September 15, 2005
Mr. Gary Todd
Reviewing Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0406
Re: Diomed Holdings, Inc. Form 10-KSB for the fiscal year ended December 31,
2004 Forms 10-QSB for the periods ended March 31 and June 30, 2005
File No. 001-31250
Dear Mr. Todd:
This is in response to your comment letter dated September 1, 2005 to
David B. Swank, Chief Financial Officer of Diomed Holdings, Inc. (the
"Company"), with respect to the above-referenced filings.
The Company has set forth below its responses to the comments contained in
your letter of September 1, 2005.
Form 10-KSB for the year ended December 31, 2004
Item 6. Management's Discussion and Analysis of Financial Condition or Plan of
Operations
Critical Accounting Policies Valuation of Long-Lived and Intangible Assets, page
58
1. Please expand future filings to describe how you estimate cash flows and
discount rates for impairment testing purposes. More specifically describe
the nature and extent of subjective judgments and uncertainties associated
with those estimates.
In future filings, we will describe how we estimate cash flows and discount
rates for impairment testing, including the nature and extent of related
subjective judgments and uncertainties.
Item 8A Controls and Procedures, page 58
2. We see that your chief executive officer and your chief financial officer
"have concluded the controls and procedures currently in place are
adequate to ensure material information and other information requiring
disclosure is identified and communicated on a timely basis." Accordingly,
it is unclear whether your certifying officers have concluded that
disclosure controls and procedures are effective as provided in Item 307
to Regulation S-B. Please revise future filings to clearly state whether
or not disclosure controls and procedures are effective.
Our future filings will state whether our disclosure controls and procedures are
effective.
Financial Statements, page F-1
Note 2. Summary of Significant Accounting Policies
Revenue Recognition, page F-10
3. We note that you sell lasers and single-use procedure kits for EVLT(R) and
that you also provide physician training and practice development support.
Tell us how your revenue practices consider the multiple element
accounting requirements of EITF 00-21. If you believe that guidance is not
applicable, please explain. To the extent applicable, future filings
should clarify how you apply the guidance from the Abstract.
All lasers sold include training for one physician and practice development
support. Physician training includes voluntary attendance at a procedure
performed by another physician performing the EVLT procedure. The cost of the
training is accrued at the time of the laser sale. Practice development support
includes providing preprinted marketing brochures and preprinted standard
advertisements to the customer. The customer is responsible for executing the
advertisements by bringing them to local media and paying for radio or paper
advertisement. These items occur within close proximity to the delivery of the
laser and failure to complete these items would not result in the customer
receiving a refund or rejecting the delivered product. The Company has
determined that the physician training and practice development support are
inconsequential in accordance with SAB 104 Topic 13A.4.C1.
In those cases where the Company sells additional training or an extended
service contract, those items are divided into separate units of accounting
based on their relative fair value in accordance with paragraphs 9 and 16 of
EITF 00-21 for purposes of revenue recognition.
Our filings will include additional disclosure regarding the multiple element
accounting requirements of EITF 00-21, "Revenue Arrangements with Multiple
Deliverables," including how we apply the guidance from the Abstract.
4. We see that your basic revenue policy is a reiteration of the four general
criteria from SAB 104. Please expand future filings to more specifically
identify how you apply those criteria in your specific circumstances.
Please also expand future filings to separately state how you value and
account for services revenues. Please show us how you intend to apply this
comment.
Our future filings will include expanded discussion on how we apply the four
criteria of SAB 104. We intend to apply this comment as follows:
Revenue Recognition. The Company derives revenue primarily from two sources: (i)
revenue from products, including lasers, instrumentation and disposables, and
(ii) revenue from services. Service revenue includes fees earned under extended
service contracts and repairs for products that are not under warranty. The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
104, "Revenue Recognition" ("SAB No. 104"). SAB No. 104 requires that four basic
criteria must be met before revenues can be recognized: (1) persuasive evidence
of an arrangement exists; (2) title has transferred; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured.
The Company uses signed quotations and/or customer purchase orders that include
all terms of the arrangement to determine the existence of an arrangement and
whether the fee is fixed or determinable based on the terms of the associated
agreement. The Company ships F.O.B. shipping point and uses shipping documents
and third-party proof of delivery to verify delivery and transfer of title. The
Company assesses whether collection is reasonably assured by considering a
number of factors, including past transaction history with the customer and the
creditworthiness of the customer, as obtained from third party credit
references. If the Company determines that collection is not reasonably assured,
revenue is deferred until collection becomes reasonably assured, generally upon
receipt of payment.
The Company recognizes revenue for extended service contracts on a straight-line
basis in accordance with FASB Technical Bulletin No. 90-1, "Accounting for
Separately Priced Extended Warranty and Product Maintenance Contracts." The
Company provides for estimated warranty costs at the time of sale.
5. Unless not significant, please expand to identify and describe post
shipment obligations (training, software upgrades, installation, etc.),
including disclosure about how those obligations are considered in your
revenue practices. Also address customer acceptance provisions, as
applicable. Show us how you intend to apply this comment.
As described in response to comment #3, training and practice development are
not considered separate units of accounting. We have determined that these items
are inconsequential in accordance with SAB 104, Topic 13A.4.C1, as they occur
within close proximity to the sale of the laser and failure to complete these
items would not result in the customer receiving a refund or rejecting the
delivered product. The related costs are accrued at the time of sale. Software
upgrades and installation are not applicable to the product that we sell.
6. Revise future filings to provide disclosures about warranties under FIN 45
or tell us why you believe those disclosures are not necessary.
We will include expanded disclosure regarding product warranties under FIN 45 in
future filings.
Note 6. Debt. page F-14
d) Private Placement Equity and Debt Financing Entered into on September 28,
2004, page F-16
7. Expand future filings to also disclose the effective rate of interest for
this borrowing. Please also disclose the effective rate for any future
borrowings where that rate varies significantly from the stated rate.
Refer to APB 21.
Our future filings will include the effective borrowing rate for each borrowing.
Note 8. Stockholder's Equity, page F-17
8. We see grants of warrants with cashless exercise provisions. In future
filings please make disclosure about the terms and mechanics of cashless
exercise provisions associated with warrants and options.
Our future filings will include terms and mechanics of cashless exercise
provisions.
Note 10. Segment Reporting, page F-26
9. Please revise future filings to separately present revenues and long-lived
assets attributed to the United States. That is, disaggregate the item
"North America." Refer to paragraphs 38a and 38b to SFAS 131.
In our future filings, we will present revenues and long-lived assets attributed
to the United States (our country of domicile) separate from North America.
As requested in your letter, the Company acknowledges that:
o we are responsible for the adequacy and accuracy of the disclosure
in our filings;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the SEC from taking any action with
respect to the filing; and
o we may not assert Staff comments as a defense in any proceeding
initiated by the SEC or any person under the federal securities laws
of the United States.
If you have any questions regarding this response, please contact me.
Very truly yours,
/s/ David B. Swank
Chief Financial Officer
cc: James A. Wylie, Jr.
Geoffrey H. Jenkins
Joseph Harris
Christopher J. Geberth
William A. Newman, Esq.