Form S-1

2024-05-05

 Issuers of securities must file a registration statement covering the securities to be sold before any offers are made, and the statement filed must be declared effective before any securities can be sold. Form S-1 is the registration statement most commonly used and one of the more flexible forms available to companies. It can be used to register various types of transactions, including Initial Public Offerings, Direct Public Offerings, Resale Registration or Selling Stockholder Offerings, Private Investments in Public Equity, or Equity Lines. 

Form S-1 has two principal parts that require detailed disclosure: Part I requires a prospectus with information that would typically be provided to investors, like the company’s operations and financial condition, but Part II requires supplemental information that would not typically be provided to investors, such as distributions and unregistered securities sales. 

All disclosure requirements are meant to comply with Security Exchange Commission (SEC) regulations. There are four primary regulations that apply to Form S-1:

  • Regulation C: general requirements for preparing Form S-1, such as treatment of confidential information and amending registration statements. 
  • Regulation S-K: disclosure requirements details 
  • Regulation S-T: e-filing requirement for all documents 
  • Regulation S-X: financial statements requirements, including specific requirements for some types of companies. 

Form S-1 requires that companies make financial disclosures, business-related disclosures, risk factor disclosures, and a few other miscellaneous disclosures. 

Financial Statement Requirements

Companies must include copies of certain financial statements with their Form S-1 filing. Those statements must be audited by a firm that is a member of the Public Accounting Oversight Board. The required information includes: 

·      Audited balance sheet for the last two fiscal years, or as of 135 days of if the company has existed less than a year.

  • Audited income statement and cash flow statement for the last two fiscal years. 
  •  Interim reviewed financial statements for the current period, if the filing is more than 135 days after the end of the company’s fiscal year.
  • Updated interim or audited financial statements if the financial statements in the prior filing are more than 135 days old.
  • Supplementary financial information, including net sales, gross profit, income (or loss), per share data based on income (or loss), and net income (or loss) attributable to the issuer for each full quarter of the two most recent fiscal years. 

There are some differing requirements based on a company’s size. Smaller reporting companies and emerging growth companies (EGCs) may provide less financial information than larger issuers. 

“Smaller companies” are defined by Rule 405 as companies that: 

  • Had a public float of less than $75,000,000 as of the last business day of its most recently completed fiscal quarter, or
  • In the case of an initial registration statement for shares of common equity, had a public float of less than $75,000,000 within 30 days of the date of filing, or
  • If the calculations under either of the above is zero, had annual revenues of less than $50,000,000 during the most recently completed fiscal year. 

Smaller reporting companies and EGCs must only provide a balance sheet and income statement for the last two fiscal years, rather than three, and do need to provide the supplemental financial information.

Business-Related Disclosures

Form S-1 registration requires a comprehensive narrative discussion of the issuer’s business. Under Regulation S-K, only information that is material to understanding the general development of the business is required. This generally includes a brief description of the organizational history of the company, its principal products and services as well as markets and customers, methods for distributing its products and services, availability of raw materials, any intellectual property, competitive conditions, research and development expenses, costs associated with regulation compliance, and the number of full and part-time employees. Material changes, such as mergers, bankruptcy, acquisition of a material amount of assets, or any reclassification must be disclosed. 

Risk Factor Disclosures

Information about the main factors that make an offering risky or uncertain must be included early in a company’s prospectus and included in boldface on the front cover page. This section should concisely summarize the major risks of an investment in the company, but should also be specific enough to allow an investor to assess the magnitude of the risk. It should not be generic enough to apply to any company in the industry. This may include the company’s financial resources, a limited operating history, adverse economic conditions of its industry, high competition, or limitations such as limited suppliers or customers. 

Under the modernized Regulation S-K rules that became effective Nov. 9, 2020, the risk factors discussion must:

  • Cover material factors that make investment speculative or risky
  • Be organized logically with relevant headings and subheadings that adequately describe each section
  • Concisely explain how each risk affects the company

Preparing a Form S-1 Offering

Preparing a registration statement requires a joint effort by the issuing company and its participants, especially its legal department, because all are potentially liable under Section 11 of the Securities Act and Rule 10b-5 under the Exchange Act for material misstatements or omissions in the registration statement. Companies must be careful to create a document that both attracts investors and protects participants from liability. The Law Offices of Destiny Aigbe can help you produce a well-drafted registration statement that is accurate, complete, and in compliance with the disclosure requirements while enabling investors to properly evaluate your company and its merits.