May 6, 2010
Via EDGAR and Courier
Mr. H. Christopher Owings
Assistant Director
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
| Re: | Envestnet, Inc. |
| Registration Statement on Form S-1 |
| Filed March 26, 2010 |
| File No. 333-165717 |
Dear Mr. Owings:
On behalf of Envestnet, Inc. (the “Registrant” or the “Company”), this letter responds to comments of the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the letter from the Staff dated April 23, 2010 (the “Comment Letter”) regarding the above-referenced registration statement on Form S-1 of the Registrant filed on March 26, 2010 (the “Registration Statement”). In conjunction with this letter, the Registrant is filing via EDGAR, for review by the Staff, Amendment No. 1 (“Amendment No. 1”) to the Registration Statement.
The changes reflected in Amendment No. 1 include those made in response to the comments of the Staff in the Comment Letter and other changes that are intended to update, clarify and render the information complete.
Set forth below are the Registrant’s responses to the Staff’s comments numbered 1 through 95, as set forth in the Comment Letter. Page references in the Registrant’s responses below correspond to the page numbers in Amendment No. 1.
General
SEC Comment
| 1. | We note a number of blank spaces throughout your registration statement for information that you are not entitled to omit under Rule 430A of Regulation C. In this regard, please disclose a bona fide price range of the offered securities, indicate the number of shares to be offered by both you and the selling stockholders, and provide all other information left blank in your prospectus that you are not permitted to omit pursuant to Rule 430A as soon as practicable. See Item 501(b) of Regulation S-K. Also, please allow us sufficient time to review |
May 6, 2010
page 2
| your complete disclosure prior to any distribution of preliminary prospectuses or request for effectiveness. |
Answer
The Registrant acknowledges the Staff’s comment and will provide additional information in subsequent amendments to the Registration Statement. The Registrant will allow the Staff sufficient time to review its complete disclosure prior to any distribution of the preliminary prospectus or a request for effectiveness of the Registration Statement.
SEC Comment
| 2. | In connection with our review of your filing, we reviewed your websites, including the ones located at www.envestnet.com and www.investpmc.com. Please archive properly the information on these and any other of your websites as contemplated by Rule 433(e)(2) under the Securities Act and omit all improper disclosures from your websites. See Section III.D.3.b.iii(E) of Release No. 33-8591 and Rule 433(e) under the Securities Act. |
Answer
The Registrant does not believe that any of the information on its websites meets the definition of an “offer to sell,” “offer for sale” or “offer” under Section 2(a)(3) of the U.S. Securities Act of 1933, as amended (the “Securities Act”). The Registrant is reviewing the information on the www.envestnet.com and www.investpmc.com websites and will remove or update any information that is inconsistent with the information included in the Registration Statement.
SEC Comment
| 3. | Prior to the effectiveness of the registration statement, please have a representative of the Financial Industry Regulatory Authority call us to confirm that it has completed its review, including its review regarding the underwriting compensation terms and arrangements of this offering. |
Answer
The Registrant acknowledges the Staff’s comment and has asked the underwriters to arrange for a representative of FINRA to contact the Staff to confirm that it has completed its review.
SEC Comment
| 4. | Prior to the effectiveness of the registration statement, please have a representative of the stock exchange where you intend to apply to have your shares listed call us to confirm that your common stock has been approved for listing. Alternatively, please disclose in your filing that there is no guarantee that |
May 6, 2010
page 3
| your application to list your shares of common stock on an exchange will be accepted and, therefore, your shares may not be listed on an exchange. |
Answer
The Registrant acknowledges the Staff’s comment and intends to arrange for a representative of the New York Stock Exchange (the “NYSE”) to contact the Staff to confirm that the Registrant’s common stock has been approved for listing on the NYSE.
SEC Comment
| 5. | Please provide us with any gatefold information such as pictures, graphics, or artwork that will be used in the prospectus. |
Answer
The Registrant acknowledges the Staff’s comment and will provide any gatefold information in a subsequent amendment to the Registration Statement. The Registrant will allow the Staff sufficient time to review any such information prior to any distribution of the preliminary prospectus or a request for effectiveness of the Registration Statement.
SEC Comment
| 6. | Please revise your document to discuss your business without relying on the use of jargon. We note, for example, descriptions and phrases, especially in your Prospectus Summary, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Business sections, such as “technology-enabled, Web-based investment solutions and services,” “integrated technology platform,” “centrally hosted, ‘open architecture’ technology platform,” “managed account and multi-manager portfolios, mutual fund portfolios and ETF portfolios,” and “home page of the user interface.” |
Answer
The Registrant has reviewed the disclosure in the Registration Statement and has either removed the terms it believes to be “jargon” or has included additional disclosure that describes or defines such terms so that their meaning is clear to investors. In some cases cited by the Staff, the Registrant believes that such terms are well understood in the industry in which the Registrant operates and communicate important information to investors so that they are able to properly understand the Registrant’s position in its industry and how its business compares to the businesses conducted by other companies in the Registrant’s industry. The Registrant notes that companies that operate in the Registrant’s industry or in similar industries have included similar terms in their initial public offering registration statements. See, e.g., Financial Engines, Inc.
Prospectus Summary, page 1
May 6, 2010
page 4
SEC Comment
| 7. | Please note that the summary is intended to provide only a brief overview of the key aspects of the offering. Currently, your summary is too long and repeats much of the information fully discussed elsewhere in your document, including in your Business section. For example, please remove from your summary the graphs on pages three and four and shorten or remove the Our Market Opportunity, Our Competitive Strengths, Our Growth Strategy, Our Business Model, and Risks sections from your summary. Again, the summary is only intended to provide a brief snapshot of the offering. See Instruction to Item 503(a) of Regulation S-K. |
Answer
The Registrant has reduced the length of the Prospectus Summary section and believes that the revised section provides a brief overview of the key aspects of the offering.
SEC Comment
| 8. | Please remove from the summary and elsewhere in the forepart of your document all defined terms. For example, please remove the last sentence of the first italicized paragraph in your Prospectus Summary section. As another example, please remove the defined terms from your Risk Factors section, including AUM, AUA, and PBS. The meanings of the terms you use in this part of your document should be clear from their context. If they are, you do not need the definitions. If they are not, you should revise the document using terms that are clear. See Updated Staff Legal Bulletin No. 7 (June 7, 1999) sample comments 3 and 5. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment.
SEC Comment
| 9. | We note that the last paragraph on page two quantifies your adjusted EBITDA, adjusted operating income, and adjusted net income for the year ended December 31, 2009. Please make sure that each time you quantify these non-GAAP financial measures, you provide the disclosures required by Item 10(e) of Regulation S-K or provide a cross-reference to the location in your filing where you have provided these disclosures. Also, please apply this comment to the similar disclosure at the bottom of page 57. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 2 and p. 59.
The Offering, page 9
May 6, 2010
page 5
SEC Comment
| 10. | We note your statement that the number of shares of your common stock to be outstanding immediately after this offering is based on 131,134,553 shares outstanding as of December 31, 2009. Please revise to clarify that this is the number of shares outstanding after giving effect to the conversion of your outstanding preferred stock into common stock upon the closing of this offering, as it otherwise may be unclear why this number of shares does not correspond to your audited December 31, 2009 financial statements. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 7.
Risk Factors, page 16
SEC Comment
| 11. | Your Risk Factors section should be a discussion of the known material factors that make your offering speculative or risky. You should place risk factors in context so your readers can understand the specific risk as it applies to you. See Item 503(c) of Regulation S-K and Release No. 33-7497. Please address the following examples, but note that these are examples only and not an exhaustive list of the revisions you should make: |
| • | Please revise certain of your risk factor sub-captions so that each sub-caption adequately describes the risk to you, such as the sub-captions of the second risk factor on page 16, the last risk factor on page 17, the second full risk factor on page 24, and the first full risk factor on page 28. |
| • | Please revise certain of your risk factor discussions so that they clearly and concisely convey the actual risk, such as the second risk factor on page 16 and the last risk factor on page 29. |
| • | Please revise or remove any risk factor that is applicable to any issuer, such as the first full risk factor on page 17, the third full risk factor on page 22, the last risk factor on page 25, and the last risk factor on page 27. |
| • | Please separate certain of your risk factors into multiple risk factors so that each distinct material risk is contained within its own risk factor, such as the second full risk factor on page 19, the first full risk factor on page 20, the last risk factor on page 21, the last risk factor on page 22, and the third risk factor on page 31. |
| • | Please remove certain subsections or elements of a discussion within a risk factor that are not necessary to explaining the risk or otherwise revise the risk factor generally to demonstrate the relevance of the subsection or element to the risk factor, such as the second paragraph of the first risk factor on |
May 6, 2010
page 6
| page 16, the first sentence of the third paragraph in the third full risk factor on page 21, much of the information in the last risk factor on page 22, the first sentence of the second paragraph in the first full risk factor on page 26, and the second paragraph of the third full risk factor on page 30. |
We may have further comment upon reading your response and any revisions.
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See “Risk Factors.”
