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Responses to ACSPC Request for Public InputGeneral Impact of Sarbanes-Oxley ActQuestion 1. Has SOX changed the thinking of smaller companies about becoming or remaining a public company? If so, how?08/02/2005 13:57:44 I am an attorney practicing in the field. Small non-public companies are actively avoiding becoming public, and are pursuing capital through other avenues (i.e. private deals and venture capital). This is a sad state of affairs, and it curtails investments available to the "little guy" in favor of the big boys, many of whom I represent. (That is why I am not giving my name.) In addition, existing small public companies are going dark, or are seriously considering it pending the outcome of this panel's work. 08/02/2005 14:05:34 After reading numerous financial reports over the previous months it is apparent the burden on small companies is significant. Having access to the markets assists small companies opens the doors to growth and expansion. Overly burdensome regulations works to close those doors. Please consider revising the regulations by removing the more harsh and costly provisions. 08/02/2005 14:31:32 I am an active investor in small-cap stocks, and I have seen SOX have a DEVASTATING impact on small companies. Warwick Valley Telephone, Ohio Art, Lynch Interactive, Winmill are just a few of the companies which have had substantial problems complying with SOX--three of these companies have knocked their number of record stockholders below 300 and have delisted their stock to avoid SOX; this has had a devastating impact on stockholders such as myself. I have also anecdotally heard about many small private companies that are not even CONSIDERING coming public because of SOX mainly--this is a DISASTER for entrepreneurs who are the backbone of our economic growth. 08/02/2005 17:44:12 Yes, the cost and risk associated with SOX compliance has become so prohibitive that it signficantly effects a company's competitive position and ability to grow. 08/02/2005 18:15:55 sox is not as big of a problem as is the dtcc's stock loan program, where they loan out shares and in effect have more shares than the company ever issued out in the public. naked shorting that is never covered needs to be stopped for small companies. no grandfathering of non settlements as sho allowed. that is the big problem for companies of small stature, not sox. 08/02/2005 23:36:32 Yes- The costs of compliance for many are prohibitive. 08/03/2005 01:39:17 Yes. It appears the cost of 404 audits is so severe and distracting as to make it unconstructive to remain an independent public company. 08/03/2005 07:01:34 yes, very burdensome and regressive on small companies, the engine of growth. You (regulators) are driving companies to be non-reporting resulting in NO publicly available information availabkle to make informed decisions regarding an investment, the exact opposite result of the 33 and 34 Acts.... 08/03/2005 08:55:04 Yes, cost associated with SOX 08/03/2005 08:58:39 Yes. We are a DeNovo bank 2.5 years old with 815 stockholders. None of which owns as much as 5% of the stock. We are a community Bank. We would not do it this way again. The cost is terrible for an organization our size. 08/03/2005 10:40:26 Yes. We are contemplating delisting to avoid the high costs of compliance with SOX. 08/03/2005 10:50:30 The reporting changes recently imposed have exterminated the traditional Annual Report + 10K formerly distributed to shareholders and replaced it with the so-called Wrap-Around. The result has been the creation of an enigma wrapped in a mystery, inside a conundrum, obscured by gobbeldegook. 08/03/2005 11:03:25 Yes, our bank is looking in to any an all ways to de-register. Currently we have 653 shareholders 08/03/2005 12:17:58 sox has cost smaller companies a great deal of money. small companies are paying the price for the sins of enron and worldcom 08/03/2005 13:55:42 SOX is expensive, small companies have limited funds, and if public have a hard time growing/investing in itself and complying with SOX. 08/03/2005 15:01:40 Yes, Fewer companies can afford the compliance costs and compliance risks to be public. 08/03/2005 15:22:49 If we were looking to go public under todays regulations of public companies, we would not become one. It is impossible for us to reverse our position. Sarbanes-Oxley (SOX) should only apply to publicly traded companies of a much greater market capitalization than our. The burden and cost of compliance is overwhelming. Unlike a company that manufactured "widgets", we as a bank are already fully supervised and regulated. 08/03/2005 16:58:51 Yes, we definitely thought about our options. As of now we are planning on staying public. 08/03/2005 18:01:35 Please look into item no 29 08/03/2005 18:05:44 I believe that smaller companies will not become public or will cease being public because of the additional costs (both cash and time)associated with SOX compliance. Most start-up companies need all their cash to build the company, not to be spent on accountants and lawyers. 08/03/2005 18:30:29 x 08/03/2005 19:54:33 In my opinion, SOX has been so ineffective in its intended purpose, companies are still being "cellar boxed" with impunity to the market makers. Going private is the only option if the company wants to stay in the US exchanges. I do know of one private company in particular that is planning an IPO...but not in the US markets...Taking it off shore to the London Exchange. 08/03/2005 19:55:50 ENFORCED INTEGRITY! 08/04/2005 09:17:19 I believe it has. In the Charlottesville Virginia area, there are new financial institutions popping up that have chosen the privately held route to avoid the regulation. 08/04/2005 09:37:56 yes - costs to comply are making us reevealuate advantages. 08/04/2005 09:39:15 Definently not. There are many small companies which were public before and never should have been public to begin with, but they like using their stock as currency. The only way to do that is if they are public. 08/04/2005 10:40:16 Our small bank grew to over 500 shareholders several years ago. The growth was primarily attributed to being in business for over 75 years and having older generations gift their stock to several members of a younger generation. As a community bank, we do not want to do a reverse stock split to eliminate small shareholders but we have seen other banks do this. 08/04/2005 12:09:05 Absolutely! Our Board and management discuss that every month. The regulatory burden has increased annually for as long as I can remember, but the SOX burden has been like a tidal wave. As a Bank, we are very regulated, with an inherently strong system of internal controls, and the burden is still tremendous. I can't imagine the impact on less regulated industries. We have discussed merging with a larger company more equipped to handle this burden routinely. The economies of scale associated with regulatory compliance favors the larger companies. It makes it difficult to compete. 08/04/2005 13:38:24 Most certainly. We are a financial institution who was already highly regulated and audited. Sox is obviously valuable from the perspective that we have evaluated controls at a much lower level, but the cost of compliance was very heavy for us because of our organizational structure consisting of 3 separate bank charters within the top level company. Documentating Sox for the sake of compliance was a large expense for a small company. 