Via Facsimile and U.S. Mail
Mail Stop 6010
November 2, 2005
Mr. Bruce Mogel
Chief Executive Officer
Integrated Healthcare Holdings, Inc.
695 Town Center Drive
Suite 260
Costa Mesa, CA 92626
Re: Integrated Healthcare Holdings, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
Forms 10-Q for Fiscal Quarters Ended
March 31, 2005 and June 30, 2005
Form 8-K/A Dated March 3, 2005
Filed June 8, 2005
File No. 0-23511
Dear Mr. Mogel:
We have reviewed your October 20, 2005 response letter to
our
September 21, 2005 comment letter and have the following comments.
Where indicated, we think you should revise your documents 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 ask you to provide us with more
information so we may better understand your disclosure.
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.
General
1. Please file your proposed disclosure changes from your October
20,
2005 response as correspondence on EDGAR. Please note that you
may
file the complete revised documents that you provided as
supplemental
material or you may provide only those disclosures that you
proposed
to change. If you file only the disclosure changes, please
clearly
identify the sections and page numbers from your original filings.
2. Please file the amendments under cover of the form amended,
marked
with the letter "A" to designate the document as an amendment.
Please note that amendments must be sequentially numbered. Please
refer to Rule 12b-15 of the Exchange Act.
3. Please file updated certifications with your amendments to the
Form 10-KSB for December 31, 2004 and your amendments to the 2005
Forms 10-Q.
Form 10-KSB for the year ended December 31, 2004
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm, page F-2
4. Please have Pritchett, Siler & Hardy PC revise their audit
report
provided in response to our previous comment one to reference the
standards of the PCAOB. Please see the PCAOB`s Auditing Standard
No.
1, References in Auditors` Reports to the Standards of the Public
Company Accounting Oversight Board.
Form 8-K/A filed June 8, 2005
Exhibit 99.12: Unaudited Pro Forma Condensed Consolidated
Financial
Statements of IHHI
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
5. We acknowledge your response to our previous comment two.
Please
revise your cash and cash equivalents pro forma adjustment number
one
to clearly disclose each of the cash inflows and outflows that net
to
the reported amount. In addition, please revise your proposed
disclosure to reference the appropriate footnotes for the
$10,000,000
and $1,264,013 current portion of debt and capital lease
adjustments
on your pro forma balance sheet.
6. We acknowledge your response to our previous comment four. As
you
consolidate the operations of PCHI, it appears that the sale
lease-
back transaction eliminates in consolidation and that the reported
life of the assets should be that recorded on the books of PCHI.
Although we acknowledge that the buildings may have been
constructed
many years ago, please explain to us why the existence of the 25
year
renewal option does not support a longer life from the perspective
of
PCHI. It would appear that if PCHI believes that the assets had
only
25 years of remaining useful economic life that any renewal option
would be for significantly shorter periods. In addition, we note
in
your response that the Company also amortizes amounts allocated to
land over the 25 year lease term because it has no residual
interest
in the property, please clarify whether PCHI depreciates land.
7. We acknowledge your response to our previous comment five. We
do
not believe that pro forma adjustment number nine related to the
removal of historical restructuring charges of the Tenet Hospitals
is
directly attributable to your acquisition transaction. Please
remove
pro forma adjustment number nine to reinstate this historical
amount.
However, you may disclose in the notes to the pro forma financial
statements that you do not expect the historical restructuring
costs
to have a continuing impact on your future operating results.
8. We acknowledge your response to our previous comment six.
Please
revise your pro forma balance sheet to reinstate the nonrecurring
warrant charge as required by Rule 11-02(a)(6) of Regulation S-X.
9. Please refer to pro forma adjustment number seven. Please
confirm
whether the $2,200,000 of depreciation expense at PCHI is included
in
your pro forma adjustment number eight. If not, please revise
your
presentation to properly reflect consolidated pro forma
depreciation
expense.
Form 10-Q for the six months ended June 30, 2005
Financial Statements, page 1
Condensed Consolidated Statements of Cash Flows, page 5
10. We acknowledge your response to our previous comment seven.
It
appears that your description of the $5 million cash inflow as
proceeds from the sale of property is inappropriate as that
property
is reflected in your consolidated financial statements. It
appears
that the proceeds of the property sale are offset in consolidation
by
the corresponding asset purchase on the books of PCHI. It also
appears that the cash flow statement classification of the $5
million
in equity raised by PCHI is dependent upon the timing of the
capital
raising in relation to the Tenet Hospital acquisition date, the
date
when you were required under FIN 46R to consolidate PCHI. It
appears
that any capital raised on or after the Tenet Hospital acquisition
date should be reflected as a financing activity as a minority
interest equity transaction and that any capital raised before
this
date should be reflected as an investing activity similar to cash
received in a business combination. Please revise your accounting
and disclosure accordingly or tell us the authoritative literature
you relied upon to support your current presentation.