“We depend on our senior management and other key personnel and…,” page 22
SEC Comment
| 12. | In this risk factor discussion, please disclose the members of your senior management team and the other key personnel whose loss could have a material adverse effect on your operations. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 20.
“A change of control of our company could result in termination of our…,” page 24
SEC Comment
| 13. | We note your disclosure that this offering may be deemed to result in your change of control and, because of this possibility, you are seeking the consent of your clients for this transaction. Please mention this risk in the sub-caption of this risk factor. Also, please remove the second sentence in the second paragraph of this risk factor because it tends to mitigate the risk to you. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 21 and p. 22.
SEC Comment
| 14. | Further, in another appropriate location in your document, such as in your Business section or in your Management’s Discussion and Analysis of Financial Condition and Results of Operations section, please discuss your efforts in seeking the consent of your clients for this transaction, the basis for your belief that substantially all of your clients will consent to this change, whether you have any written or oral agreements with any of your clients regarding their decision, |
May 6, 2010
page 7
| and the impact on you should a substantial amount of clients decide not to consent to the change. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 73 and p. 74.
Use of Proceeds, page 32
SEC Comment
| 15. | It does not appear that you have any current specific plans for the use of the proceeds from this offering because you state that you intend to use the proceeds “for general corporate purposes, including for selective strategic investments through acquisitions, alliances or other transactions.” Therefore, please state and discuss the principal reasons for the offering. See Item 103 of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 7 and p. 30.
SEC Comment
| 16. | Also, please tell us and disclose in an appropriate location in your filing whether you are currently contemplating the acquisition of any businesses. If so, please provide us with your assessment of the significance and probability of such acquisition. See Rule 3-05 of Regulation S-X. |
Answer
The Registrant is not currently contemplating the acquisition of any businesses and has included a statement to this effect in the Registration Statement. See p. 5 and p. 65.
Dilution, page 35
SEC Comment
| 17. | Please provide us with your calculation of pro forma net tangible book value of your common stock of $55.0 million and $0.42 per share. It is unclear to us that you have excluded all intangible assets from this calculation. |
Answer
Set forth below are the Registrant’s calculations related to pro forma net tangible book value of $55.0 million and $0.42 per share:
May 6, 2010
page 8
| As of 12/31/2009 | ||||||
| (in thousands, except number of shares and per share amounts) |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 31,525 | ||||
| Fees receivable, net of allowance for doubtful accounts |
5,800 | |||||
| Deferred tax assets - current |
134 | |||||
| Notes receivable - current, net |
714 | |||||
| Prepaid expenses and other current assets |
1,427 | |||||
| Notes receivable including affiliate and officer, net |
2,322 | |||||
| Property and equipment, net |
8,560 | |||||
| Internally developed software, net |
3,887 | |||||
| Intangible assets, net |
— | (A | ) | |||
| Goodwill |
— | (A | ) | |||
| Deferred tax assets |
14,992 | |||||
| Other non-current assets |
2,436 | |||||
| Total tangible assets |
71,797 | |||||
| Liabilities and Stockholders’ Equity |
||||||
| Current liabilities: |
||||||
| Accrued expenses |
10,422 | |||||
| Accounts payable |
1,892 | |||||
| Deferred revenue |
24 | |||||
| Deferred rent and lease incentive liability |
3,999 | |||||
| Other non-current liabilities |
475 | |||||
| Total liabilities |
16,812 | |||||
| Pro forma net tangible book value |
$ | 54,985 | ||||
| Pro forma shares outstanding |
131,134,553 | |||||
| Pro forma net tangible book value per share |
$ | 0.42 | ||||
(A) - Excludes goodwill and intangible assets.
May 6, 2010
page 9
Management’s Discussion and Analysis of Financial Condition and Results…pages 39
SEC Comment
| 18. | Please expand this section to discuss known material trends, demands, commitments, events, or uncertainties that will have, or are reasonably likely to have, a material impact on your financial condition, operating performance, revenues, or income, or result in your liquidity decreasing or increasing in any material way. See Item 303 of Regulation S-K and Release No. 33-8350. Your discussion should provide sufficient detail so that your prospective investors have an opportunity to view your operations and your plan of operation through the eyes of management. Please address the following examples, but realize that these are examples only and not an exhaustive list of the revisions you should make: |
| • | We note the disclosures throughout your document that your revenues represented by asset-based fees, which appear to comprise the majority of your overall revenues, declined in the years ended December 31, 2007 through December 31, 2009 due to the significant decline in the market value of the assets on your technology. Also, we note that this market value decline was caused by fluctuations in the securities markets, particularly from September 2007 to March 2009, and by your entering into a significant license agreement in 2008. In this regard, you state that “[i]n future periods, the percentage of [y]our total revenues attributable to asset-based fees is expected to vary based on fluctuations in securities markets, whether [you] enter into significant license agreements, the mix of assets under management, or AUM, and assets under administration, or AUA, and other factors.” Please discuss the state of the securities markets since March 2009, the impact of any changes in the markets on you since this time, your belief about the state of the securities markets and their impact on you in future periods, and any steps you have taken or will take based upon this belief. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 38 to p. 40, p. 47 and p. 48.
| • | Additionally, please discuss the significant license agreement you entered into in 2008, the impact this agreement had on your operations and may have on your operations in future periods, whether you believe you will enter into any similar agreements in future periods and the impact you believe they will have on you, and any steps you have taken based on any other similar agreements. |
Answer
May 6, 2010
page 10
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 40.
| • | Further, please discuss your current mix of assets under management and assets under administration, the impact of the current mix on your operations, whether you believe you will alter the mix going forward, and how any alteration will or may impact you in future periods. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 38 to p. 40.
| • | Under the heading “Recent Developments” on page 43, you state that you signed a seven-year platform services agreement with FundQuest Incorporated that would increase the assets under administration on your technology platform by approximately $13 billion, the number of advisors served by approximately 6,200, and the number of accounts on your platform by approximately 90,000. In this regard, you state that in connection with the agreement, you will make various payments to FundQuest and issue that company a warrant to purchase a certain amount of your common stock, which you state will be accounted for as customer inducement costs and amortized as a reduction of your revenues from assets. Please explain in greater detail the impact of this agreement on you and your operations, including the estimated amount of revenues you expect to generate, the expected costs of the payments and warrant to you, and the steps you will take given the increased amount of assets under administration, number of advisors served, and number of accounts on your platform. |
Answer
Though the Registrant has added disclosure to address the Staff’s comment, the new disclosure does not detail all of the payments that will be required to be made by the Registrant because this information is subject to a confidential treatment request application filed in connection with Amendment No. 1. The Registrant respectfully submits that the disclosure it has included in the Registration Statement provides investors with an understanding of the material terms of the FundQuest agreement.
| • | In Note 19 of your Notes to Consolidated Financial Statements on page F-25, you state that you have recently announced a consolidation of your facilities to more appropriately align and manage your resources, which includes closing your Los Angeles office effective March 31, 2010. In this regard, you state that you expect to incur pretax restructuring charges of approximately $1,275 in 2010, including expenses related to vacating rental office space, relocation expenses, severance charges, and fixed asset impairments. In your Management’s Discussion and Analysis Financial Condition and Results of Operations section, please discuss in greater detail this consolidation of your facilities, including the closing of the Los Angeles office, how the |
May 6, 2010
page 11
| consolidation will more appropriately align and manage your resources, the impact of this consolidation on your operations now and in future periods, and any subsequent plans regarding this consolidation. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 42.
Critical Accounting Policies, page 43
SEC Comment
| 19. | We note that your critical accounting policies generally provide the same information as Note 2 to your financial statements. We remind you that such disclosure should supplement, not duplicate, the description of accounting policies that are already disclosed in the notes to the financial statements. The disclosure should provide greater insight into the quality and variability of information regarding financial condition and operating performance. While accounting policy notes in the financial statements generally describe the method used to apply an accounting principle, the discussion in your Management’s Discussion and Analysis of Financial Condition and Results of Operations section should present your analysis of the uncertainties involved in applying a principle at a given time or the variability that is reasonably likely to result from its application over time. See Section V of our Release 33-8350, available on our website at www.sec.gov/rules/interp/33-8350.htm. Please revise as appropriate. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 42 to p. 46.
Non-cash stock-based compensation expense, page 44
SEC Comment
| 20. | Please consider disclosing the intrinsic value of all vested and unvested options based on the difference between the estimated initial public offering price and the exercise price of the options outstanding as of the most recent balance sheet date included in the registration statement. In view of the fair-value-based method of ASC 718 (formerly SFAS 123(R)), disclosures appropriate to fair value may be more applicable than disclosures appropriate to intrinsic value. |
Answer
The Registrant has provided information regarding the fair value of all vested and unvested stock options in the notes to the consolidated financial statements. See p. F-22 and p. F-23.
