What is a SCOR Offering? l Securities Lawyer 101

Securities Lawyer 101 Blog

State Blue Sky laws play a significant role in the enforcement of the securities laws.  Each State has its own securities laws and regulations.  Issuers selling securities must comply with both federal and state securities laws and regulations in the states where they choose to offer and sell securities.  An offering exempt under state securities laws is not necessarily exempt from federal securities laws.  Each state’s securities laws have their own separate registration requirements and exemptions from registration.

State Blue Sky Laws & NASAA

To facilitate small business capital formation, the North American Securities Administrators Association (“NASAA”), developed the Small Company Offering Registration or “SCOR” (also known as U-7).  The SCOR consists in part of a simplified question and answer form that companies can use as a guide to register securities and also as the disclosure document provided to investors in Rule 504 offerings.  The SCOR program was primarily designed for state registration under Rule 504 of Regulation D.

Most states accept the SCOR as a means of registering securities.

SCOR Requirements for State Blue Sky Filings

The provisions of the NASAA Statement of Policy for SCOR offerings are summarized below:

The Issuer must:

♦ be a corporation or centrally managed limited liability issuer organized under the laws of the United States or Canada that is:

♦ not subject to the reporting requirements of the Securities Exchange Act of 1934;

♦ not an investment issuer under the Investment Issuer Act of 1940;

♦ not engaged in petroleum exploration and production, mining, or other extractive industries; and

♦ not be a development stage issuer with no specific business plan or purpose other than merger (“blank check company”).

SCOR Disclosures in State Blue Sky Filings

The SCOR requires that the following disclosures be made:

♦ Describe the business of the Company, including its products or services.

♦ Describe how the Company produces or provides these products or services and how and when the Company intends to carry out its activities.

♦ Is the Company dependent upon a limited number of suppliers?

♦ Does the Company have any major sales contracts?

♦ Name the Company’s principal competitors and indicate their relative size and financial and market strengths.

♦ Describe how the Company plans to market its products or services during the next 12 months, including who will perform these marketing activities.

♦ Indicate any benefits or incentive arrangements the Company provides or will provide to its employees.

♦ Is the Company’s business subject to material regulation by any governmental agency?

The issuer may not use the SCOR Form to offer and sell its securities if the issuer or any of its officers, directors, principal stockholders, promoters or salespersons are disqualified because of prior violations of the securities laws.

SCOR Pricing Requirements in State Blue Sky Offerings

The issuer must set an offering price for common stock or common ownership interests that is equal to or greater than US $1.00 per share or unit of interest.  The issuer must agree with the appropriate securities regulatory agencies that it will not split its common stock, or declare a stock dividend, for two years after effectiveness of the SCOR registration if doing so would cause the issuer’s stock price to be below US $1.00.

Payment of Sales Commissions & Fees in State Blue Sky Offerings Using SCOR

If the issuer pays a commission, fee or other remuneration to any person for soliciting any prospective purchaser in connection with the offering, that person must be registered or licensed if required under state or federal securities laws.

Financial Statement Requirements in State Blue Sky Filings Using SCOR

The issuer’s financial statements must be prepared in accordance with either U.S. or Canadian generally accepted accounting principles (“GAAP”).  Interim financial statements may be unaudited.  All other financial statements must be audited by independent certified public accountants.

Use of SCOR in Regional Filings

If you want to use the SCOR form in more than one state, you may be eligible for regional coordinated review.

The following is a list of the states that do coordinated review:

CR-SCOR-Mid-Atlantic: Delaware, Maryland, New Jersey, Pennsylvania, Virginia, and West Virginia;

CR-SCOR-Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and Wisconsin;

CR-SCOR-New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont;

CR-SCOR-Southwest: Arkansas, Oklahoma, Texas; and

CR-SCOR-West: Alaska, Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group 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 the prior results discussed herein do not guarantee similar outcomes.

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