UNIVERSAL DETECTION TECHNOLOGY
9595 WILSHIRE BLVD., SUITE 700
BEVERLY HILLS, CA 90212
TEL: 310-248-3655
FAX: 310-273-2662
July 29, 2008
FILED AS CORRESPONDENCE VIA EDGAR AND SUBMITTED
VIA FEDERAL EXPRESS
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 THE YEAR ENDED DECEMBER 31, 2007
FILED APRIL 14, 2008
FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2008
FILED MAY 20, 2008
FILE NO. 1-09327
Dear Mr. Vaughn and Mr. Burton:
We enclose marked drafts of Universal Detection Technology's (the
"Company") proposed Amendment No. 1 to Form 10-KSB for the fiscal year ended
December 31, 2007 (the "Amended Annual Report") and proposed Amendment No. 2 to
Form 10-Q for the quarter ended March 31, 2008 (the "Amended Quarterly Report").
The Amended Annual Report and the Amended Quarterly Report contain revisions
that have been made in response to the comments received from the staff
("Staff") of the Securities and Exchange Commission, in the their letter dated
June 18, 2008. Set forth below are the responses to the Staff's comments. We
have reproduced the Staff's comments in bold and have followed each comment with
our response. A marked copy of the Amended Annual Report and Amended Quarterly
Report are being provided supplementally with a copy of this letter for
convenience of the Staff.
References in this letter to "we," "our" or "us" mean the Company or its
advisors, as the context may require.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2007
ITEM 8A. CONTROLS AND PROCEDURES, PAGE 28
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Securities and Exchange Commission
Re: Universal Detection Technology
July 28, 2008
Page 2
1. PLEASE REFER TO PRIOR COMMENT 1.(1) WE NOTE FROM THE PROPOSED REVISIONS
INCLUDED WITH YOUR RESPONSE THAT IN THE FIRST PARAGRAPH UNDER "DISCLOSURE
CONTROLS AND PROCEDURES" YOU STATE "[Y]OUR DISCLOSURE CONTROLS AND PROCEDURES
ARE EFFECTIVE." HOWEVER, IN THE LAST PARAGRAPH UNDER "(A) MANAGEMENT'S ANNUAL
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING" YOU STATE "THE COMPANY'S
DISCLOSURE CONTROLS AND PROCEDURES...WERE NOT EFFECTIVE". PLEASE REVISE TO
CORRECT THIS INCONSISTENCY. IN THIS REGARD, PLEASE REVISE TO STATE, IF TRUE,
THAT YOU CONCLUDED THAT YOUR INTERNAL CONTROL OVER FINANCIAL REPORTING WAS NOT
EFFECTIVE AS OF DECEMBER 31, 2007.
RESPONSE: We have amended the language in the first paragraph under
"Disclosure Controls and Procedures" to indicate that "our disclosure controls
and procedures are not effective." The revision indicating that our disclosure
controls and procedures are not effective was included to reconcile the
inconsistency with the correct and accurate disclosure in the last paragraph
under "(a) Management's Annual Report on Internal Control over Financial
Reporting" wherein we stated the "the Company's disclosure controls and
procedures...were not effective."
Additionally, we have made a minor revision to the third paragraph under
the heading "IDENTIFIED MATERIAL WEAKNESSES" which starts with "Based on
management's evaluation..." This paragraph has been revised to accurately
disclose the Company's hiring of a regionally-recognized independent consulting
firm to assist management with its continuing assessment of the effectiveness of
the Company's internal control over financial reporting.
Specifically, the disclosure under Item 8A has been revised as follows:
"ITEM 8A. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
Regulations under the Securities Exchange Act of 1934 (the "Exchange Act")
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 Acting 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 not effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
______________
(1) Prior comment 1 provides: "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."
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Securities and Exchange Commission
Re: Universal Detection Technology
July 29, 2008
Page 3
(A) MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
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
(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 CEO and the acting CFO 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
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Securities and Exchange Commission
Re: Universal Detection Technology
July 29, 2008
Page 4
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 Universal Detection Technology,
Inc. policies related to their employment;
o We did not obtain attestations by all members of our board of
directors, our executive officers and/or our senior financial
officers regarding their compliance with our Code of Ethics and our
Code of Ethics did not apply to our other employees;
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; and
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.
