[Title 17 CFR 228.303]
[Code of Federal Regulations (annual edition) - April 1, 2007 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter II - SECURITIES AND EXCHANGE COMMISSION]
[Part 228 - INTEGRATED DISCLOSURE SYSTEM FOR SMALL]
[Subpart A - Regulation S-B]
[Sec. 228.303 - (Item 303) Management's Discussion and Analysis or Plan of Operation.]
[From the U.S. Government Printing Office]


17COMMODITY AND SECURITIES EXCHANGES22007-04-012007-04-01false228.303Sec. 228.303COMMODITY AND SECURITIES EXCHANGESSECURITIES AND EXCHANGE COMMISSIONINTEGRATED DISCLOSURE SYSTEM FOR SMALLRegulation S-B
Sec. 228.303  (Item 303) Management's Discussion and Analysis or Plan of Operation.

    Small business issuers that have not had revenues from operations in 
each of the last two fiscal years, or the last fiscal year and any 
interim period in the current fiscal year for which financial statements 
are furnished in the disclosure document, shall provide the

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information in paragraphs (a) and (c) of this Item. All other issuers 
shall provide the information in paragraphs (b) and (c) of this Item.
    (a) Plan of Operation. (1) Describe the small business issuer's plan 
of operation for the next twelve months. This description should include 
such matters as:
    (i) a discussion of how long the small business issuer can satisfy 
its cash requirements and whether it will have to raise additional funds 
in the next twelve months;
    (ii) a summary of any product research and development that the 
small business issuer will perform for the term of the plan;
    (iii) any expected purchase or sale of plant and significant 
equipment; and
    (iv) any expected significant changes in the number of employees.
    (2) [Reserved]
    (b) Management's Discussion and Analysis of Financial Condition and 
Results of Operations--(1) Full fiscal years. Discuss the small business 
issuer's financial condition, changes in financial condition and results 
of operations for each of the last two fiscal years. This discussion 
should address the past and future financial condition and results of 
operation of the small business issuer, with particular emphasis on the 
prospects for the future. The discussion should also address those key 
variable and other qualitative and quantitative factors which are 
necessary to an understanding and evaluation of the small business 
issuer. If material, the small business issuer should disclose the 
following:
    (i) Any known trends, events or uncertainties that have or are 
reasonably likely to have a material impact on the small business 
issuer's short-term or long-term liquidity;
    (ii) Internal and external sources of liquidity;
    (iii) Any material commitments for capital expenditures and the 
expected sources of funds for such expenditures;
    (iv) Any known trends, events or uncertainties that have had or that 
are reasonably expected to have a material impact on the net sales or 
revenues or income from continuing operations;
    (v) Any significant elements of income or loss that do not arise 
from the small business issuer's continuing operations;
    (vi) The causes for any material changes from period to period in 
one or more line items of the small business issuer's financial 
statements; and
    (vii) Any seasonal aspects that had a material effect on the 
financial condition or results of operation.
    (2) Interim Periods. If the small business issuer must include 
interim financial statements in the registration statement or report, 
provide a comparable discussion that will enable the reader to assess 
material changes in financial condition and results of operations since 
the end of the last fiscal year and for the comparable interim period in 
the preceding year.
    (c) Off-balance sheet arrangements. (1) In a separately-captioned 
section, discuss the small business issuer's off-balance sheet 
arrangements that have or are reasonably likely to have a current or 
future effect on the small business issuer's financial condition, 
changes in financial condition, revenues or expenses, results of 
operations, liquidity, capital expenditures or capital resources that is 
material to investors. The disclosure shall include the items specified 
in paragraphs (c)(1)(i), (ii), (iii) and (iv) of this Item to the extent 
necessary to an understanding of such arrangements and effect and shall 
also include such other information that the small business issuer 
believes is necessary for such an understanding.
    (i) The nature and business purpose to the small business issuer of 
such off-balance sheet arrangements;
    (ii) The importance to the small business issuer of such off-balance 
sheet arrangements in respect of its liquidity, capital resources, 
market risk support, credit risk support or other benefits;
    (iii) The amounts of revenues, expenses and cash flows of the small 
business issuer arising from such arrangements; the nature and amounts 
of any interests retained, securities issued and other indebtedness 
incurred by the small business issuer in connection with such 
arrangements; and the nature and amounts of any other obligations or 
liabilities (including contingent obligations or liabilities) of the 
small business issuer arising from such

