This section should be tailored to the financial condition, activities, and historical trends of each company. Below is an example of the types of discussions a company may include. This should be used as a guide only. It is important that you include all information that would be material to investors with respect to their decision to invest in the securities you are offering, and that you do not omit any information that would cause the included information to be false or misleading.

Please note that for this question, the SEC has specified that companies must account for the performance of any predecessor companies.

Overview. [First, generally describe the business.] [As an example: “We are a growing provider of technology-enabled business-to-business solutions for the financial process, procurement and asset management needs of businesses. We leverage our proprietary technology, deep expertise and supplier and vendor relationships to help enterprises and organizations of varying sizes manage complex and dynamic operational and administrative processes that are frequently managed internally and have required substantial internal resources.”]

[Then, generally describe the composition of the Company’s revenue:] Our [type of business activities that primarily generate revenue – if there is more than one, describe each] represented [X]% of our total revenue during the year ended [date].

[Next, describe the specific primary activities in more detail and identify how they result in revenue.] [As an example: “These solutions consist primarily of our cloud-based technology offerings that automate accounts receivable and accounts payable processes for our clients, including e-invoicing, credit and collections management, working capital management, and reporting analytics. We generated this revenue from two principal products: [X and X].”] [In this section, also describe trends in the relative value of the identified activities; if appropriate, describe any activities that have become less important:] Our [activity] revenue was a rapidly growing area of our business, with growth in the year ended [date] of [X]% as compared to the same period in the prior year. This recent growth was largely driven by [what and why]. In contrast, our revenue from [activity diminishing in importance] dropped in the year ended [date], at [X]% as compared to the same period in the prior year. This decrease was largely driven by [what and why].

[Describe milestones in the Company’s history:] We originally founded our business in [year] to [do what activities?]. As we have grown and evolved since that time, we had the following key milestones in the development of our business:

• [List]

[Describe general trends in growth of the Company. For example:] [As we have expanded our capacity, availability and capabilities, particularly [identify major areas of growth in capacity, etc.], our growth has [generally] [gradually] accelerated.] OR [Our growth has been consistent in recent years.] OR [As an early-stage company, we have experienced losses thus far in our operating history, [although these losses are diminishing]:

• Our total revenue [grew/fell] [X]% to $[X] million during the year ended [date], [up/down] from $[X] during the previous year.
• Our net income was $[X] million during the year ended [date], an [increase/decrease] of $[X] million from $[X] million during the prior year. 
• [Etc. – describe trends.]

[Describe expectations for the near future:] [We expect to continue to grow our business. Although there is no guarantee that our historical results or cash flows (as described below and in our financial statements) will continue to develop in the same way as they have in the past few years, we expect generally to grow in the coming years. Nonetheless, it may be years before Investors see a return on their investment, if they do at all.]

OR

[Although our business has not grown in recent years, we expect it to do so in the coming years, due to [what has changed?]. Although there is no guarantee that our predictions are correct, we generally expect to see new trends in our revenue and cash flows in the coming years. Nonetheless, it may be years before Investors see a return on their investment, if they do at all.]

OR

[We do not expect to see a growth in our business in the current fiscal year, because [why?]. However, we believe that in the long-term, we have significant potential for growth, due to [what?]. Nonetheless, it may be years before Investors see a return on their investment, if they do at all.]

[Describe trends and uncertainties that could affect the Company’s financial condition:] The following trends or uncertainties could affect our financial condition, including the liquidity, cash flow and capital resources described below:

• [List]

Liquidity. The following table summarizes our [cash and cash equivalents, accounts receivable, net working capital and cash flows] for the periods indicated: [If you use this table, only include categories relevant to you.]

some table that can’t be put in text

Our cash and cash equivalents at [date] were held for working capital purposes. [If applicable, add language such as the following:] [We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve capital and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts, certificates of deposit and money market funds that are currently providing only a minimal return.]

We anticipate using our available cash [for operations] within [time period]. We base this estimate on [describe – historical cash flows; anticipated major expenditures; etc.].

We expect that the proceeds of this offering will improve our liquidity and provide additional [working capital for our Company] [capital to pursue [name project/activities]]. [Include one or the other of the following sentences, or a variation thereof:] [Although the proceeds of this offering are not necessary to the viability of our business, it will be integral to developing [X – describe the nature of the activities and why they will improve liquidity and cash flow if appropriate.]] OR [The proceeds of this offering will enable the business to continue to pursue its main activities and are necessary to our viability. [Discuss why the proceeds will improve liquidity and cash flow in the future.]]

