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SEC 7050 - Reverse mergers

Publication date: 27 Feb 2024

us PwC SEC Volume 7050

[Editor's note #1: SEC 7050 focuses on the SEC reporting requirements relating to reverse acquisitions and reverse recapitalizations involving US companies. There are additional considerations if a non-US company is involved. See SEC 8100.15, 53, and 54. SEC 7050 also does not comprehensively address all issues relating to emerging growth companies (EGCs) (SEC 2170) and all of the examples contained herein assume that the entities are non-EGCs. See SEC FRM 10120.2, Example 2. Additionally, SEC 7050 does not comprehensively address issues relating to a merger structure in which a newly formed holding company acquires an operating company and a shell company, commonly referred to as a “double dummy structure.”]

[Editor’s note #2: Reverse acquisitions/recapitalizations may raise complex auditor independence issues (e.g., with respect to partner rotation requirements). SEC 7050 does not comprehensively address independence matters. Additionally, see PwC's accounting and financial reporting guide Business combinations and noncontrolling interests (BCG) for guidance on evaluating whether a transaction should be accounted for as a reverse acquisition/recapitalization. See BCG 2.3 for considerations when evaluating which combining entity is the accounting acquirer. See BCG 2.10 for guidance relating to reverse acquisitions and reverse recapitalizations.]

[Editor’s note #3: The guidance in SEC 7050 principally applies to reverse mergers where the entity that issues its equity interests (i.e., the legal acquirer) is an existing SEC registrant and the legally acquired entity (i.e., the accounting acquirer) is a private company. Additional considerations may arise for reverse merger transactions where the legal acquirer is not a US SEC registrant. For example, there can be a number of unique reporting considerations involving transactions that are "tax inversions," based upon the specific facts and circumstances.]

[Editor’s note #4: Reverse acquisitions/recapitalizations can raise questions on the adoption date of new accounting pronouncements.]

[Editor’s note #5: See Topic III.D from the March 2021 CAQ SEC Regulations Committee Meeting Highlights for a discussion of Critical Audit Matters (CAMs) requirements applicable to the registration statements prepared by a Special Purpose Acquisition Company (SPAC).]

[Editor’s note #6: On January 24, 2024, the SEC adopted amendments to its rules and forms relating to special purpose acquisition companies (SPAC), shell companies, and projections. The amendments can be found in SEC Release 33-11265, Special Purpose Acquisition Companies, Shell Companies, and Projections (SEC Release 33-11265). The amendments become effective July 1, 2024 (except for Regulation S-K 1610, which will become effective June 30, 2025). Any filings made on or after the effective date of SEC Release 33-11265 must comply with the final rules. The guidance on these topics within the SEC Volume is based on the pre-amendment rules and forms. Companies can refer to SEC Release 33-11265 and PwC In Brief No. US2024-01 for additional guidance.]

.1 General

In every business combination, one of the combining entities must be identified as the acquirer for accounting purposes. When a business combination is effected through the issuance of equity interests, the entity that issues its equity (i.e., the legal acquirer) is usually the acquirer for accounting purposes. Sometimes, however, the legal acquirer/issuer is not the acquirer for accounting purposes. A transaction in which the legal acquirer/issuer is not the accounting acquirer is commonly referred to as a reverse merger.

A reverse merger may be either a reverse acquisition or a reverse recapitalization:

- A reverse acquisition is a transaction in which a business issues its equity interests to effect the acquisition of an operating company but the legally acquired entity is treated as the acquirer for accounting purposes. A reverse acquisition is accounted for as a business combination as if the legally acquired business (commonly referred to as the accounting acquirer) had acquired the legal acquirer (commonly referred to as the issuer). See ASC 805-40 for guidance on the accounting for a reverse acquisition.

- A reverse recapitalization is a transaction in which a shell company (see definition in Exchange Act Rule 12b-2) issues its equity interests to effect the acquisition of an operating company. A reverse recapitalization is accounted for as a capital transaction equivalent to the operating company (i.e., the accounting acquirer) issuing its equity for the net assets of the shell company followed by a recapitalization. A reverse recapitalization is not accounted for as a business combination because the shell company is not a business. Since a reverse recapitalization is not accounted for as a business combination, there would not be any goodwill or other intangible assets recorded as a result of the transaction.

The key distinction between a reverse acquisition and a reverse recapitalization is that in a reverse acquisition the legal acquirer/issuer is a business and in a reverse recapitalization the legal acquirer/issuer is a shell company. References throughout this section to a "reverse merger" mean either a reverse acquisition or a reverse recapitalization, depending on the context.

Although the SEC's rules do not directly address reverse mergers, guidance on reverse mergers is available in SEC FRM Topic 12. For accounting purposes, the company that is legally acquired in the reverse merger (i.e., the accounting acquirer) is considered the continuing reporting entity. Reports filed for periods that end after the reverse merger is completed should treat the accounting acquirer as if it were the legal successor to the registrant's reporting obligations. For instance, all financial statements included in SEC filings for periods that end after the completion of the reverse merger will be those of the accounting acquirer (including comparative periods).

.2 SEC reporting requirements before a reverse merger is completed

When an acquisition will be effected through the exchange of equity interests, the legal acquirer/issuer will usually register the shares of its stock to be issued in the reverse merger using Form S-4. If the transaction requires the approval of one or more groups of shareholders, then the Form S-4 will oftentimes be combined with a proxy statement prepared pursuant to Regulation 14A.

The SEC financial reporting requirements applicable to a Form S-4/proxy statement prepared in connection with a reverse merger are generally driven by the legal form of the transaction -- not the accounting form. Accordingly, the company that will be issuing its equity interests in the transaction (i.e., the legal acquirer/issuer) is generally considered the "acquiring entity" for purposes of evaluating the disclosure requirements of the Form S-4/proxy statement. The company to be legally acquired in the reverse merger is generally considered the "acquired entity" for purposes of evaluating the disclosure requirements of the Form S-4/proxy statement. This is true even though the entity to be legally acquired will be treated as the accounting acquirer following the completion of the reverse merger. See SEC FRM 1140.7, SEC FRM 2200.1, and SEC FRM 12260. See editor’s notes below regarding SPACs.

Consider the following example:

Facts: Company A (an SEC registrant operating company) intends to issue shares of its common stock to acquire Company B (a private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A intends to file a registration statement on Form S-4 to register the shares of its common stock that will be issued in the transaction. The Form S-4 will also serve as a proxy statement in connection with the shareholder vote to be held with respect to the transaction.

Question: Is Company B considered the acquiring entity or the acquired entity in connection with the Form S-4/proxy statement?

Analysis: Company B will be treated as the acquired entity (i.e., the target) for purposes of preparing the Form S-4/proxy statement. This is true even though Company B will be treated as the accounting acquirer once the transaction has been completed. As the acquired entity/target, Company B may be able to take advantage of the accommodations provided to target companies in the rules and form instructions governing the preparation of a Form S-4/proxy statement.

[Editor's note: When available, these potential financial reporting accommodations are specific to a Form S-4/proxy statement. These accommodations should not be extended by analogy to other situations (e.g., the Form 8-K reporting the completion of the reverse merger or future annual and quarterly reports on Forms 10-K or Form 10-Q). This means that the post-consummation financial reporting requirements may be more restrictive than those that apply before the reverse merger is completed. Companies should ensure they consider the full extent of their financial reporting requirements throughout the lifecycle of the transaction to ensure that they will have all the required information. See SEC 7050.3 and SEC 7050.4 for a discussion of post-consummation reporting requirements.

The accommodations may apply differently when the legal acquirer is a public shell company. For instance, in transactions where the registrant is a SPAC, the SEC staff has stated that it considers the transaction to be equivalent to an initial public offering of the target, and that they would expect the financial statements of the target included in either a proxy statement or Form S-4 to be audited in accordance with the standards of the PCAOB. See SEC FRM 1140.5 and SEC FRM 4110.5 #6 and #3a. Additionally, the SEC staff has indicated that the private operating company’s financial statements should be presented in the S-4/merger proxy as if the transaction were the initial registration statement of the private operating company. See further discussion in the highlights from the September 2018 meeting of the CAQ SEC Regulations Committee.]

See SEC 2121 for additional information relating to the financial statement requirements of Form S-4. See also SEC FRM 10220.6 and 10220.7.

[Editor’s note: The SEC staff has indicated that it would not object if an EGC SPAC registrant that has not filed (or been required to file) its first Form 10-K provides two years of annual financial statements (and relevant interim financial statements) of a private operating company target in the Form S-4 if the private target would qualify as an EGC. This guidance is consistent with guidance provided in SEC FRM 10220.7 with respect to a proxy statement.]

[Editor’s note: There are situations where the non-reporting target in a SPAC transaction had a change in auditor during the two most recent fiscal years or any subsequent interim period. The SEC staff communicated that disclosure under S-K Item 304(a) would not be required for a non-reporting target in a proxy statement on Schedule 14A or in a combined proxy and registration statement, but the disclosure could be provided if the information was believed to be material. The disclosures set forth in S-K Item 304(b) would be required in both the proxy statement or a combined proxy and registration statement on Form S-4. See Topic III.B in the highlights of the June 2021 meeting of the CAQ SEC Regulations Committee.]

.21 Evaluating whether the accounting acquirer can use the scaled disclosure requirements applicable to a smaller reporting company in connection with a Form S-4/proxy statement

As noted above, the disclosure requirements applicable to a Form S-4/proxy statement generally follow the legal form of the transaction.

Item 17(b)(7) of Form S-4 indicates that the acquired company/target's financial statements should be those that the target would be required to include in an annual report to securities holders if it were required to prepare an annual report. The annual report requirements are set forth in Exchange Act Rule 14a-3(b)(1) and (2).

If the entity to be legally acquired (i.e., the accounting acquirer) meets the definition of a smaller reporting company set forth in S-K 10(f), then it may use the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form S-4/proxy statement. These reporting accommodations are available even if the legal acquirer/issuer is not eligible to use the smaller reporting company disclosure requirements.

