SecProbe.io

CORRESP
1
filename1.htm

Chapeau

CHAPEAU, INC.

dba BluePoint Energy, Inc.

1190 Suncast Lane, Suite 2

El Dorado Hills, CA 95762

May 18, 2005

TELECOPIED TO: (202) 942-9648

AND VIA EDGAR

AND VIA FEDERAL EXPRESS

SECURITIES AND EXCHANGE COMMISSION

Division of Corporation Finance

450 Fifth Street, N.W., Mail Stop 3-8

Washington, D.C. 20549

Attention:

Michael Moran, Accounting Branch Chief

Brian V. McAllister

Milwood Hobbs

Re:

Chapeau, Inc.

Form 10-KSB for the Year Ended June 30, 2004

Form 10-QSB for the Quarter Ended December 31, 2004

File No. 33-01289

Gentlemen:

We refer you to the letter of the staff of the Commission (the “Staff”) dated March 2, 2005 (the “Comment Letter”), with regard to the Annual and Quarterly Reports referenced above (the “Annual and Quarterly Reports”) filed by Chapeau, Inc. (the “Company”).  This letter contains the Company’s responses to the Staff’s comments set forth in the Comment Letter.

For your convenience, the Staff's comments from the Comment Letter have been restated below and are followed by the Company’s responses.

Form 10-KSB for the Year Ended June 30, 2004

General

1.

Where a comment below requests additional disclosures or other revisions to be made, please show us the additional disclosures and you should include these additional disclosures and revisions in your future annual and interim reports, as applicable.

Response to No. 1

The Company has submitted with this letter proposed amendments to the Annual and Quarterly Reports marked to show the additional disclosures and the revisions that would be made in those amendments to respond to the Staff’s comments if amendments are determined to be necessary.

We would like to discuss the proposed amendments with the Staff prior to filing the amended Annual and Quarterly Reports in order to determine whether the amendments are appropriate or necessary.  Regardless of whether the amendments are filed, the Company acknowledges that it will include the additional disclosures and revisions in future annual and interim reports, as applicable.

Part I.

Item 1. Description of Business

Historical Overview

2.

To the extent that it is significant to the reader’s understanding and to the description of your business, please refer to BluePoint Energy, Inc., in the discussion of your organization and its operations and your disclosures in Note 1 and 4 as appropriate.  Supplementally please explain to us and disclose if BluePoint Energy, Inc. is a separate legal entity whose accounts are consolidated into Chapeau, Inc. See Item 101(a)(3) of Regulation S-B.

Response to No. 2

Supplementally, we advise you that “BluePoint Energy, Inc.” is only an operating or a doing-business-as name (a “dba”) and is not a separate legal entity.  Item 1, Description of Business-Historical Overview and Note 1 to the financial statements have been revised to clarify that “Blue Point Energy, Inc.” is a “doing business as” name for the Company and Specialized Energy Products, Inc., its operating subsidiary.

3.

Please include a discussion disclosing significant patents, trademarks, licenses and/or required government approvals that you possess and that you are presently obtaining to enable your proprietary cogeneration products to become commercially acceptable in the marketplace. See Item 101(b)(7) and (8) of Regulation S-B.

Response to No. 3

The seventh paragraph in Item 1, Description of Business, Business of Issuer, in the 10-KSB has been updated to include a discussion of significant patents, trademarks, licenses and/or government approvals.

4.

Please disclose the amount spent on research and development activities in the last two fiscal years. See Item 101(b)(10) of Regulation S-B.

Response to No. 4

We have added language in Part I, Item 1, Description of Business – Business of Issuer in the 10-KSB to disclose the amount paid for research and development for the years ended June 30, 2003 and June 30, 2004.

Item 6. Management’s Discussion and Analysis or Plan of Operation

5.

In a separately captioned section of MD&A entitled “Off-Balance Sheet Arrangements,” please provide a more robust discussion of your financing agreement with Calim Private Equity, LLC and its future effects on your liquidity, capital resources, market and credit risk support, the nature and amounts of any interests you will retain and the nature and amounts of any other obligations arising or reasonably likely to become triggering events that could cause such obligations to arise. See Item 303(c) of Regulation S-B.

Response to No. 5

We have added a new separately captioned section under Item 6, Management’s Discussion and Analysis or Plan of Operation entitled “Cogeneration Project Financing Arrangements” which provides a discussion of the Company’s project financing arrangements with Calim, including how the financing arrangement may affect future liquidity, capital resources, market and credit risk support, the nature and amounts of any interests retained and that future obligations or triggering events that could arise from these financing arrangements.  Please also refer to the Company’s response to No. 17 below.

Item 8A Controls and Procedures

6.

You disclose that you evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a or Section 15(d).  Disclosure controls and procedures are now defined in Rules 13a-15(e) and 15d-15(e).  Please revise your evaluation of disclosure controls and procedures in future filings.

Response to No. 6

The first paragraph in Item 8a, Evaluation of Disclosure Controls and Procedures in Forms 10-KSB and 10-QSB have been and will be updated to refer to Rules 13a-15(e) and 15d-15(e).

Part III

Item 13. Exhibits and Reports on Form 8-K

7. Tell us why you have not filed a Form 8-K under Item 1.01 for your $5 million financial commitment by NJOCE for the combined heat and power program nor included any written correspondence as an exhibit to the Form 8-K filed on October 22, 2004 regarding the departure of Thomas J. Manz as a director. Please refer to Release 33-8400 for guidance.

Response to No. 7

The Company did not file a Form 8-K under Item 1.01 with respect to the $5 million commitment by NJOCE for the combined heat and power program because the $5 million commitment was a commitment for NJOCE’s entire combined heat and power program, of which Astor Chocolate Corporation, a potential purchaser of the Company’s combined heat and power generation systems, received a commitment of $213,000 in connection with a project which would include the purchase by Astor Chocolate Corporation of one of the Company’s Lean-One® systems.  The Company did not receive any direct financial commitment from NJOCE.

The Company did not file any written correspondence as an exhibit to the Form 8-K filed on October 22, 2004 regarding the departure of Thomas J. Manz as a director because Mr. Manz’s resignation letter did not state any disagreement with the Company on any matter related to the Company’s operations, policies or practices.  Item 5.02(b) of Form 8-K does not require that written correspondence from a departing director be filed as an exhibit to the 8-K in such circumstances.

Item 14 Principal Accountant Fees and Services

8.

In future filings, please describe the nature of the services comprising the fees disclosed under the category “All Other Fees” in each of the last two fiscal years for products and services provided by the principal accountant, as required by Item 9(e)(4) of Schedule 14A. Further, it appears that the aggregate amount of all independent accountant services other than audit constitute more than 5% of the total amount of revenues paid by you to your independent accountants during fiscal years 2004 and 2003. Your independent accountants are not independent as defined in section 10(A)(f) of the Securities Exchange Act of 1934 if the provision of services other than audit, review or attest services were not entered into pursuant to pre-approval policies and procedures established by your audit committee, if your policies and procedures are not detailed as to the particular services to be provided, if your audit committee is not informed of each provided service and if your audit committee has delegated such responsibilities to management. Please tell us how your audit committee has satisfied the requirements of administering your audit engagement in accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X.

Response to No. 8

The caption under “All Other Fees” in Item 14 of the 10K-SB has been removed and the amounts disclosed have been reclassified under the captions “Audit Fees” and “Tax Fees.”  Upon investigation, these fees were for telephone calls, postage, fax, and binding fees related to audit and tax services and, therefore, should be included under the audit and tax fees captions.

The Company’s audit committee has satisfied the requirements of administering its audit engagement in accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X by approving each annual engagement letter with its independent accountants, which provides a detailed description of audit and non-audit services to be provided by such accountants.  All services performed by the Company’s independent accountants were within the scope of the engagement letters.

Report of Independent Certified Public Accountants

9.

Please revise the heading of the report of your independent accountants to refer to your independent accountants as “registered” rather than “certified” as required by Auditing Standard No. 1 issued by the PCAOB and effective for audit reports issued or reissued on or after May 24, 2004.  Please make the similar revision to your index to consolidated financial statements.

Response to No. 9

The Audit Report and the Index have both been revised to reflect the requirements of Auditing Standard No. 1.

Consolidated Balance Sheets

10.

Please tell us your basis for classifying customer deposits as current liabilities considering the amount has increased approximately 33% year over year and the term “current” is principally used, as it relates to this instance, for collections received in advance of the delivery of goods or the performance of services that are reasonably expected to occur within a relatively short period of time, generally twelve months.

Response to No. 10

At June 30, 2003, the Company had entered into sales contracts with three entities, whereby deposits were advanced to the Company as down payments for related sales orders.  The applicable sales contracts provide for targeted completion and delivery of the cogeneration system subject to such contract within one year or less.  Therefore, these deposits were appropriately classified as current liabilities.  The Company is currently involved in a lawsuit with one purchaser, U.S. Power Corporation, involving an alleged breach of contract by the Company in the approximate amount of $295,780, which amount represents U.S. Power’s deposit amount under its sales agreement with the Company.  This matter is discussed in detail in Note 9-Commitments and Contingent Liability.  The outcome of this suit was not determinable as of the reporting date and the Company, therefore, continued to classify the associated customer deposit as a current liability.

In April 2005, the Company and U.S. Power Corporation entered in to a Settlement Agreement and Releases in connection with this case whereby, among other things, the Company will repay to U.S. Power Corporation $150,000 of U.S. Power Corporation’s deposit in exchange for U.S. Power Corporation’s dismissal of the case and release of all claims related thereto.  This will be reflected in the Company’s financial statements included in its annual report on Form 10-KSB for the year ended June 30, 2005.

Although the Company has not yet delivered cogeneration systems under the other two sales agreements, the Company has no information that the systems under these agreements will not be delivered or the transactions not closed within twelve months.  Therefore the Company will continue to classify these amounts as current liabilities.  During the year ended June 30, 2004, the Company entered into additional sales contracts under which purchasers have advanced an aggregate of $208,500 to the Company as deposits.  The Company believes that these contracts will be completed within a twelve-month period and, therefore, the customer deposits are appropriately classified as current liabilities.

11.

If you have cash equivalents please revise your description of cash on your consolidated balance sheet and statement of cash flows to be consistent with the line item “increase in cash and cash equivalents” presented in your consolidated statements of cash flows.  Alternatively, if you do not have cash equivalents then please revise your description of the increase to remove the reference to cash equivalents. See paragraph 7 of SFAS No. 95.

Response to No. 11

The consolidated statements of cash flows have been revised to remove the reference to cash equivalents.

12.

Please tell us why you classify the deposits toward the purchase of inventories as inventory as of each balance sheet date and provide us your basis in GAAP for doing so.  See paragraph 3, Chapter 4 of ARB No. 43.

Response to No. 12

The consolidated balance sheets have been revised to report deposits on inventory as a separate line item.

Notes to Consolidated Financial Statements

Note 1 – Nature of Operations and Summary of Significant Accounting Policies

Revenue Recognition

13.

Please disclose in your policy for revenue recognition whether collectibility of sales is reasonably assured, if there is evidence of an arrangement and as well as how you account for product returns. Specifically tell us your accounting treatment for the cogeneration system returned during the year ended June 30, 2004. Tell us if you currently perform any installation and technical assistance services related to the sale of a cogeneration system, whether your sales involve consideration in the form of fixed fee or fixed fee coupled with a continuing payment stream and if so whether the continuing payment stream is fixed or variable based on your future performance. If you determine that you do participate in multiple-deliverable revenue arrangements, please tell us how you allocate consideration among the separate units of accounting. In your response please provide the revised disclosures that you will include in future filings. Refer to EITF 00-21.

Response to No. 13

The Revenue Recognition subsection in Note 1 to the consolidated financial statements has been revised to reflect the Company’s policy to reasonably assure collectibility of sales.

The accounting treatment for the cogeneration system returned during the year ended June 30, 2004 is discussed in Note 9 – Casualty Loss to the financial statements as originally filed..  The Company’s form of sales agreement provides that a purchaser may cancel any order if notice to cancel is given 30 days before the scheduled delivery date.  Once delivery has occurred no right of return exists and the sale is final.

The Company’s standard terms and conditions of sale for each cogeneration system it sells provide for a 50% deposit with the purchase order and payment in full upon notification of availability for delivery.  The Company also provides and charges separately for installation, start-up, and commissioning services in connection with delivery and installation of each system it sells.  The charge for these services is included in the purchase order for such equipment and is paid at the same time as the purchase price.  There is no continuing payment stream associated with the sale of a cogeneration system.  The terms of sale include a warranty which provides that the cogeneration system will perform in accordance