POULTON & YORDAN
ATTORNEYS AT LAW
RICHARD T. LUDLOW
June 8, 2006
H. Roger Schwall
Assistant Director
Division of Corporate Finance
Mail Stop 7010
United States Securities and Exchange Commission
Washington, D.C. 20549
Re: BMB Munai, Inc.
Registration Statement on Form SB-2
Filed October 21, 2005
File No.: 333-129199
Form 10-KSB/A for the year ended March 31, 2004
Filed April 11, 2006
File No. 000-28638
Form 10-QSB/A for the year ended December 31, 2004
Filed April 11, 2006
File No. 000-28638
Dear Mr. Schwall:
At the request of the management of BMB Munai, Inc., (the "Company" or
"BMB Munai") and further to my conversations with Ms. Moncada-Terry we are
responding to comments raised by the staff at the Securities and Exchange
Commission in your letters dated June 6, 2006. Following are the responses to
your comments.
LETTER OF JUNE 6, 2006
Selling Security Holders, page 14
1. Identify as underwriters all selling security holders who are
affiliates of registered broker-dealers, unless you can confirm to us
that such selling security holders purchased the securities in the
ordinary course of business and have no agreements or understandings,
directly or indirectly, with any party to distribute the securities.
POULTON & YORDAN TELEPHONE: 801-355-1341
324 SOUTH 400 WEST, SUITE 250 FAX: 801-355-2990
SALT LAKE CITY, UTAH 84101 POST@POULTON-YORDAN.COM
Mr. Roger Schwall
June 8, 2006
Page 2
We are currently confirming with all selling security holders that they
purchased the securities in the ordinary course of business and that they have
no agreements or understandings, directly or indirectly, with any party to
distribute the securities. If all selling security holders confirm to us that
they acquired the shares in the ordinary course of business and that they have
no agreements, directly or indirectly, with any party to distribute the shares,
we will confirm such in a subsequent correspondence.
If we learn that the shares were not acquired in the ordinary course of
business or that agreements or understandings exist with any party to distribute
the shares we will file an amendment to the SB-2 incorporating the necessary
disclosure.
2. We note that in amendment 1 to your registration statement you added
992,000 shares of common stock issued to a number of named parties. We
note that these sales occurred in December 2005 after the filing of the
initial resale registration statement and that you then added these
securities to your pending registration statement. It is therefore
unclear to us how you can conclude that the purchasers of the
securities took with investment intent or without a view to distribute.
Rule 152 of the Securities Act provides a safe harbor to separate the
issuance and resale transactions for 4(2) offerings. However, the rule
appears to be unavailable to you, since Rule 152 requires that the
registration statement be filed subsequent to the 4(2) offering. Please
provide us with a detailed analysis as to why you believe that you are
able to add the securities from the December 2005 private placement to
the pending registration statement.
We believe that the inclusion of the 992,000 shares sold to U.S. QIBs
in the December 2005 private placement does not preclude the issuer from relying
on the safe harbor of Rule 152. We do not believe, under the current
circumstances, that the date of the share purchase, which was after the date of
filing of the registration statement, mandates the conclusion that the 992,000
shares were acquired for distribution. Rather, the facts underlying the addition
of these shares to the registration statement by way of an amendment in April
2006, does not obviate the fact the purchasers of the shares acquired the shares
in December 2005 with the requisite investment intent.
In December 2005, each of the investors in the private placement
executed subscription agreements wherein they specifically represented and
warranted that they were acquiring the shares for investment purposes.
Mr. Roger Schwall
June 8, 2006
Page 3
Under the terms of the December 2005 private placement, all investors
in the private placement were granted the right to request registration of their
shares for resale at any time after 90 days from the closing of the private
placement. To trigger the registration obligation of the issuer, at least 51% of
the investors in the private placement were required to request registration.
Pursuant to the terms of registration rights agreement, once registration was
requested by at least 51% of the investors the issuer was obligated to register
for resale all shares sold in the private offering.
In April 2006, holders of more than 51% of the shares requested
registration for resale, however, none of the parties holding the 992,000 shares
requested registration of their shares. In order to comply with the issuer's
legal obligations under the registration rights agreement, their shares were
included in the amended registration statement's resale prospectus. Based on the
foregoing, we do not believe the inclusion of the 992,000 shares in the resale
registration statement should invalidate the investment intent representations
and warranties made by these shareholders at the time the shares were purchased.
If the staff rejects our analysis that inclusion of these shares is
appropriate in the current registration statement, the Company proposes to
remove the 992,000 shares from the registration statement and simply file a
second registration statement to cover these shares. Of course, this would seem
to be wasteful of the time and resources of both the Commission and the issuer
and therefore we would hope this could be avoided if possible.
Form 10-KSB/A-2 for the year ended March 31, 2004
Controls and Procedures, page 3
3. Please revise to provide the information required by Item 8A of Form
10-KSB. Note that the item requires you to include information required
by Item 307 and 308 of Regulation S-B. We also refer you to Rule 12b-15
of the Exchange Act, which requires the inclusion of the complete text
of each form item as amended. Similarly, revise the Controls and
Procedures section of you 10-QSB for the period ended December 31,
2004.