[In additional discussion, provide an overview of any trends over time in cash flows (for example, whether they have increased or decreased). For example:] [Our cash held as of [date] was [X]% [greater] [less] than cash held as of the same date in [prior year; add for other years as appropriate]. This [increase] [decrease] resulted primarily from an [increase] [decrease] in [cash from what source], due to [why?].

Then describe any significant components of the Company’s cash flow and why they have contributed to cash flows in a material way. The following is provided as an example. Please include any discussion that would be relevant to an Investor’s decision to invest. For example, consider discussions of any cash provided by or used in investing activities, financing activities, and any other material components.

Cash [provided by] [used in] operating activities. Net cash [provided by] [used in] operating activities consisted of [net income adjusted for certain non-cash items including depreciation and amortization, bad debt expense, stock-based compensation and deferred income taxes, as well as the effect of changes in working capital and other activities].

Net cash provided by operating activities was $[X] million for the year ended [date for most recent fiscal year], which was driven by [describe various components].

Net cash provided by operating activities was $[X] million for the year ended [date for previous year], which was driven by [describe various components]. [Include an analysis and comparison for each year for which you provide financials.].

Capital Resources. We have financed our operations through [Describe: e.g.:] [private sales of common equity, issuances of convertible debt and other debt securities, internally generated positive cash flow, borrowings under asset-based lines of credit, short- and/or long-term notes payable, etc.].

[Generally describe each source and its material terms. The following are examples that can be modelled for drafting discussions of your company’s particular resources, but you should include any and all capital resources that would be material to investors’ decisions to invest. Note that your discussion should include any pending sources of capital as well as existing ones. If available resources include required contributions by shareholders, be sure to discuss that here as well.]

Asset-based senior credit facility. We have a revolving loan facility with [bank], which we refer to herein as our senior credit facility, under which we are permitted to borrow up to [amount]. We primarily use this line of credit to support [activities]. [Describe why needed for these activities – e.g., “Often, we are required to pay invoices on behalf of our customers faster than we collect those amounts from customers. As a result, during periods of increasing transaction volume, our cash used in the operations from those solutions exceeds our cash flows from those operations.”]

[Describe terms:] The senior credit facility expires in [date]. Interest on borrowings under the senior credit facility accrues at [interest rate or rate to which it is pegged]. A commitment fee ranging from [rates] on the average unused portion of the loan commitment is payable [how often] in [arrears]. As of [date], the amount of available borrowings based on our eligible receivables was $[X] million of which $[X] was outstanding.

[Describe any restrictive covenants.] [The senior credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness, grant liens, make distributions to holders of our equity interests or make investments.] We were in compliance with such covenants as of [date].

Our obligations under the senior credit facility are secured by [property].

Interim finance line of credit. We have a $[X] million uncommitted credit agreement with [bank], which we refer to as our interim finance line of credit. We use this line to finance [X]. [Describe any conditions, e.g., “All borrowings under the interim finance line of credit must be approved by the lender on a transaction by transaction basis.”] Interest on loans made under our interim finance line of credit accrue at [rate] and is payable [monthly in arrears]. All borrowings under the interim finance line of credit are due within [X] days of borrowing. The interim finance line of credit terminates in [date]. As of [date], we had $[X] outstanding under our interim finance line of credit.

The interim finance line of credit contains customary events of default and affirmative covenants. [Describe anything unusual.] We were in compliance with such covenants as of [date].

Our obligations under the interim line of credit are secured by [property].

Historical Results of Operations. [First, describe general trends.] Our total revenue increased by $[X] million, or [X]%, from the prior year to $[X] million in the year ended [date]. This increase was primarily driven by [describe major components], which increased by [X]% from the prior year. Offsetting these increases were decreases in [components], which decreased [X]% from the prior year.

Our overall direct costs of revenue [(excluding depreciation and amortization)] decreased by $[X] million, or [X]% from the prior year to $[X] million in the year ended [date]. This was largely driven by [components], which decreased $[X] million or [X]% compared to the prior year. The decrease was partially offset by an increase of $[X] million, or [X]% in [component].

[Describe your expectations regarding future trends.] For example: [We expect these trends to continue in the current fiscal year and in the coming few fiscal years, due to [why?].] OR [We expect our revenue to grow at increasing rates in the current fiscal year and in the coming few fiscal years, due to [why?].] OR [We do not expect significant growth in revenue in the current fiscal year or in the coming few fiscal years, due to [why?].] [Etc. – describe as appropriate.]

[After this overview, include a discussion of each major component referenced above. The discussion should mirror the above discussion and state why each increase or decrease occurred across the years. You should address, as a major area of focus, whether the results and trends in the results are representative and why, or why you expect historical development to change. Address each major source of revenue and expenses. Also describe what’s included in each component.]