The Regulation A+ Offering Process – Going Public Attorneys

On June 19, 2015, Regulation A+ became effective. The new rules which were promulgated under the Jumpstart Our Business Startups Act (JOBS Act), create two Tiers of exempt offerings, both of which allow securities to be offered and sold to the general public.

Tier 1 offerings allow the issuer to offer and sell up to $20 million in a 12-month period.  Additionally, Tier 1 offerings do not preempt state Blue Sky laws.  Issuers in Tier 2 offerings may raise up to $50 million in a 12-month period. A notable advantage of Tier 2 over Tier 1 offerings is preemption of state Blue Sky laws. As discussed below, Tier 2 offerings require the issuer to provide audited financial statements and comply with ongoing reporting obligations.

What Is Testing The Waters?

Companies may solicit investor interest for a potential offering, both before or after the filing of their Regulation A+ offering statement. Solicitation materials used after the offering statement is publicly filed, must be accompanied by a preliminary offering circular or provide a URL where the preliminary offering statement can be obtained. Additionally, materials used to solicit investors must be filed as exhibits to the Form 1-A offering statement.

Confidential Submission Of The Form 1-A Offering Circular

A Company may submit its Form 1-A Offering Circular to the Securities and Exchange Commission (SEC) on a confidential basis before it is filed publicly so long as the documents are publicly filed not later than 21 calendar days before qualification by the SEC.

What Disclosures Are Required In Form 1-A Offering Circular?

Companies conducting Regulation A+ offerings must file an offering statement on Form 1-A with the Securities & Exchange Commission. The form must be filed through the SEC’s EDGAR system. Form 1-A Offering Circulars have three parts:

• Part I (Notification),
• Part II (Offering Circular), and
• Part III (Exhibits).

The Offering Circular disclosure in Part II of Form 1-A is similar to what is required by a Form S-1 registration statement under the Securities Act. The disclosure requirements for Tier 1 and Tier 2 offerings vary slightly.

The following disclosures are required:

• Basic information about the company, the offering and underwriters, if any,
• Underwriting discounts and commissions,
• Summary of risk factors,
• Material differences between the offering price and the amount paid for shares by insiders during the past year,
• Plan of distribution,
• Selling security-holders,
• How offering proceeds will be spent,
• Business operations for the prior three fiscal years or since inception, if less than three years,
• Physical property/real estate,
• Management’s discussion and analysis of the company’s liquidity and capital resources and results of operations,
• Directors, executive officers and significant employees of the company,
• Executive compensation,
• Beneficial ownership by officers, directors and 10% owners,
• Transactions with related parties, promoters and certain control persons, and
• Material terms of the shares being offered.

What Are The Financial Statement Requirements For Regulation A+?

Tier 1 and Tier 2 offerings require the company to provide financial statements for the two most recent fiscal years. An important distinction between Tier 1 and Tier 2 offerings is that Tier 2 companies must provide audited financial statements, while Tier 1 companies may provide unaudited financial statements.

U.S. based companies must prepare their financial statements in accordance with U.S. Generally Accepted Accounting Procedures (GAAP), while Canadian companies may prepare their financial statements in accordance with either US GAAP or International Financial Reporting Standards of the International Accounting Standards Board (IASB IFRS).

When Is Delivery Of The Offering Circular Required?

During the pre-qualification period of Regulation A+ offerings, companies must provide a preliminary offering circular to prospective investors at least 48 hours before the sale. When a company is subject to ongoing Tier 2 reporting obligations and current in its obligations, delivery of a preliminary offering circular is not required. Under these circumstances, the company and any intermediaries are subject to the general offering circular delivery requirements.

Within two business days after each sale, companies and intermediaries must provide investors with a copy of the final offering circular or provide a notice identifying where investors may obtain the final offering circular on EDGAR and contact information for the company or intermediary.

How Is The Regulation A+ Offering Statement Qualified?

Offering statements must be qualified by the SEC before sales can occur. Once the SEC is satisfied with the disclosures that comply with Regulation A+,it will issue a notice of qualification. The notice of qualification is similar to the notice of effectiveness issued by the SEC for Form S-1 registration statements.

What Continuous Or Delayed Offerings Are Allowed by Regulation A?

Regulation A+ permits continuous or delayed offerings. Companies conducting continuous or delayed Tier 2 offerings must be current in their annual and semi-annual reporting obligations. A company can add additional securities to their Form 1-A Offering Statement by submitting a post-qualified amendment to its previously qualified offering statement.

Regulation A+ allows continuous or delayed offerings as follows:

• Securities offered or sold by or on behalf of a person other than the company, its subsidiary or a person of which the company is a subsidiary,
• Securities offered and sold pursuant to a dividend or interest reinvestment plan or employee benefit plan,
• Securities issued upon the exercise of outstanding options, warrants or rights,
• Securities issued upon the conversion of outstanding securities,
• Securities pledged as collateral for a loan or other obligation,
• Securities that are part of an offering that begins within two days after the offering’s qualification date, will be offered on a continuous basis, may continue to be offered for a period in excess of 30 days after initial qualification, and will be offered in an amount that, at the time the offering statement is qualified, is reasonably expected to be offered and sold within two years after the initial offering qualification.

For further information Regulation A+, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at [email protected].  This securities law Q & A is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com