May 6, 2010
page 12
SEC Comment
| 21. | For any options granted and other equity instruments awarded during the 12 months prior to the date of the most recent balance sheet included in the filing, to the extent that you did not obtain a contemporaneous valuation performed by an unrelated valuation specialist, we believe you should provide enhanced disclosures to investors because reliance has been placed on less reliable valuation alternatives. For any such valuations, please disclose the following information for the related issuances of equity instruments: |
| • | Discuss the significant factors considered, assumptions made, and methodologies used in determining the fair value of the equity instruments granted, including the fair value of the options for options granted. In addition, please discuss consideration given to alternative factors, methodologies, and assumptions. |
| • | Discuss each significant factor contributing to the difference between the initial public offering price and the fair value determined, either contemporaneously or retrospectively, as of the date of each grant and equity related issuance. This reconciliation should describe significant intervening events within the company and changes in assumptions as well as weighting and selection of valuation methodologies employed that explain changes in the fair value of your common stock up to the filing of the registration statement. |
| • | Please note that we acknowledge your current disclosures concerning the valuation of your stock compensation but believe that your investors would benefit from more detailed information. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 44 and p. 45.
Results of Operations, page 46
SEC Comment
| 22. | In this section, you discuss the changes in operation and cash flow amounts between the periods. However, the dollar amounts you disclose mostly repeat information that is available from the face of the financial statements. Therefore, please expand this information to explain the reasons for period-to-period changes. In this regard, where you identify intermediate causes of changes in your operating results, please be sure to fully describe the reasons underlying these causes. Finally, where changes in items are caused by more than one factor, please quantify the effect of each factor on the change, if possible. See Item 303 of Regulation S-K and Release No. 33-8350. Please consider the |
May 6, 2010
page 13
| following examples, but realize that these are examples only and not an exhaustive list of the revisions you should make: |
| • | Under the heading “Revenues” on page 47, you state that revenues earned from assets under management or administration decreased 21% from the year ended December 31, 2008 to the year ended December 31, 2009 due to a decline in asset values, which was partially offset by new account growth and positive net flows of AUM or AUA during 2009 and by a recovery in equity market values during the second and third quarters of 2009. Please revise this discussion to explain the reasons for the period-to-period change in new account growth and positive net flows of AUM or AUA and describe their underlying causes. Also, please quantify the effect of the decline in asset values, increase in new account growth and positive net flows of AUM or AUA, and in the recovery in equity market values during the second and third quarters of 2009 on the overall change in revenues earned from AUM and AUA. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 47 and p. 48.
| • | We note on page 47, under the heading “Licensing and professional services,” you state that, from the year ended December 31, 2008 to the year ended December 31, 2009, your licensing and professional services revenues increased 5% due to increased fees on existing license agreements and fees earned on new license agreements. Please discuss the reasons for the increase in existing fees and new license agreements and their underlying causes, if any, and quantify the increased and new fees on the overall change in revenues from licensing and professional services, if possible. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 48.
| • | Under the heading “General and administration” on page 47, you state that your general and administration expenses increased from the year ended December 31, 2008 to the year ended December 31, 2009 due to increases in occupancy-related costs, communications expenses, research and data costs, and bad debt expense, which was offset by lower professional services expenses and lower travel-related and marketing expenses. Please discuss the reasons for these changes and their underlying causes, if any, and quantify the effects of these reasons and any causes on the overall period change in general and administration expenses, if possible. |
Answer
May 6, 2010
page 14
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 48.
| • | We note on page 49, under the heading “Assets under management or administration,” that you state revenues earned from AUM and AUA were flat between the years ended December 31, 2008 and December 31, 2009 due to several offsetting factors, including growth in accounts and positive net flows of AUM and AUA, the gradual decline in equity market values, and the shift of a customer with nearly $11 billion in AUA from an asset-based fee schedule to a license agreement. Please disclose the customer to which you refer and quantify the effect of each of these offsetting factors that caused your revenues earned from AUM and AUA to remain flat between periods. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. The Registrant respectfully submits that the identity of the customer that moved from an asset-based fee schedule to a license agreement is not material to an investor’s decision whether to invest in the Registrant’s common stock. See p. 50.
SEC Comment
| 23. | Please revise your discussion of results of operations to include all material changes in net income, including the change in unrealized gain (loss) on investments and the income tax provision. |
Answer
The Registrant respectfully submits the change in unrealized gain (loss) on investments for all periods presented is not material and disclosure is not required. The Registrant has revised the disclosure in response to the Staff’s comment and included disclosure relating to each other material line item in the Registrant’s consolidated statements of operations. See p. 47 to p. 52.
Other Quarterly Financial and Operating Data (1), page 51
SEC Comment
| 24. | We note that footnote one to this table refers the reader back to the prospectus summary for a reconciliation of these non-GAAP measures to comparable GAAP measures. However, the reconciliation provided in the prospectus summary only reconciles these measures on an annual basis. The reconciliation for these measures on a quarterly basis appears to be on page 52. Please revise this footnote as necessary to make this clear to your readers. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 54.
Liquidity and Capital Resources, page 53
May 6, 2010
page 15
SEC Comment
| 25. | Please revise your narrative analysis of cash flows to analyze the underlying reasons for changes in your cash flows and to better explain the variability in your cash flows, rather than merely reciting the information seen on the face of your cash flow statement. See Section IV of Release 33-8350. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 55 and p. 56.
Business, page 56
SEC Comment
| 26. | We note that you include many factual statements in this section and throughout your document but have not indicated whether the source of this information is based upon management’s belief, industry data, reports, articles, or any other source. If the statements are based upon management’s belief, please indicate that and include an explanation for the basis of that belief. Alternatively, if the information is based upon reports or articles, please disclose the source or sources and provide these documents to us appropriately marked and dated. The following are only examples of the statements for which you need sources or a basis of belief: |
| • | “We are a leading independent provider of technology-enabled, Web-based investment solutions and services to financial advisors.” Our Company, page 56. |
| • | “We believe this trend was accelerated in the past two to three years as a result of the reputational harm suffered by several of the largest financial institutions during the recent financial crisis.” Increased prevalence of independent financial advisors, page 59. |
| • | “In order to adapt to these changes, we believe that financial advisors will benefit from utilizing a technology platform, such as ours, that allows them to address their clients’ wealth management needs, manage and memorialize decisions made throughout the process, and that assists them with recordkeeping and account monitoring.” More stringent standards applicable to financial advisors, page 60. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment and has indicated where appropriate whether each statement is based on the Registrant’s belief, and if so, the basis for such belief, or on reports or articles, and disclosed the author of such reports or articles. See p. 1, p. 3 to p. 6, p. 58 and p. 61 to p. 66.
May 6, 2010
page 16
Our Market Opportunity, page 59
SEC Comment
| 27. | In this section, you include a number of factual statements based on reports or articles that you state are from certain sources, including the Federal Reserve and Cerulli Associates. Please provide these documents to us appropriately marked and dated. |
Answer
In conjunction with the filing of this response letter, the Registrant has, by separate cover, supplementally provided the Staff with copies of the reports and articles cited in the Registration Statement.
Competitive Strength, page 60
SEC Comment
| 28. | Please balance the discussion of your competitive strengths in this section with a discussion of your competitive weakness. See Item 101(c)(1)(x) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 64.
Our Growth Strategy, page 62
SEC Comment
| 29. | In this section, you provide six strategies that you intend to continue to pursue to increase your revenue and profitability. Please discuss in greater detail the manner in which you intend to implement each of these strategies and whether you have any present programs in place for their implementation. For example, please discuss your process for introducing and adding new financial advisors to your technology platform from your existing enterprise client relationships. As another example, please disclose your plans for any technology development expenditures in future periods and describe any enhancement to the investment solutions and services you offer through your PMC group. As a further example, please state whether you have any current plans for any strategic acquisitions, investments, or other relationships that you believe can significantly enhance the attractiveness of your technology platform or expand your client base, such as the recent platform services agreement you entered into with FundQuest Incorporated. |
Answer
May 6, 2010
page 17
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 4, p. 5, p. 64 and p. 65.
Our Business Model, page 63
SEC Comment
| 30. | Please describe how you have designed your technology platform and infrastructure to allow you to grow your business efficiently without the need for significant additional expenditures as assets grow and with low marginal costs required to add additional accounts, new investment solutions, and services. Also, please explain why you believe that the breadth of access to investment solutions and the multitude of services that you provide are so substantial that financial advisors are less likely to move away from your technology platform. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 66.
Broad Technology Service Offering with Multiple Access Points, page 65
SEC Comment
| 31. | Please revise this section to describe in greater detail each of the 12 investment solutions and services that financial advisors may access through your technology platform. For example, please discuss the manner in which financial advisors may use your technology platform to integrate with a number of financial planning tools to create and implement a financial plan for clients that is tailored to each client’s investment goals, risk tolerance, and assets. As another example, please explain how financial advisors may utilize asset allocation recommendations provided through your technology platform in such ways as to allow significant flexibility in determining appropriate asset allocation strategies for their clients. As a further example, please describe the extensive resources and the wide range of portfolio construction tools available to financial advisors on your technology platform that allow them to research and review information regarding the services they may recommend to and the portfolios they may construct for their clients. As a final example, please discuss in greater detail from where you obtain your wide range of technology-enabled investment solutions available to financial advisors on your technology platform, including the separately managed accounts, unified managed accounts, advisor-directed portfolios, third-party strategist programs, mutual funds, and exchange-traded fund portfolios. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 67 to p. 69.
