DAVID M. LOEV, ATTORNEY AT LAW
6300 WEST LOOP SOUTH, SUITE 280
BELLAIRE, TEXAS 77401
TELEPHONE (713) 524-4110
FACSIMILE (713) 524-4122
December 8, 2006
Chris Edwards VIA FED-EX
Division of Corporate Finance ----------
United States Securities and Exchange Commission AND VIA EDGAR
100 F. Street, N.E. -------------
Washington, D.C. 20549
Phone: (202) 551-3742
RE: PEDIATRIC PROSTHETICS, INC.
REGISTRATION STATEMENT ON FORM 10-SB AMENDED JULY 14, 2006
FILE NUMBER: 0-51804
Dear Mr. Edwards:
We have enclosed three red-lined copies of the amended registration
statement for your review. In response to your comment letter dated August 10,
2006, Pediatric Prosthetics, Inc. ("Pediatric") has the following responses:
Item 1. Description of Business
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1. PLEASE CLARIFY WHETHER YOU ARE REFERRING TO GRANT DOUGLAS OR PEDIATRIC
PROSTHETICS WHEN YOU STATE IN THE FIRST SENTENCE OF THIS SECTION THAT "WE
WERE FORMED AS AN IDAHO CORPORATION ON JANUARY 29, 1954." PLEASE DISCLOSE
THE BUSINESS ACTIVITIES ENGAGED IN SINCE THIS TIME AND WHETHER REVENUES
WERE EVER GENERATED FROM OPERATIONS.
RESPONSE:
Pediatric has clarified the disclosure in the paragraph to which you
refer to better and more clearly disclose the transaction between Pediatric
Prosthetics, Inc. (the Texas corporation) and Grant Douglas (the Idaho
corporation) in its amended Form 10-SB filing.
2. PLEASE EXPLAIN YOUR CHARACTERIZATION OF THIS EXCHANGE AS A MERGER OF A
PRIVATE OPERATING COMPANY INTO A NON-OPERATING PUBLIC SHELL CORPORATION IN
LIGHT OF THE FACT THAT NEITHER ENTITY HAD BUSINESS OPERATIONS PRIOR TO THE
MERGER.
RESPONSE:
While neither company technically had business operations immediately
prior to the exchange, Grant Douglas had operations in years prior to the
exchange and traded its common stock on the Pinksheets under the symbol
"GDRG." Pediatric on the other hand had not conducted any business
operations under the name or entity Pediatric Prosthetics, Inc., but had
previously conducted business operations as a partnership and disclosure of
this has been added to the amended filing.
3. IF GRANT DOUGLAS WAS NOT A REPORTING COMPANY AT THE TIME OF THE REVERSE
ACQUISITION OF PEDIATRIC PROSTHETICS, THEN PLEASE EXPLAIN THE STATEMENT IN
THE FIRST PARAGRAPH ON PAGE 5 THAT PEDIATRIC EMERGED AS THE "SURVIVING
FINANCIAL REPORTING ENTITY." ALSO, PLEASE EXPLAIN WHY PEDIATRIC PROSTHETICS
ENTERED INTO THE MERGER TO BECOME A PUBLICLY TRADED COMPANY WHEN GRANT
DOUGLAS WAS NOT A PUBLICLY TRADED COMPANY.
RESPONSE:
As stated in response 4, Grant Douglas had operations in years prior
to the exchange and traded its common stock on the Pinksheets under the
symbol "GDRG," prior to the exchange. Pediatric has amended the filing to
clarify that Pediatric entered into the Exchange to trade its common stock
on the Pinksheets. The language regarding Pediatric emerging as the
"surviving financial reporting entity" has been revised to state that
Pediatric was the "surviving accounting entity" to avoid confusion
regarding whether Grant Douglas was ever a reporting company.
