Section 3(b) of the Securities Act of 1933 gives the SEC authority to exempt from registration certain offerings where the securities to be offered involve relatively small dollar amounts. Under this provision, the SEC has adopted Regulation A, a conditional exemption for certain public offerings not exceeding $5 million in any 12-month period. An offering statement (consisting of a notification, offering circular, and exhibits) must be filed with the SEC Regional Office in the region where the company's principal business activities are conducted. Although Regulation A is technically an exemption from the registration requirements of the Securities Act, it is often referred to as a "short form" of registration since the offering circular (similar in content to a prospectus) must be supplied to each purchaser and the securities issued are freely tradeable in an aftermarket.

The principal advantages of Regulation A offerings, as opposed to full registration on Form S-1, SB-1 or SB-2, are:

• Required financial statements are simpler and need not be audited; and
• There are no periodic SEC reporting requirements (other than sales reports following the sale of the securities) unless the issuer has more than $5 million in total assets and more than 500 shareholders.

There are two permitted offering circular formats under Regulation A, one of which is a simplified question-and answer document. This style of disclosure is useful to potential investors and may offer significant benefits to the issuer in the time expended and the costs of preparation.

All types of companies which are not reporting under the Exchange Act may use Regulation A, except "blank check" companies (i.e., those with no specific business plan or whose business plan is the merger with an unidentified company) and investment companies registered or required to be registered under the Investment Company Act of 1940.

In most cases, Regulation A may also be used by shareholders for the resale of up to $1.5 million of securities.

Regulation A includes a provision which allows an issuer to "test the waters" to determine whether or not there is any investor interest in its securities before the filing of a complete offering document. Thus, an issuer may publish factual information about its business or proposed business before incurring a full range of legal, accounting and other costs, in order to gauge potential investor interest in a possible securities offering; however, the provision specifically provides that no money may be solicited or accepted until an offering statement has been qualified by the Commission, and prescribed offering materials have been delivered to potential investors.