August 25, 2005
Room 4561
David Brown
Chief Executive Officer and President
Website Pros, Inc.
12735 Gran Bay Parkway West, Building 200
Jacksonville, Florida 32258
Re: Website Pros, Inc.
Amendment No. 2 to Form S-1
Filed on August 4, 2005
File No. 333-124349
Dear Mr. Brown:
We have reviewed your amended filing and have the following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Amendment No. 2 to Form S-1
1. With respect to prior comment 1, please tell us the dollar
amounts
of the fees that each of Jupiter Research and IDC charge for the
reports upon which market data in the prospectus are based.
Certain Relationships and Related Party Transactions, page 77
2. We note your description of the February 2002 Innuity
transaction
in the third through fifth paragraphs of this section. Please
revise
your description of this transaction to provide adequate detail so
that investors understand the nature of the transaction and
benefits
conferred to those related parties participating in these
transactions. For example purposes only, please revise your
description to disclose:
* What assets of Innuity were acquired for 14,082,926 shares of
common stock;
* How these assets were recorded on your balance sheet;
* That Mrs. Maudlin received a distribution of Website Pros`
shares
as a secured note holder of Innuity; and
* What dollar amounts of senior debt of Innuity that were held by
the
related parties.
For guidance on the required disclosure, please refer to Item 404
of
Regulation S-K.
3. Regarding your November 2003 repricing of all outstanding
options,
we note the specific benefits attributed to Messrs. Brown and
Carney.
Please revise to disclose the business purpose for resetting the
exercise value. Further, disclose the basis for resetting the
options to $0.40 per share and discuss the role of Messrs. Brown
and
Carney in making the decision to reprice.
4. Revise your description of the December 2003 and February 2004
issuance of 29,524,139 shares to clarify which of the "certain" of
your directors and officers participated in these share purchases,
what amounts they purchased, what their role was in pricing these
share transactions and the business purposes of these
transactions.
Describe whether this share offering was open to all investors or
only to certain of your officers and directors.
5. We note your description of a limited share repurchase in
February
2004. Please revise your disclosure to disclose the basis for the
$0.43185 price and the business purpose for this transaction.
Further, disclose whether the repurchase was open to all
shareholders
or only Mr. and Mrs. Maudlin and certain other investors.
Financial Statements - Website Pros, Inc.
Consolidated Balance Sheets, page F-3
6. Please revise the Stockholders` equity (deficit) issued and
outstanding amounts to reflect the pro forma shares issued and
outstanding as presented in the Consolidated Statements of
Stockholders` Equity on page F-5.
Note 1. Revenue Recognition, page F-7
7. We note your response to prior comment 26 regarding
professional
services revenue recognition using the proportional performance
model. You indicate that some of your Website design projects do
have interim deliverables or milestones. Please explain how you
recognize the related revenue and how your revenue recognition
disclosures address those projects.
8. With regards to your professional services projects that do not
have interim deliverables or milestones, tell us if you have a
history of successfully estimating the number of hours to complete
a
project and explain your accounting for differences in project
actual
and estimated hours.
9. We note your response to prior comment 27. Please tell us how
your accounting for end-user product returns complies with SFAS 48
and SAB Topic 13.A.4.b. "Estimates and Changes in Estimates." The
ability to make reasonable estimates of future returns is one of
the
conditions that must be met for recognition of revenue at the time
of
sale in accordance with SFAS 48 and SAB Topic 13.A.4.b. If
reasonable estimates cannot be made, revenue recognition should be
deferred.
Note 2. Change in Accounting Method for Stock Options and
Retroactive Restatements, page F-13
10. We note that you have adopted the provisions of SFAS 123 as of
April 1, 2005. Explain to us how the adoption of SFAS 123
resulted
in an increase in net income in the year ended December 31, 2004.
11. We note you had over six million shares covered by options as
of
December 31, 2002. With regards to the adoption of SFAS 123 please
explain why you did not have an opening cumulative adjustment to
stockholders` equity for the year ended December 31, 2002.
12. Please revise disclosures throughout the filing to disclose
that
all periods presented have been restated for retroactive adoption
of
the fair value recognition provisions of SFAS 123. Columnar and
narrative presentations should clearly indicate they are restated.
Note 5. Acquisitions, page F-14
13. We note your response to prior comment 31 regarding the use of
the cost approach to value your common stock in connection with
the
Innuity acquisition in February 2002. It appears that you used
hindsight in determining the fair value of the other long-term
assets, which primarily consists of software acquired from
NetObjects. In this regard, we note your response that a 25%
discount to book value was recorded based on the fact that the
actual
revenues generated by the two primary software assets proved to be
less than originally forecasted at the time of the acquisition.
The
use of hindsight is not appropriate in determining the fair value
of
your common stock at the time of issuance. Please tell us
whether,
in February 2002, there were alternate uses for this software
acquired from NetObjects. Were there competitive technologies
existing in the marketplace at the time which would have impacted
the
value of the software?
14. We note your response to prior comment number 39. Your
revised
disclosures indicate that once you determine that it is probable
that
some or all of the contingently issuable shares will be issued you
will begin recording stock-based compensation for the fair value
of
the shares. Explain to us how your accounting complies with
paragraph 28 of SFAS 141.
15. Revise to provide the supplemental pro forma information
required
by paragraph 54 of SFAS 141.
16. For the intangibles acquired in the E.B.O.Z and Leads.com
acquisitions revise to provide the weighted-average amortization
period by major intangible asset category. See paragraph 52 (a)
of
SFAS 141.
Note 9. Stock Based Compensation Plans, page F-18
17. You disclose that the November 2003 repricing did not result
in
additional compensation expense. Tell us more about the repricing
and provide us with your calculations of fair value before and
after
the repricing. Explain to us the reasons for the disparity in the
Company`s board of director`s valuation and the valuation assigned
to
the unrelated third party repurchase.
18. We note your response to prior comment 32. Please respond to
the
following and provide the following additional supplementary
information so we can continue to evaluate your response.
* In light of your representation that Website Pros was growing on
a
relatively consistent basis between January 2004 and April 2005,
and
the fact that you believe it is appropriate to straight-line the
accretion in your common stock during this period, to the extent
not
already provided, please provide us with the monthly amounts for
revenue, EBITDA, and capital expenditures for the period January
2004
- - April 2005.
* Tell us more about the offer you received from an unrelated
third
party in December 2004. Why was the transaction with the
unrelated
third party not completed? Was the offer by the unrelated third
party made prior to performance of due diligence?
* Tell us in more detail why you believe it is appropriate to
straight-line the accretion of your common stock from its value of
$1.4281 as of February 2005 to your targeted IPO price of $2.25 in
July 2005. Was the underwriter involved in establishing this
targeted IPO price? Tell us why this methodology is appropriate,
particularly in light of the fact that you determined that the
fair
value of your common stock using an income approach was only $1.45
per share as of April 2005, a difference of 23% from the
transactions-based price at April 2005. Did you perform an
analysis
to determine the underlying cause of the difference between the
two
valuation methodologies?
19. We note your response to prior comment 35. Please provide the
discounted cash flow analysis performed as of August 2004,
December
2004 and April 2005 which was referred to under the section titled
"Income Approach." Additionally, please tell us or provide the
following additional information:
* Please tell us the growth rate of your industry and provide a
discussion supporting your basis for this growth rate;
* Tell us if you have significant competitors and identify them.
Tell
us if the type of software you sell is similar to others in the
marketplace. Tell us how this was factored in to your
determination
of the appropriate growth rate and WACC.
* Please provide additional support for the use of a 6% growth
rate
assumption implicit in the terminal value;
* Please provide us with your calculation of the allocation of the
enterprise value between the equity securities using the Option
Pricing Model.
* Tell us whether you performed any analysis of the underlying
causes
of the difference in fair value determined using the transaction-
based approach and the income approach as of December 2004 and
April
2005. In this regard, we note the difference in fair values based
on
these approaches was 19% and 23%, respectively.
20. Your response to prior comment number 37 indicates that your
disclosures on pages F-19 through F-21 were revised to include a
discussion of the significant factors that contributed to the
differences in the fair values of each option grant to the
estimated
IPO price. Please tell us where your disclosures include such
revisions or revise accordingly.
21. We note your response to prior comment 41. Please provide us
with the valuation report prepared by the third-party valuation
specialist for the acquisition of Leads.com. In this regard, we
note
that the cash flow model used to evaluate the acquisition was
based
on an eleven year forecast of income and cash flows and assumed a
growth rate implicit in the terminal value of 6% and a discount
rate
of 35%. To the extent not outlined in the valuation report,
please
ensure a detailed analysis of the basis for these assumptions is
included in your response. Additionally, please tell us how you
believe the income and cash flow assumptions could be reasonably
projected for the next eleven years in light of the fact that
Leads.com only began operations in June 2003. Why did management
believe the value of the assets exchanged would lead to a more
reliable estimate of the value of the shares issued if an income
approach was used to determine the fair value of Leads.com? Did
management believe Leads.com was in a better position to provide
more
reliable estimates of future income and cash flows?
22. We note your response to prior comment number 42. Please tell
us
which studies you reviewed related to the value of the stock that
is
restricted based on a repurchase option in favor of the issuer.
23. Please revise to provide the disclosures required by paragraph
47.b, c and d (3) of SFAS 123.
Financial Statements - E.B.O.Z Inc.
Note 1. E.B.O.Z and Summary of Significant Accounting Policies,
page
F-49
24. You refer to a retrospective valuation of E.B.O.Z common
stock.
Supplementally tell us how you determined the fair value of the
shares. Tell us what valuation methods you used to determine the
common stock fair value, tell us whether you used a third-party
valuation specialist and when the valuation was performed.
Note 6. Stock-Based Compensation Plans, page F-53
25. Please revise to provide all of the disclosures required by
paragraph 47 of SFAS 123.
Part II
Item 15. Recent Sales of Unregistered Securities, pages II-2-II-4
26. We reissue prior comment 44 from our last letter. We compare
your response stating that the company did not determine the value
of
the warrant with disclosure on page F-24 stating that the fair
value
of the warrant was $0. Please revise to disclose the aggregate
value
of the non-cash consideration value of placement agent services
provided by Friedman, Billings, Ramsey & Co., Inc.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Christine Davis at (202) 551-3408 or Craig
Wilson, Senior Assistant Chief Accountant, at (202) 551-3730 if
you
have questions regarding comments on the financial statements and
related matters. Please contact Neil Miller at (202) 551-3442 or
me
at (202) 551-3730 with any other questions.
Sincerely,
Mark P. Shuman
Branch Chief - Legal
cc: James F. Fulton, Jr., Esq.(via facsimile)
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Facsimile: (650) 849-7400
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Mr. David Brown
Website Pros, Inc.
August 25, 2005
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