Date: July 21, 1998 To: Mr. Jonathan Katz, Securities and Exchange Commission (fax202.942-9651) From: Ted Yong, President, GP Express (GPX), Inc. RE: S7-14-98 Dear Jonathan: Pertaining to the SEC's intent, stipulated under S7-14-98, to amend the shares of Rule 504, from free-trading shares to Rule 144 shares, our investment banking company wishes to advise you for the record, that our company is totally against the enactment of said amendment for the following reasons: 1. Effects of S7-14-98 on Legitimate Small Businesses and High-Tech Startups. Our company specializes in the public offering of high-tech and medical companies, with proprietary technology. Many legitimate small businesses and startup ventures approach our company to seek the initial public financing, pursuant to Rule 504, not Rule 505, since many accredited and non-accredited investors brought in by these companies insist on the free-trading nature of the public offering shares, as a condition for their investment. Your intent to amend the shares of Rule 504 from free-trading to Rule 144 shares will destroy the possibility of many legitimate small businesses and startups, especially those with high-tech proprietary technologies, to gain immediate access to the public financing market. It is beyond our company why someone would temper with the venture capital market provided by the Rule 504 vehicle, when the nation's entrepreneurs are flourishing in our thriving economic environment. The intent of S7-14-98, when implemented, will risk the slowing of our economic engine and stifling of high-tech entrepreneurship, since most of the new jobs are generated by entrepreneurial small businesses. In addition, your intent to amend Rule 504 will inevitably drive many legitimate U.S. small business deals to the Vancouver market and the Toronto OTC Market, at a time when our nation needs to incubate many emerging high-tech businesses seeking capital on our own soil; 2. Need of SEC Initiative on Uniform Disclosure Standard for Rule 504. In S7-14-98, as a reason for the implementation of the amendment, your agency cited that "some states do not require disclosure documents." As of today, most of the states, our company regularly files Rule 504 offerings on behalf of our client firms (WA, NV, NY, FL, OK, D.C., CO, and others), all require a complete disclosure prospectus or offering memorandum, styled in a conventional manner or SCOR format. New York, for example, in its M-11 Form, in addition to a prospectus, requires the complete disclosure of the business and criminal background of all directors. In addition, the SEC's intent to amend Rule 504 may be inferred that there is a lack of the SEC's trust of our States' competency to appropriately legislate, review, and approve Rule 504 offerings locally, involving the investment of the States' residents, especially in the light that the SEC has no declared intent to amend Regulation A in a similar manner, which requires federal approval; Remedy 2.1: Although most of the States require some form of disclosure for a Rule 504 offering, the States lack uniform disclosure standards for Rule 504 offerings. The SEC should take the initiative to enact uniform regulations for disclosures, involving Rule 504 offerings. This will also make the job of the States' securities divisions easier. Thus, it is our belief , that what is called for immediately, related to this aspect of S7-14-98, is that the SEC should amend the Rule 504 provision, in a manner that all states must require complete disclosures of the issuer, which must contain a complete offering memorandum, with complete disclosure of the proposed business and risk factors, along with descriptions of shares, usage of proceeds, and analysis of share dilution. The risk factor section should entail offering related risk factors ,as well as business related risk factors, specific to the issuer's business. The offering memorandum must be styled in a conventional manner (like an S-1 or SB-2 offering prospectus, not a simple SCOR offering disclosure). To complete the disclosure of the issuer, the issuer must also submit a notarized disclosure of the criminal and securities fraud background (due diligence) of each officer and director of the Board (this is already required for NASD Listing), a complete disclosure of all corporate contractual obligations involving the issuer, a subscription agreement with ample warnings to investors related to the potential loss of their entire investments, a Form U-2 for Process Serving, a CPA audited financial of the past 18 months prior to the offering, a presiding securities counsel letter commenting on the compliance and tradability of the shares of the issuer. Your agency may also require the issuer to file said disclosure documents with the SEC along with Form D, to obtain exemption status; 3. Amendment to Require Audited Financial Disclosure for Rule 504 Offerings. In your S7-14-98, posted on your website, it was mentioned that a Rule 504 does not require financial disclosure, since under said federal exemption provision no audited financial is required, if the issuer cannot afford the audit. It is our opinion that this loop hole in the federal statutes, involving Reg. D, Reg. A, and other provisions, could be eliminated by simply enacting amendments requiring audited financial for all offerings. In fact, this is already being done for all Rule 504 offerings prepared by our company; Remedy 3.1: Our company wishes to recommend to your agency to amend the Rule 504 provision to require a complete 18 months CPA