Mail Stop 3561
July 12, 2005
Via U.S. Mail and Fax
Don Dallape
Chairman and CEO
Execute Sports, Inc.
1284 Puerta Del Sol, Suite 150
San Clemente, CA 92673
Re: Execute Sports, Inc.
Form SB-2
Filed June 16, 2005
File No. 333-125868
Dear Mr. Dallape:
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
Registration Statement Cover Page
1. We note that you plan to rely on Rule 415 to conduct a
continuous
offering of your securities. Please add a box to the cover page
of
the registration statement and mark that box to indicate that you
are
relying on Rule 415. Please see Interpretation D.36 of the
Division
of Corporation Finance Manual of Publicly Available Telephone
Interpretations, found on the web at
http://www.sec.gov/interps/telephone/1997manual.txt.
Prospectus Cover Page
2. We note your statement on the prospectus cover page and
throughout
the prospectus that the company "intends to apply for listing on
the
Over-the-Counter Bulletin Board." Please note that the OTC
Bulletin
Board is not an exchange, so securities are not listed on the OTC
Bulletin Board, they are approved for trading. Please revise this
statement throughout your prospectus. In addition, please revise
your statement that the company applies to have its securities
traded
on the OTC Bulletin Board, as only brokers can apply to the NASD
to
have a company`s securities traded on the OTC Bulletin Board.
General
3. Your registration statement refers to market estimates
formulated
by Emergent Growth Analytics, the American Motorcycle Association,
and the Motorcycle Industry Council. Please provide us with
marked
copies of any materials that support this and other third party
statements, 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.
Also, please provide factual support for your assertions that your
brand name is already becoming one of the most widely recognized
and
respected names in the Powersports industry, that your affiliation
with world-class athletes establishes the greatest level of
credibility among consumers, that these affiliations provide the
best
chance of establishing shelf space for your products, and that
your
use of manufacturers in China allows you to produce the best
quality
products at the lowest possible prices.
4. Revise to provide the disclosures required by Item 304 of
Regulation S-B regarding your change in your principal accountant
and
include the accountant`s letter as an exhibit to the filing.
Prospectus Summary, page 5
5. The purpose of the prospectus summary is to provide a snapshot
of
your company`s financial condition and operations. However, your
summary reads more like a marketing brochure for the company.
Please
revise to make the tone of this section more objective and
disclosure-oriented and less of an advertisement for the company.
6. Please balance your discussion of your business strategy with a
summary of your current financial condition, including a brief
analysis of your need for additional funds after the completion of
this offering. For example, we note a risk factor on page 11
stating
that you will attempt to secure additional financing after this
initial public offering. Do you not expect your initial public
offering to provide the required funding for development and
commercialization of your products, even if you receive the
maximum
anticipated proceeds? Please also revise your Management`s
Discussion and Analysis to provide a more detailed discussion of
your
plan for obtaining the funds necessary to develop and sell your
products.
7. Your summary discusses the "power sports" industry, which is
composed of motorcycles, personal watercraft, all-terrain
vehicles,
and snowmobiles, citing growth statistics for each of those
markets.
Please revise to discuss the relevance of growth in sales of, for
example, off-road motorcycles, to sales of your actual products:
graphics kits, ancillary clothing and travel bags, wetsuits, vests
and gloves, dry jackets, and graphics kits. In addition, clarify
which of your products are merely in the developmental stages.
8. Please define your use of terms such as "pricing elasticity" on
page 6 and "footprint" on page 7 the first time those terms occur
in
the registration statement.
Our Company, page 5
9. Reconcile the date of your private placement. Here you
reference
a commencement date of July 2004 and on page 7 you state that it
commenced in September 2004.
Our Strategy, page 6
10. We note your statement here and elsewhere in the prospectus
that
the company has established sponsorship arrangements with leading
athletes in motocross, wakeboarding, NASCAR and Formula 1 Racing.
In
your business section, please identify (a chart would work well)
each
athlete with whom you have entered into sponsorship agreements, as
well as his or her sport.
11. Your reference to an "acquisition/roll-up strategy" is not
clear.
Explain what you mean by "roll-up strategy."
