Northwest’s Best Makes a SCOR

Gifts cataloger Northwest’s Best knows that initial public offerings aren’t just for big businesses. In March the Medford, OR-based mailer filed what amounts to a mini-IPO — an initial stock offering at $1 a share through a Small Corporate Offering Registration (SCOR).

The North American Securities Administrators Association (NASAA) implemented the SCOR program to help small businesses raise capital. The federal program allows companies to raise up to $1 million in capital within one year by issuing common stock to an unlimited number of accredited or nonaccredited investors.

With its offering, Northwest’s Best hopes to raise $100,000-$500,000. The cataloger is requiring investors to invest a minimum of $500. While 40 states participate in the SCOR program, Northwest’s Best chose to test its offering first in Oregon, Washington, Idaho, Colorado, and Utah. But Northwest’s Best President Jan D. Lajoie says it can extend the offering to additional states. And regardless of the success of the current offering, the cataloger can file another limited IPO.

“We did a lot of research starting about two years ago to determine another way to raise capital,” says Lajoie. “We looked into venture capital firms, and we had used banks and other lenders in the past, but we wanted to raise capital in a way that wouldn’t force us to incur more debt.”

Northwest’s Best made its initial filing this past November, “and at the end of this March we received the actual approval,” Lajoie says.

Lajoie, who had worked on the SCOR program in 1986 as an Oregon delegate to the White House Conference on Small Business, says one advantage SCOR has over a traditional IPO is its cost. A regular IPO costs about $40,000, including various auditing and legal expenses, Lajoie says. The SCOR offering cost her about $5,000 to file, and that includes the cost for a CPA to review her financials. “Filing fees are minimal — about $100-$450 per state,” Lajoie says, “and we hired a securities attorney for a minimal fee.”

A drawback to the program is that if a company does not reach its goal — in the case of Northwest’s Best, $100,000 — it must return all raised monies to investors. “The money is held in escrow until we reach goal,” Lajoie says.

The SCOR program also does not permit companies to use brokers to sell stock; companies must advertise and promote their stock offering on their own. For this reason, companies with customer databases, such as catalogers, have an advantage, says Wayne Hampson, president of Cambridge Financial Services & Software, a New Port Richey, FL-based consultancy. Northwest’s Best is promoting the offering to its customers in the Northwest via e-mail and direct mail.

Another option

Another limited public offering option is Regulation D 504, says Hampson, but it has more rules, such as a maximum of 35 nonaccredited investors and regulations governing the language used in pitching the public offering to potential investors. In addition, “the common review process for Regulation D 504 can take up to six months, and it’s usually less for SCOR,” he says. Regulation D 504 offerings can be sold via brokers, though.

But Northwest’s Best favored the relative simplicity of the SCOR program. “If we raise our minimum of $100,000, we can take care of our debt and produce two catalogs back to back to grow, generate capital, and move forward,” Lajoie says. Response to the offering so far has been favorable, she adds.

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