Room 4561
July 12, 2005
Mr. Roy E. Crippen III
Chief Executive Officer and Chairman of the Board
Digital Fusion, Inc.
4940-A Corporate Drive
Huntsville, AL 35805
Re: Digital Fusion, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
Form 10-QSB for Fiscal Quarter Ended March 31, 2005
File No. 0-24073
Dear Mr. Crippen,
We have reviewed the above referenced filing and have the
following comments. Please note that we have limited our review
to
the matters addressed in the comments below. We may ask you to
provide us with supplemental information so we may better
understand
your disclosure. Please be as detailed as necessary in your
explanation. After reviewing this information, we may 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 comment 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-KSB For Fiscal Year Ended December 31, 2004
Note 2. Significant Accounting Policies
(b) Revenue Recognition, page F-7
1. We note that you design and develop customized software
applications and implement third party solutions to fulfill your
customers` needs. Please tell us whether you are recognizing this
revenue in accordance with SOP 97-2. If so, explain how your
revenue
recognition policies comply with this literature. If you are not
following SOP 97-2, explain how you considered paragraph 2 of the
SOP.
2. Please describe to us your revenue recognition policies in
cases
where there are "significant performance obligations yet to be
fulfilled" and revenue is deferred. Provide us with a typical
example
of such an arrangement and explain how you recognize revenue.
Identify the accounting literature that you follow in recognizing
this revenue and explain how your policies comply with that
literature.
3. Please tell us the amount of fixed-fee service revenue that you
recognized using the percentage of completion method during 2004
and
the subsequent interim period. In addition, explain how you
considered the guidance in footnote 1 to SOP 81-1 that prohibits
the
use of contract accounting for service transactions.
Note 6. Borrowings, page F-12
4. We note that you have modified the terms of several significant
debt agreements over the past two years. Please explain to us how
you
accounted for each of the significant modifications made to the
Digital Shareholders` and Laurus notes. As part of your response,
explain how you considered the guidance in EITF 96-19.
5. Please explain to us how you initially allocated the proceeds
of
the Laurus Note in accordance with paragraph 16 of APB 14 and how
you
applied the guidance in EITF 98-5 and 00-27 to any beneficial
conversion feature at issuance or upon modification.
Form 10-QSB For Fiscal Quarter Ended March 31, 2005
Note 6. Summit Acquisition, page 6
6. We note that it does not appear that you recorded any
significant
amount of amortizable intangible assets in connection with your
acquisition of Summit Research Corporation. However, it appears
that
the co-founder of Summit will continue to manage his current
customers for you and you indicated in a recent press release that
you acquired a customer base that includes the U.S. Army Aviation
and
Missile Command in Alabama. Please identify any amounts that were
allocated to customer-related intangible assets and explain how
you
considered the guidance in paragraph 39 of SFAS 141 and EITF 02-
17.
7. We note that you combine goodwill and intangible assets on your
balance sheet. Please explain to us how you have considered the
guidance in paragraph 43 of SFAS 142.
8. You indicate in your 2004 Form 10-KSB that the convertible note
issued in connection with the Summit acquisition may be converted
"at
any time." However, you indicate in your interim financial
statements
that the beneficial conversion feature related to this note is
being
amortized over the life of the note. Please explain to us how you
considered the guidance in paragraph 9 and footnote 6 of EITF 98-
5.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please submit all correspondence and supplemental materials on
EDGAR
as required by Rule 101 of Regulation S-T. You may wish to
provide
us with marked copies of any amendment to expedite our review.
Please furnish a cover letter with any amendment that keys your
responses to our comments and provides any requested information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
any
amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment 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.
You may contact Mark Kronforst at (202) 551-3451, Marc D.
Thomas at (202) 551-3452 or me at (202) 551-3489 if you have any
questions regarding these comments.
Very truly yours,
Brad Skinner
Accounting Branch Chief
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Roy E. Crippen III
Digital Fusion, Inc.
July 12, 2005
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