Often in an IPO, outstanding debt or preferred stock will automatically convert into common stock either upon the effective date or completion (i.e., closing) of the IPO. Such conversions typically have a significant impact on an entity’s capital structure. The conversion of securities on either the effective date or closing date of an IPO, however, cannot be reflected in the historical balance sheet. The security should instead be classified according to its nature in the historical balance sheet at such date. If the impact of the conversion results in a material reduction of earnings per share (excluding the effects of the offering), the IPO filing should include pro forma financial statements prepared under Regulation S-X Article 11 to give effect to the assumed conversion of the security on either the effective date or the closing date. This unaudited pro forma balance sheet should not give effect to the proceeds of the offering. In addition, pro forma information reflecting the change in capitalization should not be presented on the face of the audited historical financial statements.