-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UOlqdNluPsBqTvAGJ5GmWMQtpq+/fjqFmiygXHspy/L/R3MIjs752mKqIN13bDxf p0ih0HBFn3DjIneD6EveFA== 0001019687-03-001222.txt : 20030609 0001019687-03-001222.hdr.sgml : 20030609 20030606204138 ACCESSION NUMBER: 0001019687-03-001222 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20030609 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETGURU INC CENTRAL INDEX KEY: 0001015920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 222356861 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-105948 FILM NUMBER: 03736573 BUSINESS ADDRESS: STREET 1: 22700 SAVI RANCH PARKWAY CITY: YORBA LINDA STATE: CA ZIP: 92887 BUSINESS PHONE: 7149742500 MAIL ADDRESS: STREET 1: 22700 SAVI RANCH PKWY CITY: YORBA LINDA STATE: CA ZIP: 92887 FORMER COMPANY: FORMER CONFORMED NAME: RESEARCH ENGINEERS INC/ DATE OF NAME CHANGE: 20000317 FORMER COMPANY: FORMER CONFORMED NAME: RESEARCH ENGINEERS INC DATE OF NAME CHANGE: 19960603 S-3 1 netguru_s3-060603.txt As filed with the Securities and Exchange Commission on June 9, 2003. Registration Statement No. __________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------- NETGURU, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-2356861 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 22700 SAVI RANCH PARKWAY YORBA LINDA, CALIFORNIA 92887 (714) 974-2500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------- AMRIT K. DAS, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER NETGURU, INC. 22700 SAVI RANCH PARKWAY YORBA LINDA, CALIFORNIA 92887 (714) 974-2500 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: NIMISH PATEL, ESQ. RICHARDSON & PATEL LLP 10900 WILSHIRE BOULEVARD, SUITE 500 LOS ANGELES, CA 90024 (310) 208-1182 Approximate date of commencement of proposed sale to public: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: | | If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box: |X| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: | | If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: | | If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box: | |
CALCULATION OF REGISTRATION FEE ================================================================================================================ PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE FEE - --------------------------------------- ------------ ------------------- ------------------- ----------------- Common stock, $0.01 par value, underlying Convertible Note 2,809,000(2) $1.37(3) 3,848,330(3) 311.33 - --------------------------------------- ------------ ------------------- ------------------- ----------------- Common stock, $0.01 par value, underlying Warrants 125,000 $1.37(3) 171,250(3) 13.86 - --------------------------------------- ------------ ------------------- ------------------- ----------------- Common stock, $0.01 par value, underlying Warrants 50,000 $1.37(3) 68,500(3) 5.54 - --------------------------------------- ------------ ------------------- ------------------- ----------------- Common stock, $0.01 par value, underlying Warrants 25,000 $1.37(3) 34,250(3) 2.77 - --------------------------------------- ------------ ------------------- ------------------- ----------------- Total 3,009,000 $4,122,330 $333.50 ======================================= ============ =================== =================== =================
(1) In the event of a stock split, stock dividend, or similar transaction involving common stock of the registrant, in order to prevent dilution, the number of shares registered shall be automatically increased to cover the additional shares in accordance with Rule 416(a) under the Securities Act. This registration statement covers an aggregate of 3,009,000 shares. (2) Represents 200% of the good faith estimate of the number of shares that are issuable to the selling security holder following the conversion of interest on and/or principal of a convertible note held by the selling security holder. If our good faith estimate is incorrect and we determine that additional common stock will be required to cover all principal and interest payments, we will be required to file a new registration statement to register any such additional shares. (3) Estimated solely for the purpose of calculating the registration fee as determined in accordance with Rule 457(c) under the Securities Act based on the average of the high and low sales prices per share as reported on the Nasdaq National Market(R)on June 2, 2003. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SECTION 8(a), MAY DETERMINE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING SECURITY HOLDERS IDENTIFIED IN THIS PROSPECTUS MAY NOT SELL SECURITIES UNDER THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART BECOMES EFFECTIVE. SUBJECT TO COMPLETION, DATED June 9, 2003 PROSPECTUS NETGURU, INC. 3,009,000 SHARES OF COMMON STOCK The shares of our common stock being offered under this prospectus are being offered by one of our security holders identified in this prospectus for its own account. Our common stock trades on The Nasdaq National Market(R) under the symbol "NGRU." The last reported sale price of our common stock on June 2, 2003, was $1.35 per share. Our principal offices are located at 22700 Savi Ranch Parkway, Yorba Linda, California 92887, and our telephone number is (714) 974-2500. ------------------------- INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 11. ------------------------- You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. The date of this prospectus is _________ ___, 2003. TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY.............................................................3 RISK FACTORS..................................................................11 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................17 SELLING SECURITY HOLDER.......................................................18 PLAN OF DISTRIBUTION..........................................................20 USE OF PROCEEDS...............................................................21 INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................................22 EXPERTS.......................................................................22 LEGAL MATTERS.................................................................22 WHERE YOU CAN FIND MORE INFORMATION...........................................23 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................24 2 PROSPECTUS SUMMARY This summary highlights some information from this prospectus. Because it is a summary, it necessarily does not contain all of the information necessary to your investment decision. To understand this offering fully, you should read carefully the entire prospectus, especially the risks of investing in our common stock discussed under "Risk Factors." In connection with a strategic financing with Laurus Master Fund, Ltd., or simply Laurus, this prospectus covers the resale of up to 2,809,000 shares of our common stock that are issuable upon conversion of a 6% Convertible Promissory Note, or the Convertible Note, in the principal amount of $2,000,000, and up to 200,000 shares of common stock that are issuable upon the exercise by Laurus of a warrant, called the Warrant in this prospectus, that we provided to Laurus in connection with the strategic financing. OUR COMPANY OVERVIEW We were incorporated in 1981 under the name Research Engineers, Inc. and changed our name to netGuru, Inc. in 2000. We are a Delaware corporation. Our primary business offerings are: o Engineering and collaborative software products and services for businesses worldwide; o Information technology, or IT, services (including value-added IT services); and o Web-based telecommunications and travel services (including long-distance communication services that include call termination services and prepaid phone cards; and travel services). PRODUCTS AND SERVICES Engineering and Collaborative Software Products and Services ------------------------------------------------------------ Over the past 21 years, we have continuously improved our core competency and established a strong brand for our engineering software within the architectural/engineering/construction, or A/E/C, markets worldwide. Our engineering software primarily is used for the specific calculations required for the design of civil and structural engineering projects. We have established our leadership position in the engineering software industry by being the first-to-market for personal computer-, or PC-, based engineering software and by being the first mover to penetrate foreign markets. Currently, 46 of the 50 largest engineering design firms in the world use our engineering software. We have 19,000 customers, with over 47,000 installations and approximately 160,000 users in 85 countries. Our stand-alone and network-based engineering software products provide fully integrated, easy-to-use design automation and analysis solutions for use by engineering analysis and design professionals worldwide. We have developed a comprehensive line of structural, mechanical, civil and process/piping engineering software products, including our STAAD/Pro(R) family of products, FabriCAD, ADLPIPE, STARDYNE(R), CIVILSOFT and CIVILMASTER(R). Our products assist engineers in performing mission-critical functions, including analysis and design of industrial, commercial, transportation and utility structures, pipelines, machinery, automotive and aerospace products; and survey, contour and digital terrain modeling. 3 All of our engineering software products use our proprietary Windows-based graphics engine that provides a modern graphics environment for model development, visualization/verification and drawing generation. These products are also designed for use with third-party computer aided design, or CAD, drafting systems, including AutoCAD and MicroStation. Our structural and civil engineering products provide eight international language options and twelve local design codes required by our worldwide markets. In April 2000, we acquired Allegria Software, Inc., a developer of Web-based document management and collaborative tools for engineers and manufacturers, and we added Allegria Software's e-Review and ForReview collaborative products to our offerings. Our collaborative software innovations are changing the way engineers conduct their day-to-day business. Once installed at a host location, our eReview collaborative software enables a host and other participants to engage in real-time Web-based conferencing and document sharing anywhere and anytime in over 150 widely used document formats. eReview allows our customers to bridge physical distances in their global business environments by enabling decision makers to communicate without costly and time consuming travel to geographically dispersed locations. Complementing eReview, our WebWorks software provides comprehensive project-based document and team management functions. Our collaborative products can be implemented as stand-alone enterprise solutions or as an integrated system working in concert with our other products. Due to our engineering experience, our collaborative software is ideally suited for multi-faceted A/E/C projects but also has direct application for many other industries. We offer our engineering products and solutions online at WEB4ENGINEERS.COM. On this site, we offer versions of our current software products such as STAAD/Pro(R), CIVILMASTER(R) and FabriCAD that are Web-enabled, which means that our customers can use these products from our Website by paying a fee instead of purchasing these products. We also offer our collaborative software product, eReview, in a Web-enabled version, which our customers can use for interactive Web-based meetings to view, annotate and markup documents online in real-time. We generate revenues from software licensing fees and annual support fees established at the time of the initial contract. Suggested list prices for most of our software products range from approximately $850 to $7,000 and up to $1,000 per license for eReview and related products. IT SERVICES We are an IT total solutions provider, or TSP. Our IT services division has provided contracted IT services and software solutions to a wide variety of vertical industry markets (that is, a particular industry or group of enterprises to whom similar goods and services can be sold), with an emphasis on engineering, aerospace, e-commerce, semiconductors, finance, education, insurance, manufacturing, distribution, retail, government, pharmaceuticals and healthcare. As a TSP, we provide our business-to-business clients with services that involve integration of multiple existing third party software solutions, and we also offer value-added IT services by incorporating our proprietary collaborative software technology and/or our engineering solution software into enterprise solutions designed to accomplish our clients' current objectives and grow with our clients' enterprises. We specialize in providing IT services that involve mission critical applications that deliver round-the-clock performance. 