SEC Company Response from SIERRA MONITOR — Dec 14, 2005
SIERRA MONITOR CORP /CA/ (CIK 0000100625)
Date: Dec. 14, 2005 · CIK: 0000100625 · Accession: 0000950005-05-000791
AI Filing Summary & Sentiment
Referenced dates: October 12, 2005
Letter
November 18, 2005 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, DC 20549 Attention: Kate Tillan, Assistant Chief Accountant
Re: Sierra Monitor Corporation Form 10-KSB for the Fiscal Year Ended December 31, 2004 Forms 10-QSB for the Fiscal Quarters Ended March 31, 2005 and June 30, 2005 File No. 0-07441
Dear Ms. Tillan:
Sierra Monitor Corporation (the "Company") is submitting this letter in response to the Securities and Exchange Commission's (the "Commission") letter dated October 12, 2005 (the "Comment Letter"). For your convenience, we have repeated your comments 1 through 8 below and the headings and numbered responses in this response letter correspond to the headings and numbered comments contained in the Comment Letter. Please feel free to contact me at the number at the end of this response letter with any further questions or comments you may have.
Form 10-KSB for the Fiscal Year Ended December 31, 2004 -------------------------------------------------------
Financial Statements, page F-1 ------------------------------
Note 1 - Summary of the Company and Significant Accounting Policies, page F-6 -----------------------------------------------------------------------------
Revenue Recognition, page F-8 -----------------------------
1. Please tell us and revise future filings to disclose how you recognize revenue from each type of product and service you provide to customers, identifying in each instance those events that would indicate that each criterion outlined in SAB Topic 13.A has been met.
Response: ---------
In response to the Staff's comment, we supplementally advise the Staff that according to Topic 13: Revenue Recognition of Staff Accounting Bulleting ("SAB") No. 104, "Revenue Recognition," revenue generally is realized or realizable and earned when all of the following criteria are met:
<PAGE>
Securities and Exchange Commission Attention: Kate Tillan November 18, 2005 Page 2
A) persuasive evidence of an arrangement exists,
B) delivery has occurred or services have been rendered,
C) the seller's price to the buyer is fixed or determinable, and
D) collectibility is reasonably assured.
Some revenue arrangements contain multiple revenue-generating activities. The SEC staff believes that the determination of the units of accounting within an arrangement should be made prior to the application of the guidance in this SAB Topic by reference to the applicable accounting literature (i.e. EITF 00-21).
We apply the provisions of Topic 13.A to our products as follows:
1. Gas Detection and Environment Control Products are sold as off-the-shelf products based on released product numbers with prices fixed at the time of order (criteria C). Orders delivered to the Company by phone, fax, mail or email are considered valid purchase orders and once accepted by the Company are deemed to be the final understanding between the Company and our customer as to the specific nature and terms of the agreed-upon sale transaction (criteria A). Products are considered delivered when (a) for FOB factory orders they leave our shipping dock, or (b) for FOB customer dock upon confirmation of delivery (criteria B). The creditworthiness of customers is generally assessed prior to the Company accepting their first order. Additionally, international customers and customers who have developed a history of payment problems are generally required to prepay or pay through a letter-of-credit (criteria D).
2. Gas Detection and Environment Control Services consist of customer orders for field service. Generally field service requires a visit to a customer site for inspection of the installation, assistance with start-up and user training. These services are provided under purchase orders which are provided separate from product orders. Orders are accepted in the same forms as above with hourly prices fixed at the time of order (criteria A and C). The services are provided by a Company employee or contractor visiting a site and completing work. A job ticket or report is completed and invoicing/revenue recognition occurs only when the service activity is completed (criteria B). Such services are provided to current and prior customers, and, as noted above, creditworthiness has generally already been assessed. In cases where probability of receiving payment is low, a credit card number is collected for immediate processing (criteria D).
3. FieldServer Products are small boxes similar to computer network hubs. The Products have multiple ports for connection to various electronics controls. They are sold in the same manner as Gas Detection and Environment Control Products except that there is a high content of software that is integral to the operation of the product. Orders delivered to the Company by phone, fax, mail or email are considered valid purchase orders. The Company determines whether it can accept the purchase order by comparing the requirement of the order against the capabilities of the FieldServer software products. Upon acceptance by the Company the orders are deemed to be the final understanding between the Company and our customer as to the specific nature and terms (including fixed price) of the agreed-upon sale
<PAGE>
Securities and Exchange Commission Attention: Kate Tillan November 18, 2005 Page 3
transaction (criteria A and C). Products are considered delivered when (a) for FOB factory orders they leave our shipping dock, or (b) for FOB customer dock upon confirmation of delivery (criteria B). The creditworthiness of customers is generally assessed prior to the Company accepting their first order. Additionally, international customers and customers who have developed a history of payment problems are generally required to prepay or pay through a letter-of-credit (criteria D). The software to be provided with the order includes two items: (a) a compiled program containing (i) the basic operating system for FieldServers which is common to every unit and (ii) the correct set of protocol drivers based on the customer order (see FieldServer Services below for more information); and (b) a configuration file, like an Excel spreadsheet, that identifies and links each data point as identified by the customer.
The configuration file is a separate line item on the order and, although it is an electronic file, it should not be considered software; it is simply engineering work product. The Company does not deem the hardware, operating system with protocol drivers and configuration files to be separate units of accounting, as defined in EITF 00-21, "Revenue Arrangements with Multiple Deliverables," because we do not believe that they have value on a stand-alone basis. The hardware is useless without the software, and the software is only intended to be used in FieldServer hardware. Additionally, the software included in each sale is deemed to not require significant production, modification or customization, as described in Statement of Position (SOP) 97-02, "Software Revenue Recognition", as amended, and therefore we recognize revenues upon the shipment or delivery of products (depending on shipping terms), as described above.
4. FieldServer Services consist of orders for custom development of protocol drivers. Orders are received in the same manner as above, but due to the non-recurring engineering (the "NRE") aspect of the driver development we are more likely to have a written evidence trail of a quotation and a hard copy order (criteria A and C). The driver development involves further research after receipt of order, preparation of a scope document to be approved by the customer and then engineering time to write, test and release the driver program. When development of the driver is complete the customer is notified and can proceed with a product order (see paragraph 3 above). Revenues for driver development are billed and recognized upon shipment or delivery of the related product that includes the developed protocol drivers (criteria B, as noted in paragraph 3 above). Collectibility (criteria D) is reasonably assured as described in paragraph 3 above.
In light of the foregoing, we intend to disclose our revenue recognition policies in future filings with the Commission as follows:
<PAGE>
Securities and Exchange Commission Attention: Kate Tillan November 18, 2005 Page 4
Revenue Recognition
The Company recognizes revenues in accordance with Staff Accounting Bulleting ("SAB") No. 104, "Revenue Recognition," when all of the following conditions exist: a) persuasive evidence of an arrangement exists in the form of an accepted purchase order; b) delivery has occurred, based on shipping terms, or services have been rendered; c) the Company's price to the buyer is fixed or determinable, as documented on the accepted purchase order; and d) collectibility is reasonably assured. By product and service type, revenues are recognized when the following specific conditions are met:
Gas Detection and Environment Control Products ----------------------------------------------
Gas Detection and Environment Control products are sold as off-the-shelf products with prices fixed at the time of order. Orders delivered to the Company by phone, fax, mail or email are considered valid purchase orders and once accepted by the Company are deemed to be the final understanding between us and our customer as to the specific nature and terms of the agreed-upon sale transaction. Products are shipped and are considered delivered when (a) for FOB factory orders they leave our shipping dock or (b) for FOB customer dock orders upon confirmation of delivery. The creditworthiness of customers is generally assessed prior to the Company accepting a customer's first order. Additionally, international customers and customers who have developed a history of payment problems are generally required to prepay or pay through a letter-of-credit.
Gas Detection and Environment Control Services ----------------------------------------------
Gas Detection and Environment Control Services consist of field service orders (technical support) and training, which are provided separate from product orders. Orders are accepted in the same forms as discussed for Gas Detection and Environment Control Products above with hourly prices fixed at the time of order. Revenue recognition occurs only when the service activity is completed. Such services are provided to current and prior customers, and, as noted above, creditworthiness has generally already been assessed. In cases where the probability of receiving payment is low, a credit card number is collected for immediate processing.
FieldServer Products --------------------
FieldServer products are sold in the same manner as Gas Detection and Environment Control products (as discussed above) except that the products contain embedded software, which is integral to the operation of the device. The software embedded in FieldServer products includes two items: (a) A compiled program containing (i) the basic operating system for FieldServers, which is common to every unit, and (ii) the correct set of protocol drivers based on the customer order (see FieldServer Services below for more information); and (b) a configuration file that identifies and links each data point as identified by the customer. The Company does not deem the hardware, operating systems with protocol drivers and configuration files to be separate units of accounting, as defined in EITF 00-21, "Revenue Arrangements with Multiple Deliverables," because the Company does not believe that they have value on a stand-alone basis. The hardware is useless without the software, and the software is only
<PAGE>
Securities and Exchange Commission Attention: Kate Tillan November 18, 2005 Page 5
intended to be used in FieldServer hardware. Additionally, the software included in each sale is deemed to not require significant production, modification or customization, as described in Statement of Position (SOP) 97-02, "Software Revenue Recognition", as amended, and therefore the Company recognize revenues upon the shipment or delivery of products (depending on shipping terms), as described in Gas Detection and Environment Control Products above.
