[LETTERHEAD OF NATIONAL HEALTH PARTNERS, INC.]
December 9, 2005
VIA EDGAR AND OVERNIGHT MAIL
============================
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. 2 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. 2 to the Registration Statement on Form SB-2,
Registration No. 333 - 126315, filed by the company with the Securities and
Exchange Commission on November 7, 2005. The company received comments to the
registration statement from the SEC by means of a letter faxed to the company on
November 23, 2005.
Please find enclosed Amendment No. 3 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. 3 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. The company received comments to the
application from the SEC by means of a letter faxed to the company on November
15, 2005. The company has concurrently submitted a revised application for
confidential treatment to the Office of the Secretary for the information
contained in these exhibits and, in connection therewith, has filed a revised
version of Exhibit 10.11 in response to the SEC's comments.
Securities and Exchange Commission
December 9, 2005
Page 2
We have significant contractual obligations ... page 4
1. We note at page 38 that you do not expect currently available cash
resources to meet the company's needs over the next 12 months, and that
you "have not made any arrangements" for raising new capital.
o Please add a new risk factor or revise this risk factor to
describe these liquidity risks.
o Please revise the caption and discussion to reflect that you
will need to raise additional capital in the near term.
The company has revised this risk factor to describe these liquidity
risks, and has revised the caption and discussion to reflect that it
will need to raise additional capital in the near term.
2. The disclosure on page 4 about employment agreements with Messrs.
Soufflas and Taylor conflicts with the disclosure on page 15.
The company has revised the disclosure in this risk factor to clarify
that, while Mr. Soufflas and Mr. Taylor are employed as executive
officers of the company, they are not parties to written employment
agreements with the company.
We have a history of losses and ... losses through the second quarter of 2006,
page 4
3. Please refer to prior comment 4. Briefly discuss the basis for your
statement of expected profitability in the second quarter of 2006. In
this regard, we note disclosure elsewhere you expect substantially
increased operating costs. We also note uncertainties regarding future
sales levels and member retention rates. Do you have a membership level
for expected break-even net income?
The company has added disclosure regarding its statement of expected
profitability in the second quarter of 2006. The company has also added
additional disclosure regarding profitability and the projected
membership level necessary for break-even net income under "Outlook" of
its MD&A.
The company notes that it has revised the document to reflect that
while the company currently expects operating costs to increase over
the next 12 months, it does not expect them to increase "substantially"
from current levels. This revision is the result of the company's
reevaluation on the date of filing of what it expects its future
operating expenses to be in comparison to what they were on the date of
filing, rather than the result of in a change in forecast by the
company regarding its future operating expenditures.
Securities and Exchange Commission
December 9, 2005
Page 3
Critical Accounting Policies, page 18
4. We have reviewed your response to prior comment 9 and note that you
have revised your critical accounting policies to disclose how you
account for stock-based compensation. Revise further to indicate why
you believe this is a critical accounting policy/estimate.
Specifically, revise to discuss the assumptions inherent in estimating
the fair value of stock-based compensation and disclose the
methodology/model that you use to determine fair value of stock options
and warrants. Please refer to Question 5 of SAB Topic 14.D.1.
The company has revised the critical accounting policy relating to
stock-based compensation as requested.
Recent Developments, page 23
5. Please discuss briefly the price level of memberships currently in
force. For example, using your figures of 2,500 members at November 1,
2005 and revenues estimated at $39,500 for October 2005, it appears the
approximate revenue per member for that month is $15.80. Also, how is
this figure affected by free trial periods?
The company has added disclosure describing the price level of
memberships currently in force, the manner by which this level is
affected by free trial periods, and the method by which membership fees
are recognized as revenue under "Operational Metrics" in its MD&A.
6. Please discuss briefly your success ratio of converting free trial
memberships to paying memberships. Briefly discuss at what point in the
process you obtain billing information.
The company has added disclosure of the requested information under
"Operational Metrics" in its MD&A.
7. Please revise to discuss the contribution of revenues from your sales
channels, other than independent marketing representatives, during the
same periods.
The company has revised the first paragraph of this section to discuss
the contribution of revenues from its other sales channels during the
same periods as requested. The company notes its more detailed
discussion of the contribution of revenues from its sales channels
provided under "Comparison of Nine-Month Periods Ended September 30,
2005 and 2004 - Revenues" in its MD&A.
Operational Metrics, page 24
8. Please revise the first paragraph to clarify how many months' revenues
are offset by commissions and other costs of obtaining a new member.