Summary of the Offering, page 8
12. We note your disclosure that you issued 3,340,000 shares of
common stock in connection with professional services contracts
and
consulting fees in February 2005. Please provide us in your
response
letter with additional details regarding these issuances,
including
how they may correlate with the contracts included as exhibits to
the
Form SB-2, and how you valued these issuances. Also tell us in
your
response the amount of expense related to these shares and where
such
expense is included in the Statement of Operations for the quarter
ended March 31, 2005 and prior periods, if applicable.
Risk Factors, page 10
General
13. Please revise the entire risk factors section to set off each
risk factor heading with bold or underlined type.
14. In many of your risk factors, you conclude that if the risk
materializes, your business, results of operations, or financial
conditions could be adversely affected. Please revise each risk
factor to replace this language with specific disclosure of the
possible impact upon your operating results, business, liquidity,
cash flow, financial condition, share price, etc.
15. Please create two separately captioned risk factors discussing
your heavy reliance on (1) four major customers and (2) three
major
manufacturers of your inventory.
"We cannot assure you that a market will develop....," page 14
16. The reference to the initial public offering price being
determined through negotiations with the underwriters is
inapplicable. Please delete this reference and accurately reflect
how the initial public offering price is being determined.
"Management has broad discretion to use the proceeds...," page 14
17. Explain the reference to "new co-location facilities."
Use of Proceeds, page 15
18. Because this is a best efforts, no minimum offering, please
revise your Use of Proceeds, Capitalization, and Dilution sections
to
reflect the sale of varying amounts of the total amount being
offered.
19. Reconcile your conflicting disclosure that the net proceeds
from
this offering will be sufficient to satisfy the company`s cash
requirements for the "foreseeable future" with your other
statements
that an additional equity financing will be necessary at the
conclusion of this offering.
20. Add disclosure clarifying that proceeds raised from this
offering
may not be all cash. We note your representation in the plan of
distribution section that shares may be distributed for non-cash
consideration. In addition, reflect this use of proceeds option
in
your risk factors that highlight your need for additional capital.
Capitalization, page 17
21. Revise the first paragraph to indicate the information in the
table is as of March 31, 2005, rather than December 31, 2004.
22. Since this is not a firm underwritten offering, you should not
disclose pro forma information assuming the receipt of offering
proceeds. Please remove this disclosure from your filing.
Dilution, page 18
23. Revise the disclosures in the fourth paragraph to reconcile
with
the amounts detailed in the table.
24. Please revise the disclosures concerning the Company on a
historic basis to indicate it has a net tangible deficit, not book
value.
Plan of Distribution, page 19
25. Reconcile your conflicting disclosure here that the offering
will
expire when all the units are sold or 12 months after the date of
effectiveness to the disclosure in the summary that indicates that
the offering will end on October 31, 2005.
26. Confirm in your response letter that you will file a post-
effective amendment to reflect the change in the plan of
distribution
if an underwriter is engaged to conduct the distribution.
Management`s Discussion and Analysis, page 23
Overview, page 23
27. Your auditors have questioned your ability to continue as a
going
concern. Please revise your overview subsection to discuss the
going
concern opinion, including management`s plan to minimize the
threat
of liquidation or reorganization. Analyze how your initial public
offering fits into your strategy for continuing as a going
concern.
What impact will receipt of the maximum amount of proceeds from
this
offering have on your ability to continue as a going concern?
Will
those proceeds provide you with the needed cash to finance
operations
for the next year? For the next two years? Alternatively, what
will
happen if you only receive half of the proceeds you hoped to gain
from your initial public offering? What impact will that have on
your ability to continue as a going concern? How will you modify
your strategy in that event? Finally, please revise the risk
factor
caption for your first risk factor to clarify that your
independent
auditors have questioned your ability to continue as a going
concern.
28. We note your disclosure that you operate in two business
segments. Revise to provide the disclosures required by
paragraphs
25 through 28 of SFAS 131 in the Financial Statements and also
provide a detailed analysis of results by business segment for all
periods presented.
29. We note your discussion on page 10 that your business results
for
the first quarter are higher than other quarters due to
seasonality.
Revise to provide additional information about the nature of this
seasonality, as it would seem that due to the nature of your
business
this cyclicality would be in the summer months.