FieldServer Services --------------------
FieldServer services consist of orders for custom development of protocol drivers. Generally customers place orders for FieldServer products concurrently with their order for protocol drivers. However if custom development of the protocol driver is required, the product order is not processed until development of the protocol driver is complete. Orders are received in the same manner as described in FieldServer Products above, but due to the non-recurring engineering aspect of the customized driver development the Company is more likely to have a written evidence trail of a quotation and a hard copy order. The driver development involves further research after receipt of order, preparation of a scope document to be approved by the customer and then engineering time to write, test and release the driver program. When development of the driver is complete the customer is notified and can proceed with a FieldServer product (see FieldServer Products above). Revenues for driver development are billed and recognized upon shipment or delivery of the related product that includes the developed protocol drivers (as noted in FieldServer Products above). Collectibility is reasonably assured as described in FieldServer Products above.
2. Tell us and revise future filings to discuss the types of discounts and allowances you offer as well as your terms for returns, refund rights and any other post delivery obligations you have and how they impact the amount and timing of revenue recognized.
Response: ---------
In response to the Staff's comment, we supplementally advise the Staff that the Company offers products for sale to end users at list price. Discounts are applied in the quote and negotiation period to encourage the customer to place the order. These discounts vary by project. When products are sold through representatives there is no discount applicable to a wholesale distributor. In cases of repeat customers, generally distributors or integrators, we offer set discounts. In all cases discounts range between 5% and 40%.
1. Discounts are applied at time of order entry and sales are processed at net pricing.
2. No allowances are offered to customers.
<PAGE>
Securities and Exchange Commission Attention: Kate Tillan November 18, 2005 Page 6
3. The Company provides a warranty on all electronics sold for a period of two years after the date of shipment. Warranty issues are
Show Raw Text
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<TEXT>
November 18, 2005
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Kate Tillan, Assistant Chief Accountant
Re: Sierra Monitor Corporation
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Forms 10-QSB for the Fiscal Quarters Ended
March 31, 2005 and June 30, 2005
File No. 0-07441
Dear Ms. Tillan:
Sierra Monitor Corporation (the "Company") is submitting this letter in
response to the Securities and Exchange Commission's (the "Commission") letter
dated October 12, 2005 (the "Comment Letter"). For your convenience, we have
repeated your comments 1 through 8 below and the headings and numbered responses
in this response letter correspond to the headings and numbered comments
contained in the Comment Letter. Please feel free to contact me at the number at
the end of this response letter with any further questions or comments you may
have.
Form 10-KSB for the Fiscal Year Ended December 31, 2004
-------------------------------------------------------
Financial Statements, page F-1
------------------------------
Note 1 - Summary of the Company and Significant Accounting Policies, page F-6
-----------------------------------------------------------------------------
Revenue Recognition, page F-8
-----------------------------
1. Please tell us and revise future filings to disclose how you recognize
revenue from each type of product and service you provide to customers,
identifying in each instance those events that would indicate that each
criterion outlined in SAB Topic 13.A has been met.
Response:
---------
In response to the Staff's comment, we supplementally advise the Staff that
according to Topic 13: Revenue Recognition of Staff Accounting Bulleting ("SAB")
No. 104, "Revenue Recognition," revenue generally is realized or realizable and
earned when all of the following criteria are met:
<PAGE>
Securities and Exchange Commission
Attention: Kate Tillan
November 18, 2005
Page 2
A) persuasive evidence of an arrangement exists,
B) delivery has occurred or services have been rendered,
C) the seller's price to the buyer is fixed or determinable, and
D) collectibility is reasonably assured.
Some revenue arrangements contain multiple revenue-generating activities.
The SEC staff believes that the determination of the units of accounting
within an arrangement should be made prior to the application of the
guidance in this SAB Topic by reference to the applicable accounting
literature (i.e. EITF 00-21).