If the entity to be legally acquired (i.e., the accounting acquirer) does not meet the definition of a smaller reporting company set forth in S-K 10(f), then it may not use the scaled disclosure requirements applicable to a smaller reporting company. This is true even if the legal acquirer/issuer is eligible to use the smaller reporting company disclosure requirements.

[Editor's note: Additional considerations may apply when the legal acquirer is a public shell company.]

See SEC FRM 2200.1 and .2. See also Securities Act Forms CDI 125.11.

[Editor's note: The above analysis is only applicable to a Form S-4/proxy statement. See SEC 7050.32 and SEC 7050.41 for a discussion of the accounting acquirer's ability to use scaled disclosure in connection with the Form 8-K reporting the completion of the reverse merger and the combined company's consideration of its status as a smaller reporting company after the completion of the reverse merger.]

.211 Examples

Example 1

Question: May Company B use the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form S-4/proxy statement?

Analysis: Yes. The disclosure in the Form S-4/proxy statement relating to Company B may follow the scaled disclosure requirements applicable to a smaller reporting company. This is true even though the disclosure relating to Company A may not follow the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form S-4/proxy statement. It is important to note that the analysis and conclusion may be different with respect to other reporting requirements (e.g., in connection with the Form 8-K reporting the completion of the reverse merger).

Example 2

Question: May Company B use the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form S-4/proxy statement?

Analysis: No. The disclosure in the Form S-4/proxy statement relating to Company B may not follow the scaled disclosure requirements applicable to a smaller reporting company. This is true even though the disclosure relating to Company A may follow the scaled disclosure requirements applicable to a smaller reporting company in the Form S-4/proxy statement. It is important to note that the analysis and conclusion may be different with respect to other reporting requirements (e.g., in connection with the Form 8-K reporting the completion of the reverse merger).

.22 Evaluating whether the financial statements of a private company accounting acquirer included in the Form S-4/proxy statement need to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB

Ordinarily, financial statements of a private company target included in a Form S-4/proxy statement may be audited in accordance with AICPA standards by a firm that is not registered with the PCAOB (see SEC FRM 4110.5 #6). This is because the private legal target is not considered an issuer in connection with the Form S-4/proxy statement. However, the SEC staff has stated that the financial statements of an operating company (predecessor) whose financial statements are filed by a SPAC must be audited by a PCAOB registered firm using PCAOB standards. See SEC FRM 4110.5 #6 and #3a. See Editor’s note regarding SPACs in SEC 7050.2.

[Editor's note: This analysis is applicable only to a Form S-4/proxy statement. See SEC 7050.35 and SEC 7050.481 for a discussion of whether the accounting acquirer's financial statements need to be audited in accordance with PCAOB standards by a firm registered with the PCAOB in connection with the Form 8-K reporting the completion of the reverse merger or future reporting requirements (e.g., in a future Form 10-K).]

[Editor’s note: If an operating company (predecessor), for which financial statements are filed by a SPAC, does not meet the PCAOB’s definition of an issuer, then the report on the separate financial statements of the operating company (predecessor) should refer to both PCAOB and AICPA standards (dual standards). The operating company’s (predecessor) financial statements must be audited by a firm that is registered with the PCAOB.]

Additionally, it is important to note that the audit may not be conducted in accordance with a local non-US GAAS (e.g., International Auditing Standards). This is true even if the target is a non-US entity. See SEC FRM 4210.3.

[Editor’s note: See Topic III.D from the March 2021 CAQ SEC Regulations Committee Meeting Highlights for a discussion of Critical Audit Matters (CAMs) requirements applicable to the target company’s financial statements included in a Form S-4/proxy statement prepared by a SPAC.]

.221 Example

Question: Do Company B's annual financial statements included in the Form S-4/proxy statement have to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB?

Analysis: No. Company B's financial statements provided in connection with the Form S-4/proxy statement may be audited in accordance with AICPA standards by a firm that is not registered with the PCAOB. It is also important to note that the audit may not be conducted in accordance with a local non-US GAAS (e.g., International Auditing Standards).

[Editor’s note: The example above addresses a fact pattern in which the legal acquirer is an SEC registrant operating company. The answer would have been different if Company A were a SPAC. See SEC FRM 4110.5 #6 and #3a.]

.3 SEC reporting requirements in connection with the completion of a reverse merger

[Editor's note: The guidance set forth in SEC 7050.3 and SEC 7050.4 is focused on the Form 8-K and periodic reporting requirements under the Exchange Act. If the combined company intends to file a new or amended registration statement or a proxy/information statement after the reverse merger is completed, the reporting requirements may be substantially different. See SEC FRM 12220.2d. It is not uncommon for a registrant to file a registration statement subsequent to a de-SPAC merger. The SEC staff indicated it would not object if a registrant omits the pre-merger historical financial statements of a SPAC from a post-merger Form S-1 if the de-SPAC transaction is reflected as a reverse recapitalization and the Form S-1 includes historical financial statements of the merged company for a post-merger period and pre-merger historical financial statements of the previously private operating company which have been retrospectively revised, as appropriate, for the effects of the share exchange. See Topic III.A in the highlights of the June 2021 meeting of the CAQ SEC Regulations Committee. Registrants that intend to file a post-consummation registration statement or proxy/information statement should consider contacting the SEC staff to discuss the relevant reporting requirements.]

An SEC registrant is required to report the completion of a significant business acquisition by filing a Form 8-K (under Item 2.01). This is true even if the transaction is a reverse merger.

In addition to reporting under Item 2.01, companies should also consider whether they have reporting obligations under other items of Form 8-K. For example, disclosure may also be required under:

– Item 1.01, Entry into a Material Definitive Agreement

– Item 3.02, Unregistered Sales of Equity Securities

– Item 4.01, Changes in Registrant's Certifying Accountant

– Item 5.01, Changes in Control of Registrant

– Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

– Item 5.03, Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

– Item 5.06, Change in Shell Company Status

– Item 9.01, Financial Statements and Exhibits

Registrants should consider consulting with their legal counsel regarding Form 8-K reporting requirements.

[Editor's note: In September 2011, the SEC staff issued CF Disclosure Guidance: Topic No. 1 Staff Observations in the Review of Forms 8-K Filed to Report Reverse Mergers and Similar Transactions.]

.31 Disclosure requirements under Item 2.01 of Form 8-K

All Form 8-Ks reporting the completion of a significant business acquisition must include the information specified by Item 2.01(a) through 2.01(e) of Form 8-K. Item 2.01(f) of Form 8-K includes additional disclosure requirements when the legal acquirer/issuer is a shell company. See SEC 3150.2 for a discussion of the disclosure requirements of Item 2.01 of Form 8-K.

.311 Legal acquirer/issuer is a shell company

If the legal acquirer/issuer is a shell company, then, in addition to the disclosures required by Item 2.01(a) through 2.01(e) of Form 8-K, the Form 8-K reporting the completion of the reverse merger must include all information that would be required in a registration statement on Form 10 (e.g., historical financial statements of the accounting acquirer and associated pro forma financial information, MD&A, disclosure relating to the accounting acquirer's business, legal proceedings, etc.). See SEC FRM 12220.1b. See SEC 3110 for information relating to Form 10.

[Editor's note: The SEC has indicated that it requires Form 10-level information in order to deter abuse and to provide investors with timely and complete information necessary for their investment decisions. By requiring Form 10-level disclosure, investors in an operating business that merged with a shell company will receive the same level of disclosure that they would have received if the operating business had registered under the Exchange Act (rather than reaching the same result through a reverse recapitalization). See SEC Release No. 33-8587, Use of Form S-8, Form 8-K, and Form 20-F by Shell Companies (SEC Release 33-8587). It is important to note, however, that there are some requirements applicable to a shell company reverse merger that are more stringent than the corresponding requirements that would have applied if the operating company had filed a Form 10. See, for example, SEC 7050.361.]

.312 Legal acquirer/issuer is an operating company

If the legal acquirer/issuer is an operating company, then the Form 8-K reporting the completion of the acquisition is required to include the information called for by Item 2.01(a) through 2.01(e) of Form 8-K and the historical financial statements of the accounting acquirer and the associated pro forma financial information. See SEC FRM 12220.2b.

.313 Periods to be presented in the Form 8-K

The accounting acquirer's financial statements are generally required for all periods specified by S-X 3-01 and S-X 3-02 or S-X 8-02 and S-X 8-03 (as appropriate). The level of significance does not have any impact on the number of years for which financial statements are required in the Form 8-K reporting the completion of the reverse merger. This is because, for financial reporting purposes, the accounting acquirer is considered the successor to the registrant's reporting obligations. See SEC FRM 12210.1.

[Editor’s note: The SEC staff has stated that it would not object if an EGC SPAC registrant that has not filed (or been required to file) its first Form 10-K provides two years of annual financial statements (and appropriate interim financial statements) for a private operating company in the Form 8-K reporting the completion of the acquisition if the private operating company would qualify as an EGC.]

S-X 3-06 provides that, in certain circumstances, the filing of audited financial statements for a period of nine months will satisfy the financial statement requirement for one year. S-X 3-06(a)(2) is not applicable with respect to the historical financial statements of the accounting acquirer included in the Form 8-K reporting the completion of a reverse merger. See SEC FRM 12220.2(c). S-X 3-06(a)(1) is, however, available in the case of a change in year-end.

[Editor's note: SEC FRM 12220.2(c) refers specifically to a situation in which the legal acquirer/issuer is an operating company. However, we understand that the requirements are interpreted similarly for a situation in which the legal acquirer/issuer is a shell company because the requirements of Form 10 would not permit the use of S-X 3-06(a)(2) for a company that is registering its securities on Form 10.]

.314 Examples

Example 1

Facts: Company A (a shell company, SEC registrant) acquired Company B (a private operating company) in a transaction that will be accounted for as reverse merger with Company B treated as the accounting acquirer.

Question: What disclosures about Company B will need to be included in the Item 2.01 Form 8-K reporting the completion of the reverse merger?

Analysis: The disclosures relating to Company B included in the Item 2.01 Form 8-K reporting the completion of the reverse merger must include:

- the information required by Item 2.01(a) through 2.01(e) of Form 8-K; and

- all the information that would be required if Company B were registering its securities under the Exchange Act on Form 10 (e.g., historical financial statements, pro forma financial information, MD&A, etc.).

See SEC 7050.34 regarding the due date of the Form 8-K and SEC 3110 information relating to Form 10.

Example 2

Question: What disclosures about Company B will need to be included in the Item 2.01 Form 8-K reporting the completion of the reverse merger?

Analysis: The disclosures relating to Company B included in the Item 2.01 Form 8-K reporting the completion of the reverse merger are required to include:

- the information required by Item 2.01(a) through 2.01(e) of Form 8-K; and

- the historical financial statements of Company B and the associated pro forma financial information.

See SEC 7050.34 regarding the due date of the Form 8-K.

[Editor's note: The responses in these two examples only address the disclosures required by Item 2.01 of Form 8-K. There may be additional disclosures required under other Items (e.g., Item 4.01, Item 5.03, etc.). Company A should consider consulting with its legal counsel regarding its disclosure obligations in connection with the completion of the reverse merger.]

.32 Evaluating whether the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger can follow the scaled disclosure requirements applicable to a smaller reporting company

There are a number of factors which enter into the determination as to whether the accounting acquirer may follow the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form 8-K reporting the completion of the reverse merger. The principal factors driving the analysis are whether the legal acquirer/issuer is a shell company or an operating company and whether the accounting acquirer (in the case of a legal acquirer/issuer that is a shell company) or the legal acquirer/issuer (in the case of a legal acquirer/issuer that is an operating company) meets the definition of a smaller reporting company. This means that the disclosures relating to the accounting acquirer to be filed in the Form 8-K reporting the completion of the reverse merger may be different from the disclosure requirements that were applicable to the Form S-4/proxy statement. See SEC FRM 2200.2 and Securities Act Forms CDI 125.11.

.321 Legal acquirer/issuer is a shell company

If the legal acquirer/issuer is a shell company, then the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger may follow the scaled disclosure requirements applicable to a smaller reporting company only if the accounting acquirer meets the definition of a smaller reporting company set forth in S-K 10(f). The legal acquirer/issuer's eligibility as a smaller reporting company is not a factor in this determination. This is because the Form 8-K is required to include all of the information that would be required in a registration statement on Form 10. A company registering its securities on Form 10 would only be able to use the scaled disclosure requirements applicable to a smaller reporting company if that company meets the definition of a smaller reporting company. See SEC FRM 5230.1.

[Editor's note: The combined company may be permitted to retain its status as a smaller reporting company even if the Form 8-K disclosure relating to the accounting acquirer is not permitted to follow the scaled disclosure requirements. See SEC 7050.41 and SEC FRM 5230.3. If, however, the accounting acquirer is an existing SEC registrant that is not a smaller reporting company, then the legal acquirer/issuer will no longer be a smaller reporting company at the time the acquisition is completed. See SEC FRM 5230.4.]

.322 Legal acquirer/issuer is an operating company

If the legal acquirer/issuer is an operating company, then the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger may follow the scaled disclosure requirements applicable to a smaller reporting company, if the legal acquirer/issuer meets the definition of a smaller reporting company, unless the accounting acquirer is an existing SEC registrant that is not a smaller reporting company. If the accounting acquirer is an existing SEC registrant that is not a smaller reporting company, then the legal acquirer/issuer will no longer be a smaller reporting company at the time the acquisition is completed; therefore, the disclosure included in the Form 8-K reporting the completion of the reverse merger may not follow the scaled disclosure requirements applicable to a smaller reporting company. See SEC FRM 5230.4.

.323 Flowchart for evaluating whether the accounting acquirer may use the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form 8-K reporting the completion of the reverse merger

The following flowchart may be used to assess whether the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger may follow the scaled disclosure requirements applicable to a smaller reporting company.

.324 Examples

Example 1

Facts: Company A (a shell company, SEC registrant) acquired Company B (a private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A meets the definition of a smaller reporting company. Company B does not meet the definition of a smaller reporting company.

Question: May Company B's disclosures included in the Form 8-K reporting the completion of the reverse merger follow the scaled disclosure requirements applicable to a smaller reporting company?

Analysis: No. The disclosures relating to Company B included in the Form 8-K reporting the completion of the reverse merger may not follow the scaled disclosure requirements applicable to a smaller reporting company. This is because the disclosure must be the same disclosure as if Company B were filing a registration statement on Form 10. If Company B were filing a registration statement on Form 10, it would not be permitted to use the scaled disclosure requirements applicable to a smaller reporting company because it does not meet the definition of a smaller reporting company in S-K 10(f). Even though Company B may not follow the scaled disclosure requirements applicable to a smaller reporting company in the Form 8-K reporting the completion of the reverse merger, the combined company will continue to be a smaller reporting company until its next determination date. See SEC 7050.41 and SEC FRM 5230.3.

Example 2

Facts: Company A (an operating company, SEC registrant) acquired Company B (a private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A meets the definition of a smaller reporting company. Company B does not meet the definition of a smaller reporting company.

Question: May the Company B disclosures included in the Form 8-K reporting the completion of the reverse merger follow the scaled disclosure requirements applicable to a smaller reporting company?

Analysis: Yes. The disclosures relating to Company B included in the Form 8-K reporting the completion of the reverse merger may follow the scaled disclosure requirements applicable to a smaller reporting company. This is because the disclosure requirements applicable to a private company accounting acquirer in connection with the Form 8-K filed by an operating company registrant are driven by the characteristics of the legal acquirer/issuer. See Example 3 below for a situation in which the accounting acquirer is an SEC registrant.

Example 3

Facts: Company A (an operating company, SEC registrant) acquired Company B (an SEC registrant) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A meets the definition of a smaller reporting company. Company B does not meet the definition of a smaller reporting company.

Analysis: No. The disclosures relating to Company B included in the Form 8-K reporting the completion of the reverse merger may not follow the scaled disclosure requirements applicable to a smaller reporting company. This is because the combined company loses its status as a smaller reporting company at the time of the merger because Company B is a pre-existing SEC registrant that does not meet the definition of a smaller reporting company.

.33 Age of financial statements in a Form 8-K reporting the completion of a reverse merger

If the legal acquirer/issuer is a shell company, then the age of financial statements is determined by reference to Item 13 of Form 10. If the accounting acquirer meets the definition of a smaller reporting company in S-K 10(f), then the age of the financial statements is governed by S-X 8-08. If the accounting acquirer does not meet the definition of a smaller reporting company, then the age of the financial statements is governed by S-X 3-12. See SEC 4600.

If the legal acquirer/issuer is an operating company, then the age of the financial statements is determined consistent with the guidance in SEC 3150.26.

See SEC 7050.36 for information relating to the updating requirements when there is a gap between the accounting acquirer's financial statements included in the Form 8-K reporting the completion of the reverse merger and the information that would be on file if the accounting acquirer had always been an SEC registrant.

.34 Due date of the Form 8-K reporting the completion of a reverse merger

The Form 8-K initially reporting a reverse merger must be filed within four business days after completing the reverse merger. This is true without regard to whether the legal acquirer/issuer is a shell company or an operating company.

If the legal acquirer/issuer is an operating company, then the historical financial statements and the associated pro forma financial information may be filed by an amendment to the initial Form 8-K within 71 calendar days after the initial Form 8-K due date. See SEC FRM 12220.2(b).

If the legal acquirer/issuer is a shell company, then all of the information required in a registration statement on Form 10 (including the historical financial statements and the associated pro forma financial information) must be filed within four business days after completing the reverse merger. The 71-day grace period is not available when the legal acquirer/issuer is a shell company. See Item 9.01(c) Form 8-K, SEC FRM 12220.1(b), and SEC FRM 12220.1(d).

As with any Form 8-K filing, Form 12b-25 may not be used to extend the due date of the filing. See SEC FRM 1330.3(d) and SEC FRM 5130.1.

[Editor's note: The SEC has indicated that it adopted the four-business day requirement applicable to shell companies because it believes shell companies should complete a transaction only when they can timely provide investors with adequate information to make informed investment decisions. The SEC further noted its belief that the shell company and its legal counsel generally control the pace and timing of the transaction, and that the difficulties in obtaining the acquired company's financial statements when the legal acquirer/issuer is a shell company are not as severe as when the legal acquirer/issuer is an operating company. See SEC Release 33-8587.]

.341 Flowchart for evaluating the due date of the Form 8-K reporting the completion of the reverse merger

The following flowchart may be used to evaluate the due date of the Form 8-K reporting the completion of the reverse merger.

.342 Examples

Example 1

Facts: On October 2, 2023, Company A (an operating company, SEC registrant) acquired Company B (a private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: When is the Form 8-K reporting the completion of the reverse merger due?

Analysis: The Form 8-K reporting the completion of the reverse merger must be filed no later than October 6, 2023 (the fourth business day after completion of the reverse merger). Company A (i.e., the combined company) may make use of the 71-calendar day grace period for filing Company B's historical financial statements and the associated pro forma financial information because Company A was an operating company. Accordingly, Company A does not need to file Company B's historical financial statements and the associated pro forma financial information for purposes of complying with the requirements of Items 2.01 and 9.01 of Form 8-K until December 18, 2023 (because December 16, 2023—the 71st day after October 6, 2023 – is a Saturday).

Example 2

Facts: On October 2, 2023, Company A (a shell company, SEC registrant) acquired Company B (a private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: When is the Form 8-K reporting the completion of the reverse merger due?