30. Please further clarify how the seasonality of your business is
related to the particular geographic markets in which you operate.
For example, what percentage of your revenue is generated by sales
into specific geographic markets? Do areas with more temperate
climates generate a significant portion of your revenue? If so,
what
percentage?
31. You discuss your heavy reliance on four major customers in
Note A
(page F-10) to your consolidated financial statements. Please
discuss the possible impact on your revenues if you lose one or
more
of these major customers. Discuss your relationship with these
four
customers. Do you have any contractual agreements with these
customers obligating them to purchase a certain amount of your
products per year? If not, what is your belief as to the
likelihood
that you will retain these customers in the next year, as well as
the
next two years? In addition, please disclose your dependence on
your
major customers in your Description of Business section and
identify
those customers, explaining how your reliance on these four
customers
fits into your discussion on page 31 of your sales to more than
200
retail stores.
32. Revise to include a discussion of the company`s use of
factoring
in its operations.
33. Explain how the company intends on complementing and
diversifying
its product offerings and improving its operating efficiencies.
Summary of Significant Accounting Principles, page 24
34. Rewrite this section so that it does not duplicate note A to
your
financial statements. This subsection should focus on your
accounting policies that involve the most subjective estimates of
management. For guidance, please consult Section V of the
Commission`s Interpretive Release No. 33-8350, "Commission
Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations," located on our website at
http://www.sec.gov/rules/interp/33-8350.htm.
Results of Operations for the Three Months Ended March 31, 2005
and
March 31, 2004, page 26
35. Expand your discussion of results for both the year ended
December 31, 2004 and the quarter ended March 31, 2005 to discuss
specifically why revenues and expenses increased, including, but
not
limited to, new product introductions, expansions into new
markets,
and overall developments in the Company`s strategy and product
mix.
36. Identify the "key account" referenced in the first paragraph
of
this subsection.
The Company`s Liquidity Plan, page 27
37. You state that the company`s cost control strategies,
implemented
in response to your auditor`s going concern opinion, were the
primary
reason why you were able to generate positive cash flow from
operations for the quarter ended March 31, 2005. On page 10 of
the
Form SB-2, however, you explain that the business results for the
first quarter of the 2005 are a result of seasonality. Please
explain this apparent discrepancy.
Outlook for Our Business, page 27
38. Provide more detail on how your planned expansion of products,
distribution channels and acquisition strategy will be financed.
39. Revise to include a discussion of your debt and the effect
servicing it has had, and is expected to have, on your results of
operations and financial condition.
Results of Operations for the Years Ended December 31, 2004 and
December 31, 2003, page 28
40. Please revise this discussion to provide further details about
material changes in line items of your financial statements. For
example, between the years ended December 31, 2003 and December
31,
2004, your current assets declined by $199,635 and your current
liabilities increased by $251,339 over the same period, resulting
in
an increase in your current ratio from 0.478 to 0.197. In other
words, in one year your company went from being able to pay off
approximately half of your current liabilities to less than one
fifth
of your current liabilities. What were the reasons for the
substantial decrease in current assets and large increase in
current
liabilities? Do you expect this trend to continue going forward?
How will funding from the proposed initial public offering aid
your
efforts to minimize the decrease in your current ratio? Please
offer
qualitative and quantitative analysis of changes in those line
items
and other material line items in your balance sheet, results of
operations, and statements of cash flows.
Description of Business, page 28
41. We note your reference to manufacturing in the first
paragraph.
Revise to clarify whether the company relies upon contract
manufacturers to create its products.
Directors Executive Officers, Promoters Control Persons, page 31
42. Identify Sheryl Gardner as your chief financial officer and
principal accounting officer.
43. Clarify whether Mr. Dallape was employed by or was a
consultant
to the companies listed in his biography.
44. Clarify the employment history for the last five years for all
of
your listed officers and directors.
45. Indicate whether the company has any board committees.
Security Ownership of Certain Beneficial Owners and Management,
page
33
46. What is the relevance of the blank table under "Preferred
Stock?"
Executive Compensation, page 34
47. We note your inclusion of compensation in your summary
compensation table for 2005. Please clarify by footnote whether
these amounts are presented on an annualized or pro rata basis
since
2005 is not completed.