The company has revised the first paragraph of this section as
requested.
Securities and Exchange Commission
December 9, 2005
Page 4
Contractual Obligations, page 39
9. We note that you have provided a table of contractual obligations as of
June 30, 2005. While Item 303 of Regulation S-B does not require you to
present this information, if you do elect to provide a table of
contractual obligations, it should comply in all significant respects
with the requirements of Item 303(a)(5) of Regulation S-K.
The company has revised its interim financial statements to reflect
that its notes payable are all current liabilities of the company since
they are due within the next 6 months. As a result, the company
believes that the table of contractual obligations complies in all
significant respects with the requirements of Item 303(a)(5) of
Regulation S-K. The company notes that it has added disclosure
regarding its indebtedness to third parties under "Liquidity and
Capital Resources" in its MD&A and under the risk factor now entitled
"We will need to raise additional funds in the future to cover our
long-term contractual obligations, notes payable and operating
expenses, which funds may not be available or, if available, may not be
available on acceptable terms."
Our CARExpress Healthcare Solution, page 43
Overview, page 43
10. Please refer to prior comment 17. As previously requested, please
clarify how the "principles" stated in the first sentence of
subparagraphs i and ii, and the second clause of iii are addressed by
your product.
The company has further revised this section to clarify how these
principles are addressed by the company's products.
Sales Channels, page 51
11. Please refer to prior comment 21. Please revise this section to
describe the current extent and status of your utilization of the sales
channels discussed.
The company has revised this section to describe the current extent and
status of its utilization of the sales channels discussed.
Suppliers, page 52
12. Refer to prior comment 22 and your response. Please revise to disclose
the information in the final sentence of your response regarding
industry practice.
The company has revised the disclosure in the first paragraph of this
section to disclose the industry practice regarding exclusivity as
noted in the company's response to prior Comment No. 22.
Securities and Exchange Commission
December 9, 2005
Page 5
Independent Marketing Representatives, page 55
13. Please quantify the reference to "several" marketing representatives.
The company has revised the reference to "several" as requested to make
it consistent with the first sentence of this paragraph. The company
notes that the sentence previously containing the term "several" is now
the first sentence of the third paragraph in this section.
14. Please clarify the amount of the "upfront" commission and how it is
calculated. Clarify how the ongoing commissions are calculated.
The company has clarified in this section the amount of the up-front
fees paid to marketing representatives and the manner by which the
up-front fees and commissions are calculated.
Overview, page 22
15. We note the disclosure on pages 5 and 7 about your relationship with
Trident. Please expand the appropriate section to discuss the material
terms of the agreements with Trident Marketing and Hispanic Global LLC,
such as the right to exercise options based on revenues and
commissions.
The company has added disclosure under "Description of Business -
Marketing and Distribution - Independent Marketing Representatives"
regarding the material terms of its agreements with Trident and
Hispanic Global.
16. Please discuss Trident's methods and capacity to market your product.
Does Trident also market your competitors' products? To the same
prospects? How does it generate prospects and what are the sale
methods? If material to understanding Trident's capacity, describe its
recent history and the size and scope of its operations. Provide
similar information regarding Hispanic Global.
The company has added disclosure under "Description of Business -
Marketing and Distribution - Independent Marketing Representatives" in
response to this request to the extent material to an understanding of
Trident's and Hispanic Global's methods and capacity to market the
company's products.
17. Please disclose any material relationships among the company, Trident
and Hispanic Global, apart from the marketing agreements.
There are no other material relationships among the company, Trident
and Hispanic Global apart from the marketing agreements and
arrangements described in the prospectus.
Securities and Exchange Commission
December 9, 2005
Page 6
Certain Relationships and Related Transactions, page 75
18. Please refer to prior comment 37. Please discuss the material terms of
the agreements with Messrs. Bowers and Lozano.
The company has provided additional disclosure to this section
regarding the material terms of its consulting agreements with Mr.
Bowers and Mr. Lozano.
19. We reissue prior comment 38. Please disclose in the prospectus the
information you included in your response.
The company has disclosed in the prospectus the information that it
included in its response to prior Comment No. 38.
Selling Security Holders, page 88
20. Please refer to prior comment 43. Please clarify which criteria you
have achieved and the number of shares registered for resale related to
the achievement.
The company has clarified that no criteria have been achieved as of
December 5, 2005 and that none of the shares being registered for
resale have vested as of that date.