Analysis: The Form 8-K reporting the completion of the reverse merger must be filed no later than October 6, 2023 (the fourth business day after completion of the reverse merger). The 71-calendar day grace period is not available because Company A was a shell company. Accordingly, all of the information required by Form 10 (including Company B's historical financial statements, the associated pro forma financial information, MD&A, etc.) would need to be filed by October 6, 2023.

.35 Evaluating whether the accounting acquirer's financial statements included in the Form 8-K reporting the completion of the reverse merger need to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB

[Editor's note: This section does not address auditor independence requirements.]

If the legal acquirer/issuer is a shell company, then the audited financial statements of the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger must be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB. This is because the disclosure relating to the accounting acquirer must be the same as if the accounting acquirer were registering its securities on Form 10. If the accounting acquirer does not meet the PCAOB's definition of an issuer then the report on the separate financial statements of the accounting acquirer should refer to dual standards (both PCAOB and AICPA standards). See SEC FRM 12250.1a and SEC FRM 4110.5 #3a and #3b.

If the legal acquirer/issuer is an operating company, then the private operating company accounting acquirer's financial statements included in the Form 8-K reporting the completion of the reverse merger do not need to be audited in accordance with PCAOB standards or by a firm that is registered with the PCAOB. See SEC FRM 12250.2b and SEC FRM 4110.5 #3c. This is because the disclosure requirements are driven by compliance with S-X 3-05 (if the legal acquirer/issuer does not meet the definition of a smaller reporting company) or S-X 8-04 (if the legal acquirer/issuer meets the definition of a smaller reporting company). The audit of financial statements provided for a private operating company under S-X 3-05 or S-X 8-04 may be performed under AICPA standards and may be performed by an auditor that is not registered with the PCAOB. It is important to note that this conclusion applies only to the Form 8-K reporting the completion of the reverse merger. See SEC 7050.481 for information relating to the audit requirements in connection with the reissuance of those financial statements (e.g., in a subsequent Form 10-K). Additionally, different considerations may apply in connection with a post-consummation registration statement. See the Editor’s note to SEC 7050.4

.351 Examples

Example 1

Question: Do Company B's financial statements included in the Form 8-K reporting the completion of the reverse merger need to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB?

Analysis: No. The financial statements of Company B included in the Form 8-K reporting the completion of the reverse merger may be audited in accordance with AICPA standards by a firm that is not registered with the PCAOB (see FRM 4110.5 #3c). See SEC 7050.481 for information relating to the audit requirements in connection with the reissuance of those financial statements (e.g., in a subsequent Form 10-K).

Example 2

Analysis: Yes. The financial statements of Company B included in the Form 8-K reporting the completion of the reverse merger must be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB (see SEC FRM 4110.5 #3a and #3b). This is because the information included in the Form 8-K is required to be the same information that would be included in a Form 10. Since the accounting acquirer does not meet the PCAOB’s definition of an issuer, then the report on the separate financial statements of the accounting acquirer should refer to dual standards (both PCAOB and AICPA standards).

.36 Requirements to update the information of the accounting acquirer to avoid a gap in reporting

In many cases, the age of financial statements requirements described in SEC 7050.33 will lead to a situation in which the information filed in the Form 8-K reporting the completion of the reverse merger does not include the accounting acquirer's information (e.g., financial statements) for its most recently completed fiscal quarter-end or year-end that preceded the completion of the reverse merger. This potential gap in reporting is addressed by filing an amended Form 8-K with the relevant information of the accounting acquirer for the fiscal quarter-end or year-end immediately preceding the completion of the reverse merger.

[Editor's note: The interpretive guidance regarding the requirement to avoid the gap in historical financial reporting is set forth in SEC FRM 12220.1c. That section specifically addresses a situation in which the legal acquirer/issuer is a shell company. We understand that the requirement to eliminate the gap in historical reporting is interpreted similarly when the legal acquirer/issuer is an operating company.]

.361 Due date of the updated information relating to the accounting acquirer

If the accounting acquirer is an existing SEC registrant, then the information relating to the accounting acquirer for the most recent fiscal quarter-end or year-end immediately preceding the completion of the reverse merger should be filed by the later of (i) the date that the initial Form 8-K reporting the completion of the reverse merger is filed (i.e., no later than the fourth business day after consummation) or (ii) the same time the accounting acquirer is required to file its periodic report for that same period. This is true whether the legal acquirer/issuer is a shell company or an operating company.

[Editor's note: In the case of a legal acquirer/issuer that is an operating company, this could lead to a situation in which the historical financial statements of the accounting acquirer are required to be filed by the combined company before the due date of the pro forma financial information depicting the combined company (i.e., when the combined company makes use of the 71-calendar day grace period). In this instance, we understand that the SEC staff would not object to the fact that the historical financial statements of the accounting acquirer are filed before the related pro forma information, even though SEC FRM 3110.4 states that "[p]resentation of the acquiree's financial statements without accompanying pro forma information can be misleading…."].

If the legal acquirer/issuer is a shell company and the accounting acquirer is a private operating company, then the accounting acquirer's financial statements for its most recent pre-transaction quarter-end or year-end would be required to be filed within the following number of days after the end of that fiscal quarter/year:

The updated information would need to include all of the disclosures required by Form 10-Q or Form 10-K (as appropriate). See SEC FRM 12220.1c.

[Editor's note: Insofar as it relates to the requirement to update for an annual period, the model referred to above is consistent with the requirements that would apply to an operating company that had become an SEC reporting company by filing a Form 10. (See Exchange Act Rule 13a-1.) However, as it relates to the requirement to update for a quarterly period, the model referred to above is more restrictive than the corresponding requirements that would apply to an operating company that had become an SEC reporting company by filing a Form 10. See Exchange Act Rule 13a-13. We understand that this is because the SEC believes that a shell company should complete a transaction only when it can timely provide investors with adequate information to make informed investment decisions.]

If the legal acquirer/issuer is an operating company and the accounting acquirer is a private operating company, then we understand the accounting acquirer's financial statements for the most recent pre-transaction quarter-end or year-end would be required to be filed within the following number of days after the completion of the reverse merger:

[Editor's note: It is possible that this timetable could require that financial statements for a more recent period are due before the date that financial statements for an earlier period are required to be on file (i.e., due to the 71-calendar day grace period). If that is the case, then, absent other considerations (e.g., change in fiscal year-end described below), we understand that the SEC staff will not object if the financial statements for the later period are filed at the same time as the financial statements for the earlier period. Companies should consider whether the earlier period financial statements are on file (e.g., as a part of a Form S-4/proxy statement). Companies with questions in this area should consider contacting the SEC staff.]

Absent special circumstances (e.g., in certain change in year-end situations), the updating requirement when the legal acquirer/issuer is an operating company is limited to the historical financial statements (e.g., not all of the disclosure that would be required in a Form 10-K or Form 10-Q, as would be the case if the legal acquirer/issuer were a shell company).

.362 Flowchart for determining the due date of the "gap filling" Form 8-K

The following flowchart may be used to determine the due date of the "gap filling" Form 8-K to be filed when the Form 8-K reporting the completion of the reverse merger does not include the accounting acquirer's information (e.g., financial statements) for its most recently completed fiscal quarter-end or year-end that preceded the completion of the reverse merger.

.363 Examples

Example 1

Facts: On October 2, 2023, Company A (a calendar year-end, non-accelerated filer, operating company, SEC registrant) acquired Company B (a calendar year-end, private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A filed its Form 8-K reporting the completion of the reverse merger on October 6, 2023 (the fourth business day after the completion of the reverse merger). Neither Company A nor Company B is a smaller reporting company.

Question: What information relating to Company B must be filed in connection with the Form 8-K reporting the completion of the reverse merger?

Analysis: The age of financial statement requirements would be assessed using October 6, 2023 as the reference date. Based on that date, the financial statements to be included in the Form 8-K reporting the completion of the reverse merger would be:

– audited financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022, and

– unaudited interim financial statements as of June 30, 2023 and for the six-month periods ended June 30, 2023 and 2022.

Because the reverse merger was completed after September 30, 2023, Company A's Form 10-Q for the quarter ended September 30, 2023 will include Company A's pre-consummation financial statements -- not Company B's financial statements. Accordingly, the first periodic report (e.g., Form 10-K/Form 10-Q) required to include Company B's historical financial statements will be the combined company's Form 10-K for the year ended December 31, 2023. This would result in a gap in reporting with respect to Company B's financial statements (because Company B's financial statements as of September 30, 2023 and for the nine-month periods ended September 30, 2023 and 2022 would not be separately reported).

In order to avoid a gap in Company B's historical financial statements, Company A would be required to amend its Form 8-K to include Company B's historical financial statements as of September 30, 2023 and for the nine-month periods ended September 30, 2023 and 2022. Ordinarily, these financial statements must be filed no later than November 16, 2023 (the 45th day after the completion of the reverse merger). However, if Company B's financial statements as of December 31, 2022 and 2021, and for each of the three years in the period ended December 31, 2022, have not yet been filed (e.g., because of the 71-day grace period), then we understand the SEC staff will permit Company B to file its September 30, 2023 and 2022 financial statements at the same time as the audited financial statements for the three years ended December 31, 2022.

If Company B's financial statements for the three years ended December 31, 2022 had previously been filed, then the amended Form 8-K would only be required to include the September 30, 2023 and 2022 unaudited financial statements. There would be no requirement to provide all of the information required in a Form 10-Q, nor would there be any requirement to update the pro forma financial information beyond those called for as of the original Form 8-K filing date.

Example 2

Facts: On October 2, 2023, Company A (a calendar year-end, non-accelerated filer, shell company, SEC registrant) acquired Company B (a calendar year-end, private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A filed its Form 8-K reporting the completion of the reverse merger on October 6, 2023 (the fourth business day after the completion of the reverse merger). Neither Company A nor Company B is a smaller reporting company.

