On May 3, 2012, the SEC Division of Corporation Finance issued Frequently Asked Questions (FAQs) #18-41 related to the JOBS Act on EGCs and scaled disclosure. This release comes three weeks after the initial release of FAQs #1-17 in the same series. Some highlights of the recent series are as follows:
Emerging Growth Company Qualifications
- Question 18. Companies issuing more than $1 billion in non-convertible debt securities over a three-year period will lose EGC status, whether that debt is outstanding or not. However, debt issued as part of an A/B exchange offer may be excluded from the calculation.
- Questions 19-21. Asset-backed securities and investment companies required to register under the Investment Company Act do not qualify as EGCs. However, business development companies, a category of closed-end investment companies not required to register under the Investment Company Act, may qualify as EGCs.
- Question 22. An issuer with less than $1 billion in revenues in the most recent fiscal year will qualify as an EGC, regardless of historical annual revenues exceeding $1 billion, because the definition of EGC focuses on the most recently completed fiscal year.
- Question 23. When calculating annual revenue, financial institutions should use the approach for determining smaller reporting company status under Exchange Act Rule 12b-2.
- Question 24. A successor company is not eligible for EGC status if the predecessor company first sold common equity securities on or before December 8, 2011.
- Question 29. Issuers of only debt securities prior to December 8, 2011, who otherwise qualify as EGCs, may qualify as EGCs because the definition of an EGC focuses only on the sale of common equity securities pursuant to an effective registration statement on or before December 8, 2011.
- Question 32. If an issuer loses its status as an EGC pursuant to disqualifications in Sections 2(a)(19)(A), (B), (C) or (D) of the Securities Act, the issuer may not regain EGC status.
- Question 40. For purposes of calculating the fifth anniversary pursuant to Securities Act Section 2(a)(19)(B), an EGC with a December 31 fiscal year-end that first sold common equity securities on May 2, 2012, will lose its EGC status no later than December 31, 2017.
- Question 27. EGCs are only required to submit ratios of earnings to fixed charges for the same number of years for which the company provides selected financial data disclosures in accordance with Title I of the JOBS Act.
- Question 30. Each EGC that is not a smaller reporting company must provide three years of audited financial statements in its Form 10-K or Form 20-F.
- Question 33. The term "new or revised" financial accounting standard under Section 7(a)(2)(B) of the Securities Act means any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
- Question 34. A foreign private issuer may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised financial accounting standards in order to reconcile its home country financial statements to U.S. GAAP accounting standards.
- Question 35. The extended transition period provided in Section 7(a)(2)(B) of the Securities Act only applies to new or revised financial accounting standards, and only if those new or revised standards apply to companies that are not issuers.
- Question 36. Section 7(a)(2)(B) of the Securities Act does not allow a foreign private issuer EGC to apply standards as if it were a nonpublic entity and foreign private issuer EGCs may not report under IFRS for small and medium-sized entities.
- Question 37. An EGC taking advantage of the extended transition period under Section (7)(a)(2)(B) of the Securities Act may later decide to opt in to the required compliance dates applicable to non-EGCs, so long as the company complies with the requirements of Sections 107(b)(2) and (3) of the JOBS Act and the decision is prominently disclosed in the first periodic report or registration statement following the company's decision and the decision is irrevocable.
- Question 38. If an EGC makes a material error in one or more of its financial statements and confidentially amends and restates its financial statements during the confidential disclosure period, the restatement must be included in the company's disclosures until its financial statements are updated for the next annual period.
- Question 41. An EGC that does not otherwise qualify as a smaller reporting company must still comply with the normal requirements of Item 303 of Regulation S-K. However, if in its initial offering of common equity securities, the EGC's registration statement provided two years of audited financial statements instead of three years, then the company can limit its MD&A discussion to those two years.
Other Registration Procedures
- Question 25. The SEC will publicly release its comment letters and responses to staff comment letters on EDGAR no later than 20 days after effectiveness of a registration statement (the same timeframe with respect to non-confidential comment letters). Issuers should submit their confidential responses to staff comment letters as correspondence files when first filing registration statements on EDGAR.
- Question 26. An EGC should identify information in its confidential filing for which it intends to seek confidential treatment upon public filing. Such companies should follow Rule 83 procedures when corresponding with the commission regarding such confidential information.
- Question 28. EGCs are required to comply with XBRL requirements.
- Question 31. An EGC may use the confidential submission process to submit a draft registration statement for an A/B debt exchange offer on Form S-4 or Form F-4 so long as its initial public offering date has not yet occurred. Either form must be publicly filed 21 days prior to its anticipated date of effectiveness.