filename1.txt
<TEXT>
<PAGE>
THOMAS G. BROCKINGTON
Direct Dial: (714) 641-3466
E-mail: tbrockington@rutan.com
December 2, 2004
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0406
Attn: Matthew Benson, Esq.
Re: Superior Galleries, Inc.
Registration Statement on Form SB-2
Commission File No. 333-119253
-----------------------------------
Dear Mr. Benson:
We are concurrently filing Amendment No. 1 to the Registration
Statement on Form SB-2 of Superior Galleries, Inc., File No. 333-119253. This
letter is in response to your comment letter of October 22, 2004. The paragraph
numbers set forth below correspond to the paragraph numbers set forth in your
October 22, 2004 letter. The page number references in the headings below are to
the page numbers of the original Registration Statement, not this Amendment.
Registration Fee Table
----------------------
1. Regarding your comment pertaining to Rule 416, please note that the
intent of footnote 1 under the Registration Fee Table was not to
include in the Registration Statement shares issuable under a "floating
conversion rate." Instead, that language is intended to address
conventional antidilution adjustments, as described in Rule 416 and
Telephone Interpretation No. 3S included in the March 1999 Supplement
of the Telephone Interpretations Manual. The antidilution provisions
include conventional "cheap stock" protections, which provide for an
adjustment to the conversion ratio if the Company issues stock in the
future at a price less than the current conversion price, but if there
is no such issuance then no adjustment is made, other than for stock
splits, stock dividends, etc. We have modified the language of footnote
1 under the Registration Fee Table and footnote 2 under the Principal
and Selling Shareholders table on page 43 of the Prospectus in order to
clarify this issue. Please see also our additional disclosure regarding
adjustments in the conversion rate in the prospectus on pages 48 and
49.
<PAGE>
Securities and Exchange Commission
December 2, 2004
Page 2
Cover Page
----------
2. We have made several changes to the cover page in response to this
comment. However, please note that Stanford Venture Capital Holdings,
Inc. does not presently intend to sell all of its shares of common
stock, as suggested in your letter. The resale of these shares is being
registered by the Company in order to comply with a contractual
requirement to do so, and in order to provide Stanford with the
flexibility to sell the shares at a future time should it wish to do
so.
3. We have updated the closing stock price to the most recent practicable
date. Please note that since this stock is very thinly traded, there
may not be a closing sale price for every trading day.
Prospectus Summary, page 3
--------------------------
4. We have made the change you requested, on page 3.
5. We would like to retain the last sentence of the second paragraph under
"Our Company," on page 3, so that it is clear to the reader that in
making these references, we refer to both Superior Galleries, Inc., and
its immediate predecessor, Tangible Asset Galleries, Inc. We believe
that otherwise there is a possibility of confusion arising from the
change in name and domicile of the Company that occurred on June 30,
2003.
The Offering, page 4
--------------------
6. We have deleted the third bullet point under footnote 2 on page 4, as
it is unnecessary.
Risk Factors, page 5
--------------------
7. We have revised the risk factor subheadings, as requested.
8. We have eliminated the generic disclosures contained in the risk
factors section, as requested.
9. We have added a new risk factor on page 11 regarding the potential
adjustment of the conversion ratios for the Company's Series B
Preferred Stock and Series D Preferred Stock.
10. As requested, we have relocated the risk factor regarding Stanford
Venture Capital Holdings, Inc.'s control to page 6, as the fifth risk
factor.
<PAGE>
Securities and Exchange Commission
December 2, 2004
Page 3
11. We have added a new risk factor regarding the Company's indebtedness on
page 6. It is not true, however, that the Company will need to incur
more indebtedness to service its indebtedness, as the Company's current
indebtedness is being serviced from cash flow from operations. Our risk
factor captioned "If we are unable to obtain additional capital..." on
page 8 discusses the possible effects of the Company's inability to
raise additional capital. With respect to the last sentence of comment
11, the Company is currently in compliance with all terms of its
indebtedness.