Question: What information relating to Company B must be filed in connection with the Form 8-K reporting the completion of the reverse merger?

Analysis: The age of financial statements requirements would be assessed using October 6, 2023 as the reference date. Based on that date, the financial statements to be included in the Form 8-K reporting the completion of the reverse merger would be:

– audited financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022, and

– unaudited interim financial statements as of June 30, 2023 and for the six-month periods ended June 30, 2023 and 2022.

Those financial statements (together with all other information that would be required in a Form 10) must be filed by October 6, 2023. The 71-day grace period is not available because Company A was a shell company.

Because the reverse merger was completed after September 30, 2023, Company A's Form 10-Q for the quarter ended September 30, 2023 will include Company A's pre-consummation information -- not Company B's information. Accordingly, the first periodic report (e.g., Form 10-K/Form 10-Q) required to include Company B's historical financial statements will be the combined company's Form 10-K for the year ended December 31, 2023. This would result in a gap in reporting with respect to Company B's information (because Company B's information as of September 30, 2023 and for the nine-month periods ended September 30, 2023 and 2022 would not be separately reported).

In order to avoid this gap in Company B's information, Company A would be required to amend its Form 8-K to include all of the information required to be included in Form 10-Q (including Company B's historical financial information as of September 30, 2023 and for the three- and nine-month periods ended September 30, 2023 and 2022 and the associated MD&A). This information must be filed no later than November 16, 2023.

.4 Other post-consummation reporting requirements

.41 Smaller reporting company status following a reverse merger

The completion of a reverse merger with an accounting acquirer that is a private operating company generally does not trigger a requirement to reassess the registrant's smaller reporting company status. If the legal acquirer/issuer is a smaller reporting company (as defined in S-K 10(f)), then it will generally retain that status until its next determination date. This is true even if the Form 8-K reporting the completion of the reverse merger did not use scaled disclosure because the legal acquirer/issuer was a shell company and the accounting acquirer does not meet the definition of a smaller reporting company.

If, however, the accounting acquirer was an existing SEC registrant that was not a smaller reporting company, then the combined company will not be a smaller reporting company once the reverse merger is complete. See SEC FRM 5230.2 through SEC FRM 5230.4.

[Editor's note: The analysis to determine the combined company's post-consummation smaller reporting company status is similar but not identical to the analysis to determine whether the information relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger may follow the scaled disclosure requirements applicable to a smaller reporting company. See SEC 7050.32.]

.411 Flowchart for evaluating smaller reporting company status following a reverse merger

The following flowchart may be used to evaluate the post-consummation smaller reporting company status of the combined company:

.412 Examples

Example 1

Facts: On October 2, 2023, Company A (a shell company, SEC registrant that is a smaller reporting company) acquired Company B (a private operating company that does not meet the definition of a smaller reporting company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: What is the combined company's post-consummation smaller reporting company status?

Analysis: The combined company will retain its status as a smaller reporting company until the next determination date. The combined company is not required to assume Company B's status (i.e., not a smaller reporting company) because Company B was a private company. This is true even though the Form 8-K reporting the completion of the reverse merger cannot be prepared using the scaled disclosure requirements applicable to smaller reporting companies. See SEC 7050.32 for guidance on determining whether the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger can follow the scaled disclosure requirements applicable to a smaller reporting company.

Example 2

Facts: On October 2, 2023, Company A (an operating company, SEC registrant that is a smaller reporting company) acquired Company B (an SEC registrant that does not meet the definition of a smaller reporting company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: What is the combined company's post-consummation smaller reporting company status?

Analysis: The combined company is required to assume Company B's status (i.e., not a smaller reporting company) because Company B was an existing SEC registrant and was not a smaller reporting company. Accordingly, the combined company ceased being a smaller reporting company at the date of the reverse merger. Additionally, the Form 8-K reporting the completion of the reverse merger cannot be prepared using the scaled disclosure requirements applicable to smaller reporting companies. See SEC 7050.32 for guidance on determining whether the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger can follow the scaled disclosure requirements applicable to a smaller reporting company.

Example 3

Facts: On October 2, 2023, Company A (an operating company, SEC registrant that is not a smaller reporting company) acquired Company B (an SEC registrant that meets the definition of a smaller reporting company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: What is the combined company's post-consummation smaller reporting company status?

Analysis: The combined company would retain Company A's status (i.e., not a smaller reporting company). Accordingly, the combined company does not meet the definition of a smaller reporting company. This is true even though Company B was an existing SEC registrant. The combined company's post-consummation smaller reporting company status only changes when the accounting acquirer was an existing SEC registrant and it was not a smaller reporting company.

.42 Accelerated filer status following a reverse merger

We understand that the completion of a reverse merger does not trigger a requirement to reassess the registrant's accelerated filer status. Accordingly, an SEC registrant legal acquirer/issuer will retain its accelerated filer status until its next determination date. This is true even if the accounting acquirer was an existing SEC registrant and its accelerated filer status was more restrictive than the legal acquirer/issuer's accelerated filer status.

[Editor's note: The model used for determining post-consummation accelerated filer status is different from the model used for evaluating post-consummation smaller reporting company status.]

.421 Examples

Example 1

Facts: On October 2, 2023, Company A (an operating company, SEC registrant that is a non-accelerated filer) acquired Company B (an SEC registrant that is an accelerated filer) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: What is the combined company's post-consummation accelerated filer status?

Analysis: The combined company retains the legal acquirer/issuer's accelerated filer status. Accordingly, the combined company will remain a non-accelerated filer until its next determination date.

Example 2

Facts: On October 2, 2023, Company A (an operating company, SEC registrant that is an accelerated filer) acquired Company B (an SEC registrant that is a non-accelerated filer) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: What is the combined company's post-consummation accelerated filer status?

Analysis: The combined company retains the legal acquirer/issuer's accelerated filer status. Accordingly, the combined company will remain an accelerated filer until its next determination date.

.43 Periodic reports for periods that end before the reverse merger is completed

The legal acquirer/issuer must file all periodic reports as they become due for periods that ended before the completion of the reverse merger. This is true even if the reverse merger is completed and the accounting acquirer's historical financial statements are filed before the due date of the periodic report. If the reverse merger is completed before the periodic report is filed, the registrant should consider providing subsequent events disclosure. See SEC FRM 12210.2 and SEC FRM 12240.3.

Similarly, if the accounting acquirer was an existing SEC reporting company, it also must file all periodic reports for periods that ended before the reverse merger was completed in order to avoid a lapse in reporting. This is true even if the accounting acquirer would have been eligible to file a Form 15. See SEC FRM 12240.3 and SEC FRM 12240.4.

.431 Example

Facts: On October 23, 2023, Company A (a calendar year-end, SEC registrant) acquired Company B (also a calendar year-end SEC registrant) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: Must Company A and Company B file their separate Form 10-Q filings for the quarterly period ended September 30, 2023?

Analysis: Yes. Since the reverse merger was completed after September 30, 2023, Company A and Company B must each file their separate Form 10-Q filings for the quarterly period ended September 30, 2023. This is true even if Company A files the Form 8-K reporting the completion of the reverse merger together with Company B's historical financial statements (and the associated pro forma financial information) before the due date of Company A's and Company B's September 30, 2023 10-Q filings. Company A's September 30, 2023 Form 10-Q will include Company A's pre-consummation historical financial statements (i.e., the information will not reflect the operations of Company B). Company B's September 30, 2023 Form 10-Q will include Company B's pre-consummation historical financial statements. Both companies should consider including a subsequent events footnote describing the transaction.

.44 Significance testing for business acquisitions and dispositions which take place after the completion of a reverse merger

The SEC staff’s pre-existing guidance with respect to significance testing following the completion of a reverse merger is contained in SEC FRM 2025.7 (with respect to a reverse acquisition) and SEC FRM 2025.8 (with respect to a reverse recapitalization of a legal target).

[Editor's note: This guidance was issued prior to the adoption of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Questions regarding continued applicability should be addressed to the SEC staff.]

.45 Reporting on internal control over financial reporting

The Form 10-K of an SEC registrant that does not meet the definition of a "newly public company" (as defined in Instruction 1 to S-K 308) must include management's report on internal control over financial reporting. Additionally, an SEC registrant that is either an accelerated filer or a large accelerated filer (as defined in Exchange Act Rule 12b-2), but is not an emerging growth company, must include the report of an independent registered public accounting firm on the effectiveness of internal control over financial reporting.

[Editor's note: The evaluation of whether a company is a "newly public company" generally follows the legal characteristics of the transaction. For instance, the completion of a reverse merger between an SEC registrant (legal issuer) that is not a newly public company and a private company (accounting acquirer) does not mean the combined company becomes a newly public company. This is true even though the financial statements included in the Form 10-K are those of the previously private company. This analysis is consistent with the model for evaluating the combined company's post-consummation accelerated filer status.]

Both management's and the auditor's conclusions with respect to the effectiveness of internal control over financial reporting are expressed as of the end of the period covered by the Form 10-K (i.e., the end of the latest fiscal year or the end of the transition period in the case of a change in fiscal year-end). As a general matter, both management's and the auditor's conclusions regarding the effectiveness of internal control over financial reporting should encompass the controls at all consolidated entities. However, in FAQ 3 of Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (Frequently Asked Questions) (revised 9/24/2007), the SEC staff recognized that it might not be possible to conduct an assessment of an acquired business's internal controls in the year in which the acquisition takes place. When that is the case, the SEC staff permits management and the auditor to exclude the internal controls of the acquired company from their respective internal control assessments.

The SEC staff has stated that the guidance in FAQ 3 does not specifically apply to reverse mergers. However, similar to "standard" acquisitions (i.e., when the legal acquirer is also the accounting acquirer), the SEC staff has acknowledged that it might not always be possible for management and the auditor to conduct an assessment of a private company accounting acquirer’s internal control over financial reporting in the period between the date a reverse merger is completed and the date of management’s assessment of internal control over financial reporting. If that is the case, the SEC staff may permit the combined company to exclude the controls of the accounting acquirer (e.g., a legal-acquiree private company) in the year of the acquisition.

