AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 2000.
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETGURU, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7370 22-2356861
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification Number)
</TABLE>
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 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)
COPY TO:
LARRY A. CERUTTI, ESQ.
RUTAN & TUCKER LLP
611 ANTON BOULEVARD, SUITE 1400
COSTA MESA, CALIFORNIA 92626
(714) 641-5100
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: [ ]
--------------------
<TABLE>
<CAPTION>
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(2) Offering Price(2) Fee
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $.01 par value................... 2,270,270(3) $3.75 $8,513,513 $2,248
=======================================================================================================================
</TABLE>
(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.
(2) The aggregate offering price of the registrant's shares is estimated solely
for the purpose of calculating the registration fee payable pursuant
hereto, as determined in accordance with Rule 457(c) under the Securities
Act as of December 4, 2000.
(3) Represents shares of common stock being offering by selling security
holders, including shares issuable upon exercise of outstanding warrants to
purchase common stock of the registrant.
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 PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 7, 2000
PROSPECTUS
NETGURU, INC.
2,270,270 SHARES OF COMMON STOCK
The 2,270,270 shares of our common stock, $.01 par value per share,
offered hereby are being offered by certain of our security holders, who are
identified in the section of this prospectus entitled "Selling Security
Holders." The shares being offered hereby include shares of common stock
currently outstanding and shares issuable upon exercise of certain outstanding
warrants.
The price of the common stock being offered by the selling security
holders may vary, depending on market conditions. We will not receive any of the
proceeds from the sale of the shares by the selling security holders.
There is an existing market for these shares. Our common stock is
traded on the Nasdaq National Market System under the symbol "NGRU." The last
reported sales price of our common stock on December 4, 2000, was $3.75 per
share.
----------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 9.
----------------------
The information in this prospectus is not complete and may be changed.
The selling security holders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell securities, and the selling
security holders are not soliciting offers to buy these securities, in any state
where the offer or sale is not permitted.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
No person is authorized to give any information or to make any representations,
other than those contained or incorporated by reference in this prospectus, in
connection with the offering contemplated hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by us or the selling security holders. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in our affairs since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date.
----------------------
TABLE OF CONTENTS
Page
----
WHERE YOU CAN FIND MORE INFORMATION.........................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...........................4
ABOUT THIS PROSPECTUS.......................................................5
PROSPECTUS SUMMARY..........................................................6
RISK FACTORS................................................................9
PRICE RANGE OF COMMON STOCK................................................20
DIVIDEND POLICY............................................................20
TRANSFER AGENT AND REGISTRAR...............................................20
SELLING SECURITY HOLDERS...................................................21
PLAN OF DISTRIBUTION.......................................................23
DESCRIPTION OF CAPITAL STOCK...............................................24
USE OF PROCEEDS............................................................24
EXPERTS....................................................................24
LEGAL MATTERS..............................................................24
-----------------------
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission, or the SEC. You
may read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's Web site at
http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market.
Our reports, proxy statements and other information are also available to the
public at the Nasdaq's Web site at http://www.nasdaq.com.
This prospectus is part of a registration statement on Form S-3 filed
with the SEC under the Securities Act of 1933, as amended, or 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 netGuru, Inc. and the securities offered by 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 SEC is not necessarily complete, and in each case you should
refer to the copy of the document filed for complete information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be a part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, or the Exchange Act, until all of the securities covered by this
prospectus are sold by the selling security holders.
1. Our Annual Report on Form 10-KSB for the fiscal year ended March 31,
2000.
2. Our Quarterly Report on Form 10-QSB for the quarter ended June 30,
2000.
3. Our Quarterly Report on Form 10-QSB for the quarter ended September
30, 2000.
4. The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on June 12, 1996 pursuant to Section 12
of the Exchange Act.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
netGuru, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Wayne Blair
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Telephone: (714) 974-2500
3
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, our Annual Report on Form 10-KSB for the fiscal year
ended March 31, 2000, and our Quarterly Reports on Forms 10-QSB for the quarters
ended June 30 and September 30, 2000, which reports are incorporated herein by
reference, contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend
that such forward-looking statements be subject to the safe harbors created
thereby. 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. 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 transition into new lines of business as planned;
o our ability to become a leading integrated Internet technology and
services company addressing the global Indian market, the worldwide
information technology services market and the worldwide Internet
engineering software market;
o our ability to successfully market and sell applications service
provider, or ASP, services through our recently launched engineering
Internet portal;
o market growth;
o new competition;
o competitive pricing;
o new technologies;
o our ability to successfully implement our future business plans;
o statements about our business strategy and our expansion strategy;
o our ability to attract strategic partners, alliances and
advertisers;
o uncertainties relating to economic conditions in the markets in
which we currently operate and in which we intend to operate in the
future;
o our ability to hire and retain qualified personnel;
o our ability to obtain capital, if required;
o our ability to successfully implement our brand building campaign;
o the risks of uncertainty of trademark protection;
o our plans for expanding our Internet portal network and the services
offered through such network;
o our plans regarding our telephony infrastructure and service
offerings;
o our beliefs regarding the growth of Internet usage within the global
Indian community;
4
<PAGE>
o our beliefs regarding the demand for our products and our
competitive advantages;
o the negative impact of economic slowdowns and recessions; and
o risks associated with existing and future governmental regulation to
which we are subject.
We do not undertake to update, revise or correct any forward-looking
statements.
Results actually achieved may differ materially from expected results
in these statements. Several of these risks are discussed in greater detail in
the "Risk Factors" section set forth below. Any of the factors described above
or in the "Risk Factors" section could cause our financial results, including
our net income (loss) or growth in net income (loss), to differ materially from
prior results.
ABOUT THIS PROSPECTUS
This prospectus provides you with a general description of our company,
certain risk factors associated with investment in the shares being offered
hereby, and a description of the contemplated offering. In addition, you should
read the additional information described under the heading "Incorporation of
Certain Documents by Reference" on page 3 of this prospectus.
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<PAGE>
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.
OUR COMPANY
We were incorporated in 1981 under the name Research Engineers, Inc.
and changed our name in 2000 to netGuru, Inc. We are an integrated Internet
technology and services company providing:
o Internet-based information technology, or IT, services to companies
worldwide;
o Internet application services provider, or ASP, services and
personal computer-, or PC-, based software products and services to
engineering and animation businesses worldwide; and
o Internet-enabled business-to-business telecommunications and
Internet access services utilizing our Internet services provider,
or ISP, infrastructure to businesses and consumers in India and
content and commerce through our city- and region-oriented portal
network, NETGURUINDIA.COM, focused on the "global Indian" expatriate
community.