08/04/2005 13:53:47 Probably. Why go public and have the added headaches? 08/04/2005 14:20:27 Yes, it discourages small cap companies from remaining public. The costs for a $50,000,000 company of over $250,000 per year are prohibitive, and create a tremendous burden to earnings. 08/04/2005 18:05:44 Yes. The regulatory cost associated with SOX section 404 is too heavy a burden for all except the largest of companies.(Over 1 billion in revenue) 08/05/2005 10:54:31 The additional cost to become compliant with the regulations is significant for small companies. However, it has not reached the level that we would anticipate becoming a private company. 08/05/2005 12:38:34 Integrity 08/05/2005 12:44:28 After studying the law and making inquiries to the SEC, we still do not understand if there is a size threshold to which SOX applies. The SEC has not responded to our inquiries and we are uncertain what happens when Curlew's market cap increases and/or the company commences trading in the US. 08/05/2005 15:34:53 Yes - We are a small commercial bank, we have consulted with experts to see if there are any avenues we could pursue to avoid all the additional burdens of being a SOX company. Many of our peers are taking action to avoid the 500 shareholder requirement. 08/05/2005 15:43:46 Of 5 banks, 1 is striving to delist and 4 are not able to affect such an outcome but are struggling with the costs of compliance with SOX compliance AND bank regulatory compliance. 08/05/2005 16:45:38 No, SOX has only chnaged the liability for smaller companies when they go public. It has an impact in forcing people to be honest - which they already should be, but high profile and low-profile crimes show that many are not. The only reason that not going public could be adequately voiced is that there are financial irregularities which would not stand scrutiny, or that the company simply isn't able to be profitable enough to meet the "go IPO" barrier. In both cases, cooling the exuberance and tempering it with wisdom forces companies to be better able to stand the rigors of being public issues before going public and collapsing as was done in the dotcom boom and bust era (It is amazing how quickly people forget those lessons). 08/05/2005 19:33:08 Less desirable to become or remain public because of extremely large compliance costs. 08/06/2005 13:52:06 Have become more inclined to go private to avoid cost and legal exposure of SOX 08/08/2005 09:29:48 I believe so. It is another shotgun approach in trying to solve a problem - corruption by a few individuals - who under my system, which I suggested to you previously, would not have been able to profit. My suggestion was as follows rather than SARBOX: "No officer of a publicly held corporation would be able to buy or sell any of the corporation's securities before a press release is made by the company announcing such intentions, and the release allows for 30 days to pass before the transactions can be executed. This would give all investors a chance to revist immediatley and determine for his/herself as to the state of the Company. Currently, these types of transactions are reported after they are executed. Too little to late. There would be no incentive to cheat if you could not leave the party first. Additionally, the objectives of SOX should already be part of a Compnay that has integrity. How did we get so far if we didn't have them. 08/08/2005 11:10:11 yes, the SOX and COSO framework are designed for very large companies where any given dept is too big for the dept head or cfo or ceo to adequately know what is going on in the trenches. SOX forces a small company to spend big money on implementing tests and controls that are not necessary in a small business environment. the cost of SOX is a serious hurdle financially to overcome to become a public company or to justify staying a public company. 08/08/2005 11:39:29 My are of expertise is in banking. I have spoken to several CFO's of other banks, including start ups, none of which would or will consider becoming public. Many smaller banks are becoming s-corporations. Our company has too many shareholders (2,700) to make that are real option. 08/08/2005 14:06:10 I believe it has made some smaller companies rethink their positions as to whether or not it is beneficial to remain as a public company, primarily because of the increased cost of compliance brought on by the SOX 404 regulations. 08/08/2005 15:43:24 We have had good corporate governance and financial reporting processes throughout our 15 year history. For Companies who outsourced much of their financial reporting in the past, SOX definitely would cause them to question remaining a public company. 08/08/2005 21:39:10 Our research indicates that many small companies have gone "dark" and have stopped filing reports with the SEC. They have specifically used the costs associated with SOX compliance as their reason. We believe that many small companies that list on the OTC Bulletin Board will delist their securities if they are able due to the added cost of SOX compliance. 08/09/2005 09:30:31 Yes! Our knowledge is focused on small banks: In our small area, we know of 3 banks that have repurchased stock of smaller stockholders, just to eliminate being a public company. 08/09/2005 13:04:16 Yes, it is perceived as far more difficult to go (and stay) public, and thus has reduced the number of companies willing to do so. 08/09/2005 16:26:34 Not our Company, we will persevere, but our banking peers, particularly samller banks but still publically traded have questioned the value of being public. 08/09/2005 17:25:10 Most definately. If it were my decision, I'm CFO and not the CEO, I would take our small micro-cap company private since the benefits of documenting, testing, and having our outside CPA firm review our fine financial reporting internal controls is not worht the costs. we have good controls and don't need to take our limited resources and do all this work. We're better off using our time to maximize profits and shareholder value. 08/09/2005 19:51:55 We are too small and too new to be involved in SEC and SOX. I am sorry for any inconvenience. Thank you Mary Kisseberth. Major Carriers/owner 08/10/2005 09:04:41 yes. we are trying to remain a private company, because of the added cost of SOX compliance. 08/10/2005 13:33:20 When is Karl Rove going to prison? 08/10/2005 13:44:39 Yes, We have been exploring any and all avenues for to reduce number of shareholders, due to the financial and human strain this puts on our organization 08/10/2005 16:00:18 Everything we hear suggests that more and more companies have either made the decision to delist or are seriously evaluating doing so in the upcoming months. Ours is among them. 08/10/2005 17:18:15 Yes - serious discussions internally of the benefis of remaining a public company 08/10/2005 22:09:27 Yes, the requirements to comply are very onerous and therefore very expensive for a small company to manage. We estimated an additional additional cost of over $500,000 and could easily reach $750,000 depending on the moods of the external auditor who also makes money with applying more restrictions based on there own interpretations which I personally saw over the last year and a half. We had an outside consultant who disagreed with our external auditors an vise versa. Please remember, the same people who are now supposed to get us out of trouble (accountants and lawyers)are the ones SOX is pressing to straighten out the mess 08/11/2005 08:35:22 NO 08/11/2005 20:27:22 YES - definitely, there is no cost benefit for most all smaller companies. Some companies have choose to go private instead of incurring the high cost of compliance. 