Smaller Reporting Companies

Is it Time to Update Your Filer Status?

by Vanessa Schoenthaler on January 21, 2012

If you’re like most companies, the end of the calendar year also marks the end of your fiscal year. That means right about now you’re hard at work on your annual report. It also means that you may have a new filer status for the year and, as a result, your annual report may be due just a bit sooner (or later) than in years past.

Ideally, you’ve already confirmed your filer status and, if necessary, planned for the change. Even so, let’s have look at filer status, how you determine it and when you make the change.

Determining Your Filer Status

All Exchange Act reporting companies fall into three categories of filers: large accelerated filers, accelerated filers and all other filers (a category which is itself comprised of non-accelerated filers and smaller reporting companies). Among other things, your filer status establishes the deadline by which you have to file your annual and quarterly reports with the Securities and Exchange Commission.

Determining your filer status requires two things: your public float and your reporting history.

Your public float is your worldwide non-affiliate market capitalization and, for purposes of your filer status, is calculated as of the last business day of your most recently completed second fiscal quarter. Your reporting history refers to how long you’ve been an Exchange Act reporting company.

To be a large accelerated filer you need to have a public float of $700 million or more. To be an accelerated filer you need to have a public float of $75 million or more, but less than $700 million. Additionally, in either case you must have been subject to the reporting requirements of the Exchange Act for at least twelve calendar months, you must have filed at least one annual report and you cannot qualify as a smaller reporting company.

All other companies, including, in most instances, newly public companies (such as the recently public LinkedIn, Groupon and Zynga) fall into the category of other filers and are classified as either non-accelerated filers or smaller reporting companies.

Transitioning to a New Filer Status 

Once you become a large accelerated filer you will remain a large accelerated filer unless your public float falls below $500 million, as calculated on the last business day of your most recently completed second fiscal quarter. If your public float falls below $500 million but remains at or above $50 million, you will become an accelerated filer.

Once you become an accelerated filer you will remain an accelerated filer unless your public float reaches $700 million or more, in which case you will become a large accelerated filer. On the other hand, if you are an accelerated filer, or even a large accelerated filer, and your public float falls below $50 million, you will come into the category of all other filers and will most likely become a smaller reporting company.

Finally, if you are a non-accelerated filer or a smaller reporting company you will remain one until you meet all of the requirements necessary to become an accelerated filer or large accelerated accelerated filer.

When Does Your Filer Status Change?

Even though your public float is calculated as of the last business day of your most recently completed second fiscal quarter, your filer status doesn’t actually change until the end of your fiscal year. If your filer does change, then you must file your annual report, and all subsequent quarterly and annual reports, by the deadline for your new status.

Qualifying as a Smaller Reporting Company

There are three ways to qualify as a smaller reporting company:

  • have a public float of less than $75 million, calculated as of the last business day of your most recently completed second fiscal quarter;
  • in the case of a initial registration statement, have a public float of less than $75 million, calculated as of a date within 30 days of the registration statement filing date; or
  • if you have no public float, have less than $50 million in annual revenues during the most recently completed fiscal year for which you have audited financial statements.

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Various and Sundry Announcements Coming From the Commission on Friday

by Vanessa Schoenthaler on October 24, 2011

The Office of the Chief Accountant’s Financial Reporting Series

The Securities and Exchange Commission’s Office of the Chief Accountant (“OCA”) will be hosting a series of ongoing roundtables, dubbed the Financial Reporting Series, to facilitate discussion around emerging and implementation issues in the financial reporting system.

The objectives of the Financial Reporting Series are to:

  • provide the Commission, FASB and PCAOB with useful information about matters affecting the financial reporting system;
  • for the OCA to work with the FASB and PCAOB to ensure they consider appropriate actions to emerging issues and changes in the business environment; and
  • for the OCA, in coordination with the Division of Corporation Finance, to consider whether changes to the Commission’s rule and regulations would be appropriate.

The OCA expects to hold three such roundtables each year, depending on the number of issues that come up and, of course, Commission’s budgetary constraints.

Roundtable topics may include: public comments, matters arising from the OCA’s research and interactions with the capital markets, and input from the FASB, PCAOB and other offices and divisions of the Commission.

The OCA is also open to suggestions and you can email potential topics to FRS@sec.gov or contact the OCA through its webpage.

On Friday the Commission announced the Financial Reporting Series’ first roundtable, to be held on November 8, 2011, which will address “the extent to which financial reporting should include measurement uncertainties, and the information investors find  important to understanding and assessing those uncertainties.”

The OCA also released a briefing paper outlining the issues in greater detail and including a list of nine questions that will be addressed at the roundtable.

30th Annual Forum on Small Business Capital Formation

The Commission announced that it will hold it’s 30th Annual Forum on Small Business Capital Formation on November 17th, 2011.

The forum will include two panels, one addressing current capital formation issues for private companies, and the other initial public offerings and securities regulation involving smaller reporting companies.

The final report from last year’s forum and a summary of the top recommendations can be found here.

Advisory Committee on Small and Emerging Companies

The Commission announced that it’s new Advisory Committee on Small and Emerging Companies will hold an open meeting on October 31, 2011 to discuss capital formation issues relevant to small and emerging companies.

Senate Confirmation of Commissioners Aguilar and Gallagher

Finally, also noteworthy from Friday, the Senate unanimously reconfirmed Commissioner Aguilar for a second term with the Commission, and confirmed Commissioner Gallagher to replace the now departed Commissioner Casey.

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The Commission Announces a Roundtable on Microcap Securities

by Vanessa Schoenthaler on September 19, 2011

Roundtable on Microcap SecuritiesToday the Securities and Exchange Commission announced that it’s Microcap Fraud Working Group will hold a roundtable to gather ideas and input on regulatory issues related to “the execution, clearance, and settlement of low-priced securities.”

The roundtable will take place on October 17th and will be open to the public and available live on the Commission’s website. Specific panelists have not yet been announced, but will include representatives from DTC and FINRA, among others, and will discuss issues such as “Anti-Money Laundering monitoring, compliance challenges and potential changes to the regulatory system.”

The Microcap Fraud Working Group is a joint effort of the Division of Enforcement and Office of Compliance Inspections and Examinations that the Commission launched in 2008 to “pursue a strategic approach to combating microcap fraud by focusing on recidivists and insiders, and on the attorneys, auditors, broker-dealers, transfer agents and other gatekeepers that facilitate … ” such fraud.

Mention of the Group has popped up in a handful of releases since then. Most recently in June, when the Commission suspended trading in a number of microcap stocks that were being promoted on bulletin boards and through social media for not having accurate or adequate public information on file.

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The Commission’s New Advisory Committee on Small and Emerging Companies

by Vanessa Schoenthaler on September 13, 2011

Today the Securities and Exchange Commission announced the formation of a new Advisory Committee on Small and Emerging Companies.

The Committee, made up of nineteen voting members and two observer members, will provide advice and recommendations to the Commission on issues related to emerging privately held small businesses and publicly traded companies with market caps of less than $250 million.

Some of the issues the Committee will address include:

  • capital raising through private and limited offerings and initial and other public offerings;
  • trading in securities of emerging privately held small businesses and small publicly traded companies; and
  • public reporting and corporate governance requirements.

The Committee will formally be established with the filing of its charter, fifteen days after publication of the Commission’s notice in the Federal Registrar, and will operate for a period of two years unless earlier terminated or renewed.

A final copy of the charter will be available on the Commission’s website, but below is the undated copy on file in the Federal Advisory Committees Database.

The Committee currently anticipates meeting at least three times each year.

(Download File)

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The SEC Releases its 29th Annual Forum on Small Business Capital Formation Report

by Vanessa Schoenthaler on June 14, 2011

Earlier today the Securities and Exchange Commission released its Final Report from the 29th Annual Forum on Small Business Capital Formation held in November 2010.

This year’s forum yielded 36 recommendations from three working groups and a number of written recommendations submitted by organizations concerned with small business capital formation.

