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EDUCATIONAL MATERIALS

Investor Educational Materials

Title 17, Chapter II, Part 227 provides the general rules and regulations for Regulation Crowdfunding.  §227.302(b) requires an intermediary to deliver educational materials in connection with establishing an account for an investor.  The educational materials must be written in plain language and effectively and accurately communicate the following:

 

  • The process for the offer, purchase and issuance of securities and the risks associated with purchasing these types of securities;

  • The types of securities being offered and sold, and the risks associated with each type of security;

  • Restrictions on resale;

  • Types of information that an issuer is required to provide, the frequency of the delivery of that information and the possibility that those obligations may terminate in the future;

  • Limitations on the amounts an investor may invest;

  • Investor’s right to cancel an investment commitment and the circumstances in which an issuer may cancel an investment commitment;

  • Determining if the investment is appropriate for the investor;

  • Understanding that there may or may not be an ongoing relationship between the issuer and the intermediary; and,

  • That under certain circumstances, an issuer may cease to publish annual reports meaning that an investor may not have current financial information about the issuer.

 

Definitions

 

Funding portal means a broker acting as an intermediary in a transaction involving the offer or sale of securities in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) that does not offer investment advice or recommendations, solicit purchases, sales or offers to buy the securities displayed on its platform, compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its platform, or hold, manage, possess, or otherwise handle investor funds or securities.

 

Intermediary means a broker registered under section 15(b) of the Exchange Act (15 U.S.C. 78o(b)) or a funding portal registered under §227.400 and includes, where relevant, as an associated person of the registered broker or registered funding portal.  Folla Capital, LLC is a registered broker.

 

Investment Crowdfunding (Regulation Crowdfunding, Reg CF, Community Capital) enables eligible companies to offer and sell securities through crowdfunding as authorized by Title III of the JOBS Act of 2102.  Regulation Crowdfunding is regulated by 17 CFR Part 227 – REGULATION CROWDFUNDING, GENERAL RULES AND REGULATIONS.

 

Investor means any investor or potential investor.

 

Issuer means the company attempting to raise money from investors through the offer or sale of securities and includes all entities controlled by or under common control with the issuer and any predecessors of the issuer.

 

Platform means a program or application accessible via the Internet or other similar electronic communication medium through which a registered broker or a registered funding portal acts as an intermediary in a transaction involving the offer or sale of securities in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)).

 

Promoter means any person who promotes an issuer’s offering for compensation, whether past or prospective, or who is a founder or an employee of an issuer that engages in promotional activities on behalf of the issuer on the intermediary’s platform.

 

SEC means the U. S. Securities and Exchange Commission (www.sec.gov)

 

Security means a share of stock, a promissory note, a bond, or any other instrument offered by an issuer.

 

FINRA means the Financial Industry Regulatory Authority (www.finra.org)

The Investment Process

 

1. Review Offering Materials – The offering materials can be viewed without registering or creating an account.  You should spend some time reviewing all of the documents and information to make sure you understand the company, what it does and the terms of the offering

2. Registration – Once you are ready to make an investment, you must create an account by providing some information about yourself.  You will be asked to review and confirm that you understand and will comply with our Terms of Use and Privacy Policy as well as consent to electronic delivery of all documents.  You must acknowledge that you have reviewed the educational materials, understand that you may lose your investment and are in a financial condition to bear that potential loss.  You will be asked to complete a short questionnaire confirming that you understand the restrictions on your ability to cancel an investment commitment, the restrictions on the resale of the securities, that investing in these types of securities involves risk, and your status as either an accredited or non-accredited investor.

3. Online Process and Making an Investment – After you have completed the basic registration process, you will be able to click on the “INVEST NOW” button.  Once you have electronically signed the investment documents, you will have made an investment commitment.

 

4. Notice of Investment Commitment – Once we receive your investment commitment, we will send you a notification disclosing:

  1. The dollar amount of your investment commitment;

  2. The price of the securities, if known;

  3. The name of the issuer; and,

  4. The date and time by which you may cancel your investment commitment.

 

5. Target Offering Amount and Offering Deadline – For each offering, the issuer will disclose a “target offering amount” which represents the minimum amount of capital the issuer is trying to raise.  They must also specify a “offering deadline” which represents the date at which the issuer intends to end the offering.  If the issuer does not raise the target offering amount by the offering deadline, the offering will be cancelled and investors who have made investment commitments will receive a refund.

