SEC Company Response from FACT CORP (CIK 0000707674) — Nov 28, 2005
FACT CORP (CIK 0000707674)
Date: Nov. 28, 2005 · CIK: 0000707674 · Accession: 0001044764-05-000274
AI Filing Summary & Sentiment
File numbers found in text: 000-17232
Referenced dates: August 19, 2005, September 19, 2005
Letter
Securities and Exchange Commission Division of Corporate Finance Attention: Karl Hiller – Branch Chief Form 10-KSB for the Fiscal Year Ended December 31, 2004 File April 15, 2005 SEC Response Letter dated September 19, 2005 File No. 000-17232
Dear Mr. Hiller:
In response to your letter of September 19, 2005, we provide the following written response.
General
Comment:
1.
You did not electronically file your response letter dated August 19, 2005, as required by Subparts 232.100 and 232.101 of Regulation S-T. Please electronically file this response letter, as well as all future correspondence.
Response:
1.
We have previously addressed in this comment in our written correspondence dated September 30, 2005.
Comment
2.
In your next response, please provide the representations regarding the adequacy and accuracy of your disclosures requested at the end of this letter.
1530 9th Avenue SE
Calgary, Alberta
T2G 0T7
Phone: (403) 204-0260
Fax: (403) 272-3620
www.factfoods.com
Response:
2.
We have included the representations regarding the adequacy and accuracy of our disclosures as requested at the end of this letter.
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Note 2 – Acquisition of Food and Culinary Technologies Group Inc. (FACT), Intellectual Property and Issuance of Class C Common Stock, page F-13
Comment:
3.
We have read your response to prior comment 2, indicating that the conversion rights extended to holders of your Class C common shares were not impacted by the four-for-one reverse stock split that occurred during 2003. However, you have not addressed how the economic and voting equivalency of the Class A and Class C common shares were impacted, as we had requested. Please explain how these compared before and after your reverse stock split, and cite the specific language in your agreement with the Class C stockholders governing the conversion.
Response:
3.
As at the time of the reverse split undertaken during 2003 the economic and voting equivalency of the Class A and Class C common shares were not impacted. The Articles of Amendment as approved on November 19, 2001 by the shareholders and as filed with the Secretary of State on November 19, 2001 provided as follows:
“(b) Voting. The holders of Class A Common stock shall be entitled to one vote for each shares of Class A Common stock held. The holders of the Class C Common Stock shall be entitled to one vote for each shares of Class C Common Stock held. No holder of Class A Common Stock or Class C Common Stock shall be entitled to cumulative voting in the election of directors.
“(e) Conversion: The holders of Class A Common stock shall have no right to convert the Class A Common Stock into any other class of securities of the Corporation. The shares of Class C Common Stock may be converted to Class A Common Stock as follows: (a) upon Food and Culinary Technology Group Inc. achieving U.S. $9,000,000.00 in total sales, one-third of the Class C shares may be converted; (b) upon Food and Culinary Technology Group Inc. achieving U.S. $27,500,000.00 in total sales, one-third of the Class C shares may be converted; (c) upon Food and Culinary Technology Group Inc. achieving U.S. $56,150,000.00 in total sales, one-third of the Class C shares may be converted. Shares of Class C Common Stock shall be converted into shares of Class A Common Stock at the rate of 1 share of Class C Common Stock into 6 shares of Class A Common Stock. Such conversion rate shall be adjusted as appropriate in the case of a stock split, dividend, or recapitalization of the Class A Common Stock.”
The reverse split of the Class A common stock took place on August 6, 2003.
.
Subsequent to the reverse split, on February 2, 2004 the conversion provision was amended as follows:
“(e) Conversion:
The holders of Class A Common Stock shall have no right to convert the Class A Common Stock into any other class of securities of the Corporation. The shares of Class C Common Stock may be converted to Class A Common Stock at any time upon the election of the holder of such shares. Shares of Class C Common Stock shall be converted into shares of Class A Common Stock at the rate of 1 (one) share of Class C Common Stock into 6 (six) shares of Class A Common Stock.”
