March 10, 2008 — The SEC staff recently clarified several transition issues related to the new smaller reporting company rules. These new Compliance and Disclosure Interpretations include the following staff views:

• All reporting companies in existence on February 4, 2008 make the initial determination of their smaller reporting company status as of the end of the second quarter of their fiscal year that ends after December 15, 2007. Those reporting companies qualify for smaller reporting company status if they meet the $75 million in public float test on the last business day of the second quarter of that fiscal year or, if they cannot calculate their public float, the $50 million in annual revenue test. For example, a calendar year-end accelerated filer with a public float of $60 million on June 30, 2007 would qualify as a smaller reporting company.

• In its initial determination year, a registrant that was an accelerated filer in the prior fiscal year may both:

• qualify as a smaller reporting company because it had less than $75 million in public float on the last business day of the second quarter of its initial determination year;
• Remain an accelerated filer because it had more than $50 million in public float on the last business day of that second quarter

Therefore, a calendar year-end accelerated filer with a public float of $60 million on June 30, 2007 would qualify to use the scaled disclosure rules for smaller reporting companies, but would be required to file Form 10-K within 75 days of its fiscal year-end and to include the Section 404 auditor attestation report. A registrant must apply the definitions of smaller reporting company and accelerated filer in Rule 12b-2 of the Securities Exchange Act of 1934 to determine if it qualifies as a smaller reporting company and/or an accelerated filer for each year.

• A reporting company that can calculate its public float and does not qualify as a smaller reporting company in its initial determination year will not qualify as a smaller reporting company in the future, unless its public float falls below $50 million as of the last business day of its second fiscal quarter. A reporting company that cannot calculate its public float and does not initially qualify as a smaller reporting company would qualify as a smaller reporting company in the future only if its annual revenue falls below $40 million. 

• All smaller reporting companies must provide the audit committee report required by Item 407(d)(3) of Regulation S-K. They are not required to provide the audit committee financial expert disclosure, however, until their first annual report after their initial registration statement becomes effective.

• If a registrant is a smaller reporting company and a schedule or form, including Schedule 14A, refers to a disclosure item or a paragraph of a disclosure item in Regulation S-K, the registrant generally has the option to use the disclosure requirements available to smaller reporting companies under that item. However, if the requirements for smaller reporting companies in an item specify that smaller reporting companies must comply with the smaller reporting company requirements, then they must comply with those requirements. For example, for Schedule 14A, a smaller reporting company must provide the disclosure required by Item 404(d)(1) of Regulation S-K rather than merely the disclosure required by Item 404(a), even though Item 7(b) of Schedule 14A refers to Item 404(a) only.

• To comply with the requirements of Item 404 of Regulation S-K, smaller reporting companies must furnish the information required by Item 404(d) labeled “Smaller reporting companies.”

August 15, 2008 — SEC Connect’s Founder, Daniel W. Rumsey, is scheduled to conduct a course on XBRL requirements and developments at a course for members of the Colorado Society of Certified Public Accountants to be held on September 18, 2008.  According to a survey from Compliance Week, most publicly held companies are barely aware of XBRL, the financial reporting technology the SEC is set to impose on corporate America later this fall. Most CPA’s are not even remotely ready, and the course is being designed to provide information necessary for financial and accounting professionals to be prepared, including technical and data tagging details, filing requirements, and schedules for implementation. Mr. Rumsey also will demonstrate how to translate an income statement into a tagged format for filing in XBRL.  Also discussed will be solutions for implementing XBRL, and the role of the auditor and financial advisor in the process.   The course’s objective is to gain an understanding of the requirements, the benefits, and the process for complying with the XBRL requirements, and is designed for auditors, accountants, financial advisors, lawyers, external reporting managers or others involved in filing financial statements with the SEC.

June 20, 2008 — The SEC approved a one-year extension of the requirement for an audit of internal controls over financial reporting in accordance with Section 404(b) of the Sarbanes-Oxley Act (SOX) for smaller public companies (i.e., those that are not required to file annual and quarterly reports on an accelerated basis).  With this extension, the auditor’s attestation report on internal control over financial reporting will be required when a smaller public company (i.e., non-accelerated filer) files an annual report for a fiscal year ending on or after December 15, 2009. It should be noted that this one-year grace period does not relieve smaller public companies of the obligation to provide management’s report on internal control over financial reporting for annual reports for fiscal years ending on or after December 15, 2007.

May 30, 2008 — The SEC issued proposed rules mandating XBRL filing for all publicly held companies. XBRL is a language for electronic communication of business data. Each item is tagged with information regarding various attributes. XBRL-tagged data can be read by any software that includes an XBRL processor and thus can be easily transferred between computers. If adopted as anticipated by the SEC, public companies would be required to file their financial statements, schedules and certain footnote disclosure in XBRL beginning in 2009, for certain large accelerated filers, and for all others, including smaller reporting companies, by 2011.

February 15, 2008 —The SEC has adopted the most significant amendments in over a decade to Rule 144 under the Securities Act of 1933. Rule 144 is the primary legal means, without Securities Act registration, by which

(1) an affiliate (typically, a director, officer or significant shareholder) of the issuer may resell any securities of the issuer into the public market, and
(2) anyone may resell “restricted securities” (typically, those acquired in exempt transactions and not in a registered offering or
open-market purchase) into the public market.

The Rule 144 amendments:

• reduce the required holding period for restricted securities issued by companies that have been subject to SEC reporting requirements for at least 90 days (“reporting companies”) from one year to six months;
• eliminate all Rule 144 restrictions other than the holding period for resale of restricted securities by non-affiliates (except that non-affiliates must comply with the current public information requirement when they resell restricted securities of reporting companies until they have completed a one-year holding period);
• relax the Rule 144 restrictions that remain in place for affiliates by (1) raising thresholds for Form 144 filing from 500 shares or $10,000 to 5,000 shares or $50,000; (2) eliminating the manner-of-sale requirement for “debt securities” (defined to include non-participatory preferred and asset-backed securities); and (3) adding a new alternative volume limitation permitting resale of up to 10% of a tranche or class of debt securities per three months.

The amendments also codify in the text of Rule 144 several important interpretations by the SEC staff, including those permitting tacking of holding periods in holding-company reorganizations and in cashless exercise of options and warrants and those restricting use of Rule 144 by “shell companies” (companies with no or nominal operations and either no or nominal assets or assets limited to cash or cash equivalents).

At the same time these important amendments to Rule 144 go into effect, amendments to Rule 145 under the Securities Act also go into effect. These amendments eliminate application of the Rule 145(c) “presumptive underwriter” provision to business combination transactions (e.g., mergers, exchanges) that do not involve a shell company. This important change will make securities issued in business combination transactions that are registered under the Securities Act freely tradeable in the hands of an affiliate of the acquired company if such affiliate does not become an affiliate of the acquiring company.
The amendments to Rule 144 and Rule 145 will apply, once effective, to securities whether acquired before or after the effective date. The full text of the Rule 144 and 145 amendments is available in the SEC’s adopting release at http://www.sec.gov/rules/final/2007/33-8869.pdf

These amendments add important new liquidity for securities sold in exempt financings and in business combination transactions. They are likely to have a significant impact on the terms and structuring of such financings and transactions by decreasing incentives for Securities Act registration generally, making Rule 144A, PIPES and other exempt financings more attractive and reducing or eliminating the need for onerous registration rights.