What Are The Financial Statement Requirements of Form S-1?

Form S-1 Financial Statement Requirements

Securities Lawyer 101 Blog

The financial statements requirements of a Form S-1 registration statement depend upon the company’s size and revenues. If  the company is not a smaller reporting company as defined by Rules 3-01 and 3-02 of SEC Regulation S-X, it must provide:

  • Audited balance sheets (consolidated if you have subsidiaries) as of the end of each of the two most recent fiscal years. If your company been in existence for less than one fiscal year, an audited balance sheet as of a date within 135 days of the date of filing the registration statement.
  • Audited statements of income and cash flows for each of the three fiscal years preceding the date of the most recent audited balance sheet being filed or such shorter period as your company has been in existence.
  • Interim reviewed financial statements for the current period if the filing is more than 135 days after the end of your fiscal year.
  • Date of financial statements: Each amendment must include updated interim or audited financial statements if the financial statements in the prior filing are more than 135 days old.

Rule 8-01 of Regulation S-X specifies the periods an issuer’s financial statements must cover if it is a smaller reporting company, as follows:

  • Audited balance sheet as of the end of each of the most recent two fiscal years, or as of a date within 135 days if the issuer has existed for a period of less than one fiscal year.
  • Audited statements of income, cash flows and changes in stockholders’ equity for each of the two fiscal years preceding the date of the most recent audited balance sheet (or such shorter period as the registrant has been in business).
  • Interim reviewed financial statements for the current period if the filing is more than 135 days after the end of your fiscal year.

Date of financial statements: Each amendment must include updated interim or audited financial statements if the financial statements in the prior filing are more than 135 days old.
The Form S-1 Balance Sheet

The balance sheet in Form S-1 registration statements includes detailed information about the issuer’s assets, liabilities and shareholders’ equity.

The information balance sheet of a private company in a going public transaction and an existing public companies contain the same information. The Form S-1 balance sheet is a snapshot of a company’s assets, liabilities and shareholders’ equity at the end of a specific reporting period.

Assets are the things that a company owns that have a recognized value. Generally, this means something can either be sold or used by the issuer to make products or provide services that can be sold. Assets include physical property, such as real estate, trucks, equipment and inventory. It also includes things that can’t be touched such as trademarks and patents. Cash as well as investments a company makes are included as assets on its balance sheet.

Generally, assets are reflected based upon how quickly they will be converted into cash. Current assets are assets a company expects to convert to cash within one year such as inventory a company expects to sell within one year. Noncurrent assets are assets that a company does not expect to sell or convert to cash within one year or that would take longer than one year for the company to sell. Noncurrent assets include fixed assets. Fixed assets are assets used to operate the business but that are not available for sale, such as trucks, office furniture and other property.

Liabilities are the amounts of money that a company owes to third parties. Liabilities include all kinds of obligations, like money borrowed, rent for use of a building, money owed to suppliers or vendors, payroll, environmental cleanup costs, or taxes. Liabilities also include obligations to provide goods or services to customers in the future.

Liabilities are generally listed based on their due dates. Liabilities are said to be either current or long-term. Current liabilities are obligations a company expects to pay off within the year. Long-term liabilities are obligations due more than one year away.

Shareholders Equity in the Form S-1 Registration Statement

Capital or net worth in financial statements in Form S-1 registration statements is reflected as Shareholders’ equity. Shareholders’ equity is the money that would be left if a company sold all of its assets and paid off all of its liabilities. Shareholders’ equity is the amount owners invested in the company plus or minus the company’s earnings or losses since inception.

Income Statements in Form S-1 Registration Statements

The Form S-1 income statement shows how much revenue an issuer earned over a specific period of time (usually for a year or some portion of a year). A Form S-1 income statement also shows the costs and expenses associated with earning revenue. In going public transactions, issuers must include revenues incurred before and after their securities are publicly traded if earned during the relevant period. The “bottom line” of the Form S-1 income statement reflects the company’s net earnings or losses over the period.

Income statements also report earnings per share. Earnings per share are the amount of money shareholders would receive if the company decided to distribute all of the net earnings for the period.

The top line of the Incorme Statement is often referred to as gross revenues or sales because expenses have not been deducted from the figures presented.

The bottom line is the amount of earned after deducting all of the expenses from the amount that the company actually earned or lost during the accounting period. Money that the company doesn’t expect to collect on certain sales due to, for example, sales discounts or merchandise returns is deducted from gross sales. When you subtract the returns and allowances from the gross revenues, you arrive at the company’s net revenues. It’s called “net” because the revenues are left in the net after the deductions for returns and allowances have come out.

There are several entries in the Form S-1 Income Statement that represent various kinds of operating expenses. Although these items can be reported in various order, the typically the costs of the sales is reflected after revenues. This figure reflects the sums spent to produce the goods or services the issuer sold during the accounting period.

The gross profit or gross margin is the costs of sales from the net revenues. It’s considered “gross” because there are certain expenses that haven’t yet been deducted from the amounts.

Operating expenses are items that go toward supporting a company’s operations for a given period such as salaries of administrative personnel and marketing expenses. Operating expenses are different from “costs of sales”, because operating expenses cannot be linked directly to the production of the products or services being sold.

Depreciation is deducted from gross profit. Depreciation takes into account the wear and tear on some assets, such as machinery, tools and furniture, which are used by the issuer over the long term. Depreciation is the process of spreading these costs over the periods in which they are used. The charge for using these assets during the period is a fraction of the original cost of the assets.

Operating profit also known as “income from operations”, is the figure after all operating expenses are deducted from the issuer’s gross profit before interest and income tax expenses.

Interest income is the money companies make from keeping their cash in interest-bearing accounts. Interest expense is the money that the company paid in interest for money borrowed. Some income statements reflect interest income and interest expense separately and others the two numbers. The interest income and expense are added or subtracted from the issuer’s operating profit to arrive at operating profit before income tax.

Finally, income tax is deducted to arrive at net profit or net losses.

Earnings per share reflects the amounts shareholders would receive for each share of stock held if the company distributed all of its net income for the period. To calculate an issuer’s earnings per share, total net income is divided by the issuer’s outstanding share

The Form S-1 Statement of Cash Flows

The Statement of cash flow report a company’s inflows and outflows of cash. While an income statement can tell you whether a company made a profit, a cash flow statement can tell you whether the company generated cash sufficient to pay its ongoing operating expenses.

A statement if cash flow shows changes over time rather than absolute dollar amounts at a point in time. The bottom line of the cash flow statement shows the net increase or decrease in cash for the relevant period. Generally, cash flow statements are divided into operating, investing activities and financing activities.

The first part of a cash flow statement analyzes a company’s cash flow from net income or losses. For most companies, this section of the cash flow statement reconciles the net income (as shown on the income statement) to the actual cash the company received from or used in its operating activities. T

The second part of a cash flow statement shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities because it used cash.

The third part of a cash flow statement shows the cash flow from all financing activities.

The Footnotes in Financial Statements in Form S-1 Registration Statements

The footnotes found in the financial statements contained in Form S-1 registration statements provide useful information about the financial statement presentation. Issuers must disclose in the footnotes, the accounting policies that are important to the company’s financial condition and results. These often require management’s most difficult, subjective or complex judgments. The financial statement footnotes provide detailed information about federal, state, local and/or foreign income and deferred tax as well as the main items that affect the company’s effective tax rate are described.

The footnotes discuss the company’s pension plans and other retirement or post-employment benefit programs. The notes contain specific information about the assets and costs of these programs, and indicate whether and by how much the plans are over- or under-funded.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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