Registering an IPO on Form S-1, Part Two
Posted by Securities Attorney Laura Anthony | April 13, 2011 Tags: , , , , , ,

In my first blog on this topic, I set out very generally the time periods involved in an offering, the pertinent regulations and a very brief description of the contents of a registration statement. This Part II begins to explore, on a more in-depth level, the contents of a Form S-1 registration statement. The format of the S-1 is as follows: (i) cover page; (ii) Part I (the prospectus); (iii) Part II (supplemental disclosure); (iv) undertakings; (v) signatures and power of attorneys; (vi) consents; and (vii) exhibits.

Cover Page

The cover page of a Form S-1 is required to set out the following basic information about the issuer and the offering: (i) the issuer’s exact 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 agent for service of process; (vi) the maximum amount of securities proposed to be offered and amount of registration fee; (vii) the approximate date of commencement of the offering; and (viii) whether any of the securities are being registered “on the shelf” pursuant to Rule 415.

The Prospectus, Part 1 of Form S-1

Part I of the Form S-1 sets forth line items specifying required information by referencing the appropriate sections of Regulations S-K and S-X. The following is a brief description of each of the items required in Part 1 of Form S-1.

1. Description of Business, Properties and Legal Proceedings (Items 101 – 103 of Reg. S-K)

Item 101 of Reg S-K requires a description of the business over the prior 5 years (or 3 years for small public companies) or from inception as appropriate. Item 101 sets forth a list of required information (including, for example, 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 Reg S-K requires that the Issuer set forth the location and general character of the physical properties of the Issuer, including how titled and a description of any liens, mortgages or encumbrances.

Item 103 of Reg S-K requires that the Issuer disclose any pending or contemplated legal proceedings, including specifically required information about these proceedings. An Issuer need not disclose legal proceedings in the ordinary course of its business.

2. Securities (Items 201 and 202 of Reg S-K)

Items 201 and 202 requires a description of the securities offering as well as past and future information regarding these securities and all of the Issuers outstanding securities, including, for example, prior market and pricing activity, rights and preferences, outstanding warrants, and dividends.

3. Financial Information (Items 301-305 of Reg S-K)

Small Issuers (under $75 mil in revs) 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 the 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 (for example, 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 give 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 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 effect the Issuer. Again, this is a very brief outline of MD&A.

4. Management and Certain Security Holders (Items 401-404 of Reg S-K)

Items 401 through 404 of Reg S-K requires 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, both past, current and as obligated in the future. Item 404 requires disclosure of financial related party transactions.

5. Registration Statement and Prospectus Provisions (Item 501-512 of Reg S-K)

Items 501-512 (often referred to as standardized items) requires different disclosures and information throughout the Form S-1, including specific information on the front and back cover and throughout the Form S-1. For example, 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).

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (“Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

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