Preparing for Reg CF: When do your financials go “stale”?

If you are about to launch a crowdfunding offering under Regulation CF, you should make sure you know when your financial statements will go “stale” (i.e., become too old). Under the disclosure requirements of Regulation CF, to “conduct” an offering (meaning to have an offering open and able to take investments) you must be using financials that are no older than a year and 120 days(link is external) since your previously completed fiscal year.  This means, if your fiscal year is a calendar fiscal year, and you are using December 31, 2015 financials, the offering can only stay open until May 1 of this year (120 days since the end of the 2016 fiscal year, adjusted since April 30 is not a business day). 

This also applies to “as of inception” balance sheets.  For example, if your company is a newly formed entity in 2016, and you use a balance sheet as of December 28, 2016, you would still need to update your financials by May 1.  For offers that are currently open, the level of review needed (reviewed or audited) would be the same used in your initial filing.

If your financials are about to go “stale”, you will need to file an amended Form C with the updated financials and update the relevant sections in your Form C, and you will most likely need to reconfirm all your investment commitments still in escrow.

Updating the financial statements would not, by itself, constitute a material amendment to an offering, which would then require reconfirming with all investors that previously committed to the offering. Regulation CF disclosure rules require you to identify material events and trends beyond the date of the previously provided financial statements, so you should have already discussed your performance for 2016.  However, based on our experience, and discussions with the SEC Staff, the information in the new financials and changes to the financial condition of your company since the last filing would most likely be material enough to warrant viewing the amendment as a material amendment.  This is a fact-specific determination and should be made with your advisor.

If you plan to have an offering that spans the period where your financials go “stale”, you should discuss with your advisor which financials you plan to use.  Proper planning could eliminate the need for updating financials and the costs associated with an additional review or audit.

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