SEC Company Response from INTERNATIONAL FOOD PRODUCTS GROUP INC (CIK 0001019216) — Jun 30, 2005
INTERNATIONAL FOOD PRODUCTS GROUP INC (CIK 0001019216)
Date: June 30, 2005 · CIK: 0001019216 · Accession: 0000939798-05-000044
AI Filing Summary & Sentiment
Referenced dates: June 20, 2005
Letter
Form 10-KSB for Fiscal Year Ended June 30, 2004 Forms 10-QSB for Fiscal Quarters Ended September 30, 2004, December 31, 2004, and March 31, 2005 File No. 0-33251
Dear Mr. Ohsiek:
This letter is in response to your letter dated June 20, 2005 on the matters listed above. I have attached revised schedules of the issuance of shares of our common stock from June 1, 2002 through December 31, 2004. These schedules have been revised to clearly disclose whether each issuance represents restricted or unrestricted shares and whether the recipient was an employee.
The following is a description of how we determined the value of the stock issued in each of the following types of transactions.
Shares of the Company's stock were valued as follows:
(1)Common shares issued to non-employees in exchange for services:
Shares issued to non-employees for services registered under Form S-8 were valued at the closing bid price of our common stock on the day the agreement with the non-employee was entered into by the parties.
(2) Common shares issued to employees in exchange for services:
Shares issued to employees for services registered under Form S-8 were valued at the closing bid price of our common stock on the day the award was approved by our Board of Directors.
(3) Common shares issued to employees in exchange for lock-up agreements:
Shares issued to employees in exchange for lock-up agreements were valued at the fair value of our common stock on the date the lock-up program was approved by our Board of Directors, September 27, 2002. Our common stock did not commence trading until November 20, 2002. Therefore we estimated fair value by using net book value, future expectations and other factors.
(4) Common shares issued to non-employees in exchange for lock-up agreements:
Shares issued to non-employees in exchange for lock-up agreements were valued at the fair value of our common stock on the date the lock-up program was approved by our Board of Directors, September 27, 2002. Our common stock did not commence trading until November 20, 2002. We estimated fair value by using net book value, future expectations and other factors.
(5) Restricted stock issued to non-employees in exchange for services:
Shares issued to non-employees were valued at the fair value of the shares issued on the date the services agreements were approved by the Company's Board of Directors. Fair value was determined using the Black Scholes Option Pricing Model using information specific to the Company's common shares.
(6) Restricted stock issued to employees in exchange for services:
No common shares were awarded to employees directly for services. All employees have employment arrangements calling for a specific dollar amount of compensation. Our Board of Directors and the individual employees agreed to accept shares of our common stock in satisfaction of accrued and unpaid compensation. The exchange rates negotiated were at what the parties determined to be fair value, and generally was in excess of fair value using the Black Scholes Option Pricing Model using information specific to our common stock on the dates the agreements were entered into by the employee and our Board of Directors.
(7)Restricted stock issued to related parties in settlement of notes payable:
Shares issued to related parties in settlement of notes payable were valued at the face amount of the obligation which equaled the fair value of the shares issued. Fair value was determined using the Black Scholes Option Pricing Model using information specific to our common shares.
(8) Restricted stock issued to unrelated parties in settlement of notes payable:
Shares issued to unrelated parties in settlement of notes payable were valued at the face amount of the obligation which equated the fair value of the shares issued. Fair value was determined using the Black Scholes Option Pricing Model using information specific to our common shares.
We entered into employment arrangements calling for specific rates of pay for each individual. We were not able to make the payments to the employees in cash and agreed with the employees to issue shares of our common stock in satisfaction of the accrued compensation. We believe that these situations differ from incentive stock arrangements which would be valued at the closing bid price of our common stock.
The lock-up agreement was entered into before our common stock commenced trading and therefore we valued the shares issued under this arrangement at our estimate of the common share value at the date the lock-up plan was approved, not the date upon the shares were eventually issued.
The following is a description of how we valued the restricted shares issued to employees in exchange for services that staff observed had significant discounts from the closing bid price of the common stock on the date of issuance:
a. The shares were issued based upon the guidance of Statement of Financial Accounting Standard (SFAS) No. 123 which established that a fair value based method of accounting for nonemployees in exchange for equity instruments. In his book Quantifying Marketability Discounts, Z.Christopher Mercer discussed that when stock is restricted, one of the methods of identifying an appropriate discount amount is to utilize the Black Scholes Option Pricing Model. The appropriate restricted share discount can be inferred by utilizing the BSOPM in buying a put option with a strike price equal to the closing bid price of our common stock. The discount in our common stock price is the cost of purchasing a put option on one of our freely tradable shares.
