Mail Stop 3-8
June 14, 2005
By Facsimile and U.S. Mail
Mr. Mair Faibish
Chief Executive Officer
Synergy Brands, Inc.
1175 Walt Whitman Road
Melville, NY 11747
Re: Synergy Brands Inc.
Form 10-K/A for the Year Ended
December 31, 2004
Filed April 18, 2005
File No. 0-19409
Dear Mr. Faibish:
We have reviewed the above referenced 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 information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
Please understand the purpose of our review 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 any other aspect of our review. Feel
free
to call us at the telephone numbers listed at the end of this
letter.
Form 10-K/A for the Year Ended December 31, 2004
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Plan of Operations, page 13
Consolidated Results of Operations for the Year Ended December 31,
2004 as Compared to the Year Ended December 31, 2003, page 14
1. In your discussion and analysis you repeatedly disclose EBITDA
citing it as a measure frequently used by other distribution
related
companies. If you choose to disclose a non-GAAP financial measure
such as EBITDA, please include a presentation of the most directly
comparable GAAP financial measure and a reconciliation of the non-
GAAP financial measure to the most directly comparable financial
measure calculated and presented in accordance with GAAP. In
future
filings please reconcile each instance of disclosed non-GAAP
financial measure to the most directly comparable GAAP financial
measure and provide all of the other disclosures required by Item
10(e) of Regulation S-K. In your response please show us what
your
revised disclosures will look like or confirm you will not
disclose
non-GAAP financial measures in future filings.
2. In your discussion of the results of operations please revise
your
disclosure in future filings to provide a narrative telling us how
the following significant events affected income from continuing
operations:
* Quantify and indicate the extent that increases in consolidated
net
sales and net operating losses are attributable to continuing
operations versus the acquisition of Cigars Around the World,
changes
in pricing or volume of products sold or the introduction of new
products relative to your business segments;
* Expand and quantify your explanation of revenue growth as the
cause
for an increase in financing charges of approximately 106% in 2004
over 2003 and 226% in 2003 over 2002. Identify the liabilities
causing the increased finance charges, the related revenue stream
or
segment being financed and your assumption if and when the revenue
stream or segment will be able to finance itself without external
financial assistance; and
* Discuss the recent decision of the Board of Directors to declare
dividends on Class B Series A Preferred Stock and your ability to
continue paying these dividends in the future.
See Item 303 of Regulation S-K and SEC Release No. 33-8350. In
your
response, please show us what your disclosures will look like
revised.
Liquidity and Capital Resources, page 24
3. Please disclose known trends or uncertainties related to cash
flow, capital resources or liquidity. In this regard, please
revise
your discussion of liquidity and capital resources to identify the
operational reasons for your recurring negative cash flows from
operations and net losses as well as how you expect to meet your
short and long-term cash requirements and maintain operations.
Further, the underlying sources of positive cash flows appear to
be
increasingly dependent on exchanging notes payable for common
shares
and issuing common and preferred stocks in private placements. As
a
result of this known trend please disclose your reliance on
issuing
notes and stock as a form of liquidity, the probability this
financing method will continue to be available to you and if you
are
reasonably likely to use this financing method in the future. In
your response, please show us what your revised disclosures look
like. See section IV of SEC Release No. 33-8350.
4. We note an increase in receivable turnover from thirty-four
days
in 2003 to forty-seven days in 2004, a 100% increase in
outstanding
receivables and an absence of recent additions in the allowance
for
doubtful accounts. Please disclose the underlying reasons for
your
recent deterioration in receivables and the impact on your
liquidity
and capital resources. Indicate whether you have extended payment
terms to your customers, revised your policy in establishing an
allowance for doubtful accounts or disclose other underlying
reasons
that may exist. See Item 303 of Regulation S-K and SEC Release
No.
33-8350. In your response, please show us what your revised
disclosures look like.
5. Please advise or revise your disclosure in future filings to
include the amount of interest payments you expect on notes
payable
for the periods presented as required by Item 303 (a)(5)(ii)(A) of
Regulation S-K. Please include disclosure of the assumptions
used
to calculate amounts included in the table where you have used
variable interest rates as of the most recent balance sheet date
to
compute the estimated contractual interest rates.
Item 14. Controls and Procedures, page 41
6. We note your certifying officers disclose their conclusions as
to
the adequacy of your disclosure controls and procedures within 90
days prior to the filing date of your report. Item 307 of
Regulation
S-K requires that your certifying officers disclose their
conclusions
regarding the effectiveness, not adequacy, of your disclosure
controls and procedures as of the end of the period covered by the
report. Please advise or revise your certifications accordingly.
3. Financial Statement Schedules, page 42
7. Please include a schedule for all major valuations, qualifying
accounts and reserves not included elsewhere in specific
schedules.
Please advise or revise to disclose detailed information for sales
returns and discounts, unamortized vendor allowances and a
valuation
allowance for deferred tax assets required by Rule 12-09 of
Regulation S-X. If you do not currently disclose this
information,
please include the schedule in future filings. In your response,
please show us what your revised disclosure will look like.
Certifications, page 44
8. Refer to paragraph 4b. The effectiveness of your disclosure
controls and procedures should be evaluated as of the end of the
period covered by the report, as required by Item 307 of
Regulation
S-K. Please advise or revise your certifications accordingly.
