February 24, 2005
Mail Stop 0409
James Karlak
President and Chief Executive Officer
Systems Management Solutions, Inc.
7550 IH-10 West, 14th Floor
San Antonio, TX 78229
Re: Systems Management Solutions, Inc.
Form 10-KSB for the year ended June 30, 2004
Form 10-QSB for the quarter ended September 30, 2004
File No. 000-30803
Dear Mr. Karlak:
We have reviewed your above referenced filings and have the
following comments. We have limited our review to Selected
Financial
Data, Management`s Discussion and Analysis and the Financial
Statements 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 revise 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-KSB for the year ended June 30, 2004
Item 6. Management`s Plan of Operations
1. Include a discussion of how long you anticipate that you can
satisfy your current cash requirements on a short-term and long-
term
basis, as applicable in future filings. Refer to Item 303(a) of
Regulation S-B.
2. In future filings disclose the causes of all material changes
from
period to period in your financial statements, including any
significant elements of income or loss that do not arise from
continuing operations.
3. Modify your MD&A or Plan of Operation in future filings to
include
the information required by FR-60 related to the identification
and
discussion of your critical accounting policies.
Consolidated Statements of Operations, page F-3
4. Please amend to present financial data for two full fiscal
years
as well as the transition period ended June 30, 2003 in your
consolidated statements of operations, stockholders` deficit and
cash
flow. You must also present prior year comparable data for the
transition period ended June 30, 2003 on the face of the financial
statements or through footnote disclosure. Refer to Item 310(a)
of
Regulation S-B.
Consolidated Statement of Stockholders` Deficit, page F-4
5. In the Notes to Financial Statements, elaborate upon the
substance
of the $777,473 cash contributed by your majority shareholder. Is
the Company obligated to repay any portion of this advance? Was
additional equity issued in exchange for this contribution?
Disclose
pertinent details and related accounting implications of the
financing in future filings.
Consolidated Statements of Cash Flow, page F-6
6. Supplementally advise us of your basis in GAAP for recognizing
your investment and subsequent impairment of ASPECT in your
consolidated statement of cash flow. You state that ASPECT is a
wholly-owned subsidiary, and therefore it appears that these
transactions should be eliminated upon consolidation.
Furthermore,
the purchase and impairment are recorded in the period ended June
30,
2003, but you disclose that you did not purchase ASPECT until July
1,
2003. Please clarify to us and explain in the notes to the
financial
statements.
7. Please supplementally advise us of your basis in GAAP for
classifying lease payments as a cash outflow from financing
activities.
8. In future filings, disclose the amount of cash paid for
interest
in accordance with paragraph 27 of SFAS 95.
9. Please revise to provide separate disclosure of cash flows from
discontinued operations for each category and consistently for
each
period. Also, please ensure that amounts are not netted within
each
category.
Note 9 - Purchase of ASPECT, page F-11
10. It appears that you are required to file audited financial
statements in conjunction with your acquisition of ASPECT pursuant
to
Item 310(c) of Regulation S-B. Please advise us why these
financial
have not yet been filed, as well as your intention to file them in
the future.
11. It is unclear why you have presented a pro forma consolidated
condensed income statement in connection with the ASPECT
acquisition.
It appears that ASPECT was acquired on July 1, 2003, and therefore
the operations of ASPECT should be included in your historical
statements of operations for the full fiscal year ended June 30,
2004. Item 310(d) of Regulation S-B only requires the
presentation
of a pro forma income statement reflecting the combined operations
of
the entities for the latest fiscal year, in which this case would
be
the twelve months ended June 30, 2004. Please remove this pro
forma
statement in your amended Form 10-KSB.
12. We note that the goodwill recorded as part of the ASPECT
acquisition represents a significant portion of the purchase price
allocation. Pursuant to paragraph 51(b) of SFAS 141, please
explain
your business purpose for acquiring ASPECT in excess of its fair
market value. In addition, please advise us why you have not
allocated any purchase price to other intangible assets such as
those
identified in paragraph A14 of SFAS 141. Finally, advise us of
any
intangible assets included in goodwill that do not meet the
criteria
for recognition apart from goodwill.
13. We also note that you had an impairment of goodwill shortly
after
consummation of the acquisition. Clarify what caused the
impairment
so soon after the transaction was consummated. Please also
address
this comment as it relates to the YCO acquisition.
Note 10 - Equity, page F-12
14. You state that SMS authorized 50,000 shares of Series A
Cumulative Convertible Preferred Stock on May 17, 2004, then
increased the number of shares authorized to 60,000 on April 23,
2004, a date which precedes the initial authorization. You also
state that the conversion ratio of the shares is based on $0.20,
the
fair market value of the underlying common stock. Is the
conversion
rate based upon $0.20 or the fair market value of your common
stock
on the date of conversion? Please clarify these items as part of
the
discussion of your Series A Stock in future filings.
Note 13 - Discontinued Operations, page F-14
15. Supplementally advise us of and disclose in future filings the
nature of the $2.7 million recorded as income from disposal of
discontinued operations for the year ended June 30, 2004.
Disclose
which entity generated this income, the nature of the income and
its
relationship to the $0.6 million loss from discontinued operations
recognized for the same period. It appears that the income
relates
to YCO Holdings, but it is unclear how you could have recognized
income or a gain on disposal from this subsidiary since it has
negligible assets, has ceased operations and is currently subject
to
Chapter 7 bankruptcy proceedings. Explain how you considered
paragraph 17 of SFAS 5. Finally, please revise to separately
present
income from discontinued operations per share on the face of the
income statement or in the notes as required by paragraph 37 of
SFAS
128.
As appropriate, please amend your Form 10-KSB for the year
ended June 30, 2004 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.
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 Kristi Beshears, Staff Accountant, at (202)
824-5346 or me at (202) 824-5222 with any other questions.
Sincerely,
Steven Jacobs
Senior Staff Accountant
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Systems Management Solutions, Inc.
February 24, 2005
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