b. It has been our understanding that the SEC staff does not believe that "rule of thumb" or institutional "stock studies" that are not specific are acceptable approaches to valuing discounts. Employing the BSOPM, we utilize our own calculated volatility, the applicable risk free rate of cost of capital and the length of the restriction on the specific restricted shares of common stock.
c. As we experienced volatility rates during the year-ended June 30 2004 ranging from 141% to 257% and a very low risk free annual rate ranging from 1.02% to 1.53% "put option" values and therefore restricted stock discounts are very high.
d. Our approach to determining restricted stock discounts was discussed with a representative of the Chief Accountant Corporate Finance's office, who found the use of company-specific data to be a "good thing" and believed that the use of the "put option" method of valuing restricted stock discounts to be valid. We also contacted the AICPA Technical Hotline and discussed the "put option" valuation method with one of the Valuation issues managers. The manager concurred that the approach was mechanically correct but indicated that the acceptability of the approach should be discussed with the SEC staff.
While the restricted stock discounts are significant, they are merely the resultant measurement of the risk cost of not having control of the Company's stock that was issued to individual nonemployees and entities for services.
If you have any questions, or if I can provide further information to you, please do not hesitate to contact me.
Sincerely,
/s/
Joseph Rodriguez
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IFPG response to SEC comments
International
Food Products Group, Inc.
170
Newport Center Drive, Suite 260
Newport
Beach, California 92660
June 29,
2005
The
United States Securities and Exchange Commission
Mr.
George F. Ohsiek, Jr.
Branch
Chief
Corporation
Finance
450 Fifth
Street, N.W.
Washington,
D.C. 20549
Re:
International Food Products Group, Inc.
Form
10-KSB for Fiscal Year Ended June 30, 2004
Forms
10-QSB for Fiscal Quarters Ended September 30, 2004,
December
31, 2004, and March 31, 2005
File No.
0-33251
Dear Mr.
Ohsiek:
This
letter is in response to your letter dated June 20, 2005 on the matters listed
above. I have attached revised schedules of the issuance of shares of our common
stock from June 1, 2002 through December 31, 2004. These schedules have been
revised to clearly disclose whether each issuance represents restricted or
unrestricted shares and whether the recipient was an employee.
The
following is a description of how we determined the value of the stock issued in
each of the following types of transactions.
Shares of
the Company's stock were valued as follows:
(1)Common
shares issued to non-employees in exchange for services:
Shares
issued to non-employees for services registered under Form S-8 were valued at
the closing bid price of our common stock on the day the agreement with the
non-employee was entered into by the parties.
(2)
Common shares issued to employees in exchange for services:
Shares
issued to employees for services registered under Form S-8 were valued at the
closing bid price of our common stock on the day the award was approved by our
Board of Directors.
(3)
Common shares issued to employees in exchange for lock-up
agreements:
Shares
issued to employees in exchange for lock-up agreements were valued at the fair
value of our common stock on the date the lock-up program was approved by our
Board of Directors, September 27, 2002. Our common stock did not commence
trading until November 20, 2002. Therefore we estimated fair value by using net
book value, future expectations and other factors.
(4)
Common shares issued to non-employees in exchange for lock-up
agreements:
Shares
issued to non-employees in exchange for lock-up agreements were valued at the
fair value of our common stock on the date the lock-up program was approved by
our Board of Directors, September 27, 2002. Our common stock did not commence
trading until November 20, 2002. We estimated fair value by using net book
value, future expectations and other factors.
(5)
Restricted stock issued to non-employees in exchange for services:
Shares
issued to non-employees were valued at the fair value of the shares issued on
the date the services agreements were approved by the Company's Board of
Directors. Fair value was determined using the Black Scholes Option Pricing
Model using information specific to the Company's common shares.
(6)
Restricted stock issued to employees in exchange for services:
No common
shares were awarded to employees directly for services. All employees have
employment arrangements calling for a specific dollar amount of compensation.
Our Board of Directors and the individual employees agreed to accept shares of
our common stock in satisfaction of accrued and unpaid compensation. The
exchange rates negotiated were at what the parties determined to be fair value,
and generally was in excess of fair value using the Black Scholes Option Pricing
Model using information specific to our common stock on the dates the agreements
were entered into by the employee and our Board of Directors.
(7)Restricted
stock issued to related parties in settlement of notes payable:
Shares
issued to related parties in settlement of notes payable were valued at the face
amount of the obligation which equaled the fair value of the shares issued. Fair
value was determined using the Black Scholes Option Pricing Model using
information specific to our common shares.
