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Integrated Disclosure System
for Small Business Issuers
Item 310 -- Financial Statements
- Financial statements of a small business issuer,
its predecessors or any businesses to which the small business issuer is a
successor shall be prepared in accordance with generally accepted accounting
principles in the United States.
- Regulation S-X Form and Content of and Requirements
for Financial Statements shall not apply to the preparation of such financial
statements, except that the report and qualifications of the independent accountant
shall comply with the requirements of Article 2
of Regulation S-X, Rule 3-19 and 3-20 shall apply to financial statements of foreign
private issuers, the description of accounting policies shall comply with Rule
4-08(n) of Regulation S-X, and small business issuers engaged in oil and gas
producing activities shall follow the financial accounting and reporting standards
specified in Rule 4-10 of Regulation S-X with
respect to such activities. To the extent that Rule
11-01 (Pro Forma Presentation Requirements) offers enhanced guidelines for
the preparation, presentation and disclosure of pro forma financial information,
small business issuers may wish to consider these items. Financial statements
of foreign private issuers shall be prepared and presented in accordance with
the requirements of Item 18 of Form 20-F
except that Item 17 may be followed for financial statements included in filings
other than registration statements for offerings of securities unless the only
securities being offered are: (a) upon the exercise of outstanding rights granted
by the issuer of the securities to be offered, if such rights are granted by the
issuer of the securities to be offered, if such rights are granted on a pro rata
basis to all existing securities holders of the class of securities to which the
rights attach and there is no standby underwriting in the United States or similar
arrangement; or (b) pursuant to a dividend or interest reinvestment plan; or (c)
upon the conversion of outstanding convertible securities or upon the exercise
of outstanding transferrable warrants issued by the issuer of the securities being
offered, or by an affiliate of such issuer.
- Financial statements for a subsidiary of a
small business issuer that issues securities guaranteed by the small business
issuer or guarantees securities issued by the small business issuer must be
presented as required by Rule 3-10 of
Regulation S-X, except that the periods presented are those required by paragraph
(a) of this item.
- Financial statements for a small business
issuer's affiliates whose securities constitute a substantial portion of the
collateral for any class of securities registered or being registered must
be presented as required by Rule 3-16
of Regulation S-X, except that the periods presented are those required by
paragraph (a) of this item.
- The Commission, where consistent with the
protection of investors, may permit the omission of one or more of the financial
statements or the substitution of appropriate statements of comparable character.
The Commission by informal written notice may require the filing of other
financial statements where necessary or appropriate.
- Rule 4-01(a)(3) of Regulation S-X shall apply
to the preparation of financial statements of small business issuers.
Temporary Note 1T: Notwithstanding any other Commission rule or regulation,
every registrant meeting the eligibility requirements in paragraph (a) of this
note that files a registration statement on Forms SB-1,
S-4 or S-8,
or an amendment thereto, that requires audited financial statements for the most
recent fiscal year end may file unaudited financial statements in satisfaction
of that requirement under the conditions listed in paragraph (b) of this note.
- Eligibility requirements. An
- That at the time of filing a registration
statement is subject to the periodic reporting requirements of Section
13(a) or 15(d)
of the Exchange Act;
- Whose registration statement will
include financial statements:
- Of an entity that has a
fiscal year ending between and including:
- November 30, 2001
and April 15, 2002, if the entity meets all of the conditions
in Item 310(g) of Regulation
- December 29, 2001
and April 15, 2002, if the entity does not meet all of the conditions
in Item 310(g) of Regulation S-B;
- As to the examination of
which Arthur Andersen LLP (or a foreign affiliate of Arthur Andersen
LLP) had been engaged as the independent public accountant on or after
March 14, 2002;
- That, on or before March 14, 2002,
had not obtained a manually signed audit report from Arthur Andersen LLP
(or a foreign affiliate of Arthur Andersen LLP) in respect of those financial
- That is unable to obtain from
Arthur Andersen LLP (or a foreign affiliate of Arthur Andersen LLP) or
elects not to have Arthur Andersen LLP (or a foreign affiliate of Arthur
Andersen LLP) issue a manually signed audit report in respect of those
financial statements; and
- That is not a "blank check company"
as defined in Rule 419(a)(2).