Service Agreement with Global Media
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4. WE NOTE YOUR AGREEMENT TO ISSUE A TOTAL OF $112,500 WORTH OF YOUR COMMON
STOCK TO GLOBAL MEDIA IN FEBRUARY 2006. PLEASE TELL US HOW YOU ACCOUNT FOR
THIS OBLIGATION. GIVEN THAT, THIS OBLIGATION WILL SETTLE IN A VARIABLE
NUMBER OF SHARES, PLEASE TELL US YOUR CONSIDERATION OF PARAGRAPH 12 OF SFAS
150. ADDITIONALLY, PLEASE TELL US YOUR CONSIDERATION OF EITF 96-18, AS WE
NOTE THAT THERE DOES NOT APPEAR TO BE A MEASUREMENT DATE, AS DISCUSSED IN
ISSUE 1 OF EITF 96-18 WITH RESPECT TO THIS AGREEMENT.
RESPONSE:
Pediatric's agreement with Global Media is an executory services
contract that provides for the payment of $112,500 worth of consideration,
in the form of shares of Pediatric's common stock, over the one-year term
of the agreement as services are provided. The agreement provides that
Pediatric will issue common stock valued at $28,125 to Global Media on May
1, 2006, August 1, 2006, November 1, 2006 and February 1, 2007. However,
the agreement contains a provision that requires Pediatric to provide
Global Media with shares that are at a 10% discount to the market price on
each respective payment date. Consequently, over the term of the agreement
and assuming continued performance by Global Media, Pediatric will be
required deliver as consideration shares of our common stock with a value
of $125,000 (computed as the $112,500 divided by 90%). Because the
agreement with Global Media is an executory services contract that
contemplates future performance, Pediatric is accruing, on a monthly basis,
a pro rata amount of the $125,000 expense that may be incurred over the
life of the agreement. Therefore, at each month end Pediatric will have
accrued an amount that is equal to the portion of the consideration that
would have been earned through that date. Pediatric has the right to
terminate the agreement at any time with thirty (30) days written notice to
Global Media. In the event of termination, Pediatric will only be obligated
to pay to Global Media that amount that has been earned up through the
termination date.
Pediatric has considered paragraph 12 of SFAS 150 and has concluded
that the Global Media agreement does not result in an unconditional
obligation as contemplated therein.
Pediatric has considered EITF 96-18 and has concluded that at the
point in time shares are delivered to Global Media, if ever, no future
performance requirements will exist for those shares and they will be fully
vested and non-forfeitable resulting in a measurement date.
May 2006 Securities Purchase Agreement
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5. WE NOTE THAT YOU ENTERED INTO A PURCHASE AGREEMENT IN MAY 2006 TO ISSUE
$1.5 MILLION IN CONVERTIBLE NOTES. WE REMIND YOU TO CONSIDER SFAS 133 AND
EITF 00-19, AMONG OTHERS IN DETERMINING WHETHER THE CONVERSION FEATURE
SHOULD BE ACCOUNTED FOR AS AN EMBEDDED DERIVATIVE AND. WHETHER THE
CONVERTIBLE NOTES CONTAIN OTHER EMBEDDED, DERIVATIVES. WITH RESPECT TO THE
CONVERSION FEATURE, WE NOTE THE PRESENCE OF REGISTRATION RIGHTS, NET
SETTLEMENT FEATURES, AN INSUFFICIENT NUMBER OF AUTHORIZED, BUT UNISSUED
SHARES AND OTHER TERMS THAT, PURSUANT TO PARAGRAPH 11.A OF SFAS 133 AND
EITF 00-19, WOULD, SUGGEST THAT THE CONVERSION FEATURE REPRESENTS AN
EMBEDDED DERIVATIVE. WE ALSO REFER YOU TO EITF 05-4 WITH RESPECT TO YOUR
REGISTRATION RIGHTS FOR YOUR CONSIDERATION. IF YOU DETERMINE THAT THE
CONVERSION FEATURE DOES NOT REPRESENT AN EMBEDDED DERIVATIVE, WE REMIND YOU
TO CONSIDER THE GUIDANCE IN EITF 98-5 AND EITF 00-27 IN DETERMINING WHETHER
THE NOTES CONTAIN A BENEFICIAL CONVERSION FEATURE.