4 We offer our IT services through our two service offices located in Boston, Massachusetts and San Jose, California. We provide IT services both on a project basis and through on-site consulting. When we provide IT services on a project basis, we assume full project management responsibility. Typically, projects are of a fixed duration and are charged at a fixed price. When we provide on-site consulting services, we bill our clients on a time and materials basis. We provide IT services to customers in the United Kingdom, France and Germany in addition to customers in North America. We strive to contain costs while remaining competitive by utilizing our production centers in India to support our IT services business. WEB-BASED TELECOMMUNICATIONS AND TRAVEL SERVICES Our Web-based telecommunications and travel services activities comprise long-distance communication services that include call termination services and prepaid phone cards, and travel services targeted primarily toward certain niche markets. Long-Distance Communication Services ------------------------------------ We offer to communication service providers global long-distance call termination services through our gateway in the U.S. by traditional delivery methods such as international leased lines and satellite access. Our long-distance call termination services involve a number of steps. We collect voice and or data traffic from long-distance service providers. We convert analog traffic to digital traffic where necessary using software licensed from a third-party. We compress the traffic and carry it on our communications infrastructure. We then drop off the traffic at a point where another service provider picks up the traffic and carries it to its destination or to another service provider. We generate our revenues from the long-distance service provider from whom we received the traffic, and we pay the service provider to whom we drop off the traffic. As is typical of other small long-distance call termination service providers, we do not have long-term commitments with third parties to purchase or sell these communication services. Our managed communications network is designed to be a premium communications and data network built with carrier-grade communications switches and equipment linked by a combination of the Internet, international leased lines and satellite access. We monitor and control our communications network round-the-clock to deliver high quality voice communications. In the United States, our communications gateway and switch is located in a leased communications facility in Los Angeles, California. We sell prepaid phone cards through our automated proprietary Websites. The phone cards are available for both domestic and international long-distance calls. Most phone cards are paid for by credit card. Long distance call termination services are paid for by wire transfer or check within one or two weeks after we provide the service. Travel Services --------------- We offer online international travel services that primarily are targeted toward the Asian community and persons of Indian origin located throughout the world. Our travel services primarily consist of domestic and international flight reservations and ticketing, vacation travel planning and services, and travel services specifically tailored to the needs of our business client companies. Most online travel sales are paid for by credit card. 5 THE LAURUS MASTER FUND, LTD. STRATEGIC FINANCING On December 13, 2002, we entered into a certain Securities Purchase Agreement, as amended, with Laurus Master Fund, Ltd., or Laurus. In this prospectus, we refer to the Securities Purchase Agreement, as amended, as the Agreement. Pursuant to the Agreement, we sold to Laurus a 6% Convertible Note, or the Convertible Note, in the principal amount of $2,000,000, that matures on December 13, 2004. The net proceeds from the sale of the Convertible Note have been used for working capital. In consideration for the purchase of the Convertible Note, we paid Laurus Capital Management, LLC, an affiliate of Laurus, a $200,000 fee and issued Laurus a Warrant to purchase up to 200,000 shares of the Company's common stock at any time or from time to time on or before December 13, 2007. We have included in this prospectus for registration with the Securities and Exchange Commission, or the Commission, 200% of the shares underlying the Convertible Note, at an assumed conversion rate of $1.60 per share, and 100% of the shares underlying the Warrant. The Convertible Note requires monthly interest payments in arrears, and payment of a portion of the original principal, as amortized over 20 months, on the first business day of each month beginning May 1, 2003. The Convertible Note is secured by our assets, and is guaranteed by, and secured by the assets of, our six domestic subsidiaries. The Convertible Note is convertible at a fixed conversion price of $1.60 per share of our common stock, subject to anti-dilution adjustments in connection with mergers, acquisitions, stock splits, dividends and the like, and in connection with future issuances of our common stock at prices per share below the then-applicable conversion price. However, if we are in default under the Agreement or the Convertible Note, the Convertible Note will be convertible at a per share conversion price equal to the lower of the fixed conversion price or 70% of the average of the three lowest closing prices for our common stock during the preceding 30 trading days. Also, if a conversion occurs pursuant to a call notice as described below, then the conversion price will be equal to the lesser of the fixed conversion price and 90% of the average of the closing prices of our common stock during the 15 trading days preceding the date of the call notice. At any time before the Convertible Note is fully paid, Laurus may choose to convert all or part of the accrued interest on and/or principal of the Convertible Note at the conversion price then in effect, subject to the beneficial ownership limitations described below and subject to a volume limitation. The volume limitation prohibits Laurus from converting on any date any portion of the principal of or accrued interest on the Convertible Note that would result in the issuance of a number of shares of common stock with a dollar value exceeding 25% of the aggregate dollar trading volume during the 30 trading days preceding the date of conversion. At our election the monthly payment may be made in cash or in shares of our common stock, or in any combination of both, except that, during periods in which the registration statement of which this prospectus is a part is not effective or in which we are in default under the Convertible Note, we must make payments solely in cash. If we do not elect at least 20 days prior to a monthly payment date, then the payment shall be made in cash. If all or part of a monthly payment is made in cash, then the amount of cash paid to Laurus must equal 107% of the principal and interest due that month. If all or part of a monthly payment is made in shares of our common stock, then the then-effective conversion price is to be used to determine the number of shares to be issued. Notwithstanding the above, if we have elected to make a monthly payment in shares of our common stock and the average closing price of our common stock for the 10 trading days preceding the monthly payment date is less than 110% of the fixed conversion price, then we may make the monthly payment in cash or, at our option, Laurus may convert, at a mutually agreed upon conversion price, all or part of the monthly payment amount that we had elected to pay in shares of our common stock. 6 During any period when the registration statement of which this prospectus is a part remains effective, we may issue a call notice to Laurus stating that, at least 30 days from the date of the call notice, we wish to convert into shares of our common stock a portion or all of the principal of and interest accrued on the Convertible Note. No more than 20% of the aggregate dollar trading volume of our common stock for the 22 trading days preceding the date of the call notice may be converted under any call notice. The conversion price will be equal to the lesser of the fixed conversion price and 90% of the average of the closing prices of our common stock during the 15 trading days preceding the date of the call notice. During any period when the registration statement of which this prospectus is a part remains effective and we are not in default under the Convertible Note, we will have the right under the Agreement to redeem all or any portion of the remaining outstanding principal balance of the Convertible Note. To effect a redemption, we must issue Laurus a redemption notice that provides that we will pay Laurus a cash redemption price that is equal to 120% of the outstanding principal amount of the Convertible Note to be redeemed, plus all accrued but unpaid interest and other sums payable to Laurus, if any. Laurus may elect, within five business days, to convert all or any portion of the redemption price into shares of our common stock at the then-effective conversion price instead of receiving cash. On or before the seventh business day after Laurus receives the redemption notice, we must pay Laurus in cash an amount equal to the redemption price stated in the redemption notice less any portion of the redemption price Laurus elected to convert into shares of our common stock. The Warrant permits Laurus to purchase up to 200,000 shares of our common stock, at any time or from time to time, at the various exercise price. The Warrant permits Laurus to purchase up to 125,000 shares at an exercise price of $1.76 per share, up to an additional 50,000 shares at an exercise price of $2.08 per share, and up to an additional 25,000 shares at an exercise price of $2.40 per share. Each of the exercise prices and the number of shares underlying the Warrant are fixed but are subject to anti-dilution adjustments in connection with mergers, acquisitions, stock splits, dividends and the like. Laurus may pay the exercise price for the shares to be purchased upon exercise of the Warrant by paying cash equal to the number of shares to be purchased times the appropriate exercise price per share. For example, if Laurus were to purchase the first 125,000 shares, it would do so by delivering to us an exercise notice along with payment of $220,000 (125,000 x $1.76 exercise price). Alternatively, if the marketprice of our common stock exceeds the exercise price to be paid per share, Laurus may, at its option, exchange the right to purchase all or part of the maximum shares underlying the Warrant for that number of shares equal in value to the amount by which the closing price of a share of our common stock preceding the exercise date exceeds the exercise price, multiplied by the number of shares to be purchased at that exercise price. For example, if Laurus elects to purchase 1,000 shares under the Warrant where the closing price of our common stock is $10.00 and the exercise price per share is $1.76, then the number of shares Laurus would receive would be calculated by using the following formula: X=Y(A-B) X= the number of shares to be issued -------- Y= the number of shares purchasable A under the portion of the warrant being exercised A= the closing price of a share of common stock on the date of exercise B= the exercise price In the above example, the number of shares Laurus would receive would be calculated as follows pursuant to the formula: 824= 1000($10.00-$1.76) -------------- $10.00 Thus, in the example, Laurus would be issued 824 shares upon exercise of the Warrant. Laurus has contractually agreed to two separate beneficial ownership limitations that restrict conversion of the Convertible Note and the exercise of the Warrant. Laurus has agreed that the Convertible Note shall not