gem_corresp-121509.htm
GENERAL
ENVIRONMENTAL MANAGEMENT, INC.
3191
Temple Ave., Suite 250
Pomona,
CA 91768
December
15, 2009
FILED AS
EDGAR CORRESPONDENCE
&VIA
FEDERAL EXPRESS
Securities
ad Exchange Commission
Division
of Corporate Finance
Mail Stop
4631
Washington,
D.C. 20549-4631
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RE:
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General
Environmental Management, Inc. (“Company”)
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Form
10-K for the Fiscal Year Ended December 31, 2008 |
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Filed
April 15, 2009 |
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File
No. 033-55254-38 |
Dear Mr.
O’Brien,
Set forth below are the responses
related to the comments received from the staff (“Staff”) of the Securities and
Exchange Commission (“SEC”) in the letter dated November 16, 2009. We
have reproduced the Staff’s comments in bold type for your convenience and have
followed the comment with our response.
Form 10-K for the Fiscal
Year Ended December 31, 2008
Management’s Discussion and
Analysis, page
1. In future annual and
quarterly filings please ensure the discussion of results and operations
quantifies the impact of the various underlying factors mentioned in your
analysis and discusses the underlying causes. For
example:
• On page 25 you state total revenues
increased 15% from fiscal year 2007 to 2008 and you attribute this change to
increased revenues for GEM's mobile treatment business and acquisition of Island
Environmental Services. However, you do not quantify or address the underlying
reasons driving the increased sales for GEM's mobile treatment
business.
• On page 25 you state the decrease in
operating expenses is attributed to general expense reductions made in 2007 and
decrease in non-cash charges for consulting and advisory fees. However, you do
not provide a discussion of the expense reductions made in 2007, the reason why
consulting and advisory fees decreased or whether you expect the trend in lower
operating expenses to continue in future periods.
• On page 29 of your March 31, 2009
Form 10-Q you state the increase in revenue was offset by a decrease in revenues
in the Enviroconstruction market sector. However, you do not
quantify the decrease or provide an analysis
of the underlying reason "for the decline in sales.
• On page 31 of your June 30, 2009 Form
10-Q you state cost of revenues as a percentage of revenue as compared to the
same period in 2008 increased primarily due to negative margins at Island
Environmental Services. However, you do not quantify the negative margins or
provide a discussion of the underlying reasons for the negative
margins.
These
are examples and are not intended to be a comprehensive list. For additional
guidance, please refer to Section 501.04 of the Financial Reporting Codification
and SEC Release 33-8350.
Response: We have noted your
comment and will adhere to your guidance in future filings.
2. You
state on page 34 that you expect to begin to operate profitably due to improved
operational results and cost reductions made in late 2008. In future filings
please disclose when you expect this turn around to occur and provide a
discussion of actions management is taking to improve operations.
Response: We have noted your
comment and will adhere to your guidance in future filings.
Liquidity, page
26
3. Given
that you received a going concern opinion from your auditors and reported
negative working capital and cash flows from operating activities since 2005,
please revise future filings to include a more robust discussion and analysis of
liquidity. Specifically, please provide a discussion of your cash needs and
sources of cash and whether you have sufficient cash to continue operations for
the next twelve months. Refer to SEC Release 33-8350 for guidance.
Response: We have noted your
comment and will adhere to your guidance in future filings.
Revenue Recognition, page
31
4. We
note from your disclosure that you provide bundled service packages. Please
describe the types of services included in this package, your revenue
recognition policy and whether this package has multiple deliverables as
contemplated by EITF 00-21. Please also tell us what you mean by "when the
service is billed, expected costs are accumulated and accrued".
Response: The revenue
recognition by the Company does not include the complex contracts that require
separate delivery of multiple goods and/or services that are described in EITF
00-21. The Company described the advice and support of its
technicians as either “billed at negotiated rates or the service (advice and
support) is bundled into a service package.” This was an incorrect
use of the word “bundled” as it relates to revenue recognition. Our
technicians, who also act in a sales role, communicate with clients on the best
and most cost effective way to handle hazardous waste. If this
service is advisory and doesn’t involve engaging the Company’s resources, then
the technicians’ time is billed at hourly rates. If the handling of
the waste does engage the Company’s resources of transportation, disposal,
logistics, documentation and tracking using the Company’s proprietary software,
“GEMWARE”, then the technicians’ costs are included into the normal overhead and
allocated to the revenues created from providing these services to the
customer.
The
disclosure in the Form 10-K for the Fiscal Year Ended December 31, 2008 under
(c) Revenue Recognition is “When the service is billed, client costs are accumulated
and accrued.” The disclosure does not mention “expected”
costs. For our services, we account for the labor, overhead and
equipment costs necessary to complete the work. For outside services,
we accumulate the invoice purchases related to the work and match those expenses
to the corresponding revenue.
We will
include, in future filings, a better description of this policy in order to
promote a clearer understanding in compliance with this comment.
Financial
Statements
5. The
purchase price of $3.5 million for the Island acquisition in August 2008 appears
to be significant pursuant toRule8-04 of Regulation S-X. If any of the
conditions set forth in Rule 8-04 exceed 20%, but none exceeds 40%, audited
financial statements should be furnished for the most recent fiscal year and
unaudited financial statements for any interim periods. Please provide us your
test of significance.
Response: We evaluated the
conditions set forth in Rule 8-04 of Regulation S-X and determined that this
acquisition was significant. Due to the resignation of that
acquisition’s accountant and problems with the acquisitions’ historical
accounting software system, the completion of the audit was significantly
delayed. We are now in the process of completing the audit and
financial statements for the year ended December 31, 2007 and have completed the
financial statements for the eight months ended August 31, 2008 (acquisition
date). These will be filed in an 8K report upon completion of the
audit which is expected to be completed by December 23, 2009.
Forms
10-Q for the Fiscal Quarters Ended March 31, 2009 and June 30, 2009
Controls
and Procedures
6. Please
tell us whether there have been changes to your internal controls over financial
reporting during your quarters ended March 31,2009 and June 30, 2009 and provide
disclosure in future filings that address this issue. Refer to Item 308 (c) of
Regulation S-K for guidance.
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the
Company is responsible for the adequacy and accuracy of the disclosure in
their filings;
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Staff
comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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the
company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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Should
members of the Commission Staff have any questions or comments, or require any
additional information regarding any of the responses contained in this Letter,
please contact the undersigned at telephone at (909) 444-9500 or by facsimile at
(909) 444-8356.
Sincerely,
GENERAL
ENVIRONMENTAL MANAGEMENT, INC.
Brett M.
Clark,
Executive
Vice President of Finance, Chief Financial Officer
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