nated for new money purposes, including plant, equipment, and working capital, 1 percent for retirement of securities, 43 percent for purchase of securities, principally by investment companies and 3 percent for all other purposes. REGISTRATION STATEMENTS FILED During the 1959 fiscal year, 1,226 registration statements were filed for offerings of securities aggregating $16,622,890,371, an increase of 34% over the 913 registration statements filed during the 1958 fiscal year for offerings amounting to $16,913,744,964. Of the 1,226 registration statements filed in the 1959 fiscal year, 472, or 39 percent, were filed by companies that had not previously filed any registration statement under the Securities Act of 1933. Comparable figures for the 1958 and 1957 fiscal years were 254, or 28 percent, and 305, or 32 percent, respectively. A cumulative total of 15,930 registration statements has been filed under the act by 7,397 different issuers covering proposed offerings of securities aggregating over $167 billion from the enactment of the Securities Act of 1933 to June 30, 1959. Particulars regarding the disposition of all registration statements filed under the act to June 30, 1959, are summarized in the following table. Number and disposition of registration statements filed • Includes 153 registration statements covering proposed offerings totalling $3,774,427,154 filed by investment companies under section 24(e) of the Investment Company Act of 1940 which permits registration by amendment to a previously effective registration statement. The gross number of registration statements that became effective, including such statements that were subsequently withdrawn or placed under stop order, was 13,273 as of June 30, 1958. Excludes 10 registration statements that became effective during the year but were subsequently withdrawn; these 10 statements are counted in the 65 statements withdrawn during the year. Excludes 2 registration statements that became effective prior to July 1, 1958, which were placed under stop order during the 1959 fiscal year, and also excludes 14 registration statements effective prior to July 1, 1958, that were withdrawn during the 1959 fical year; these 2 and 14 statements are counted under stop orders and withdrawn, respectively. The reasons given by registrants for requesting withdrawal of the 65 registration statements that were withdrawn during the 1959 fiscal year are shown in the following table: Reason for registrant's withdrawal request 1. Withdrawal requested after receipt of the staff's letter of comment.. 2. Registrant was advised that statement should be withdrawn or stop order proceedings would be necessary. 3. Change in financing plans.. 4. Change in market conditions.. 5. Financing obtained elsewhere. 6. Regulation A could be used. 7. Insufficient funds raised under escrow agreement. 8. Registrant was unable to negotiate acceptable agreement with underwriter. Total. RESULTS OBTAINED BY THE REGISTRATION PROCESS The staff's examination of registration statements often results in significant changes being effected in order that adequate disclosure will be made to the investing public. These changes cover a wide range of subject matters. Examples of disclosures made as a result of the staff's examination are set forth below. Disclosure of Speculative Features A registrant organized to produce electronic equipment filed a registration statement for 175,000 shares of common stock (par value of 75¢ per share) to be offered at $5 a share, the underwriting commission to be $1 per share. Examination of the registration statement revealed that certain speculative features of the proposed offering had not been adequately disclosed. The prospectus, as filed, stated that the book value of the company's shares prior to the offering was approximately 96 cents but that after the offering it would be approximately $1.86 per share. The registrant was required to include a further statement that such increase would be contributed by the public investors. The registrant was further required to disclose that the underwriters at a total cost of $75 had acquired 75,000 shares of the company's stock representing 15 percent of the total amount of such stock to be outstanding, whereas if all of the shares offered were sold, public investors would pay $875,000 for 35 percent of the stock to be outstanding. The company was also required to point out in the prospectus that: (1) it proposes to operate in fields where large expenditures for research and development are considered normal and necessary; (2) competition is intense, there being many companies, some with substantially greater resources than the registrant, conducting research and development work in the same general areas; (3) because of research and development work being done, it is possible that one or more of the registrant's proposed products may became obsolete before production is started or at any time thereafter; and (4) only actual production can determine the cost at which any of registrant's proposed products can be produced and only marketing can determine the prices at which they can be sold and the extent of the demand for them. Disclosure as to Use of Proceeds A company engaged in the business of acquiring and developing oil and gas properties filed a registration statement covering $1,500,000 of 6 percent convertible debentures due 1969, to be offered initially to its stockholders by means of subscription rights. The underwriter agreed that within 6 business days after the termination of the rights offering it would purchase or find purchasers for debentures not taken down by stockholders so that the company would receive the proceeds from at least $400,000 principal amount of debentures. The underwriter also agreed to use its best efforts for 60 days after the termination of the rights offering to find purchasers for debentures not taken down by stockholders. As originally filed, the prospectus indicated that the great bulk of the net proceeds was to be used for acquisition of new properties and development of properties then held. However, an analysis made by our staff of the financial position of the company and its future cash needs disclosed that the company was in a precarious cash position, that on the basis of the prior