be converted and the Warrant shall not be exercised to the extent that conversion of the Convertible Note or exercise of the Warrant would result in Laurus, together with its affiliates, beneficially owning in excess of 4.99% of the number of shares of our common stock outstanding at that time. Laurus may cause this 4.99% limitation to expire by providing us 75 days advance notice of its intention to do so. This 4.99% limitation does not preclude conversion of the Convertible Note or exercise of the Warrant over time, so long as Laurus' beneficial ownership of our common stock, together with its affiliates, does not exceed the limitation amount. This 4.99% limitation automatically becomes void upon an event of default under the Convertible Note. 7 Laurus has also agreed that the Convertible Note shall not be converted and the Warrant shall not be exercised to the extent that conversion of the Convertible Note or exercise of the Warrant would result in Laurus, together with its affiliates, beneficially owning more than 3,463,625 shares of our common stock, unless and until we obtain stockholder approval in accordance with Nasdaq corporate governance rules, or an exemption from the applicable provision of Nasdaq corporate governance rules. If Laurus requests, we must file a preliminary proxy statement seeking such approval within 30 days of the request, and we must also take the other steps necessary to obtaining the necessary approval within 90 days of the request. Events of default under the Convertible Note include failure to pay principal, interest or other fees due under the Convertible Note within four days after they become due, breach of any material covenant, term, representation or warranty contained in the Agreement or the Convertible Note if we do not cure the breach within 30 days after receipt of written notice of the breach, our making of an assignment for the benefit of creditors or the appointment of a receiver or trustee for all or substantially all of our property or business, the filing against us or our assets of any judgment, writ or similar final process for more than $250,000 if the judgment, writ or process remains unvacated, unbonded or unstayed for 90 days, institution of bankruptcy or similar proceedings against us, the existence of a Commission stop trade order or a suspension of trading on The Nasdaq National Market(R) for five consecutive days or for five days during any period of ten consecutive days (except where all Nasdaq trading is suspended), the occurrence of an event of default under the security agreement relating to the Convertible Note, and our failure to timely deliver common stock to Laurus upon conversion of the Convertible Note. If an event of default occurs and is continuing, then Laurus may accelerate the due date of all principal, interest and other fees and amounts remaining unpaid under the Convertible Note. In the event of an acceleration, the amount due and owing to Laurus shall be 125% of the outstanding principal amount of the Convertible Note, plus accrued and unpaid interest and fees, if any, which must be paid in cash. We have recorded a debt discount as a result of the issuance of the warrant of approximately $199,638, which amount will be charged to interest expense over the term of the Convertible Note using the effective yield method. We have also recorded the payment of $214,000 toward the fee to Laurus' affiliate as prepaid loan fees, which amount will be charged to interest expense, ratably, over the term of the Convertible Note. 8 THE OFFERING Common stock underlying the interest and/or principal of the Convertible Note 2,809,000 shares Common stock underlying the Warrant 200,000 shares Use of Proceeds All proceeds from the sale of shares underlying the Warrant and the convertible Note will be received by the selling security holder for its own account. See "Use of Proceeds." Risk Factors You should read the "Risk Factors" beginning on page 11, as well as other cautionary statements throughout this prospectus, before investing in shares of our common stock. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following financial data is provided as of and for the fiscal years ended March 31, 2002 and 2001 and as of and for the nine months ended December 31, 2002. The financial data as of and for the fiscal years ended March 31, 2002 and 2001 is derived from, and is qualified by reference to, the audited consolidated financial statements and the notes to those consolidated financial statements that are incorporated by reference into this prospectus. The financial data as of and for the nine months ended December 31, 2002 is derived from, and is qualified by reference to, unaudited consolidated financial statements incorporated by reference into this prospectus. In the opinion of our management, those unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial data as of and for the nine months ended December 31, 2002. Our historical results are not necessarily indicative of results to be expected for any future periods.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS YEARS ENDED NINE MONTHS DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): MARCH 31, ENDED DEC. 31, 2002 2001 2002 ---- ---- ---- Net revenues $ 24,284 $ 31,302 $ 15,260 Loss from operations (7,572) (6,519) (3,247) Net loss (8,944) (6,637) (3,172) Total comprehensive loss (9,001) (7,330) (2,912) Basic loss per share $ (0.53) $ (0.45) $ (0.18) Diluted loss per share $ (0.53) $ (0.45) $ (0.18) Weighted average shares outstanding, basic 16,982 14,781 17,305 Weighted average shares outstanding, diluted 16,982 14,781 17,305
9
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS): MARCH 31, 2002 MARCH 31, 2001 DEC. 31, 2002 -------------- -------------- ------------- Cash and cash equivalents......................... $ 3,466 $ 7,958 $ 2,656 Working capital................................... 3,766 8,670 2,271 Total assets...................................... 23,066 32,281 21,217 Long-term debt, net of current portion............ 567 840 1,373 Stockholders' equity.............................. 15,331 23,892 12,684
10 RISK FACTORS AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST OR MAINTAIN AN INVESTMENT IN SHARES OF OUR COMMON STOCK. THIS PROSPECTUS CONTAINS OR INCORPORATES BY REFERENCE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT IS LIKELY THAT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE PART OR ALL OF YOUR INVESTMENT. OUR PLANS TO RETURN TO PROFITABILITY DEPEND ON OUR ABILITY TO INCREASE REVENUES DESPITE CUTTING COSTS IN A VARIETY OF AREAS, WHICH MAY NOT BE FEASIBLE. We incurred net losses of $8,944,000 and $3,172,000 for the fiscal year ended March 31, 2002 and the nine months ended December 31, 2002, respectively. We used cash in operations totaling $3,225,000 and $2,284,000 for the fiscal year ended March 31, 2002 and the nine months ended December 31, 2002, respectively. During the past year we have significantly reduced our operating expenses. However, in order to achieve profitability, we must increase our revenues while continuing to control our expenses. We are continuing to implement cost containment measures in an effort to reduce our cash consumption from operations both domestically and abroad, and we are working to increase sales of our software products. The results of these combined efforts have reduced our cash used in operations to approximately $150,000 per month. We intend to continue these combined efforts with the goal of generating positive cash flow from operations in the quarter ending June 30, 2003. To accomplish this goal, we are tailoring our cost containment measures to ensure that each of our operating units or costs centers will generate positive cash flow. If adequate funds from operating activities are not available, we may be required to delay, scale back or eliminate portions of our operations and product development efforts or to obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain portions of our technologies or potential products or other assets. Furthermore, because some of the areas of expense cutting, such as sales and marketing and research and development, involve activities that we ordinarily undertake with the expectation that they will contribute to future revenues, obtaining and maintaining profitability may be difficult, even with reduced expenses. Even if near-term profitability can be achieved through cost-cutting, it will not be sustainable if the effect of cost-cutting is to impede future revenue growth. IF WE ARE UNABLE TO RAISE CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO FUND OPERATING CASH SHORTFALLS. Our future capital requirements will depend upon many factors, including sales and marketing efforts, the development of new products and services, possible future strategic acquisitions, the progress of our research and development efforts, and the status of competitive products and services. As of March 31, 2002 and December 31, 2002, we had working capital of $3,766,000 and $2,271,000, respectively, and an accumulated deficit of $16,805,000 and $19,977,000, respectively. As of those dates, we had $3,466,000 and $2,656,000, respectively, in cash and cash equivalents and $3,325,000 and $3,321,000, respectively, of accounts receivable, net of allowance for doubtful accounts. 11 We believe that current and future available capital resources will be adequate to fund our operations for the next twelve months. However, historically we have not been able to generate sufficient cash from our operating activities and have relied upon cash from financing activities to fund most of the cash requirements of our operating and investing activities. To the extent we are in need of any additional financing, it may not be available to us on acceptable terms, or at all. Our inability to obtain any needed financing could result in a significant loss of ownership and/or control of our proprietary technology and other important assets and could also hinder our ability to fund our continued operations and our product development efforts that historically have contributed significantly to our competitiveness. Any financing may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock likely will include financial and other covenants that will restrict our flexibility. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our common stock. WE ANTICIPATE THAT OUR ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" WILL INCREASE OUR LOSSES FOR THE YEAR ENDED MARCH 31, 2003 BY AN ESTIMATED $5.4 MILLION DUE TO AN IMPAIRMENT WRITE-DOWN FOR OUR IT SERVICES DIVISION AND COULD ALSO CAUSE US TO INCUR LARGE LOSSES IN FUTURE ACCOUNTING PERIODS IF WE DETERMINE THAT THERE HAS BEEN A SIGNIFICANT IMPAIRMENT OF GOODWILL. In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement 142, "Goodwill and Other Intangible Assets." We adopted this statement effective April 1, 2002. Under this statement, goodwill is no longer amortized and became subject to annual testing for impairment beginning April 1, 2002. The provisions of this statement require us to perform a two-step test to assess goodwill for impairment. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and we need not proceed to the second step. If the carrying value of a reporting unit exceeds its fair value, then we must determine and compare the implied fair value of the reporting unit's goodwill to the carrying value of its goodwill. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, then we will record an impairment loss in the amount of the excess. With regard to a reporting unit's goodwill balance at April 1, 2002, we were required to perform the first step of the annual testing for impairment by September 30, 2002. If the results of that step indicated that goodwill might be impaired, we were then required to complete the second step as soon as possible, but no later than March 31, 2003. We assessed the fair value of our three reporting units by considering their projected cash flows, using risk-adjusted discount rates, and by the market approach in evaluating the market valuation of the units as compared to competing companies. Given consideration of relevant factors, we concluded that, as of April 1, 2002, an impairment write-down for our IT services division was required. We currently estimate the impairment write-down for our IT services division to be approximately $5.4 million. The determination of the actual amount of the impairment and, therefore, the write-down for our IT services division, will be reported with our results for the year ended March 31, 2003. We are required to perform additional reviews for impairment annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the net carrying amount. We cannot predict whether or when there will be an additional impairment charge, or the amount of any such charge. If the charge is significant, it could cause the market price of our common stock to decline. THE VOTING POWER OF YOUR INVESTMENT AND OUR EARNINGS PER SHARE WOULD BE SUBSTANTIALLY DILUTED IF ALL OR A SIGNIFICANT PORTION OF THE DECEMBER 2002 NOTE WERE CONVERTED INTO SHARES OF OUR COMMON STOCK AT THE INITIAL CONVERSION PRICE. The 6% convertible note in the original principal amount of $2,000,000, or the December 2002 note, that we issued to Laurus Master Fund, Ltd., or Laurus, on December 13, 2002, initially was convertible by Laurus into up to 1,250,000 shares of our common stock at an initial fixed conversion price of $1.60 per share. This number of shares represented approximately 7.2% of the 17,325,150 shares of our common stock that were outstanding on May 2, 2003. As a result, if the entire principal balance of the December 2002 note were converted at the initial conversion price, substantial dilution of the voting power of your investment and of our earnings per share would occur. THE MARKET PRICE OF OUR COMMON STOCK AND THE VALUE OF YOUR INVESTMENT COULD SUBSTANTIALLY DECLINE IF ALL OR A SIGNIFICANT PORTION OF THE DECEMBER 2002 NOTE WERE CONVERTED INTO SHARES OF OUR COMMON STOCK AND RESOLD INTO THE MARKET, OR IF A PERCEPTION EXISTS THAT A SUBSTANTIAL NUMBER OF SHARES WILL BE ISSUED UPON CONVERSION OF THE NOTE AND THEN RESOLD INTO THE MARKET. If the conversion prices at which the December 2002 note is converted are lower than the price at which you made your investment, immediate dilution of the value of your investment will occur. In addition, sales of a substantial number of shares of common stock issued upon conversion of the note, or even the perception that such sales could occur, could adversely affect the market price of our common stock, which would mean that the note would be convertible into an increased number of shares of our common stock in cases where, as described elsewhere in these risk factors, the conversion price is based upon a discount from the closing price of our common stock. You could, therefore, experience a substantial decline in the value of your investment as a result of both the actual and potential conversion of the December 2002 note. THE VOTING POWER AND VALUE OF YOUR INVESTMENT COULD DECLINE IF THE DECEMBER 2002 NOTE IS CONVERTED AT A REDUCED PRICE DUE TO OUR ISSUANCE OF LOWER-PRICED SHARES. The $1.60 initial fixed conversion price of the December 2002 note will be subject to downward weighted-average anti-dilution adjustments in most cases where we issue securities at a purchase, exercise or conversion price that is less than the then-applicable fixed conversion price of the note. For example, if the fixed conversion price were $1.60 per share and we were to issue 1,000,000 shares of common stock at a price of $1.00 per share in a transaction that is not excluded from the anti-dilution provisions, then the fixed conversion price would be reduced to $1.57 per share, and an additional approximate 23,885 shares of common stock would become issuable upon conversion of the principal amount of the note. Consequently, the voting power and value of your investment would decline if conversions occurred at the new fixed conversion price. THE MARKET PRICE OF OUR COMMON STOCK COULD SUBSTANTIALLY DECLINE AND THE VOTING POWER AND VALUE OF YOUR INVESTMENT COULD BE SUBJECT TO UNLIMITED ADDITIONAL DILUTION IF THE DECEMBER 2002 NOTE WERE CONVERTED ON ONE OR MORE OCCASIONS AT AN ALTERNATE CONVERSION PRICE THAT APPLIES IF WE ISSUE A CALL NOTICE UNDER THAT NOTE, PARTICULARLY IF LAURUS SEQUENTIALLY CONVERTS PORTIONS OF THE NOTE INTO SHARES OF OUR COMMON STOCK AT ALTERNATE CONVERSION PRICES AND RESELLS THOSE SHARES INTO THE MARKET. If we issue call notices under the December 2002 note, then an alternate conversion price based on a discount from the market price of our common stock may apply, and the note could become convertible into an unlimited number of additional shares of our common stock, particularly if Laurus sequentially converts portions of the note into shares of our common stock at alternate conversion prices and resells those shares into the market. If Laurus sequentially converts portions of the December 2002 note into shares of our common stock at alternate conversion prices and resells those shares into the market, then the market price of our common stock could decline due to the additional shares available in the market, particularly in light of the relatively thin trading volume of our common stock. Consequentlyif Laurus repeatedly converts portions of the note at alternate conversion prices and then resells those underlying shares into the market, a continuous downward spiral of the market price of our common stock could occur that would benefit Laurus at the expense of other existing or potential holders of our common stock, creating a conflict of interest between Laurus and investors who purchase the shares of common stock resold by Laurus following conversion of the note. CONTRACTUAL LIMITATIONS THAT RESTRICT LAURUS' ABILITY TO CONVERT THE DECEMBER 2002 NOTE MAY NOT NECESSARILY PREVENT SUBSTANTIAL DILUTION OF THE VOTING POWER AND VALUE OF YOUR INVESTMENT. The contractual limitations that restrict Laurus' ability to convert the December 2002 note into shares of our common stock are limited in their application and effect and may not prevent substantial dilution of your investment. Laurus may not on any given date convert the note if, and to the extent, that the conversion would result in the issuance of a number of shares of common stock with a dollar value that exceeds 25% of the aggregate dollar trading volume of our common stock during the preceding 30 trading days. However, Laurus may make a series of smaller conversions that do not exceed this limitation but that result in a decline in the market price of our common stock and a decline in the voting power and value of your investment, particularly if Laurus sequentially converts portions of the note into shares of our common stock at alternate conversion prices and resells those shares into the market, as described elsewhere in these risk factors. In addition, Laurus is subject to a contractual 4.99% beneficial ownership limitation that prohibits Laurus from converting the note if and to the extent that the conversion would result in Laurus, together with its affiliates, beneficially owning more than 4.99% of our outstanding common stock. However, this 4.99% limitation automatically becomes void upon an event of default under the note and can be waived by Laurus upon 75 days' advance notice to us. In addition, this 4.99% limitation does not prevent Laurus from converting the note into shares of common stock and then reselling those shares in stages over time where Laurus and its affiliates to do not, at any given time, beneficially own shares in excess of the 4.99% limitation. Further, a contractual limitation that prohibits Laurus from converting the note if, and to the extent, the conversion would result in Laurus and its affiliates beneficially owning more than 3,463,625 shares of our common stock, will be removed if and when we obtain stockholder approval at Laurus' request or if an exemption from applicable Nasdaq corporate governance rules becomes available. Consequently, these limitations will not necessarily prevent substantial dilution of the voting power and value of your investment. CONVERSIONS OF THE DECEMBER 2002 NOTE AT DRAMATICALLY REDUCED CONVERSION PRICES COULD RESULT IN A CHANGE OF CONTROL OF OUR COMPANY. A change of control of our company could occur if, as discussed elsewhere in these risk factors, conversions of the December 2002 note occur at dramatically reduced conversion prices, such as if Laurus sequentially converts portions of the note at alternate conversion prices into shares of our common stock and resells those shares into the market. If a change of control occurs, then the stockholders who historically have controlled our company would no longer have the ability to exert significant control over matters that could include the election of directors, changes in the size and composition of the board of directors, and mergers and other business combinations involving our company. Instead, one or more other stockholders could gain the ability to exert this type of control and may also, through control of the board of directors and voting power, be able to control certain decisions, including decisions regarding the qualification and appointment of officers, dividend policy, access to capital (including borrowing from third-party lenders and the issuance of additional equity securities), and the acquisition or disposition of our assets. IF CONVERSIONS OF THE DECEMBER 2002 NOTE AT DRAMATICALLY REDUCED CONVERSION PRICES RESULT IN A CHANGE OF CONTROL OF OUR COMPANY OR THE FAILURE OF OUR COMMON STOCK TO MEET NASDAQ MINIMUM BID PRICE REQUIREMENTS, THEN WE COULD BE DELISTED FROM THE NASDAQ NATIONAL MARKET, WHICH COULD REDUCE THE LIQUIDITY OF OUR COMMON STOCK AND INHIBIT OR PRECLUDE OUR ABILITY TO RAISE ANY NEEDED WORKING CAPITAL FROM EQUITY INVESTORS. A change of control of our company or a substantial decline in the market value of our common stock could occur if, as discussed elsewhere in these risk factors, conversions of the December 2002 note occur at dramatically reduced conversion prices, such as if Laurus sequentially converts portions of the note into shares of our common stock and resells those shares into the market. Nasdaq's qualification standards require, among other things, that issuers apply for initial inclusion on Nasdaq following a change of control. Nasdaq looks at many factors in determining whether a change of control has occurred, including without limitation, changes in the management, board of directors, voting power and ownership of a company. If Nasdaq determines that a change of control has occurred due to conversions of the December 2002 note or otherwise, we would need to file a new listing application if we want to maintain our Nasdaq listing. We do not know whether, at the time, if any, that we would file a new listing application with Nasdaq, we would meet the initial listing standards of either The Nasdaq National Market or The Nasdaq SmallCap Market. In addition, Nasdaq's quantitative listing standards require, among other things, that listed companies maintain a minimum bid price of $1.00. If our bid price falls and remains below $1.00 for at least 30 consecutive trading days, whether due to sequential conversions of the note and resales of the underlying shares or otherwise, we may be delisted if we do not regain compliance with the bid price requirement within any applicable grace period. If we are delisted from The Nasdaq National Market, our stock price could decline and the ability of our stockholders and of any potential or future investors to achieve liquidity from our common stock could be severely limited. This could inhibit, if not preclude, our ability to raise any needed additional working capital through equity offerings on acceptable terms. IF WE ARE UNSUCCESSFUL IN ACHIEVING AND MAINTAINING COMPLIANCE WITH OUR REGISTRATION OBLIGATIONS WITH REGARD TO THE DECEMBER 2002 NOTE AND RELATED WARRANT, WE WILL INCUR SUBSTANTIAL MONETARY PENALTIES. The agreements we entered into in connection with our issuance of the December 2002 note require us to, among other things, register for resale the shares of common stock issued or issuable under the note and the accompanying warrant and maintain the effectiveness of the registration statement for an extended period of time. We currently are not in compliance with our registration obligations and are subject to liquidated damage assessments of 1% of the principal amount of the note for the first 45 days of non-compliance and 2% of the principal amount of the note for each month of non-compliance thereafter, subject to pro ration for partial months. If we are unable to obtain and maintain effectiveness of the required registration statement, then we may be required to pay additional liquidated damages, which would adversely affect our business, operating results, financial condition, and ability to service our other indebtedness by negatively impacting our cash flows. OUR LIMITED OPERATING HISTORY AND LACK OF EXPERIENCE IN OUR NEW OR PROPOSED LINES OF BUSINESS MAKES IT DIFFICULT TO PREDICT OUR FUTURE SUCCESS. We have only recently diversified our business and are now offering Internet-based business-to-business services and telephony services to the global community. We intend to provide integrated communications services to and from global destinations to consumers, carriers and businesses. As a result, we have limited or no operating histories in each of these new or proposed lines of business. Therefore, our historical financial information is of limited value in projecting our future success in these markets. 