Mail Stop 0407
April 15, 2005
Via U.S. Mail and Fax
Mr. Stephen Bowling
Chief Financial Officer
Eon Communications Corporation
4105 Royal Drive NW
Suite 100
Kennesaw, GA 30144
RE: Eon Communications Corporation
Form 10-K for the fiscal year ended July 31, 2004
Filed October 28, 2004
Form 10-Q for the quarter ended January 31, 2005
Filed March 17, 2005
File No. 0-26399
Dear Mr. Bowling:
We have reviewed the above referenced filings and have the
following comments. We have limited our review to only your
financial statements and related disclosures and will make no
further
review of your documents. As such, all persons who are
responsible
for the adequacy and accuracy of the disclosure are urged to be
certain that they have included all information required pursuant
to
the Securities Exchange Act of 1934. Where indicated, we think
you
should amend your documents in response to these comments. If you
disagree, we will consider your explanation as to why our comment
is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended July 31, 2004, filed October
28,
2004
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 16
1. We note that, at a minimum, you have a current note payable,
operating leases and inventory purchase commitments. Please refer
to
Item 303(a)(5) of Regulation S-K and revise to include a tabular
disclosure of your contractual obligations.
2. Your discussion of cash flows from operating, investing and
financing activities appear to be a mechanical recitation of your
cash flow statement, and does not provide a clear picture of your
ability to generate cash and meet existing and known or reasonably
likely short- and long-term cash requirements. Refer to Item 303
of
Regulation S-K as well as section IV of the Commission`s
Interpretive
Release on Management`s Discussion and Analysis of Financial
Condition and Results of Operation which is located on our website
at: http://www.sec.gov/rules/interp/33-8350.htm. Revise to
provide
not only a "discussion" but also an "analysis" of historical
information as well as known trends, demands, commitments, events
or
uncertainties that will result in your liquidity increasing or
decreasing in any material way. Your disclosures should provide
insight into the underlying internal and external business factors
driving such changes as seen through the eyes of management.
Note 2. Acquisition of Cortelco Shanghai Telecom Equipment
Company,
page 36
3. Refer to the 8-K filed on 8/13/04 to report the acquisition of
Cortelco China. We note that you filed financial statements for
Cortelco China for the most recent fiscal year and interim period
before the acquisition. It would appear that you were required to
file financial statements for the year ended December 31, 2002 as
well since this acquisition exceeds 40% significance. Refer to
Rule
3-05 (b)(2)(iv) of Regulation S-X and tell us why you believe you
were in compliance with the requirements of Rule 3-05 of S-X.
Note 3. Summary of Significant Accounting Policies, page 36
4. Revise your product warranty accounting policy to clarify the
scope of warranties that you offer to your customers and how you
account for such warranties.
Note 16. Related Parties, page 47
5. Revise to provide a description of the underlying related party
transactions and the terms and manner of settlement, particularly
with respect to the amounts payable to Shanghai Bell and CII.
Part II, Item 9A. Controls and Procedures, page 49
6. We note the disclosure in your December 16, 2004 Form 8-K that
Grant Thornton had identified, during its audit of your financial
statements for the fiscal year ended July 31, 2004, material
weaknesses in Cortelco Shanghai`s internal control over financial
reporting. In light of this disclosure and the fact that you
acquired a controlling interest in Cortelco Shanghai on June 1,
2004,
please amend your Form 10-K to discuss how your certifying
officers
determined that your disclosure controls and procedures were
"effective to ensure that information required to be disclosed by
[you] in reports that [you] file or submit under the Exchange Act
is
recorded, processed, summarized and reported within the time
periods
specified in Securities and Exchange Commission rules and forms"
as
of July 31, 2004. As part of this discussion, please specify the
processes and procedures that you had in place for the period
covered
by the report that enabled the officers to reach the conclusion
that
your disclosure controls and procedures were effective.
Please also amend your October 31, 2004 Form 10-Q to include
similar
disclosure about the period covered by that report.
7. Since it is not apparent whether your certifying officers, in
making their conclusions in your Form 10-K, considered all
information described in the definition of disclosure controls and
procedures in Exchange Act Rule 13a-15(e), please disclose whether
your certifying officers concluded, as of the end of the period
covered by the report, your disclosure controls and procedures
were
effective to ensure that information required to be disclosed in
the
reports that you file or submit under the Exchange Act is
accumulated
and communicated to your management, including your certifying
officers, to allow timely decisions regarding required disclosure.
See Exchange Act Rule 13a-15(e). Alternatively, you may simply
state, if true, that your certifying officers concluded that, as
of
the end of the period covered by the report, your disclosure
controls
and procedures were effective.
Please provide similar disclosure concerning your October 31,
2004 Form 10-Q.
8. We note your statement in the Form 10-K that, "[o]ther than as
described above, there was no change in [y]our internal control
over
financial reporting during [y]our fourth fiscal quarter...." Note
that you may not qualify your conclusion; rather, you should take
any
changes into account when making your conclusion about changes in
your internal control over financial reporting. Therefore, revise
to
state, if correct, that there were changes in your internal
control
over financial reporting that occurred during the quarter that
have
materially affected, or are reasonably likely to materially
affect,
your internal control over financial reporting, and identify the
changes. Similarly revise the disclosure in your October 31, 2004
and January 31, 2005 Forms 10-Q. See Question 5 of Management`s
Reports on Internal Control over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports
Frequently Asked Questions (revised October 6, 2004) available on
our
web site at
http://www.sec.gov/info/accountants/controlfaq1004.htm.
9. We also note that your chief executive officer and chief
financial
officer certified, in their Rule 13a-14(a) certifications, that,
based on their knowledge, "the financial statements, and other
financial information included in this annual report, fairly
present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report." If the actions you have
described on page 50 to address the Cortelco Shanghai "internal
control issues" are changes in your internal control over
financial
reporting, and given the ongoing and/or prospective nature of
these
actions, please revise your disclosure in Item 9A to explain why
your
officers believe that the financial statements for the fiscal
period
covered by the Form 10-K fairly present in all material respects
your
financial condition, results of operations, and cash flows.
Please
provide similar disclosure for each of your October 31, 2004 and
January 31, 2005 Forms 10-Q.
Form 10-Q for the fiscal quarter ended January 31, 2005, filed
March
17, 2005
Item 4. Disclosure Controls and Procedures, page 17
10. We note that you have not disclosed your officers` conclusions
regarding the "effectiveness" of your disclosure controls and
procedures. Please revise to include them.
11. Please indicate whether the "material weakness in the
functioning
of [your] disclosure controls and procedures" and the "[lack of]
controls relating to the monitoring and investigation of
intercompany
balances and related differences and elimination of intercompany
balances in the consolidation process" concern only Cortelco
Shanghai. Clarify and describe any material impact that the
weakness
has had or may have on your financial statements. Also indicate
when
the weakness and lack of controls began, what steps the company
plans
to take, or has taken, to correct them and the specific timeframe
for
the various remediation efforts. If the weakness or lack of
controls
existed during the periods covered by your July 31, 2004 Form 10-K
and October 31, 2004 Form 10-Q, tell us in your response letter
how
you certifying officers reached the conclusion that your
disclosure
controls and procedures were effective as of the end of the
periods
covered by those reports.
* * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* 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.
In addition, please be advised 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 filing or in
response to our comments on your filing.
As appropriate, please amend your Forms 10-K and 10-Q and
respond to these comments within 10 business days or tell us when
you
will provide us with a response. You may wish to provide us with
marked copies of the amendment to expedite our review. Please
furnish a cover letter with your amendment that keys your
responses
to our comments and provides any requested supplemental
information.
Detailed cover letters greatly facilitate our review. Please file
your cover letter on EDGAR. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
You may contact Christine Bashaw, Staff Accountant, at (202)
824-5422 or Ivette Leon, Assistant Chief Accountant, at (202) 942-
1982 if you have questions regarding comments on the financial
statements and related matters. Please contact Cheryl Grant,
Staff
Attorney, at (202) 942-1916 or me at (202) 942-1990 with any other
questions.
Sincerely,
Larry Spirgel
Assistant Director
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Mr. Stephen Bowling
Eon Communications Corporation
April 15, 2005
Page 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE