audited financial statements for the last two fiscal years; financial statements for the most recent fiscal interim period, comparative with interim financial information for the corresponding prior fiscal period (may or may not be audited depending on the circumstances); and income statement and condensed balance sheet information for the last two years and interim periods presented. Early on, the issuer should identify any problems associated with providing the required financial statements in order to seek necessary accommodation from the SEC. These statements must be prepared in accordance with US GAAP or IFRS as adopted by the IASB, as they will be the source of information for Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). The SEC will review and comment on the financial statements and the MD&A. The SEC’s areas of particular concern include: revenue recognition; business combinations; segment reporting; financial instruments; impairments of all kinds; deferred tax valuation allowances; compliance with debt covenants; fair value; and loan losses.
The pre-filing period The pre-filing period begins when the company and the underwriters agree to proceed with a public offering. During this period, key management personnel will generally make a series of presentations covering the company’s business and industry, market opportunities, and financial matters. The underwriters will use these presentations as an opportunity to ask questions and establish a basis for their due diligence defence. From the first all-hands meeting forward, all statements
concerning the company should be reviewed by the company’s counsel to ensure compliance with applicable rules. Communications by an issuer more than 30 days before filing a registration statement are permitted as long as they do not reference the securities offering. Statements made within 30 days of filing a registration statement that could be considered an attempt to pre-sell the public offering may be considered an illegal prospectus, creating a gun-jumping violation. This might result in the SEC’s delaying the public offering or requiring prospectus disclosures of these potential securities law violations. Press interviews, participation in investment banker-sponsored conferences, and new advertising campaigns are generally discouraged during this period. In general, at least four to six weeks will pass between the distribution of a first draft of the registration statement and its filing with the SEC. To a large extent, the length of the pre-filing period will be determined by the amount of time required to obtain the required financial statements.
28 JOBS Act Quick Start
The waiting period Responding to SEC comments on the registration statement The SEC targets 30 calendar days from the registration statement filing date to respond with comments. The SEC review process has not changed as a result of the JOBS Act, although the issuer should anticipate that it will receive comments from the SEC staff regarding its EGC-related disclosures. Once the registration statement is submitted, a team of SEC staff members is assigned to review the filing. The team consists of accountants and lawyers, including examiners and supervisors. The SEC’s objective is to assess the company’s compliance with its registration and disclosure rules. It is not unusual for the first SEC comment letter to contain a significant number of comments to which the issuer must respond both in a letter and by amending the registration statement. The SEC’s principal focus during the review process is
on disclosure. In addition to assessing compliance with applicable requirements, the SEC considers the disclosures through the eyes of an investor in order to determine the type of information that would be considered material. The SEC’s review is not limited to the registration statement. The staff will closely review websites, databases, and magazine and newspaper articles, looking in particular for information that the staff thinks should be in the prospectus or that contradicts information included in the prospectus. It is easy to anticipate many of the matters that the SEC
will raise in the comment process. The SEC makes the comment letters and responses from prior reviews available on its website, so it is possible to determine the most typical comments arising during the IPO process. Overall, the SEC staff looks for a balanced, clear presentation of the information required in the registration statement. Some of the most frequent comments raised by the SEC staff on disclosure, other than the financial statements, include: Front cover and gatefold: Has the EGC included disclosure on the front cover identifying itself as an EGC? Given that a number of issuers that are EGCs have completed their IPOs, an EGC pursuing an IPO may review its filings and see the type of language that the SEC staff expects to see on the cover page. For an issuer that chooses to use artwork, the SEC staff will consider whether the artwork presents a balanced presentation of the company’s business, products, or customers? Prospectus summary: Is the presentation balanced?
Again, in the summary section, the SEC staff will expect to see a brief discussion that identifies that the issuer is an EGC and is electing to rely on certain accommodations available to EGCs.
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