From: P. Zeller
Sent: July 18, 2016
Subject: Determination of Status as an SRC

The computation of market float for purposes of determining status of an issuer as an SRC needs clarification to address the following situations:
1. Closing price of a thinly traded issuer can be manipulated by a disgrundled investor or ex-employee simply by purchasing a few shares at the close on June 30. For example, an issuer with 100 million shares outstanding (not held by affiliates) with little or no trading volume and a previous closing price of $0.05 per share could find itself no longer qualifying as as SRC if a buyer puts in an offer to purchase 100 shares at $3.00 a share at the close on June 30.
2. Average of bid and ask for a thinly traded issuer with 100 million shares outstanding (not held by affiliates) can also be manipulated if a person puts in a bid of $2.55 and a separate ask price of $3.25, thus creating an average of the bid/ask of $2.90, even with no trading volume.
3. If an issuer ceases to be an SRC on June 30 of one year and becomes an SRC again the following year, it really does not make sense for the issuer to have the enhanced disclosure as a non-SRC for the first quarter and then become an SRC as of the second quarter, especially considering the possibility that the following year computation may better reflect the current outlook of the issuer.
 4. The definition of market "float" should not only exclude shares owned by affiliates, but also shares that are restricted because they were sold under Regulation D or S or Section 4(a)(2). The reason is that these shares, like those of affiliates, can not be freely traded and so should be excluded like those of affiates. Excluding restricted shares would reduce the likelihood that the sale of a significant block of the issuer's shares in a private placement on, for example, December 31 would result in the issuer losing its SRC status without the six-month lead time that the June 30 pricing was intended to allow. Obviously, the issuer needs to be able raise funds when available without the untoward consequence of losing its status as an SRC.

I believe that rather than trying to address each situation outlined above it may be better for the SEC to use a revenue test for any issuer whose average daily trading volume for the 15 trading days on both sides of June 30 is less than, for example, 2% of its outstanding shares (or perhaps one that is a sliding percentage depending on the number of outstanding shares of the issuer). When coupled with the exclusion from definition of "float" the issuer's restricted securities, these changes will allow SRCs greater access to capital without the need to use that limited capital paying for information that the SEC has already determined is not necessary for SRCs to provide. Obviously, if the SEC does not increase the "float" from $75 million to $250 million, clarification of the above situations is even more urgent.

Respectfully submitted, 

Paul W. Zeller, Esq.
Mobile, Alabama