VIA FACSIMILE 202.772.9369
March 2, 2006
John Cash
Accounting Branch Chief
Securities and Exchange Commission
MAIL STOP 7010
450 Fifth Street, N.W.
Washington, D.C. 20549-7010
Dear Mr. Cash:
This letter is being filed to respond to comments made by the Securities and
Exchange Commission staff (the "Staff") in its comment letter dated January 26,
2006. We have transcribed the Staff's comments below and each of the Staff's
comments is followed by the Company's responses.
FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2004.
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CONTROLS AND PROCEDURES, PAGE 14
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COMMENT 1: Revise future filings to exclude the qualifying language
"other than as described below" in your disclosure of changes
in internal control over financial reporting. Also confirm to
us, if correct, that there were material changes in your
internal control over financial reporting during the quarter
ended June 30, 2005.
RESPONSE: We will revise future filings to exclude the qualifying
language in our disclosure of changes in internal control over
financial reporting. During the quarter ended June 30, 2005,
we did not make material changes in internal control over
financial reporting.
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PAGE F-6
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COMMENT 2: We note the additional information you submitted on revenue
recognition. Please tell us the general nature of the terms
and conditions included in the purchase orders, and how and
when you recognize revenue as such terms and conditions are
met. Tell us if any purchase orders require customer approval.
John Cash Page 2 of 2
Accounting Branch Chief
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RESPONSE: Customer generated and customer approved purchase orders are
reviewed and subject to acceptance by the Company and
generally include specific terms relative to quantity, item
description, specifications, price, customer responsibility
for in-process costs, delivery schedule, shipping point,
payment and other standard terms and conditions of purchase
and may provide for progress payments based on in-process
costs as they are incurred. Revenues are recognized as units
are shipped and at the designated FOB point consistent with
the transfer of title and as per our response to your Comment
Three (3) as follows.
COMMENT 3: Tell us the percentage of total 2004 revenues that use the
percentage of completion method. Also tell us the terms of
this agreement and how you determine the percentage of
completion method is appropriate.
RESPONSE: Revenue under the percentage of completion method accounted
for approximately 7% of revenues for the fiscal year ended
December 31, 2004. However, please note that the amount of
2004 revenues recognized under the percentage of completion
method are not materially different than if the percentage of
completion revenues were recognized under the units shipped
method. Currently, the Company expects revenues under the
percentage of completion method to be an immaterial percentage
of total revenues. The use of the percentage of completion
method is expected to be complete during 2006 and no other
contract will then be using the percentage of completion
method to recognize revenues. The Company uses percentage of
completion method to recognize revenue on contracts where the
following criteria are met: (i) the goods to be sold extend
over several accounting periods, (ii) the shipment and
delivery schedules may not properly match sales with related
expenses if recognized under the units complete method (iii)
expected cash inflows are determinable, (iv) the total cost of
the project can be reasonably estimated, (v) the cost incurred
is known. The terms of the agreement met the above parameters
as the stated delivery dates extended multiple accounting
periods at stated prices and total contract costs were
reasonably estimated based on historical records. As such, the
percentage of completion method was appropriately applied and
most accurately addresses the realization principle that sets
forth the criteria for appropriate revenue recognition.
Sincerely,
/s/ Cari L. Jaroslawsky
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Cari L. Jaroslawsky, CPA
CFO and Treasurer