08/12/2005 13:12:10 It has, as evidenced by the number of my peers who are choosing to go private. The cause seems to be expense related and having to deal with another layer of regulatory oversight in an already heavily regulated business. 08/12/2005 14:46:45 The topic was discussed by Board members. 08/12/2005 16:35:01 We are only publicly registered as opposed to publicly traded. Under our Partnership Agreement, we would be forced to liquidate and dissolve if we tried to deregister. 08/12/2005 18:34:31 Yes, I believe the SOX requirements has doubled the external governance costs (audit and legal) of public companies. SOX implementation significantly hampered our executive productivity and opportunity cost. 08/13/2005 12:39:43 DON'T KNOW YET 08/15/2005 13:08:27 Clearly, the expense and management focus demanded by SOX has caused management and others to question the benefits vs. costs of becoming a public company. There were always costs associated with being public, but SOX has significantly changed the cost/benefit analysis for smaller companies. 08/15/2005 14:27:30 I believe it has increased the frequency of conversations about going private. In my experience, it has not resulted in a decision to do so. I assume, but have no direct experience, that it has been a factor in decisions to sell or to remain private. 08/15/2005 14:33:20 We believe that is a total cos tdecision. Everything has been managed very well before SOX 08/15/2005 15:10:05 Remaining a public company has become more expensive for smaller companies that probably should not have gone public in the first place. Now that they are public and continue to want to remain so, they too should strongly consider maintaining some good basic internal controls...hopefully to be defined soon by COSO. 08/15/2005 15:13:01 Definitely. Our company expended over $2 million in 2004 in order to remain public. Most of this money related to SOX implementation. The costs going forward will be $1 - $1.5 million annually. Management and the Board are constantly discussing whether we should go private because of these costs. It's very hard to justify from a financial standpoint why a sub-$100 million market cap company should be public due to the costs. When friends or colleagues ask about going public, I always tell them to evaluate the costs because they are huge and the requirements of SOX will probably cause their staffing, legal and accounting costs to increase significantly. 08/15/2005 15:14:45 Yes, it dramatically increased the cost of doing business.. 08/15/2005 16:33:43 Yes- Seneca Foods is a closely held low market capitalization company, and unless the cost of 404 compliance is significantly reduced, we will work to reduce the number of shareholders down to less than 300 and go pink sheet. We have no more than 600 shareholders now. 08/15/2005 16:41:14 Yes. Large additional cost to be borne by shareholders, with no immediate return on "investment". Huge investment of management time on compliance, which diverts management from running the business 08/15/2005 18:59:52 It has changed the thinking of smaller companies about becoming public - for companies that are already public, it is difficult to go private, so they are stuck. 08/16/2005 09:51:21 I believe that it has. The combination of high costs and administrative burden are leading companies to question their "public company" status. 08/16/2005 10:10:36 Yes. More reluctance to go public. Concern over costs of going public. 08/16/2005 10:13:05 Yes. Due to SOX, we are considering going private. Compliance with SOX, especially 404, is overly burdensome, with no corresponding benefit, for small companies. 08/16/2005 10:21:17 No. 08/16/2005 10:26:28 yes, cost, time and effort incongruent with benefits of keeping our listing in the US 08/16/2005 10:27:48 Without a doubt, the financial, and other quantifiable and qualitative demands on the institution and its employees is of great concern. It seems uncomprehensivable that one of the most heavily regulated and scrutinized industries (banking) needs to bear yet another burden, and especially of this mmagnitude. The banking industry is used to oversight, however, it would appear that a line is being breached that says all businesses are not capable of adequate safeguards. We feel that smaller entities, and especially those associated with a regulated industry, do not have the inherent risks that we suggest the legislation was designed to eliminate or lower. 08/16/2005 10:42:02 Absolutely. Small companies need to carefully evaluate the cost of being public, including the dramatically higher cost of audits, SOX compliance costs, management diversion and the personal risk taken on by management (more precisely, the fact that more than ever, management is subject to 20:20 hindsight. 08/16/2005 10:44:16 Yes. I think it has been enough of a disruption to have smaller companies consider going private. That has not been an option for us - too many shareholders. 08/16/2005 10:45:16 Cost benefit of a commercial bank. 08/16/2005 11:18:54 Certainly. The costs of compliance have to be considered in any decision, along with what benefit, if any, is derived. The costs of Sox are varied: doubled audit fees, an extraordinary amount of staff time spent on documentation, software costs, to name a few. The benefits would appear to be limited, perhaps a perception on the part of regulators and professional investors that financial results are now more accurate. The probelem with this approach, however, is that it makes a presumption that most financial statements were inaccurate prior to Sox and I simply don't believe that was the case. 08/16/2005 11:41:07 Yes. Less likely due to the cost and the fact that SOX effectively discourages risk-taking. 08/16/2005 11:52:16 If we could go private we would. The reporting is just too onerous. 08/16/2005 12:14:10 The cost is high in both out of pocket cost and in the time required by senior management. The highest cost is probably in the non-productive work that is being done. 08/16/2005 12:15:34 Yes it has due to the costs and the time involved. We have even contemplated the possibility of going private due to the high costs associated with being a public company. 08/16/2005 12:40:54 Not possible to remain a small public growth company 08/16/2005 12:42:56 If we were not public, we would not consider going public at our current size, solely due to SOX. As a public company, we have seriously considered the circumstances under which we would go private, again solely due to SOX. 08/16/2005 13:04:14 We have looked at "going private" because of the added costs SOX 404 will mean to the company. Our market cap is too high for us to consider at this time. But SOX compliance will probably cost us about $200,000, or nearly 5% of pretax earnings. 08/16/2005 13:12:04 Yes. Yes. The cost of being a Public company is now incompatible with good business financial management practice and further places the DRI company at a material disadvantage Vs competition. 