555 West Street, New York, New York 10014
(212) 807-7600 telephone (212)
807-7252 facsimile
July 15, 2005
U.S. Securities and Exchange Commission Division of Corporation Finance 450
Fifth Street, N.W.
Washington, D.C. 20549
ATTN: Michael Clampitt or Kathryn McHale
RE: DIAMOND RANCH FOODS, LTD.
AMENDMENT NUMBER ONE TO REGISTRATION STATEMENT ON FORM 10-SB
FILED MAY 15, 2005
FILE NO. 000-51206
Dear Sir or Madam:
This correspondence is submitted in response to your letter dated June
9, 2005 regarding the May 15, 2005 filing of Form 10-SB/A for Diamond Ranch
Foods, Ltd. ("DFDR"). Please note that our document has been revised for
re-filing pursuant to your comments and that additional disclosure is provided
below:
General
1. In order to facilitate our review, please cite particular changes and
give specific page numbers in your responses to our comments. It is not
sufficient to say you have made revisions in the Form 10-SB/A.
General
2. You previously stated that a tabular presentation of the effects of the
recapitalization in connection with the reverse merger with MBC Foods,
Inc. was included in the original Form 10-SB. Please direct our
attention to where the required disclosures are contained or revise to
include the required tabular disclosure that includes all of the
following:
o Historical financial statements of MBC Foods, Inc. as of the
date of the merger;
o The specific proforma adjustments to effect the
recapitalization; and
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o Proforma results.
RESPONSE: PLEASE REFER TO OUR REVISED FORM 10-SB/A FOR ALL OF THE
REQUIRED PROFORMA DISCLOSURES, WHICH INCLUDE THE HISTORICAL FINANCIAL
STATEMENTS OF MBC FOODS, INC. AS OF THE DATE OF THE MERGER, THE
SPECIFIC PROFORMA ADJUSTMENTS TO EFFECT THE RECAPITALIZATION, AND THE
PROFORMA RESULTS.
3. Please note the updating requirements of Item 3-10(g) of Regulation S-B.
RESPONSE: WE HAVE NOTED THE UPDATING REQUIREMENTS OF ITEM 3-10(G) OF
REGULATION S-B.
Description of Business - page 3
4. We note that Jerry's Inc. had no affiliation with your current industry
prior to 2004 when you changed your name. Please include in this first
paragraph, as well as in the section entitled "History and Company
Development" and other sections, as appropriate, a brief description of
Jerry's Inc.'s business prior to 1998 when it ceased operations. In
addition, we note from the biographies of management that there are no
executives or directors from Jerry's Inc. remaining after the
acquisition of MBC Foods, Inc., Please disclose what agreements were
made with the management and owners of Jerry's, Inc. when they acquired
MBC Foods.
RESPONSE: A DESCRIPTION OF JERRY'S, INC. HAS BEEN INCLUDED IN ALL
APPLICABLE SECTIONS OF OUR REVISED FORM 10-SB/A. PLEASE REFER TO PAGE 3
FOR THESE INCLUSIONS. PLEASE NOTE THAT NO AGREEMENTS WERE ENTERED INTO
BETWEEN MANAGEMENT AND THE OWNERS OF JERRY'S, INC. UPON ACQUIRING MBC
FOODS.
Customers - page 6
5. In your response to comment 5, you have added disclosure in this
section that you "have a broad and sizeable customer base which does
not leave [you] dependent on any one or even a few customers..."
However, this disclosure is in direct conflict with Rick Factor number
5: "Risk of Losing Significant Clients," which states if you "were to
lose one or more of these clients our business could be adversely
affected..." Please reconcile this disclosure.
RESPONSE: THE DISCLOSURE HAS BEEN RECONCILED BY REMOVING THE PREVIOUS
RISK FACTOR NUMBER 5 FROM PAGE 7 OF OUR MOST RECENT FORM 10-SB/A.
Risk Factors: Risks of Reduced Liquidity of Penny Stocks - page 8
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6. In the last sentence of this risk factor, you state that the penny
stock rules "may affect the ability of purchasers in this Registration
Statement to sell the securities in the secondary market." Please
clarify who will be purchasing securities pursuant to this Form 10
Registration Statement.
