Dynamic Leisure Corporation
5680-A W. Cypress Street
Tampa, FL 33607
813-877-6300
December 18, 2006
United States Securities and Exchange Commission
Division of Corporate Finance
Attn: Mr. Max A. Webb, Assistant Director
Washington, D.C. 20549
Dear Mr. Webb:
On behalf of Dynamic Leisure Corporation (the "Company"), please accept
the following responses in connection with your comments dated September 28,
2006. For the sake of clarity, we have italicized the Commission's comments.
General
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1. WE NOTE THE CHANGES YOU HAVE MADE THROUGHOUT MUCH OF THE PROSPECTUS
IN RESPONSE TO COMMENT 3 FROM OUR LETTER DATED MAY 12, 2006, BUT WE
REISSUE THE COMMENT. PLEASE ALSO REMOVE THE TERM "RESALES" FROM THE
FINANCIAL STATEMENTS.
The Company has written the third post-effective amendment to the
registration statement on Form SB-2 to remove the term "resales" in
favor of the appropriate term "sales."
Forward-Looking Statements, page 1
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2. WE NOTE THE CHANGES YOU MADE IN RESPONSE TO COMMENT 4 FROM OUR
LETTER OF MAY 12, 2006. PLEASE FURTHER REVISE TO REMOVE ALL
REFERENCE TO THE SAFE HARBOR PROVISIONS IN THE FIRST SENTENCE.
The Company has revised the third post-effective amendment to remove
all reference to safe harbor provisions.
Prospectus Summary
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3. DISCLOSE NEAR THE BEGINNING OF THE SUMMARY THAT YOUR AUDITORS HAVE
ISSUED A GOING CONCERN OPINION AND THE REASONS NOTED FOR ISSUING
THAT OPINION.
1
The Company has included a statement in "Summary Information And
Risk Factors-Company Overview" that the Company's auditors have
issued a going concern opinion and the reasons therefore. See page
4.
4. WE NOTE THE CHANGES YOU HAVE MADE IN RESPONSE TO COMMENT 6 FROM OUR
LETTER OF MAY 12, 2006, BUT WE REISSUE THE COMMENT. PLEASE DISCLOSE
THE REVENUES AND NET INCOME FOR DYNAMIC LEISURE GROUP FOR THE MOST
RECENT AUDITED PERIOD IN THE NARRATIVE PORTION OF THE PROSPECTUS
SUMMARY ON PAGE 2, IN ADDITION TO THE "SELECTED FINANCIAL DATA"
SECTION ON PAGE 4.
The Company has included the revenues and net loss for Dynamic
Leisure Group for the most recent audited period accompanied with
the unaudited revenue and net loss for the nine months ended
September 30, 2006, as requested. See "Summary Information And Risk
Factors-Company Overview" on page 4.
5. ON PAGE 39 YOU STATE THAT "[N]EARLY ALL OF THE COMPANY'S CURRENT
TRAVEL PRODUCTS ARE FOR DESTINATIONS IN THE CARIBBEAN AND MEXICO."
PLEASE INCLUDE THIS INFORMATION BOTH HERE AND IN THE RISK FACTOR
REGARDING WEATHER ON PAGE 14.
The Company has added language in the third post-effective amendment
indicating that nearly all of its current travel products are for
destinations in the Caribbean and Mexico to the risk factor
regarding weather. See "Risk Factors--The Travel Industry Is Subject
To Numerous And Unique Risks That May Also Affect Our Business,
Financial Condition, And Operations."
Risk Factors
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We have experienced historical losses, page 6
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6. SINCE DYNAMIC LEISURE EFFECTIVELY BECAME THE REGISTRANT AS A RESULT
OF THE REVERSE MERGER TRANSACTION IN 2006, PLEASE REVISE THIS
DISCUSSION TO REFER TO DYNAMIC LEISURE'S NET LOSSES AND ACCUMULATED
DEFICIT RATHER THAN THAT OF DYNECO CORPORATION.
The Company removed references to financial information of Dyneco
Corporation and inserted financial information for Dynamic Leisure
Group, Inc. in the third post-effective amendment. See "Risk
Factors--We Have Experienced Historical Losses And A Substantial
Accumulated Deficit. If We Are Unable To Reverse This Trend, We Will
Likely Be Forced To Cease Operations."
If we fail to create and increase, page 9
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7. WE NOTE THE CHANGES YOU HAVE MADE IN RESPONSE TO COMMENT 9 FROM OUR
LETTER OF MAY 12, 2006. PLEASE ADVISE WHAT "AND THE BRANDS WERE
ISSUED BY FUTURE ACQUISITIONS" MEANS AT THE END OF THE SECOND
SENTENCE. IN ADDITION, IN AN APPROPRIATE PLACE IN THE PROSPECTUS,
PLEASE EXPLAIN MATERIAL ASPECTS OF THE MARKETING AND ADVERTISING
2
"TEST PHASE" BEGUN IN JUNE AND JULY 2006, INCLUDING THE VENUES FOR
SUCH EFFORTS, AND YOUR FUTURE PLANS TO INCREASE SPENDING IN THIS
AREA. AS A BASELINE, PLEASE INDICATE HOW MUCH YOU CURRENTLY SPEND ON
MARKETING AND ADVERTISING.
The Company has changed the discussion in the risk factor entitled
"If We Fail To Create And Increase Our Brand Recognition Among
Consumers, We May Not Be Able To Attract And Expand Online Travel
Sales" to clarify that the Company is referring to any other brands
that the Company may acquire. In addition, the Company has deleted
references to a marketing "test phase" and rewritten its Sales and
Marketing section to discuss its current sales and marketing
activities. To date, the Company's spending on marketing and
advertising has not been significant. The Company expects to
continue to use online advertising as its primary marketing vehicle,
including low or no-cost methods such as targeted e-mail campaigns
and search engine optimization, which the Company does not expect to
increase its sales and marketing spending significantly. ."
Rapid technological changes, page 11
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8. WE NOTE THE CHANGES YOU MADE IN RESPONSE TO COMMENT 12 FROM OUR
LETTER OF MAY 12, 2006. PLEASE CLARIFY WHETHER "SUPPLIER LINK
TECHNOLOGY" IS A NEW PRODUCT OR TECHNOLOGY YOU ARE TRYING TO DEVELOP
AND LICENSE, OR WHETHER IT IS A THIRD-PARTY PRODUCT OR TECHNOLOGY
THAT YOU PURCHASE OR LICENSE FROM THOSE THIRD PARTIES. ALSO, PLEASE
CLARIFY WHETHER SUPPLIER LINK TECHNOLOGY IS THE SAME AS OR DIFFERENT
THAN GLOBAL DISTRIBUTION SYSTEMS.
The Company has deleted the reference to "OUR SUPPLIER LINK
TECHNOLOGY" in the third post-effective amendment as it is just one
of several components comprising our Tourscape software described
elsewhere in the third post-effective amendment.
Although the company has changed its business plan, page 15
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9. WE NOTE THE CHANGES YOU HAVE MADE IN RESPONSE TO COMMENT 13 FROM OUR
LETTER OF MAY 12, 2006, BUT WE REISSUE IT, IN PART. PLEASE BRIEFLY
EXPLAIN WHAT AIR UNIVANE COMPRESSORS AND HYDROGEN CIRCULATORS ARE
AND HOW THEY RELATE TO FUEL CELL SYSTEMS.
The Company has deleted references to air UniVane compressors,
hydrogen circulators, and fuel cell systems, as the Company entered
into an agreement to transfer the last of these assets on October 5,
2006 to Buccaneer Exploration, Inc. This transaction was disclosed
in the Company's Quarterly Report on Form 10-QSB for the period
ended September 30, 2006 and has also been incorporated into this
registration statement.
Directors and Executive Officers, page 21
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10. YOU INDICATE IN THE PARAGRAPH AT THE TOP OF PAGE 22 THAT OFFICERS
ARE ELECTED BY SHAREHOLDERS. HOWEVER, IN THE SECOND-TO-LAST
PARAGRAPH AT THE BOTTOM OF PAGE 22, YOU INDICATE THAT THEY ARE
APPOINTED BY THE BOARD OF DIRECTORS. PLEASE REVISE TO REMOVE THIS
INCONSISTENCY.
3
The Company has revised the third post-effective amendment to
indicate consistently that directors are elected by shareholders and
officers are appointed by and serve at the discretion of the board
of directors.
11. IF MARC J. LEVINE IS AN EXECUTIVE OFFICER, PLEASE PROVIDE ADDITIONAL
INFORMATION ABOUT HIM AS REQUIRED BY ITEM 401 OF REGULATION SB, OR
ADVISE.
As of October 5, 2006, Marc J. LeVine is no longer an officer of the
Company. The section on executive officers and directors has been
updated to include the names and information required by Item 401 of
Regulation SB for our current executive officers and directors.
Security Ownership of Certain Beneficial Owners and Management, page 24
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12. WE NOTE THE CHANGE YOU HAVE MADE IN THE CHART ON PAGE 25 IN RESPONSE
TO COMMENT 19 FROM OUR LETTER DATED MAY 12, 2006. HOWEVER, IF MARC
J. LEVINE IS AN EXECUTIVE OFFICER, PLEASE REVISE THE NUMBER OF
OFFICERS AND DIRECTORS TO FOUR.
See our response to Comment 11. The Registration Statement has been
updated to reflect the current officers and directors and to include
the information required by Item 401 for the Company's current
officers and directors.
13. PLEASE REVISE THE CHART ON PAGE 25 TO REMOVE THE FOLLOWING
DISCREPANCIES:
o ACCORDING TO THE CHART, DANIEL BRANDANO HAS 3,011,102 SHARES
OF COMMON STOCK. HOWEVER, FOOTNOTE 1 ONLY LISTS 2,622,217
SHARES OF COMMON STOCK;
o THE NUMBER OF SHARES HELD BY "OFFICERS AND DIRECTORS AS GROUP"
(3,284,434) DOES NOT MATCH THE SUM OF SHARES HELD BY DANIEL
BRANDANO (3,011,102), ROBERT LEVINE (266,666), AND LEONARD
SCULLER (206,666), WHICH TOTALS 3,484,434;
o ACCORDING TO THE CHART, DIVERSIFIED ACQUISITION TRUST, LLC HAS
1,835,604 SHARES OF COMMONS STOCK. HOWEVER, FOOTNOTE 5 LISTS
2,795,546 SHARES OF COMMON STOCK; AND
o THE PERCENTAGES IN THE THIRD COLUMN OF THE CHART ADD UP TO
MORE THAN 100% (EVEN AFTER REMOVING THE PERCENTAGE FOR
"OFFICERS AND DIRECTORS AS GROUP")
The following changes have been incorporated into the third post
effective amendment:
4
o 333,333 shares of common stock have been removed from Mr.