08/16/2005 13:19:29 In the past, most small companies I work with viewed becoming public as a positive. The benefit was in wider shareholder approval, whil the cost was a regulatory environment which essentially required the following of general sound operating principles. While large public companies are able to bear the burden of the additional SOX regulation, smaller companies simply cannot, which makes the cost too high to warrant the intangible benefit. This can tend to cause problems when companies need to raise additional capital but are now more stringently limited in how they can do this. 08/16/2005 13:20:23 No. Main concern is increase in compliance cost but has not affected decision to be/stay a public entity 08/16/2005 13:25:32 We are seriously considering taking the company private. There is support at the Board level, and the belief among management that being private would allow us to focus our attention and financial resoureces on being a great business instead of a compliant one. 08/16/2005 13:27:00 Yes. It makes the cost and burden of being a public company much higher. The bar has been raised as to the amount of revenue needed to become public. 08/16/2005 13:30:33 Not for Echelon, but I would advise private companies to think about the "SOX tax" as I call it. SOX is a regressive tax, representing a higher percentage of revenue for smaller companies. 08/16/2005 14:08:05 Yes. The costs of being a public company have increased substantially because of the Sarbanes-Oxley Act. 08/16/2005 14:23:10 The impact of SOX 404 clearly gives a competitive advantage to private companies with respect to administrative and accounting work load and the related inefficiencies. 08/16/2005 14:44:16 Yes, the cost of the additional SOX is not adding value to the companies furtue. It also is not minimizing the investment risk. It only reduces the net income, increasing the profits to the service organizations and brings minimal value to the shareholdrs. 08/16/2005 15:15:12 Very much so!!! The burden that SOX places on management and the company bottom line is so large that many smaller companies are looking at ways to return to non public status. 08/16/2005 16:08:50 Yes. When the hard dollar costs to comply with SOX are combined with the soft dollar costs (together estimated at 2% of sales), the cost of remaining public outweighs the benefit. The burden to comply on smaller companies is too great and unnecessary. 08/16/2005 16:09:47 Yes. Smaller companies who can avoid "going public" are staying priviate to avoid the huge reporting burdens imposed by SOX. 08/16/2005 16:16:04 Absolutely. The company is a micro cap company reporting minimal pretax income. the stock is thinly traded and the market has not enbraced a small retailer in the NY market. Sox compliance (404) will cost 250k-500k. We will be working all year to pay accountants and could report a loss due to 404 compliance. Our internal control environment is a simple retail structure with strong controls and no divisions or subsidiaries. This is unreasonable based on the Company's size and the benefits will be minimal and the costs far out weigh these benefits. 08/16/2005 16:45:09 Makes being a public company much less attractive as a result of the increased cost of compliance with no preceived benefits. Before SOX, it was of questionable benefit to be public if revenues were below $200 million based on the costs and the legal exposures of being public 08/16/2005 18:21:27 Yes, those that are consider going private and those that aren't question the need to go public. 08/16/2005 18:35:41 We are seriously considering deregistering to save the nearly $2 million first year cost we estimate will be required for SOX 404 compliance. 08/16/2005 19:18:56 I believe yes. The demands of complying with the SOX requirements and the related costs (both initial and continuing) are prohibitive. I believe that the costs of SOX compliance have, by definition, made the capital markets less accessable to smaller companies. I believe that the decision to go public is much more difficult now than in the past for smaller companies. The market does not reward a smaller company with a higher valuation if it is SOX compliant. In fact I believe that valuations for smaller companies are lower, overall, due to the detrimental effects the costs of SOX have on small company earnings. 08/16/2005 21:29:07 Going private will eliminate a major and unnecessary expense. 08/16/2005 21:40:38 Yes. Sox is forcing small public companies to go private 08/17/2005 06:57:10 Cost of compliance appears to be prohibitively high for smaller companies. And since the cost of implementation may not vary directly with size, asking smaller companies in their growth stages to bear such costs can be very daunting. I believe that companies considering whether to remain private or go public should seriously weigh the cost issue related to SOX. 08/17/2005 10:59:57 Yes it has added overhead cost by increasing Audit fees and additional employees more than $1 million per year. 08/17/2005 12:28:22 No. We still will wnat access to the capital markets, but need to significantly reduce compliance costs. 08/17/2005 12:36:00 I was formerly part of a smaller company; SOX clearly increased our interest in merging, which has resulted in a larger company. 08/17/2005 12:48:33 Cost 08/17/2005 13:25:50 If not for the negative PR, we would begin a process of reducing our shareholder base of about 1,000 shareholders mostly less than 1,000 shares. 08/17/2005 16:18:39 Yes. We intend to go private because of the huge Sarbanes Oxley compliance costs. We paid approx $3 million in fees for SOX compliance for year 2004, and our audit fees increased by $700K over what they would have been without SOX because the auditors significantly expanded their testing. That represented almost 4% of our total revenues for 2004, which is an expense that no company can afford. 08/17/2005 18:49:27 Huge time burden on management that forced us to hire additional people (which decreased our profits), it also distracted management from running the business (which decreased our profits). It has made it harder to recruit board members and audit members in particular. We have had to pay our board members which we never used to do (decreasing our profits). One board (and audit committee) member told me all his friends told him he was "insane" so be an audit committee member. We have seriously considered going private, but practically we are too large to do so in a way that is beneficial to out stockholders. The cost of remaining a public company (and we are very lean on expenses) is over $4m annually (roughly $2m directly related to SOX) or roughly 30% of the operating profit generated by our operating divisions. This is a huge burden for our stockholders to bear yet we have seen no increase in the PE ratio of SOX compliant companies which is what you should expect if investors all now perceive a lower level of risk associated with our financial statements. It is not that there is no benefit to SOX, it is just that the cost far outweighs the benefit. 08/17/2005 19:31:08 Yes. The costs incurred for the privilege of being public have increased exponetially. These cost are burdensome and will become even more burdensome in the future. Because of this, we are seriously considering ways to go private. 