Subject: File No. 265-23
From: Brad Smith
Affiliation: President, WBS&A, Ltd.

May 24, 2005

File Number 265-23

May 24, 2005

To Members of the SEC Advisory Committee on Smaller Public Companies

I am responding to your Request for Public Comments on Summary of Proposed Committee Agenda.

This comment letter focuses on Sections 1.2, 1.2.1, 1.2.5 and 5 of the proposed agenda at by asking the committee to address items in the SECs Small Business Issuer program. This comment letter

Recommends refining the SB disclosure system so that macro facts about small publicly traded businesses can easily be presented.

Asks committee members to understand the importance of the SECs Small Business Issuer program, guide the SEC to modify SB disclosure requirements, and make technical adjustments to so that disclosed facts can be presented as macro reports.

Guides the committee to recommend that the SEC devise a method for SB issuers and filers to collect and report information from trading market operators who serve this niche so that macro facts can be presented and cost benefit value creation analyzed.

Recommends that the committee develop SB requirements to report regulatory violations and disciplinary information in data-field formats that will guide the SEC to modify the SB disclosure regime so that macro facts about violations in this segment can be presented and analyzed.

Prescribes that data fields can be easily be added to SB-2, 10QSB, 10KSB and other SB disclosure forms and that technical adjustments can be made to to compile and present macro facts about the small business capital market segment. Policy makers, regulators and interested parties need macro facts to make informed decisions.

Recommends the committee address the distinction between the concept of a small business as it is conjured up in ones mind when they hear the name Small Business Issuer securities regulatory regime and small-to-medium-enterprises SMEs which tend to be the innovation, job and wealth creator entities that enter this segments public capital markets.

Advises that the SBI regime be renamed the SME Capital Markets regulatory regime and that SME definitions and size standards be harmonized with global uses of the SME term, especially those promulgated by the European Union.

I appreciate that each member joined the SECs Advisory Committee on Smaller Public Companies to address cost-benefit burdens of SOX. Unfortunately, committee members cant make a rational analysis of the SEC Small Business Issuer program because there insufficient macro facts about it. My comment letter frames the SBI program and secondary markets that support it as SME capital markets and recommends a method to develop macro facts.

I believe that the committee can address Section 1.2.1 to 1.2.3 by framing the SBI segment with the name SME Capital Markets. SME is a well-understood, global acronym for Small-to-Medium Enterprises. Globally, policy makers and interested parties recognize that SMEs generate economic growth and many are working to develop local or regional SME capital markets. The SEC Advisory Committee on Smaller Public Companies is advised to develop recommendations that improve and expand SMEs access to the capital markets because this is necessary for United States SMEs to remain competitive in a global market.

The European Union developed an acceptable set of SME measures through an extensive, years-long input and analysis process. Harmonizing size definitions in the U.S. SME capital markets with EU measures offers numerous benefits. I encourage the committee to recommend changes that can frame and develop a unique SME capital markets securities regulatory regime and program.

People offer many opinions that SME companies should not be public but these opinions are not fact-based. Those who expend an honest effort to develop and evaluate facts about companies in the SME capital markets learn that these entities bring innovation to the market place, create jobs, provide cost-benefits to investors and serve the public interest by generating economic value. People who offer opinions that this segment should not be publicly traded fail to tell the media that their recommendation will harm the market cap value of 10,000 small public companies, cause more than 2,000,000 investors to lose money, and negatively affect tens of thousands of people who are employed by publicly traded SMEs because a fair percentage of many employees personal wealth and economic well-being is created by the SME that employs them.

I urge committee members to guide the SEC to make technical adjustments in SB disclosure data requirements and refrain from eliminating the SBI program. Macro information is needed to provide a factual overview about the value that is created by companies that use the SECs Small Business Issuer program and by the SME capital markets that support these companies.

