March 23, 2009 NDS 2009-13

New Developments Summary

Analysis of recent SEC comments
Summary
Grant Thornton LLP’s SEC and Regulatory Matters group routinely analyzes accounting-related
comments that the SEC Division of Corporation Finance issues to registrants in order to better
understand SEC staff interpretations and to identify financial reporting trends.

This bulletin summarizes the results of the 2008 analysis, including the following highlights:

• The SEC staff continued to ask companies to improve the transparency of their Management’s
Discussion and Analysis.

• Disclosures and certifications of controls and procedures were the subject of more comments than in
prior years.

• The SEC staff focused heavily on the financial statement risks associated with the recent economic
downturn, particularly in the area of valuation and impairment.

This bulletin includes an appendix containing more than 35 samples from the comments our clients
received in 2008 that address a variety of accounting and disclosure topics.

Contents
A. Background............................................................................................................................................. 2
The SEC’s disclosure operations project ............................................................................................... 2
Discussions with SEC staff ..................................................................................................................... 2
B. Overview ................................................................................................................................................. 2
Comments by filing type ......................................................................................................................... 3
C. Comments by topic ................................................................................................................................. 4
MD&A ..................................................................................................................................................... 5
Executive compensation ......................................................................................................................... 5
Controls and procedures ........................................................................................................................ 6
Revenue recognition ............................................................................................................................... 6
Pro forma presentations ......................................................................................................................... 7
Equity ...................................................................................................................................................... 7
Investments ............................................................................................................................................ 7
Business combinations ........................................................................................................................... 7
Segments ................................................................................................................................................ 8
Related party transactions ...................................................................................................................... 8
Appendix ....................................................................................................................................................... 9
New Developments Summary 2

Example comments ................................................................................................................................ 9

A. Background
The SEC’s disclosure operations project
The Sarbanes-Oxley Act of 2002 requires the SEC to review annual periodic filings, such as Forms 10-K
or 20-F, for each registrant at least once every three years. Reviews of annual periodic filings also
encompass reports filed after Form 10-K, such as Forms 10-Q and 8-K. In addition, the SEC reviews
most registration statements filed under the Securities Act of 1933, as well as proxy statements that
contain shareholder proposals filed under the Securities Exchange Act of 1934.

The SEC Division of Corporation Finance (CorpFin) performs these reviews as part of its ongoing
disclosure operations project, which is designed to make disclosures more transparent and
understandable. Many of these reviews result in comment letters from the SEC staff to registrants that
request supplemental information, amendments of previous filings, and revisions to future disclosures.

SEC comment letters are a rich source of information to help registrants and their advisers better
understand the staff’s views on accounting and reporting topics and to identify emerging areas of SEC
staff interest. Registrants should utilize the expertise of legal counsel and their independent accountants
in the comment letter process.

The SEC posts comment letters and registrants’ responses on its website no earlier than 45 days after all
comments have been resolved. Reading publicly disseminated comment letters issued to competitors can
help companies identify potential accounting and disclosure issues specific to their industry.

Discussions with SEC staff

In public statements, the SEC staff has emphasized that companies should view comments from CorpFin
as “an invitation to dialogue” and should not change an accounting conclusion that was based on
reasonable judgment simply because the SEC staff issued a comment about it. Further, the staff has
cautioned that companies that revise their filings based on an initial comment letter may be amending or
restating their financial statements unnecessarily. More often, the staff will ask companies for additional
information if disclosures are not explicit with regard to how certain accounting and reporting conclusions
were made. Once presented with the necessary evidence to show that companies made reasonable
judgments, the staff will often agree and ask only for expanded disclosures in future filings rather than
amendments of previous filings.

If companies need clarification on comments received, they are encouraged to speak with the SEC staff
to expedite clearance of the comments in question. If companies do not agree with the staff’s
conclusions, they may request further dialogue with CorpFin’s Chief Accountant’s Office or ask CorpFin
personnel to consult with the SEC Office of Chief Accountant (OCA). Refer to the SEC’s website for more
information about the staff’s filing review process.

B. Overview
This bulletin focuses on the results of the Grant Thornton LLP SEC and Regulatory Matters group’s (SEC
group) analysis of comment letters that CorpFin issued to Grant Thornton’s clients from January 1, 2008
through November 30, 2008. All comments related solely to legal matters or to nonsubstantive issues (for
example, typographical errors) were disregarded. The SEC group categorized nearly 900 accounting and
financial reporting comments our clients received during this period compared with over 1,500 received in
New Developments Summary 3

all of 2007. Only a small portion of that decrease can be attributed to the fact that one fewer month was
included in the 2008 analysis. The decrease in the number of registration statements that were filed in
2008 seems to be a major contributing factor, as discussed below. Another possible reason for the
decrease could be overall improvement in the quality of registrants’ financial reporting as a result of
multiple SEC staff reviews during the past five years.