08/17/2005 21:27:12 Somewhat. The costs of compliance are very high. 08/17/2005 22:55:14 I believe it has encouraged small, public companies to consider going private or to sell to a larger company and it has resulted in delays in IPOs for smaller private companies. 08/18/2005 08:03:31 Yes - not interesting anymore - Nasdaq's formula to success - help small companies to become big had been totally damaged. 08/18/2005 15:26:25 Yes. For certain small-cap companies, the anticipated cost of compliance (external costs only) could potentially wipe-out the entire net income. In addition, there is a high likelihood that a fundamental weakness is reported even after sepnding this money due to the lack of sophisticated control procedures or staff required in order to meet the COSo requirements. 08/19/2005 02:56:12 No, we're just large enough to cover the cost of complinace, but small enough to feel the pain of high out-of-pocket costs. 08/19/2005 11:44:44 It will become a deterrent for companies thinking about becoming a public company, if it already hasn't. It certainly has made life more difficult for smaller companies with limited staff and resources. I can understand why some companies would consider de-listing to avoid complying with the burdensome requirements. 08/19/2005 12:28:03 Yes, it is definately an issue that needs to enter the decision process. It is not a hurdle the can not be acheived but, the cost ramifications can be significant. 08/19/2005 13:49:01 Yes, the financial burden of complying with SOX is a major deterrent to smaller companies becoming a public company. One merely has to read the numerous professional articles to learn the portion of earnings that is going to fund the SOX projects. In addition, there are numerous companies that are choosing not to remain a public company because of this burden and others that would make the choice to become a private company if they were able to absorb the financial impact of doing so. The Company from which this response is made incurred a total of $1.5 Million from the time the compliance effort started in December 2003 through the end of June 2005; a period of 19 months. This is a run rate of approximately $950,000 per year. 08/19/2005 14:40:28 It has caused many financial executives and non-financial executives to reconsider their public status as well as future growth plans. Smaller companies are more resource constrained than larger public companies and adidtional compliance costs mean cost-cutting in other areas or postponing business expansion. 08/19/2005 14:50:07 Our board of directors is presently considering delisting due to the disproportionate expense for a small company. 08/19/2005 17:03:28 Yes. Small private companies are reluctant to go public due to the high cost and time requirement. More of these companies are looking into debt as a financing option. Small public companies with fewer than 300 shareholders are filing Form 15 and becoming non-reporting public companies quoted on the pink sheets. This gives the shareholders less information on the company's performance, less liquidity, and a lower stock price. 08/21/2005 03:34:34 I think it does. There are so many different rules and regulations, limitations and reports, that involve much more work with the accountants, lawyers, special consulting companies, preparing so many different procedures, that are many times are not suitable for small companies, that for small companies make the cost of being registered as a public company too high. 08/21/2005 04:46:26 I will refrain from taking a company smaller than 1B$ valuation public on NASDAQ. I will try to take private any company valued lower than 300M$. 08/21/2005 22:19:50 Yes - The cost to comply with the regulation is so great that unless a company needs to go public, the return to investors would be greater if they remain private. 08/22/2005 14:21:23 It has made us seriously consider going private. We just can't raise the funds 08/22/2005 15:20:23 While I have no data to back this up, I do not believe that SOX changes the decision to go public. If a company was considering going private, I can see SOX helping to weight that decision, but not drive the decision. 08/22/2005 15:47:02 Yes. IEC is a small public company. Annual sales $25 million, market capitalization $ 5 million. IEC spends approximately $300,000 per year to comply with existing SEC requirements. Sarbanes Oxley compliance will add another $200,000 per year (ongoing). That's too much for a small company to bear. 08/22/2005 15:47:34 To the extent that a smaller company is unable to obtain compliance without outside assistance, it is more likely to consider going private. If a company has internal staff that have some comfort level in implementing the provisions of SOX there is a sense of being able to control the associated expense. Without that internal staff, companies have no sense of control over the expense of obtaining compliance and have been given estimates of several millions of dollars, even for small companies. It would not discourage a company from an IPO. 08/22/2005 17:54:28 Yes, and the general thinking is that being a public company has become less attractive. This is especially true for an established company such as ours--the costs and risks of being public increase, but there is declining benefit. 08/22/2005 17:56:59 The pure cost of implementing SOX is very high in rleation to our size, and the ability of a smaller company to have all the controls, because of number of employees, is difficult. 08/22/2005 19:27:18 Given our market cap, we wil remain public, but clearly it is more cost effective to be private. 08/22/2005 20:10:17 It has our company between a rock and hard place. Taking the company private would require intense capitalization and result in shareholder lawsuits. We have run our company lean and mean in order to grow, be successful and remain profitable. Increasing accounting costs the past two years form the prior years of about $30,000 per year to last year and this year $100,000, certainly takes a toll on the profitability side. The internal controls done as a one size fits all program will be impossible to comply with as our company has neither the departmental managers nor the additional employees to have the redundancy and for the duplicity required. 08/23/2005 00:42:38 Yes. We have considered going private to avoid the burden in terms of cost and in terms of focus. 08/23/2005 07:47:56 Sox delay the time that smaler company can and want to go public 08/23/2005 09:50:27 yes....the cost associated with audit fees and filing fees is hard on smaller companies 08/23/2005 15:56:30 Yes. 404 implementation and attestation fees far outweigh benefits to the company and/or its stockholders. 08/23/2005 16:06:08 I have talk to some of my community bankering contacts and several have given serious consideration to delisting. This is in direct reaction to the regulatory burden and requirements of being a public company. 08/23/2005 16:49:34 Yes - Due to the increased costs associated with the increased man hours involved internally as well as the additional cost for more extensive outside auditing and consultation. 08/23/2005 18:10:00 Definitely. Very expensive to comply. 08/23/2005 21:11:03 Yes, For the most part small companies, i.e. <$200MM in revenue, are faced with a huge increase in costs and little material benefit in improved risk control. 