KRAMER LEVIN NAFTALIS & FRANKEL LLP
December 15, 2005
VIA EDGAR AND BY FEDERAL EXPRESS
Mr. Jeffrey Gordon
Staff Accountant
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-0510
Re: General Kinetics Incorporated
Form 8-K Item 4.01 filed November 4, 2005
File # 1-10914
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Dear Mr. Gordon:
Reference is made to the letter dated November 7, 2005 (the "Comment
Letter") to Mr. Franco DeBlasio, Chief Financial Officer of General Kinetics
Incorporated (the "Company"), setting forth the comments of the staff of the
Securities and Exchange Commission (the "Staff") regarding the above-referenced
Form 8-K filed by the Company on November 4, 2005 in connection with changes in
the Company's certifying accountant.
This letter sets forth the Company's responses to the Staff's
comments. For your convenience, the Staff's comments contained in the Comment
Letter have been restated below in their entirety, with the responses to each
comment set forth immediately under the comment. The numbered paragraphs in this
letter correspond to the numbered paragraphs of the Comment Letter. Please note
that the Company has included in its Form 8-K/A ("Form 8-K/A"), which is being
filed via EDGAR simultaneously with this letter, the revisions to the Form 8-K
described in its responses to the Staff's comments in this letter.
We are sending courtesy copies of this letter to you by Federal
Express. In addition, for your convenience we are sending copies of the amended
Form 8-K marked to show changes from the prior version.
1. Please amend the Form 8-K to revise your disclosure to state the reports,
instead of report, of your former accountant on your financial statements
for the fiscal years ended May 31, 2005 and 2004 included an explanatory
paragraph that noted substantial doubt about your ability to continue as a
going concern.
The Company has revised this disclosure in the Form 8-K/A.
Mr. Jeffrey Gordon
December 15, 2005
Page 2
2. Regarding your disclosures over disagreements with your former
accountants, as well as reportable events, please amend your filing to
cover the interim period from the date of the last audited financial
statements to October 31, 2005, the date of declination. See Item
304(a)(1)(IV) and (V) of Regulation S-K.
The Company has revised this disclosure in the Form 8-K/A.
3. Please amend the Form 8-K to provide the information required by Item
304(a)(1)(v) of Regulation S-K, regarding any reportable event (i.e.
internal control weakness, etc.) that the former accountant advised the
company of during the two most recent fiscal years and subsequent interim
period through October 31, 2005.
Other than the material weakness set forth in the original Form 8-K
filing, the Company confirms that there were no other reportable events that the
former accountant advised the Company of during the two most recent fiscal years
and subsequent interim period through October 31, 2005.
4. Please provide us with a schedule of your fiscal year end fourth quarter
adjustments to close the books, or adjustments recorded in connection with
or as a result of the audit. Clearly explain the reason for each
adjustment. For each adjustment, show us the impact on pre-tax net loss.
Quantify the net effect of all adjustments on pre-tax net income (loss).
Also, tell us why none of the adjustments relate to prior period. Explain
in detail why you believe the timing of each adjustment is appropriate.
The Company has informed us that the following adjustments were made
as a result of items identified during the fourth quarter audit:
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# Description DB CR
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1 Deferred Compensation 39,916.79
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Deferred Compensation Expense 39,916.79
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2 Accrued Bonus For VP 25,000.00
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Incentives & Bonuses Expense 25,000.00
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The first identified adjustment was due to the determination that an
inappropriate discount amount had been used to calculate the potential liability
for deferred compensation expense for the Company's 2005 fiscal year. This
adjustment resulted in an increase in the pre-tax loss of the Company but was
deemed to be immaterial in prior periods.
Mr. Jeffrey Gordon
December 15, 2005
Page 3
The second identified adjustment was the result of a review of the
minutes of a meeting of the Company's Board of Directors held on October 11,
2004 in which the Board approved the award of a bonus to the Company's vice
president of sales and engineering in respect of his extensive efforts on behalf
of the Company, which bonus had been neither paid nor accrued prior to the
Company's fiscal year end of May 31, 2005. This adjustment resulted in an
increase in the pre-tax loss of the Company but was deemed to be immaterial in
prior periods.
5. Provide us with any letter or written communication to and from the former
accountants regarding any disagreements or reportable events to management
or the Audit Committee.
We are supplementally providing the Staff with a letter, dated
September 13, 2005, from BDO Seidman, LLP addressed to the Company's Audit
Committee and Management regarding the reportable event described in the Form
8-K/A.
6. To the extent that you make changes to the Form 8-K to comply with our
comments, please obtain and file an updated Exhibit 16 letter from the
former accountants stating whether the accountant agrees with the
statements made in your revised Form 8-K.
The Company has requested that BDO Seidman, LLP provide a letter
stating whether they agree with the statements made in the Company's Form 8-K/A.
As of the date of this letter, the Company has not yet received such letter from
BDO Seidman. The Company will file BDO Seidman's letter as an exhibit to an
amendment to the Form 8-K/A once the Company has received such letter.
7. When you engage a new accountant, please report the engagement in a new
Form 8-K and comply with the requirements of Regulation S-K Item
304(a)(2). In making any disclosures about consultations with your new
accountants, please ensure you disclose any consultations up through the
date of engagement.
The Company has noted the Staff's comment and will provide such
disclosure when the new accountant has been engaged.
Mr. Jeffrey Gordon
December 15, 2005
Page 4
In connection with responding to the Comment Letter, we are
supplementally providing a written statement from the Company acknowledging the
items set forth in the Comment Letter. Kindly acknowledge receipt of this letter
by stamping the enclosed copy and returning it in the enclosed pre-addressed,
postage pre-paid envelope. If you have any questions or comments regarding the
responses set forth herein, please do not hesitate to contact me at (212)
715-9351.
Sincerely,
/s/ Robert Wollin
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Robert Wollin
Enclosure
cc: Franco DeBlasio, CFO
General Kinetics Incorporated