December
15, 2009
John
Reynolds
United
States Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
DC 20549
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RE:
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Stratus
Media Group, Inc.
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Form
10-K/A (No. 1) for the Fiscal Year ended December 31,
2008
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Form
10-Q for the Fiscal Quarter Ended June 30, 2009
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Response
Letter Dated September 4, 2009
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File
No.: 0-24477
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Dear Mr. Reynolds:
This
letter is in response to the above. The following responses are
numbered to correspond to the comments made in your letter of October 16, 2009,
which appear in italics as a means of reference:
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1.
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We
note in an Item 4.01 Form 8-K filed on August 5, 2008, that you engaged
Goldman Parks Kurkland Mohidin LLC on July 30, 2008. We further
note in a Form 8-K filed on March 14, 2008, that Singer Lewak Greenbaum
& Goldstein, opined on the financial statements of Pro Sports &
Entertainment, Inc. as of and for the years ended December 31, 2006 and
2005. Unless the same accountant reported on the most recent
financial statements of both the registrant (Feris International, Inc.)
and the accounting acquirer (Pro Sports & Entertainment, Inc.), a
reverse acquisition results in a change in accountants. Please file an
Item 4.01 8-K to report the change in accountants that occurred upon the
reverse acquisition that provides the disclosures required by Item 304 of
Regulation S-K, treating the accountant that no longer will be associated
with the registrant's financial statements as the predecessor
accountant.
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We will
file the requested 8-K within five business days.
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2.
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We
note your responses to comment 4 of our letter dated May 22, 2009, and
comment 2 of our letter dated July 24, 2009. For each event
right owned and the Stratus Rewards program, please provide us with the
valuations and describe for us the basis for your estimates involving all
significant assumptions employed. We expect that the significant
assumptions would include, at a minimum, the year revenues begin, the
amount of discounted cash flows, the growth rate, and discount
rate. To support your estimate of the year revenues begin
describe in greater detail the amount of lead time necessary to conduct
the event and the steps you have taken to date to plan the
event. Explain why it has taken so long to conduct events after
the date of their respective
acquisitions.
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The
following are the results and assumptions used for the valuation of intangibles
and goodwill as of December 31, 2008:
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As
of 12/31/2008
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Year
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Annual
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Annual
Growth
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|||||||||||||||||||||
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Book
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Discounted
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Discount
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Revenues
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Growth
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Growth
for
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|||||||||||||||||||
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Event/Item
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Balance
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Cash
Flows
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Rate
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Begin
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Rate
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Term.
Value
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Long
Beach Marathon
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$ | 300,000 | $ | 412,284 | 27.0 | % | 2011 | 10.00 | % | 2.00 | % | |||||||||||||
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Concours
on Rodeo
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600,000 | 802,367 | 27.0 | % | 2010 | 17.76 | % | 2.00 | % | |||||||||||||||
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Santa
Barbara Concours
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243,000 | 499,394 | 27.0 | % | 2009 | 10.00 | % | 2.00 | % | |||||||||||||||
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Core
Tour
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1,067,069 | 1,397,676 | 27.0 | % | 2010 | 10.00 | % | 2.40 | % | |||||||||||||||
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Freedom
Bowl
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344,232 | 1,409,762 | 27.0 | % | 2011 | 10.04 | % | 2.00 | % | |||||||||||||||
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Maui
Music
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725,805 | 1,578,854 | 27.0 | % | 2010 | 9.52 | % | 2.00 | % | |||||||||||||||
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Athlete
Management
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15,000 | 1,795,166 | 69.0 | % | 2011 | 41.38 | % | 2.00 | % | |||||||||||||||
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Total
Events
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3,295,106 | 7,895,503 | ||||||||||||||||||||||
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Stratus Rewards:
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Technology
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227,849 | |||||||||||||||||||||||
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Membership
list
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71,100 | |||||||||||||||||||||||
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Corporate
partner list
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23,300 | |||||||||||||||||||||||
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Corporate
membership
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450,000 | |||||||||||||||||||||||
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Goodwill
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1,073,345 | |||||||||||||||||||||||
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Total
Stratus Rewards
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1,845,594 | 3,578,747 | 79.00 | % | 2010 | 45.64 | % | 2.00 | % | |||||||||||||||
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Total
Events & Stratus
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$ | 5,140,700 | $ | 11,474,250 | ||||||||||||||||||||
Events
usually require at least four to six months of advance planning and specific
assumptions and details per event are as follows:
Long Beach
Marathon: It is not part of the company’s strategic direction
to operate this event in 2010 and no plans have been made so far to
do so. Revenues in 2011 are assumed to be $1,100,000, compared with
peak revenues in 1998 of $2,300,000.
Concours on
Rodeo: we are planning on running the car shows in 2010 and
have initiated a number of internal meetings and planning sessions to do so,
with a planned event date in June 2010. Revenues in 2010 are forecast
at $483,000, compared with peak revenues in 2001 of $1,304,000.
Santa Barbara
Concours: as noted above, we are planning on running the car
show in 2010 with the Santa Barbara Concours d’ Elegance projected to be held in
April 2010. The Company planned to operate the Santa Barbara Concours
in October 2009 but had to postpone the event due to venue site
problems. As part of planning this event, the company obtained
preliminary approval from the Santa Barbara County Parks and Recreation and,
based on this approval are comfortable that the event will be held as
planned. Revenues in 2010 are forecast at $802,800.
Core
Tour: The Company has been in discussions with the former
principals of the Core Tour for them to play active operations management
consulting roles to initiate the Core Tour in 2010. Revenues are
forecast to be $2,667,500, compared with peak revenues in 2002 of
$2,300,000.
Freedom
Bowl: this event is planned to begin recertification
in 2011 to allow for sufficient time for the National College
Athletics Association to recertify this event and strategic negotiations with
target NCAA Conference alignment. Revenues in 2012 are forecast to be
$3,074,197, compared with peak revenues in 1996 of $3,603,000.
Maui Music
Festival: this even is planned for summer 2011, with forecast
revenues of $1,428,530, compared with peak revenues in 2000 of
$923,000. The higher level of revenues results from an additional day
added to the event.
Athlete
Management: this activity is not forecast to start until 2011,
when $2,300,000 of revenues are forecast, compared with peak revenues in 1999 of
$1,150,000, when a smaller number of athletes were represented than assumed in
the 2011 forecast.
Stratus Rewards
VISA Program: we have initiated discussions with a large
private bank Switzerland regarding their involvement as the affiliate bank for
this program in the European markets with a tentative launch for summer of
2010. This bank is one of the top credit card issuers in
Europe. Revenues for 2010 are forecast to be $7,958,000, which is
substantially higher than the $517,620 of revenues realized in the 22 months the
program was run by Stratus. This is based on the assumption that this Swiss bank
will activate more users than the passive bank involvement and failure to
process applications shown by the prior sponsoring bank.
The
Company’s plan has been to obtain sufficient content within key event marketing
verticals then to capitalize and roll out these events in a combined package
offering economies of scale by consolidating common cost centers and leverage
greater opportunity for sponsorship revenue. In order to do so, the
Company first had to become a public entity, which occurred March 14,
2007. The challenges in raising capital since that point have delayed
the Company from executing this plan. The Company is expecting to
raise sufficient capital in the first half of 2010 that will allow this roll out
to occur.
It should
be noted that the Company is nearing its annual review of the values for
intangible assets and goodwill on the balance sheet as of December 31,
2009. Given that these events were not held during the twelve months
ended December 31, 2009, it is possible that this annual review may result in
impairment charges and it is also possible that these impairment charges may be
significant, but we have not conducted our review and are not prepared to reach
any conclusions regarding possible impairment charges at this time.
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3.
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We
note in your response to comment 6 in our letter dated July 24, 2009 that
the Company has reached the conclusion that both the ICFR and DC&P
were ineffective as of December 31, 2008. We also note your revised Item
9A(T) disclosure, and it appears to us that you have combined your
DC&P and ICFR disclosures. Please provide us with your
entire revised disclosure for each heading under Item 9A(T) (i.e.
Evaluation of Disclosure Controls and Procedures, Management's Report on
Internal Control Over Financial Reporting, and Changes in Internal Control
over Financial Reporting).
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4.
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We
note the exposed weaknesses in your response to comment 6 in our letter
dated July 24, 2009. Please tell us if you have now identified material
weaknesses upon further review and examination, and ultimate conclusion
that ICFR was ineffective as of December 31, 2008. If so, include the
following in your revised
disclosure:
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a.
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the
nature of the actual material
weaknesses,
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b.
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the
impact of the material weaknesses on the financing reporting and control
environment, and
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c.
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management's
current plans, if any, for remediating the material
weaknesses.
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Refer
to Section II.B.3 of SEC Release No. 33-8810.
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5.
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If
you have instead determined there to be control deficiencies, please
disclose what, if any, impact the control deficiencies had on the
Company's ICFR and financial reporting, when considering the effect of any
compensating controls. Refer to Sections II.B.1 and II.B.5 of
SEC Release No. 33-8810 for additional
guidance.
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6.
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In
your revised Item 9A(T), please also include the proposed ICFR disclosures
in your response to comment 25 and 26 in our letter dated May 22,
2009.
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7.
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We
note your conclusion that DC&P was effective as of June 30, 2009 with
one exception. Please describe to us the exception and be advised that you
should not qualify your DC&P conclusion with exceptions. Any
exception(s) would result in a conclusion that DC&P was not effective.
Revise to state your conclusion in clear and unqualified language and
include a description of any exception(s) that causes DC&P to be
ineffective, as necessary. To the extent you believe that your DC&P
are effective as of June 30, 2009, please explain why you changed your
conclusion from March 31, 2009, and disclose the changes in your DC&P
from March 31, 2009 that resulted in a conclusion that your DC&P were
effective.
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The
following revised Section Item 9A(T) will address comments 3 through 7 in your
letter:
Disclosure Controls and
Procedures
In
connection with the preparation of this annual report on Form 10-K, an
evaluation was carried out by the Company’s management, with the participation
of the Chief Executive Officer and the Acting Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(“Exchange Act”)) as of December 31, 2008. Disclosure controls and
procedures are designed to ensure that information required to be disclosed in
reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC rules and
forms and that such information is accumulated and communicated to management,
including the Chief Executive Officer and the Acting Chief Financial Officer, to
allow timely decisions regarding required disclosures.
Based on
that evaluation, the Company’s management concluded, as of the end of the period
covered by this report, that the Company’s disclosure controls and procedures
were not effective in recording, processing, summarizing, and reporting
information required to be disclosed, within the time periods specified in the
SEC rules and forms and that such information was accumulated or communicated to
management to allow timely decisions regarding required
disclosure. Specifically, at the time the Company executed a “reverse
merger” with Feris International, Inc. and filed the related Report on Form 8-K
on March 14, 2008, the Annual Report on Form 10-K for Feris International Inc.
for the fiscal year ended December 31, 2007 had been filed with the Commission
on February 22, 2008 (“Feris Report”). The Company failed to file a
timely amendment to the Report on Form 8-K containing the required audited
financial statements for the predecessor company, Pro Sports &
Entertainment, Inc., for the fiscal year ended December 31, 2007.
In
particular, the Company has identified material weaknesses in internal control
over financial reporting, as discussed below.
Management’s Report on
Internal Controls over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as required by Sarbanes-Oxley (SOX) Section 404
A. The Company’s internal control over financial reporting is a
process designed under the supervision of the Company’s Chief Executive Officer
and Acting Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company’s
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that:
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pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the Company’s
assets;
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provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of the financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of management and the
Board of Directors; and
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Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control
–Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). As a result
of this assessment, management identified a material weakness in internal
control over financial reporting.
A material
weakness is a control deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
The
matters involving internal controls and procedures that management considered to
be material weaknesses under the standards of the Public Company Accounting
Oversight Board were: inadequate segregation of duties consistent with control
objectives and insufficient written policies and procedures for accounting and
financial reporting with respect to the requirements and application of U.S.
GAAP and SEC disclosure requirements. The aforementioned material
weaknesses were identified by the Company’s Acting Chief Financial Officer in
connection with the audit of its financial statements as of December 31, 2008
and communicated the matters to management.
As a
result of the material weakness in internal control over financial reporting
described above, management has concluded that, as of December 31,
2008, the Company’s internal control over financial reporting was not effective
based on the criteria in Internal Control – Integrated Framework issued by
COSO.
Management
believes that the material weaknesses set forth above did not have an effect on
the Company’s financial results. The Company is committed to
improving its financial organization. As part of this commitment, the
Company intends to hire John Moynahan as a full-time Chief Financial Officer and
to hire a third-party consultant with expertise in this area to provide advice
to the company on reporting and regulatory requirements to prevent this
situation from occurring in the future. In addition, the Company
intends to add a position to the accounting function at the Company to segregate
duties consistent with control objectives and to prepare and implement
sufficient written policies and checklists that will set forth procedures for
accounting and financial reporting with respect to the requirements and
application of U.S. GAAP and SEC disclosure requirements.
Management
will continue to monitor and evaluate the effectiveness of the Company’s
internal controls over financial reporting on an ongoing basis and are committed
to taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.
The
Company’s independent auditors have not issued an attestation report on
management’s assessment of the Company’s internal control over financial
reporting. As a result, this annual report does not include an
attestation report of the Company’s independent registered public accounting
firm regarding internal control over financial reporting. the Company
was not required to have, nor has the Company, engaged its independent
registered public accounting firm to perform an audit of internal control over
financial reporting pursuant to the rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.
Changes in Internal
Controls
There were
no changes in the Company’s internal controls over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December
31, 2008, that materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
The
Company specifically acknowledges that the Company is responsible for the
adequacy and accuracy of the disclosure in the filings; staff comments of
changes to disclosure in response to staff comments do not foreclose the SEC
from taking any action with respect to the filings; and, the Company may not
assert staff comments as a defense in any proceeding initiated by the SEC or any
person under the federal securities laws of the United
States. Further, we acknowledge that the Division of Enforcement has
access to all information you provide to the staff of the Division of
Corporation Finance in our review of your filings or in response to our comments
on your filings.
Sincerely,
/s/ Paul
Feller
Paul
Feller
President
and Chairman of the Board