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Dave Neville
Attorney at Law Telephone: (805) 640-6468
111 West Topa Topa Street Facsimile: (805) 669-4462
Ojai, California 93023 Email: dave_n@scglobal.net
August 16, 2006
Securities and Exchange Commission
Division of Corporate Finance
Office of Emerging Growth Companies
450 Fifth Street, N.W.
Washington, D.C. 20549
Attn: Maureen Bauer, Staff Accountant
Re: National Healthcare Technology, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2005
Form 10-QSB for the Fiscal Period Ended March 31, 2006
Form 10-QSB/A for the Fiscal Period Ended September 30, 2005
File No. 1-28911
Dear Ms. Bauer:
I write to respond to your comments in your letter dated July 27, 2006 in
regards to the abovereferenced matters.
Form 10-KSB for the Fiscal Year Ended December 31, 2005
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Part II, Item 8A, Controls and Procedures, page 17
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Response to Comments 1 - 5.
The Company will comply with your comments. The Company proposes to insert the
following language in response to comments 1 -5:
Our Chief Executive Officer and Chief Financial Officer has evaluated
the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15 and 15d-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of
the period ended December 31, 2005, (the "Evaluation Date"). During the
course of the audit for our year end December 31, 2005 in May 2006, our
auditor discovered numerous errors in our financial statements in our
quarterly report for the period ended September 30, 2006 as disclosed
in our form 8-K/A filed on June 14, 2006. As a result of these errors,
and others, we restated our form 10-QSB for the quarter ended September
30, 2005, and will restate the financial statements for the period
ended June 30, 2005, in our Form 8-K/A filed on January 24, 2006. Our
conclusion to restate our form 10QSB for the quarter ended September
30, 2005 and Form 8-K/A filed on January 24, 2006, has resulted in
affecting our assessments regarding our controls, and that they were
not effective as of the period ended December 31, 2006 and constituted
material weaknesses which began after the close of the Exchange
Agreement on or about July 19, 2006. The material weaknesses were
primarily a result of our having no controller and no qualified
personnel and as a result transactions were omitted, recorded
incorrectly, or recorded without support.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures are designed to provide reasonable
assurance of an entity achieving its disclosure objectives. Our chief
executive officer and chief financial officer has concluded that our
disclosure controls and procedures are effective at that reasonable
assurance level as of the period covered by this report. The likelihood
of achieving such objectives is affected by limitations inherent in
disclosure controls and procedures. These include the fact that human
judgment in decision-making can be faulty and that breakdowns in
internal control can occur because of human failures such as simple
errors or mistakes or intentional circumvention of the established
process.
There were no changes in the Company's internal controls over financial
reporting, known to the Chief Executive Officer and Chief Financial
Officer that occurred during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
In May 2006, we remediated the material weakness in internal control
over financial reporting by having our Chief Executive Officer and
Chief Financial Officer review in detail all adjustments affecting the
issuances of our securities, and we retained an outside consultant to
make accounting entries.
Financial Statements, page F-1
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Note 5 - Equity Transaction, page F-13
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Response to Comments 6 and 7:
In reply to your comment, fair value of the issuance of the 1,800,000 warrants
on page F-14 were zero dollars as the warrants when issued were done so by a
private company, Special Stone Surfaces, Es3, Inc., and prior to the close of
the Merger Exchange Agreement on July 18, 2005 with the registrant.