May 6, 2010
page 18
Our Customers, page 68
SEC Comment
| 32. | Please tell us whether you are dependent upon a single customer, the loss of which may have a material adverse impact on you. If so, please disclose this fact the name of that customer. See Item 101(c)(1)(vii) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 70.
Sales and Marketing, page 68
SEC Comment
| 33. | Please discuss in greater detail the sales and marketing efforts in which you engage. For example, please describe the advertising and other marketing materials you use to promote your investment solutions and services, including their content and method of distribution. As another example, please describe some of the industry conferences and tradeshows in which you participate and the manner of your participation. As a further example, please discuss the marketing tools you create for financial advisors to better communicate with their current and prospective clients. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 71.
Regulation, page 70
SEC Comment
| 34. | You state that many of your investment advisory programs are conducted pursuant to the safe harbor of Rule 3a-4 under the Investment Company Act. Please disclose the investment advisory programs to which you are referring and why they qualify for the safe harbor. We may have further comments based on your response and any revisions. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 74 and p. 75.
Legal Proceedings, page 70
SEC Comment
| 35. | Regarding the proceeding in which you sued a private company and its chief executive officer, please indicate the name of the court in which the proceeding is |
May 6, 2010
page 19
| pending, disclose the name of the company and chief executive officer, and provide a more complete description of the factual basis alleged to underlie the proceeding. Also, please provide similar information for the separate suit and counterclaim against you. See Item 103 of Regulation S-K. |
Answer
Though the Registrant believes that the litigation is not material and the disclosure is not required, the Registrant has revised the disclosure in response to the Staff’s comment. See p. 76.
Management, page 72
SEC Comment
| 36. | You must disclose the business experience of your officers and directors during the past five years without gaps or ambiguities, including their principal occupations and employment, the name and principal business of any corporation or other business association, and whether any of the business associations are your parent, subsidiary, or other affiliate. Also, for any officers or directors employed by you for less than five years, please explain the nature of their responsibilities in their prior positions to provide adequate disclosure of their prior business experiences, including information relating to their professional competence. See Item 401(e)(1) of Regulation S-K. In this regard, please revise the business experiences of Gates Hawn, Lori Hardwick, Michael Henkel, James Patrick, and William Rubino, Jr. so that you describe their business experiences over the past five years without gaps or ambiguities, including the dates of their experiences continuously over the past five years and the nature and responsibility of Mr. Hawn’s experience as an “independent” Senior Advisor to Credit Suisse. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. The Registrant notes that the persons described in the Management section of the Registration Statement as having the titles “Executive Vice President,” “Managing Director,” Senior Vice President” and “Chief Administrative Officer” are members of the Registrant’s senior management but have not been, and will not be, designated by the Registrant’s board of directors as executive officers for purposes of Section 16 of the U.S. Exchange Act of 1934, as amended, and are not being named pursuant to Item 401(c) of Regulation S-K. See p. 77 to p. 80.
SEC Comment
| 37. | Please disclose whether, over the past ten years, any of your officers or directors was the subject of, or a party to, any legal proceeding as described in Item 401(f) of Regulation S-K. If so, please provide the required information regarding the proceedings. If not, please disclose this fact. |
May 6, 2010
page 20
Answer
None of the Registrant’s executive officers or directors has been the subject of, or a party to, any legal proceeding as described in Item 401(f) of Regulation S-K and the Registrant has added disclosure to this effect in the Registration Statement. See p. 80.
SEC Comment
| 38. | Please confirm for us that you have disclosed all the directorships held by your directors over the past five years as required by Item 401(e)(2) of Regulation S-K. |
Answer
The Registrant hereby confirms that all of the directorships held by its directors over the past five years that are required to be disclosed by Item 401(e)(2) of Regulation S-K have been disclosed in the Registration Statement.
Directors, page 72
SEC Comment
| 39. | Please briefly discuss each director’s specific experience, qualifications, attributes, or skills that led you to the conclusion that he or she should serve as one of your directors in light of your business and structure. If material, these disclosures should cover more than the past five years, including information about each person’s particular areas of expertise or other relevant qualifications. See Item 401(e)(1) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 77 and p. 78.
Composition of our Board of Directors after this Offering, page 75
SEC Comment
| 40. | It does not appear as if you describe the leadership structure of your board of directors as required by Item 407(h) of Regulation S-K. Please revise or advise. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 81.
Committees of the Board of Directors after this Offering, page 75
SEC Comment
May 6, 2010
page 21
| 41. | We note that the members of the standing committees have not yet been determined. However, in your Executive Compensation section, you discuss the compensation decisions your compensation committee makes or has already made regarding your named executive officers. For example, on the top of page 78, you state that the compensation committee, beginning in November 2009 and concluding in January 2010, retained an independent third-party compensation specialist. Please clarify whether any or all of your board committees included directors in the year ended December 31, 2009. If so, please disclose the members of those committees. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 81 and p. 82.
Nominations and Governance Committee, page 75
SEC Comment
| 42. | Please describe the process of the nominations and governance committee or the board for identifying and evaluating nominees for directors, including nominees recommended by security holders, and any differences in the manner in which the nominations and governance committee or the board evaluates nominees for director based on whether the nominee is recommended by a security holder. Also, please disclose whether the nominations and governance committee or the board considers diversity in identifying nominees for directors. If so, please discuss the manner in which the nominating and governance committee or the board of directors considers diversity in identifying director nominees. See Item 407(c)(2)(vi) of Regulation S-K. |
Answer
The Registrant respectfully submits that Item 407(c)(2) of Regulation S-K is not applicable to the Registration Statement.
Director Compensation, page 76
SEC Comment
| 43. | Please disclose the amounts of the reimbursements you paid to directors in the fiscal year ended December 31, 2009. See Item 402(k)(2)(vii) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 82.
Executive Compensation, page 77
May 6, 2010
page 22
SEC Comment
| 44. | It does not appear that you have included any disclosure based upon Item 402(s) of Regulation S-K regarding your compensation policies and practices related to your risk management practices and your risk-taking incentives. Please advise us of the basis for your conclusion that disclosure is not necessary and describe the process you undertook to reach that conclusion. |
Answer
The Registrant notes that as required by Item 402(s) of Regulation S-K, disclosure is required only to the extent that risks arising from the Registrant’s compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Registrant. The Registrant is in the process of determining whether or not such disclosure is necessary.
The Registrant is currently conducting reviews of the material compensation policies and practices applicable to its employees, including executive officers, and will discuss them with the Compensation Committee. The reviews are being conducted by management and are evaluating the key features of each component of compensation paid to employees. The reviews will evaluate a number of factors, including, as applicable: pay philosophy, market practices, effective balance in cash and equity mix, short and long term focus, corporate and individual performance focus, funding metrics, profit sharing payout percentages and oversight of discretionary awards and payout determinations.
Based on this review and discussion thereof, the Compensation Committee will reach a conclusion as to whether or not the Registrant’s compensation policies and practices did or did not create risks that were reasonably likely to have a material adverse effect on the Registrant. If the Compensation Committee concludes that the risks arising from the Registrant’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Registrant, no disclosure will be added. If however, the Compensation Committee concludes that the risks arising from the Registrant’s compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Registrant, the disclosure required by Item 402(s) of Regulation S-K will be added in a subsequent amendment to the Registration Statement.
Compensation Discussion and Analysis, page 77
SEC Comment
| 45. | We note your disclosure under the heading “Philosophy and Objectives” in which you state that you have established a set of guiding principles that provide the foundation of all compensation programs for executives and other employees. Also, we note that your compensation program emphasizes the alignment of employee efforts with your corporate mission, attempts to remain externally competitive while maintaining internal equity, promotes fiscally responsible pay |
May 6, 2010
page 23
| decisions, encourages efficient use of your resources, and ensures compliance with applicable legal and contractual requirements. Please provide greater detail about the manner in which you determine the amount of overall compensation, and the amount of each compensation element, paid to your named executive officers. See Items 402(b)(1)(v) and 402(b)(2)(i) of Regulation S-K. In this regard, please describe the set of guiding principles you have established that provide the foundation for your executive compensation programs, discuss your policies for allocating between long-term and currently paid out compensation and between cash and non-cash compensation, and discuss any of the remaining factors in Item 402(b)(2) of Regulation S-K that are necessary to provide investors with material information to understand your compensation policies and decisions regarding the named executive officers. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 83 and p. 84.
SEC Comment
| 46. | You state that you strive to remain externally competitive in relevant labor markets, you consider the market values of your named executive officers’ positions, your chief operating officer provides market data to your compensation committee for determining the appropriate compensation levels of your named executive officers, and your independent third-party compensation specialist focuses on the median quartile of competitive market data for your named executive officers’ compensation. Therefore, it appears that you benchmark total and component compensation of each officer’s position against one or more appropriate job matches from other companies. Please elaborate upon the benchmarking data of other companies that you consider in your compensation program and explain their components in greater detail. See Item 402(b)(2)(xiv) of Regulation S-K. For guidance, please consider the Division of Corporation Finance’s Compliance and Disclosure Interpretation 118.05 under the section entitled “Regulation S-K” (July 3, 2008). |
Answer
The Company does not believe that it benchmarks when making compensation decisions. Competitive market data is obtained by the Registrant solely from its review of broad-based third party surveys and other generally available information in order to obtain a general understanding of current compensation practices. The Registrant has revised the disclosure to make this clear. See p. 84.