Brandano's holdings. These shares are held by an adult son of
Mr. Brandano and Mr. Brandano has no voting or dispositive
control over these shares.The beneficial ownership table
footnote 1 now properly includes shares totaling 2,677,777 for
Daniel G. Brandano.
o The number of shares held by Officers and Directors as a group
has been modified to reflect beneficial ownership of the
current executive officers and directors.
o The number of shares beneficially owned by Diversified
Acquisition Trust has been modified and Note 11 has been
corrected. Through prior ownership and the recent conversion
of a convertible promissory note and related accrued interest
Diversified Acquisition Trust owns 1,395,066 shares of
outstanding common stock and holds a warrant to purchase
444,440 shares of the Company's common stock.
o The percentages in the third column have been updated to
reflect the correct beneficial ownership percentages.
14. PLEASE ADVISE WHY GRQ CONSULTANTS, INC. AND ALPHA CAPITAL
AKTIENGESELLSCHAFT WERE REMOVED FROM THE CHART.
The Company revised the third post-effective amendment and removed
GRQ Consultants, Inc. and Alpha Capital Aktiengesellschaft from the
beneficial ownership table as their beneficial ownership of the
Company's common stock is now less than five percent each.
Description of Business, page 29
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15. WE REISSUE COMMENT 21 FROM OUR LETTER OF MAY 12, 2006. PLEASE GO
THROUGH EACH SECTION DESCRIBING YOUR BUSINESS AND ASK WHETHER YOU
HAVE PROVIDED A CURRENT DESCRIPTION BEFORE DESCRIBING ANY FUTURE
PLANS. FOR EXAMPLE, IN "OUR MARKETING STRATEGY" ON PAGE 33, PLEASE
DESCRIBE WHAT YOUR CURRENT STRATEGY IS, NOT WHAT "INDUSTRY ANALYSTS"
SAY IS "IMPERATIVE" AND NOT WHAT YOU BELIEVE ONLINE TRAVEL AGENCIES
"MUST" DO TO BE PROFITABLE. IF YOU HAVE LITTLE OR NO CURRENT
MARKETING STRATEGY, THEN PLEASE SAY SO. AFTERWARD, YOU MAY DESCRIBE
YOUR FUTURE MARKETING PLANS, THE STEPS NECESSARY TO REALIZE THEM,
INCLUDING YOUR ESTIMATED COST FOR EACH STEP, AND, IF PRACTICABLE,
YOUR TIMELINE. SIMILARLY, ON PAGE 32 DESCRIBE YOUR CURRENT INTERNET
BUSINESS STRATEGY BEFORE DESCRIBING WHAT YOU "BELIEVE" YOU NEED TO
DO TO BECOME PROFITABLE, AND DESCRIBE YOUR CURRENT INFRASTRUCTURE
BEFORE DESCRIBING THE INFRASTRUCTURE YOU ARE "ACQUIRING AND
DEVELOPING." CURRENT OPERATION, PAGE 30
5
The Company has amended the Business Section to include a discussion
of the Company's current business as well as to include the
Company's current business strategies. Further, costs and expected
dates were added where appropriate to provide the information
requested by the Staff.
16. PLEASE PROVIDE THE BASIS FOR YOUR STATEMENT ON PAGE 31 THAT "[O]VER
RECENT MONTHS, MANY AIRLINES HAVE WITHDRAWN OR LIMITED" THE "NET" OR
"BULK" CONTRACTS THAT YOU DESCRIBE. ALSO, INDICATE OVER WHICH MONTHS
THIS HAS OCCURRED AND WHETHER OR NOT THE AIRLINES HAVE WITHDRAWN OR
LIMITED YOUR ACCESS TO SUCH CONTRACTS. PLEASE CONSIDER A RISK FACTOR
DESCRIBING THE IMPACT ON YOUR BUSINESS IF SUCH CONTRACTS WERE
SIGNIFICANTLY REDUCED OR ELIMINATED.
The Company has revised the third post-effective amendment to
clarify its discussion with respect to the ability of a major
airline to cancel existing "bulk" contracts and to clarify that at
this point no airline has withdrawn or limited the Company's access
to such contracts. The Company has also included a risk factor
describing the potential impact on its business should such
contracts be significantly reduced or eliminated in the future. See
"Risk Factors--Our Business Benefits From Favorable "Net" Or "Bulk"
Contracts, And Cancellation Or Limitation On Use Of These Contracts
Could Adversely Affect Our Business."
17. IN ADDITION, IS IT THE "ESTABLISHED RELATIONSHIPS" YOU MENTION ON
PAGE 31 OR THE FACT THAT YOU ARE A TRAVEL WHOLESALER, AS DISCUSSED
ON PAGE 33, OR BOTH, WHICH ALLOWS YOU ACCESS TO THESE "NET" OR
"BULK" CONTRACTS? ARE ALL ONLINE TRAVEL AGENCIES YOU COMPETE AGAINST
TRAVEL WHOLESALERS, THEREBY ALSO HAVING ACCESS TO SUCH CONTRACTS?
The Company has rewritten the third post-effective amendment to
indicate that our established relationships are the primary reason
that the Company has access to "net" or "bulk" contracts and to
further indicate that these "bulk" contracts are not exclusive to
the Company. See "Business-Current Operations and Strategy-Expand
Relationships With Suppliers."
18. PLEASE INDICATE WHETHER THE SALE OF BUNDLED LEISURE TRAVEL PRODUCTS
IS MERELY AN ASPIRATION OR SOMETHING YOU DO ALREADY, USING TOURSCAPE
OR OTHERWISE.
The Company has revised the third post-effective amendment to
indicate that we already sell bundled leisure travel products.
19. WE NOTE YOUR RESPONSE ON PAGE 31 TO COMMENT 29 FROM OUR LETTER OF
MAY 12, 2006, WHERE YOU INDICATE THAT YOU HAVE MORE THAN 100
WEBSITES, "MOST OF WHICH HAVE BEEN OPERATING FOR AT LEAST 5 YEARS."
HOWEVER, YOU ALSO STATE THAT "MANY" OF THOSE WEBSITES "ARE CURRENTLY
IN DEVELOPMENT." PLEASE INDICATE HOW MANY OF THE 100 WEBSITES
ACTIVELY GENERATE SUBSTANTIAL BUSINESS FOR YOU, HOW LONG THESE
PARTICULAR SITES HAVE BEEN IN OPERATION, AND PROVIDE EITHER THE
NUMBER OF HITS PER MONTH OR OTHER INFORMATION INDICATING HOW
IMPORTANT THESE SITES ARE FOR GENERATING BUSINESS.
6
The Company has rewritten the third post-effective amendment to
clarify the discussion on websites and to address this comment.
20. PLEASE DESCRIBE WHAT IT MEANS THAT YOUR DYNAMIC LEISURE AND ECASUAL
BRANDS WILL BE "LAUNCHED" IN THE FALL OF 2006. HOW WILL YOU LAUNCH
THEM? PLEASE DESCRIBE ANY NEW PRODUCTS OR NEW METHODS OF DELIVERY OF
EXISTING PRODUCTS.
The Company has rewritten the third post-effective amendment to
delete the reference to "launched" and to clarify the Company's
plans to increase sales. "See-Business-Strategy-Expand Our Customer
Base."
Our Marketing Strategy, page 33
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21. WE NOTE YOUR REFERENCE ON PAGE 34 TO "RELIABLE RESEARCH" REGARDING
THE PERCENTAGE OF TRAVEL CUSTOMERS WHO LOOK BUT DO NOT BOOK ONLINE.
PLEASE REVISE TO IDENTIFY THE SOURCE OF THIS INFORMATION. REFER TO
RULE 436 OF REGULATION C. ALTERNATIVELY, YOU MAY REMOVE YOUR
REFERENCES TO THE THIRD PARTIES AND ATTRIBUTE THE INFORMATION TO THE
COMPANY, BASED ON ITS OWN RESEARCH. PLEASE PROVIDE SIMILAR
INFORMATION REGARDING THE "STUDIES OF ONLINE TRAVEL' YOU MENTION ON
PAGE 35.
The Company has amended its discussion regarding its business
strategies and removed these references to research sources.
Competition, page 34
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22. PLEASE EXPLAIN WHAT YOU MEAN BY THE SECOND SENTENCE OF THE SECOND
PARAGRAPH WHICH BEGINS, "THIS INCLUDES..." WHAT IS THE "THIS" YOU
ARE REFERRING TO?
The Company has rewritten the third post-effective amendment to
delete this sentence.
Intellectual Property, page 35
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23. WE NOTE YOU RESPONSE TO COMMENT 32 FROM OUR LETTER OF MAY 12, 2006.
IF YOUR LICENSING AGREEMENT WITH PARKER-HANNIFIN IS YOUR ONLY
PATENT, TRADEMARK, LICENSE, FRANCHISE, CONCESSION, OR ROYALTY
AGREEMENT, THEN PLEASE STATE THIS FACT. ALSO PLEASE REFERENCE HERE
THE DISCUSSION ON PAGE 30 REGARDING THIS LICENSING AGREEMENT.
The Company has deleted all references to the licensing agreement
with Parker-Hannifin and other intellectual property formerly held
7
by the Company, as an agreement to transfer the last remaining asset
of this type was executed on October 5, 2006 for the transfer of the
Parker-Hannifin license to Buccaneer Exploration, Inc. The agreement
to transfer this license has been further described in the third
post-effective amendment.
Recent Acquisitions and Capitalization, page 36
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24. WE REISSUE COMMENT 30 FROM OUR LETTER OF MAY 12, 2006, IN PART. IN
RESPONSE TO OUR COMMENT, YOU INDICATE IN THE COVER LETTER THAT YOU
HAVE ADDED INFORMATION REGARDING RESULTS ACHIEVED SINCE SEVERAL
RECENT ACQUISITIONS, "INCLUDING THE NUMBER AND DOLLAR AMOUNT OF
TRAVEL SALES AND CAR RENTALS." WE NOTE YOUR REVISED DISCLOSURE
REGARDING THE NUMBER OF BOOKINGS SINCE ACQUISITION OF THE CASUAL CAR
GENERAL SERVICE AGREEMENT IN JANUARY OF 2006. HOWEVER, SIMILAR
INFORMATION IS NOT PROVIDED HERE OR IN THE FINANCIAL STATEMENT FOR
YOUR ACQUISITIONS OF L'ATTITUDES, INC., ISLAND RESORT TOURS, INC.,
AND INTERNATIONAL TRAVEL AND RESORTS, INC. PLEASE REVISE TO INCLUDE
SUCH INFORMATION OR ADVISE.
