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Filing
Patrick Keran
Vice President, Legal
Vice President, Legal
SENT VIA FACSIMILE: 202-772-9217
AND VIA EDGAR
AND VIA EDGAR
January 14, 2009
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street, N.E.
Mail Stop 6010
Washington, D.C. 20549
Division of Corporate Finance
100 F Street, N.E.
Mail Stop 6010
Washington, D.C. 20549
Attention:
|
James Rosenberg, Senior Assistant Chief Accountant | |
Mary Mast, Senior Staff Accountant | ||
Vanessa Robertson, Staff Accountant |
Re: | ADVENTRX Pharmaceuticals, Inc. File Number: 001-32157 Form 10-K for the Fiscal Year Ended December 31, 2007 Filed March 17, 2008 |
Dear Mr. Rosenberg, Ms. Mast and Ms. Robertson:
Thank you for the voicemail left for Mark Bagnall on December 30, 2008. The voicemail was related
to our initial response on November 12, 2008 to your comment letter of November 3, 2008 related to
our Annual Report on Form 10-K for the year ended December 31, 2007 (the 2007 Form 10-K). We
submit to you the following additional comments in response to the voicemail. For your
convenience, we have repeated your original comment, our initial response, a transcript of the
voicemail and our additional comments. We have repeated your original comment only in the area in
which we are providing you with additional information.
Original Comment: (2) Summary of Significant Accounting Policies
Change in Accounting Principle for Registration Payment Arrangement, page F-11
2. | Paragraph 22 of FSP EITF 00-19-2 states that retrospective application is not permitted. Therefore, please explain to us why the financial statements for the years ended December 31, 2006 and 2005 were adjusted retrospectively. In addition, please explain to us why you reversed the loss on the fair value of warrants for 2006 and 2005. Include any reference to the specific authoritative literature that supports this treatment. |
Original Company Response:
Effective January 1, 2007, we adopted the provisions of FASB Staff Position on No. EITF 00-19-2,
Accounting for Registration Payment Arrangements (FSP EITF 00-19-2), to account for the
Registration Payment Arrangement. FSP EITF 00-19-2 provides that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment arrangement should
be separately recognized and measured in accordance with Statement of Financial Accounting
Standards (FAS) No. 5, Accounting for Contingencies, which provides that loss contingencies
should be recognized as liabilities if they are probable and reasonably estimable.
As reported in our Form 10-K for the year ended December 31, 2007, management determined that it
was not probable that we would have any payment obligation under the Registration Payment
Arrangement as of January 1, 2007 and December 31, 2007; therefore, no accrual for the contingent
obligation was required under the provisions of FSP EITF 00-19-2.
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Pursuant to paragraphs 17-19 of FSP EITF 00-19-2, the difference of $12,239,688 between the
carrying amount of the July 2005 Registration Payment Arrangement warranty liability as of December
31, 2006 of $30,356,439 and the amount reclassified to equity upon the adoption of this FSP at
January 1, 2007 of $18,116,751 was recognized as a cumulative-effect adjustment. Following Example
7 from the Appendix of FSP EITF 00-19-2, the Company recorded the following journal entry for the
fair value of the July 2005 Registration Payment Arrangement as of the adoption date:
Dr. Warrant Liability |
$ | 30,356,439 | ||
Cr. Retained Earnings |
$ | 12,239,688 | ||
Cr. Additional Paid in Capital |
$ | 18,116,751 |
The Company also adjusted the comparative financial statements of prior periods to apply the new
method retrospectively. This resulted in the warranty liability being removed from the balance
sheet and the loss on the fair value of the warrants being removed from the income statements for
2006 and 2005. The adjustments were done based on the Companys interpretation of paragraph 21 of
FSP EITF 00-19-2 and paragraphs 17-18 of Financial Accounting Standard No. 154 Accounting Changes
and Error Corrections (FAS 154).
Upon current review of paragraph 22 of FSP EITF 00-19-2, it appears that retrospective application
was not appropriate. The Company will update its disclosure in the earlier of: 1) any SEC filing
related to a debt or equity offering or 2) our Annual Report on Form 10-K for the year ended
December 31, 2008, and will remove the retrospective adjustments from any prior years presented.
Transcript of Voicemail:
Please refer to your response to Comment 2. Please explain to us your consideration of whether
this is a correction of an error. Please provide us with your quantitative and qualitative
materiality analysis that supports your decision of whether prior period financial statements need
to be restated to reflect these errors. Finally, please provide us with the adjustments you plan
to record and what the revised financial statements and related disclosures will look like.
Additional Company Response:
The Company believes that prior period financial statements previously filed with the SEC do not
need to be amended to reflect this correction of an error. However, we will restate the 2006
financial information in the earlier of (a) any SEC filing related to a debt or equity offering
that requires disclosure of 2006 financial information or (b) our upcoming Form 10-K for the year
ended December 31, 2008. In reaching this determination, the Company took into account the
following:
(1) The entry recorded in our most recent annual financial statements (and documented in our
original response above) was appropriate. Notably, our balance sheet as of December 31, 2007 and
our statement of operations for the year then ended are presented appropriately in our 2007 Form
10-K.
(2) The changes we made to the originally filed financial statements in our 2007 Form 10-K,
including the effect of removal of the warrant liability from the balance sheet for the year ended
December 31, 2006 and the loss on the fair value of the warrants from the statement of operations
for the years ended December 31, 2006 and 2005, respectively, were documented (with both the
original and adjusted balances) in Note 2 to the financial statements in our 2007 Form 10-K.
We believe that amending prior period financial statements previously filed with the SEC to reflect
their original disclosure will be confusing to investors, particularly in light of the fact that
certain of the affected financial statements will not be included in our upcoming Form 10-K for the
year ended December 31, 2008 (i.e., the balance sheet reflected in the Companys Form 10-K for the
year ended December 31, 2008 will present only the years ended December 31, 2008 and 2007; 2005
financial information will not be presented).
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With respect to prior period financial statements included in future filings with the SEC, we
believe that investors are better-served and our financial statements will be more understandable
if we include a note to the financial statements in future filings, as applicable, addressing the
correction. In particular, in the statement of operations included in our upcoming Form 10-K for
the year ended December 31, 2008, we will restate the loss on the fair value of the warrants for
the year ended December 31, 2006 to its original reported amount and will include a description of
the change, substantially as set forth below, in the notes to the financial statements:
Correction of an Error
On January 1, 2007, we adopted the provisions of FASB Staff Position on No. EITF 00-19-2,
Accounting for Registration Payment Arrangements (FSP EITF 00-19-2). In December 2007,
management determined that it was not probable that we would have any payment obligation under the
July 2005 Registration Payment Arrangement; therefore, no accrual for contingent obligation was
required under the provisions of FSP EITF 00-19-2. Accordingly, the warrant liability account was
eliminated and the comparative condensed consolidated financial statements of the prior periods and
as of December 31, 2006 were adjusted to apply the new method retrospectively.
The Company accounted for FSP EITF 00-19-2 appropriately by eliminating the warrant liability as of
December 31, 2007, but upon further review in 2008, management determined that it was not correct
to adjust the prior period comparative financial statements. Accordingly, the loss on the fair
value of the warrants has been revised to its original balance for the year ended December 31, 2006
in the statement of operations.
As requested in the original comment letter, the Company acknowledges:
| the Company is responsible for the adequacy and accuracy of the disclosure in the filing; | ||
| staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and | ||
| 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. |
If you have any further questions or wish to discuss the responses we have provided above, please
call me at 858-552-0866 at your convenience.
Sincerely, |
||||
/s/ Patrick Keran | ||||
Patrick Keran | ||||
Vice President, Legal | ||||
cc: | Mark Bagnall, former Executive Vice President and Chief Financial Officer |
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