Exhibit 31.1 and 31.2, Certifications
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Response to Comments 8 and 9:
The Company will comply with your comments. The Company proposes to replace the
text in its Exhibit 31.1 and 31.2 certifications:
I, __________________, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
National Healthcare Technology, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
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3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. As the registrant's certifying officer I am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15(e) and 15d-15(e) for the
registrant and I have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared; and
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented my conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by the report; and
(c) disclosed in this report any changes in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. As the registrant's certifying officer I have disclosed,
based on my most recent evaluation, to the registrant's auditors and
the registrant's board of directors (or persons performing the
equivalent functions):
(a) all material weaknesses, as well as significant
deficiencies in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report
financial information, have been disclosed; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
Form 10-QSB for the Fiscal Period Ended March 31, 2006
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Part I, Item 1, Financial Information
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Note 4, Subsequent Events, page F-11
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Response to Comment 10:
The Company will comply with your comment and proposes the following language:
In April 2006, the Company's Board of Director approved a change of
direction for the Company, from the business of manufacturing and
distributing decorative stone veneers and finishes, to the business of
oil and gas exploration and production, mineral lease purchasing and
all activities associated with acquiring, operating and maintaining the
assets of such operations. In furtherance of this change of direction,
the Company entered into consulting agreements with third parties to
provide business management services and advice as it relates to the
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future of the company. These services shall include the drafting and
preparation of business plans, operating budgets, cash flow projections
and other business management services as the Company ventures into the
oil and gas business. In April 2006 we executed an assignment of an oil
and gas lease under which we acquired 100% of the leasehold rights to
drill and otherwise exploit 160 acres of certain underlying oil and gas
reserves located in the County of Custer, Oklahoma, which we acquired
from Summitt for 77,000 restricted shares of our common stock and
agreed to pay Summitt a royalty equal to 3% of the value of all oil
produced and removed under the lease and the net proceeds received by
us from the sale of all gas and casinghead gasoline produced and sold
under the lease. The leasehold interest is not developed and
accordingly not currently producing oil or gas.
Response to Comment 11:
The Company replies to your comment as follows:
Common shares: 35,609,759
Warrants: 2,400,000
Options: 0
Part I, Item 2
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Management's Discussion and Analysis, page 3
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Response to Comments 12 and 14:
The Company will comply with your comment and proposes the following text:
On April 3, 2006, our Board of Directors approved a change of direction
for the Company, from the business of manufacturing and distributing
decorative stone veneers and finishes, to the business of oil and gas
exploration and production, mineral lease purchasing and all activities
associated with acquiring, operating and maintaining the assets of such
operations. This plan of operating will include the acquiring of proven
fields and the developing of these properties by commencing drilling
operations. In order to maximize economies of scale and to leverage the
knowledge and expertise of others, we will partner with third parties
to exploit any such properties.
Upon the closing of the Exchange Agreement, we had planned to market
our coatings and veneers to both commercial and residential markets,
which we intended to fund by using the public markets to secure
additional working capital and to make acquisitions using either Common
Stock or cash. A significant component of our intermediate term growth
strategy was the acquisition and integration of companies in related
building materials fields. We had expected to take advantage of
synergies among related businesses to increase revenues and take
advantage of economies of scale to reduce operating costs.
In conjunction with our change of direction, in April 2006, we entered
into a consulting agreement with Summitt Oil and Gas, Inc. ("Summitt"),
as well as other third parties, to provide business management
services, and advice as it relates to the future of the company. This
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service shall include the drafting and preparation of business plans,
operating budgets, cash flow projections and other business management
services as we venture into the oil and gas business.
In April 2006 we executed an assignment of an oil and gas lease under
which we acquired 100% of the leasehold rights to drill and otherwise
exploit 160 acres of certain underlying oil and gas reserves located in
the County of Custer, Oklahoma, which we acquired from Summitt for
77,000 restricted shares of our common stock and agreed to pay Summitt
a royalty equal to 3% of the value of all oil produced and removed
under the lease and the net proceeds received by us from the sale of
all gas and casinghead gasoline produced and sold under the lease. The
leasehold interest is not developed and accordingly not currently
producing oil or gas. Upon receiving the necessary capitalization, we
intend to explore developing this field.
In April 2006, we entered into a consulting agreement with BlueFin,
Inc.("BlueFin"). BlueFin has been retained to provide business
development, investor relations services, and introductions to
qualified funding sources, introductions to oil and gas business
prospects and introductions to accredited investors. By leveraging
BlueFin's resources the Company anticipates that it will be able to
find sources of capital to fund its operations in the oil and gas
business.
In April 2006, we also entered into an agreement with Monterosa Group
Limited ("Monterossa"). Monterossa has been retained to provide
services including operation administration, transaction processing and
management, systems development, staff recruitment, acquisition
transaction support services, and other business management services as
the Company moves into the oil and gas business.