The CorpFin staff recently released materials from its participation in the
November 2008 PCAOB Forums on Auditing in the Small Business
Environment. The presentation includes a summary of financial reporting issues
the staff frequently raised in comment letters. The staff provided observations
of accounting and disclosure issues in the following areas:

• Management’s Discussion and Analysis (MD&A)

• Revenue recognition

• Business combinations, including reverse mergers

• Equity transactions

• Embedded conversion options and warrants

• Items 4.01 and 4.02 of Form 8-K

• Internal control over financial reporting

• Certifications

• Audit reports

The SEC group analyzed this information alongside the comments our clients
received and found that the SEC’s list of frequently raised issues is consistent
with our clients’ experiences.

When evaluating the comments, the context of the analysis should be considered, as discussed in the
sections that follow, because the nature of comments can differ depending on the type of filing reviewed.
For example, the SEC staff issued a majority of its 2008 comments to Grant Thornton’s clients in
connection with reviews of 1934 Act annual reports.

Comments by filing type

The SEC group identified three types of filings for which clients received the SEC staff’s review
comments: periodic reports, registration statements, and proxy statements. The periodic reports category
includes Forms 10-K, 8-K, and 10-Q, while registration statements include Forms S-1 and S-4 and Form
10. Proxy statements include Schedules 14A and 14C.

There was a large disparity in reviews by filing type for 2008 compared with 2007, as shown below.
New Developments Summary 4

Filings Comments
reviewed 2008 received 2008 Filings Comments
Filing types (1/1 – 11/30) (1/1 – 11/30) reviewed 2007 received 2007

Periodic reports 80% 67% 68% 44%

Registration statements 14% 23% 28% 48%

Proxy statements 6% 10% 4% 8%

The primary factor that contributed to this shift is the sharp reduction in capital-raising activities in 2008
compared with 2007. The reduced activity was likely the result of the stock market drops and the credit
meltdown in 2008. As such, there was a drastic reduction in the number of comments that our clients
received from reviews of registration statements in 2008. In 2007, on the other hand, a relatively large
number of client filings reviewed by the SEC staff were registration statements and a large percentage of
those were initial public offerings (IPOs).

This chart also shows that the SEC staff generally issued significantly more comments in reviews of
companies’ registration statements compared to reviews of periodic filings. This is due to a number of
factors, including

• The SEC staff views registration statements as the primary document investors use to make
investment decisions and, as a result, may issue a comment they may not have otherwise raised in
connection with a review of a periodic filing. In addition, since the staff must declare a registration
statement effective before securities can be sold, it has significantly more leverage to get companies
to change their disclosures during reviews of registration statements than during typical reviews of
periodic filings.

• The SEC staff typically issues more comments related to reviews of IPO registration statements than
reviews of other filings because most of these companies have never filed with the SEC before.

• Registration statements often contain pro forma presentations, which the SEC staff closely scrutinizes
given the judgment involved in identifying and estimating pro forma adjustments.

C. Comments by topic
To complete its analysis, the SEC group developed a comprehensive list of over 50 accounting and
disclosure topic categories and assigned each comment to the most applicable category. Once assigned
to a topic, each comment was then further analyzed to identify the appropriate subcategory. For example,
comments on MD&A presentations could be further categorized into groups of comments specifically
related to areas such as operational results, liquidity, or critical accounting estimates. We have described
below the areas in which we have seen the most SEC comments. The Appendix includes examples of
SEC staff comments representative of common themes discussed in this bulletin.
New Developments Summary 5

MD&A
MD&A has consistently been the number-one topic generating comments in recent years, and the SEC
group expects this trend to continue based on recent presentations and other public statements from
CorpFin staff. The staff believes MD&A disclosures are particularly critical in the current economic
environment in order to inform investors of all significant risks and uncertainties registrants face.

MD&A comments are typically observed in the following areas:

• Results of operations: The SEC staff most often asked companies to revise, either by amending their
most recent filings or in future filings, discussions of operating results to include disclosure of the
underlying business reasons for changes in operating results and to quantify the reasons for changes
when more than one factor was identified. In addition, the staff asked registrants for additional
disclosures surrounding known trends or uncertainties that could reasonably be expected to have a
material impact on operations. These comments most often referenced SEC Release 33-8350, which
provides staff interpretations of required MD&A disclosures.

• Liquidity and capital resources: In its comments on liquidity, the SEC staff often asked companies to
revise their disclosures (i) to include a discussion of the impact of certain events or transactions, (ii) to
discuss the underlying business reasons for changes in operating cash flows, and (iii) to indicate
whether or not operating cash flow trends were expected to continue. The SEC staff also referenced
SEC Release 33-8350 in its comments on liquidity.

• Critical accounting estimates: The SEC staff asked registrants to disclose (i) the basis for
methodologies and assumptions used to develop estimates, (ii) the impact that economic or other
factors could have on these assumptions, and (iii) a sensitivity analysis of the hypothetical impact on
results had different assumptions been used. For additional information on the SEC staff’s views,
refer to its Cautionary Advice Regarding Disclosure About Critical Accounting Policies.

• Contractual obligations: Many comments on contractual obligations reflected the SEC staff’s view that
estimates of interest expense related to outstanding notes payable should be included in the table of
contractual obligations.

Refer to NDS 2008-39, “2008 AICPA National Conference on Current SEC and PCAOB Developments:
Officials stress transparency as key to financial reporting in challenging times,” for additional details on
the SEC staff’s expectations of MD&A disclosure during the current economic crisis.

Executive compensation
The overwhelming majority of executive compensation comments specifically addressed aspects of a
company’s compensation discussion and analysis (CD&A). In many comments, the SEC staff asked
companies to focus disclosures on how and why they made certain compensation decisions. In other
comments, the staff asked for additional information if disclosures were not sufficiently clear.

One frequent comment asked registrants to disclose earnings targets or benchmarks that the
compensation committee used. When responding to these comments by stating that the requested
disclosures would cause competitive harm, the staff invariably asked the registrant to explain why. These
comments suggest that the SEC staff and companies are still seeking to strike the right balance between
adequate disclosure for investors and sufficient protection of registrants from competitive harm.

Refer to NDS 2009-11, “SEC executive compensation disclosure rules,” for a more detailed summary of
the executive compensation disclosure rules and the SEC staff’s related interpretive guidance.
New Developments Summary 6

In an October 2008 speech, John White, then Director of the Division of

Corporation Finance, provided his observations on registrants’ year-two
presentations under the revised executive compensation disclosure
requirements. His insights on the themes discussed above are largely
consistent with the comments our clients received from the SEC staff in 2008.

Controls and procedures

Another area where we saw frequent comments was controls and procedures. These comments
addressed

• Internal control over financial reporting: The majority of the SEC staff’s comments on internal control
over financial reporting (ICFR) were to ensure that management’s report on ICFR contained all the
required elements in Regulation S-K Item 308(a) or Item 308T(a), as applicable. In addition, as noted
in NDS 2008-39, the SEC issued comments to nonaccelerated filers that failed to include
management’s assessment of ICFR in their filings.

• Disclosure controls and procedures: Most of the comments on disclosure controls and procedures
(DCP) focused on the terminology used in disclosures of management’s assessment of effectiveness,
such as asking companies to revise future disclosures to include the full definition of DCP as stated in
Exchange Act Rule 13(a)-15(e) or Rule 15(d)-15(e), as applicable. In instances where the SEC staff
questioned management’s conclusion that DCP was effective, the comment seemed to stem from
other disclosures within the filing that suggested ineffective DCP.

• Section 302 certifications: In nearly all of the comments on management’s Section 302 certifications,
the SEC staff asked registrants to revise their wording so that it exactly matched the wording in
Regulation S-K Item 601(b)(31). The SEC staff indicated that the certification wording should not be
modified in any way. The previously permitted exclusions related to ICFR are no longer applicable
since all registrants, except newly public companies, must now comply with management’s
assessment of ICFR.

Revenue recognition
Revenue recognition is always an area where we see a number of comments. The majority of comments
in this area requested clarification of how companies recognized revenue, specifically how revenue
recognition complied with Staff Accounting Bulletin 104, Revenue Recognition. The types of revenue
arrangements the SEC staff most often commented on in letters to our clients included multiple element
arrangements and software.