Report of Independent Registered Public Accounting Firm, page F-2
9. We note your audit was conducted in accordance with "auditing"
standards of the Public Company Accounting Oversight Board (United
States). Auditing Standard No. 1 requires your audit is conducted
in
accordance with standards of the Public Company Accounting
Oversight
Board (United States). Please advise and ensure the opinion
includes
the recommended language contained in the Illustrative Appendix of
Auditing Standard No. 1 issued by the Public Company Accounting
Oversight Board.
Consolidated Statement of Operations, page F-6
10. Please tell us your accounting treatment for the shares
contingently issuable in connection with the acquisition of CAW.
See
paragraph 30 of SFAS No. 128.
Consolidated Statements of Cash Flows, page F-11
11. Please include supplemental disclosures for all non-cash
investing and financing activities. See paragraph 32 of SFAS No.
95.
Notes to Consolidated Financial Statements, page F-13
Note C - Acquisition, page F-22
12. We note your acquisition of Cigars Around the World ("CAW") in
June 2003. Please provide a worksheet illustrating your initial
purchase price, the nature and amount of any subsequent
adjustments
and provide a response to the following comments:
* Tell us how you determined the initial purchase price allocation
considering amounts issued unconditionally at the acquisition date
as
opposed to contingent amounts issued later as specified in the
acquisition agreement and your accounting treatment followed
should a
contingency be resolved;
* Provide a schedule of all contingent payments, payment dates and
specify which contingent payments are included in the purchase
price
allocations and the amount of additional consideration payable
remaining based upon achievement of targeted operating results as
of
your most recent balance sheet date;
* Your disclosure indicates you issued 25,000 common shares in
December 2003 and 175,000 Class B Preferred Shares in February and
June of 2004 for $625,000 total consideration exchanged for CAW.
Please tell the form and amount of consideration for CAW exchanged
at
the acquisition date and the contractual reasons for issuing
shares
subsequently in December 2003 and February and June 2004;
* Describe how you determined the fair value of non-voting Class B
Series A Preferred Stock; and
* Please tell the nature of and why prepaid compensation is
included
in your purchase price allocation.
In future filings include the disclosures required in paragraphs
51.f., h. and 52.c. of SFAS No. 141. In your response please show
us
what your revised disclosures will look like.
Note I - Notes Receivable, page F-27
13. Please tell us and revise future filings to explain how you
are
accounting for your obligation to issue common stock valued at
$200,000 to West Coast.
Note L - Stockholders` Equity, page F-29
14. Please confirm if you are required to issue 165,000 common
shares
or a half share of common stock for each outstanding Class B
Series A
Preferred Stock per year as of your most recent balance sheet date
and explain to us the redemption requirements in more detail.
Based
on your present disclosure it would appear this requirement
represents a conditional obligation at inception requiring you to
issue a variable number of common shares as described in SFAS No
150.
If this is the case, please tell us how you have accounted for
this
obligation in accordance with SFAS No. 150. Alternatively, if you
do
not view this as a conditional obligation to issue common shares,
please tell us your present accounting treatment including how you
accounted for the issuance of 30,000 shares in January 2005. See
paragraphs 12, 23 and 27 of SFAS No. 150.
15. Contracts that may be settled in stock that are within the
scope
of SFAS No. 150 and accounted for as an asset, liability or equity
may require an adjustment to the numerator and/or denominator for
the
purposes of computing earnings per share. Please tell us how you
considered your obligation to issue common shares for each
outstanding Class B Series A Preferred Stock as it relates to your
computation of diluted earnings per share in fiscal year end 2003
and
2004. See EITF Topic D-72.
Note N - Transactions with Related Parties, page F-33
16. Expand your disclosures to discuss the payments of preferred
dividends to your shareholder officer, the issuances of promissory
notes by ITT shareholders to you and exchanges of promissory notes
for common shares with ITT shareholders. See paragraph 2 of SFAS
No.
57.
Note T - Segment and Geographical Information, page F-37
17. In your segment disclosures please advise or revise your
future
filings to include the following disclosures:
1. Revenue from transactions with other external customers and
from
transactions between operating segments;
2. Revenues from external customers for each product or group of
similar products or state why it is impracticable to do so; and
3. Significant non-cash items such as common stock issued for note
conversions and business acquisitions.
See paragraphs 27 and 37 of SFAS No. 131.
Exhibit Index, page 44
18. Please tell us why you have not incorporated the CAW
acquisition
agreement in your exhibit index. Include in your response the
original filing date and form containing a copy of the acquisition
agreement. See Item 601(b)(10) of Regulation S-K
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a response letter that keys your responses to our comments
and provides any requested information. Detailed letters greatly
facilitate our review. File your response on EDGAR as a
correspondence file. Please understand that we may have
additional
comments after reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing 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.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments 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 our review of your filing or in
response to our comments on your filing.
You may contact Brian V. McAllister at (202) 551-3341
or,
Donna Di Silvio at (202) 551-3202, or in her absence to the
undersigned at (202) 551-3841 if you have any questions regarding
comments on the financial statements and related matters.
Sincerely,
Michael Moran
Accounting Branch
Chief
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Mr. Mair Faibish
Synergy Brands, Inc.
June 14, 2005
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