The Company has inserted the revenue volume for each of the two
travel companies from the date of acquisition through September 30,
2006 in the third post-effective amendment."See Business--Recent
Acquisitions And Recapitalization."
Regulation Concerning Privacy, page 36
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25. YOU INDICATE THAT YOU "EXPECT" TO HAVE A PRIVACY POLICY. PLEASE
STATE WHETHER OR NOT YOU HAVE ONE CURRENTLY. ALSO, PLEASE INDICATE
WHETHER OR NOT THE FTC, THE EUROPEAN UNION OR ANY OTHER SOVEREIGH
ENTITY IN WHICH YOU OPERATE CURRENTLY HAS PRIVACY REGULATIONS THAT
APPLY TO YOU. IF YOU CURRENTLY HAVE A PRIVACY POLICY, DOES IT COMPLY
WITH SUCH REGULATIONS? IF YOU DO NOT HAVE A PRIVACY POLICY BUT
INTEND TO DEVELOP ONE, IS IT YOUR INTENTION THAT YOUR PRIVACY POLICY
WILL COMPLY WITH SUCH REGULATIONS?
The Company has rewritten the third post-effective amendment to
address this comment.
Casual Car General Service Agreement, page 36
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26. PLEASE DESCRIBE WHAT IT MEANS THAT THE "EUROPEAN MARKET" WILL BE
"LAUNCHED" IN THE SECOND HALF OF THE YEAR. HOW WILL YOU LAUNCH THEM?
IF YOU ARE REFERRING TO THE TERM SHEETS YOU HAVE SIGNED WITH TWO
TRAVEL COMPANIES WITH EUROPEAN EXPERIENCE, AS DESCRIBED ON PAGE 34,
THEN PLEASE STATE THIS FACT. PLEASE DESCRIBE ANY NEW PRODUCTS OR NEW
METHODS OF DELIVERY OF EXISTING PRODUCTS.
8
The term sheets with these travel companies have expired and have
not been renewed. The Company has amended its business strategy
discussion to discuss its plans with respect to expansion into the
European market.
Three Months ended June 30, 2006 compared to the period from inception (May 16,
2005) to June 30, 2005, page 41
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27. PLEASE TELL US AND EXPLAIN IN THE MD&A WHY THE VOLATILITY FACTOR
REFERENCED ON PAGE 42 USED TO VALUE THE WARRANTS WAS REDUCED FROM
335% TO 271% DURING THE THREE MONTHS ENDED JUNE 30, 2006.
The warrants referred to above are subject to variable accounting
and the volatility factor on each issuance of warrants, therefore,
is recalculated quarterly. The change in the volatility is a result
of the change in the expected term of the warrants due to the
passage of time which results in a change in the time frame from
which the stock price data points to compute volatility were
selected. Since volatility for the periods through June 30, 2006
were computed based on historical volatility of the corporation,
less data points were selected from the beginning of the period and
more data points were selected to update through June 30, 2006. This
resulted in a decrease of volatility from 335% to 270% at June 30,
2006. Further changes to volatility as of September 30, 2006 have
been disclosed in Note 7.
Securities Authorized for Issuance under Equity Compensation Plans, page 49
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28. PLEASE EXPLAIN WHY THE OUTSTANDING OPTIONS AND WARRANTS DISCLOSED ON
PAGE 50 (223,644 OPTIONS AND WARRANTS WITH A WEIGHTED AVERAGE
EXERCISE PRICE OF $5.99) AND THE OUTSTANDING OPTIONS TO ACQUIRE
124,539 SHARES AND OUTSTANDING WARRANTS TO ACQUIRE 859,337 SHARES AS
DISCUSSED ON PAGE 52 ARE SIGNIFICANTLY LESS THAN THE OUTSTANDING
WARRANTS/OPTIONS DISCLOSED IN NOTE 8 TO YOUR JUNE 30, 2006 FINANCIAL
STATEMENTS OF 4,473,255. PLEASE RECONCILE AND REVISE THESE
DISCLOSURES.
The information detailed on former pages 50 and 52 related solely to
options and warrants issued under DynEco Corporation's (the
accounting acquiree in the reverse merger) equity compensation plans
as of December 31, 2005. The information detailed in Note 8 of the
Company's June 30, 2006 financial statements, includes options and
warrants issued for acquisitions, financing and services that
occurred after December 31, 2005 as well those included under
DynEco's former equity compensation plans.
9
Please note that Rule 102(d) requires disclosure of equity
compensation plans as of the end of the most recently completed
fiscal year end of the registrant. This means Rule 102(d) requires
the disclosure of Dynamic Leisure Group, Inc.'s (the accounting
acquirer in the reverse merger that occurred on January 13, 2006)
equity compensation plans as of December 31, 2005 of which there was
none. It would appear the disclosure of DynEco's former equity plans
at December 31, 2005 would not be required. We have updated the
registration statement to state that Dynamic Leisure Group had no
equity compensation plans as of December 31, 2005.
However, we have retained the prior disclosure regarding Dyneco
Corporation's (the accounting acquiree and former registrant)
outstanding options under these plans as of December 31, 2005
because these options were converted to Dynamic Leisure Group
options, in effect, through the reverse merger.
Financial Statements
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Dynamic Leisure Corporation and Subsidiaries Unaudited Consolidated Financial
Statements for the three and six months period ended June 30, 2006 Changes in
L'Attitudes, Inc. Financial Statements Island Resort Tours, Inc. and
International Travel and Resorts, Inc. Financial Statements
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Note 2 - Nature of Operations and Summary of Significant Accounting Policies
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Revenue Recognition, page F-6
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29. WE NOTE YOUR RESPONSE TO COMMENT 56 FROM OUR LETTER OF MAY 12, 2006,
WHERE YOU STATE THAT THE COMPANY IS NOT REQUIRED TO BUY A SPECIFIC
NUMBER OF LODGING OCCUPANCIES AND IS NOT REQUIRED TO PURCHASE A
SPECIFIC NUMBER OF AIRLINE TICKETS. ALSO YOU STATE THAT YOU HAVE
RISK OF PHYSICAL TICKET LOSS DURING DELIVERY, WHICH IS A WEAKER
INDICATOR OF GROSS REPORTING, CONSIDERING THAT THE MAJORITY OF YOU
SALES ARE INTERNET BASED. ADDITIONALLY, IT APPEARS THAT THE
SUPPLIERS OF THE SERVICES OFFERED IN YOU TRAVEL PACKAGES ARE
ASSUMING THE MAJORITY OF THE RESPONSIBILITY AND BUSINESS RISK OF
PROVIDING THE SERVICES (I.E., LODGING AND AIR TRAVEL). BASED ON THE
ABOVE, WE CONTINUE TO HAVE CONCERN AS TO THE APPROPRIATENESS OF
GROSS REVENUE REPORTING FOR YOU REVENUE TRANSACTIONS. SINCE YOUR
SUPPLIERS ASSUME THE MAJORITY OF THE BUSINESS RISKS, WHICH INCLUDE
PROVIDING THE SERVICE AND THE RISK OF UNSOLD INVENTORY FOR THE
LODGING AND AIR TRAVEL SERVICES IN YOUR TRAVEL PACKAGE, WE DO NOT
UNDERSTAND WHY YOU DO NOT REPORT THESE TRANSACTIONS ON A NET RATHER
THAN GROSS BASIS IN ACCORDANCE WITH EITF 99-19. PLEASE ADDRESS THE
FOLLOWING WITH RESPECT TO YOUR REVENUES DURING THE VARIOUS PERIODS
PRESENTED IN THE COMPANY'S, CLA'S AND IRT/ITR'S FINANCIAL
STATEMENTS:
10
o TELL US WHAT PORTION OR PERCENTAGE OF EACH ENTITY'S SALES
ARRANGEMENTS WERE SUBJECT TO INVENTORY RISKS SIMILAR TO THAT
DESCRIBED IN YOUR RESPONSE WITH RESPECT TO THE JAMAICAN RESORT
HOTEL IN 2005.
o TELL US WHAT PORTION OF EACH ENTITY'S SALES ARRANGEMENTS
INCLUDE AIRFARES PURCHASED UNDER BULK AIRLINE TICKET
CONTRACTS.
o TELL US WHAT PORTION OF YOUR SALES REPRESENT SALES OF
"BUNDLED" PACKAGES WHERE THE COMPANY HAS COMPLETE LATITUDE OR
DISCRETION IN ESTABLISHING THE FINAL PRICE OF THE BUNDLED
PRODUCTS. ALSO, TELL US WHAT PORTION OF THE COMPANY'S SALES
REPRESENT ARRANGEMENTS WHERE THE COMPANY, NOT THE CUSTOMER HAS
RIGHT TO DETERMINE THE SUPPLIER WHICH PROVIDES THE RELATED
SERVICE.
o EXPLAIN IN FURTHER DETAIL HOW THE COMPANY IS EXPOSED TO CREDIT
RISK WITH RESPECT TO ITS SALES ARRANGEMENTS. EXPLAIN WHEN
CUSTOMERS ARE REQUIRED TO PAY THE COMPANY FOR PURCHASED TRAVEL
SERVICES AND PACKAGES AND WHEN THE COMPANY IS REQUIRED TO PAY
ITS SUPPLIERS. ALSO, THE PORTION OF YOUR RESPONSE THAT
INDICATES THE COMPANY IS EXPOSED TO CREDIT RISK WITH RESPECT
TO CREDIT CARD CHARGES IS INCONSISTENT WITH THE DISCLOSURE ON
PAGE F-88, WHICH INDICATES THE COMPANY HAS VERY LITTLE CREDIT
RISK SINCE THE VAST MAJORITY OF TRAVEL PRODUCTS ARE PURCHASED
IN ADVANCE. PLEASE RECONCILE AND REVISE THESE INCONSISTENCIES.
o TELL US WHAT PORTION OF YOUR TOTAL REVENUES FOR EACH PERIOD
WERE RECOGNIZED ON A GROSS VERSUS A NET BASIS.
WE MAY HAVE FURTHER COMMENT UPON REVIEW OF YOUR RESPONSE.
We acknowledge your continued concerns regarding the appropriateness
of gross revenue reporting, and your request for quantitative
information regarding our revenues has been incorporated into our
response to your comment.