I encourage members to develop a recommendation that enables to gather information from SB-2, 10QSB and 10KSB filings to compile macro facts generated by the SBI program. Essentially, this recommendation focuses on issuers in the SB-2 registration and 10KSB and 10QSB reporting and regulatory regimes because this track provides the greatest level of transparent information and it has achieved the highest level of market acceptance. I also recommend that the committee guide the SEC to develop a method within the SB disclosure regime to gather and present macro facts about values that are created by each SME capital market niche including the PinkSheets, OTCBB, AMEX, ArcaEx Tier II and Nasdaq SC.

This committees recommendation can guide the SEC to create data formats and a method for gathering and presenting a wide range of macro facts. Examples include the total jobs that publicly traded SMEs create, the total capital that SME investors provide, the total number of investors that participate in capitalizing publicly traded SMEs, and the total market cap value that is created by publicly traded SMEs. Innovative thinking about how to gather facts in standard data formats can also be applied to present macro facts about the depth of secondary market liquidity pools, share turnover to measure the effectiveness of investor exit strategies and other created values that can be reported and aggregated into macro facts. Most of this information is being reported in some form but not in data formats that enable easily presenting macro facts and the SME capital markets. Moreover, many other macro facts that policy-makers, regulators and interested parties believe they need to develop effective securities regulatory regimes can be identified, data formatted and easily presented under this approach.

The SBI program is working. Issuers and practitioners are successfully using it, and investors benefit because it provides them access to transparent information. Secondary markets have been organized and developed in each SME capital market segment. They provide liquidity pools for investors. The missing piece is a method to gather standard-format data so that macro facts can be reported and the values that SME capital market niches create can be measured and analyzed in a cost-benefit context. Many issues associated with the SME segment of the capital market can be resolved by the committee guiding the SEC to develop standard data disclosure formats for SB filers that can then be used to generate macro facts.

Let me be clear policy decisions to remove publicly traded SMEs from the capital markets should only be made after the SEC can provide macro facts. The SME capital market is continually being squeezed by well-meaning polic- makers, regulators and interested parties on both the issuer and secondary market side. Unfortunately, policy makers, regulators and others do not have SME capital-market macro facts. The committee is in a position to constructively address this problem by creating a recommendation that causes the SEC to develop methods to gather macro facts.

The SEC in Section 5 of invited comments about its Small Business Issuer program being addressed as an agenda item for this committee. I hope that my comments will be taken by members of the SEC Advisory Committee on Smaller Public Companies as an opportunity to understand that when one looks at macro facts about the SECs Small Business Issuer program, it works as an entry point into the capital markets. Viable SME secondary capital markets have been organized and developed to serve this market segment by providing liquidity for its investors and facilitating investor share turnover and exit strategies.

I have 30-years of financial services industry experience, most at the SME level and a 10-year perspective of active engagement with Administrations and Congressional Committee Staffs and SEC, NASD and NASDAQ decision-makers. It began by my working with the Texas Delegation to the 1995 Whitehouse Conference on Small Business to pass a Reg. D 504 recommendation as one of the conferences 50 action items. Active engagement has left me with an impression that many policy makers and regulators dont believe value is being created in the SME capital market space. I contend that SEC filing facts, SME capital markets facts and information from academic studies can and must be generated and used to correct these misperceptions.

The following facts come from, Historical Edgar archives.

5,002 Total SB-2s filed as of May 19, 2005
3,560 10KSB filers maintained reporting status during 2004
3508 Total 10SBs have been filed

Please note that all of this information was generated in seconds at This comment letter proposes that the committee guide the SEC to develop information-gathering methods. Macro information would provide a much broader view of the SME capital markets and could be presented just as easily as I was able to generate the above macro fact information. presents these facts
Securities Quoted Exclusively on Pink Sheets 4635
Securities Quoted Exclusively on OTC BB 214
Securities Dually Quoted on Pink Sheets and OTC BB 3108 Market Stats presents these facts and other General Statistics that provide year-end comparisons.

