CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS RESPONSE LETTER.
THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY
REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
November 13, 2006
Via Edgar
U.S. Securities and Exchange
Commission Division of Corporation
Finance 100 F Street, N.E.
Washington, DC 20549
Attention: Christine Adams, Staff Accountant Carlos Pacho, Senior Assistant
Chief Accountant Larry Spirgel, Assistant Director
Re: ROO Group, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2005
Filed April 17, 2006
Form 10-QSB for Fiscal Quarter Ended March 31, 2006
File No. 0-25659
Ladies and Gentlemen:
The following addresses the comments of the reviewing staff of the
Commission set forth in its letter dated September 29, 2006, relating to the
Form 10-KSB for the fiscal year ended December 31, 2005 and Form 10-QSB for the
fiscal quarter ended March 31, 2006 of ROO Group, Inc. (the "Company"). We
respond as follows:
Form 10-KSB for the Fiscal Year Ended December 31, 2005
Note 11 Callable Secured Convertible Notes, page F-20
1. We note your response to and reissue comment 2. You issued warrants in
connection with your callable secured convertible notes and private placements
of your common stock. In this regard, it appears that you have entered into
registration rights agreements that require you to file registration statements
that are declared effective by the SEC and to keep the registration statements
continuously effective for a preset time period, or else you are required to pay
a liquidated damages with no cap on the maximum penalty that could be incurred,
We note that the EITF recently deliberated the impact of these liquidated damage
clauses and the effect on the accounting and classification of instruments
subject to the scope of EITF 00-19 in EITF 05-4, "The Effect of a Liquidated
Damages Clause on a Financial Instrument Subject to Issue No. 00-19." The EITF
has not yet reached a consensus on the this issue and has deferred deliberation
until the FASB addresses certain questions which could impact us how considered
the guidance in EITF 05-4 and the different views on this issue as outlined in
Issue Summary No.1 to EITF 05-4 in analyzing the registration to classify the
warrants as liabilities or under EITF 00-19.
Response:
The Company has satisfied its obligation under the registration rights agreement
(the "Agreement") related to the Callable Secured Convertible Notes (the
"Notes"), We incurred no liquidated damages in respect to the Agreement. The
liquidated damages as specified in the Agreement were to be based on then
outstanding amount of principal under the Notes. All amounts due under the Notes
at December 31, 2005 had been repaid and therefore there was no possibility of
any future liquidated damages being assessed or affecting the Warrants issued
with the Notes. We have considered the proposed FSP No. 00-19-B instead of EITF
05-4 in analyzing the registration rights agreement as we believe this proposal
more directly addresses the questions surrounding the accounting for liquidated
damage clauses. The proposal specifies that a contingent obligation to make
future payments or otherwise transfer consideration under a registration payment
arrangement because the registration statement was not effective as required
under the arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with SFAS No. 5, Accounting for
Contingencies. As noted above as of December 31, 2005 there was no possibility
of any future liquidated damages being assessed and therefore no liability would
be recognized and measured in accordance with SFAS No.5,
1
In relation to the classification of warrants issued with the Notes, we reviewed
the guidance in EITF 00-19 at paragraphs 7 and Sunder the heading "Initial
Balance Sheet Classification". We noted that the initial balance sheet
classification of contracts that require settlement in shares are equity
instruments. These warrants are for a determined number of shares at a
determined exercise price and are settled in shares, As such, we have recorded
these warrants issued with the Notes as equity.
Form 10-QSB for the Quarter Ended June 30, 2006
Condensed Consolidated Balance Sheet
2. We note your response to and reissue comment 4. In addition, addressing
paragraphs 30 and 31 of SFAS No. 142, tell us how you determined the reporting
units used to perform your goodwill impairment test in fiscal 2005 and tell us
what those reporting units are. Provide us with your goodwill impairment
analysis as described by paragraphs 18-21 of SFAS No. 142, specifically
including the details of your step one analysis by reporting unit, and your step
two analysis by reporting unit, if applicable. Further, please note that, in
accordance with paragraph 20 of SFAS No. 142, the amount of impairment loss is
calculated as the difference between the carrying value of goodwill and its
implied fair value. Please confirm that you used the implied fair value in your
annual impairment test.
Response:
In accordance with SFAS No. 142, we do not amortize goodwill. We review goodwill
for impairment at each reporting period to determine whether events and
circumstances continue to support the indefinite useful life of the asset. We
determined the reporting unit to be Reality Group Pty. Ltd, our 80% owned
subsidiary at December 31, 2005. Then, we performed the first step of the
goodwill impairment test which compares the fair value of the reporting unit
with its carrying value, including goodwill (see table below). The fair value of
(the reporting unit exceeds the carrying value of the reporting unit and thus
the goodwill of this reporting unit is not impaired and no further testing is
required. We followed the guidance of SFAS No. 142 paragraphs 23-25 to determine
the fair value of the reporting unit. The fair value of the reporting unit was
based on expected future cash flows associated with the group of assets. This
valuation method was used since quoted market prices are not available. We
tested goodwill for impairment as required by SFAS No. 142 as of December 31,
2005 and concluded that no impairment needed to be recognized.
2
(Amounts in thousands)
Carrying value
At December 31, 2005
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[***] $ [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
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[***] $ [***]
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[***] $ [***]
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[***] $ [***]
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Should you have any questions, please do not hesitate to contact the undersigned
at (at (212) 661-4111 ext.251 or John Clark, Controller, at (212) 661-4111
ext.261.
Very truly yours,
Robin Smyth
Chief Financial Officer
*** CERTAIN INFORMATION IN THIS RESPONSE LETTER HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO SUCH OMITTED PORTIONS PURSUANT TO RULE 83.
3