Our business of selling premium collectibles..., page 5
-------------------------------------------------------
12. We have added the requested disclosure regarding the Company's primary
competitors. See the risk factor captioned "If we are unable to compete
successfully..." on page 5.
Our success depends on our management team..., page 7
-----------------------------------------------------
13. The risk factor regarding the Company's management team has been
revised as requested, and now pertains only to its CEO, Silvano
DiGenova. See the risk factor captioned "The loss of the services of
our Chief Executive Officer..." on page 7.
Our quarterly operating results may vary..., page 7
---------------------------------------------------
14. The risk factor regarding variations in operating results has been
revised to more clearly describe the risks we face. See the risk factor
captioned "Our quarterly operating results may vary..." on pages 7-8.
Shares of our common stock eligible or to become eligible..., page 10
---------------------------------------------------------------------
15. This risk factor has been revised to explain the volume limitations and
other requirements of Rule 144. See the first risk factor on page 10.
Our common stock price is subject to significant volatility..., page 11
-----------------------------------------------------------------------
16. As requested, we have deleted the reference to securities analysts and
the class action litigation from this risk factor. The disclosure
regarding the reasons for potential volatility in our stock price have
also been revised. See the risk factor captioned "Our common stock
price is potentially..." on page 10.
Special Note Regarding Forward-Looking Statements, page 12
----------------------------------------------------------
17. As requested, we have deleted the word "will" from the list of words
appearing in the first sentence of the second paragraph under "Special
Note Regarding Forward-Looking Statements."
<PAGE>
Securities and Exchange Commission
December 2, 2004
Page 4
Price Range of Common Stock, page 14
------------------------------------
18. We have deleted the reference to "NASD," as requested.
Management's Discussion and Analysis, page 17
---------------------------------------------
19. Please refer to the substantial additional disclosure in the text
regarding known trends and uncertainties. This disclosure appears in
the Management's Discussion and Analysis section under "Trends and
Uncertainties."
20. Please note that the Company is no longer an issuer of penny stock,
since it has had average revenue of more than $6 million for the last
three years, and thus is excluded from the definition of "penny stock"
under Securities Exchange Act Rule 3a51-1(g)(2).
21. We have added a discussion of a critical accounting policy relating to
inventory valuation. See "Critical Accounting Policies; Inventory
Valuation" on page 18. We have added Schedule II - Valuation and
Qualifying Accounts, as requested.
Years Ended June 30, 2004 and 2003, page 19
-------------------------------------------
22. We have added a definition of "hammer prices realized" in the first
full paragraph under the table on page 19. This is the first reference
in the prospectus to this term.
23. We have added a discussion of the seasonal aspects that affect the
Company's results of operations, on page 22 in the last paragraph under
"Years Ended June 30, 2004 and 2003; Total Revenue."
24. As requested, we have added information relating to the reasons for
material changes in revenues, costs of sales and selling, general and
administrative costs. Please be advised, however, that the Company is
unable to quantify the cost benefits realized from its operational
consolidation efforts, as these efforts have resulted in reductions in
some fixed expenses, but increases in other fixed expenses and in
variable expenses. Although there were cost savings resulting from the
consolidation efforts, the Company's operations were simultaneously
expanding due to a significant increase in its sales during that same
period. It is not possible to separately quantify the cost savings
achieved when the operations were growing at the same time. We have
added disclosure regarding the impact of additional auction and
customer advances on the Company's business under "Total Revenue."
25. We have revised the disclosure relating to factors that affect the
Company's gross margins on pages 19, 21 and 22 under "Cost of Sales"
and "Gross Profit." However, the Company is unable to specifically
quantify the amounts of the various factors that affect gross margin.
<PAGE>
Securities and Exchange Commission
December 2, 2004
Page 5
Gross margin analyses for this company are inherently unquantifiable
because they are dependent on the Company's exposure over the relevant
periods of time to opportunities to purchase rare coins at or below
market value. These opportunities are unpredictable.
