Regulation A Form 1-A Offering Circular Disclosures – Going Public Lawyers
Regulation A Form 1-A Offering Statements require line item disclosure of information about the issuer and the offering. Form 1-A is subject to a full review by the SEC. Regulation A offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital. Issuers conducting Regulation A+ offerings must provide the disclosures required by Form 1-A. Regulation A + Form 1-A consists of the following three parts:
- Part I: an eXtensible Markup Language (XML) based fillable form, which captures key information about the Issuer and its offering using an easy to complete online form, similar to Form D, with drop-down menus, indicator boxes or buttons, and text boxes, and assists Issuers in determining their ability to rely on the exemption. The XML-based fillable form will provide a convenient means of assembling and transmitting information to EDGAR, without requiring the Issuer to purchase or maintain additional software or technology;
- Part II: a text file attachment containing the body of the disclosure document and financial statements, formatted in HyperText Markup Language (HTML) or American Standard Code for Information Interchange (ASCII) to be compatible with the EDGAR filing system; and
- Part III: text file attachments, containing the signatures, exhibits index, and the exhibits to the offering statement, formatted in HTML or ASCII to be compatible with the EDGAR filing system.
REGULATION A + FORM 1-A PART I—NOTIFICATION
Item 1. Issuer Information
- Exact name of Issuer as specified in the Issuer’s charter
- Jurisdiction of incorporation/organization
- Year of incorporation
- Primary Standard Industrial Classification Code
- R.S. Employer Identification Number
- Total number of full-time employees
- Total number of part-time employees
- Contact Information Address of Principal Executive Offices
- Contact Person and 2 e-mail addresses for sending comments
Item 2. Issuer Eligibility Check this box to certify that all of the following statements are true for the Issuer(s):
- Organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia.
- Principal place of business is in the United States or Canada.
- Not subject to section 13 or 15(d) of the Securities Exchange Act of 1934. •
- Not a development stage company that either (a) has no specific business plan or purpose, or (b) has indicated that its business plan is to merge with an unidentified company or companies.
- Not an investment company registered or required to be registered under the Investment Company Act of 1940.
- Not issuing fractional undivided interests in oil or gas rights, or a similar interest in other mineral rights.
- Not issuing asset-backed securities as defined in Item 1101(c) of Regulation A+.
- Not, and has not been, subject to any order of the Commission entered pursuant to Section 12(j) of the Exchange Act (15 U.S.C. 78l(j)) within five years before the filing of this offering statement.
- Has filed with the Commission all the reports it was required to file, if any, pursuant to Rule 257 during the two years immediately before the filing of the offering statement (or for such shorter period that the Issuer was required to file such reports).
Item 3. Application of Rule 262 – “Bad Boy Disqualification”
Check a box to certify that, as of the time of this filing, each person described in Rule 262 of Regulation A+ is either not disqualified under that rule or is disqualified but has received a waiver of such disqualification.
Item 4. Summary Information Regarding the Offering and Other Current or Proposed Offerings
It’s important to note that you can offer Regulation A+ securities on a continuous basis, meaning you can keep your offering open generally for 12 months.
- Does the Issuer intend to offer the securities on a delayed or continuous basis pursuant to Rule 251(d)(3)?
- Does the Issuer intend this offering to last more than one year?
- Does the Issuer intend to price this offering after qualification pursuant to Rule 253(b)? Will the Issuer be conducting a best efforts offering?
- Has the Issuer used solicitation of interest communications in connection with the proposed offering?
- Does the proposed offering involve the resale of securities by affiliates of the Issuer?
- Disclose anticipated fees in connection with this offering and names of service providers.
Item 5. Jurisdictions in which Securities are to be Offered
In this Item, the issuer must include all states where the offering will be offered or sold.
Item 6. Unregistered Securities Issued or Sold Within One Year
If the issuer has sold any securities within the last year, each sale and the exemption relied upon must be disclosed in this section.
REGULATION A + FORM 1-A PART II — INFORMATION REQUIRED IN A REGULATION A+ OFFERING CIRCULAR
The narrative disclosure contents of offering circulars are specified as follows: (1) The information required by: (i) the Offering Circular format described below; or (ii) The information required by Part I of Form S-1 or Part I of Form S-11, except for the financial statements, selected financial data, and supplementary financial information called for by those forms. An Issuer choosing to follow the Form S-1 or Form S-11 format may follow the requirements for smaller reporting companies if it meets the definition of that term in Rule 405. An Issuer may only use the Form S-11 format if the offering is eligible to be registered on that form. The cover page of the offering circular must identify which disclosure format is being followed.
For Tier 2 offerings where the securities will not be listed on a registered national securities exchange upon qualification, the offering circular cover page must include the following legend highlighted by prominent type or in another manner: Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A+. For general information on investing, we encourage you to refer to www.investor.gov.
NOTE: Except as noted below, the disclosure required by these items is essentially the same as that required in an S-1 filing described elsewhere this book.
Item 1. Cover Page of Offering Circular
Item 2. Table of Contents
Item 3. Summary and Risk Factors
Immediately following the Table of Contents required by Item 2 or the Summary, there must be set forth under an appropriate caption, a carefully organized series of short, concise paragraphs, summarizing the most significant factors that make the offering speculative or substantially risky. Issuers should avoid generalized statements and include only factors that are specific to the Issuer.
Item 4. Dilution
Item 5. Plan of Distribution and Selling Stockholders
Item 6. Use of Proceeds to Issuer
Item 7. Description of Business
Item 8. Description of Property
Item 9. Management’s Discussion and Analysis of Financial Condition and Results of Operations/ Plan of Operations for Issuers (including predecessors) that have not received revenue from operations during each of the three fiscal years immediately before the filing of the offering statement.
Item 10. Directors, Executive Officers and Significant Employees
The term “executive officer” means the president, secretary, treasurer, any vice president in charge of a principal business function (such as sales, administration, or finance) and any other person who performs similar policy making functions for the Issuer.
The term “significant employee” means persons such as production managers, sales managers, or research scientists, who are not executive officers, but who make or are expected to make significant contributions to the business of the Issuer.
Provide table showing Name/Position/Age/Term of Office and Approximate hours per week for part-time employees. Provide the month and year of the start date and, if applicable, the end date. To the extent you are unable to provide specific dates, provide such other description in the table or in an appropriate footnote clarifying the term of office. If the person is a nominee or chosen to become a director or executive officer, it must be indicated in this column or by footnote. For executive officers and significant employees that are working part-time, indicate approximately the average number of hours per week or month such person works or is anticipated to work. This column may be left blank for directors.
In a footnote to the table, briefly describe any arrangement or understanding between the persons described above and any other persons (naming such persons) pursuant to which the person was or is to be selected to his or her office or position.
State the nature of any family relationship between any director, executive officer, person nominated or chosen by the Issuer to become a director or executive officer or any significant employee.
Business experience. Give a brief account of the business experience during the past five years of each director, executive officer, person nominated or chosen to become a director or executive officer, and each significant employee, including his or her principal occupations and employment during that period and the name and principal business of any corporation or other organization in which such occupations and employment were carried on. When an executive officer or significant employee has been employed by the Issuer for less than five years, a brief explanation must be included as to the nature of the responsibilities undertaken by the individual in prior positions to provide adequate disclosure of this prior business experience. What is required is information relating to the level of the employee’s professional competence, which may include, depending upon the circumstances, such specific information as the size of the operation supervised.
Involvement in certain legal proceedings. Describe any of the following events which occurred during the past five years and which are material to an evaluation of the ability or integrity of any director, person nominated to become a director or executive officer of the Issuer:
- A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; or
(2) Such person was convicted in a criminal proceeding (excluding traffic violations and other minor offenses).
Item 11. Compensation of Directors and Executive Officers
Provide, in substantially the tabular format indicated, the annual compensation of each of the three highest paid persons who were executive officers or directors during the Issuer’s last completed fiscal year.
|Name||Capacities in which Cash Other Total compensation was received
(e.g., Chief Executive Officer, director, etc.)
|Cash Compensation||Other Compensation||Total Compensation|
Provide the aggregate annual compensation of the Issuer’s directors as a group for the Issuer’s last completed fiscal year. Specify the total number of directors in the group.
For Tier 1 offerings, the annual compensation of the three highest paid persons who were executive officers or directors and the aggregate annual compensation of the Issuer’s directors may be provided as a group, rather than as specified in paragraphs (a) and (b) of this item. In such case, Issuers must specify the total number of persons in the group.
Briefly describe all proposed compensation to be made in the future pursuant to any ongoing plan or arrangement to the individuals specified in paragraphs (a) and (b) of this item. The description must include a summary of how each plan operates, any performance formula or measure in effect (or the criteria used to determine payment amounts), the time periods over which the measurements of benefits are determined, payment schedules, and any recent material amendments to the plan. Information need not be included with respect to any group life, health, hospitalization, or medical reimbursement plans that do not discriminate in scope, terms or operation in favor of executive officers or directors of the Issuer and that are available generally to all salaried employees.
Item 12. Security Ownership of Management and Certain Securityholders in Regulation A+ Offerings
Complete the Ownership Table
|Title of class||Name and address of beneficial owner||Amount and nature of beneficial ownership||Amount and nature of beneficial ownership acquirable||Percent of class|
This table shows voting securities beneficially owned by: (1) all executive officers and directors as a group, individually naming each director or executive officer who beneficially owns more than 10% of any class of the Issuer’s voting securities; (2) any other securityholder who beneficially owns more than 10% of any class of the Issuer’s voting securities as such beneficial ownership would be calculated if the Issuer were subject to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934.
Item 13. Interest of Management and Others in Certain Transactions
This information is found in the “Related Party” or similar footnote in the financial statements. However, you must modify the footnote disclosure giving the name and title of each related party in a related party transaction.
This is the section where your attorney has to disclose his stock or other interest.
Item 14. Securities Being Offered
Financial Statement Requirements in Regulation A+ Offerings
For Tier 1 offerings, the balance sheets must be filed for two years (along with the other required financial statements as of the two most recently completed fiscal year ends). Significantly, financial statements for Tier 1 offerings do not need to be audited.
Financial statements in Tier 2 offerings must be audited, but either in accordance with either the auditing standards of the American Institute of Certified Public Accountants (AICPA) (referred to as U.S. Generally Accepted Auditing Standards or GAAS) or the standards of the Public Company Accounting Oversight Board (PCAOB). In terms of cost savings, this requirement is significantly different than registration statements on Form S-1 in that you don’t need to pay for a PCAOB qualified firm to audit your financial statements. Hopefully you’ll be able to secure a non-PCAOB audit significantly cheaper than an S-1 PCAOB required audit.
Don’t be misled on the period the financial statements must cover. You must provide financial statements for each of the two fiscal years preceding the date of the most recent balance sheet being filed or such shorter period as the Issuer has been in existence. If you are a startup company or a company that hasn’t been in business for two years, you can still use Regulation A+.
Continuing Disclosure Obligations in Regulation A+ Offerings
Annual Reports on Form 1-K for Regulation A+ Issuers
Form 1-K consists of two parts: Part I (Notification) and Part II (Information to be included in the Report).
Part I (Notification): Part I of Form 1-K is an online XML-based fillable form that will include certain basic information about the Issuer, prepopulated on the basis of information previously disclosed in Part I of Form 1-A, which can be updated by the Issuer at the time of filing. Additionally, if at the time of filing the Form 1-K an Issuer has terminated or completed a qualified Regulation A+ offering, the Issuer is required to provide certain updated summary information about itself and such offering in Part I, including the date the offering was qualified and commenced, the amount of securities qualified, the amount of securities sold in the offering, the price of the securities, the portions of the offering that were sold on behalf of the Issuer and any selling security holders, any fees associated with the offering, and the net proceeds to the Issuer.
Part II (Information to be included in the Report): As with Part II of Form 1-A, Part II of Form 1-K must be submitted electronically as a text file attachment containing the body of the disclosure document and financial statements, formatted to be compatible with the EDGAR filing system. Part II will require Issuers to disclose information about themselves and their business based on the financial statement and narrative disclosure requirements of Form 1-A.
Form 1-K will cover:
- Business operations of the Issuer for the prior three fiscal years (or, if in existence for less than three years, since inception);
- Transactions with related persons, promoters, and certain control persons;
- Beneficial ownership of voting securities by executive officers, directors, and 10% owners;
- Identities of directors, executive officers, and significant employees, with a description of their business experience and involvement in certain legal proceedings;
- Executive compensation data for the most recent fiscal year for the three highest paid executive officers or directors;
- MD&A of the Issuer’s liquidity, capital resources, and results of operations covering the two most recently completed fiscal years; and
- Two years of audited financial statements (or less if the company has been in business for less than two years).
Form 1-K must be filed within 120 calendar days after the Issuer’s fiscal year end, not the 90 days required in a Form 10-K for 1934 Act filers.
Semiannual Reports on Form 1-SA in Regulation A+ Offerings
Issuers are required to provide semiannual reports on Form 1-SA that, much like reports on Form 10-Q, consist primarily of financial statements and MD&A. Form 1-SA also requires disclosure of updates otherwise reportable on Form 1-U (See below). Unlike Form 10-Q, however, Form 1-SA does not require disclosure about quantitative and qualitative market risk, controls and procedures, updates to risk factors, or defaults on senior securities.
Issuers may incorporate by reference in Form 1-SA certain information previously filed on EDGAR, but must include a hyperlink to such material on EDGAR without limitation to incorporation by reference to information previously filed pursuant to Regulation A+.
Form 1-SA must be filed within 90 calendar days after the end of the first six months of the Issuer’s fiscal year. The first such obligation to file will commence immediately following the most recent fiscal year for which full financial statements were included in the offering statement, or, if the offering statement included financial statements for the first six months of the fiscal year following the most recent full fiscal year, for the first six months of the following fiscal year.
For example, where an offering statement is filed in October 2015 and includes full financial statements for the fiscal years ended December 31, 2014 and December 31, 2013 and interim financial statements for the six months ended June 30, 2015 and June 30, 2014 and is qualified in December 2015, the Form 1-SA will not be required until within 90 days following the first six months of the following fiscal year (i.e., within 90 days following June 30, 2016). If, however, the offering statement is filed in March 2015 and qualified in June of 2015 than the first Form 1-SA would cover the six months ended June 30, 2015 and June 30, 2014 and would not be required to be filed until within 90 days following June 30, 2015.
Current Reports on Form 1-U in Regulation A+ Offerings
In addition to the annual report on Form 1-K and semiannual report on Form 1-SA, any Tier 2 Issuer is required to submit current reports on Form 1-U when it experiences one (or more) of the following events:
- Fundamental changes (See discussion below);
- Bankruptcy or receivership;
- Material modification to the rights of security holders;
- Changes in the Issuer’s certifying accountant;
- Non-reliance on previous financial statements or a related audit report or completed interim review;
- Changes in control of the Issuer;
- Departure of the principal executive officer, principal financial officer, or principal accounting officer; and
- Unregistered sales of 10% or more of outstanding equity securities.
A fundamental change requiring the filing of a Form 1-U is limited to the entry into or termination of material definitive agreements resulting in fundamental changes in the nature of an Issuer’s business, which includes major and substantial changes in the Issuer’s business or plan of operations or changes reasonably expected to result in such changes, such as significant acquisitions or dispositions, or the entry into, or termination of, a material definitive agreement that has or will result in major and substantial changes to the nature of an Issuer’s business or plan of operation. An acquisition transaction will only result in a fundamental change for these purposes if the purchase price, as defined by U.S. GAAP and IFRS, exceeds 50% of the total consolidated assets of the Issuer as of the end of its fiscal year.
Item 9 of final Form 1-U contains provisions for disclosing other events not directly required of Issuers in the form. This Item 9 is significant because Issuers that voluntarily elect to provide relevant information to the market on, for example, a quarterly basis may do so pursuant to Item 9.
Form 1-U must be filed within four business days after the occurrence of any of the triggering events, and, where applicable, will permit Issuers to incorporate by reference certain information previously filed on EDGAR.
Incorporation by reference is not limited to information previously filed pursuant to Regulation A+.
Where in connection with a succession by merger, consolidation, exchange of securities, acquisition of assets, or otherwise, securities of an Issuer that is not subject to the reporting requirements of Regulation A+ are issued to the holders of any class of securities of an Issuer that is subject to ongoing reporting under Tier 2, the Issuer succeeding to that class of securities must continue to file the reports required for Tier 2 offerings on the same basis as would have been required of the original Tier 2 Issuer. The successor Issuer may suspend or terminate its reporting obligations on the same basis as the original Issuer under Rule 257.
Forms Not Required to be Filed by A+ Issuers and their Stockholders
A+ issuers are not subject to the Proxy Rules, meaning that if they want to take a corporate action such as increasing authorized shares, they are not required to file a Proxy Statement that meets the requirements of Schedule 14A or Information Statement that meets the requirements of Schedule 14C with the SEC for review and approval before being sent to stockholders.
Stockholders of an A+ Issuer are not subject to the short swing profit rules of Section 16 of the 1934 Act and thus do not have to file Forms 3, 4 and 5 or Schedule 13D disclosing ownership or changes in ownership.
These are very significant and sometimes very costly requirements that an A+ Issuer and its Stockholders do not have to worry about.
Regulation A+ Ongoing Reporting and Exchange Act Rule 15c2-11
Exchange Act Rule 15c2-11 governs broker-dealers’ publication of quotations for securities in a quotation medium other than a national securities exchange.
A broker-dealer can satisfy its obligations under Rule 15c2-11 if it has reviewed and maintained in its records certain specified information. The particular information that is required by the rule varies depending on the nature of the Issuer and includes, among other things:
- For an Issuer that has filed an offering statement under the Securities Act pursuant to Regulation A+, a copy of the offering circular.
- For an Issuer subject to ongoing reporting under Sections 13 or 15(d) of the Exchange Act, the Issuer’s most recent annual report and any quarterly or current reports filed thereafter.
More significant, Regulation A+ specifically provides an Issuer’s ongoing reports filed under Tier 2 will satisfy the specified information about an Issuer and its security that a broker-dealer must review before publishing a quotation for a security (or submitting a quotation for publication) in a quotation medium. This means that the Financial Industry Regulatory Authority, Inc., or FINRA, cannot deny an application for quotation of securities filed on behalf of a Tier 2 Issuer subject to and current in filing requirements of Regulations A+ on Form 211 on the grounds that the Market Maker filing the Form 211 does not have the requisite Exchange Act Rule 15c2-11 information on the Tier 2 Issuer.
Ongoing Reporting Obligations and Rule 144 – Regulation A+ Offerings
Regulation A+ Tier 2 Issuer required ongoing reporting filings do not constitute “adequate public information” or “reasonably current information” as required in Rule 144.
The semiannual reporting required under the final rules for Tier 2 offerings will result in Issuers only having “reasonably current information” and “adequate current public information” for the three months following the filing of each semiannual report.
There is a solution for Issuers desiring to make Rule 144 available year around for Stockholders holding their restricted securities. Issuers may voluntarily submit on Form 1-U quarterly financial statements or other information necessary to satisfy the respective rule requirements. In such instances, and provided that the financial statements otherwise meet the financial statement requirements of Form 1-SA, such voluntarily provided quarterly information could satisfy the “reasonably current information” and “adequate current public information” requirements of Rule 144. Under Regulation A+ and Rule 144, an Issuer that is current in its semiannual reporting required under the rules and voluntarily provides quarterly financial statements on Form 1-U will have provided reasonably current and adequate current public information for the entirety of such year under Rule 144.
Issuers wishing to register a class of Regulation A+ securities under the Exchange Act may do so by filing a Form 8-A in conjunction with the qualification of a Form 1-A. However, only Issuers that follow Part I of Form S-1 or the Form S-11 disclosure model in the offering circular are permitted to use Form 8-A. An Issuer registering a class of securities under the Exchange Act concurrently with the qualification of a Regulation A+ offering statement become an Exchange Act reporting company upon effectiveness of the Form 8-A and, if applicable, its obligation to file ongoing reports under Regulation A+ are suspended for the duration of the resulting reporting obligation under Section 13 of the Exchange Act.
Termination or Suspension of Regulation A+ Tier 2 Disclosure Obligations
Issuers that conduct a Tier 2 offering may terminate or suspend their ongoing reporting obligations on a basis similar to the provisions that allow Issuers to suspend their ongoing reporting obligations under Section 13 and Section 15(d) of the Exchange Act. A Tier 2 Issuer that has filed all reports required by Regulation A+ for the shorter of: (1) the period since the Issuer became subject to such reporting obligation, or (2) its most recent three fiscal years and the portion of the current year preceding the date of filing Form 1-Z to immediately suspend its ongoing reporting obligation under Regulation A+ at any time after completing reporting for the fiscal year in which the offering statement was qualified, if the securities of each class to which the offering statement relates are held of record by fewer than 300 persons and offers or sales made in reliance on a qualified Tier 2 offering statement are not ongoing.
Issuers seeking to terminate or suspend their Tier 2 ongoing reports in a Tier 2 offering under Regulation A+ are suspended immediately upon the filing of a notice to the Commission on Part II of proposed Form 1-Z.
Insignificant Deviations from a Term, Condition or Requirement
A failure to comply with a term, condition or requirement of Regulation A+ will not result in the loss of the exemption for any offer or sale to a particular individual or entity, if the person relying on the exemption establishes that: (1) The failure to comply did not pertain to a term, condition or requirement directly intended to protect that particular individual or entity; (2) The failure to comply was insignificant with respect to the offering as a whole, provided that any failure to comply with the offering limitations, Issuer eligibility criteria, or requirements for offers or continuous or delayed offerings are deemed to be significant to the offering as a whole; and (3) A good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements of Regulation A+.
For more information about going public and Regulation A+, securities law or our other services please contact a Securities Attorney at Hamilton & Associates Law Group, P.A. 01 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected]. 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 and compliance 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 Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the NASDAQ Stock Market, the NYSE MKT or over-the-counter market, such as the OTC Pink, OTCQB and OTCQX. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A / Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1, Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14C Information and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11.