(8)
Restricted stock issued to unrelated parties in settlement of notes
payable:
Shares
issued to unrelated parties in settlement of notes payable were valued at the
face amount of the obligation which equated the fair value of the shares issued.
Fair value was determined using the Black Scholes Option Pricing Model using
information specific to our common shares.
We
entered into employment arrangements calling for specific rates of pay for each
individual. We were not able to make the payments to the employees in cash and
agreed with the employees to issue shares of our common stock in satisfaction of
the accrued compensation. We believe that these situations differ from incentive
stock arrangements which would be valued at the closing bid price of our common
stock.
The
lock-up agreement was entered into before our common stock commenced trading and
therefore we valued the shares issued under this arrangement at our estimate of
the common share value at the date the lock-up plan was approved, not the date
upon the shares were eventually issued.
The
following is a description of how we valued the restricted shares issued to
employees in exchange for services that staff observed had significant discounts
from the closing bid price of the common stock on the date of
issuance:
a. The
shares were issued based upon the guidance of Statement of Financial Accounting
Standard (SFAS) No. 123 which established that a fair value based method of
accounting for nonemployees in exchange for equity instruments. In his book
Quantifying Marketability Discounts, Z.Christopher Mercer discussed that when
stock is restricted, one of the methods of identifying an appropriate discount
amount is to utilize the Black Scholes Option Pricing Model. The appropriate
restricted share discount can be inferred by utilizing the BSOPM in buying a put
option with a strike price equal to the closing bid price of our common stock.
The discount in our common stock price is the cost of purchasing a put option on
one of our freely tradable shares.
b. It has
been our understanding that the SEC staff does not believe that "rule of thumb"
or institutional "stock studies" that are not specific are acceptable approaches
to valuing discounts. Employing the BSOPM, we utilize our own calculated
volatility, the applicable risk free rate of cost of capital and the length of
the restriction on the specific restricted shares of common stock.
c. As we
experienced volatility rates during the year-ended June 30 2004 ranging from
141% to 257% and a very low risk free annual rate ranging from 1.02% to 1.53%
"put option" values and therefore restricted stock discounts are very high.
d. Our
approach to determining restricted stock discounts was discussed with a
representative of the Chief Accountant Corporate Finance's office, who found the
use of company-specific data to be a "good thing" and believed that the use of
the "put option" method of valuing restricted stock discounts to be valid. We
also contacted the AICPA Technical Hotline and discussed the "put option"
valuation method with one of the Valuation issues managers. The manager
concurred that the approach was mechanically correct but indicated that the
acceptability of the approach should be discussed with the SEC
staff.
While the
restricted stock discounts are significant, they are merely the resultant
measurement of the risk cost of not having control of the Company's stock that
was issued to individual nonemployees and entities for services.
If you
have any questions, or if I can provide further information to you, please do
not hesitate to contact me.
Sincerely,
/s/
Joseph Rodriguez
Joseph
Rodriguez
Chief
Financial Officer
International
Food Products Group, Inc.
Summary
of Stock Transactions
June
30, 2003
Per
Share
Per
Share
Employee
Restricted/
Issuance
Shares
Closing
Fair
Stockholder
y
or n
Unrestricted
Date
Issued
Bid
Price
Value
Expense
Balance
6-30-02
21,523,803
Issued
for Services:
Scott
Cambell
n
Restricted
12/1/2002
400,000
$
0.10
$
0.02
$
8,000.00
Chuck
Milden
n
Restricted
12/1/2002
20,000
$
0.10
$
0.02
$
400.00
Robert
George
n
Restricted
12/1/2002
50,000
$
0.10
$
0.02
$
1,000.00
Ned
Van Rensselaer
n
Restricted
12/1/2002
50,000
$
0.10
$
0.02
$
1,000.00
David
Euzarraga
n
Restricted
12/1/2002
60,000
$
0.10
$
0.02
$
1,200.00
Jim
Clarke
n
Restricted
1/27/2003
25,000
$
0.16
$
0.15
$
3,750.00
David
Euzarraga
n
Restricted
1/1/2003
60,000
$
0.10
$
0.15
$
9,000.00
David
Euzarraga
n
Restricted
1/8/2003
300,000
$
0.19
$
0.15
$
45,000.00
David
Euzarraga
n
Restricted
4/8/2003
40,000
$
0.23
$
0.23
$
9,200.00
David
Euzarraga
n
Restricted
4/15/2003
165,000
$
0.20
$
0.19
$
31,350.00
David
Wells
n
Restricted
6/16/2003
60,000
$
0.25
$
0.25
$
15,000.00
David
Euzarraga
n
Restricted
10/30/2002
40,000
n/a
$
0.02
$
800.00
Total
for services
1,270,000
$
125,700.00
Lock-up
Shares:
A.R.