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arrangements that are or are reasonably likely to become material and 
the triggering events or circumstances that could cause them to arise; 
and
    (iv) Any known event, demand, commitment, trend or uncertainty that 
will result in or is reasonably likely to result in the termination, or 
material reduction in availability to the small business issuer, of its 
off-balance sheet arrangements that provide material benefits to it, and 
the course of action that the small business issuer has taken or 
proposes to take in response to any such circumstances.
    (2) As used in paragraph (c) of this Item, the term off-balance 
sheet arrangement means any transaction, agreement or other contractual 
arrangement to which an entity unconsolidated with the small business 
issuer is a party, under which the small business issuer has:
    (i) Any obligation under a guarantee contract that has any of the 
characteristics identified in paragraph 3 of FASB Interpretation No. 45, 
Guarantor's Accounting and Disclosure Requirements for Guarantees, 
Including Indirect Guarantees of Indebtedness of Others (November 2002) 
(``FIN 45''), as may be modified or supplemented, and that is not 
excluded from the initial recognition and measurement provisions of FIN 
45 pursuant to paragraphs 6 or 7 of that Interpretation;
    (ii) A retained or contingent interest in assets transferred to an 
unconsolidated entity or similar arrangement that serves as credit, 
liquidity or market risk support to such entity for such assets;
    (iii) Any obligation, including a contingent obligation, under a 
contract that would be accounted for as a derivative instrument, except 
that it is both indexed to the small business issuer's own stock and 
classified in stockholders' equity in the small business issuer's 
statement of financial position, and therefore excluded from the scope 
of FASB Statement of Financial Accounting Standards No. 133, Accounting 
for Derivative Instruments and Hedging Activities (June 1998), pursuant 
to paragraph 11(a) of that Statement, as may be modified or 
supplemented; or
    (iv) Any obligation, including a contingent obligation, arising out 
of a variable interest (as referenced in FASB Interpretation No. 46, 
Consolidation of Variable Interest Entities (January 2003), as may be 
modified or supplemented) in an unconsolidated entity that is held by, 
and material to, the small business issuer, where such entity provides 
financing, liquidity, market risk or credit risk support to, or engages 
in leasing, hedging or research and development services with, the small 
business issuer.

Instructions to paragraph (c) of Item 303. 1. No obligation to make 
disclosure under paragraph (c) of this Item shall arise in respect of an 
off-balance sheet arrangement until a definitive agreement that is 
unconditionally binding or subject only to customary closing conditions 
exists or, if there is no such agreement, when settlement of the 
transaction occurs.
    2. Small business issuers should aggregate off-balance sheet 
arrangements in groups or categories that provide material information 
in an efficient and understandable manner and should avoid repetition 
and disclosure of immaterial information. Effects that are common or 
similar with respect to a number of off-balance sheet arrangements must 
be analyzed in the aggregate to the extent the aggregation increases 
understanding. Distinctions in arrangements and their effects must be 
discussed to the extent the information is material, but the discussion 
should avoid repetition and disclosure of immaterial information.
    3. For purposes of paragraph (c) of this Item only, contingent 
liabilities arising out of litigation, arbitration or regulatory actions 
are not considered to be off-balance sheet arrangements.
    4. Generally, the disclosure required by paragraph (c) of this Item 
shall cover the most recent fiscal year. However, the discussion should 
address changes from the previous year where such discussion is 
necessary to an understanding of the disclosure.
    5. In satisfying the requirements of paragraph (c) of this Item, the 
discussion of off-balance sheet arrangements need not repeat information 
provided in the footnotes to the financial statements, provided that 
such discussion clearly cross-references to specific information in the 
relevant footnotes and integrates the substance of the footnotes into 
such discussion in a manner designed to inform readers of the 
significance of the information that is not included within the body of 
such discussion.

    (d) Safe harbor. (1) The safe harbor provided in section 27A of the 
Securities Act of 1933 (15 U.S.C. 77z-2) and section 21E of the 
Securities Exchange

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Act of 1934 (15 U.S.C. 78u-5) (``statutory safe harbors'') shall apply 
to forward-looking information provided pursuant to paragraph (c) of 
this Item, provided that the disclosure is made by: an issuer; a person 
acting on behalf of the issuer; an outside reviewer retained by the 
issuer making a statement on behalf of the issuer; or an underwriter, 
with respect to information provided by the issuer or information 
derived from information provided by the issuer.
    (2) For purposes of paragraph (d) of this Item only:
    (i) All information required by paragraph (c) of this Item is deemed 
to be a ``forward looking statement'' as that term is defined in the 
statutory safe harbors, except for historical facts.
    (ii) With respect to paragraph (c) of this Item, the meaningful 
cautionary statements element of the statutory safe harbors will be 
satisfied if a small business issuer satisfies all requirements of that 
same paragraph (c) of this Item.

Instructions to Item 303: 1. The discussion and analysis shall focus 
specifically on material events and uncertainties known to management 
that would cause reported financial information not to be necessarily 
indicative of future operating results or of future financial condition.
    2. Small business issuers are encouraged, but not required, to 
supply forward looking information. This is distinguished from presently 
known data which will impact upon future operating results, such as 
known future increases in costs of labor or materials. This latter data 
may be required to be disclosed.

[57 FR 36449, Aug. 13, 1992, as amended at 68 FR 5998, Feb. 5, 2003]