November 29, 2005
As someone who has practiced in this field for 45 years, I would like to suggest that the SEC permit small public companies to file semi-annual rather than quarterly reports. Up through the early 70s, the SEC permitted a report to be filed every 6 months, called the Form 9-K Report. The Form 9-K Report was replaced in 1971 by the Form 10-Q. Effective August 13, 1992, the SEC adopted the Form 10-QSB.
Small public companies have a great deal of difficulty in preparing the management analysis and discussion section (or plan of operation in the case of Form 10-QSB) of their quarterly reports. The small public companies tend to have volatile businesses and even small changes in operations can be material for securities law purposes. The cost of preparing such quarterly reports to the small public company is significant, if you include executive, accounting and legal time.
The motivation for requiring quarterly reports was primarily to satisfy the needs of securities analysts, who typically do not follow small public companies. If a small public company wishes to file a quarterly report on a voluntary basis, they can always do so. However, there is no good reason to legally require them to file such quarterly reports.
The cost savings to small public companies from not having to file quarterly reports will help to offset the very significant costs of complying with Section 404 of the Sarbanes-Oxley Act of 2002.
Frederick D. Lipman, Esq. | Blank Rome LLP