- The issuer's registration statement
responds to all items required by the appropriate registration form, but
with unaudited financial statements that meet the timeliness requirements
of Item 310(g) of Regulation S-B
for those financial statements as to the examination of which Arthur Andersen
LLP (or a foreign affiliate of Arthur Andersen LLP) had been engaged as
the independent public accountant.
- The issuer provides in the registration
statement disclosure reflecting the guidance in Temporary
Note 2T to Article 3 of Regulation S-X.
- If the registration statement
is not yet effective and it will become effective on or after the date
specified in paragraph (b)(4) of this section, the issuer must file a
pre-effective amendment or an amendment to a document incorporated by
reference, as appropriate, before effectiveness. If the registration statement
is effective, the issuer must file either a post-effective amendment or
an amendment to a document incorporated by reference, as appropriate,
not later than the date specified in paragraph (b)(4) of this note; provided
that this filing or amendment need not be made if the offering or offerings
have been completed (and any prospectus delivery period under Section
4(3) of the Securities Act of 1933 and the rules thereunder has expired)
prior to the date specified in paragraph (b)(4) of this note. The filing
or amendment shall present:
- The financial statements
audited by an independent public accountant other than Arthur Andersen
LLP (or a foreign affiliate of Arthur Andersen LLP);
- A discussion of any material
changes from the unaudited financial statements filed originally;
- Any other section of the
registration statement or documents incorporated by reference that
should be updated or revised to reflect the changes in the financial
statements so filed by amendment.
- For purposes of paragraph (b)(3)
of this note:
- If the issuer meets all
of the conditions of Item 310(g)(2)
of Regulation S-B, the date shall be the earlier of:
- 60 days from the date
the audited financial statements were required to be included
in the registration statement; and
- The date on which
an amended Form 10-K or
10-KSB containing audited
financial statements is filed in accordance with Release No. 34-45589
(March 18, 2002) (which may be viewed on the Commission's website
at www.sec.gov); and
- If the issuer does not
meet all of the conditions of Item 310(g)(2) of Regulation S-B, the
date shall be the earlier of:
- 106 days from the
date the audited financial statements were required to be included
in the registration statement; and
- The date on which
an amended Form 10-K or 10-KSB containing audited financial statements
is filed in accordance with Release No. 34-45589 (March 18, 2002)
(which may be viewed on the Commission's website at www.sec.gov).
- This temporary note will expire on December
Temporary Note 2T:
- This temporary note applies to any issuer
that provides audited financial statements with an accountant's report issued
by Arthur Andersen LLP or a foreign affiliate of Arthur Andersen LLP ("Andersen")
after March 14, 2002 in a filing. The exact content of each issuer's disclosure
may vary depending on the facts and circumstances applicable to each of Andersen's
public company audit clients.
- The issuers for which this temporary
note applies must include as an exhibit (under Exhibit 99) to their filing
a letter by the issuer addressed to the Commission that states that Andersen
has represented to the issuer that the audit was subject to Andersen's quality
control system for the U.S. accounting and auditing practice to provide reasonable
assurance that the engagement was conducted in compliance with professional
standards and that there was appropriate continuity of Andersen personnel
working on audits, availability of national office consultation and availability
of personnel at foreign affiliates of Andersen to conduct the relevant portions
of the audit.
- This temporary note will expire on December
- Annual Financial Statements. Small business
issuers shall file an audited balance sheet as of the end of the most recent
fiscal year, or as of a date within 135 days if the issuers existed for a
period less than one fiscal year, and audited statements of income, cash flows
and changes in stockholders' equity for each of the two fiscal years preceding
the date of such audited balance sheet (or such shorter period as the registrant
has been in business).
- Interim Financial Statements. Interim financial
statements may be unaudited; however, prior to filing, interim financial statements
included in quarterly reports on Form
10-QSB must be reviewed by an independent public accountant using professional
standards and procedures for conducting such reviews, as established by generally
accepted auditing standards, as may be modified or supplemented by the Commission.
If, in any filing, the issuer states that interim financial statements have
been reviewed by an independent public accountant, a report of the accountant
on the review must be filed with the interim financial statements. Interim
financial statements shall include a balance sheet as of the end of the issuer's
most recent fiscal quarter and income statements and statements of cash flows
for the interim period up to the date of such balance sheet and the comparable
period of the preceding fiscal year.