This amendment to the conversion was negotiated pursuant to the settlement of certain litigation, and the forgiveness of certain liabilities and obligations of the Company and its subsidiary Food and Culinary Technology Group Inc. The Class C stockholders entered into a fourth Amendment to the Share Exchange Agreement which we have appended hereto as Exhibit “A”. The Class C shares were amended so as to allow the Class C shareholders to continue to maintain effective control in consideration for their agreement to settle the litigation.
We will file a copy of the foregoing amendment to FACT’s articles of incorporation as Exhibit 3 with our amended 10KSB for this fiscal year ended December 31, 2004 to be filed pursuant to our further advice in this letter.
Comment:
4.
In response to prior comment 3, you explain that while FACT was the co-creation of FACT Group LLC and International Securities Group Inc. (ISG), it was jointly owned by three of your four directors, and all three directors of FACT Group LLC prior to your acquisition. Given the shared interest of the directors you have identified, it is not clear that fair value accounting is the appropriate treatment under GAAP. Explain to us which of these entities are under common control at the time of each transaction. As part of your response, provide us a matrix showing the equity ownership percentages of all owners of both entities prior and immediately after each transaction.
Response:
4.
We have undertaken a more thorough review of the minute books of Food and Culinary Technology Group Inc. (FACT) and Capital Reserve Corporation (now FACT Corporation), as well as the pertinent transactional documents to provide the matrix you require. We have clarified our prior advice and advise as follows:
FACT was incorporated in the State of Nevada on August 14, 2001 for the purpose of acquiring the rights to certain assets held by FACT Group LLC from the owners of FACT Group LLC and the Murdoch Group (comprised of TMAmercian Holdings, SN Global Investments Inc., Gallus Importations Inc., and Food Information Services Inc.).
The original shareholder of FACT was:
International Securities Group Inc. – 6,000 shares issued August 15, 2001
The sole director and officer of FACT at that time was W. Scott Lawler. W. Scott Lawler was also the beneficial owner, and sole officer and director of International Securities Group Inc. as well as a member of the board of directors of Capital Reserve Corporation (now FACT Corporation).
At the time of the acquisition of FACT by Capital Reserve Corporation (now FACT Corporation) on November 7, 2001, the directors of Capital Reserve Corporation were Jacqueline Danforth, W. Scott Lawler and Sharon Patmore.
On November 7, 2001, Jacqueline Danforth was appointed to the Board of Directors of FACT.
On November 7, 2001, FACT and FACT Group LLC entered into an Acquisition Agreement and concurrently Capital Reserve Corporation (now FACT Corporation) and FACT entered into a Share Exchange Agreement. At the time of the execution of the agreements, all parties save, Mr. Lawler, were arms length to FACT and Capital Reserve Corporation (now FACT Corporation). For this reason we believe that fair value accounting is the appropriate treatment of this transaction. The value of the acquisition related to the sole interested party, Mr. W. Scott Lawler, has been eliminated from the transaction as detailed in the worksheet appended as Exhibit “B” hereto.
On November 7, 2001, the Board of Directors of FACT approved the issuance of the following subscribed for shares of FACT:
TM American Holdings Ltd. – 1,325 shares – beneficial owner Thomas Murdoch
SN Global Investments Inc. – 825 shares – beneficial owner Susan Niedermayr
Gallus Importations Inc. – 525 shares – beneficial owner Paul Niedermayr
Food Information Services Inc. – 825 shares – beneficial owner Dr. Brian Raines
Pursuant to those agreements on November 7, 2001, the following parties were appointed to the Board of Directors and as officers of FACT:
Thomas Murdoch – Director and Chief Executive Officer
Paul Niedermayr - Director and Chairman of the Board
The Acquisition Agreement between FACT and FACT Group LLC also required the issuance of 500 shares of FACT to the shareholders of FACT Group LLC, and therefore on November 7, 2001 upon approval of the Acquisition Agreement, the following shares were issued by FACT to:
Steven M. Schechter – 125 shares
Jennifer Flynn – 125 shares
Steven Copadicasa – 125 shares
Richard Gibbs – 125 shares
Pursuant to those agreements the Board approved the appointment of Steven Schechter on November 7, 2001 to the Board of FACT which appointment was effected on December 1, 2001.
