Tag Archives: Initial public offering

Accounting rules, IPO readiness, and Crowdfunding

Rhodes Holdings LLC has had a strong relationship with Clear Financial Solutions, Inc. and its principal, Steven Plumb.  This is their Fall 2012 newsletter, which I believe is worthwhile for public company management members…

New SEC Resource Extraction Issuer Rules

On August 22, 2012, the United States Securities and Exchange Commission (SEC) adopted final rules requiring annual disclosure of payments made to foreign governments and the U.S. federal government by “resource extraction issuers.”  These new disclosure requirements apply to all cash or in-kind payments made to foreign governments or the U.S. federal government by Exchange Act reporting oil, natural gas, and mining companies, domestic and foreign, in connection with the commercial development of oil, natural gas, or minerals.  The rules require disclosure to be made in an annual Form SD to be filed with the SEC not more than 150 days following the end of each fiscal year ending after September 30, 2013.  For resource extraction issuers with a calendar year end, the first filing will be due on May 30, 2014.

These rules fulfill a mandate in the Dodd-Frank Wall Street Reform and Consumer Protection Act to further the objectives of the Extractive Industries Transparency Initiative.  These rules can have a far reaching impact on the competitiveness of extractive industry companies and should be evaluated by all domestic and foreign companies, including smaller reporting companies, that are required to file annual reports with the SEC and are engaged in the commercial development of oil, natural gas, or minerals.

We suggest that you begin analyzing the rules and developing strategies to gather information and track contracts, payments and related expenditures.

You can read the SEC press release here.

Crowd Funding

There’s been a recent development that may shift a few paradigms in the world of finance called “crowd funding.”  Crowd funding is simply the raising of funds from many people rather than a few large investors.  This is usually done using the internet due to the ease of communication and transfer of funds.  With the passing of the Jumpstart Our Business Startups Act (JOBS Act) in April, crowd funding has become a viable option for raising business capital.  The act allows companies to solicit and sell securities to non-accredited investors and, according to Jim Brendel of Accounting Today, increases the minimum number of total investors that requires a company to file publicly from 500 to 2,000.1

Through efficient utilization of the internet and other media, a company could fund a project with hundreds of small investments rather than looking for thousands or millions of dollars from just a few investors.  Many artists and even private individuals have already had great success with crowd funding through websites such as,, and including a fully funded tour of by British rock group Marillion.2  This new reality drastically increases the amount and availability of investment capital as the next generation of business is funded not by Swiss bank accounts but by Mr. and Mrs. Smith’s checking account.  Sources and more on crowd funding:


IPO Readiness

Is your company considering going public or looking to be acquired by a public company?  In either situation, you should begin positioning your company to act and report as if it were a public company.  Consider the following as you move toward your goal:

  • Begin the IPO readiness process early enough so that your pre-listed company acts and operates like a public company at least a year before the IPO
  • Commit substantial resources to the IPO process and build the quality management team, robust financial and business infrastructure, corporate governance and investor relations strategy that will attract the right investors
  • Properly assess the amount of time the IPO journey will take, or the level of scrutiny and accountability faced by a public company

Consider the following facts, as reported by Ernst & Young:

  • Investors base an average of 60% of their IPO investment decisions on financial factors especially: debt to equity ratios, EPS growth, sales growth, ROE, profitability and EBITDA growth
  • Investors base an average of 40% of their IPO investment decisions on non-financial factors especially: quality of management, corporate strategy and execution, brand strength and operational effectiveness, and corporate governance
  • Articulate a compelling equity story backed up by a strong track record of growth which sets you apart from your peers while maximizing value for owners

About Us

Clear Financial Solutions, Inc. specializes providing Contract CFO and SEC Reporting Services.  We are experienced entrepreneurs with extensive public company and start up experience.  Hire the expertise and vision of seasoned financial and accounting professionals and let us help you succeed by doing more of what you do well and improving what you don’t.

Call on us today at (713) 780-0806 to schedule a free one hour confidential consultation or visit our website

Steven Plumb, President

© 2012 by Clear Financial Solutions, Inc., all rights reserved. Terms of Use · Privacy Policy

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Posted by on September 24, 2012 in BLOG, Business, Entrepenuers, Public markets


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SEC Securities: The Quiet Period


During a Quiet Period, a publicly-listed company cannot make any announcements about anything that could cause a normal investor to change their position on the company’s stock. The SEC interprets this rule broadly, even including board members, management, and employees talking about the company. Normally, that means the company does not discuss any of the following:

  • New deals or wins signed in that current quarter. Announcements about previously-sold implementations going live are allowed, but must be explicitly described as such
  • Management changes
  • Progress against company goals
  • Major product or service announcements
  • Major partnership announcements

Why it Matters

The quiet period precedes the introduction of a company into the capital market. During that time, the amount of public exposure and hype must be minimized to hinder any potential interference with SEC efforts to evaluate its filings and the release of any information which may cause investors to “jump the gun” on valuations and expectations for the company. The SEC’s intention is to create a level playing field for all investors in the capital market, ensuring that all have the same information about the company when it goes out for sale on the market.

Activities During the Quiet Period

The federal securities laws do not define the term “quiet period,” which is also referred to as the “waiting period.” However, a quiet period extends from the time a company files a registration statement with the SEC until SEC staff declare the registration statement “effective.” During that period, the federal securities laws limit what information a company and related parties can release to the public. The failure to comply with these restrictions generally is referred to as “gun-jumping.