Instructions to Item 310(b):
- Where Item 310 is applicable to a Form
10-QSB and the interim period is more than one quarter, income statements
must also be provided for the most recent interim quarter and the comparable
quarter of the preceding fiscal year.
- Interim financial statements must include
all adjustments which in the opinion of management are necessary in order
to make the financial statements not misleading. An affirmative statement
that the financial statements have been so adjusted must be included with
the interim financial statements.
- Condensed Format. Interim financial
statements may be condensed as follows:
- Balance sheets should include separate
captions for each balance sheet component presented in the annual
financial statements which represents 10% or more of total assets.
Cash and retained earnings should be presented regardless of relative
significance to total assets. Registrants which present a classified
balance sheet in their annual financial statements should present
totals for current assets and current liabilities.
- Income statements should include net
sales or gross revenue, each cost and expense category presented in
the annual financial statements which exceeds 20% of sales or gross
revenues, provision for income taxes, discontinued operations, extraordinary
items and cumulative effects of changes in accounting principles or
practices. (Financial institutions should substitute net interest
income for sales for purposes of determining items to be disclosed.)
Dividends per share should be presented.
- Cash flow statements should include
cash flows from operating, investing and financing activities as well
as cash at the beginning and end of each period and the increase or
decrease in such balance.
- Additional line items may be presented
to facilitate the usefulness of the interim financial statements including
their comparability with annual financial statements.
- Disclosure required and additional instructions
as to Content.
- Footnotes. Footnote and other
disclosures should be provided as needed for fair presentation and
to ensure that the financial statements are not misleading.
- Material Subsequent Events and
Contingencies. Disclosure must be provided of material subsequent
events and material contingencies notwithstanding disclosure in the
annual financial statements.
- Significant Equity Investees.
Sales, gross profit, net income (loss) from continuing operations
and net income must be disclosed for equity investees which constitute
20% or more of a registrant's consolidated assets, equity or income
from continuing operations.
- Significant Dispositions and Purchase
Business Combinations. If a significant disposition or purchase
business combination has occurred during the most recent interim period
and the transaction required the filing of a Form
8-K, pro forma data must be presented which reflects revenue,
income from continuing operations, net income and income per share
for the current interim period and the corresponding interim period
of the preceding fiscal year as though the transaction occurred at
the beginning of the periods.
- Material Accounting Changes.
Disclosure must be provided of the date and reasons for any material
accounting change. The registrant's independent accountant must provide
a letter in the first Form 10-QSB
filed subsequent to the change indicating whether or not the change
is to a preferable method. Disclosure must be provided of any retroactive
change to prior period financial statements, including the effect
of any such change on income and income per share.
- Development Stage Companies.
A registrant in the development stage must provide cumulative from
inception financial information.
- Financial Statements of Businesses Acquired
or to be Acquired.
- If a business combination accounted for as
a "purchase" has occurred or is probable, or if a business combination
accounted for as a "pooling of interest" is probable, financial statements
of the business acquired or to be acquired shall be furnished for the
periods specified in paragraph (c)(3) of this Item.
- The term "purchase" encompasses the
purchase of an interest in a business accounted for by the equity
- Acquisitions of a group of related
businesses that are probable or that have occurred subsequent to the
latest fiscal year-end for which audited financial statements of the
issuer have been filed shall be treated as if they are a single business
combination for purposes of this section. The required financial statements
of related businesses may be presented on a combined basis for any
periods they are under common control or management. A group of businesses
are deemed to be related if:
- They are under common control
- The acquisition of one business
is conditional on the acquisition of each other business; or
- Each acquisition is conditioned
on a single common event.
- Annual financial statements required
by this paragraph (c) shall be audited. The form and content of the
financial statements shall be in accordance with paragraphs (a) and
(b) of this Item.
- The periods for which financial statements
are to be presented are determined by comparison of the most recent annual
financial statements of the business acquired or to be acquired and the
small business issuer's most recent annual financial statements filed
at or prior to the date of acquisition to evaluate each of the following
- Compare the small business issuer's
investments in and advances to the acquiree to the total consolidated
assets of the small business issuer as of the end of the most recently
completed fiscal year. For a proposed business combination to be accounted
for as a pooling of interests, also compare the number of common shares
exchanged or to be exchanged by the small business issuer to its total
common shares outstanding at the date the combination is initiated.