EITF 99-19 indicates that the evaluations of factors leading to a
determination of gross or net revenue reporting at times can be
contradictory and is subject to significant judgment and
subjectivity. As Comment 29 points out, the Company's business has
indicators of both gross and net revenue reporting. For similar
reasons, the Company currently recognizes revenue under the gross
method of accounting for certain revenue streams and under the net
basis of accounting for other revenue streams. For example, the
Company's revenues for the nine months ended September 30, 2006,
were $4,307,315 with revenues derived primarily from the sale of
vacation packages recorded on the gross method of accounting, and
the sale of airline tickets recorded on the net revenue method of
accounting, when issued, and certain fees or commissions considered
earned. The following tables set forth revenues
11
by subsidiary and by the nature of the revenues for nine months
ended September 30, 2006 as reported by the Company and the years
ended December 31, 2005 and 2004 for Changes in L'Attitudes and
IRT/ITR:
For the nine months ended September 30, 2006
Changes Dynamic
in Leisure
Revenue Type L'Attitudes IRT/ITR Group Total
- -------------------------------- ---------- ---------- ---------- ----------
Vacation Packages - reported
gross ...................... $3,234,708 $ 312,615 $ - $3,547,323
Airline tickets and other fees
based on the agency model
- reported net ............. - 706,012 - 706,012
Other .......................... - - 53,980 53,980
---------- ---------- ---------- ----------
Total .......................... $3,234,708 $1,018,627 $ 53,980 $4,307,315
========== ========== ========== ==========
We have complete latitude and discretion in establishing the final
price of bundled vacation packages. We also have latitude and
discretion in establishing the final price of certain airline
tickets sold by IRT/ITR; however, the Company does not presently
account for these sales separately and they are included in the
$706,012 recorded on a net basis, as set forth above.
For the year ended December 31, 2005
Changes Dynamic
in Leisure
Revenue Type L'Attitudes IRT/ITR Group Total
- -------------------------------- ---------- ---------- ---------- ----------
Vacation Packages - reported
gross ...................... $5,737,408 $1,084,277 $ - $6,821,685
Airline tickets and other fees
based on the agency model
- reported net ............. - 1,495,364 - 1,495,364
Other .......................... - - - -
---------- ---------- ---------- ----------
Total .......................... $5,737,408 $2,579,641 $ 0 $8,317,049
========== ========== ========== ==========
For the year ended December 31, 2004
Changes Dynamic
in Leisure
Revenue Type L'Attitudes IRT/ITR Group Total
- -------------------------------- ---------- ---------- ---------- ----------
Vacation Packages - reported
gross ...................... $6,397,633 $1,263,623 $ - $7,661,256
Airline tickets and other fees
based on the agency model
- reported net ............. - 1,851,540 - 1,851,540
Other .......................... - - - -
---------- ---------- ---------- ----------
Total .......................... $6,397,633 $3,115,163 $ 00,000 $9,512,796
========== ========== ========== ==========
12
Changes in L'Attitudes and IRT/ITR had complete latitude and
discretion in establishing the final price of bundled vacation
packages. IRT/ITR also had latitude and discretion in establishing
the final price of certain airline tickets it sold; however, IRT/ITR
did not separately account for these sales and they are included in
the $1,495,364 and $1,851,540 recorded on a net basis, as set forth
above for 2005 and 2004, respectively.
Based on your comment letter dated September 28, 2006, the Company
has reassessed its accounting policy on revenue reporting by
reviewing its business practices, supplier contracts, marketing
materials, customer correspondence and EITF 99-19, including its 13
examples.
CONCLUSION REGARDING REVENUES UNDER AGENCY MODEL
The Company offers travel products and services on a bundled-package
and stand-alone basis supplied through its subsidiaries acquired on
February 8, 2006, and March 6, 2006, utilizing two different
business models: merchant model and the agency model. Under the
merchant model, the Company markets and sells bundled travel
products (vacation packages) and stand-alone travel products. Under
the merchant model, the Company establishes wholesale contracts with
suppliers; creates vacation packages utilizing multiple components
and suppliers; establishes the selling price for travel products;
markets and makes these products available to potential customers;
assesses customers' travel product specifications; makes
recommendations of products that meet customers' specifications;
processes customer payments through a credit card processing service
where the Company is the merchant of record for the complete
package; facilitates the booking of hotel rooms, airline seats,
ground transportation/transfers, other destination services and car
rentals with suppliers; provides travel documents to customers and
provides customer service and customer complaint resolution. The
Company records revenues under this model on the gross method of
accounting as explained in greater detail in later sections of this
response.
Unlike under the merchant model, the Company also acts as the agent
for travel product suppliers and receives a fee or commission for
its services under the agency business model. Customers receive most
of the same services under both models; however, the Company is
generally selling just airline tickets, is not the merchant of
record in the processing of the customers' credit cards and does not
establish the selling price of travel products. In addition, the
Company also commonly receives fees from global distribution systems
partners who control the computer systems through which these
reservations are booked. The Company records revenues earned under
the agency model on a net revenue basis, as several weaker
indicators of gross reporting are not present under the agency model
as compared to the merchant model, and the Company is paid a
13
commission on agency model transactions, a strong indicator of net
reporting.
CONCLUSION REGARDING REVENUES UNDER MERCHANT MODEL
The Company's reassessment of the gross and net indicators related
to revenues from its merchant model is as follows:
Strong Indicator of Gross
-------------------------
o The Company is the primary obligor from the view of the
customer.
Weaker Indicators of Gross
--------------------------
o The Company's customers have unique specifications for
each vacation package purchased. The Company is
responsible for customer claims resulting from errors in
the specifications of vacation package components
received by the customer.
o The Company has complete latitude in negotiating the
selling price of vacation packages with customers.
o The Company earns a variable amount in each transaction
equal to the difference between the selling price
negotiated with the customer and the amount to be paid
to the suppliers.
o The Company collects payment from the customer and is
obligated to pay the suppliers.
o Credit risk is relevant to the Company regarding
customer charge backs and unreimbursed refunds to
customers for supplier acceptability and other related
supplier issues.
o The Company does not promote "partnering" with its
suppliers as do many travel resellers where the reseller
and supplier do joint marketing and share credit risk
relative to their proportionate share of revenue.
o Inventory risk is relevant to the Company regarding its
risk of losing valuable airline contracts because of
lack of sales volume and the risk of lost airline
tickets.
o The Company has the financial risk of loss on the entire
price of a vacation package if a customer is
dissatisfied with a single component of the vacation
package as the customer's credit card charge back is the
entire price of the vacation package.
Strong Indicator of Net
-----------------------
o None
14
Weaker Indicators of Net
------------------------
o The Company has a lack of general inventory risk. o The
Company has a lack of substantial credit risk.
o The Company disclaims liability for loss or damage to
property or injury to customer, caused by reason of any
act or omission, intentional negligence or otherwise by
independent supplier.
Based on the greater weight of the indicators above, the Company has
concluded that revenues should be recorded on a gross basis for its
bundled vacation packages and its stand-alone travel products
procured under the merchant model and sold to customers in the same
manner and through the same delivery model as its bundled vacation
products.
Primary Obligor
---------------
The determination of the "primary obligor" is properly made from the
customer's perspective, per EITF 99-19. We evaluated our models of
doing business and our relationship with our customers and believe
the Company is the primary obligor to the customer in the sale of
vacation packages and similarly sold travel products. In making this
evaluation, we believe it is important to understand the following
about our business:
1. The options available to prospective customers to
purchase to travel products.
2. The bundled nature of the Company's vacation package
products.
3. The services provided to the customer by the Company.
4. The Company's involvement in dispute resolution
regarding travel products.
Potential leisure travel customers have thousands of sources
available to them from which they may acquire travel products;
however, these sources generally fall into one of four main
categories:
o Purchase individual travel products from an airline,
hotel, transfer company and/or car rental company who
carries direct inventory risk for usage.
o Purchase a travel product through a consolidator who
blocks seats or rooms and carries direct inventory risk
for usage.
o Purchase a bundled vacation package or a stand-alone
travel product from a travel company (agency or tour
operator) operating under the agency model who receives
a commission for reselling these products either from
the end provider (hotel, airline or rental car company).
o Purchase a bundled vacation package or stand-alone
travel product on a retail basis from a tour operator
operating under the merchant model.
15
Travel agencies and retail tour operators create a niche in the
travel market dominated by the end providers (hotels, airlines and
rental car companies) by offering a service relationship to the end
user that includes product education, needs assessment, sourcing of
product based upon customer specifications and coordinating the
fulfillment of all aspects of travel products being offered. As the
Company delivers its services, it also secures the trust of
customers. From the customer's perspective, the Company is a source
of information, assumes a fiduciary responsibility for coordinating
all aspects of fulfillment of travel products including, and most
importantly, coordinating all aspects of itineraries, paying all
suppliers and the delivery of products meeting the customer's unique
specifications. As a result, any issues customers might have with
the final acceptability of travel products ultimately are resolved
by the Company's customer service personnel. The customers view the
Company as having the primary obligation for the acceptability of
the travel products because the customer paid the Company for the
products. As a result, the Company bears risk of loss if such issues
are not resolved to the customer's satisfaction and the customer
demands a refund, reverses the charges on their credit card or files
a claim against the Company.
Customers are not concerned whether or not the Company will be
reimbursed by its travel suppliers. Customers expect the Company to
manage its relations with its suppliers independently from them. In
fact, the Company does manage its relationship with suppliers under
the merchant model, and under contracts with its suppliers, the
Company generally cannot require suppliers to reimburse them for
customer refunds or credit card charge backs. The Company currently
has 233 wholesale contracts with hotel companies (most with multiple
hotel/resort properties), 16 bulk air contracts with airlines and 2
wholesale contracts with international rental car companies. These
contracts contain various conditions governing and restricting the
supplier's liability for actions taken by the Company relative to
customer interaction. These include the Company's reimbursement for
customer complaints about suppliers and loss, damage, liability or
expense arising from the Company's acts or omissions in connection
with reservations or related documents and customer cancellations
beyond cut-off dates, to name a few. Though the Company doesn't
guarantee the acceptability of any supplier's product to its
customers, the suppliers put the Company at risk by specifically
excluding any obligation to reimburse the Company for customer
refunds or credit card charge backs for whatever reason.
In summary, the Company generates a substantial portion of its
revenue from the sale of bundled vacation package or stand-alone
travel products on a retail basis under the merchant model and a
much smaller and decreasing percentage of its revenue under the
agency model. Our
16
customers have many options in selecting a vender from whom they
purchase travel products. If they proceed with the purchase of
travel products from the Company, customers rely on the Company's
representations regarding the fulfillment of travel products that
meet customers' specifications. Fulfillment in the travel industry
encompasses all the back office coordination of booking
reservations, providing travel documents, paying suppliers,
providing customer service, providing airline service, ground
transportation and lodging, addressing complaints and processing
refunds, if appropriate. Customers hold the Company accountable for
problems experienced with mixed-up reservations, wrong
accommodations, acceptability issues or with changes to itineraries.
