One commenter recommended revising proposed Form 1-K to expressly not require the disclosure of an issuer’s plan of operations, as described in Item 9(c) of Part II
582 Heritage Letter.
583 DuMoulin Letter.
584 McCarter & English Letter (noting Exchange Act Form 20-F, 40-F, Form 6-K, and ongoing home country reports).
585 Andreessen/Cowen Letter.
586 OTC Markets Letter.
of Form 1-A.587 This commenter further recommended clarifying whether a Tier 2 issuer is required to comply with Rules 3-10, 3-16, and 8-04 of Regulation S-X in Form 1-K, in light of the reference to segmented data in Item 7(b) to Part F/S of proposed Form 1-A.588 This same commenter recommended that the Commission clarify whether a Tier 2 issuer is required to comply with Rule 8-04 of Regulation S-X in proposed Form 1-K, particularly with respect to probable acquisitions.589
Comments on Form 1-SA
Several commenters recommended requiring or permitting quarterly reporting rather than semiannual reporting on proposed Form 1-SA.590 One of these commenters stated that quarterly reporting is standard in the United States and is not overly burdensome.591 Two other commenters stated that quarterly reporting was necessary for investor protection and to reduce the risk of insider trading.592 Other commenters noted that quarterly reporting might be preferred by market participants but supported a semiannual requirement.593
One commenter agreed with our proposal not to require Tier 2 issuers to have their Form 1-SA financial statements reviewed by an independent accountant, particularly with respect to smaller issuers.594 Another commenter recommended either
587 E&Y Letter (noting the Commission’s intent to follow this approach, as mentioned in the Proposing Release at fn. 397).
588 Id.
589 Id.
590 E&Y Letter; Massachusetts Letter 2; NASAA Letter 2; OTC Markets Letter; WDFI Letter.
591 OTC Markets Letter.
592 Massachusetts Letter 2; WDFI Letter.
593 B. Riley Letter; Milken Institute Letter.
594 ABA BLS Letter. As proposed, such reviews would not be required for any Form 1-SA filing.
requiring the financial statements in Form 1-SA to be reviewed by an independent accountant or requiring issuers to disclose on Form 1-SA that the financial statements were not subject to review.595 Yet another commenter recommended that there be no requirement to provide Rule 3-16 of Regulation S-X financial statements or summarized financial information in semiannual reports (to align with requirements for existing registrants that are not required to include this in Form 10-Q).596 This commenter also recommended clarifying if the financial statements in Form 1-SA can be presented using a condensed format consistent with Rule 8-03(a) of Regulation S-X and if additional disclosure requirements of Rule 8-03(b) are applicable.597 This same commenter recommended removing Item 3(d) of Form 1-SA, because neither this statement nor a statement of changes in stockholders’ equity is an existing requirement on Form 10-Q.598
Comments on Form 1-U
Commenters made a number of suggestions regarding the current report requirements. Some commenters recommended eliminating the requirement to file Form 1-U for the smallest issuers, based on a measure such as asset size or market capitalization.599 Other commenters recommended extending the proposed filing requirement from four business days after the triggering event to fifteen business days after such event.600 Several commenters recommended changing or clarifying the
595 KPMG Letter.
596 E&Y Letter.
597 Id.
598 Id.
599 ABA BLS Letter; Milken Institute Letter.
600 ABA BLS Letter; E&Y Letter; Milken Institute Letter.
“fundamental change” standard in Item 1 of proposed Form 1-U.601 One of these commenters expressed concerns about whether this item will be consistently interpreted and whether the use of the term “fundamental change,” in light of the use of the same term in Item 512 of Regulation S-K, would cause additional confusion.602 This commenter further recommended that, for contracts involving business acquisitions, the measurement of significance in this item should be limited to the investment test and the numerical threshold should be increased to at least 50% to be more consistent with the stated disclosure objective. Three commenters recommended moving to a materiality standard so as to be consistent with the standards in the anti-fraud provisions of federal securities laws, suggesting that this would help avoid confusion.603 One commenter recommended allowing (but not requiring) Tier 1 issuers to report material information on Form 1-U, including the financial statements of significant acquired businesses.604
Other commenters suggested changes to the substance of what would need to be reported on Form 1-U. One commenter generally recommended cross-referencing existing disclosure requirements when a proposed disclosure standard is meant to be the same.605 For example, this commenter suggested that Form 1-U include a cross-reference to Form 8-K when disclosure requirements are meant to be the same. One commenter recommended permitting companies to disclose: (1) a change in accountants in the next periodic filing instead of reporting it on Form 1-U if the change does not involve a
601 E&Y Letter; Massachusetts Letter 2; NASAA Letter 2; WDFI Letter.
602 E&Y Letter. For description of Item 512, see fn. 486 above.
603 Massachusetts Letter 2; NASAA Letter 2; WDFI Letter.
604 E&Y Letter. Two commenters made a similar recommendation without specifying which form should be used for that purpose. See ABA BLS Letter; Canaccord Letter.
605 PwC Letter.
disagreement or reportable event (as defined in Item 304 of Regulation S-K); and (2) sales of equity securities in the next periodic filing if the price was not below that of previous primary offerings.606 Two of these commenters recommended eliminating the requirement to report unregistered sales of securities on Form 1-U, or to raise the reporting threshold to only cover offerings that represent at least 10% of the issuer’s pre-transaction outstanding shares.607