KAHIKI FOODS, INC.
1100 MORRISON ROAD
GAHANNA, OH 43230
Phone: 614.322.3180
Fax: 614.322.3199
July 14, 2006
Mr. Karl Hiller
Branch Chief
Securities and Exchange Commission
100 F Street, N.E., Mail Stop 7010
Washington, DC 20549-7010
RE: Kahiki Foods, Inc.
File No. 333-113925
Amendments to Form 10-KSB for Fiscal Year Ended March 31, 2005, and
to Form 10-QSB for Quarter Ended December 31, 2005
Dear Mr. Hiller:
Thank you for your April 14, 2006 letter of comments on two amended filings made
by Kahiki Foods, Inc. ("Kahiki"). The comments related to Kahiki's Amendment
Number 1 to Form 10-KSB for the fiscal year ended March 31, 2005, and to
Kahiki's Amendment Number 1 to Form 10-QSB for the fiscal quarter ended December
31, 2005.
This letter is in response to your comments. We will file an amended 10-KSB for
March 31, 2005, and an amended 10-QSB for December 31, 2005 to include the
changes outlined herein after discussion with Tracie Towner of your staff. Our
response below is somewhat more involved than a simple response to your
comments, as we found that additional disclosures were necessary. I enclose
below the commentary from the explanatory notes for each amended report, with
supplemental notes [in brackets] referring them to sections of your comment
letter.
At Ms. Towner's request, we confirm that on October 19, 2004, our registration
statement on Form SB-2 (Commission file number 333-113925) became effective. The
registration statement registered 100,000 of our common shares for sale by a
shareholder of Kahiki. The offering terminated by the shareholder before any
common shares were sold. [This is in response to your comment number 3.]
FORM 10-KSB FOR FISCAL YEAR ENDED MARCH 31, 2005:
EXPLANATORY NOTE
On June 21, 2005, KAHIKI FOODS, INC. ("Kahiki" or "we") filed its Annual Report
on Form 10-KSB for its fiscal year ended March 31, 2005. On March 30, 2006,
Kahiki filed Amendment Number 1 to its Annual Report on Form 10-KSB for
its fiscal year ended March 31, 2005 ("Amendment Number 1"). This filing is
Amendment Number 2 to Kahiki's Annual Report on Form 10-KSB for its fiscal year
ended March 31, 2005 ("this Amendment"). We believe this Amendment is necessary
to modify the report to comply with generally accepted accounting principles in
the United States and Kahiki's filing obligations under the Exchange Act. [The
prior sentence is the response to your comment number 1.] The events in this
amended report are as of the initial filing date of June 21, 2005, and do not
include subsequent events. This Amendment does not modify the disclosures in the
original filing other than as described in this explanatory note. Other than the
incorporation by reference of certain exhibits to the original and amended
filings, we have included the entire amended Form 10-KSB in this filing for the
reader's convenience. This Amendment number 2 is being filed to amend the
following items:
1. We amended the reference on the title page under "DOCUMENTS INCORPORATED BY
REFERENCE" to identify that we incorporated documents by reference into Part III
instead of into Part II as initially filed.
2. We amended the discussion in ITEM 1: "DESCRIPTION OF BUSINESS - OVERVIEW" to
state that no other customer accounted for more than 10% of our sales in fiscal
2005 or 2004.
3. We amended the discussion in ITEM 6: "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION - DISCUSSION OF SIGNIFICANT ACCOUNTING POLICIES" to include
discussion of: USE OF ESTIMATES; ACCOUNTS RECEIVABLE - TRADE; CUSTOMER
INCENTIVES; IMPAIRMENT OF ASSETS WITH LONG LIVES; and INTEREST RATE SWAP. This
represents only a correction in disclosure and not a change in policy.
4. We amended the discussion in ITEM 6: "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES" to include discussion of a
letter of credit agreement, and guarantees of some of Kahiki's debt by two of
its officers. These are all corrections in disclosure.
5. We include herein an amended Report of Independent Registered Public
Accounting Firm on the audit of the financial statements for the fiscal year
ended March 31, 2005. [This is in response to your comment number 3.]
6. We include herein an amended Report of Independent Registered Public
Accounting Firm on the audit of the financial statements for the fiscal year
ended March 31, 2004. [This is in response to your comment number 3.]
7. We incorporated by reference to the original filing exhibit 14.1 - Code of
ethics. We incorporated by reference to Amendment Number 1 exhibit 10.9
Subordinated Promissory Note to Alice Tsao dated August 19, 2003.