Experts, page 103
21. We note that the audit opinion refers to the years ended December 31,
2003 and 2004. Please revise to include references to all periods
audited by your auditors.
The company has revised this section to include references to all
periods audited by its auditors.
Annual Financial Statements, page F-1
22. Please update the financial statements and related financial
information. Refer to Item 310(g) of Regulation S-B.
The company has updated its financial statements and related financial
information in accordance with Item 310(g) of Regulation S-B.
Consolidated Statements of Operations, page F-4
23. You currently present some expenses within functional categories such
as cost of sales and general and administrative expenses, while other
expenses are presented based on the expense item's description such as
professional fees, rent expense, advertising expense, salary expense,
and depreciation expense. Please revise to be consistent in your
presentation. In that regard, you should not present costs of sales and
gross deficit unless cost of sales includes all costs of your sales
including the allocable portion of direct and indirect costs for
professional fees, rent expense, advertising expense, salary expense
and depreciation expense. Also, since you present some expense items
separately, the presentation of an amount for total general and
administrative expenses would not be appropriate if this amount did not
include all amounts that are allocable to this item and the item was
not labeled as such. Please see SAB Topic 11.B.
Securities and Exchange Commission
December 9, 2005
Page 7
The company has revised its financial statements to allocate into cost
of sales all applicable portions of the direct and indirect costs
associated with the costs of its sales. The balance of the expenses has
been presented as general and administrative expenses.
24. Please tell us and disclose how you account for and classify
commissions and bonus expenses related to sales of memberships and tell
us why. Disclose the total amount of commissions and related bonuses
paid in each period in the notes to your financial statements. Any
commissions and related bonuses paid to related parties should be
disclosed separately. Please refer to Question 1 of SAB Topic
13.A.4(a).
The company classifies commission and bonus commissions as sales
commissions in its cost of sales. The company pays the commissions
after the completion of the monthly membership period to which the
commissions relate. The company recognizes commission expense as
services are rendered by debiting commission expense and crediting
commissions payable. The company then debits commissions payable and
credits cash after the commissions have been paid. No commissions or
bonus commissions have been paid to related parties.
The company has revised its MD&A to indicate that sales commission
expenses are included in cost of sales and to disclose the changes in
the amounts of sales commission expenses between the nine month periods
ended September 30, 2005 and 2004, respectively, and the years ended
December 31, 2004 and 2003, respectively. The company has also added
disclosure regarding the amount of sales commissions and bonus
commissions paid to Notes 1g. and 1b. of its audited financial
statements and interim financial statements, respectively.
Note 1. Nature of Organization, page F-9
25. Please refer to prior comment 43 from our October 21, 2005 letter.
Please tell us and disclose whether any of your employees are
compensated on a basis similar to the independent marketing
representatives.
None of the company's employees are compensated on a basis similar to
the independent marketing representatives. The company has revised Note
1. to disclose this information.
26. Please refer to prior comment 49 from our October 21, 2005 letter. The
revised disclosure indicates that you include depreciation expense
related to selling and marketing activities within cost of sales. Your
statement of operations reflects a separate line item from depreciation
expense. First, please tell us why you believe the depreciation expense
related to the website, telephone system and computer equipment are
selling and marketing activities and not related to the cost of your
sales. Please tell us why, if these costs are related to your selling
and marketing activities, you classified them in cost of sales. Third,
you should not present a separate expense item called "depreciation
expense" if that item does not include all of your depreciation
expense. Please see our comment above with respect to the
classification of expenses in your statement of operations.
Securities and Exchange Commission
December 9, 2005
Page 8
The company believes that the depreciation expense related to its
website, telephone system and computer equipment is related to its
selling and marketing activities because the portion of the website,
telephone and computer equipment to which such expenses relate are
utilized directly by the company in its selling and marketing
activities. The company has included all of its expenses for selling
and marketing activities in its cost of sales because the company's
selling and marketing activities are an integral part of the sale of
its products.
With regard to the presentations of a separate expense item called
"depreciation," the company notes its response to Comment No. 23
regarding the classification of expenses in its statements of
operations.
27. Please refer to prior comment 52 from our October 21, 2005 letter.
Since these arrangements appear to qualify as single units of
accounting under EITF 00-21, you should tell us why you believe that
the fees associated with shipping and handling should not be deferred
and recognized systematically over the periods that the fees are
earned. Please refer to SAB Topic 13.A.3.f.
