General. On April 28, 1996, NASAA adopted a statement of policy regarding small company registration to provide for the uniform treatment of registrations of small company offerings that are exempt from federal registration under Rule 504 of Regulation D, Regulation A, or Rule 147 of the 1933 Act. The Small Corporate Offering Registration (SCOR) was designed with the small business securities issuer in mind. It allows small companies to raise equity or debt capital publicly without having to register with the Federal Securities and Exchange Commission. It is designed to streamline the state public securities review process by using standardized forms and review. Audited financial statements are required. Each state separately reviews the company's filings and issues a permit allowing general solicitation to the public in that state; permits are usually issued within 30 days (in the case of Nevada) or may take up to 6 months (in the case of California), depending on each state's regulatory standards. The Small Corporate Offering Registration (SCOR) form of registration is available to small securities issuers pursuant to Regulation D, Rule 504, of the Securities Act of 1933, as amended, and allows small companies to raise up to one million dollars in an equity offering with certain limitations and guidelines. This program was developed by the North American Securities Administrators Association and was designed to be used in conjunction with each state's registration by qualification blue sky law. This program has been adopted by almost every state. The Form U-7, which utilizes a format that standardizes the prospectus and reduces required paperwork can be used in most Small Corporate Offering Registration (SCOR) offerings. Under the SCOR program, companies can raise up to $1 million in a 12-month period, securities must be registered in the state(s) where they are to be sold, can be sold to an unlimited number of investors, general advertising or solicitation can be used to assist in marketing, and are freely traded (not restricted). Statement of Policy Regarding Small Company Registrations, NASAA Reporter (CCH) ¶411 at p. 409 (Apr. 28, 1996); NASAA Small Company Offering Registration (SCOR) Issuer’s Manual, NASAA Reporter (CCH) ¶415 at p. 412 (Apr. 26, 1996); Form U-7 Small Corporate Offerings Registration Form, NASAA Reporter (CCH) ¶5057. The requirements contained in the policy statement apply to registrations that use registration Form U-7 and are exempt from registration under Rule 504 of Regulation D, Regulation A, or Rule 147. Issuer Requirements.
The SCOR policy provides that the issuer must 1. be a corporation or centrally managed limited liability company organized under the laws of the United States or Canada or any state, province, territory, or possession thereof, or the District of Columbia, and have its principal place of business in one of the foregoing; 2. not be a reporting company under the 1934 Act; 3. not be an investment company registered or required to be registered under the Investment Company Act of 1940; 4. not be engaged or proposed to be engaged in petroleum exploration and production, mining, or other extractive industry; 5. not be a development stage company that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies or entity or persons; and 6. not be disqualified under the disqualification provisions (similar to the Regulation A disqualification provisions of Rule 262) of the policy statement. Price Per Share. The price per share for the securities offered must be greater than or equal to U.S. $5 per share, and the issuer must undertake that it will not split its common stock or declare a stock dividend for two years after the effective date of the registration if such action would have the effect of lowering the price below U.S. $5. Commissions, fees, or other remuneration in connection with the solicitation of purchasers may be paid only to persons who are registered or licensed or whom the issuer believes or has reason to believe are appropriately registered or licensed in the state. Financial Statements. Financial statements must be prepared in accordance with generally accepted accounting principles. Although interim financial statements may be unaudited, all other financial statements are required to be audited unless each of the following four conditions are met: 1. the company shall not have previously sold securities through an offering involving the general solicitation of prospective investors by means of advertising, mass mailings, public meetings, “cold call” telephone solicitation, or any other method directed toward the public; 2. the company has not been previously required under federal, state, provincial, or territorial securities laws to provide audited financial statements in connection with any sale of its securities; 3. the aggregate amount of all previous sales of securities by the company (exclusively of debt financings with banks and similar commercial lenders) does not exceed U.S. $1 million; and 4. the amount of the present offering does not exceed U.S. $1 million. NASAA Small Company Offering Registration (SCOR) Issuer’s Manual, NASAA Reporter (CCH) ¶415 at p. 412 (Apr. 26, 1996). If all four conditions are met, the financial statements, in lieu of being audited, may be reviewed or compiled by independent certified public accounts in accordance with the accounting and review service standards promulgated by the American Institute of Certified Public Accountants or its Canadian equivalent. Since Regulation A can be used for offerings up to $5 million, if an issuer wished to take advantage of the full available ceiling, it would be required to provide audited financials in connection with its SCOR Internet offering. State Adoption. A number of states have adopted the SCOR registration program. Certain states have adopted the NASAA instructions with modifications. States that have either officially or unofficially adopted the SCOR registration program or recognize the filing of Form U-7 include Alaska, Arizona, Arkansas (unofficial recognition), California, Colorado, Connecticut, Georgia (unofficial recognition), Idaho, Illinois (unofficial recognition), Indiana, Iowa, Kansas, Kentucky, Louisiana (unofficial recognition), Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota (unofficial recognition), Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia (unofficial recognition), Wisconsin, and Wyoming. Still other states have not officially adopted laws, regulations, or policies that recognize the NASAA instructions or permit the filing of Form U-7. Nevertheless, these states will unofficially recognize the filing of Form U-7 to register small corporate offerings by qualification or by exemption. The adopted NASAA Small Company Offering Registration (SCOR) Issuer’s Manual gives detailed instructions for completing the SCOR Form U-7.
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