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corresp

    July 1, 2005

Michele Golke

Branch Chief

Division of Corporation Finance

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC 20549

Dear Ms. Golke,

We received your facsimile transmittal dated June 21, 2005 regarding Comments on Form 10-K for the
year ended December 31, 2004 and Related Filings and have reviewed your requests and comments.
Below you will find our responses.

1. – Property, Plant & Equipment

SEC’s Comment – We note that you entered into a sale-leaseback transaction for your building
located in Tempe, Arizona in December 2004. We also note that you had previously conveyed your
ownership in the same building to the City of Tempe in exchange for a rent-free 75 year lease.
Please tell us how you accounted for (1) the conveyance of the building to the City of Tempe in
1994; (2) the re-purchase of the building from the City of Tempe for $1,000 in mid-2004; and (3)
the sale of the building in December 2004. Include in your response how you determined the amounts
that you recorded in your financial statements for each of the items noted above.

Company response:

    a.

    In 1994, we continued to capitalize the cost of the building that was conveyed to the
City of Tempe. In effect, we booked nothing for the conveyance to the City of Tempe and we
continued to treat the building as an asset of Three-Five Systems, Inc. because the lease
with the City of Tempe qualified as a capital lease.

    b.

    Our records indicate that no amount was actually paid to the City of Tempe to
repurchase the building. The $1,000 indicated in the financials statements was the maximum
repurchase amount specified in the lease and since it had been referenced in prior
filings, we left the reference in subsequent filings for continuity.

    c.

    The sale of the building in late December 2004 was booked as a disposition of assets
for proceeds of $11.3 million less selling costs and less the current carrying value of
the building. Since we entered into a sale leaseback arrangement with the buyer, the
entire $2.7 million gain on the sale of the building was booked as a deferred gain to be
recognized over the five year term of our lease as indicated by paragraph 3 of FAS 28. (We
also examined FAS 13, FAS 66 and FAS 98 to evaluate the proper treatment of this sale
leaseback transaction.) The balance of

    the deferred gain appears on the balance sheet as of December 31, 2004 under Deferred Sale
Leaseback Gain, short-term portion ($545,000) and under Deferred Sale Leaseback Gain,
long-term portion ($2,178,000). We have begun to recognize the gain on the sale of the
building on a monthly basis by prorating the gain over the term of our five year lease
which reduced our long-term portion during the first quarter of 2005.

2. – Discontinued Operations

SEC’s Comment – We note that you have completed your exit from the Display segment business with
the sale of the display business operated out of your Massachusetts facility in May 2005, and that
this business will be reported as discontinued operations in the second quarter of 2005. We also
note that you have sold a portion of your EMS business that is currently reported as discontinued
operations. Please revise your disclosures in future filings to include a table detailing the
results of operations and significant assets and liabilities of each of your discontinued
operations separately in order to more clearly disclose the activities included in discontinued
operations. Refer to paragraph 47 of SFAS 144.

Company response:

    a.

    We will revise our disclosures in future filings to include a table detailing the
separate results of operations and significant assets and liabilities of each of our
discontinued operations.

3. – Controls and Procedures

SEC’s Comment – Please revise your disclosure in future filings concerning changes in your internal
control over financial reporting to indicate whether there was any change to your internal control
over financial reporting during the quarter being reported on that has materially affected, or that
is reasonably likely to materially affect, your internal control over financial reporting. Refer to
Item 308(c) of Regulation S-K.

Company response:

    a.

    We will revise our disclosures in future filings concerning changes in our internal
control over financial reporting to indicate whether there was any change to our internal
control over financial reporting during the quarter being reported on that has materially
affected , or that is reasonably likely to materially affect, our internal control over
financial reporting.

4. – Form 8-K dated February 9, 2005

SEC’s Comment – Your disclosures related to the non-GAAP measures included in Form 8-K dated
February 9, 2005 do not include the disclosures required by paragraph (e)(1)(i) of Item 10 of
Regulation S-K and Question 8 of the FAQ Regarding the Use of Non-

GAAP Financial Measures dated June 13, 2003. If you elect to present non-GAAP financial measures in
future Forms 8-K, please revise your presentation to specifically include a discussion, in
sufficient detail, of the following for each non-GAAP measure:

    •

    The substantive reasons why management believes the non-GAAP measure provides useful
information to investors;

    •

    The specific manner in which management uses the non-GAAP measure to conduct or
evaluate its business;

    •

    The economic substance behind management’s decision to use the measure; and

    •

    The material limitations associated with the use of the non-GAAP measure as compared to
the use of the most directly comparable GAAP measure and the manner in which management
compensates for these limitations when using the non-GAAP measure.

Please note that these disclosures are required for each measure presented that differs from the
most directly comparable GAAP measure.

Company response:

    a.

    Any future Form 8-K filings containing non-GAAP measures will include the disclosures
required by paragraph (e)(1)(i) of Item 10 of Regulation S-K and Question 8 of FAQ
Regarding the Use of Non-GAAP Financial Measures dated June 13, 2003.

In connection with our response, we understand that management is responsible for the adequacy and
accuracy of the disclosures in its filings. We also understand that staff comments or changes to
disclosures in response to staff comments do not foreclose the Commission from taking any action
with respect to the filing. Lastly, we also understand that we 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.

Please let Three-Five know if you require any further information or feel free to contact either
Jack Saltich (Chief Executive Officer) at 602-389-8600 or Eric Haeussler (Principal Accounting
Officer) at 602-389-8607.

Regards,

/s/ Jack Saltich

Jack Saltich

Chief Executive Officer

Three-Five Systems, Inc.