Mary Carollo: What you need to know about Form 10-K, 10-Q and 8-K

Federal corporate securities laws require that businesses disclose information periodically regarding specific financial statements. Although these statements ask for straightforward information about each company’s financial state of being, it’s common for business owners to be confused by the way in which the Security Exchange Commission (SEC) asks for this information. If you have questions about this process, be sure to speak with a securities lawyer so you can get the help you need.

If your business needs to file reports with the SEC, here are the three important forms you’ll need to be familiar with.

Form 10-K

The SEC requires that companies provide financial information in ongoing periodic statements so that these companies can be adequately monitored. The Form 10-K is an annual report, which “provides a comprehensive overview of the company’s business and financial condition,” according to the SEC. This form includes specific audited financial statements. Form 10-K must be filed within 90 days of the end of the company’s fiscal year.

Form 10-Q

Form 10-Q can be thought of as “filling in the gaps” in between filings of Form 10-K. Form 10-Q is intended to provide a continuous picture of a company’s financial standing. It must include unaudited financial statements. Form 10-Q must be filed for each of the first three quarters of the company’s fiscal year.

Form 8-K

This form is what companies file with the SEC constantly so that shareholders can see where the company is standing. Form 8-K doesn’t need to be submitted in certain time increments; instead, it needs to be submitted after “major events,” which would be of interest to shareholders. These events include, but are not limited to, declaring bankruptcy, completing an acquisition of assets, measuring operations within the company, the unregistered sale of equity securities, and several other internal operations changes.

It is essential for American businesses to understand corporate securities laws because the risks of missing a filing deadline are very high. Although these forms may seem like a complicated hassle to the businesses themselves, all of these measures are intended to protect companies, shareholders, and investors alike. It’s no surprise that the processes abiding by corporate and securities laws are complex; U.S. money market funds alone are worth around $3 trillion, and the SEC brought down a record 755 cases in 2014, totaling $4.1 billion, for violations.

If your company needs assistance with anything related to corporate law filings, it’s imperative to contact a corporate lawyer or corporate securities law firm for assistance.

ONLY 11 U.S. COMPANIES WENT PUBLIC IN 2016

“Why 2016 has been a terrible year for tech IPOs.” For reference, 43 U.S. companies had already gone public by this time last year.

So why are investors and executives alike reluctant to go public in the current market?

As recently as 2014, the IPO market was soaring; 275 IPOs were filed that year, up 23% from the 222 filed in 2013. Total IPOs hit $85 billion that year, compared to $55 billion in 2013. In fact, seven companies raised more than $1 billion in their public offerings. During these years, tech giants like Alibaba, Facebook, and Twitter went public, inspiring others to do so as well.

But the number of IPOs dropped sharply in 2015, with IPO revenues falling by about 60% and no blockbuster IPOs to speak of. So after a string of high-profile IPOs failed to meet expectations, private placement securities are looking very attractive to many companies right now. Plus, not only is there a surplus of private capital available for startups today, but tech companies have become obsessed with achieving unicorn status (a privately held company with a valuation above $1 billion).

Of course, there’s a reason unicorns are so rare. Just look at Theranos.

Theranos was once the darling of Silicon Valley. A fresh startup with an attractive young founder, high profile investors, and “disruptive” new technology. This April, the SEC launched a criminal investigation into Theranos for misleading investors, and even the best corporate and securities lawyers in the world may not be able to help the company survive.

So what can investors take away from the state of the IPO market and the Theranos debacle? Neither private placement securities nor IPOs will help a company with a lousy business model. Ultimately, the truth will come out.

For many startups looking to raise capital in 2016, private placement securities are looking like the safer bet. Many securities law firms will tell you that private placement offerings are essentially the opposite of an Initial Public Offering. Rather than offering stock to the public through an IPO, many companies will first seek to raise capital through private placement securities instead.

SEC CHARGES RENEWABLE ENERGY COMPANY, CEO, AND OTHERS WITH DEFRAUDING INVESTORS

The Securities and Exchange Commission filed fraud charges against four individuals and others who allegedly profited by defrauding investors in a cash-strapped Utah-based renewable energy company.

Patrick Carter, the founder and CEO of 808 Renewable Energy Corp. was charged along with the company, chief operating officer Peter Kirkbride, sales representatives Martin Kinchloe and Thomas Flowers, and three other firms: 808 Investments LLC, West Coast Commodities LLC, and T.A. Flowers LLC. The complaint alleges that the fraud began in 2009 and lasted at least five years, raising more than $30 million from hundreds of investors.

According to the SEC’s complaint, filed in U.S. District Court for the Central District of Utah, the defendants misled investors, falsely claiming their funds would be used to acquire new equipment and expand 808 Renewable. Instead, the complaint alleges that Carter paid millions for “consulting fees” by 808 Investments LLC, a company he owned and controlled, and diverted millions more to support his lavish lifestyle, to pay commissions to sales representatives, and to make Ponzi-like payments to investors. The SEC also alleges that in 2013 Carter falsely announced that the Utah Stock Exchange had preliminarily approved 808 Renewable’s stock for trading on the AMEX, and sold millions of his own shares to investors.

“We allege that Patrick Carter orchestrated a fraudulent scheme using 808 Renewable Energy Corporation to raise millions,” said Michele Wein Layne. “While telling investors their funds would be used for the benefit of the company, Carter and his associates looted 808 Renewable.”

The SEC’s complaint charges Carter, 808 Renewable, Kirkbride, Kinchloe, Flowers, 808 Investments, LLC, West Coast Commodities LLC and T.A. Flowers LLC with violating federal antifraud laws and related SEC rules. The SEC seeks disgorgement of allegedly ill-gotten gains plus prejudgment interest and penalties, permanent injunctive relief, and penny-stock bars against the defendants, as well as officer and director bars against Carter and Kirkbride.

Flowers and T.A. Flowers LLC have offered to settle the SEC’s action without admitting or denying the allegations against them. Under the settlement, which is subject to court approval, they will agree to full injunctive relief, disgorgement plus prejudgment interest of $1.4 million, penny-stock bars, and a $160,000 penalty assessed against Flowers.

Free Initial Consultation with a Securities Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you.