SecProbe.io

CORRESP
1
filename1.htm

Correspondence Letter

 PEAK INTERNATIONAL LIMITED

 38507 Cherry Street

 Unit G

 Newark, CA 94560

 Tel (510) 449-0100

Fax: (510) 449-0102

 December 16, 2005

 VIA ELECTRONIC TRANSMISSION

 Mr. Rufus Decker

 Branch Chief

 United States Securities and Exchange Commission

 Mail Stop 7010

 450 Fifth Street, N.W.

 Washington, D.C. 20549-7010

Re:
Peak International Limited (File Number 000-29332)

 Form
10-K for the fiscal year ending March 31, 2005 and Forms 10-Q for the

 fiscal quarters ending June 30, 2005 and September 30,
2005

 Ladies and Gentlemen:

 On behalf of Peak International Limited (the “Company”) this is a
response to the staff (the “Staff”) of the Securities and Exchange Commission’s letter of December 5, 2005. We understand and agree with the Commission’s efforts to assist filers in their efforts to comply with the
applicable disclosure requirements and hope that the Commission will accept our response to your letter as our best efforts to comply with the Staff’s comments and suggestions.

 As requested, our references parallel your letter and any abbreviations used in this letter coincide with those used in the
Form 10-K or applicable Form 10-Q.

 Form 10-K for the year ended
March 31, 2005

 General

1.
Where a comment below requests additional disclosures or other revisions to be made, please show us in your supplemental response what the revisions will look like. With the
exception of the comments below that specifically request an amendment, all other revisions may be included in your future filings.

 Response: Noted.

 Mr. Rufus Decker

 United States Securities and Exchange Commission

 December 16, 2005

  Page
 2

 Item 7. Management’s Discussion and Analysis

 Overview

2.
You state that in March 2005 you exited the shipping tube business. Please tell us how you determined it was not appropriate to report the exiting of this business as
discontinued operations in accordance with SFAS 144.

 Response: We supplementally advise the Staff that we determined that it was not appropriate to report the exiting of the shipping tube business as discontinued operations in accordance to paragraph 41 of SFAS 144 because the tube
business was not a component of an entity as the operations and cash flows of the business could not be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

 Item 9A – Controls and Procedures, page 33

3.
Please tell us how you were able to conclude that disclosure controls and procedures were effective at March 31, 2005, June 30, 2005, and September 30, 2005 given
the following:

•

You discovered discrepancies in the computation and withholding of taxes and social insurance contributions during the third quarter of 2005 for a factory in Shenzhen, and the
Peoples Republic of China tax authorities began an investigation into the withholding and payment of taxes at your factory in Shenzhen;

•

As a result of a general review of controls and procedures, you noted additional areas for improvement in the internal controls of the factory in Shenzhen; and

•

You were unable to file your quarterly report for the quarter ended December 31, 2004 and were subsequently delisted from the Nasdaq National Market.

 Response: As we disclosed in our
quarterly report for the quarter ended December 31, 2004, during the quarter we discovered discrepancies in the computation and withholding of taxes and social insurance contributions for workers at our main production facilities (the
“Factory”), which are located in the PRC and are operated pursuant to a processing agreement with an unaffiliated PRC company that obligates our processing partner to provide all of the personnel for the operation of the Factory. We were
delayed in timely filing our quarterly report for the quarter ended December 31, 2004 as a result of the investigation into those discrepancies as well as our review of the impact on and potential accounting treatment of any potential
liabilities with our independent public auditors. The investigation and ensuing review were concluded prior to the filing of our quarterly report for the quarter ended December 31, 2004 and, as a result, did not impact our disclosure controls
and procedures for the quarters ended March 31, 2005, June 30, 2005, and September 30, 2005.

 Mr. Rufus Decker

 United States Securities and Exchange Commission

 December 16, 2005

  Page
 3

 We noted additional areas for improvement in the internal controls at the Factory related to its
operation by our processing partner. However, the general review of controls and procedures did not yield any evidence of fraud, and there was no resultant loss. Instead, the additional areas for improvement that we noted related more to operational
effectiveness and efficiency.

 We were unable to timely file
our quarterly report for the quarter ended December 31, 2004 because of the delays arising from our review of our responsibilities relative to the Factory’s obligations. We respectfully note that we were able to timely file our Form 10-K
for the fiscal year ended March 31, 2005 and our Forms 10-Q for the fiscal quarters ended June 30, 2005 and September 30, 2005. We also respectfully note that, although we received a notice from the Nasdaq National Market that we were
the subject of delisting proceedings, once we filed our Form 10-Q for the quarter ended December 31, 2004, such proceedings were terminated and we were never delisted from the Nasdaq National Market.

4.
You state that your main production facility in Shenzhen is operated pursuant to a processing agreement with an unaffiliated PRC company that obligates it to provide all of the
personnel for the operation of your facilities and to render assistance in dealing with matters relating to the import of raw materials and the export of your products. While you do not believe you are contractually obligated under the terms of the
agreement to pay these amounts, you have accrued $1.3 million as additional manufacturing costs for the third fiscal quarter of 2005. You also state that you performed a general review of the factory’s controls and procedures and noted
additional areas for improvement in the factory’s internal controls. You have been addressing these issues at the factory and are committed to effectively improve the internal controls at the factory as expeditiously as possible. In light of
the above, please tell us how you account for the processing agreement. It is not clear whether amounts related to the factory are reflected on your financial statements. If not, please help us understand why this is not appropriate. Please also
provide us with a summary of your rights and obligations pursuant to the agreement.

 Response: We pay a monthly processing fee to the unaffiliated PRC company, which we consider our “processing partner,” in accordance with
the provisions of our processing agreement with it and a course of conduct with the processing partner established over time. The processing fee, which is reflected on our financial statements as cost of goods sold, includes:

•

Salaries that our processing partner pays to the factory workers.

 Mr. Rufus Decker

 United States Securities and Exchange Commission

 December 16, 2005

  Page
 4

•

Various taxes to be paid by our processing partner.

•

Amounts to be paid by our processing partner for various social insurance.

•

Management fees of our processing partner for managing the factory workers.

•

Daily financial and accounting fees of our processing partner.

•

Bank formalities fee and any other daily administration fees of our processing partner.

•

Any expenses incurred by our processing partner for providing labor safety products to factory workers.

•

Any other fees of our processing partner and the factory’s workers.

•

Fees for water and power.

•

Fees for transportation, insurance, foreign trade formalities and port fees.

•

Amounts paid for overtime for factory workers.

•

Other expenses of us and our staff.

 The processing partner is obligated to provide all the personnel for the operation of our facilities and to render assistance in dealing with matters
relating to the import of raw materials and the export of our products. We do not believe we are legally obligated to pay the amounts mentioned in your comment above, as the amounts relate to the computation and withholding of both taxes and social
insurance contributions for the factory’s workers, which, under the terms of the agreement, are to be handled and paid by the processing partner. While we believe we are not legally obligated to pay such amounts, we elected to voluntarily make
such payment in order to avoid the seizure of our assets at the factory and keep the factory operational. Likewise, while the processing partner is responsible for providing adequate personnel for the operation of the factory, in practice, we have
broadly interpreted our right to supervise the factory and have participated broadly in the recruiting, supervision and compensation of factory workers and in the operation of the factory. We believe it is in our interest that we address the
internal control issues and effectively improve the internal controls at the factory as expeditiously as possible. In light of the foregoing, we account for the processing agreement in accordance to our rights and obligations pursuant to the
agreement as described in the bullet points below as well as practices that have evolved over time.

 The processing agreement provides that our processing partner shall:

•

Maintain good communication with relevant departments of local government to ensure normal water and power supply of the factory.

 Mr. Rufus Decker

 United States Securities and Exchange Commission

 December 16, 2005

  Page
 5

•

Process and manufacture plastics, metals, paperboard and other products for us, and return all finished products to us, and in connection therewith, provide adequate personnel for
the operation of the factory.

•

Assist us with such formalities as applications for approval, government and agency filings, formalities associated with the import and export of machines, facilities, raw materials
and finished products.

•

Keep separate accounts, establish accounting books, implement relevant financial and accounting systems stipulated by the government and file relevant statements.

•

Pay taxes according to the laws of the PRC.

•

Our processing partner is entitled to be paid by us a monthly processing fee for its services.

 The processing agreement provides that we shall:

•

Provide our processing partner with the machinery, equipment and fittings required for manufacturing our products.

•

Provide our processing partner with raw materials, assessorial materials and packaging materials.

•

Pay for water, power, transportation, insurance, foreign trade formalities, port fees, overtime and other similar expenses associated with the manufacturing of our products.

•

Formulate related standards and rules for processing techniques and instruct the workers of the processing partner in the manufacturing of our products.

•

Pay the processing partner a monthly processing fee.

•

We are entitled to check and review accounts and books of the processing partner and carry on supervision of the financial affairs of the processing partner.

 The processing agreement provides that the
Shenzhen Long Gang District Foreign Economic Development Co., Ltd., another party to the agreement, will act as the Commercial Affairs Unit (the “CAU”) or local government liaison, and shall:

•

Assist our processing partner and us in compliance with such formalities as applications, filings and other reports related to the facilities and the importation and exportation of
machines used at the factory, raw materials used at the factory and finished products manufactured at the factory.

•

With respect to the portion of the processing fee that we have to pay through the CAU to our processing partner, CAU is required to review and pay the appropriate amount to our
processing partner.

•

Assist and advise on relevant regulations issued by Shenzhen and Longgang governments related to the processing fee, and notify our processing partner and us of any adjustments made
by relevant governments concerning the processing fee.

 Mr. Rufus Decker

 United States Securities and Exchange Commission

 December 16, 2005

  Page
 6

5.
Please amend your Form 10-K for the year ended March 31, 2005 to state in clear and unqualified language the conclusions reached by your chief executive officer and
chief financial officer on the effectiveness of your disclosure controls and procedures as of March 31, 2005. You should not state that your disclosure controls and procedures are effective subject to limitations. See Question 5 of our
Frequently Asked Questions on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports dated October 6, 2004.

 Response: We respectfully note that we believe our statement
regarding the effectiveness of our disclosure controls and procedures as of March 31, 2005 complied with the guidance in Section II.F.4 of SEC release No. 33-8238. In Section II.F.4 of SEC release No. 33-8238, the SEC noted that
“some companies have indicated that disclosure controls and procedures are designed only to provide ‘reasonable assurance’ that the controls and procedures will meet their objectives. In reviewing those disclosures, the Commission
staff generally had not objected to that type of disclosure.” The SEC provides further that “[t]he staff has, however, requested companies including that type of disclosure to set forth, if true, the conclusions of the principal executive
officer and principal financial officer that the disclosure controls and procedures are, in fact, effective at the ‘reasonable assurance’ level.” Our disclosure regarding disclosure controls and procedures in Item 9A of the Form
10-K states that “In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet, and management believes that they meet, reasonable assurance standards.” We respectfully submit that we
believe our disclosure regarding our disclosure controls and procedures has complied with the guidance in Section II.F.4 of SEC Release No. 33-8238.

 In addition, we note that we are not yet required to provide the information required by Section 308 of Regulation S-K – “Management’s
annual report on internal control over financial reporting.” When our management becomes required to provide an annual report on internal control over financial reporting, we will comply with Question 5 of the Staff’s Frequently Asked
Questions on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports dated October 6, 2004.

 Mr. Rufus Decker

 United States Securities and Exchange Commission

 December 16, 2005

  Page
 7

 Financial Statements

 Note 2 – Summary of Significant Accounting
Policies, page F-8

6.
Please disclose the types of expenses that you include in the cost of goods sold line item and the types of expenses that you include in the selling and marketing expenses and
general and administrative expenses line items. Please also tell us whether you include purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and the other costs of your distribution network in the cost of
sales line item. With the exception of warehousing costs, if you currently exclude a portion of these costs from cost of sales,