Mail Stop 6010 January 10, 2007
David Chess, M.D.
President and Chief Executive Officer
HC Innovations, Inc.
Six Corporate Drive
Suite 420
Shelton, Connecticut 06484
Re: HC Innovations, Inc.
Form 10-SB filed December 13, 2006
File No. 0-52197
Dear Dr. Chess:
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.
FORM 10
General
1. Pursuant to section 12(g)(1) of the Exchange Act, your
registration statement will automatically become effective 60 days
after it was filed. If we are not finished with the review by
that
time, you should withdraw the registration statement and refile it
to
delay its effectiveness.
Description of Business
2. We note your response to comment 7 and reissue the comment.
Please revise the discussion to at least include the information
contained in your response to this comment.
Healthcare Savings, page 6
3. We note your response to comment 10 and reissue the comment.
If
you take the cost of the program into account, the savings are
less
than 25%. Please revise the discussion to revise the stated
savings
or to indicate the percentage reflected is before the costs of the
program.
4. Please expand the discussion in your business section to
provide
more detail concerning the savings demonstrated by your program
with
HealthNet. For example, how many enrollees were there and was
their
average cost $40,000 per year? What period of time was covered by
the HealthNet program and has the program been renewed and/or
implemented on a larger scale with HealthNet? If not, why not?
5. Did you experience similar savings with the pilot program with
Bridgeport and Hartford Hospitals? When were these pilot programs
instituted and were the programs renewed or implemented on a
permanent basis.
Liquidity and Capital Resources, page 35
6. Refer to your response to comment 33. We note that you added a
discussion of the changes in your liquidity for the most recent
interim period. Please revise the document to include a similar
discussion for each of the comparative annual periods presented in
the document.
Accounts Receivable, page 35
7. Refer to your response to comment 34. Your revised disclosure
states that you have not recorded any allowance historically. It
also seems to indicate that you do experience write-offs related
to
these accounts, but that you directly reduce the receivable
balance
at the time that the amount of the write-off is determined. The
net
effect of this policy would seem to be that the accounts
receivable
are carried at an amount other than their expected recovery amount
to
the extent that write-offs are material. Please disclose the
amount
of these direct write-offs each period and how you determined that
the carrying amount determined under this policy is adequate.
Impact of Recently Issued Accounting Pronouncements, page 36
8. Refer to your response to comment 35. Based on our review of
the
document, we were unable to determine where you made the changes
referenced in your response. The paragraph that discusses SFAS
123R
on page 37 still discloses that your options will be fully vested
and
your disclosure on page 40 still says that you do not have any
option
plans. Please reconcile the differences between these statements
or
demonstrate that you have made the referenced changes.
Consolidated Financial Statements - December 31, 2005
Consolidated Statement of Changes in Stockholders` Equity
(Deficit),
page 4
9. Refer to your response to comment 39. It is still unclear how
you
changed to include the effects of the recapitalization and the
stock-
split throughout these financial statements. Based on the
information included in this statement, you had 24 million shares
outstanding at December 31, 2005. Your disclosure in note 2 of
the
interim financial statements for September 30, 2006 indicates that
you issued 24 million shares as part of the recapitalization
transaction. Please provide to us the following information
related
to these transactions:
* Clarify how the 24 million issued in the recapitalization
impacted
the amounts reported at December 31, 2005.
* Explain whether the stock split that took place in 2005 was
reflected for the entire year in your EPS calculations because the
presentation of this stock split within this statement does not
make
this treatment clear.
* Identify what the "change in corporate structure" was that you
referred to in response as being discussed in note 2 of the 2005
financial statements as we were unable to identify this discussion
in
that note.
* If you meant to reference in your response the recapitalization
discussed in note 2 of the interim financial statements, explain
to
us why the impact of this recapitalization and the stock-split is
not
appropriate to push back through the prior periods. Include any
specific references to the authoritative literature that supports
this treatment.
10. Refer to your response to comment 47. It seems that many of
the
valuations that you assigned to these issuances are based on an
invoice value or the amount of interest accrued at that time. The
use of these various amounts results in valuations that you
assigned
that appear inconsistent and therefore do not appear to be an
accurate measurement of the fair value of your shares.
* Please explain how the results of this technique in assigning a
$0.40 value on October 6, 2005 reconciles to the determination of
a
new value of $0.16 per share approximately one month later on
November 14, 2005 in satisfaction of the interest.
* While we recognize that the shares issued in settlement of these
amounts are negotiated, they appear to fail to really address the
underlying value of the shares. Provide to us using an accepted
valuation model or a determination based on sales of shares to
unrelated parties a valuation of you shares at each issuance
discussed in this response.
2. Summary of Significant Accounting Policies, page 7
Revenue Recognition, page 9
11. Refer to your response to comment 44. It remains unclear
based
on your revised disclosures what you mean when you state "when
earned." Please revise your disclosure to better describe the
earning process and what determines when the revenues are earned.
10. Long-Term Debt, page 16
Convertible Debentures, page 16
12. Refer to your response to our comment number 45. We are still
unclear about the accounting applied to these instruments. Please
tell us how you considered the following issues associated with
this
convertible debt issuance and all subsequent issuances through
September 30, 2006:
* Provide to us your analysis under the guidance of EITF 00-19
about
whether the conversion feature associated with these instruments
meets the scope exemption offered by paragraph 11(a) of SFAS 133.
* If you determine that it is not a derivative instrument, provide
your analysis under EITF 98-5 of whether a beneficial conversion
feature existed at the time of the issuance. Please note that it
is
not requisite that the instrument be a derivative for this
guidance
to apply.
Consolidated Financial Statements - December 31, 2004
Consolidated Statements of Operations, page 3
13. Refer to your response to comment 43. It does not appear that
you adjusted this statement to include the requested EPS
information.
Please revise this presentation to include the previously
requested
EPS information.
* * *
As appropriate, please amend your filing 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 filing to be certain that the
filing includes 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 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.
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 James Peklenk at (202) 551-3661 or Jim
Atkinson
at (202) 551-3674 if you have questions regarding comments on the
financial statements and related matters. Please contact John Krug
at
(202) 551-3862 or me at (202) 551-3715 with any other questions.
Sincerely,
Jeffrey Riedler
Assistant Director
Cc: Jay Kaplowitz, Esq.
Gesten Savage LLP
600 Lexington Avenue, 9th Floor
New York, New York 10022
Dr. David Chess
HC Innovations, Inc.
January 10, 2007
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