The SEC recently proposed and solicited public comments on Regulation A+, which would amend and update Regulation A, an exemption for unregistered public offerings of securities in amounts up to $5 million, by creating a new two-tiered system. Under the rules—which were issued December 18 pursuant to a JOBS Act mandate—Tier 1 would apply to offerings of up to $5 million, while Tier 2 would apply to offerings of up to $50 million, both over a 12-month period.
For Tier 1 offerings, the issuer would have to provide a balance sheet as of the end of each of the last two fiscal years rather than as of the end of the most recently completed fiscal year only. The proposal would also require financial statements for significant acquired businesses in accordance with Rule 8-04 of Regulation S-X. Rule 8-04 measures significance at a higher level than the significance test currently applicable to Regulation A offerings. Finally, the proposal would require financial statements for certain subsidiary guarantors in accordance with Regulation S-X. In all other respects, the financial statement requirements for Tier 1 offerings under Regulation A+ would be the same as for Regulation A offerings.
Issuers in Tier 2 offerings would have to provide the same financial statements as for Tier 1 offerings, but the required financial statements would have to be audited in all cases. In addition, a Tier 2 issuer would be required to follow the financial statement requirements for smaller reporting companies in Article 8 of Regulation S-X, unless otherwise noted in the financial statement requirements set forth in Part F/S of Form 1-A, the form for offerings.
Any auditors of financial statements provided for Tier 1 offerings and the auditors for Tier 2 offerings would have to be “independent,” as defined in Regulation S-X, but they need not be PCAOB-registered. However, audits of financial statements provided for Tier 2 offerings would have to be conducted in accordance with PCAOB standards.
Regarding the age of financial statements, the proposed rules would revise current requirements to provide that the statements must be dated no more than nine months before the filing and qualification of Form 1-A. For filings made more than three months after the end of the issuer’s fiscal year, the statements would need to be for the end of the year. For filings and qualifications of offering statements made more than nine months after the end of the issuer’s fiscal year, interim financial statements also would be required for the six-month period after the end of the most recent fiscal year.
The proposal also would require issuers that conduct Tier 2 offerings to file annual and semiannual reports. Lastly, the SEC solicited comments on whether financial statements included in Tier 2 offerings should be presented in accordance with XBRL.
For more information on the SEC’s proposed Regulation A+, read the Morgan Lewis White Paper on this topic as well as the SEC’s press release on the new regulation.