Mail Stop 4561
March 27, 2006
Richard J. Boyle, Jr.
President, Chief Executive Officer and Chairman of the Board
LoopNet, Inc.
185 Berry Street, Suite 4000
San Francisco, CA 94107
Re: LoopNet, Inc.
Registration Statement on Form S-1
Filed March 1, 2006
File No. 333-132138
Dear Mr. Boyle:
We have reviewed your 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.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form S-1
General
1. Please provide us support for comparative factual assertions
and
for management`s belief in qualitative statements regarding your
position in the industry. Clearly mark these materials to
highlight
the specific information you believe supports the statement
referenced. We note, for example, your statement that "we are the
leading online marketplace for commercial real estate in the
United
States" on page 1. Further, you indicate in the second paragraph
on
page 48 that commercial real estate information and listings of
your
competitors have "not been broadly adopted to date."
2. Please provide us with copies of market and industry data that
you
cite or rely on in your filing. These materials should be
appropriately marked, dated, and refer to the page number on which
they are cited. For example, we note that you cite Pramerica Real
Estate Investors and CB Richard Ellis, Inc. on page 1.
3. Please provide us with copies of any graphics, maps,
photographs,
and related captions or other artwork including logos that you
intend
to use in the prospectus. Such graphics and pictorial
representations should not be included in any preliminary
prospectus
distributed to prospective investors prior to our review.
Table of Contents, page i
4. We note your statement that you do not "guarantee, and you have
not independently verified" the market data and industry
statistics
used in the prospectus. Please note that if you choose to utilize
industry data in a prospectus, you adopt such information and are
responsible for the content. Accordingly, please remove this and
similar disclaimers from your disclosure.
Prospectus Summary, page 2
5. Please avoid use of the term "solution" as it is jargon. Its
use
implies that a problem is being solved when in fact none has been
presented. Instead of using the term solution, describe your
actual
services. Please revise throughout your filing as necessary.
6. Please balance this disclosure with a summary of the most
significant risks associated with your company and this offering.
7. Please revise to clarify how you generate revenues from each of
your websites and disclose the percentage of revenues you receive
from each of your revenue sources.
8. Please revise your summary to quantify your total accumulated
deficit.
9. We note your statement on page 2 regarding objectives that you
are
pursuing. Please revise to clarify the types of "complementary
products and services" which you are pursuing and disclose when
you
believe you will be able to offer such products and services and
the
steps you have taken in that regard. Similarly, please revise to
clarify the "new markets" into which you intend to expand and
disclose when you believe you will be able to implement such
expansion and the steps you have taken in that regard.
Reconciliation of Adjusted EBITDA to Net Income, page 6
10. Reference is made to your presentation of the non-GAAP measure
Adjusted EBITDA. Your current disclosure does not explain why
management believes this measure is more useful than EBITDA and
Net
Income when evaluating the Company`s performance. Please revise
your
presentation to include all disclosures recommended in SAB No.
107.G.
and Question 8 of Frequently Asked Questions Regarding the Use of
Non-GAAP Measures dated June 13, 2003. We also note that
management
uses Adjusted EBITDA "to assist in comparing performance from
period
to period on a consistent basis." Please note that you should not
be
using a non-GAAP measure to "smooth earnings" as your disclosure
seems to imply. Please revise accordingly.
Risk Factors, page 7
11. Please avoid using generic conclusions such as "adversely
affect"
and "negatively affected" when describing the risks` effects.
Replace this, and similar language, with specific disclosure of
how
you, your business, financial condition and results of operations
would be affected by the facts you describe.
12. Please review your risk factor subheadings to ensure they
reflect
the risk you describe in the text. Some of your subheadings
merely
state facts about your business. For example, we note the heading
"We must continue to obtain listings from commercial real estate
brokers, agents, and property owners" on page 8. Please review
and
revise subheadings to succinctly state the risks that will result
from the facts or circumstances you discuss.
Risks Related to Our Business, page 7
We must continue to attract and retain customers, and any failure
to
increase the number of our customers..., page 7
13. Please revise to indicate the percentage of free basic members
that have historically converted to premium members.
We must continue to obtain listings from commercial real estate
brokers, agents, and property owners, page 8
14. Please revise to quantify the number of brokers, agents and
property owners that submit commercial real estate listings to
your
online marketplace.
Our quarterly financial results may be subject to seasonality,
page 9
15. Please consider combining this risk factor with your previous
risk factor or revise to describe a separate risk resulting from
the
seasonal nature of your industry.
Our revenues, expenses and operating results could be affected by
general economic conditions..., page 9
16. We note you have presented several factors that may affect
your
revenues, expenses and operating results, many of which could
apply
to any company. Please consider discussing each of these risk
factors under a separate caption that adequately describes the
risk
being presented. Additionally, some of these risks are repeated
in
other risk factors. Please delete all redundancies. Finally,
focus
on how these risks may affect your business in a degree or manner
that is different or more significant than other companies.