These are primary indicators that customers believe the Company is
the primary obligor in the purchase of travel products. Being the
primary obligor to the customer is a strong indicator of gross
reporting.
It should be noted that the Company's promotional materials disclaim
liability for loss or damage to property or injury to person, caused
by reason of any act or omission, intentional negligence or
otherwise by the Company's independent suppliers. These losses are
separate and apart from Company representations relating to the
acceptability of travel products delivered to customers and the
associated risk of loss to the Company.
Primary Obligor - Analogy from EITF 99-19; Example 13
-----------------------------------------------------
During the Company's reevaluation of its revenue recognition
policies in accordance with EITF 99-19, we reviewed Example 13 of
EITF 99-19. This example provides an illustration where Travel
Discounter is a wholesaler of airline tickets and the merchant of
record in transactions. Travel Discounter's focus is on the sale of
a single, stand-alone product--an airline ticket. The EITF concluded
Travel Discounter's revenues should be reported net because the
airline is seen as the primary obligor from the perspective of the
customer, a strong indicator of revenue recognition, despite the
fact multiple weaker indicators of gross reporting existed. This
conclusion indicates to us that the EITF believed Travel Discounter
was viewed as an agent for the airline and nothing more.
The Company believes it is substantially more than an agent for
airlines, hotels, transfer companies and rental car companies and,
as a result, is the primary obligor from the customers' perspective.
The most significant differences between Travel Discounter in
Example 13 and the Company are the nature of the products being
offered (airline seats versus bundled vacation packages); the level
of product knowledge required by the Company's travel consultants;
the back office logistical considerations for booking and paying
suppliers in a multiple component travel package and service and
dispute resolution services provided before, during and after
17
the sale. The Company provides a much more robust service to its
customers which integrates multiple travel products to provide a
total leisure travel solution. Customer focus here is on a complete
bundled and integrated vacation package. For these and other reasons
expressed in this response, the Company believes it is the primary
obligor from its customers' perspective.
Despite the fact we believe the Company is the primary obligor from
the customer's perspective, we do record a portion of our revenues
on a net basis as described in the introductory section of the
response.
Third Party Business Risk
-------------------------
In Comment 29 of your September 28, 2006 letter, you assert the
existence of third-party business risk as the main indicators of net
reporting for the Company by stating, "IN ADDITION, IT APPEARS THAT
THE SUPPLIERS OF THE SERVICES OFFERED IN YOUR TRAVEL PACKAGES ARE
ASSUMING THE MAJORITY OF THE RESPONSIBILITY AND BUSINESS RISK OF
PROVIDING THE SERVICE (I.E., LODGING AND AIR TRAVEL)."
Further, you state "SINCE YOUR SUPPLIERS ASSUME THE MAJORITY OF THE
BUSINESS RISKS, WHICH INCLUDE PROVIDING THE SERVICE AND THE RISK OF
UNSOLD INVENTORY FOR THE LODGING AND AIR TRAVEL SERVICES IN YOUR
VACATION PACKAGE, WE DO NOT UNDERSTAND WHY YOU DO NOT REPORT THESE
TRANSACTIONS ON A NET RATHER THAN GROSS BASIS IN ACCORDANCE WITH
EITF 99-19."
We sought to analogize your views on third-party business risk and
third-party providing of core services/products to the end customer
in Comment 29 with EITF 99-19 and its 13 examples. We found Example
2 contained many of the same elements you set forth in your
Comment--a third-party supplier provided a core product and
delivered customer service after the sale by the retailer. We
compared the facts and the EITF's findings of Example 2 with the
facts regarding our Company's business. Our observations are set
forth below:
Differences:
o The reseller in the example had the sole discretion in
selecting a specific supplier without customer input. In
most cases, the Company's customers have the final say
in the selection of suppliers.
o The reseller in the example is selling a physical
product. The Company is selling a travel product which
is mainly a service.
18
o The reseller's customers deal with the manufacturer on
issues of acceptability of the product. In the Company's
situation, customers deal with the Company on issues of
acceptability of the product.
Differences Mitigated by Other Circumstances:
o The reseller in the example extended 30-day payment
terms to the customer. However, it would appear the only
reason the reseller wouldn't require an advance payment
on a large custom furniture order is either that the
customer is an excellent credit risk or another type of
relationship exists between the parties and, as a
result, the reseller believes its credit risk to be low.
Absent these assumptions, a reseller would require an
advance deposit or payment in full prior to placing a
custom furniture order. In contrast, the Company
collects payments from its customers in advance of
travel dates.
Similarities:
o The reseller in the example and the Company manage the
customer relationship.
o The customer had unique specifications that the reseller
and the Company must accommodate.
o The reseller in the example and the Company have
latitude in negotiating the selling price.
o The reseller in the example and the Company place orders
with a third-party supplier.
o The reseller in the example and the Company collect
payment from the customer and are obligated to pay the
supplier.
o The reseller in the example and the Company do not hold
inventory, and neither the reseller nor the Company ever
takes possession of the product ordered from the
supplier.
o The reseller in the example and the Company earn a
variable amount in the transaction equal to the
difference between the selling price negotiated with the
customer and the amount to be paid to the supplier.
o The reseller in the example and the Company are
responsible for customer claims resulting from errors in
specifications.
o The reseller's order contract with the customer requires
the customer to seek remedies for defects from the
supplier under its warranty. Likewise, the Company
disclaims liability for loss or damage to property or
injury to person, caused by reason of any act or
omission, intentional negligence or otherwise by the
Company's independent suppliers.
The reseller in Example 2 does not assume any responsibility or
business risk associated with providing the end product. The
reseller has no control
19
or risk associated with the chosen manufacturer's backlog, under
capacity or investments in physical plant. Lastly, the reseller does
not share in the business risk or reward enjoyed by the furniture
manufacturer. Therefore, based on our reading, it appears that the
Staff's standard requiring the Company to assume a portion or all of
a suppliers' business risk in order to record revenue on a gross
basis is a higher standard than was contemplated by EITF 99-19.
The Company's lack of assumption of its suppliers' business risk may
be a weak indicator of net reporting and it does not trump the many
indicators of gross reporting described in Example 2 or in our fact
pattern described above.
Credit Risk
-----------
Customers pay the Company by credit card either in whole upon the
purchase of travel products or in accordance with scheduled payment
dates, generally all prior to the date of travel. A deposit is paid
when the reservation is booked. The deposit amount varies depending
on our product line and totals, at a minimum, $200 plus the
Company's cost of the airline ticket portion of the vacation
package. After the customer books with us, the Company provides the
customer with information regarding use of the Company's on-line
payment system and the deadline for paying the balance due. If the
balance due is not received by the deadline, Company reservation
staff follow up with the customer regarding paying the balance due.
The payments are recorded in deferred merchant bookings until the
departure date at which point revenue is recorded.
As a result of its business practices, the Company has no credit
risk relative to accounts receivable in the ordinary course of
business. However, the Company is at risk of credit card charge
backs initiated by the customer for any reason. The Company's risk
of loss is greatly increased if such charge backs occur after the
supplier's cancellation date. The supplier's cancellation date
usually occurs weeks prior to the customer's travel date and when
the Company is required to pay the supplier. Any supplier refunds
beyond that date are prorated or forfeited. For vacation packages
cancelled by our customers after the specified period of time, we
charge the customer a cancellation fee or penalty that is at least
equal to the amount suppliers might invoice us for the cancellation.
However, we are at risk of the customer reversing these charges on
their credit card resulting in a loss to the Company.
The fact pattern surrounding the Company's credit risk has
contradictory indicators of gross and net revenue reporting. The
Company has experienced no losses for the nine months ended
September 30, 2006,
20
which would indicate minimal credit risk; however, the Company
believes the potential risk of loss from unreimbursed credit card
charge backs outweighs the absence of risk from accounts receivable
and, therefore, is a weaker indicator of gross reporting.
Credit Risk from Revenue Sharing
--------------------------------
The Company does not promote "partnering" with its suppliers as do
many travel resellers where the company and supplier do joint
marketing and share credit risk relative to their proportionate
share of revenue. Conversely, the Company has contracts with a
diverse group of competing airlines, hotels, ground transportation
companies and car rental companies. The Company customizes vacation
packages by only using suppliers that meet each customer's
specifications for destination, availability and price. This results
in each supplier's products being evaluated against other suppliers
during each customer sale opportunity. This is a weaker indicator of
gross reporting.
Suppliers have no say over the Company's assembly and pricing of
other components of the vacation package and receive no share of
revenue from the other travel components--a weaker indicator of
gross reporting according to Example 7 of EITF 99-19.
Inventory Risk
--------------
The Company generally contracts in advance with hotels to obtain
access to room allotments at wholesale rates. Certain contracts
specifically identify the number of potential rooms and the
negotiated rate of the rooms to which we may have access over the
terms of the contracts, which are generally for one year and have
historically been renewed in the ordinary course of business. Other
contracts are not specific with respect to the number of rooms and
the rates of the rooms to which we may have access over the terms of
the contracts. In either case, we may return unbooked hotel room
allotments with no obligation to the lodging providers within a
period specified in each contract. As described above, for hotel
rooms that are cancelled by our customers after the specified period
of time, we charge the customer a cancellation fee or penalty that
is at least equal to the amount a hotel may invoice us for the
cancellation. However, we are also at risk of the customer reversing
these charges on their credit card resulting in a loss to the
Company.
Prior to acquisition by the Company, Changes in L'Attitudes
occasionally purchased lodging inventory in advance with full
inventory risk before customer orders were placed. The purchasing in
advance of lodging inventory is not currently a business strategy
being pursued by the
21
Company and no such transactions have been entered into in the nine
months ended September 30, 2006.
As indicated in our responses dated September 13, 2006, to your
comment letter dated May 12, 2006, the Company is not "required" to
buy a specific number of airline tickets pursuant to its bulk air
contracts. However, the airlines maintain usage statistics of the
Company and other wholesalers. It is our understanding that
approximately 80% of the previously outstanding bulk air contracts
with travel companies were cancelled by one of the major airlines
and we believe other airlines are likewise thinning out low-volume
wholesalers. We believe this is an indication that airlines are
attempting to limit access to favorable airline ticket pricing to
those travel companies that meet internally established minimum seat
requirements. Therefore, the Company bears an indirect risk of
airline seat inventory, as the loss of airline contracts would have
an adverse effect on the Company.
