May 19, 2005
Via U.S. Mail and Fax
Michael Siemens
Executive Vice President & COO
A4S Technologies, Inc.
489 N. Denver Avenue
Loveland, CO 80537
Re: A4S Technologies, Inc.
Form SB-2
Filed April 22, 2005
File No. 333-124238
Dear Mr. Siemens:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree with any of our comments, 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.
Form SB-2
General
1. We encourage you to file all exhibits with the next amendment
to
your Form SB-2 or otherwise furnish drafts of the legality
opinion.
We may have additional comments upon review of that document.
Please
also file the proper consent upon the filing of the legality
opinion.
2. We note that you reference industry research throughout the
document, such as those provided by the American Public
Transportation Association, Frost & Sullivan, and the School Bus
Information Council, among others. Please provide us with marked
copies of any materials that support these and other third party
statements cited in the registration statement, clearly cross-
referencing a statement with the underlying factual support.
Confirm
for us that these documents are publicly available. To the extent
that any of these reports have been prepared specifically for this
filing, file a consent from the party.
3. Your fee table indicates you are registering 120,000 options to
purchase common stock and 120,000 options to purchase warrants, as
well as the securities underlying those options. It appears,
however, that A4S Technologies negotiated the sale of those
options
to Newbridge Securities prior to filing the Form SB-2. As a
result,
you may only register the resale of the underlying common stock.
Please revise the fee table to remove the underwriters` options
from
the "Amount to be Registered" and include the information required
by
Item 507 of Regulation S-B.
4. Please include the signature of the executive officer acting in
the capacity as principal accounting officer.
Prospectus Cover Page
5. Until you are approved for quotation on the Nasdaq SmallCap
Stock
Market, revise your disclosure to clarify that you have applied
for
quotation on the Nasdaq SmallCap Stock Market.
6. We note from your description of the plan of distribution that
the
offering is a firm commitment offering and that the public
offering
price of the units will be between $6.50 and $7.50. However, we
note
the statement on page 43 that "[A]fter the initial offering of the
units, the offering price and other selling terms may from time to
time be varied by the representatives of the underwriter." Please
explain in your response letter how this statement is consistent
with
the underwriters` commitment to purchase all of the securities in
the
offering if any are purchased.
Prospectus Summary, page 3
7. Please balance the disclosure in your summary with the
following:
* That your independent auditor has issued a going concern
opinion;
* That you have a history of net operating losses and an
accumulated
deficit of $4 million; and
* That the Kansas City Area Transportation Authority accounts for
approximately 97% of your net sales.
The Offering, page 5
8. Indicate the percentage of your outstanding common stock that
the
number of shares being offered would represent following the
offering.
9. Disclose the exercise price of the warrants.
Summary of Historical Financial Data, page 6
10. Delete the pro forma information from the table of Summary
Historical Financial Data. The impact of the anticipated offering
and transactions occurring subsequent to the date of the latest
balance sheet may be presented in the capitalization table at page
16.
Risk Factors, page 7
General
11. Please move your risk factor discussing the fact that your
independent auditor has questioned your ability to continue as a
going concern to the front of this section.
12. Please revise each risk factor caption so that it reflects the
risk that you discuss in the text. Currently, many of your risk
factor captions are unduly vague, such as "If the markets for our
products do not develop..." on page 8, and do not discuss
adequately
the risk that follows. Other risk factor captions merely state a
fact about you, such as "Our success depends on our ability to
sell
our products to more customers" on page 7 and "Our future success
will depend, in part, on the continued service of our management
team" on page 9. These are only examples. Revise throughout to
identify briefly in your captions the risks that result from the
facts or uncertainties. Potential investors should be able to
read
the risk factor captions and come away with an understanding of
what
the risk is and the result of the risk as it specifically applies
to
you. As a general rule, your revised captions should work only in
this document. If they are readily transferable to other
companies`
documents, they are probably too generic. Please revise
accordingly.
13. Please avoid the generic conclusion in the captions and
discussions that if a risk occurs, your business and financial
performance could be materially adversely affected. This
statement
does not represent meaningful disclosure. Instead, revise to
provide
specific disclosure of the possible impact upon your operating
results, business, liquidity, cash flow, financial condition, and
share price.
14. Please remove any mitigating language from your risk factors.
For example, your risk factor "Some members of our management team
and key personnel..." (page 9) discusses the possibility that
members
of management will not work well together, which could impact your
sales and operating results. The disclosure also states, however,
the belief that you have "assembled a management, sales and
marketing
team that can effectively market [your] products and capitalize on
[your] opportunities." This appears to minimize the risk that
your
personnel will not effectively market and sell your products.
"Our success depends on our ability to sell our products to more
customers," page 7
15. Please highlight that the Kansas City Area Transportation
Authority accounts for approximately 97% of your net sales.
"We do not currently have insurance that covers product
liability,"
page 10
16. Expand this risk factor to indicate whether the nature of how
your products are used by customers enhances the potential for
product liability as compared to others. For example, your
products
are used in the transportation industry and if there is a traffic
accident is it possible that your products could be held partly
responsible for damages resulting from the accident.
"The redemption of our warrants in this offering...," page 14
17. Clarify that someone who fails to redeem their warrants after
a
notice of redemption will lose money because the redemption price
($.10) is more than likely to be less than the gain that would be
realized if a holder exercises his or her warrants.
"If a current prospectus, and possibly state blue sky
registration...," page 14
18. Please revise to clarify that you are referring to purchasers
of
the warrants in this offering (not to private purchasers of
warrants).
