LEGAL & COMPLIANCE, LLC
LAURA ANTHONY, ESQUIRE
STUART REED, ESQUIRE WWW.LEGALANDCOMPLIANCE.COM
DIRECT E-MAIL:
LANTHONY@LEGALANDCOMPLIANCE.COM
June 7, 2006
VIA FEDERAL EXPRESS
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, DC 20549
Attn: Michele M. Anderson, Legal Branch Chief
RE: IELEMENT CORPORATION
AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM SB-2
FILED MAY 4, 2006
FILE NO. 333-131451
FORM 10-KSB FOR YEAR ENDED MARCH 31, 2005
FORM 10-QSB FOR THE QUARTERS ENDED JUNE 30,
SEPTEMBER 30 AND DECEMBER 31, 2005
FILE NO. 0-29331
Dear Ms. Anderson:
We have electronically filed herewith on behalf of IElement Corporation (the
"Registrant") Amendment No. 2 to the above-referenced Registration Statement. In
addition, and for your convenience, we are including a complete copy of the
submission herewith for your review. The Amendment No. 2 is marked with (R) tags
to show changes made from the previous filings. In addition, we have included a
narrative response herein. We trust you shall deem Amendment No. 2 and the
contents of this transmittal letter responsive to your comment letter dated May
19, 2006.
Our responses below are numbered in accordance with Ms. Anderson's numbered
comments:
1. We have complied with your requests in comment 1.
2. The Company website has been revised to removed all statements to the
effect that the Company is "financially strong" and "self financed".
3. Amendment No. 2 reflects the requested change. In particular, we have
amended the statement to read, "Use of proceeds from the exercise of the stock
purchase warrants. The common stock issuable upon such exercise is being
registered herein."
4. Amendment No. 2 reflects the requested change. In particular, the
"Executive Overview" section has been relocated so that it precedes "Our Plan of
Operation". In addition, the "Our Plan of Operation" has been revised to
eliminate discussion which is repetitive with the "Business" section. Moreover,
we removed the bullet point list beginning with "we intend to" from the Business
Section as it was repetitive with the same language in the "Our Plan of
Operation" section.
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH
Securities and Exchange Commission
Division of Corporation Finance
June 7, 2006
Page 2
5. Amendment No. 2 reflects the following changed language in the first
section of the "Executive Overview", "Although we have a solid, consistent,
steady revenue base, characterized by our base of customers which are under
long-term contracts and most of which have been our customers for several
years,...". I-Element maintains that although overall revenues have been
volatile, the Company does have a solid revenue base. In addition, the Company
believes that the disclosures contained in the Management Discussion and
Analysis and Result of Operations section of Amendment No. 2 to the SB-2
adequately disclose the reasons behind revenue fluctuations.
6. Amendment No. 2 reflects the requested change. In particular, in
addition to the disclosure already provided in the liquidity section, which
included a description of the March 25, 2006 agreements and the terms of the
agreements, the Company added the names of Mr. Zweig's family members and amount
of Note to each, the reasons for the amended agreements and the likely dilutive
impact. In addition to the disclosure already provided in the Certain
Relationships section, the Company added the family relationship and outstanding
principal balance for each of the note holders.
7. Amendment No. 2 reflects the requested change. In particular, I-Element
has added quantified disclosure on its debt service requirements for the next 12
months and a discussion as to how it intends to satisfy the debt repayment
obligations.
8. Amendment No. 2 reflects the requested change. In particular, I-Element
has removed the disclosure that "current cash resources will be sufficient..."
and the remainder of that paragraph and replaced the disclosure with one that
clarifies the Company's ability to satisfy its cash needs. In addition,
I-element has added a discussion of its plans in the event that the warrants are
not exercised.
9. Amendment No. 2 reflects the requested change. I-Element has removed the
reference to the Forms 8-K on both pages 18 and 19. In addition, I-Element
removed a similar reference in the Management section, in the Description of
Private Placement section and in Item 26 Recent Sales of Unregistered
Securities.
10. Amendment No. 2 reflects the requested change. I-Element has added Mr.
Ponnath to the Management section of Amendment No. 2 to the SB-2.