We have observed that the SEC staff frequently comments when revenue
recognition disclosures are limited to “boilerplate” language. For example, many
registrants disclosed that revenue is recognized when (1) evidence of an
arrangement exists, (2) the price is fixed and determinable, (3) the item has
been shipped, and (4) collectability is reasonably assured. Based on comments
our clients received, the SEC staff believes registrants should focus disclosures
more on how they meet the revenue recognition hurdles rather than simply
repeating what these hurdles are.
New Developments Summary 7

Pro forma presentations

Despite the reduction in registration statements filed in 2008 compared with 2007, the proportion of
comments our clients received related to their pro forma presentations compared to all comments
remained consistent at approximately 7 percent. The nature of comments on pro forma presentations
included the following:

• Requests for additional disclosure when the nature of a particular pro forma adjustment was unclear
or if several adjustments were aggregated

• Requests for additional disclosures related to the uncertainties surrounding assumptions and
methodologies used to calculate pro forma adjustments, including sensitivity analyses

• Additional information requests when adjustments and related assumptions appeared inconsistent
with other portions of the document

Equity
In most of the comments related to equity, the SEC staff requested additional disclosures related to
conversion features, warrants, contingent shares, and the valuation of stock options and restricted
shares. The SEC staff often asked companies for additional information and disclosures surrounding
assumptions used to determine the fair value of their stock options.

Investments
Another commonly commented area in 2008 was related to investment accounting and disclosure. There
was a significant increase in the proportion of investment comments to all comments from 2007 to 2008,
partially due to valuation issues and illiquidity as a result of the financial meltdown.

The majority of comments addressed the accounting for equity method investments and, more
specifically, impairment issues related to such investments. While many of these comments were limited
to disclosures, the SEC staff also questioned registrants’ conclusions of no impairment if there were other
indicators in the filing that certain equity method investments could be impaired. The SEC staff also
questioned whether certain equity method investments should have been consolidated.

Business combinations
Most of the comments on business combinations fall into the following two categories:

• Purchase price allocation: The SEC staff’s comments in this area asked for additional information and
disclosures related to the allocation of the purchase price to goodwill and intangibles. When
companies allocated the vast majority of the purchase price to goodwill, the SEC staff often asked
what consideration was given to the existence of intangibles, such as customer lists or trademarks.
Additional disclosure was requested when the valuation methodology or uncertainties surrounding
contingent consideration were not readily apparent.

• Disclosure: The SEC staff asked a number of companies to revise their future filings to meet the
disclosure requirements in FASB Statement 141, Business Combinations, such as pro forma
presentation of operating results, details about consideration given, or the business purpose of an
acquisition. SEC staff also asked companies to disclose the basis for management’s conclusion that
a purchase should be accounted for as a business combination as opposed to an asset purchase.
New Developments Summary 8

Segments
SEC comments on business segments focused primarily on ensuring that companies included all
disclosures required by FASB Statement 131, Disclosures about Segments of an Enterprise and Related
Information. In addition, the SEC staff issued some comments challenging registrants’ conclusions related
to their business segments if other disclosures throughout the filing, such as results of operations in the
MD&A, indicated that more segments might exist.

Related party transactions

The SEC staff comments on related parties also requested required footnote and Item 404 of Regulation
S-K disclosures when other disclosures in the filing indicated that companies entered into related party
transactions for which disclosure requirements were not met. In addition, comments requested additional
disclosures to clarify the nature, structure, and valuation of certain transactions.

© 2009 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved.

This Grant Thornton LLP bulletin provides information and comments on current accounting issues and
developments. It is not a comprehensive analysis of the subject matter covered and is not intended to
provide accounting or other advice or guidance with respect to the matters addressed in the bulletin. All
relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to
arrive at conclusions that comply with matters addressed in this bulletin.

For additional information on topics covered in this bulletin, contact your Grant Thornton LLP adviser.
New Developments Summary 9

Appendix
Example comments
Listed below are sample comments the SEC staff issued in 2008. These comments represent some of
the common themes that Grant Thornton’s SEC and Regulatory Matters group observed across
numerous comments related to particular accounting issues or disclosure areas. Each comment is written
exactly as it was received from the SEC staff except for the redaction of company-specific information and
correction of typos.

