United States securities and exchange commission logo
May 3, 2022
Howard Marks
Chief Executive Officer
StartEngine Crowdfunding, Inc.
3900 West Alameda Avenue
Suite 1200
Burbank, CA 91505
Re: StartEngine
Crowdfunding, Inc.
Form 10-12G
Filed April 6, 2022
File No. 000-56415
Dear Mr. Marks:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response and any amendment you may file in
response to these
comments, we may have additional comments.
Form 10-12G filed April 6, 2022
Item 1. Business, page 4
1. You disclose that you
"aim to revolutionize the startup financing model by helping both
accredited and
non-accredited investors invest in private companies on a public platform"
and that you began
operating in 2015 with several new services offered through 2019.
Since you have
operations for over seven years, please update this disclosure to provide
more timely disclosures
of your current operations. In addition, make revisions to your
risk factors as
appropriate that also emphasize the newness of your operations.
2. We note your disclosure
of your StartEngine OWNers Bonus that provides bonus shares
to certain individuals.
Please provide us with additional information about this program
with a view to
understanding how you determine when a customer receives shares and
Howard Marks
StartEngine Crowdfunding, Inc.
May 3, 2022
Page 2
how many they receive. Please also tell us how many shares you have
issued pursuant to
this program to date. Finally, please tell us whether such issuances
were registered or
exempt from registration under the Securities Act of 1933 and explain
the basis for your
determination.
Market, page 6
3. We note your disclosure that you have hosted 71 Regulation A offerings
and
approximately 704 Regulation Crowdfunding offerings as of December 31,
2021. Please
revise to quantify the number of such Regulation A and Regulation
Crowdfunding
offerings, respectively, that you have hosted and that have been done
by entities that are
not affiliated with you in any way.
Registered User Base, page 8
4. Please revise this section to described what is required for a
customer to be a "registered
user." Include a discussion of the terms and fees of any agreement the
customer must
execute. Also disclose what the average investment of a registered
user is in terms of the
number of investments made and amount of money invested.
Results of Operations, page 20
5. Please enhance your discussion of year-over-year increases in revenues
to provide
underlying quantitative metrics, e.g. number of offerings, amounts
raised, number of
issuers, number of campaign launches, annual memberships, for each
revenue component,
including Other service revenue, to provide investors with
transparency into revenue
trends. Refer to Item 303(b)(2) of Regulation S-K.
6. Please provide a discussion of year-over-year changes in your
consolidated balance
sheets. Refer to Item 303(b) of Regulation S-K.
Critical Accounting Estimates, page 23
7. We note that in 2021 the significant increase in your total assets
relates to items for which
the underlying carrying value and valuation involves significant
estimates. Please
enhance your disclosure to more fully address qualitative and
quantitative information
necessary to understand the estimation uncertainty and the impact your
critical accounting
estimates have had or are reasonably likely to have on your financial
condition or results
of operations to the extent the information is material and reasonably
available, including
why each critical accounting estimate is subject to uncertainty and, to
the extent the
information is material and reasonably available, how much each estimate
and/or
FirstName LastNameHoward Marks
assumption has changed over a relevant period, and the sensitivity of
the reported amount
Comapany
to theNameStartEngine Crowdfunding,
methods, assumptions Inc. underlying its calculation.
Refer to Item
and estimates
May 3,303(b)(3)
2022 Pageof2Regulation S-K.
FirstName LastName
Howard Marks
FirstName
StartEngineLastNameHoward Marks
Crowdfunding, Inc.
Comapany
May 3, 2022NameStartEngine Crowdfunding, Inc.
May 3,
Page 3 2022 Page 3
FirstName LastName
Liquidity and Capital Resources, page 23
8. You disclose that cash provided by financing activities was $3,506,276
for the year ended
December 31, 2021, net of offering costs of $11,471,836 compared to
cash provided by
financing activities of Common Stock of $20,894,201, net of offering
costs of $1,691,713
for the year ended December 31, 2020. Please tell us and enhance your
disclosure to
explain the significant increase in cost of financing and the nature
of the expenses
incurred. Clarify if the net offering costs of $11,471,836 include
proceeds to the selling
shareholder for shares of 1,128,085 and if so provide us with the
guidance to support your
accounting.
Item 7. Certain Relationships and Related Transactions, and Director
Independence, page 30
9. Please revise to provide the disclosure regarding the independence of
your board of
directors, as required by Item 7 of Form 10 and Item 407(a) of
Regulation S-K.
Related Party Transactions, page F-1
10. We note your disclosure in Item 7 on page 30 of no related party
transactions. Please
confirm and or update your disclosures accordingly, that none of the
service providers for
which you do business in your cost of revenues and or operating
expenditure qualify as a
related party. Refer to ASC 850-10-50.
Note 2 - Summary of Significant Accounting Policies, page F-7
11. Please tell us and disclose your accounting policy for Investments -
collectibles,
Investments - real estate and Other (current) Assets, including your
consideration of
applicable ASC disclosure requirements.
12. You disclose on page F-11 that you account for investment stock
received from customers
as part of platform fee agreements using the cost method, less
adjustments for impairment,
since the stock received has no readily determinable fair value. You
also disclose on page
F-9, that investment stock is measured at fair value on a recurring
basis and classified as
level 3 in the fair value hierarchy. Please clarify your accounting
policy for investment
stock and update your disclosures accordingly. Refer to ASC
321-10-35-2, ASC 820-10-
50 and ASC 825-10-50-8(l).
13. Please update your level 3 range of variables on page F-9 to include
the underlying asset
value and stated strike price which you identify on page F-11 as a
significant
unobservable input in the fair value determination and provide a
narrative description of
the uncertainty of your fair value measurements from the use of
significant unobservable
inputs if those inputs reasonably could have been different at the
reporting date. Refer to
ASC 820-10-50-2-bbb(2) and ASC 820-10-50-2-g.
14. Please enhance your disclosures for investments in stock to
disaggregate by date of
acquisition and or company, cost basis, respective impairments and
downward and
Howard Marks
FirstName
StartEngineLastNameHoward Marks
Crowdfunding, Inc.
Comapany
May 3, 2022NameStartEngine Crowdfunding, Inc.
May 3,
Page 4 2022 Page 4
FirstName LastName
upward adjustments recognized, if any, for the periods presented.
Please also disclose
unrealized gains and losses related to equity securities held at the
respective reporting
dates. Refer to ASC 321-10-50.
15. We note based on review of your revenue recognition policy that:
You provide transfer agent services branded under the name
StartEngine Secure .
Related revenues are deferred over 12 months based on the
agreed-upon term for
such services and the period over which the Company s performance
obligations are
to be satisfied. And payment for StartEngine Secure services are
generally paid via
customers escrow accounts.
You offer campaign advertising services branded under the name
StartEngine
Promote . Related revenues are earned based on additional
investments attributable
to the campaign advertising services and recognized throughout the
campaign. And
that StartEngine Promote fees are charged to the issuers but paid
from customers
escrow accounts.
Please tell us and enhance your disclosures to clarify the following:
The nature of your StartEngine Secure transfer agent
services, StartEngine
Promote campaign advertising services, and StartEngine OWNers
bonus
program, including performance obligations, timing, uncertainty,
if any, including
significant judgments to support the recognition of these
revenues.
How transaction prices are determined, including if revenues are
recognized at a
point in time or over time and the basis thereof.
How your revenue disclosures depict how the nature, amount,
timing, and uncertainty
of revenue and cash flows are affected by economic factors.
Refer to ASC 606-10-50.
16. We note that accounts receivable, net increased from $751,633 at
December 31, 2020 to
$1,477,887 at December 31, 2021 and that your allowance for doubtful
accounts increased
from $90,691 to $347,216 and bad debt expense increased from $72,282
to $118,335,
respectively. Please disclose if any accounts are over 90 days and
tell us how you
accounted for the increase in the allowance of $256,525 since bad debt
expense was only
$118,335.
Note 3 - Marketable Securities and Investments, page F-14
17. You disclose that marketable securities consist of mutual funds and
common stock
equities that are tradeable in an active market and that unrealized
gains and losses are
reported as a component of other income, net in the accompanying
consolidated
statements of operations. You also disclose that you had $0 in losses
on mutual funds
held for the year ended December 31, 2021. Please tell us and clarify
your disclosure of
any unrealized investment gains and to the extent you did not
recognize any unrealized
gains or losses, please tell us the nature of the investment to
support your determination.
Please also provide the disclosures as required by ASC 321-10-50-4.
Howard Marks
StartEngine Crowdfunding, Inc.
May 3, 2022
Page 5
18. Please tell us and clarify your disclosures accordingly, how the
increase in marketable
securities from $4,054,542 at December 31, 2021 to $7,081,588
reconciles to the purchase
of marketable securities of $3,559,167 as presented in the
consolidated statements of cash
flows on page F-6.
Note 6 - Stockholders' Equity, page F-15
19. We note that the range of inputs used in the valuation of stock
options granted for 2020
and 2021 as disclosed on page F-17 did not change and that the
weighted average grant
date fair value of options granted during the years ended December 31,
2021 and 2020
were $8.25 and $2.11 per option, respectively. Please tell us and
enhance your disclosures
to explain the basis for the increase in the weighted average grant
date fair value of
options granted during 2021 to $8.25 from $2.11 in 2020.
20. Please tell us how the aggregate exercise proceeds of $128,323 for the
exercise of 213,766
stock options reconciles to the weighted average exercise price of
$1.70 and proceeds
from the exercise of employee stock options of $164,965 as disclosed
in the consolidated
statements of cash flows.
Note 7 - Income Taxes, page F-18
21. We note that you recognized provision expense of $90,862 for the year
ended December
31, 2021. Please tell us and enhance your disclosures to explain how
your provision
expense reconciles to the actual tax rate of (14.84%) as disclosed on
page F-19 provision.
Refer to ASC 740-10-50-12.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Michele Miller at (202) 551-3368 or Sharon Blume at
(202) 551-3474 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Eric Envall at (202) 551-3234 or David Lin at (202) 551-3552 with any
other questions.
FirstName LastNameHoward Marks Sincerely,
Comapany NameStartEngine Crowdfunding, Inc.
Division of
Corporation Finance
May 3, 2022 Page 5 Office of Finance
FirstName LastName