MAIL STOP 3720
May 19, 2006
Mr. Ivan Zweig
Chief Executive Officer
IElement Corporation
17194 Preston Road
Suite 102, PMB 341
Dallas, TX 75248
Re: IElement Corporation
Amendment No. 1 to Registration Statement on Form SB-2
Filed May 4, 2006
File No. 333-131451
Form 10-KSB/A for the year ended March 31, 2005
Forms 10-QSB/A for the quarters ended June 30, September
30
and December 31, 2005
File No. 0-29331
Dear Mr. Zweig:
We have reviewed your amended 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 supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
General
1. Detailed cover letters keyed to our comments should be provided
in
all subsequent amendments. All correspondence, including your
letter
dated May 4, 2006, should be filed as correspondence on EDGAR.
Risk Factors, page 3
2. Despite your response to prior comment 10 to our letter dated
March 3, 2006, your website at www.ielement.com continues to state
that you are "financially strong" and "self-financed." This
information appears inconsistent with the disclosure in your risk
factors that you have relied almost entirely on external financing
to
fund your operations and there is substantial doubt about your
ability to continue as a going concern. Please revise to
reconcile
these inconsistent statements.
Use of Proceeds, page 10
3. Revise the last paragraph to clarify that you are registering
the
resale of the shares of common stock issuable upon exercise of the
stock purchase warrants. The current disclosure inappropriately
suggests that you are registering the warrants themselves.
Management`s Discussion and Analysis or Results of Operation, page
11
4. Consider relocating the Executive Overview section so that it
precedes "Our Plan of Operation." In addition, substantially
revise
or consolidate the disclosure under "Our Plan of Operation" so
that
it does not repeat the business history discussion of the company,
its predecessors and subsidiaries located in the Business section.
See prior comment 21.
5. Given the relative volatility in your revenue, substantiate
your
claim on page 13 that you have a "solid, consistent, steady
revenue
base."
6. Update the Liquidity section and the Certain Relationships
section
to discuss the March 25, 2006 agreement entered into with your 12
note holders, including the reason for the amended agreement, the
principal amounts outstanding, the parties, the terms of the
agreement and the likely dilutive impact.
Liquidity and Capital Resources, page 16
7. Provide quantified disclosure of your debt service requirements
for the next 12 months and discuss how you intend to satisfy your
debt repayment obligations. Refer to prior comment 31.
8. We reissue prior comment 35. You continue to include the
disclosure at the top of page 17 that your "current cash resources
will be sufficient to sustain [y]our current operations...."
Again,
this statement appears inconsistent with other disclosure
appearing
throughout your prospectus that you will "need to raise additional
capital to fund [y]our anticipated operating expenses and future
expansion" (page 1) and that you are relying upon receiving funds
from the exercise of warrants, which is something that cannot be
assured. Please revise to clarify your ability to satisfy your
cash
needs. Also discuss your plans in the event the warrants are not
exercised.
Business, page 18
9. We note attempts to incorporate information by reference. See
for
example, the bottom of page 18 and the third paragraph on page 19.
As incorporation by reference is not available on Form SB-2,
please
remove all such references and supplement the disclosure
accordingly.
Management, page 27
10. Mr. Ponnath is still listed on your website as your Chief
Technology Officer. Either include him in this section of the
prospectus as a "significant employee" and provide the disclosure
requested by Item 401(b) of Regulation S-B or advise us why you do
not believe this is necessary. Note that an independent
contractor
may be considered a significant employee for purposes of Item
401(b).
Refer to prior comment 46.
Description of the Private Placement, page 31
11. We reissue prior comment 52. Although you have removed the
reference to registering "all 45,125,000 shares of common stock,"
we
are unable to discern from your response what these shares are or
what the 59,469,286 shares that the company is working to register
and issue in Note 4 to the financial statements represent. Please
provide us with a substantive response. In addition, advise us of
the number of shares and warrants that Vista Capital "will
receive"
but has not yet received, when you anticipate the securities will
be
issued and the conditions to which such future issuances are
subject.
In this regard, please also tell us why you believe the private
placement of securities to Vista Capital has been completed, such
that you are permitted to register the resale of shares of common
stock by Vista Capital at this time.
Financial Statements
12. Please update the consent of the independent registered
public
accounting firm.