Role of the Compensation Committee and Management, page 77
SEC Comment
May 6, 2010
page 24
| 47. | We note that the compensation committee meets with your chief executive officer, as needed, and provides evaluations of and compensation recommendations for your named executive officers to the board. Also, you state that your chief operating officer, from time to time, provides market data and other information to the compensation committee. Please discuss in greater detail the role of executive officers in determining executive compensation generally and their role specifically in determining the compensation of your named executive officers in the year ended December 31, 2009. See Item 402(b)(2)(xv) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 84.
Competitive Market Review, page 78
SEC Comment
| 48. | We note that your compensation committee retained an independent third-party compensation specialist firm in November 2009 with respect to the review and recommendation of executive compensation. Please disclose whether that compensation consultant reviewed or provided any recommendations regarding the compensation of your named executive officers for the year ended December 31, 2009. Also, please identify that compensation specialist, discuss in greater detail the nature and scope of the consultant’s assignment, and describe the material elements of the instructions or directions given to this consultant regarding the performance of its duties. See Item 407(e)(3)(iii) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 84.
SEC Comment
| 49. | Please state whether your chief executive officer met with representatives of your compensation specialist regarding his compensation or the compensation of other named executive officers and identify the members of management with whom the compensation specialist works, if any. See Item 407(e)(3)(ii) of Regulation S-K. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 84.
SEC Comment
| 50. | Please disclose whether the compensation specialist or its affiliates also provided you or your affiliates with additional services in an amount in excess of $120,000 |
May 6, 2010
page 25
| during the year ended December 31, 2009. If so, please provide the disclosures required by Item 407(e)(3)(iii)(A) of Regulation S-K. |
Answer
Neither McLagan nor its affiliates provided the Registrant with additional services in an amount in excess of $120,000 during the year ended December 31, 2009.
Our 2009 Executive Compensation Program, page 78
Base Salary, page 78
SEC Comment
| 51. | You state that your named executives officers’ base salaries are established and adjusted based on market data, individual performance, your overall financial results and performance, changes in job duties and responsibilities, and your overall budget. Therefore, it is unclear whether the base salaries are established or adjusted by obtaining certain objective financial results or whether each executive’s base salary determination is completely subjective. If certain financial results are quantified to establish or adjust base salaries, please specify these results. See Item 402 (b)(2)(v) of Regulation S-K. If financial results are not quantified, please state. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 85.
SEC Comment
| 52. | Further, regardless of whether certain financial results are quantified, please clarify the manner in which you use the metrics you discuss in this section, including market data, individual performance, your overall financial results and performance, changes in duties and responsibilities, and your overall budget, in establishing or adjusting your named executive officers’ base salaries generally and specifically for the year ended December 31, 2009. |
Answer
The determination of each executive’s base salary is completely subjective and financial results are not quantified. The Registrant has revised the disclosure to reflect these facts. See p. 85.
SEC Comment
| 53. | In this regard, please disclose the reasons that you raised each of your executive officer’s base salary by 4.3% effective January 1, 2010, why and by what amount you reduced each officer’s base salary on January 1, 2009, and the reasons that |
May 6, 2010
page 26
| you increased the salaries of Judson Bergman, William Crager, and Scott Grinis by $100,000, $30,000, and $25,000, respectively. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 85.
Incentive-based profit sharing, page 78
SEC Comment
| 54. | Please disclose how you generally determine the predetermined percentage of profits from the preceding year that are distributed to executives and employees under your profit sharing program and disclose the specific amount of predetermined profits available for the year ended December 31, 2009. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 85 and p. 86.
SEC Comment
| 55. | Under your profit sharing program, you state that a minimum threshold of profit must be met before any distribution may occur and a higher percentage of profit may be distributed if profit levels are in excess of 110% of your planned profitability. Please disclose the minimum profit threshold and the actual profit amount for the year ended December 31, 2009. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 85 and p. 86.
SEC Comment
| 56. | You state that, to determine each executive’s incentive-based profit sharing award, management makes recommendations to the compensation committee regarding the amount of the award based on the executive’s performance and contribution to profitability, and the committee must make the final determination of the amount awarded to each officer. Please discuss the performance measures and contributions to profitability that management and the compensation committee examine in making their recommendations and determinations regarding the amounts awarded to each executive officer. Please discuss the performance measures and contributions to profitability examined generally and examined specifically regarding the amounts awarded to each executive officer for the year ended December 31, 2009. |
Answer
May 6, 2010
page 27
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 85 and p. 86.
SEC Comment
| 57. | You state that the compensation committee has discretion to adjust performance and payout targets if certain factors warrant variation from the formula. Please describe the formula to which you refer. Also, please discuss the certain factors to which you refer that may warrant variation from the formula, describe any limitations on the discretion of the compensation committee in adjusting performance and payout targets, and disclose whether the committee has the discretion to increase and decrease the performance and payout targets. Further, please disclose whether the compensation committee used any discretion in issuing the incentive-based profit sharing compensation awards to each executive officer for the year ended December 31, 2009. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 85 and p. 86.
Equity Awards, page 78
SEC Comment
| 58. | You state that it has been your practice to annually grant stock options to employees, including executives, in recognition of their performance, as an incentive for their retention, and to align their interests with those of your stockholders. Please clarify whether the compensation committee has any formal procedures regarding grants of stock options. If so, please briefly describe those procedures. If not, please state. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 86 and p. 87.
SEC Comment
| 59. | We note the first table on page 79 in which you disclose the number of stock options the compensation committee awarded to each of your named executive officers on May 15, 2009. Also, we note your statement that the compensation committee does not use a formula in making stock option awards. Therefore, please describe the specific reasons that the compensation committee decided to award the particular amount of stock options to each named executive officer in that table. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 86 and p. 87.
May 6, 2010
page 28
SEC Comment
| 60. | You state that, immediately following the closing of this offering, you will issue a number of stock options to your named executive officers, which you disclose in the second table on page 79, in lieu of the 2010 annual grant of options. Please disclose the reasons that you will award the specific amount of stock options to each executive officer. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 87.
Employment and Change of Control Agreements, page 84
SEC Comment
| 61. | Please briefly describe the terms of the employment agreements with your named executive officers that became effective on March 25, 2010. Also, please file these agreements as exhibits to your registration statement. |
Answer
None of our named executive officers has an employment agreement and the Registrant has revised the disclosure to reflect this fact. See p. 90.
SEC Comment
| 62. | Please disclose whether this offering will trigger the change of control provisions in 2004 Stock Incentive Plan. If so, please disclose whether the board has decided to equitably adjust any outstanding awards to preserve the value of the benefits awarded or to be awarded to participants under the 2004 Stock Incentive Plan. |
Answer
The change of control provisions in the 2004 Stock Incentive Plan do not discriminate in scope, terms or operation, in favor of executive officers of the Registrant and are generally available to all salaried employees. Accordingly, the Registrant has revised the disclosure in response to the Staff’s comment and moved the discussion of the 2004 Stock Incentive Plan’s change of control provision to the general description of the 2004 Stock Incentive Plan. See p. 94.
SEC Comment
| 63. | We note that, if a change in control occurs and a participant’s awards are not converted, assumed, or replaced by the board, the awards shall become fully vested and exercisable and all forfeiture restrictions on these awards shall lapse. |
May 6, 2010
page 29
| Therefore, please disclose estimated payments and benefits that would have been provided to each of your named executive officers if a change in control occurred on December 31, 2009 without the awards being converted, assumed, or replaced by the board. See Item 402(j)(2) Regulation S-K and Instruction 1 to Item 402(j). In this regard, for ease of understanding, please consider presenting this information in tabular format. |
Answer
Please see the Registrant’s response to comment 62.
Principal and Selling Stockholders, page 88
SEC Comment
| 64. | Please tell us whether any of your selling stockholders are broker-dealers or affiliated with broker-dealers. If any of your selling stockholders are broker-dealers, please disclose that they are “underwriters” within the meaning of the Securities Act. Also, if so, please revise this section, your prospectus cover page, and your Underwriting section to state which, if any, of your selling stockholders are broker-dealers, and to state that they are also underwriters with respect to the shares that they are offering for resale. |
Answer
The Registrant acknowledges the Staff’s comment and will address the Staff’s comment, if applicable, in a subsequent amendment to the Registration Statement.
SEC Comment
| 65. | Further, if any of your selling stockholders are affiliates of broker-dealers, please disclose, if true, that: |
| • | the seller purchased the shares in the ordinary course of business; and |
| • | at the time of the purchase of the securities to be resold, the seller had no agreements or understandings, directly or indirectly, with any person to distribute the securities. |
If either of these statements is not true for any of your selling stockholders, then the prospectus must state that the selling stockholder is an underwriter.
Answer
The Registrant acknowledges the Staff’s comment and will address the Staff’s comments, if applicable, in a subsequent amendment to the Registration Statement.
SEC Comment
May 6, 2010
page 30
| 66. | Please describe the manner in which the selling stockholders obtained their shares. Please provide this information for each selling stockholder in your table. |
Answer
The Registrant acknowledges the Staff’s comment and will address the Staff’s comment in a subsequent amendment to the Registration Statement.
SEC Comment
| 67. | We note your statement that you believe, “based on the information furnished to [you],” that the persons and entities named in the table have sole voting and investment power with respect to all shares of common stock that they beneficially own. Please remove the phrase, “based on the information furnished to us.” |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 95.
SEC Comment
| 68. | Also, please disclose the natural person, natural persons, or the publicly registered company who exercise the sole or shared voting or dispositive powers with respect to the shares to be offered for resale by that selling stockholder. For guidance, please consider the Division of Corporation Finance’s Compliance & Disclosure Interpretation 240.04 under the section entitled “Regulation S-K” (March 12, 2010). |
Answer
The Registrant acknowledges the Staff’s comment and will address the Staff’s comment in a subsequent amendment to the Registration Statement.
SEC Comment
| 69. | We note your statements elsewhere in this document that, in connection with this offering, your 41% stockholder, The EnvestNet Group, Inc., will merge with and into you, with you being the surviving entity. Also, you state that each stockholder of EnvestNet Group is entitled to become party to the registration rights agreement and to receive each of the registration rights described in this document. In this regard, you disclose the EnvestNet Group stockholders to be Yves Sisteron, Paul Koontz, James Johnson, and Judson Bergman. Please disclose the amount of shares of EnvestNet Group each stockholder owns and revise your disclosure in this section to make it clear that, prior to the offering, EnvestNet Group is a 41% stockholder and its shares are owned by Messrs. Sisteron, Koontz, Johnson, and Bergman. Further, please disclose the amount of shares that each of these individuals will own after the offering that were received |
May 6, 2010
page 31
| from merger. We may have further comments upon reading your response and any revisions. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 95 to p. 97.
Certain Relationships and Related Party Transactions, page 91
Right to Appoint Board and Committee Members, page 91
SEC Comment
| 70. | You state that all rights to make a binding nomination for the appointment of directors will terminate upon the closing of this offering. Please revise to clarify whether the rights to designate directors, as discussed in this section, will terminate upon the closing of this offering. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 99.
SEC Comment
| 71. | Please disclose whether the terms in your transactions and agreements with related parties were comparable to terms you could have obtained in arms-length transactions with unaffiliated third parties. If not, please discuss how the terms in the related party transactions and agreements would be different if they were conducted in arms-length transactions with unaffiliated third parties. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 101.
SEC Comment
| 72. | We note your board has adopted a related party transactions policy that will become effective upon the consummation of this offering. Please disclose whether this policy is written. Also, please describe the manner in which the audit committee will approve any related party transaction under this policy, including the factors that the audit committee would examine and deem relevant in determining whether to approve any related party transaction consistent with your policy. See to Item 404(b) of Regulation S-K. The policy required by Item 404(b) should be specific to transactions subject to Item 404(a) of Regulation S-K. |
Answer
May 6, 2010
page 32
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 100 and p. 101.
Underwriting, page 104
SEC Comment
| 73. | Please briefly discuss the discounts and commissions to be allowed or paid to dealers, including all cash, securities, contracts, or other considerations to be received by any dealer in connection with the sale of securities. See Item 508(h) of Regulation S-K. |
Answer
The Registrant believes it has already provided the requested disclosure. The Registrant notes that page 112 contains a discussion of the discounts and commissions to be allowed or paid to dealers, as well as a table stating the amount of such discounts and commissions.
SEC Comment
| 74. | We note your statement on page 105 that underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. |
Please identify which principal underwriters intend to sell to accounts over which it exercises discretionary authority. See Item 508(j) of Regulation S-K.
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. 113.
Consolidated Financial Statements, page F-1
Consolidated Balance Sheets, page F-3
SEC Comment
| 75. | We note that your audited balance sheet and your capitalization table on page 33 show that the par value of your common stock is $0.001. However, you state in the first paragraph on page 95 that, upon the closing of this offering, you will have common stock with a par value of $0.01. Please tell us the par value of your common stock, whether it is impacted by any of the transactions in this offering, and revise your document to consistently represent the par value of your common stock. |
Answer
May 6, 2010
page 33
The current par value of the Registrant’s common stock is $0.001 per share. The par value is not impacted by any of the transactions in this offering. The Registrant has revised the disclosure in response to the Staff’s comment. See p. 102.
SEC Comment
| 76. | We note your presentation of pro forma loss per share for the year ended December 31, 2009. Because the impact of the conversion of your preferred stock into common stock is anti-dilutive, it is unclear to us how you determined that this pro forma presentation is meaningful and appropriate. See ASC 260-10 (formerly SFAS 128) and advise. |
Answer
Under ASC 260-10-50 for each period for which an income statement is presented, an entity shall disclose all of the following:
| • | A reconciliation of the numerators and the denominators of the basic and diluted per-share computations for income from continuing operations. The reconciliation shall include the individual income and share amount effects of all securities that affect earnings per share; |
| • | The effect that has been given to preferred dividends in arriving at income available to common stockholders in computing basic EPS; and |
| • | Securities that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the period(s) presented. Full disclosure of the terms and conditions of these securities is required even if a security is not included in diluted EPS in the current period. |
The Registrant respectfully submits that including the conversion of the preferred stock into common stock, though it is anti-dilutive, provides additional information to the users of the consolidated financial statements as a result of the planned change of the capital structure that will become effective upon consummation of the offering.
Notes to Consolidated Financial Statements, page F-7
Note 2. Summary of Significant Accounting Policies, page F-7
SEC Comment
| 77. | Please disclose the types of costs that you classify as cost of revenues, as we believe this provides important information to your investors. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. F-8.
May 6, 2010
page 34
Revenue Recognition, page F-8
SEC Comment
| 78. | We note your discussion of asset management and administration fees. Please consider revising your disclosure to clarify that you do not manage and administer these assets, but rather you charge fees to your customers that are calculated as a percentage of the assets that your customers manage or administer on your technology platform. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. F-8.
SEC Comment
| 79. | Based on your accounting policy and discussion of your revenue elsewhere in your filing, it appears that you generally provide access to your technology platform through hosting arrangements and recognize the related revenue under SAB 104. To help us better understand the revenue recognition related to your software, please provide us with your analysis of the applicability of ASC 985-605-55-121 through 55-125. Also, please provide us with your analysis of whether any other revenue generating activities fall into the scope of ASC 985-605. For example, we note your accounting policy for professional services fees indicates that you provide contractual customized service platform software development. Finally, please tell us how you considered the applicability of ASC 605-25 and 985-605-55-4, and revise your policy to address multiple-element arrangements, if applicable. |
Answer
The Registrant earns revenues primarily under three pricing models. First, the majority of the revenues are derived from fees charged as a percentage of the assets that are managed or administered on its technology platform.
Second, revenue is generated from recurring, contractual licensing fees for providing access to its technology platform, generally from a small number of enterprise clients. Licensing fees are generally fixed for the contract term.
Third, the Registrant earns revenues from professional services fees, which are earned by providing contractual customized platform software development services. This revenue is recognized under the percentage of completion method. Under the percentage of completion method revenue is recognized based upon the number of hours incurred as a percentage of the total estimated hours as stated in the contract.
In determining the proper method of revenue recognition, the Registrant has taken into consideration the relevant accounting pronouncements included in ASC 985-605-55-121 through 55-125 and ASC 985-605-55-121 which state the following:
May 6, 2010
page 35
A software element subject to this Subtopic is only present in a hosting arrangement if both of the following criteria are met:
| • | The customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty; and |
| • | It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. |
Accordingly, a hosting arrangement in which the customer has an option as specified in this paragraph is within the scope of this Subtopic.
The Registrant’s license agreements do not generally provide its customers the ability to take possession of the software or run the software on their own hardware or contract with another party unrelated to host the software. Therefore, the Registrant does not believe that this guidance applies to its business. Those arrangements are considered service arrangements and accounted for under SAB 104.
There are instances in which the customer may have the ability to take possession of the software and in such circumstances an analysis is required to be performed under ASC 605-25, which covers the separation of deliverables in a multiple-element arrangement and the allocation of revenue to the separate units of accounting. The conclusion for the license agreement which contains such provisions noted above is that it is a multiple element contract. The Registrant then is required to determine whether, as a multiple element contract, there is vendor specific objective evidence (“VSOE”) of the various elements. The Registrant determined as a result of its analysis that there is no VSOE of the fair value of the various elements. In instances in which “sufficient vendor-specific objective evidence does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement should be deferred until the earlier of the point at which (a) such sufficient vendor-specific objective evidence does exist or (b) all elements of the arrangement have been delivered.”