RESPONSE: THERE ARE NO INDIVIDUALS OR ENTITIES PURCHASING SECURITIES
PURSUANT TO OUR FORM 10-SB/A. THE RISK FACTOR HAS BEEN REVISED TO
REMOVE ANY INFERENCE TO SUCH A PURCHASE BEING MADE IN CONJUNCTION WITH
THIS FORM 10-SB/A.
Research and Development - page 8
7. Please elaborate in this section on your research and development plans
for the future. You mention that you intend to use R&D to "mature the
business and increase revenues," but do not provide specific disclosure
about how you intend to do so.
RESPONSE: ON PAGE 8 OF OUR FORM 10-SB/A FILING, WE HAVE ELABORATED UPON
AND DISCLOSED OUR RESEARCH AND DEVELOPMENT PLANS FOR THE FUTURE.
Item 2 - Management's Discussion and Analysis or Plan of Operation
8. Please revise under the appropriate headings to provide an analysis of
the changes in financial position and the results of operations between
all periods presented in the financial statements. Specifically address
the changes in gross profit and related rations from the year ended
March 31, 2004 and to the period ended December 31, 2004, describing
product mix and other changes to cost/volume relationships. Refer to
Interpretive Release 34-48960 and Item 303 of Regulation S-B.
RESPONSE: THE FORM 10-SB/A FILING ACCOMPANYING THIS RESPONSE LETTER HAS
BEEN REVISED TO INCLUDE AUDITED FINANCIAL STATEMENTS FOR THE YEARS
ENDED MARCH 31, 2005 AND 2004. THEREFORE, THE UNAUDITED INTERIM
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2004 ARE
INAPPLICABLE FOR THE ANALYSIS REQUESTED IN THIS COMMENT #8. AN ANALYSIS
OF THE CHANGES IN FINANCIAL POSITIONS AND RESULTS OF OPERATIONS BETWEEN
THE YEARS ENDED MARCH 31, 2005 AND 2004 HAS BEEN ADDED TO PAGE 9 OF OUR
REVISED FORM 10-SB/A FILING.
9. Please revise to provide a comprehensive discussion of the dynamics of
your sales and collection procedures that explains why you factor your
receivables. Describe the reasons for the gaps between sales,
collections, and required vendor cash payments.
RESPONSE: WE HAVE REVISED OUR FORM 10-SB/A ON PAGE 11 TO INCLUDE A
SEPARATELY CAPTIONED SECTION DESCRIBING THE DYNAMICS OF OUR SALES AND
COLLECTION PROCEDURES AND THE REASONS FOR FACTORING OUR RECEIVABLES.
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10. You state that you are operating on a cash flow positive basis, but
your statement of cash flows for the nine months ended December 31,
2004 shows an increasing deficit in cash flows from operations. Please
revise your discussions to address this inconsistency.
RESPONSE: OUR STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED
DECEMBER 31, 2004 SHOWED AN INCREASING DEFICIT IN CASH FLOWS FROM
OPERATIONS; HOWEVER, THERE WAS A NEUTRAL/EVEN CASH FLOW DUE TO THE FACT
THAT THE CASH TO CONTINUE BUSINESS OPERATIONS WAS ACQUIRED THROUGH THE
ISSUANCE OF DEBT, AS WELL AS ADDITIONAL FINANCING OPERATIONS. WE HAVE
REVISED OUR FORM 10-SB/A ON PAGE 12 BY REMOVING ANY REFERENCE TO
OPERATING ON A CASH FLOW POSITIVE BASIS. PLEASE NOTE THAT THE STATEMENT
OF CASH FLOWS SUBMITTED WITH THE ACCOMPANYING FORM 10-SB/A HAS BEEN
UPDATED FROM OUR PREVIOUS SUBMISSION TO INCLUDE OUR AUDITED FINANCIAL
STATEMENTS FOR THE YEARS ENDED MARCH 31, 2005 AND 2004.
11. You stated that the individual components of general and administrative
expense. However, in your MD&A section, please revise to disaggregate,
compare and contrast the major components of general and administrative
expenses for all periods presented with the comparable prior periods,
and explain those differences.
RESPONSE: THE COMPARISONS REQUESTED PER THIS COMMENT HAVE BEEN MADE IN
OUR REVISED FORM 10-SB/A AND ARE LOCATED THROUGHOUT ITEM 2 COMMENCING
ON PAGE 9.
Cost of Sales and Gross Profit - page 9
12. You state that in September 2004, you acquired the customer list of
Steiger Meats for common stock. Please revise to discuss the value of
this transaction to include the number of shares of stock issued in
this transaction and the market price of the common stock issued this
transaction as well as the intangible asset created in this
transaction. Additionally, please revise all relevant stub period
financial statements and notes thereto to disclose the accounting for
this transaction.
RESPONSE: WE HAVE ADDED THE RELEVANT ACQUISITION INFORMATION AS
REQUESTED IN THIS COMMENT TO PAGE 10 OF OUR REVISED FORM 10-SB/A. WE
HAVE ALSO REVISED ALL RELEVANT STUB PERIOD FINANCIAL STATEMENTS AND
NOTES THERETO TO ACCOUNT FOR THIS TRANSACTION.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General - page 11
13. In the first sentence of the second paragraph of this section you
discuss revenue growth compared to the preceding quarter but do not
disclose to which quarters you are referring. Please clarify.
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RESPONSE: WE HAVE CLARIFIED OUR DISCLOSURE ON PAGE 11 OF OUR FORM
10-SB/A FILING TO COMPARE REVENUE GROWTH BETWEEN THE YEARS ENDED MARCH
31, 2005 AND 2004.
Recent Sales of Unregistered Securities - page 19
14. For each of the transactions in this section, please clarify the number
of purchasers, whether the purchasers were accredited or sophisticated
investors, which exemption from registration is being claimed, and the
facts relied upon to make the exemption available. For example, in the
first paragraph, you claim you relied on Section 4(2) but do not
include the number or nature of purchasers nor the facts relied upon to
make Section 4(2) available. Similarly, in the second paragraph, you
cite "Rule 5045" of Regulation D in error. Please clarify which one
Rule of Regulation D you relied and the facts to support this reliance.
In the last two paragraphs, you have not provided any exemption or
support for exemption for either transaction.
RESPONSE: ON MAY 1, 2004 WE ISSUED 31,607,650 RESTRICTED SHARES OF OUR
COMMON STOCK TO ACQUIRE MBC FOODS, INC. FOR FINANCIAL REPORTING
PURPOSES, THE TRANSACTION WAS RECORDED AS A REVERSE MERGER AND SHOWN ON
THE STATEMENT OF STOCKHOLDERS EQUITY AS A NET ISSUANCE OF 25,692,501
SHARES. THE SECURITIES WERE ISSUED IN RELIANCE UPON THE EXEMPTION
PROVIDED IN SECTION 4(2) OF THE SECURITIES ACT OF 1933 WHICH PROVIDES
THAT "EXEMPTED TRANSACTIONS" ARE TRANSACTIONS BY AN ISSUER NOT
INVOLVING ANY PUBLIC OFFERING. FURTHERMORE, RULE 144 DEFINES RESTRICTED
SECURITIES AS SECURITIES ACQUIRED DIRECTLY OR INDIRECTLY FROM THE
ISSUER, OR FROM AN AFFILIATE OF THE ISSUER, IN A TRANSACTION OR CHAIN
OF TRANSACTIONS NOT INVOLVING ANY PUBLIC OFFERING.
ON JUNE 6, 2004 WE COMPLETED A PRIVATE SALE OF SECURITIES UNDER THE
PROVISIONS OF SECTION 504 OF REGULATION D. THE SALE WAS MADE TO TEN
(10) INDIVIDUALS WHO WERE ACCREDITED INVESTORS PURSUANT TO RULE 501 (A)
OF THE REGULATION WHICH STATES THAT "AN ACCREDITED INVESTOR SHALL MEAN
ANY PERSON WHO COMES WITHIN ANY OF THE FOLLOWING CATEGORIES, OR WHO THE
ISSUER REASONABLY BELIEVES COMES WITHIN ANY OF THE FOLLOWING
CATEGORIES, AT THE TIME OF THE SALE OF THE SECURITIES TO THAT PERSON...
(5) ANY NATURAL PERSON WHOSE INDIVIDUAL NET WORTH, OR
JOINT NET WORTH WITH THAT PERSON'S SPOUSE, AT THE
TIME OF HIS PURCHASE, EXCEEDS $1,000,000;
(6) ANY NATURAL PERSON WHO HAD AN INDIVIDUAL INCOME IN
EXCESS OF $200,000 IN EACH OF THE TWO MOST RECENT
YEARS OR JOINT INCOME WITH THAT PERSON'S SPOUSE IN
EXCESS OF $300,000 IN EACH OF THOSE YEARS AND HAS A
REASONABLE EXPECTATION OF REACHING THE SAME INCOME
LEVEL IN THE CURRENT YEAR.
AT THE TIME OF THE SALE THE COMPANY WAS NOT SUBJECT TO THE REPORTING
REQUIREMENTS OF SECTIONS 13 OR 15(D) OF THE EXCHANGE ACT AND IS NOT AN
INVESTMENT COMPANY, A BLANK CHECK COMPANY OR A DEVELOPMENT STAGE
COMPANY. A TOTAL OF 24 MILLION SHARES OF OUR STOCK WERE SOLD AT A PRICE
OF $0.00025 PER SHARE FOR A TOTAL OF $6,000.00.
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ON JUNE 24, 2004 WE ISSUED 600,000 SHARES OF RESTRICTED COMMON STOCK TO
A CONSULTING FIRM FOR INVESTOR RELATIONS SERVICES UNDER THE TERMS OF A
CONTRACT THAT BEGAN ON JULY 1, 2004 AND WILL END ON JUNE 30, 2005
UNLESS EXTENDED.
ON JULY 8, 2005 WE ISSUED 200,000 SHARES OF RESTRICTED COMMON STOCK IN
RETURN FOR AN INDEPENDENT RESEARCH REPORT. WE ANTICIPATE THAT THIS
REPORT WILL BE COMPLETED BY THE THIRD QUARTER OF 2005.
IN BOTH THE JUNE 24 AND JULY 8, 2005 CASES, THE STOCK WAS ISSUED IN
RELIANCE ON SECTION 4 (2) OF THE SECURITIES ACT OF 1933 WHICH PROVIDES
THE SECURITIES ARE EXEMPT FROM REGISTRATION IN CASES OF "TRANSACTIONS
BY AN ISSUER NOT INVOLVING ANY PUBLIC OFFERING." AS NOTED, THE STOCK IS
RESTRICTED AND CAN ONLY BE SOLD UNDER THE PROVISIONS OF RULE 144 WHICH
PROVIDES THAT SECURITIES SOLD UNDER THE RULE MUST HAVE BEEN FULLY PAID
FOR AND BENEFICIALLY OWNED BY THE PERSON SELLING THEM FOR AT LEAST ONE
YEAR PRIOR TO THE SALE. IN THE CASE THE STOCK WAS ISSUED FOR SERVICES,
THE ONE YEAR HOLDING PERIOD DOES NOT BEGIN UNTIL THE SERVICES HAVE BEEN
COMPLETED.
15. You state here that you issued 31,607,650 shares of restricted common
stock to acquire MBC Foods, Inc. However, this contradicts your
disclosure (in Note 8 to the financial statements) of the amount of
shares issued to consummate the merger. Please revise your discussion
in this section to accurately reflect the shares issued.
RESPONSE: TO ACQUIRE MBC FOODS, INC., WE ISSUED 31,607,650 SHARES OF
RESTRICTED COMMON STOCK PURSUANT TO A STOCK PURCHASE AGREEMENT DATED
MAY 1, 2004. HOWEVER, FOR FINANCIAL REPORTING PURPOSES, THE TRANSACTION
WAS RECORDED AS A REVERSE MERGER AND SHOWN ON THE STATEMENT OF
STOCKHOLDERS EQUITY AS A NET ISSUANCE OF 25,692,501 SHARES. WE HAVE
REVISED OUR DISCUSSION BOTH IN NOTE 8 TO THE FINANCIAL STATEMENTS, AS
WELL AS THROUGHOUT OUR FORM 10-SB/A FILING TO ACCURATELY REFLECT THE
SHARES ISSUED IN CONNECTION WITH THIS MERGER.
16. In the second paragraph of this section, you reference a "private sale
of $6,000 in principal to ten accredited investors." Please clarify
that you were selling securities and state the amount of securities
sold and then the price paid for them.
RESPONSE: THE DOCUMENT HAS BEEN REVISED ON PAGE 20 TO CLARIFY THAT WE
SOLD SECURITIES, SPECIFICALLY 24,000,000 SHARES AT A PURCHASE PRICE OF
$0.00025 PER SHARE.
17. We note your response to comment 21. However, you still refer to
eligibility under the Texas Security Code rather than the Federal
Securities laws. Therefore, we reissue our former comment.
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RESPONSE: THE DISCLOSURE OF OUR PRIVATE SALE OF SECURITIES COMPLETED ON
JUNE 3, 2004 HAS BEEN REVISED TO RELY ON FEDERAL SECURITIES LAW RATHER
THAN TEXAS SECURITY CODE AND IS INCLUDED IN OUR FORM 10-SB/A FILING ON
PAGE 20.
18. The last two transactions you list in this section are for investor
relation services and for an independent research report. Please
elaborate on what these services entailed and how you determined the
value of each.
RESPONSE: ON JUNE 24, 2005 WE ISSUED 600,000 SHARES OF RESTRICTED
COMMON STOCK TO A CONSULTING FIRM FOR INVESTOR RELATIONS SERVICES UNDER
THE TERMS OF A CONTRACT THAT BEGAN ON JULY 1, 2004 AND WILL END ON JUNE
30, 2005 UNLESS EXTENDED. THE SERVICES INCLUDED: A) THE DEVELOPMENT AND
IMPLEMENTATION OF OUR CORPORATE IMAGE TO PRESENT TO THE FINANCIAL
COMMUNITY; B) ASSISTING AND CONSULTING THE COMPANY WITH RESPECT TO OUR
STOCKHOLDER RELATIONS, RELATIONS WITH BROKERS, DEALERS, ANALYSTS, AND
OTHER INVESTMENT PROFESSIONALS; C) RESPONDING TO TELEPHONE AND WRITTEN
INQUIRIES; D) ASSISTING IN THE DISSEMINATION OF OUR PRESS RELEASES,
REPORTS, AND OTHER COMMUNICATIONS WITH OR TO SHAREHOLDERS, THE
INVESTMENT COMMUNITY, AND THE GENERAL PUBLIC; AND E) ASSISTING THE
COMPANY IN PREPARING FOR PRESS CONFERENCES AND OTHER FORUMS INVOLVING
THE MEDIA, INVESTMENT PROFESSIONALS, AND THE GENERAL PUBLIC.
ON JULY 8, 2004 WE ISSUED 200,000 SHARES OF RESTRICTED COMMON STOCK IN
RETURN FOR AN INDEPENDENT RESEARCH REPORT. WE ANTICIPATE THAT THE
REPORT WILL BE COMPLETED BY THE THIRD QUARTER OF 2005. IN BOTH CASES
THE STOCK WAS ISSUED IN RELIANCE ON SECTION 4(2) OF THE SECURITIES ACT
OF 1933 WHICH PROVIDES THE SECURITIES ARE EXEMPT FROM REGISTRATION IN
CASES OF "TRANSACTIONS BY AN ISSUER NOT INVOLVING ANY PUBLIC OFFERING."
AS NOTED THE STOCK IS RESTRICTED AND CAN ONLY BE SOLD UNDER THE
PROVISIONS OF RULE 144 WHICH PROVIDES THAT SECURITIES SOLD UNDER THE
RULE MUST HAVE BEEN FULLY PAID FOR AND BENEFICIALLY OWNED BY THE PERSON
SELLING THEM FOR AT LEASE ONE YEAR PRIOR TO THE SALE. IN THIS CASE,
SINCE THE STOCK WAS ISSUED FOR SERVICES, THE ONE YEAR HOLDING PERIOD
DOES NOT BEGIN UNTIL THE SERVICES HAVE BEEN COMPLETED.
THE STOCK WAS ISSUED IN RETURN FOR SERVICES. IN ORDER TO BE CONSISTENT
WITH THE PRICING OF THE REGULATION D 504 OFFERING THAT TRANSPIRED
WITHIN THE SAME GENERAL TIME PERIOD, THE STOCK WAS PRICED AT $0.00025
PER SHARE. THE PROVIDERS OF THE SERVICES WERE WILLING TO ACCEPT THE
STOCK IN ANTICIPATION THAT THE VALUE WOULD INCREASE OVER A PERIOD OF
TIME AND PAY THE ACTUAL VALUE OF THE SERVICES PROVIDED.
19. Please disclose in this section the advances by shareholders you have
listed in Note 7 to the Financial Statements, as well as any other
advances, loans, or transactions appropriate to this section.
RESPONSE: WE HAVE REVISED THE RECENT SALES OF UNREGISTERED SECURITIES
SECTION OF OUR FORM 10-SB/A ON PAGE 20 TO INCLUDE ALL TRANSACTIONS
APPROPRIATE TO THE SECTION, AS WELL AS THOSE TRANSACTIONS DESCRIBED IN
NOTE 7 TO THE ACCOMPANYING FINANCIAL STATEMENTS.
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Part F/S
General
20. You state in your supplemental response dated May 13, 2005 that a stock
split was inadvertently included in the financial statements and all
disclosure relative to stock splits has been removed. It appears that
your financial statements were restated to reflect these changes,
please clarify by explaining the circumstances of this error and
clarify why certain publicly available information refers to a stock
split.
RESPONSE: THE STOCK SPLIT OCCURRED BEFORE THE RECAPITALIZATION OF THE
COMPANY. IN THE ORIGINAL FILING, THE STOCK SPLIT LANGUAGE WAS NOT
REMOVED, HOWEVER, IN THIS SUBSEQUENT FILING IT WAS REMOVED TO
ACCURATELY PRESENT THE RECAPITALIZATION.
21. Please revise all related summaries of financial information, including
quarterly information, to comply with paragraph 39 of APB 20.
RESPONSE: WE HAVE REVISED ALL RELATED SUMMARIES TO COMPLY WITH
PARAGRAPH 39 OF APB 20.
22. Please revise to correct the columns marked "unaudited" in the balance
sheets, as it appears that the period that was audited is incorrectly
marked "unaudited."
RESPONSE: PLEASE NOTE THAT THE FINANCIAL STATEMENTS ACCOMPANYING THIS
FORM 10-SB/A FILING HAVE BEEN UPDATED TO INCLUDE THE AUDITED FINANCIAL
STATEMENTS FOR THE YEARS ENDED MARCH 31, 2005 AND 2004. THEREFORE, THIS
COMMENT IS INAPPLICABLE AS THERE ARE NO UNAUDITED PERIODS LISTED.
23. Please refer to prior comment 26 and revise your statements of cash
flows on page F-7 and F-8 to present changes in debt and lines of
credit as cash flows used/in provided by financing activities as
opposed to operating activities. Refer to paragraphs 18 through 20 of
SFAS No. 95.
RESPONSE: THE STATEMENTS OF CASH FLOWS ON PAGE F-7 AND F-8 HAVE BEEN
ADJUSTED TO PRESENT CHANGES IN DEBT AS CASH FLOWS USED IN/PROVIDED BY
FINANCING ACTIVITIES AS OPPOSED TO OPERATING ACTIVITIES.
24. Please revise the statement of stockholders' equity for December 31,
2004 to reflect the acquisition of the customer list of Steiger Meats.
Confirm that "Stock issued in asset acquisition agreement" reflected in
the statements of cash flows is the Steiger Meats acquisition.
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RESPONSE: THE STATEMENTS OF STOCKHOLDERS' EQUITY AND CASH FLOWS FOR
YEARS ENDED MARCH 31, 2005 AND 2004 HAVE BEEN CORRECTED TO REFLECT THE
STOCK ISSUED FOR THE STEIGER MEATS CUSTOMER LIST. SUCH CORRECTIONS MAY
BE NOTED ON PAGES F-6 AND F-8.
Independent Auditors' Report - page F-1
25. You state in your supplemental response dated Mat 13, 2005 that your
independent accountant did not perform principal audit procedures in
New York. Please tell us what audit procedures (e.g., inventory
observations) accounts receivable confirmations and testing, accounts
payable testing) your independent accountant performed in New York and
who performed inventory observation procedures. Please be specific in
your response. Refer to AU 326.
RESPONSE: OUR AUDITORS HAVE INFORMED US, THAT IN THEIR OPINION, THEY
WERE ABLE TO GATHER "SUFFICIENT COMPETENT EVIDENTIAL MATTER" AS
REQUIRED BY AU 326. DUE TO THE NATURE OF THE INVENTORY (HIGHLY
PERISHABLE), THE ACTUAL PHYSICAL OBSERVATION WAS NOT CONSIDERED TO BE
THE ONLY METHOD OF GATHERING COMPETENT EVIDENTIAL MATTER. PARAGRAPH 23
DISCUSSES ECONOMIC LIMITS APPLICABLE IN THE GATHERING OF EVIDENTIAL
MATTER. EVEN THOUGH IT WAS NOT CONSIDERED ABSOLUTELY NECESSARY, DAVID
SEAL, CPA WAS IN THE NYC-AREA FOR OTHER PURPOSES AND WAS ABLE TO
PERFORM THE PROCEDURES REQUIRED IN THE INVENTORY OBSERVATION. IT IS THE
AUDITOR'S OPINION THAT THIS WAS THE MOST ECONOMICAL METHOD AND DID NOT
REQUIRE A NEW YORK LICENSE. WE HAVE ASKED THE AUDITOR TO RECONFIRM WITH
THE STATE OF NEW YORK THAT THERE IS NO REQUIREMENT FOR LICENSURE TO
PERFORM THE INVENTORY OBSERVATION. THE AUDITOR INFORMED US THAT THEY
HAVE CONTACTED NEW YORK AND ARE AWAITING THEIR REPLY.
Note 1- Nature of Operations and Going Concern
26. Please revise your disclosures about the going concern assumption to include
the following:
o Discussion of stub period results in addition to the existing
disclosures;
o How management plans to acquire additional meat processing and
distribution operations given the deficiency in working
capital;
o Management's plans for obtaining additional financing and the
specific types of additional financing (e.g., debt, equity);
and
o How the existing shareholders intent to meet ongoing operating
expenses.
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RESPONSE: OUR DISCLOSURES ON THE GOING CONCERN ASSUMPTION HAVE BEEN
REVISED IN NOTE 1 ON PAGE F-9 TO INCLUDE THE DISCLOSURES LISTED IN
COMMENT #26.
Note 6 - Notes Payable - page F-17
27. Please revise to disclose the following in connection with your factoring
line of credit arrangements:
o The terms, interest rates, maturity dates, and subordinate
features of significant categories of debt (e.g., notes
payable to banks, line of credit agreements, related party
notes); and
RESPONSE: IN CONNECTION WITH OUR FACTORING LINE OF CREDIT, WE HAVE
REVISED OUR DISCLOSURES ON PAGE F-15 TO PROVIDE ADDITIONAL INFORMATION
REGARDING THE LINE OF CREDIT AGREEMENT AND OUR ARRANGEMENTS OF SUCH.
o Interest expense during the periods presented.
RESPONSE: WE HAVE REVISED OUR CONSOLIDATED STATEMENTS OF OPERATIONS TO
INCLUDE THE FEES AND EXPENSES ASSOCIATED WITH THE FACTORING LINE OF
CREDIT. SUCH EXPENSES ARE PRESENTED UNDER THE FACTORING FEE SECTION ON
PAGE F-5.
Thank you for all courtesies and cooperation extended in this matter.
Very truly yours,
DIAMOND RANCH FOODS, LTD.
By:_/s/____________________________
Joseph Maggio
Chairman and CEO