OTC_header_logo_edited_edited_edited.png

Premium Service Provider

SEC Form 1-A
Regulation-A Offering Statement

( Qualifying For A 'Reg-A' Offering )

DSC_7078-retouchedwebuse.jpg

by Nanuk Warman, CPA, CMA, CFA

Updated April 26th, 2022

The following is a general overview of Regulation A+ offerings as per SEC Form 1-A and is not legal or business advice, and nor should you consider it as such. Requirements for Reglation A offerings differ from case to case.  You should not act upon any information shared in this article without seeking professional advice from an experienced attorney and/or accountant directly hired by you. If you need help preparing or filing a Reg-A+ offering, please contact us here.

key: crowdfunding regulation 880 SEO= 27

Raising Capital Without SEC Registration: Requirements Exemption (How To qualify for a "Reg-A+" Offering

Ever since Elio Motors raised nearly $17 million via crowdfunding in 2016... and went on to achieve a $1.3 Billion dollar valuation within days of listing on the OTCQX...issuers have flocked to Regulation-A+ as a way to raise capital from the public.

Known as a "mini IPO"...in 2020 Reg-A+ offerings raised more than $2.7 trillion in 2020 compared to $1.3 trillion raised by S1 registrants.

The incentives of a Reg-A offering for issuers is obvious:

  • On average, it costs $150,000 to get 'qualified' for a Reg-A+ offering (less marketing expenses), in comparison to an S1 can easily cost $350,000+.

  • 1-A filings are normally 'qualified' by the SEC in 60 days or less, whereas an S1 registrants can experience months (if not longer) of back-and-forth commentary between lawyers, accountants, and regulators before it's 'cleared to trade'.

  • Tier 2 issuers can raise up to a maximum of $75 million over a period of six months. (this can be done once a year),  whereas there are no limits to the amount of funds that can be raised by an S1 registrant.

  • Reg-A issuers can market securities directly to the public, including to those who are not 'sophisticated investors' (individuals with a net worth in excess of a million dollars).

  • There's also fewer reporting requirements under Reg-A than S1 -- keeping in mind that Tier 2 issuers must still provide audited financial statements. 

  • Tier 2 issuers can apply to 'qualify' for a Reg-A+ offering up to $75 million once every 12 months.

This is definitely not a complete list of benefits availalbe to Reg-A issuers, but you get the idea.

Contact us to launch a Reg-A filing>>

Any company thinking about apply to Qualify for a Reg-A offering should consult with a securities professional.

Click here to find out more>>

Aside from all its benefits...the 'success rate' of the average "Reg-A" offering is impressive:

Approximately 26% of all Reg-A issuers reach their target capital raise at an average of $26 million each.

Those numbers are astonishing given that nearly half of all "Reg-A" issuers have no revenues or cash flow.

In fact, most Reg-A issuers are barely beyond the development stage of their business.

 

For obvious reasons, it doesn't take much to conclude that a company with an actual history of operations and revenues would have a much greater chance of success with a Reg-A+ offering than 26% (and probably raise more funds too).

How To Qualify For An Offering Under Regulation-A

There are two types of qualifications available under SEC Regulation-A:

Tier 1 and Tier 2.

While most issuers prefer the Tier 2 option, I will briefly explain...

Tier 1How to raise a maximum of $20 million without formal registration.  

 

Considered 'easier' to qualify for than a Tier 2...Tier 1 applicants are not required to provide audited financial statements when seeking qualification.

The downside, however, is that Tier 1 issuers need to be 'blue skied' in the vast majority of cases -- meaning that the offering must be individually qualified by regulators in nearly every state they want to sell securities in -- apart from (list the states).  and they want audited.

Since most Reg-A issuers want access to markets such as NY, FL, CA, TX, VT, etc. (each of which requires audited financial statements) it doesn't make sense for most issuers to apply for a Tier 1 offering.

As such, most issuers interested in a Reg-A offering opt for... 

Tier 2:  How to raise a maximum of $75 million without formal registration.

When filing a Form 1-A with the SEC, issuers seeking qualification for a Tier 2 offering must enclose audited financial statements.

 

Requirements for filing a Form 1-A seeking qualification are similar for both Tiers.                    

Download form 1-A here >> 

To qualify for a Reg-A offering an issuer must:

  • Be organized under federal, state, or provincial laws in either the United States or Canada.

  • Have its principal place of business in either the United States or Canada.

  • Have a specific business plan that does not include a plan to merge with an unidentified company or companies.

  • Not be an Investment company that is registered (or required to be registered) under the Investment Company Act of 1940.

  • Not be issuing fractional undivided interests in oil or gas rights, or similar interest in other mineral rights.

  • Not be issuing asset-backed securities related to debt as defined in Item 1101(c) of Regulation AB (i.e., credit card debt, mortgages, etc.).

  • Not have been subject to an order by the SEC pursuant to Section 12(j) of the Securities Exchange Act (15 U.S.C. 78l(j)) for a minimum of five years. (EXPLAIN)

  • And the issuer must be current with all reports that are required to be filed with the SEC for the two-year period (if applicable) immediately prior to filing form 1-A (depending on how long the issuer has been in business for, up to two years worth of financial statement disclosures may be required).

<< AD HERE:  "SPEAK TO THE PRO'S AT PUBCO " >>

Reg-A Filing Requirements

Issuers either qualified or seeking to be qualified for an offering under "Reg-A" 

are required to submit current and periodic reports to the SEC as follows:

  • Annual Reports as per form 1-K, including audited financial statements for Tier 2 issuers.

  • Special Financial Reports:  This includes audited financial statements for the entire history of the issuer (up to two years prior to filing a Form 1-A).  

  • See a full list of "Reg-A" Special Financial Reports >>  

  • Semiannual Report:  covering the first six months of the fiscal year using form 1-SA.

Figure out how to wrap this up in an exciting way that is exciting and draws attention to us as a service provider.  Hopefully, anyone who has gotten this far is interested and wants to seek out our services.

IMPORTANT TO NOTE:

No one issuer's filing requirements and obligations are the same as another.

Apart from being faster and cheaper than filing an S1, the success rate of a "Reg-A+" offering is impressive:

Roughly 26% of all "Reg-A+" offerings achieve their target raise (at an average of $26 million each).

That's an astonishing number when you consider that most Reg-A issuers have no revenues or cash flow.

And if you think about it, it's not too hard to imagine that the "success rate" of a Reg-A offering for an issuer with actual revenues and cash flow is far greater than 26%. 

Regardless, Regulation-A is a great way for issuers to access the marketplace, raise funds (up to $75 million if done right), and gage public interest in their business before deciding on whether or not to file for an S1. 

There are two different kinds of "Reg-A" offerings available for issuers to consider -- Tier 1 and Tier 2.

Given that Tier 1 is not practicable for most issuers (You can read more about Tier 1 here), 

For the sake of this article, we will focus mostly on Tier 2, which allows an issuer to raise up to $75 Million in a six month time-frame and can be renewed once a year.

  • It's cheaper for most issuers to 'qualify' for a Reg-A+ offering than it is an S1 Registration (on average $150,000 to qualify for a Reg-A issuance -- not including marketing expenses -- and around $450,000+ for an S1 Registration).

  • It's normally faster to market than an S1

 

Also known as a "mini IPO"...Reg-A+ offerings have far-outstripped S1  
 

Essentially a way of bypassing normal SEC registration requirements that are cumbersome, expensive, and time consuming, 

 

In this article we'll talk about using SEC Form 1-A to create a Regulation A offering statement, which provides issuers with an exemption from normal registration requirements -- and is a great way for an issuer to gage market interest in their company, that is much more inexpensive -- in both time and money -- than filing for an S1 Registration.

For your reference, I provide helpful links below, along with a sample of what they should look like when they're done.

But first...

Let's dive-in to what the forms are for and who needs to file one:

Sub Header Here

Blah, Blah, Blah

 

ADD A REG-A "TIMELINE".  VISUAL ON THE $AMOUNTS?  SEE DESKTOP

stock-photo-business-documents-on-office
pubco_logo_C_edited.png

REPORTING & CFO

Customize Your Own 

SEC Filing Calendar

Set it and forget it: Plug in your 

own Year End dates & Get

Automatic Reminders

(Maybe we should have an 

auto-reminder service)