Weinberg & Company

              Certified Public Accountants


JULY 2016


Poor grade for REG A+  

There was great enthusiasm among fledgling businesses that the long awaited Regulation A+ (commonly called Reg A+) would open the door to new capital. Included in Title IV of the 2012 Jumpstart Our Business Startups Act (JOBS Act), Reg A+ was touted as a way to spur business growth and employment.

Access to Reg A+ that promised a procedure for capital raising with less legal and reporting requirements, has now been available for over a year – but, according to the SEC, 94 companies have filed to raise a total of $1.7 billion as of early June. Of those, only 45 offerings seeking to raise a total of $785 million have qualified to raise funds, and just a few have actually completed their offerings.   

Lots of possible reasons are cited for the poor results including: a generally weak market for IPOs, companies setting overoptimistic minimums for the amount needed to complete the offering, and attorneys and broker-dealers still adjusting to the new option.  

But, one of the biggest reasons for the poor results of Reg A+ may very well be the same reason that plagued its predecessor, the old Regulation A.   

The failure of the original Regulation A has largely been attributed to the necessity of complying with state blue sky laws in each state where the offering is conducted. The requirement for companies to navigate a labyrinth of state blue sky laws, despite SEC review, added both expense and delay. In some states qualifying for a federally reviewed and approved Regulation A offering was a lost cause under a blue sky regimen known as “merit review.” Some argued that the merit reviews had less to do with protecting the investing public and a whole lot to do with arbitrarily favoring or disfavoring certain kinds of businesses.   

So, the real enthusiasm for new Reg A+ was that, in addition to increasing the capital raising ceiling, the states would be preempted from the process. But, state regulators joined together and fought hard to retain their authority.   

As one example, the SEC increased the amount companies could raise without providing audited financial statements to $20 million from $5 million. But to win approval from some state securities regulators, many companies still need to have an audit. About half of the 50 states require audited or reviewed financial statements for offerings exceeding $1 million. 

SEC: Thinking Smaller 

The Securities and Exchange Commission (SEC) is proposing amendments to the definition of “smaller reporting company” which would expand the number of companies that would qualify for scaled down reporting requirements. The SEC says that the action is intended to promote capital formation and reduce compliance costs for smaller registrants while maintaining investor protections. 

The proposal would allow companies with market caps up to $250 million in public float to qualify for the “smaller reporting company” category. Under existing rules, companies with market caps of up to $75 million in public float qualify for the category. (The float is determined as of the last day of the issuer’s most recently completed second fiscal quarter.) Issuers with no public float also will see benefit, with the SEC allowing companies with annual revenues of “less than $100 million” to qualify under the smaller reporting company rule, up from companies with “less than $50 million” in annual revenue. 

According to Corey Fischer, Weinberg’s Firm Managing Partner, the proposed changes also adjust disclosure requirements for these smaller reporting companies as follows: the formerly required three years of audited financial statements and MD&A disclosure would be reduced to two years. The three years of summary compensation disclosure would be reduced to two, and finally, the five years of business development disclosure would be reduced to three years. 

By this proposal, the SEC is addressing its 2015 FAST Act mandate to revise Regulation S-K and provide amendments to Rule 405 of the Securities Act of 1933, Rule 12b-23 of Securities Act of 1934, and Item 10(f)5 of Regulation S-K. [Click: SEC release]


How sweet it is? 

After forty failed attempts by state and local governments across the nation to enact a tax on sugary soda drinks, Berkeley, California finally succeeded in 2014. No others succeeded since then, including Mayor Bloomberg’s very public failure in New York. So hats off to those innovative politicians in Philadelphia – one of America’s largest and poorest cities. 

Instead of justifying his proposed tax measure as healthy, or even that the money raised would be earmarked for health programs, Philly mayor Jim Kenney took a different tact. Instead, he cast the soft drink industry as a tantalizing revenue source that could be tapped to fund popular city programs, including universal pre-kindergarten expansion, community schools, parks and recreation centers, and add to the City’s General Fund.

“This is the beginning of a process of changing the narrative of poverty in our city,” Kenney said in a news conference after the vote.

When you position a sugary soda tax as an anti-poverty measure, then the 1.5 cent an ounce tax against sugary drinks can also apply to artificially sweetened drinks too! The tax which will add about 30 cents to a 20-ounce drink and about $2.16 for a 12-pack is expected to bring a very sweet $91 million a year into city coffers.

One more thing – since the soda tax has been branded a “grocery tax,” we can expect more food products to be taxed next.  

A Fruit Basket for the 1%  

California’s Proposition 30, a “temporary” tax measure championed by Governor Jerry Brown to help patch the state’s recession-battered budget was approved by voters in 2012. Prop. 30 increased the state sales tax by a quarter cent and the personal income tax rate on people earning more than $250,000 a year to fund government programs. With capital gains taxed by the state at the same rates as income, up to 13.3 percent, California has the second highest marginal tax rate in the industrialized world, only behind socialist Denmark.

Fast forward to 2016. Budget crises averted. Prop 30 to expire at year’s end. But wait, various interest groups are now pushing to extend Prop 30, perhaps permanently – especially the part about taxing the wealthy.           

In a recent Los Angeles Times article on Prop 30 and taxing the wealthy, the Times, citing state statistics, wrote: “Roughly half of the state’s income tax revenue came from 1% of taxpayers in recent years.”

That’s right, half the state’s income tax revenue from just the top 1% — which apparently prompted State Sen. John Moorlach (R-Costa Mesa) to propose that lawmakers send California’s wealthiest residents a fruit basket to thank them for not moving to more lightly taxed states.



Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.  — Alexis de Tocqueville
We cannot expect Americans to jump from capitalism to Communism, but we can assist their elected leaders in giving Americans small doses of socialism until they suddenly awake to find they have Communism.” — Soviet Leader Nikita Khrushchev, 1959

Democracy… while it lasts is more bloody than either aristocracy or monarchy. Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There is never a democracy that did not commit suicide. — John Adams

I don’t know much about Americanism, but it’s a damn good word with which to carry an election. –Warren G. Harding, 29th U.S. President


Simply the right choice


Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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Corey Fischer
Firm Managing Partner



Jeffrey B. Engler
Director of Tax,
Los Angeles 


Bruce Weinberg
Florida Managing Partner




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