 

If the issuer reaches the target offering amount prior to the offering deadline, and the offering has been open for a minimum of 21 days, then the issuer may close of the offering.  If this happens, we will send a notice to all investors that:

  • Specifies the new, anticipated offering deadline, which must be at least 5 business days after the date of our notice;

  • Notifies investors that they may cancel their investment commitment for any reason up until 48 hours prior to the new offering deadline; and,

  • Notifies investors whether the issuer will continue to accept investment commitments during the 48-hour period prior to the new offering deadline.

 

If the issuer intends to accept investment commitments above the target offering amount, it must disclose the maximum amount it will accept and how oversubscriptions will be allocated, such as pro-rata, first come-first served, or any other basis.

 

6. Right to Cancel Investment – You can cancel your investment commitment for any reason up until 48 hours prior to the offering deadline.  The offering deadline is set by the issuer and is identified in the issuer’s offering materials.  If you do not cancel your investment commitment prior to the offering deadline, the funds will be released to the issuer upon closing of the offering.  If an issuer reaches the target offering amount prior to the offering deadline, it may close the offering early but it must provide you notice about the new offering deadline at least 5 days prior to the new offering deadline and you will have up until 48 hours prior to the new offering deadline to cancel your investment commitment.

 

If there is material change in the offering after you have made an investment commitment, you will be notified of the change and you must reconfirm your investment commitment within 5 business days of receipt of the notice.  If you do not reconfirm your investment commitment within 5 business days, your investment commitment will be cancelled, and the committed funds will be returned to you.

 

7. Paying for Your Investment – Once you have completed the investment commitment process, you will be given the options that are currently available to pay for your investment.  Your payment options might include an ACH transaction from your bank, a wire transfer, a credit card, or a check.  Instructions will be provided based on what option you choose.

 

Folla Capital never holds your money.  The money is help be an escrow agent or a qualified third-party financial institution until the offering is completed.  If the issuer is successful in raising the target offering amount by the offering deadline, then the escrow agent or qualified third-party financial institution will release the held funds to the issuer.  If the issuer does not raise the target offering amount by the offering deadline, the escrow agent or qualified third-party financial institution will refund the funds to the investors.

 

8. Confirmation of Transaction – At or before the completion of the investment commitment transaction, you will receive a notification disclosing:

 

  1. the date of the transaction;

  2. The type of security you are purchasing;

  3. The identity, price, and number of securities purchased as well as the number of securities sold by the issuer in the transaction and the prices(s) at which the securities were sold;

  4. If a debt security, the interest rate, and the yield to maturity calculated from the price paid and the maturity date;

  5. If a callable security, the first date that the security can be called by the issuer; and,

  6. The source, form and amount of any compensation received from all sources by Folla Capital in connection with the transaction.

 

9. Issuer Filing and Reporting Requirements – An issuer is required to file several different types of forms.  They are:

 

  1. Form C – This form must be filed with the Commission and provided to the investors and intermediary prior to the commencement of an offering of securities.

  2. Amendments – If there is a material change to the offering prior to its completion or termination, an issuer must file Form C/A and investors must reconfirm their investment commitment within 5 business days or the investors investment commitment will be considered cancelled.

  3. Progress Updates – Unless the intermediary makes publicly available on the platform frequent updates regarding the progress of the issuer in meeting the target offering amount, the issuer must file Form C/U no later than 5 business days after they reach 50% of the target offering amount.  An issuer must file Form C/U within 5 business days after the offering deadline disclosing the total amount of securities sold.

  4. Annual Reports – An issuer must file an annual report on Form C-AR no later than 120 days after the end of the fiscal year covered by the report.  If there is a material change to the annual report after filing, an issuer must file Form C-AR/A to disclose this material change.  Once an issuer is no longer required to file annual reports, it must file Form C-TR within 5 business days from the date on which the issuer becomes eligible to terminate its reporting obligation.  If and when that happens, an investor may not continually have current financial information about the issuer.

 

10. Communications Channel – The platform will maintain a communications channel allowing you to communicate with the issuer and with other investors.  This channel will be open to the public but only investors that have registered, or opened an account, will be allowed to post questions or comments.  Anytime a representative of the issuer, including promoters, answers a question or posts a comment, they are required to identify themselves as such.   Folla Capital will not participate in these communications other than to establish guidelines for communication and remove abusive or potentially fraudulent communications.

