Mail Stop 3561
May
16, 2005
Mr. David Fox
Chief Executive Officer
Deja Foods, Inc.
16501 Ventura Boulevard, Suite 608
Encino, CA 91436
RE: Deja Foods, Inc.
File No. 333-124016
Registration Statement on Form SB-2
Filed April 12, 2005
Dear Mr. Fox:
We have reviewed your amended filing and have the following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Cover Page of Registration Statement
1. We note that you state the address of the company`s principle
executive offices to be 16501 Ventura Boulevard, Suite 608,
Encino,
CA 94136. It appears that at least three other entities also
claim
Suite 608 to be their address: The National Visa Registry Green
Card
Lottery; Torem & Torem; and the Property Management Office of
Jamison Properties, Inc.
We further note that the Office Lease attached as Exhibit 10.2,
the
Marketing Agreement attached as Exhibit 10.3, and the Management
Agreement attached as Exhibit 10.1 variously list the company`s
address as Suite 608, Suite 609, Suite 503, and Suite 602.
Please explain.
2. With respect to your disclosure, here and elsewhere in the
prospectus, concerning your listing of the shares on the OTC
Bulletin
Board, please revise to clarify that there are no assurances that
such shares will be accepted for listing on the Bulletin Board.
In
this respect, consider whether the language on the prospectus
cover
page, that the shares are "initially offered at $2.00 per share",
should be revised.
Table of Contents
3. Please include page numbers for the table of contents in your
next
amendment.
Risk Factors, page 3
4. Please revise the first risk factor to clarify how the stated
risks are specific to Deja Foods and/or investors.
5. Risk factor 4 appears to be a generic risk that could apply to
any
company. Risk factors should not be those risks that could apply
to
any issuer or any offering. Explain how the risk specifically
affects this company or the securities being offered.
6. Please consider removing or revising the disclosure in risk
factor
7 in light of the Commission`s position on indemnification for
Securities Act liabilities.
Capitalization, page 5
7. Please reconcile the number of common shares outstanding,
variously stated to be either 3,829,722 or 4,100,000 throughout
the
document.
Management Discussion and Analysis of Financial Condition, page 7
8. We noted that your auditors have only audited the balance sheet
as
of December 31, 2004. Please revise your disclosures here and
throughout MD&A to clearly indicate that balance sheet information
for the five-months ended December 31, 2003 is unaudited and that
such information has not been presented in the accompanying
audited
financial statements.
9.
Please be advised that Section 27A of the Securities Act and
Section
21E of the Securities Exchange Act expressly state that the safe
harbor for forward looking statements does not apply to statements
made by companies that issue penny stock. In your amended filing,
please either:
* delete any references to the Private Securities Litigation
Reform
Act; or
* make clear, each time you refer to the Private Securities
Litigation Reform Act, that the safe harbor does not apply to your
company.
10. Please file the complete agreement between Deja Foods and M&L
Foods as an attachment to your next amendment. The copy
previously
filed appears to be incomplete.
11. You state that "the availability of capital resources is a
limiting factor to our growth." Please provide greater detail
with
respect to how you plan to raise capital in the immediate future,
particularly in light of the fact that this offering is for
selling
securityholders only and does not raise any proceeds for the
company,
and may in fact contribute towards making it more difficult for
the
company to raise funds.
12. In the second full paragraph on page 8, you reference the fact
that sales growth in 2004 was facilitated by "adding warehouses."
Since, in fact, the company does not have any warehouse
facilities,
this disclosure is confusing as to the nature of the company`s
warehouse assets and operations. Please clarify here and
elsewhere
as appropriate.
Liquidity and Capital Resources, page 9
13. Please revise to include a discussion of the details of the
transactions with the Deja Plus High Yield Income Fund (the Fund).
This disclosure should include, but not be limited to, the term of
the management agreement, the timing of payments (loan repayments
and
payments of funding fees), payments made year-to-date, and the
basis
or methodology used in determining amounts due (e.g. fees based on
funds available in the Fund or fee based on amounts drawn down
from
the fund). Considering the complex nature of the management
agreement (funding fee), it would be helpful if you provided a
table
showing the computation of the funding fee that reconciles to the
amounts disclosed in the financial statements.
14. We noted that repayments from inventory financing are due to
the
Fund within 10 days of the Company`s receipt of proceeds from the
sale of related inventory. It is not apparent however, from your
statement of cash flows, that there have been any repayments of
principal borrowed. If the loan is in default at December 31,
2004,
please revise to include a discussion of the current status of
this
loan and management`s plans to address this default. For guidance
on
this discussion, please refer to section IV C. of SEC Release No.
33-
8350.
15. Please disclose whether the fund controlled by your Chief
Executive Officer engages in any activities other than loaning
money
to Deja Foods. In addition, indicate the percentage of total food
products purchases that were purchased through the Fund and
calculate
the effective cost of capital to the company of utilizing the Fund
to
finance operations. Also indicate whether the terms of financing
obtained from the Fund are more or less favorable than those
available from non-affiliated third parties. Considering the
significance of the funding fee and the impact that this fee will
have on future operations, consider providing a sensitivity
analysis
(in tabular format) to facilitate an investor`s understanding of
the
impact of the funding arrangement on gross profit and net income.
You should state clearly that the information provided in your
sensitivity analysis is for illustrative purposes and that such
information is not intended to be indicative of future
performance.
16. With respect to the company`s attempts to increase revenues
and
reduce the costs of funds in 2005, identify the "lenders" with
whom
the company is negotiating, disclose whether such lenders are
affiliates of the company or an officer, director or 10%
shareholder
of the company, and discuss the basis by which the company
believes
that it will be able to reduce its costs of funds. We may have
further comment.
17. We note the statement that Deja Foods has agreed "to pay the
Fund
the greater of 12% per annum on all funds raised and held by the
Fund
or 25% of the gross profit we receive annually from the purchase
and
resale of food products using funds provided by the Fund." Please
clarify whether Deja Foods is paying 12% "on all funds raised and
held by the Fund" or only on those funds actually utilized by Deja
Foods. In addition, discuss here and elsewhere as appropriate,
the
potential that such a payment structure may motivate the Fund to
raise funds for the company irregardless of the company`s needs
and
thus create conflicts between the company and the Fund with
respect
to this financing arrangement.
18. Please disclose the terms of the line of credit available to
Deja
Foods and the financial institution from which it was obtained.
Please disclose the current amount outstanding pursuant to such
line
of credit and file a copy of the dated and executed agreement as
an
exhibit with your next amendment. Additionally, to the extent
that
such financial institution is affiliated with the company, or an
officer, director or significant shareholder of the company,
please
discuss here and in the "Certain Transactions" section of the
prospectus.
19. Please disclose the current status of negotiations to increase
the line of credit in light of the stated expiration of the
current
line in May 2005.
20. With respect to the supply contract signed in April, 2002,
identify the party with whom the company has contracted, discuss
the
material terms of such agreement, and include the contract as an
exhibit to the registration statement. We may have further
comment.
21. Briefly describe and discuss the "infrastructure improvements"
obtained by the company in 2004.
Working Capital, page 10
22. It is unclear to us how you determined working capital was
adequate to meet the Company`s needs during 2004, considering the
short-term nature of the loans from the Fund (i.e. loan repayments
are due within 10 days of the Company`s receipt of proceeds from
the
sale of related inventory). Please remove this disclosure, or
revise
to elaborate on the "other factors" considered in determining
working
capital was adequate.
23. Your disclosure states that you were able to turn receivables
at
a faster rate in 2004 than 2003. Based on the information
presented,
it appears the accounts receivable turnover ratio deteriorated in
2004 compared to 2003. Please explain to us supplementally how
the
information presented in the table substantiates the Company`s
statement on accounts receivable turnover. Please advise or
revise.
Commitments and Long Term Liabilities, page 11
24. We noted that you signed a significant contract with a
supplier
guaranteeing the price of specific food products for twelve
months.
Please revise your table your table to include any purchase
commitments related to this contract (e.g. minimum purchase
requirements, up-front fee, etc.).
Cash Flows - EBITDA, page 11
25. Please revise to include the disclosures required by Item
10(h)(1)(i)(c) and Item 10(h)(1)(i)(d) of Regulation S-B.
Business, page 15
26. We note the statements that Deja Foods:
* "make[s]...`opportunity purchases` from a number of
multinational
food manufacturers, including Con Agra, Del Monte, National Frozen
Foods and Cool Brands";
* "arrange[s] for `continuity` purchases of food products on a
regular and ongoing basis from specific manufacturers which
[Deja]...sell[s] to [its]...retail and institutional customers";
* "obtain[s] regularly from domestic and overseas
manufacturers...[food products] manufactured for us under our own
"Deja Foods(tm)" label"; and
* "sell[s]...imported food products directly to U.S. food
distributors through an office...[Deja Foods] maintain[s] in New
York
City."
Please disclose the material terms of all agreements and
understandings with all manufacturers, suppliers, and customers.
Additionally, please file dated and executed copies of all
agreements
with such companies as exhibits to your next amendment.
27. Additionally, please provide disclosure with respect to the
relative contribution each segment contributes to the overall
operations of Deja Foods.
