[OTTO LAW GROUP, PLLC LETTERHEAD]
June 1, 2006
Securities and Exchange Commission
450 Fifth Street, N.W.
Room 4561
Washington, D.C. 29549-0510
Attention: Patrick Gilmore
Re: TechAlt, Inc. (the "Registrant")
Form 10-KSB for Fiscal Year Ended December 31, 2004
Filed March 31, 2005; Form 10-KSB/A, filed January 18, 2006
File No. 000-27867
Dear Sirs:
The Otto Law Group, on behalf TechAlt, Inc., sends this letter to provide
additional information regarding Registrant's financial disclosure in response
to your comment letter dated March 31, 2006, in which you ask registrant to
reply to follow-up comments of the Staff of the Securities and Exchange
Commission (the "Commission") regarding Registrant's response letters dated
February 24, 2006 and December 19, 2005 in connection with Registrant's Form
10-KSB for the Fiscal Year ended December 31, 2004, filed March 31, 2005, as
amended and filed January 18, 2006, under the Securities Exchange Act of 1934
(the "Exchange Act"). Please find below registrant's responses to the comments.
We will file this letter via EDGAR designating the form "CORRESP."
Note-1 Description of Business And Summary Of Significant Accounting Policies
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Revenue Recognition, page F-7
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1. To clarify the Registrant's response, dated February 24, 2006 to Commissions
comments 2, 3 and 4, dated February 2, 2006, we conclude that our products and
services each have standalone value to the customers because the customer may
engage other service providers to provide integration, project implementation or
maintenance and support services. Thus the criteria of EITF 00-21 paragraph 9(a)
are met as each element, including the product, the integration services and
installation services, has value on a standalone basis. The criteria of (b) are
met as we bill integration, project implementation or maintenance and support
services (the undelivered items) separately at agreed upon prices to our
customers. Section 9(c) is not applicable. The consideration is allocated based
on relative fair value since we believe the value of both the product and the
services are determinable. Although under EITF 00-21 paragraph 16 the contract
price is not assumed to be the vendor objective evidence of fair value, we have
determined that in our case the contract price for each represents vendor
specific evidence of fair value since these contract prices represent the same
prices we would charge other customers. Revenue is therefore recognized on each
separate unit of accounting (product and services) based on SAB 104 revenue
recognition criteria.
Regarding the customer to which the Commission refers in comment 2 (letter dated
March 31, 2006), this customer was the only customer in 2005 who was sold both
products as well as integration, installation and training services. Sale of
thes products and services provided proceeds to the Registrant of approximately
$2.8 million, of which approximately $700,767 is deferred as a customer deposit
at December 31, 2005. We recognized revenues for the product sales of
approximately $1.7 million upon shipment of the products to the customer (based
on FOB shipping point) and recognized revenues for services including
integration, installation and training, of approximately $835,000 upon
completion of these services. The contract was terminated when the Registrant's
creditor foreclosed on assets required for completion of the contract at the end
of September 2005, resulting in approximately $700,767 of deposits from our
customer for services not yet completed.
2. The anticipated provision of services for grant writing, integration, project
implementation and maintenance support are short-term services involving
agreements of less than one year in duration. The Registrant's revised revenue
recognition footnote, in its 10-KSB for the year ended 2005 revenue recognition
footnote, includes a paragraph that states:
The Company intends to provide other services in 2006 and thereafter
to potentially include grant writing, integration services, project
implementation services and maintenance and support services. Revenues
from providing services such as grant writing, integration, project
implementation or maintenance and support services will be recognized pro
rata as the services are provided.
Note 6--Stockholder's Equity
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Series A Convertible Preferred Stock, Warrants and Additional Investment Rights,
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page F-13
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3. The Registrant's prior response indicated that, after reviewing EITF 05-4
Issue Summary No 1, EITF 00-19 paragraph 2, and DIH K-1, we determined that the
registration rights agreement met the conditions of a freestanding instrument
since it is a "best efforts" agreement and none of the other contracts are
contingent on the registration rights agreement.
