SecProbe.io

CORRESP
1
filename1.htm

RESPONSE LETTER

December 22, 2005

Mr. Stephen Krikorian

Accounting Branch Chief

Securities and Exchange Commission

One Station Place

100 F Street, NE

Washington, D.C. 20549-4561

    Re:

    Form 10-KSB for the fiscal year ended March 31, 2005, filed July 28,
2005 (the Filing)

File No 333-5278-NY

Dear Mr. Krikorian

     This letter is in response to your notice
dated September 26, 2005. In providing this response,
PowerHouse Technologies Group Inc. (the Company) acknowledges that:

    •

    The Company is responsible for the adequacy and accuracy of the disclosure in the
Filing;

    •

    SEC staff comments or changes in disclosure in response to SEC staff comments do
not foreclose the Commission from taking any action with respect to the Filing; and

    •

    The Company may not assert SEC staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities law of the
United States.

Report of Independent Registered Accounting Firm, page F-26

Comment:

    1.

    We note that the report issued by BDO Seidman, LLP on June 13, 2005 includes
an audit opinion on the results of operations and cash flows for the three years ended
March 31, 2005. However, the first paragraph of the report indicates that BDO Seidman,
LLP only audited the year ended and the period from May 16, 2002 (inception) to March
31, 2005. Please reconcile these statements in the audit report.

555 Twin Dolphin Drive, Suite 650            Phone: 650-232-2600           Fax: 650-232-2699

www.pwhtgroup.com

Response:

The Report of Independent Registered Public Accounting Firm was prepared by BDO Seidman, LLP and as
such we cannot comment on the language that BDO Seidman, LLP chose to use in its report. As noted
in Item 8 of the Filing, the Company engaged BDO Seidman, LLP to perform an audit of its financial
statements as of and for the year ended March 31, 2005. Subsequent to the Filing, the Company
engaged Hein & Associates, LLP to serve as its independent auditor, and to reaudit the financial
statements for the year ended March 31, 2005 (as disclosed in the Form 8-K dated October 20, 2005
and filed by the Company on October 26, 2005). As such, we believe that the report issued by Hein &
Associates, LLP in the amended Form 10-KSB contains language that clearly indicates the periods
covered by the report.

Note 3. Acquisition of First Person Software, Inc., page F-38

Comment :

    2.

    We note that in June 2004 you acquired the remaining 51% of First Person. You
indicate that the transaction was treated as an asset purchase for accounting
purposes. Explain how you considered the guidance in EITF 98-3 in determining that
First Person was not a business and the transaction should not be accounted for as a
business combination under SFAS 141. We note from your Form 8-K/A filed October 18,
2004 that First Person was a development stage company, however it appears that First
Person had commenced their planned principal operations.

Response:

In analyzing the acquisition of the remaining 51% of First Person that the Company did not
previously own, the Company considered the guidance in both SFAS 141 and EITF 98-3. In considering
such guidance, the Company, in its original filing of its Form 10-KSB, determined that the
transaction was an asset purchase even though there were other indicators that the transaction was
a business combination. The factors leading to the conclusion of an asset purchase included the
fact that a significant amount of the fair value of First Person was represented by a single
identifiable intangible asset, albeit less than 97% of the fair value contemplated in EITF 98-3.

The Company has re-evaluated the accounting treatment for its acquisition of First Person, and
concluded that the acquisition should have been accounted for as the acquisition of a business.
Accordingly, the Company’s amended Form 10-KSB includes restated financial statements treating the
acquisition of First Person as a business combination in accordance with SFAS 141.

555 Twin Dolphin Drive, Suite 650            Phone: 650-232-2600           Fax: 650-232-2699

www.pwhtgroup.com

Comment :

    3.

    You indicate that you recorded the transaction as an asset purchase in order
to allocate the deferred tax liability to the assets acquired. Please clarify this
statement. Also provide us with your analysis in determining that a deferred tax
liability of $1,547,000 arose from this transaction.

Response:

The language concerning accounting for the transaction as an asset purchase was intended to clarify
for the reader that the First Person acquisition – which was an acquisition of stock – was treated
as an asset purchase for accounting purposes. As noted above, the Company has re-evaluated the
accounting treatment of this transaction and is accounting for it as a business combination in
its amended Form 10-KSB. In addition, the Company has determined that the deferred tax liability
should not have been recorded and amended its Form 10-KSB accordingly. Under FAS 109, as a result
of the business combination, if the acquiring company determined that the pre-existing deferred tax
assets are more-than-likely-not to be realized by the combined business enterprise, then the
valuation allowance should be reduced or eliminated. FAS 109.266 requires such reduction in the
valuation allowance be accounted for as part of the business combination.

Note 8. Stockholders’ Equity, page F-44

Comment :

    4.

    We note that you recorded deemed dividends of $4,230,400 and $821,995 to
eliminate the discount and accrete the allocated fair value of the Senior A Preferred
Stock and Junior A Preferred Stock to their respective carrying values. Explain the
basis for this accretion and how you considered the guidance in EITF Topic D-98, which
indicates that if a security is not redeemable currently, subsequent adjustment is not
necessary until it is probable that the security will become redeemable.

Response:

The Company has reevaluated its position in relation to the deemed dividends. Under the guidance of
EITF Topic D-98, the Company had concurred that the securities issued in Fiscal Year 2005 included
a redemption feature, yet it was not probable that the securities would ever be redeemed.
Therefore, the warrants should have been classified as temporary equity, and not a liability. The
Company believes the correct action would be to reverse our previous treatment and in doing so,
eliminate the deemed dividends and subsequent mark-to-market adjustments. The amended 10-KSB
for the year ended March 31, 2005 reflects this treatment.

555 Twin Dolphin Drive, Suite 650            Phone: 650-232-2600           Fax: 650-232-2699

www.pwhtgroup.com

We trust that the re-filed 10-KSB and this letter adequately address your concerns in your letter
of September 26, 2005.

Best regards,

Richard Liebman

Chief Financial Officer

555 Twin Dolphin Drive, Suite 650            Phone: 650-232-2600           Fax: 650-232-2699

www.pwhtgroup.com