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corresp

July 28, 2005

Securities and Exchange Commission

Division of Corporation Finance

Washington, D.C. 20549

Attention: Ms. Nili Shah, Accounting Branch Chief

    Re:

    SPARTA, Inc.

Form 10-K for the fiscal year ended January 2, 2005

Filed April 1, 2005

File No. 0-21682

Dear Ms. Shah:

This letter sets forth the responses of SPARTA, Inc. to the Staff’s comments relating to our Annual
Report on Form 10-K as of and for the year ended January 2, 2005 contained in your letter dated
June 20, 2005 (the “Comment Letter”). The responses are numbered to correspond to the numbers of
the comments in the Comment Letter.

Question 1

We note that you present the non-GAAP measure, gross profit, which eliminates unallowable costs
from income from operations. In future filings, please ensure your disclosure of this measure is
allowable under Item 10(e)(1)(ii)(B) of Regulation S-K.

Response to Question 1

Regulation S-K Item 10(e)(1)(ii)(B) states that a registrant may not “adjust a non-GAAP performance
measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the
nature of the charge or gain is such that it is reasonably likely to recur within two years or
there was a similar charge or gain within the prior two years.”

As noted in the filing, 99% of our revenues are derived from contracts with agencies of the U.S.
government. The costs that we eliminate from income from operations in arriving at gross profit
are not eliminated because they are considered non-recurring, infrequent or unusual – they are
eliminated solely because they are unallowable under federal procurement regulations. Government
contractors frequently incur certain operating costs, such as certain meals and entertainment
costs, certain legal costs, and key-man life insurance premiums, which are not reimbursable under
the government’s procurement regulations. The Company believes that eliminating such costs in
presenting gross profit provides a

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July 28, 2005

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clearer picture of the Company’s performance on its contracts. We believe that disclosing both
gross profit and operating profit enhances the transparency of our disclosures, providing the
financial statement user with insight into both our performance in managing our contracts, and our
performance in controlling costs that are not recoverable under such contracts. We therefore
believe that Regulation S-K Item 10(e)(1)(ii)(B) is not applicable to the Company’s disclosure of
the non-GAAP measure, gross profit.

Question 2

We note that you have not separately presented a separate line item for billings in excess of costs
on the face of your consolidated balance sheets or in your footnotes. Please tell us where you
have recorded this amount in your consolidated balance sheets, including the amount recognized for
each period presented. If you have netted this amount against receivables, revise in future
filings to present such amounts separately.

Response to Question 2

Billings in excess of costs have been included in accounts receivables, in the amounts of $3.7
million and $1.7 million as of December 31, 2004 and 2003, respectively. We will revise our
disclosure in future filings to present such amounts.

Question 3

We note that you operate your business as one reportable segment. We also note that your
management team consists of four president for each sector in which you operate: (a) Hardware
Systems; (b) Missile Defense; (c) National Security Systems; and (d) Mission Systems. Please tell
us how you determined that these sectors are not operating segments as defined in paragraph 10 of
SFAS 131.

If you have determined that each of these sectors are operating segments under SFAS 131 and are
aggregating the four sectors into one reporting segment for financial statement purposes, please
provide us with your detailed analysis of the criteria listed in paragraph 17 of SFAS 131 that
demonstrates each of the sectors meets all of the criteria listed. Your detailed analysis should
include the revenues, gross profits, gross profit margins, operating profits, and operating profit
margins, along with any other information you believe would be useful, for each of your operating
segments for each of the three years ended January 2, 2005 and the 3-month periods ended April 3,
2005 and 2004 to help us understand how these sectors are economically similar. Specifically
address any differences in the trends these financial indicators depict (e.g., if gross profit
margin is decreasing for one sector and increasing for another).

Finally, please tell us why you have not provided disclosures for revenues from external customers
for each group of similar products and services, at a minimum, such as the business areas discussed
in the second to the last paragraph on page 3 of your filing; (a) missile defense; (b) tactical
military systems; (c) network centric warfare; (d) space systems; (e) and hardware systems. Refer
to paragraph 37 of SFAS 131 for additional guidance.