28. We note the following statements:
* "We also have primary warehouse operation centers in Modesto,
California; Garland, Texas; Savannah, Georgia and Denver,
Pennsylvania and use warehouses elsewhere from time to time. In
each
case, we have no long-term agreements with the warehouses. Rather,
we
pay monthly on a pallet or weight basis for all of our food
product
that is shipped into and out of the warehouse." (pp. 18, emphasis
added)
* "We also have food distribution operations in Denver,
Pennsylvania,
which we manage on a joint venture basis with M&L Wholesale Foods,
Inc.... Under the joint venture agreement, we store food products
in
a third-party warehouse and M&L offers our products and their
products for sale to M&L`s customer base...This arrangement allows
us
to target M&L`s customers for product sales that do not compete
with
M&L`s products and allows M&L to offer an expanded product line,
which is warehoused and financed by us." (p.16, emphasis added)
Please reconcile the two apparently conflicting statements.
Additionally, please file a dated, executed copy of the Joint
Venture
Agreement referenced on page 16 with your next amendment. We note
that Section 9 of the agreement between Deja Foods, Inc. and M&L
Wholesale Foods, LLC, filed as Exhibit 10.3, specifically states
that
such "Agreement shall not constitute a partnership or joint
venture
relationship between the parties." Further, clarify the language
throughout the prospectus with respect to your "having" warehouse
operations centers, as it appears that the company has no interest
in
such centers whatsoever, but merely rents space on an as available
and as needed basis to warehouse it products. In connection with
this arrangement, also discuss the terms under which the company
rents this space, including but not limited to the cost(s),
insurance
on the inventory, what alternatives the company has arranged for
in
the event that space is not available at such facilities, etc.
29. Please file a copy of the dated and executed letter of intent
to
acquire all of the outstanding common stock of M&L, as referenced
on
page 16, with your next amendment. Please update your disclosure
to
reflect the current status of the transaction and the source of
funds
that will be used to consummate the transaction. If the
transaction
appears to be definite, please provide the financial statements of
the entity to be acquired. Additionally, please disclose the
ownership structure between M&L Wholesale Foods, llc and M&L
Wholesale Foods, Inc. We may have further comment.
30. Provide a discussion of all material regulations, whether
federal
state, local or foreign, including but not limited to the import
of
products from foreign countries, to which the company and its
operations are subject.
Executive Compensation, page 19
31. Please add Mr. Matis to the Summary Compensation Table.
32. Please reconcile the varying amounts provided for Mr. Fox.
Security Ownership of Certain Beneficial Owners and Management,
page
21
33. Please provide the address of each beneficial owner as
required
by Item 403 of Regulation S-B.
34. Some of the amounts disclosed for the owners and management in
the table on page 21 do not tie with the amounts disclosed for the
same individuals in the selling stockholders table on page 22.
Please revise.
Selling Stockholders and Plan of Distribution, page 21
35. Please disclose the control person(s) for each business entity
listed in the table.
36. Please also disclose the entities implicated by each person
designated as a "Trustee."
37. Please disclose how each person is affiliated with Deja Foods,
Inc. Specifically, state any position, office or material
relationship which the selling security holder has had within the
past three years with Perfect Health Care or any of its
predecessors
or affiliates. See Item 507 of Regulation S-B. It appears that
those people with the surnames of Fox and Cooper may have a
relationship with your affiliates.
Related Party and Other Material Transactions, page 24
38. Please provide the staff with a legal analysis supplemental to
your disclosure that provides an explanation as to how the loans
to
Mr. Fox comply with the Sarbanes-Oxley Act of 2002. We may have
further comment.
Financial Statements
General
39. Please tell us supplementally whether your institutional
customers and retail customers represent separate operating
segments
as defined in paragraph 10 of SFAS 131 and explain management`s
basis
for this determination. If these distinct customer bases
represent
separate operating segments, please revise to include the
disclosures
required by paragraphs 25 - 28 of SFAS 131. Also, expand MD&A to
analyze sales, profitability and the cash needs of each segment.
Refer to Section 501.06.a of the Codification of Financial
Reporting
Policies.
Report of Independent Registered Public Accounting Firm, F-1
40. Please instruct your auditor to revise their opinion to
include
the signature of the firm.
Note 1 - Organization and Summary of Significant Accounting
Policies
Inventories, F-6
41. We noted from your disclosure on page 15 that you purchase
various perishable types of food. Please tell us supplementally,
and
disclose your policy for determining your inventory reserves for
excess and obsolete or spoiled inventory.
Investments, F-7
42. Please provide to us supplementally, a robust discussion of
Mr.
Fox`s affiliation (including both direct and indirect ownership
interest) with Deja Plus High Yield Income Fund. In this
connection,
please also provide us with a detailed analysis of the
applicability
of APB 18 (equity method accounting for investments), specifically
paragraph 17. We may have additional comments.
