Lexicon

All income received by a company minus all operating costs, including costs of goods and services, overhead expenses, and depreciation. Some people may think of this as a company’s profits.

All offers and sales of securities must be registered under Section 5 of the Securities Act of 1933, or covered by an available Exemption. The SEC takes a broad view as to what is an "offer," so any kind of "market conditioning," i.e., something that makes you want to make an investment, is considered an "offer" of securities. Companies need to file a registration statement with the SEC before selling shares to the general public, i.e. an Initial Public Offering. There are exemptions available, typically for accredited investors or qualified institutional buyers, and the new crowdfunding exemption as provided under the CROWDFUND Act.

Any public statement made by a company during the time it is offering securities to potential investors may be treated as offering materials that the company is responsible for. The offering materials may be presented as a formal memorandum or public offering prospectus. Other communications that may be treated as offering materials are company responses to questions from potential investors, marketing materials, slide shows, or videos.

Executives of the company who develop and implement high-level strategy and manage the day to day affairs of the company. Officers are appointed by the directors. Common officer roles include Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer.

Failure to state information.

The profit earned from a company's normal business operations. Operating profit does not include profits earned from a company's investments and does not take into account interests and taxes. Operating profit may also be represented as earnings before interest and tax (EBIT).

Startup and early stage companies frequently change their product, selling strategy, or business plan to adapt, when their prior actions are not leading to profits or a scalable business.  These "pivots" may revamp the company into something very different than what was originally presented to investors.  Investors must bear in mind that these changes happen, but consider whether the entrepreneur gave sufficient warning about the possibility of a change in plans.

Preferred stock combines elements of equity and debt securities. The holder of preferred shares may receive a set dividend from the company according to the terms of the preferred shares. If the company fails, preferred shareholders receive a portion of the liquidation after debt holders are made whole. Preferred shareholders typically do not have voting power in shareholder elections.

A PPM is a formal disclosure document delivered to potential investors during a securities offering exempted from registration. The PPM contains the objectives, risks, and terms of the investment offer. A PPM is not always required. For example, where only accredited investors are offered securities, a PPM is optional and the issuer and intermediaries can decide for themselves what information to disclose, and how to disclose it.

The sale of newly issued debt or equity securities to a single buyer or limited number of buyers without a public offering.

Financial statements prepared on the basis of some assumed events and transactions that have not yet occurred are referred to as “pro forma” financial statements.  These statements have not been audited and are not prepared in accordance with generally accepted accounting principles.  It is important that the investor understand the assumptions underpinning a pro forma financial statement and question the basis for those assumptions. Investors should ask whether any third party has investigated those assumptions, and whether any accountant has “checked the math” (CPAs can’t confirm whether pro forma financials are accurate, but they can check whether they are properly presented and add up.)

A formalized, legal document filed with the Securities and Exchange Commission that contains information required under the Securities Act. The issuer provides the prospectus to potential investors during a registered offering. The prospectus contains details about the company and the securities offering for sale to the public.

The sale of securities to the public after registering with the Securities and Exchange Commission. The CROWDFUND Act makes an exception to the registration requirements for a public offering. Crowdfunding offerings to the public under the CROWDFUND Act do not have to be registered with the SEC, but must follow specific rules.

QIBs are allowed to buy private placements under SEC Rule 144A. These offerings are generally not registered with the SEC and so are only available to those whom the courts have found able to "fend for themselves." These include institutions that manage at least $100 million of securities not affiliated with itself, or a registered broker-dealer investing at least $10 million in non-affiliate securities.