48. Your summary compensation table presentation of restricted
stock
is not correct. Please revise according to the requirements of
Item
402(b) of Regulation S-B. For example, additional disclosure is
necessary to clarify the vesting restrictions for the restricted
stock.
Description of Property, page 35
49. Clarify whether you have any property in China. We note your
disclosure regarding your offices in Taipei, Taiwan in the second
paragraph of your business section.
Selling Shareholders, page 36
50. It appears that Coastal Asset Management is a registered
broker-
dealer. Please revise the Selling Shareholders section to
identify
Coastal Asset Management as an underwriter, also indicating who
has
investment and voting control over the shares held by Coastal
Asset
Management. Tell us if any of the other selling shareholders are
affiliated with Coastal Asset Management and identify those
selling
shareholders.
In addition, tell us whether Electronic Relationship, Marketing
Solutions, Inc., InterInvest LLP, New Heart Ministries, Sundar
Communications, Group, Inc., Crail Capital SA, Valley Financial
Corp., Blue Water Capital, EGA, LLC, and Faber West Construction
are
broker-dealers, and if so, identify any selling shareholders
affiliated with those broker-dealers as underwriters in connection
with the sale of their securities. Finally, revise your
registration
statement to disclose who has investment and voting control over
the
shares held by each of those entities. We may have further
comments
upon review of your response and revisions.
Description of Securities, page 39
Restrictions on Transfer of Securities, page 40
51. Please explain why the disclosure under this heading is
included
in the registration statement, given that you are registering the
sale of shares to be sold in connection with your initial public
offering.
Reports to Shareholders, page 42
52. Please revise the address of the SEC`s public reference room
to
reflect our new location, 100 F street, N.E., Washington, D.C.
20549.
Interest of Named Experts and Counsel, page 42
53. In light of your disclosure in the first paragraph under this
heading, please include the Bedinger & Company audit report for
the
quarter ended March 31, 2005 in your Form SB-2. Also, you should
remove "unaudited" from the heading on page F-15.
54. Revise your filing to include a consent, as an exhibit, from
Traci J. Anderson, CPA, and also please list this individual as an
expert in this section.
Financial Statements, page F-3
55. It is unclear how you have calculated both the number of
common
shares outstanding on the Consolidated Balance Sheet and the
weighted
average common shares outstanding used in the calculation of
earnings
per share. In this regard, we note a number of issuances of stock
that do not seem to be included in these figures, such as:
* 2,918,000 shares issued in connection with the 2004 private
placement;
* 171,350 shares issued in connection with the February 2005 debt
conversion;
* 3,340,000 shares issued in connection with professional service
contracts and consulting fees in February 2005;
* 250,000 shares issued to employees in February 2005;
* 250,000 shares to be issued under the March 1, 2005 agreement
with
EGA LLC; and
* the remaining shares issued to account for the 15,644,928 shares
of
common stock outstanding as disclosed on page 7.
Revise to include these amounts in the amounts reported in your
balance sheet and used in your calculation of earnings per share
or
clarify your disclosures so that it is clear to a reader how you
determined the amounts and advise us. It may be helpful to
provide
us with a detailed schedule of all stock issuances, including the
date of issue and recipient of the stock, as well as your
calculations of weighted average shares outstanding.
56. We note your disclosure that you have entered into a number of
licensing arrangements for your products. Tell us in your
response
and disclose how much you have paid for royalties in each of the
periods presented and where these amounts are included in the
Statement of Operations.
Note A - Organization and Summary of Significant Accounting
Policies,
page F-7
Accounts receivable, page F-7
57. Tell us in your response how you are accounting for your
factoring agreement with Benefactor Funding Corp, including how
you
have applied the provisions of SFAS 140. We note that in the
agreement, it indicates that all of your rights, title and
interest
have been assigned to the Factor. Tell us if the amounts recorded
in
"Accounts receivable" include these amounts or if these are
receivables that do not qualify for the factoring agreement.
58. Disclose the amounts recorded for the allowance for doubtful
accounts for all periods presented.
Revenue recognition, page F-8
59. Tell us in your response about the relationships you have with
the distributors of your products. For example, please provide us
with details on the following points:
* Do you consider the products sold when they are shipped to the
distributor?
* What return rights do the distributors have with you?
* If a product is returned to the distributors by their customers,
who is responsible for providing a refund?
* Are there any minimum supply or purchase agreements with the
distributors?
60. Tell us in your response the amounts of reserves you have
recorded for estimated returns and how you have calculated these
amounts given your limited operating history.
Issuance of Common Stock, page F-8
61. We note your discussion that you have awarded 2,500,000 shares
of
restricted common stock to certain of your employees. Tell us in
your response when these awards were granted and how you accounted
for these grants. Please cite your basis in the relevant
accounting
literature. If the shares have already been issued, tell us in
your
response why these shares are not included in the number of common
shares outstanding in the Statement of Stockholder`s Equity.
Subsequent events
62. Update your subsequent events disclosure to discuss the
following:
* the execution of the Crail Capital consulting agreement and
issuance of shares, if any; and
* the execution of the Investor Relations agreement and issuance
of
700,000 shares in May 2005.
63. Tell us in your response what the additional issuance of
3,650,000 shares for professional fees and consulting services
relate
to and how this correlates with the agreements included as
Exhibits,
if at all.
64. To the extent that you will continue to issue shares as a
means
of paying certain professional service fees and consulting
agreements, revise your discussion in MD&A and risk factors to
discuss that additional shares will be issued that could be
dilutive
to investors.
Exhibits
65. Please include Exhibit A to the Crail Capital Consulting
Agreement, filed as Exhibit 10.2. Tell us in your response
whether
any fees paid under this agreement were issued in shares, and if
so,
when and how many shares were issued.
66. We note that Exhibit 10.3 indicates that 400,000 shares were
to
be issued to Comprehensive Communications under the consulting
agreement. Tell us in your response when these shares were issued
and if they are included in the 3,340,000 shares reported as
issued
for professional services in February 2005. If they were, tell us
in
your response why the agreement was signed in April 2004 and the
shares were issued in February 2005.
67. We note that Exhibit 10.4 is not dated. Please include a
final
dated version of this agreement in your next amendment.
Additionally, tell us in your response when the initial engagement
fee of $187,500 was paid and if this was paid in stock. Similar
to
the agreement with Comprehensive Communications, if the fee was
paid
in shares, tell us in your response when and if the shares were
issued in February 2005. Also tell us in your response if any
subsequent shares were issued under this agreement.
68. We note that Exhibit 10.5 is not dated, nor is it clear who
the
party to the agreement is - both Valley Financial Holding Corp and
BWC are referenced. Please include a final dated version of this
agreement in your next amendment. Additionally, tell us in your
response when the fee of $187,500 was paid and if this was paid in
stock. Similar to the agreement with Comprehensive
Communications,
if the fee was paid in shares, tell us in your response when and
if
the shares were issued in February 2005. Also tell us in your
response if any subsequent shares were issued under this
agreement.
69. We note that Exhibit 10.6 references 250,000 shares to be
issued
as payment under this agreement. Tell us in your response when
these
shares were issued, as it does not appear that they are included
in
the Statement of Stockholder`s Equity as of March 31, 2005.
70. We note that Exhibit 10.14 appears to have been filed without
Schedules A through D. Please include the complete agreement,
including all relevant schedules, in your next amendment.
71. Please provide a more recent consent from Bedinger & Company
in
your next amendment.
72. Please explain why the opinion contained in Exhibit 5.1
references 10,090,778 shares held by the selling shareholders,
instead of the 6,679,350 shares to be sold by selling shareholders
as
noted in the fee table. In addition, explain why the total amount
of
shares to be registered under the Form SB-2 (10,250,778) differs
from
the total amount discussed in the legality opinion (10,090,778).
* * * *
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 file a cover letter on EDGAR 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 Kathleen Kerrigan, Staff Accountant, at
(202)
551-3369 or Robert Littlepage, Accountant Branch Chief, at (202)
551-
3361 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: Michael L. Corrigan, Esq.
Via Facsimile (858) 362-1441
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Mr. Don Dallape
Execute Sports, Inc.
July 12, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE