From a regulatory perspective, DPOs face the same challenges as
underwritten IPOs. That is, companies that want to raise more than
$5 million and want to trade on a stock exchange or the top two
tiers of the Nasdaq stock market must file a registration statement
with the Securities and Exchange Commission (SEC). This is a major
undertaking.
Businesses that need less money and are more flexible in their
requirements for aftermarket trading may enjoy less burdensome
regulatory challenges. For instance, companies that want to raise
less than $5 million can take advantage of the exemption from
federal registration by filing under what is known as Regulation A
of the Securities Act of 1933, which Quinn used for Hahnemann's
offering.
Companies that want to raise less than $1 million in a DPO may
take advantage of the Small Company Offering Registration (known as
SCOR), which is accepted in 43 states and requires almost no
filings with the SEC. The SCOR form, also known as Form U-7, is
still no day at the beach, however: It has several parts, and once
complete, looks suspiciously like a prospectus.
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One of the real advantages of these unregistered offerings is
that in many cases, a company's shares can still trade on the
Nasdaq Bulletin Board, which is the next-to-the-lowest tier of the
Nasdaq stock market. Remember, to trade on the Nasdaq SmallCap
Market, the Nasdaq National Market System or any of the major stock
exchanges, companies must periodically report to investors via the
Securities Exchange Act of 1934. This adds a host of requirements
that a very tiny public company that just completed a very tiny DPO
may not want to burden itself with. Trading on the Bulletin Board
eliminates these headaches.
For his part, Quinn has not been too concerned with aftermarket
trading. He has left that to a stockbroker who keeps a book
matching buyers and sellers. But most of the investors are holding
onto their shares, says Quinn. The company's upside potential
seems to be the reason: "It would be nearly impossible for one
of the major pharmaceutical companies to grow 10 times
bigger," he says. "But we definitely can."
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