1. Management’s Discussion and Analysis

1.1. Results of operations

1.1.1. Ensure in all future filings that you describe known trends or uncertainties that have had,
or you reasonably expect will have, a material impact on net sales, revenues or income
from operations. Refer to Item 303(a)(3)(ii) of Regulation S-K. As an example, we note
the statements in the letter to shareholders from your CEO and Chairman in your 2007
Annual Report noting increasing concerns regarding the health of the U.S. economy and
related hiring environment. We also note the press release you issued on September 10,
2008 in which you decreased your revenue guidance for the rest of 2008 due to a
challenging macroeconomic environment causing an increase in slowed or delayed
project implementations and a strengthening U.S. dollar.

1.1.2. In future filings please expand your discussion and analysis of your operating results in a
manner that provides a more detailed understanding of the historical operating results
along with prospects for the future. Specifically, please provide a discussion and analysis
about the facts and circumstances surrounding known material trends and uncertainties
that the entity faces. Currently, your discussion and analysis of your consolidated results
lists one or more factors that caused either the increase or decrease in your operating
results without an understanding of why those factors occurred and whether those factors
or other known factors may impact future operating results. For example, you disclose
that the decrease in net sales of $XX,XXX,XXX for the year ended December 31, 2007
compared to the year ended December 31, 2006 is principally due to the slowdown in the
construction markets in your principal trade areas. You further disclose that building
permit applications have declined sharply in the Southeast region and building permits
have increased in the Southern region. Your current disclosures are unclear on how you
expect this will impact net sales in the near future. Refer to Item 303(A)(3)of Regulation
S-K and Section 501.12 of the Financial Codification for guidance.

1.1.3. We note within your discussion of revenue fluctuations that there are instances where
two or more sources of a material change have been identified, but the sources that
contributed to the change were not quantified. Please tell us how you have considered
quantifying each source that contributed to a material change in your MD&A discussion
pursuant to Section III.D of SEC Release 33-6835 and how you intend to comply with
such guidance. In addition, tell us how you considered providing volume and/or pricing
data to further explain changes within your continuing product line.

1.1.4. We note in your Form 10-Q for the quarter ended September 30, 2008, you discuss how
an overall market slowdown since 2006 has led to lower sales. Please expand MD&A, in
future filings, to provide a discussion of recent economic events, specifically the
significant downturn in the fourth quarter of 2008 and its current and expected future
New Developments Summary 10

impact on your operations, financial position and liquidity. This disclosure should provide
detailed information on your customers, recent order activity, expected trends,
management’s response for managing these events, potential future actions by
management and other detailed information. Expand your liquidity discussion to address
the expected impact to current and future cash flows and how you expect recent
economic events, including the credit shortage, may affect other sources of liquidity. In
your response to this letter, please provide a detailed description of proposed future
disclosure.

1.2. Liquidity

1.2.1. Please describe the anticipated effect, if any, that the recent financial difficulties of
Wachovia Bank and its pending acquisition by Wells Fargo may have on the Company's
ability to draw down on its credit facility.

1.2.2. We note your disclosure that additional sources of capital are required for you to
generate positive cash flows and continue operations beyond 2008. Please revise your
disclosure to include specifics on current and future plans to fund your operations,
including continuing reliance on cash reserves and the potential sale of assets to fund
operations, as well as the Merger Agreement and related Loan and Security Agreement
between you and the acquiree.

1.2.3. We note that you provide no substantive discussion of cash flows from operating
activities. In this regard, we note that there were material changes in working capital, but
you have not disclosed why these changes occurred and how they impacted operating
cash flow. When preparing the discussion and analysis of operating cash flows, you
should address material changes in the underlying drivers that affect these cash flows.
These disclosures should also include a discussion of the underlying reasons for
changes in working capital items that affect operating cash flows. Please tell us how you
considered the guidance in Section IV.B.1 of SEC Release 33-8350.

1.3. Critical accounting estimates

1.3.1. Please revise future filings to disclose your critical accounting policies. For each critical
accounting estimate or assumption you have identified, please revise to analyze, to the
extent material, such factors as how you arrived at the estimate, how accurate the
estimate/assumption has been in the past, how much the estimate/assumption has
changed in the past, and whether the estimate/assumption is reasonably likely to change
in the future. Please analyze each estimate for its specific sensitivity to change based on
the other outcomes that are reasonably likely to occur and would have a material effect.
Please revise to provide quantitative as well as qualitative disclosure when quantitative
information is reasonably available and will provide material information for investors.
Refer to the Commission's guidance concerning critical accounting estimates, available
on the SEC website at www.sec.gov/rules/interp/33-8350.htm.

1.3.2. Please revise your disclosures under critical accounting policies to address the facts and
circumstance that resulted in the reversal of the tax valuation allowance in 2007 and
disclose the amount of taxable income that will be required to be generated to fully
realize your deferred tax assets.

1.3.3. In the interest of providing readers with a better insight into management's judgments in
accounting for goodwill, please consider disclosing the following in future filings:
New Developments Summary 11

 The reporting unit level at which you test goodwill for impairment and your basis for
that determination;

 Each of the valuation methodologies used to value goodwill (if multiple approaches
are used), including sufficient information to enable a reader to understand how each
of the methods used differ, the assumed benefits of a valuation prepared under each
method, and why management selected these methods as being the most
meaningful for the company in preparing the goodwill impairment analyses;

 How you weighed each of the methods used including the basis for that weighting (if
multiple approaches are used);

 A qualitative and quantitative description of the material assumptions used and a

sensitivity analysis of those assumptions based upon reasonably likely changes; and

 How the assumptions and methodologies used for valuing goodwill in the current
year have changed since the prior year highlighting the impact of any changes.

1.3.4. It appears that your current market capitalization is significantly below the book value of
your equity. Please advise us whether you have performed a recent impairment test. If
not, please explain how you analyzed the difference to conclude that an impairment test
is not necessary. Please explain any qualitative and quantitative factors you considered.
If you have performed a recent impairment test, please provide us with a summary of
your results in Step 1 and Step 2, if applicable. We may have further comment.

1.4. Contractual obligations

1.4.1. Please revise your contractual obligation table to include interest to be paid related to
your Credit Facilities and Long-Term Debt because it does not appear that you included
the interest obligations in this table.

2. Executive compensation
2.1. It appears that you may be relying on Instruction 4 to Item 402(b) of Regulation S-K as the
basis for nondisclosure of performance targets. If so, please provide us with a reasonably
detailed explanation of why you believe that disclosure of the targets would pose a reasonable
threat of competitive harm.

2.2. We note your disclosure on page 18 that you consider the base salaries for your executive
officers to be in line with base salaries paid to similar officers at similarly-situated companies. In
future filings please identify the companies to which you benchmark and disclose the degree to
which the compensation committee considers such companies comparable to you. Refer to
Item 402(b)(2)(xiv) of Regulation S-K.

3. Controls and procedures

3.1. Item 302 certifications

3.1.1. We note that the certifications did not include the revised certification language included
in Release number 33-8238. Please amend your Forms 10-Q to comply exactly with the
certification language in the Release. Please also ensure you include the full introduction
to paragraph 4 and paragraph 4.b of the certification. Refer to Item 601(b)(31) of
Regulation S-K for additional guidance.
New Developments Summary 12

3.2. Internal control over financial reporting

3.2.1. It does not appear that your management has performed its assessment of internal
control over financial reporting as of December 31, 2007. Since you filed an annual report
for the prior fiscal year, it appears you are required to report on your management's
assessment of internal control over financial reporting. If your management has not yet
performed its assessment, we ask that you complete your evaluation and amend your
filing within 30 calendar days to provide the required management's report on internal
control over financial reporting.

3.3. Disclosure controls and procedures

3.3.1. We note the following disclosure regarding management's evaluation of your disclosure
controls and procedures: "Based on the evaluation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the 'Exchange act'), our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls and procedures were
effective to ensure that the information required to be disclosed by us in this quarterly
report on Form 10-Q was recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and Form 10-Q." These effectiveness conclusions
are stated in terms that are more limited in scope than the Rule 13a-15(e) definition of
"disclosure controls and procedures." The rule requires, among other matters, that the
disclosure controls and procedures be designed "to ensure that information required to
be disclosed by the issuer in the reports that it files or submits under the Act…is
recorded, processed, summarized and reported, within the time periods specified in the
Commission's rules and forms" and to ensure that "information required to be disclosed
by an issuer…is accumulated and communicated to the issuer's management…as
appropriate to allow timely decisions regarding required disclosure." In your response
letter, please tell us whether the effectiveness conclusions of the CEO and CFO were
made with respect to the company's controls and procedures as defined in Rule 13a-
15(e) and confirm that you will conform your disclosure in future filings.

3.3.2. We note that you provide two different conclusions of management regarding the
effectiveness of your disclosure controls and procedures. In the first paragraph you
disclose that management concluded that your disclosure controls and procedures were
adequate and effective to provide reasonable assurance that information required to be
disclosed in the reports you file under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
In the second paragraph, the conclusion regarding the effectiveness of your disclosure
controls and procedures makes no reference to the reasonable assurance level. Please
revise future filings so that your disclosures are consistent. Also, if you disclose that
disclosure controls and procedures are effective at the reasonable assurance level,
please also disclose that your disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives. Refer to Item 307 of
Regulation S-K.

4. Revenue recognition

4.1. Accounting policy

4.1.1. Please tell us why recognition of product revenues upon shipment to third parties is
considered appropriate. Explain how, at the time of shipment, these revenues are
New Developments Summary 13

considered realized or realizable and earned. Refer to the specific section in SAB 104
that provided the guidance for the method you used.

4.2. Software

4.2.1. We note in your disclosure that for multiple element arrangements that include
maintenance and/or services, vendor specific objective evidence (VSOE) of fair value is
established based upon "consistent renewal pricing" and stand-alone sales, respectively.
Confirm if VSOE for maintenance is based upon stated renewal rates in your contracts or
subsequent stand-alone renewal rates. If VSOE is based on stated renewal rates then
please tell us how you determined the renewal rates are substantive. In this regard,
please provide the range of renewal rates and tell us what percentage of your customers
actually renews at such rates.

4.2.2. Alternatively, if VSOE is based on stand-alone sales, then please explain the
methodology used to determine VSOE of each undelivered element and describe the
various factors that affect your VSOE analysis including customer type and other pricing
factors (e.g., geographic region, purchase volume, competitive pricing, perpetual versus
term license, etc.). Further, if VSOE varies from customer to customer, tell us how you
can reasonably estimate VSOE. In your response, please tell us the volume and range of
stand-alone sales used to establish VSOE for each element, as applicable, and how you
considered the guidance in paragraphs 10 and 57 of SOP 97-2.

4.3. Multiple elements

4.3.1. Please tell us more about the arrangements where you provide installation services to
end users that have purchased your software from a reseller. Tell us about the
installation services being provided and when and why these services are typically
performed in relation to the sale of the software to the reseller. In this regard, describe
from the end-user perspective whether the installation services are essential to the
functionality of the software and how your accounting complies with paragraphs 63-71 of
SOP 97-2. Tell us and describe any interrelationship of the separate software sale and
installation contractual provisions.

5. Proforma presentations
5.1. We note that the interest rate on the credit facility appears to be variable. As such, please
disclose the impact of a 1/8% change in the rate on your proforma earnings.

5.2. We note in proforma adjustment related to the recording of interest expense from new financing
arrangements that the amounts differ between the assumed maximum and minimum levels of
approval. Please describe the reasons that cause interest expense from new financing
arrangements to differ.

5.3. Please clarify what the net deferred tax liabilities in Note X relates to and how the amount was
determined. Also, to the extent applicable, please address the expected impact that the change
in ownership of Holding Co., Inc. may have on their potential utilization of future NOLs.

6. Equity
6.1. Revise to disclose the methodology and assumptions used in determining the fair value of
warrants for each period presented. Please include separate disclosures for the assumptions
used in fair valuing both the Series A and Series B preferred stock warrants. In addition, we
note from your disclosures that the non-assumption provisions included in the Series A warrant
New Developments Summary 14

agreements were accounted for as embedded derivatives. Tell us whether the fair value of the
warrants table in Note X includes the fair value of the liability for the Series A preferred stock
warrant. If so, please revise your disclosure both here and in Note Y to clarify your accounting
for both the embedded put option and the warrant liability. Also, if material, disclose the portion
of fair value assigned to the embedded derivative for the put option.

6.2. Please revise your future filings to provide a description of the methods you used to determine
the significant assumptions utilized within the Black-Scholes option valuation model. Refer to
the guidance in A240-A241 of SFAS 123(R) and SAB Topic 4.

7. Investments
7.1. Equity method

7.1.1. We note you hold general and limited partner interests in certain oil and gas limited
partnerships, which are accounted for under the equity method. Tell us how you have
evaluated the guidance of FIN 46(R) and EITF 04-5, as applicable, when determining that
you are not required to consolidate these interests in your financial statements.

7.1.2. Please tell us how you presently comply with the requirements to provide separate
financial statements for the nonconsolidated majority owned subsidiaries presented in
footnote XX. Rule 3-09 of Regulation S-X requires the filing to include financial
statements for nonconsolidated subsidiaries that are significant at the 20% level. If you
conclude the financial statements for any subsidiary are not required, please provide us
with your calculation of the conditions set forth in rule 1-02(w) of Regulation S-X and your
considerations of SAB Topic 6.K.4. If you determine the financial statements are
required, please revise your filing to include the separate financial statements, as
applicable.