On June 29, 2005, the Commission voted to adopt modifications to the registration, communications, and offering processes under the Securities Act of 1933. Among many other provisions, the rules update and liberalize permitted offering activity and communications to allow more information to reach investors by revising the “gun-jumping” provisions under the Securities Act. The cumulative effects of these rules are as follows:

  • Well-known seasoned issuers are permitted to engage at any time in oral and written communications, including use at any time of a new type of written communication called a “free writing prospectus,” subject to enumerated conditions (including, in some cases, filing with the Commission).
  • All reporting issuers are, at any time, permitted to continue to publish regularly released factual business information and forward-looking information.
  • Non-reporting issuers are, at any time, permitted to continue to publish factual business information that is regularly released and intended for use by persons other than in their capacity as investors or potential investors.
  • Communications by issuers more than 30 days before filing a registration statement will be permitted so long as they do not reference a securities offering that is the subject of a registration statement.
  • All issuers and other offering participants will be permitted to use a free writing prospectus after the filing of the registration statement, subject to enumerated conditions (including, in some cases, filing with the Commission). Offering participants, other than the issuer, will be liable for a free writing prospectus only if they use, refer to, or participate in the planning and use of the free writing prospectus by another offering participant who uses it. Issuers will have liability for any issuer information contained in any other offering participant’s free writing prospectus as well as any free writing prospectus they prepare, use, or refer to.
  • The exclusions from the definition of prospectus are expanded to allow a broader category of routine communications regarding issuers, offerings, and procedural matters, such as communications about the schedule for an offering or about account-opening procedures.
  • The exemptions for research reports are expanded.

A number of these rules include conditions of eligibility. Most of the rules, for example, are not available to blank check companies, penny stock issuers, or shell companies.

The rules address the treatment under the Securities Act of electronic communications, including electronic road shows and information located on or hyper-linked to an issuer’s website. The rules define written communication as any communication that is written, printed, a radio or television broadcast, or a graphic communication. The definition of graphic communication and, thus, electronic road show excludes communications that are carried live and in real-time to a live audience, regardless of the means of transmission. Electronic road shows for initial public offerings of common equity or convertible equity securities will have to make a bona fide electronic road show readily available to an unrestricted audience to avoid filing the electronic road show with the Commission. No other road shows will be subject to filing.

Research Reports

The newly public company is subject to a “quiet period,” of 40 days after the registration becomes effective, which restricts insiders and affiliated underwriters from issuing earnings forecasts and research reports regarding the firm for a specified period following the initial public offering (IPO). As soon as this quiet period ends, the analysts of managing underwriters typically initiate research coverage with favorable recommendations, and the market responds positively even though this information is predictable.
The general purpose behind the quiet period is to give investors enough time to do their due diligence and allow market forces to establish a fair value without influence from the firm’s management or affiliated analysts who may try to hype the stock. In other words, everything that is relevant should be included in the written prospectus.

Immediately upon expiration of the quiet period, analysts affiliated with investment banks that participated as the lead underwriter or as a co-manager in the deal typically initiate favorable research coverage.

© 2012 by Sonfield & Sonfield, 770 South Post Oak Lane, Houston, Texas 77056-1937.  Reproduced with permission here.

To insure that we comply with U.S. Treasury Department Circular 230. We inform you that any U.S. tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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Posted by on August 20, 2012 in BLOG, Business, Public markets


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Going public or going private

This last week, the Houston Business Journal for the week of July 20 – 26, 2012 had two divergent articles (“Are you considering going public?” and “Are you considering going private?“) – appropriate as part of the FOCUS section on Public/Private Companies report.  If you are at interested in the process of being a public company, this is a must read.

Public companies

The first article was a great read.  As I have summarized many times before, being a public company is a dual edged sword – there are benefits, but the costs are substantial.  Here are the benefits that the article summarized:

  • Ongoing access to capital
  • Able to provide [public stock] incentives to employees
  • Enhanced prestige with businesses and individuals

But at what cost?

  • Owners must relinquish some amount of control (except if you are Facebook CEO Mark Zuckerberg who had such a hot property, he was able to retain 51% control during an IPO)
  • Dealing with regulators and shareholders

That’s where a team comes in – if you have a huge company (like a Small Cap corporation, which is $2B to $250M in market capitalization), then the investment bankers will be interesting in helping you.  If your company is more modest, that’s when you call in teams like Rhodes Holdings LLC and its partners, including Re-Cap Marketing and Consulting and others.  Our strategy engagements gets you ready, and helps you retain the professionals focused on the Micro Cap arena (below $250M in market capitalization).

On the other hand, going private



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The JOBS Act

"Dr. Coburn and Senator Obama look over t...

"Dr. Coburn and President Obama look over the Federal Funding Accountability and Transparency Act" (Photo credit: Wikipedia)


The Fulbright & Jaworski law Firm put out an excellent newsletter article “The JOBS Act and its Effect” by Gregg J. Berman and Donal Ainscow (linked here by permission).  This article really does a good job (no pun intended) in summarizing the bill, soon to be signed by Obama who promised to sign the bill into law on Thursday.

Intended consequences

One of the interesting consequences is that the bill requires that the individual soliciting to sell their securities “…must use broker or funding portal“.  So, in looking at the funding portals that would be out there right now, I have found:

  • PPM Logix – an example of a merchant website that sells access to its bookshelf of legal documents, but also allows individuals and companies who are members (paid to access the library) can list their PPM for other accredited investors.  Good idea, well their products are good but being a funding portal is a stretch – not enough qualified investors to make it worth your while.
  • Merger Network (website, LinkedIn Group) – this is a website and associated LinkedIn group that provides a great place to list businesses for sale, so solicitations are not a stretch.  With over 1,400 active members, the discussions and the businesses listed are a great source of deal flow.

And then there are the full time funding portals and portals to resell restricted securities in private sales:

Earlier in the year, these came up in a search for shares in the Facebook before they announced their upcoming IPO.  There had been a robust market for the Facebook shares due to their huge run-up in value.


Posted by on April 3, 2012 in BLOG, Public markets


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