April 4, 2017

EGCs: SEC Adopts Technical Amendments

Recently, the SEC adopted technical amendments for self-executing provisions of the JOBS Act – mostly relating to EGCs. This Davis Polk memo highlights that the EGC revenue cap has been raised for $1.07 billion – adjusted for inflation. And as noted in this blog by Steve Quinlivan, many of the ’33 Act and ’34 Act forms have been tweaked. Here’s an excerpt:

Broadly speaking the cover page has been revised to include a “check the box” item to indicate that the person filing the report is an “emerging growth company” and an additional box to check as follows: “If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.”

EGCs: PCAOB Staff Notes Trends

Last week, the PCAOB Staff issued this “White Paper on Characteristics of Emerging Growth Companies,” noting these highlights:

– There were 742 EGC filers (or 38%) that have common equity securities listed on a U.S. national securities exchange. These EGC filers represented 15% of the 4,797 exchange-listed companies – and approximately 1% of total market capitalization of exchange-listed companies.
– Many EGC filers that were not exchange-listed had limited operations. Approximately 50% of the non-listed EGC filers reported zero revenue in their
most recent filing with audited financial statements and 23% of non-listed EGCs that filed periodic reports disclosed that they were shell companies.
– Approximately 51% of EGC filers, including 74% of those that were not exchange-listed, received an explanatory paragraph in their most recent auditor’s
report expressing substantial doubt about the company’s ability to continue as a going concern.
– Among the 1,951 EGC filers, 1,262 provided a management report on internal control over financial reporting in their most recent annual filing. Of those 1,262
companies, approximately 47% reported material weaknesses.
– Approximately 96% of EGC filers were audited by accounting firms that also audited issuers that are not EGC filers, including 39% of EGC filers that were
audited by firms that provided audit reports for more than 100 issuers and were required to be inspected on an annual basis by the PCAOB.

Conflict Minerals: Final Judgment Entered

Here’s the intro from this Cooley blog by Cydney Posner:

Today, the D.C. District Court entered final judgment in National Association of Manufacturers v. SEC, holding that Section 1502 of Dodd-Frank and Rule 13p-1 and Form SD, Conflict Minerals, violate the First Amendment to the extent that the statute and the rule require regulated entities to report to the SEC and to state on their websites that any of their products “have not been found to be ‘DRC conflict free.’” In addition, pursuant to the APA, the Court held the rule unlawful and set it aside but only to the extent that it requires regulated entities to report to the SEC and to state on their websites that any of their products “have not been found to be ‘DRC conflict free.’”

It is now up to the SEC to determine whether and how to revise the existing rules or whether to let stand, at least for the meantime, the Corp Fin guidance that was issued in 2014 and is currently in effect. That guidance requires companies to make the mandated filing on a timely basis without including a statement as to the conflict-free status of the products that could be deemed to violate the First Amendment.

Try Our Quick Surveys!

We have these three new “Quick Surveys” for you to participate in – all responses are anonymous:

Board Approval of Form 10-K

Comp Committee Minutes & Consultants

Rule 10b5-1 Plan Practices

Broc Romanek