We propose to amend Item 8A of Form 10-KSB/A-3 for the year ended March
31, 2004 as follows:
"Item 8A. Controls and Procedures
Our chief executive officer and our chief financial officer
(the "Certifying Officers") are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange
Act Rule 13a-15 and Rule 15d-15(e)) that are designed to ensure that
Mr. Roger Schwall
June 8, 2006
Page 4
information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported with the time periods
specified by the SEC's rules and forms and that such information is
accumulated and communicated to management, including the Certifying
Officers as appropriate, to allow timely decisions regarding required
disclosure.
As a result of a normal periodic review of our financial
statements by the staff of the Securities and Exchange Commission,
management determined on July 12, 2005 that the amount due to the
Government of Kazakhstan was not a liability of the Company and should
be removed from our consolidated balance sheet. We are, therefore,
restating our consolidated balance sheet and statement of cash flows as
of and for the year ended March 31, 2004 and our consolidated balance
sheets for the quarters ended June 30, 2004, September 30, 2004 and
December 31, 2004 to correct an error in our accounting for a liability
we will be required to repay to the Government of the Republic of
Kazakhstan in the event we are granted commercial production rights.
Previously, we treated this obligation as a long-term liability. The
primary effect of this restatement resulted in the Company reducing its
long-term asset "Oil and Gas Properties" by $5,994,745 and removing the
long-term liability "Due to the Government of Kazakhstan" of $5,994,745
from its consolidated balance sheet. This restatement also had the
effect of reducing Non Cash Transactions for "Obligations to the
Government of Kazakhstan for Contributed Oil and Gas Properties" by
$5,994,745 on the Company's Consolidated Statement of Cash Flows. This
restatement does not have any impact on net loss or net loss per common
share. Please refer to Note K of the accompanying consolidated
financial statements for additional information.
In light of our decision to restate our financial statements,
we carried out an evaluation in accordance with Exchange Act Rules
13a-15 and 15d-15 and under the supervision and with the participation
of management, including our Certifying Officers, of the effectiveness
of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, our Certifying
Officers concluded that, due to the restatement discussed above, our
disclosure controls and procedures were not effective as of end of the
period covered by this report. Following the discovery of this error in
July 2005, we have implemented new policies requiring our internal
accounting staff to receive ongoing training on accounting for oil and
gas properties in accordance with generally accepted accounting
principles in the United States. Management believes this will prevent
recurrence of future errors of this nature and strengthen our internal
controls over financial reporting.
Other than as discussed above, there have been no changes in
our internal controls over financial reporting that occurred during the
Mr. Roger Schwall
June 8, 2006
Page 5
period from inception (May 6, 2003) through March 31, 2004 that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting."
We propose to amend Item 3 of Form 10-QSB/A-2 for the period ended
December 31, 2004 as follows:
"Item 3. Controls and Procedures
Our chief executive officer and our chief financial officer
(the "Certifying Officers") are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange
Act Rule 13a-15 and Rule 15d-15(e)) that are designed to ensure that
information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported with the time periods
specified by the SEC's rules and forms and that such information is
accumulated and communicated to management, including the Certifying
Officers as appropriate, to allow timely decisions regarding required
disclosure.
As a result of a normal periodic review of our financial
statements by the staff of the Securities and Exchange Commission,
management determined on July 12, 2005 that the amount due to the
Government of Kazakhstan was not a liability of the Company and should
be removed from our consolidated balance sheet. We are, therefore,
restating our consolidated balance sheet for the period ended December
31, 2004 to correct an error in our accounting for a liability we will
be required to repay to the Government of the Republic of Kazakhstan in
the event we are granted commercial production rights. Previously, we
treated this obligation as a long-term liability. The primary effect of
this restatement resulted in the Company reducing its long-term asset
"Oil and Gas Properties" by $5,994,745 and removing the long-term
liability "Due to the Government of Kazakhstan" of $5,994,745 from its
consolidated balance sheet. This restatement also had the effect of
reducing Non Cash Transactions for "Obligations to the Government of
Kazakhstan for Contributed Oil and Gas Properties" by $5,994,745 on the
Company's Consolidated Statement of Cash Flows. This restatement does
not have any impact on net loss or net loss per common share. Please
refer to Note J of the accompanying consolidated financial statements
for additional information.
In light of our decision to restate our financial statements,
we carried out an evaluation in accordance with Exchange Act Rules
13a-15 and 15d-15 and under the supervision and with the participation
of management, including our Certifying Officers, of the effectiveness
of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, our Certifying
Officers concluded that, due to restatement discussed above, our
Mr. Roger Schwall
June 8, 2006
Page 6
disclosure controls and procedures were not effective as of December
31, 2004. Following the discovery of this error in July 2005, we have
implemented new policies requiring our internal accounting staff to
receive ongoing training on accounting for oil and gas properties in
accordance with generally accepted accounting principles in the United
States. Management believes that this will prevent recurrence of future
errors of this nature and strengthen our internal control process.
Other than as discussed above, there have been no changes in
our internal controls over financial reporting that occurred during the
period ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal controls over
financial reporting."
Thank you for your assistance in this matter. If you have any questions
or require additional information, please contact me directly.
Very truly yours,
POULTON & YORDAN
Richard T. Ludlow
Attorney at Law