AQUAMER MEDICAL CORP.
23 Wallace Street, Suite 408
Red Bank, New Jersey 07701
800-316-9780
June 4, 2010
Mr. Eric Atallah
Reviewing Accountant
Securities and Exchange Commission
Mail Stop 3030
Washington, DC 20549
Re: Aquamer Medical Corp.
Form 10-K for the Year Ended December 31, 2009 and
Form 10-Q for the Quarter Ended March 31, 2010
Dear Mr. Atallah:
Aquamer Medical Corp. ("Aquamer" , the "Company" or "we") is in receipt of your letter dated May 18, 2010 regarding your comments relating to the financial statements and related disclosures on Aquamer's Form 10-K for the Year Ended December 31, 2009 and Form 10-Q for the Quarter Ended March 31, 2010.
Please see our responses below:
Form 10-K for the Year Ended December 31, 2009
Financial Statements, page F-1
Notes to Financial Statements
Note 2. Summary of Significant Accounting Policies
Stock – based Compensation
Comment:
Response:
Recent Accounting Pronouncements
Comment:
Response:
Note 4 – Acquired Patents and Impairment of Patents
Comment:
Response:
The Company recorded an impairment charge in the fourth quarter of 2009 relating to the Patent for the Hydropatella Implant because it determined this was the most conservative accounting treatment considering the fact that at the time the Company was seeking capital to continue evaluation of this patent. In addition, the Company had determined during the third quarter of 2009 that it would begin to amortize the patent. Subsequent to the end of 2009 the Company raised capital which will be used, in part, to fund the technology to produce and sell intermodal container liners and fund further evaluation of the Patent for the Hydropatella Implant. The fact that the Company has entered an additional line of business is within its business diversification strategy which it had discussed in its quarterly reports for the second and third quarter of 2009 and its 10-K for the year ended December 31, 2009.
The Company's management is still of the opinion that the Hydropatella Implant invention is a significant technological advancement over currently used devices that attempt to correct injuries to the patella.
As of December 31, 2010, we will review the value of the asset to determine if there has been any further change of circumstances causing impairment, or if there had been any change in the likelihood of recovering at least $40,000 upon disposition, which after additional amortization, will be the carrying value on that date.
A copy of our December 31, 2009, impairment analysis is attached (EXHIBIT 1). The recommendation, which was followed, provided for a 50%, or $45,000 impairment charge in light of the Company's inability, as of the date of the analysis, to finalize a joint venture arrangement or acceptable financing.
Also attached, is the analysis as of March 31, 2010 (EXHIBIT 2), which recommended no additional impairment charge and a continuation of amortizing the asset over a nine-year period at the rate of $1,250 per quarter.
Form 10-Q for the Quarter Ended March 31, 2010
Note 5 – Asset Acquisition and Formation of Aquamer Shipping Corp.
Refer to the guidance in Topic 805 of the FASB Accounting Standards Codification.
Response:
Aquamer Medical Corp. acknowledges that:
Should you have any questions regarding the responses set forth in this letter please contact me at 800-316-9780 or 732-547-4746 or e-mail at rfalcone@aquamercorp.com.
Regards
/s/ Richard D. Falcone
Richard D. Falcone
Chief Executive Officer
Attachments:
EXHIBIT 1
EXHIBIT 2
EXHIBIT 1
Memo
To: General File
From: Accounting
CC:
Date: January 23, 2010
Re: 12/31/09 Impairment analysis for the Hydropatella Implant patent
Background: In March 2008, the Company acquired all rights, title and interest in the pending U.S. Patent for the Hydropatella Implant. The invention, which is the subject of the Patent, relates to an improved patella (kneecap) with improved biocompatible properties such as high surface lubricity, reduced component-to-component wear, and drug delivery capabilities. The patent rights were acquired for 10 million shares of the Company's common stock that were valued at $0.01 per share, or a total of $100,000.
Accounting Policy: The Company's policy requires a review of the carrying value of long-lived assets, including patents, goodwill, and other intangible assets, on an annual basis, or when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations
Discussion: An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets. An impairment loss shall be recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Generally an asset is not subject to impairment in the year of acquisition unless it becomes impaired during that period. Circumstances considered that could result in a reduction of the carrying value are as follows:
The Company's business plan to commercially exploit the patent has not changed. Management intends to develop and operate the patents and expects future cash flows to exceed carrying amount. The Company cannot reliably project future cash flows for impairment analysis purposes. Management believes there have been no adverse circumstances that have occurred since the purchase of the asset that would have reduced the value. Accordingly, management expects the amount paid to be a realistic estimate of the potential amount to be realized if the patent were to be sold in an orderly transaction.
The fair value of the Company (the reporting unit) calculated on December 31, 2009 exceeds the carrying value of all the assets.
The step 1 test was done to determine if the fair value of the reporting entity exceeded the carrying value of the Company's assets. The market value substantially exceeded the carrying value of $90,000; no impairment is required under that test.
Management's estimates of future cash flows cannot be corroborated by historical results, however, no adverse circumstances have occurred since the purchase date, therefore the most reliable estimate of value must be the amount paid.
As of the date of this review, the Company has not been successful in raising funds to pursue this project on its own and discussions with potential joint venture partners have not produced acceptable agreements, therefore, an impairment charge should be considered.
Conclusion
In light of the uncertainty of raising sufficient funds to pursue the exploitation of the patent, it is recommended that an impairment charge be made to the net asset in the amount of 50%, or $45,000. The unamortized balance would then be $45,000. The likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is remote.
EXHIBIT 2
Memo
To: General File
From: Accounting
CC:
Date: April 25, 2010
Re: 3/24/10 Anniversary Date and 3/31/10 Q1 2010 Impairment analysis for the Hydropatella Implant patent
Since our last impairment analysis dated January 23, 2010, there have been no adverse circumstances that should affect the value of the Hydropatella Implant patent.
Conclusion- No additional impairment charge recommended.
Continue quarterly amortization of $1,250. Net unamortized balance remaining is $43,750.
