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December 12, 2007

SEC Opens Up the Shelf: Some Good News and Bad News

At yesterday’s open meeting, the SEC adopted changes to Form S-3 that will allow eligible listed companies below $75 million in public float to register primary shelf offerings on Form S-3, provided that they do not sell more than the equivalent of one-third of their public float in primary offerings during any period of 12 calendar months. Here is the press release and Staff’s statement describing the changes to Form S-3 and Form F-3. The effective date for these amendments will be 30 days after their publication in the Federal Register.

The SEC raised the proposed 12-month offering limitation of 20 percent of public float to one-third of public float, reflecting commenters’ concerns that imposing a 20 percent cap on the amount of securities that could be sold over 12 months would prevent smaller issuers from satisfying their capital needs. Unfortunately for many potential issuers, along with the higher cap comes a new condition that eligible issuers must have at least one class of common equity securities listed and registered on a national securities exchange. As originally proposed, eligible smaller companies traded on the OTC Bulletin Board or the Pink Sheets would have been able to conduct limited primary shelf offerings off of Form S-3.

In making its recommendation to the Commission on this point, the Staff noted that the addition of the exchange-listing requirement was necessary “because the stock exchanges’ listing rules and procedures, as well as other requirements, provide an additional measure of protection for investors by providing listed status to issuers with sufficient public float, investor base, and trading interest to evidence that the market for the issuer’s security has the depth and liquidity necessary to maintain fair and orderly markets.” The imposition of the exchange-listing requirement will substantially narrow the group of issuers that will eligible for expanded shelf-eligibility from approximately 4,900 issuers (as noted in the proposing release) to 1,400 issuers (as noted in yesterday’s press release). As a result, non-listed smaller issuers will likely continue accessing capital through PIPEs and equity lines.

At the same meeting, the SEC adopted electronic filing for Form D, along with some changes to the information requirements for Form D. As noted in the Staff’s statement, the Form D amendments will not be effective until September 15, 2008, and then electronic filing will be on a voluntary basis until March 16, 2009.

The SEC also voted yesterday to issue a concept release on oil and gas disclosure requirements. Here is the press release and the Staff’s statement regarding that concept release.

XBRL: Closer to Reality

Last week, the SEC announced that it was soliciting public comment on the XBRL taxonomy developed to date, as well as instructions on how to prepare financial statements using XBRL. The taxonomy is said cover “every U.S. GAAP accounting concept — virtually every fact that a company might want to report on its financial statements and in its footnotes.”

The “taxonomy review tool” is publicly available from XBRL US and the public comment period ends on April 4, 2008. Get started early if you are interested – it takes some effort to just get set up to use the taxonomy review tool, and then there is quite a lot of information to review.

Casey and SEC Staff Speak at the AICPA Conference

Commissioner Casey and members of the SEC Staff covered a lot of ground on the accounting, auditing and internal control fronts at the 35th Annual AICPA National Conference in Washington earlier this week. Commissioner Casey noted in her speech that she would like to examine more data about costs before implementing the audit requirement for internal controls of non-accelerated filers (and that issue will likely be covered today in more detail by Chairman Cox when he testifies before the House Small Business Committee). The other topics covered by the Staff at the AICPA Conference were:

- Market Instruments Used For FAS 123R Measurement by Mark Barrysmith
- Financial Instrument Topics by Ashley Carpenter
- Guidance on Evaluating Internal Controls by Josh Jones
- International Audit Quality Initiatives by Len Jui
- Software Revenue Recognition and Fair Value by Sandie Kim
- IFRS Financial Statements by Katrina Kimpel
- “Considering Audit Regulation Under SOX” by Zoe-Vonna Palmrose
- Litigation Settlements; FIN 45; and SFAS 141 by Eric West

- Dave Lynn