 

Types of Securities Offered and Sold

 

Generally speaking, securities fall into one of two categories:  equity and debt.  Equity investments represent ownership (stock) in the company while debt investments mean that you have loaned the company money.

 

There are two general classes of stock: preferred and common.  The difference between the two lies in the legal rights conferred upon each class.  Preferred stock generally has dividend preference and liquidation preference over common stock while common stock generally participates in the success, or lack of success, of the company.  Shareholders may realize a return on their investment if the company pays dividends, when an investor sells their share(s) of the company, or when the company has some sort of liquidating event such as when someone buys the entire company.   Owning stock in a company does not guarantee any return to the investor.  In addition, owning stock may not give an investor the right to vote on matters of the company or an investor may have limited voting power as a result of dilution.

 

Debt investments may be issued in several forms including promissory notes, bonds, convertible debt, or revenue sharing agreements.  These debt instruments may pay the investors a fixed or variable rate of interest at specified intervals and these payments may be interest only, with principal to be made at a stated maturity date, or interest plus principal.  Risks of investing in debt securities include:

 

  • Interest Rate Risk – the risk that if interest rates rise investors could have invested in securities that offer a higher interest rate;

  • Credit Risk – the risk that an issuer will be unable to make interest and/or interest payments when they are due, essentially defaulting on the loan;

  • Inflation Risk – the risk that inflation may erode the purchasing power of the interest and/or principal payments that an investor receives;

  • Reinvestment Risk – the risk that investors may have to reinvest their interest and/or principal payments at a lower interest rate; and,

  • Liquidity Risk – the risk that there may not be a buyer if the investor wants to sell their investment.

  • Limited Upside – You are not an owner of the company so the most you can expect to receive is the return of your principal, plus interest.

  • Subordination – The company you invest in may have already borrowed, or may borrow in the future, additional monies that may be senior to your security.  In the event of bankruptcy or liquidation, you may not receive any funds.

  • No Collateral – The debt may not be secured by real property, personal property or a personal guarantee of the borrower.

 

Convertible debt is essentially a hybrid security.  You lend money to a company and at some point in time in the future, you may be able to convert your debt into shares of the company.  While convertible debt may provide higher income potential than traditional debt, the biggest risk factor is that converting your debt into stock may not have value if the underlying stock is worthless.

 

With a revenue share agreement, investors are repaid incrementally as the company generates revenue, and repayment is typically 1.5 to 2.0 times the principal amount of the loan.  Payments to investors are directly proportional to how well the company performs.  If the company’s revenue growth is faster than expected, investors are repaid over a shorter period of time; however, if the company’s revenue growth is slower than expected, investors are repaid over a longer period of time.  In addition to the risks associated with all debt securities, a major risk of revenue share agreements is that the company may not realize sufficient revenue to make the investment suitable for the investor.  

 

While we can customize any type of debt or equity security to meet the specific needs of an issuer, we generally offer the following securities:

 

  • Promissory Notes

  • Community Capital Bonds

  • Convertible Bonds

  • Revenue Sharing Agreements

  • Common and/or Preferred stock

 

Investment Risks

 

In addition to the risks associated with equity and debt investments as noted above, there are investment risks associated with all companies and additional risks associated with companies raising capital using investment crowdfunding.  Some of these risks include:

 

  • Systemic Risk or Market Risk:  the overall risk to the broader financial markets due to factors that affect all markets.

  • Business Risk:  company specific risks such as:

    • Legal Risk – the company may be facing existing or future legal issues.

    • Tax Risk – the company may have existing or future tax risks.

    • Future Funding Risk - Lack of access to future funding may prevent the company from implementing its business plan.

    • Professional Management Risk – the company may lack the professional management or experience needed to execute its business plan.

    • Industry Risk - external factors affect the industry as a whole that the company competes in.

    • Regulatory Risk - Changes in laws or regulations may materially impact a business or market.

    • Competition Risk – Current or future competition may prevent a company form achieving its goals.

    • Economic Conditions Risk – Factors like global economic recessions, changes in interest rates, changes in credit markets, changes in capital markets, employment changes, real estate values,  pandemics like COVID-19 and political conditions often affect small businesses more than larger businesses and are most often unpredictable.

  • Risks Specific to Investment Crowdfund Investing:

    • Liquidity Risk – The securities in this offering are illiquid.  That means there is no ready market for the sale of such securities, that it may be difficult or impossible to sell or otherwise dispose of this investment, and investors should be prepared to hold this investment indefinitely.  Additionally, there are restrictions on the ability to transfer shares.

    • High Failure Rates – early stage companies have a much higher failure rate than established companies.  Even companies that have been operating for years may not provide the growth necessary to provide investor with a suitable return.

    • Dilution – if additional capital is raised in future funding rounds, your resulting ownership, if stock, will be diluted, which means you now own a smaller piece of a larger pie.

    • Lack of Control – smaller amounts of investment may not have voting rights which means you have no say in the operation of the company.

    • Limited Information – while issuers are required to provide periodic updates to their investors, they may not share proprietary or sensitive information to all investors.  In addition, the reporting requirements may be terminated further reducing information.

    • Speculative Investments – A crowdfunding investment involves risk.   It is often an investment in a high-risk and speculative business venture.  No person should invest any funds in an offering unless they can afford to lose their entire investment.

    • Deal Term Risk – Deal terms, while similar, may not be identical.  Investors should review the terms of the offering carefully to make sure that none of the terms come back to haunt them in later years.

    • Limited Products or Services -  Many smaller companies provide limited products or services which makes them more vulnerable to changes in customer preferences.

    • Lack of Technology – Larger companies may have the necessary resources to invest in technology and smaller companies usually lack those resources.

    • Accounting Controls – Smaller companies often lack appropriate accounting controls that prevent theft, embezzlement, and other financial risks.

    •  Reliance on Management – Smaller companies tend to rely more heavily on a small management team.  Key personnel usually consist of the founder and if the founder is unable to work, the company may be at a higher risk of failure.

    • Bad Actor Risk – While we conduct a background check and securities enforcement regulatory history check on the officers, directors, and beneficial owners of 20% or more of the issuer’s outstanding voting equity securities, there is no guarantee that they will always act in an honest and forthright manner.

    • Conflicts of Interest – Hopefully, the interests of the company and your interest are aligned, but that may not always be the case.  In most cases, you will not have a vote in the way the company manages its affairs which could result in a conflict between the interest of the company and your interests.

    • Securities are not Registered – The securities offered are not registered under the Securities Act of 1933 or the securities regulator of any State.  The Offering has not been reviewed or approved by any state or federal securities commission or other regulatory authority and no such person or authority has confirmed the accuracy, completeness, or determined the adequacy of any disclosure made relating to this Offering.  Any representation to the contrary is a criminal offense.

    • No Guarantee of Return - Investors are entitled to receive a return on their investment only through the securities offered.  The return to Investors and the future value of the investment will depend on several factors which cannot be predicted and may be beyond the control of the Company.  No assurance can be given as to the ultimate success of the Company.  The likelihood of the success of the Company depends on many factors, including general, local, and industry-related economic conditions.  If the Company does not generate sufficient revenues, the Investors may not receive any return at all and may lose all their investment.  If the Company ceases operations, liquidates, dissolves, winds up, has its assets assigned to creditors, or otherwise experiences an event that causes a change in control, (“Change in Control”) Investors may not recoup part or all their investment from the Company.

    • Limited Operating History – Most companies raising capital using investment crowdfunding have limited operating history.  The Company’s prospects should be considered in light of the risks frequently encountered by early stage companies.

    • Unpredictability of Future Results - The projected results of the Company’s financial position and business operations as reflected in the Financial Projections are based upon certain assumptions and estimates made by Company’s management.  Actual future financial performance and operating results of the Company may be subject to fluctuations resulting from several factors, many of which are outside the control of the Company.  Under no circumstances should such information be construed to represent or predict that the Company will achieve any particular results.

    • Additional Capital may be Required - Although the Company believes the proceeds of their offering will provide adequate funding to develop and successfully support its business plan, the Company offers no such assurances.  If the Company's cash requirements exceed current expectations, the Company may need to raise additional capital.  Additional capital could include conducting another crowdfunding raise, but that Offering could not occur less than 12 months from the date of the Administrator’s notice of compliance for this Offering. There is no guarantee that securing additional capital on acceptable terms will be available when needed. The inability to obtain capital when needed could have a material adverse effect on the Company, including requiring to the Company to experience a change in control or possibly terminate its operations. In either of these scenarios, Investors could lose all, or a significant portion of, their investment.