08/24/2005 08:50:18 Not our company, but yes, I know several Tampa area companies are trying to go private because of it. 08/24/2005 10:14:02 Yes. We have managed to kep up thus far but the 404 Compliance costs will force our company to go private. 08/24/2005 11:28:21 Yes. It has delayed the IPO process for our business by at least 18-24 months and possibly indefintely. We have spent significant time evaluating an IPO in the Canadian market place to avoid compliance with Sec 404 of SOX. 08/24/2005 12:24:07 Yes. There is a much higher threshold of work and cost related to becoming a public company. It is more difficult for earlier stage companies to access public markets. 08/24/2005 14:30:13 Yes, the cost, resources and time to document processes, test and have the outside auditors do the same work are large even for a small company. Its definitely something that a company has to consider before or remaining public. In addition, the timing of when a company would go public has be considered as to being SOX compliant. 08/24/2005 16:19:27 Yes,it has increased tbe compliance cost many times over as well as added additional staffing costs. Being pragmatic and looking at the cost versus the benefit it is not worth it for small companies. The benefit isn't there. It is overkill legislation. 08/24/2005 16:26:56 Yes. Because SOX has increased compliance costs associated with being a public company (benefits, if any, are not yet evident), smaller companies will find it more difficult to generate returns sufficient to interest potential investors in a new public offering. Similarly, companies that are currently public have been or are being required to incur greater costs in enhancing, documenting, and obtaining an independent accountant´s attestation of a system of internal controls. The relative cost is greater for smaller companies than for larger companies due to greater challenges in segregating duties, and greater use of outsourced or contracted assistance to comply with SOX. The aforementioned items do not consider the substantial opportunity cost of management time spent on SOX. 08/24/2005 16:54:47 Yes. The cost of compliance outweighs the benefits of being public. 08/24/2005 20:16:09 Yes. Our company became public because we are a 50 year old bank holding company and our shareholder base went over 500 shareholders due to being in business for so many years. We are not traded over any exchange and do not plan to do so in the future. We would prefer NOT to be public. We are a community bank and do not feel we could buy back shares to get under 500. The cost of SOX is so great in terms of expense, employee time and company focus that we would advise any small business NOT to go public. It is just too expense. Community Banks survive on margin (versus volume for large banks) and SOX along with all the other regulations hitting banks (BSA, CRA, etc.) our margins are being impacted. 08/25/2005 13:39:06 Because we have public debt, we are required to comply with the Sarbanes/Oxley bill. 08/25/2005 15:23:41 Yes, if the process was not so cost intensive, smaller companies may try to go private. However, the constraints of not accessing the capital markets may be the ultimate decision. 08/25/2005 16:04:36 Yes - smaller companies must carefully weigh the additional cost of remaining/going public versus the benefit of access to capital markets. 08/25/2005 16:26:29 Yes. Many smaller companies are attempting to de-register if at all possible. 08/25/2005 17:02:43 Yes, due to the increasing cost of becoming a public company. 08/26/2005 12:41:42 The potential cost in dollars and time of becoming and maintaing SOX compliance is an issue for Synthetech. We have discussed transactions designed to remove Synthetech from SOX oversight that would not have been topics pre-SOX. 08/26/2005 13:07:22 Absolutely,we are contemplating delisting as have many other small banks or their holding companies in the U.S. 08/26/2005 15:10:01 Yes. Our industry is already heavily regulated, and we had to spend many hours weighing the pros and cons, especially the cost, of remaining a public company. 08/26/2005 15:31:29 The costs associated with becoming Sarbanes-Oxley compliant could be prohibitive for a small company. 08/26/2005 16:22:08 Yes. Because it is costly to comply with and that has to be considered when going or staying public. 08/26/2005 17:46:13 Yes, SOX got me thinking that smaller comapnies cannot afford to become or remain public companies. The costs - in $$, time, management attenetion, director's risks - are just too high. 08/26/2005 19:53:54 Yes, it is extremely difficult for a small company to be able to comply with the requirements. The costs being charged by accounting firms are extremely high and auditing firms are multiplying their fees. The result will be the stifiling of small companies and the cutting off of equity capital investment in the entrepreneurial enterprise. 08/27/2005 11:21:03 Yes; costs are way up; accounting firms now provide far less guidance; lots of uncertainty and expense. The bright side is there is still strong activity among promoters to create and promote new small public companies 08/28/2005 17:59:58 The question comes up quite frequently when speaking with the investment community. SOX has essentially doubled the cost to Key of being a public company. 08/28/2005 23:37:43 Yes. A number of small public firms with whom I am familiar have seen the value of public capital shrink of late, due to the dramatic increasein reporting costs. 08/29/2005 07:07:37 Yes. Interest to become or remain public decreased due to burden of work and expenses. 08/29/2005 10:21:15 SOX has made delisting a greater topic of conversation, particularly where companies are primarily owned by a small group of shareholders. Smaller companies are analyzing the number of minority shareholders involved, the number of shares owned individually and as a group, as a large majority may control only a minimal amount of a company, and determining whether delisting is a viable option given the effort and cost involved to reduce the number of shareholders. 08/29/2005 10:21:25 SOX has made delisting a greater topic of conversation, particularly where companies are primarily owned by a small group of shareholders. Smaller companies are analyzing the number of minority shareholders involved, the number of shares owned individually and as a group, as a large majority may control only a minimal amount of a company, and determining whether delisting is a viable option given the effort and cost involved to reduce the number of shareholders. 08/29/2005 11:21:29 Yes, many small companies are exploring the benefits and drawbacks of being a private company as opposed to being public. Smaller companies need to determine if the liquidity of its stock and the access to capital outweighs the costs of compliance with a mountain of regulation. 08/29/2005 14:18:47 Because the Advisory Committee is very interested in hearing from investors, I'd like to make clear that I am representing an investor's point of view as the publisher of “The Analyst's Accounting Observer.” I believe that SOX has changed the thinking of some smaller companies about becoming/remaining a public company. I can only judge by press reports and from anecdotes collected from other investors in small firms. However, I do not believe that all small firms contemplate a private existence as a result of SOX, or even a majority of them. The press has given a voice to firms that are mostly hostile to SOX; that's what makes news. I'm not convinced that this thinking is representative of the thinking at all smaller firms. 