11. As disclosed in the Liquidity and Capital Resources section, As of June
5, 2006, I-Element has issued all the stock payable as disclosed in Note 4 to
the financial statements as of December 31, 2005. A complete list of the shares
referred to in Note 4, including who the shares were to be issued to, and have
since been issued to, the reason for the issuance, number of shares and dollar
value of such issuance is as follows:
Payee Reason Shares Dollar Value
- ----- ------ ------ ------------
Tim Dean Smith Debt repayment 80,000 $4,000.00
Susan Walton Debt repayment 400,000 $20,000.00
Tim Dean Smith Debt repayment 1,600,000 $80,000.00
Jeremy Dean Smith Debt repayment 1,800,000 $90,000.00
Dolphin Capital Debt repayment 2,900,000 $145,000.00
Duane Morris, LLP Settlement 880,000 $44,000.00
Michael Bloch Private Placement 2,000,000 $70,000.00
Isaac de la Pena Debt repayment 150,000 $7,500.00
Johnathan Lowenthal Private Placement 500,000 $17,500.00
Palladian Advisors Settlement 2,500,000 $100,000.00
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH
Securities and Exchange Commission
Division of Corporation Finance
June 7, 2006
Page 3
Wayne Schoenmakers Private Placement 100,000 $3,500.00
Thomas Barrett Private Placement 200,000 $7,000.00
William Goatley Private Placement 250,000 $8,750.00
Robert Gillman Private Placement 500,000 $17,500.00
Timothy Broder Private Placement 500,000 $17,500.00
Thomas Piscula Private Placement 500,000 $17,500.00
Robert Rowley Private Placement 500,000 $17,500.00
John Niedfelt Private Placement 200,000 $7,000.00
Jerome Niedfelt Private Placement 300,000 $10,500.00
Michael Melson Private Placement 500,000 $17,500.00
Raymond Dunwoodie Private Placement 500,000 $17,500.00
Fred Matulka Private Placement 500,000 $17,500.00
Oscar Greene Private Placement 500,000 $17,500.00
Kenneth Meyer Private Placement 1,000,000 $35,000.00
William Cail Private Placement 25,000 $875.00
Trey Investments Private Placement 150,000 $5,250.00
Richard Crose Private Placement 500,000 $17,500.00
Frank Davis Private Placement 200,000 $7,000.00
Global Equity Trading Private Placement 500,000 $17,500.00
Holger Pfeiffer Private Placement 250,000 $8,750.00
Calder Capital Private Placement 500,000 $17,500.00
Bellano Family Trust Private Placement 300,000 $10,500.00
Brett Jensen Employee Comensation 200,000 $7,000.00
Jeff Wilson Employee Comensation 714,286 $25,000.00
Marianne Issels Private Placement 250,000 $8,750.00
Robert Flaster Private Placement 200,000 $7,000.00
Ulrich Nusser Private Placement 250,000 $8,750.00
William Harner Private Placement 150,000 $5,250.00
Sat Paul Dewan Private Placement 300,000 $10,500.00
Annette Bohmer Private Placement 500,000 $17,500.00
Robert Smith Private Placement 300,000 $10,500.00
Thomas Weis Private Placement 250,000 $8,750.00
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH
Securities and Exchange Commission
Division of Corporation Finance
June 7, 2006
Page 4
Laurence B. Straus Private Placement 300,000 $10,500.00
Jurgen Popp Private Placement 1,500,000 $52,500.00
Stefan Muller Private Placement 500,000 $17,500.00
Veronica Kristi Prenn Private Placement 1,500,000 $52,500.00
Global Equity Trading Private Placement 2,000,000 $70,000.00
AK Asset Management Private Placement 1,000,000 $35,000.00
Stefan Muller Consulting Payment 1,000,000 $60,000.00
Jurgen Popp Consulting Payment 1,000,000 $60,000.00
Glenn Jensen Private Placement 3,000,000 $105,000.00
Clarence Keck Private Placement 150,000 $5,250.00
Benjamin Eichholz Private Placement 1,500,000 $52,500.00
Ryan Cornelius Private Placement 1,500,000 $52,500.00
Christiane Loberbauer Private Placement 250,000 $8,750.00
Fred Schmitz Private Placement 5,000,000 $175,000.00
Jorn Follmer Private Placement 500,000 $17,500.00
Matthias Graeve Private Placement 250,000 $8,750.00
Hendrik Paulus Private Placement 500,000 $17,500.00
Donald Kennedy Consulting Payment 20,000 $1,000.00
John Fox Consulting Payment 100,000 $5,000.00
Film & Music Entertainment Private Placement 1,000,000 $35,000.00
Gerd Weger Private Placement 10,000,000 $350,000.00
General Research GmbH Private Placement 500,000 $17,500.00
Vista Capital Consulting Payment 1,000,000 $70,000.00
Vittorio Boeri Private Placement 500,000 $17,500.00
Red Giant Productions Private Placement 500,000 $17,500.00
Total 59,469,286
As the common stock above is included in the SB-2 registration statement
Note 4 indicates that the Company is registering such shares. Amendment No. 2
explains that the $1,579,375 raised in the private placement offering was in
exchange for 45,125,000 shares of common stock and 22,562,500 shares issuable
upon exercise of the warrants issued in the private placement. Amendment No. 2
clarifies that all of these shares (the 45,125,000 issued common shares and the
22,562,500 shares underlying the warrants) are included in the registration
statement.