We provide a full suite of Internet-based IT consulting services to our
customers from our IT services operations in the Silicon Valley and the Boston
area. We support our IT services operations with our offshore facilities in
India. Our IT services offerings include: Internet, Intranet, Web development,
Web hosting, e-commerce, network and systems integration, data mining, and
application and operating system software development, integration and
implementation services. Our IT services customers include companies such as
General Electric, Fidelity, Netscape, Sun Microsystems, Cisco Systems and
Hewlett Packard. We have positioned our Company to capitalize on our IT services
expertise and methodologies in order to provide Internet-based IT consulting
services to businesses worldwide and to enable us to provide
business-to-business Internet and IT solutions in India.
We have been a leading worldwide developer and distributor of
high-quality, cost-effective PC-based engineering software solutions since 1981.
Our engineering software products provide fully integrated, easy-to-use design
automation and analysis solutions for engineering, construction and
architectural professionals worldwide. We have developed and market a
comprehensive proprietary line of structural, mechanical and civil engineering
software products, including our recently released comprehensive STAAD.suite(TM)
solution. In addition, we offer, on a stand-alone basis, ForReview(TM) desktop
and eReview(TM) Web-based conferencing and collaboration software, that provide
our customers with the ability to view, review, mark-up and collaborate with
others on a real-time basis, anytime and anywhere. We currently license our
engineering software products to more than 20,000 companies accounting for over
50,000 software installations. Based upon our customer surveys, we estimate that
there are approximately 150,000 users at these installations.
In May 2000, we launched WEB4ENGINEERS.COM, our engineering ASP portal,
offering online, Web-enabled applications software, document and project
hosting, document and project management, and conferencing and collaborative
technologies for the engineering market. With our unique proprietary
technologies and ASP methodologies, we have commenced marketing our ASP
solutions to large companies on an Intranet, Extranet and Virtual Private
Network, or VPN, basis.
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We also offer proprietary AXA(TM) animation software products for 2-D
animation, Web animation with Flash technology, digital ink and paint, 3-D
animation compositing and related services. With the completion of our full
service animation and digital media studio in India, we now offer digital media,
animation and feature film services to the Indian and worldwide entertainment
market on a cost-effective basis. We also provide digital and streaming media
content and animation features for our netGuruIndia.com portal.
In India, we offer Internet-enabled business-to-business IT and
telephony services to businesses and ISP access services to consumer and
commercial markets utilizing our ISP infrastructure. Pursuant to our 15-year
Class A national ISP license held by our subsidiary, we have installed our ISP
infrastructure in India's three largest metropolitan areas--Calcutta, Delhi and
Mumbai. These metropolitan areas are the centers of India's growing business
market and of Internet users in India. Utilizing our ISP infrastructure, we have
commenced offering value-added Internet access, collaboration and
telecommunications services to professionals and consumers, largely through our
network of netGuru-branded cyber cafes. We plan to broaden our offerings in the
future by utilizing our ISP infrastructure to provide VPNs for businesses,
international call center services and long distance telephony services.
Our portal, NETGURUINDIA.COM, focused primarily on the Indian
expatriate community, offers online travel services, through e-Destinations, our
in-house travel agency, long distance phone cards and telephony services
utilizing our own telecommunications switch and gateways, gifts and
entertainment services. Our portal has been designed on a city- and region-
specific basis, with news, events and listings in English and the local language
for each of our six destinations, Calcutta, Delhi, Mumbai, Chennai, Ahmedabad
and Pune.
Our principal offices are located at 22700 Savi Ranch Parkway, Yorba
Linda, California 92887 and our telephone number is (714) 974-2500.
7
<PAGE>
THE OFFERING
Common stock offered by the selling
security holders 2,270,270(1)
Common stock outstanding prior to this
offering 14,743,033(2)
Common stock outstanding following
this offering if all shares are sold 17,013,303(1)(2)
Use of Proceeds All proceeds of
the offering will be
received by the selling
security holders (other
than amounts, if any,
received by us upon
exercise of the warrants or
options).
Risk Factors You should read the
"Risk Factors," beginning
on page 9, as well as other
cautionary statements
throughout this prospectus,
before investing in the
shares.
------------------------
(1) Assumes exercise of all of the warrants covered by this prospectus in
exchange for 200,000 shares of common stock and immediate resale of all of such
shares.
(2) Does not include:
o 2,895,627 shares reserved for issuance under our stock option plans,
of which options to purchase 1,872,727 shares are outstanding;
o 100,000 shares reserved for issuance upon the exercise of certain
outstanding stock options other than options granted under our stock
option plans; or
o 450,300 shares reserved for issuance upon the exercise of certain
outstanding warrants other than the warrants covered by this
prospectus.
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST IN SHARES OF OUR
COMMON STOCK. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH 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 OCCUR, 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.
RISKS RELATED TO OUR BUSINESS
WE HAVE RECENTLY EXPANDED INTO NEW LINES OF BUSINESS. WE HAVE A LIMITED
OPERATING HISTORY AND LACK EXPERIENCE IN THESE NEW LINES OF BUSINESS MAKING IT
DIFFICULT FOR US TO PREDICT OUR FUTURE SUCCESS.
We have recently diversified our business and are now offering ISP,
Internet portal, Internet-based business-to-business and telephony services. We
have limited or no operating histories in each of these new lines of business
and therefore, our historical financial information is of limited value in
projecting our future results. You must consider the risks, expenses and
uncertainties that accompany early stage businesses in new and evolving markets.
These considerations include our ability to:
o continue to expand our customer bases in our new lines of business;
o maintain our current and develop new strategic relationships;
o attract, retain and motivate qualified personnel; and
o manage our growth.
Our future success in the new markets which we have recently entered is,
therefore, difficult to evaluate.
OUR NEW LINES OF BUSINESS MAY BE DIFFICULT TO INTEGRATE WITH OUR HISTORICAL
BUSINESSES.
We have been in the engineering software business for 20 years and our
two recently acquired IT services businesses have a combined 10 years of
operating experience. In contrast, we have only recently entered the ISP
services, Internet portal content and commerce services, Internet-based
business-to-business services, telephony services and ASP markets. Our expansion
into these new lines of business may be particularly difficult for us to manage
and the acquisitions that we have made in these fields may be more difficult for
us to integrate, at least initially, because they involve different disciplines
and require different expertise than our historical businesses. If we are unable
to attain the level of expertise and reputation in our new lines of businesses
that we believe we have attained in the engineering software business, and,
through our acquisitions, within the IT services business, our overall business,
financial condition and operating results could be adversely affected. If we are
unable to effectively manage our expanded operations, our overall business could
be adversely affected.
IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR EXPANDED OPERATIONS, OUR BUSINESS
COULD BE ADVERSELY AFFECTED.
We have experienced rapid growth in the past year in some of our new
lines of business and expect to continue to experience rapid growth in other new
lines of business during the next several years. This growth has placed, and
will continue to place, a significant strain on our management and other
resources. Among other things, we will need to hire and integrate new managers
and install and operate new or enhanced accounting, financial management and
information systems.