Participation was down slightly, with a total of 60 participants in the three working groups, as compared to 72 last year, and with 37% voting to rank each of the final recommendations, as compared to 44% last year.

There are a few proposals that show up each year, but many of this year’s recommendations focus on Regulation A, the requirements of Exchange Act Section 12(g) and scaled reporting/eligibility requirements for smaller issuers.  The top 5 recommendations include proposals that the Commission:

  • specifically consider the impact of Dodd-Frank Act rulemaking on small business investing;
  • adopt a private offering exemption that does not prohibit the general solicitation of, or advertising to, purchasers that do not need the protections afforded by Securities Act registration;
  • provide better scaling of reporting requirements for smaller companies;
  • exempt companies with a market capitalizations of less $250 million from Section 404(b) of the Sarbanes-Oxley Act (we already know that this one was rejected in April); and
  • increase the permissible offering amount under Regulation A and the number of shareholders that trigger registration under Section 12(g) of the Exchange Act (As an aside: both Fortune and PeHUB are reporting today that there’s a bill in the works that may actually take care of the latter portion of this proposal, by increasing Section 12(g)’s shareholder trigger requirement from its current level of 500 holders of record to 1,000 holders of record exclusive of accredited investors and employees holding stock options.).

(Download File)

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Foreign Private Issuer Stats and Other Odds and Ends from Last Week

by Vanessa Schoenthaler on April 4, 2011

Number of Foreign Private Issuers Registered and Reporting with the Securities and Exchange CommissionToday the Securities and Exchange Commission released its updated list of registered and reporting foreign private issuers for the year ended December 31, 2010.  Of the 970 issuers accounted for approximately:

  • 35.8%, or 347 issuers, were organized in Canada;
  • 12.9%, or 125 issuers, were organized in the Cayman Islands;
  • 7.6%, or 74 issuers, were organized in Israel; and
  • 5.0%, or 49 issuers, were organized in the British Virgin Islands;

The remaining 38.7 % of issuers were organized in 47 different countries.

Most foreign private issuers, 46.5% of them, were listed on the NYSE/Amex/Arca markets, 27.1% were listed on the Nasdaq markets and the remaining 26.4% were quoted in the over the counter markets.

A few other odds and ends that I didn’t have a chance to get to last week:

Regulatory Review and Comment

On January 18, 2011 President Obama issued Executive Order 13563 – Improving Regulation and Regulatory Review to supplement and reaffirm Executive Order 12866 – Regulatory Planning and Review, which was issued by President Clinton on September 30, 1993, and which generally requires regulatory agencies to:

  • only propose or adopt regulations where the benefits would justify the costs;
  • tailor regulations so that they impose the smallest burden on society, while remaining consistent with regulatory objectives;
  • select regulatory approaches that maximize net benefits;
  • specify, to the extent possible, performance objectives rather than behaviors or manners of compliance that regulated entities must adopt; and
  • identify and assess available alternatives to direct regulation.

Neither of the Executive Orders apply to independent regulatory agencies, like the Securities and Exchange Commission, however, the Commission, given that it subscribes to many of the practices and principles outlined in the Executive Orders, has established a website to seek public comment “on modifying, streamlining, expanding or repealing … existing rules to better promote economic growth, innovation, competitiveness and job creation while still achieving … mandates to protect investors and maintain fair, orderly and efficient markets.”  The Commission is particularly interested in comments that pertain to smaller reporting companies and non-Exchange Act reporting companies that raise capital in the private markets.

Thus far there are three categories to comment on:

  • regulations and exemptions related to the offer and sale of securities;
  • disclosure and reporting requirements; and
  • other suggestions for updating rules to promote economic growth.

Only half a dozen comments have been submitted, four of which in some way address the effects of XBRL compliance on smaller reporting companies.

On the Accounting Front

On Monday Financial Reporting Executive Committee (FinREC) of the American Institute of CPAs (AICPA) released a working draft of the latest version of its practice guide: Valuation of Privately Held Company Equity Securities Issued as Compensation, which was first published in 2004.  The Journal of Accountancy has a nice summary of some of the more significant changes, which include revisions to FinREC’s guidance on, and illustrative examples of, MD&A disclosure in an IPO registration statement.