WE REMIND YOU TO ALSO CONSIDER THE ABOVE POINTS WITH RESPECT TO THE
$35,000 OF CONVERTIBLE DEBT YOU ISSUED IN MARCH 2006 AND. THE $50,000 OF
CONVERTIBLE DEBT YOU ISSUED IN APRIL 2006, AS DISCUSSED ON PAGE 6.
RESPONSE:
Pediatric has analyzed the $1.5 million in convertible notes in
accordance with SFAS 133 and EITF 00-19 and has determined that the
conversion feature and the registration rights represent embedded
derivatives and presented the related derivative liabilities in its June
30, 2006 financial statements contained in its amended Form 10-SB.
Pediatric has analyzed the $35,000 of convertible debt issued in March
2006 and the $50,000 of convertible debt issued in April 2006 in accordance
with SFAS 133 and EITF 00-19 and determined the following:
The $35,000 of convertible debt issued in March 2006 contains no
embedded derivatives, but does include beneficial conversion features.
Pediatric has included in its June 30, 2006 Form 10-SB financial statements
the value of the beneficial conversion features and the related
amortization of those conversion features in accordance with EITF 98-5 and
EITF 00-27.
The $50,000 of convertible debt issued in April 2006 contains no
embedded derivatives, but does include a beneficial conversion feature and
debt issue costs associated with the 1,428,571 of warrants exercisable at
$0.035 per share. Pediatric included in the June 30, 2006 financial
statements the value of the beneficial conversion feature and the value of
the warrants issued upon origination of the debt and the related
amortization of those costs in accordance with EITF 98-5 and EITF 00-27.
Pediatric has analyzed the impact of additional convertible debt and
warrants issued in May 2006 and has determined that an insufficient number
of authorized but unissued shares created by this additional convertible
debt resulted in a change in the original accounting for the $35,000 of
convertible debt issued in March 2006 and the $50,000 of convertible debt
and 1,428,571 of warrants exercisable at $0.035 per share issued in April
2006. The treatment of both the beneficial conversion features and warrants
associated with those debt agreements has been changed to account for those
features as embedded derivatives. Additionally, Pediatric properly valued
and presented the related derivative liabilities in its June 30, 2006
financial statements.
Pediatric plans to restate its March 31, 2006 unaudited financial
statements contained in its Form 10-QSB for the nine months ended March 31,
2006, in connection with the revised accounting above, where applicable
subsequent to the filing of this amended Form 10-SB.
6. WE ALSO NOTE THAT YOU ISSUED 50 MILLION WARRANTS AS PART OF THE MAY 2006
PURCHASE AGREEMENT. AGAIN, WE REMIND YOU TO CONSIDER SFAS 133 AND EITF
00-19 IN DETERMINING THE ACCOUNTING AND CLASSIFICATION OF THESE WARRANTS.
THE REGISTRATION RIGHTS AND THE INSUFFICIENT NUMBER OF AUTHORIZED, BUT
UNISSUED SHARES, AGAIN, SUGGESTS THAT THE WARRANTS SHOULD BE ACCOUNTED FOR
AS A. DERIVATIVE INSTRUMENT. WE ALSO REFER YOU TO EITF 05-4 WITH RESPECT TO
YOUR REGISTRATION RIGHTS FOR YOUR CONSIDERATION.
WE ALSO REMIND YOU TO CONSIDER THE ABOVE POINTS WITH RESPECT TO THE
1,428,57.1 WARRANTS YOU ISSUED TO A SHAREHOLDER IN APRIL 2006, AS DISCUSSED
ON PAGE 6; THE TWO MILLION WARRANTS ISSUED, TO LIONHEART ASSOCIATES, AS
DISCUSSED ON PAGE 54; AND THE THREE MILLION WARRANTS ISSUED TO GEOFF EITEN,
AS DISCUSSED ON PAGE 54.
RESPONSE:
Pediatric has analyzed the $1.5 million in convertible notes and the
50 million warrants issued as part of the May 2006 securities purchase
agreement in accordance with SFAS 133 and EITF 00-19. Based on its analysis
its has determined that the warrants, the conversion feature and the
registration rights represent derivative financial instruments and properly
valued and presented the related derivative liabilities in its June 30,
2006 financial statements contained both in its Form 10-KSB filing and this
amended Form 10-SB filing.
Pediatric also analyzed the 1,428,571 warrants issued to a shareholder
in April 2006, the two million warrants issued to Lionheart Associates, and
the three million warrants issued to Geoff Eiten. Based on its analysis it
has determined that in each case, such warrants represent derivative
financial instruments and properly valued and present the related
derivative liabilities in its June 30, 2006 financial statements.
Pediatric plans to restate its March 31, 2006 unaudited financial
statements contained in its Form 10-QSB for the nine months ended March 31,
2006, in connection with the revised accounting above, where applicable
subsequent to the filing of this amended Form 10-SB.
Events of Default
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7. PLEASE DISCLOSE WHETHER YOU ARE IN DEFAULT UNDER THE TERMS OF THE
DEBENTURES.
RESPONSE:
Due to Pediatric's and the Debenture holders entry into the Waiver of
Rights Agreement on October 25, 2006, effective as of July 31, 2006, as
disclosed in the amended filing, Pediatric is not in default of any term of
the Debentures and language to this affect has been added to the amended
filing.
Item 2. Management's Discussion and. Analysis of Financial Condition and Results
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ofOperations
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Plan of Operations
8. IN THIS SECTION AND ELSEWHERE IN THE REGISTRATION STATEMENT WHERE YOU
DISCUSS THE PROCEEDS FROM THE SALE OF THE CONVERTIBLE DEBENTURES PLEASE
ALSO DISCLOSE THE NET PROCEEDS YOU RECEIVED AND EXPECT TO RECEIVE.
RESPONSE:
Pediatric has revised the disclosure in the amended registration
statement to include the information you requested, where appropriate.
Critical Accounting Policies
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9. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 24 OF OUR LETTER DATED MARCH 10,
2006. PLEASE CLARIFY THE FOLLOWING:
o YOU STATE THAT THE CHANGE IN YOUR REVENUE RECOGNITION POLICY FROM
CASH BASIS TO ACCRUAL BASIS DID NOT HAVE A MATERIAL IMPACT ON YOUR
FINANCIAL STATEMENTS. PLEASE QUANTIFY FOR US THE IMPACT OF THE CHANGE
FOR EACH PERIOD, PRESENTED. PLEASE ALSO PROVIDE US WITH AN ANALYSIS OF
THE QUANTITATIVE AND QUALITATIVE FACTORS IN SAB 99 IN CONCLUDING THAT
THE IMPACT IS IMMATERIAL.
o CITING RELEVANT ACCOUNTING LITERATURE, PLEASE HELP US UNDERSTAND
WHY YOU RECOGNIZE REVENUE FROM THE SALE OF PROSTHETIC DEVICES AND
RELATED SERVICES GENERATED THROUGH THE BILLING DEPARTMENTS OF THE
HOST-AFFILIATES NET OF ANY COSTS OF GOODS.
o YOU STATE THAT IF YOU ARE UNABLE TO COLLECT FROM THE PATIENT, YOU
RECOGNIZE A BAD DEBT EXPENSE. PLEASE TELL US WHY YOU DO NOT RECOGNIZE
AN ESTIMATE OF AN ALLOWANCE FOR DOUBTFUL ACCOUNTS ON RECEIVABLE
BALANCES AT EACH PERIOD, END, RATHER THAN WAITING UNTIL YOU ARE UNABLE
TO COLLECT FROM YOUR PATIENT TO WRITE OFF THE RECEIVABLE.
