It is well known to SEC reporting companies and their advisers that, if a public company cannot file an annual (Form 10-K) or quarterly (Form 10-Q) report by its due date without unreasonable effort or expense, the report can nonetheless be deemed timely filed if:
- the company files a Form 12b-25 (commonly known as a Form NT for “Non-Timely”) no later than one business day after the due date,
- the company discloses therein the reason or reasons causing the inability to file timely without unreasonable effort or expense, and whether there are any anticipated significant changes in results of operations from the corresponding period of the prior year, and
- the company files the Form 10-K no later than the 15th calendar day, or the Form10-Q no later than the 5th calendar day, following the due date.
It is not uncommon for public companies to provide a short, often generic reason for the delayed annual or quarterly filing, such as “the registrant is experiencing delays in the compilation of certain financial and other information required to be included in the form.”
If the Form NT is timely filed and the reporting company subsequently files the requisite Form 10-K or Form 10-Q by the extended due date, the reporting company preserves Form S-3 (referred to as “shelf registration”) eligibility and avoids triggering stock exchange delisting procedures, which would limit a company’s ability to raise capital on a timely basis. As a result, for many reporting companies there is a compelling reason to file a Form NT even if it is unclear at the time of the filing that it will be able to comply with the limited conditions of a Form NT filing.
On April 29, 2021, the SEC charged eight companies with violating Section 13(a) and Rule 12b-25 under the Securities Exchange Act of 1934 by failing to disclose in their Form NT the complete reason for their late filings – they were in the process of restating or correcting prior financial reporting.
According to the SEC, “each of the companies announced restatements or corrections to financial reporting within 4 – 14 days of their Form NT filings despite failing to provide details disclosing that anticipated restatements or corrections were among the principal reasons for their late filings.” As a consequence, “investors relying on the deficient Forms NT were kept in the dark regarding the unreliability of the company’s financial reporting or anticipated material changes in operating results.”
The SEC indicated that it utilized data analytics to detect these disclosure violations. For failing to make the required Form NT disclosures, the companies agreed to cease-and-desist orders and paid regulatory penalties of $25,000 for each deficient Form NT. Several of the companies had filed only one deficient Form NT.
In our experience, SEC administrative proceedings for late filings are usually reserved for the most egregious cases. Here, the SEC made clear that these cases were instead about intentionally misleading disclosure, causing information asymmetry in the market that prevents investors from making informed investment decisions.
Missing SEC periodic report deadlines may be unavoidable for a variety of reasons including accounting problems, employee turnover and pending corporate transactions. Yet, even if late filings are relatively rare or occur for unusual reasons, public companies should be mindful that all public filings – even arguably minor ones like Form NT – must be truthful and complete. A Form NT is not merely a notice about missing an SEC filing due date by 5 to 15 days; rather, it is designed for management to convey, or at least signal, information about deeper underlying problems that prevent management from meeting SEC-prescribed periodic report filing deadlines.
Accordingly, we strongly recommend that prior to filing a Form NT, reporting companies thoroughly review with their counsel and auditors the reasons for the Form NT filing, whether the requisite Form 10-K and Form 10-Q can be filed within the extended due date and whether there are any anticipated significant changes in results of operations from the corresponding period of the prior year.
PartnerArmed with more than three decades of capital market experience, Spencer represents smaller publicly traded companies, and often underwriters and investment funds, in public and private securities offerings. He focuses ...