The company follows EITF Issue 00-10, Accounting for Shipping and
Handling Fees and Costs (Issue 00-10) in accounting for the shipping
and handling fees it receives. Issue 00-10 requires that all amounts
billed to customers relating to shipping and handling should be
classified as revenue. In accordance therewith, the company records the
shipping and handling fees it receives as membership fees. As noted in
the company's revenue recognition policy, the company credits deferred
revenue when membership fees are received and then recognizes revenue
as services are rendered. The company has revised the disclosure under
revenue recognition in its critical accounting policies to clarify the
method by which it accounts for the shipping and handling fees it
receives. It has also added disclosure under Note 1b. of its interim
financial statements describing the method by which it accounts for
shipping and handling fees. The company notes that it has not added
such disclosure in Note 1g. of its audited financial statements as it
did not receive any such fees during 2004 and 2003.
28. Please provide all of the disclosures in the format required under
paragraph 2(e)(c) of SFAS 148 in both your annual and interim financial
statements.
Securities and Exchange Commission
December 9, 2005
Page 9
The company has revised its annual and interim financial statements to
include all of the disclosures in the format required under paragraph
2(e)(c) of SFAS 148.
Note 7, Equity Transactions, page F-17
29. Please refer to prior comment 53 from our October 21, 2005 letter.
Please note that paragraph 20 of SFAS 123 is applicable to the
valuation of equity instruments issued for employee services. As such,
that paragraph does not appear to be applicable to the warrants issued
to consultants for services. With respect to the calculation of your
volatility, please explain how you determined the volatility and why in
your response you refer to "a high volatility which kicks out a full
fair value for the value of the warrants." Discuss how your approach
considers paragraphs 277 and 285 of SFAS 123 and Question 6 of SAB
Topic 14.D.1. Also, clarify why you believe the paragraphs 12 and 13 of
EITF 00-21 apply to the issuance of your warrants.
The company acknowledges that paragraph 20 of SFAS 123 is not
applicable to the warrants issued to consultants for services. The
company referenced paragraph 20 of SFAS 123 in its response to prior
Comment No. 53 because this paragraph provides guidance regarding the
determination of expected volatility of stock for a nonpublic entity.
The volatility was determined by using weekly prices for a term which
approximated the estimated exercise period of the options or warrants.
The company notes that the prices attributed to the common stock have
varied significantly during the time periods for which the volatility
has been calculated. The company has had three prices, $0.001 per share
from inception through mid-February 2004, $0.50 per share from
mid-February 2004 through mid-September 2004, and $0.40 per share
thereafter. Accordingly, when these prices were used in the
Black-Scholes volatility calculation worksheet, the volatility exceeded
200%. This high volatility results in the calculation of the fair value
of the options and warrants being equal to their exercise prices.
The company considered the guidance of SFAS 123 paragraphs 277 and 285.
The company notes that it could not find another company similar to
itself which could be used to assist with the determination of another
volatility calculation. The company acknowledges that its volatility as
calculated is high. However, the company notes that the volatility
should begin to decrease once a more mature market for its common stock
is established. The company used appropriate and regular intervals for
price observations. As a result, the company believes that the
volatility calculations used are appropriate.
The company also considered SAB Topic 14.D.1 and determined that the
company's best calculation of historical volatility is to use the
company's own equity prices. The company acknowledges the high
volatility, but believes that its method of calculating volatility is
more appropriate than trying to consistently apply methods from other
companies or industry standards. The company notes that it was not able
to identify a similar public company which could be used to assist with
the determination of a historical volatility.
Securities and Exchange Commission
December 9, 2005
Page 10
The company acknowledges that EITF 00-21 is not directly applicable to
the issue at hand. The company included the discussion of EITF 00-21
because EITF 00-21 provides guidance regarding the allocation of the
fair values of multiple items of consideration.
Interim Financial Statements, page F-22
Consolidated Statements of Cash Flows, F-27
30. Revise your schedule of non-cash financing activities to separately
present the $295,100 of common stock issued to prior investors for
agreeing to the amendment to the stock purchase agreements and not as
"issued for services."
The company has revised the schedule of non-cash financing activities
as requested.
Note 4, Consulting Agreements, page F-33
31. Due to the significance of the amounts related to your consulting
agreements, please revise to disclose the following:
o The method and significant assumptions used to value the
Series A, B, and C warrants.
o The accounting method used to account for the agreements. Tell
us in more detail how you considered the specific terms of
your consulting arrangements under EITF 96-18 in determining
the measurement and timing of the consulting expense.
o The significant terms of the consulting agreements, including
a discussion of the nature of the marketing and advisory
services.
o The significant terms of the common shares and warrants
issued.
