CYBERDEFENDER
CORPORATION
617
West 7th Street,
10th
Floor
Los
Angeles, CA 90017
January
21, 2011
VIA
EDGAR
Ms.
Kathleen Collins
Accounting
Branch Chief
United
States Securities and Exchange Commission
Division
of Corporate Finance/Mail Stop 4561
100 F
Street, N.E.
Washington,
D.C. 20549
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Re:
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CyberDefender
Corporation
Form
10-K/A for the Fiscal Year Ended December 31, 2009
Filed
on December 21, 2010
File
No. 000-53475
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Dear Ms.
Collins:
This
letter is in response to your letter dated January 13, 2011, to Gary Guseinov,
Chief Executive Officer of CyberDefender Corporation (the “Company”) relating to
the Company’s Form 10-K/A for the fiscal year ended December 31, 2009 (the
“Filing”). For convenience of reference, we have repeated your
comments in this response.
Form 10-K for the Fiscal
Year Ended December 31, 2009
Item 9.A Controls and
Procedures, page 27
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1.
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We
note the company’s Chief Executive Officer and Chief Financial Officer
concluded that your disclosure controls and procedures and internal
controls over financial reporting were not effective at December 31, 2009
due to a material weakness. Your disclosures indicate that the
material weakness was the lack of a functioning audit committee, which
resulted in ineffective oversight in the establishment and monitoring of
required internal controls and procedures. We further note that
your disclosure controls were not effective at each quarter-end date in
fiscal 2010. The disclosures in the March 31, 2010 and June 30,
2010 Forms 10-Q/A and the September 30, 2010 Form 10-Q indicate that in
applying accounting standards, your control environment is dependent upon
a review function and the ability to recognize and obtain assistance for
transactions and due to the failure of “this control”, you were required
to restate your financial statements. Explain further what you
mean by “this control.” In addition, it is unclear whether the
material weakness that existed at December 31, 2009 was the same weakness
noted in subsequent quarters. Please clarify and describe
further the material weaknesses that existed at each period end date and
explain, in detail, what remediation efforts you are making (or have made)
to resolve these matters.
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“This
control” refers to the Company’s need, when deciding how to account for certain
non-routine or sophisticated transactions, to obtain expert review and
advice.
Ms.
Kathleen Collins
Accounting
Branch Chief
United
States Securities and Exchange Commission
January
21, 2011
Page
2
Due to
the small size of our accounting department, lack of financial resources and
limited knowledge of the accounting standards by members of senior management
other than the Chief Financial Officer, we failed to recognize that the
transaction discussed in comment number 2 below did not meet the criteria of ASC
340-20-4 and should, therefore, have been reviewed by an expert.
This
material weakness existed at December 31, 2009 and is the same material weakness
that existed at each period end date. In an effort to remediate the
identified material weakness and enhance our internal controls, we have
initiated, or plan to initiate, the following series of measures:
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Additional
accounting personnel were hired during fiscal year 2010, including a
corporate controller;
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The
Company’s Board of Directors formed an Audit Committee on May 26, 2010; we
expect these individuals to be able to assist us in determining which
transactions may need review by
experts;
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The
Company will ensure that personnel responsible for the Company's internal
control over financial reporting and disclosure controls and procedures
participate in ongoing continuing professional education;
and
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The
Company will use external resources as appropriate to assist in ensuring
that transactions are appropriately accounted for and that the Company's
internal controls over financial reporting and disclosure controls and
procedures are effective.
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Notes to Financial
Statements
Note 2 – Restatement of
Financial Statements for the Year Ended December 31, 2009, page
F-13
2. We
note your December 31, 2009 financial statements were restated, in part,
expensing direct-response advertising costs as incurred rather than capitalizing
and amortizing such costs. In your letters dated May 10, 2010
(comment 13) and June 22, 2010 (comment 6) you provided various arguments and
considerations in support of capitalizing such costs pursuant to ASC
340-20. Please explain, in detail, the facts and circumstances that
lead to this change and specifically address the company’s reconsideration of
the accounting as previously communicated to the Staff in the response letters
noted herein.
On
October 11, 2010, the Company engaged Grant Thornton LLP as its new independent
registered public accounting firm. As part of the transition to the
new firm, management reviewed its accounting policies and procedures in all
significant areas, including the re-examination of the criteria used for
capitalizing direct-response advertising costs under ASC
340-20-4. ASC 340-20-4 states that both of the following conditions
must be met: (i) the primary purpose of the advertising is to elicit sales to
customers who could be shown to have responded specifically to the advertising;
and (ii) the direct-response advertising results in probable future benefits. As
mentioned in our prior responses dated May 10 and June 22, 2010, in March 2009
we entered into a Media and Marketing Services Agreement with GR Match, LLC
(“GRM”), pursuant to which GRM provides direct response media campaigns,
including radio and television direct response commercials, to promote our
products and services. In connection with the agreement, we
established three specific websites (www.doublemyspeed.com, www.mycleanpc.com
and www.maxmyspeed.com (the “Websites”)), which are not connected to
www.CyberDefender.com, to track all responses from the radio and television
direct-response commercials. The Company tracks its direct-response advertising
campaigns on a daily basis with the following website metrics: unique visitors,
download attempts, gross installations, order page clicks and
orders. Therefore, our initial conclusion was that the Company met
the first condition outlined in ASC 340-20-4. However, after
additional review, management re-examined ASC 340-20-25-6 and
determined that it did not meet the requirement that customers responded
specifically to the advertising, including documentation of the response, and
therefore the Company should not have capitalized its direct-response
advertising costs.
Ms.
Kathleen Collins
Accounting
Branch Chief
United
States Securities and Exchange Commission
January
21, 2011
Page
3
The
specific reasons that management changed its determination under ASC 340-20-25-6
are as follows. First, although the Company only advertises the
Websites by means of direct-response television and radio commercials, we could
not be certain that all visitors to the Websites have seen or heard our
direct-response commercials, and it is possible that customers who visited the
Websites might have been directed to them by other means, such as
referrals. Second, we were not able to track each customer to the
specific commercial that the customer saw or heard and that caused them to visit
the Websites and purchase our products and services. For example, we
may have run a direct-response television commercial on two different channels
at or about the same time and, immediately following those two commercials,
received visitors to the Websites to whom we sold products and
services. Although we were able to determine that the two
direct-response commercials elicited sales and we were able to track the exact
number of unique visitors to the Websites and the sales that resulted from those
visits, we were not able to determine specifically to which of the two
commercials each customer responded.
In making
this response we acknowledge that:
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CyberDefender
Corporation is responsible for the adequacy and accuracy of the disclosure
in the filing;
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Staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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CyberDefender
Corporation may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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We hope
that we have adequately addressed your comments. If you have further
comments, we ask that you forward a copy of them by facsimile to Kevin
Friedmann, Esq. of Richardson & Patel LLP at (917) 591-6898. Mr.
Friedmann’s telephone number is (212) 561-5559.
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Very
truly yours,
CyberDefender
Corporation
Kevin
Harris, Chief Financial
Officer
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