audited financial to be filed with the State and the SEC. Also, it is our understanding that to gain secondary trade status, an S&P or Moody Listing must be filed. The Listing of a Rule 504 offering with S&P Corporation already requires the submission of an initial financial audit, an interim audited financial if any, an offering memorandum, all corporate contractual obligations, subscription agreement disclosing investment risks, and any and all documents utilized for the sale of the issuer's offering. Said documents must also be filed with the NASD for OTCBB Listing; 4. Amendment to Require 20F Filing for All Microcap Companies Traded on the OTCBB. Related to the financial disclosure requirement stated above, it is our understanding that the NASD has already amended its regulation to require 20F financial disclosure for all publicly traded companies on the OTCBB, pending approval by the NASD member firms (10/97 NASD OTCBB Board Meeting). This is already a requirement for all foreign issuers traded on the OTCBB. Remedy 4.1: The SEC should enact amendment to Rule 504, requiring 20F disclosures for all Rule 504 companies once traded on any microcap market; 5. Amendment to Revoke Right to Short; Amendment to Control Bid Manipulation. If the SEC wishes to stop fraudulent stock manipulation on the OTCBB and NASDAQ Small Cap, your agency should introduce rules to control two mechanisms frequently used by unscrupulous promoters and broker dealers, which are : a) unrestricted shorting of shares by broker dealers of these shares, which already have small floats and are thinly traded. Most of the OTCBB deals collapse, not because of the failure of the operating company's business, but rather due to unrestricted shorting implemented by a third party promoter working in conjunction with a broker dealer; and b) manipulated market trading resulting in a quick doubling and tripling of share bid, with small volume relative to its total float. This is especially true involving one cent a share offering. A penny a share offering may have 10 to 50 million shares, if not more, in its public float. From our recent observation, the SEC has allowed some of these shares, involving penny-a-share issuers, to double and triple in the share prices without any stop order or investigation, despite the share price move may involve only 100,000 shares, representing only a small percentage of its total float. Our company has been approached by potential clients to conduct penny-a-share Rule 504 offering, which we abruptly turned down; Remedy 5. l: To obviate the problem involving penny-a-share Rule 504 offering, the SEC should amend the Rule 504 to restrict the offering share price to no less than 25 cents and establish a rule to regulate the increase in bid price in trade, based on the percentage of the total float (when share bid doubles or triples) rather than the actual trade volume, which could be quite deceiving; Remedy 5.2: The lower limit of the share price of a Rule 504 offering should be set at no less than 25 cents a share, and not $5, since from our experience, many SCOR offering deals failed to complete, due to its no less than $5 per share restriction, which is not competitively priced for most investors in the IPO market and in aftermarket trade (some seasoned NASDAQ issues trade below $5); Remedy 5.3: In addition, the SEC should revoke the ability of the broker dealers to short microcap shares traded on the OTCBB and NASDAQ Small Cap, entirely, giving these small but emerging companies a chance to survive the slings and arrows of a merciless market, providing them with the opportunity to mature and create jobs. In the end, all the public offering provisions exist for a single purpose in our nation, which is create wealth and jobs; 6. "Pump and Dump" Practice. Your agency's comment regarding "the pump and dump" practice by some unscrupulous promoters and broker dealers, involving Rule 504 has validity, but not limited to Rule 504. The widely publicized scheme, involving an Arizona public company and the mafia, operated by Gordon Hall, already once cited by the SEC, was traded on the NASDAQ Small Cap, not the OTCBB. Furthermore, said Arizona company did not utilize Rule 504 to obtain initial trading status from the NASD. In fact, it is the understanding among most investment bankers, that the OTCBB cannot generate enough volume due to many restrictions, involving penny stock regulations. To make the "big catch" by defrauding investors, a crooked promoter knows minimally he must trade his shares on the NASDAQ Small Cap, if not NASDAQ National Market, to generate the needed volume. It is our company's opinion, that in terms of dollar volume, there is perhaps more investment fraud occurring on the NASDAQ Small Cap, than the OTCBB market, especially in term of "pump and dump" practices, simply because the NASDAQ Small Cap has less trading restrictions; Remedy 6.1: Our company believes it is the legislated duties of the SEC, as a federal agency, established by acts of Congress, to keep a constant vigilant eye on the unscrupulous promoters and broker dealers, practicing the art of "pump and dump," to defraud investors. This is why we have the SEC, to enforce the Act of 1933, the Act of 1934, and other federal securities statutes, to maintain a viable investment market place and to obviate the recurrence of 1928; 7. Need of Greater Policing by the SEC. Unscrupulous promoters, previously cited by the SEC, are still structuring deals involving Rule 504, SCOR, Reg. A, public shell mergers, and even SB-2. One