SEC Company Response from DEFENSE INDUSTRIES INTERNATIONAL INC (CIK 0001069563) — Nov 2, 2005
DEFENSE INDUSTRIES INTERNATIONAL INC (CIK 0001069563)
Date: Nov. 2, 2005 · CIK: 0001069563 · Accession: 0001178913-05-001520
AI Filing Summary & Sentiment
File numbers found in text: 333-128011
Letter
VIA EDGAR Securities and Exchange Commission Form 10-KSB for Fiscal Year Ended December 31, 2004 Forms 10-QSB for Fiscal Quarters Ended March 31, 2005 and June 30, 2005 File No. 0-30105
Dear Mr. Owings:
On behalf of our client, Defense Industries International, Inc. (the “Company”), we are submitting this letter in response to the written comments of the Staff of the Securities and Exchange Commission (the “Commission”), in a letter to Mr. Michael Ratner, dated September 29, 2005 (“Comment Letter”), with respect to the Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on behalf of the Company on August 31, 2005 (the “Registration Statement”), Form 10-KSB for Fiscal Year Ended December 31, 2004 and Forms 10-QSB for Fiscal Quarters Ended March 31, 2005 and June 30, 2005.
Pursuant to Rule 472 under the Securities Act of 1933, we are simultaneously filing Amendments No. 1 to the Company’s Form SB-2, Form 10-KSB for the year ended December 31, 2004 and Forms 10-QSB for the periods ended March 31, 2005 and June 30, 2005 as requested in the Comment Letter. We have repeated your numbered comments below and have provided a response to each comment.
Registration Statement on Form SB-2
Inside Front Cover
1.
Please remove the second paragraph on page 3. The defined entities should be clear from their context.
The Company has revised the filing in response to the comment.
Notice Regarding Forward-Looking Statements, page 3.
2.
Please remove this section from the forepart of the document. The forepart should consist only of the prospectus cover page, inside front cover, summary, and risk factors.
The Company has revised the filing in response to the comment.
3.
Also, please be aware that the statutory safe harbor provision for forward-looking statements does not apply to forward-looking statements made with respect to the business or operations of a penny stock issuer. See Section 27A(b)(l)(C) of the Securities Act of 1933. As it appears you are a penny stock issuer, please revise to eliminate any reference to the Private Securities Litigation Reform Act of 1995.
The Company has revised the filing in response to the comment.
Risk Factors, page 6
4.
Please revise to avoid presenting risk factors that are generic or contain boilerplate language that could apply to any issuer or any offering. We believe a discussion of risk in generic terms does not tell your readers how the risk may affect their investment in you. As examples, please consider the following risk factors:
— “We may be unable to compete or integrate acquisitions effectively, if at all, and as a result may incur unanticipated costs or liabilities or operational difficulties.”
— “Our resources may be insufficient to manage the demands imposed by any future growth.”
— “We do not intend to pay dividends.”
Use of Proceeds, page 15
5.
In this section, please disclose the amount of proceeds you will receive if all the warrants you issued to the selling stockholders are exercised.
The Company has revised the filing in response to the comment.
Market for Common Equity and Related Stockholder Matters, page 15
6.
Because you provide over-the-counter market quotations as the source of your high and low bid information, please state that the quotations reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not represent actual transactions. See Item 201(a)(1)(ii) of Regulation S-B.
The Company has revised the filing in response to the comment.
Compensation Plans, page 16
7.
Please consider removing this subsection. You are not required to provide this information in a registration statement filed under the Securities Act, except where it is part of a document that is incorporated by reference into a prospectus. See Instruction 9 to Item 201(d) of Regulation S-B.
The Company has revised the filing in response to the comments.
Management’s Discussion and Analysis of Financial Condition and Results…. page 18
8.
Please expand this section to discuss known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. Please provide additional information about the quality and variability of your earnings and cash flows so that investors can ascertain the likelihood of the extent past performance is indicative of future performance. Please discuss whether you expect levels to remain at this level or to increase or decrease. Also, you should consider discussing the impact of any changes on your earnings, economic or industry-wide factors relevant to your company, and material opportunities, challenges, and risks in the short and long term and the actions you are taking to address them. Further, please discuss in reasonable detail:
— the trend toward consolidation you reference earlier in your document;
— backlog orders, as mentioned on page 35 of your document, and the status of the orders for which you filed Forms 8-K, Item 8.01, in May and June of 2005;
— your financial condition and results of operations attributable to your various operating subsidiaries;
— your major clients; and
— the various countries from which you generate your greatest revenues.
See Item 303 of Regulation S-B and SEC Release No. 33-8350.
The Company has revised the filing in response to the comments. Please note that the trend towards consolidation of the industry which was referenced in the Company’s risk factors is not relevant any longer. This trend took place in 2004 and was characterized by the purchase of ceramic producers by some of the Company’s competitors. This trend is not currently material. In addition, the nature of the company’s business requires it to keep the identity of its customers classified, accordingly the company cannot discuss in further details the names of the its clients and the various countries from which it generates its greatest revenues.
9.
Please revise your discussion of revenue and gross margin for the six months ended June 30, 2005 to quantify the impact of the Owen Mills subsidiary. Also, please revise to state the date you acquired this unit for accounting purposes. If there was no increase in sales from operations that existed in both 2004 and 2005, please revise to state this fact, or explain the reason or reasons for any change.
The Company has revised the filing in response to the comment.
10.
Your explanation of sales and gross profit margin at December 31, 2004 explains why the exports sales increased over the prior year; however, you have not explained why the local market sales decreased. Please revise to do so or tell us why no revision is appropriate.
The Company has revised the filing in response to the comment.
Liquidity and Capital Resources, page 23
11.
Your discussion of liquidity and capital resources for both the six months ended June 30, 2005 and the year ended December 31, 2004 does not appear to contain any information that is not readily available from reading the statements of cash flows. Please revise these sections to clearly state which changes in assets and liabilities increased cash flows and which decreased them. Also, please expand the discussion to explain any material factors that caused the period to period changes in your assets and liabilities.
The Company has revised the filing in response to the comment.
12.
In explaining your calendar year 2004 net cash used in investing activities, you explain that you dedicated a part of the funds derived from your net income to the purchase of property and equipment and for increased inventory. It is not clear what you mean by “funds derived from net income,” since you report cash flow from operations and this includes the impact of inventory purchases as an item of operating cash flow. Please revise to more clearly quantify and explain your purchases of property and equipment. If future operating results are an important factor in determining the levels of replacement or additions to property and equipment, you should explain your plans in greater detail. Please revise or advise.
The Company has revised the filing in response to the comment.
13.
In the third-to-last paragraph of this subsection, on page 24, you state that all cash, shares, and warrants involved in the private placement transaction remained in escrow and had not been distributed to the various parties yet. Please revise to discuss in greater detail when the proceeds will be available to you in the regular course. In addition, please discuss the escrow agreement provision that allows you to receive proceeds earlier than otherwise to purchase fixed assets.
The Company has revised the filing in response to the comment.
Changes in and Disagreements With Accountants, page 26
14.
It does not appear proper to state “none” in this section when you filed an Item 4 Form 8-K reporting a change in accountants within the past two fiscal years. Please consider revising to summarize the information about your change in accountants that was previously reported or tell us why no revision is necessary.
The Item 4 Form 8-K reporting a change in accountants was filed on May 13, 2002, more than two fiscal years ago. Accordingly we believe no revision is necessary.
Security Ownership of Certain Beneficial Owners and Management....page 42
15.
It is unclear why you do not include Gov Financial Holdings Ltd. in your beneficial owners table on page 42, as it appears Gov Financial Holdings Ltd. is the beneficial owner of more than five percent of’ your common shares. See Item 403(a) of Regulation S-B. Please revise or advise.
The Company has revised the filing in response to the comment.
Selling Stockholders, page 42
16.
Please disclose whether any of your selling stockholders are broker-dealers. If so, please identify the stockholder as an underwriter.
None of the selling shareholders is a broker-dealer or an affiliate of a broker-dealer. The Company has revised the filing in response to the comment.
17.
For each selling stockholder that is an affiliate of a broker-dealer, please disclose the following, if true:
— the seller purchased the securities to be resold in the ordinary course of business; and
— at the time of the purchase, the seller had no agreements or understandings, directly or indirectly, with any person to distribute the securities.
Alternatively, if not true, please disclose that the stockholder is an underwriter. We may have additional comments upon review of your response.
None of the selling shareholders is a broker-dealer or an affiliate of a broker-dealer. The Company has revised the filing in response to the comment.
18.
In the footnotes to your selling stockholder table, please disclose clearly the nature of the shares held by each selling stockholder. For example, how many shares are held underlying warrants?
The Company has revised the filing in response to the comment.
Plan of Distribution, page 44
19.
Please tell us whether any of the selling stockholders have taken, or plan to take, a short position or other forms of hedges in the company’s common stock prior to this resale registration statement’s effectiveness. We note, for example, that the selling stockholders may engage in hedging transactions and short sales. Please note that creating short positions before the resale registration statement’s effectiveness is inappropriate under Section 5 of the Securities Act because the shares underlying the short sales are deemed to be sold at the time such sales are made.
None of the selling stockholders has taken, or plans to take, a short position or other forms of hedges in the Company’s common stock prior to this resale registration statement’s effectiveness. The Company has revised the filing in response to the comment.
Recent Sales of Unregistered Securities, page II-3
20.
Please identify in the second paragraph the investors to whom you agreed to offer the securities and describe the facts relied upon to make the exemptions claimed available.
The Company has revised the filing in response to the comment.
Exhibits, page II-4
21.
Please indicate by footnote where you have filed Exhibits 10.1 and 10.2, the Form of Settlement and Release Agreement and the Translation of the Employment Agreement with Baruch Tosh. If these exhibits have not been filed yet, please file them with a subsequent amendment.
The Company has revised the document in response to the comment.
22. Please file the escrow agreement as an exhibit.
The escrow agreement was filed as Exhibit 10.3 to the Registrant’s Report on Form 8-K dated filed June 20, 2005. The Company has revised the filing in response to the comment to incorporate the escrow agreement.
Exhibit 5, Opinion of McDonald Carano Wilson LLP
23.
In the opinion’s third full paragraph, counsel appears to assume matters necessary to form the opinion, including the fact that the agreements and instruments are valid, binding, and enforceable obligations of the parties. Please have counsel revise the opinion or advise us on this matter.
24.
Also, in the fourth full paragraph, counsel states that it has relied upon certain certificates that formed the basis of its June 15, 2005
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CORRESP
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filename1.htm
CORRESP
CARTER LEDYARD &
MILBURN LLP
COUNSELORS AT LAW
2 WALL STREET
NEW YORK, N.Y.
10005-2072
TEL: (212) 238-8605
FAX: (212) 732-3232
November 2, 2005
VIA EDGAR
Mr. Christopher Owings
Assistant Director
Securities and Exchange Commission
450 Fifth St., N.W.
Mail Stop 6010
Washington, D.C. 20549-0506
Re:
Defense Industries International, Inc.
Registration Statement on Form SB-2
Filed August 31, 2005
File No. 333-128011
Form 10-KSB for Fiscal Year Ended December 31, 2004
Forms 10-QSB for Fiscal Quarters Ended March 31, 2005
and June 30, 2005
File No. 0-30105
Dear Mr. Owings:
On
behalf of our client, Defense Industries International, Inc. (the “Company”), we
are submitting this letter in response to the written comments of the Staff of the
Securities and Exchange Commission (the “Commission”), in a letter to Mr.
Michael Ratner, dated September 29, 2005 (“Comment Letter”), with respect to the
Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on
behalf of the Company on August 31, 2005 (the “Registration Statement”), Form
10-KSB for Fiscal Year Ended December 31, 2004 and Forms 10-QSB for Fiscal Quarters Ended
March 31, 2005 and June 30, 2005.
Pursuant
to Rule 472 under the Securities Act of 1933, we are simultaneously filing Amendments No.
1 to the Company’s Form SB-2, Form 10-KSB for the year ended December 31, 2004 and
Forms 10-QSB for the periods ended March 31, 2005 and June 30, 2005 as requested in the
Comment Letter. We have repeated your numbered comments below and have provided a response
to each comment.
Registration
Statement on Form SB-2
Inside
Front Cover
1.
Please remove the second paragraph on page 3. The defined entities should be
clear from their context.
The
Company has revised the filing in response to the comment.
Notice
Regarding Forward-Looking Statements, page 3.
2.
Please remove this section from the forepart of the document. The forepart
should consist only of the prospectus cover page, inside front cover,
summary, and risk factors.
The
Company has revised the filing in response to the comment.
3.
Also, please be aware that the statutory safe harbor provision for
forward-looking statements does not apply to forward-looking statements
made with respect to the business or operations of a penny stock issuer.
See Section 27A(b)(l)(C) of the Securities Act of 1933. As it appears
you are a penny stock issuer, please revise to eliminate any reference
to the Private Securities Litigation Reform Act of 1995.
The
Company has revised the filing in response to the comment.
Risk
Factors, page 6
4.
Please revise to avoid presenting risk factors that are generic or contain
boilerplate language that could apply to any issuer or any offering. We
believe a discussion of risk in generic terms does not tell your readers
how the risk may affect their investment in you. As examples, please
consider the following risk factors:
—
“We
may be unable to compete or integrate acquisitions effectively, if at all, and as a
result may incur unanticipated costs or liabilities or operational difficulties.”
—
“Our
resources may be insufficient to manage the demands imposed by any future growth.”
—
“We
do not intend to pay dividends.”
Use
of Proceeds, page 15
5.
In this section, please disclose the amount of proceeds you will receive if
all the warrants you issued to the selling stockholders are exercised.
The
Company has revised the filing in response to the comment.
Market
for Common Equity and Related Stockholder Matters, page 15
6.
Because you provide over-the-counter market quotations as the source of your
high and low bid information, please state that the quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commission and
may not represent actual transactions. See Item 201(a)(1)(ii) of
Regulation S-B.
The
Company has revised the filing in response to the comment.
Compensation
Plans, page 16
7.
Please consider removing this subsection. You are not required to provide
this information in a registration statement filed under the Securities
Act, except where it is part of a document that is incorporated by
reference into a prospectus. See Instruction 9 to Item 201(d) of
Regulation S-B.
The
Company has revised the filing in response to the comments.
Management’s
Discussion and Analysis of Financial Condition and Results…. page 18
8.
Please expand this section to discuss known material trends and
uncertainties that will have, or are reasonably likely to have, a
material impact on your revenues or income or result in your liquidity
decreasing or increasing in any material way. Please provide additional
information about the quality and variability of your earnings and cash flows so
that investors can ascertain the likelihood of the extent past
performance is indicative of future performance. Please discuss whether
you expect levels to remain at this level or to increase or decrease.
Also, you should consider discussing the impact of any changes on your
earnings, economic or industry-wide factors relevant to your company, and
material opportunities, challenges, and risks in the short and long term
and the actions you are taking to address them. Further, please discuss
in reasonable detail:
—
the
trend toward consolidation you reference earlier in your document;
—
backlog
orders, as mentioned on page 35 of your document, and the status of the orders for which
you filed Forms 8-K, Item 8.01, in May and June of 2005;
—
your
financial condition and results of operations attributable to your various operating
subsidiaries;
—
your
major clients; and
—
the
various countries from which you generate your greatest revenues.
See
Item 303 of Regulation S-B and SEC Release No. 33-8350.
The
Company has revised the filing in response to the comments. Please note that the trend
towards consolidation of the industry which was referenced in the Company’s risk
factors is not relevant any longer. This trend took place in 2004 and was characterized by
the purchase of ceramic producers by some of the Company’s competitors. This trend is
not currently material. In addition, the nature of the company’s business requires it
to keep the identity of its customers classified, accordingly the company cannot discuss
in further details the names of the its clients and the various countries from which it
generates its greatest revenues.
9.
Please revise your discussion of revenue and gross margin for the six months
ended June 30, 2005 to quantify the impact of the Owen Mills subsidiary.
Also, please revise to state the date you acquired this unit for
accounting purposes. If there was no increase in sales from operations
that existed in both 2004 and 2005, please revise to state this fact, or explain
the reason or reasons for any change.
The
Company has revised the filing in response to the comment.
10.
Your explanation of sales and gross profit margin at December 31, 2004
explains why the exports sales increased over the prior year; however,
you have not explained why the local market sales decreased. Please
revise to do so or tell us why no revision is appropriate.
The
Company has revised the filing in response to the comment.
Liquidity
and Capital Resources, page 23
11.
Your discussion of liquidity and capital resources for both the six months
ended June 30, 2005 and the year ended December 31, 2004 does not appear
to contain any information that is not readily available from reading
the statements of cash flows. Please revise these sections to clearly
state which changes in assets and liabilities increased cash flows and
which decreased them. Also, please expand the discussion to explain any
material factors that caused the period to period changes in your assets
and liabilities.
The
Company has revised the filing in response to the comment.
12.
In explaining your calendar year 2004 net cash used in investing activities,
you explain that you dedicated a part of the funds derived from your net
income to the purchase of property and equipment and for increased
inventory. It is not clear what you mean by “funds derived from net
income,” since you report cash flow from operations and this includes the
impact of inventory purchases as an item of operating cash flow. Please
revise to more clearly quantify and explain your purchases of property
and equipment. If future operating results are an important factor in
determining the levels of replacement or additions to property and
equipment, you should explain your plans in greater detail. Please revise or
advise.
The
Company has revised the filing in response to the comment.
13.
In the third-to-last paragraph of this subsection, on page 24, you state that
all cash, shares, and warrants involved in the private placement
transaction remained in escrow and had not been distributed to the
various parties yet. Please revise to discuss in greater detail when the
proceeds will be available to you in the regular course. In addition,
please discuss the escrow agreement provision that allows you to receive
proceeds earlier than otherwise to purchase fixed assets.
The
Company has revised the filing in response to the comment.
Changes
in and Disagreements With Accountants, page 26
14.
It does not appear proper to state “none” in this section when you
filed an Item 4 Form 8-K reporting a change in accountants within the
past two fiscal years. Please consider revising to summarize the
information about your change in accountants that was previously
reported or tell us why no revision is necessary.
The
Item 4 Form 8-K reporting a change in accountants was filed on May 13, 2002, more than two
fiscal years ago. Accordingly we believe no revision is necessary.
Security
Ownership of Certain Beneficial Owners and Management....page 42
15.
It is unclear why you do not include Gov Financial Holdings Ltd. in your
beneficial owners table on page 42, as it appears Gov Financial Holdings
Ltd. is the beneficial owner of more than five percent of’ your
common shares. See Item 403(a) of Regulation S-B. Please revise or
advise.
The
Company has revised the filing in response to the comment.
Selling
Stockholders, page 42
16.
Please disclose whether any of your selling stockholders are broker-dealers.
If so, please identify the stockholder as an underwriter.
None
of the selling shareholders is a broker-dealer or an affiliate of a broker-dealer. The
Company has revised the filing in response to the comment.
17.
For each selling stockholder that is an affiliate of a broker-dealer, please
disclose the following, if true:
—
the
seller purchased the securities to be resold in the ordinary course of business; and
—
at
the time of the purchase, the seller had no agreements or understandings, directly or
indirectly, with any person to distribute the securities.
Alternatively,
if not true, please disclose that the stockholder is an underwriter. We may have
additional comments upon review of your response.
None
of the selling shareholders is a broker-dealer or an affiliate of a broker-dealer. The
Company has revised the filing in response to the comment.
18.
In the footnotes to your selling stockholder table, please disclose clearly
the nature of the shares held by each selling stockholder. For example,
how many shares are held underlying warrants?
The
Company has revised the filing in response to the comment.
Plan
of Distribution, page 44
19.
Please tell us whether any of the selling stockholders have taken, or plan to
take, a short position or other forms of hedges in the company’s
common stock prior to this resale registration statement’s
effectiveness. We note, for example, that the selling stockholders may
engage in hedging transactions and short sales. Please note that creating short
positions before the resale registration statement’s effectiveness
is inappropriate under Section 5 of the Securities Act because the
shares underlying the short sales are deemed to be sold at the time such
sales are made.
None
of the selling stockholders has taken, or plans to take, a short position or other forms
of hedges in the Company’s common stock prior to this resale registration
statement’s effectiveness. The Company has revised the filing in response to the
comment.
Recent
Sales of Unregistered Securities, page II-3
20.
Please identify in the second paragraph the investors to whom you agreed to
offer the securities and describe the facts relied upon to make the
exemptions claimed available.
The
Company has revised the filing in response to the comment.
Exhibits,
page II-4
21.
Please indicate by footnote where you have filed Exhibits 10.1 and 10.2, the
Form of Settlement and Release Agreement and the Translation of the
Employment Agreement with Baruch Tosh. If these exhibits have not been
filed yet, please file them with a subsequent amendment.
The
Company has revised the document in response to the comment.
22.
Please
file the escrow agreement as an exhibit.
The
escrow agreement was filed as Exhibit 10.3 to the Registrant’s Report on Form 8-K
dated filed June 20, 2005. The Company has revised the filing in response to the comment
to incorporate the escrow agreement.
Exhibit
5, Opinion of McDonald Carano Wilson LLP
23.
In the opinion’s third full paragraph, counsel appears to assume matters
necessary to form the opinion, including the fact that the agreements
and instruments are valid, binding, and enforceable obligations of the
parties. Please have counsel revise the opinion or advise us on this
matter.
24.
Also, in the fourth full paragraph, counsel states that it has relied upon
certain certificates that formed the basis of its June 15, 2005