July 8, 2005
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attn.: Craig Wilson, Senior Assistant Chief Accountant, Room 4561
Fax: 202-772-9210
Re: Prism Software Corporation
Form 10-KSB for the Year Ended December 31, 2004
(File No. 0-21713)
Mr. Wilson:
This is in response to your letter of June 24, 2005 concerning the
Annual Report on Form 10-KSB for the year ended December 31, 2004 of Prism
Software Corporation, in which you responded to our correspondence of June 20.
In considering the timing of recognizing software maintenance revenue,
we rely on Paragraph 57 of SOP 97-2 because its language covers the two
different scenarios that we have encountered in recognizing maintenance revenue
in relation to the efforts we must undertake to provide the service. Our
maintenance service itself consists of relatively routine support and
unspecified upgrades/enhancements.
1. Regarding the telephone/e-mail support: Our software products
are almost entirely used on a basis whereby an end user will
use the software to correct some immediate print production or
IT operational problem. The nature of our software is
generally that it gets configured a single time during its
installation to correct one or more customer problems and then
left alone, unchanged, in the customer's operation thereafter.
It is during this initial software installation and
configuration stage that nearly all of our support costs are
incurred. However, once past this stage, very little-to-no
support services are required of us for the remainder of the
first year of maintenance. The support requirements during
this installation and configuration stage include: telephone
and e-mail support on how to use the software, set up and
implementation consultation, and working through any unique
operational and/or data issues within the customer's
organization. Also, we often perform project work
(professional services) on a fee basis; these projects are
separate from maintenance, but the work is often performed
concurrently up front as part of the sale, giving us a greater
awareness of that customer's related maintenance needs. It is
our experience that the maintenance expenses in the first year
are related to software installation and configuration, and
that most of this activity occurs within the first 90 days of
installation. Furthermore, we have elected to recognize the
first-year maintenance revenue up front rather than amortizing
it over these first 90 days because: 1) this convention has no
material effect on our quarterly and annual operational
reporting, 2) as a practical matter, even within the 90-day
period the bulk of the services are provided early during this
time frame and 3) it streamlines our recordkeeping, helping us
to meet regulatory reporting deadlines and report financial
results more quickly.
2. Regarding support for the second year and beyond, we have
found that little-to-no effort is most often required, as the
products usually continue to reside in a "steady state"
operational environment, but that the timing of such support,
when required, is unpredictable in relation to our customer
base as a whole.
3. Regarding our history of unspecified upgrades and/or
enhancements, providing them has generally not required much
work on our part. This is due to the following factors: 1) we
have historically released upgrades every 18 to 24 months, but
there is not a set pattern, 2) not every customer is inclined
to upgrade or update, especially when their earlier version is
operating smoothly for their operational requirements (the
"steady state" mentioned above), 3) projects or configurations
accomplished under prior versions are assumable (transferable)
to the new version, and 4) we are able to provide such
upgrades and updates to customers, when so required by them,
via an Internet download link with the upgrade being performed
by the customer personnel. There have been instances during
upgrades and updates whereby the customer does require support
services; however, these are most likely to occur after the
first year, if at all. Overall, our experience has been that
the timing of product updates/upgrades and any related support
that they may require is unpredictable.
Paragraph 57 of SOP 97-2 assumes that the effort to provide
maintenance, and the corresponding ability to recognize the matching revenue,
occurs evenly over the life of the maintenance agreement, unless another pattern
is known to exist. We happen to be in an environment where another identifiable
pattern has indeed emerged for our first-year maintenance requirements (due to
item #1 above), but not for maintenance renewals (due to items #2 and #3 above).
Therefore, in light of the efforts described, we recognize all of the first-year
maintenance revenue in conjunction with the software delivery, but we still use
the default straight-line method for recognizing revenue from maintenance
renewals.
As with our correspondence of June 20, we do acknowledge:
o Prism Software is responsible for the adequacy and accuracy of
the disclosure in the filing;
o SEC 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
o Prism Software may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person under
federal securities laws of the United States.
Thank you,
/s/ Michael Cheever
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Michael Cheever, Treasurer
Prism Software Corporation
15500-C Rockfield Blvd.
Irvine, CA 92618
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