The Registrant has concluded that, based on the absence of VSOE and the fact that the delivery of each of the services has commenced, the Registrant should recognize the revenue associated with each element (software license, hosting, services, and post contract support) ratably, over the contract period beginning with delivery of the license. The Registrant has revised the revenue recognition accounting policy on page F-8 to address multiple element arrangements.
The Registrant has evaluated the applicability of 985-605-55-4 and concluded that this provision does not apply based upon the terms and conditions of the contracts with its customers.
SEC Comment
May 6, 2010
page 36
| 80. | We note that you recognize revenue for asset management and administration fees based upon a contractual percentage of quarter-end values for those assets. However, we read in the second-to-last paragraph on page 40 that revenues from assets under management or administration recognized during the fourth quarter of 2009 were based on the market value of assets as of September 30, 2009. Please clarify for us whether that is the method under the contract by which revenue is earned in a quarter or the method you are using to approximate the revenue earned in that quarter. If you are using the third quarter market value of assets to approximate the fourth quarter value in lieu of using actual fourth quarter numbers, please explain how you account for and monitor the difference between your estimate and actual amounts and whether such difference is ever material to your results of operations. Finally, please revise your accounting policy to clarify this matter. |
Answer
Over 90% of the Registrant’s contracts specify that customers are billed at the beginning of each quarter based on a percentage of the market value of the customer assets on the Registrant’s technology platform as of the end of the prior quarter. Therefore, for these contracts, the fee for any given quarter is determined as of the first day of the quarter.
As an example, for the services the Registrant provides to a customer during the fourth quarter of 2009, the value of its services is based upon a contractual percentage of the value of the customer assets as of September 30, 2009. Therefore, the fee for services to be performed by the Registrant on behalf of the customer in the fourth quarter of 2009 (October 1, 2009 through December 31, 2009) is determined as of the first day of the fourth quarter 2009.
As a result, on October 1, 2009 the Registrant would record to deferred revenue the amount of this fee and it would recognize this fee ratably throughout the fourth quarter of 2009 based on the number of days in the quarter.
Increases or decreases to the customer account value as a result of market impacts during the fourth quarter of 2009 do not affect the revenue the Registrant earns during the quarter. However, the ending customer account value as of December 31, 2009, determines the amount of revenue the Registrant will recognize in the first quarter of 2010.
Therefore, based upon its revenue recognition policies and contractual arrangements, the Registrant is not using the third quarter market value of assets to approximate the fourth quarter in lieu of using actual fourth quarter numbers.
Accordingly, the Registrant respectfully submits that no additional disclosure is required.
SEC Comment
May 6, 2010
page 37
| 81. | We read your statement that certain portions of your revenues require management’s consideration of the nature of the client relationship in determining whether to recognize as revenue the gross amount billed or net amount retained after payments are made to providers for certain services related to the product or service offering. We have the following comments: |
| • | It is unclear to us whether your reference to consideration of the nature of the client relationship is intended to convey that you consider the various factors specified in ASC 605-45. Please advise. |
| • | Please describe these types of arrangements to us, including the significant terms, and provide us with your analysis of whether the related revenue should be recognized gross or net in accordance with ASC 605-45 or other appropriate literature. |
| • | Please consider revising your disclosure to briefly describe these types of arrangements and to better explain the factors you consider in analyzing these arrangements. |
Answer
The Registrant notes that the reference to the consideration of the nature of the client relationship relates to determining whether to record revenue gross or net, pursuant to the specifications in ASC 605-45. The Registrant has revised the disclosure in response to the Staff’s comment. See p. F-8.
Customer Inducements, page F-9
SEC Comment
| 82. | We note that customer inducements are capitalized and amortized against revenue over the term of the agreement. Please explain to us in more detail the circumstances under which you offer customer inducements and the types of inducements offered, and consider briefly clarifying this in your disclosure. Also, please tell us the accounting literature you are relying upon in accounting for these inducements. |
Answer
The Registrant will, in certain circumstances in order to induce a customer to retain the Registrant as its provider of technology platform services, make an upfront payment or series of payments to the customer. Generally, inducement payments are made in cash, except for the inducement arrangement with FundQuest made subsequent to December 31, 2009, which included a combination of cash payments and the issuance of a warrant to purchase common stock of the Registrant.
As of December 31, 2009, the Registrant only has one inducement transaction with a customer and respectfully submits that it has provided the requested disclosure.
May 6, 2010
page 38
The Registrant primarily references the accounting literature of ASC 340, Other Assets and Deferred Costs, 10 Overall, 05 Overview and Background and 15 Scope and Scope Exceptions. In addition, the Registrant consulted other related U.S. GAAP accounting literature including:
| • | FASB Accounting Standards Codification: |
| • | 350, Intangibles – Goodwill and Other, 30 General Intangibles Other than Goodwill; and |
| • | 605, Revenue Recognition, 50 Customer Payments and Incentives, 25 Recognition – Vendor’s Accounting for Consideration Given to a Customer, paragraphs 25-1 through 25-9. |
| • | SEC Rules, Regulations and Releases: |
| • | Current Issues and Rulemaking Projects, Accounting for Sales Commissions Paid (April 2001). |
| • | SEC Staff Views: |
| • | Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements – Frequently Asked Questions and Answers – Topic 13.A.3 – Accounting for Certain Costs of Revenues; |
| • | Minutes of the AICPA SEC Regulations Committee, Revenue Recognition and Deferred Costs (July 1996); |
| • | Remarks by Donna L. Coallier, Deferred Customer Acquisition Costs (December 1996); |
| • | Remarks by Russell P. Hodge, Customer Acquisition and Related Costs (December 2004); and |
| • | SEC Practice, Customer Acquisition Costs. |
Internally Developed Software, page F-9
SEC Comment
| 83. | Please explain to us the software systems to which this footnote is referring, and provide us with your analysis of whether such software should be accounted for under ASC 350-40-05-2 or ASC 985-20. |
Answer
The software systems to which the footnote is referring are the two technology platforms, the UMP (Unified Managed Platform) and the UMPI (UMP Institutional) that serve the Registrant’s customers. Software development costs are incurred in relation to these two systems exclusively in the creation and expansion of the platforms. Payroll costs incurred in developing the internal use software noted above are capitalized under the guidelines in ASC 350.
Internal use software is software having both of the following characteristics:
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| • | The software is acquired, internally developed or modified solely to meet an entity’s internal needs; and |
| • | During the software’s development or modification, no substantive plan exists or is being developed to market the software externally. |
The Registrant has determined that the software systems referred to above meet both criteria as outlined in ASC 350-40-05-2.
ASC 985-20 specifies standards of financial accounting and reporting for the costs of computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process, whether internally developed and produced or purchased. The software systems noted above are not developed or being developed to be sold, leased, or otherwise marketed as a separate product or as part of a product or process and therefore the Registrant believes ASC 985-20 is not applicable.
Income Taxes, page F-10
SEC Comment
| 84. | We read your statement in the first paragraph on page F-11 that tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and liability in the current year. Please explain to us how this is in accordance with ASC 740-10-25-6. |
Answer
The Registrant incorrectly included the word “not” in the sentence “Tax positions not deemed to meet the more-than-likely-than-not threshold would be recorded as a tax benefit or expense and liability in the current year.” The Registrant has corrected this disclosure as written on page F-11, by removing the first instance of the word “not” from this sentence and believes the sentence is now in compliance with ASC 740-10-25-6.
Recent Accounting Pronouncements, page F-11
SEC Comment
| 85. | Please explain to us why you evaluated subsequent events through the date the financial statements were available to be issued. We remind you that per ASC 855 and ASU 2010-09 an SEC filer should evaluate subsequent events through the date the financial statements are issued. Other entities should evaluate subsequent events through the date financial statements are available to be issued. |
Answer
May 6, 2010
page 40
The Registrant respectfully submits that it is not an SEC filer that is required to file or furnish its financial statements with the SEC and therefore is required to evaluate subsequent events only through the date financial statements are available to be issued.
The Registrant has based this conclusion on Transition Guidance 855-10-65-1 which states that an entity that meets either of the following criteria shall evaluate subsequent events through the date the financial statements are issued:
| • | It is an SEC filer; or |
| • | It is a conduit bond obligor for conduit debt securities that are traded in public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets). |
Under this Transition Guidance, an SEC filer is defined as an entity that is required to file or furnish its financial statements with either of the following:
| • | The SEC; or |
| • | With respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section. |
The Registrant concludes that it is not an SEC filer based on the premise that there is no obligation to file financial statements with the SEC until such time as the Registration Statement is declared effective.
Note 6. Notes Receivable, page F-14
SEC Comment
| 86. | We read that, in 2006, you entered into a promissory note for $200,000 with an officer of the company and that during 2009 the officer made a principal and interest payment totaling $100,000. Please reconcile this disclosure with the table in this footnote that shows the balance as $100,000 at December 31, 2008 and $128,000 at December 31, 2009. In addition, please explain to us whether this is the same note receivable discussed in your disclosure on page 93 under the heading “Other Related Party Transactions,” which says that the officer borrowed $200,000 and that during 2008 the officer made a principal payment of $76,398. If this is the same note, please make sure these disclosures are accurate and consistent. |
Answer
The below table reconciles the $200,000 promissory note with an officer of the Registrant.