9
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Future growth will result in increased repsonsibilities for management
personnel, many of whom have been employed by us for a relatively short period
of time. If we are unable to manage our growth effectively, the quality of our
products and services could suffer and our business, financial condition and
operating results could be adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR CURRENT MANAGEMENT TEAM AND
RECRUIT ADDITIONAL HIGHLY SKILLED PERSONNEL.
Our future success depends to a large extent upon the continued
services of key managerial and technical employees, including Amrit Das, Jyoti
Chatterjee, Santanu Das and R. S. Roy. If we lose one or more of the members of
our senior management team or other key employees, our business and operating
results could be seriously harmed. In addition, our future success will depend
largely on our ability to continue to attract, train and retain highly skilled
personnel. Competition for highly skilled personnel is intense. There can be no
assurance that we will be able to recruit, train and retain adequate personnel.
If we are unable to hire additional qualified employees, our business could be
impaired, especially our ability to develop our new lines of business. We do not
currently maintain key-man life insurance on the lives of any of our key
employees.
THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE. WE EXPECT THEM TO BECOME
MORE COMPETITIVE IN THE FUTURE, WHICH COULD RESULT IN SIGNIFICANT PRICE
COMPETITION, REDUCED REVENUES, LOWER PROFIT MARGINS OR LOSS OF MARKET SHARE.
The ISP, Internet portal content and commerce, Internet-based
business-to-business, telephony services, IT services, engineering software
products and ASP markets are each highly competitive. These markets may
experience pricing and margin pressure that could adversely affect our business,
financial condition and operating results. A number of companies offer products
and services within the same markets that we target. 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 us.
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.
Competition may decrease:
o the number of visitors to our sites;
o our advertising rates;
o our market share;
o the prices we receive for our products and services;
o our revenues; and/or
o our profit margins.
Any of these decreases could adversely affect our business, financial condition
and operating results. As a result, we may not be able to compete successfully.
ONE OF OUR MAIN COMPETITORS IN THE ISP SERVICES MARKET IN INDIA IS A
GOVERNMENT-CONTROLLED PROVIDER OF INTERNATIONAL TELECOMMUNICATIONS SERVICES,
WHICH MAY MAKE IT DIFFICULT FOR US TO COMPETE SUCCESSFULLY.
Videsh Sanchar Nigam Limited, or VSNL, is the largest ISP in India and
is controlled by the government. VSNL has several competitive advantages,
including the following:
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o VSNL has an established presence in the Indian ISP services market,
having offered services since August 1995 and having been the sole
provider of ISP services in India until November 1998;
o VSNL is a government-controlled entity that has direct access to
network infrastructure which is owned by the Indian government; and
o VSNL has significantly greater financial resources than we do.
If we are unable to distinguish our ISP services to consumers and
businesses in India, the competitive advantages enjoyed by VSNL may adversely
affect our ability to attract and retain subscribers and generate revenues from
advertising in India. This, in turn, could prevent us from obtaining a
significant market share and result in reduced revenues and lower margins than
we expect.
IN ORDER TO COMPETE SUCCESSFULLY, WE MUST KEEP PACE WITH THE RAPID CHANGES
INVOLVING TECHNOLOGY AND THE INTERNET.
Each of the markets in which we compete is characterized by rapid
technological advances, changes in customer requirements, evolving industry
standards and frequent new product and services introductions and enhancements.
New products and services based on new technologies or new industry standards
may quickly render existing products and services obsolete. Our future success
will depend upon our ability to enhance our current products and services and to
develop and introduce new products and services that keep pace with
technological developments, respond to the growth in the Internet, encompass
evolving customer requirements and achieve market acceptance. Any failure on our
part to anticipate or respond adequately to technological developments and
customer requirements, or any significant delays in developing or introducing
new products and services, could result in a loss of competitiveness, revenues,
profit margins or market share. There is no assurance that any new products,
services or enhancements which we develop will achieve market acceptance.
IF WE ARE UNABLE TO SUCCESSFULLY CONSUMMATE ADDITIONAL ACQUISITIONS, OUR
LONG-TERM COMPETITIVE POSITIONING MAY SUFFER.
Our business strategy has included growth through acquisitions. We
consider acquisitions that improve our competitive capabilities in our
businesses or provide additional market penetration or business opportunities in
areas that are consistent with our business plan. Identifying and pursuing
strategic acquisition opportunities and integrating acquired products and
businesses requires a significant amount of management time and skill.
Acquisition transactions are accompanied by a number of risks, including, among
other things:
o the difficulty of assimilating the operations, technology and
personnel of the acquired companies;
o the potential disruption of our ongoing business;
o expenses associated with the transactions;
o additional expenses associated with amortization of acquired
intangible assets;
o the difficulty of maintaining uniform standards, controls,
procedures and policies;
o the impairment of relationships with employees and customers as a
result of any integration of new management personnel; and
o the potential unknown liabilities associated with acquired
businesses.
If we proceed with future acquisitions, our failure to adequately address these
issues could have a material adverse effect on our business, results of
operations and financial condition.
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IF WE ARE UNABLE TO SUSTAIN AND DEVELOP STRATEGIC RELATIONSHIPS WITH CONTENT AND
E-COMMERCE PROVIDERS, OUR PORTAL BUSINESS COULD BE ADVERSELY AFFECTED.
Strategic relationships with content and e-commerce providers is
critical to the success of our portal business. We have a number of third party
relationships with content and e-commerce providers, most of which are not
exclusive and are short-term or can be terminated for convenience. We cannot
assure you that our existing relationships will result in attractive content and
e-commerce offerings or that we will be able to establish strategic
relationships with additional third parties to provide attractive content and
e-commerce offerings. If we are unable to deliver valuable content and
e-commerce through our portal, we will be unable to attract and retain a
significant number of subscribers and advertisers and, as a result, our revenue
from subscriptions, e-commerce and advertising will not meet our expectations,
and our business, financial condition and operating results would be adversely
affected.
IF WE DO NOT BUILD THE NETGURU BRAND NAME AND REPUTATION QUICKLY, OUR ABILITY TO
ATTRACT AND RETAIN CUSTOMERS, SUBSCRIBERS AND USERS COULD BE ADVERSELY AFFECTED.
We believe it is critical to establish, maintain and strengthen our
netGuru reputation and brand in order to establish and expand our base of
subscribers and users. We also believe that as the markets in which we compete
become increasingly competitive, the importance of reputation and brand will
increase. If our initial brand-building efforts are unsuccessful, we may not
experience an increase in Internet traffic needed to generate sufficient
revenues to offset the increase in marketing expenses. As a result, our
operating results and financial condition could be adversely affected. Our
portal will be more attractive to advertisers if we can secure a large audience
of consumers with demographic characteristics that advertisers perceive as
favorable. Accordingly, we intend to introduce additional and enhanced content
and e-commerce offerings, interactive tools and other services and features in
the future in an effort to retain our current subscribers and users and to
attract new ones. Our reputation and brand name could be adversely affected if
we are unable to successfully enhance our portal.