12 OUR EXPANSION INTO NEW LINES OF BUSINESS MAY DIVERT MANAGEMENT'S ATTENTION FROM OUR EXISTING OPERATIONS AND PROVE TO BE TOO COSTLY. We have been in the engineering software business for over 20 years, and our two IT consulting businesses have a combined 11 years of operating experience. We have only recently entered the Internet content and commerce services, Internet-based IT business-to-business services, and telephony services markets. In the future, we may expand into the integrated India-focused communications markets. Our expansion into these new and proposed lines of business may be difficult for us to manage because they involve different disciplines and require different expertise than our core businesses. Consequently, this expansion may detract management's time and attention away from our core businesses, and we may need to incur significant expenses in order to develop the expertise and reputation we desire, which could prevent us from generating revenues from these lines of business in amounts sufficient to justify the expenses we incur in operating them. OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR CURRENT MANAGEMENT TEAM. Our founder, Chairman and Chief Executive Officer, Amrit K. Das, and our President and Chief Operating Officer, Jyoti Chatterjee, have each been with us for more than 17 years. Their experience, expertise, industry knowledge and historical company knowledge would be extremely difficult to replace if we were to lose the services of either of them. The precise impact of the loss of services of either of them is extremely difficult to predict, but would likely result in, at a minimum, significant costs to recruit, hire and retain a successor and impaired operating results while the successor was being recruited and transitioning into the position. We do not currently maintain life insurance on the lives of either of these officers. THE MARKETS IN WHICH WE CURRENTLY COMPETE AND PLAN TO COMPETE ARE AND WILL CONTINUE TO BE HIGHLY COMPETITIVE, WHICH HAS RESULTED IN SIGNIFICANT PRICE COMPETITION AND LOWER PROFIT MARGINS AND MAY ALSO RESULT IN REDUCED REVENUES OR LOSS OF MARKET SHARE. The Internet-based services, Internet-based engineering software products and services and telephony services markets each are highly competitive. The market for Internet-based products and services is characterized by an increasing number of entrants due to low start-up costs. Some of our competitors and potential competitors have larger technical staffs, more established and larger marketing and sales organizations and significantly greater financial resources than ours. Our competitors may develop products and services that are superior to ours or that achieve greater market acceptance. Our future success will depend significantly upon our ability to increase our share of our target markets and to sell additional products, product enhancements and services to our customers. We are experiencing pricing and margin pressures as we work to expand the market share of our software products and services. We also are experiencing lower profit margins in our telephony operations due to the turmoil in that market sector. As a result of these pricing and margin pressures, we may experience declines in our revenues and market share. IF THE QUALITY AND MAINTENANCE OF THE THIRD-PARTY COMMUNICATIONS INFRASTRUCTURE ON WHICH WE RELY SUFFERS, OUR SERVICE COULD BE DISRUPTED, OUR REPUTATION COULD BE HARMED AND WE COULD LOSE CUSTOMERS. 13 We rely on a third-party communications infrastructure to carry our voice traffic. We have no control over whether the infrastructure on which we rely will be adequately maintained by the third parties or whether the third parties will be able to upgrade or improve their equipment and prevent it from becoming obsolete. If the third parties fail to maintain, upgrade or improve their equipment, our ability to provide services would be impaired or interrupted. Impairments or interruptions, particularly impairments or interruptions that are frequent or long-lasting, could harm our reputation and cause us to lose existing or potential customers. OUR OPERATING RESULTS MAY BE ADVERSELY IMPACTED BY EXCHANGE RATE FLUCTUATIONS. We have established and acquired international subsidiaries that prepare their balance sheets in the relevant foreign currency. In order to be included in our consolidated financial statements, these balance sheets are converted, at the then current exchange rate, into U.S. dollars, and the statements of operations are converted using weighted average exchange rates for the applicable periods. Foreign currency denominated sales may result in gains and losses on the conversion to U.S. dollars. Therefore, exchange rate fluctuations can have a detrimental effect on our reported operating results. We do not engage in hedging activities to protect against the risk of currency fluctuations. WE SELL A SIGNIFICANT PORTION OF OUR PRODUCTS AND SERVICES TO CUSTOMERS IN INTERNATIONAL MARKETS IN WHICH WE MAY HAVE DIFFICULTY PROTECTING IMPORTANT INTELLECTUAL PROPERTY RIGHTS. Sales of our products and services to customers located outside the U.S. accounted for approximately 24.8% and 19.1% of our net revenue for the fiscal years ended March 31, 2002 and March 31, 2001, respectively, and 33.3% of our net revenue for the nine months ended December 31, 2002. Our intellectual property rights are an important aspect of our international business. We rely primarily on a combination of contract, copyright, trademark and trade secret laws, domain registration, license and confidentiality agreements and software security measures to protect our proprietary technology. However, we believe that existing laws provide limited protection for our technology and that it may be possible for a third party to misappropriate our technology or to independently develop similar technology. Protective measures we take may be even less effective in the emerging Internet law field because online contracting, privacy and liability issues, among others, are still being resolved. This lack of certainty is even greater in India, where the use of the Internet is less evolved than in the U.S. In addition, effective copyright and trade secret protection may not be available in every jurisdiction where we distribute our products, particularly in foreign countries where the laws generally offer no protection or less protection than the laws of the U.S. The laws of India and other foreign countries in which we operate do not protect intellectual property rights to the same extent as those of the U.S. For example, India's statutory laws do not protect service marks. Because a significant portion of our sales of products and services comes from international markets, this lack of copyright and trade secret protection could adversely affect our business and results of operations if a third party were successful in copying our products and services and marketing products and services similar to ours. CONFLICTS INVOLVING INDIA AND FUTURE CHANGES IN THE INDIAN GOVERNMENT POLICY FAVORING ECONOMIC LIBERALIZATION COULD MAKE OUR INDIAN OPERATIONS ECONOMICALLY UNVIABLE. During the fiscal year ended March 31, 2002 and the nine months ended December 31, 2002, we derived only approximately 5.5% and 5.2%, respectively, of our total net revenues from sales made by our Indian operations, primarily to customers in India. However, nearly one-half of our employees, many of whom are engaged in non-sales activities such as technical support and research and development, were based in India. India has from time to time experienced civil unrest and hostilities with its neighboring countries. Although the Indian government has changed three times since 1996, the government of India has pursued policies of economic liberalization throughout the past decade. These 14 policies have resulted in significantly increased opportunities for publicly and privately held businesses in the information technology services markets in which we operate in India. However, we cannot assure you that the current government will remain in power or that these policies will continue. A significant change in the Indian government's policies could cause our operations in India to become more expensive or more difficult, and in either case cause us to have to re-evaluate the economic viability of operating there. Moreover, if civil unrest or hostilities involving India and any of its neighboring countries should occur, it could have an adverse effect on the communication infrastructure in India, which could, in turn, cause our operations there to cease making economic sense. In that event, we may need to expend significant time and resources in relocating and conducting our Indian operations elsewhere. THE RECENT WAR IN THE MIDDLE EAST COULD ADVERSELY AFFECT INTERNATIONAL TRAVEL WHICH, IN TURN, COULD NEGATIELY IMPACT REVENUES FROM OUR TRAVEL BUSINESS. The recent war between Iraq and the coalition forces may adversely impact international travel. Since our travel division derives over 80% of its revenues from international travel, decreases in international travel are likely to reduce revenues from our travel business and for our company overall. If the recent war or subsequent factors affect international travel patterns for more than a short period, our revenues and results of operations could be negatively impacted. REVENUES FOR OUR TRAVEL SERVICES DIVISION AND FOR OUR COMPANY OVERALL COULD BE NEGATIVELY AFFECTED IF INTERNATIONAL TRAVEL DECLINES DUE TO THE OUTBREAK OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS. Our travel business, which focuses on travel to India and neighboring countries could be adversely affected if the cause or mode of transmission of SARS is not determined soon. The uncertainty regarding SARS may cause travelers to become reluctant to travel by air, which could reduce the demand for our travel services. This, in turn, could negatively impact revenues from our travel division and for our company overall. CHANGING TECHNOLOGY MAY RENDER OUR PRODUCT AND SERVICE OFFERINGS OBSOLETE AND, THEREFORE, UNMARKETABLE. Our ability to compete successfully depends upon the continued compatibility and interoperability of our services with products and architectures offered by various vendors. Although we intend to support emerging standards in the market for Internet access, industry standards may not be established and, if they become established, we may not be able to conform to these new standards in a timely fashion or maintain a competitive position in the market. The announcement or introduction of new products or services by us or our competitors and any change in industry standards could cause our customers to defer or cancel purchases of existing products or services. U.S. FEDERAL OR STATE GOVERNMENTS MAY INCREASE TELEPHONY REGULATION, WHICH COULD CAUSE THAT BUSINESS TO BECOME ECONOMICALLY UNVIABLE, EITHER AS A RESULT OF INCREASED EXPENSES OR AS A RESULT OF LIMITATIONS ON GROWING THAT BUSINESS. Our provision of telecommunications services is subject to government regulation in the U.S. Federal law regulates international and interstate telecommunications, while states have jurisdiction over telecommunications that originate and terminate within the same state. Changes in existing policies or regulations by Congress, by the Federal Communications Commission, or the FCC, or any state could cause operating in this field to become more expensive or could cause expansion to become more difficult, such as by limiting the ability to obtain necessary licenses. We cannot assure you that the regulatory authorities in one or more states or the FCC will not take action which could have a negative impact on the viability of this aspect of our business. OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES OF OUR COMMON STOCK. The market prices of securities of technology-based companies like ours, particularly Internet-related companies, currently are highly volatile. The market price of our common stock has fluctuated significantly in the past. In fact, during the 52-week period ended May 2, 2003, the high and low sale prices of a share of our common stock were $3.95 and $0.68, respectively. Our market price may continue to exhibit significant fluctuations in response to a variety of factors, many of which are beyond our control. These factors include, among others, deviations in our results of operations from the estimates of securities analysts, changes in securities analysts' estimates of our financial performance, changes in market valuations of similar companies and stock market price and volume fluctuations generally. Additionally, until the full effects of our cost-cutting efforts that began over a year ago become clear, including whether those cuts have a long-term negative impact on revenues, it is likely that our quarter-to-quarter performance will be unpredictable and our stock price particularly volatile. 