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May 26, 2005
Room 4561
T. Kendall Hunt
Chairman and Chief Executive Officer
VASCO Data Security International, Inc.
1901 South Meyers Road, Suite 210
Oakbrook, IL 60181
Re: VASCO Data Security International, Inc.
Form S-3 filed April 29, 2005
Registration no. 333-124458
Form 10-K filed March 31, 2005
File no. 0-24389
Dear Mr. Hunt:
We have conducted a limited review of your registration
statement to relating to a forms eligibility issue. Additionally,
we
conducted a preliminary review of the financial statements and
related disclosure, including controls and procedures disclosure
in
the referenced Form 10-K. Based on that limited review, have the
following comments. Where indicated, we think you should revise
your
document in response to these comments. If you disagree, we will
consider your explanation as to why our comment is inapplicable or
a
revision is unnecessary. Please be as detailed as necessary in
your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-3
General
1. We note that you have just filed an amended Form 8-K that
includes
a signed opinion of the auditors. But that Form 8-K amendment was
not filed within 71 days after the date of the initial Form 8-K
announcing the acquisition was required. Please provide your
analysis concerning the effect of your apparent failure to file
the
BERK Accountants` report on a timely basis. Why do you believe
you
comply with Instruction A(3)(b) to Form S-3, which requires timely
filing of all required Exchange Act reports for the prior twelve
calendar months prior to the filing of your registration
statement.
Accounting
General
2. Please note the updating requirements of Rule 3-12 of
Regulation
S-X.
Form 10-K for the Fiscal Year Ended December 31, 2004
Management`s Discussion & Analysis (MD&A) of Financial Condition
and
Results of Operations
Critical Accounting Policies and Estimates, pages 26 to 27
3. Supplementally explain how you considered SEC Release 33-8350
in
determining whether or not a discussion of the Company`s revenue
recognition policy as a critical accounting policy was necessary.
Please keep in mind that your critical accounting policies and
estimates discussion should serve as a supplement to the
financial
statement footnotes and describe how estimates and related
assumptions were derived, how accurate the estimates and
assumptions
have been in the past, and whether the estimates and assumptions
are
reasonably likely to change in the future. They should also
provide
quantitative as well as qualitative information when information
is
reasonably available.
4. We note that you provide warranty and volume purchase discounts
to
customers. Supplementally explain how you considered the guidance
in
SEC Release 33-8098 to include a discussion of the methodology and
assumptions underlying theses estimates, the effect the accounting
estimates have on the company`s financial presentation, and the
effect of changes in the estimates.
Item 9A. Controls and Procedures, pages 30-31
5. Your conclusion that the disclosure controls and procedures
were
effective to ensure that "material information relating to the
company and its consolidated subsidiaries would be made known to
them
on a timely basis" addresses matters that are narrower in scope
than
the definition of "disclosure controls and procedures" in Rule
13e-
15(e). In your response letter, tell us whether you the
conclusions
concerning effectiveness were reached with respect to "disclosure
controls and procedures" as defined in the referenced rule. In
future filings, please ensure the conclusion concerning
effectiveness
conforms to the applicable definition. Also, clarify that the
conclusion as to effectiveness is provided as of the end of the
applicable financial statement period.
Changes in Internal Controls
6. You indicate that there were no "significant" changes in
internal
controls during the quarter ended 2004. Please refer to Item
308(c)
of Regulation S-K and note that you are required to report any
changes in internal control over financial reporting that have
materially affected or are reasonably likely to materially affect
Vasco`s internal controls over financial reporting. Please advise
in
this respect, and confirm that you will consider this comment in
the
preparation of future periodic reports.
Financial Statements
Consolidated Statements of Operation, page F-4
7. Supplementally explain how you considered the requirements of
Rule
5-03(b)(1) and (2) of Regulation S-X to disclose product and
service
revenues and their respective costs separately.