such operator, who was cited by the SEC in the early 90's and escaped to a foreign country due to civil litigations, is now back in San Diego, after seven years, conducting deals, utilizing another group as his front. Remedy 7.1: The SEC should employ the "two strikes you are out" rule, disallowing any individual with a securities fraud or manipulation record after the second offense, from ever participating in securities dealing. The SEC, working in conjunction with the NASD, need to enforce the "bad boys" provisions more aggressively. To ensure the individual cannot operate with a false front, the SEC should prosecute those who knowingly associate with such individual in pubilic offerings; 8. Most Rule 504 Problems Cited in S7-14-98 Occur in Aftermarket Trade, Not at the IPO Level. Many of the stated problems associated with S7-14-98 occur not at the offering stage, and thus have very little to do with the nature of the Rule 504 vehicle. In fact, most of the problems cited by the SEC as the causes for S7-14-98 are found in aftermarket trade. Thus, it is our opinion that the SEC's analysis of the correlation, between the problems cited and their causes, is wrongly based. There are only two basic components to the stated problems found in S7-14-98, which are: a)the Rule 504 vehicle and b) the operators of the vehicle. Most of the problems cited by your agency as causes for S7-14-98 are found with the operators of the vehicle, not with the Rule 504 vehicle itself. When a driver purchases a vehicle and kills one hundred pedestrians, the driver is at fault, not the vehicle or the person who sold him the vehicle. Simply, the driver could have perpetrated the same crime in any vehicle, with a Toyota Tercel or a Ford Explorer. It is impossible to measure the intent of individuals. Again, this is why we have the SEC to enforce the trading rules, involving microcap issues, to assure no operator run over investors at 100 miles an hour, regardless whether the operator is behind the wheel of a Rule 504, a Reg. A, an SCOR, an SB-2, or an S-1, for that matter. Also, from our company's observation, many of the stated fraud problems stipulated in S7-14-98, actually involve older public shell mergers, in which the owner of a shell works unlawfully in conjunction with the acquirer to render the insider shares freely trading, in breach of Rule 144. Under Rule 144, when the insider shares change hands, from the original insiders to the new control persons, the shares are once again restricted for the new operators of the public company. Remedy 8.1: The SEC should prosecute the unlawful operator, not rendering the shares of the Rule 504 vehicle restricted from trade for one year; Remedy 8.2: Prior to the approval of the merger involving a public shell, the SEC should enforce Rule 144 for all public shell mergers, making sure the controlling insiders shares purchased by the acquirer of the shell become once again restricted under Rule 144. In fact, the SEC should enact new regulation to re-restrict all restricted shares for a period of one year in a public shell merger transaction, including those restricted shares retained by the original owner, since the rules in this area are so frequently infringed. The SEC should prosecute those operators (shell owners, stock transfer agencies, shell purchasers) who conspire to remove the legend on said shares, in breach of Rule 144. Lastly, in summary, the SEC's intended amendment on Rule 504 will render the Rule 504 provision useless to all issuers, since similar provision is already provided by Rule 505 with higher aggregate offering limit. If the amendment is enacted, the investment banking industry will regard the amended Rule 504 provision as an impotent provision, not worthy of the ink and paper it is printed on. The amendment will drive most investment bankers and securities counsel to replace Rule 504 usage with Regulation A or SCOR, or alternatively, to the Vancouver Stock Exchange. When a car needs repair in America, most of us will attempt firstly to get it fixed, rather than driving it off the cliff. It is our company's belief that the SEC should remedy the Rule 504 fraud problem with similar approach, to fix it first. Our company is in agreement with your agency that there are abuses involving Rule 504, as it is true involving Reg. A, SCOR, and SB-2. However, there are many ways to remedy this problem by introducing reasonable measures, some of which are hereunder stated, which do not involve amending the shares of a Rule 504 offering untradable for a period of one year, rendering the Rule 504 vehicle unusable. Our company also firmly believes that the enactment of such unreasonable measure will depress the public financing of legitimate small business with new and proprietary innovations, which will ultimately affect the entrepreneur spirit in our forward thinking nation. Our recommendation to your agency regarding this issue is to "fix it and not dump it." To amend the Rule 504 shares untradable for a period of one year would be "dumping" it, rendering the provision unusable for the investment banking industry. The SEC and the investment banking industry are like two creatures, each of which has only one eye. Perhaps, if we put our heads together, we will achieve binocular vision with greater depth perception, to resolve problems ahead of us. If you have question, pertaining to the above information, please do not hesitate to call 805-297-1985, fax to 805-297-7256, or E-mail to gpxi@aol.com. Cordially, Theodore H.Y. Yong President, GP Express, Inc.