08/29/2005 14:53:30 Yes. The cost of being a public company is now astronomical. Not only the cost of public audit but the hidden internal costs of implementing counterproductive measures to comply with the rules (please see my answers to questions 3., 6. & 14.below to understand my use of the word counterproductive). 08/29/2005 15:31:21 Our management's feeling is that SOX or some variation there of will be required by regulators for Banks, regardless of whether or not the Bank is publicly held. 08/29/2005 16:10:53 Yes---Since we are a bank holding company we are already subjet to Federal regulators(the Office of the Comptroller of Currency)the "OCC", the Federal Reserve, Nasdaq,the FDIC,the SEC and our outside auditors. How will a seventh level of review help us. If we could become private it would make a great deal of sense since the cost of being public is now "out of hand". The implimentation of SOX 404c will cost my shareholders $550,000 over the next five years. Companies that have current Federal regulators such as the OCC should be exempt from the provisions of 404c. 08/29/2005 16:20:53 Yes, The cost and extra manpower needed are almost prohibitive. 08/29/2005 17:09:27 Absolutely, the prohibitive cost of complying eith SOX makes going or remaining public a much less attractive option. Small companies are delisting and privatizing as a result of SOX. 08/29/2005 17:12:26 I think certain companies that don't expect to increase significantly in size are having second thoughts on whether it is worth staying public with the added costs of SOX compliance. In less they really have the need to access the public markets, they may not see the need. 08/29/2005 17:12:43 Yes, the costs of remaining a public company such as Sarbanes-Oxley related project costs, higher professional service fees, additional compliance staff, etc... are putting them at a competitive disadvantage compared to private peers as hurting the stock price (currency of the company) via huge EPS impact. 08/29/2005 17:36:32 If the cost of maintaining a listing continues at the current levels it becomes unaffordable. 08/29/2005 19:02:32 Prior to SOX, we were not so sure of the value of being public. Now, we are sure there is very little value for us to be public. Obtaining money is easier in the form of a loan or bond issue, also cheaper. 08/29/2005 19:05:24 For smaller companies, SOX compliance requires significant cash costs, a significant commitment of internal resources, and significant diversion of management attention. The burden imposed by SOX is injurious to entrepreneurship and creates a significant incentive for smaller companies to delist. For privately held companies considering going public, we believe the owners perceive, correctly, that the SOX regulatory overkill will damage the entrepreneurial spirit that enabled the company to achieve its current success. 08/29/2005 21:00:01 Yes, I believe that smaller companies have at a minimum gone through the exercise of determining if the new regulatory costs outweigh the advantages to being a public company. 08/29/2005 22:40:58 I am aware of a couple of microcap companies that chose to go private rather than pay the high compliance costs related to SOX. 08/30/2005 15:04:16 Yes, the disadvantages of being public far outweigh the advantages. The "Catch 22" is that the burden of converting to private under SOX is too difficult so most small businesses - just muddle through the regulatory burden the best they can and remain public. 08/30/2005 15:07:00 SOX adds yet another cost and barrier for smaller companies considering becoming a public company. Smaller companies typically seek the public market because they are in need of growth capital. However, the cost and effort required by SOX is so significant that I believe many smaller companies will opt for alternative means of financing growth. 08/30/2005 16:27:18 Yes, the cost of current regulation is overwhelming the benefits accrued to a Company our size. 08/30/2005 17:08:46 Yes, smaller public companies are evaluating remaining a public company due to high cost of compliance with SOX relative to real benefit to shareholders. 08/30/2005 17:23:36 Yes. I'm sure the board of managers didn't know how complex the regulations were going to be with a public company. 08/30/2005 18:26:14 Smaller companies now have to weigh the additional considerable cost and burden of SOX compliance into their decision on becoming or remaining public. Because the costs of compliance will continue indefinitely into the future, they could significantly eclipse the benefits associated with becoming or remaining public. 08/30/2005 18:48:02 Yes. A smaller company may decide not to go public until it is larger and can better afford the cost of SOX. 08/30/2005 18:51:48 Yes, we believe that it has changed the thinking of smaller companies primarily because of the costs associated with implementing and maintaining SOX. We have been told by our auditors that their fees will increase between 50 & 100% because of the new regulations. In addition, we have had to hire a third-party firm to perform the documentation and testing for SOX. There will also be costs associated with the new controls that we must implement. For a smaller company, we believe that the costs associated with these new regulations outweigh the benefits we will receive. 08/30/2005 19:47:16 We are an investment banking firm focusing on micro-cap companies. We have found that firms that are considering going public are choosing alternative paths to raise capital once they discover how expensive and onerous it is to comply with the SOX regulations. SOX regulations are discouraging small firms because of the expense to hire personnel, difficulity of recruiting independent directors with the required expertise, and the tremendous drain on company resources. 08/30/2005 21:07:56 Yes, the cost of going public and remaining compliant has increased significantly for smaller companys and takes awa fron development costs and core business initiatives. 08/30/2005 21:39:41 Yes, we believe that the high cost of SOX compliance costs has discouraged smaller companies from becoming and remaining a public company. The cost of going public cannot be simply measured in dollars to external auditors or implementation of SOX. The cost of asking entrepreneurs to mitigate their competitive advantage through the SOX process is unquantifiable, and certainly intimidating to most. 08/30/2005 23:57:28 No. 08/31/2005 08:31:59 Yes, the costs far outweigh the benefits. It has placed an administrative and operational burden on companies. Please note, we are not a small company by SEC standards. However, our answers apply to all levels of companies subject to SOX requirements. 08/31/2005 09:09:25 Yes. Cost is eroding profits too much. Would be more profitable as a private company. 