TIMING IS EVERYTHING WHEN A COMPANY GOES PUBLIC
Timing is a critical element that has to be managed with an IPO registration statement. At the time the S-1 is cleared by the SEC (called “going effective”) the financial statements therein must be “current,” that is, not “stale.”
Financial statement are “current” until the date that updated financial statement are due. That would be 45 days after the end of the fiscal quarter, and also the end of the fiscal year (except that if the prior two years are profitable, the company has 90 days after the end of the last fiscal year.)
The application of this principle is illustrated as follows. Company A, seeking to go public, has a calendar fiscal year (ending on December 31). That means that if it were already public, it would have to file an audits for the years ended December 31, and unaudited reports for the quarters ended March 31, June 30 and September 30. Company A files its S-1 on October 23, 2016. It must include the audited financials for the 2 (or 3) years, depending on its size, as well as the quarterly financial statements for March 31, and June 30. Since October 23 is less than 45 days after September 30, the S-1 does not need to include the September 30 financials.
The comment letter comes out during Thanksgiving week, so the Company lawyers and accountants begin answering the comments during the first week of December. The Amendment no.1 must now include the September 30 quarterly financials. So, the S-1 has to be revised to add those numbers and update them all through the S-1. If there are many comments, it will likely take a week or more to answer the comments. Of course, the company wants the amendment filed before the holidays. If the Company had included the September 30 financials in the original filing, that would be one less thing to update. In a crunch, that could make a difference in when the IPO is ready.
Company files the amendment on December 18. The SEC’s comment letter on Amendment No. 1 is received on January 18. Now the race is on. The Company is a start up and not yet profitable. Its annual financial statements are due on the 45th day of the new year—February 14, 2017. Unless the SEC’s comments are very clean, and no further amendment is necessary, it will be impossible to clear comments prior to February 14. Therefore, Company A will need to complete that audit and include it in the S-1. That audit may bring up more issues with the SEC.
If Amendment 2 is filed before February 14, 2016 without the audit for December 31, 2016, it will get reviewed but cannot be cleared until that audit is filed via another amendment. Company A, as it happens, does not finish the 2016 audit until the end of March and its S-1, and the IPO process, is not completed until the end of May.
Company B plans better for their IPO. Their original S-1 includes the September 30, 2016 financials, and so, Company B is able to turn around comments by December 3. The staff’s comment letter comes just after New Year, and the Company responds by the 10th. Company B has an outside chance of going effective before February 14, 2017–without needing its 2016 audit. Nevertheless, Company B prepares ahead of time and is able to complete its audit by the first week of February. It responds to the 3rd comment letter by February 14, and its S-1 is declared effective at the end of March.