In summary, the Company usually has no airline seat and hotel room
inventory risk, i.e. general inventory risk. This is a weaker
indicator of net revenue reporting; however, the Company does have
indirect inventory risk related to the risk of losing its valuable
airline contracts because of lack of volume and the risk of lost
airline tickets. These are weaker indicators of gross revenue
reporting.
Note 5 - Property and Equipment, page F-9
- -----------------------------------------
30. BASED ON YOUR DESCRIPTION OF "SOFTWARE IN DEVELOPMENT" IN THE LAST
PARAGRAPH ON PAGE F-9, WE ARE UNCLEAR AS TO WHY YOU BELIEVE IT IS
APPROPRIATE TO CAPITALIZE THE $641,347 OF COSTS INCLUDED IN YOUR
JUNE 30, 2006 BALANCE SHEET. PLEASE TELL US WHY YOU BELIEVE THE
TREATMENT USED FOR THESE COSTS COMPLIES WITH THE GUIDANCE OUTLINED
IN SOP 98-1, SFAS NO. 86, OR OTHER RELEVANT ACCOUNTING LITERATURE,
AS APPLICABLE.
The Company has added additional disclosure to Note 5 describing the
purchase of third-party software in 2005 comprising most of the
$641,347. SOP98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE, governs the Company's
accounting for these costs as the Company has no substantive plans
to market the software externally. The Company previously reviewed
both SFAS 86 and SOP 98-1 when determining the accounting treatment.
The software and source code was purchased for internal use as a
platform for providing our customer services. We had reviewed the
requirements of SOP 98-1 and determined that this software met the
requirements as internal use software. Accordingly, SFAS 86 does not
apply and SOP 98-1 applies. We note that the software was purchased
as a fully functional package subject only to minimal set-up costs
such as initial set up, data transfer and training and thus meets
the requirements for capitalization at the purchase
22
date. Depreciation is planned to begin once the software is placed
into service. Although upon purchase, we did not intend and have no
plans to license or sell the software, we do have that option but
only with the consent of the seller. Therefore we believe that SOP
98-1 still applies and if the Company determines at a future date to
sell or license the software, proceeds received from the license of
the software, net of direct incremental costs of marketing, will be
applied against the carrying value of the software in accordance
with SOP 98-1.
Note 6 - Convertible Notes Payable with Warrants, Notes Payable and Loans, pages
F-10 through F-14
- --------------------------------------------------------------------------------
31. WE NOTE FROM YOUR DISCLOSURE THAT YOUR CONVERTIBLE NOTE HOLDERS HAVE
THE RIGHT TO CONVERT THE DEBT TO COMMON STOCK AT A FIXED CONVERSION
RATE RANGING FORM $0.75 TO $1.50 AND THAT SOME OF THESE NOTE HOLDERS
ALSO HOLD DETACHABLE WARRANTS ISSUED IN CONJUNCTION WITH THE DEBT.
CONSIDERING THE SIGNIFICANCE OF THESE TRANSACTIONS FOR THE INTERIM
PERIOD ENDED JUNE 30, 2006, PLEASE REVISE TO PROVIDE A TABLE WHICH
INCLUDES FOR EACH CONVERTIBLE PROMISSORY NOTE DISCLOSURE OF THE
PRINCIPLE AMOUNT, DEBT DISCOUNT, REPAYMENTS, AND TOTAL BALANCE AT
PERIOD END. ALSO FOR EACH CONVERTIBLE PROMISSORY NOTE, PROVIDE A
TABLE THAT (1) BREAKS OUT THE DEBT DISCOUNT AT THE INCEPTION OF THE
LOAN BETWEEN WARRANT LIABILITY DISCOUNT AND BENEFICIAL CONVERSION
FEATURE DISCOUNT AT THE END OF THE PERIOD. YOU SHOULD ALSO TELL US
AND DISCLOSE IN DETAIL THE METHODS AND ASSUMPTIONS USED IN
ESTIMATING THE WARRANT LIABILITY DISCOUNT AND THE BENEFICIAL
CONVERSION FEATURE DISCOUNT ASSOCIATED WITH EACH CONVERTIBLE DEBT
OBLIGATION OUTSTANDING. ADDITIONALLY, PLEASE PROVIDE THE TERM AND
AMORTIZATION PERIOD FOR EACH CONVERTIBLE PROMISSORY NOTE. FINALLY,
FOR EACH WARRANT LIABILITY AS DESCRIBED IN NOTE 9, PLEASE PROVIDE A
ROLL FORWARD TABLE TO DISPLAY HOW THE BALANCE (I.E., THE REASON FOR
THE CHANGE IN YOUR ASSUMPTIONS). THESE DISCLOSURES APPEAR MEANINGFUL
AND RELEVANT IN VIEW OF THE SIGNIFICANT CHANGES THAT OCCURRED IN THE
BALANCE SHEET ACCOUNTS AND THE MATERIAL NATURE OF THESE
TRANSACTIONS.
The Company has revised the third post-effective amendment to
include tables and notes containing the information requested. See
Notes 6 and 7 (formerly Note 9).
March 2, 2005 Convertible Notes and Modification and Waiver Agreement
- ---------------------------------------------------------------------
32. PLEASE TELL US AND EXPLAIN IN NOTE 6 THE FACTORS THAT RESULTED IN
RECOGNITION OF INCOME OF $198,044 FOR THE THREE MONTHS ENDED JUNE
30, 2006 AND RECOGNITION OF EXPENSE OF $139,807 FOR THE SIX MONTHS
ENDED JUNE 30, 2006 IN CONNECTION WITH THE WARRANTS ISSUED IN
CONNECTION WITH THE MODIFICATION OF THE MARCH 2, 2005 CONVERTIBLE
NOTES.
23
The warrants issued in connection with the March 2, 2005 were are
accounted for as derivatives and are subject to revaluation each
quarter. Please see our response to Comment 27 regarding the
quarterly revaluation of the warrant liability. See Footnote 7 for a
roll forward of the warrant liability and related warrant
income/expense.
Note 8 - Stockholders' Deficit
- ------------------------------
General
- -------
33. CONSIDERING THE SIGNIFICANT NATURE OF YOUR STOCKHOLDERS' DEFICIT
ACTIVITIES DURING YOUR INTERIM PERIOD ENDED JUNE 30, 2006, PLEASE
PROVIDE A STATEMENT OF STOCKHOLDERS' DEFICIT, WHICH DISCLOSES IN
DETAIL ALL TRANSACTIONS THAT AFFECTED YOUR STOCKHOLDERS' DEFICIT.
THIS DISCLOSURE APPEARS MEANINGFUL AND RELEVANT IN VIEW OF THE
SIGNIFICANT CHANGES IN STOCKHOLDERS EQUITY THAT OCCURRED DURING THE
SIX MONTHS ENDED JUNE 30, 2006 AS WELL AS THE VOLUME OF EQUITY
TRANSACTIONS THAT OCCURRED DURING THIS PERIOD.
The Company has inserted a statement of stockholders' deficit that
reflects all transactions that affected stockholders' deficit for
the nine months ended September 30, 2006. All equity transactions
that occurred during this period are described in detail, by type of
transaction, in Note 9.
Common Stock Issued in Conversion of Convertible Notes Payable, page F-16
- -------------------------------------------------------------------------
34. WE NOTE THE DISCLOSURE INDICATING THE COMPANY ISSUED A TOTAL OF
386,210 SHARES OF COMMON STOCK ON THE CONVERSION OF SIX CONVERTIBLE
NOTES PAYABLE TOTALING $325,000 PLUS ACCRUED INTEREST AT $0.90 PER
SHARE. PLEASE CONFIRM THAT THE CONVERSIONS WERE MADE IN ACCORDANCE
WITH THE ORIGINAL CONVERSION TERMS OF THE CONVERTIBLE NOTES. ALSO,
PLEASE INDICATE IN NOTE 8 WHETHER ANY UNAMORTIZED DISCOUNT OF
BENEFICIAL CONVERSION FEATURE ASSOCIATED WITH THE CONVERTIBLE NOTES
WAS REQUIRED TO BE RECOGNIZED AS INTEREST EXPENSE IN CONNECTION WITH
THE CONVERSION. REFER TO THE GUIDANCE OUTLINED IN PARAGRAPH 21 OF
EITF 00-27.
The conversions were made in accordance with the original conversion
terms of convertible notes adjusted for the effects of the reverse
merger and the 30:1 reverse stock split. As a result, the original
conversion price of $1.00 changed to $.90.
The Company has revised Note 9 (formerly Note 8) to third
post-effective amendment to include information concerning the
recognition of interest expense for any unamortized debt discount
related to the conversion of these notes.
24
Common Stock Warrants and Options, page F-16
- --------------------------------------------
35. PLEASE PROVIDE THE DISCLOSURES REQUIRED BY PARAGRAPH 64 AND A240 OF
SFAS NO.123(R). SEE THE ILLUSTRATION IN PARAGRAPH A240 OF SFAS
NO.123(R) FOR AN EXAMPLE.
Under the heading of Common Stock Warrants there is only one warrant
that was compensatory and therefore subject to SFAS 123R and related
disclosures. This is disclosed in paragraph one which has been
revised to expand our discussion on the basis for the volatility and
expected term assumptions used. We have revised this section to
include relevant portions, as applicable, of the required
disclosures. All other warrants were issued for cash or as part of
the recapitalization and are not share-based payments subject to
SFAS 123R. We have, however, provided a table in Note 9 (formerly
Note 8) summarizing those warrants as well in a format similar to
the SFAS 123R disclosures.
36. PLEASE TELL US AND REVISE NOTE 8 TO DISCLOSE THE NATURE AND
SIGNIFICANT TERMS OF THE TRANSACTIONS IN WHICH THE COMPANY ISSUED
WARRANTS TO ACQUIRE 2,708,897 COMMON SHARES DURING THE SIX MONTHS
ENDED JUNE 30, 2006. AS PART OF YOUR RESPONSE AND YOUR REVISED
DISCLOSURE, PLEASE INDICATE THE EXERCISE PRICES AND TERMS OF THE
WARRANTS ISSUED AND EXPLAIN HOW THEY WERE VALUED AND ACCOUNTED FOR
IN THE COMPANY'S FINANCIAL STATEMENTS.
See response to Comment 35 above. The information requested has been
presented in Note 9 (formerly Note 8).
