UNIVERSAL DETECTION TECHNOLOGY
9595 WILSHIRE BLVD., SUITE 700
BEVERLY HILLS, CA 90212
TEL: 310-248-3655
FAX: 310-273-2662
May 13, 2008
VIA EDGAR AND FEDERAL EXPRESS
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Securities and Exchange Commission
100 F Street N.E.
Washington, DC 20549
Mail Stop 6010
Attn: Mr. Kevin L. Vaughn
Mr. David Burton
RE: UNIVERSAL DETECTION TECHNOLOGY
FORM 10-KSB FOR FISCAL YEAR ENDED
DECEMBER 31, 2005
FILED APRIL 14, 2008
FILE NO. 1-09327
Dear Mr. Vaughn and Mr. Burton:
Set forth below are the responses from Universal Detection Technology,
Inc., a California corporation (the "Company") to the comments received from the
staff of the Securities and Exchange Commission (the "Staff") in their letter
dated May 6, 2008. We have reproduced the Staff's comments and have followed
each comment with our response.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2007
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ITEM 8A. CONTROLS AND PROCEDURES, PAGE 28
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CONSOLIDATED STATEMENTS OF OPERATIONS, PAGE F-3
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1. Please amend your Form 10-KSB to provide a report of management on the
registrant's internal control over financial reporting as required by
Item 308T of Regulation S-B for annual reports filed by registrants for
a fiscal year ending on or after December 15, 2007 but before December
15, 2008.
RESPONSE: The Company acknowledges that it, and thereby the management
team, are responsible for the adequacy and accuracy of the disclosure
in the Form 10-KSB, and understand that the comments or changes to the
disclosure in response to the 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
law of the United States.
Securities and Exchange Commission
Re: Universal Detection Technology
May 12, 2008
Page 2
We propose to revise the Form 10-KSB disclosure as reflected in Exhibit
A, attached hereto
Should you have any further question regarding the above, please
contact the undersigned at 310-248-3655 or by fax at 310-273-2662.
Very truly yours,
UNIVERSAL DETECTION TECHNOLOGY
By: /s/ Mr. Jacques Tizabi
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Jacques Tizabi
Chief Executive Officer
Securities and Exchange Commission
Re: Universal Detection Technology
May 12, 2008
Page 3
ITEM 8A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
Regulations under the Securities Exchange Act of 1934 require public companies
to maintain "disclosure controls and procedures," which are defined to mean a
company's controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Our Chief Executive Officer ("CEO"), President, and Chief Financial Officer
("CFO") carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on those evaluations, as of the Evaluation Date, our CEO, President, and
CFO believe that:
(i) our disclosure controls and procedures are designed to
ensure that information required to be disclosed by us in
the reports we file under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and
forms and that such information is accumulated and
communicated to our management, including the CEO and CFO,
as appropriate, to allow timely decisions regarding
required disclosure; and
(ii) our disclosure controls and procedures are effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
(a) MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
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Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP, and
that our receipts and expenditures are being made only in accordance with the
authorization of our management and directors; and
Securities and Exchange Commission
Re: Universal Detection Technology
May 12, 2008
Page 4
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in INTERNAL CONTROL--INTEGRATED FRAMEWORK.
Based on an evaluation under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and the acting Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures (as defined under the Securities Exchange Act of 1934, as amended
(Exchange Act)) were not effective as of December 31, 2007 to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
IDENTIFIED MATERIAL WEAKNESSES
During the three and six months ended December 31, 2007 the Company identified
the following material weaknesses as indicated below.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the financial statements will not be prevented or detected.
Management identified the following internal control deficiencies during its
assessment of our internal control over financial reporting as of December 31,
2007:
o We did not have effective comprehensive entity-level internal
controls specific to the structure of our board of directors;
o We did not have formal policies governing certain accounting
transactions and financial reporting processes;
o We did not obtain attestations by all employees regarding their
understanding of and compliance with our policies related to their
employment;
o We did not obtain attestations by all members of our board of
directors, our executive officers and our senior financial
officers regarding their compliance with our Code of Ethics and
our Code of Ethics did not apply to our other employees;
Securities and Exchange Commission
Re: Universal Detection Technology
May 12, 2008
Page 5
o We did not perform adequate oversight of certain accounting
functions and maintained inadequate documentation of management
review and approval of accounting transactions and financial
reporting processes.
o We had not fully implemented certain control activities and
capabilities included in the design of our financial system.
Certain features of our financial system are designed to automate
accounting procedures and transaction processing, or to enforce
controls.
A regionally-recognized independent consulting firm assisted management with its
assessment of the effectiveness of our internal control over financial
reporting, including scope determination, planning, staffing, documentation,
testing, remediation and retesting and overall program management of the
assessment project. In conclusion, our Chief Executive Officer and Acting Chief
Financial Officer surmised that Universal Detection Technology did not maintain
effective internal control over financial reporting as of December 31, 2007.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
MANAGEMENT'S REMEDIATION INITIATIVES
We are in the process of evaluating our material deficiencies. We have already
begun to remediate many of the deficiencies. However, others will require
additional people, including adding to our board of directors, which will take
longer to remediate.
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
Securities and Exchange Commission
Re: Universal Detection Technology
May 12, 2008
Page 6
1. Identify and retain potential new directors for our board of
directors with a goal of having sufficient independent board of
directors oversight;
2. Establish comprehensive formal general accounting policies and
procedures and require employees to sign off such policies and
procedures as documentation of their understanding of and
compliance with internal policies;
3. Make all employees subject to our Code of Ethics and require all
employees and directors to sign our Code of Ethics on an annual
basis and retain the related documentation;
4. Implement appropriate management oversight and approval activities
in certain areas of the Company's operations, including, but not
limited to, employee expense reimbursements, customer invoicing,
and period-end closing processes; and
5. Centralize our financial reporting system and move all
decentralized off-line processes to our new centralized financial
reporting system.
We intend to implement the five initiatives above as soon as possible.
Additionally, we plan to test our updated controls and remediate our
deficiencies by December 31, 2008.
CONCLUSION
The above identified material weaknesses did not result in material audit
adjustments to our 2007 financial statements. However, it is reasonably possible
that, if not remediated, one or more of the identified material weaknesses noted
above, could result in a material misstatement in our reported financial
statements that might result in a material misstatement in a future annual or
interim period.
In light of the identified material weaknesses, management performed (i)
significant additional substantive review of those areas described above, and
(ii) performed additional analyses, including but not limited to a detailed
balance sheet and statement of operations analytical review that compared
changes from the prior period's financial statements and analyzed all
significant differences. These procedures were completed so management could
gain assurance that the financial statements and schedules included in this Form
10-KSB fairly present in all material respects the Company's financial position,
results of operations and cash flows for the periods presented.
(b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
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The changes noted above, are the only changes during our most recently completed
fiscal quarter that have materially affected or are reasonably likely to
materially affect, our internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act.