SEC Comment Letters

Your client, So-Crates Inc. (a leading public packaging company headquartered in San Dimas, CA) recently received a comment letter from the SEC Staff relating to the disclosure in its Forms 10-Q for the first and second quarters. The Company is on the verge of filing its third quarter 10-Q and its general counsel, Bill S. Preston, Esq. calls with some questions.

Can So-Crates get an extension? The letter requests a response in 10 days.

Yes. You should call the SEC Staff member listed on the comment letter to request an extension. It is always a good idea to have some persuasive arguments showing that the company is thinking carefully about the letter (e.g., the right people in the company are otherwise occupied preparing for the next 10-Q); while “the dog ate my homework” might have worked for Bill back in his San Dimas High days, it may not impress the SEC Staff. Also, be prepared to file on EDGAR a correspondence filing indicating the date by which the company will respond to the comment letter.

Is there a difference between comments that relate to current disclosure and those that request action in future filings?

Yes, this distinction is important. Current comments relate to an existing report (or reports). If the company cannot resolve the comment to the SEC Staff’s satisfaction, those reports may need to be amended.

By contrast, futures comments can be implemented in upcoming reports and can be much simpler to answer (e.g., “the Company will make the requested change in its upcoming filings” may be all that is needed by way of a response). But having said that, it is always a good idea to think about the effect of the proposed changes on existing disclosure, and to see whether any existing disclosure ought to be amended (if only for reasons of consistency). In addition, if the company is thinking about a new securities offering before the next periodic report is filed, it may want to implement the modifications in the prospectus for that deal.

The company should be careful when agreeing to reflect futures comments in future filings to ensure that future filings do in fact include the disclosure -- the SEC Staff may review the next filing to see. In addition, it may be a good idea to discuss with the SEC Staff the specific disclosure the company plans to use. That could help avoid the need for additional rounds of comments (and possible amendment) once the filing is actually made.

We are not sure we agree with some of the futures comments in the comment letter – how should we handle this in the 10-Q we plan to file shortly?

Several approaches are possible here. The company might ask for an extension (until after filing the 10-Q). Or, the company might submit a response letter pushing back on those comments while proceeding with the planned filing. If you find yourself in this situation, let’s talk.

Do you have any other practical tips?

It’s often a good idea to search EDGAR to see if other companies have received the same (or similar) comments. You might also want to have a look at the summary of SEC Staff comment letters published by certain accounting firms.