Small-to-Mid-Cap Businesses Impacted by COVID-19 Could See Change in SEC Filer Status

Alerts / April 2, 2020

Reporting companies that use the calendar year-end as their fiscal year-end will redetermine their filing status for reports filed with the U.S. Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 as of June 30. The impact of COVID-19, coupled with a global decrease in oil prices, has created overwhelming market volatility. If stock prices continue to experience downward pricing pressure from these circumstances, many small-to-mid-cap businesses may be able to qualify as smaller reporting companies (SRCs) as of June 30, and others may also be able to qualify as non-accelerated filers as of Dec. 31.[1] Reporting company status is determined by looking at two criteria:

  • Public float: A reporting company calculates its public float by multiplying the aggregate worldwide number of shares of its voting and nonvoting common equity held by nonaffiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity.
  • Revenue: A reporting company that does not qualify under the public float test and either had no public float or a public float not exceeding a specified threshold would determine whether it qualifies as an SRC based on its annual revenue in its most recent fiscal year completed before the last business day of the second fiscal quarter.

A reporting company that did not previously qualify can claim SRC status if its public float is less than $200 million as of June 30. Such a company transitioning into SRC status may reflect its SRC status on the cover of its Form 10-Q for the quarter ended June 30 and must reflect its SRC status in its Form 10-Q for the first quarter of the 2021 fiscal year.

Additionally, if the reporting company’s public float is less than $60 million as of June 30 or it qualifies as an SRC under the revenue test, it can claim non-accelerated filer status as well at the end of its fiscal year (Dec. 31). Unlike SRC status, accelerated filer status takes effect at the end of the reporting company’s fiscal year-end. The chart below explains the transition points for reporting companies.

Reporting Company Public Float Transition Thresholds

Although the revenue test done on June 30 would look back to the 2019 fiscal year-end, a time before the emergence of COVID-19, companies experiencing lost profits stemming from social distancing and safe-work arrangements may qualify for SRC status as of June 30, 2021. Because of a recent SEC rule change,[2] SRCs qualifying under the revenue test that would not also be large accelerated filers also will have the benefit of non-accelerated filer status at the end of their fiscal year.

Companies that qualify for SRC and/or non-accelerated filer status will have the benefits of scaled disclosure, longer filing deadlines and other relief. For example, a reporting company qualifying as an SRC and a non-accelerated filer will be exempt from the Sarbanes-Oxley Section 404(b) internal controls auditor attestation requirement. Other benefits of SRC status are highlighted below:

  • Audited historical financial statement filing requirements are reduced. Only two years of audited financial statements and comparative data, rather than three years of financial information for larger reporting companies, are required.
  • An SRC does not have to provide the following:
    • A compensation discussion and analysis section under Item 402(b).
    • A compensation committee report required by Item 407.
  • The filing deadline for SRCs’ annual reports on Form 10-K is 90 calendar days after fiscal year-end rather than 60 days for large accelerated filers or 75 days for accelerated filers.

If you have any questions about how to determine your company’s filer status, please feel free to reach out to the attorneys listed here or to the BakerHostetler attorneys you regularly work with.

Authorship Credit: Mark L. Jones, Partner - Houston, John J. Harrington, Partner – Cleveland and Adam W. Park, Associate – Houston

[1] A reporting company determines filer status as of the last business day of its second fiscal quarter. Companies using the calendar year as their fiscal year will make this determination as of June 30 each year and will redetermine on June 30 the following year.

[2] Exchange Act Order No. 34-88365, File No. S7-06-19, Amendments to the Accelerated Filer and Large Accelerated Filer Definitions.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.