15 In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Because of the volatility of the market price of our common stock, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. OUR NET OPERATING LOSS CARRYFORWARDS MAY BE SUBJECT TO AN ANNUAL LIMITATION ON THEIR UTILIZATION, WHICH MAY INCREASE OUR TAXES AND DECREASE AFTER-TAX INCOME AND CASH FLOWS. As of March 31, 2002, we had available net operating loss carryforwards of $9,321,000 for federal income tax purposes and $5,133,000 for state income tax purposes. Due to the "change in ownership" provisions of the Tax Reform Act of 1986, our net operating loss carryforwards may be subject to an annual limitation on the utilization of these carryforwards against taxable income in future periods if a cumulative change in ownership of more than 50% occurs within any three-year period. To the extent we are unable to fully use these net operating loss carryforwards to offset future taxable income, we will be subject to income taxes on future taxable income, which will decrease our after-tax income and cash flows. THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK GIVES A FEW INDIVIDUALS SIGNIFICANT CONTROL OVER IMPORTANT POLICY DECISIONS AND COULD DELAY OR PREVENT CHANGES IN CONTROL. As of May 2, 2003, our executive officers and directors and their family members together beneficially owned approximately 45.1% of the issued and outstanding shares of our common stock. As a result, these persons have the ability to exert significant control over matters that could include the election of directors, changes in the size and composition of the board of directors, and mergers and other business combinations involving our company. In addition, through control of the board of directors and voting power, they may be able to control certain decisions, including decisions regarding the qualification and appointment of officers, dividend policy, access to capital (including borrowing from third-party lenders and the issuance of additional equity securities), and the acquisition or disposition of our assets. In addition, the concentration of voting power in the hands of those individuals could have the effect of delaying or preventing a change in control of our company, even if the change in control would benefit our stockholders. A perception in the investment community of an anti-takeover environment at our company could cause investors to value our stock lower than in the absence of such a perception. 16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains and incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend that those forward-looking statements be subject to the safe harbors created by those sections. These forward-looking statements generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance, and can generally be identified by the use of the words "believe," "intend," "plan," "expect," "forecast," "project," "may," "should," "could," "seek," "pro forma," "estimates," "continues," "anticipate" and similar words. The forward-looking statements and associated risks may include, relate to, or be qualified by other important factors, including, without limitation: o our ability to return to profitability and obtain additional working capital, if required; o our ability to successfully implement our future business plans; o our ability to attract strategic partners, alliances and advertisers; o our ability to hire and retain qualified personnel; o the risks of uncertainty of trademark protection; o risks associated with existing and future governmental regulation to which we are subject; and o uncertainties relating to economic conditions in the markets in which we currently operate and in which we intend to operate in the future. These forward-looking statements necessarily depend upon assumptions and estimates that may prove to be incorrect. Although we believe that the assumptions and estimates reflected in the forward-looking statements are reasonable, we cannot guarantee that we will achieve our plans, intentions or expectations. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ in significant ways from any future results expressed or implied by the forward-looking statements. We do not undertake to update, revise or correct any forward-looking statements. Any of the factors described above or in the "Risk Factors" section above could cause our financial results, including our net income (loss) or growth in net income (loss) to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially. 17 SELLING SECURITY HOLDER Laurus, the selling security holder may sell, from time to time under this prospectus, up to 3,009,000 shares of our common stock, including up to 200,000 shares of our common stock issuable upon exercise of the Warrant and up to 2,809,000 shares of our common stock, representing 200% of the shares that may become issuable upon conversion of the principal of and interest on the Convertible Note at the fixed conversion price of $1.60 per share. We issued the Convertible Note and Warrant to Laurus in a strategic financing transaction described above under the heading "Prospectus Summary - The Laurus Master Fund, Ltd. Strategic Financing." The following table sets forth, to our knowledge, certain information about Laurus as of March 31, 2003. Beneficial ownership is determined in accordance with the rules of the Commission, and includes voting or investment power with respect to the securities. In computing the number of shares beneficially owned by a holder and the percentage ownership of that holder, shares of common stock subject to options or warrants or underlying convertible notes held by that holder that are currently exercisable or convertible or are exercisable or convertible within 60 days after the date of the table are deemed outstanding. To our knowledge, Laurus has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by it, except that Laurus Capital Management, LLC, a Delaware limited liability company, may be deemed a control person of the shares owned by Laurus. David Grin and Eugene Grin are the principals of Laurus Capital Management, LLC. The address for Messrs. David Grin and Eugene Grin is 152, West 57th St., New York, NY 10019. At the initial conversion and exercise prices, the Convertible Note and the Warrant beneficially owned by Laurus would be convertible for or exercisable into more than 4.99% of our outstanding shares of our common stock if Laurus were to waive the beneficial ownership limitations described above under the heading "Prospectus Summary - The Laurus Master Fund, Ltd. Strategic Financing." However, as of the date of the table, Laurus had not requested such a waiver. At the initial conversion and exercise prices, the Convertible Note and the Warrant beneficially owned by Laurus would be convertible for or exercisable into more than 4.99% of our outstanding shares of our common stock if Laurus were to waive the beneficial ownership limitations described above under the heading "Prospectus Summary - The Laurus Master Fund, Ltd. Strategic Financing." However, as of the date of the table, Laurus had not requested such a waiver. Percentage of beneficial Ownership is based on 17,325,150 shares of common stock outstanding as of the date of the table.
SHARES OF COMMON SHARES OF STOCK BENEFICIALLY COMMON STOCK OWNED PRIOR SHARES OF BENEFICIALLY OWNED TO OFFERING COMMON STOCK AFTER OFFERING(1) ---------------------- BEING -------------------- SELLING SECURITY HOLDER NUMBER PERCENTAGE REGISTERED NUMBER PERCENTAGE ----------------------- ------ ---------- ---------- ------ ---------- Laurus Master Fund, Ltd. 3,009,000(2) 14.8% 3,009,000 -- --
18 - ------------------ (1) The amount assumes the sale of all shares being offered under this prospectus. (2) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling security holder has sole or shared voting power or investment power and also any shares, which the selling stockholder has the right to acquire within 60 days. The actual number of shares of common stock issuable upon the conversion or payment of the convertible note is subject to the future market price of our common stock, and could be materially less or more than the number estimated in the table. Furthermore, the selling stockholder has contractually agreed to restrict its ability to convert the convertible note or exercise its warrants and receive shares of our common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. 19 PLAN OF DISTRIBUTION The selling security holder, Laurus, and any of its donees, pledgees, assignees and other successors-in-interest, may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales, which may include block transactions, may be at fixed or negotiated prices. The selling security holder may use any one or more of the following methods when selling shares: o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker-dealer as principal and resales by the broker-dealer for its own account; o an exchange distribution in accordance with the rules of the applicable exchange; o privately negotiated transactions; o broker-dealers may agree with the selling security holder to sell a specified number of shares at a stipulated price per share; o a combination of any of these methods of sale; or o any other method permitted by applicable law, except that the selling security holder has agreed that it has not engaged and will not engage or cause, advise, ask or assist any person or entity, directly or indirectly, or engage, in short sales or our common stock, which are contracts for the sale of shares of stock that the seller does not own, or certificates which are not within the seller's control, so as to be available for delivery at the time when, under applicable rules, delivery must be made. The sale price to the public may be: o the market price prevailing at the time of sale; o a price related to the prevailing market price; o at negotiated prices; or o a price the selling security holder determines from time to time. The selling security holder has agreed, pursuant to the Securities Purchase Agreement, that it has not engaged and will not engage or cause, advise, ask or assist any person or entity, directly or indirectly, to engage, in short sales of our common stock. Broker-dealers engaged by the selling security holder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holder does not expect these commissions and discounts to exceed what is customary in the types of transactions involved. 