The Share Exchange Agreement with Capital Reserve Corporation and FACT called for all of the shareholders of FACT to deliver their shares in exchange for 2,000,000 Class C Common Shares of Capital Reserve Corporation.
As briefly noted above, we have also attached a spreadsheet detailing ownership of FACT prior to and following the above noted transactions in order to clarify the interests of directors at the time of the transaction and our resultant treatment of transaction for accounting purposes.
Comment:
5.
On a related point, in responding to prior comment 4, you explain that provisions governing the conversion of Class C shares to Class A shares were eliminated when you realized that a sales contract anticipated at the time of arranging the transfer of property from FACT to you would no longer be secured. However, since you did not impose other performance conditions on the transferees, and no economic benefits conveyed under the original transfer agreement were relinquished as a result of not being able to deliver the sales contract, it appears the conversion provisions were not substantive. Along with your response to the comment above, describe changes in the composition of your directors that occurred at the time of acquiring FACT, and upon conversion of the Class C shares. Identify the individuals who have appointed the directors for each entity prior to and after your acquisition and the conversion.
Response:
5.
Following is a table listing the directors, the dates appointed, and the individuals who made the appointments of the directors for both FACT and Capital Reserve Corporation:
FACT (Food and Culinary Technology Group Inc.)
Director
Date Appointed
Appointed By
Date Resigned
W. Scott Lawler
August 15, 2001
W. Scott Lawler as Incorporator
Not Applicable
Jacqueline Danforth
November 7, 2001
W. Scott Lawler as Sole Shareholder
Not Applicable
Thomas Murdoch
November 7, 2001
Jacqueline Danforth and W. Scott Lawler
June 1, 2002
Paul Niedermayr
November 7, 2001
Jacqueline Danforth and W. Scott Lawler
July 22, 2002
Steven Schechter
December 1, 2001
Jacqueline Danforth, W. Scott Lawler, Thomas Murdoch, and Paul Niedermayr
July 23, 2003 (Mr. Schechter was not reelected at the Annual General Meeting held July 23, 2003)
Paul Litwack
January 23, 2003
Jacqueline Danforth, W. Scott Lawler and Steven Schechter
Mark Shapiro
January 23, 2003
Jacqueline Danforth, W. Scott Lawler and Steven Schechter
April 16, 2003
Capital Reserve Corporation (now FACT Corporation)
Director
Date Appointed
Appointed By*
Date Resigned
Sharon Patmore
October 6, 1998
Ralph Newton Jr. and Linda Opfer
January 22, 2003
W. Scott Lawler
November 1, 1999
Sharon Patmore
Jacqueline Danforth
August 7, 2001
W. Scott Lawler and Sharon Patmore
Paul Litwack
January 22, 2003
Jacqueline Danforth and W. Scott Lawler
Dr. Brian Raines
January 22, 2003
Jacqueline Danforth and W. Scott Lawler
*Please note that each of the appointed directors has stood for re-election at any annual general meetings held during their term of office and have been elected by the shareholders of the corporation.
The Class C shares were converted on February 11, 2004 at which time the directors of each of FACT and Capital Reserve Corporation (now FACT Corporation) were as follows:
FACT: Jacqueline Danforth, Paul Litwack and W. Scott Lawler
Capital Reserve Corporation (now FACT Corporation): Jacqueline Danforth, Paul Litwack, Brian Raines and W. Scott Lawler.
There have been no changes to the Boards of Directors from the date of the Class C conversion to the date of this correspondence.
Comment:
6.