8. We filed as new exhibits the following documents:
Exhibit 10.11 - Registration Rights Agreement between Registrant and Barron
Partners LP, dated February 27, 2004;
Exhibit 10.12 - Promissory Note of Registrant to KeyBank National Association
dated June 1, 2004 (revolver);
Exhibit 10.13 - Business Loan Agreement (Asset Based) between Registrant and
KeyBank National Association dated June 1, 2004 (revolver);
Exhibit 10.14 - Addendum to Business Loan Agreement (Asset Based) between
Registrant and KeyBank National Association dated June 1, 2004 (revolver);
Exhibit 31.1 - Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002; [This is in response to your comment
number 4.]
Exhibit 31.2 - Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002; and [This is in response to your comment
number 4.]
Exhibit 32 - Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of
the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. [This is in response to your comment number 4.]
9. We amended the balance sheet as of March 31, 2005 to show a net cash
overdraft at that date as an addition to accounts payable in current liabilities
rather than as a negative asset. Those adjustments also changed numerous
subtotals and totals on the balance sheets, and in the statements of cash flows.
This is a change in disclosure.
10. We amended the reported value of machinery and equipment as of March 31,
2005 by $1 to correct for rounding errors. We made similar $1 adjustments to the
values of accounts receivable, machinery and equipment, and other assets as of
March 31, 2004. We made similar $1 rounding adjustments to the values for
purchase of new facility improvements, net cash used in investing activities,
and proceeds from long-term debt, all on the statement of cash flows for the
year ended March 31, 2004. This is a change in disclosure.
11. We moved the $150,000 value of a note payable to a related party from
"Current debt" to "Related Party Note Payable" on the balance sheet at March 31,
2004. This is a change in disclosure.
12. We corrected disclosure of new borrowings of debt and of payments of debt in
the accompanying statement of cash flows for the year ended March 31, 2005.
There was no change in total cash flows from financing activities from this
correction. This is a change in disclosure.
13. We include herein as footnote 13 to the accompanying financial statements a
summary of the error corrections identified in paragraphs 9, 10, 11, and 12
above. [This paragraph is in response to your comment number 2.]
14. We amended the description of our revenue recognition accounting policy
included in footnote 2 to the accompanying financial statements. This
represents only a correction in disclosure and not a change in policy. [This is
in response to your comment number 5.]
15. We added a description of our freight credits accounting policy to footnote
2 to the accompanying financial statements. This represents only a correction in
disclosure and not a change in policy. [This is in response to your comment
number 6.]
16. We added a description of our accounting policy on impairment of assets with
long lives to footnote 2 to the accompanying financial statements. This
represents only a correction in disclosure and not a change in policy.
17. We added a description of our accounting policy on our interest rate swap to
footnote 2 to the accompanying financial statements. This represents only a
correction in disclosure and not a change in policy.
18. We added a fuller description of our letter of credit agreement to footnote
2 to the accompanying financial statements. This represents only a correction in
disclosure and not a change in policy.
19. We added a description of our accounting policy for income taxes to footnote
2 to the accompanying financial statements. This represents only a correction in
disclosure and not a change in policy.
20. We amended the disclosure of income taxes in footnote 7 to the accompanying
financial statements to provide further disclosures required by generally
accepted accounting principles in the United States. This represents a
correction in disclosure.
21. We amended the disclosures of Stockholders' Equity and Stock Options in
footnote 8 to the accompanying financial statements to provide further
disclosures required by generally accepted accounting principles in the United
States. The increased disclosures included: common shares reserved for issuance
on potential exercise of warrants, options, and preferred stock; the
convertibility of certain debt to preferred stock; the requirement for
shareholders to approve a new issue of preferred stock; the existence of
warrants to purchase common stock; and Kahiki's contractual requirements to
register shares of stock. We also amended the disclosures of stock options to
correct errors in quantities and to separate disclosures of options issued under
our stock option plan and those which were not issued under the stock option
plan. All of these represent corrections in disclosure.
22. We amended the disclosures in footnote 10 to the accompanying financial
statements to provide names and percentages of customers that accounted for more
than 10% of our sales in fiscal 2005 and 2004, and to state that no other
customer accounted for more than 10% of our sales in fiscal 2005 or 2004. This
represents a correction in disclosure. [This is in response to your comment
number 7.]
23. We added to footnote 12 to the accompanying financial statements disclosure
of guarantees of Kahiki's debt by related parties. We expanded the
discussion in the same footnote of the poultry purchase and the co-pack
agreements with a related party. This represents a correction in disclosure.
