CONFIDENTIAL TREATMENT REQUESTED
BY EXTENDED SYSTEMS INCORPORATED
XTND - 0001
CERTAIN INFORMATION IN THIS LETTER HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS. OMITTED INFORMATION HAS BEEN REPLACED BY [*].
October 29, 2004
VIA EDGAR AND OVERNIGHT COURIER
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0406
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Mr. Patrick Gilmore
RE: EXTENDED SYSTEMS INCORPORATED
ITEM 4 FORM 8-K FILED OCTOBER 5, 2004
FILE NO. 000-23597
REQUEST FOR CONFIDENTIAL TREATMENT (XTND-0001)
Dear Mr. Gilmore:
On behalf of Extended Systems Incorporated ("ESI"), we submit this letter
in response to comments from the staff (the "Staff") of the Securities and
Exchange Commission (the "Commission") received by letter dated October 21, 2004
relating to ESI's Form 8-K Current Report filed with the Commission via EDGAR on
October 5, 2004 (the "Form 8-K").
Because of the commercially sensitive nature of certain information
contained herein, this submission is accompanied by a request for confidential
treatment for selected portions of this letter. ESI is requesting confidential
treatment for selected portions of this letter, including in connection with the
Freedom of Information Act, and has filed a separate letter with the Office of
Freedom of Information and Privacy Act Operations in connection with that
request, pursuant to Rule 83 of the Commission's Rules on Information and
Requests, 17 C.F.R. 200.83. For the Staff's reference, we have enclosed a copy
of ESI's letter to the Office of Freedom of Information and Privacy Act
Securities and Exchange Commission CONFIDENTIAL TREATMENT
Re: Extended Systems Incorporated REQUESTED (XTND-0001)
October 29, 2004
Page 2
Operations as well as a copy of this correspondence, marked to show the portions
redacted from the version filed via EDGAR and for which ESI is requesting
confidential treatment.
In this letter, we have recited the comments from the Staff in italicized,
bold type and have followed each comment with ESI's response.
ITEM 4 FORM 8-K FILED OCTOBER 5, 2004
- -------------------------------------
1. WE NOTE YOU DISCUSSED CONCLUSIONS REGARDING A REVENUE RECOGNITION
MATTER WITH DELOITTE & TOUCHE PRIOR TO THEIR APPOINTMENT.
SUPPLEMENTALLY TELL US IN DETAIL WHAT THIS REVENUE RECOGNITION MATTER
RELATED TO AND WHAT YOUR REVENUE RECOGNITION POLICY IS RELATED TO THIS
MATTER. ADDITIONALLY, TELL US WHAT DELOITTE & TOUCHE'S POSITION WAS ON
THIS POLICY OR MATTER AS WELL AS THE POSITION OF YOUR FORMER
ACCOUNTANT. WE MAY HAVE FURTHER COMMENTS.
On June 30, 2004, the audit committee of ESI's board of directors sent
requests to various registered independent auditing firms requesting that the
firms submit bids for audit and quarterly review work for ESI's fiscal year
ending June 30, 2005. On July 16, 2004, Deloitte & Touche LLP ("D&T") submitted
a proposal to ESI to perform the services.
ESI filed a Current Report on Form 8-K on July 30, 2004 to report that as
of July 26, 2004, it was notified by PricewaterhouseCoopers LLP ("PWC"), then
ESI's independent auditors, that PWC would not submit a bid to ESI for the audit
and related work for ESI's fiscal year ending June30, 2005. PWC completed the
audit for ESI's fiscal year ended June 30, 2004 and ESI filed its Annual Report
on Form 10-K on September 29, 2004. PWC did not perform any quarterly review
work or other related services, such as consultations on revenue recognition
questions, for matters arising during the three months ended September 30, 2004.
ESI had no disagreements with PWC and PWC submitted a consent to ESI's Current
Report on Form 8-K dated July 30, 2004 and its subsequent Form 8-K
ESI entered discussions with D&T regarding the potential engagement of D&T
and in August 2004, advised D&T that the Audit Committee had selected D&T as
ESI's independent accountants. D&T completed its pre-engagement procedures and
advised ESI on October 1, 2004 that it would accept the engagement.
