The Securities and Exchange Commission (“SEC”), Division of Corporate Finance frequently notes disclosure deficiencies in the disclosure of reverse merger transactions in on 8-K Filed. This post summarizes SEC staff comments in response to reports on Form 8-K reporting of reverse mergers with public shell companies or similar transactions that result in a public company no longer being designated as a shell company.
A Current Report on Form 8-K reports that reports a reverse merger transaction is known as a Super 8-K because of its expansive disclosure requirements which include that the issuer provide “Form 10 information” including audited financial statements.
The requirements for reporting reverse mergers in 8-K dramatically reduce the appeal of reverse mergers. In addition to these 8-K requirements, reverse merger issuers often find their securities subject to Depository Trust (“DTC”) scrutiny, DTC Chills and global locks because of the presumption of fraud associated with reverse mergers.
Super 8-K filings typically fail to provide the SEC’s required disclosures for transactions involving public shell companies under Items 2.01, 5.01 and 9.01 of Form 8-K.
Form 8-K Reporting of Reverse Mergers
The requirements of these disclosures for 8-K reports disclosing reverse mergers include:
Item 2.01 – Completion of acquisition or disposition of assets requires the issuer to provide information following a transaction that is outside the ordinary course of business. A corporate acquisition as well as an asset acquisition can result in a company no longer being a shell company. In the event that the asset acquisition results in a company no longer being a shell company, all information required in a Form 10 Registration Statement must be filed in a Super 8-K within four days of the completion of the transaction.
The SEC release concerning Form 8-K reporting of reverse mergers provides, ”we frequently remind companies that Instruction 2 to Item 2.01 makes clear that the term “acquisition” includes every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition.” Further, when a company’s reverse merger or similar transaction includes an asset acquisition as defined in Item 2, then an Item 2.01 disclosure is also required.
Item 5.01 requires disclosures regarding a change of control. Issuers must include all disclosures required by Item 5.01 when filing a Super 8-K which include:
(i) identity of the person(s) acquiring such control;
(ii) date and description of the transaction which resulted in the change in control;
(iii) basis of control, including percentage of voting securities of the registrant now beneficially owned by the person(s) who acquired control;
(iv) amount of consideration used by the person(s) acquiring control;
(v) source of funds used by the person(s) acquiring control;
(vi) the identity of the person(s) from whom control was assumed;
(vii) any arrangements or understandings among the members of both the former and new control groups with respect to the election of directors or other matters; and
(viii) the information required by Item 403(c) of Regulation S-K.
Item 9.01 is the Financial Statements and Exhibits section of the Form 8-K. Issuers must include historical financial statements of the acquired private operating business. In particular, the Form 8-K must include two years of audited financial statements and unaudited reviewed interim periods to the date of filing. In addition, the issuer must include pro forma financial information accounting for the combined companies.
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For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.gopublic101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.GoPublic101.com
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