May 6, 2010
page 41
| Principal | Accrued Interest |
|||||||
| Original promissory note |
$ | 200,000 | ||||||
| Interest earned: |
||||||||
| 2006 |
$ | 6,059 | ||||||
| 2007 |
10,077 | |||||||
| 2008 |
9,429 | |||||||
| Principal payment made on May 19, 2008 |
(100,000 | ) | — | |||||
| Balance as of December 31, 2008 |
100,000 | 25,565 | ||||||
| Interest earned: |
||||||||
| January 1, 2009 to May 17, 2009 |
2,622 | |||||||
| As of May 17, 2009 reclassified $23,602 of the May 19, 2008 $100,000 principal payment to accrued interest and entered into new promissory note on May 17, 2009 in the principal amount of $128,187 |
23,602 | (23,602 | ) | |||||
| 4,585 | (4,585 | ) | ||||||
| 128,187 | — | |||||||
| Interest earned: |
||||||||
| May 18, 2009 to December 31, 2009 |
— | 3,882 | ||||||
| Balance as of December 31, 2009 |
$ | 128,187 | $ | 3,882 | ||||
Accordingly, the Registrant respectfully submits that no additional disclosure is required at page F-14. The Registrant has revised the disclosure in response to the Staff’s comment. See p. 100.
Note 11. Income Taxes, page F-17
SEC Comment
| 87. | Please explain to us in more detail the deferred tax assets for which you had previously recorded a valuation allowance and which you reversed in 2007. Your response should clarify to what these deferred tax assets related and what events or circumstances led to the change in your determination of their realizability. |
Answer
The deferred tax assets for which there was previously recorded a valuation allowance and for which such valuation allowance was reversed in 2007 primarily consisted of net operating losses. As disclosed in Note 11 to the consolidated financial statements, in 2007 management determined that the deferred tax asset that had been previously offset
May 6, 2010
page 42
by a valuation allowance would more-likely-than-not be realized in future periods. Management considered the scheduled reversal of deferred tax assets and liabilities, available net operating loss carry-forward periods, and projected future taxable income. In addition, this assessment considered the Registrant’s profitability over the previous seven quarters.
Note 13. Stock-Based Compensation, page F-21
SEC Comment
| 88. | Please consider disclosing in your financial statements the following information for options granted and other equity instruments awarded during the 12 months prior to the date of the most recent balance sheet included in the filing: |
| • | for each grant date, the number of options or shares granted, the exercise price, the fair value of the underlying common stock, and the intrinsic value, if any, per option (the number of options may be aggregated by month or quarter and the information presented as weighted average per-share amounts); |
| • | whether the valuation used to determine the fair value of the equity instruments was contemporaneous or retrospective; and |
| • | if the valuation specialist was a related party, a statement indicating that fact. |
Answer
The Registrant has reviewed the AICPA Practice Aid-Valuation of Privately-Held Company Equity Securities Issued as Compensation and revised Note 13 to the Consolidated Financial Statements to reflect the information outlined above. See p. F-23 and p. F-24.
SEC Comment
| 89. | Please describe to us the objective evidence that supports your determination of the fair value of the underlying shares of common stock at each grant or issuance date. This objective evidence could be based on valuation reports or on current cash sales transactions of the same or a similar company security to a willing unrelated party other than under terms and conditions arising from a previous transaction. In addition, please describe the basis for any adjustments made in determining the fair value of the underlying shares of common stock, such as illiquidity discounts, minority discounts, etc. |
Answer
The objective evidence utilized by the Registrant’s board of directors to determine the fair value of the underlying shares of common stock at each grant or issuance date consisted of internal and external contemporaneous valuations of the Registrant. See p.
May 6, 2010
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F-23 and p. F-24. During the period under review, the Registrant applied a 15% discount for lack of marketability to each of the valuations of the common stock. The amount of the discount was based on the expected likelihood of a liquidity event occurring in the 1-2 years following the grant date.
SEC Comment
| 90. | Please tell us your proposed initial public offering price, when you first initiated discussions with underwriters, and when the underwriters first communicated their estimated price range and amount for your stock. |
Answer
The Registrant has not yet determined a proposed initial public offering price range. From time to time over the last several years, the Registrant periodically has had informal business and general market trend discussions with various investment banks and financial analysts and has requested and received the assistance of certain investment banking firms in the drafting of the Registrant’s registration statement. In January 2010, various banks made presentations to the Registrant regarding their qualifications to act as lead managers of a possible initial public offering of the Registrant’s common stock. During these meetings some of the investment banks presented methodologies to consider in valuing the Registrant and a summary of companies that they would consider comparable to the Registrant, but none of the banks communicated their estimated initial public offering price range for the Registrant’s common stock at that time.
The Registrant selected lead underwriters and held organizational meetings with the selected investment banks and with the research analysts from these banks in February and March 2010 where information about the Registrant was presented by the Registrant’s executives.
Since the initial filing of the Registrant’s S-1, its three lead underwriters (Morgan Stanley, UBS and Barclays Capital) and their research analysts have been developing valuation models. At this time, the respective institutions and research analysts are continuing to do their internal work, and as such, are not in a position to provide the Registrant with a formal proposed initial public offering price range.
As requested in Comment 1, the Registrant expects to provide an initial public offering price range in an amendment to the Registration Statement once a more formal valuation process has been completed by the lead underwriters and their respective research analysts.
Note 14. Earnings per Share, page F-22
SEC Comment
| 91. | We note from your disclosures on page F-20 that once all cumulative dividends have been paid on your Series C convertible preferred stock, the holders of |
May 6, 2010
page 44
| preferred stock are entitled to share in dividends or other distributions declared and paid on the common stock pro rata based on the number of common shares into which the preferred stock converts. Based on this disclosure, it appears that your convertible preferred stock qualifies as a participating security and should be considered in your computation of basic earnings per share under ASC 260-10-45-65 through 45-68 and ASC 260-10-55-25. Also, see ASC 260-10-55-71 through 55-73. Please advise or revise. |
Answer
The preferred stock is a participating security for all periods presented. Accordingly, all calculations of earnings per share have been revised to reflect the application of the two class method. The Registrant has revised the disclosure in response to the Staff’s comment. See p. F-24 and F-25.
Note 19. Subsequent Events, page F-25
SEC Comment
| 92. | We note your disclosures here and on page 43 concerning the warrant issued to FundQuest Incorporated, including the fact that the warrant’s exercise price equals 120% of your initial public offering price. As the exercise price is not currently fixed, please confirm to us that you accounted for the issuance of this warrant as a liability in accordance with ASC 815-40-15, or explain in detail why such accounting is not appropriate. Additionally, please confirm to us, if true, that the warrants classified in equity at December 31, 2009 do not contain any terms that would prevent the exercise price or number of shares issued from being fixed. For example, see ASC 815-40-55-33 and 55-34. |
Answer
The warrant issued to FundQuest was issued in February 2010, and therefore not recorded on the Registrant’s consolidated balance sheet as of December 31, 2009. However, the Registrant hereby confirms that in the first quarter of 2010, the Registrant did record a liability in accordance with ASC 815-40-15 related to the issuance of this warrant.
Regarding the outstanding warrants described in “Note 12. Stockholders’ Equity” on page F-21, the Registrant hereby confirms that these warrants do not contain any terms that would prevent the exercise price or number of shares issued from being fixed.
Part II. Information Not Required in Prospectus, page II-1
Item 15. Recent Sales of Unregistered Securities, page II-2
SEC Comment
May 6, 2010
page 45
| 93. | Please tell us why you did not file a Form D on EDGAR regarding the private placement of a warrant to FundQuest Incorporated on February 8, 2010 for which you relied on the Regulation D exemption. See Rule 503(a) under the Securities Act. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. II-3.
Item 16. Exhibits and Financial Statement Schedules, page II-3
(a) Exhibits, page II-3
SEC Comment
| 94. | Please file all required exhibits, including the underwriting agreement and the legal opinion in a timely manner so that we may have time to review them before you request that your registration statement become effective. |
Answer
The Registrant filed certain required exhibits in Amendment No. 1 and intends to file the remaining required exhibits in a subsequent amendment to the Registration Statement.
Item 17. Undertakings, page II-4
SEC Comment
| 95. | Please note that due, in part, to the language of Securities Act Rule 430C(d), the undertakings included in Items 512(a)(5)(ii) and 512(a)(6) of Regulation S-K should be included in filings for initial public offerings. Please revise your filing to include those undertakings. |
Answer
The Registrant has revised the disclosure in response to the Staff’s comment. See p. II-4 and p. II-5.
* * *
May 6, 2010
page 46
We would appreciate receiving the Staff’s further comments or questions with respect to the Registration Statement as soon as possible. Please direct any comments or questions you may have regarding the foregoing to the undersigned at (212) 506-2587.
| Sincerely, |
| /s/ Diego A. Rotsztain Diego A. Rotsztain |
| cc: | Shelly O’Brien, Envestnet, Inc. |
Edward S. Best, Esq.