20 The selling security holder and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are not deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part. In the event sales are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which the prospectus forms a part. In such post-effective amendment, we would be required disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales. In addition, if any shares of common stock or warrants offered for sale pursuant to this prospectus are transferred, subsequent holders could not use this prospectus until a post-effective amendment is filed, naming such holder. The selling security holder, alternatively, may sell all or any part of the shares offered under this prospectus through an underwriter. To our knowledge, the selling security holder has not entered into any agreement with a prospective underwriter, and we cannot assure you as to whether any such agreement will be entered into. If the selling security holder informs us that it has entered into such an agreement or agreements, any material details will be set forth in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part. This prospectus does not cover the sale or other transfer of the Convertible Note or the Warrant or the issuance of shares of our common stock to the selling security holder upon conversion of the Convertible Note or exercise of the Warrant. If the selling security holder transfers the Convertible Note or the Warrant prior to conversion or exercise, the transferee of those derivative securities may not sell the shares of common stock issuable upon conversion or exercise of those derivative securities under the terms of this prospectus unless we amend or supplement this prospectus to cover such sales. For the period a holder holds the Convertible Note and/or the Warrant, the holder has the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership of the shares of common stock issuable upon conversion or exercise of those derivative securities. The terms on which we could obtain additional capital during the period in which those derivative securities remain outstanding may be adversely affected. The holders of the derivative securities are most likely to voluntarily convert or exercise those derivative securities when the conversion price or exercise price is less than the market price for our common stock. However, we cannot assure you as to whether any of those derivative securities will be converted or exercised. USE OF PROCEEDS We will not receive any proceeds from the sale of the shares of our common stock offered by Laurus under this prospectus. Upon selling the common stock underlying the Convertible Note and/or the Warrant, the selling security holder will receive all proceeds directly. 21 INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a pending or completed action, suit or proceeding if the officer or director acted in good faith and in a manner the officer or director reasonably believed to be in the best interests of the corporation. Our certificate of incorporation provides that, except in certain specified instances, our directors shall not be personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors. In addition, our certificate of incorporation and bylaws obligate us to indemnify our directors and officers against expenses and other amounts reasonably incurred in connection with any proceeding arising from the fact that such person is or was an agent of ours. Our bylaws also authorize us to purchase and maintain insurance on behalf of any of our directors or officers against any liability asserted against that person in that capacity, whether or not we would have the power to indemnify that person under the provisions of the Delaware General Corporation Law. To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the provisions described above, we have been informed that in the opinion of the Commission, indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. EXPERTS The consolidated financial statements of netGuru, Inc. and subsidiaries as of March 31, 2002, and for the years ended March 31, 2002 and 2001, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, incorporated by reference herein, and upon the authority of that firm as experts in accounting and auditing. LEGAL MATTERS The legality of the securities offered under this prospectus will be passed upon for us by Richardson & Patel LLP, Los Angeles, California. 22 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Commission. You may read and copy any document we file at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for information on the operation of the Public Reference Room. Our filings with the Commission are also available to the public at the Commission's Web site at http://www.sec.gov. Our common stock is quoted on The Nasdaq National Market(R). Our reports, proxy statements and other information are also available to the public on Nasdaq's Web site at http://www.nasdaq.com. This prospectus is part of a registration statement on Form S-3 filed with the Commission under the Securities Act. This prospectus omits some of the information contained in the registration statement. You should refer to the registration statement for further information with respect to our company and the securities offered under this prospectus. Any statement contained in this prospectus concerning the provisions of any document filed as an exhibit to the registration statement or otherwise filed with the Commission is not necessarily complete, and in each case you should refer to the copy of the document filed for more complete information. 23 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Commission allows us to incorporate by reference information we file with it, which means we can disclose important information to you by referring you to documents we have filed with the Commission. The information incorporated by reference is considered to be a part of this prospectus. We incorporate by reference the documents listed below and any future filings we make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering covered by this prospectus: o Amendment No. 3 to our Annual Report of Form 10-KSB for the fiscal year ended March 31, 2002 (file no. 000-28560) filed with the Commission on May 6, 2003; o Amendment No. 2 to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2002 (file no. 000-28560) filed with the Commission on January 27, 2003; o Amendment No. 1 to our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2002 (file no. 000-28560) filed with the Commission on December 3, 2002; o Amendment No. 3 to our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002 (file no. 000-28560) filed with the Commission on May 6, 2003; o Our Quarterly Report on Form 10-QSB for the quarter ended December 31, 2002 (file no. 000-28560) filed with the Commission on February 19, 2003; o Amendment No. 2 to our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 (file no. 000-28560) filed with the Commission on January 27, 2003; o Amendment No. 2 to our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002 (file no. 000-28560) filed with the Commission on January 27, 2003; o Amendment No. 1 to our Current Report on Form 8-K for April 1, 2002 (file no. 000-28560) filed with the Commission on May 6, 2003; o Our Current report on Form 8-K for March 27, 2003 (file no. 000-28560) filed with the Commission on March 31, 2003; o Our Current Report on Form 8-K for December 5, 2002 (file no. 000-28560) filed with the Commission on December 20, 2002; o Our Current Report on Form 8-K for October 30, 2002 (file no. 000-28560) filed with the Commission on November 5, 2002; o Our Current Report on Form 8-K for August 13, 2002 (file no. 000-28560) filed with the Commission on August 14, 2002; o Our Current Report on Form 8-K for April 15, 2002 (file no. 000-28560) filed with the Commission on April 16, 2002; and o The description of our common stock contained in our Current Report on Form 8-K (file no. 000-28560) filed with the Commission on March 19, 2002. Any statement in a document incorporated or deemed to be incorporated by reference in this prospectus is deemed to be modified or superseded to the extent that a statement contained in this prospectus, or in any other document we subsequently file with the Commission, modifies or supersedes that statement. If any statement is modified or superseded, it does not constitute a part of this prospectus, except as modified or superseded. 24 We will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference in this prospectus but not delivered with this prospectus. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address and phone number: netGuru, Inc. 22700 Savi Ranch Parkway Yorba Linda, CA 92887 Attention: Clara Young Telephone: (714) 974-2500 25 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Expenses payable in connection with the distribution of the securities being registered (estimated except for the registration fee), all of which will be borne by the registrant, are as follows: Securities and Exchange Commission registration fee $ 333.50 Printing expense $ 500.00 Legal fees and expenses $ 20,000.00 Accounting fees $ 10,000.00 Miscellaneous expenses $ 500.00 -------------- Total $ 31,333.50 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a pending or completed action, suit or proceeding if the officer or director acted in good faith and in a manner the officer or director reasonably believed to be in the best interests of the company. The registrant's certificate of incorporation provides that, except in certain specified instances, a director of the registrant shall not be personally liable to the registrant or its stockholders for monetary damages for breach of fiduciary duty as a director. In addition, the registrant's certificate of incorporation and bylaws obligate the registrant to indemnify its directors and officers against expenses and other amounts reasonably incurred in connection with any proceeding arising from the fact that such person is or was an agent of the registrant. The registrant's bylaws also authorize the registrant to purchase and maintain insurance on behalf of any director or officer of the registrant against any liability asserted against such person in such capacity, whether or not the registrant would have the power to indemnify such person against such liability under the provisions of the Delaware General Corporation Law. 26 ITEM 16. EXHIBITS. EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.1 netGuru, Inc. Securities Purchase Agreement dated December 13, 2002 by and between netGuru, Inc. and Laurus Master Fund, Ltd. (1) 4.2 Amendment No. 1 to Securities Purchase Agreement dated as of December 13, 2002 by and between netGuru, Inc. and Laurus Master Fund, Ltd. 4.3 6% Convertible Note dated December 13, 2002 in the principal amount of $2,000,000 made by netGuru, Inc. in favor of Laurus Master Fund, Ltd. (1) 4.4 Amendment No. 1 to Convertible Note in the principal amount of amount of $2,000,000 dated June 4, 2003 by and between netGuru, Inc. and Laurus Master Fund, Ltd. 4.5 Common Stock Purchase Warrant dated December 13, 2002 issued by netGuru, Inc. in favor of Laurus Master Fund, Ltd. (2) 4.6 Security Agreement dated December 13, 2002 by and between netGuru, Inc. and Laurus Master Fund, Ltd. (1) 4.7 Security Agreement dated December 13, 2002 by and between U.S. subsidiaries of netGuru, Inc. and Laurus Master Fund, Ltd. (1) 4.8 Guarantee Agreement dated December 13, 2002 by and between U.S. subsidiaries of netGuru, Inc. and Laurus Master Fund, Ltd. (1) 5.1 Opinion of Richardson & Patel LLP 23.1 Consent of KPMG LLP 23.2 Consent of Richardson & Patel LLP (contained in Exhibit 5.1) 24.1 Power of Attorney (contained on the signature page to this registration statement) 99.1 Press Release dated December 20, 2002 Announcing Transaction With Laurus Master Fund, Ltd. (1) - ---------- (1) Filed on December 20, 2002 as an exhibit to, and incorporated herein by reference from, the registrant's Current Report on Form 8-K for December 5, 2002. (2) Originally filed on December 20, 2002 as an exhibit to the registrant's Current Report on Form 8-K for December 5, 2002 and resubmitted as the final executed copy. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and 27 (iii) to include any additional or changed material information on the plan of distribution. Provided however, that paragraphs (1)(i) and (1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) For determining liability under the Securities Act of 1933, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. 28 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Yorba Linda, State of California, on June 9, 2003. netGuru, Inc. By: /s/ Amrit K. Das -------------------------------------- Amrit K. Das, Chief Executive Officer 29 KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of netGuru, Inc., a Delaware corporation that is filing a registration statement on Form S-3 with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, hereby constitute and appoint Amrit K. Das and Jyoti Chatterjee, and each of them, their true and lawful attorneys-in-fact and agents; with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign such registration statement and any or all amendments to the registration statement, including a prospectus or an amended prospectus therein, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all interests and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the following capacities on the dates indicated.
