Mail Stop 4561
January 30, 2006
Mr. William L Sklar
Chief Financial Officer
PaperFree Medical Solutions, Inc.
121 West Sycamore St.
Kokomo, Indiana 46901
Re: PaperFree Medical Solutions, Inc.
Form 10-KSB for the Fiscal Year Ended February 28, 2005
Forms 10-KSB/A for the Fiscal Year Ended February 28, 2005
Form 10-QSB for the Fiscal Quarter Ended May 31, 2005
Form 10-QSB/A for the Fiscal Quarter Ended May 31, 2005
Form 10-QSB for the Fiscal Quarter Ended August 31, 2005
File No. 333-86706
Dear Mr. Sklar:
We have reviewed your filings 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 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 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
filings.
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 10-KSB/A for the Fiscal Year Ended February 28, 2005
Item 7 Financial Statements
Report of Independent Registered Public Accounting Firm
1. Please tell us why the auditors report included in your filing
does not reference the cumulative data from inception through
February 28, 2005 as presented in your financial statements.
Note 6 - Acquisition and Abandonment of Crown Medical Systems,
Inc.
(Delaware)
2. We note that several members of your board of directors have
affiliations with Crown Medical Systems and that the 4,396,825
preferred shares of PaperFree issued for Crown Medical Systems
were
not returned when the acquisition was abandoned and were
ultimately
converted into 39,901,187 PaperFree common shares representing
substantially all of PaperFree`s common shares outstanding as of
the
date of the transaction on September 1, 2004. Given these facts,
clarify to us why the acquisition of Crown Medical Systems was not
determined to be a reverse acquisition whereby Crown Medical
Systems
is the accounting acquirer and therefore its financial statements
should be included as those of the registrant. Your response
should
include the identification of the owners of Crown Medical Systems
and
how many of the preferred shares of PaperFree each received in the
September 1, 2004 transaction. In addition clarify whether the
operations of Crown Medical Systems have been included in the
registrant`s operating results and if so, specify for what period
of
time.
3. Explain why you are referring to this acquisition as being
abandoned when the shares issued in the transaction were not
returned
and it appears that the most of the board of directors were
replaced
by representatives of Crown Medical Systems on September 10, 2004.
Also clarify how the company recorded the value of the shares
issued
in the transaction of $24.7 million in the financial statements.
If
this amount was recorded as general and administrative expenses,
clarify the basis for that classification.
Note 12 - Warrants
4. Identify to us the holders of the warrants and explain why the
number of the warrants and the exercise price of the warrants were
not adjusted for the reverse split. Clarify whether these
consultants
were related parties to the registrant. It appears that the value
of
these warrants was recorded as consulting fees in the financial
statements. Please tell us the nature of the consulting services
you
received in return for the warrants.
Item 8A Controls and Procedures
5. Please revise to provide your conclusion regarding the
effectiveness of your disclosure controls and procedures as of the
end of the fiscal year. Refer to Item 307 of Regulation SB and
Section 13(a) of the Exchange Act Rules.
Form 10-QSB for the Fiscal Quarter Ended August 31, 2005
Note 2 - Purchase of KMS Computer Services
6. Please explain to us the factors that contributed to a purchase
price with significant amounts of goodwill. Please explain your
methodology for allocating the purchase price. Refer to
paragraphs
39 and A14 of SFAS 141. Additionally, advise us of any intangible
assets included in goodwill that do not meet the criteria for
recognition apart from goodwill.
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. 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 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 to be certain that the
filings include all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment 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 filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; 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 filings or
in
response to our comments on your filings.
You may contact Thomas Flinn, Staff Accountant, at (202)
551-
3469 or the undersigned at (202) 551-3498 if you have questions.
Sincerely,
Linda van Doorn
Senior Assistant Chief Accountant
Mr. William L Sklar
Chief Financial Officer
January 30, 2006
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