We understand that internal control over financial reporting is generally evaluated in connection with a reverse merger in accordance with the legal characteristics (not the accounting form) of the transaction. For instance, in a reverse merger between an SEC registrant operating company (legal issuer) and a private operating company (accounting acquirer), the accounting acquirer is the legally acquired company and, accordingly, when considering the internal control reporting for the combined company, it is the controls of the private operating company (legal acquiree/accounting acquirer) that might be considered for exclusion from management's and, if required, the auditor's internal control assessments for the year in which the reverse merger is completed. In light of the legal and reporting complexities involved, companies should consider contacting the SEC staff to discuss their facts and circumstances.

[Editor’s note: The evaluation of the internal control over financial reporting requirements in connection with a reverse merger is a complex matter that requires a thorough analysis of the legal characteristics of the transaction and the surrounding facts and circumstances. For instance, the evaluation described in the preceding paragraph might have been different if the legal acquirer were an operating company that is not a pre-existing SEC registrant and the accounting acquirer were an operating company that is an SEC registrant. In that fact pattern, the transaction might have been treated as a “succession” under Exchange Act Rule 12g-3 (and the legal acquirer might also “succeed” to the accounting acquirer’s accelerated filer status and might be permitted to take into account the accounting acquirer’s reporting history for purposes of determining eligibility to use Form S-3). In that case, the SEC staff might permit the combined company to exclude the controls of the legal acquirer from the combined company’s internal control reporting in the year of the reverse merger. Given the complex nature of the analysis, companies should consider contacting the SEC staff to discuss their specific facts and circumstances.]

When the legal acquirer/issuer is a pre-existing SEC registrant-shell company and the accounting acquirer is a private operating company, the SEC staff recognizes that the internal controls of the legal acquirer/issuer may no longer exist as of the assessment date or the assets, liabilities, and operations of the legal acquirer/issuer may be insignificant when compared to the consolidated entity. In this instance, the SEC staff would not object if the surviving issuer (i.e., the combined entity) were to exclude management’s assessment of internal control over financial reporting in the Form 10-K covering the fiscal year in which the reverse merger was consummated. In lieu of management’s assessment of internal control, the issuer should disclose why management’s assessment has not been included in the report, specifically addressing the effect of the transaction on management’s ability to conduct an assessment and the scope of the assessment if one were to be conducted. See Regulation S-K CDI 215.02.

[Editor's note: The potential to exclude management's and the auditor's internal control reports is specific to a situation in which the legal acquirer/issuer is a pre-existing SEC registrant-shell company and the accounting acquirer is a private operating company. As discussed in the preceding Editor’s note, the legal characteristics of the transaction will weigh heavily into the evaluation of the internal control reporting requirements. For instance, if the legal acquirer/issuer is a shell company that is not a pre-existing SEC registrant and the accounting acquirer is an SEC registrant operating company, the transaction may be considered a “succession” under Exchange Act Rule 12g-3 and the internal controls of the legal acquirer/issuer might be considered for exclusion from the internal control reporting in the year in which the reverse merger is consummated.]

Even if management's report is excluded from the Form 10-K under the circumstances described above, the CEO/CFO Section 302 certifications must include the internal control over financial reporting language in the introductory portion of paragraph 4 as well as paragraph 4(b) because the issuer is subject to Section 404(a) of the Sarbanes-Oxley Act. In other words, the certification should include the entirety of Item 4 set forth in S-K 601(31) (including 4a through 4d).

The SEC staff has indicated that when the reverse merger is completed shortly after year-end and the combined company is required to file an amended Form 8-K to file the audited financial statements of the accounting acquirer for its most recent year-end, then that amended Form 8-K is considered equivalent to the first annual report subsequent to the completion of the transaction. Accordingly, future annual reports should not exclude management’s report on internal control over financial reporting.

See Regulation S-K CDI 215.02.

[Editor's note: It is not clear whether the requirement to treat the updated Form 8-K as the equivalent of the "first annual report subsequent to the transaction" was intended to apply only to a situation in which the legal acquirer/issuer is a pre-existing SEC registrant-shell company, or whether it also was intended to apply to an operating company. Registrants should consider discussing their specific facts and circumstances directly with the SEC staff.]

.451 Examples

Example 1

Facts: Company A (a calendar year-end, large accelerated filer, operating company, SEC registrant) acquires Company B (a calendar year-end, private, operating company) on October 2, 2023 in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Question: May Company A (i.e., the combined company) omit management's assessment of internal control over financial reporting (and the associated auditor's report) in connection with its Form 10-K for the year ended December 31, 2023?

Analysis: We understand that the SEC staff would expect the combined company's Form 10-K for the year ended December 31, 2023 to include management's assessment of internal control over financial reporting and the associated auditor's report. The "as of date" for both reports will be December 31, 2023. However, if it is not possible to conduct an assessment of Company B's internal control as of December 31, 2023, then, similar to the relief provided in connection with a "standard" acquisition, the SEC staff might permit management and the auditor to exclude Company B's internal controls from their internal control assessments. This is true even though the financial statements included in the 2023 Form 10-K are those of Company B, with Company A treated as the acquired company. Additionally, the combined company is not considered a "newly public company."

[Editor's note: Company A should consider contacting the SEC staff to discuss its specific facts and circumstances.]

Example 2

Facts: Company A (a calendar year-end, large accelerated filer, SEC registrant shell company) acquires Company B (a calendar year-end, private operating company) on October 2, 2023. The transaction will be accounted for as a reverse merger with Company B treated as the accounting acquirer.

Analysis: Perhaps. Ordinarily, the combined company's Form 10-K for the year ended December 31, 2023 would need to include management's assessment of internal control over financial reporting and the associated auditor's report. The "as of date" for both reports would be December 31, 2023. However, if it is not possible to conduct an assessment of Company B's internal control as of December 31, 2023, then the SEC staff may permit management and the auditor to exclude Company B's internal controls from their internal control assessments.

Additionally, as described in Regulation S-K CDI 215.02, if the internal controls of Company A no longer exist as of December 31, 2023, or the assets, liabilities, and operations of Company A are insignificant when compared to the combined company, then the SEC staff would not object if the combined company were to exclude management’s assessment of internal control over financial reporting and the associated auditor's report in their entirety from the December 31, 2023 Form 10-K. In that case, Company A should disclose why management’s assessment and the associated auditor's report have been omitted, specifically addressing the effect of the transaction on management’s ability to conduct an assessment and the scope of the assessment if one were to be conducted.

If the reverse merger had been completed between January 1, 2024 and February 14, 2024, and the Form 8-K filed to report the completion of the acquisition did not include Company B's audited financial statements for the year ended December 31, 2023, then the Form 10-K for the year ended December 31, 2023 would need to include management's report on internal control over financial reporting and the associated auditor's report. This is because the amended ("gap filling") Form 8-K filed with Company B's financial statements for the year ended December 31, 2023 would be considered the equivalent of the combined company's first annual report subsequent to the transaction. This is true even though the financial statements included in the amended Form 8-K are Company B's pre-acquisition financial statements.

.46 Changes in auditor

A reverse merger always results in a change in auditor, unless the same auditor reported on the most recent financial statements of both the legal acquirer/issuer and the accounting acquirer.

The Form 8-K filed to report the completion of the reverse merger should include (under Item 4.01) the relevant auditor change disclosures required by S-K 304. The auditor that will no longer be associated with the registrant’s financial statements is treated as the predecessor auditor. If a decision as to which firm will be the continuing auditor has not been made at the time the initial Form 8-K reporting the completion of the acquisition is filed, then a separate Item 4.01 Form 8-K must be filed no later than four business days after the date that the decision is made. See SEC FRM 4520.3a. The registrant should consider indicating that a decision has not been made in the initial Form 8-K reporting the completion of the reverse merger.

In addition, the relevant disclosures required by S-K 304 must be made with respect to any changes in the accounting acquirer’s auditor which occurred during the accounting acquirer's two most recently completed fiscal years or in any subsequent period up to the date of the reverse merger. Those disclosures must be included in the first filing containing the accounting acquirer’s financial statements. This disclosure is in addition to the disclosures in the Item 4.01 Form 8-K. See SEC FRM 4520.3(b).

.461 Example

Facts: On October 2, 2023, Company A (a calendar year-end, accelerated filer, SEC registrant) acquires Company B (a calendar year-end, private operating company) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Company A's auditor is CPA X. Company B's auditor is CPA Y. At the time of completing the reverse merger, the company has determined that CPA Y will be the auditor of the combined company.

Question: How should Company A disclose the decision to retain CPA Y?

Analysis: The Form 8-K reporting the completion of the reverse merger should include (under Item 4.01) the relevant disclosures required by S-K 304 treating CPA X as the predecessor auditor. Additionally, if Company B had changed auditors at any time during the two years ended December 31, 2022, or during the subsequent period through October 2, 2023, then the first filing containing Company B's financial statements must also include the relevant disclosures required by S-K 304 with respect to that change.

If a decision as to the combined company's auditor had not been made at the date of filing the Form 8-K reporting the completion of the reverse merger, then a separate Item 4.01 Form 8-K would need to be filed within four business days after the decision is made. If this were the case, Company A should consider indicating that a decision as to which firm will be the continuing auditor has not been made in the Form 8-K reporting the completion of the reverse merger.

.47 Differences in fiscal year-end between the legal acquirer/issuer and the accounting acquirer

There are important financial reporting considerations whenever the legal acquirer/issuer and the accounting acquirer have different fiscal year-ends. The financial reporting requirements differ based on whether the combined company adopts the fiscal year-end of the legal acquirer/issuer or the fiscal year-end of the accounting acquirer.