Capitalization, page 16
19. We are unable to reconcile the pro forma information presented
in
the capitalization table to the changes in the historical
financial
statement information. Revise the notes to the pro forma
information
to clearly describe the impact on each line presented in the
table.
Dilution, page 17
20. Please quantify the further dilution to new investors that
will
occur assuming the exercise of all of your outstanding stock
options,
warrants, and convertible notes. Also quantify the dilution to
new
investors if your underwriters fully exercise their over-allotment
option.
Management`s Discussion and Analysis or Plan of Operation, page 19
Overview, page 19
21. We note that you derived a substantial portion of your sales
from
the Kansas City Area Transportation Authority. Please revise to
disclose your heavy reliance on the KCATA as a major customer of
your
products and discuss your marketing plans for expanding your
business
to additional mass transit customers and to the law enforcement
market.
Results of Operations, page 19
22. In your comparison of fiscal 2004 to 2003 revenues, you note
that
"the increase in sales is attributable primarily to a shift in
2004
of our marketing focus." Revise your disclosure to indicate the
increase in sales was a result of sales to one customer in 2004.
Liquidity and Capital Resources, page 19
23. Disclose the nature of the intangible assets acquired during
the
year, as described in the section on "Investing Activities." It
appears a portion of these payments may be attributed to loan
costs.
If this is true, explain why classification of these costs as
investing activities is appropriate.
Critical Accounting Policies, page 21
24. We note that your Critical Accounting Policies indicate the
Company recognizes revenue when products are shipped to
unaffiliated
customers. In contrast, in your Summary of Significant Accounting
Policies regarding revenue recognition and accounts receivable you
indicate, "the Company recognizes revenue when product is
delivered."
Revise your disclosures to ensure your revenue policy is
consistently
stated. If you indeed recognize revenue upon shipment to
customers,
please provide the following information:
* Describe your formal shipping terms, if any, e.g., FOB shipping
point or FOB destination, and explain the manner in which those
terms
are communicated to customers;
* In the absence of formal shipping terms, describe when title and
risk of loss of merchandising pass to customers on merchandise
shipped from warehouses. Indicate whether you have received a
legal
opinion in this regard and describe its conclusion;
* Describe your involvement in the shipping process; and
* If formal shipping terms are FOB destination, or title and risk
of
loss otherwise pass to customers upon delivery, tell us how you
comply with SAB 104 by recognizing revenue upon shipment.
25. Avoid using boilerplate descriptions of your critical
accounting
policies. Your description of your critical accounting estimates
should evolve as your business grows. For example in discussing
your
critical estimates made in connection with your accounting for
accounts receivable, you caution that a financial decline of "any
one
of our large clients" could have a material adverse effect on the
collectibility of your receivables. However, you currently have
only
one large client, so you should discuss this critical accounting
policy as it applies to your one large client noting the increased
risks as your business continues to grow.
Business, page 23
26. Please tell us in your response letter the consideration you
gave
to disclosing the effect of existing or probable government
regulations on your business, as provided by Item 101(b)(9) of
Regulation S-B. For example, we note that many municipalities
have
been implementing traffic cameras to monitor traffic behavior at
busy
intersections. Is this a potential market for your products?
27. Please revise to disclose the information required by Item 102
of
Regulation S-B.
Executive Compensation, Page 35
28. Please revise to disclose compensation paid to directors, in
accordance with Item 402(f) of Regulation S-B.
Certain Relationships and Related Transactions, Page 36
29. Disclose the conversion price of the convertible notes offered
during 2003 and 2004.
Financial Statements, page F-3 through F-6
30. Update the financial statements and other financial
information
in the filing to include the interim period ended March 31, 2005.
See Item 310(g) of Regulation S-B.
Note 7: Convertible Notes Payable, page F-12
31. Tell us how you applied the guidance in EITF 98-5 and EITF 00-
27
in calculating the beneficial conversion feature for convertible
debt. It appears that you used a relative fair value approach,
instead of the intrinsic value method describe in EITF 98-5.
Note 8: Stock Options, page F-13
32. Tell us how you determined the fair value of your common stock
at
each of the stock option grant dates in 2004 and 2005.
33. Disclose vesting provisions for stock options in the notes to
the
financial statements. Also disclose whether the valuation used to
determine the fair value of the common stock was contemporaneous
or
retrospective. If you used a valuation specialist that was a
related
party, include a statement indicating that fact.
34. Please disclose in MD&A the following information relating to
your issuances of stock options:
* A discussion of the significant factors, assumptions and
methodologies used in determining fair value;
* A discussion of each significant factor contributing to the
difference between the fair value as of the date of each grant and
the estimated initial public offering price; and
* The valuation alternative selected and the reason management
chose
not to obtain contemporaneous valuation by an unrelated valuation
specialist.
Further disclose in your Management`s Discussion and Analysis
section
the intrinsic value of outstanding vested and unvested options
based
on the estimated initial public offering price and the options
outstanding as of the most recent balance sheet date presented in
your registration statement.
* * * *
Please amend your Form SB-2 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 that
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 this action 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 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 may 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 David Walz, Staff Accountant, at (202) 551-
3358
or Terry French, (202) 551-3828 if you have questions regarding
comments on the financial statements and related matters. Please
contact Derek Swanson, Staff Attorney, at (202)551-3366, or me at
(202) 551-3810 with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
cc: Robert M. Bearman, Esq.
Marci M. Fulton, Esq.
Patton Boggs LLP
Via Facsimile: (303) 894-9239
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Michael Siemens
A4S Technologies, Inc.
May 19, 2005
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