Via Facsimile and U.S. Mail
Mail Stop 6010
March 31, 2006
Herman Rappaport
Chief Executive Officer
Starmed Group, Inc.
2029 Century Park East
Suite 1112
Los Angeles, California 90067
Re: Starmed Group, Inc.
Amendment No. 1 to Form 10-KSB for Year Ended December 31, 2004
Filed October 5, 2005
File No. 000-33153
Dear Mr. Rappaport:
We have reviewed your February 2, 2006 response to our
December
12, 2005 comment letter and have the following comments. In some
of
our comments, we think you should revise your filings in response
to
these comments. In other comments, we ask you to provide us
additional information and, depending on the conclusions you reach
after evaluating the comment, you may need to revise your filings
in
response to those 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.
Amendment No. 1 to Form 10-KSB for Fiscal Year Ended December 31,
2004
General
1. In your August 12, 2005 and February 2, 2006 responses, you
acknowledged certain things regarding this filing being declared
effective. As a declaration of effectiveness would not appear to
be
relevant to a Form 10-KSB and as you did not provide the
acknowledgments that we had requested in our July 20, 2005 comment
letter, please provide us, in writing, a statement from the
company
acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* 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.
Item 7. Financial Statements and Supplementary Data, page 15
Consolidated Statement of Shareholders` Equity (Deficit), page F-4
2. Please explain why it was appropriate to value the shares
issued,
during the periods presented, to officers and directors "based on
the
value of the services received as agreed to by the parties," as
indicated in your response to part a. of prior comment one. In so
doing, please address the following:
a. Please provide us, in disclosure-type format, your policy to
account for stock-based compensation during the periods presented,
including whether stock-based compensation to employees is
recognized
under APB 25 or SFAS 123.
b. Regarding the shares issued to directors, please tell us
whether
the directors provided the services as a director, as contemplated
by
paragraph 8 of FIN 44, or the services were provided by the
directors
acting in another capacity.
c. To the extent the shares issued to officers and directors were
accounted for under APB 25, please tell us how using the value of
the
services complied with paragraph 10(a), which states that, "[i]f a
quoted market price was unavailable, the best estimate of the
market
value of the stock should be used to measure compensation."
d. To the extent the shares issued to officers and directors were
accounted for as transactions with employees under SFAS 123,
please
explain how using the value of the services complied with:
i. paragraph 16, which states that the compensation should be
based
on the fair value of the equity instruments issued, and
ii. paragraph 107, which states that "accounting for the cost of
employee services is based on the value of compensation paid,
which
is presumed to be an adequate measure of the value of the services
received."
e. To the extent the shares issued to directors were accounted for
as
transactions with other than employees under SFAS 123, please
provide
us an analysis of how using the value of the services complied
with
paragraphs 8 through 10. In this regard, please also address the
following:
i. While we noted your assertion that "there was no reliable way
to
value the Company`s shares," please clarify why you would appear
to
believe that the fair value of the services received was more
reliably measurable than the fair value of the shares issued. In
so
doing, please discuss the extent to which you considered the
valuation techniques described in paragraph 9.
ii. Please clarify how an agreement was reached on the fair value
of
the services that you received and why you believe that the
agreed-
upon value represented with the fair value of the services
iii. As was contemplated by part a. of prior comment one, please
tell
us the extent to which you understand that the aggregate
compensation
expense you recognized was consistent with the value of
consideration
that the directors would have received from providing the services
to
other parties. While you responded that you did not believe it
was
your responsibility to inquire of the directors about this, it
would
seem to be relevant to whether the value of the services received
was
more reliably measurable than the value of the shares.
f. To the extent that you conclude that the amount recognized
should
have been based on the value of the shares issued, please tell us
the
fair value of the shares issued during the periods presented. In
this regard, please also address the following:
i. Please provide us with a quantitative and qualitative analysis
supporting those fair values that describes the significant
factors,
assumptions and methodologies used in determining each estimated
fair
value.
ii. Please discuss how each significant factor contributing to the
difference between the fair value as of the: (1) date of each
issuance and (2) dates of other issuances and when trading
commenced
in April 2005.
iii. If you conclude that you should have recognized an amount
based
on the value of the shares issued, please amend your Form 10-KSB
for
December 31, 2004 and Form 10-QSB for September 30, 2005 to
restate
your financial statements and the related disclosures accordingly.
3. Please elaborate on your response to part a. of prior comment
one
to also address issuances of your common stock during 2003 for
services, as that comment and comment five in our July 20, 2005
letter was intended to address issuances during all period
presented.
In this regard, please respond to part f. of comment two in this
letter.
4. We have the comments below on your responses to parts c. and d.
of
prior comment one:
a. Please explain why you appear to believe that the fair value of
your common stock increased from $0.01 per share in January 2005
(as
per your disclosure) to $1.10 per share in April 2005 during the
early days of trading of your stock (as per your response to part
e.
of prior comment two). Please provide us with a quantitative and
qualitative analysis describing the significant factors,
assumptions
and methodologies supporting this significant change in value.
b. If you conclude that you should have used a different fair
value
for the shares issued for services in January 2005, please amend
your
Form 10-QSB for September 30, 2005 to restate your financial
statements and the related disclosures accordingly.
5. According to your response to part b. of prior comment one, you
do
not believe that the number of shares that you issued in exchange
for
the accounts payable was arrived at through a determination of
their
fair value. In that response and in your response to part c. of
prior comment two, you responded that the vendor was simply trying
to
receive something of value and that there was no basis to conclude
that the shares were then worth $2.08 per share. In light of your
response, please address one of the following:
a. Please tell us why it was appropriate to recognize the shares
at
$2.08 per share, as opposed to their fair value at the date of
issuance, and to not recognize a gain or loss on the
extinguishment
of debt (the accounts payable). In so doing, please tell us
whether
APB 26 is applicable to the exchange and, if so, how your
accounting
is consistent with its specific provisions.
b. Please amend your Form 10-KSB for December 31, 2004 and Form
10-
QSB for September 30, 2005 to restate your financial statements
and
the related disclosures to recognize the shares issued at their
fair
value at the date of issuance and recognize a gain or loss on
extinguishment. In so doing, please provide us the information
requested in parts f.i. and f.ii. of comment two in this letter
about
your determination of the fair value of these shares.
Notes to Consolidated Financial Statements, page F-6
4. Long Term Debt, page F-8
Note Payable, page F-8
6. We have the following comments about your response to part b.
of
prior comment two:
a. Please tell us why it is appropriate to record the shares
issued
for the forgiveness of debt based on a fair value determined by
the
parties to the transaction. As you also agreed to guarantee the
price of the shares to be $3.50 per share, it is not clear how an
agreement with the other party on the fair value of the shares at
$0.01 per share is either substantive or informative.
b. While you responded that the determination was based upon the
lack
of a trading market, contemporaneous private placements,
profitability, and future prospects, it is not clear the specific
methodology that the parties to the transaction used to conclude
that
the value was $0.01 per share, as opposed to a different amount.
In
so doing, please provide us the information requested in parts
f.i.
and f.ii. of comment two above about how you determined the fair
value of these shares.
c. If you conclude that you should have used a different fair
value
for these shares, please amend your Form 10-KSB for December 31,
2004
and Form 10-QSB for September 30, 2005 to restate your financial
statements and the related disclosures accordingly. In so doing,
please consider the effect of a different fair value on both the
amounts recognized for the shares, the gain on extinguishment and
the
guaranteed market provision.
7. Please tell us why it would be appropriate to adopt EITF 00-19
at
December 31, 2005, as you proposed in your response to part e. of
prior comment two. In this regard, it would appear that your
previously issued financial statements should have reflected the
changes in the fair value of the guaranteed market provision since
its issuance in July 2003.
Otherwise, as you have asserted that there were no changes in the
fair value of this provision during 2003 and 2004, please amend
your
Form 10-QSB for September 30, 2005 to restate your financial
statements and the related disclosures to reflect the changes in
the
fair value of the provision that occurred during 2005. If you
conclude that there were changes in the fair value of this
provision
during 2003 and 2004, please amend your Form 10-KSB for December
31,
2004 to restate your financial statements and the related
disclosures
to reflect those changes.
Form 10-QSB for the Quarterly Period Ended September 30, 2005
Part I - Item 1. Financial Statements, page 3
Consolidated Statement of Shareholders` Equity (Deficit)
(Unaudited),
page 5
8. Based on your disclosures, please explain why valuing the
shares
issued for services in September 2005 at $0.01 per share complies
with paragraphs 8 through 10 of SFAS 123, when your response to
part
e. of prior comment two noted that quotations for your stock had
remained fairly consistent at $0.35 per share. Otherwise, please
amend your Form 10-QSB for September 30, 2005 to restate your
financial statements and the related disclosures accordingly.
Please
note that we referenced this filing solely to consider your
responses
to our prior comments and did not otherwise review this filing.
Please respond to these comments and, as appropriate, amend
your December 31, 2004 Form 10-KSB and subsequent Forms 10-QSB
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 amendments 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 file your letter on EDGAR under the form type label
CORRESP. Please understand that we may have additional comments
after reviewing your amendment and response to our comments.
You may contact Tabatha Akins, Staff Accountant, at (202)
551-
3658 or Oscar Young, Senior Accountant, at (202) 551-3622 if you
have
questions regarding the comments. Please contact me at (202) 551-
3679 with any other questions.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mr. Herman Rappaport
Starmed Group, Inc.
March 31, 2006
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