To answer the current question, the common stock warrants (the "Warrants")
neither specifically provide for, nor limit, settlement in unregistered shares.
The Warrants, however, reference both the Securities Purchase Agreement, under
which the Warrants were purchased, and the Registration Rights Agreement,
pursuant to which the Registrant agrees to register the shares underlying the
Warrants. The Securities Purchase Agreement and Registration Rights Agreement
specifically obligate the Registrant to maintain and make available adequate
public information to enable the Warrant holder to publicly sell its shares
under Rule 144, which sale otherwise remains subject to the availability of Rule
144 to the Warrant holder. The agreements also obligates the Registrant to
provide to the Warrant holder, if requested, a written statement that the
company has filed all reports and documents, if then applicable under the 1933
Act and 1934 Act, required to make Rule 144 available, or has otherwise made
available adequate public information.
Additionally, as part of the above analysis we considered all of the other
criteria of EITF 00-19 paragraph 12 to 32 including whether unregistered shares
may be issued under the common stock the Warrants and determined that
unregistered shares may be issued under those contracts and that the penalty is
capped since the registration statement must only be maintained effective until
the earlier of (a) the date as of which the investors may sell all of the
registrable securities under Rule 144(k) or (b) the date on which the investors
have sold all the registrable securities. Therefore we believe that the
settlement alternative, as discussed in paragraph 16 of EITF 00-19, of issuing
unregistered shares and paying the penalty is not a non-economic settlement
alternative since the capped penalty does not exceed our estimate of the
difference between the value of registered and unregistered shares
Therefore, the Registrant takes the position that the common stock
warrants permit settlement in unregistered shares.
Item 8A. Controls and Procedures, page 13
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4. Registrant states and affirms its belief that its disclosure control an
procedures for the relevant time periods met all of the requirements of Sec.
240.13a-15(e). The Registrant proposes to state its adherence to, and
satisfaction of, the detailed requirements of Sec. 240.13a-15(e) in subsequent
Forms 10-KSB and 10-QSB, provided that Registrant is able to make such
statements for the future, relevant periods, as follows:
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's
Exchange Act reports 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 the Company's
management, including its Chief Executive Officer/Chief Financial Officer,
as appropriate, to allow timely decisions in accordance with the required
"disclosure controls and procedures" as defined in Rule 13a-15(e). The
Company's disclosure and control procedures are designed to provide
reasonable assurance of achieving their objectives, and the principal
executive officer and principal financial officer of the Company concluded
that the Company's disclosure controls and procedures were effective at
the reasonable assurance level.
At the end of the period covered by this Annual Report, the Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based of the foregoing, the principal executive
officer and principal financial officer of the Company concluded that the
Company's disclosure controls and procedures were effective to ensure that
the information required to be disclosed in the Company's Exchange Act
reports 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 the Company's management including the
Company's principal executive officer and principal financial officer to
allow timely decisions regarding required disclosure.
There were no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Form 10-QSB for the Quarterly Period Ended September 30, 2005
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Note 1 - Description of Business and Summary of Significant Accounting Policies
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Restatement, Page 6
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5. Rather than attempting to determine the materiality of the difference in the
financial results as a result of the restatements, the Registrant, in Note 9 of
its Notes to Consolidated Financial Statements of it 10-KSB for the year ended
2005, restated its quarterly results, in columnar form, for each of its four
quarters for the fiscal years 2005 and 2004.
Based on the registrant's amendments to its annual filing for the fiscal year
ended December 31, 2004 and restatements in its annual filing for the fiscal
year 2005 and the Registrant's responses to the Staff's comment letters, the
registrant believes that it has completed its response to the Commissions
comments. Please review this letter and the submissions as stated and advise
whether comments will be closed or how we may further improve the disclosures of
our client, and contact Todd Van Siclen at (206) 262-9545.
Very truly yours,
/s/ Todd Van Siclen
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Todd Van Siclen
Cc: Craig Wilson