Mail Stop 0407
May 17, 2005
Via U.S. Mail and Fax (214) 777-4103
Mr. Richard B. Berliner
Chief Executive Officer
NOVO Networks, Inc.
6440 North Central Expressway, Suite 620
Dallas, TX 75206
RE: Novo Networks, Inc.
Form 10-K for the year ended June 30, 2004
Filed September 24, 2004
Form 8-K/A dated February 18, 2005
Filed May 9, 2005
File No. 0-28579
Dear Mr. Berliner:
We have reviewed the above referenced filings and have the
following comments. We have limited our review to only your
financial statements and related disclosures and will make no
further
review of your documents. As such, all persons who are
responsible
for the adequacy and accuracy of the disclosure are urged to be
certain that they have included all information required pursuant
to
the Securities Exchange Act of 1934. Where indicated, we think
you
should revise your documents 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 10-K filed September 24, 2004
Financial Statements
Note 1: Business, pages F-7 to F-9
1. We note that you state that you previously guaranteed certain
indebtedness of one or more of the bankrupt debtor subsidiaries
and
that you "may be liable for some or all of this indebtedness".
Please tell us the basis for deconsolidating the liquidating trust
in
light of the continuing liability for the trust noted in your
disclosures. You state on page F-10 that the liquidating trust
controls the assets of the debtor subsidiaries, but what about the
liabilities of the debtor subsidiaries? In future filings, please
clarify in your disclosure.
Note 6: Commitments and Contingencies, pages F-14 to F-15
2. Refer to the disclosure in Item 3. Legal Proceedings on page 11
and Note 6 on page F-14 of the Form 10-K. We note that the Eos
case
was settled through mediation in fiscal 2004 and that you, along
with
other defendants, submitted claims to your insurance carriers and
did
not expend any cash or assets. Please revise in future filings to
account for the settlement expense and insurance reimbursement on
a
gross basis in accordance with the guidance in SAB Topic 5:Y and
clearly indicate how much of the settlement was paid by your
insurance carrier.
3. Please revise the penultimate paragraph of this note in future
filings to disclose any other legal proceedings that may have a
material adverse effect on your financial condition or results of
operations. Please provide all disclosures required pursuant to
paragraphs 9-12 of FAS 5.
Form 8-K/A filed May 9, 2005
4. Refer to the disclosure in Item 5.03 and the Berliner financial
statements as of December 31, 2004. Please disclose in Item 5.03
whether the registrant changed its fiscal year end to that of
Berliner after the recapitalization. If so, please file the
required
Form 10-K transition report for the period from June 30, 2004 to
December 31, 2004. Please also note the requirements of Item 308
for
a report on internal controls for the period ended December 31,
2004.
5. Refer to page 12 of the Form 8-K/A. We note that you state
that
it is unlikely that you will be able to continue as a going
concern
past December 31, 2005, unless BCI is able to successfully
generate
sufficient revenues to cover its and our operating costs. Tell us
how your independent accountants determined that there was not
substantial doubt about your ability to continue as a going
concern
as of their report date. We may have further comment based on
your
response.
Financial Statements - Berliner
Note 2 - Summary of Significant Accounting Policies
6. Refer to the accounting policy for stock based compensation and
related disclosures in Note 7. Please revise to include a
discussion
of the impact that adoption of FAS 123R is expected to have on the
financial statements of the registrant, unless not known or
reasonably estimable in which case a statement to that effect may
be
made. See Staff Accounting Bulletin Topic 11:M for guidance.
Note 7 - Stockholders` Equity
7. Please provide all pro forma disclosures required pursuant to
paragraph 45c of FAS 123 for stock based compensation and stock
incentives.
Pro Forma Financial Information
8. Revise adjustment 1 in Note 3 to the pro forma financial
information to clarify the reason for charging the net assets
acquired to additional paid in capital. Also, expand the note to
describe the cancellation of the Berliner stock and the equity
transactions of Novo resulting from the Voting Agreement. Tell us
how the various concessions of different classes of shareholders
were
recorded for each of the transactions described in the Voting
Agreement. Were there any differences in concessions among the
various classes of stock? If so, how were these differences
reflected in the equity transactions?
9. Refer to adjustment 3 in Note 3 to the pro forma financial
information. Please revise to include only those adjustments that
are (a) directly attributable to the transaction, (b) expected to
have a continuing impact on the registrant and (c) factually
supportable. We note that you have eliminated certain general and
administrative expenses not expected to continue. Tell us how you
determined that the amount of the reduction in expenses is
factually
supportable. See Article 11-02(a)(6) of Regulation S-X for
guidance.
10. Also, refer to adjustments 2 and 4 in Note 3 to the pro forma
financial information. It does not appear that the settlement and
gain on extinguishment of debt are directly related to the
transaction with Berliner. Please revise to delete these pro
forma
adjustments.
* * * *
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. 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.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* 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.
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 our review of your filing or in
response to our comments on your filing.
As appropriate, please amend your Form 8-K/A and respond to
these comments within 10 business days or tell us when you will
provide us with a response. 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 file
your cover letter on EDGAR. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
You may contact Claire DeLabar, Staff Accountant, at (202)
551-
3349 or Ivette Leon, Assistant Chief Accountant, at (202) 551-3351
if
you have questions regarding comments on the financial statements
and
related matters. Please contact me at (202) 551-3810 with any
other
questions.
Sincerely,
Larry Spirgel
Assistant Director
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Mr. Richard B. Berliner
Novo Networks, Inc.
May 17, 2005
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