Impairment of Goodwill, page 20
-------------------------------
26. We have identified the SGBH auction unit as "Superior Galleries Beverly
Hills," under "Impairment of Goodwill" on page 22.
Liquidity and Capital Resources, page 21
----------------------------------------
Financing Activities, page 21
-----------------------------
27. We have provided the requested disclosure relating to the $2,500,000
loan from a private investor, including the absence of any accrued
interest, the status of negotiations with the lender, a discussion of
the associated risk factors and the effect on the Company's financial
condition if this line of credit is called. See the fourth and eighth
paragraphs under "Financing Activities--Debt."
28. We have provided the requested disclosure regarding the Company's
subordinated note payable to its CEO. This discussion does not include
a discussion of the effect of the Company's liquidity if the CEO were
to request payment of the note, as the Company has already received a
commitment from the CEO to extend the term of this note, as described
in this new disclosure.
29. We have incorporated the Commercial Loan and Security Agreement as a
material exhibit, as referred to in Exhibit 10.7. A discussion of the
risks related to this loan agreement appears under "Risk Factors - The
high level of our debt..." and "--if we are unable to pay our secured
debt..." on page 6.
30. As requested, we have identified the purchasers of the Company's Series
B Preferred Stock and Series D Preferred Stock. See "Financing
Activities--Equity" on page 26.
31. As requested, we have disclosed that the Company is currently in
compliance with all of its financial covenants in the last paragraph
under "Financing Activities--Debt" on page 26.
Contractual Obligations Table, page 24
--------------------------------------
32. We have revised the table regarding contractual obligations on page 27
to provide additional information in the footnotes regarding the
interest requirements of the debt that has been identified. Please note
<PAGE>
Securities and Exchange Commission
December 2, 2004
Page 6
that we are unable to provide meaningful estimates of future interest
that will be payable because the principal amount of this debt is
likely to fluctuate significantly. Please also note that we believe the
table need not meet the technical requirements of Regulation S-K, Item
303(a)(5), as the Company is a small business issuer and its disclosure
is governed by Regulation S-B. As requested, we confirm that the table
includes all the required categories of the Company's contractual
obligations.
With respect to your question regarding the Guaranteed Liquidity and
Buyback at Grade Warranty, note that we have added footnote 4 to this
table, which describes why we do not include any estimate of future
payments under this warranty.
Business, page 25
-----------------
Background of the Coin and Collectibles Industry, page 26
---------------------------------------------------------
33. As requested, we have deleted several phrases which may be considered
"promotional."
34. As requested, we have deleted the reference to Sotheby's Holdings and
its stock symbol.
Auction Operations, page 28
---------------------------
35. While the Company believes that the statement regarding the relative
size of Superior Galleries is true, we have deleted it from the
disclosure, nonetheless.
Competition, page 29
--------------------
36. As requested, we have described in further detail the methods of
competition used by the Company. See "Business--Competition" on page
32. Please note that the disclosure pertains to the Company's methods
of competition, which may apply equally to the Company's competitors.
We do not believe that this disclosure implies that the Company is the
only competitor that engages in these competitive activities, but only
that these are the more important methods of competition that apply to
the industry generally.
Regulation, page 29
-------------------
37. We have added additional disclosure regarding the possible
ramifications from the potential adoption of new regulations, as
described in the "Regulation" section. The new disclosure appears on
pages 32 and 33, under "Business - Regulation."
<PAGE>
Securities and Exchange Commission
December 2, 2004
Page 7
Management, page 32
-------------------
38. Under "Management - Directors and Executive Officers," we have revised
Mr. DiGenova's biography as requested.
39. Similarly, we have modified the biography for Mr. Wolfe.
40. As requested, we have modified the biography of Mr. Biberkraut.
41. As requested, we have also modified the biography of Mr. Ittner.
Employment Agreements, page 34
------------