Mail Stop 4561 June 30, 2006
By U.S. Mail and facsimile to (312) 558-5700
Steven E. Zuccarini
Chief Executive Officer
Innerworkings, Inc.
600 West Chicago Avenue - Suite 850
Chicago, Illinois 60610
Re: Innerworkings, Inc.
Amendment Number One to Registration Statement on Form S-1
Filed on June 19, 2006
File Number 333-133950
Dear Mr. Zuccarini:
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
information so we may better understand your disclosure. After
reviewing this information, we may 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.
General
1. We note your response to comment number 2; however, you use
type
size for financial information that is smaller than the rest of
the
prospectus. Please refer to your disclosure on capitalization on
page 20. Please revise here and throughout the prospectus.
Summary Consolidated Financial and Other Data, page 7
Selected Consolidated Financial and Other Data, page 23
2. We note from your response to our prior comment 6 that you have
revised footnote (2) to detail the adjustments included in the pro
forma earnings per share. It is not clear from your disclosure
however, if you intend to make an adjustment for the effects of
paying off debt with proceeds from the offering in the pro forma
earnings per share calculations. The actual number of shares
outstanding should be adjusted for the number of shares to be sold
to
the extent that the proceeds therefrom are required to liquidate
that
debt and net income should be adjusted to give effect to the
elimination of interest expense on the debt to be liquidated, less
the related income tax effect. Please revise your disclosure
accordingly.
Capitalization, page 20
3. We note your disclosure that the stock split is included in the
table on a pro forma basis. Please revise your disclosures and
ensure that that the stock split affects only the actual column,
since the stock split should be retroactively reflected in your
historical financial statements and related disclosures for all
periods presented.
4. Please tell us and clarify in your capitalization disclosures
the
nature of the recapitalization of your outstanding shares of
capital
stock, including identification of each series of stock that will
be
converted into common shares.
Consolidated Statements of Income
Note 9. Earnings per Share
5. We note from your response to our prior comment 27 that you
have
revised your earnings per share calculation and disclosed the
detail
of the calculation in Note 9 to the financial statements. Please
explain to us how you calculated or determined the $683,075
adjustment related to preferred stock dividends. Under the pro
forma
assumption that the preferred shares had been converted at the
beginning of 2005, we would expect pro forma EPS to be calculated
by
adjusting net income applicable to common shareholders by the
entire
$761,825 of preferred dividends declared in 2005. Please advise
or
revise your disclosure accordingly.
Consolidated Statements of Members` Equity
6. We note from your response to our prior comment 28 that you
believe the 969,000 Class A shares issued in 2003 had minimal
value
and therefore you did not allocate any portion of the purchase
price
for the Series C units to the Class A shares or record any
compensation expense related to the Class A shares. Please
explain
to us how you determined that the Class A common shares issued had
a
minimal fair value. Include in your response any appraisals made
or
cash transactions with third parties occurring prior to or close
to
the time of issuance of the shares. Also, as previously
requested,
please explain how you accounted for the 13,000,000 shares issued
for
IWG and for each of the transactions resulting in an issuance of
969,000 shares issued in 2003. We may have further comment upon
review of your response.
Note 10. Unit Option Plan
7. We note from your response to our prior comment 31 that you may
grant options to purchase up to 30,000 shares of common stock in
connection with the planned public offering. Please revise MD&A
to
disclose this expected grant of options and include the estimated
amount of expense that will be recognized in connection with the
option grants.
8. We note from your response to our prior comment 32 that you
revised MD&A to include a discussion of the number of options
outstanding as of the latest balance sheet date presented. Please
revise to also include disclosure of the intrinsic value of those
options that are vested and unvested, based on the expected
initial
public offering price. Also, we note that you have provided us
with
a discussion of the significant factors, assumptions and
methodologies used in determining fair value and the significant
factors contributing to a difference between fair values. Please
provide us with the significant assumptions (rate of return,
future
cash flows, forecasted revenue and profit, discount for lack of
marketability etc.) used by management for valuing the options
issued
during 2005 using the "income approach." Additionally, as
previously
requested, please revise MD&A to include a discussion of the
significant factors, assumptions and methodologies used in
determining fair value for the options granted in 2005 that were
valued without a contemporaneous valuation. Also, include a
discussion in MD&A regarding each significant factor that
contributed
to the difference between the fair value as of the date of each
grant
and the estimated expected public offering price. Refer to the
guidance outlined in paragraphs 179 through 182 of the AICPA`s
Audit
and Accounting Practice Aid, "Valuation of Privately-Held-Company
Equity Securities Issued as Compensation" and to the disclosure
requirements outlined in paragraph 41 of SFAS No.128. We may have
further comment upon receipt of your response.
9. Supplementally tell us your basis for applying a discount to
the
assumed fair market value of your stock for purposes of
determining
compensation expense. Generally, unless justified by the specific
circumstances of your business, little or no discount should be
applied for, among other things, lack of marketability of the
shares.
Interim Statements for the quarter ended March 31, 2006
Note 3. Series E Preferred Shares
10. We note from your response to our prior comment 44 that the
Series E Preferred Shares have redemption provisions and
conversion
terms other than upon a firmly underwritten public offering.
Please
revise Note 3 to include the nature of these redemption provisions
and conversion terms.
Note 8. Subsequent Events
- - 2006 Stock Option Grants
11. We note from your response to our prior comment 14 that you
revised your disclosure in the Critical Accounting Policies
section
of MD&A to remove the reference to the "equity method" in
discussing
your valuation of the option grants. Please make the same
revision
to Note 8 where you state that you calculate the expense under the
equity method based on the Black-Scholes value of the option at
the
time of grant.
Other
12. Please update the financial statements, as necessary, to
comply
with Rule 3-12 of Regulation S-X at the effective date of the
registration statement.
13. Please include currently dated consents of your independent
registered accountants in any amendments to your Form S-1
registration statement.
* * * *
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 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 filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment 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 staff comments and the declaration of
effectiveness 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 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.
You may contact Claire L. Erlanger at (202) 551-3301 or
Lynwood
F. Shenk at (202) 551-3380 if you have questions regarding
comments
on the financial statements and related matters. Please contact
Timothy Geishecker at (202) 551-3422 or me at (202) 551-3698 with
any
other questions.
Sincerely,
Mark S. Webb
Legal Branch Chief
cc: Matthew F. Bergmann, Esq.
Winston & Strawn LLP
35 West Wacker Drive
Chicago, Illinois 60601