.471 Combined company changes to the fiscal year-end of the accounting acquirer

If the legal acquirer/issuer changes its fiscal year-end to conform to the fiscal year-end used by the accounting acquirer, then the Form 8-K filed in connection with the completion of the reverse merger should disclose the change in the legal acquirer/issuer's fiscal year-end under Item 5.03. There would not be any specific transition report required.

.4711 Example

Facts: On October 2, 2023, Company A (a calendar year-end, large accelerated filer, operating company, SEC registrant) acquired Company B (a private operating company with a May 31 fiscal year-end) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Neither company is a smaller reporting company. The combined company has decided to use May 31 (Company B's fiscal year-end) as its fiscal year-end.

Question: What are Company A's (i.e., the combined company's) financial reporting requirements for the remainder of 2023 and 2024?

Analysis: Company A's financial reporting requirements for the remainder of 2023 and 2024 would be as follows:

Company A would file a Form 8-K reporting the completion of the reverse merger.

– The Form 8-K would be filed no later than October 6, 2023 (the fourth business day after the completion of the reverse merger).

– The Form 8-K would report the change in the registrant's fiscal year-end (from December 31 to May 31) under Item 5.03.

– The reference date for assessing the age of Company B's financial statements to be included in the Form 8-K is determined as of October 6, 2023. Based on the reference date of October 6, 2023, the Form 8-K would need to include Company B's audited financial statements as of May 31, 2023 and 2022, and for each of the three years in the period ended May 31, 2023 (but no interim financial statements would be required in the Form 8-K reporting the completion of the reverse merger because of the SEC's age of financial statements requirements).

– Company A may include Company B's historical financial statements (and the associated pro forma financial information) in the Form 8-K filed by October 6, 2023, or Company A may file Company B's financial statements (and the associated pro forma financial information) in an amended Form 8-K no later than December 18, 2023 (because December 16, 2023 --the 71st calendar day after October 6, 2023-- is a Saturday).

2.Company A would file its September 30, 2023 Form 10-Q.

– The financial statements included in the Form 10-Q would be Company A's pre-consummation financial statements.

– The Form 10-Q would be filed no later than November 9, 2023.

– The Form 10-Q must be filed even though the acquisition was completed before the date the Form 10-Q was due. The Form 10-Q would need to be filed even if Company A had filed Company B's financial statements in the Form 8-K reporting the completion of the reverse merger before the due date of the Form 10-Q.

3. Company A would file Company B's unaudited financial statements as of August 31, 2023 and for the three-month periods ended August 31, 2023 and 2022 as an amendment to the Form 8-K.

– These financial statements ordinarily must be filed in an amended Form 8-K. See SEC FRM 12240.4 for information regarding the due date for any pre-consummation financial statements of the accounting acquirer that are not included in the Form 8-K reporting the completion of the reverse merger (e.g., due to the SEC's age of financial statements requirements). Registrants may wish to consider contacting the SEC staff with questions.

4. The combined company would file November 30, 2023 and February 29, 2024 Forms 10-Q, a May 31, 2024 Form 10-K, and subsequent periodic reports in the ordinary course.

.472 Combined company retains the fiscal year-end of the legal acquirer/issuer

If the combined company retains the fiscal year-end of the legal acquirer/issuer, then the combined company would file a transition report covering the transition period from the accounting acquirer's most recently completed fiscal year-end required to be included in the Form 8-K reporting the completion of the reverse merger to the date that corresponds with the next succeeding year-end of the legal acquirer/issuer (which may be a period that has already been filed).

If the transition period is six months or longer, then the transition report would be filed on Form 10-K (including audited financial statements). If the transition period is more than one month but less than six months, then the transition report may be filed on Form 10-Q (including unaudited financial statements) or Form 10-K (including audited financial statements). No transition report is required for a transition period of one month or less (although the transition period financial statements would be required to be separately stated ‒ and audited ‒ in a subsequent Form 10-K). The transition reporting would follow the same basic principles as any other change in year-end.

The transition report would need to be filed within the following number of days after the later of (i) the consummation date of the reverse acquisition or (ii) the close of the transition period.

See SEC 3185 for additional information on the requirements applicable to transition reports.

[Editor's note: When the legal acquirer/issuer is an operating company, the disclosure relating to the accounting acquirer that will be required in a transition report is more extensive than the disclosure that would otherwise have been required for the same periods included in the Form 8-K reporting the completion of the reverse merger (e.g., MD&A is required in a transition report, but not in the Form 8-K reporting the completion of the reverse merger when the legal acquirer/issuer was an operating company).]

If the end of the transition period is a date which has already passed, then there is no need to file separate quarterly reports during the transition period. If, however, the end of the transition period is a future date, then there may be a requirement to file interim financial information during the transition period. As with any change in year-end, the registrant may choose whether to file quarterly information during the transition period based on the new fiscal quarter structure or based upon the old structure. See Example 2 below.

.4721 Examples

Example 1

Facts: On October 2, 2023, Company A (a large accelerated filer, SEC registrant, operating company with a May 31 year-end) acquired Company B (a private company with a calendar year-end) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Neither company is a smaller reporting company. The combined company has decided to retain Company A's May 31 fiscal year-end.

Question: What are Company A's (i.e., the combined company's) financial reporting requirements for the remainder of 2023 and 2024?

Analysis: Based on the SEC's age of financial statements requirements, the most recent annual financial statements of Company B to be included in the Form 8-K reporting the completion of the reverse merger will be as of and for the year ended December 31, 2022. The next succeeding year-end of Company A is May 31, 2023. Accordingly, the transition period will be for the period from January 1, 2023 through May 31, 2023.

Company A's financial reporting requirements for the remainder of 2023 and 2024 would be as follows:

1. Company A would file a Form 8-K reporting the completion of the reverse merger.

- The Form 8-K must be filed no later than October 6, 2023.

- The age of Company B's financial statements to be included in the Form 8-K is determined as of the filing date of the initial Form 8-K (October 6, 2023 in this example). Based on the filing date of October 6, 2023, the Form 8-K would need to include Company B's audited financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022. The Form 8-K would also need to include unaudited interim financial statements as of June 30, 2023 and for the six-month periods ended June 30, 2023 and 2022.

- Company A may include Company B's historical financial statements (and the associated pro forma financial information) in the Form 8-K filed on October 6, 2023, or Company A may file the financial statements (and associated pro forma financial information) in an amended Form 8-K no later than December 18, 2023 (because December 16, 2023 --the 71st calendar day after October 6, 2023-- is a Saturday).

2. Company A would need to file its August 31, 2023 Form 10-Q.

- The financial statements included in the Form 10-Q would be Company A's pre-consummation financial statements.

- The Form 10-Q must be filed no later than October 10, 2023 (the 40th day after the end of the quarter).

- The Form 10-Q must be filed even though the acquisition was completed before the date the Form 10-Q was due.

3. Company A would need to file a transition report.

- The transition report would include Company B's financial statements for the period from January 1, 2023 through May 31, 2023 and the comparative periods.

- Because the transition period is less than six months, the transition report can be filed on Form 10-K (including audited transition period financial statements) or Form 10-Q (including unaudited transition period financial statements).

- If the transition report is filed on Form 10-Q, it will be due no later than November 13, 2023 (because November 11, 2023 --the 40th day after October 2, 2023-- is a Saturday). The transition report may include unaudited financial statements.

[Editor's note: If this option is elected, the transition report on Form 10-Q would be due before the date that Company B's audited financial statements are required to be filed on Form 8-K. Company A should consider contacting the SEC staff if it cannot file Company B's annual audited financial statements prior to the due date of the transition report.]

- If the transition report is filed on Form 10-K, it will be due no later than December 1, 2023 (the 60th day after October 2, 2023). The transition report would need to include audited financial statements.

[Editor's note: Ordinarily, a transition report on Form 10-K would need to comply with the SEC's internal control reporting requirements. Company A should consider contacting the SEC staff to discuss the internal control reporting requirements.]

4. Company A (i.e., the combined company) would need to file a Form 8-K to provide the disclosure relating to Company B for the quarterly period ended August 31, 2023.

- The Form 8-K is due no later than November 13, 2023 (because November 11, 2023 --the 40th day after October 2, 2023-- is a Saturday).

[Editor's note: The "gap filling" Form 8-K would be due before the date that Company B's Form 8-K with its audited financial statements is required to be filed. See SEC 7050.361 for discussion of other situations in which financial statements for a later prior period may be required to be filed before financial statements of an earlier period. If the combined company had elected to report the transition period on Form 10-K, then the Form 8-K with the August 31, 2023 and 2022 information may be filed at the same time that the transition report on Form 10-K is filed.]

- This Form 8-K is required to include all of the information that would have been required for Company B in a Form 10-Q. This is because Company A would have already filed (or would be concurrently filing) a transition report including all the information required by Form 10-Q or Form 10-K (see #3 immediately above).

5. The combined company would file its November 30, 2023 and February 29, 2024 Forms 10-Q, a May 31, 2024 Form 10-K, and subsequent periodic reports in the ordinary course.

Example 2

Facts: On October 2, 2023, Company A (a calendar year-end, large accelerated filer, operating company, SEC registrant) acquired Company B (a private company with a May 31 fiscal year-end) in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. Neither company is a smaller reporting company. The combined company has decided to retain Company A's calendar fiscal year-end.

Question: What are Company A's (i.e., the combined company's) financial reporting requirements for the remainder of 2023 and 2024?

Analysis: Based on the SEC's age of financial statements requirements, the most recent annual financial statements of Company B to be included in the Form 8-K reporting the completion of the reverse merger will be as of and for the year ended May 31, 2023. The next succeeding year-end of Company A is December 31, 2023. Accordingly, the transition period will be for the period from June 1, 2023 through December 31, 2023.

Company A's financial reporting requirements for the remainder of 2023 and 2024 would be as follows:

1. Company A would file a Form 8-K reporting the completion of the reverse merger.

– The Form 8-K must be filed no later than October 6, 2023.

