In recent years, the SEC – frequently due to Congressional mandates – has reduced the amount of disclosure that smaller public companies must provide. Most recently, on June 27, the SEC proposed yet another rule that would reduce disclosure burdens by enabling more companies to qualify as “smaller reporting companies,” or “SRCs.”
The proposal would expand the definition of SRCs to cover registrants with less than $250 million in public float and registrants with zero public float if their revenues were below $100 million in the previous year.
If your company is not currently an SRC and you are wondering what relief you might get if you were, the proposing release lays it out in an easy-to-read table:
|Regulation S-K Item||Scaled Disclosure Accommodation|
|101 − Description of Business||May satisfy disclosure obligations by describing the development of its business during the last three years rather than five years. Business development description requirements are less detailed than disclosure requirements for non- smaller reporting companies.|
|201 − Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters||Stock performance graph not required.|
|301 – Selected Financial Data||Not required.|
|302 – Supplementary Financial Information||Not required.|
|303 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)||
Two-year MD&A comparison rather than three-year comparison.
Two year discussion of impact of inflation and changes in prices rather than three years.
Tabular disclosure of contractual obligations not required.
|305 – Quantitative and Qualitative Disclosures About Market Risk||Not required.|
|402 – Executive Compensation||Three named executive officers rather than five.
Two years of summary compensation table information rather than three. Not required:
|404 – Transactions With Related Persons, Promoters and Certain Control Persons||Description of policies/procedures for the review, approval or ratification of related party transactions not required.|
|407 – Corporate Governance||
Audit committee financial expert disclosure not required in first year.
Compensation committee interlocks and insider participation disclosure not required.
Compensation committee report not required.
|503 – Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed Charges||No ratio of earnings to fixed charges disclosure required. No risk factors required in Exchange Act filings.|
|601 – Exhibits||Statements regarding computation of ratios not required.|
|8-02 – Annual Financial Statements||Two years of income statements rather than three years.
Two years of cash flow statements rather than three years.
Two years of changes in stockholders’ equity statements rather than three years.
|8-03 – Interim Financial Statements||Permits certain historical financial data in lieu of separate historical financial statements of equity investees.|
|8-04 – Financial Statements of Businesses Acquired or to Be Acquired||Maximum of two years of acquiree financial statements rather than three years.|
|8-05 – Pro forma Financial Information||Fewer circumstances under which pro forma financial statements are required.|
|8-06 – Real Estate Operations Acquired or to Be Acquired||Maximum of two years of financial statements for acquisition of properties from related parties rather than three years.|
|8-08 – Age of Financial Statements||Less stringent age of financial statements requirements.|
The proposing release also contains a table clarifying the definition of SRC:
|Registrant Category||Current Definition||Proposed Definition|
|Reporting Registrant||Less than $75 million of public float at end of second fiscal quarter||Less than $250 million of public float at end of second fiscal quarter|
|Registrant Filing Initial Registration Statement||Less than $75 million of public float within 30 days of filing||Less than $250 million of public float within 30 days of filing|
|Registrant with Zero Public Float||Less than $50 million of revenues in most recent fiscal year||Less than $100 million of revenues in most recent fiscal year|
|Non-Smaller Reporting Company that Seeks to Qualify as a Smaller Reporting Company Based on Public Float||Less than $50 million of public float at end of second fiscal quarter||Less than $200 million of public float at end of second fiscal quarter|
|Non-Smaller Reporting Company with Zero Public Float that Seeks to Qualify as a Smaller Reporting Company||Less than $40 million of revenues in most recent fiscal year||Less than $80 million of revenues in most recent fiscal year|
Comments on the proposal are due by August 30, which suggests that the SEC is not expecting many.