Revenue Recognition, F-7
43. Please revise your policy disclosure to address each of the
four
criteria described in SAB 104. Disclose significant terms and
conditions, including any customer acceptance provisions and other
post-delivery obligations (e.g. product returns, inventory
credits,
rebates, discounts, volume incentives, etc.) and the related
accounting policies.
44. We noted from your disclosure on page 8 that you performed
drop
shipments, direct to customers from the source without trans-
shipment
through a warehouse. It appears that you are recording revenue on
a
gross basis for these product sales. Please provide to us
supplementally, an analysis of EITF 99-19, Reporting Revenue Gross
as
a Principal versus Net As an Agent. Your analysis should address
each of the indicators discussed in the related technical
guidance.
Please advise or revise.
45. Considering the comments above, please revise your critical
accounting policies (page 12) to disclose the nature and amounts
of
revenue dilution (e.g., from product returns, inventory credits,
discounts for early payment, credits for product that is not sold
by
the expiration dates, and other allowances). Your critical
accounting policy should explain how you assess returns of
products,
levels of inventory in the distribution channel, estimated shelf
life
(or spoilage), and expected introductions of new products that may
result in larger than expected returns of current products.
Discuss
to what extent you consider information from external sources
(e.g.,
end-customer demand, third-party market research data) to assist
you
in such critical estimates. In addition, disclose and discuss any
sales made to customers wherein such sales are as a result of
incentives or in excess of the customer`s ordinary course of
business
inventory level.
Note 2 - Accounts Receivable, F-10
46. Please revise to disclose the amount of accounts receivable
factored, proceeds received, factoring fees paid and any other
relevant facts of the arrangement for each period presented.
47. Tell us, citing the specific authoritative literature you
used,
how your accounting and reporting for factoring accounts
receivable
complies with GAAP. Also, tell us how you have reported your
factoring transactions (proceeds and repayments) in the statements
of
cash flows for each period. If the transactions were reported as
operating activities, please justify.
Note 8 - Stockholders` Equity, F-13
48. Please revise to include a discussion of each equity issuance
(or
group of issuances) for each period presented in the Statements of
Changes in Stockholders` Equity. Your discussion should include
the
number of shares of common stock issued, a description of the
services rendered (clarify employee or non-employee), and the
methods
and assumptions used in determining the value of the equity
issuances, etc.
Note 10 - Related Part Transactions
Loan Agreement, F-15
49. Please provide us with a supplemental discussion of the
pertinent
details of Deja Plus. In this discussion, include the name and
ownership percentages of significant investors in Deja Plus,
including a discussion of their affiliation with the Company, if
any.
Also discuss any other activities of the fund, including but not
limited to, funding arrangements with other entities and other
business activities (e.g. sales of products, etc.). Consider
providing to us the financial statements of Deja Plus to help us
better understand their (Deja Plus) funding capabilities. Tell us
Deja Plus purchases inventory on behalf of the registrant.
Considering the significance of the management arrangement with
Deja
Plus and the Company, you should consider strengthening your
related
party disclosures to discuss the points noted within this comment.
We may have additional comments.
Note 12 - Concentrations of Credit Risk and Major Customers, F-15
50. Please expand your disclosure to include a discussion (or
tabular
presentation) of any concentrations that may exist in accounts
receivable.
Other
51. Please note the updating requirements for the financial
statements as set forth in Item 310(g) of Regulation S-B and
provide
a current consent of the independent accountants in any
amendments.
52. Prior to amending your registration statement, please consider
the guidance of Items 310(c) and (d) of Regulation S-B, as it
relates
to your acquisition of M&L. In this connection, provide the
necessary financial statements of M&L or explain to us
(qualitatively
and quantitatively) why such information is not required.
Part II
Recent Sales of Unregistered Securities, page 57
53. Please reconcile the time period within which the 500,000
share
offering was completed, variously noted as between December 2004
and
either February or March of 2005. We may have further comment.
54. Please disclose the exemption under Regulation D upon which
you
relied. Also, disclose the particular facts relied upon in
relying
upon Regulation D and Section 4(2). See Item 701(d) of Regulation
S-
B.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
55. Please supply the disclosure required by Item 304 of
Regulation
S-B.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Brian Bhandari at (202) 551-3390 you have
questions regarding comments on the financial statements and
related
matters. Questions on other disclosure issues may be directed to
John Zitko at (202) 551-3399.
Sincerely,
John Reynolds, Assistant Director
Office of Emerging Growth Companies
cc: Gary A Agron
Fax: (303) 770-7257
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Deja Foods, Inc.
May 16, 2005
Page 1