March 10, 2006
Linda Putback-Bean
Chief Executive Officer
12926 Willowchase Drive
Houston, Texas 77070
RE: Pediatric Prosthetics, Inc.
Registration Statement on Form 10-SB
Filed February 13, 2006
File No. 0-51804
Dear Ms. Putback-Bean:
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, 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.
General
1. Please update your financial statements to include the period
ended December 31, 2005. Refer to Item 310(g) of Regulation S-B
for
guidance.
2. Please include the disclosures required by paragraph 11 of SFAS
No. 7 or tell us why you believe they do not apply.
Cautionary Statement, page 4
3. Please delete references to Section 21E of the Exchange Act
since
this section only applies to companies subject to the reporting
requirements of Section 13(a) or 15(d).
4. Please remove the word "will."
Item 1. Description of Business, page 4
5. We note that you view your share exchange with Grant Douglas
Acquisitions Corp. as a reverse merger of a private operating
company
into a non-operating public shell company. It does not appear
that
Grant Douglas Acquisitions Corp. was ever a reporting company.
Please clarify Grant Douglas Acquisitions Corp.`s status, disclose
its business history, the reasons for engaging in the share
exchange
transaction, and the dollar value of this transaction. We may
have
further comment.
6. Please disclose whether you had operations prior to your 2003
combination with Grant Douglas. We note your statement that you
began operations as a fully accredited prosthetic facility in
March
of 2004. Clarify when you began operations.
7. Please disclose whether the information on the web sites listed
is
part of this registration statement.
8. Please clarify your business. Do you design and manufacture
prosthetics or do you solely contract with third-party vendors?
If
so, please clarify the services you provide. We note that you
have
agreements with twelve host prosthetics providers. Who are these
"host affiliates?" Please describe your role in these
relationships
in greater detail. For instance, do you contract with these
providers to manufacture prosthetics you design? If material,
please
file your agreements with host prosthetic providers as exhibits
and
disclose their material terms in this registration statement.
9. We note your disclosure in the risk factor entitled "We Face
Periodic Reviews..." that you contract with various federal and
state
agencies to provide prosthetic services. Please discuss these
relationships in greater detail and file material contracts as
exhibits.
10. Please disclose the sources and availability of raw materials
and
the name of your principal suppliers. File all material contracts
as
exhibits. Please refer to Item 101(b)(5) of Regulation S-B.
The Market Place, page 4
11. In this section you state that an unknown number of children
will
lose a limb each year. In the Competition section on page 5 you
state that 1200 children will lose a limb each year. Please
clarify
this apparent inconsistency and provide the basis for your
assertion.
Competition, page 5
12. Please disclose whether or not you have any agreements or
other
business dealings with the Shriner`s Hospital System. If so,
please
describe the material terms of these contracts and file them as
exhibits to this Form 10-SB. Also, clarify whether Shriner`s
offers
competing services.
Employees, page 5
13. Please describe the functions of each of your employees and
whether they are full or part-time employees.
14. Please identify the outside consultants you contract with to
provide therapy, public relations, and business and financial
services.
Reports to Security Holders, page 6
15. Please update for our new address.
Government Regulation, page 12
16. Please disclose the purchasing and efficiency programs you
initiated to minimize the effects of the three-year freeze on
reimbursement levels for all orthotic and prosthetic services.
17. Please discuss the certification and accreditation process for
your products and employees in greater detail. For instance,
disclose the effect this has on your business such as the time and
cost of government regulation and disclose whether the states in
which you operate require separate licensure and certification for
practitioners. Further, please disclose whether your employees
are
certified by the American Board for Certification Orthotics and
Prosthetics.
18. Please disclose the cost of complying with the HIPPA privacy
standards and the steps you have taken to meet these standards.
Item 2. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 14
19. In the last sentence of the first paragraph where you discuss
the
number of clients you need to service to achieve profitability,
please also disclose the number of clients you currently serve
each
month.
20. Please revise the Management`s Discussion and Analysis section
to
provide a fuller discussion and analysis of known trends, demands,
commitments, events and uncertainties that management views as
most
critical to the company`s revenues, financial position, liquidity,
plan of operations and results of operations; rather than a mere
narrative recitation of the financial statements. In an effort to
assist you in this regard when responding to the comments below,
please refer to the Commission Guidance Regarding Management`s
Discussion and Analysis of Financial Condition and Results of
Operations, Release Nos. 33-8350 (December 19, 2003) at
http://www.sec.gov/rules/interp/33-8350.htm.
21. Please discuss in greater detail the business reasons for the
changes between periods in revenues, cost of sales, and selling,
general and administrative expenses. In doing so, please disclose
the amount of each significant change in line items between
periods
and the business reasons for it. In circumstances where there is
more than one business reason for the change, attempt to quantify
the
incremental impact of each individual business reason discussed on
the overall change in the line item. For example, in regards to
selling, general and administrative expenses, please disclose the
specific costs for each of the expenses listed. Additionally, we
note that you expect your selling, general and administrative
expenses will, as a percentage of revenue, initially be higher
than
future percentages due to early stage startup costs associated
with
building an administrative infrastructure. Please disclose what
your
selling, general and administrative expenses were as a percentage
of
revenue in all periods discussed.
