Form S-1 Filing Requirements, Filing Form S-1, S-1 Offering, S-1 …
Private companies often file a registration statement on SEC Form S-1 in connection with their going public transaction. The most commonly used registration statement form is Form S-1.
All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required in registration statements filed with the SEC prior to making the decision to go public. A registration statement on Form S-1 has two principal parts which require expansive disclosures. Part I of the registration statement is the prospectus, which requires that the company provide certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors.
SEC Form S-1 General Information
There are four primary regulations that apply to the preparation and filing of a registration statement on SEC Form S-1.
- Regulation C – contains the general requirements for preparing and filing the Form S-1, including within Regulation Care regulations and procedures related to (a) the treatment of confidential information; (b) amending a registration statement prior to effectiveness; (c) procedures to file a post-effective amendment; and (d) the “plain English” rule.
- Regulation S-K – sets forth, in detail, all the disclosure requirements for all the sections of the S-1. Regulation S-K is the who, what, where, when and how requirements to complete the S-1.
- (ii) Regulation S-T – requires that all registration statements, exhibits and documents be electronically filed through the SEC’s EDGAR system.
- Regulation S-X – sets forth the requirements with respect to the form and content of financial statements to be filed with the SEC. Regulation S-X includes general rules applicable to the preparation of all financial statements and specific rules pertaining to particular industries and types of businesses.
The format of the SEC Form S-1 Registration Statement includes: (i) the cover page; (ii) Part I which is known as the prospectus; (iii) Part II which is known as supplemental disclosure) (iv) undertakings; (v) signatures and powers of attorney; (vi) consents; and (vii) required exhibits.
Form S-1 – Cover Page
The cover page of the Form S-1 Registration Statement sets forth the following basic information about the Issuer and the securities offering being registered: (i) the Issuer’s legal name; (ii) the Issuer’s state of incorporation; (iii) the Issuer’s SIC code; (iv) the Issuer’s tax ID number; (v) the address and telephone number of the Issuer’s principal executive offices and of its registered agent for service of process; (vi) the maximum amount of securities proposed to be offered on the Form S-1, (vii) the amount of registration fee; (viii) the approximate date of the offering; and (ix) whether any of the securities subject to the Form S-1 are being registered “on the shelf” pursuant to Rule 415 of the Securities Act.
The Form S-1 Prospectus – Part I of the Form S-1
Part I of the Form S-1 contains the Prospectus which includes the following:
Description of Business, Properties and Legal Proceedings (Regulation S-K Items 101 – 103 of Reg. S-K)
Item 101 of Regulation S-K requires a description of the business of the Issuer for the prior 5 years or 3 years for small public companies. Item 101 sets forth a list of required information which includes the Issuer’s year and state of incorporation; products and services; sources of raw materials; environmental issues; government regulations, research and development and number of employees. In addition, parts of Item 101 require discussion of future plans—for example, plans for expansion or increase in employees. Item 101 also requires a description of the Issuer’s competitors specifically and in the industry in general. This paragraph is a brief summary and examples of only a few of the numerous items that must be specifically disclosed and discussed in accordance with Item 101.
Item 102 of Regulation S-K requires that the Issuer set forth the location and general character of the physical properties of the Issuer, including how it is titled and a description of any liens, mortgages or encumbrances.
Item 103 of Regulation S-K requires that the Issuer disclose any pending or contemplated legal proceedings, including specifically required information about these proceedings. An Issuer needs not to disclose legal proceedings in the ordinary course of its business.
Securities (Items 201 and 202 of Regulation S-K)
Items 201 and 202 require a description of the securities being offered as well as past and future information regarding these securities and all of the Issuer’s outstanding securities, including, for example, prior market and pricing activity, rights and preferences, outstanding warrants, and dividends.
