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M2 LAW
PROFESSIONAL
CORPORATION
December
12, 2006
As
Filed On Edgar
Securities
and Exchange Commission
Division
of Corporate Finance
Washington,
DC 20549
Mail
Stop
4561
Attn:
Gregory Dundas
Re: Format,
Inc., a Nevada corporation
Registration
Statement on Form 10-SB
Filed
November 14, 2006
File
No. 0-52213
Dear
Mr.
Dundas:
On
behalf
of Format, Inc., a Nevada corporation (“Company”), please find enclosed two (2)
copies of the Company’s Registration Statement on Form 10-SB, Amendment No. 1
(“Amendment No. 1”), which was filed with the Securities and Exchange Commission
on December 12, 2006. To facilitate your review, the copies are marked to
show
changes from the Company’s Registration Statement on Form 10-SB.
The
purpose of this letter is to respond, in writing, to the questions, comments
and
requests for information specified in your comment letter dated December
8,
2006, and to key those responses to the revisions and additions specified
in
Amendment No. 1.
The
headings and provisions of this letter, which are numbered, are intended
to
correspond and respond to the headings and order of the paragraphs in your
letter.
Audited
Financial Statements
Report
of Independent Registered Public Accounting Firm, page F-17
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1.
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As
provided in Question 5 of the PCAOB’s June 9, 2006 Question and Answer on
Adjustment to Prior Period Financial Statements Audited by Predecessor
Auditor, the Company’s auditor has revised his opinion regarding the
restatement adjustments by amending the last paragraph to read
as
follows:
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500
NEWPORT CENTER DRIVE SUITE 800 NEWPORT BEACH CALIFORNIA
92660
TEL:
949 706 1470 FAX: 949 706 1475
Securities
and Exchange Commission
Mr.
Gregory Dundas
Page
2
of
5
I
also
have audited the adjustments described in Note 11 that were applied to restate
the 2004 financial statements to correct an error. In my opinion, such
adjustments are appropriate and have been properly applied. I was not engaged
to
audit, review or apply any procedures to the 2004 financial statements of
the
Company other than with respect to the adjustments and, accordingly, I do
not
express an opinion or any other form of assurance on the 2004 financial
statements taken as a whole.
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2.
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As
provided in Questions 9 and 10 of the PCAOB’s June 9, 2006 Question and
Answer on Adjustment to Prior Period Financial Statements Audited
by
Predecessor Auditor, the Company’s predecessor auditor has revised its
report to address the following:
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| · |
To
specifically express that their opinion excludes the effects of the
correction of an error;
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| · |
To
clearly indicate that they were not engaged to audit, review, or
apply any
procedures to the adjustments; and
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| · |
To
date the reissued predecessor auditor’s report as the same date of the
previously issued report.
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Note
2
- Summary of Significant Accounting Policies
Allowance
for Doubtful Accounts, page F-24
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3.
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The
following is a reconciliation of the inconsistencies between the
Company’s
previous responses:
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| a) |
CA
Lit issued shares in March 2006, and these shares were subsequently
sold
in that month at the prices and dates referred to in the Company’s
November 13, 2006 response to comment 9 of your letter dated October
26,
2006;
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| b) |
Cobalis
shares were issued in May 2006, and subsequently sold in September
and
October 2006, as noted in the Company’s November 13, 2006 response to
comment 9. The October 2006 sale also represents the marketable security
balance at September 30, 2006 ($5,000).
|
| c) |
IVI
- the sale dates were accurately reported in the Company’s November 13,
2006 response to comment 9; however, the shares were issued in February
2006 as noted in the prior October 12, 2006 response to comment
30.
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|
4.
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As
was discussed in the Company’s previous response to comments 10-12 of your
letter dated October 26, 2006, the substance of the transaction
is the
issuance of shares by the Company’s customers as payment in full for
receivables with the Company’s President merely acting as an agent to
receive the shares due to a legal technicality. Prior to the receipt
of
the common stock by the President, the President had advanced cash
into
the Company for working capital purposes, so the Company had a
liability
at that time to its President. The flow of entries by the Company
was just
done so the Company would recognize the impact for tax purposes
to its
President. The journal entry that the staff has suggested in fact
did
occur, not just through one entry, but through a combination of
entries.
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Securities
and Exchange Commission
Mr.
Gregory Dundas
Page 3
of
5
Dr.
Advance Shareholder
Cr.
Accounts receivable
Dr.
Marketable securities
Cr.
Advance Shareholder
So
the
advance to the shareholder cancels out. The shareholder advance recorded
when
the shares were transferred from the President to the Company was and still
remains a liability to be repaid by the Company.
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5.
|
The
Company will quarterly evaluate the collectibility of its accounts
receivable and if necessary adjust their allowance for doubtful
accounts
based on any changes in the estimate of their allowance. The Company
also
directly writes-off its receivables, if they are deemed uncollectible.
In
the disclosure for Allowance for Doubtful Accounts, the Company
included
the directly written off accounts receivable into the chart, when
in fact
these receivables did not impact the Allowance for Doubtful Accounts.
The
chart has been revised to accurately reflect the transactions that
occurred. The Company as noted in their statements of operations
for the
periods presented did not record any recovery of bad debt. The
Company has
corrected this in its financial statements filed with Amendment
No 1.
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The
journal entries the Company makes with respect to the allowance for doubtful
accounts are as follows:
Dr.
Accounts Receivable
Cr.
Sales
To
record
sales
Dr.
Bad
Debt Expense
Cr.
Allowance for Doubtful Accounts
To
allow
for uncollectible receivables.
Or
Dr.
Bad
Debt Expense
Cr.
Accounts Receivable
To
write-off accounts receivable that are deemed uncollectible
Securities
and Exchange Commission
Mr.
Gregory Dundas
Page 4
of
5
During
the years ended 2004, 2005 and during 2006, the Company had directly written
off
accounts receivable of $58,822, $17,089 and $1,664 for the nine months ended
September 30, 2006. At December 31, 2005, the Company adjusted the reserve
by
$7,325 by the following entry which has also been noted in the updated
disclosure:
Dr.
Allowance for Doubtful Accounts
Cr.
Bad
Debt Expense
At
December 31, 2004, 2005 and September 30, 2006, the Company adjusts the
allowance if necessary and will continue to do this on a quarterly basis
to
match with specific customers.
Note
4
- Loans Receivable, page F-30
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6.
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The
Company’s response did provide a range; however, the footnote disclosure
that was amended (Note 4) stated the interest rate at 8% (no range).
As
noted in paragraphs 13 and 14 of APB 21, which the Company used
as a guide
to determine an appropriate rate, with the prime rate in 2004 and
2005
ranging between 5.25% and 6.75%, based on discussions with the
debtor, a
loan with a financial institution with a personal guarantee
collateralizing the debt would be no more than prime plus 1%. Using
a rate
of 8% would exceed that rate. The Company did consider the debtor’s credit
standing as well as market terms for lending arrangements with
similar
terms.
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Using
the
best single-point best estimate of the impact of the error of not imputing
the
appropriate interest on the receivables and payables for the periods presented
for 2005, would result in a net loan receivable of approximately $3,500
resulting in $280 at 8%. Materiality for 2005 was $4,800 for planning
materiality, $3,600 for tolerable misstatement and $1,200 for individual
significant items.
Combining
the loans together in 2004 would result in a net loan receivable of
approximately $15,500 which is higher due to the loan receivable of $27,000
that
was paid by the Company during 2004, resulting in approximately $1,000 at
8%.
Materiality in 2004 was comparable to the amounts in 2005.
There
were no other items that detailed as passed adjustments for these
periods.
Securities
and Exchange Commission
Mr.
Gregory Dundas
Page 5
of
5
The
Company has also considered “qualitative” factors to determine whether these
quantitative immaterial items would be qualitatively material. The factors
the
Company has considered are whether the misstatement arose from an estimate,
whether the misstatement altered changes in earnings including earnings per
share and whether it changed a loss into income, whether the misstatement
affected the Company’s compliance with regulatory requirements, loan covenants
or any other contractual requirements, whether the misstatement has the effect
of increasing management’s compensation, and whether or not the misstatement
involved concealment of an unlawful transaction. None of these qualitative
or
quantitative factors would render the passed adjustments as being considered
material to the financial statements.
Should
you have any questions or comments concerning the enclosed materials, please
contact me at 949-706-1470.
Sincerely,
M2
Law
Professional Corporation
| /s/ Michael Muellerleile | |||
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Michael
Muellerleile
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