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH
Securities and Exchange Commission
Division of Corporation Finance
June 7, 2006
Page 5
Finally, Vista Capital has received all shares and warrants. The words "or
will receive" have been removed from Amendment No. 2 to clarify this.
12. An updated consent of the independent auditor has been filed with
Amendment No. 2.
13. I-Element is in the process of reviewing the classification of Goodwill
for the ICCC purchase. I-Element intends to reclassify a portion of the Goodwill
to the customer base and to restate its financial statements accordingly. At the
time of the ICCC purchase, I-Element did not have separate business operations,
and accordingly, purchased more than a customer base which will be reflected in
Goodwill. The restated financial statements shall assign a significant portion
of the current Goodwill to the customer base, while still reflecting the
Goodwill purchased in the transaction. I-Element is in the process of completing
its audit for the year end March 31, 2006 and will file its restated financial
statements with its 10-KSB. In addition, I-Element will, at that time, file an
amended Form 10-KSB/A and Forms 10-QSB/A to reflect the restated financial
statements and disclosures in response to comment 25.
14. Amendment No. 2 reflects the requested change.
15. A restated Consolidated Statement of Changes in Stockholders' Equity
(Deficit) is included in Amendment No. 2, reflecting requested changes in
comments 15, 16 and 17. Amendment No. 2 contains an additional Note 9 discussing
the restatement and the auditors report has been revised to make reference to
the restatements. The label "restated" has been added to the financial
statements where appropriate.
16. A restated Consolidated Statement of Changes in Stockholders' Equity
(Deficit) is included in Amendment No. 2, reflecting requested changes in
comments 15, 16 and 17. Although the acquisition of ICCC took place in March
2003 the Redemption of Shares and Exchange Agreement did not take place until
the first quarter of 2004. In particular, I-Element took possession of ICCC's
assets on March 1, 2003 but did not complete the Redemption of Shares and
Exchange Agreement until March 31, 2004. During this period the Company's
continued to work out the details of the final Redemption of Shares and Exchange
Agreement.
The final Redemption of Shares and Exchange Agreement was executed in
January 2004. ICCC shareholders were given the opportunity to redeem their
shares in ICCC for an equal number of shares in I-Element plus a 1% share
premium. At the time of the share redemption there were 4,082,207 shares
exchanged.
The Statement of Changes in Stockholders Equity (Deficit) at page F-4
has been retroactively restated to reflect the 3.52 to 1 share exchange that
took place at the time of the reverse merger between I-Element and MailKey Corp.
The shares noted on the "recapitalization" line of the Statement reflect this
restatement (i.e. 4,082,207 x 3.52 = 14,369,368).
All subsequent line items on the Statement of Changes in Stockholders'
Equity (Deficit) through December 31, 2004 and the first two line items for the
period ended March 31, 2005 were also retroactively restated to reflect the 3.52
to 1 share exchange in the reverse merger with MailKey Corporation.
17. A restated Consolidated Statement of Changes in Stockholders' Equity
(Deficit) is included in Amendment No. 2, reflecting requested changes in
comments 15, 16 and 17. The reverse merger that took place during the quarter
ended March 31, 2005 was the reverse merger between I-Element and MailKey
Corporation.
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH
Securities and Exchange Commission
Division of Corporation Finance
June 7, 2006
Page 6
At the time of the reverse merger the shareholders of I-Element
received 3.52 shares of MailKey common stock in exchange for each share of
I-Element stock they owned. At the time of the reverse merger there were
13,592,567 shares of I-Element common stock outstanding. At the time of the
reverse merger the share exchange resulted in a total of 47,845,836 new MailKey
common stock shares issued (13,592,567 x 3.52). These 47,845,836 shares are
reflected on the Statement of Changes in Stockholders' Equity (Deficit) as the
common stock share balance of 15,204,255 shares at December 31, 2004 plus the
two subsequent transactions of 16,115,345 and 16,526,236 shares reflected on the
Statement.