    • Financial Statements - The Company may or may not have its financial information reviewed or audited by an independent certified public accountant and there is no assurance that it will do so in the future. Unless audited or reviewed by an independent certified public accountant, all financial information provided in the offering materials has been prepared by the Company's management team.

    • Forward-Looking Statements - Certain information set forth in this business plan contains “forward-looking information”. Except for statements of historical fact, information contained herein constitutes forward-looking statements.  These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.  Although forward-looking statements contained in this plan are based upon what management of the Company believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The reader is cautioned not to place undue reliance on forward-looking statements.

Restrictions on Resales

 

When you make an investment in a company raising money using investment crowdfunding (an Issuer), you will not be able to sell it or transfer it for 1 year after you buy it, unless, you sell it or transfer it:

 

  • Back to the Issuer;

  • To an “accredited” investor;

  • As part of an offering registered with the SEC; or

  • To a family member or a trust that you control created for the benefit of a family member, or in connection with a death or divorce.

 

The term “accredited” investor generally means:

 

  • A natural person with an individual or joint net worth with the person’s spouse, greater than $1 million not including the value of the primary residence of such person, or with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

  • A trust with assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person;

  • A business in which all the equity owners are accredited investors;

  • An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

  • A bank, insurance company, registered investment company, business development company, or small business investment company;

  • A charitable organization, corporation, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets exceeding $5 million; or

  • A director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that issuer.

 

To see the full definition of accredited investor as defined in Title 17, Chapter II, Part 230 – General Rules and Regulations, Securities Act of 1933, click here.

 

The term “family member” includes children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse or spousal equivalent (cohabitant occupying a relationship generally equivalent to that of a spouse), siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law, brothers-in-law, or sisters-in-law of the purchaser, and also includes adoptive relationships.

 

Information the Issuer will Disclose

 

An issuer offering or selling securities in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) and in accordance with section 4A of the Securities Act (15 U.S.C. 77d-1) and this part must file with the Commission and provide to investors and the relevant intermediary the following information:

 

  1. The name, legal status (including its form of organization, jurisdiction in which it is organized and date of organization), physical address and Web site of the issuer;

  2. The names of the directors and officers (and any persons occupying a similar status or performing a similar function) of the issuer, all positions and offices with the issuer held by such persons, the period of time in which such persons served in the position or office and their business experience during the past three years, including:

    1. Each person's principal occupation and employment, including whether any officer is employed by another employer; and

    2. The name and principal business of any corporation or other organization in which such occupation and employment took place.

  3. The name of each person, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, who is a beneficial owner of 20 percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power;

  4. A description of the business of the issuer and the anticipated business plan of the issuer;

  5. The current number of employees of the issuer;

  6. A discussion of the material factors that make an investment in the issuer speculative or risky;

  7. The target offering amount and the deadline to reach the target offering amount, including a statement that if the sum of the investment commitments does not equal or exceed the target offering amount at the offering deadline, no securities will be sold in the offering, investment commitments will be cancelled and committed funds will be returned;

  8. Whether the issuer will accept investments in excess of the target offering amount and, if so, the maximum amount that the issuer will accept and how oversubscriptions will be allocated, such as on a pro-rata, first come-first served, or other basis;

  9. A description of the purpose and intended use of the offering proceeds;

  10. A description of the process to complete the transaction or cancel an investment commitment, including a statement that:

    1. Investors may cancel an investment commitment until 48 hours prior to the deadline identified in the issuer's offering materials;

    2. The intermediary will notify investors when the target offering amount has been met;

    3. If an issuer reaches the target offering amount prior to the deadline identified in its offering materials, it may close the offering early if it provides notice about the new offering deadline at least five business days prior to such new offering deadline (absent a material change that would require an extension of the offering and reconfirmation of the investment commitment); and

    4. If an investor does not cancel an investment commitment before the 48-hour period prior to the offering deadline, the funds will be released to the issuer upon closing of the offering and the investor will receive securities in exchange for his or her investment;

  11. A statement that if an investor does not reconfirm his or her investment commitment after a material change is made to the offering, the investor's investment commitment will be cancelled and the committed funds will be returned;

  12. The price to the public of the securities or the method for determining the price, provided that, prior to any sale of securities, each investor shall be provided in writing the final price and all required disclosures;