We apply the provisions of Topic 13.A to our products as follows:
1. Gas Detection and Environment Control Products are sold as off-the-shelf
products based on released product numbers with prices fixed at the time of
order (criteria C). Orders delivered to the Company by phone, fax, mail or
email are considered valid purchase orders and once accepted by the Company
are deemed to be the final understanding between the Company and our
customer as to the specific nature and terms of the agreed-upon sale
transaction (criteria A). Products are considered delivered when (a) for
FOB factory orders they leave our shipping dock, or (b) for FOB customer
dock upon confirmation of delivery (criteria B). The creditworthiness of
customers is generally assessed prior to the Company accepting their first
order. Additionally, international customers and customers who have
developed a history of payment problems are generally required to prepay or
pay through a letter-of-credit (criteria D).
2. Gas Detection and Environment Control Services consist of customer orders
for field service. Generally field service requires a visit to a customer
site for inspection of the installation, assistance with start-up and user
training. These services are provided under purchase orders which are
provided separate from product orders. Orders are accepted in the same
forms as above with hourly prices fixed at the time of order (criteria A
and C). The services are provided by a Company employee or contractor
visiting a site and completing work. A job ticket or report is completed
and invoicing/revenue recognition occurs only when the service activity is
completed (criteria B). Such services are provided to current and prior
customers, and, as noted above, creditworthiness has generally already been
assessed. In cases where probability of receiving payment is low, a credit
card number is collected for immediate processing (criteria D).
3. FieldServer Products are small boxes similar to computer network hubs. The
Products have multiple ports for connection to various electronics
controls. They are sold in the same manner as Gas Detection and Environment
Control Products except that there is a high content of software that is
integral to the operation of the product. Orders delivered to the Company
by phone, fax, mail or email are considered valid purchase orders. The
Company determines whether it can accept the purchase order by comparing
the requirement of the order against the capabilities of the FieldServer
software products. Upon acceptance by the Company the orders are deemed to
be the final understanding between the Company and our customer as to the
specific nature and terms (including fixed price) of the agreed-upon sale
<PAGE>
Securities and Exchange Commission
Attention: Kate Tillan
November 18, 2005
Page 3
transaction (criteria A and C). Products are considered delivered when (a)
for FOB factory orders they leave our shipping dock, or (b) for FOB
customer dock upon confirmation of delivery (criteria B). The
creditworthiness of customers is generally assessed prior to the Company
accepting their first order. Additionally, international customers and
customers who have developed a history of payment problems are generally
required to prepay or pay through a letter-of-credit (criteria D). The
software to be provided with the order includes two items: (a) a compiled
program containing (i) the basic operating system for FieldServers which is
common to every unit and (ii) the correct set of protocol drivers based on
the customer order (see FieldServer Services below for more information);
and (b) a configuration file, like an Excel spreadsheet, that identifies
and links each data point as identified by the customer.
The configuration file is a separate line item on the order and, although
it is an electronic file, it should not be considered software; it is
simply engineering work product. The Company does not deem the hardware,
operating system with protocol drivers and configuration files to be
separate units of accounting, as defined in EITF 00-21, "Revenue
Arrangements with Multiple Deliverables," because we do not believe that
they have value on a stand-alone basis. The hardware is useless without the
software, and the software is only intended to be used in FieldServer
hardware. Additionally, the software included in each sale is deemed to not
require significant production, modification or customization, as described
in Statement of Position (SOP) 97-02, "Software Revenue Recognition", as
amended, and therefore we recognize revenues upon the shipment or delivery
of products (depending on shipping terms), as described above.
4. FieldServer Services consist of orders for custom development of protocol
drivers. Orders are received in the same manner as above, but due to the
non-recurring engineering (the "NRE") aspect of the driver development we
are more likely to have a written evidence trail of a quotation and a hard
copy order (criteria A and C). The driver development involves further
research after receipt of order, preparation of a scope document to be
approved by the customer and then engineering time to write, test and
release the driver program. When development of the driver is complete the
customer is notified and can proceed with a product order (see paragraph 3
above). Revenues for driver development are billed and recognized upon
shipment or delivery of the related product that includes the developed
protocol drivers (criteria B, as noted in paragraph 3 above).
Collectibility (criteria D) is reasonably assured as described in paragraph
3 above.
In light of the foregoing, we intend to disclose our revenue recognition
policies in future filings with the Commission as follows:
<PAGE>
Securities and Exchange Commission
Attention: Kate Tillan
November 18, 2005
Page 4
Revenue Recognition
The Company recognizes revenues in accordance with Staff Accounting Bulleting
("SAB") No. 104, "Revenue Recognition," when all of the following conditions
exist: a) persuasive evidence of an arrangement exists in the form of an
accepted purchase order; b) delivery has occurred, based on shipping terms, or
services have been rendered; c) the Company's price to the buyer is fixed or
determinable, as documented on the accepted purchase order; and d)
collectibility is reasonably assured. By product and service type, revenues are
recognized when the following specific conditions are met:
Gas Detection and Environment Control Products
----------------------------------------------
Gas Detection and Environment Control products are sold as off-the-shelf
products with prices fixed at the time of order. Orders delivered to the Company
by phone, fax, mail or email are considered valid purchase orders and once
accepted by the Company are deemed to be the final understanding between us and
our customer as to the specific nature and terms of the agreed-upon sale
transaction. Products are shipped and are considered delivered when (a) for FOB
factory orders they leave our shipping dock or (b) for FOB customer dock orders
upon confirmation of delivery. The creditworthiness of customers is generally
assessed prior to the Company accepting a customer's first order. Additionally,
international customers and customers who have developed a history of payment
problems are generally required to prepay or pay through a letter-of-credit.
Gas Detection and Environment Control Services
----------------------------------------------
Gas Detection and Environment Control Services consist of field service orders
(technical support) and training, which are provided separate from product
orders. Orders are accepted in the same forms as discussed for Gas Detection and
Environment Control Products above with hourly prices fixed at the time of
order. Revenue recognition occurs only when the service activity is completed.
Such services are provided to current and prior customers, and, as noted above,
creditworthiness has generally already been assessed. In cases where the
probability of receiving payment is low, a credit card number is collected for
immediate processing.
FieldServer Products
--------------------
FieldServer products are sold in the same manner as Gas Detection and
Environment Control products (as discussed above) except that the products
contain embedded software, which is integral to the operation of the device. The
software embedded in FieldServer products includes two items: (a) A compiled
program containing (i) the basic operating system for FieldServers, which is
common to every unit, and (ii) the correct set of protocol drivers based on the
customer order (see FieldServer Services below for more information); and (b) a
configuration file that identifies and links each data point as identified by
the customer. The Company does not deem the hardware, operating systems with
protocol drivers and configuration files to be separate units of accounting, as
defined in EITF 00-21, "Revenue Arrangements with Multiple Deliverables,"
because the Company does not believe that they have value on a stand-alone
basis. The hardware is useless without the software, and the software is only
<PAGE>
Securities and Exchange Commission
Attention: Kate Tillan
November 18, 2005
Page 5
intended to be used in FieldServer hardware. Additionally, the software included
in each sale is deemed to not require significant production, modification or
customization, as described in Statement of Position (SOP) 97-02, "Software
Revenue Recognition", as amended, and therefore the Company recognize revenues
upon the shipment or delivery of products (depending on shipping terms), as
described in Gas Detection and Environment Control Products above.
FieldServer Services
--------------------
FieldServer services consist of orders for custom development of protocol
drivers. Generally customers place orders for FieldServer products concurrently
with their order for protocol drivers. However if custom development of the
protocol driver is required, the product order is not processed until
development of the protocol driver is complete. Orders are received in the same
manner as described in FieldServer Products above, but due to the non-recurring
engineering aspect of the customized driver development the Company is more
likely to have a written evidence trail of a quotation and a hard copy order.
The driver development involves further research after receipt of order,
preparation of a scope document to be approved by the customer and then
engineering time to write, test and release the driver program. When development
of the driver is complete the customer is notified and can proceed with a
FieldServer product (see FieldServer Products above). Revenues for driver
development are billed and recognized upon shipment or delivery of the related
product that includes the developed protocol drivers (as noted in FieldServer
Products above). Collectibility is reasonably assured as described in
FieldServer Products above.
2. Tell us and revise future filings to discuss the types of discounts and
allowances you offer as well as your terms for returns, refund rights and any
other post delivery obligations you have and how they impact the amount and
timing of revenue recognized.
Response:
---------
In response to the Staff's comment, we supplementally advise the Staff that the
Company offers products for sale to end users at list price. Discounts are
applied in the quote and negotiation period to encourage the customer to place
the order. These discounts vary by project. When products are sold through
representatives there is no discount applicable to a wholesale distributor. In
cases of repeat customers, generally distributors or integrators, we offer set
discounts. In all cases discounts range between 5% and 40%.
1. Discounts are applied at time of order entry and sales are processed
at net pricing.
2. No allowances are offered to customers.
<PAGE>
Securities and Exchange Commission
Attention: Kate Tillan
November 18, 2005
Page 6
3. The Company provides a warranty on all electronics sold for a period
of two years after the date of shipment. Warranty issues are