In September 2004, ESI consulted the proposed audit partner at D&T in
connection with ESI's analysis of the appropriate revenue recognition under its
revenue recognition policies and AICPA Statement of Position 97-2, "Software
Revenue Recognition," as amended by Statement of Position 98-4 and Statement of
Position 98-9, as well as Accounting Research Bulletin No. 45,
Securities and Exchange Commission CONFIDENTIAL TREATMENT
Re: Extended Systems Incorporated REQUESTED (XTND-0001)
October 29, 2004
Page 3
"Long-Term Construction-Type Contracts" and Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production Type
Contracts" for two customer agreements entered into during the three months
ended September 30, 2004. ESI prepared analyses of its proposed treatment of the
agreements and provided the written analyses to D&T. Neither customer had
previously been a customer of ESI. Copies of the memoranda are being
supplementally provided to you pursuant to a request for confidential treatment
of supplemental materials. A description of ESI's revenue recognition policy
which applies to the customer contracts in question appears on page 21 of ESI's
Annual Report on Form 10-K for the fiscal year ended June 30, 2004 (the "10-K")
in the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Critical Accounting Policies" and on pages
60 and 61 in the Notes to the Consolidated Financial Statements of ESI for the
periods ending June 30, 2004. Copies of the applicable pages are also being
provided to you supplementally. Three questions were considered in the memoranda
provided to D&T for the consultation: [*]
The memoranda provided to D&T provided ESI's analysis of the customer
contracts, its revenue recognition policies and its conclusions as to the
questions presented above. D&T did not give a formal opinion in response to the
consultation, nor did it indicate whether it would concur with ESI's proposed
treatment of the two transactions.
In the ordinary course, ESI consults with its independent auditors on
questions regarding the proposed revenue recognition for certain customer
agreements. ESI had consulted its prior independent auditors, PWC, on similar
matters during the periods in which PWC performed audit services for ESI. With
respect to the customer agreements that were the subject of the consultation
with D&T, ESI never consulted PWC and had no disagreement with PWC related to
ESI's revenue recognition policies that would apply to such agreements. The
consultation with D&T did not constitute impermissible nonaudit services as set
forth in Rule 10A(i) pursuant to the Securities Exchange Act of 1934, as
amended. In addition, ESI did not consider the input in determining whether to
retain D&T. The decision of the audit committee to retain D&T was made in August
2004 and the consultations occurred in September 2004.
Pursuant to Item 304(a)(2)(i) of Regulation S-K, ESI reported in its Form
8-K that it had consulted D&T regarding the treatment of the two customer
contracts and that the views expressed by D&T in connection with such
consultation were not a material factor in its selection of D&T as its
independent auditor.
OTHER MATTERS
Pursuant to the letter dated October 21, 2004 from the Commission to ESI,
ESI hereby acknowledges the following:
Securities and Exchange Commission CONFIDENTIAL TREATMENT
Re: Extended Systems Incorporated REQUESTED (XTND-0001)
October 29, 2004
Page 4
- ESI is responsible for the adequacy and accuracy of the disclosure in
its filings;
- Staff comments or changes to disclosure in response to Staff comments
in the filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filing; and
- ESI 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.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
Securities and Exchange Commission CONFIDENTIAL TREATMENT
Re: Extended Systems Incorporated REQUESTED (XTND-0001)
October 29, 2004
Page 5
Please direct your questions or comments to Charles W. Jepson, President
and Chief Executive Officer (208-287-6087), Thomas C. DeFilipps of Wilson
Sonsini Goodrich & Rosati (650-320-4697), Julia Reigel of Wilson Sonsini
Goodrich & Rosati (650-320-4509) or me (208-287-6276). In addition, we would
request that you provide a facsimile of any additional comments you may have to
Mr. DeFilipps and Ms. Reigel at 650-496-4367 and me at 208-327-5004. Thank you
for your assistance.
Very truly yours,
EXTENDED SYSTEMS INCORPORATED
/s/ Valerie A. Heusinkveld
Valerie A. Heusinkveld
Chief Financial Officer
cc: Charles W. Jepson
Thomas C. DeFilipps, Esq.
Julia Reigel, Esq.