In response to prior comment 5, you explain that you believe recording a $2,000,000 royalty payable prior to the settlement agreement being reached is appropriate because you had the exclusive license for the use and exploitation of the intellectual property, and because it was probable the royalty payments would be made. Since the royalty payment were tied to future sales, establishing a liability in recording the transaction appears inconsistent with the guidance in paragraph 27 or SFAS 141. Further, if the provisions are profit sharing in nature, the guidance in EITF 95-8 would call for recognition against earnings in the periods the sales occur. Please submit the analysis that you performed, addressing each class of factors set forth in that guidance, which you believe supports your characterization of the amounts as additional purchase consideration.
Response:
6.
To further clarify our previous response regarding the recording of the $2,000,000 royalty payment we respond as follows:
When the Company initially entered into the acquisition agreement in November 2001 whereby the Company would acquire the formulations, recipes and trade secrets (the “intellectual property”), the agreements called for the payment of $2,000,000 in cash to the vendors and the issuance of 500 shares of the common stock of Food and Culinary Technology Group Inc., as the combined acquisition cost. The agreement further stated that the payment of the $2,000,000 in consideration shall come in the form of cash remittances in the total amount of $460,000 as various benchmarks were achieved by the Corporation, with the balance being payable in the form of a royalty of $0.05 per pound of premix sold until the total amount of $2,000,000 was paid in full. The $2,000,000 cash payment was the agreed to amount of consideration for the asset being acquired (the intellectual property). While timing of the payment was indeterminate due to the agreed to terms, the payment itself was required to be made for the Company to acquire ownership of the intellectual property, and as such it was not considered contingent consideration. When the Company entered into a settlement agreement in August 2003 with the vendors of the asset, new payment terms were adopted regarding the $2,000,000 consideration. Presently the terms require specific annual payments over a term of 10 years with a final balloon payment at the end of the 10th year such payment being calculated by deducting from the $2,000,000 acquisition cost all previously remitted payments to arrive at a net amount due (if any). While the Company presently remits monthly payments based on a royalty of $0.05 per pound of product actually sold, this amount must be adjusted quarterly to meet minimum payment requirements according to the terms of the settlement agreement. Again, the Company believes these terms support the recording of the total acquisition cost as a liability. Perhaps the reference to the liability as a “royalty payable” is inconsistent with the actual nature of the liab
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CORRESP 1 filename1.htm FACT Corporation November 28, 2005 Securities and Exchange Commission Division of Corporate Finance 100 F Street, N.E. Washington, D.C. 20549-7010 Attention: Karl Hiller – Branch Chief By Facsimile and Electronic Filing RE: FACT Corporation Form 10-KSB for the Fiscal Year Ended December 31, 2004 File April 15, 2005 SEC Response Letter dated September 19, 2005 File No. 000-17232 Dear Mr. Hiller: In response to your letter of September 19, 2005, we provide the following written response. General Comment: 1. You did not electronically file your response letter dated August 19, 2005, as required by Subparts 232.100 and 232.101 of Regulation S-T. Please electronically file this response letter, as well as all future correspondence. Response: 1. We have previously addressed in this comment in our written correspondence dated September 30, 2005. Comment 2. In your next response, please provide the representations regarding the adequacy and accuracy of your disclosures requested at the end of this letter. 1530 9th Avenue SE Calgary, Alberta T2G 0T7 Phone: (403) 204-0260 Fax: (403) 272-3620 www.factfoods.com Response: 2. We have included the representations regarding the adequacy and accuracy of our disclosures as requested at the end of this letter. Form 10-KSB for the Fiscal Year Ended December 31, 2004 Note 2 – Acquisition of Food and Culinary Technologies Group Inc. (FACT), Intellectual Property and Issuance of Class C Common Stock, page F-13 Comment: 3. We have read your response to prior comment 2, indicating that the conversion rights extended to holders of your Class C common shares were not impacted by the four-for-one reverse stock split that occurred during 2003. However, you have not addressed how the economic and voting equivalency of the Class A and Class C common shares were impacted, as we had requested. Please explain how these compared before and after your reverse stock split, and cite the specific language in your agreement with the Class C stockholders governing the conversion. Response: 3. As at the time of the reverse split undertaken during 2003 the economic and voting equivalency of the Class A and Class C common shares were not impacted. The Articles of Amendment as approved on November 19, 2001 by the shareholders and as filed with the Secretary of State on November 19, 2001 provided as follows: “(b) Voting. The holders of Class A Common stock shall be entitled to one vote for each shares of Class A Common stock held. The holders of the Class C Common Stock shall be entitled to one vote for each shares of Class C Common Stock held. No holder of Class A Common Stock or Class C Common Stock shall be entitled to cumulative voting in the election of directors. “(e) Conversion: The holders of Class A Common stock shall have no right to convert the Class A Common Stock into any other class of securities of the Corporation. The shares of Class C Common Stock may be converted to Class A Common Stock as follows: (a) upon Food and Culinary Technology Group Inc. achieving U.S. $9,000,000.00 in total sales, one-third of the Class C shares may be converted; (b) upon Food and Culinary Technology Group Inc. achieving U.S. $27,500,000.00 in total sales, one-third of the Class C shares may be converted; (c) upon Food and Culinary Technology Group Inc. achieving U.S. $56,150,000.00 in total sales, one-third of the Class C shares may be converted. Shares of Class C Common Stock shall be converted into shares of Class A Common Stock at the rate of 1 share of Class C Common Stock into 6 shares of Class A Common Stock. Such conversion rate shall be adjusted as appropriate in the case of a stock split, dividend, or recapitalization of the Class A Common Stock.” The reverse split of the Class A common stock took place on August 6, 2003. . Subsequent to the reverse split, on February 2, 2004 the conversion provision was amended as follows: “(e) Conversion: The holders of Class A Common Stock shall have no right to convert the Class A Common Stock into any other class of securities of the Corporation. The shares of Class C Common Stock may be converted to Class A Common Stock at any time upon the election of the holder of such shares. Shares of Class C Common Stock shall be converted into shares of Class A Common Stock at the rate of 1 (one) share of Class C Common Stock into 6 (six) shares of Class A Common Stock.” This amendment to the conversion was negotiated pursuant to the settlement of certain litigation, and the forgiveness of certain liabilities and obligations of the Company and its subsidiary Food and Culinary Technology Group Inc. The Class C stockholders entered into a fourth Amendment to the Share Exchange Agreement which we have appended hereto as Exhibit “A”. The Class C shares were amended so as to allow the Class C shareholders to continue to maintain effective control in consideration for their agreement to settle the litigation. We will file a copy of the foregoing amendment to FACT’s articles of incorporation as Exhibit 3 with our amended 10KSB for this fiscal year ended December 31, 2004 to be filed pursuant to our further advice in this letter. Comment: 4. In response to prior comment 3, you explain that while FACT was the co-creation of FACT Group LLC and International Securities Group Inc. (ISG), it was jointly owned by three of your four directors, and all three directors of FACT Group LLC prior to your acquisition. Given the shared interest of the directors you have identified, it is not clear that fair value accounting is the appropriate treatment under GAAP. Explain to us which of these entities are under common control at the time of each transaction. As part of your response, provide us a matrix showing the equity ownership percentages of all owners of both entities prior and immediately after each transaction. Response: 4. We have undertaken a more thorough review of the minute books of Food and Culinary Technology Group Inc. (FACT) and Capital Reserve Corporation (now FACT Corporation), as well as the pertinent transactional documents to provide the matrix you require. We have clarified our prior advice and advise as follows: FACT was incorporated in the State of Nevada on August 14, 2001 for the purpose of acquiring the rights to certain assets held by FACT Group LLC from the owners of FACT Group LLC and the Murdoch Group (comprised of TMAmercian Holdings, SN Global Investments Inc., Gallus Importations Inc., and Food Information Services Inc.). The original shareholder of FACT was: International Securities Group Inc. – 6,000 shares issued August 15, 2001 The sole director and officer of FACT at that time was W. Scott Lawler. W. Scott Lawler was also the beneficial owner, and sole officer and director of International Securities Group Inc. as well as a member of the board of directors of Capital Reserve Corporation (now FACT Corporation). At the time of the acquisition of FACT by Capital Reserve Corporation (now FACT Corporation) on November 7, 2001, the directors of Capital Reserve Corporation were Jacqueline Danforth, W. Scott Lawler and Sharon Patmore. On November 7, 2001, Jacqueline Danforth was appointed to the Board of Directors of FACT. On November 7, 2001, FACT and FACT Group LLC entered into an Acquisition Agreement and concurrently Capital Reserve Corporation (now FACT Corporation) and FACT entered into a Share Exchange Agreement. At the time of the execution of the agreements, all parties save, Mr. Lawler, were arms length to FACT and Capital Reserve Corporation (now FACT Corporation). For this reason we believe that fair value accounting is the appropriate treatment of this transaction. The value of the acquisition related to the sole interested party, Mr. W. Scott Lawler, has been eliminated from the transaction as detailed in the worksheet appended as Exhibit “B” hereto. On November 7, 2001, the Board of Directors of FACT approved the issuance of the following subscribed for shares of FACT: TM American Holdings Ltd. – 1,325 shares – beneficial owner Thomas Murdoch SN Global Investments Inc. – 825 shares – beneficial owner Susan Niedermayr Gallus Importations Inc. – 525 shares – beneficial owner Paul Niedermayr Food Information Services Inc. – 825 shares – beneficial owner Dr. Brian Raines Pursuant to those agreements on November 7, 2001, the following parties were appointed to the Board of Directors and as officers of FACT: Thomas Murdoch – Director and Chief Executive Officer Paul Niedermayr - Director and Chairman of the Board The Acquisition Agreement between FACT and FACT Group LLC also required the issuance of 500 shares of FACT to the shareholders of FACT Group LLC, and therefore on November 7, 2001 upon approval of the Acquisition Agreement, the following shares were issued by FACT to: Steven M. Schechter – 125 shares Jennifer Flynn – 125 shares Steven Copadicasa – 125 shares Richard Gibbs – 125 shares Pursuant to those agreements the Board approved the appointment of Steven Schechter on November 7, 2001 to the Board of FACT which appointment was effected on December 1, 2001. The Share Exchange Agreement with Capital Reserve Corporation and FACT called for all of the shareholders of FACT to deliver their shares in exchange for 2,000,000 Class C Common Shares of Capital Reserve Corporation. As briefly noted above, we have also attached a spreadsheet detailing ownership of FACT prior to and following the above noted transactions in order to clarify the interests of directors at the time of the transaction and our resultant treatment of transaction for accounting purposes. Comment: 5. On a related point, in responding to prior comment 4, you explain that provisions governing the conversion of Class C shares to Class A shares were eliminated when you realized that a sales contract anticipated at the time of arranging the transfer of property from FACT to you would no longer be secured. However, since you did not impose other performance conditions on the transferees, and no economic benefits conveyed under the original transfer agreement were relinquished as a result of not being able to deliver the sales contract, it appears the conversion provisions were not substantive. Along with your response to the comment above, describe changes in the composition of your directors that occurred at the time of acquiring FACT, and upon conversion of the Class C shares. Identify the individuals who have appointed the directors for each entity prior to and after your acquisition and the conversion. Response: 5. Following is a table listing the directors, the dates appointed, and the individuals who made the appointments of the directors for both FACT and Capital Reserve Corporation: FACT (Food and Culinary Technology Group Inc.) Director Date Appointed Appointed By Date Resigned W. Scott Lawler August 15, 2001 W. Scott Lawler as Incorporator Not Applicable Jacqueline Danforth November 7, 2001 W. Scott Lawler as Sole Shareholder Not Applicable Thomas Murdoch November 7, 2001 Jacqueline