IN ORDER TO ATTRACT AND RETAIN SUBSCRIBERS TO OUR ISP SERVICES, WE INTEND TO
MAKE SIGNIFICANT INVESTMENTS IN OUR NETWORK INFRASTRUCTURE AND CUSTOMER AND
TECHNICAL SUPPORT. IF THESE EFFORTS PROVE UNSUCCESSFUL, OUR COSTS WILL INCREASE
FASTER THAN OUR REVENUES.
Sales, marketing and other costs of acquiring subscribers for our ISP
services are substantial relative to the commerce revenues that we will actually
derive from these subscribers. Accordingly, our long-term success in the ISP
industry depends to a great extent on our ability to attract subscribers. We
plan to invest significant resources in our network infrastructure and in our
customer and technical support capabilities to provide high levels of customer
service. We cannot be certain, however, that these investments will improve
subscriber acquisition. Moreover, intense competition within the Internet
services market may make it difficult for us to retain subscribers. In addition,
some new subscribers may use the Internet only as a novelty and may not become
consistent users of Internet services.
ALTHOUGH WE EXPECT TO GENERATE REVENUES FROM ADVERTISING IN THE FUTURE, SUCH
REVENUES MAY NOT BE SUBSTANTIAL.
We plan to attract advertisers to our portal by generating user traffic
through enhanced content and e-commerce offerings and aggressive brand building
campaigns. We expect to generate advertising revenues from hosting advertising
on our portal that is focused on the specific needs of the global Indian market.
We anticipate this advertising will include online advertising based in India.
Online advertising in India is not a proven business, however, and our ability
to generate and maintain significant advertising revenues will depend, among
other things, on:
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<PAGE>
o advertisers' acceptance of the Internet as an effective and
sustainable advertising medium;
o the development of a large base of users of our portal who possess
demographic characteristics attractive to advertisers;
o our ability to contract with advertising affiliates with traffic
patterns and user demographics that are attractive to advertisers;
and
o the effectiveness of our advertising delivery, tracking and
reporting systems.
Our inability to establish relationships with advertisers, the loss of
advertising affiliates or a reduction in the traffic on our portal may cause
advertisers to withdraw from advertising on our portal. This, in turn, would
reduce our advertising revenues and harm our business.
THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE PRICE OF
OUR COMMON STOCK TO FLUCTUATE.
Our quarterly operating results have varied in the past and may
continue to fluctuate significantly in the future due to a number of factors,
many of which are beyond our control. If our operating results do not meet the
expectations of securities analysts or investors, our stock price may decline.
Fluctuations in our operating results may result from a number of factors,
including the following:
o the level of advertising and e-commerce activity on our Indian
expatriate-focused portal;
o the number of purchasers of our phone cards, call-back cards and
voice mail services and the level of usage by those purchasers;
o the level of demand for corporate VPNs in India;
o the level of demand for Internet-based business-to-business services
in India;
o the demand for IT services worldwide;
o the demand for our engineering software products worldwide;
o the demand for online, engineering ASP services worldwide;
o the prices which we are able to charge for our products and
services;
o costs related to possible acquisitions of new technologies and
businesses;
o changes affecting the telecommunication infrastructure in India, the
Internet generally or the operation of our Web sites;
o the amount and timing of capital expenditures and other costs
relating to the expansion of our Internet network; and
o general economic conditions.
We believe that period-to-period comparisons of our operating results
will not necessarily be meaningful in predicting future performance. We plan to
increase our expenditures for our sales and marketing operations, expand and
develop our portal and enhance our technology and infrastructure development.
Many of our expenses are relatively fixed in the short-term. We cannot assure
you that our revenues will increase in proportion to the increase in our
expenses. We may be unable to adjust spending quickly enough to offset any
unexpected revenues shortfall. This could lead to a shortfall in revenues in
relation to our expenses.
OUR BUSINESS MAY BE HARMED BECAUSE WE RELY ON A THIRD-PARTY COMMUNICATIONS
INFRASTRUCTURE OVER WHICH WE HAVE NO CONTROL.
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. This infrastructure is
used to carry our voice traffic.
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<PAGE>
We have no control over whether the infrastructure on which we rely will be
adequately maintained by these third parties or whether these third parties are
able to upgrade or improve their equipment and prevent it from becoming
obsolete. If these third parties fail to maintain, upgrade or improve their
equipment, our business may be materially harmed.
WE COULD EXPERIENCE SYSTEM FAILURES THAT PREVENT US FROM OPERATING OUR INTERNET
BUSINESSES.
Our ISP, portal services, telephony and engineering ASP businesses
depend on the efficient and uninterrupted operation of our computer and
communications hardware and software systems. In addition, we rely on the
Internet and, accordingly, depend upon the continuous, reliable and secure
operation of Internet servers, related hardware and software and network
infrastructure such as lines leased from service providers operated by the
government of India. We have a back-up data facility. Although we have designed
our systems for complete redundancy of all major computer components, we cannot
assure you that our system will be fail-safe. Failure of key primary or back-up
systems to operate properly could lead to a loss of customers, damage to our
reputation and violations of our ISP license and/or breaches of contracts with
corporate customers. These failures could also lead to a decrease in the value
of our common stock, significant negative publicity and litigation.
Our ISP license requires that we provide an acceptable level of service
quality and that we remedy customer complaints within a specified time period.
Our computer and communications hardware are protected through physical and
software safeguards. Our systems may be vulnerable to fire, storm, flood, power
loss, power surges, telecommunications failures, physical or software break-ins,
software viruses and similar events. We do not carry business interruption
insurance to protect us in the event of a catastrophe, even though such an event
could lead to a significant negative impact on our business. Any sustained
disruption in Internet access provided by third parties could also have a
material adverse effect on our business.
FINANCIAL STATEMENTS OF OUR FOREIGN SUBSIDIARIES ARE PREPARED USING THE RELEVANT
FOREIGN CURRENCY WHICH MUST BE CONVERTED INTO U.S. DOLLARS FOR INCLUSION IN OUR
CONSOLIDATED FINANCIAL STATEMENTS. AS A RESULT, EXCHANGE RATE FLUCTUATIONS MAY
ADVERSELY IMPACT OUR REPORTED RESULTS OF OPERATIONS.
We have established and acquired several international subsidiaries,
which 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 period. Therefore, exchange rate fluctuations can have a
detrimental effect on our earnings or on our ability to compete. We do not
engage in hedging activities to protect against the risk of currency
fluctuations. Foreign currency denominated sales may result in gains and losses
on the conversion to U.S. dollars. We have historically denominated sales by our
foreign subsidiaries in the local currency.
RISKS RELATED TO OUR OPERATIONS IN INDIA
OUR COMMITMENT OF SIGNIFICANT RESOURCES AND EXPANSION OF OUR ACTIVITIES IN INDIA
COULD PROVE TO BE UNPROFITABLE DUE TO RISKS INHERENT IN INTERNATIONAL BUSINESS
ACTIVITIES.
Sales of our products and services to customers located outside the
U.S. accounted for approximately 28.9% of our net revenue for the fiscal year
ended March 31, 2000. We expect to commit significant resources in the
foreseeable future to expand our operations in India. Accordingly, we are
subject to a number of risks associated with international business activities
that could adversely affect our operations in India and slow our growth. These
risks generally include, among others:
o difficulties in managing and staffing our Indian operations;
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<PAGE>
o difficulties in obtaining or maintaining regulatory approvals or in
complying with Indian laws;
o reduced or less certain protection for intellectual property rights;
o increased collection risks;
o differing technological advances, preferences or requirements;
o tariffs and other trade restrictions;
o foreign currency fluctuations; and
o general economic conditions, including instability, in the Indian
market.
Any of these risks could adversely affect our business, financial condition and
operating results.
OUR ISP LICENSE CONTAINS RESTRICTIVE PROVISIONS THAT LIMIT OUR ABILITY TO ENTER
INTO TRANSACTIONS THAT MAY BE BENEFICIAL TO US AND TO OUR STOCKHOLDERS.
The terms of our ISP license prevent us from transferring the license
to a third person. This may prevent us from entering into a transaction which
would otherwise be beneficial to us and our stockholders.
THE INDIAN GOVERNMENT MAY CHANGE ITS REGULATION OF OUR BUSINESS OR THE TERMS OF
OUR ISP LICENSE, EITHER OF WHICH COULD NEGATIVELY IMPACT OUR OPERATING RESULTS.
Our business is subject to regulation under Indian law and our ISP
license, which is issued by the government of India, is also subject to
regulation. Some of the regulations we are subject to include the following:
o Our ISP license has a term of 15 years and expires in 2015. We have
no assurance that the license will be renewed. If we are unable to
renew our ISP license in 2015 for any reason, we will be unable to
operate as an ISP in India and will lose one of our sources of
revenue.
o The government of India and the Telecom Regulatory Authority of
India, or TRAI, maintain the right to regulate the prices we charge
our subscribers and customers. Our success depends on our ability to
price our services at levels that we believe are appropriate. If the
government or the TRAI sets a price floor, we may not be able to
attract and retain subscribers and customers. Likewise, if the
government or the TRAI sets a price ceiling, we may not be able to
generate sufficient revenues to fund our operations.
o The government of India maintains the right to take over our entire
operations or revoke, terminate or suspend our license for national
security and similar reasons without compensation to us. If the
government of India were to take any of these actions, we would be
prevented from conducting a significant part of our business.
We have outstanding performance guarantees for various statutory
purposes totaling approximately $475,000. These guarantees are generally
provided to Indian government agencies, primarily the Telegraph Authority, as
security for compliance with and performance of terms and conditions contained
in our ISP license and VSNL towards the supply and installation of an electronic
commerce platform. These guarantees may be seized by the governmental agencies
if they suffer any losses or damage by reason of our failure to perform our
obligations. Any failure on our part to comply with governmental regulations and
the terms of our ISP license could result in the loss of our license and any
amount outstanding as performance guarantees, which would also prevent us from
carrying on a significant part of our business. Further, additional laws
regulating telecommunications, electronic records, the enforceability of
electronic documents and the liability of network service providers are under
consideration and if enacted, could impose additional restrictions on our
business.
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<PAGE>
IF THERE IS A CHANGE IN THE INDIAN GOVERNMENT RESULTING IN A HALT IN THE CURRENT
POLICY OF LIBERALIZATION AND DEREGULATION, ECONOMIC CONDITIONS IN INDIA
GENERALLY AND OUR BUSINESS IN PARTICULAR COULD BE ADVERSELY AFFECTED.
Our Internet business model relies, in part, on general economic and
business conditions in India. During the past decade, the government of India
has pursued policies of economic liberalization and deregulation, including
significant relaxation of restrictions on the private business sector. Although
the Indian government has changed five times since 1996, the policies of
economic liberalization and deregulation have continued. The current Government
of India, formed in October 1999, has advanced policies and taken initiatives
that support the continued economic liberalization and deregulation policies
that have been pursued by prior governments. These policies have resulted in
significantly increased opportunities for publicly and privately held businesses
in the Internet access and telecommunications markets in which we operate in
India. Although there are no indications that these trends will not continue, 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 materially adversely affect our business, financial condition and
operating results.
CONFLICTS INVOLVING INDIA COULD ADVERSELY AFFECT THE INDIAN ECONOMY AND HARM OUR
BUSINESS.
South Asia has from time to time experienced civil unrest and
hostilities among neighboring countries, including India and Pakistan. In April
1999, India and Pakistan conducted long-range missile tests. Since May 1999,
military confrontations between India and Pakistan have occurred in the disputed
Himalayan region of Kargill. Further, in October 1999, the leadership of
Pakistan changed as a result of a coup led by the military. If a conflict
involving India and Pakistan or any of India's other neighboring countries
should occur, it could have an adverse affect on the Indian economy and our
business would be advesely affected.
RISKS RELATED TO THE INTERNET MARKET IN INDIA
THE HIGH COST AND LIMITED AVAILABILITY OF BANDWIDTH IN INDIA MAY LIMIT THE
GROWTH OF THE INTERNET IN INDIA AND SLOW OUR GROWTH.
Bandwidth, which is the measurement of the volume of data capable of
being transported in a communications system in a given amount of time, is both
costly and limited in India. Prices for bandwidth capacity are set by the
Government of India and have remained high due to, among other things, capacity
constraints. In addition, because of limitations in network architecture,
Internet connection speeds in India are limited to 28 Kbps and below. These
speeds are less than the typical 33 to 56 Kbps speeds available on dial-up
telephone lines and the typical 1.5 Mbps speeds on cable modems in the U.S.
These cost, capacity and speed constraints may severely limit the quality and
desirability of using the Internet in India and, in turn, slow our growth.
THE LIMITED INSTALLED PERSONAL COMPUTER BASE IN INDIA LIMITS OUR NUMBER OF
POTENTIAL CUSTOMERS AND RESTRICTS THE AMOUNT OF REVENUES THAT WE CAN GENERATE.
The market penetration rates of personal computers and computer users
with online access in India are low. According to the National Association of
Software and Services Companies, or Nasscom, at the end of 1999, the Indian
market had approximately 4.3 million personal computer owners, or a market
penetration rate of less than 1% of the total population in India of
approximately one billion. Many alternate methods of obtaining access to the
Internet, such as through cable television modems or set-top boxes for
televisions, are currently unavailable in India.
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<PAGE>
There can be no assurance that the number or penetration rate of personal
computers in India will increase rapidly, or at all, or that alternate means of
accessing the Internet will develop and become widely available in India. If the
market penetration rates of personal computers and users with online access in
India do not increase rapidly, or we are unable to provide alternative means of
Internet access to the Indian market, we will be unable to generate significant
revenue in India.