FORM 10-QSB FOR FISCAL QUARTER ENDED DECEMBER 31, 2005:
EXPLANATORY NOTE
On February 14, 2006, KAHIKI FOODS, INC. ("Kahiki" or "we") filed its Quarterly
Report on Form 10-QSB for its fiscal quarter ended December 31, 2005. On March
30, 2006, Kahiki filed Amendment Number 1 to its Quarterly Report on Form 10-QSB
for its fiscal quarter ended December 31, 2005 ("Amendment Number 1"). This
filing is Amendment Number 2 to Kahiki's Quarterly Report on Form 10-QSB for its
fiscal quarter ended December 31, 2005 ("this Amendment"). We believe this
Amendment is necessary to modify the report to comply with generally accepted
accounting principles in the United States and Kahiki's filing obligations under
the Exchange Act. [The prior sentence is in response to your comment numbers 1
and 8.] The events in this Amendment are as of the initial filing date of
February 14, 2006, and do not include subsequent events. This Amendment does not
modify the disclosures in the original filing other than as described in this
explanatory note. We have included the entire amended Form 10-QSB in this filing
for the reader's convenience. This 10-QSB/A (Amendment number 2) is being filed
to amend the following items:
1. In Amendment Number 1, we amended the balance sheet as of March 31, 2005 to
show a net cash overdraft at that date as an addition to accounts payable in
current liabilities rather than as a negative asset. Those adjustments also
changed numerous subtotals and totals on the balance sheet, and in the statement
of cash flows. This is a change in disclosure.
2. In Amendment Number 1, we amended the reported value of machinery and
equipment as of March 31, 2005 by $1 to correct for rounding errors. This is a
change in disclosure.
3. In this Amendment, we amended the balance sheet as of December 31, 2005 to
show debt which had technical defaults at that date as current liabilities and
not as long-term debt. This is a change in disclosure.
4. In Amendment Number 1, we increased net sales and cost of sales by $123,000
for the three- and nine- month periods ended December 31, 2005 to reflect
invoiced freight discounts to a customer which were originally subtracted from
reported net sales. The discounts are more properly shown as freight costs in
cost of sales. This represents only a correction in disclosure and not a change
in policy. Sales and freight costs for prior periods had been reported properly.
5. In this Amendment, we corrected disclosure of new borrowings of debt and of
payments of debt in the accompanying statement of cash flows for the nine
months ended December 31, 2004. There was no change in total cash flows from
financing activities from this correction. This is a change in disclosure.
6. We include herein as footnote 13 to the accompanying unaudited financial
statements a summary of the error corrections identified in paragraphs 1, 2, 3,
4, and 5 above. [This is in response to your comment numbers 2 and 8.]
7. We amended the description of our revenue recognition accounting policy
included in footnote 2 to the accompanying unaudited financial statements. This
represents only a correction in disclosure and not a change in policy. [This is
in response to your comment numbers 5 and 8.]
8. We added a description of our freight credits accounting policy to footnote 2
to the accompanying unaudited financial statements. This represents only a
correction in disclosure and not a change in policy. [This is in response to
your comment numbers 6 and 8.]
9. We added a description of our accounting policy on impairment of assets with
long lives to footnote 2 to the accompanying unaudited financial statements.
This represents only a correction in disclosure and not a change in policy.
10. We added a description of our accounting policy on our interest rate swap to
footnote 2 to the accompanying unaudited financial statements. This represents
only a correction in disclosure and not a change in policy.
11. We added to footnote 10 to the accompanying unaudited financials statements
a description of guarantees of some of Kahiki's debt by two of its officers.
This is a change in disclosure.
12. We deleted a sentence from footnote 11 to the accompanying unaudited
financial statements that indicated that Kahiki was in compliance with all debt
covenants at December 31, 2005. This is a change in disclosure.
13. We amended the disclosures of debt in footnote 11 to the accompanying
unaudited financials statements to report and explain the technical defaults in
Kahiki's debt. This is a change in disclosure.
14. We amended the discussion in Item 2: "Management's Discussion And Analysis
Or Plan Of Operations - Liquidity And Capital Resources" to include discussion
of technical defaults in various debt agreements. These technical defaults
existed as of December 31, 2005. We also included discussion of guarantees of
some of Kahiki's debt by two of its officers. These are all corrections in
disclosure.
15. We amended Item 3 Controls and Procedures to provide a better explanation of
the results of our evaluation of disclosure controls and procedures. [This is in
response to your comment number 9.]
16. We filed as new exhibits the following documents:
Exhibit 31.1 - Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002; [This is in response to your comment
numbers 4 and 8.]
Exhibit 31.2 - Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002; and [This is in response to your comment
numbers 4 and 8.]
Exhibit 32 - Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of
the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. [This is in response to your comment numbers 4 and 8.]
17. We added disclosure to Part II, Item 3 Defaults Upon Senior Securities to
include discussion of technical defaults in various debt agreements.
* * * * *
We hereby acknowledge that:
* The company is responsible for the adequacy and accuracy of the disclosures
in the filings;
* Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
* The company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
Thank you again for your comments. Please call me with any questions. My direct
dial number is 614.322.3189.
Sincerely,
/s/ Frederick A. Niebauer
- ------------------------------------
Frederick A. Niebauer
Chief Financial Officer