08/31/2005 10:19:14 SOX is a huge cost for smaller companies that are already SEC registrants. Many such companies are working to buy back shares and leave the SEC registrant arena. For ven privately held companies with over 500 shareholders that are approaching $10 million in total assets, SOX represents a very significant cost. 08/31/2005 10:21:37 Yes, a number of smaller companies have given consideration to going private. Cost of SOX and audit fees make going private increasingly attractive. 08/31/2005 14:00:12 Due to the expense and management time required by Section 404, the Board has considered the wisdom of remaining a public company. No decission has been made. 08/31/2005 14:00:16 The costs associated with becoming or remaining public for smaller companies are already high, relatively speaking, and given the current state of the capital markets, the benefits gained as a result of being public are difficult to measure. If measurable, one could certainly argue that the benefit do not exceed the costs in most cases. SOX, and specifically SOX 404, has changed the thinking of small companies. The costs associated with compliance is so daunting, given that fact that many small companies do not have the structur to support a formal internal audit staff, etc. Our company has already spent $175,000 (6.5% of our net income last year) in hard costs in order to simply document the control system currently in place. 08/31/2005 14:12:37 We believe that the requirements of SOX 404 in particular have had a significant impact on smaller companies´ views of becoming or remaining a public company. In smaller companies where the finance and accounting departments may consist of no more than 8-10 individuals, it is nearly impossible to comply with all that is required of SOX 404 without adding additional headcount or retaining consultants. Either option is extremely costly (on a relative basis) to a smaller company. 08/31/2005 14:23:48 We would go private if we could afford it. 08/31/2005 14:25:37 Yes. The cost is too great for the benefit we received. We are on the over the counter and do not trade enough shares to justify the cost. 08/31/2005 14:32:46 I don't think it has impacted companies remaining public, but I think it has had an impact on the decision to become public. I believe new startups will look to other forms of financing first, making the decision to go public only if other forms of capital or financing are unavailable. 08/31/2005 15:19:27 Yes, additional costs. In addition to having to hire the requisite SEC reporting staff, you know will need to establish an internal audit dept or hire outside consultants. 08/31/2005 16:05:33 Yes,after going through all the requirements for a public company and the huge expense associated with staying in compliance and if I had to do it again, I would do anything in my power to stay a non reporting company. 08/31/2005 16:13:45 Yes. Smaller companies are considering not becoming a public company or no longer being a public company due to the cost and potential regulatory burden of SOX 404. 08/31/2005 16:16:33 1. Smaller companies certainly take SOX into consideration when thinking about becoming or remaining a public company. Smaller companies generally do not have the resources (time, money, manpower) as larger companies. Though SOX itself may not be the determining factor, it is another burden that these companies must endure. This decision is made on a case-by-base basis, and each company must make its own cost-benefit analysis. SOX is simply another issue that must be analyzed by a company before going public, or remaining a public company 08/31/2005 16:29:59 Yes, it is now more a topic of discussion, costs to comply and continue to comply keep going up. Small companies with small staff require outside consults for reviews and testing at very high costs. 08/31/2005 17:16:33 Only section 404 appears onerus. SOX in general does provide improved transparancy. But there needs to a layered approach to accomodate the issues and concerns of smaller companies without breaking them. 08/31/2005 17:57:10 Yes, the costs of SOX, particularly 404 have caused us to question remaining a public company. 08/31/2005 18:22:30 Yes. They see the cost and “hassle factor” of being a public company as much higher than it used to be. They also feel that the risks associated with being a public company have increased. 08/31/2005 18:23:08 Yes, Sarbanes Oxley has changed the thinking of smaller companies about becoming or remaining a public company. * Internal costs related to implementation * Internal time to implement * External Audit costs are significant – in some cases 404 compliance audit is more than financial statement audit * Potentially impact the size – filing status based on market cap <$75M * Inability to achieve adequate segregation of duties A significant issue that arises for a smaller company is limited resources. Smaller companies may not have the ability to designate internal staff to implement SOX without disrupting the day-to-day operations. As result, many companies hire employees and/or consultants to assist in the implementation. Plus, external consultants result in a loss of knowledge when they leave. Having internal resources working the topic means they are not spending the time necessary to improve/build/bring value to the business as well as to maintain/monitor the existing control environment. In the first year of implementation, many companies are experiencing excessive external audit expenses from 404 compliance. Smaller companies when compared to large companies do not have the same variable resources to absorb the costs, i.e., the amount spent as a % of revenue and time is disproportionate. 08/31/2005 19:16:05 1. Yes. Our company is currently $10MM sales and $35MM market capitalization with an accounting staff of four people. We do not believe we can comply with duty segregation rules. Nor do we believe that we can comply with the information technology requirements of section 404 in a cost effective manner. Since we may encounter other compliance difficulties we are concerned that the company may eventually be forced to take an action that would end the company´s need to comply. 08/31/2005 20:55:07 It should have, as the cost of being a public company is already very high and these costs will soar when SOX is fully implemented, with no real benefit or value to show for the time or monies spent. 09/01/2005 00:55:31 Yes. Concerns over excessive regulatory burdens and related costs outweigh benefits. 09/01/2005 11:40:19 I believe that most companies that had considered going public are rethinking that option due to the excessive costs which impact their competitive positions and profitability. The costs are very impactful to companies that are smaller and not hugely profitable. 09/01/2005 14:30:54 The increased audit expense, paperwork and accounting burden has caused second thoughts on the advisability of being a public company. American business has been very successful by permitting small companies to seek capital in public markets. Having to live with the burden of SOX will make many management teams reluctant to use an IPO as a means to raise capital. It was a mistake to impose SOX on small businesses. 09/01/2005 17:12:34 We would go private given the right timing and circumstances. Prior to SOX this was not in our thought process. 09/04/2005 07:42:16 Being already a listed company, we have ot considered "going private" due to SOX.
http://www.sec.gov/info/smallbus/acspc/acspc_rpc1.htm
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