RESPONSE:
a) The impact of the change in revenue recognition policy from cash basis to
accrual basis was as follows:
QTR QTR YTD QTR QTR QTR
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
2004 2005 2005 2005 2005 2006
Receivable Not Reported Not Reported $ 34,429 Not Reported $ 49,777 $ 34,376
Receivables
as reported Not Reported Not Reported 73,422 Not Reported 114,709 216,096
% of
receivables Not Reported Not Reported 46.9% Not Reported 43.4% 15.9%
Current assets
as reported Not Reported Not Reported 119,732 Not Reported 169,879 236,492
% of current
assets Not Reported Not Reported 28.8% Not Reported 29.3% 14.5%
Effect on net
loss 16,012 36,614 34,429 (8,168) 23,516 (15,401)
Net income
(loss) as
reported (3,733,696) (231,972) (4,390,948) (671,480) (124,540) 126,032
Net income
(loss) with
receivables
included (3,717,684) (195,358) (4,356,519) (679,648) (101,024) 110,631
% of net loss 0.4% 15.78% 0.8% 1.2% 18.9% 12.2%
Net loss per
share as
reported (0.07) (0.00) (0.07) (0.01) (0.00) 0.00
Net loss per
share with
receivables
included (0.07) (0.00) (0.07) (0.01) (0.00) 0.00
Weighted
average
shares 51,046,750 86,168,508 66,593,932 93,481,713 95,954,539 99,108,452
In considering whether or not to adjust its financial statements for the impact
of the change in its revenue recognition policy from cash basis to accrual
basis, Pediatric considered the guidance of SAB 99 as follows:
o Does the misstatement arise from an item capable of precise
measurement or does it arise from an estimate and, if so, the degree
of imprecision inherent in the estimate? The misstatement does arise
from an item capable of precise measurement; however, it meets none of
the other criteria outlined below.
o Does the misstatement mask a change in earnings or other trends? No.
o Does the misstatement hide a failure to meet analysts' consensus
expectations for the enterprise? No.
o Does the misstatement change a loss into income or vice versa? No.
o Does the misstatement concern a segment or other portion of the
registrant's business that has been identified as playing a
significant role in the registrant's operations or profitability? No
o Does the misstatement affect the registrant's compliance with
regulatory requirements? No
o Does the misstatement affect the registrant's compliance with
loan covenants or other contractual requirements? No
o Does the misstatement have the effect of increasing management's
compensation - for example, by satisfying requirements for the award
of bonuses or other forms of incentive compensation? No
o Does the misstatement involve concealment of an unlawful transaction?
No.
Although Pediatric believes that the impact of the change is not material, it
plans to restate its December 31, 2005 and March 31, 2006 quarterly financial
statements as filed in its quarterly reports for the six months ended December
31, 2005 and the nine months ended March 31, 2006, to reflect the proper accrual
of receivables and the presentation of sales through Host-Affiliates on a gross
basis as per item b) below, subsequent to the filing of its amended Form 10-SB.
b) Pediatric plans to restate its December 31, 2005 and March 31, 2006 financial
statements to properly show gross revenue and cost of sales.
c) Pediatric provides an allowance for doubtful accounts and plans to restate
its financial statements and revise its disclosure accordingly in connection
with a restatement of its December 31, 2005 and March 31, 2006 financial
statements to properly reflect such policy.