Name Title Date ---- ----- ---- /s/ Amrit K. Das Chairman of the Board, Chief Executive June 9, 2003 - --------------------------- Officer and Director (principal executive Amrit K. Das officer) /s/ Jyoti Chatterjee President, Chief Operating Officer and June 9, 2003 - --------------------------- Director Jyoti Chatterjee /s/ Bruce Nelson Chief Financial Officer June 9, 2003 - --------------------------- (principal financial and accounting officer) Bruce Nelson /s/ Santanu Das Corporate Vice President, President, June 9, 2003 - --------------------------- Engineering, Collaboration and Animation Santanu Das Software and Director /s/ Stephen Owen Corporate Vice President, President of June 9, 2003 - --------------------------- European Operations and Director Stephen Owen /s/ L.M. Singhvi Director June 9, 2003 - --------------------------- L.M. Singhvi /s/ Garrett W. Vreeland Director June 9, 2003 - ---------------------------- Garrett W. Vreeland /s/ Stanley W. Corbett Director June 9, 2003 - ---------------------------- Stanley W. Corbett
30 INDEX TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.2 Amendment No. 1 to Securities Purchase Agreement dated as of December 13, 2002 by and between netGuru, Inc. and Laurus Master Fund, Ltd. 4.4 Amendment No. 1 to Convertible Note in the principal amount of amount of $2,000,000 dated June 4, 2003 by and between netGuru, Inc. and Laurus Master Fund, Ltd. 4.5 Common Stock Purchase Warrant dated December 13, 2002 issued by netGuru, Inc. in favor of Laurus Master Fund, Ltd. 5.1 Opinion of Richardson & Patel LLP 23.1 Consent of KPMG LLP 23.2 Consent of Richardson & Patel LLP (contained in Exhibit 5.1) 31 EX-4.2 3 netguru_s3ex4-2.txt EXHIBIT 4.2 AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT Reference is hereby made to the Securities Purchase Agreement (the "AGREEMENT") made and entered into as of December 13, 2002, by and among netGuru, Inc., a Delaware corporation (the "COMPANY") and Laurus Master Fund, Ltd., a Cayman Islands company (the "PURCHASER"). Terms used herein and not otherwise defined herein shall have the meaning set forth in the Agreement. WHEREAS, the parties desire to amend Section 8.4 of the Agreement; and WHEREAS, in consideration of their mutual promises and covenants set forth herein and in the Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Pursuant to Section 12.6 of the Agreement, and effective as of December 13, 2002, the parties amend and restate Section 8.4 of the Agreement in its entirety as follows: 8.4 NASDAQ APPROVAL. The Company and the Purchaser agree that, until the Company either obtains shareholder approval of the issuance of the Securities, or an exemption from NASDAQ's corporate governance rules as they may apply to the Securities, and an opinion of counsel reasonably acceptable to the Purchaser that NASDAQ's corporate governance rules do not conflict with nor may result in a delisting of the Company's common stock from the NASDAQ National Market (the "APPROVAL") upon the conversion of the Notes or the exercise of the Warrant, the Purchaser may not receive, whether upon conversion of the Notes or upon exercise of the Warrant, more than the number of common shares that would increase the Purchaser's total holdings of the Company's common stock to greater than 19.9% of the shares of Company's common stock outstanding on the Closing Date. The Company covenants to attempt to obtain the Approval required pursuant to NASDAQ's corporate governance rules to allow conversion of all the Notes and interest thereon upon written request of the Purchaser (the "TRIGGER DATE"). The Company further covenants to file the preliminary proxy statement relating to the Approval with the Commission on or before thirty days after the Trigger Date ("PROXY FILING DATE"). The Company further covenants to take all steps necessary to require shareholders to vote on the Approval no later than ninety days after the Trigger Date ("APPROVAL DATE"). 2. There are no other modifications to the Agreement. Dated: March 19, 2003 March 19, 2003 AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED BY NETGURU, INC. BY LAURUS MASTER FUND, LTD. By: /s/ Jyoti Chatterjee By: /s/ David Grin ------------------------------- ------------------------------ Name: Jyoti Chatterjee Name: David Grin Title: President Title: Director EX-4.4 4 netguru_s3ex4-4.txt Exhibit 4.4 AMENDMENT NO. 1 TO CONVERTIBLE NOTE IN THE PRINCIPAL AMOUNT OF $2,000,000 Reference is hereby made to the Convertible Note (the "Note") made and entered into as of December 13, 2002, by and between netGuru, Inc., a Delaware corporation (the "Borrower") and Laurus Master Fund, Ltd., a Cayman Islands company (the "Holder"). Terms used herein and not otherwise defined herein shall have the meaning set forth in the Note. WHEREAS, the parties hereto desire to amend Article II, Section 2.2 and 2.3 of the Note; and WHEREAS, in consideration of their mutual promises and covenants set forth herein and in the Note, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Effective as of December 13, 2002, the parties amend Article II Section 2.2 and 2.3 of the Note by deleting Section 2.2 and 2.3 thereof in its entirety and in its stead inserting, respectively the following: "2.2 CASH OR COMMON STOCK. Subject to the terms hereof, the Borrower has the sole option to determine whether to satisfy payment of the Monthly Amount in full on each Repayment Date either in cash or in shares of Common Stock, or a combination of both. The Borrower shall deliver to the Holder a written irrevocable notice in the form of Exhibit B attached hereto electing to pay such Monthly Amount in full on such Repayment Date in either cash or Common Stock, or a combination of both ("Repayment Election Notice"). Such Repayment Election Notice shall be delivered to the Holder at least (20) days prior to the applicable Repayment Date (the date of such notice being hereinafter referred to as the "Notice Date"). If such Repayment Election Notice is not delivered within the prescribed period set forth in the preceding sentence, then the repayment shall be made in cash. If the Borrower elects or is required to repay all or a portion of the Monthly Amount in cash on a Repayment Date, then on such Repayment Date the Borrower shall pay to the Holder an amount equal to 107% of the Monthly Amount in satisfaction of such obligation. If the Borrower repays all or a portion of the Monthly Amount in shares of Common Stock, the number of such shares to be issued for such Repayment Date shall be the number determined by dividing (x) the portion of the Monthly Amount to be paid in shares of Common Stock, by (y) the Conversion Price (as defined herein) as of such date." "2.3 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the contrary herein, the Borrower shall be prohibited from exercising its right to repay the Monthly Amount in shares of Common Stock (and must deliver cash in respect thereof) on the applicable Repayment Date if at any time from the Notice Date until the time at which the Holder receive such shares there fails to exist an effective registration statement or an Event of Default hereunder exists or occurs. 2. There are no other modifications to the Note. Dated: June 4, 2003 June 4, 2003 AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED BY NETGURU, INC. BY LAURUS MASTER FUND, LTD. By: /s/ Jyoti Chatterjee By: /s/ David Grin ---------------------------- ------------------------- Name: Jyoti Chatterjee Name: David Grin Title: President Title: Manager EX-4.5 5 netguru_s3ex4-5.txt EXHIBIT 4.5 THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NETGURU, INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 200,000 Shares of Common Stock of Netguru, Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. 2002-1 Issue Date: December 13, 2002 NETGURU, INC., a corporation organized under the laws of the State of Delaware (the "COMPANY"), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "HOLDER"), is entitled, subject to the terms set forth below, to purchase from the Company from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through five (5) years after such date (the "EXPIRATION DATE"), up to 200,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), no par value, of the Company, at the Exercise Price (as defined below). The number and character of such shares of Common Stock and the Exercise Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Netguru, Inc. and any corporation which shall succeed or assume the obligations of Netguru, Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, par value $.01 per share, and (b) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The term "Exercise Price" shall be as follows: (i) 125,000 shares at $ 1.76; (ii) 50,000 shares at $ 2.08; (iii) 25,000 shares at $ 2.40. 1. EXERCISE OF WARRANT. 1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of the exercise notice attached hereto as Exhibit A (the "EXERCISE NOTICE"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock as of a particular date (the "DETERMINATION DATE") shall mean: (a) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market or the NASDAQ SmallCap Market, then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market or the NASDAQ SmallCap Market but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 2. PROCEDURE FOR EXERCISE. 2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 3 business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. -2- 2.2. EXERCISE. (a) Payment may be made either in (i) cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. (b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X=Y (A-B) --- A --------- Where X= the number of shares of Common Stock to be issued to the Holder Y= the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A= the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B= Exercise Price (as adjusted to the date of such calculation) 3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. 3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2. DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant after the -3- effective date of such dissolution pursuant to Section 3.1 to a bank or trust company having its principal office in New York, NY, as trustee for the Holder of the Warrant. 3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the holders of the Warrant be delivered to the Trustee as contemplated by Section 3.2. 4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise. 5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. -4- 7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "TRANSFEROR") with respect to any or all of the Shares. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "TRANSFEROR ENDORSEMENT FORM") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Transferor's counsel that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "TRANSFEREE"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Securities Purchase Agreement entered into by the Company and Purchaser of the Company's Convertible Notes (the "NOTES") at or prior to the issue date of this Warrant. 10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 4.99%. The restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is automatically null and void upon an Event of Default under the Note. 11. WARRANT AGENT. The Company may, by written notice to the each holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to -5- the Company in writing by such holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 15. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York; provided, however, that the Holder may choose to waive this provision and bring an action outside the state of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party. [THIS SPACE INTENTIONALLY LEFT BLANK] -6- IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of the date first written above. NETGURU, INC. By:/s/Jyoti Chatterjee Witness: /s/Bruce K. Nelson BRUCE K. NELSON CFO NetGuru, Inc. -7- EXHIBIT A FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO: Netguru, Inc. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchaseable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ____________________ whose address is _______________________________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated:___________________ _________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) _________________________________________ (Address) -8- Exhibit B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Netguru, Inc. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of Netguru, Inc. with full power of substitution in the premises. ========================== ========================== ========================== Transferees Percentage Number Transferred Transferred - -------------------------- -------------------------- -------------------------- - -------------------------- -------------------------- -------------------------- - -------------------------- -------------------------- -------------------------- - -------------------------- -------------------------- -------------------------- - -------------------------- -------------------------- -------------------------- - -------------------------- -------------------------- -------------------------- ========================== ========================== ========================== Dated:___________________ _________________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) Signed in the presence of: _______________________________ _________________________________________ (Name) (address) _________________________________________ ACCEPTED AND AGREED: (address) [TRANSFEREE] _______________________________ (Name) -9- EX-5.1 6 netguru_s3ex5-1.txt EXHIBIT 5.1 (Richardson & Patel Letterhead) June 9, 2003 netGuru, Inc. 22700 Savi Ranch Parkway Yorba Linda, California 92887 Re: Registration Statement on Form S-3 (Registration Statement No. 333- ) Covering 3,009,000 Shares of Common Stock ----------------------------------------- Ladies and Gentlemen: We have acted as counsel for netGuru, Inc., a Delaware corporation ("netGuru"), in connection with the preparation of a registration statement on Form S-3 (the "Registration Statement") filed by netGuru with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act of 1933, as amended (the "Act"), relating to the public resale by a certain selling security holder (the "Selling Shareholder") of up to 3,009,000 shares of common stock, par value $0.01 per share ("Common Stock"), such Registration Statement filed on or about June 9, 2003. In connection with rendering the opinion as set forth below, we have reviewed (a) the Registration Statement and the exhibits thereto; (b) netGuru's Certificate of Incorporation, as amended; (c) netGuru's Bylaws; (d) certain records of netGuru's corporate proceedings as reflected in its minute books; and (e) such statutes, records and other documents as we have deemed relevant. We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and conformity with the original documents of all documents submitted to us as copies. In addition, we have made such other examinations of law and fact as we have deemed relevant in order to form a basis for the opinion hereinafter expressed. Based upon the foregoing, we are of the opinion that, upon completion of the proceedings being taken or contemplated by the Company or us, as your counsel, the shares to be sold by the Selling Shareholder, when issued and sold in the manner described in the Registration Statement, in accordance with the resolutions adopted by the Board of Directors of the Company and in accordance with the applicable agreements and charter documents of the Company, will be validly issued, fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the references to this firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act, or the General Rules and Regulations of the Commission. Very truly yours, /S/ RICHARDSON & PATEL LLP EX-23.1 7 netguru_s3ex23-1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors netGuru, Inc.: We consent to the incorporation by reference in the Registration Statement on Form S-3 and related Prospectus of netGuru, Inc. of our report dated May 30, 2002, except as to Note 11, which is as of March 28, 2003, relating to the consolidated balance sheet of netGuru, Inc. and subsidiaries as of March 31, 2002, and the related consolidated statements of operations, stockholders' equity and comprehensive loss and cash flows for the years ended March 31, 2002 and 2001, which report appears in Amendment Nos. 1, 2 and 3 to the March 31, 2002 Annual Report on Form 10-KSB of netGuru, Inc., and to the reference to our firm under the heading "Experts" in the Prospectus. /s/ KPMG LLP Orange County, California June 9, 2003 -----END PRIVACY-ENHANCED MESSAGE-----