The 34,726,355 shares of common stock reflected on the "Effects of
reverse merger" line are the outstanding MailKey shares in the hands of MailKey
shareholders at the time of the reverse merger.
18. The revisions made to the cash flow statement were made for the year
ended December 31, 2003 only. In prior comment 63 the Commission questioned why
the Company had classifications for Acquisition of Fixed Assets in business
combination, Debt and accrued interest assumed in business combination and
Goodwill. As these were all non-cash items, in the revised cash flow statement
the Company has netted the booking of the acquisition of ICCC against their
applicable balance sheet classifications. The following amounts applied to the
acquisition of ICCC and all net to zero. Acquisition of fixed assets ($893,611),
Increase in Goodwill ($2,079,665), Increase in deposits ($15,000), accounts
payable and accrued liabilities assumed in acquisition $2,163,796 and debt
assumed in acquisition of $824,480.
As the three original non-cash items on the cash flow statement were
eliminated in the revision this left two items to be reflected in the revision.
At 12/31/03 there was a balance of $55,006 on the books in Deposits, as $15,000
in deposits were acquired by ICCC the actual increase in deposits, now reflected
on the cash flow, is $40,006.
The only other change on the cash flow statement was to the (Increase)
decrease in accounts payable. The original figure on the cash flow was an
increase of $904,790. This was the change in a/p not including the a/p and
accrued liabilities assumed in the acquisition of ICCC. As the a/p and accrued
liabilities assumed totaled an increase of $2,163,796 then a decrease of
$1,259,056, as reflected on the revised cash flow, nets to the original ending
balance of $904,740
19. Amendment No. 2 reflects the requested change.
20. I-Element confirms that it does not recognize revenue until
collectibility is reasonably assured. If a problem in payment is recognized
prior to providing services, revenue is not recorded until the cash is collected
from such customer. A statement to this effect has been added to the Revenue and
Cost Recognition section of Amendment No. 2.
21. There were no options or warrants outstanding to purchase stock for the
three months ended March 31, 2005 and 2004 and for the years ended December 31,
2004 and 2003. Amendment No. 2 has been changed to reflect this disclosure.
22. The number of shares outstanding as of June 5, 2006 is 159,035,031.
Since January 17, 2006 the Company has issued an additional 62,637,966 shares
and 80,000 shares have been returned to the treasury. Of the 62,637,966 shares
issued 59,469,286 were issued in payment of the Company's stock liability
outstanding as of December 31, 2005. The remaining 3,168,680 were issued as
follows:
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH
Securities and Exchange Commission
Division of Corporation Finance
June 7, 2006
Page 7
1/9/2006 Global Equity Trading Consulting Payment 250,000 $10,000.00
1/9/2006 Misty Starke Consulting Payment 500,000 $20,000.00
1/12/2006 Stonegate Ventures Consulting Payment 1,000,000 $60,000.00
1/12/2006 Yock Investments Consulting Payment 1,000,000 $60,000.00
2/1/2006 Stefan Muller Consulting Payment 250,000 $27,500.00
3/8/2006 QSC Sales Commissions 168,680 $18,555.00
The Recent Sales of Unregistered Securities in Amendment No. 2 has
been updated to reflect all issuances. The Selling Stockholders table has also
been updated accordingly.
23. The revised legality opinion was filed on EDGAR as Exhibit 23.2 to
Amendment No. 1 on May 4, 2006 and has been refiled as Exhibits 5.1 and 23.2 to
Amendment No. 2.
24. Amendment No. 2 reflects the requested change.
25. IElement will comply with the above comments as applicable.
26. IElement will amend its filings on Form 10-KSB/A and Forms 10-QSB/A to
reflect the restated financial statements and disclosures. IElement intends to
file such amendments within ten (10) days or as soon as practicable thereafter.
IElement will provide the Commission with an updated correspondence upon filing
such amendments.
We look forward to your comments on Amendment No. 2 and the foregoing responses.
Legal & Compliance, LLC
By:______________________
Laura Anthony, Esq.
330 CLEMATIS STREET, #217 o WEST PALM BEACH, FLORIDA o 33401
PHONE: 561-514-0936 o FAX 561-514-0832
OFFICES IN WEST PALM BEACH AND MIAMI BEACH