Comparison of Operating Results
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10. PLEASE CLARIFY THE FOLLOWING REGARDING YOUR COST OF SALES:
o YOU STATE ON PAGE 32 THAT COST OF SALES FOR THE THREE MONTHS
ENDED MARCH 31, 2006 DECREASED, AS COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2005, DUE TO A LARGER NUMBER OF RE-FITTINGS, WHICH REQUIRE
FEWER ELECTRONIC COMPONENTS THAN NEW FITTINGS. HOWEVER, WE NOTE YOUR
DISCLOSURE THAT REVENUE HAS INCREASED PRIMARILY DUE TO INCREASED FEES
FROM YOUR HOST AFFILIATES. IT WOULD APPEAR THAT THE DECREASE IN YOUR
COST OF SALES WOULD ALSO BE ATTRIBUTABLE TO THE INCREASE IN FEES FROM
YOUR HOST AFFILIATES FOR THIS PERIOD, GIVEN THAT YOU RECOGNIZE THOSE
FEES NET OF COST OF SALES. IF OUR UNDERSTANDING IS CORRECT, PLEASE
REVISE YOUR DISCLOSURES ACCORDINGLY.
o YOU STATE ON PAGE 33 THAT COSTS OF SALES INCREASED DUE TO
INCREASED PURCHASES OF PARTS AND COMPONENTS DURING THE NINE MONTHS
ENDED MARCH 31, 2006, WHICH FEES ASSOCIATED WITH FITTINGS WERE NOT
IMMEDIATELY RECOGNIZED BY YOU, AS SUCH FEES HAD NOT BEEN RECEIVED BY
THE HOST AFFILIATES. PLEASE CLARIFY THIS DISCLOSURE FOR US.
RESPONSE:
a) Pediatric believes that your understanding is correct and its
disclosures have been revised accordingly in its amended filing to reflect
changes in response to Comment 9.
b) Pediatric has clarified its disclosure based on this comment and to
reflect changes in response to Comment 9 in its amended filing.
Liquidity and Capital Resources
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11. WE NOTE THAT ACCOUNTS RECEIVABLE IS 72.3% OF YOUR TOTAL ASSETS AS OF MARCH
31, 2006. IN ADDITION, ACCOUNTS RECEIVABLE INCREASED 194.3% FROM JUNE 30,
2005, WHICH APPEARS TO BE DISPROPORTIONATE TO YOUR NET SALES TRENDS. NET
SALES INCREASED 76.8% FOR THE NINE MONTHS ENDED MARCH 31, 2006 COMPARED TO
THE PRIOR YEAR PERIOD. AS SUCH, PLEASE REVISE YOUR FILING TO INCLUDE AN
ANALYSIS OF DAYS SALES OUTSTANDING FOR EACH PERIOD PRESENTED, A DISCUSSION
AND ANALYSIS OF THE INCREASE IN ACCOUNTS RECEIVABLE IN EXCESS OF NET SALES
GROWTH, ANY UNCERTAINTIES REGARDING COLLECTIBILITY, AND THE IMPACT OF THIS
TREND ON YOUR LIQUIDITY.
IN ADDITION, PLEASE EXPAND YOUR DISCLOSURES TO DISCUSS THE INCREASE IN
TRADE ACCOUNTS PAYABLE AND THE DECREASE IN ACCRUED LIABILITIES.
RESPONSE:
The reason for the significant increase in accounts receivable at
March 31, 2006, which was disproportionate to our net sales trends, was due
to the fact that during the quarter ended March 31, 2006, the Company
recorded accounts receivable from host affiliates for the first time and
the cumulative impact was reflected in accounts receivable. The collection
of host affiliate receivables has a significant negative impact on accounts
receivable aging. The Company has restated its financial statements to
eliminate the disproportionate impact on its net sales trend and to reflect
revenue from host affiliates on an accrual basis. The Company has also
amended its filing to include an analysis of days sales outstanding for
each period presented, a discussion and analysis of the increase in
accounts receivable compared to net sales growth, any uncertainties
regarding collectibility, the impact of this trend on our liquidity, the
increase in trade accounts payable and the decrease in accrued liabilities,
as you have requested relating to the period ending September 30, 2006.
Item 4. Security Ownership of Certain Beneficial Owners and Management
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12. PLEASE EXPLAIN IN THE FOOTNOTES WHY THE SHARES OWNED BY MR. MORGAN
REPRESENT 41.1% OF THE VOTING STOCK OF THE COMPANY.
RESPONSE:
Pediatric has clarified that Mr. Morgan's ownership of the voting
stock of Pediatric represents only 9.5% of Pediatrics' total voting shares.
Note 6. Stockholders' Equity
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13. PLEASE TELL US THE FOLLOWING REGARDING YOUR COMMON STOCK SURRENDERED:
o PLEASE TELL US WHETHER YOU RECOGNIZED ANY AMOUNTS IN YOUR INCOME
STATEMENT WITH RESPECT TO YOUR DIRECTOR'S SURRENDERING OF FOUR MILLION
SHARES OF YOUR STOCK. IF SO, PLEASE TELL US (1) THE AMOUNT RECOGNIZED
IN INCOME AND (2) YOUR BASIS FOR RECOGNIZING THIS AMOUNT IN INCOME,
INSTEAD OF ACCOUNTING FOR THIS SURRENDER AS A CAPITAL TRANSACTION
CONSISTING OF THE ACQUISITION OF TREASURY SHARES.
o REGARDING THE TWO MILLION SHARES YOUR CONSULTANT SURRENDERED TO
YOU, PLEASE TELL US (1) THE REASON FOR THIS SURRENDER AND (2) YOUR
BASIS FOR RECOGNIZING THIS AMOUNT IN INCOME, INSTEAD OF ACCOUNTING FOR
THIS SURRENDER AS A CAPITAL TRANSACTION CONSISTING OF THE ACQUISITION
OF TREASURY SHARES.
RESPONSE:
With respect to the director surrendering four million shares of our
common stock, Pediatric did not recognize any impact in income. Pediatric
recognized this surrender as a capital transaction consisting of the
acquisition of treasury shares.
With respect to the consultant surrendering two million shares of
Pediatric's common stock, the consultant returned the shares because he was
unable to complete his commitment for services and returned 2,000,000 of
the 3,000,000 originally issued.
Pediatric initially recorded a charge to consulting expense totaling
$564,000 for all 3,000,000 shares at the date the shares were issued. In
part, this treatment was based on footnote 5 to EITF 96-18 as follows:
The Task Force subsequently discussed situations in which counter
party performance may be required over a period of time (for example,
three years) but the equity award granted to the party performing the
services is fully vested and nonforfeitable on the date the parties
enter into the contract. Although Task Force members believe that this
type of arrangement would be rare, because, typically, vesting
provisions do exist, there was general agreement that a reasonable
interpretation of the consensus is that the measurement date for an
award that is nonforfeitable and that vests immediately could be the
date the parties enter into the contract, even though services have
not yet been performed.
However, based upon further review, Pediatric has concluded that
although a measurement date for the 3,000,000 shares had been established
pursuant to the guidance in footnote 5 to EITF 96-18 the expense relating
to the shares should have been recognized in its income statement pro rata
over the term of the consulting agreement. Pediatric has corrected the
accounting for these shares in its recently filed 2006 Form 10-KSB and
plans to amend and refile its quarterly reports for the periods ending
December 31, 2005 and March 31, 2006, subsequent to the filing of this
amended Form 10-SB in connection with the above.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
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14. PLEASE EXPLAIN YOUR REFERENCE TO "FREE TRADING" SHARES. WE ALSO PARTIALLY
REISSUE COMMENT 36 OF OUT MARCH 10, 2006 LETTER. PLEASE DESCRIBE THE
TRANSACTIONS IN WHICH YOU MENTION "FREE TRADING" SHARES.
RESPONSE:
As referred to in the prior registration statement, "free trading"
shares referred to those shares which were issued without restrictive
legend pursuant to an exemption provided by Rule 504 of Regulation D of the
Securities Act of 1933. Pediatric has revised the registration statement to
include the steps it took to comply with the exemption provided by Rule 504
and has added additional disclosure regarding the transactions in which
shares were issued pursuant to Rule 504.
Very Truly Yours,
/s/ John S. Gillies
----------------------
John S. Gillies,
Associate