Tag: IPO

Market Wrap-Up

For the first time since December 2022, the markets are seeing an uptick in completed small cap initial public offerings (IPOs).  My clients are always asking me about the deals that are getting done, which prompted this blog, the first in what will be regular periodic market roundups.

Nineteen small cap (under $25,000,000) IPOs priced in October compared to 12 in September; 8 in August; 8 in July; 3 in June; 5 in May; 12 in April; 6 in March; 6 in February; and 8 in January.  Below is a chart of relevant deal information for the 19 October IPOs.    Normally, I would include all deals under $50,000,000 in this category, but the deal sizes remain very low.  As deal sizes return to pre 2022 normal levels, I will adjust by market recaps upward accordingly.

Terminating Reporting Obligations In An Abandoned IPO

It has been a tough few years for small cap (and all) initial public offerings (IPOs). Although I have been seeing a small up-tick in priced deals recently, we are not yet near the highs of 2020 – 2022. Among the various challenges facing IPO issuers, lengthy Nasdaq/NYSE review periods and trouble building out sufficient allocations have been especially difficult resulting in a lengthier IPO process than expected.
An increased IPO timeline adds significant expense to the process. A registration statement cannot go effective with stale financial statement. Financial statements for domestic issuers go stale every 135 days requiring either a new quarterly review or annual audit and an amended registration statement. Likewise, financial statements for foreign private issuers (FPIs) go stale every nine months. When an issuer is nearing the end date for financial statements, and it appears that a closing of an IPO may be imminent, they sometimes choose to go effective and rely on Rule 430A.

Definition Of A Shell Company In A Reverse Merger

Ten weeks of blogs on the new SPAC and shell company rules provides the perfect segue to discuss exactly what is a “shell company” in the context of a reverse merger and its implications – including one heartburn inducing unintended consequence. As I have been discussing over the past weeks, the new rules specifically apply to any reverse merger with a shell company, not just a SPAC shell company.

New Rule 145a deems any business combination of a reporting shell company involving another entity that is not a shell company to entail a sale of securities to the reporting shell company’s shareholders. Nothing in Rule 145a would prevent or prohibit the use of a valid exemption, if available, for the deemed sale of securities; however, I know of no such available exemption and the SEC rule release not only does not suggest one but specifically clarifies that Section 3(a)(9) would not be available.

As a result, the SEC release suggests

SEC Adopts Final Rules On SPACS, Shell Companies And The Use Of Projections – Part 6

On January 24, 2024, the SEC adopted final rules enhancing disclosure obligations for SPAC IPOs and subsequent de-SPAC business combination transactions.  The rules are designed to more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs.  The new rules spread beyond SPACs to shell companies and blank check companies in general.  The compliance date for the new rules is July 1, 2025.

In the first blog in this series, I provided background on and a summary of the new rules – see HERE.  The second blog began a granular discussion of the 581-page rule release starting with partial coverage of new Subpart 1600 to Regulation S-K related to disclosures in SPAC IPO’s and de-SPAC transactions – see HERE.  The third blog in the series continued the summary of Subpart 1600 and in particular the new dilution disclosure requirements – see HERE.  Part 4 continued a review

2022 Annual Report Of The Office Of The Advocate For Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation (“Office”) has published its Annual Report for fiscal year 2022 (“Report”).  The Report is delivered to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate and the Committee on Financial Services of the U.S. House of Representatives directly by the Office, without review or input from the SEC at large.

Background

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant to the Small Business Advocate Act of 2016 (see HERE).  The mission of the Office is to advocate for pragmatic solutions to accessing capital markets and business growth.

