On June 28, 2018, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “smaller reporting company” which expand the number of companies that qualify as smaller reporting companies and can thereby take advantage of the scaled disclosure requirements applicable to such companies. The amendments to the definition of “smaller reporting company” will be effective on September 10, 2018.
Under the prior definition, a company qualified as a “smaller reporting company” if: (i) it had a public float of less than $75 million (as of the last business day of its most recently completed second fiscal quarter) or (ii) it had no public float and annual revenues of less than $50 million during its most recently completed fiscal year for which audited financial statements were available. Public float is calculated by multiplying the number of shares of a company’s common equity held by non-affiliates by the price the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for such common equity. Non-affiliates are generally presumed to include stockholders other than officers, directors and stockholders who beneficially own 10% or more of a company’s outstanding common equity.
Under the amended definition, a company qualifies as a “smaller reporting company” if: (A) (i) it has a public float of less than $250 million (as of the last business day of its most recently completed second fiscal quarter) or (ii) it has less than $100 million in annual revenues during its most recently completed fiscal year and no public float or (B) it has a public float of less than $700 million (as of the last business day of its most recently completed second fiscal quarter ) and it has less than $100 million in annual revenues during its most recently completed fiscal year.
A company that does not qualify as a “smaller reporting company” under the amended definition will remain unqualified until such time that (A) it has a public float of less than $200 million or (B) it has less than $80 million in annual revenues during its most recently completed fiscal year and a public float of less than $560 million.
In addition, the SEC amended Rule 3-05(b)(2)(iv) of Regulation S-X to increase the revenue threshold to $100 million from $50 million, thereby permitting acquirers to omit audited financial statements of businesses that are acquired or to be acquired for the earliest of the three fiscal years which would otherwise be required pursuant to Rule 3-05 if the net revenues of such acquired business in its most recent fiscal year are less than the revenue threshold.
The thresholds for companies qualifying as an “accelerated filer” and a “large accelerated filer” remain unchanged. The SEC amended the definition of “accelerated filer” and “large accelerated filer” to eliminate the automatic exclusion under such definitions for any company that qualifies as “smaller reporting company”, thereby preserving the application of the current public float thresholds in such definitions. Accordingly, a company can be a “smaller reporting company” and an accelerated filer at the same time.