SEC Comment Letter for Professional Diversity Network, Inc. (IPDN) (CIK 0001546296) (IPDN) — May 15, 2012
Professional Diversity Network, Inc. (IPDN) (CIK 0001546296)
Date: May 15, 2012 · CIK: 0001546296 · Accession: 0000000000-12-025127
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May 14, 2012 Via Secure Email James Kirsch Chief Executive Officer Professional Diversity Network, LLC 150 North Wacker Drive, Suite 2360 Chicago, IL 60606 Re: Professional Diversity Network, LLC Confidential Draft Registration Statement on Form S -1 Submitted April 16, 2012 CIK No. 0001546296 Dear Mr. Kirsch : We have reviewed your confidential draft registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter by providing the requested information and either submitting an amended confidential draft registration statement or filing your registration statement on EDGAR. If you do not believe our comments apply to your facts and circumstances or do not believe an amendm ent is appropriate, please tell us why in your response. After reviewing the information you provide in response to these comments and your amended confidential draft registration statement or filed registration statement, we may have additional comment s. General 1. Since you appear to qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, please disclose on your prospectus cover page that you are an emerging growth company and revise your prospectus to: Describe how and when a company may lose emerging growth company status; Briefly describe the various exemptions that are available to you, such as exemptions from Section 404(b) of the Sarbanes -Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchan ge Act of 1934; and State your election under Section 107(b) of the JOBS Act: James Kirsch Professional Diversity Network, LLC May 14, 2012 Page 2 o If you have elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b), include a statement that the e lection is irrevocable; or o If you have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1), provide a risk factor explaining that this election allows you to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. Please state in your risk factor that, as a result of this election, your financial statements may not be comparable to companies that comply with public company effective dates. Include a similar statement in your critical accounting policy disclosures. In addition, consider describing the extent to which any of these exemptions are available to you as a Smaller Reporting Company . 2. Please update your financial statements and related disclosures pursuant to Rule 8 -08 of Regulation S -X. 3. Please supplementally provide us with copies of any graphical materials or artwork you intend to use in your prospectus. Upon review of these materials, we may have further comments. Please refer to Question 101.02 of our Compliance and Disclosure Interpretations relating to Securities Act Forms available on our website. Prospectus Summary 4. We note your inclusion of defined terms in the front of your prospectus, which is subject to the plain English principles of Rule 421(d) of Regulation C. Rule 421(d) provides that information in the front of the prospectus must highlight information that is important for investors, and must al so be easy to read. See SEC Release No. 33 -7497. The defined terms should be moved to a section of the prospectus that is not subject to Rule 421(d). To conform to the requirements of Rule 421(b), replace specialized definitions with short descriptive p hrases that you use throughout the text. 5. It appears that you do not define your key metrics (i.e., unique visitors, number of visits, members) until the Business section of the prospectus, although these terms are used throughout the registration stateme nt. Please include these definitions in the forepart of the prospectus. 6. Please provide supplemental support for the following assertions regarding your market position. You believe that “iHispano.com is the largest United States online professional network catering to Hispanic -American professionals based on the number of members, visits and unique visitors to the website.” James Kirsch Professional Diversity Network, LLC May 14, 2012 Page 3 You believe that AMightyRiver.com “is a leading online professional network focused on African -Americans based on the number of visits and unique visitors to the website.” You believe that “iHispano.com has more members and received more visits and unique visitors than any other online diversity recruitment network focused on Hispanic -Americans” and that you believe “AMightyRiver. com has more members and received more visits and unique visitors than any other online diversity recruitment network focused on African -Americans.” 7. Please provide a balanced discussion of the reported number of members on your websites throughout the pro spectus. We note your disclosure on page 24 that the reported number of members in your networks is higher than the number of actual individual members. This appears to be material information that should be presented in the prospectus summary and busine ss section alongside your statistics regarding the number of members on each of your websites. 