Our business depends on retaining and attracting capable
management
and operating personnel, page 12
17. You indicate that your success depends in large part on
Richard
J. Boyle, Jr. and "other key employees." Please revise to
identify
those other key employees.
Unless we develop, maintain and protect our brand identity...,
page
14
18. Please revise to explain what you mean when you indicate that
you
will pursue an "online and offline brand enhanced strategy."
We may be subject to regulation of our advertising and customer
solicitation..., page 15
19. You indicate that laws or regulations could be adopted which
could hurt your business. Please revise to focus on how this risk
may affect your business in a degree or manner that is different
or
more significant than other companies.
Use of Proceeds, page 20
20. Please revise to identify the specific uses to which you will
put
the proceeds and indicate approximately how much of the proceeds
will
go to each of the identified uses. In this regard, we note
disclosure on page 32 that you intend to expand your marketing
program, hire more personnel and continue to build the
infrastructure
required to support the development of new products and services.
Based on this disclosure, it appears you have actual plans for the
proceeds beyond those currently described. Please note Item 504
requires disclosure of the "approximate amount" intended to be
used
for each purpose.
Dilution, page 22
21. Please provide us with your basis for including your deferred
tax
asset in the calculation of net tangible book value.
Management`s Discussion and Analysis of Financial Condition and
Results of Operation, page 26
Overview, page 26
22. Please revise to disclose metrics by which you gauge the
strength
or weakness of your business or business prospects. Refer
generally
to Release 33-8350. Please revise your overview to identify key
performance indicators, financial and non-financial, and then
address
them in more detail wherever relevant.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies and Estimates, page 27
Stock-Based Compensation, page 28
23. Revise to disclose the intrinsic value of outstanding vested
and
unvested options based on the estimated IPO price and the options
outstanding as of the most recent balance sheet date presented in
your registration statement
24. We note that you engaged an independent valuation specialist
to
perform retrospective assessments of the fair value of common
stock.
Please tell us what consideration you gave to naming the
specialist
in the prospectus and providing the written consent of the third
party under Securities Act Rule 436.
Results of Operations, page 31
Cost of Revenues, page 31
25. We note that income tax expense in 2005 decreased by $7.4
million
from income tax expense in 2004. Please revise to discuss the
disclosure on page F-16 that you will be limited to using
approximately $9.6 million of net operating losses to offset
taxable
income in 2006 and approximately $2 million in 2007 and each year
thereafter until 2021. See Item 303(a)(3) of Regulation S-K.
26. Please revise your disclosure to explain why costs of revenues
did not increase in amount reasonably proportional to the increase
in
premium members. Please also include an explanation of why the
gross
profit percentage has increased during each period.
Liquidity and Capital resources, page 37
Operating Activities, page 37
27. Please revise your discussion of cash flow from operating
activities to discuss the underlying drivers impacting the changes
in
working capital. Simply identifying items that are apparent from
the
statement of cash flows does not provide a sufficient basis to
analyze your cash flow from operating activities. Refer to the
Interpretive Guidance in SEC Release 33-8350.
Business, page 40
28. Please revise to discuss your relationships with the third
parties that provide you with your services. In this regard, we
note
your disclosure on page 8 that all of your services, including
property and business listing, searching, and marketing services,
are
provided by other companies. This description should include, but
not be limited to, the name any significant third parties, whether
you have a written contract with the providers, and if applicable,
the material terms of any contracts.
29. Please quantify the amount spent on company sponsored research
and development activities and the amount spent on customer
sponsored
research activities relating to the development of new products or
services. See Item 101(c)(1)(xi) of Regulation S-K.
30. We note your statement on page 42 that "upon registering as a
member, an agent can list properties on the service." Please
revise
to clarify whether you charge agents or property owners a fee to
list
their properties on your site and whether you must be a premium
member, and or agent, to list properties.
31. We note your reference on page 47 to "lead generation
products."
Please revise to provide a more robust description of your lead
generation products, the market for such products, and how you
derive
revenues from such products.
Our Strategy, page 43
32. We note your statement in the third paragraph on page 44 that
you
intend to pursue opportunities in other markets. Please revise to
specifically identify those other markets.
Products and Services, page 44
33. With respect to the fee structure of BizBuySell, please revise
to
disclose the amount of the premium listing placement which you
currently describe as available for "an additional" fee. Further,
please revise to discuss the fees you charge for BrokerWorks.
Technology and Infrastructure, page 48
34. Please revise to briefly discuss the measures you have taken
to
protect customers` personal identifiable information. In this
regard, we note your risk factor on page 12.
Board Committees, page 51
35. Please provide additional disclosure regarding each committee
to
discuss the frequency with which each will have meetings.
Summary Compensation Table, page 53
36. Please explain how the board of directors determined the FMV
for
the restricted stock awards. In this connection, we note from
page
F-19 that you recorded stock-based compensation costs of $742,815
in
the year ended December 31, 2005 and that the restricted stock of
some executives were revalued as of the exercise date due to below
market rate terms on promissory notes.
Aggregate Option Exercises and Fiscal Year-End Option Values, page
54
37. We note from page F-19 that as a result of promissory notes
from
certain executives at below market rate terms stock options and
restricted stock were revalued as of the exercise date resulting
in
stock compensation charges of $236,310 in 2005. Please explain
whether Mr. Greenman was one of those executives whose stock
options
were revalued as of the exercise date.
Certain Relationships and Related Transactions, page 58
Merger and Restructuring of Ownership, page 58
38. We note that following the merger of LoopNet and PropertyFirst
in
2001, LoopNet Holdings LLC and PropertyFirst LLC were the sole
shareholders of LoopNet and held substantially equal amounts of
LoopNet stock other than Series E and Series F convertible
preferred
shares and nonvoting Series B preferred held by JP Morgan
Partners.
Further, we note that upon consummation of this offering the
preferred units of both LoopNet Holdings LLC and Property First
LLC
will convert into common units of the respective entity and that
LoopNet shares held by these entities will be distributed to other
members. Please provide us with the agreements reflecting the
transaction that will take place upon consummation of this
offering.
We may have further comment.
Transaction and Relationships with Directors, Officers and 5%
Stockholders, page 59
39. Please revise to describe the services performed by Dennis
DeAndre in exchange for $1.9 million.
Principal and Selling Stockholders, page 60
40. Please identify, by footnote or otherwise, the natural persons
that control each stockholder, unless the entities are public
companies, wholly-owned subsidiaries of public companies or
registered investment companies.
Preferred Stock, page 63
41. We note that all outstanding shares of preferred stock will be
converted into common stock upon completion of this offering.
Please
revise to describe the condition for such conversion. Tell us the
agreement that governs the conversion of each series of preferred
and
whether the conversion of Series B is automatic upon the closing
of a
public offering.
Notice to Canadian Residents, page 72
42. We note your disclosure that you will distribute common stock
in
Canada only "on a private placement basis." Please explain in
detail
the timing and structure of this intended distribution and the
basis
for your claimed exemption. Please indicate whether any of your
Canadian purchasers are selling shares in this offering. We may
have
additional comments.
Consolidated Financial Statements
Consolidated Statements of Income, page F-4
43. Please revise your presentation to classify stock based
compensation within the relevant categories on the face of the
income
statement and not separately.
Note 2 - Acquisition of BizBuySell, Inc., page F-12
44. Please tell us how you considered Rule 3-05 of Regulation S-X
in
determining that historical financial information for the
BizBuySell
acquisition was not required. Confirm that you included the
contingent consideration as part of the total investment when
calculating the tests of significance for your investment.
Note 5 - Income Taxes, page F-15
45. Please explain how you determined the amount of your valuation
allowance that was reversed during 2005. In doing so, please tell
us
what negative evidence remained to prevent the Company from
reversing
the entire allowance.
Note 6 - Redeemable Convertible Preferred Stock, page F-16
46. Please disclose the accounting method used to measure your
redeemable convertible preferred stock at each balance sheet date.
Refer to EITF D-98.
Note 8 - Stock Option Plan, page F-17
47. Related to the promissory notes on your 2004 and 2005
exercises,
please tell us whether the ability to exercise stock options using
promissory notes was included in the terms at that grant date.
Please cite relevant terms of the option agreement, as necessary.
Part II
Item 15. Recent Sales of Unregistered Securities, page II-2
48. Please revise this section to include all the information
required by Item 701of Regulation S-K. For example, provide the
date
of sale, amount of consideration, number of securities sold, and
purchasers for each transaction. Further, please revise to
indicate
the exemption relied upon for each such transaction.
49. Please include a description of the warrants you have issued
during the last three years, if any. We note the description of
outstanding warrants on pages 63.
Item 16. Exhibits and Financial Statement Schedules, page II-2
50. Please file the legal opinion with your next amendment, or
provide a draft opinion for us to review.
Item 17. Undertakings, page II-2
51. Please update your Item 512(a) undertakings in accordance with
the amendments thereto that became effective as of December 1,
2005.
* * * *
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 urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
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 Rachel Zablow, Accountant, at (202) 551-3428
or
Steven Jacobs, Accounting Branch Chief, at (202) 551-3403 if you
have
questions regarding comments on the financial statements and
related
matters. Please contact Jeffrey Shady, Attorney-Advisor, at (202)
551-3471 or me at (202) 551-3495 with any other questions.
Sincerely,
Elaine Wolff
Legal Branch Chief
cc: Lawrence C. Weeks, Esq (via facsimile)
Heller Ehrman LLP
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Richard J. Boyle, Jr.
LoopNet, Inc.
March 27, 2006
Page 12