CORRESP 1 filename1.txt 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. ---------------------------------------------------- CONTROLS AND PROCEDURES, PAGE 14 -------------------------------- 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 ------------------------------------------------------------ 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 -------------------------------------- Cari L. Jaroslawsky, CPA CFO and Treasurer