8. Please consider highlighting your relationship with Apollo and Monster.com in the forepart of your prospectus summary as it appears to be a material source of your revenues. 9. With respect to all third -party statements in your prospectus -- such as market data by the U.S. Equal Employment Opportunity Commission, Bureau of Labor Statistics, the Kenan -Flagler Business School, Evercore Partners, and eMarketer, Inc. , among others -- please provide us with the relevant portion of the industry research reports yo u cite. To expedite our review, please clearly mark each source to highlight the applicable portion of the section containing the statistic, and cross -reference it to the appropriate location in your prospectus. Tell us whether any of the reports , other than those prepared by the government, were prepared for you or in connection with the offering. Also, ensure that the dates of the reports are disclosed in the prospectus. Risks Associated with Our Business 10. Please provide quantitative information regarding your material risks in the prospectus summary to provide investors with additional context regarding the risk. For example, disclose the percentages of revenue that you have generated from your two customers. As a further example, disclose the amount and percentage of shares held by your directors, executive officers, and significant stockholders after the offering . Company Information, page 11 11. Please tell us in more detail the timing of your plans to restruct ure Professional Diversity Network, LLC into a Delaware corporation . Explain when you plan to convert the James Kirsch Professional Diversity Network, LLC May 14, 2012 Page 4 company into a Delaware corporation and when each holder of an outstanding membership interest will contribute to the company all of the right, title , and interest in and to the holder’s entire ownership interest in the company. With a view toward disclosure, please tell us the number of parties that hold membership interest in the company. Risk Factors 12. We note that some of your risk factors discus s several distinct risks to the company or an investment in the company’s securities under one heading. Consider revising the risk factors, particularly those listed in bullet point format on pages 21 -22 and 28 -29, to provide separately captioned paragrap hs that address specifically how the conditions and uncertainties present material risks to potential investors. Nasdaq may delist our common stock from quotation on its exchange…, page 34 13. We note your disclosure that you will not offer your common stock unless you are approved for listing on a national securities exchange. Please tell us, with a view towards disclosure, the cond itions under which you will not offer the securities. We are obligated to develop and maintain proper and effective inte rnal controls over financial reporting…, page 36 14. Please clarify your disclosure in this risk factor regarding Section 404 of the Sarbanes - Oxley Act to indicate the circumstances under which you would be first required to provide the attestation report of an auditor with respect to management’s report on its internal control over financial reporting. 15. We note that you are in the process of evaluating and correcting a material we akness in your internal control over financial reporting related to the segregation of duties. While we note that you have not yet remediated this weakness, please describe the steps you are currently taking to correct this problem; disclose how long you estimate it will take to remedi ate this weakness and disclose any material costs associated with your remediation plan that you have incurred (or that you expect to incur). To the extent that you have not made any efforts to correct this weakness and you do not intend to do so in the n ear future, please revise to indicate as such. Special Note Regarding Forward -Looking Statements, page 37 16. We note your statement that some of the information in the prospectus is based on industry publications and reports ge nerated by third parties and that you have not independently verified the third -party data . You are responsible for the entire content of the registration statement and should not include language that can be interpreted as a disclaimer of information you have chosen to include. Pl ease revise. James Kirsch Professional Diversity Network, LLC May 14, 2012 Page 5 Use of Proceeds, page 39 17. To the extent known, please provide more detail regarding the purposes for which the net proceeds in this offering are intended to be used. In this regard, consider disclosing the amount of proceeds that you plan t o use to hire sales and marketing personnel and additional product development personnel. This section does not require disclosure of definitive plans and it is acceptable to discuss preliminary plans. See Item 504 of Regulation S -K. Capitalization, pa ge 40 18. At the top of page 40 you state the pro forma basis reflects the conversion of promissory notes into shares of common stock. Describe further the conversion terms for these notes and tell us how you determined this adjustment meets the factually su pportable criteria of Rule 11 -02(b)(6) of Regulation S -X such that it should be included in your pro forma disclosures. 19. Revise the table on page 40 to include a pro forma column (between the actual and pro forma as adjusted columns) that reflects the completion of your corporate reorganization and the conversion of the promissory notes. Also, revise to include the notes payable in the table, as appropriate, and ensure that the information included in the “actual” column reflects the amount of converti ble debt and members equity from the most recent balance sheet included in the filing. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview, page 44 20. Please expand your overview section to provide a balanced, exe cutive -level discussion that identifies the most important themes or other significant matters with which management is concerned primarily in evaluating the company’s financial condition and operating results. This should include, but is not limited to, discussing economic or industry -wide factors relevant to you, and giving insight into material opportunities, challenges and risks, such as those presented by known material trends and uncertainties, on which your executives are most focused for both the s hort and long term, as well as the actions they are taking to address these opportunities, challenges and risks. See Item 303(a) of Regulation S -K and SEC Release No. 33 -8350. For example, consider discussing the trends and uncertainties associated with y our relationship and dependence with Monster and Apollo. 21. We note your disclosure on page 17 regarding the limitations in generating recruitment revenue from other sources as you cannot compete directly or indirectly with Monster. Please incorporate tho se disclosures here and include a discussion regarding how you James Kirsch Professional Diversity Network, LLC May 14, 2012 Page 6 believe such provisions will impact your future operations. We refer you to Item 303(a)(3)(ii) of Regulation S -K and SEC Release 33 -8350. 22. According to the terms of your agreement with Monste r and Apollo it seems the majority of your revenue is earned based on a flat fee and unless the terms are modified, future revenue will not change with the exception of potential commissions to be earned under the Monster agreement if job posts exceed cert ain thresholds. Please clarify your disclosure to identify this as a known trend noting how this will impact future operations, or tell us why you do not believe such disclosure is necessary. We refer you to Item 303(a)(3)(ii) of Regulation S -K and SEC R elease 33 -8350. Results of Operations, page 44 23. There are several instances where two or more sources of a material change have been identified, but the dollar amounts for each source that contributed to the change are not disclosed. For instance, you disclose on page 46 that the increase in net revenu e for your consumer advertising and consumer marketing solutions was due to revenues derived from the agreement with Apollo and to a lesser extent due to an overall increase in professional hiring demand and further markets penetration of your consumer adv ertising and consumer marketing solutions. Revise your disclosures to quantify the sources that contributed to a material change. Please see Item 303(a)(3) of Regulation S -K and Section III.B of SEC Release 33 -8350. 24. In your discussion of the changes in general and administrative expense you provide a cross reference to “Agreements with Directors and Executive Officers” for more information about guaranteed payments. However, the only reference that we noted was on page 77 where you refer to $57,600 in guaranteed payments to Mr. Kirsch as part of his compensation. It remains unclear how this disclosure supports the $234,000 decrease in guaranteed payments as discussed on page 46. Please explain. To the extent you are referring to the fees paid for Mr. K irsch’s condominium, please revise your disclosures both here and in your “Agreements with Directors and Executive Officers” section to clarify the terms of this arrangement and its impact on your results of operations. Liquidity and Capital Resources, page 50 25. Please revise your disclosures to clearly state whether your available funds and cash flows from operations will satisfy your working capital requirements for the next twelve months. We refer you to FRC 501.03(a) and Section IV of Release No. 33 -8350. 26. Please tell us the typical payment terms for your arrangements and provide us with your days sales outstanding for each period presented. James Kirsch Professional Diversity Network, LLC May 14, 2012 Page 7 Business Overview, page 54 27. Please revise to include a materially complete description of your agreement with Apollo from who you derive the majority of your consumer advertising and consumer marketing solutions revenue. We note that you provide some of the details of the agreement in the notes to the financial statements on page F -18 and F -19 and on page 17 , such as the term of the agreement, you should provide a materially complete description in the Business section. The discussion should include the financial terms o