- Compare the small business issuer's
proportionate share of the total assets (after intercompany eliminations)
of the acquiree to the total consolidated assets of the small business
issuer as of the end of the most recently completed fiscal year.
- Compare the small business issuer's
equity in the income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting
principles of the acquiree to such consolidated income of the small
business issuer for the most recently completed fiscal year.
Computational note to paragraph (c)(2): For purposes of making
the prescribed income test the following guidance should be applied: If
income of the small business issuer and its subsidiaries consolidated
for the most recent fiscal year is at least 10 percent lower than the
average of the income for the last five fiscal years, such average income
should be substituted for purposes of the computation. Any loss years
should be omitted for purposes of computing average income.
- If none of the conditions specified
in paragraph (c)(2) of this Item exceeds 20%, financial statements
are not required. If any of the conditions exceed 20%, but none exceeds
40%, financial statements shall be furnished for the most recent fiscal
year and any interim periods specified in paragraph (b) of this item.
If any of the conditions exceed 40%, financial statements shall be
furnished for the two most recent fiscal years and any interim periods
specified in paragraph (b) of this item.
- The separate audited balance sheet
of the acquired business is not required when the small business issuer's
most recent audited balance sheet filed is for a date after the acquisition
- If the aggregate impact of individually
insignificant businesses acquired since the date of the most recent
audited balance sheet filed for the registrant exceeds 50%, financial
statements covering at least the substantial majority of the businesses
acquired shall be furnished. Such financial statements shall be for
the most recent fiscal year and any interim periods specified in paragraph
(b) of this Item.
- Registration statements not subject
to the provisions of Rule 419
of this chapter (Regulation C) and proxy statements need not include
separate financial statements of the acquired or to be acquired business
if it does not meet or exceed any of the conditions specified in paragraph
(c)(2) of this Item at the 50 percent level, and either:
- The consummation of the acquisition
has not yet occurred; or
- The effective date of the registration
statement, or mailing date in the case of a proxy statement, is
no more than 74 days after consummation of the business combination,
and the financial statements have not been filed previously by
- An issuer that omits from its initial
registration statement financial statements of a recently consummated
business combination pursuant to paragraph (c)(3)(iv) of this section
shall furnish those financial statements and any pro forma information
specified by paragraph (d) of this Item under cover of Form
8-K no later than 75 days after consummation of the acquisition.
- If the small business issuer made a significant
business acquisition subsequent to the latest fiscal year end and filed
a report on Form 8-K which included audited financial statements of such
acquired business for the periods required by paragraph (c)(3) of this
Item and the pro forma financial information required by paragraph (d)
of this Item, the determination of significance may be made by using pro
forma amounts for the latest fiscal year in the report on Form 8-K rather
than by using the historical amounts of the registrant. The tests may
not be made by "annualizing" data.
- Pro Forma Financial Information.
- Pro forma information showing the effects
of the acquisition shall be furnished if financial statements of a business
acquired or to be acquired are presented.
- Pro forma statements should be condensed,
in columnar form showing pro forma adjustments and results and should
include the following:
- If the transaction was consummated
during the most recent fiscal year or subsequent interim period, pro
forma statements of income reflecting the combined operations of the
entities for the latest fiscal year and interim period, if any, or;
- If consummation of the transaction
has occurred or is probable after the date of the most recent balance
sheet required by paragraph (a) or (b)
of this Item, a pro forma balance sheet giving effect to the combination
as of the date of the most recent balance sheet. For a purchase, pro
forma statements of income reflecting the combined operations of the
entities for the latest fiscal year and interim period, if any, and
for a pooling of interests, pro forma statements of income for all
periods for which income statements of the small business issuer are
- Real Estate Operations Acquired or to be Acquired.