Based on management's evaluation of our internal control over financial
reporting, our current CFO and CEO have concluded that Universal Detection
Technology, Inc. did not maintain effective internal control over
financial reporting as of December 31, 2007. In light of this evaluation,
the Company hired a regionally-recognized independent consulting firm to
assist management with its continuing 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.
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.
<Page>
Securities and Exchange Commission
Re: Universal Detection Technology
July 29, 2008
Page 5
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 the addition of members 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:
1. Identify and retain potential new directors for our board of
directors with a goal of having sufficient independent board
oversight;
2. Establish comprehensive, formal, general accounting policies and
procedures, and require employees to approve and execute such
policies and procedures as documentation of their understanding of
and compliance with internal policies;
3. Require all employees to be 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.
1
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Securities and Exchange Commission
Re: Universal Detection Technology
July 29, 2008
Page 6
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
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."
FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2008
ITEM 4. CONTROLS AND PROCEDURES, PAGE 21
2. PLEASE EXPLAIN TO US IN GREATER DETAIL THE BASIS FOR MANAGEMENT'S
CONCLUSION THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES WERE EFFECTIVE AT
DECEMBER 31, 2007. SPECIFICALLY, TELL US HOW MANAGEMENT CONSIDERED THE MATERIAL
WEAKNESS DISCLOSED HERE, INCLUDING MATERIAL WEAKNESSES THAT RELATE TO THE
DISCLOSURE OF INFORMATION REQUIRED TO BE DISCLOSED IN REPORTS FILED OR SUBMITTED
UNDER THE EXCHANGE ACT, INCLUDING THAT DISCLOSURE CONTROLS AND PROCEDURES WERE
EFFECTIVE AT DECEMBER 31, 2007. PLEASE NOTE THIS COMMENT ALSO APPLIES TO YOUR
DISCLOSURES IN ITEM 4 OF THE FORM 10-Q/A FOR THE PERIOD ENDED MARCH 31, 2008.
RESPONSE: Please see our response to Comment 1 above. We have amended the
language in the first paragraph under "Disclosure Controls and Procedures" to
indicate that "our disclosure controls and procedures are not effective." With
respect to the portion of Comment 2, which relates to Item 4 of the Form 10-Q/A
for the period ended March 31, 2008, please be advised that the disclosure under
"Item 4. Disclosure Controls and Procedures" has been revised as follows:
"ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of
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Securities and Exchange Commission
Re: Universal Detection Technology
July 29, 2008
Page 7
the period covered by this report. Based upon that evaluation, our chief
executive officer and chief financial officer concluded that our
disclosure controls and procedures were not effective such that the
information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934 is (a) recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms
and (b) accumulated and communicated to our management, including our
chief executive officer, as appropriate to allow timely decisions
regarding disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended) during the quarter ended March 31, 2008 that have
materially affected, or are reasonably likely to materially affect our
internal control over financial reporting.
ADDITIONAL DISCLOSURE CONCERNING CONTROLS AND PROCEDURES.
We currently believe that the Company has material weaknesses in its
disclosure controls and procedures. We will work in the coming weeks and
months to address such weaknesses. We believe that the out-of-pocket
costs, the diversion of management's attention from running the day-to-day
operations and operational changes caused by the need to make changes in
our internal control and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"))
could be significant and still we may not achieve significant improvements
in our internal controls and procedures. If the time and costs associated
with such compliance exceed our current expectations, our results of
operations and the accuracy and timeliness of the filing of our annual and
periodic reports may be materially adversely affected and could cause
investors to lose confidence in our reported financial information, which
could have a negative affect on the trading price of our common stock."
We hope that the information contained in this letter satisfactorily
addresses the comments by the Staff. 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
-------------------------------
Jacques Tizabi
Chief Executive Officer