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Attention:
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Jennifer Riegel
Jeffrey P. Riedler
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Re:
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Biozone Pharmaceuticals, Inc.
Amendment No. 3 to Registration Statement on Form S-1
Filed September 28, 2012
File No. 333-176951
Form 10-K for the Fiscal Year Ended December 31, 2011
Filed April 16, 2012
File No. 333-146182
Form 10-Q/A for the Quarterly Period Ended June 30, 2012
Filed September 28, 2012
File No. 333-146182
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1.
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Since you are a reporting company subject to the requirements of the Securities Exchange Act of 1934, you should respond to comments 2 through 14 in this letter which apply to the disclosure included in your Form 10-K or Form 10-Q within ten business days by providing the requested information or by advising us when you will provide the requested response.
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2.
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We note your response to prior comment 5. Please clarify whether or not you recognized a gain or loss with the transfer of your 55% ownership in ISR de Mexico, S. R.L. de C. V., a Mexican corporation that was owned by the Company during the period prior to February 22, 2011, in return for and cancellation of 13,948,001 shares of the Company’s common stock. Please provide the journal entries you made to record the transfer at the time of the Aero transaction.
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3.
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You state that in December 2011, the Company transferred its 55% ownership in ISR de Mexico, S. R.L. de C. V., a Mexican corporation that was owned by the Company during the period prior to February 22, 2011, in return for and cancellation of 13,948,001 shares of the Company’s common stock from former shareholders of the Company but that you recorded the transaction at the time of the Aero acquisition in May 2011 because that was the intent of the Company. It appears that the actual transfer of ownership of ISR de Mexico, S.R.L. de C.V. did not occur until December 2011 and should be accounted for in the period the transaction occurred. Please tell us when you legally relinquished control and why you believe you have recorded the transfer in the appropriate period.
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4.
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You state that you believe that in connection with the audit performed following closing, various material misrepresentations were revealed in the unaudited presentation of the financial condition, assets and liabilities of BioZone. Please tell us the nature of these misrepresentations and what effect they had on your historical financial statements. Provide additional disclosure for clarification.
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5.
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We have reviewed your response to prior comment 9. The identity of your major customers is material information and required disclosure pursuant to Item 101(h)(4)(vi) of Regulation S-K and therefore is not eligible for confidential treatment. Please expand your disclosure to identify your two largest contract manufacturing customers that account for a material amount of your sales.
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6.
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You stated in response to our prior comment 14, that you revised your financial statement for BioZone Pharmaceuticals, Inc. to remove BioZone Pharmaceuticals from the historical financial information yet none of the December 31, 2010 balances changed. Please revise your filing accordingly to ensure that the December 31, 2010 financial information does not include the effect of the reverse merger as that did not occur until June 30, 2011.
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7.
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We note your response to prior comments 16 and 17. Please address the following:
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You state that the BioZone Labs Group former shareholders received the largest portion of the voting rights in the combined entity and held the largest minority voting interest in the combined entity. Please tell us the percent of the total shares issued to the BioZone Pharma’s shareholders.
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It does not appear that your response addressed our comment regarding clarification of the change in voting rights just prior to the acquisition and how that change affected your determination that BioZone Lab Groups was the accounting acquirer.
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Since there was no agreement to vote in concert among all of the entities in the BioZone Lab Group, it appears that you need to identify one accounting acquirer and account for the other acquisitions in accordance with ASC 805. Please tell us why identifying one accounting acquirer is not required under the GAAP literature in your facts and circumstances.
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You state that together, Brian Keller and Daniel Fisher controlled the BioZone Labs Group prior to the transaction. Please define control. In addition, if they did not have an agreement to vote in concert it is unclear how they controlled the BioZone Labs Group. For example, it appears based on Attachment B to Exhibit 17.1, sections iv and xxvi to the 8-K filed July 31, 2012 that Mr. Fisher did not agree with certain aspects of the merger, including the Baker-Cummins transaction and the shares issued to Nian Wu, and voted against those transactions. In addition, it appears Mr. Fisher disagreed with the percentage that the prior company (for which he was a shareholder) received post-merger. Please tell us why you believe it was the intent for the shareholders, including Mr. Keller and Mr. Fisher, to act as a group.
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Immediately after the reverse acquisition of the BioZone Labs Group was completed, the former shareholders of BioZone Labs owned a total of 21,000,000 shares, or 31% of the total shares issued and outstanding, and 38% of the adjusted issued and outstanding shares after taking into account the elimination of the 13,948,001 shares owned by ISR Investments, a former shareholder of the Company and no other shareholder owned a significant amount of the total outstanding shares (other than ISR Investments1). The shareholders of the Company did not receive any additional shares in connection with the reverse acquisition of the BioZone Labs Group.
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In March 2011, the original shareholders of the Company transferred 24,050,000 shares (64% of the total outstanding shares) to 49 new shareholders in contemplation of the reverse acquisition (and retained 13,548,000 shares which were subsequently cancelled as discussed herein). We considered this transfer of control as further evidence of the intent of the parties to complete a merger among BioZone Labs, Equalan, Equachem and BetaZone. The primary reason the Company did not acquire the assets and assumed the liabilities of Aero Pharmaceuticals, Inc. (“Aero”) and the shares of the BioZone Lab Group simultaneously was the necessity for an audit of the BioZone Lab Group. However, from the outset the Company intended to complete the BioZone Lab Group transaction in which effective control of management would remain in the hands of the BioZone Lab Group’s existing management.
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We considered all of the entities in the BioZone Labs Group as one accounting acquirer, though there was no formal agreement to vote in concert among the owners because:
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All four owners of the BioZone Labs Group signed a Letter of Intent in February 2011 to merge each company in the BioZone Labs Group with the Company;
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Each of Equalan LLC, Equachem LLC and BetaZone LLC are dependent on BioZone Labs exclusively for financial and managerial support.
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Equalan’s sole employees are two non-executive individuals who process sales orders. Equalan purchases all of its products for resale from BioZone Labs and does not pay for the products on a current basis. Equalan has no product supplier other than BioZone Labs. Equalan’s sales of BioZone products to customers represented approximately 7% of the BioZone Labs Group total sales for the 12 months ended on the merger date. For 2012, Equalan sales are projected to represent less than 5% of total sales of the BioZone Labs Group.
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Equachem has no employees. A BioZone Labs employee processes sales orders for Equachem, which sells raw materials to BioZone Labs and other manufacturers. Approximately 80% percent of Equachem’s sales of raw materials are to BioZone Labs, which does not pay for the products on a current basis. Total sales of Equachem represent less than 3% of total sales of the BioZone Labs Group (including intercompany sales to BioZone Labs.)
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BetaZone has two employees and relies on BioZone Labs for managerial and sales support. BetaZone licenses all of its technology from BioZone Labs.
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The relevant size of each of Equalan Pharmaceuticals, LLC, Equachem LLC and BetaZone Pharma, LLC is immaterial when compared to the size of BioZone Labs.
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Daniel Fisher acted as President and Brian Keller acted as Executive Vice President of each entity in the BioZone Labs Group prior to the merger and controlled all management decisions. Mr. Fisher voted in favor of the merger transactions and signed all of the merger documents in July 2011. Mr. Fisher’s alleged disapproval of the transactions emerged after his termination from the Company in January 20122.
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8.
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We note in your response to prior comment 18 that you determined that the conversion features for the 2012 convertible notes did not meet the criteria for bifurcation as a derivative. Please tell your analysis and how you determined that bifurcation was not required.
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9.
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You state that the fair value of the warrants exceeded the convertible notes and therefore, the excess amount of $580,768 is being allocated over the term of notes as interest expense. Please note that the proceeds should have been allocated based on the relative fair value of the note and the warrants. The warrants should then be recorded at fair value as a derivative liability, with the change in the value going through your consolidated statement of operations.
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10.
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Please revise your disclosure to state that you have not recorded a BCF on the March 2012 Purchase Order notes and not the March 2011 Purchase Order Notes.
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11.
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You disclose actions in which you are subject to litigation. ASC 450-20-50-4 requires that for each loss contingency the company disclose an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. Please revise your disclosure to comply with ASC 450.
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12.
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We are unable to calculate the net loss per share based on the net loss and weighted average common shares outstanding for the three and six months ended June 30, 2012. Please provide us a calculation of your net loss per share.
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13.
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We note that you amended your filings to remove the previously recognized beneficial conversion feature. You disclose that “due to the fact that the carrying amount of the convertible notes has been reduced to zero, based on the discount allocated from the value of the warrants referred to above, that no beneficial conversion feature is to be recorded.” The amount of the proceeds allocated to the warrants and to the convertible debt should have been allocated based on the relative fair value method which would have resulted in some proceeds being allocated to the convertible debt. The beneficial conversion feature would have been recognized for the value originally allocated to the convertible debt. Please provide us your relative fair value calculation for the warrants and debt. Tell us how your accounting complies with GAAP including how you comply with ASC 470-20-25-2, ASC 470-20-30-8 and ASC 470-20-35-7.
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14.
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We note in your response dated September 28, 2012 you stated that all of the February 2012 warrants were exercised by July 31, 2012. Please tell us your consideration of using a binomial or simulation model for your other warrants that are still outstanding which have potential adjustments to the exercise price due to down-round protection provisions.
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The Company is responsible for the adequacy and accuracy of the disclosures in the filings;
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Staff comments or changes to disclosures in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and
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The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
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Cc:
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Harvey Kesner, Esq.
Sichenzia Ross Friedman Ference LLP
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