April 2005
Securities 3,319
Market Makers MM 226
Positions 47,155
MM per Security 14.21
Share Volume 29,333,741,660
Dollar Volume 4,037,723,416

AMEX, ARCAEX and NASDAQ Small Cap dont readily make their second-tier listed company information available but they should be required to. Market observers estimate that approximately 2,000 companies fall into these categories. Total PinkSheets, OTCBB, and exchange-listed SME traded companies equal approximately 10,000 companies.

I believe that the committee can develop a meaningful SB disclosure recommendation that creates an information method to compile macro facts about SME public companies and the SME capital markets that support them. As an example, the value proposition of public SME companies can be evaluated by comparing the total amount of capital funded into these companies by investors to their current market cap value. Today there is no easy way to generate the numbers to make this comparison. A well-crafted recommendation by your committee can solve this problem.

This letter is a call for the committee to recommend that the SEC modify its SB-2, 10QSB and 10KSB required data fields to collect distinct information in disclosures that can be used to compile and present macro facts about the SME capital markets. It is also a call for the committee to require capital market system operators to provide information that can be used to develop macro SME capital market reports. Combining very modest data field changes with technical adjustments to will make it as easy to generate job and other SME value creation numbers as it was for me to report the above SB-2 and 10KSB totals.

It is beyond the scope of this comment letter to identify every fact that can be collected to present macro reports about the SB-2 entry point, SB financial reporting programs and each individual SME capital market including the Pinksheets, OTCBB, AMEX, ArcaEx and NASDAQ SC secondary markets that have been organized and developed to serve the SME segment.

Requiring issuers to provide SEC quality financial statements is good for investors. It can become a source of macro information for policy-makers, regulators and interested parties. Analyzing the SEC SBI, SB-2, 10KSB, 10QSB programs, etc. to determine how secondary market liquidity measures can be presented to investors and policy decision makers is important.

Additional secondary market capabilities must also be included in this fact-generating and gathering exercise. For example, stock transfer agents, broker-dealers and the DTCC system should be required to provide certain types of information that can be added to an SB-2, 10QSB and 10KSB disclosure in the form of a data element. Examples of this data include: share turnover in a given period, actual number of investors, short interest positions, average liquidity pool calculations, etc.

SME capital markets are organized and developed in the United States at much higher levels than in any other economy. The operators of these markets and providers of secondary market capabilities have done a tremendous job instilling upper tier innovations into the SME capital market. We must all build on these SME capital market accomplishments rather than continually squeeze their ability to exist.

The U.S. SME capitals have evolved into a unique stair-step system that begins with an entry point through the SECs Small Business Issuer regulatory regime, most likely its SB-2 registration program. It offers unique secondary market entry points via the Pinksheets and stair-steps up to the OTCBB, Amex, Nasdaq Small Cap and ArcaEx PSE Tier II. Arca Ex Tier II has achieved the best regulatory positioning because that listing status means that issuers are exempt from state blue sky registration. Therefore, this can be considered the upper tier of the SME capital market.

The SEC can gather data in SB filings that produces macro measures to determine net value creation facts about each sub-SME capital market and totals for the entire SME capital market space. Thoughtful crafting of a recommendation by this committee can easily improve this example. Macro views of the SME capital markets can be presented by making certain items standard data elements in SB-2, 10KSB and 10QSB filings and modifying to report totals.

Pink Sheets OTCBB Amex Arca Ex Nasdaq SM Total
Total SME Issuers
Total Employees
Total Market Cap Value
Gain/Loss Investor Facts
Share Turn-Over Measures
Market Participant Positions Held
Liquidity Pool Measures

The purpose of this comment letter is to encourage the committee to develop a recommendation for the SEC to revamp its SB-2, 10KSB, 10QSB and 8K, etc. disclosure formats to require information that enables macro facts to be compiled and presented about the SME capital market segment. As the committee realizes that existing SB-2, 10KSB and 10QSB disclosure formats can easily be modified to require filers to report certain facts and that can easily be technically adjusted to present these facts as macro numbers, I am certain that many new possibilities to present information about the SME capital markets will emerge.

