Financial Statement Requirements Relating To A Merger Between A Private Operating Company And A Public Shell Company

Memorandum For Clients

Since August 2005, a transaction which causes a public shell company to cease being a shell company is an event which requires mandatory disclosure of certain business and financial information within four (4) business days on a Form 8-K. Often, these types of transactions involve a merger of the shell company with a private operating company (an “OpCo”), commonly referred to as a “reverse merger.” Former public shell companies usually exclude from such a Form 8-K the financial statements for a fiscal period ending prior to the completion of the reported event when such financial statements and other information were unavailable (i.e. the financial statements have not yet been reviewed or audited or the company has not completed its disclosure controls and procedures). While the Securities and Exchange Commission (the “SEC”) permits this approach under the securities laws and the SEC’s regulations thereunder, the SEC staff (the “SEC Staff”) has made a recent pronouncement interpreting SEC rules to require supplemental disclosure of such excluded financial statements on an amendment to a Form 8-K within ninety (90) days of the filing date of the original Form 8-K reporting the shell company altering event. This memorandum discusses the steps that a former shell company must take to comply with the SEC Staff’s position with respect to reporting such financial statements in connection with a public shell altering transaction, as well as other transitional reporting issues after the completion of mergers that cause a public shell company to cease being a shell company.