In April 2006, we also engaged Camden Holdings, Inc. ("Camden"), an
entity experienced in the energy sector that will assist the Company in
locating oil and gas opportunities for us. Camden's services include
the drafting and preparation of business plans, operating budgets, cash
flow projections and other business management services as we venture
into the oil and gas business. We have also been able to leverage our
relationship with Camden to obtain short-term financing as needed.
In April 2006, we also engaged Design, Inc. ("Design"), an entity
experienced in the energy sector that will assist the Company in
financing the transactions introduced by Camden and our other
consultants.
We believe that by changing our direction to the oil and gas markets we
have improved our prospects for success due to both the current and
expected future positive market conditions which we expect to exploit
initially from the valuable contacts, industry expertise and business
opportunities we expect to derive from Summitt, an industry experienced
consulting resource, and other third party consultants.
Additionally, we intend to reincorporate the Company to a Nevada
corporation ("Reincorporation"). The business purpose of the
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Reincorporation is to allow us to avail ourselves to Nevada corporate
law. Nevada is a recognized leader in adopting and implementing
comprehensive, flexible corporate laws responsive to the legal and
business needs of corporations organized under its laws. The Nevada
Revised Statutes is an enabling statute that is frequently revised and
updated to accommodate changing business needs.
Additionally, consistent with the change of our direction into the oil
and gas business, we will also change the Company name to a name in
line with a company in the oil and gas business.
We anticipate that we will have to raise additional capital to fund
operations over the next 12 months. To the extent that we are required
to raise additional funds to acquire properties, and to cover costs of
operations, we intend to do so through additional public or private
offerings of debt or equity securities, including a drilling fund to
raise $5,000,000. There are no commitments or arrangements for other
offerings in place, no guaranties that any such financings would be
forthcoming, or as to the terms of any such financings. Any future
financing may involve substantial dilution to existing investors. We
have also been relying on our common stock to pay third parties for
services which has resulted substantial dilution to existing investors.
Estimated Funding Required During the Next Twelve Months:
------------------------------- --------------- --- -------------
Prospect Development & Seismic $1,000,000 to $5,000,000
------------------------------- --------------- --- -------------
Drilling & Development $2,500,000 to $5,000,000
------------------------------- --------------- --- -------------
Offering Costs & Expenses $50,000 to $ 50,000
------------------------------- --------------- --- -------------
General Corporate Expenses $100,000 to $ 150,000
------------------------------- --------------- --- -------------
Working Capital $ 700,000 to $1,000,000
------------------------------- --------------- --- -------------
Total $4,350,000 to $11,200,000
------------------------------- --------------- --- -------------
The minimum expenditures noted above will allow us to commence with
acquiring, exploring and developing properties as well as commence
drilling operations. In the event that we are able to raise further
funds, we will primarily expend such funds on further prospect
development and seismic studies and then to fund further drilling
operations Consistent with this change of our business, effective
October 1, 2005 we sold all of the capital stock of Es3 to Liquid Stone
Partners. A partner holding a minority interest in Liquid Stone
Partnerships is also a director of the Company. We currently have one
full-time employee. We will primarily rely on outside consultants and
do not currently foresee any significant changes in the number of our
employees.
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Response to Comment 13:
The Company will comply with your comment and proposes the following language:
The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment
("SFAS No. 123R"), under the modified-prospective transition method on
January 1, 2006. SFAS No. 123R requires companies to measure and
recognize the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value. Prior
to the adoption of SFAS No. 123R, the Company accounted for our stock
option plans using the intrinsic value method in accordance with the
provisions of APB Opinion No. 25 and related interpretations. The
adoption of SFAS No. 123R had no effect on the Company's financial
statements for the fiscal year ended December 31, 2005, as SFAS No.
123R only applies to grants made on or after January 1, 2006 or to
grants made prior to January 1, 2006 that were amended or otherwise
altered on or after January 1, 2006. Additionally, SFAS No. 123R will
have no effect on the Company's financial statements for the fiscal
year ended December 31, 2006, as the warrants granted by the Company in
April 2006 to its officers vested after six months and thus the
warrants would only be expensed upon their vesting in October of 2006.