Note 1: Summary of Significant Accounting Policies, page 6
Company Operations, page 7
11. Please revise your 2005 Forms 10-Q to indicate that you have
separate operating segments that you aggregate under paragraph 17
of
SFAS 131. Please specifically disclose how your segments meet the
aggregation criteria consistent with your response to our previous
comment 8.
Note 2: Acquisition, page 13
12. Please revise your proposed disclosure added in response to
our
previous comment 12 to include your nonrecurring common stock
warrant
charge. In addition, revise this disclosure to specifically
indicate
the amount and the nature of the nonrecurring charge as required
by
paragraph 55 of SFAS 141.
Note 4: Common Stock, page 14
13. You indicate in your response to our previous comment 13 that
the
57, 250,000 shares of common stock OC-PIN returned to escrow
represents a pro rata share of stock. The escrow results in OC-
PIN
having effectively received 45,350,000 shares of common stock for
$10
million. Please reconcile for us how this net issuance represents
a
pro rata share of your total deal when it appears that you
received
one-third of the anticipated proceeds of $30,000,000 and one-third
of
the total stock to be issued of 108 million shares is only 36
million
shares. In addition, we note from page 10 of your definitive
proxy
statement filed on October 6, 2005 that the escrow expiration date
was extended until September 16, 2005. Please tell us whether the
additional funding was received and the shares released from
escrow
or whether the shares were returned to you.
14. We acknowledge your response to our previous comment 14.
Please
revise your disclosure to:
* clearly indicate why OC-PIN did not provide the remaining $20
million in financing under the original agreement and why you had
to
renegotiate the terms;
* clearly indicate that the escrowing of shares was not completed
until July; and
* indicate the impact of the escrow agreement on both future loss
per
share and historical loss per share as if the escrow agreement
were
signed at the date of the original financing.
Note 5: Common Stock Warrants, page 15
15. We acknowledge your response to our previous comment 15, but
it
appears that your reliance on the paragraph 11b exception in SFAS
133
is not appropriate. It appears that the Rescission, Restructuring
and Assignment Agreement does not relate to your receipt of either
goods or services; rather it appears to relate to the
restructuring
of your initial funding arrangement for your hospital acquisition.
Please tell us your consideration of accounting for these warrants
as
a derivative financial instrument under SFAS 133.
16. We acknowledge your reference to paragraph 55 of FIN 44 in
response to our previous comment 16. It appears that this
guidance
is inappropriate as it relates to a modification of an award, when
your warrants contain the 24.9% cap as an initial term. In
addition,
variable accounting under APB 25 and FIN 44 assumes that the
performance obligation has not been satisfied and vesting is not
complete. As you acknowledge that your warrant holders have no
continuing performance obligation associated with the exercise of
the
warrants, please revise your 2005 Forms 10-Q and your pro forma
financial statements in your June 8, 2005 Form 8-K/A to record the
fair value of the expected warrants to be issued as a charge to
earnings on the date of issuance. Otherwise, tell us the
authoritative literature that would support your deferral.
17. We acknowledge your response to our previous comment 17.
Please
elaborate on your effective 35% discount from market by selecting
a
$0.50 fair value as the input for your Black-Scholes computation.
Please explain when the comparable sales of restricted stock were
made in relation to the warrant issuance. Please note that we
believe that a quoted market price is the best measure of a
stock`s
fair value and that those prices should not be adjusted to reflect
restrictions or other factors because of the difficulty in
measuring
the factors objectively. In addition, please explain to us how
you
were able to estimate the expected warrant life at between two and
two and one-half years.
Management`s Discussion and Analysis, page 23
Critical Accounting Policies and Estimates, page 24
18. We acknowledge your intent to enhance disclosures in your
summary
of significant accounting policies in your financials statements
in
response to our previous comment 20. Please ensure that you
provide
this enhanced disclosure in your critical accounting estimates
disclosure. In addition, for your allowance for doubtful accounts
estimate please revise your 2005 Forms 10-Q to specifically
disclose
the uncertainties in applying your critical accounting policies,
the
historical accuracy of these critical accounting estimates, a
quantification of their sensitivity to changes in key assumptions
and
the expected likelihood of material changes in the future.
As appropriate, please amend your Form 10-KSB for the year
ended December 31, 2004, Forms 10-Q for the quarters ended March
31,
2005 and June 30, 2005 and Form 8-K/A filed June 8, 2005 and
respond
to these comments within 10 business days or tell us when you will
respond. You may wish to provide us with marked copies of the
amendments to expedite our review. Please furnish a cover letter
with your amendments that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please file the letter on EDGAR under the
form type label CORRESP. Please understand that we may have
additional comments after reviewing your amendments and responses
to
our comments.
If you have any questions, please contact Mark Brunhofer,
Staff
Accountant, at (202) 551-3638 or Donald Abbott, Senior Staff
Accountant, at (202) 551-3608. In this regard, do not hesitate to
contact me, at (202) 551-3679.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief Accountant
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Mr. Bruce Mogel
Integrated Healthcare Holdings, Inc.
November 2, 2005
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