THE LAWS RELATING TO THE INTERNET IN INDIA ARE DEVELOPING AND COULD ADVERSELY
AFFECT OUR BUSINESS.
Laws and regulations may be introduced in India governing various
aspects of the Internet industry and the use of the Internet as a medium for
conducting business. We cannot predict the effect of further developments in the
Indian legal system, particularly with regard to the Internet, including the
promulgation of new laws, changes to existing laws or their interpretation or
enforcement, or the preemption of local regulations by national laws.
RISKS RELATED TO THE INTERNET
WE MAY BE LIABLE TO THIRD PARTIES FOR INFORMATION RETRIEVED FROM THE INTERNET.
Because users of our ISP services and visitors to our Indian portal and
ASP portal may distribute our content to others, third parties may sue us for
defamation, negligence, copyright or trademark infringement, personal injury or
other matters. We could also become liable if confidential information is
disclosed inappropriately. These types of claims have been brought, sometimes
successfully, against online services in the U.S. and Europe. Others could also
sue us for the content and services that are accessible from our portals through
links to other Web sites or through content and materials that may be posted by
our users in chat rooms or bulletin boards. We do not carry insurance to protect
us against these types of claims.
OUR BUSINESS MAY NOT BE COMPATIBLE WITH DELIVERY METHODS OF INTERNET ACCESS
SERVICES DEVELOPED IN THE FUTURE.
We face the risk that fundamental changes may occur in the delivery of
Internet access services. Currently, Internet services are accessed primarily by
computers and are delivered by modems using telephone lines. As the Internet
becomes accessible by cellular telephones, personal data assistants, television
set-top boxes and other consumer electronic devices, and becomes deliverable
through other means involving coaxial cable or wireless transmission mediums, we
will have to develop new technology or modify our existing technology to
accommodate these developments. Our pursuit of these technological advances,
whether directly through internal development or by third-party license, may
require substantial time and expense. We may be unable to adapt our ISP services
to alternate delivery means and new technologies.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
Security breaches of our systems and network infrastructure, or the
perception that they could occur, could harm our business and reputation.
Despite the implementation of security measures, our infrastructure may be
vulnerable to physical break-ins, computer viruses, programming errors or
similar disruptive problems. If our security measures are circumvented, the
security of confidential information stored on our systems could be jeopardized,
proprietary information could be misappropriated and interruptions in our
operations could result. We may be required to make significant additional
investments and efforts to protect against or remedy security breaches. A
material security breach could damage our reputation or result in liability to
us, and we do not carry insurance that protects us from this kind of loss.
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<PAGE>
U. S. FEDERAL OR STATE GOVERNMENTS MAY INCREASE TELEPHONY REGULATION WHICH COULD
ADVERSELY AFFECT OUR 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 FCC, or
any state could materially adversely affect our business, financial condition or
operating results. There can be no assurance that the regulatory authorities in
one or more states or the FCC will not take action that could harm our business.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
The market prices of securities of technology-based companies,
particularly Internet-related companies, currently are highly volatile. The
market price of our common stock has fluctuated significantly in the past year.
The market price of our common stock may continue to exhibit significant
fluctuations in response to the following factors, some of which are beyond our
control:
o variations in our quarterly operating results;
o deviations in our results of operations from the estimates of
securities analysts;
o changes in securities analysts' estimates of our financial
performance;
o changes in market valuations of similar companies and stock market
price and volume fluctuations generally;
o economic conditions specific to the Internet and online e-commerce;
o announcements by us or our competitors of new or enhanced products,
technologies or services or significant contracts, acquisitions,
strategic relationships, joint ventures or capital commitments;
o regulatory developments;
o additions or departures of key personnel; and
o future sales of our common stock or other securities.
Our offering price may not be indicative of the price of our stock that
will prevail in the trading market. You may be unable to sell your shares of
common stock at or above the offering price, which may result in substantial
losses to you. Moreover, 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. 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.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADEQUATE FINANCING MAY NOT BE
AVAILABLE.
Our future capital requirements will depend upon many factors,
including the rate of expansion of our initiatives in India, the magnitude of
our 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. We
believe that current and future available capital resources will be adequate to
fund our operations for the foreseeable future. However, to the extent we are in
need of any additional financing after such time, there can be no assurance that
any such additional financing will be available to us on acceptable terms, or at
all. If additional funds are raised by issuing equity securities, further
dilution to the existing stockholders may result.
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If adequate funds are not available, we may be required to delay, scale back or
eliminate our planned expansion of our Internet and telecommunications
infrastructure and our marketing efforts or to obtain funds through arrangements
with partners or others that may require us to relinquish rights to certain of
our technologies or potential products, services or other assets. Accordingly,
the inability to obtain such financing could adversely affect our business,
financial condition and results of operations.
SHARES OF OUR COMMON STOCK ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the
public market, or the perception that sales could occur, could adversely affect
the market price for our common stock. This offering will result in additional
shares of our common stock being available on the public market. In addition,
our current stockholders hold a large amount of shares which they are able to
sell in the public market. These sales also might make it difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate.
OUR ABILITY TO ISSUE PREFERRED STOCK IN THE FUTURE MAY DELAY OR PREVENT A
TAKEOVER OF OUR COMPANY POSSIBLY PREVENTING YOU FROM OBTAINING HIGHER STOCK
PRICES FOR YOUR SHARES.
Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights of those shares without any further vote
or action by our stockholders. The rights of the holders of our common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that we may issue in the future. The issuance of
preferred stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock, thereby delaying, deferring or preventing a change in control of our
company. Furthermore, such preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance
thereof could adversely affect the market value of our common stock. We have no
present plans to issue shares of preferred stock.
THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AND THE ANTI-TAKEOVER EFFECTS
OF DELAWARE LAW COULD ADVERSELY AFFECT THE PERFORMANCE OF OUR STOCK.
As of December 4, 2000, our executive officers and directors and their
family members together beneficially owned approximately 46.2% of the issued and
outstanding shares of our common stock. As a result, such persons will have the
ability to elect a majority of directors and exert control over our affairs,
irrespective of how our other stockholders may vote. This concentration of
ownership may have the effect of delaying or preventing a change in control of
our company. In addition, Section 203 of the General Corporation Law of Delaware
prohibits us from engaging in certain business combinations with interested
stockholders, as defined by statute. These provisions may have the effect of
delaying or preventing a change in control of our company without action by our
stockholders, and therefore could adversely affect the price of our common
stock.
