Room 4561
July 18, 2005
Mr. James E. Solomon
Chairman and Chief Executive Officer
Techalt, Inc.
3311 N. Kennicott, Avenue, Suite A
Arlington Heights, IL 60004
Re: Techalt, Inc.
Form 10-KSB for the Fiscal Year Ended
December 31, 2004
Filed March 31, 2005
File No. 000-27867
Dear Mr. Solomon:
We have reviewed the above referenced filing and have the
following comments. Please note that we have limited our review
to
only your financial statements and related disclosures and do not
intend to expand our review to other portions of your document. 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 comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Liquidity and Capital Resources
Off Balance Sheet Arrangements, page 9
1. We note on page F-9 that you have purchase commitments to SBD
for
$1,250,000 per year for three years. Tell us why you did not
include
a discussion in this section regarding these purchase commitments.
Refer to Item 303(c) of Regulation S-B.
Note 1 - Description Of Business And Summary Of Significant
Accounting Policies
Revenue Recognition, page F-7
2. We note that you reduce revenue for estimated customer returns
when reasonably known. Tell us how you considered paragraph 6 of
SFAS 48 in determining your policy for recognizing revenue when a
right of return exists.
3. Tell us whether any of your arrangements involve multiple
elements
(e.g. hardware, installation, software and maintenance) and
explain
to us how you evaluated the impact of EITF 00-21 on your revenue
recognition policy. In this regard, it appears that some of your
revenue recognition policies are pursuant to SOP 97-2 and the
remainder is pursuant to SAB 104. For each of your licensing and
various service offerings clarify in your disclosure the point in
time that revenue is recognized, the basis for any revenue
deferral
and disclose how you comply with the revenue recognition criteria
in
SOP 97-2 and SAB 104. As part of your response, explain to us
how
any separate units of accounting have been identified and how
arrangement consideration has been allocated to the identified
units
of accounting. If applicable, address whether payment for
delivered
units is contingent on undelivered units. See paragraph 14 of
EITF
00-21.
Note 2 - Agreement And Plan Of Merger And Settlement Agreement
Settlement Agreement, page F-9
4. We note that in accordance with the settlement agreement you
issued warrants for the right to purchase 750,000 shares of common
stock for $1.00, which was determined using the Black Scholes
pricing
model to have a fair value of zero. Tell us the assumptions used
to
compute fair value for these warrants. We also note that on page
F-
12 that you exclude volatility in determining the fair value of
warrants issued in connection with an investment banking
arrangement
and a public relations agreement. Tell us why you have not
included
a volatility factor in determining the fair value of these
warrants.
Tell us why you believe your valuation was appropriate since it is
not proper to use the minimum value method (using a 0% volatility
factor) when determining the fair value of awards to non-employees
even if an entity is non-public. Refer to EITF 96-18, Issue 1,
footnote 1.
Note 6 - Stockholders` Equity
General
5. We note that throughout this section, you state that the fair
value of your common stock was $0.50 per share at each option or
warrant grant date in 2004. We also note that it appears you have
used several methods in determining the fair value of your common
stock throughout 2004 including (1) price determined by
management,
(2) based on a valuation of common stock and (3) based on a recent
sale and conversion rate of Series A Preferred Stock. Explain to
us
how you determined the fair value of your common stock by
providing
us with objective evidence that supports your determination of the
fair value of the underlying shares of common stock at each grant
or
issue date. It is unclear whether the valuation of your common
stock was performed by a third party or why it is appropriate to
look
to a cash transaction and conversion rate of your preferred stock
to
determine the fair value of your common stock. In this regard,
tell
us how you considered the rights and preferences of the preferred
stock as well as the passage of time in determining the fair value
of
your common stock during each grant in 2004. Provide us with
objective evidence that supports this determination and tell us
specifically what you determined the fair value to be for your
common
stock at each grant date.
Series A Convertible Preferred Stock, Warrants and Additional
Investment Rights, page F-13
6. We note that you issued Series A Convertible Preferred Stock,
Warrants and Additional Investment Rights. Tell us how you have
accounted for this transaction specifically addressing your
valuation
and accounting for each security you issued (Preferred Stock,
Warrants and Additional Investment Rights). Tell us whether any
beneficial conversion feature exists and how your accounting
complies
with EITF 98-5 and EITF 00-27. Also, tell us how you considered
EITF
00-19 in classifying the warrants granted as equity versus
liabilities.
Convertible Debenture and Conversion to Series A Preferred, page
F-14
7. We note that during 2004 you issued 10% Secured Cumulative
Convertible Debentures and subsequently converted these debentures
into 100,000 shares of Series A Convertible Preferred Stock with
Warrants to purchase 200,000 shares of common stock. Tell us how
you
accounted for the issuance and conversion of these debentures and
whether any beneficial conversion feature existed. Refer to EITF
98-
5 and EITF 00-27.
* * * * *
As appropriate, please amend your filing and 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 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.
You may contact Patrick Gilmore at (202) 551-3406 or me at
(202) 551-3730 if you have questions regarding comments on the
financial statements and related matters.
Sincerely,
Craig Wilson
Senior Assistant Chief
Accountant
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Mr. James E. Solomon
Techalt, Inc.
July 18, 2005
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