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Attention:
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Brad Skinner, Accounting Branch Chief |
| Mark Kronforst, Assistant Chief Accountant |
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Re:
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Cardinal Communications, Inc. |
| Form 10KSB for the Fiscal Year Ended December 31, 2005 Filed April 17, 2006 | |
| Form 10KSB for the Fiscal Year Ended December 31, 2004 Filed March 31, 2005 | |
| File No. 1-15383 |
| 1. |
We
note that you are not in compliance with certain bank loan covenants.
Please identify the debt for which you are not in compliance and describe
the covenant violations. In addition, explain to us the consequences
of
this non-compliance and explain why you have not disclosed these matters
in detail.
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| 2. |
We
note the brief discussion within this section of your expected future
liquidity. Merely stating that management believes that sufficient
cash
will be generated from private placements of securities and operations
appears to be insufficient disclosure considering the significant
liquidity challenges disclosed throughout your filing. Your disclosure
should discuss the types of financing that are, or that are reasonably
likely to be, available, the amounts or ranges involved, the nature
and
the terms of the financing, other features of the financing and plans,
and
the impact on the company’s cash position and liquidity (as well as
results of operations in the case of matters such as interest payments).
In addition, your disclosure should discuss how your operations will
contribute to your short-term liquidity and identify any operational
changes that will be necessary. Finally, your disclosure should also
address your long-term cash requirements and your expectations for
both
financing and cash generated or used from your operations. Please explain
to us why you believe your current disclosures are adequate and refer
to
Section
IV of SEC Release 33-8350 in
your response.
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| · |
Historical
information regarding sources of cash and capital
expenditures;
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| · |
An
evaluation of the amounts and certainty of cash
flows;
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| · |
The
existence and timing of commitments for capital expenditures and other
known and reasonably likely cash
requirements;
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| · |
Discussion
and analysis of know trends and
uncertainties;
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| · |
A
description of expected changes in the mix and relative cost of capital
resources;
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| · |
Indications
of which balance sheet or income or cash flow items should be considered
in assessing liquidity; and
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| · |
A
discussion of prospective information regarding companies’ sources of and
needs for capital, except where otherwise clear from the
discussion
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| 3. |
We
note that you have included a report that indicates that management
has
evaluated internal control over financial reporting as of March 31,
2006.
Please explain to us the purpose of this disclosure and describe the
procedures followed in order to perform this evaluation. Explain how
your
assessment compared with what would have been required had you been
required to comply with Item 308(a) of Regulation S-K. In addition,
explain to us why readers are not informed, either within the management
report or the audit opinion, that an audit was not
performed.
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| 1. |
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets of the
issuer;
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| 2. |
Provide
reasonable assurance that transactions are recorded as necessary to
permit
preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the issuer are being made only in accordance
with authorizations of management and directors of the issuer;
and
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| 3. |
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the issuer’s assets that
could have a material effect on the financial
statements.
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| 4. |
We
note your disclosures regarding litigation that indicate that you do
not
expect the matters to have a material adverse effect on the company.
We
further note that you indicate that you “cannot control the outcome and
the extent of losses” of several matters disclosed within this section.
Please note that this disclosure does not appear to satisfy the
requirements of SFAS 5 if there is at least a reasonable possibility
that
a loss exceeding amounts already recognized may have been incurred.
In
that case, you must either disclose the estimated additional loss,
or
range of loss, that is reasonably possible or state that such an estimate
cannot be made. Please tell us whether you believe that there are
reasonably possible material additional losses and how your disclosures
comply with SFAS 5 and SAB Topic
5Y.
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| 5. |
We
note your disclosure of the shares issued to debt consultants and
registered on Form S-8 on page F-23. Please direct us to disclosure
within
your financial statements regarding this contingency that complies
with
the requirements of SFAS 5.
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| · |
It
is our conclusion that Cardinal should recognize (and has recognized)
a
liability representing its estimated liability to Jantaq Investments,
Inc.
(Jantaq) based on the demand made by Jantaq. We recorded a liability
of
$303,058 in the third quarter of 2005 in relation to this demand. This
is
in the liability section of our balance sheet under Notes Payable because
this demand has been made in relation to a note
payable.
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| · |
It
is our conclusion that Cardinal is not required to accrue any loss
contingencies resulting from the stock issuances because there is no
pending or threatened litigation and the amount of loss (even were
litigation threatened or brought) cannot be reasonably estimated. See
paragraphs 8, 33 and 38 of SFAS No. 5 discussed in more detail
below.
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| · |
It
is also our conclusion that, because of the applicability of SFAS 5,
no
disclosure is required under Item 4.02 of Form 8-K. That item requires
disclosure if there is a restatement of financial statements. Because
Cardinal’s financial statements already include the estimated potential
liability to Jantaq, and because other liabilities associated with
the
stock issuances have neither been asserted nor are estimable, Cardinal
has
concluded that it does not need to record any further contingent
liabilities.
|
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Date: May
24, 2006
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By: /s/
Edouard A. Garneau
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Name: Edouard
A. Garneau
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Title: Chief
Executive Officer
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Date: May
24, 2006
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By: /s/
Ronald S. Bass
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Name: Ronald
S. Bass
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Title: Principal
Accounting Officer
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