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PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market since
our initial public offering in July 1996, initially under the symbol "RENG" and
since March 2000, under the symbol "NGRU." Prior to July 1996, there was no
public market for our shares. The following table sets forth for each fiscal
quarter indicated, the high and low closing sale prices as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL 2001 FISCAL 2000 FISCAL 1999
---------------- ---------------- ----------------
LOW HIGH LOW HIGH LOW HIGH
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First Quarter (April 1 - June 30)............. $16.50 $29.00 $ 3.94 $ 5.50 $ 2.50 $ 3.59
Second Quarter (July 1 - September 30)........ 16.50 20.50 4.25 5.25 2.25 3.06
Third Quarter (October 1 - December 31)....... N/A N/A 4.47 24.50 1.50 2.47
Fourth Quarter (January 1 - March 31)......... N/A N/A 22.75 55.75 1.50 4.38
</TABLE>
On February 7, 2000, we effected a 2-for-1 stock split of our common
stock. The above high and low closing sales prices have been adjusted to reflect
this stock split.
At December 4, 2000, there were approximately 47 registered holders of
our outstanding shares of common stock and the closing sale price of our common
stock on the Nasdaq National Market was $3.75 per share.
DIVIDEND POLICY
Since our election to be treated as a "C" corporation for tax purposes
upon our initial public offering of our common stock in July 1996, we have never
declared or paid dividends on our common stock. Any future decision to pay
dividends on our common stock remains within the discretion of our board of
directors. We currently intend to retain any future earnings to support
operations and to finance the growth and development of our business and do not
anticipate paying dividends on our common stock in the foreseeable future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common shares is American
Stock Transfer & Trust Company, New York, New York.
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SELLING SECURITY HOLDERS
GENERAL
There are nine selling security holders. The selling security holders
are acting individually, not as a group. None of the selling security holders or
their affiliates has held any position, office or other material relationship,
other than as a security holder, with us. The securities registered under the
registration statement of which this prospectus is a part include shares of
common stock issuable upon the exercise of certain outstanding warrants, as
described in the footnotes which follow the table set forth below. In this
prospectus, we sometimes refer to Elliott Associates, L.P., as "Elliott" and to
Westgate International, L.P., as "Westgate." The following table sets forth
certain information as of December 4, 2000, with respect to each selling
security holder for whom we are registering shares of common stock for resale.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table below
have sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Shares of our common stock subject to
options or warrants currently exercisable, or exercisable within 60 days after
December 4, 2000, are deemed to be outstanding in calculating the percentage
ownership of each listed person or group but are not deemed to be outstanding as
to any other person or group. Percentage of beneficial ownership is based on
16,813,303 shares of common stock actually outstanding as of December 4, 2000.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON SHARES OF PERCENTAGE
STOCK BENEFICIALLY SHARES OF COMMON STOCK BENEFICIALLY
NAME OF SELLING OWNED PRIOR TO COMMON STOCK BENEFICIALLY OWNED OWNED AFTER
SECURITY HOLDER THIS OFFERING BEING REGISTERED AFTER OFFERING(1) OFFERING(2)
----------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Peter R. Kellogg................... 2,986,250 1,670,270 1,315,980 7.73%
Elliott Associates, L.P............ 715,036(3) 200,000 515,036 3.03%
Westgate International, L.P........ 710,109(4) 200,000 510,109 3.00%
George B. Lucas, Jr................ 81,400(5) 80,000 1,400 *
Russell J. Lucas................... 80,000(6) 80,000 -- --
First Montauk Securities Corp...... 20,000(6) 20,000 -- --
Eleanor Harvey..................... 8,500(7) 7,500 1,000 *
Kathleen Heine..................... 7,500(6) 7,500 -- --
Brett Flynn........................ 5,000(6) 5,000 -- --
All selling security holders as a
group...........................` 4,613,795 2,270,270(8) 2,343,525 13.78%
-------------------------
</TABLE>
*Less than 1%
(1) The figures shown assume the sale of all shares of common stock being
registered hereby.
(2) The percentages set forth in this column have been computed assuming the
number of common shares outstanding equals the sum of (a) 16,813,303, which
is the number of common shares outstanding on November 30, 2000; and (b)
200,000 shares of common stock subject to warrants.
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(3) Includes 640,036 shares of common stock and 75,000 shares of common stock
issuable upon exercise of certain outstanding warrants.
(4) Includes 635,109 shares of common stock and 75,000 shares of common stock
issuable upon exercise of certain outstanding warrants.
(5) Includes 1,400 shares of common stock and 80,000 shares of common stock
underlying a warrant.
(6) Consists solely of shares of common stock underlying a warrant.
(7) Includes 1,000 shares of common stock and 7,500 shares of common stock
underlying a warrant.
(8) Includes 2,070,270 shares of common stock and 200,000 shares of common stock
issuable upon exercise of certain outstanding warrants.
SHARES OFFERED UNDER THIS PROSPECTUS
On November 27, 2000, we entered into a stock purchase agreement
pursuant to which Peter R. Kellogg acquired 1,670,270 shares of our common
stock. Under the terms of that stock purchase agreement, we are required to
register all 1,670,270 shares of common stock.
In connection with the stock purchase agreement with Mr. Kellogg, we
utilized the services of First Montauk Securities Corp. As consideration for
their services, and pursuant to the terms of a letter agreement dated November
27, 2000, we issued to First Montauk Securities Corp., George B. Lucas, Jr.,
Russell J. Lucas, Eleanor Harvey, Kathleen Heine and Brett Flynn, warrants to
purchase an aggregate of 200,000 shares of our common stock. The warrants have
an exercise price of $3.93 per share and are exercisable at any time on or
before December 31, 2005. The warrants contain standard anti-dilution provisions
pursuant to which the exercise price and number of common shares issuable
thereunder is adjusted proportionately in the event of a stock split, stock
dividend, recapitalization or similar transaction. The warrants also obligate us
to register all 200,000 shares of common stock underlying the warrants. The
shares being offered hereby include the shares of common stock issuable under
the warrants.
On November 27, 2000, we entered into a repurchase agreement with
Elliott and Westgate pursuant to which we repurchased from each of them
3,165.9835 shares of our Series B Cumulative Convertible Preferred Stock. In
connection with that repurchase, each of Elliott and Westgate acquired 200,000
shares of common stock. In addition, we entered into a registration rights
agreement with Elliott and Westgate under which we are obligated to register all
200,000 shares of common stock for each of Elliott and Westgate.
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PLAN OF DISTRIBUTION
The shares being offered hereby will be offered and sold by the selling
security holders for their own accounts. We will not receive any of the proceeds
from the sale of the shares of our common stock pursuant to this prospectus. We
have agreed to bear the expenses of the registration of the shares, including
legal, accounting, printing and filing fees, and such expenses are estimated to
be $16,748.00.