37. PLEASE REVISE THE NOTES TO THE COMPANY'S INTERIM FINANCIAL
STATEMENTS TO DISCLOSE THE NUMBER OF SHARES ISSUABLE PURSUANT TO
OUTSTANDING STOCK OPTIONS, WARRANTS, AND CONVERTIBLE NOTES PAYABLE,
THAT COULD POTENTIALLY DILUTE THE COMPANY'S BASIC EARNINGS PER SHARE
IN THE FUTURE, BUT THAT WERE NOT REFLECTED IN THE COMPANY'S DILUTED
EARNINGS PER SHARE COMPUTATIONS FOR THE PERIODS PRESENTED BECAUSE
THEIR IMPACT WAS ANTIDILUTIVE. REFER TO THE DISCLOSURE REQUIREMENTS
OUTLINED IN PARAGRAPH 40C OF SFAS NO.128.
We have provided the requested disclosures in a new paragraph added
to the end of Note 2 of the Company's interim financial statements.
Note 13 - Business Acquisitions and Acquisition Liabilities
- -----------------------------------------------------------
Changes in L'Attitudes, Inc. (CLA), page F-19
Island Resort Tours, Inc. and International Travel and Resort, Inc. (IRT/ITR),
page F-20
- ------------------------------------------------------------------------------
38. WE NOTE FROM YOUR DISCLOSURE THAT GOODWILL ASSOCIATED WITH THE CLA
AND IRT/ITR ACQUISITIONS COMPRISES OVER 50 PERCENT OF THE TOTAL
PURCHASE PRICE OF EACH ACQUISITION. CONSIDERING THE OVERALL
SIGNIFICANCE OF GOODWILL RECOGNIZED IN YOUR FINANCIAL STATEMENTS,
25
PLEASE DISCLOSE AND EXPLAIN IN DETAIL THE FACTORS THAT CONTRIBUTED
TO YOUR DECISION TO PAY A PREMIUM THAT SIGNIFICANTLY EXCEEDED THE
FAIR VALUE OF THE ASSETS AND LIABILITIES ACQUIRED IN BOTH OF THESE
ACQUISITIONS. REFER TO PARAGRAPH 51(B) FOR GUIDANCE. ALSO EXPLAIN TO
US HOW YOU CONSIDERED THE GUIDANCE IN PARAGRAPH A14 IN PREPARING THE
PURCHASE PRICE ALLOCATION FOR EACH ACQUISITION. AS PART OF YOUR
RESPONSE, YOU SHOULD EXPLAIN IN DETAIL WHY NONE OF THE PURCHASE
PRICE WAS ALLOCATED TO CUSTOMER RELATIONSHIPS OR OTHER CATEGORIES OF
INTANGIBLE ASSETS. IT APPEARS BASED ON THE NATURE OF THE BUSINESSES
ACQUIRED IN BOTH THE CLA AND IRT/ITR ACQUISITIONS THAT SOME VALUE
SHOULD BE ALLOCATED TO MARKETING RELATED INTANGIBLE ASSETS AND
CUSTOMER-RELATED INTANGIBLES, SUBJECT TO AMORTIZATION.
Note 13 has been modified to include a more detailed description of
the nature of intangible assets acquired in these acquisitions, the
methods used to value these assets and the periods over which the
identifiable intangible assets are being amortized. The Company
previously considered the examples of intangible assets in FAS 141,
Appendix A4 in allocating the purchase price of these acquisitions.
The review of identifiable intangible assets and valuation of such
assets was performed internally by the Company's former CFO. The
Company expects to continue to reevaluate its purchase price
allocation regarding this acquisition and may make further
adjustments with the first year following the acquisition as
indicated in the last sentence prior to the tables that set forth
the allocation of the purchase price for CIL (formerly referred to
as "CLA") and IRT/ITR and as may be required by our auditors during
the audit of the Company's December 31, 2006 financial statements.
39. PLEASE EXPLAIN IN FURTHER DETAIL THE NATURE OF THE "WEB BASED
ASSETS" ACQUIRED IN THE CLA ACQUISITION TRANSACTION THAT WERE VALUED
AT $590,000. ALSO PLEASE EXPLAIN IN DETAIL HOW THE COMPANY VALUED
THESE ASSETS FOR PURPOSES OF DETERMINING THE PURCHASE PRICE
ALLOCATION. IN ADDITION, PLEASE REVISE THE NOTES TO YOU FINANCIAL
STATEMENTS TO INCLUDE THE DISCLOSURES OUTLINED IN PARAGRAPH 44 OF
SFAS NO.142 WITH RESPECT TO THESE INTANGIBLE ASSETS.
Note 13 has been modified to include a description of the web-based
assets acquired in the CIL (formerly referred to as "CLA")
acquisition, the method used to value these assets and the periods
over which the identifiable intangible assets are being amortized.
See the disclosure in the first and fifth paragraphs in Note 13
related to CIL. . Further, the Company expects to continue to
reevaluate its purchase price allocation regarding this acquisition
and may make further adjustments with the first year following the
acquisition.
26
40. REFERENCE IS MADE TO YOUR DISCLOSURE ON PAGES F-19 AND F-21, WHERE
YOU DISCLOSE THAT ADDITIONAL SHARES OF COMMON STOCK MAY BE ISSUED IF
THE COMPANY, AS PART OF ANY SUBSEQUENT BUSINESS ACQUISITION ON OR
BEFORE DECEMBER 31, 2006, ISSUES DYNAMIC COMMON STOCK TO AN ACQUIREE
/ SELLER AT A RATE LESS THAN $1.50 PER SHARE. WE ALSO NOTE YOUR
RESPONSE TO COMMENT 54 FORM OUR LETTER OF MAY 12, 2006, WHERE YOU
STATE THAT IF ADDITIONAL SHARES ARE ISSUED, THEY WOULD BE ACCOUNTED
FOR AS AN ADDITION TO THE PURCHASE PRICE. PLEASE NOTE THAT WE DO NOT
AGREE WITH YOUR CONCLUSION AS YOUR PROPOSED TREATMENT DOES NOT
APPEAR TO COMPLY WITH THE GUIDANCE OUTLINED IN PARAGRAPHS 29 AND 30
OF SFAS NO.141. SINCE THE ISSUANCE OF ADDITIONAL COMMON SHARES WILL
BE BASED ON SECURITY PRICES, IT DOES NOT APPEAR THAT THIS
CONTINGENCY SHOULD CHANGE THE RECORDED COST OF THE ACQUIRED ENTITY
AS OUTLINED IN PARAGRAPH 27, 29 AND 30 OF SFAS NO.141. PLEASE
CONFIRM YOUR AGREEMENT WITH THIS ACCOUNTING TREATMENT AND REVISE
YOUR NOTE TO YOUR FINANCIAL STATEMENTS TO DISCLOSE YOUR ACCOUNTING
TREATMENT FOR THIS CONTINGENT CONSIDERATION.
We concur with your application of the guidance outlined in
paragraphs 29 and 30 of SFAS No.141. The Company has revised the
third post-effective amendment by disclosing our accounting
treatment related to the potential issuance of additional shares.
41. WE NOTE FROM THE DISCLOSURES PROVIDE IN NOTE 13 ON PAGE F-22 THAT
THE COMPANY ALLOCATED $1,600,000 OF THE PURCHASE PRICE FOR THE
IRT/ITR ACQUISITION TO CERTAIN AIRLINE CONTRACTS ASSUMED IN THE
TRANSACTIONS. PLEASE TELL US AND EXPLAIN IN THE NOTES TO THE
FINANCIAL STATEMENTS HOW THE COMPANY DETERMINED THE VALUE ASSIGNED
TO THIS INTANGIBLE ASSET. ALSO, PLEASE EXPLAIN HOW THE 32 MONTH
AMORTIZATION PERIOD BEING USED FOR THIS ASSET WAS DETERMINED.
The amortization period is three years or 36 months from the
acquisition date. However, since the purchase price allocation was
revised 4 months after the acquisition, the amortization will occur
over the remaining life of 32 months. Disclosure has been added to
Note 13 describing how value was assigned to these airline contracts
and the remaining 32-month amortization period.
Note 15 - Subsequent Events, page F-24
- --------------------------------------
42. WE NOTE FROM YOUR DISCLOSURE THAT YOU ISSUED THE FOLLOWING EQUITY
INSTRUMENTS SUBSEQUENT TO YOUR INTERIM PERIOD PRESENTED:
o 100,000 SHARES OF COMMON STOCK ON JULY 1, 2006 AND 100,000
ADDITIONAL SHARES OF COMMON STOCK ON JULY 12, 2006 PURSUANT TO
A STOCK PURCHASE AGREEMENT WITH MMA CAPITAL, LLC;
27
o 15,000 SHARES OF COMMON STOCK PLUS 15,000 WARRANTS TO PURCHASE
COMMON STOCK AT $1.00 PER SHARE ON JULY 10, 2006 TO DAVID O.
JENSEN; AND
o 250,000 SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $1.00
ON JULY 28, 2006 TO MILLER INVESTMENTS, LLC.
IN THIS REGARD, PLEASE TELL US AND DISCLOSE IN NOTE 15 THE NATURE
AND AMOUNT OF THE CONSIDERATION RECEIVED IN THESE TRANSACTIONS. YOUR
RESPONSE AND YOUR REVISED DISCLOSURE SHOULD ALSO EXPLAIN HOW YOU
VALUED AND ACCOUNTED FOR THE SHARES ISSUED IF CONSIDERATION OTHER
THAN CASH WAS RECEIVED IN THESE TRANSACTIONS.
The information you have requested in this Comment and similar
information concerning other transactions that have occurred since
your review have been included in Note 9 (formerly Note 8) and Note
15.
43. PLEASE EXPLAIN IN NOTE 15 HOW YOU VALUED AND ACCOUNTED FOR THE
100,000 SHARES OF COMMON STOCK ISSUED TO MMA IN CONNECTION WITH THE
AUGUST 8, 2006 MODIFICATION OF THE CONVERTIBLE DEBT OBLIGATION.
The information you have requested in this Comment has included in
Note 9 (formerly Note 8).
Changes in L'Attitude, Inc. Consolidated Financial Statements for the years
ended December 31, 2005 and 2004
- ---------------------------------------------------------------------------
Cash and Cash Equivalents, page F-87
- ------------------------------------
44. WE NOTE YOUR RESPONSE TO COMMENTS 57 FROM OUR LETTER OF MAY 12,
2006. PLEASE REVISE YOUR "CASH AND CASH EQUIVALENTS" DISCLOSURE ON
PAGE F-87 AND ADD A "CASH AND CASH EQUIVALENTS" ACCOUNTING POLICY
DISCLOSURE TO YOUR INTERIM FINANCIAL STATEMENT FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2006 TO INCLUDE THE AMOUNT OF CREDIT CARD
PAYMENTS INCLUDED IN CASH AND CASH EQUIVALENTS AND A DISCLOSURE
SIMILAR TO YOUR RESPONSE TO COMMENT 57 FORM OUR LETTER OF MAY 12,
2006.
