December 23, 1996
SolarAttic looks to Web to raise cash in offering
Web page tests level of interest among investors
Drew Desilver Staff Reporter
he last time SolarAttic Inc. tried to sell stock to the public, it got embroiled in a nasty dispute with Minnesota securities officials and ended up canceling the offering.
Now, the small Elk River manufacturer of solar heating devices is exploring another option: launching a "direct public offering" (DPO) over its World Wide Web site.
If SolarAttic decides to proceed with the DPO and carries it off successfully, it apparently would be the first Minnesota company to go public over the Internet without any help from an underwriter.
However, one expert on small-business financing said SolarAttic is pushing the envelope of the securities laws.
The company currently is "testing the waters" for an offering on its Web site. The site provides information about the company -- including the prospectus from its previous failed offering -- and asks potential investors to e-mail expressions of interest, including how much they would want to invest.
"If we see sufficient strength, we'll proceed with the offering," said Ed Palmer, SolarAttic's president. The site, including a "fill-in-the-blanks" prospectus called a U-7, should be complete by Feb. 15, Palmer said.
SolarAttic would seek to raise between $500,000 and $1 million in a DPO, Palmer said. Shares would be priced at $5 each, the minimum investment would be $3,000, and no more than 300 investors would be allowed to buy shares.
The SolarAttic offering, if it happens, would be under the Small Corporate Offering Registration (SCOR) program. SCOR was developed in 1989 by the North American Securities Administration Association (NASAA) to make it easier for small companies to raise capital.
Under SCOR rules, businesses can raise up to $1 million a year. At last count, 43 states (not including Minnesota) permit SCOR offerings, and the Pacific Stock Exchange will list SCOR stock under certain conditions.
However, John Perkins, chairman of the Dallas-based Small Business Capital Access Association, said SolarAttic may be skating on thin ice by soliciting expressions of interest before the company has registered with any state securities office or completed its U-7 prospectus.
The law on testing the waters is still unsettled, said Perkins, a former Missouri securities commissioner and past president of the North American Securities Administrators Association. However, he said, he knows of no state that allows a company to gauge investor interest before it has filed a prospectus.
"Granted, all they're doing is expressing interest," he continued, "but how can any investor make any kind of vaguely informed decision unless they've see a document that tells you what kind of securities are being offered, what the risk factors are, what the plans are for the business, that kind of information?"
Palmer said his understanding of the law is that SolarAttic doesn't have to wait until it is registered with a state to test the waters, but that the U-7 form will be posted on the Web site as soon as it is complete.
SolarAttic is a development-stage company that makes heating devices for houses and swimming pools. The devices use air that collects in attics and is heated by the sun.
In 1994, SolarAttic attempted to launch an initial public offering (IPO) without using an underwriter. That offering sought to raise between $750,000 and $1.5 million, also through direct sales of stock to the public.
However, the Minnesota Commerce Department automatically canceled SolarAttic's IPO registration in May 1995, when the company failed to file an audited financial report as required.
Palmer later accused the Commerce Department of being unduly strict in applying the law and making it difficult for small firms to self-underwrite; the department said it was merely holding SolarAttic to the same standards it held every other company seeking to register securities in the state.
Ralph Weinberger, a partner in the growth/technology practice at Coopers & Lybrand in Minneapolis, said few companies have gone public over the Internet since Spring Street Brewery of New York City did the first Internet IPO in March 1995. However, he said, small companies increasingly are considering the move.
The Internet can be a relatively cheap way of getting investment information out to a large number of investors and potential investors, Weinberger said, and the World Wide Web allows firms to hyperlink their prospectus with sales literature, product demonstrations, research studies and other supplemental information.
"I think there'll be a stronger push on the part of high-tech companies [to do Internet IPOs] so they can demonstrate their expertise and comfort with the technology," he said.
Palmer called the Internet "a great equalizer."
"We now have a venue that allows thousands of people simultaneously to access our information," he said. "It's got to be worth 10 employees to us."
© 1996, Minneapolis/St. Paul CityBusiness