Financial Information (Items 301-305 of Regulation S-K)
Small Issuers are not required to make disclosure under Items 301 and 302, which require that the Issuer provide a summary of financial data that is contained in the financial statements. All Issuers are required to provide disclosure under Item 303: Management Discussion and Analysis of Financial Condition and Results of Operation (MD&A). MD&A often makes up the bulk of narrative discussion in a registration statement and is arguably the most important portion of the registration statement for investors to understand the Issuer and its management plans. A detailed discussion of the requirements of this section could fill up multiple blogs on this topic alone. However, very briefly, MD&A requires discussion of key financial elements and changes in those items over the prior 12 months. For example, MD&A would disclose revenues for the current term and prior year and explain why that number increased or decreased (i.e., the company may have expanded or cut back on its sales force). In addition, MD&A requires a detailed discussion of the Issuer’s future plans and the costs and intended source of financing for those plans. An Issuer cannot simply state that it plans to open 10 new locations, but instead would be required to provide details as to where those locations were, what progress (if any) had been made towards the plan, the costs of the plan and where the money is going to come from.
MD&A requires discussion regarding liquidity and capital resources. This would include breaking out balances owed or owing on various obligations and sources and uses of funds for 12-, 24- and 36-month periods. MD&A requires a discussion of the industry and competition, both generally and as may specifically affect the Issuer. Again, this is a very brief outline of MD&A.
Management and Certain Security Holders (Items 401-404 of Regulation S-K)
Items 401 through 404 of Regulation S-K require disclosure of certain information regarding directors, executive officers, key employees and those that own 5% or more of the outstanding securities of the Issuer. Item 401 requires the Issuer to disclose certain biographical information about officers, directors and key employees. This information includes 5 years of business background, name, age, familial relationships among other disclosed individuals, related party transactions, and involvement in certain legal proceeding over the prior 10 years (such as convictions of crimes, governmental enforcement actions, and involvement in bankruptcies). Item 402 requires disclosure of executive compensation, including that which is past, current and obligated in the future. Item 403 requires disclosure of the legal and beneficial ownership of executive officers, directors and 5%-or-more shareholders. Item 404 requires disclosure of financial related party transactions.
Registration Statement and Prospectus Provisions (Item 501-512 of Regulation S-K)
Items 501-512 (often referred to as standardized items) require different disclosures and information throughout the Form S-1, including specific information on the front and back covers and throughout the Form S-1. Examples include how the offering price was determined (Item 505), risk factors (Item 503), use of proceeds (Item 504), dilution (Item 506), disclosure of selling security holders if a secondary offering (Item 507), plan of distribution (Item 508), experts (Item 509), offering expenses (Item 511), and undertakings (Item 512).
Part II of the Form S-1
Part II of the Form S-1 registration statement contains supplemental information and formal legal requirements. Part II contains the financial information, sales and issuances of unregistered securities and legal information regarding the exemptions relied upon in making such sales and issuances and information regarding the exhibits attached to the S-1. In addition, a list of exhibits is included in Part II.
Regulation S-X sets forth the form, content and requirements as to the financial statements that must be reviewed and audited by a PCAOB-licensed accounting firm.
Item 601 of Regulation S-K lists required exhibits that must be filed with a Form S-1 (for example, original articles of incorporation and all amendments thereto, material contracts, auditor consent letter, legal opinion, etc.). These exhibits must be filed with the S-1 and become available for public review.
All registration statements must be written in “plain English” as opposed to legalese or industry terminology. The plain English rule requires that the registration statement be written using the following English grammatical principles: active voice; short sentences; definite, concrete, everyday words; tabular presentations of financial information and other applicable data; bullet lists for complex and material data, whenever possible; avoidance of legal jargon; avoidance of highly technical business terms; and no multiple negatives. The SEC enforces the plain English rule and will not hesitate to ask that paragraphs or sections be rewritten.
The Filing and Comment Process
Once the Form S-1 is filed with the SEC, using the EDGAR and XBRL requirements, the SEC will let the Issuer know if the S-1 will be reviewed (they usually are). The SEC assigns a team, including both a legal and an accounting expert, to review the document and provide comments to the Issuer. The Issuer then prepares and files an amendment to the S-1 making the changes and addressing the comments requested by the SEC, and prepares and files a responsive letter which sets forth written direct answers to each of the comments. The comment process can, at times, be arduous and repetitive; however, the Issuer should realize that it is all just part of the process. When the comments are addressed to the satisfaction of the SEC, the Issuer can request and the SEC will issue an order allowing the registration statement to go effective.
The Sale Process
Once the S-1 goes effective, the issuing company can proceed with the sale process. A sale is completed much the same way as in a private offering. That is, an investor executes a subscription agreement and pays for the securities, which are then issued to the investor by the transfer agent.
Restrictions on Communications Related to DPO’s
The Pre-Filing Period
”Gun jumping” is the dissemination of information regarding the Issuer before a complete prospectus has been filed with the SEC. Communications prior, during and immediately following the filing of a registration statement are strictly regulated to prevent an Issuer from hyping the market in association with an offering. In addition, the SEC wants to ensure that investors’ decisions to participate in an offering are based on information that has been reviewed by the SEC and meet the disclosure standards set forth in the securities laws.
During the pre-filing period, Section 5(c) of the Securities Act of 1933, as amended (the “Securities Act”) makes it “unlawful for any person, directly or indirectly, to… offer to sell or offer to buy… any security, unless a registration statement has been filed as to such security.” An offer to sell or offer to buy are broadly defined to include every attempt or offer to dispose of a security for value, including any effort to simulate investor interest in such security.
Moreover, the SEC considers all communications with the public as potential gunjumping violations. A famous example is associated with the IPO of Google, Inc. In a pre-IPO interview with founders Sergey Brin and Larry Page, published in Playboy magazine, Brin and Page made favorable comments about Google – of course. The interview did not include any mention of the offering or the securities of the company. Moreover, the statements appeared innocuous, including such generalities as “people use Google because they trust us.”
The SEC determined that the interview resulted in gunjumping and required Google to: (1) revise its prospectus to include a risk factor warning that the Playboy interview may have violated Section 5; (2) include the full text of the Playboy article in the prospectus (thus subjecting its contents to the strict liability standards for the truth and accuracy of information filed with the SEC); and (3) address certain discrepancies between statistics in the article and in the prospectus.
In Google and several other cases, the SEC has found that gunjumping is any information that is not contained in the prospectus and that could stimulate investors’ interest. In addition to requiring revisions to a prospectus, as a result of gunjumping, the SEC can require an Issuer to offer to buy back its already issued stock or to delay an offering to allow a cooling-off period, or can initiate enforcement proceedings seeking both injunctive and monetary penalties.
There are exceptions and safe harbors to the gunjumping prohibition. Rule 135 of the Securities Act allows for limited notices of proposed offerings. The notice must clearly indicate that it is not an offer to buy or sell securities. The content of the notice is limited to: (i) the name of the Issuer; (ii) intention to make a public offering; (iii) amount and type of security and basic terms of the offering; (iv) anticipated timing of the offering; (v) whether the offering is limited to a certain class of investors (such as only accredited or only existing security holders); and (vi) any other required statement required by a certain state or foreign governmental body.
Rule 163A of the Securities Act provides a thirty (30)-day safe harbor for communications made at least 30 days prior to the filing of a registration statement and in which communications do not mention or refer to the proposed offering.
Rule 169 allows an Issuer to continue with the release of regular factual information in the ordinary course of business related to the goods and services of the company. The communications cannot mention the offering or securities of the company and cannot contain forward looking statements regarding the company.
Rules 137, 138 and 139 address communications by or to broker-dealers. Basically, communications and negotiations between a potential underwriter or participating broker-dealer and an Issuer, as long as they are confidential, will not be deemed gunjumping.
The Waiting or Quiet Period
The waiting period of an offering is the time following the filing of a registration statement with the SEC and its being declared effective. Oral offers to sell and certain limited communications are allowed during this time, though no sales may be consummated until after the prospectus is declared effective. Moreover, no communications may be made that go beyond the contents of the prospectus as set forth above.
Finally, the quiet period is the time following the effectiveness of a registration statement and is generally considered to be 30 days. As investors may still be buying into an IPO for this period, Company communications are limited to the contents of the prospectus, updates filed with the SEC, and communications regarding products in the ordinary course of business.
Financial Statement Requirements in Registration Statements l Going Public Transactions
Financial statements included in a registration statement must be audited by a firm that is a member of the Public Company Accounting Oversight Board (“PCAOB”). SEC rules allow smaller reporting companies to provide less financial information than larger reporting issuers.
Rule 405 defines a smaller reporting company as a company that: (i) had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate number of shares of its common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in its principal market; (ii) in the case of an initial registration statement under the Securities Act or Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing, computed by multiplying the aggregate number of such shares held by non-affiliates before filing plus the number of such shares included in the registration statement by the public offering price of the shares; or (iii) if the public float as calculated under paragraph (1) or (2) above is zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.
The financial statements required for a company that does not qualify as a smaller reporting company are:
♦ Audited balance sheets (consolidated if you have subsidiaries) as of the end of each of the two most recent fiscal years or 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 the issuer has been in existence.
♦ Interim reviewed financial statements for the current period if the filing is more than 135 days after the end of the issuer’s fiscal year end.
♦ 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.
Smaller Reporting Company Disclosures in Registration Statements
Smaller reporting companies going public may elect to provide the following disclosures in their registration statement:
♦ 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 that the issuer 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.
Business Related Disclosures in Registration Statements l Going Public Transactions
This business section of the registration statement describes the general character of the issuer’s business and includes a brief description of the organizational history of the company, its principal products and services, potential markets and customers, methods for distributing products and services, availability of raw materials, intellectual property, competitive conditions, research and development expenses, costs associated with complying with regulations, and the number of full and part time employees.
Risk Factor Disclosures in Registration Statements l Going Public Transactions
The risk factor section of a registration statement describes the risks and uncertainties of investing in the issuer. This may include limited financial resources, a limited operating history, adverse economic conditions in a particular industry, lack of a market for the securities offered, industry competition, government regulation, and/or reliance on key personnel or on a limited number of suppliers, distributors, or customers.
Other Required Disclosures in Registration Statements l Going Public Transactions
This registation statement requires that the issuer identify its officers and directors and provide information on the issuer’s compensation and benefits plan, material transactions between the issuer and its officers and directors, as well as material legal proceedings involving the issuer or its officers and directors.
This section of the registration statement describes the distribution plan for the securities being registered in the going public transaction including the offering size.
This section sets forth the planned uses of the proceeds from the sale of the securities being registered in the registration statement.
Misstatements in Registration Statements used in Going Public Transactions
If the registration statement, at the time it becomes effective, contains an untrue statement or omits a statement of a material fact necessary to make other statements non-misleading, Section 11 of the Securities Exchange Act of 1933 imposes liability on the issuer and its management as well as other third parties.
The Securities Act holds individuals who help prepare a registration statement on behalf of an issuer responsible for any misrepresentations and omissions in the registration statement. Section 11(a) of the Securities Act, 15 U.S.C. § 77k(a), makes several categories of persons and entities responsible for material misstatements or omissions in a registration statement.
A majority of the issuer’s board of directors, as well as its principal executive officer or officers, principal financial officer, and its controller or principal accounting officer, must sign the registration statement used in the going public transaction. The issuer, as well as each signer is subject to potential civil liability under § 11(a) of the Securities Act for material misstatements or omissions in the registration statement. In addition, any person who controls the issuer or any other responsible party is subject to liability.
Moreover, the issuer and its officers and directors, attorneys, accountants and underwriters are liable under Section 11(a) of the Securities Act.
If you are going to offer and sell securities, or go public using an SEC registration statement you will need the assistance of an experienced securities lawyer to guide you through the registration process and ensure all required disclosures are made.
For further information about this article, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 201 S, Boca Raton Florida, (561) 416-8956, by email at [email protected] or visit www.gopublic101.com. This memorandum 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. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or by email at [email protected]. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates l Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855