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GUIDANCE FOR NEWLY ELIGIBLE SMALLER REPORTING COMPANIES

Reporting companies that were not small business issuers before the effective date of the new rules need to determine whether they qualify as smaller reporting companies now. They may do so by calculating their public float as of the last business day of their most recently completed second fiscal quarter or, for companies unable to calculate their public float, checking their annual revenue for the fiscal year before the calculation date.

If a company qualifies, it is required to check the smaller reporting company box on the cover of any registration statement or periodic report it files with the SEC. Smaller reporting companies will maintain that status until the year after the next calculation date.

Our company is planning to file a registration statement for an initial public offering. How do we calculate the company’s public float?

A non-reporting company calculates public float based on three components:

It's bona fide estimated offering price per share at the time of filing the registration statement;
The number of shares of common stock outstanding that are held by non-affiliates before the offering; and
The number of shares of common stock to be sold at the estimated offering price.

Example

A company registers 7,000,000 shares in its initial public offering and has 25,000,000 shares of common stock outstanding held by non-affiliates before the offering.

7,000,000 + 25,000,000 = 32,000,000 shares of common stock

32,000,000 x offering price per share = IPO public float

Multiply 32,000,000 shares by the estimated offering price per share in the initial public offering. If the total is less than $75 million, then the company qualifies to file the registration statement as a smaller reporting company.

What happens if a company files its IPO registration statement, calculates its public float, and does not qualify as a smaller reporting company but, after the original filing, the offering price and number of shares being offered decreases such that it would qualify as a smaller reporting company? If the company provided the larger company disclosure at the time of filing the IPO registration statement, but it turns out the company qualifies as a smaller reporting company, can it change its disclosure to comply with the scaled disclosure requirements?

Example

A company registers 7,000,000 shares in its initial public offering and has 25,000,000 shares of common stock outstanding held by non-affiliates before the offering.

7,000,000 + 25,000,000 = 32,000,000 shares of common stock

32,000,000 x offering price per share = IPO public float

What happens if a company files its IPO registration

statement, calculates its public float, and does not qualify as a smaller reporting company but, after the original filing, the offering price and number of shares being offered decreases such that it would qualify as a smaller reporting company? If the company provided the larger company disclosure at the time of filing the IPO registration statement, but it turns out the company qualifies as a smaller reporting company, can it change its disclosure to comply with the scaled disclosure requirements?

The company may recalculate its public float at the time it completes the initial public offering to determine whether it then qualifies for scaled disclosure reporting in periodic reports due after the initial public offering registration statement. But the company is not required to do so.

A smaller reporting company that is no longer eligible for scaled disclosure will no longer be permitted to file registration statements or periodic reports using scaled disclosure. This company may finish reporting as a smaller reporting company for the rest of the fiscal year, including in its annual report on Form 10-K. The company must provide the standard non-scaled disclosure in the first quarterly report for the new fiscal year following the eligibility determination date.

A reporting company that newly qualifies as a smaller reporting company is permitted to provide scaled disclosure as soon as it wishes to do so –– even in the next quarterly report on Form 10-Q it files covering the second fiscal quarter in which the company made its new eligibility determination.

A reporting company without a calculable public float determines its eligibility as a smaller reporting company based on its annual revenues in the most recent fiscal year completed before the last business day of the second fiscal quarter. This company also is permitted to provide scaled disclosure as soon as it wishes to do so –– even in the next Form 10-Q it files after that date.

For purposes of public float, our company was considered a larger company, but when we calculated the company’s public

float on the last business day of the second fiscal quarter, the company became eligible to be a smaller reporting company. When is the company permitted to start filing scaled disclosure?

The company may start providing scaled disclosure in the quarterly report on Form 10-Q that covers the second fiscal quarter of the public float determination date.

Example

A larger reporting company with a fiscal year end of December 31, 2008 that qualified to be a smaller reporting company as of the last business day of June 2008 would be permitted to provide scaled disclosure beginning with the quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2008, which would be due in August 2008.

Our company is a smaller reporting company, but when we calculated our public float as of the last day of the second fiscal quarter, we discovered we no longer qualified as a smaller reporting company. When does the company start filing disclosure based on the non-scaled Regulation S-K item requirements?

The company needs to begin providing non-scaled, larger company disclosure in the quarterly report for the first fiscal quarter following the fiscal year of the public float determination date.

Example

On the last business day of its second fiscal quarter in 2008, a smaller reporting company with a fiscal year end of December 31, 2008 determined that its public float exceeded $75 million as of the end of that day. This company is required to transition out of the scaled disclosure system into the larger company disclosure system by the time it files its quarterly report on Form 10-Q covering the first fiscal quarter of fiscal year 2009, which would be due in May 2009.