Danforth and W. Scott Lawler June 1, 2002 Paul Niedermayr November 7, 2001 Jacqueline Danforth and W. Scott Lawler July 22, 2002 Steven Schechter December 1, 2001 Jacqueline Danforth, W. Scott Lawler, Thomas Murdoch, and Paul Niedermayr July 23, 2003 (Mr. Schechter was not reelected at the Annual General Meeting held July 23, 2003) Paul Litwack January 23, 2003 Jacqueline Danforth, W. Scott Lawler and Steven Schechter Mark Shapiro January 23, 2003 Jacqueline Danforth, W. Scott Lawler and Steven Schechter April 16, 2003 Capital Reserve Corporation (now FACT Corporation) Director Date Appointed Appointed By* Date Resigned Sharon Patmore October 6, 1998 Ralph Newton Jr. and Linda Opfer January 22, 2003 W. Scott Lawler November 1, 1999 Sharon Patmore Jacqueline Danforth August 7, 2001 W. Scott Lawler and Sharon Patmore Paul Litwack January 22, 2003 Jacqueline Danforth and W. Scott Lawler Dr. Brian Raines January 22, 2003 Jacqueline Danforth and W. Scott Lawler *Please note that each of the appointed directors has stood for re-election at any annual general meetings held during their term of office and have been elected by the shareholders of the corporation. The Class C shares were converted on February 11, 2004 at which time the directors of each of FACT and Capital Reserve Corporation (now FACT Corporation) were as follows: FACT: Jacqueline Danforth, Paul Litwack and W. Scott Lawler Capital Reserve Corporation (now FACT Corporation): Jacqueline Danforth, Paul Litwack, Brian Raines and W. Scott Lawler. There have been no changes to the Boards of Directors from the date of the Class C conversion to the date of this correspondence. Comment: 6. In response to prior comment 5, you explain that you believe recording a $2,000,000 royalty payable prior to the settlement agreement being reached is appropriate because you had the exclusive license for the use and exploitation of the intellectual property, and because it was probable the royalty payments would be made. Since the royalty payment were tied to future sales, establishing a liability in recording the transaction appears inconsistent with the guidance in paragraph 27 or SFAS 141. Further, if the provisions are profit sharing in nature, the guidance in EITF 95-8 would call for recognition against earnings in the periods the sales occur. Please submit the analysis that you performed, addressing each class of factors set forth in that guidance, which you believe supports your characterization of the amounts as additional purchase consideration. Response: 6. To further clarify our previous response regarding the recording of the $2,000,000 royalty payment we respond as follows: When the Company initially entered into the acquisition agreement in November 2001 whereby the Company would acquire the formulations, recipes and trade secrets (the “intellectual property”), the agreements called for the payment of $2,000,000 in cash to the vendors and the issuance of 500 shares of the common stock of Food and Culinary Technology Group Inc., as the combined acquisition cost. The agreement further stated that the payment of the $2,000,000 in consideration shall come in the form of cash remittances in the total amount of $460,000 as various benchmarks were achieved by the Corporation, with the balance being payable in the form of a royalty of $0.05 per pound of premix sold until the total amount of $2,000,000 was paid in full. The $2,000,000 cash payment was the agreed to amount of consideration for the asset being acquired (the intellectual property). While timing of the payment was indeterminate due to the agreed to terms, the payment itself was required to be made for the Company to acquire ownership of the intellectual property, and as such it was not considered contingent consideration. When the Company entered into a settlement agreement in August 2003 with the vendors of the asset, new payment terms were adopted regarding the $2,000,000 consideration. Presently the terms require specific annual payments over a term of 10 years with a final balloon payment at the end of the 10th year such payment being calculated by deducting from the $2,000,000 acquisition cost all previously remitted payments to arrive at a net amount due (if any). While the Company presently remits monthly payments based on a royalty of $0.05 per pound of product actually sold, this amount must be adjusted quarterly to meet minimum payment requirements according to the terms of the settlement agreement. Again, the Company believes these terms support the recording of the total acquisition cost as a liability. Perhaps the reference to the liability as a “royalty payable” is inconsistent with the actual nature of the liab