Small Public Company Forum

Most calendar-year companies are preparing to file their 10-Ks soon, if they have not already done so. Here are three basic things to make sure you double check:

• The Economy: We’re officially out of the recession (we’re told), but the economy is in a peculiar state, with the recovery not exactly “roaring” and unemployment remaining high. If your annual report from last year is similar to most, there will have been some discussion about the economic outlook and the relationship to your business and future prospects. Most likely, these discussions are to be found in your “Business Description,” your “MD&A” section and your “Risk Factors.” Prior to filing, you should go back and review these portions of your draft 10-K and update as appropriate given the new state of the economy. For clients I have been working with, last year’s disclosures about the poor state of the credit markets (which affected their growth strategy and their sources of liquidity) needed revising, and disclosures about the impact of high unemployment required some mild updating.

• Sources of Liquidity: Last September, the SEC published guidance on the presentation of liquidity and capital resources disclosures. Prior to filing your 10-K, you should consider reviewing this guidance. To summarize, the guidance stresses the importance of:

• identifying and separately describing each internal and external source of liquidity and any material unused sources of liquidity

• disclosing known trends and uncertainties (such as economic trends and uncertainties) that have historically impacted results or are likely to shape future periods, and analyze the same from the perspective of management

• disclosing your financing arrangements during the period and their impact on your liquidity; in particular, if your financing arrangements differed from your period-end presentation on your balance sheet, variations in this arrangements should be discussed to the extent material to an understanding of your liquidity position.

A link to the SEC’s guidance can be found here: www.sec.gov/rule.

• It’s March 23rd — Do You Know Where Is Your Stock Is Quoted?: An interesting development was reported on The Corporate Counsel blog yesterday (see: thecorporatecounsel.net) (ascribing credit to Bob Dow of Arnall Golden Gregory). Essentially, recently a large number of companies have exited from the OTC Bulletin Board (OTCBB) involuntarily. Most of these companies appear to now have their common stock quoted on OTCQB platform, which is an over-the-counter market operated by the organization formerly known as “The Pink Sheets,” and now known as “OTC Markets.” In some cases, the departure of a company’s stock quotation from the OTCBB was described as being due to “failure to comply with Rule 15c-2,” which is a rule relating to minimum quotation activity. As Mr. Dow points out, some may mistake a removal so described as involving some kind of violation of securities laws by the company. Probably compounding the problem, in 2010 FINRA (which administers the OTCBB) increased the fees it charges market makers to quote stocks on the OTCBB to $6 per security per month. So, from the combined result of 15c-2 removals and increased costs to market makers, many low-price and low-volume stocks in particular have been shuttled by their market makers over to the OTCQB – in some cases without the company even knowing about it! Mr. Dow and Corporate Counsel estimate that this has happened to more than 800 companies previously listed on the OTCBB. The most recent list of deletions is here: www.otcbb.com. If you have historically been an OTCBB-quoted company, you should confirm whether your common stock remains listed on the OCTBB prior to filing your 10-K.