The requested disclosures have been added to Note 2 of the September
30, 2006 financial statements and Note 3 the 2005 financial
statements of CIL (formerly referred to as "CLA").
Unaudited Pro Forma Combined Condensed Financial Statements
- -----------------------------------------------------------
45. WE NOTE THAT THE PRO FORMA FINANCIAL STATEMENTS ON PAGES F-94
THROUGH F-98 ONLY GIVE EFFECT TO THE CLA ACQUISITION. PLEASE REMOVE
THE PRO FORMA FINANCIAL STATEMENTS ON PAGES F-94 THROUGH F-98, SINCE
THE PRO FORMA FINANCIAL STATEMENTS ON PAGES F-113 THROUGH F-115 SHOW
THE SAME PRO FORMA INFORMATION.
28
The pro forma financial statements on former pages F-94 through F-98
have been removed from the third post-effective amendment.
Pro Forma Financial Statements, pages F-113 through F-115
- ---------------------------------------------------------
46. PLEASE ADD AN INTRODUCTORY PARAGRAPH WHICH BRIEFLY SETS FORTH A
DESCRIPTION OF THE TRANSACTIONS, THE ENTITIES INVOLVED, AND THE
PERIODS FOR WHICH THE PRO FORMA INFORMATION IS PRESENTED. IN
ADDITION, AN EXPLANATION OF WHAT THE PRO FORMA PRESENTATION SHOWS
SHOULD BE PROVIDED.
The information requested has been included in an introductory
section of the pro forma financial statements.
47. PLEASE REMOVE THE BALANCE SHEET INFORMATION ON PAGE F-113, AS YOUR
MOST RECENT INTERIM PERIOD BALANCE SHEET ALREADY GIVES EFFECT TO THE
TRANSACTIONS REFLECTED IN THE PRO FORMA FINANCIAL INFORMATION. ALSO,
PLEASE ADD A PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2006, AS REQUIRED BY ITEM 310(D)(2)(I) OF
REGULATION S-B.
The pro forma balance sheet was removed from the registration
statement and a pro forma statement of operations for the nine
months ended September 30, 2006 has been included.
48. REFERENCE IS MADE TO THE COLUMN ON PAGE F-114 LABELED "HISTORICAL
DYNECO." PLEASE REVISE THIS COLUMN SO THAT IT AGREES WITH THE DYNECO
RESTATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005.
Former page F-114 has been changed as recommended and headings now
conform to the descriptions set forth in the introduction section of
the pro forma financial statements.
49. REFERENCE IS MADE TO THE JANUARY 13, 2006 FINANCING TRANSACTION IN
THE AMOUNT OF $2,000,000 DISCLOSED ON PAGE F-12. PLEASE REVISE THE
PRO FORMA STATEMENT OF OPERATIONS TO ALSO GIVE EFFECT TO THIS
FINANCING TRANSACTION. THE REVISED PRO FORMA INFORMATION SHOULD
REFLECT THIS TRANSACTION AS IF IT HAD OCCURRED ON JANUARY 1, 2005,
AND SHOULD INCLUDE THE EFFECT OF EACH OF THE FOLLOWING:
o THE DEBT DISCOUNT AMORTIZATION EXPENSE ASSOCIATED WITH
THE BENEFICIAL CONVERSION FEATURE (BCF);
o THE CHANGE IN VALUE OF THE WARRANT LIABILITY ASSOCIATED
TO THE WARRANTS ISSUED IN CONNECTION WITH THIS FINANCING
TRANSACTION; AND
o THE INTEREST EXPENSE ASSOCIATED WITH THE LOAN
29
PLEASE SEPARATELY DISCLOSE THE AMOUNT FOR EACH OF THE ABOVE ITEMS.
ALSO FOR EACH ITEM, PLEASE DISCLOSE IN DETAIL THE METHODS AND
ASSUMPTIONS (I.E., EXPECTED INTEREST RATE, AMORTIZATION PERIOD,
STOCK PRICE USED IN CALCULATION THE BCF, ASSUMPTION USED IN COMING
UP WITH THE WARRANT LIABILITY AT THE BEGINNING AND THE END OF THE
PERIODS PRESENTED, ETC.)
The pro forma statements of operations have been modified and
related Notes added as requested. The pro forma financial statements
for the interim period have also been updated to include operations
for the nine months ended September 30, 2006.
50. REFERENCE IS MADE TO THE ACQUISITIONS OF CLA AND IRT/ITR DISCLOSED
IN NOTE 13 ON PAGES F-19 THROUGH F-22. IN THIS REGARD, PLEASE GIVE
EFFECT IN YOUR PRO FORMA STATEMENTS OF OPERATIONS TO THE FOLLOWING:
o THE CONVERTIBLE DEBT DISCOUNT AMORTIZATION EXPENSE
ASSOCIATED WITH THE BENEFICIAL CONVERSION FEATURES OF
EACH OF THE CONVERTIBLE NOTES ISSUED (BCF);
o THE REVISED DEPRECIATION/AMORTIZATION EXPENSE BASED ON
THE ESTIMATED FAIR VALUE OF THE CLA AND IRT/ITR
TANGIBLE/INTANGIBLE ASSETS FORM THESE ACQUISITIONS; AND
o THE INTEREST EXPENSE, IF ANY, ASSOCIATED WITH THE
$1,440,000 ACQUISITION PAYABLE.
PLEASE SEPARATELY DISCLOSE THE AMOUNT FOR EACH OF THE ABOVE ITEMS.
ALSO FOR EACH ITEM, PLEASE DISCLOSE IN DETAIL THE METHODS AND
ASSUMPTIONS (I.E., EXPECTED INTEREST RATE, AMORTIZATION PERIOD,
STOCK PRICE USED IN CALCULATING THE BCF, THE FAIR VALUE OF THE
TANGIBLE AND INTANGIBLE ASSETS, AND THE ESTIMATED USEFUL LIVES OF
THE TANGIBLE AND INTANGIBLE ASSETS, ETC.) USED IN ESTIMATING THESE
AMOUNTS. PLEASE SEPARATELY DISCLOSE THE ABOVE FOR EACH PERIOD
AFFECTED IN YOUR PRO FORMA STATEMENT OF OPERATIONS.
The pro forma statements of operations have been modified and
related Notes added as requested, with the exception of the
following: The historical carrying value of fixed assets was not
materially changed upon the recording of the acquisitions;
therefore, no pro forma adjustment was made to depreciation expense.
Further, the $1,440,000 of acquisition payables accrued interest
only upon certain future events occurring. As a result, no pro forma
adjustment to interest expense relative to this obligation has been
included in the pro forma statements of operations.
51. REFER TO FOOTNOTE (C) ON PAGE F-15. PLEASE REVISE TO INDICATE THAT
THIS ADJUSTMENT REPRESENTS INTEREST EXPENSE WITH RESPECT TO THE
CONVERTIBLE NOTES ISSUED IN CONNECTION WITH THE ACQUISITIONS RATHER
THAN INTEREST INCOME.
30
The pro forma statements of operations have been modified as
requested and the footnote (c) on interest expense expanded based on
prior staff comments.
Legal Matters, page II-21
- -------------------------
52. PLEASE REVISE TO REFLECT THE FACT THAT THE LEGAL OPINION DATED
SEPTEMBER 12, 2006 IS BY CRONE ROZYNKO, LLP.
The Company has revised the third post-effective amendment to
reflect the fact that the updated legal opinion is by Crone Rozynko
LLP.
Exhibit 23.1: Consent of Crone Rozynko LLP (filed with Exhibit 5)
- -----------------------------------------------------------------
53. WE NOTE THAT YOU HAVE FILED THE LEGAL OPINION HERE, RATHER THAN AS
EXHIBIT 5. PLEASE MOVE TO EXHIBIT 5 IN YOUR NEXT AMENDMENT.
The Company has moved the legal opinion of Crone Rozynko LLP to
Exhibit 5.
54. WE NOTE THAT YOU HAVE LIMITED YOUR LEGAL OPINION TO THE "INTERNAL
LAWS OF THE STATE OF MINNESOTA (BASED SOLELY UPON OUR REVIEW OF A
STANDARD COMPILATION THEREOF)." PLEASE DELETE THE IMPERMISSIBLE
LIMITATION CONTAINED IN THE PARENTHESIS, WHICH MIGHT SERVE AS A
DISCLAIMER.
Crone Rozynko LLP has deleted the parenthetical from its opinion, as
reflected in Exhibit 5 to the third post-effective amendment.
55. EITHER DELETE THE NEXT-TO-LAST PARAGRAPH OR REFILE THE OPINION DATED
THE DATE OF EFFECTIVENESS.
Crone Rozynko LLP has deleted the next-to-last paragraph of its
opinion, as reflected in Exhibit 5 to the third post-effective
amendment.
Exhibit 23.2: Consent of Salberg & Company, P.A.
- ------------------------------------------------
56. CURRENTLY THE AUDITOR'S REPORT DATES ON THE CONSENT OF SALBERG &
COMPANY P.A. DOES NOT AGREE WITH THE DATES ON THE RELATED AUDITOR'S
OPINION ON PAGE F-27. PLEASE REVISE ACCORDINGLY.
The Company has corrected the scrivener's error on the consent of
Salberg & Company P.A., as attached to the third post-effective
amendment.
The Company acknowledges that:
31
- The Company is responsible for the adequacy and accuracy
of the disclosures in the filing;
- Should the Commission or the staff, acting pursuant to
delegated authority, declare the filing effective, it
does not foreclose the Commission from taking any action
with respect to the filing;
- 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;
- The action of the Commission or the staff, acting
pursuant to delegated authority, in declaring the filing
effective, does not relieve the Company from its full
responsibility for the adequacy and accuracy of the
disclosure in the filing;
- The Company may not assert staff comments and the
declaration of effectiveness as a defense in any
proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
We trust that you will find the foregoing responsive to the comments
of the Staff. Comments or questions regarding this letter may be directed to the
undersigned or Scott C. Kline, Company counsel, at 415-955-8900.
Sincerely,
/s/ Daniel G. Brandano
------------------------
Daniel G. Brandano
President
cc: Scott C. Kline, Esq.
Crone Rozynko LLP
32