The company has added disclosure to Note 4 regarding the method and
significant assumptions used to value the Series A, B and C warrants
and the accounting method used to account for the agreements.
Securities and Exchange Commission
December 9, 2005
Page 11
The company followed EITF 96-18 to determine the measurement and timing
of the consulting expense. Under EITF 96-18, the issuer should measure
the fair value of the equity instruments using the stock price and
other measurement assumptions as of the earlier of the date a
"performance commitment" is reached or the date at which the
counterparty's performance is complete. With the exception of the
agreement with Park Financial, which is discussed below, the agreements
discussed in Note 4 call for the consultant or advisor to provide
services to the company during the term of the agreement. Each of these
agreements is for a term of between six and seven months commencing in
May or June 2005, as the case may be, and terminating on December 30,
2005. The agreements do not contain a provision for a penalty in the
event an advisor does not perform the services to be rendered.
Therefore, there is no "sufficiently large disincentive for
nonperformance" and accordingly, the agreements do not contain a
performance commitment. The company believes that this arrangement
falls under EITF 96-18 issue 3 for Transactions in which the Quantity
and Terms are known up front. Under EITF 96-18, the fair value of the
warrants should be recognized as the services are rendered. Since the
services are being rendered on an ongoing basis during the term of the
agreements, the company is recognizing the cost of services evenly over
the term of the agreements. Due to the minimum movement in the
company's stock price, the company calculated the fair value of the
warrants at the time the particular agreements were entered into and
amortized the amount over the term of the respective agreements.
The company entered into its agreement with Park Financial in May 2005.
Under the agreement, Park Financial agreed to provide specific services
to the company, all of which were performed in full prior to June 30,
2005. Therefore, the entire fair value of the warrants issued to it was
recognized as expense in the quarter ended June 30, 2005. Since the
entire expense associated with Park Financial was recognized in the
quarter ended June 30, 2005, the company has removed Park Financial
from Note 4 as no commitments or contingencies remain with respect to
the agreement.
The company has added disclosure to Note 4 regarding the significant
terms of the applicable consulting agreements and the significant terms
of the shares of common stock and warrants issued thereunder as
requested.
Note 5. Equity Transactions, page F-35
32. Please refer to prior comment 58 from our October 21, 2005 letter.
Please tell us and disclose the significant terms of the registration
rights granted to the shareholders and why you would have liability for
possible breach under a reasonable best efforts provision. Discuss any
requirements to maintain effectiveness or listing of the shares. Also
discuss why you believe that the provision of the registration rights
for the warrants should not be considered as net-cash settlement under
paragraphs 14 - 17 of EITF 00-19.
The company has added disclosure to Note 5 regarding the significant
terms of the registration rights granted to its shareholders.
The company originally agreed to use its reasonable best efforts to
file a registration statement with the SEC within two months of the
date of termination of the offerings completed in August and September
2004. An investor's right to have its shares registered under a
reasonable best efforts provision is a valuable right and carries with
it an obligation by the company to use its reasonable best efforts.
Since the company failed to file a registration statement within the
stated time period, one or more investors in the offering could claim
that the company failed to use its reasonable best efforts and seek
damages from the company. In an effort to avoid the time and expense
associated with defending against any such claims in the event they are
made, the company offered to issue additional shares to the investors
in return for an extension of the registration date and a release from
any liability under the original registration provisions. The company
notes that no such claims were made by any investors against the
company prior to its receipt of executed releases from all of the
investors.
Securities and Exchange Commission
December 9, 2005
Page 12
With regard to requirements to maintain effectiveness or listing of the
shares, the company was required to use its reasonable best efforts to
cause the registration statement to become effective as promptly as
possible and to remain effective until the earlier of: (i) the sale of
all shares covered thereby, (ii) the availability under Rule 144 for
the selling stockholder to immediately, freely resell without
restriction all shares covered thereby, or (iii) one (1) year from the
effective date of the first registration statement filed by the company
with the SEC or, with respect to any subsequent registration statement,
180 days from the effective date of such registration statement. In
addition, the company was required to use its reasonable best efforts
to list the shares covered by the registration statement on each
exchange or automated quotation system on which similar securities
issued by the company are then listed. The company notes that there was
no penalty if: (i) the shares of common stock are not registered, (ii)
the effectiveness of the registration statement is not maintained, or
(iii) the shares are not listed on an exchange or automated quotation
system.