Note 1: Summary of Significant Accounting Policies, pages F-8 to
F-
11
Revenue Recognition, pages F-8
8. We note your disclosures regarding your revenue streams such as
license fees, support agreements and consulting and education
services. Tell us whether you recognize revenue pursuant to SOP
97-2
or SAB 104 and supplementally explain how you apply such guidance
to
each of your revenue streams.
9. Supplementally tell us if Company enters into multi-element
arrangements. If so, tell us how you account for each element of
the
arrangement. Tell us how you determine VSOE or fair value in the
arrangement and explain how you considered paragraph 10 of SOP 97-
2
and EITF 00-21, as applicable, in your accounting for multiple
element arrangements.
10. We note that you disclose your standard warranty policy on
authenticators on page F-11. Supplementally tell us if you offer
any
other contingencies such as rights of return, cancellation
clauses,
condition of acceptance, price protection, etc. and the accounting
treatments for those contingencies. Describe significant
assumptions, material changes and reasonably likely uncertainties.
Also, tell us how you considered paragraph 6 of SFAS 48, as
applicable.
11. We note from your disclosures on page 4 that you sell your
products through distributors and resellers. Clarify if your
revenue
recognition policies differ when your arrangements are sold though
resellers. In this regard, clarify whether your recognize revenue
when sold to your resellers or only when delivered to the end-
users.
Tell us if your resellers have return rights or other rights and
warranties. Also, advise how much revenue has been recognized
from
sales by resellers in each of the periods presented.
12. We note your disclosure in MD&A that you offer volume purchase
discounts to customers. Supplementally explain the terms and
conditions of your volume purchase discounts and tell us how you
considered EITF 01-09 in accounting for such offers.
Note 12: Discontinued Operations, page F-20
13. We note that you refer to an independent valuation to
determine
the fair value of the promissory note and convertible preferred
stock
received from SSI. When you refer to an independent valuation,
you
should disclose the name of expert and include the expert`s
consent
with the filing. Refer to Section 436(b) of Regulation C.
Alternatively, you may remove this reference.
14. We note that the VASCO`s CEO & Chairman of the Board owns 19%
of
SSI. Tell us how you are accounting for the "note receivable and
investment in SSI." In this regard, tell us if you are using an
equity method to account for this investment and address how you
considered the "significant influence" factor of APB 18 and EITF
02-
14.
15. We also note that you recorded the sale of the Company`s
VACMAN
enterprises business based on the fair value of the promissory
note
and preferred stock as determined by an independent valuation
firm.
Supplementally explain the assumptions used in determining the
fair
value of SSI`s convertible preferred shares to be $600,000. In
this
regard, we note that the preferred stock is convertible into 2.0
million shares of SSI`s common stock, which had a trading price of
approximately $2.00 per share when the transaction took place.
Please explain.
Note 18: Subsequent Event - A.O.S. Acquisition, page F-23
16. We note that you allocated $367,000 of the purchase price in
the
A.O.S acquisition to customer purchase commitments and $6 million
to
goodwill. Supplementally explain how you determined that there
were
no other intangibles such as customer relationships acquired in
this
transaction and tell us how you considered EITF 02-17 in your
analysis.
General
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective
date of the registration statement as a confirmation of the fact
that
those requesting acceleration are aware of their respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rule 461 regarding requesting
acceleration of a registration statement. Please allow adequate
time
after the filing of any amendment for further review before
submitting a request for acceleration. Please provide this
request
at least two business days in advance of the requested effective
date.
You may contact Kari Jin at (202) 551-3481 or Kathy Collins,
the Branch Chief - Accounting at (202) 551-3499 if you have
questions
regarding comments on the financial statements and related
matters.
Please contact Hugh Fuller at (202) 551-3853 or me at (202) 551-
3730
with any other questions.
Sincerely,
Mark P. Shuman
Branch Chief - Legal
CC: Robert B. Murphy
Pepper Hamilton LLP
600 14th Street, NW
Washington, DC 20005
FAX No. (202) 220-1665