- The age of Company B's financial statements to be included in the Form 8-K is determined as of the filing date of the initial Form 8-K (October 6, 2023 in this example). Based on the filing date of October 6, 2023, the Form 8-K would need to include Company B's audited financial statements as of May 31, 2023 and 2022 and for each of the three years in the period ended May 31, 2023. No interim financial statements would be required in the Form 8-K because of the SEC's age of financial statements requirements.

2. Company A would need to file its September 30, 2023 Form 10-Q.

- The financial statements included in the Form 10-Q would be Company A's pre-consummation financial statements.

- The Form 10-Q must be filed no later than November 9, 2023.

- The Form 10-Q must be filed even though the acquisition was completed before the date the Form 10-Q was due.

3. The combined company must file interim financial statements during the transition period.

– The combined company may choose to follow either Company A's quarter structure or Company B's quarter structure during the transition period.

- If the combined company were to choose to follow Company A's quarter structure, then during the transition period it would file unaudited financial statements for the three- and four-month periods ended September 30, 2023 and 2022 (as an amendment to the Form 8-K). Since those periods ended prior to the completion of the reverse merger, these financial statements would only reflect the operations of Company B. The Form 8-K would be required to separately state the period from June 1, 2023 through June 30, 2023 (see Exchange Act Rule 13a-10(e)(4)). This Form 8-K would be due no later than November 13, 2023 (because November 11, 2023 (the 40th day after October 2, 2023) is a Saturday).

- If the combined company were to choose to follow Company B's quarter structure during the transition period, then it would file unaudited financial statements for the three-month periods ended August 31, 2023 and 2022 (as an amendment to the Form 8-K) and unaudited financial statements for the three- and six-month periods ended November 30, 2023 and 2022 (on Form 10-Q). Periods that ended before October 2, 2023 would only reflect the operations of Company B. Periods that end on or after October 2, 2023 will reflect Company B's operations through October 1, 2023 and the combined company's operations from October 2, 2023 forward.

[Editor's note: No matter which quarterly reporting model is selected, the Form 8-K with the updating information would be due before the date that Company A's Form 8-K with Company B’s audited financial statements is required to be filed. If the audited financial statements have not yet been filed, we understand the SEC staff would not object if the Form 8-K with the updating information is filed at the same time as the Form 8-K with Company B's annual financial statements.]

4. The combined company must file a transition report.

- The transition period is June 1, 2023 through December 31, 2023.

- The transition report must be filed on Form 10-K because the transition period is seven months (i.e., six months or more).

- The audited financial statements included in the transition report will be as of December 31, 2023 and for the seven-month period from June 1, 2023 through December 31, 2023 and as of May 31, 2023 and 2022 and for each of the three years in the period ended May 31, 2023. Additionally, unaudited comparative financial information for the seven-month period from June 1, 2022 through December 31, 2022 must be provided. See SEC 3185.5.

- The due date of the transition report will be based on the combined company's accelerated filer status determined as of December 31, 2023. If the combined company retains its status as a large accelerated filer, then the transition report on Form 10-K will be due February 29, 2024.

5. The combined company will file its Form 10-Qs using calendar quarter-ends beginning with the quarter ended March 31, 2024.

.48 Future periodic reports (e.g., Forms 10-K and 10-Q)

All periodic reports (e.g., Forms 10-K and 10-Q) for periods that end on or after the date the reverse merger is completed should be filed within the time periods specified by the SEC's rules and forms. The financial statements included in periodic reports filed for periods that end on or after the date the reverse merger is completed should be the accounting acquirer's financial statements for all periods presented (reflecting the combined company beginning with the date of the reverse merger). This is because the accounting acquirer is considered to be the successor to the legal issuer's reporting obligation.

In certain circumstances, the due date of the first post-consummation periodic report may be before the date that the accounting acquirer's pre-consummation audited financial statements are required to be on file (e.g., if the reverse merger is completed shortly before the end of a quarter and the company takes advantage of the 71-day grace period with respect to financial statements to be included in the Form 8-K reporting the completion of the reverse merger).

- In the case of an annual period, this would have the effect of accelerating the due date of the financial statements to be included in the Form 8-K.

- In the case of a quarterly period, this would mean that the level of disclosure in the Form 10-Q may need to be more extensive than it would if the previous annual financial statements had already been filed. For instance, the portion of S-X 10-01(a)(5) which states that "[r]egistrants may presume that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context" would not be applicable.

[Editor's note: The SEC's rules and forms were not designed for a situation in which interim financial information would be filed before the corresponding financial information for the preceding annual period. A registrant in this fact pattern should consider contacting the SEC staff to discuss its specific facts and circumstances. Registrants should consider whether they have filed the prior financial statements in other forms (e.g., in a Form S-4/proxy statement).]

.481 Auditor matters

[Editor's note: This section does not address auditor independence requirements.]

All financial statements of the accounting acquirer included in a Form 10-K filed for a period that includes the date on which the reverse merger was consummated must be audited in accordance with PCAOB standards. This is true even if those same financial statements were permitted to be audited in accordance with AICPA standards in connection with the Form 8-K filed to report the completion of the reverse merger. See SEC 7050.35.

[Editor’s note: The reason for this difference is that the financial statements of the accounting acquirer included in a periodic report for a period ending on or after the date that the reverse merger was consummated are presented as the historical financial statements of the issuer. See Topic III.E of the highlights from the March 2018 meeting of the CAQ SEC Regulations Committee.]

.482 Example

Facts: Company A (a calendar year-end, operating company, SEC registrant) acquired Company B (a calendar year-end, private operating company) on April 6, 2023 in a transaction that will be accounted for as a reverse merger with Company B treated as the accounting acquirer. The Form 8-K reporting the completion of the reverse merger will include Company's B's audited financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022. Company B's pre-consummation financial statements were audited in accordance with AICPA standards.

Question: Can the AICPA audit report on Company B's pre-consummation financial statements be used in the combined company's Form 10-K for the year ending December 31, 2023?

Analysis: No. Company B’s pre-consummation financial statements (2022 and 2021) to be included in the combined company’s Form 10-K for the year ending December 31, 2023 are presented as the historical financial statements of the issuer, and therefore, must be audited in accordance with PCAOB standards. This is true even though the pre-consummation financial statements included in the Item 2.01 Form 8-K reporting the completion of the reverse merger were permitted to be audited in accordance with AICPA standards.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

Table of contents
SEC 7050 - Reverse mergers

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Legal acquirer/issuer's accelerated-filer status		Period required to be updated
Legal acquirer/issuer's accelerated-filer status	Annual		Quarterly

Large accelerated	60 days		40 days
Accelerated	75 days		40 days
Non-accelerated	90 days		45 days

Legal acquirer/issuer's accelerated-filer status		Period required to be updated
Legal acquirer/issuer's accelerated-filer status	Annual		Quarterly

Large accelerated	60 days		40 days
Accelerated	75 days		40 days
Non-accelerated	90 days		45 days

Legal acquirer/issuer's accelerated-filer status		Form used for transition report
Legal acquirer/issuer's accelerated-filer status	Form 10-K		Form 10-Q

Large accelerated	60 days		40 days
Accelerated	75 days		40 days
Non-accelerated	90 days		45 days

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SEC 7050 - Reverse mergers

.1 General

.2 SEC reporting requirements before a reverse merger is completed

.21 Evaluating whether the accounting acquirer can use the scaled disclosure requirements applicable to a smaller reporting company in connection with a Form S-4/proxy statement

.211 Examples

.22 Evaluating whether the financial statements of a private company accounting acquirer included in the Form S-4/proxy statement need to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB

.221 Example

.3 SEC reporting requirements in connection with the completion of a reverse merger

.31 Disclosure requirements under Item 2.01 of Form 8-K

.311 Legal acquirer/issuer is a shell company

.312 Legal acquirer/issuer is an operating company

.313 Periods to be presented in the Form 8-K

.314 Examples

.32 Evaluating whether the disclosure relating to the accounting acquirer included in the Form 8-K reporting the completion of the reverse merger can follow the scaled disclosure requirements applicable to a smaller reporting company

.321 Legal acquirer/issuer is a shell company

.322 Legal acquirer/issuer is an operating company

.323 Flowchart for evaluating whether the accounting acquirer may use the scaled disclosure requirements applicable to a smaller reporting company in connection with the Form 8-K reporting the completion of the reverse merger

.324 Examples

.33 Age of financial statements in a Form 8-K reporting the completion of a reverse merger

.34 Due date of the Form 8-K reporting the completion of a reverse merger

.341 Flowchart for evaluating the due date of the Form 8-K reporting the completion of the reverse merger

.342 Examples

.35 Evaluating whether the accounting acquirer's financial statements included in the Form 8-K reporting the completion of the reverse merger need to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB

.351 Examples

.36 Requirements to update the information of the accounting acquirer to avoid a gap in reporting

.361 Due date of the updated information relating to the accounting acquirer

.362 Flowchart for determining the due date of the "gap filling" Form 8-K

.363 Examples

.4 Other post-consummation reporting requirements

.41 Smaller reporting company status following a reverse merger

.411 Flowchart for evaluating smaller reporting company status following a reverse merger

.412 Examples

.42 Accelerated filer status following a reverse merger

.421 Examples

.43 Periodic reports for periods that end before the reverse merger is completed

.431 Example

.44 Significance testing for business acquisitions and dispositions which take place after the completion of a reverse merger

.45 Reporting on internal control over financial reporting

.451 Examples

.46 Changes in auditor

.461 Example

.47 Differences in fiscal year-end between the legal acquirer/issuer and the accounting acquirer

.471 Combined company changes to the fiscal year-end of the accounting acquirer

.4711 Example

.472 Combined company retains the fiscal year-end of the legal acquirer/issuer

.4721 Examples

.48 Future periodic reports (e.g., Forms 10-K and 10-Q)

.481 Auditor matters

.482 Example

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