The committee should also consider guiding the SEC to revise SB disclosure data fields to require issuers and filers to provide their D&B D-U-N-S Number and PAYDEX score in a standard data field and to develop a method to present a macro list of SME companies and their PAYDEX scores. By requiring D&Bs PAYDEX scores for publicly traded SMEs, these scores can be compared to similar SMEs that are not publicly traded to determine which class is developing the strongest capital structures. Many people already know that most OTCBB traded companies and many PinkSheet traded companies use public trading status to strengthen their capital structures and that this shows up as higher D&B PAYDEX scores. Making it possible to easily present this information at will provide an important source of research data and help people understand a given companys ability to strengthen its capital structure and researchers can use the macro list to develop studies about the SME segment. Moreover, D&B credit analysis reports can easily be acquired by investors and used to make decisions about buying shares in a given company. D&B is a tremendous information resource that is not being fully utilized in the SME capital markets. Adding D&B data fields to SB-2, 10KSB and 10QSB filings creates many benefits.

My final example is for the committee to guide the SEC to develop a method to capture disciplinary problem information. They could require it to be disclosed in SB-2, 10KSB and 10QSB filings in a standard data field format that can then be used to present macro facts about disciplinary problems in the SME capital markets. This provides very important information that will enable policy makers, regulators and interest parties to truly measure if the cost of oversight in the SME capital market space is greater than its economic benefit to the public.

I encourage the committee to recommend that the SEC Office of Small Business Policy develop SB-2, 10KSB and 10QSB disclosure format data that enables compiling macro facts about publicly traded SMEs.

Regarding agenda items 5.1 through 5.2.4, information can be added to and reported in the SB-2 registration document and 10KSB, 10QSB filings and/or requested from SME capital market operators especially secondary market liquidity pool and investor share turn over measures that can be used to compile macro fact measures of value that is being created or not in the SME capital market segments.

It is important for the SEC to develop a method to produce macro facts that others trust because so many non-fact-based assertions are being made. My SME capital markets experience makes me certain that macro facts will prove that the SME capital market segment serves the public interest by producing economic value, creating jobs, developing stronger capital structures and providing above-average returns to and liquidity for its investors. I strongly urge the committee to recommend that the SEC create useful data fields and implement information gathering methods that can be used to compile and present macro facts about publicly traded SMEs.

An interesting evolution has taken place. Upper-tier SME capital market participants are discovering that they now have more in common with the securities regulatory problems that confront the lower-tier SME segment than they do with upper-tier publicly traded companies. During the past two years, the SEC Government Business Forum has become more focused on upper-tier SME capital providers regulatory and capitalization issues than at any time during the previous 20+ years that the Forum has been held. Conflating of lower and upper-tier SME capital market interests creates an opportunity to focus on how big-picture macro facts and economic cost benefit content about the SME capital market segment can be generated, compiled and presented. The committee can cause this to happen, and I encourage you to do so.

When it is easy to generate and present macro facts about the SME capital markets, I am certain that these facts will demonstrate that organized and developed SME capital market niches are serving the public interest by supporting companies to create jobs, provide cost-benefit to investors and generate economic value.

Imposing ever-greater regulatory cost burdens on SMEs that generate innovation, job and wealth by reducing their access to the capital markets is problematic. I commend the committee for its interest in working on developing solutions for these problems.

This letter is a call for the committee to recommend that the SEC require distinct information in SB disclosure formats that can be used to compile macro SME capital market facts and to require the capital market system operators to provide information that can be used to develop macro SME capital market reports.

Thank you for considering my recommendation. Please contact me if you have any questions.


Brad Smith, President
WBS&A, Ltd.
3 Glenway Drive
Austin, Texas 78738