If, during the period for which income statements are required, the small
business issuer has acquired one or more properties which in the aggregate
are significant, or since the date of the latest balance sheet required by
paragraph (a) or (b) of this Item, has acquired or proposes to acquire one
or more properties which in the aggregate are significant, the following shall
be furnished with respect to such properties:
- Audited income statements (not including
earnings per unit) for the two most recent years, which shall exclude
items not comparable to the proposed future operations of the property
such as mortgage interest, leasehold rental, depreciation, corporate expenses
and federal and state income taxes; Provided, however, That such audited
statements need be presented for only the most recent fiscal year if:
- the property is not acquired from a
- material factors considered by the
small business issuer in assessing the property are described with
specificity in the registration statement with regard to the property,
including source of revenue (including, but not limited to, competition
in the rental market, comparative rents, occupancy rates) and expenses
(including but not limited to, utilities, ad valorem tax rates, maintenance
expenses, capital improvements anticipated); and
- the small business issuer indicates
that, after reasonable inquiry, it is not aware of any material factors
relating to the specific property other than those discussed in response
to paragraph (e)(1)(ii) of this Item that would cause the reported
financial information not to be necessarily indicative of future operating
- If the property will be operated by the small
business issuer, a statement shall be furnished showing the estimated
taxable operating results of the small business issuer based on the most
recent twelve-month period including such adjustments as can be factually
supported. If the property will be acquired subject to a net lease, the
estimated taxable operating results shall be based on the rent to be paid
for the first year of the lease. In either case, the estimated amount
of cash to be made available by operations shall be shown. Disclosure
must be provided of the principal assumptions which have been made in
preparing the statements of estimated taxable operating results and cash
to be made available by operations.
- If appropriate under the circumstances, a
table should be provided which shows, for a limited number of years, the
estimated cash distribution per unit indicating the portion reportable
as taxable income and the portion representing a return of capital with
an explanation of annual variations, if any. If taxable net income per
unit will be greater than the cash available for distribution per unit,
that fact and approximate year of occurrence shall be stated, if significant.
- Limited Partnerships.
- Small business issuers which are limited
partnerships must provide the balance sheets of the general partners as
described in paragraphs (f)(2) through (f)(4) of this Item.
- Where a general partner is a corporation,
the audited balance sheet of the corporation as of the end of its most
recently completed fiscal year must be filed. Receivables, other than
trade receivables, from affiliates of the general partner should be deducted
from shareholders' equity of the general partner. Where an affiliate has
committed itself to increase or maintain the general partner's capital,
the audited balance sheet of such affiliate must also be presented.
- Where a general partner is a partnership,
there shall be filed an audited balance sheet of such partnership as of
the end of its most recently completed fiscal year.
- Where the general partner is a natural person,
there shall be filed, as supplemental information, a balance sheet of
such natural person as of a recent date. Such balance sheet need not be
audited. The assets and liabilities should be carried at estimated fair
market value, with provisions for estimated income taxes on unrealized
gains. The net worth of such general partner(s), based on such balance
sheet(s), singly or in the aggregate, shall be disclosed in the registration
- Age of Financial Statements. At the date
of filing, financial statements included in filings other than filings on
Form 10-KSB must be not less current
than financial statements which would be required in Forms 10-KSB and 10-QSB
if such reports were required to be filed. If required financial statements
are as of a date 135 days or more prior to the date a registration statement
becomes effective or proxy material is expected to be mailed, the financial
statements shall be updated to include financial statements for an interim
period ending within 135 days of the effective or expected mailing date. Interim
financial statements should be prepared and presented in accordance with paragraph
(b) of this Item:
- When the anticipated effective or mailing
date falls within 45 days after the end of the fiscal year, the filing
may include financial statements only as current as the end of the third
fiscal quarter; Provided, however, That if the audited financial statements
for the recently completed fiscal year are available or become available
prior to effectiveness or mailing, they must be included in the filing;
- If the effective date or anticipated mailing
date falls after 45 days but within 90 days of the end of the small business
issuer's fiscal year, the small business issuer is not required to provide
the audited financial statements for such year end provided that the following
conditions are met:
- If the small business issuer is a reporting
company, all reports due must have been filed;
- For the most recent fiscal year for
which audited financial statements are not yet available, the small
business issuer reasonably and in good faith expects to report income
from continuing operations before taxes; and
- For at least one of the two fiscal
years immediately preceding the most recent fiscal year the small
business issuer reported income from continuing operations before
57 FR 36455, Aug. 13, 1992; 58 FR 26514, May 4, 1993; 61 FR 54509, 54515, Oct.
18, 1996; 62 FR 6044, 6064, Feb. 10, 1997; 64 FR 53900, 53909, Oct. 5, 1999;
64 FR 73389, 73401, Dec. 30, 1999; 65 FR 51692, 51710, Aug. 24, 2000; 67 FR
13518, 13535, Mar. 22, 2002; 70 FR 20717, 20719, April 21, 2005.
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