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SEC Issues Transitional FAQ On Regulation S-K Amendments

The recent amendments to Items 101, 103 and 105 of Regulation S-K (see HERE) went into effect on November 9, 2020, raising many questions as to the transition to the new requirements.  In response to what I am sure were many inquiries to the Division of Corporation Finance, the SEC has issued three transitional FAQs.

The amendments made changes to Item 101 – description of business, Item 103 – legal proceedings, and Item 105 – Risk Factors of Regulation S-K.

FAQ – Form S-3 Prospectus Supplement

The first question relates to the impact on Form S-3 and in particular the current use of prospectus supplements for an S-3 that went into effect prior to November 9, 2020.  In general, a Form S-3 is used as a shelf registration statement and a company files a prospectus supplement each time it takes shares down off that shelf (see HERE).

The prospectus supplement must meet the requirements of Securities Act Rule 424 and includes specific information that was omitted from the base S-3 shelf registration.  That information generally includes facts about a particular offering or shelf take-down such as the public offering price, description of securities or similar matters, and facts and events that constitute a substantive change from or addition to the information included in the base S-3.

The specific FAQ is “[A] registrant has a Registration Statement on Form S-3 that became effective before November 9, 2020. If the registrant files a prospectus supplement to the Form S-3 on or after November 9, 2020, must the prospectus supplement comply with the new rules?”

The SEC confirms that a prospectus supplement does not need to comply with new Items 101 and 103 because Form S-3 does not expressly require Item 101 or Item 103 disclosure but rather requires the incorporation by reference from Exchange Act reports containing that information. Further, the SEC confirms that a company does not need to amend its Form 10-K that is incorporated by reference into the Form S-3 to update for the new rules.  For more on incorporation by reference including with respect to a Form S-3, see HERE.

On the other hand, Item 105 – risk factor disclosures – are required to be included in a prospectus supplement.  In particular, Securities Act Rule 401(a) requires that the form and contents of a prospectus supplement conform to the applicable rules and forms as in effect on the initial filing date of the prospectus supplement.  The SEC, however, has stated it will allow a company to continue to comply with the old Item 105 rules for prospectus supplements filed until the next update to the Registration Statement on Form S-3 for Section 10(a)(3) purposes.

A Form S-3 is updated for Section 10(a)(3) purposes each year when it files its Form 10-K, which is automatically incorporated by reference into the S-3.  A company may also file a post-effective amendment to the Form S-3 as a result of fundamental changes, which post-effective amendment would act as a Section 10(a)(3) update.

FAQ – Form 10-K

Quickly following the passage of the new rules, practitioners noticed a disconnect between the new Item 101 requirements and the instructions on Form 10-K.  In particular,  Item 1 of Form 10-K requires the company to “[F]urnish the information required by Item 101 of Regulation S-K (§ 229.101 of this chapter) except that the discussion of the development of the registrant’s business need only include developments since the beginning of the fiscal year for which this report is filed.”

Amended Item 101(a) replaces the former prescriptive requirement to provide information related to the development of the company for the last 5 years (or 3 years for a smaller reporting company) with a principles-based materiality approach.  Now, a company must provide information that is material to an understanding of the development of its business, irrespective of a specific time frame.  The adopting rule release did not discuss the applicability to Form 10-K.

To clarify any confusion, the SEC issued an FAQ confirming that the new rules do not change Item 1 of Form 10-K, which only requires disclosures regarding the development of the registrant’s business for the fiscal year covered by the 10-K.

FAQ – Item 101 in Reports and Registration Statements

The third FAQ asks whether a company must always provide a full discussion of general development of its business pursuant to new Item 101(a) (or new Item 101(h) for a smaller reporting company) in an annual report or registration statement that requires Item 101 disclosure.  The SEC’s response is “not necessarily.”

In particular, except in an initial registration statement, new Item 101 will permit a company to omit the full discussion of the general development of its business if the company: (1) provides an update to the general development of its business, disclosing all material developments that have occurred since the most recent registration statement or report that includes the full discussion; (2) includes one active hyperlink to the registration statement or report that includes the full discussion; and (3) incorporates the full discussion by reference to the registration statement or report.  However, a company is not required to use this updating method. The SEC anticipates that the updating method will apply mainly to registration statements.

The Author

Laura Anthony, Esq.

Founding Partner

Anthony L.G., PLLC

A Corporate Law Firm


Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service.  The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

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