The company has reviewed the provisions of paragraphs 14 - 17 of EITF
00-19 and does not believe that the warrants should be considered as
net-cash settlements. It is not probable that the company will have to
redeem the warrants for cash, nor is it possible that the company will
have to redeem the warrants for cash. The company notes the following
items that it considered in reaching this conclusion: (i) settlement is
a physical share settlement - there is no counterparty choice to settle
in cash; (ii) the terms permit delivery of unregistered shares because
the requirements are only for the company to use its "reasonable best
efforts," and thus no guarantee is given that registered shares will be
delivered; (iii) the company has sufficient authorized and unissued
shares available; (iv) there is a definite limit on the number of
shares to be issued upon the exercise of the warrants; (v) there is no
required cash payments if the shares of common stock are not
registered, the effectiveness of the registration statement is not
maintained, or the shares are not listed on an exchange or automated
quotation system; (vi) there are no cash settlements or "top-off"
provisions; (vii) the warrant holder rights are no greater than those
of any other stockholder of the company; and (viii) there is no cash
collateral.
Securities and Exchange Commission
December 9, 2005
Page 13
Note 8. Subsequent Events, page F-41
33. Please respond to the following comments with respect to your agreement
with Mr. Bowers:
o Please tell us and disclose all of the significant terms of
the agreement including the nature of the services to be
provided and settlement alternatives and the party that
controls settlement.
o Tell us and disclose how you will account for the payments
under the agreement and tell us why. Cite the accounting
literature upon which you relied and how you applied that
literature to the terms of your agreement.
The company has added disclosure to this section regarding the
significant terms of the consulting agreement with Mr. Bowers and the
settlement alternatives.
The company is obligated to pay Mr. Bowers monthly consulting fees in
exchange for his consulting services and to pay the monthly consulting
fees prior to the performance of the services for the applicable
monthly period to which the fees relate. As a result, upon payment of
the monthly consulting fees, the company will debit prepaid expenses
and credit cash. As the services are performed, the company will debit
consulting expense and credit prepaid expenses. The company relied upon
Accounting Principles Board Statement No. 4: Basic Concepts and
Accounting Principles Underlying Financial Statements of Business
Enterprises in accounting for the advance payment of the monthly
consulting fees as prepaid expenses. Specifically, paragraph 155 of APS
4 provides that costs to be associated with future revenue or otherwise
to be associated with future accounting periods should be deferred to
future periods as assets.
The company notes that, under the terms of the consulting agreement,
Mr. Bowers is obligated to provide bona fide services to the company in
return for the monthly consulting fees. The company also notes the
additional disclosure provided under "Certain Relationships and Related
Transactions" of the prospectus regarding the company's belief that the
compensation it is paying to Mr. Bowers under the agreement
approximates the fair value of the services to be provided by Mr.
Bowers during the term of the agreement.
Exhibits
34. Please refer to prior comment 63. Please file all exhibits in complete
form. For example, we note you have omitted exhibits from Exhibits
10.12, 10.28, 10.31 and 10.34.
The company has refiled Exhibits 10.1, 10.2, 10.3, 10.9, 10.12, 10.13,
10.28, 10.31 and 10.34 in complete form. As a result, all of the
exhibits filed to date by the company have been filed in complete form.
Securities and Exchange Commission
December 9, 2005
Page 14
Additional Information
Please note that the following additional changes are reflected in
Amendment No. 3 to the Registration Statement on Form SB-2:
1. The company recently issued promissory notes in the aggregate principal
amount of $155,000. The company has added disclosure regarding the promissory
notes throughout the document, and most notably in its risk factor entitled "We
will need to raise additional funds in the future to cover our long-term
contractual obligations, notes payable and operating expenses, which funds may
not be available or, if available, may not be available on acceptable terms" and
under "Liquidity and Capital Resources" in its MD&A. The company has also filed
a form of the promissory notes issued as Exhibit 10.35 to the registration
statement.
2. The company has revised the section entitled "Executive Compensation -
Option/SAR Grants in Last Fiscal Year (Individual Grants)" in accordance with
the provisions of Item 402(c) of Regulation S-B.
* * * * *
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
General Counsel
cc: Thomas A. Jones
Thomas Dyer
Kate Tillan