Response to Question 3

As you note, SPARTA is organized into four Sectors, the Hardware Systems Sector, the Missile
Defense Sector, the Mission Systems Sector and the National Security Systems Sector. Discrete
Sector P&L information is reported monthly to management, including the Chief Executive Officer,
who, under SFAS 131, is the chief operating decision maker. Discrete Sector balance sheet
information, is not provided to management, except for certain accounts receivable data used to
compute days sales outstanding. Such

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July 28, 2005

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data are used to make decisions about allocating indirect resources. Accordingly, the SPARTA
Sectors appear to meet the definition of “operating segment” under SFAS 131.

However, SFAS 131 permits aggregation of operating segments that have similar economic
characteristics and exhibit similar long-term financial performance. Pursuant to paragraph 17, two
or more operating segments may be aggregated into a single operating segment if aggregation is
consistent with the objective and basic principles of SFAS 131, if the segments have similar
economic characteristics, and if the segments are similar in each of the following areas:

    •

    The nature of the products and services

    •

    The nature of the production processes

    •

    The type or class of customer for their products and services

    •

    The methods used to distribute their products or provide their services

    •

    If applicable, the nature of the regulatory environment, for example, banking,
insurance, or public utilities.

As noted in the filing, all of the Sectors perform scientific, engineering and technical services
under contracts directly or indirectly with the U.S. government. Such contracts comprise 99% of
the Company’s revenues. The Sectors perform substantially identical services, and in many cases
could compete for the same government contracts. The primary differentiator between Sectors is
their targeted markets and customers within the U.S. government. For example, the Missile Defense
Sector primarily targets engineering service contracts with federal agencies that support the U.S.
missile defense program, whereas the National Security Systems Sector typically targets engineering
service contracts with various national and military intelligence agencies. However, as noted
above, 99% of the Company’s revenues stemmed from contracts to perform scientific, engineering and
technical services for the U.S. government. Accordingly, all of the Company’s Sectors exhibit
similar economic characteristics resulting in substantially equivalent long-term financial
performance.

Following is a brief description of the four Sectors:

    •

    The Hardware Systems Sector provides engineering support services to U.S.
government hardware programs, in particular manned and unmanned aircraft programs. Such
services include modeling and simulation; test and evaluation of engineering designs, flight
instrumentation, and avionics; and engineering support at NASA, Air Force and Navy test
ranges. In addition, the Hardware Systems Sector provides engineering design and fabrication
of complex and close-dimensional tolerance composite parts for missile housings, jet engine
stators, air munitions, automotive components, and unmanned aerial vehicles. Because these
parts typically involve extremely tight tolerances, the prices of these products have a high
percentage of engineering content. Such engineering services include engineering design,
process design, and prototyping.

    A minor portion of revenues are derived from the fabrication of complex composite parts. Such
revenues total approximately 5-6% of consolidated revenues and were primarily the outgrowth of
certain design and engineering processes. As discussed further below, most of the fabrication
related to one specific program, which is expected to be substantially completed over the next
12-18 months. The chief operating decision maker evaluates each Sector and allocates resources
in the context of the Company’s overall business strategy, which is focused on providing
scientific, engineering and technical services to the U.S. government versus the fabrication of
composites.

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July 28, 2005

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    •

    The Missile Defense Sector provides engineering support
services primarily in support of the U.S. Ballistic Missile
Defense program. Such services include scientific, engineering
and technical assistance (commonly referred to as SETA); system
engineering and integration; engineering services supporting
battle management command, control and communications; planning
and participation in war games and other exercises; development
of algorithms for discrimination and modeling and simulation
services for decision architecture; and operation planning and
user support. In addition, the Missile Defense Sector provides
engineering support such as modeling and simulation for system
acquisition, logistics and programmatic assistance, and systems
analysis and testing for a variety of tactical weapons systems.

    •

    The Mission Systems Sector provides engineering support
services to customers in support of a variety of network centric
warfare, space systems and homeland security programs. Such
services include systems analysis, such as situational awareness
concepts, predictive algorithms, and data security; development
of modeling and simulation tools for supporting C4ISR (command,
control, communications, computers, intelligence, surveillance
and reconnaissance); requirements and architecture analysis and
development; system design, such as modeling and simulation,
algorithm development, system simulation and logistics planning;
software development and integration; analysis and assessments of
threats; modeling and simulation of optimization of space and
airborne detection systems; and explosive ordnance disposal (EOD)
training and exercise support.

    •

    The National Security Systems Sector provides engineering
support services to a variety of national and military
intelligence agencies. Such services include R&D, engineering
and analytical support for the development of cutting-edge
surveillance and intelligence collection and processing devices;
cryptography tools; reverse engineering of foreign military
command and control systems; data analysis, including network
traffic analysis, data mining, algorithm development, and system
vulnerability and computer penetration security analyses;
networking protocol analyses; and decoding tools for various
communications signals. In addition, the National Security
Systems Sector provides engineering studies, technology
demonstrations, and software enhancements for the
Company-developed ZEUS™ laser ordnance neutralization system.

SPARTA satisfies the specific aggregation criteria stipulated in SFAS 131 as follows:

    •

    Nature of the products and services: As indicated above, 99% of SPARTA’s
revenues are derived from contracts and subcontracts with U.S. government agencies. The
similarity of SPARTA’s products and services is further substantiated by the fact that 97%
of fiscal year 2004 revenues were generated by services performed on prime or subcontracts
with the Department of Defense (DoD) and intelligence agencies. The other 2% of revenues
from government agencies was with non-DoD/non-intelligence agencies such as NASA and the
Department of Homeland Security. All of the products and services involve providing
scientific, engineering and technical services.

    •

    Nature of the production processes: This criterion is not applicable to the
Company, as the Company’s revenues are primarily derived from providing scientific,
engineering and technical services. As noted earlier, a minor portion of the Company’s
revenues are derived from the fabrication of complex composite parts.

    •

    Type or class of customer for their products and services: All of SPARTA’s
Sectors conduct business with U.S. government defense and intelligence agencies. As
indicated above, 99% of

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    SPARTA’s 2004 revenue was derived from prime contracts and subcontracts with U.S. government
agencies, primarily defense and intelligence agencies.

    •

    The methods used to distribute their products or provide their services:
Development of new weapons and defense systems and upgrades requires considerable scientific, engineering and
analytical expertise which is often beyond the resources of the government agencies which are responsible for
development of these systems. Accordingly, U.S. defense and military agencies have relied, in part, on outside
service firms such as SPARTA to assist them in the performance of their responsibilities. SPARTA provides analytical,
technical and engineering support services throughout the life cycle of complex weapons and defense system.

    SPARTA’S marketing is customer-driven, in response to customers’ requirements for solutions to complex engineering
problems. Marketing begins with the development of information concerning the present and future needs of various
military and intelligence agencies of the U.S. Government, and certain civilian agencies and prime contractors. Such
information is gathered in the course of contract performance and from formal or informal briefings, participation in
the activities of professional organizations and from published literature. The Company evaluates this information to
devise and implement the best means of benefiting from available business opportunities. This includes the
preparation of unsolicited proposals or white papers responsive to the perceived needs of current and prospective
customers, but more often includes responding to formal solicitations or broad area announcements from various U.S.
Government agencies. The Company has built a high quality professional staff of scientists, engineers, technicians
and analysts who have the backgrounds and the experience necessary to enable the Company to bid effectively on and to
capture a significant number of defense contracts. The company relies heavily on its senior management and
professional staff to obtain contracts that involve development of new systems configurations and technologies.

    The weapons and defense system life cycle typically begins with a requirements definition phase in which particular
strategic or tactical needs, opportunities, and objectives are identified and technological requirements and
configuration or design of a system are defined in terms of those needs, opportunities, and objectives. The life
cycle continues through the development, testing, manufacture, deployment and maintenance of systems and technology.

    To facilitate promptness of service and interaction between the Company’s profes