Nanette Heide and Michael Dunn Published in Corporate Finance Review

“Financial Statement Requirements Relating to a Merger Between a Private Operating Company and a Public Shell Company”

Nanette Heide and Michael Dunn’s article, “Financial Statement Requirements Relating to a Merger between a Private Operating Company and a Public Shell Company,” was published in the November/December issue of Corporate Finance Review. In their article, Nanette and Michael note that in late March 2007, the SEC posted some guidance on its website regarding financial statement requirements concerning mergers between private operating companies and public shell companies ("reverse mergers"). The authors lay out what steps a former shell company needs to take in order to comply with the SEC Staff’s new interpretation of the rules governing reverse mergers that were adopted in August 2005. They also explain transitional reporting issues after the completion of such mergers and the timelines for submitting such reports to the SEC.

Nanette and Michael note that since new rules were adopted in August 2005, transactions that cause a public shell company to cease being a shell company require mandatory disclosure of certain financial and business information within four days of the transaction on a Form 8-K. Usually excluded from Form 8-K are the financial statements for a fiscal period ending prior to the completion of the reported event when such financial statements were unavailable. Although the SEC permits this approach, SEC staff are now interpreting SEC rules to require supplemental disclosure of the excluded financial statements on an amendment to a Form 8-K that must be filed within 90 days of the filing of the original form. Prior to the new rules, detailed information about the business and management of the operating company wasn't required until the former public shell company filed its next annual report.