However, the officers to whom the warrants and termination shares were
granted have resigned from the Company.
Form 10-QSB/A1 for September 30, 2005
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Response to Comment 15:
The Company will comply with your comment. The comments of June 22, 2006 on the
Company's May 22, 2006 Form 8-K/A1 are still outstanding. One comment remains
and the Company anticipates resolving this matter within the next week.
Currently, the proposed revised text reads as follows:
In preparing National Healthcare Technology, Inc.'s (the
"Company") Form 10-KSB for the year ended December 31, 2005, filed on
May 22, 2006, between May 16, 2006, and May 21, 2006, the Company
discovered errors in the Company's Form 10-QSB for the three months
ended September 30, 2005, filed on February 1, 2006.
Though not an inclusive list, below is a list of the more
material errors discovered in preparing the 10-KSB requiring
adjustment:
A. The Company improperly recorded a $200,000 escrow deposit
as an asset in the period ended September 30, 2005. In conjunction with
the Company's acquisition of Special Stone Surfaces, Es3, Inc., ("Es3")
and pursuant to the terms of an Exchange Agreement, Es3 made a $200,000
cash payment to the Company. The correct accounting for this
transaction would have been to debit additional paid in capital and to
credit cash. However, the initial accounting was to incorrectly debit
the escrow deposit instead of additional paid in capital. The effect of
this adjustment is to properly reflect prepaid expense and other
current assets and additional paid-in-capital for the period ended
September 30, 2005.
B. The Company incorrectly recorded $278,800 of advances from
a related party in the period ended September 30, 2005. The effect of
this adjustment is to properly reflect note payable - related party in
the amount of $328,940 as opposed to $50,140 as originally recorded.
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C. The Company incorrectly recorded $98,912 of deferred stock
compensation and related amortization expense in conjunction with the
issuance of stock options and warrants in the period ended September
30, 2005. The effect of this adjustment is to properly reflect deferred
stock compensation in the amount of $0 as opposed to $89,256 as
originally reported and amortization expense for the period in the
amount of $0 as opposed to $3,811 as originally reported.
D. The Company failed to record certain technology license
royalty expenses of $1,764 in the period ended September 30, 2005. The
effect of this adjustment is to properly reflect a technology royalty
expense as opposed to $0 technology royalty expense as originally
reported.
E. The Company failed to accrue $45,000 of professional fees
in the period ended September 30, 2005. The effect of this adjustment
is to increase professional fees for the period ended September 30,
2005, by approximately $45,000.
F. Additionally, there are various other significant
adjustments to the individual accounts that are not disclosed herein
due to the fact the adjustments represent reclassifications with other
accounts.
These errors in the Company's Form 10-QSB for the three months
ended September 30, 2006, and their effect on our financial statements
were discussed between the Company's chief executive officer and the
Company's independent accountant during the audit of the Company's
10-KSB. Though the full extent of the errors were not realized until
the Form 10-KSB for the year ended December 31, 2005, was completed,
management had concluded by May 16, 2006, that the financial statements
included in the Company's 10-QSB for the period ended September 30,
2005, should not be relied upon and would need to be restated.
Based on these discussions, the Board of Directors of the
Company on May 22, 2006, approved management's recommendation that the
Company's financial statements for the three months ended September 30,
2005 and for the period from January 27, 2005 (inception) through
September 30, 2005 be restated. In light of such restatement, the
financial statements and related footnotes should no longer be relied
upon.
As a result of these errors, the Company amended its financial
statements and footnotes for the three months ended September 30, 2005.
The Company filed an amended Form 10-QSB for the three months ended
September 30, 2005, on June 8, 2006. Said amended Form 10-QSB restates
the consolidated balance sheet, consolidated statement of operations,
and consolidated statement of cash flows, to reflect such corrections
and reclassifies certain operating expenses for the purposes of
financial statement presentation. Additionally, said amended Form 10QSB
restates the footnotes related to such corrections and management's
report on internal control over financial reporting, which reflects the
Company's material weakness in internal control over financial
reporting during the period.
Please forward all correspondence to my office.
Very truly yours,
/s/ Dave Neville
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