22. We note the disclosure that you have the capability to provide
services to as many as 500 children. Please disclose that there
is
no assurance that these figures will be achieved.
23. Please describe your national publicity campaign in greater
detail, disclose its costs, identify your consultants, and file
any
material agreements as exhibits.
Critical Accounting Policies, page 15
Revenue Recognition, page 15
24. We note that you recognize revenue on the cash basis of
accounting for sales generated through the billing departments of
the
Host-affiliates. Citing authoritative accounting literature,
please
tell us how you determined this method was more appropriate than
the
accrual method.
We further note that when you directly bill the customer, you
recognize revenue upon customer acceptance. Please amend your
filing
to include whether the customers have a specified period to accept
your product, the nature of the customer acceptance terms, and if
customers normally accept your product upon receipt, thereby,
allowing you to recognize revenue immediately.
Costs of Sales, page 17
25. Please disclose the specific costs comprising your services.
Depreciation Expenses, page 18
26. We note that depreciation expenses increased in the year ended
June 30, 2005 due to leasehold improvements added in 2004 and
other
fixed assets necessary to conduct your business. Please disclose
what these improvements and assets were.
Liquidity, page 20
27. Please disclose whether you have plans to raise funds to meet
your cash requirements. Additionally, disclose the consequences
to
your business should you not raise additional funds through
operations or financing.
Item 5. Directors, Executive Officers, Promoters and Control
Persons,
page 23
28. Please disclose the term of office for your directors. Please
refer to Item 401(a)(3) of Regulation S-B.
29. Please disclose the business experience of Jean Gonzalez for
the
past five years. Please refer to Item 401(b) of Regulation S-B.
Item 6. Executive Compensation, page 25
30. In light of the fact that your stock is neither listed on an
exchange nor quoted by a national securities association, please
explain what you mean by the statement that Ms. Bean and Mr.
Morgan
received shares with a quoted market price.
Item 8. Description of Securities, page 27
31. Please disclose the dividend rights of your common stock.
Please
refer to Item 202(a)(1) of Regulation S-B.
Part II
Item 1. Market Price of and Dividends on the Registrant`s Common
Equity and Related Stockholder Matters, page 28
32. Please note that the existence of limited or sporadic
quotations
such as on the Pink Sheets should not of itself be deemed to
constitute a public trading market.
33. Please disclose the amount of common stock that can be sold
pursuant to Rule 144 under the Securities Act. Please refer to
Item
201(a)(2)(ii) of Regulation S-B.
Item 4. Recent Sales of Unregistered Securities, page 29
34. Please disclose the specific exemption relied upon for the
unregistered sales discussed in this section. Please refer to
Item
701(d) of Regulation S-B.
35. Please identify the persons or class of persons to whom you
sold
securities for cash and the dates of each sale. Please refer to
Item
701(b) of Regulation S-B.
36. We note that during the year ended June 30, 2005, you issued
5,588,699 shares of common stock to outside consultants at market
values ranging from $0.053 to $0.145 and recognized compensation
expense of $355,128 and that during the period from inception,
October 10, 2003, to June 30, 2004, you issued 3,250,000 shares of
common stock at market values ranging from $0.110 to $0.184 and
recognized compensation expense of $377,000. Please describe
these
transactions. Refer to Item 701(c) of Regulation S-B.
Statement of Operations, page F-5
37. We note that you separately present your stock-based
compensation
expense from your other expenses in your consolidated statements
of
income. Please amend your filing to allocate this expense to cost
of
sales and selling, general and administrative expense. Refer to
section F of SAB 107 and section I.C.2 of Current Accounting and
Disclosure Issues in the Division of Corporation Finance, located
at
www.sec.gov.
Similarly, we note that you exclude depreciation expense from cost
of
sales. Please either comply with the disclosure requirements in
SAB
Topic 11:B or allocate the appropriate amount of depreciation
expense
to cost of sales and selling, general and administrative expenses.
If you elect to comply with SAB Topic 11:B, please delete the sub-
total gross margin.
Note 8 - Commitments and Contingencies, page F-13
38. If you provide a warranty on the products you sell, please
disclose the terms and any type of provisions for costs related to
your warranties.
Closing Comments
Please respond to these comments by filing an amendment to your
filing and providing the supplemental information requested.
Please
provide us with a supplemental response that addresses each of our
comments and notes the location of any corresponding revisions
made
in your filing. Please also note the location of any material
changes made for reasons other than responding to our comments.
Please file your supplemental response on EDGAR as a
correspondence
file. We may raise additional comments after we review your
responses and amendment.
To expedite our review, you may wish to provide complete
packages
to each of the persons named below. Each package should include a
copy of your response letter and any supplemental information, as
well as the amended filing, marked to indicate any changes.
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.
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 their 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 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 Tracey McKoy at (202) 551-3772 or Nilima Shah
at
(202) 551-3255 if you have questions regarding comments on the
financial statements and related matters. Please contact Craig
Slivka, Staff Attorney, at (202) 551-3729 or in his absence Chris
Edwards, Special Counsel, at (202) 551-3742 with any other
questions.
Sincerely,
Pamela A. Long
Assistant Director
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Ms. Linda Putback-Bean
Pediatric Prosthetics, Inc.
March 10, 2006
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE