November 7, 2005
VIA EDGAR AND OVERNIGHT MAIL
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Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn: Mr. Alan Morris, Esq.
RE: NATIONAL HEALTH PARTNERS, INC. AMENDMENT NO. 1 TO REGISTRATION STATEMENT
ON FORM SB-2, REGISTRATION NO. 333 - 126315
Dear Mr. Morris:
I am writing to you on behalf of National Health Partners, Inc. in
regards to Amendment No. 1 to the Registration Statement on Form SB-2,
Registration No. 333 - 126315, filed by the company with the Securities and
Exchange Commission on September 30, 2005. The company received comments to the
registration statement from the SEC by means of a letter faxed to the company on
October 21, 2005.
Please find enclosed Amendment No. 2 to the Registration Statement on
Form SB-2. In addition, please find below each of the comments provided to the
company by the SEC along with the company's response to each comment. Each
comment is set forth in italics and is numbered to correspond to the numbered
paragraphs in the SEC's comment letter. The company's response to each comment
immediately follows the applicable comment.
Please note that the company has provided additional disclosure in this
letter subsequent to its responses to each of the comments to assist you in
reviewing additional changes reflected in Amendment No. 2 to the Registration
Statement on Form SB-2.
Please also note that the company previously submitted an application
for confidential treatment to the Office of the Secretary of the SEC
concurrently with the filing of Amendment No. 1 to the Registration Statement on
Form SB-2 for certain of the information contained in the agreements filed as
Exhibits 10.7, 10.8, 10.9, 10.10 and 10.11 to Amendment No. 1 to the
Registration Statement on Form SB-2.
Securities and Exchange Commission
November 7, 2005
Page 2
Risk Factors, page 3
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1. Please add a risk factor or risk factors that highlight that the
trading price of your common stock may not be related to the offering
price. Also, quantify the average cost of the shares being sold by your
selling shareholders.
The company has added a risk factor entitled "The offering price of the
shares of our common stock offered hereby may not bear any relation to
the actual trading price of our common stock" that addresses each of
these requests.
2. Please add a risk factor that highlights the issuance of shares to
consultants and the related risk, such as dilution.
The company has added a risk factor entitled "We have issued a
significant number of securities to advisors and consultants to the
company and may issue additional securities to advisors and consultants
to the company in the future" under "Risks Associated With Our Stock"
that highlights the issuance of shares to consultants and the related
risk, such as dilution.
We are an early stage company with an unproven business model ... prospects,
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page 3
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3. We note your responses to prior comments 9, 10, 15, 25 and 26. Please
revise this section to clarify when the company or its predecessors
began implementing the business plan and the current state of
operational development of that plan. We note that although your
provider contracts were signed as early as April 2001 you still have
only limited revenues.
The company has revised this risk factor to clarify when the company
began implementing its current business plan and the current state of
operational development of its plan. The company notes that it has
added additional disclosure under "MD&A - Overview" regarding the
implementation of its current business plan and the current state of
operational development of its plan.
We have a history of losses and ... losses through the remainder of 2005, page 3
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4. We note that you revised the disclosure about being unprofitable in the
near term to losses through the remainder of 2005. Please tell us why
the disclosure changed, such as whether you recently entered into
material contracts.
The company revised the disclosure in this risk factor due to the rapid
growth in members and revenues it is beginning to experience through
its agreements with Trident Marketing International, Inc. and Hispanic
Global LLC. Please note that the company has further revised this risk
factor to state that it currently expects net losses to continue into
the second quarter of 2006. The company notes that it has provided
additional disclosure under "MD&A - Overview" regarding these
agreements and its expectations regarding future losses and
profitability.
Securities and Exchange Commission
November 7, 2005
Page 3
The company notes its response to Comment No. 63 regarding agreements
relating to Trident and Hispanic Global that have been filed as
exhibits to the registration statement.
5. Please add or expand the appropriate risk factor to highlight the
compensation you are obligated to pay to your executives. Also, expand
your MD&A to include the amount you are obligated to pay and the source
of funds for these obligations.
The company has expanded the risk factor now entitled "We have
significant contractual obligations and may need to raise additional
funds in the future, which funds may not be available or, if available,
may not be available on acceptable terms" to highlight its significant
contractual obligations. Please note that the company moved the
disclosure regarding increases in operating expenses from the
immediately preceding risk factor to this risk factor as the company
believes increases in operating expenses are more appropriately
discussed in this risk factor.
The company has added a section entitled "Contractual Obligations" to
its MD&A to discuss its significant contractual obligations and the
source of funds for these obligations.
Our use of independent marketing representatives ... state regulations, page 7
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6. Please clarify whether the bullets in this risk factor relate to you or
the marketing representatives.
The company has clarified in each bullet to whom the particular risk
relates. Please note that the company has replaced the word
"distributor" with "marketing representative" so that the same term is
consistently used throughout the document.
Disclosure Regarding Forward-Looking Statements, page 17
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7. Please revise your disclosure here and throughout the document to
eliminate all references to the cited safe harbor, as it does not apply
to statements made by non-reporting companies.
The company has removed all references in the document to the safe
harbor for forward-looking statements.
Overview, page 18
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8. Please refer to prior comment 5. Please revise the references
throughout the filing to the "leading" and "largest," such as a
"leading national healthcare organization" and "one of the largest and
most comprehensive healthcare savings networks in the United States."
Securities and Exchange Commission
November 7, 2005
Page 4
In the alternative, please provide us with support for the statements.
Also, balance your disclosure concerning affiliations with "some of the
largest ... networks in the country" to describe the lack of
exclusivity in provider contracts.
The company has removed all references to "leading national healthcare
organization" and "one of the largest and most comprehensive healthcare
savings networks in the United States." The company has removed or
toned down other words and phrases throughout the document that may be
deemed overly promotional in nature.
The company has balanced its disclosure regarding the provider networks
with which it has a business relationship by toning down the
description of the networks and by strengthening the risk factor
entitled "we currently rely heavily on a small number of preferred
provider organizations, the loss of any one of which or the change in
our relationship with any one of which could have a material adverse
effect on our business" to highlight the lack of exclusivity in, and
termination provisions of, the provider contracts.
Critical Accounting Policies, page 18
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9. We note that you have revised your critical accounting policies to
include revenue recognition as your only critical policy. In light of
the fact that you utilize stock and stock options as consideration for
services rendered to your company, it appears that stock-based
compensation to employees and consultants would qualify as a
significant accounting estimate. As appropriate for an investor to
better understand the significant estimates and assumptions involved in
the application of GAAP, revise your disclosure to discuss the
significant estimates inherent in valuing stock-based compensation or
tell us why you do not believe this disclosure is necessary. Refer to
the interpretative MD&A guidance in our Release 33-8350.
The company has added disclosure of its stock-based compensation
policies to its critical accounting policies.
Comparison of Years Ended December 31, 2004 and 2003, page 21
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10. We have reviewed your response to prior comment 10. We note that you
are unable to determine the amount of revenues derived in each period
from new members versus recurring revenues from old members because you
do not have sufficient information available to accurately break out
revenues in that manner. However, we note your disclosure that the
number of members is minimal. We also note your disclosures on page 38
that you pay your provider networks the greater of a flat fee or a
monthly rate based on the number of CARExpress members utilizing the
network. Please tell us why you cannot provide this information
requested.
The company has added disclosure to this section regarding the amount
of revenues derived in each period from new members versus recurring
revenues from old members. The company notes that at the time the
Securities and Exchange Commission
November 7, 2005
Page 5
company previously responded to the request, it believed that it did
not have adequate information available to accurately break out
revenues in this manner. Upon reanalyzing its records and files, the
company determined that it could accurately break out revenues in the
manner requested.
11. We have reviewed your response to prior comments 53 and 69 wherein you
stated that you have omitted the disclosure of those shares not issued
for cash from your liquidity and capital resources discussion. Due to
the fact that you issued stock for services, please disclose the amount
of shares and compensation expense recorded for each such issuance in
your results of operations discussion for all periods presented.
The company has added disclosure to this section regarding the number
of shares issued for services and the compensation expense recorded for
such issuances to the extent material to the analysis of the applicable
periods.
General and Administrative Expense, page 22
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12. Please refer to prior comment 9. Your response that commission totaled
$3,065 in the six months in 2005 and none in 2004 is inconsistent with
your prior disclosure that commissions increased by $5,540 comparing 3
months ended 2005 with 2004. Please advise.
The company determined that the prior disclosure that commissions
increased by $5,540 for the 3 months ended March 31, 2005 compared to
the 3 months ended March 31, 2004 was incorrect. The information set
forth in our response that commissions totaled $3,065 for the 6 months
ended 2005 and that the no commissions were paid in 2004 is correct.
The company has not separately discussed commission expenses in general
and administrative expenses because the amounts incurred for each
period were immaterial.
Professional Fees, page 22
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13. Please discuss in greater detail the increase of $395,727. For example,
describe the services provided. Also, expand page 24 to clarify the
reference to the "various business transactions" such as which
transactions.
The company has added disclosure to this section to provide a reference
to other sections of the prospectus where additional information on the
services and the persons performing them can be found. The company
notes that the increase of $395,727 has been revised to $364,639 as a
result of a reclassification of $93,912 from deferred consulting
expense to consulting expense in 2005, which was more than offset by
the addition of $125,000 to professional fees in 2004 that were
incurred in connection with the issuance of 250,000 shares of common
stock in February and March 2004 for services rendered. Please see Note
5 under "Additional Information" below for additional information on
the reclassification of deferred consulting expense.
Securities and Exchange Commission
November 7, 2005
Page 6
The company has clarified the reference to "various business
transactions" as requested.
Liquidity and Capital Resources, page 27
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14. Please clarify how you used the proceeds from your private placements
in 2004 and 2005.
The company has added disclosure to this section describing the uses to
which it put the proceeds from its private placements in 2004 and 2005.
Description of Business, page 31
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15. Please expand the appropriate section to discuss the material terms of
your agreements with consultants.
The company has added disclosure regarding the material terms of the
agreements with its marketing consultants and advisors under
"Description of Business - Marketing Consultants and Advisors."
Healthcare Industry, page 31
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16. Please refer to prior comment 13. Please provide us a copy of the
authoritative source cited in this section. Mark for ease of reference
the portions you believe support your disclosure. Also, provide us with
support of your ability to address the entire market. Also, state your
approximate market share for the operating periods presented. Also
provide support for the references on page 34 to one million providers,
and 70% of doctors and hospitals and 90% of pharmacies.
The company has revised the disclosure in this section to remove
references to certain of the industry data that may be deemed overly
promotional in nature. In connection with these changes, the company
has revised the disclosure under "Health Savings Industry." The company
has retained some of the industry data and is concurrently sending to
the SEC by overnight mail a copy of the authoritative sources cited in
this section marked for ease of reference.
The company has added disclosure to "MD&A - Overview" regarding its
market share for the operating periods presented, and to make clear
that, since the company is not currently large enough to pursue and
support the entire market, the company is pursuing specific
opportunities that it may identify through its various marketing and
distribution channels.
The reference to one million providers refers to the aggregate number
of health care providers (physicians, dentists, hospitals, pharmacies,
etc.) participating in the PPOs and other networks with which we have
contracts, which is based on information provided to the company by the
PPOs and other networks at the time we entered into agreements with
Securities and Exchange Commission
November 7, 2005
Page 7
them as updated by them from time to time. The company has removed the
references to the percentages of doctors, hospitals and pharmacies in
an effort to tone down any disclosure that may be deemed overly
promotional in nature.
Overview, page 33
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17. Please clarify how the "underlying principles," specifically i and ii,
as explained in bullet points 2, 3 and 4, provide benefits to targeted
customers. Please revise to explain why you believe these "principles"
are significant to your business model and the appeal of your product.
The company has clarified in this section how the underlying principles
provide benefits to its target customers and has revised the section to
explain how these principles are significant to its business model and
the appeal of its products.
Our CARExpress Membership Programs, page 34
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18. Please refer to prior comment 15 and your response. As previously
requested, quantify the numbers of members. Otherwise, please disclose
why you are unable to provide such disclosure.
The company has added disclosure to this section regarding the number
of members that it currently has, and has added more comprehensive
disclosure to "MD&A - Overview" regarding the number of members it had
at various benchmark dates and its member retention rates at such
dates. The company notes that at the time the company previously
responded to the request, it believed that it did not have adequate
information available to accurately break out the number of members and
member retention rates and that such information would not be helpful
to the reader given the minimal number of members the company has had
since its inception. Upon reanalyzing its records and files, the
company determined that it could accurately break out the number of
members and member retention rates as requested and that such
information would be helpful to the reader in light of the rapid growth
in members the company is currently experiencing. The company notes
that a discussion of this rapid growth in members has been added under
"MD&A - Overview."
19. Please quantify the amount of your revenues related to each of the six
networks.
The company generates monthly membership fees from the sale of its
CARExpress membership programs. It sells its membership programs
directly through various media and indirectly through: (i) independent
marketing representatives, (ii) brokers and agents, (iii) retail chains
and outlets, (iv) small businesses and trade associations, and (v)
unions and associations. See "Description of Business - Marketing and
Distribution." Please note that the company has added disclosure
regarding the percentage of revenues generated by each of these groups
in "MD&A - Overview" in response to Comment No. 23.
Securities and Exchange Commission
November 7, 2005
Page 8
Under the terms of its agreements with the PPOs or their affiliates,
the company typically pays the PPOs or their affiliates a per member
per month fee for access to their network that is determined based on
the number of healthcare providers (i.e., physicians, dentists, etc.)
participating in the network, the number of CARExpress members provided
access to the network, and the particular products and services made
available to the CARExpress members through the network. Please see
"Description of Business - Suppliers."
While the company is aware of the number of healthcare providers (i.e.,
physicians, dentists, etc.) participating in the networks, the number
of CARExpress members who have been provided access to the networks,
and the type of products and services being made available to the
CARExpress members through the networks, the company has no way of
determining what percentage of the monthly fees it receives from
members are derived from a particular networks.
Members purchase a particular CARExpress membership program for the
purpose of being able to purchase certain healthcare products and
services at a discount. The company is able to monitor which CARExpress
membership program has been purchased by a particular member and the
distribution channel (independent marketing representatives, etc.)
through which the member purchased the CARExpress membership program.
However, the company receives no information from the members, the
distribution channel, the networks or any other source as to whether or
not a member has used its membership card in a particular month, what
products or services the member purchased or which network the provider
of the products or services belonged to. The company simply provides
the members with access to the networks in return for a monthly
membership fee. The company is not in any way involved with the
member's actual purchase of products or services from the providers
participating in the networks, and the company's revenues are not in
any way tied to the number or dollar amount of member purchases of
products or services from providers participating in the networks.
CARExpress Insurance Programs, page 41
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20. Please refer to prior comment 20. Please expand the appropriate
sections, such as regulation and risk factors, to discuss in greater
detail the regulation of insurance products you intend to offer and the
related risks. Also, describe the insurance products you intend to
offer if they differ from the three products on page 42.
The company has added disclosure to "Description of Business -
Regulatory and Legislative Issues - Insurance Regulations" and its risk
factors to discuss in greater detail the regulation of insurance
products the company intends to offer in combination with its
CARExpress membership programs and the related risks. In connection
with this, the company separated out the disclosure relating to the
sale of its CARExpress membership programs from the disclosure relating
to the sale of its CARExpress membership programs in combination with
insurance products in certain of these revised sections for
clarification purposes. The company notes that it has removed the
Securities and Exchange Commission
November 7, 2005
Page 9
references to "CARExpress insurance programs" to ensure that it is
clear that the company does not intend to create and underwrite new
insurance products, but instead to sell its CARExpress membership
programs in combination with third-party insurance products.
The two insurance products described in this section are the insurance
products that the company currently intends to offer in combination
with its CARExpress membership programs.
Sales Channels, page 43
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21. Please refer to prior comment 23. Please identify the principal retail
chains and outlets you have contracted with and state the number of
stores which sell your products. Briefly describe the principal
contract terms, including exclusivity. If you do not have material
contracts in place so state. Provide similar information regarding
unions and associations.
The company has added disclosure under "Description of Business -
Marketing and Distribution" identifying the principal parties with
which it has contracted for each of the five sources discussed. The
company does not have any agreements in place with retail chains and
outlets, and does not have any material agreements in place with unions
and associations, brokers and agents, and small businesses and trade
associations. The company notes the additional disclosure under the
subsection "Independent Marketing Representatives" and "MD&A -
Overview" regarding independent marketing representatives generally and
the company's agreements with Trident Marketing International, Inc. and
Hispanic Global LLC, and, in this regard, notes its response to
Comments No. 24 through 26 and Comment No. 63.
Suppliers, page 45
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22. Please expand upon the lack of exclusivity of the provider contracts to
describe whether it may limit or impact your ability to price and sell
memberships. If applicable, also discuss in the Risk Factors section.
The company has added additional disclosure to this section regarding
the general risk associated with a lack of exclusivity and to the risk
factor entitled "We currently rely heavily on a small number of
preferred provider organizations, the loss of any one of which or the
change in our relationship with any one of which could have a material
adverse effect on our business." Please also see the Company's response
to Comment No. 8 as it relates to exclusivity. The company notes that
it is not customary for PPOs to agree to work exclusively with a single
healthcare savings organization and thus, the lack of exclusivity does
not in and of itself present the company with risks warranting
disclosure that exceeds the disclosure now present in the document.
Securities and Exchange Commission
November 7, 2005
Page 10
Marketing and Distribution, page 47
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23. Please refer to prior comments 3 and 26. Please discuss the amount of
your revenues from each of the five items discussed on pages 47 and 48.
The company has added disclosure regarding the amount of revenues
generated from each of these five sources under "--Revenues" in "MD&A"
for each of the periods discussed. To the extent such information was
provided previously on an aggregate basis for only one or two of the
five sources, such information has been broken out among each of the
five sources, and revised to the extent such aggregate information was
inaccurate. The company now believes such information would be helpful
to the reader given that the company is beginning to experience rapid
growth in the number of its members and sales of its CARExpress
membership programs. In this regard, the company notes the additional
disclosure in "MD&A - Overview."
Independent Marketing Representatives, page 47
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24. Please clarify whether the independent marketing representatives are
individual persons or organizations. If organizations, how many persons
are actively marketing your product?
The company has added disclosure to this section regarding the
independent marketing representatives it utilizes and has clarified the
number and nature of the independent marketing representatives that it
utilizes.
25. Please clarify the disclosure about the representatives, such as who
they are and how they go about selling your products. Please revise to
describe the methods and circumstances the representatives utilize to
identify prospective customers and effectuate sales. Do these persons
sell other products and services? Do they sell competitors' products?
Are they engaged in other unrelated business activities?
The company has revised the disclosure in this section in response to
each of the requests. Please also note the company's disclosure in the
risk factor entitled "Our increasing reliance on marketing
representatives could result in reduced revenue growth because we have
little control over them."
26. Please refer to prior comment 27. Please briefly discuss why there are
five levels of marketing representatives. Also, revise the risk factors
and page 54 to clarify whether the number of such levels may be
affected by the marketing laws and regulations. In addition, clarify
the reference to "override commissions" and quantify the "bonus pools"
and "certain levels of enrollments to receive additional commissions."
The company has revised this section to discuss the five levels of
marketing representatives in greater detail and to clarify the
references to "override commissions," "bonus pools" and enrollment
levels.
Securities and Exchange Commission
November 7, 2005
Page 11
The company has revised the disclosure under "--Marketing Laws and
Regulations" and the risk factor entitled "Our use of independent
marketing representatives could subject us to enforcement actions,
penalties and negative publicity if any such representatives do not
comply with applicable federal and state regulations" to clarify the
effect marketing laws and regulations may have on the number of such
levels.
Customer Service Training and Support, page 49
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27. Please refer to prior comment 30. Please expand the first sentence of
the carryover paragraph at the bottom of page 49 to quantify the
significant investment.
The company has revised the paragraph to clarify that it intends to
continue to invest in customer service.
Insurance Regulation, page 52
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28. Please refer to prior comment 34. Please clarify, if applicable,
whether states have enacted legislation that may affect the manner in
which you sell your products.
The company has clarified the disclosure in this section as requested.
Marketing Laws and Regulation, page 54
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29. Please refer to prior comment 35. Please discuss in greater detail the
regulations that affect your business, such as limits on royalties. In
addition, clarify the phrase "directly sponsored." Also, tell us why
you deleted the second paragraph of this section, such as your review
of the requirements and your belief about compliance.
The company has revised this section to discuss in greater detail these
regulations, to change the term "royalties" to "commissions" so that
the same term is referenced throughout the entire document, and to
clarify that the phrase "directly sponsored" relates to the process by
which marketing representatives may recruit other marketing
representatives to sell the company's programs. In this regard, the
company notes the additional disclosure provided under "Marketing and
Distribution - Independent Marketing Representatives."
The company notes that the company is not a network marketing
organization and that the company does not employ, and does not intend
to employ, any marketing representatives. The company removed the
second paragraph of this section in connection with other changes it
has made to the document in both Amendment No. 1 and Amendment No. 2 to
the registration statement to clarify the manner in which it utilizes
the services of marketing representatives. The company notes that,
since it is not a network marketing organization and does not employ
marketing representatives, the disclosure regarding the regulations and
risks associated with marketing representatives is included primarily
to highlight the indirect risks to the company of utilizing the
Securities and Exchange Commission
November 7, 2005
Page 12
services of marketing representatives and the indirect affect legal
regulation of such representatives could have on the company, as
opposed to the direct risks associated with being a network marketing
organization or employing marketing representatives.
Health Insurance Portability and Accountability Act, page 54
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30. Please refer to prior comment 36. Please revise the next to last
sentence of this section to describe the effect to the extent
practical. Also, we note the disclosure that the regulations are new
conflicts with the disclosure that the Act became effective in 2003.
Please revise.
The company has revised the next to last sentence of this section to
describe the effect these regulations may have on the company and to
remove any statements that the regulations are new.
Management, page 57
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31. Please refer to prior comments 2 and 40. Please clarify the
relationship, if any, between, XRAYMEDIA and you.
No relationship exists between the company and XRAYMEDIA. The joint
venture between the company and XRAYMEDIA cited in the press release
referenced in previous Comment No. 2 was terminated by the company in
April 2004.
32. Please file as exhibits the employment agreements with Mr. Soufflas and
Mr. Taylor. Also, discuss the business experience of Mr. Soufflas from
October 2002 until April 2004.
The company notes that it has not entered into written employment
agreements with Mr. Soufflas and Mr. Taylor. Instead, the company has
entered into unwritten employment arrangements with Mr. Soufflas and
Mr. Taylor. The company has filed summaries of the material terms of
the employment arrangements with Mr. Soufflas and Mr. Taylor as
Exhibits 10.20 and 10.21, respectively, to the registration statement.
The stock options issued to Mr. Soufflas and Mr. Taylor that are
referenced in these summaries were previously filed as Exhibits 10.18
and 10.19 to Amendment No. 1 to the Registration Statement on Form
SB-2.
Please note that company has corrected a typographical error in Mr.
Soufflas' biographical information regarding Mr. Soufflas' employment
at Spector Gadon & Rosen, P.C., which now correctly states that Mr.
Soufflas was employed at Spector Gadon & Rosen, P.C. between April 2003
and May 2004, rather than between April 2004 and May 2005. Mr. Soufflas
was not employed between October 2002 and April 2003.
Securities and Exchange Commission
November 7, 2005
Page 13
Board of Directors, page 58
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33. Please revise this section to clarify that you only have one director.
Also, tell us why the other two directors recently resigned.
The company has revised this section to clarify that it has only one
director.
Ronald F. Westman and Jay Rosen, the company's other two directors,
recently resigned because the company does not have a directors and
officers insurance policy in place. The company evaluated obtaining
such an insurance policy, but decided not to obtain one due to the cost
involved. Mr. Westman and Mr. Rosen did not want to serve as members of
the board of directors without such a policy in place.
Summary Compensation Table, page 60
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34. Please refer to prior comment 12. Please revise the table to include
the $874,125 paid to Mr. Daniels in 2004.
The company has revised the table as requested.
35. Please revise footnote 3 to describe in greater detail the compensation
in the "All Other Compensation" column. See Instruction 1 to Item
402(b) (2)(iii)(C) of Regulation S-B.
The company has revised footnote 3 to describe in greater detail the
compensation in the "Other Annual Compensation" column. The company has
also added a column entitled "Bonus ($)" to the compensation table to
more appropriately present the bonus paid to David M. Daniels in 2004.
Security Ownership of Certain Beneficial Owners and Management, page 65
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36. Please update the disclosure in this section.
The Company has updated the disclosure in this section.
Certain Relationships and Related Transactions, page 66
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37. Please provide the disclosure required by Item 404 of Regulation S-B.
For example, we note the transactions with Mr. Westman in September
2005. As another example, expand the disclosure on page 66 to discuss,
if applicable, the agreement with your former officer. We note the
disclosure on pages 65 and F-40.
The company has added disclosure to this section regarding the
transactions with Mr. Westman in September 2005.
Securities and Exchange Commission
November 7, 2005
Page 14
The company entered into a consulting agreement with R. Dennis Bowers,
our former President and Chief Executive Officer, on October 5, 2005.
The company has provided disclosure in this section regarding the terms
of the consulting agreement and has filed a copy of the consulting
agreement as Exhibit 10.34 to the registration statement.
The company has also added disclosure to this section regarding the
consulting agreement that it entered into with Jose Lozano in May 2005
and has filed a copy of the consulting agreement as Exhibit 10.32 to
the registration statement.
38. Please disclose whether the terms of the transactions discussed in this
section are as fair to you as could have been made with unaffiliated
parties.
The company believes that the terms of the transactions discussed in
this section are as fair to the company as could have been made with
unaffiliated parties. The 600,000 units sold to Ronald F. Westman were
sold to him at a price per share of common stock of $.40 (based on
1,800,000 shares of common stock underlying the units at a purchase
price of $720,000), which is the same price the company was receiving
for shares of its common stock sold in the private offerings conducted
immediately prior to and after the date of the transaction with Mr.
Westman. The rent per square foot that the company pays for the office
space in Sarasota, Florida is the same price per square foot that all
other tenants in the building pay for office space in the building. The
company believes that the compensation being paid to Mr. Bowers under
the consulting agreement approximates the fair value of the services to
be performed by Mr. Bowers during the term of the agreement.
The Offering, page 73
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39. The number of shares registered for resale in the first full paragraph
on page 76 conflicts with first sentence and the 50% reference in the
carryover paragraph at the bottom of page 75. We note similar
discrepancies regarding the number of shares registered for resale in
the June 2005 offerings. Please revise. Also, clarify whether there is
any penalty related to registering for resale only 650,000 shares.
The company has added disclosure under "April 2005 Sale of Common
Stock, Class A Warrants and Class B Warrants to Ronald F. Westman" to
clarify that Mr. Westman requested that only 650,000 shares of the
common stock that he purchased in this transaction be registered. The
company has also added disclosure under "June 2005 Offering of Common
Stock, Class A Warrants and Class B Warrants" to clarify that Mr.
Westman purchased 20,000 units in this offering and requested that none
of the shares of common stock subject to registration rights be
registered. The company has added disclosure under "June 2005 Sale of
Common Stock, Class A Warrants, Class B Warrants and Class C Warrants
to Consultants" to clarify that certain of the consultants requested
that we not register certain of the shares of common stock subject to
registration rights. The company has also added disclosure in each of
these sections to clarify that the company will not incur any penalty
in connection with Mr. Westman's and the consultants' requests.
Securities and Exchange Commission
November 7, 2005
Page 15
40. Please refer to prior comment 73. Please expand the disclosure on pages
75 and 76 to discuss the cash payment on September 16, 2005.
The company has added disclosure under "April 2005 Sale of Common
Stock, Class A Warrants and Class B Warrants to Ronald F. Westman" to
discuss the cash payment on September 16, 2005.
41. Please expand the last paragraph on page 77 to describe the "consulting
services to be rendered." Also, quantify the value of the services.
The company has added disclosure to this paragraph discussing where in
the document information can be found concerning the consulting
services to be rendered and the value of the services.
Determination of Offering Price, page 78
- ----------------------------------------
42. Please discuss the all material factors that you considered in
determining the initial public offering price. For example, we note the
reference to "several factors, but not limited to the following" and
the transactions on pages 73-78.
The company revised the disclosure in this section to describe all of
the material factors considered by the company in determining the
initial public offering price.
Selling Security Holders, page 79
- ---------------------------------
43. Please refer to prior comment 48. Please confirm that you have already
issued the options and warrants and are registering for resale the
related common shares. Also, tell us why you are registering for resale
shares at this time that may not be issued, such as the shares related
to Trident.
The company has already issued the options and warrants and is
registering for resale the related common shares. The company has
revised the disclosure in this section to clarify this fact.
The company issued the option to Trident on June 24, 2005. Under the
terms of the option, the company contractually obligated itself to file
a registration statement with the SEC for all of the underlying shares
within 6 months of the date of the option and to cause the registration
statement to be declared effective as soon as reasonably practicable
thereafter. The vesting of the option is conditioned upon the
achievement of certain performance objectives. At this time, the
company believes that it is very likely that Trident will achieve at
least one of the performance objectives and that, as a result, at least
some of the shares underlying the option will vest. Since the company
Securities and Exchange Commission
November 7, 2005
Page 16
contractually obligated itself to register all of the shares underlying
the option and it is still possible, though unlikely, for the option to
vest as to all 400,000 shares on December 31, 2005 if one of the
performance objectives is achieved, the company has registered all
400,000 shares underlying the option so that it will not be in breach
of the terms of the option in the event the option does vest as to all
400,000 shares.
The terms of the option are summarized under "The Offering - June 2005
Issuance of Option to Trident Marketing International, Inc." and "Item
26. Recent Sales of Unregistered Securities," and a copy of the option
has been filed as Exhibit 10.30 to the registration statement.
44. Please refer to prior comment 49. Please disclose, if true, that the
affiliates purchased in the ordinary course of business, and at the
time of the purchase of the securities to be resold, the sellers had no
agreements or understandings, directly or indirectly, with any person
to distribute the securities. Also, revise the disclosure to clarify
that the broker-dealer is an underwriter.
The company has added the requested disclosure to this section
regarding the purchases by affiliates and made the requested revisions
to this section to clarify that the broker-dealer is an underwriter.
Annual Financial Statements, page F-1
- -------------------------------------
Consolidated Statements of Stockholders' Equity, page F-5
- ---------------------------------------------------------
45. We have reviewed your response to prior comment 62. Revise your
statements of stockholders' equity to separately present the issuance
of 1,748,250 shares of common stock to your CEO, as it does not appear
that the stock was issued for services, but rather as a sign-on bonus.
Furthermore, since the CEO is an employee of the company, revise the
consolidated statements of operations to present the expense associated
with this stock signing bonus as salary expense rather than
professional fees and revise Note 7 and your MD&A discussion
accordingly.
The company has revised the statements of stockholders' equity in its
audited financial statements and has revised the consolidated
statements of operations in both its audited financial statements and
its interim financial statements as requested. The company has also
revised Note 7 to its audited financial statements and its MD&A
accordingly.
Note 1. Nature of Organization, page F-8
- ----------------------------------------
a. Organization and Business Activities, page F-8
- -------------------------------------------------
46. We have reviewed your disclosure in response to prior comment 54. The
disclosure does not appear to address our prior comment. Please explain
to us in more detail the structure of your relationship with marketing
representatives. Tell us the nature and significant terms of these
Securities and Exchange Commission
November 7, 2005
Page 17
relationships and any related agreements. Discuss whether or not these
representatives must pay you initial or ongoing fees as a result of
their relationship to you.
The company has revised Note 1a to describe its relationship with
marketing representatives in greater detail.
47. Please note that the information concerning your organization and
business activities is included in an audited footnote to the financial
statements. The current disclosure appears to contain some information
that is more appropriately presented in the description of your
business (see page 31) and not the footnotes to your financial
statements. Please revise or advise.
The company has revised Note 1a. to remove much of the general
information relating to the company and its business activities. The
company notes that it has added disclosure regarding its relationship
with marketing representatives in response to Comment No. 46. In that
connection, the company has retained some of the information regarding
its business activities to clarify that marketing representatives are
only one of several distribution channels through which the company
markets and sells its programs. The company also notes that it has
retained the paragraph describing the material terms of its provider
agreements in response to prior Comment No. 58.
g. Revenue Recognition, page F-11
- ----------------------------------
48. We have reviewed your response to prior comment 56. Please tell us the
journal entries that you record when a customer's account is debited,
resulting in deferred revenue, as previously requested. We note no
accounts receivable.
The company has revised Note 1g. of the audited financial statements
and Note 1b. of the interim financial statements to describe the
journal entries.
49. We note that your cost of sales includes depreciation and amortization
costs. Please tell us and revise to disclose the assets to which these
charges are linked and how those assets contribute to the generation of
revenue.
The company has revised Note 1g. of the audited financial statements
and Note 1b. of the interim financial statements to disclose the assets
and how the assets contribute to the generation of revenue.
50. We note your disclosure, "these fees are typically pre-billed and
received, resulting in deferred revenue." Tell us and revise to
disclose the nature of the transaction in a more detailed manner, so
that it is apparent how the transaction is accounted for. For example,
if you bill the membership fees to the customer at the beginning of the
month through a debit to the account and then recognize the revenue at
the end of the month after the services have been rendered, please
state that fact. Tell us and revise to disclose the typical period from
when the account is debited to when cash is received.
Securities and Exchange Commission
November 7, 2005
Page 18
The company has revised Note 1g. of the audited financial statements
and Note 1b. of the interim financial statements to better describe the
transactions and the method by which the transactions are accounted
for, as well as the typical period from when the account is debited to
when cash is received.
51. We have reviewed your response to prior comment 57. You state that you
revised Note 1g. of the audited financial statements in response to our
comment. Please tell us where you have addressed our comment in Note
1g.
The company has further revised Note 1g. of the audited financial
statements to discuss the refund guarantees that it offered during
2004, and has further revised Note 1b. to the interim financial
statements to discuss the refund guarantees and free-trial periods that
it offered during the first 6 months of 2005. The company notes that
the early cancellation privileges simply relate to a member's ability
to cancel a membership for any subsequent monthly period without
penalty. These cancellation rights are discussed in Note 1g. of the
audited financial statements and Note 1b. of the interim financial
statements. For clarification purposes, the company has amended its
disclosure under "Description of Business - Marketing and Distribution"
to remove the reference to early cancellation privileges.
The company has relied upon the revenue recognition requirements of SAB
101 and has reviewed SAB Topic 13.A. The company does not recognize
revenue until all fees are fixed and determinable, meaning that during
a period of time when a customer may cancel, no revenue is recognized.
52. We note your disclosure on page 18 that any fees that you receive in
connection with the sale of your membership programs that are
non-refundable are recognized when received. We note your disclosure
here and on page 18 that you recognize fees and revenue when services
have been rendered. Please reconcile your disclosures and cite the
accounting literature upon which you have relied to recognize revenue
when payment is received up front.
The company has revised Note 1g. of the audited financial statements
and Note 1b. of the interim financial statements to better describe the
manner in which it recognizes revenue from the sale of its membership
programs. The company has revised the disclosure under "MD&A - Critical
Accounting Policies - Revenue Recognition," to better describe the
manner in which it recognizes revenues and to clarify the manner by
which it accounts for non-refundable fees, which consist of one-time
shipping and handling fees. The company notes that it did not begin
receiving non-refundable one-time shipping and handling fees until
after June 30, 2005.
As noted in the company's response to Comment No. 51, the company has
relied upon the revenue recognition requirements of SAB 101. The
company does not recognize revenue until all fees are fixed and
determinable, meaning that during a period of time when a customer may
cancel, no revenue is recognized
Securities and Exchange Commission
November 7, 2005
Page 19
Note 7. Equity Transactions, page F-17
- --------------------------------------
53. We have reviewed your response to prior comments 64 and 75. We note
that you have determined that the warrants issued in your private
placements of stock have no value based on the reasons provided, and
are not subject to the requirements of EITF 00-19 since they were
issued as part of units of stock and warrants. Please tell us how these
warrants differ from the warrants granted to consultants for services
rendered in the second quarter of 2005 as disclosed in Note 4 of your
interim financial statements, to which you have assigned value. Please
tell us how you have applied the guidance in EITF 96-18 in accounting
for the shares and warrants issued to consultants in the second quarter
of 2005.
The company notes that the warrants granted as part of the private
placement units were not granted to any person who provided any
services or any other consideration of any type other than cash. EITF
96-18 which is applicable to equity instruments that are issued to
other than employees for acquiring, or in conjunction with selling,
goods or services is the basis for the warrants granted to consultants
for services provided or to be provided. The company notes that EITF
96-18 requires that the company should measure the fair value of the
equity instruments using the stock price and other measurement
assumptions as of the earlier of either of the following: 1. The date
at which a commitment for performance by the counterparty to earn the
equity instruments is reached (a performance commitment); or 2. the
date at which the performance is complete. The company notes that there
is a benefit to the company for the services that the consultants will
be performing and that the value of that benefit should be measured
somehow. As the staff knows, it is inherently difficult to estimate
volatility and other factors associated with nonpublic companies. For
example, the company refers to SFAS 123 paragraph 20 which indicates
that a nonpublic entity shall estimate the value of its options based
on the factors described in the preceding paragraph, except that a
nonpublic entity need not consider the expected volatility of its stock
over the expected life of the option. The result of excluding
volatility in estimating an option's value is an amount commonly termed
minimum value. The company has tried to best reflect the fair values of
the various instruments and the values of the services to be received.
The company did not believe that valuing the warrants granted to the
consultants for services at nominal or minimum values best reflected
the value of the services received so it has valued the warrants issued
for services with a high volatility which kicks out a full fair value
for the value of the warrants. Conversely, the warrants issued as part
of the units to individuals which provided no services with exercise
prices at $1.00 per warrant and $2.00 per warrant were deemed to not
have any value because they are out of the money, not free trading and
not likely to be exercised. The company understands that it could use
the same methodology for valuing the warrants associated with the units
and then segregate the value of the warrants at their fair values,
however that would result in no value being available for the common
shares. Paragraph 13 of EITF 00-21 indicates that any separate unit of
accounting which is required to be recorded at fair value under GAAP
should be recorded at fair value with the remainder of the arrangement
consideration allocated to the other units of accounting in accordance
with paragraph 12 of EITF 00-21. The company believes that it would be
Securities and Exchange Commission
November 7, 2005
Page 20
inappropriate to present a fair value of the warrants and then not a
fair value of the shares of common stock as there would not be any
residual fair value to allocate to the shares of common stock.
Accordingly, the company believes that the best presentation for
investors is to show units sold for cash with no allocation of the
proceeds to either the individual warrants or the shares of common
stock.
54. Please refer to prior comment 64. Your response stated that SFAS 133 is
not applicable to the unit sales but did not provide your analysis why.
As such, please provide us with your analysis showing why you believe
the warrants are properly classified in equity and not as a liability.
That is, please address your consideration of paragraphs 12-32 of EITF
00-19.
The company believes that the units, including the warrants, are
properly classified as equity. The company considered paragraphs 12-32
of EITF 00-19 in making its determination. Specifically, the Company
can settle the warrants in unregistered shares. The Company is required
to use its "reasonable best efforts" to register 50% of the shares of
common stock underlying the warrants that comprise the units. However,
there is no penalty if the shares of common stock underlying the
warrants are not registered.
Interim Financial Statements
- ----------------------------
Consolidated Statements of Stockholders' Equity, page F-25
- ----------------------------------------------------------
55. Revise this statement for the stock signing bonus issued to your CEO as
indicated in our comment on your annual financial statements above and
revise to disclose that the "common stock issued for stock swap" was
issued to a related party or refer to the Note where the related party
is disclosed.
The company notes that the stock signing bonus was issued to its chief
executive officer in February 2004. The company has revised its
financial statements for the 6 months ended June 30, 2004 to reflect
the stock signing bonus as salary expense and to reflect an additional
$125,000 in professional fees incurred in connection with the issuance
of 250,000 shares of common stock issued for services in February and
March 2004. The company notes its response to Comment No. 45.
The company has revised the consolidated statement of stockholders'
equity in its interim financial statements to reflect that the "common
stock issued for stock swap" was issued to a related party.
Consolidated Statements of Cash Flows, page F-26
- ------------------------------------------------
56. We have reviewed your response to prior comment 68. Revise your
statements of cash flows and MD&A discussion to present the investment
in certificate of deposit as an investing activity in accordance with
SFAS 95.
Securities and Exchange Commission
November 7, 2005
Page 21
The company has revised its statement of cash flows and MD&A to present
the investment in the certificate of deposit as an investing activity
in accordance with SFAS 95.
Note 4. Commitments and Contingencies, page F-28
- ------------------------------------------------
57. Revise the column header "Accumulated Amortization" in the tables
reflecting the stock and warrants issued to consultants to "Consulting
Expense Recorded in the Six Months Ended June 30, 2005" or similar
caption in order to better present the information to investors.
The company has revised the header in the tables in this section as
requested.
Note 5. Equity Transactions, page F-32
- --------------------------------------
58. We have reviewed your response to prior comment 70. We have the
following comments related to your March 2005 issuance 737,750 shares
of common stock to previous shareholders:
- Revise your disclosure in the Note be consistent with your disclosure
on page II-4. The disclosure in the notes to the financial statements
states that the shares were issued to previous investors in
consideration for the investors agreeing to amendments to their
offering document, whereas the disclosure on page II-4 explicitly
states that the shares were issued in exchange for each person agreeing
to an extension of the registration date.
- Tell us the purpose of the amendment to the private placement
agreement. We note that you issued an amount of shares to reduce the
per share price of stock issued to $0.40 per share and accounted for
the issuance as a reduction in paid-in capital. However, we note your
disclosure on page II-4 that the amendment was entered into in exchange
for each person agreeing to an extension of the registration date,
which may suggest that the shares were issued as a penalty for
non-timely registration of the shares.
- Please file the private placement amendment as an exhibit to your
amended Form SB-2.
The company has revised the disclosure in Note 5 relating to the
issuance of the 737,750 shares of common stock as requested. The
company notes that the additional shares were not issued as a penalty
for non-timely registration of the shares as the securities purchase
agreements did not contain any penalty provisions. The company notes
that it has also clarified the disclosure appearing under "The
Offering" and "Item 26. Recent Sales of Unregistered Securities."
The purpose of the amendment was to extend the date by which the
company would use its reasonable best efforts to file a registration
statement with the SEC and to obtain a release from the shareholders
from any liability for any possible breach of the securities purchase
Securities and Exchange Commission
November 7, 2005
Page 22
agreements arising out of the company's previous filing obligation to
use its reasonable best efforts to file a registration statement with
the SEC within two months of the date the private placements were
terminated. The company has revised its interim financial statements
and MD&A to reflect additional general and administrative expense in
the amount of $295,100 associated with the issuance of the additional
737,750 shares at an ascribed value of $.40 per share because of the
additional consideration received by the company from the shareholders
in the form of the releases described above. The company notes that the
ascribed value of $.40 per share is the same price the company was
receiving for shares of its common stock in the private offerings
conducted immediately prior to and after the issuance of the 737,750
shares.
The company has filed a Form of First Amendment to Securities Purchase
Agreement and Release as Exhibit 10.24 to the registration statement.
59. We have reviewed your response to prior comments 72 and 74. Revise your
disclosure in this Note to quantify the number of warrants issued in
exchange for the shares of Infinium Labs' stock and revise to clarify
that the shares and warrants issued "to an investor" were in fact
issued to Ronald F. Westman, a related party, as that term is described
in SFAS 57, as you have disclosed on page 55.
The company has revised the disclosure in this Note as requested.
Note 6. Stock Options, page F-35
- --------------------------------
60. We have reviewed your response to prior comment 66. Please revise the
notes to your interim financial statements to present the pro forma
stock-based compensation in Note I as previously requested.
The company has revised its interim financial statements to move the
pro forma stock-based compensation disclosure from Note 6 to Note 1.
The disclosure is now set forth under Note 1c.
61. We note that you entered into an agreement on June 24, 2005 with
Trident Marketing International, Inc. whereby Trident has the
opportunity to earn options to purchase up to 400,000 shares of common
stock at $0.50 per share. Based on the information disclosed in this
Note, it does not appear that the options have been granted, i.e., the
options will be granted based on the achievement of milestones as
disclosed. Therefore, your disclosure "the rights to exercise are as
follows:" appears to be inaccurate. Revise this language to read "the
options will be granted as follows:" or a similar disclosure or tell us
why the current presentation is appropriate. Options that are not
granted cannot be exercised. Additionally, please reconcile your
disclosure here with the disclosure on page II-7 which states that the
options have been issued.
The company issued the option to Trident on June 24, 2005. The company
has revised the disclosure in Note 6 to more accurately describe the
transaction.
Securities and Exchange Commission
November 7, 2005
Page 23
62. Please tell us how you are accounting for the stock options pursuant to
the Marketing Incentive Plan and cite the accounting literature upon
which you relied.
The Company relied on EITF 96-18 to account for the stock option issued
pursuant to the Marketing Incentive Plan. The plan provides no penalty
if Trident fails to achieve the net monthly revenue targets at the
various milestone measurement dates. As a result, there is not a
"sufficiently large disincentive for nonperformance" as discussed in
EITF 96-18 and therefore, no performance commitment existed when the
option was granted. The option will be measured at the then current
value at December 31, 2005, the final milestone measurement date.
The first milestone measurement date was September 30, 2005. Trident
did not meet either of the net monthly revenue targets specified in the
option at this date. The next and final milestone measurement date is
December 31, 2005. While the company currently believes that Trident
will meet one of the net monthly revenue targets at December 31, 2005,
the company is unable to determine how many, if any, of the net monthly
revenue targets Trident will meet. Accordingly, no value was ascribed
to the 400,000 shares of common stock underlying the option for the 6
months ended June 30, 2005.
Exhibits
- --------
63. Please refer to prior comment 79. As previously requested, please fill
the material contracts. For example, file as exhibits the warrant
agreements and the June 2005 option agreement issued to Trident
Marketing International as exhibits. Also, file the Marketing Incentive
Plan agreement with Trident. As other examples we note several
consulting agreements were entered into in connection with the June
2005 issuance of common stock and warrants in exchange for services
provided or to be provided.
The company has filed the following documents as exhibits to the
registration statement:
(i) summaries of the terms of the company's employment arrangements
with Alex Soufflas and David A. Taylor as Exhibits 10.20 and 10.21,
respectively, in response to Comment No. 32;
(ii) a form of the Class A warrants and Class B warrants issued by the
company to the shareholders participating in its private offerings as
Exhibits 10.22 and 10.23, respectively;
(iii) a form of the amendment and release entered into by the company
and each of the shareholders participating in the August 2004 Offering
and September 2004 Offering as Exhibit 10.24 in response to Comment No.
58;
(iv) a form of the Class A warrants, Class B warrants and Class C
warrants issued by the company to consultants and advisors in June 2005
as Exhibits 10.25, 10.26 and 10.27, respectively;
Securities and Exchange Commission
November 7, 2005
Page 24
(v) the broker agreement and marketing incentive plan entered into by
the company and Trident and the option issued to Trident as Exhibits
10.28, 10.29 and 10.30, respectively;
(vi) the broker agreement entered into by the company and Hispanic
Global, LLC as Exhibit 10.31;
(vii) the consulting agreements entered into by the company and each of
Jose Lozano and El CID IV relating to certain of the securities issued
to consultants in June 2005 as Exhibits 10.32 and 10.33, respectively;
and
(viii) the consulting agreement entered into by the company and R.
Dennis Bowers in October 2005 as Exhibit 10.34.
The company notes that it believes the agreements with Trident and
Hispanic Global are now material contracts for the company in light of
the substantial increase in members and revenues each of these
companies is generating for the company. As a result, the company has
filed all of the agreements as exhibits to the registration statement.
The company notes the disclosure regarding Trident and Hispanic Global
that it has added to "MD&A - Overview."
The company also notes that, upon re-evaluating the agreements it
entered into with its consultants and advisors, the consulting
agreements with Jose Lozano and El CID IV may be deemed material
contracts for the company and has thus filed each of these agreements
as exhibits to the registration statement. The company notes its
response to previous Comment No. 78.
Additional Information
- ----------------------
Please note that the following additional changes are reflected in
Amendment No. 2 to the Registration Statement on Form SB-2:
1. Under "The Offering" and "Item 26. Recent Sales of Unregistered Securities,"
the company revised the description of several of the offerings to clarify the
various dates by which the company was obligated to file a registration
statement with the SEC and to clarify that the nature of the company's
obligation with respect to the registration rights granted was to use its
reasonable best efforts to file a registration statement.
2. The company has revised the last paragraph under "Liquidity and Capital
Resources" to state that it believes that its current cash resources will not be
sufficient to sustain its current operations for the next twelve (12) months and
that it will need to raise additional capital for the payment of its ongoing
costs and expenses as they are incurred and the growth of its business. The
company expects cash flows from sales of its programs through Trident and
Hispanic Global to turn positive as the recurring membership fees from its
increasing membership base exceed the costs associated with the new members it
is generating. As a result, the company expects net losses from operations to
begin to decrease during the current quarter and expects to begin generating net
profits from operations during the second quarter of 2006.
Securities and Exchange Commission
November 7, 2005
Page 25
3. The company removed the last sentence of the risk factor entitled "We intend
to attempt to raise additional funds in the future, and such additional funding
may be dilutive to stockholders or impose operational restrictions" since the
company has not issued any warrants that contain provisions providing for a
downward adjustment in the exercise price.
4. The company has revised the first two paragraphs appearing under "Note 7 -
Equity Transactions - Private Placements" of the audited financial statements
for the years ended December 31, 2004 and 2003 to clarify the language contained
in the paragraphs.
5. The company revised "Note 4 - Commitments and Contingencies - Consulting
Agreements" of its interim financial statements to combine the two entries for
Park Financial into one entry in each of the three tables and to reclassify
deferred consulting expense for the Class A and Class B warrants to consulting
expense since Park Financial performed all of its services in full prior to June
30, 2005.
* * * * *
The company believes that it has adequately responded to the SEC's
comments. Please feel free to contact me by phone at (215) 682-7114 ext. 102 or
by fax at (215) 682-7116 if you have any questions regarding this letter or if
you have any additional comments.
Very truly yours,
/s/ Alex Soufflas
Alex Soufflas
cc: Thomas A. Jones
Thomas Dyer
Kate Tillan