January 31, 2006
Room 4561
Via fax (714) 974-4771
Mr. Amrit K. Das
Chairman, Chief Executive Officer and President
Netguru, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Re: Netguru, Inc.
Form 10-KSB for the year ended March 31,
File No. 0-28560
Dear Mr. Das:
We have reviewed the above referenced filing and have the
following comments. Please note that we have limited our review
to
the matters addressed in the comments below. 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 any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-KSB for the Year Ended March 31, 2005
Item 8A. Controls & Procedures, page 35
1. We note your disclosure that as of March 31, 2005 your
disclosure
controls and procedures were effective to ensure that information
required to be disclosed by us in the reports filed or submitted
by
us under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC`s rules and
forms, including to ensure that the information required to be
disclosed by you in the reports you file or submit under the
Exchange
Act is accumulated and communicated to your management, including
your CEO and CFO, as appropriate to allow timely decisions
regarding
whether or not disclosure is required. We further note that on
April
20, 2005 you restated your financial statements in amendments to
Forms 10-QSB for the quarterly periods ended June 30, 2004,
September
30, 2004 and December 31, 2004. In light of these restatements,
please explain in reasonable detail how your officers concluded
that
the controls and procedures were nonetheless effective as of March
31, 2005.
Consolidated Statements of Cash Flows, page F-8
2. We note in your statements of cash flows you include a separate
line item for cash flows from discontinued operations. If you
intend
to maintain the presentation of separate cash flow information for
discontinued operations, your statements of cash flows should
separately disclose cash flows from operating, investing and
financing activities related to discontinued operations.
Additionally, your disclosure of operating cash flows should show
all
components of operating cash flow related to discontinued
operations
rather than the net operating cash flows. Please tell us how you
intend to comply with these reporting requirements. Refer to
Footnote 10 SFAS 95.
Notes to Consolidated Financial Statements
Revenue Recognition, page F-12
3. We note your disclosure that customers may choose to purchase
the
right to receive upgrades. Describe the types of upgrade rights
that
you offer to your customers and tell us whether your arrangements
describe specific features and/or additional functionality to be
included in future upgrades. Tell us your consideration of
paragraphs 37 and 38 of SOP 97-2 with regard to specified upgrade
rights in your arrangements.
Note (3) - Long-Term Debt, page F-17
4. We note that your 2002, 2003 and 2004 notes and Revolving
Credit
Facility provide for the conversion of debt into shares of your
common stock. Tell us how the Company evaluated the conversion
features associated with these debt issuances to determine whether
there are embedded derivatives that meet the criteria for
bifurcation
under SFAS 133. Specifically, tell us how you considered the
criteria in paragraph 12 (a) through 12 (c) of SFAS 133 and the
scope
exception of paragraph 11(a) of SFAS 133 in your analysis.
Provide
us with your analysis for each debt issuance using the conditions
outlined in paragraph 12-32 of EITF 00-19 to support your
conclusions. Specifically we note that the shares of common stock
underlying certain issuances are subject to registration rights
and
liquidated damages. If the scope exception of paragraph 11(a) is
not
met, tell us why you have not considered the conversion features t
be
embedded derivatives that are subject to classification and
measurement at fair value. We may have further comments. Also,
please be advised that a beneficial conversion feature is not
applicable when the conversion feature is bifurcated.
5. We note that in connection with some of the convertible
debentures, the Company also issued warrants. Tell us how you
analyzed outstanding warrants pursuant to SFAS 133 and EITF 00-19.
Specifically, tell us if the warrants require net settlement
pursuant
to paragraph 6(c) of SFAS 133. Also, tell us how the Company
determined that the warrants met the scope exception of paragraph
11(a) of SFAS 133. Provide us with your analysis using the
conditions outlined in paragraphs 12 to 32 of EITF 00-19 to
determine
whether the warrants should be classified in equity or as a
liability. Tell us if the warrant agreements include registration
rights and/or liquidated damages provisions.
6. Certain of your debt issuances provide for adjustment to
interest
rates based on the market price of your common stock and/or
provide
you the option to redeem notes at a certain predetermined
percentage
of the outstanding principal and accrued interest depending on the
date of prepayment. Tell us how you evaluated these provisions
pursuant to SFAS 133 and EITF 00-19.
7. Please note, pursuant to the comments above relating to your
debt
and warrant issuances, you should provide us a thorough analysis
of
all the provisions of your debt instruments and warrants in order
to
determine whether there are any provisions that may be
derivatives.
In your response address the relevant information in Section II B
of
Current Accounting and Disclosure Issues in the Division of
Corporation Finance, which is available on our website at
http://www.sec.gov/divisions/corpfin/acctdis120105.pdf. Revise
your
disclosures where necessary to clarify your accounting for these
instruments.
* * * *
As appropriate, please amend your filing and respond to these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing 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.
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 filing;
* 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
* 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 connection with our review of
your
filing or in response to our comments on your filing.
You may contact David Edgar, Staff Accountant, at 202-551-
3459,
Thomas Ferraro, Senior Staff Accountant, at 202-551-3226 or the
undersigned at 202-551-3499, if you have questions regarding
comments
on the financial statements and related matters.
Sincerely,
Kathleen Collins
Accounting Branch Chief
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Mr. Amrit K. Das
Netguru, Inc.
January 31, 2006
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