7.2. Marketable securities

7.2.1. Please address the following regarding your unrealized losses greater than 12 months on
your marketable equity securities and other bonds in your future filings as well as in your
response letter:

 Separately quantify the unrealized losses on your marketable equity securities from
your other bonds. In future filings, do not aggregate equity securities within the same
line item as debt securities for these purposes.

 Please provide additional information in your response as well as your future filings to
allow financial statement users to understand the quantitative disclosures and the
information that you considered (both positive and negative) in reaching the
conclusion that the unrealized losses greater than 12 month on your marketable
equity securities and other bonds are not other than temporarily impaired. Specifically
address how you considered the severity of the unrealized loss and the duration of
the loss in your determination and provide specific information regarding the nature of
the impaired investments. Refer to paragraph 17(b) and the example disclosures in
Appendix A of FASB Staff Position Nos. FAS 115-1 and FAS 124-1 (as amended).

 In your response letter, please provide additional granularity to identify the nature of
each of the underwater equity investments and how you determined they were not
other than temporarily impaired. Specifically address the time frame in which you
expect the fair value of these equity securities to recover.
New Developments Summary 15

8. Business combinations
8.1. Purchase price allocations

8.1.1. Please explain to us why you did not allocate any of the purchase price for the acquiree
to intangible assets. Please reference the authoritative literature you rely upon to support
your accounting.

8.1.2. With respect to the purchase allocations in 2007 and 2008, please tell us how you
determined the amounts allocated to trademarks/tradenames with indefinite lives,
including why you believe the allocations are appropriate in GAAP. In light of the
significance of the amounts allocated to these indefinite lived intangible assets, in future
filings please disclose how you determined the fair value of these assets at acquisition.

8.2. Disclosures

8.2.1. Please revise your disclosures beginning with your next Form 10-Q for the period ended
June 30, 2008 to discuss the following regarding your acquisition of Acquiree, LLC
(please refer to paragraphs 51-52 and 57 of SFAS 141):

 Any contingent payments, options or commitments specified in the acquisition

agreement and the accounting treatment that will be followed should any such
contingency occur;

 An indication of any purchase price allocation that has not been finalized and the
reasons why it has not been finalized. In subsequent periods, please disclose the
nature and amount of any material adjustment made to the initial allocation of the
purchase price; and

 The amount of goodwill expected to be deductible for tax purposes.

9. Segments
9.1. We note that although you discuss revenue by segment, your discussion of cost of sales and
gross profit is done at a consolidated level. In light of the fact that it appears from Note X that
the gross profit margin earned by ABC segment is significantly higher than that earned by XYZ
segment, and is material to consolidated gross profit, please revise future filings to discuss cost
of sales and gross profit separately for each reporting segment.

9.2. Based on your disclosures, it appears that there are several significant differences in the
economic characteristics of your product lines. For example, based on your disclosures on
page 5, it appears that the ABC and XYZ product lines use different suppliers. Additionally,
ABCs are built to order to control inventory levels. You also state that you have different limited
warranty periods. Furthermore, the results of operations for ABC product line are significantly
affected by weather patterns and, at times, you need to provide increased sales incentives.
Each of these product lines also demonstrates significantly different seasonal trends and
volatility associated with such factors. Lastly, the AA, BB, and CC product lines do not appear
to have similar production costs or processes, storage costs, pricing, demand, or similar
regulatory environment. Based on this information, please tell us how each of your separate
product lines meet the aggregation criteria set forth in paragraphs 17 and 18 of SFAS 131 and
provide us with the reports that management reviews to allocate resources to each product
lines as well as assess their performance. In your response, please also include a gross profit
analysis related each of the separate product line for each of the fiscal years presented.
Alternatively, revise future filings to provide segment information.
New Developments Summary 16

10. Related parties

10.1. In future filings please include the complete representations required by Instruction 4(c) to Item
404(a) of Regulation S-K. In particular, please clarify that the loans were on the same terms,
including interest rates and collateral, as those available to other persons not related to the
lender. Also, avoid qualifying the representations by including terms like "in the opinion of
management."

10.2. We note your disclosure on pages F-X and F-XX regarding the unpaid advances to Mr. Related
Party. Please revise your disclosure in this section to include a description of the advances. In
addition, please disclose whether the company has a specific policy or procedure with regard to
the terms, amount and frequency of the advances.