Consolidated Balance Sheet, page F-1
13. We note your response to prior comment 59. Please provide us
with more details of the ICCC purchase, including the purchase
price
and details of the asset(s) acquired. Tell us how you determined
that no value should be assigned to the customer base that you
acquired in the acquisition.
Consolidated Statements of Operations, page F-3
14. We note your response to prior comment 61. Since the caption
"gross profit" excludes depreciation and amortization for property
and equipment directly attributed to the generation of revenue,
remove the caption "gross margin" and the related subtotal.
Consolidated Statement of Changes in Stockholders` Equity
(Deficit),
page F-4
15. We note your response to our prior comment 62. Since you have
restated your consolidated statement of changes in stockholders`
equity (deficit) and also restated your consolidated statements of
operations for your net loss per basic and diluted shares and
weighted average number of common shares outstanding, you should
revise any impacted columns to label them as "restated." Further,
you should include a discussion of the restatement in your notes
to
the financial statements. Finally, have your auditors revise
their
report to make reference to the restatement.
16. We note your line item "issuance of stock in exchange
for...ICCC
- - recapitalization." Please tell us what this line item
represents.
Further, it is unclear to us why this issuance has been included
on
this statement during the year ended December 31, 2004 when page
F-22
states that such issuance occurred during March 2003. Please
advise.
17. We note the line item "effects of reverse merger." It is
unclear
to us what reverse merger occurred during the three month period
ended March 31, 2005. Please advise.
Consolidated Statement of Cash Flow, page F-5
18. We note your response to prior comment 63. Tell us the
revisions
that were made to the cash flow statement and why. Also, tell us
why
the "increase (decrease) in accounts payable" line item was
revised.
19. Please revise to separately present your bad debt expense
separately from your "(increase) decrease in accounts receivable."
Note 2 - Summary of Significant Accounting Policies, page F-13
Revenue and Cost Recognition, page F-13
20. We refer to the fourth criterion you listed with respect to
collectibility. Please confirm that you do not recognize revenue
until collectibility is reasonably assured. For example, if a
problem in payment is recognized prior to your providing services,
then confirm that revenue is not recorded until the cash is
collected
from such customers.
Loss Per Share of Common Stock, page F-16
21. We note your response to prior comment 66 and your disclosures
on
page F-18. Tell us why you have not included any disclosures of
options and warrants outstanding as required by SFAS 123 and SFAS
128.
Part II
Item 26. Recent Sales of Unregistered Securities
22. The amount of shares outstanding since January 17, 2006 (as
disclosed on page 37 of your Form SB-2 filed February 1, 2006) has
increased by approximately 54 million shares. The disclosure in
Item
26 does not reflect the issuance of all of these shares. Please
advise.
Item 27. Exhibits
23. We are unable to locate the revised legality opinion, despite
its
listing in the exhibit table. Please file a revised legality
opinion
with your next amendment in accordance with prior comment 76.
Signatures
24. Please have your principal accounting officer and a majority
of
the board of directors sign the registration statement.
Form 10-KSB/A and Forms 10-QSB/A filed March 16, 2006
25. Please comply with the above comments as applicable.
26. Please amend your filings on Form 10-KSB/A and Forms 10-QSB/A
to
reflect the restated financial statements and disclosures included
in
the SB-2/A filed May 4, 2006 and to address our prior comments as
applicable. Your amended filings should revise to label your
financial statements as "restated," revise to include a
restatement
footnote and if applicable, have your auditors revise their report
to
refer to the restatement. Further, you should also file the
required
Item 4.02 Form 8-K for your restatement.
*******
As appropriate, please amend your registration statement and
periodic filings in response to these comments. 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
supplemental information. Detailed cover letters greatly
facilitate
our review. Please understand that we may have additional
comments
after reviewing your amendments and responses to our comments.
You may contact Michael Henderson, Staff Accountant, at
(202)
551-3364 or Kyle Moffatt, Accountant Branch Chief, at (202) 551-
3836
if you have questions regarding comments on the financial
statements
and related matters. Please contact William Bennett at (202) 551-
3389 or me at (202) 551-3810 with any other questions.
Sincerely,
Michele M. Anderson
Legal Branch Chief
cc: Laura Anthony, Esq.
Fax: (561) 514-0832
Mr. Ivan Zweig
IElement Corporation
May 19, 2006
p. 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE