Alaska Administrative Code
Title 3 - Commerce, Community, and Economic Development
Part 1 - Banking, Securities, Small Loans and Corporations
Chapter 08 - Securities
Article 2 - Registration and Notice of Securities
3 AAC 08.125 - Unsound financial condition

Universal Citation: 3 AK Admin Code 08.125

Current through February 24, 2025

(a) The administrator will consider an issuer to be in unsound financial condition if

(1) the issuer's financial statements contain a footnote to those statements or an explanatory paragraph in the independent auditor's report regarding the issuer's ability to continue as a going concern; and

(2) one or more of the following is identified from the financial statements described in (1) of this subsection or, if the application for registration contains audited financial statements that were issued more than 90 days before the date of the application, from accompanying interim unaudited financial statements:
(A) an accumulated deficit;

(B) negative shareholder equity;

(C) an inability to satisfy current obligations as they come due;

(D) negative cash flow; for purposes of this subparagraph, an issuer has negative cash flow if revenues are not being generated by operations in excess of cash outflow;

(E) other indicators of financial difficulties.

(b) The administrator will, in the administrator's discretion, deny an application for registration by an issuer in unsound financial condition.

(c) The administrator will, in the administrator's discretion, register an application for registration by an issuer in unsound financial condition if the chief financial officer of the issuer provides pro forma financial data acceptable to the administrator that

(1) demonstrate that the issuer's financial condition will improve either as a direct result of the offering proceeds, or through the use of the offering proceeds as part of a long term business plan;

(2) demonstrate when profitability is expected to occur; and

(3) are supported with documentation of and the bases for any assumptions.

(d) An issuer registered under the provisions of (c) of this section must disclose in its prospectus

(1) that the issuer is considered to be in unsound financial condition, and that persons should not invest unless they can afford to lose their entire investment; and

(2) any of the following risk factors, if applicable:
(A) the presence of an explanatory paragraph in the independent auditor's report;

(B) the means by which the issuer has been financing its operations, if the issuer has not been generating revenues from operations;

(C) the amount of any accumulated deficit;

(D) the presence and amount of any negative shareholder equity;

(E) the need for future financing.

(e) The administrator will, in the administrator's discretion, require an issuer registered under (c) of this section to apply the net worth standards set out in (1) - (2) of this subsection or limit the sales of securities to accredited investors. The imposition of minimal net worth standards under this subsection does not relieve a broker-dealer of the responsibility of making an independent determination of suitability required under industry standards. Unless the administrator determines that the risks associated with the offering require different standards, the issuer may sell securities only to accredited investors or to investors that have the following:

(1) a minimum annual gross income of $65,000 and a minimum net worth of $65,000, exclusive of the investor's principal automobile, principal residence, and home furnishings; or

(2) a minimum net worth of $150,000, exclusive of the investor's principal automobile, principal residence, and home furnishings.

(f) If the issuer's latest audited financial statements contain an auditor's report or footnote that contains an opinion or statement regarding the ability of the issuer to continue as a going concern, the administrator will, in the administrator's discretion, require that all promotional shares be deposited in escrow in accordance with 3 AAC 08.180 - 3 AAC 08.186.

Authority:AS 45.55.120

AS 45.55.950

Disclaimer: These regulations may not be the most recent version. Alaska may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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