The Regulation A+ rules adopted by the SEC in 2015 included scaled reporting obligations to assist in reducing issuers’ offering costs as against a traditional IPO. However, if a company is seeking to become a full Securities Exchange Act reporting company, which is required if it is planning a national exchange listing, its disclosure must follow traditional IPO Form S-1 level disclosure, without the benefit of scaling. The one exception: even these companies may utilize financial statements that are up to nine months old. Normally in a Form S-1 your financials cannot be more than 135 days “stale.” Last month, the SEC and Nasdaq permitted Chicken Soup for the Soul Entertainment Inc. to go public, trade on Nasdaq and complete its Reg A+ offering with no financial information from 2017. The other three Reg A+ issuers that have completed IPOs onto national exchanges utilized financials that were no more than 135 days old.
The unanswered question, however, was this: is a company that does not have “current” financials in its Regulation A+ offering documents immediately out of compliance with reporting obligations right after it becomes a full reporting company upon completion of the IPO? The SEC answered this in a positive way last week with several Compliance and Disclosure Interpretations (C&DIs). The answer: if you have missing quarterly reports on Form 10-Q when you finish your IPO, you are given 45 days from then to file them. If you are missing an annual report on Form 10-K, you have 90 days to complete that.
This small piece of guidance adds another substantial cost-saving benefit to Reg A+. The ability to defer the preparation and reporting of four and one-half months of financial information beyond what Form S-1 would require allows a company to deal with that cost after it raises money in its IPO, if it is comfortable that the scaled disclosure will not impede the ability to complete the fundraising and IPO.