GAO discussed the Small Business Innovation Research (SBIR) program, focusing on products' commercial trends in Phase III of the program, which involves the use of non-federal funds for commercial application of the technology or follow-on non-SBIR government contracts for government application. GAO noted that: (1) about half of the SBIR projects are of about the same quality as other federal research; (2) as of July 1991, the SBIR program had generated about $1.1 billion in Phase III sales and funding for technical development; (3) SBIR-funded research and development is moving toward increased private-sector commercialization, since the majority of sales and additional developmental funding comes from the private sector; (4) project sales averages vary greatly among the federal agencies; and (5) although the Department of Defense (DOD) is the only major federal agency whose SBIR sales to the federal government exceed private-sector sales, DOD continues to emphasize meeting agency research and development needs rather than increasing private-sector commercialization. GAO believes that, to strengthen the program: (1) DOD needs to increase private sector commercialization without weakening its commitment to meeting its own mission-related needs; (2) federal officials need to clarify the contractual procedures for entering into Phase III follow-on non-SBIR-funded production contracts; (3) federal officials need to determine whether the company or the agency should perform additional post-program work; and (4) federal officials need to determine whether lower performance diminishes program achievements and limits company participation.