The shares offered by this prospectus may be sold from time to time by
the selling security holders and those persons' pledgees, donees, transferees or
other successors in interest. The selling security holders may sell the shares
on the Nasdaq National Market, in privately negotiated transactions or
otherwise, at market prices or at negotiated prices. In addition, the selling
security holders may engage in short sales and other transactions in the common
stock or derivatives thereof, and may pledge, sell, deliver or otherwise
transfer the common stock offered under this prospectus in connection with such
transactions. They may sell shares by one or a combination of the following
without limitation:
o a block trade in which a broker or dealer so engaged 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 or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers; and
o face-to-face transactions between sellers and buyers, without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from selling security holders in
amounts to be negotiated prior to the sale. The selling security holders and any
broker-dealers that participate in the distribution may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any proceeds or commissions received by them, and any profits on the resale of
shares sold by broker-dealers, may be deemed to be underwriting discounts and
commissions.
Regulation M under the Exchange Act prohibits participants in a
distribution and their affiliates from bidding for or purchasing any of the
securities that are the subject of the distribution. It also governs bids and
purchases made to stabilize the price of a security in connection with a
distribution of the security.
If any selling security holder notifies us that a material arrangement
has been entered into with a broker-dealer for the sale of shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, we will file a prospectus supplement, if
required pursuant to Rule 424(c) under the Securities Act, setting forth:
o the name of each of the participating broker-dealers;
o the number of shares involved;
o the price at which the shares were sold;
o the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable;
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o a statement to the effect that the broker-dealers did not conduct
any investigation to verify the information set out or incorporated
by reference in this prospectus; and
o any other facts material to the transaction.
o We have agreed to indemnify certain of the selling security holders
against liabilities, including certain liabilities under the
Securities Act or to contribute to payments which the selling
security holders may be required to make in respect of these
liabilities.
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation currently authorizes us to issue
150,000,000 shares of common stock, $.01 par value per share, and 5,000,000
shares of preferred stock, $.01 par value per share, of which 12,000 shares are
designated as Series B Cumulative Convertible Preferred Stock, none of which are
outstanding. Upon completion of this offering, assuming all shares are sold, we
will have 17,013,303 shares of common stock outstanding. All outstanding shares
of common stock are, and the common stock to be issued in this offering will be,
fully paid and nonassessable.
The following summarizes the rights of holders of our common stock:
o each holder of common stock is entitled to one vote per share on all
matters to be voted upon by the stockholders;
o subject to preferences that may apply to shares of preferred stock
outstanding, the holders of common stock are entitled to receive
such lawful dividends as may be declared by our board of directors;
o upon our liquidation, dissolution or winding up, the holders of
shares of common stock are entitled to receive a pro rata portion of
all our assets remaining for distribution after satisfaction of all
our liabilities and the payment of any liquidation preference of any
outstanding preferred stock;
o there are no redemption or sinking fund provisions applicable to our
common stock; and
o there are no preemptive or conversion rights applicable to our
common stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock offered hereby. We may receive proceeds from the exercise of
options and warrants.
EXPERTS
The consolidated financial statements of netGuru, Inc. and subsidiaries
as of March 31, 2000, and for the years ended March 31, 2000 and 1999, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the legality of the securities
offered hereby will be passed upon for netGuru, Inc. by Rutan & Tucker, LLP,
Costa Mesa, California.
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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 ...... $ 2,248
Printing expenses......................................... $ 1,000
Legal fees and expenses................................... $ 7,500
Accounting fees........................................... $ 5,000
Miscellaneous expenses.................................... $ 1,000
-------
Total............................................ $16,748
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The liability of the registrant's controlling persons, officers or
directors is or may be affected in such capacity by the following:
The registrant's certificate of incorporation limits, to the maximum
extent permitted by Delaware law, the personal liability of directors for
monetary damages for breach of their fiduciary duties as a director. The
registrant's bylaws provide that the registrant shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable cause
to believe his or her conduct was unlawful.
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ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Repurchase Agreement dated November 27, 2000 between the registrant,
Elliott Associates, L.P. and Westgate International, L.P.
2.2 Stock Purchase Agreement dated November 27, 2000 between the
registrant and Peter R. Kellogg.
4.2 Registration Rights Agreement dated November 27, 2000 between the
registrant, Elliott Associates, L.P. and Westgate International, L.P.
4.3 Letter Agreement dated November 27, 2000 between the registrant and
First Montauk Securities Corp.
4.4 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to George B. Lucas, Jr.
4.5 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Russell J. Lucas.
4.6 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Eleanor Harvey.
4.7 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Kathleen Heine.
4.8 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Brett Flynn.
4.9 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to First Montauk Securities Corp.
5.1 Opinion of Rutan & Tucker, LLP.
23.1 Consent of KPMG LLP.
23.2 Consent of Rutan & Tucker, LLP (included in Exhibit No. 5.1).
24.1 Power of Attorney (reference is made to page II-4 of this
registration statement).
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;
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(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this 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
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
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 this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment to
this registration statement any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling 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 Act 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.
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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 December 5,
2000.
netGuru, Inc.
By: /S/ JYOTI CHATTERJEE
---------------------------
Jyoti Chatterjee, President
Each person whose signature appears below hereby constitutes and
appoints Jyoti Chatterjee and Wayne Blair, or either of them, his true and
lawful attorney-in-fact and agent, with full power and substitution, to sign on
his behalf, individually and in each capacity stated below, all amendments and
post-effective amendments to this registration statement on Form S-3 and to file
the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities Act
of 1933, granting unto said attorney-in-fact and agent 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 and to all intents and purposes as each
might or could do in person, hereby ratifying and confirming each act that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue
thereto.
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 December 5, 2000
Armit K. Das Executive Officer and Director
/S/ JYOTI CHATTERJEE
------------------------ President (principal executive December 5, 2000
Jyoti Chatterjee officer) and Director
/S/ WAYNE BLAIR
------------------------ Chief Financial Officer December 5, 2000
Wayne Blair (principal accounting officer)
/S/ BRUCE E. CUMMINGS
------------------------ Director December 5, 2000
Bruce E. Cummings
/S/ SANTANU DAS
------------------------ Director December 5, 2000
Santanu Das
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Repurchase Agreement dated November 27, 2000 between the registrant,
Elliott Associates, L.P. and Westgate International, L.P.
2.2 Stock Purchase Agreement dated November 27, 2000 between the
registrant and Peter R. Kellogg.
4.2 Registration Rights Agreement dated November 27, 2000 between the
registrant, Elliott Associates, L.P. and Westgate International, L.P.
4.3 Letter Agreement dated November 27, 2000 between the registrant and
First Montauk Securities Corp.
4.4 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to George B. Lucas, Jr.
4.5 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Russell J. Lucas.
4.6 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Eleanor Harvey.
4.7 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Kathleen Heine.
4.8 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to Brett Flynn.
4.9 Warrant to purchase Common Stock dated November 27, 2000, issued by
the registrant to First Montauk Securities Corp.
5.1 Opinion of Rutan & Tucker, LLP.
23.1 Consent of KPMG LLP.
23.2 Consent of Rutan & Tucker, LLP (included in Exhibit No. 5.1).
24.1 Power of Attorney (reference is made to page II-4 of this
registration statement).