year's operations cash requirements during the next 18 months would be substantially in excess of the amount of cash that would be generated during that period and that therefore the purpose of the offering was not to acquire and develop properties, but to remedy the company's serious financial situation. As a result of numerous comments made by the staff, the prospectus was extensively revised and there was set forth in the forepart thereof, a one and one-half page statement regarding the proposed offering and the company's financial problems, including the following categorical statements: 1. The purpose of the offering was to alleviate the company's shortage of working capital; 2. The company had a working capital deficit of $488,635; 3. Current liabilities included $87,835 of notes payable given for past due accounts payable; 4. Past due accounts payable and past due notes payable amounted to $256,572 and $86,335 respectively; 5. The total amount of funds required to remedy the working capital deficit and retire long term debt maturing within the next 18 months was $1,195,204; 6. Since, on the basis of the previous year's financial report, the company's operations would generate only $335,000 of cash during the next 18 months, cash requirements would exceed cash generated by $860,000; 7. The minimum principal amount of debentures required to be sold to meet the company's present and anticipated cash needs was $1,050,000; 8. Past due accounts and notes payable which might not be paid if sufficient funds were not realized through sale of the debentures might be enforced through legal proceedings; 9. No priority would be accorded the debenture holders as to principal or interest vis-a-vis other general creditors in the event the company's cash needs were not met through the sale of debentures or otherwise. While a skilled financial analyst, after study and analysis, might have been able to deduce some of the information set forth above, none of the statements recited was contained in the prospectus as originally filed. It is fair to assume that the average investor would have been materially misled by the prospectus as originally filed. Revision of Summary of Earnings A corporation which had both domestic and foreign subsidiaries filed a registration statement containing financial statements which failed to reflect significant losses from the operations of one of the foreign subsidiaries. After our staff determined this fact during the course of the examination procedures and discussed it with the corporation's representatives, the financial statements were appropriately amended to include provisions for the foreign subsidiary's losses. The effect of such revision was to reduce net income for 1956, 1957, and 1958 by approximately $164,000, $88,000, and $10,000 respectively. After this revision net income per share for the 3 years was $0.06, $0.04 and $0.09 per share, or reductions of approximately 76, 70, and 10 percent, respectively. Disclosure as to Operations A company engaged in the development and production of certain electronic equipment filed a registration statement covering 240,000 shares of common stock at the par value of 75 cents a share. The offering price was $6 per share and the underwriting commission was $1 a share. In reviewing the registration statement it was noted that the proposed offering was to be made on an extremely high priceearnings ratio and price-book-value ratio. Accordingly the registrant was required to amend the prospectus to state that the price of the shares being offered had been arbitrarily determined by the board of directors and did not bear any relationship to assets or earnings of the company. It was further required to be pointed out that the offering price was 312 times the unaudited earnings per share for the last fiscal year and 13.2 times the net tangible book value on the basis of the company's balance sheet. With respect to the company's operations, the company was required to state in regard to one of its lines of business that it had at all times operated substantially below production capacity and that during a recent month, for example, it operated at about 7.5 percent of such capacity, leaving 92.5 percent of its capacity idle. The company was further required to point out that it had not yet engaged regularly in the production of certain machinery for commercial use and had no assurance as to the size of the market for such machinery or the acceptability of the company's products in such market. STOP ORDER PROCEEDINGS Section 8(d) provides that if it appears to the Commission at any time that a registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, the Commission may institute proceedings looking to the issuance of a stop order suspending the effectiveness of the registration statement. Where such an order is issued, the offering cannot lawfully be made, or continued if it has already begun, until the registration statement has been amended to cure the deficiencies and the Commission has lifted the stop order. The following table indicates the number of proceedings under section 8(d) of the act pending at the beginning of the 1959 fiscal year, the number initiated during the year, the number terminated and the number pending at the end of the year: Proceedings pending at beginning of fiscal year. Proceedings terminated during fiscal year: By issuance of stop orders 1. By withdrawal of registration statement- Proceedings pending at the end of the 1959 fiscal year_-_. 7 13 20 Shortly after the end of the fiscal year stop orders were issued in two of the proceedings which were pending at the end of the fiscal year and a third proceeding was dismissed. The two proceedings in which stop orders were issued are included in the proceedings described below. Comico Corporation.-Comico Corporation is a Delaware corporation organized in 1957 for the purpose of exploiting a deposit of silica material located in Arkansas and held under a leasehold assigned to the company by its promoters. The company filed a registration statement covering a proposed public offering of 750,000 shares of common stock at $2 per share. The Commission instituted One of these proceedings, Woodland Oil & Gas Co. Inc., was described in the Commission's 24th Annual Report, p. 40. 529523-59 |