The Office has the following functions: (i) assist small businesses (privately held or public with a market cap of less than $250 million) and their investors in resolving problems with the SEC or self-regulatory organizations; (ii) identify and propose regulatory changes that would benefit small businesses

Compliance Deadlines For Nasdaq Board Diversity Rules

On August 6, 2021, the SEC approved Nasdaq’s board diversity listing standards proposal.  Nasdaq Rule 5605(f) requires Nasdaq listed companies, subject to certain exceptions, to: (i) to have at least one director who self-identifies as a female, and (ii) have at least one director who self-identifies as Black or African American, Hispanic or Latino, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (iii) explain why the company does not have at least two directors on its board who self-identify in the categories listed above.  The rule changes also made headlines in most major publications.  One of the most common themes in the press was the lack of inclusion of people with disabilities in the definition of an “underrepresented minority” for purposes of complying with the new rules.

The original rules had tiered compliance deadlines which Nasdaq (and practitioners) found confusing and unnecessarily complicated.  On December 14,

Small-Cap IPO Volatility – The China Connection

Less than two months after the PCAOB and the China Securities Regulatory Commission and Ministry of Finance signed a Statement of Protocol reaching a tentative deal to allow the PCAOB to fully inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, Nasdaq effectively halted all small-cap IPOs with a China connection.  This time, the issue is not audit-related.

During the week of September 19, one of our clients had a deal ready to be priced and begin trading on Nasdaq.  We had thought we cleared all comments when a call came from our Nasdaq reviewer – all small-cap IPOs were being temporarily halted while the Exchange investigated recent volatility.  The same day, an article came out on Bloomberg reporting on 2200% price swings (up and then steeply back down) on recent IPOs involving companies with ties to China – a repeat of similar volatility in the late ’80’s and early ’90’s despite three decades of

SEC Proposes New Rules For SPACs – Part 5

On March 30, 2022, the SEC proposed rules related to SPAC and de-SPAC transactions including significantly enhanced disclosure obligations, expanding the scope of deemed public offerings in these transactions, making a target company a co-registrant when a SPAC files an S-4 or F-4 registration statement associated with a business combination, and aligning de-SPAC transactions with initial public offering rules.  In addition, the SEC has also proposed rules that would deem any business combination transaction involving a reporting shell company, including but not limited to a SPAC, to involve a sale of securities to the reporting shell company’s shareholders.  The new rules would amend a number of financial statement requirements applicable to transactions involving shell companies.

In addition to proposing new rules for SPAC and de-SPAC transactions, the SEC is proposing new Securities Act Rule 145a that would deem all business combinations with an Exchange Act reporting shell to involve the sale of securities to the reporting shell company’s

Annual Report of Office of Advocate for Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation (“Office”) issued its 2020 Annual Report and it breaks down one of the strangest years in any of our lives, into facts and figures that continue to illustrate the resilience of the U.S. capital markets.  Although the report is for fiscal year end September 30, 2020, prior to much of the impact of Covid-19, the Office supplemented the Report with initial Covid-19 impact information.

Background on Office of the Advocate for Small Business Capital Formation

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant to the Small Business Advocate Act of 2016 (see HERE).  One of the core tenants of the Office is recognizing that small businesses are job creators, generators of economic opportunity and fundamental to the growth of the country, a drum I often beat.

The Office has the following functions: (i) assist small businesses

SEC Modernizes Auditor Independence Rules

On October 16, 2020, the SEC adopted amendments to codify and modernize certain aspects of the auditor independence framework.  The rule proposal was published in December 2019 (see HERE).

The current audit independence rules were created in 2000 and amended in 2003 in response to the financial crisis facilitated by the downfall of Enron, WorldCom and auditing giant Arthur Andersen, and despite evolving circumstances have remained unchanged since that time.  The regulatory structure lays out governing principles and describes certain specific financial, employment, business, and non-audit service relationships that would cause an auditor not to be independent.  Like most SEC rules, the auditor independence rules require an examination of all relevant facts and circumstances.  Under Rule 2-01(b), an auditor is not independent if that auditor, in light of all facts and circumstances, could not reasonably be capable of exercising objective and impartial judgment on all issues encompassed within the audit duties.  Rule 2-01(c) provides a non-exclusive list