Grandseart
n
Restricted
12/2/2002
40,000
n/a
$
0.02
$
800.00
Bruce
Hubert Trust
n
Restricted
1/16/2003
4,800
n/a
$
0.02
$
96.00
Pete
Dunn
n
Restricted
1/16/2003
1,000
n/a
$
0.02
20
Mark
Skalski
n
Restricted
1/16/2003
2,000
n/a
$
0.02
40
Jose
Perez
n
Restricted
1/16/2003
2,000
n/a
$
0.02
40
Terrence
Coup
n
Restricted
1/16/2003
2,000
n/a
$
0.02
40
Kirk
& Kirk, Inc
n
Restricted
1/16/2003
1,000
n/a
$
0.02
20
Sperry
Family Trust
n
Restricted
1/16/2003
1,000
n/a
$
0.02
20
Barry
Tiemann
n
Restricted
1/16/2003
500
n/a
$
0.02
10
Jerry
Horst
n
Restricted
1/16/2003
600
n/a
$
0.02
12
Daryle
Reimer
n
Restricted
1/16/2003
2,500
n/a
$
0.02
50
Pat
Burgess
n
Restricted
1/16/2003
500
n/a
$
0.02
10
James
Gacki
n
Restricted
1/16/2003
2,000
n/a
$
0.02
40
Jared
Enterprises
n
Restricted
1/16/2003
10,000
n/a
$
0.02
200
George
Milidan
n
Restricted
1/16/2003
4,667
n/a
$
0.02
93.34
James
Mitchell
n
Restricted
1/16/2003
4,000
n/a
$
0.02
80
Wilfred
Wheeler
n
Restricted
1/16/2003
40,000
n/a
$
0.02
800
Terry
Turner
n
Restricted
1/16/2003
5,000
n/a
$
0.02
100
John
Shelling
n
Restricted
1/16/2003
1,500
n/a
$
0.02
30
Andre
Perin
n
Restricted
1/16/2003
500
n/a
$
0.02
10
James
Brown
n
Restricted
1/16/2003
400
n/a
$
0.02
8
Joyce
Heilman
n
Restricted
1/16/2003
200
n/a
$
0.02
4
Heitman
Family Trust
n
Restricted
1/17/2003
2,000
n/a
$
0.02
40
Wilbert
& Joyce Heitman
n
Restricted
1/17/2003
1,000
n/a
$
0.02
20
Brett
Heitman
n
Restricted
1/17/2003
1,400
n/a
$
0.02
28
Clay
Heitman
n
Restricted
1/17/2003
400
n/a
$
0.02
8
A F
Moore
n
Restricted
1/17/2003
3,000
n/a
$
0.02
60
Harley
Hill
n
Restricted
1/17/2003
820
n/a
$
0.02
16.4
Ronald
Rau
n
Restricted
1/17/2003
3,000
n/a
$
0.02
60
Kathleen
Williams
n
Restricted
1/17/2003
2,000
n/a
$
0.02
40
Kevin
Madera
n
Restricted
1/17/2003
1,400
n/a
$
0.02
28
Ronald
Greenberg
n
Restricted
1/17/2003
3,800
n/a
$
0.02
76
T&D
Sperry 2000 Trust
n
Restricted
1/17/2003
1,000
n/a
$
0.02
20
Jeffrey
Smith
n
Restricted
1/17/2003
250
n/a
$
0.02
5
RJ
Ewards
n
Restricted
1/17/2003
2,000
n/a
$
0.02
40
Novacor
International Ltd
n
Restricted
1/21/2003
11,000
n/a
$
0.02
220
W&C
Glenwin
n
Restricted
1/21/2003
2,500
n/a
$
0.02
50
Eastwind
Holdings
n
Restricted
1/21/2003
38,375
n/a
$
0.02
767.5
Robt
Schneiders
n
Restricted
1/21/2003
1,400
n/a
$
0.02
28
Julie
Schneiders
n
Restricted
1/21/2003
1,400
n/a
$
0.02
28
Richard
Damion
Y
Restricted
1/22/2003
200,000
n/a
$
0.02
4000
Joe
Rodriguez
Y
Restricted
1/22/2003
100,000
n/a
$
0.02
2000
Thomas
Anthony
n
Restricted
1/22/2003
400
n/a
$
0.02
8
Martin
Weissman
n
Restricted
1/30/2003
3,000
n/a
$
0.02
60
Thomas
Perez
n
Restricted
2/3/2003
3,400
n/a
$
0.02
68
Clemeston
Family Trust
n
Restricted
2/4/2003
17,000
n/a
$
0.02
340
Judith
Clemeston