  13. A description of the ownership and capital structure of the issuer, including:

    1. The terms of the securities being offered and each other class of security of the issuer, including the number of securities being offered and/or outstanding, whether or not such securities have voting rights, any limitations on such voting rights, how the terms of the securities being offered may be modified and a summary of the differences between such securities and each other class of security of the issuer, and how the rights of the securities being offered may be materially limited, diluted or qualified by the rights of any other class of security of the issuer;

    2. A description of how the exercise of rights held by the principal shareholders of the issuer could affect the purchasers of the securities being offered;

    3. The name and ownership level of each person, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, who is the beneficial owner of 20 percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power;

    4. How the securities being offered are being valued, and examples of methods for how such securities may be valued by the issuer in the future, including during subsequent corporate actions;

    5. The risks to purchasers of the securities relating to minority ownership in the issuer and the risks associated with corporate actions including additional issuances of securities, issuer repurchases of securities, a sale of the issuer or of assets of the issuer or transactions with related parties; and

    6. A description of the restrictions on transfer of the securities, as set forth in §227.501;

  14. The name, SEC file number and Central Registration Depository (CRD) number (as applicable) of the intermediary through which the offering is being conducted;

  15. A description of the intermediary's financial interests in the issuer's transaction and in the issuer, including:

    1. The amount of compensation to be paid to the intermediary, whether as a dollar amount or a percentage of the offering amount, or a good faith estimate if the exact amount is not available at the time of the filing, for conducting the offering, including the amount of referral and any other fees associated with the offering, and

    2. Any other direct or indirect interest in the issuer held by the intermediary, or any arrangement for the intermediary to acquire such an interest;

  16. A description of the material terms of any indebtedness of the issuer, including the amount, interest rate, maturity date and any other material terms;

  17. A description of exempt offerings conducted within the past three years;

  18. A description of any transaction since the beginning of the issuer's last fiscal year, or any currently proposed transaction, to which the issuer was or is to be a party and the amount involved exceeds five percent of the aggregate amount of capital raised by the issuer in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) during the preceding 12-month period, inclusive of the amount the issuer seeks to raise in the current offering under section 4(a)(6) of the Securities Act, in which any of the following persons had or is to have a direct or indirect material interest:

    1. Any director or officer of the issuer;

    2. Any person who is, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, the beneficial owner of 20 percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power;

    3. If the issuer was incorporated or organized within the past three years, any promoter of the issuer; or

    4. Any member of the family of any of the foregoing persons, which includes a child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. The term spousal equivalent means a cohabitant occupying a relationship generally equivalent to that of a spouse.

  19. A discussion of the issuer's financial condition, including, to the extent material, liquidity, capital resources and historical results of operations;

  20. For offerings that, together with all other amounts sold under section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) within the preceding 12-month period, have, in the aggregate, the following target offering amounts:

    1. $107,000 or less, the amount of total income, taxable income and total tax, or the equivalent line items, as reported on the federal income tax returns filed by the issuer for the most recently completed year (if any), which shall be certified by the principal executive officer of the issuer to reflect accurately the information reported on the issuer's federal income tax returns, and financial statements of the issuer, which shall be certified by the principal executive officer of the issuer to be true and complete in all material respects. If financial statements of the issuer are available that have either been reviewed or audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and need not include the information reported on the federal income tax returns or the certifications of the principal executive officer;

    2. More than $107,000, but not more than $535,000, financial statements of the issuer reviewed by a public accountant that is independent of the issuer. If financial statements of the issuer are available that have been audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and need not include the reviewed financial statements; and

    3. More than $535,000, financial statements of the issuer audited by a public accountant that is independent of the issuer; provided, however, that for issuers that have not previously sold securities in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)), offerings that have a target offering amount of more than $535,000, but not more than $1,070,000, financial statements of the issuer reviewed by a public accountant that is independent of the issuer. If financial statements of the issuer are available that have been audited by a public accountant that is independent of the issuer, the issuer must provide those financial statements instead and need not include the reviewed financial statements.

  21. Any matters that would have triggered disqualification under §227.503(a) but occurred before May 16, 2016. The failure to provide such disclosure shall not prevent an issuer from continuing to rely on the exemption provided by section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) if the issuer establishes that it did not know and, in the exercise of reasonable care, could not have known of the existence of the undisclosed matter or matters;

  22. Updates regarding the progress of the issuer in meeting the target offering amount, to be provided in accordance with §227.203;

  23. Where on the issuer's Web site investors will be able to find the issuer's annual report, and the date by which such report will be available on the issuer's Web site;

  24. Whether the issuer or any of its predecessors previously failed to comply with the ongoing reporting requirements of §227.202; and

  25. Any material information necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

 

Limits on How Much You Can Invest

 

There are limits on how much an investor can invest in any one year.  The limit is based on the investor’s annual income or net worth and it applies to the total amount they can invest not just how much they can invest in any one company.  It is also up to you, the investor, to keep up with how much you have invested so that you do not exceed the limits.

 

There are specific formulas that are used to calculate the maximum amount you can invest.  Where the purchaser is not an accredited investor (as defined in Rule 501), the aggregate amount of securities sold to such an investor across all issuers in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) during the 12-month period preceding the date of such transaction, including the securities sold to such investor in such transaction, shall not exceed:

  • ​the greater of $2,200, or 5% of the greater of the investor's annual income or net worth, if either the investor's annual income or net worth is less than $107,000;

  • 10% of the greater of the investor's annual income or net worth, not to exceed an amount sold of $107,000, if both the investor's annual income and net worth are equal to or more than $107,000

 

These limits do not apply to “accredited” investors and may be adjusted for inflation periodically by the SEC.

 

Investment Cancellations

 

You can cancel your investment commitment for any reason up until 48 hours prior to the offering deadline.  The offering deadline is set by the issuer and is identified in the issuer’s offering materials.  If you do not cancel your investment commitment prior to the offering deadline, the funds will be released to the issuer upon closing of the offering.  If an issuer reaches the target offering amount prior to the offering deadline, it may close the offering early but it must provide you notice about the new offering deadline at least 5 days prior to the new offering deadline and you will have up until 48 hours prior to the new offering deadline to cancel your investment commitment.

 

If there is material change in the offering after you have made an investment commitment, you will be notified of the change and you must reconfirm your investment commitment within 5 business days of receipt of the notice.  If you do not reconfirm your investment commitment within 5 business days, your investment commitment will be cancelled, and the committed funds will be returned to you.

 

Is this an appropriate investment for you?

 

Investing in companies through investment crowdfunding is not like investing in companies that are listed on a public stock market exchange.  Companies using this method to raise capital are typically smaller companies and may or may not have a proven market or business plan.  They may have no track record showing positive cash flow or profits.

 

There may be many reasons why investing in a company raising capital this way is appropriate for you.  You may love the market they compete in, the product that they sell, the people that own or manage the company, the community they are in, because they are veteran-owned, women-owner or minority-owned.  But you must also consider the risks associated with the investment and ask yourself the following questions:

 

  • Can you afford to lose part or all of the money you invest?

  • Do you understand what the company does or know the product or service it offers?

  • Do you know the owners or the management of the company and do you trust them?

  • Do you understand the security they are offering, the terms and what the return potential is?

  • Do you understand the documents that you are signing?

  • Do you understand that you may not be able to sell your investment if you need to?

  • Are you aware that all documents and communications will be delivered and signed electronically, and can you do that?

  • Have you thoroughly evaluated the investment and how it fits with your investment strategy?

 

There may be other questions that you should ask yourself, but you should at least ask these and answer “Yes” prior to investing.

 

Relationship with Issuer After the Offering is Complete

 

Issuers may contract with us to provide certain services including conducting their capital raise on our platform.  Once the offering is complete and it is closed, we may or may not have an ongoing relationship with the issuer.  An issuer has certain ongoing reporting requirements, but they do not have to use our platform to meet those requirements.

 

Annual Reports

 

An issuer must continue to comply with the ongoing reporting requirements until one of the following occurs:

 

  • The issuer registers its securities and is required to file reports under the Securities Exchange Act of 1934;

  • The issuer has filed at least one annual report and has fewer that 300 holders of record;

  • The issuer has filed at least three annual reports and has total assets that do not exceed $10,000,000;

  • The issuer or someone else repurchases or buys all of the securities of the offering, including any payment in full of debt securities or any complete redemption of redeemable securities; or,

  • The issuer liquidates or dissolves its business under state law.

 

If and when this happens, an investor may not continually have current financial information about the issuer.

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