And on Friday the Securities and Exchange Commission, Division of Corporation Finance, updated its Financial Reporting Manual to address issues related to combined periodic reporting, income averaging, accountant changes and foreign private issuer financial statements, among other things.  As Broc Romanek notes over at the Corporate Counsel, lately the Commission has been making incremental updates to the Manual on a more frequent basis.

Auditing the SEC

Finally, the Office of Inspector General within the Securities and Exchange Commission released two audit reports last week, one addressing the Commission’s Budget Execution Cycle and the other its Implementation of and Compliance with Homeland Security Presidential Directive 12.

on modifying, streamlining, expanding or repealing our existing rules to better promote economic growth, innovation, competitiveness and job creation while still achieving our mandates to protect investors and maintain fair, orderly and efficient markets

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The SEC Proposes New Rules for Shareholder Advisory Votes on Say-on-Pay and Golden Parachutes

by Vanessa Schoenthaler on October 19, 2010

Yesterday the Securities and Exchange Commission proposed a new set of rule amendments designed to implement the say-on-pay and golden parachutes provisions of Section 951 of the Dodd-Frank Act.

The proposed rules would require companies subject to the Commission’s proxy rules (which includes U.S. issuers, non-U.S. issuers that do not qualify as foreign private issuers and foreign private issuers that voluntarily subject themselves to the Commission’s proxy rules) to provide their shareholders:

  • at the first annual or other shareholder meeting taking place on or after January 21, 2011, and at least once every three years thereafter, with a separate advisory vote on the compensation of those executive officers for whom compensation disclosure is required in the company’s proxy solicitation materials;
  • at the first annual or other shareholder meeting taking place on or after January 21, 2011, and at least once every six years thereafter, with a separate advisory vote on the frequency of the advisory vote on executive compensation, to determine whether it should take place every year, every other year or every three years; and
  • in any proxy or consent solicitation materials to approve a  merger, acquisition or similar transaction, with a separate advisory vote on golden parachute compensation for executive officers, with disclosure in both tabular and narrative formats.

Importantly: the initial shareholder advisory vote on executive compensation and the initial shareholder advisory vote on the frequency of the vote on executive compensation must be included in a company’s proxy statement for the first annual or other shareholder meeting taking place on or after January 21, 2011, regardless of the Commission’s adoption of the proposed implementing rules.

Therefore any proxy solicitation materials, whether preliminary or definitive, for a shareholder meeting taking place on or after January 21, 2011, even if filed prior to that date, must include separate resolutions for shareholders to vote on executive compensation and the frequency of future executive compensation votes.

This is not the case for the advisory vote on golden parachutes; shareholder resolutions for shareholders to vote on golden parachutes are not required to be included in a merger or acquisition proxy statement until after the Commission adopts implementing rules.

The Commission made clear its view that a proxy card for any shareholder advisory vote on the frequency of executive compensation votes should only provide a shareholder with four choices: (1) that the shareholder advisory vote on executive compensation should occur every year; (2) that the shareholder advisory vote on executive compensation should occur every two years; (3) that the shareholder advisory vote on executive compensation should occur every three years; or (4) that the shareholder is abstaining from voting on the matter.

The Commission also pointed out that under the amended exchange rules, for issuers listed on a national securities exchange, broker discretionary voting of uninstructed shares would not be permitted for shareholder advisory votes on executive compensation and shareholder advisory votes on the frequency of votes on executive compensation

On the first read-through, other notable proposals in the Commission’s release include recommendations that:

  • shareholder advisory votes on executive compensation and shareholder advisory votes on the frequency of votes on executive compensation not trigger the required filing of a preliminary proxy statement;
  • smaller reporting companies not be exempt from the proposed shareholder advisory votes or additional disclosure requirements (but without altering existing scaled disclosure requirements related to compensation disclosure) ; and
  • registration statements containing disclosure relating to mergers and similar transactions, going-private transactions and tender-offers include both tabular and narrative disclosure regarding golden parachute compensation for executive officers.

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