Mail Stop 7010
February 15, 2006
Mr. Gaylord M. Karren
CEO and CFO
Electric Aquagenics Unlimited, Inc.
1464 W. 40 S. Suite #200
Lindon, UT 84042-1629
RE: Form 10-KSB for the fiscal year ended December 31, 2004
Forms 10-QSB for the quarters ended March 31, 2005, June 30, 2005
and
September 30, 2005
File No. 333-86830
Dear Mr. Karren:
We have reviewed these filings and have the following
comments.
If you disagree with a comment, 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 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 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004
General
1. Where a comment below requests additional disclosures or other
revisions, please show us your proposed revised disclosure in your
response. With the exception of the comments below that
specifically
request an amendment, all revisions may be included in your future
filings.
Item 6 - Management`s Discussion and Analysis or Plan of
Operation,
page 13
Liquidity and Capital Resources, page 16
2. We have reviewed your response to comment 9. Please also
discuss
in your liquidity section the changes in your financing cash flows
as
depicted in your statement cash flows. See the SEC Interpretive
Release No. 33-8350.
Item 8A - Controls and Procedures, page 18
3. We have reviewed your response to comment 10. Your disclosure
should also clarify that disclosure controls and procedures
include
controls and procedures designed to ensure that information
required
to be disclosed by you in the reports that you file or submit
under
the Exchange Act is accumulated and communicated to your
management,
including your principal executive and principal financial
officers,
or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
4. Your proposed disclosure indicates there were no significant
changes in your internal controls over financial reporting
subsequent
to the date of your most recent evaluation. Please disclose
whether
there have been any changes in your internal controls and
procedures
during the most recently completed quarter. See Item 308 of
Regulation S-B.
Item 7 - Financial Statements
General
5. We have reviewed your response to comment 13. It appears that
you
have three operating segments beginning in 2005. Please confirm
that
you have determined that these three operating segments are also
reportable segments. If you believe that you meet the criteria
discussed in paragraph 17 of SFAS 131 for aggregation of your
operating segments into less than three reportable segments,
provide
us with the analysis you performed in reaching this conclusion.
In
addition, please tell us why you have not provided the disclosures
required by paragraph 33 of SFAS 131 in your 2005 Forms 10-QSB.
If
the paragraph 33 information should have been included, please
amend
your 2005 Forms 10-QSB accordingly to include it.
Note 1 - Business Description and Significant Accounting Policies,
page F-8
General
6. Please disclose the amounts of your actual costs for shipping
and
handling excluded from cost of sales for each period presented as
required by paragraph 6 of EITF 00-10, and the line item these
excluded amounts are included in.
Earnings Per Share, page F-10
7. We have reviewed your response to comment 22. You disclose on
page 22 that you issued 450,482 shares of restricted stock on
April
6, 2004. Please clarify whether these shares were not outstanding
as
of December 31, 2004 or whether they were no longer restricted.
Please also tell us what caused the restrictions to be removed.
Note 6 - Acquisition of Business, page F-13
8. We have reviewed your response to comment 24. Per Items 310(c)
and (d) of Regulation S-B, historical financial statements of the
acquired business and pro forma financial information might be
required to be filed, based upon the results of significance tests
performed in accordance with Items 310(c)(2) and (3) of Regulation
S-
B. Please provide us with your significance tests for each period
presented and file a Form 8-K with the required audited financial
statements and pro forma information.
Note 7 - Related Party Transactions, page F-13
Sales To Affiliate, page F-13
9. We have reviewed your response to comment 25. Please tell us
more
regarding the conversion of your accounts receivable to long term
notes receivable. What are the stated maturity dates of the notes
receivable? Is there a minimum payment plan associated with the
notes receivable, and if so, have payments been received in
accordance with the plan? What is your basis for believing these
amounts will be collected? When do you think full payment will be
received and why has almost nothing been paid to date? Why do you
think this trend is going to change?
Note 9 - Common Stock, page F-14
10. We have reviewed your response to comment 26. In addition to
disclosing in future filings, please show us in your response the
fair value of the warrants at the date of issuance and the reason
for
issuance. Please also tell us whether you used the Black-Scholes
model for your issuances of warrants to non-employees, including
the
assumptions you used.
Exhibit 31 - Certifications
11. We have reviewed your response to comment 27. Item 601(b)(31)
of
Regulation S-B requires certifications to be provided exactly as
stated therein. Your proposed certification contains numerous
differences from that presented in Item 601(b)(31). Please file
an
amendment to your Form 10-KSB to include certifications that
conform
to the format provided in Item 601(b)(31) of Regulation S-B and
refer
to the appropriate locations for the definitions. Please also
amend
your 2005 Forms 10-QSB accordingly. In doing so, please refile
the
Forms 10-KSB and 10-QSB in their entirety, along with the updated
certifications.
FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 2005
Financial Statements
Consolidated Statements of Operations
12. We have reviewed your response to comment 30. Where are the
marketing and promotion expenses for the nine months ended
September
30, 2004 classified? Marketing and promotion expenses for current
and prior year should be classified consistently, in order to
enable
comparisons of the amounts. Please amend your filings to make the
appropriate revisions to your prior period financial statements so
that your presentation is the same for all periods presented.
Note 6 - Senior Convertible Debt
13. We have reviewed your response to comment 31. You state that
you
recorded the issuance of your convertible debt at its face amount
since it cannot be converted immediately. Please tell us why you
believe this treatment is appropriate, including the accounting
literature that you used to support your conclusion. In addition,
you state that your convertible debt does not have any
nondetachable
conversion features that would be deemed to be beneficial.
Provide
us with detailed computations which support your conclusion that
you
did not have any beneficial conversion features related to your
convertible debt. Paragraph 5 of EITF 98-5 states that embedded
beneficial conversion features are calculated at the commitment
date
as the difference between the conversion price and the fair value
of
the common stock, multiplied by the number of shares into which
the
security is convertible. See Case 1(b) at the end of EITF 98-5
for
an example on how to perform this calculation. Note, however,
that
paragraph 5 of EITF 00-27 states that the effective conversion
price,
instead of the specified conversion price, should be used to
compute
the intrinsic value of the embedded beneficial conversion feature.
See paragraphs 6-7 of EITF 00-27 for an example on how to perform
this calculation.
Note 7 - Commitments and Contingencies
14. We have reviewed your response to comment 32. Based upon
review
of the license agreement, it appears that the licensee may
terminate
the agreement for various causes. If termination of the agreement
occurs at any time within five years after the effective date, the
licensee shall be entitled to a refund of the license fee on a
pro-
rated basis. As such, please tell us what consideration you gave
to
the agreement having a five year term, which would require the
license fee to be recognized ratably over five years.
* * * *
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. Please file your supplemental 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 filings reviewed by the staff to
be
certain that they have provided all information required under the
Securities Exchange Act of 1934 and 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 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.
If you have any questions regarding these comments, please
direct them to Jeffrey Gordon, Staff Accountant, at (202) 551-3866
or, in his absence, to the undersigned at (202) 551-3769.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. Gaylord M. Karren
Electric Aquagenics Unlimited, Inc.
February 15, 2006
Page 1 of 6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE