[Letterhead of Jackson Walker, LLP]
January 11, 2005
Ms. Tamara Tangen, CPA
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: iLinc Communications, Inc.
Response to SEC Letter dated December 28, 2004 concerning Form 8-K
filed December 20, 2004 concerning change in accountants and Form 10-Q
for the quarter ended September 30, 2004
File No. 001-13725
Dear Ms. Tangen:
On behalf of iLinc Communications, Inc. ("iLinc" or the "Company"),
this letter is in response to the comments contained in the Staff's letter of
December 28, 2004 (the "Comment Letter") regarding the above filings.
The following responses indicate, where appropriate, the additions and/or
revisions that have been made to the Company's Form 8-K and Form 10-Q in
response to your Comment Letter. The responses are numbered to correspond to the
numbers assigned to each comment in your Comment Letter. Capitalized terms used
in this response letter, but not defined herein, have the meaning assigned to
those terms in the respective filings. I have included a copy of the respective
amended filings with the changes to Item 4 of the 10-Q and Item 4.01 of the 8-K
marked for your review.
FORM 8-K CONCERNING CHANGE IN ACCOUNTANTS
1. We requested the modification of the filing via fax to Filer Support
to indicate that the exhibit listed under Item 9.01 is also being
reported under Item 4.01. A copy of our request letter is attached for
your convenience.
2. We have authorized the Company's former accountant to respond fully to
the inquiries of the successor accountant concerning the subject
matter of the material weakness and have incorporated that
authorization into an amended Form 8-K, a copy of which is attached,
with the document marked to show changes from the Form 8-K filed
December 20, 2004.
3. We have obtained an updated letter from our former accountants
indicating that they agree with the statements contained in the
Company's amended 8-K, a copy of which is attached to the amended Form
8-K as Exhibit 16.
FORM 10-Q FOR PERIOD ENDING SEPTEMBER 30, 2004
4. We have revised Item 4 of the Company's Form 10-Q for the quarter
ending September 30, 2004 to clarify the statements regarding the
conclusions made by our principal executive officer and of our
principal financial officer. A copy of Form 10-Q/A is attached with
the document marked to show changes to Item 4 from the Form 10-Q
originally filed.
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5. We have revised Item 4 of the Company's Form 10-Q for the quarter
ending September 30, 2004 to clarify the statements concerning the
design of disclosure controls and procedures. A copy of Form 10-Q/A is
attached with the document marked to show changes to Item 4 from the
Form 10-Q originally filed.
6. The material weakness referenced in the Company's Form 10-Q for the
quarter ended September 30, 2004 dealt specifically with discovery
during the quarterly review process of changes that occurred during
the quarter ended September 30, 2004 to the Company's standard form of
software license agreements that affected the basis for revenue
recognition under those contracts. Subsequent to quarter end, a
confirmation received by the Company's former auditor revealed that
the Company's standard software license agreement had been changed by
the sales department to provide for a 30-day to 90-day trial period
during which the customer could use the i-Linc product and decide
whether or not to purchase it, but that this change had not been
communicated effectively to the accounting department.
Upon discovery of this change, the Company's accounting department
instituted a search of all customer contracts for all prior periods
and interviewed the sales staff to determine if modifications had ever
occurred in the past to any standard software license agreement. They
found that during the quarter ended September 30, 2004 five (5)
standard software license agreements entered into by the Company
during that quarter had been modified to include the previously
discussed "trial period" concept. Having discovered the new trial
period language, the accounting group appropriately deferred the
revenue associated with those sales until the expiration of the trial
period. The modifications required deferral of $103,150 in license
revenue to subsequent periods beyond September 30, 2004.
The discovery of the change to the Company's standard form of software
license occurred before final preparation and filing of the Company's
financial statements reflected in the Company's Form 10-Q for the
quarter ended September 30, 2004. Therefore no correction or
restatement of the Company's financial statements was necessary or
warranted. The total revenue associated with all of the modified
agreements was $103,150, and all of that revenue was deferred and may
be recognized in future periods, as appropriate and in accordance with
GAAP.
The Company has implemented steps to prevent failure to communicate
changes in standard forms of customer contracts in the future and
strengthen the Company's internal controls related to contract
management and its impact on revenue recognition. The Company has put
procedures into place to prevent modification of its standard form of
software license agreements without due and proper notice to all
parties, including the Company's accounting group. Those steps to
correct and prevent this in the future include, new controls over the
modification of electronic contracts adding limited password
protection, the electronic receipt of contracts from customers
directly to both the sales and accounting groups simultaneously, the
numbering of contracts and order forms to provide a stronger audit
trail, the electronic storage of all customers' contracts providing
real-time access, the notification of the accounting department by the
sales or legal departments should modification occur, and remedial
training of the sales group on the impact of changes to the software
license agreement. A further segregation of duties was also
implemented to better control contract workflow. A supervisor from the
sales team must approve all sales orders before they are accepted by
the sales department, and a supervisor from the accounting group must
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approve all orders that exceed $10,000 in amount before they are
accepted as a valid sale of the company. An order processing clerk
verifies that the appropriate Customer and Company authorizations have
been obtained. The approved sales order is transmitted to the customer
service department for order fulfillment. Notification of fulfillment
of the order is sent to both the sales and accounting departments.
Before revenue is recognized on any sales order, the controller
verifies that the sales order was properly approved by the customer
and the Company, verifies that changes, if any, to the standard
license agreement have been properly documented in writing and in the
customer's electronic file and thereafter records revenue based upon
the approved and verified documentation.
The Company's prior accountant was made aware of the changes made in
the Company's contract management internal control, but has not
reviewed or performed testing given the change in accountants that
occurred subsequent to the period end.
7. The communication concerning the material weakness was communicated
orally by the prior accounting firm to the Company's audit committee
and to the Company's management. The former accountants provided no
letter or written communications to the Company's management or Audit
Committee regarding any disagreements or reportable events.
The Company acknowledges that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the filings of the Company, including those amended and
attached hereto;
o The Staff comments or changes to disclosure in response to the staff
comments do not foreclose the Commission from taking any action with
respect to the filing; and,
o 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.
This supplemental information is being filed as correspondence on EDGAR. We
would appreciate the Staff's prompt attention to this response and please direct
any further questions to me, Jim Ryan of Jackson Walker, L.L.P. at (214)
953-5801.
Very truly yours,
/S/ James S. Ryan, III
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James S. Ryan, III
Enclosure
cc: James L. Dunn, Jr.
iLinc Communications, Inc.
Sr. Vice President & General Counsel
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James L. Dunn, Jr.