N.M. Code R. § 12.11.9.17

Current through Register Vol. 35, No. 11, June 11, 2024

Section 12.11.9.17 - UNSOUND FINANCIAL CONDITION

A. An issuer shall be deemed to be in unsound financial condition if the financial statements contain:

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

(2) at least one of the following, or a similar fact:

(a) an accumulated deficit;

(b) negative shareholder equity;

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

(d) negative cash flow (or revenues not being generated by operations).

B. If the application for registration contains audited financial statements which were issued more than 90 days from the date of application, the accompanying interim unaudited financial statements are subject to the scrutiny of this section.

C. An application for registration by an issuer in unsound financial condition may be denied by the director.

D. An application for registration by an issuer in unsound financial condition may be registered by the director if the chief financial officer of the issuer provides pro forma financial data acceptable to the director that:

(1) demonstrate that the issuer's financial condition will improve either as a direct result of the offering proceeds or as a proximate result 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.

E. In addition to satisfying the requirements of Subsection D of this section, the issuer must:

(1) include prominent disclosure 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) disclose the following risk factors, as applicable:

(a) the presence of an explanatory paragraph in the independent auditor's report;

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

(c) the amount of any accumulated deficit;

(d) the presence and amount of any negative shareholder's equity; and

(e) the need for future financing.

F. Nothing in this section shall prevent the director from imposing net worth standards or limiting the sales of securities to accredited investors in lieu of, or in addition to, the requirements of Subsections D and E of this section. The imposition of these minimal net worth standards does not relieve a dealer from the responsibility of making an independent determination of suitability required under industry standards. Unless the director determines that the risks associated with the offering would require lower standards, public investors shall have the following:

(1) a minimum annual gross income of $70,000 and a minimum net worth of $70,000,exclusive of automobile, home and home furnishings; or

(2) a minimum net worth of $250,000, exclusive of automobile, home and home furnishings.

N.M. Code R. § 12.11.9.17

12.11.9.17 NMAC - Rp, 12 NMAC 11.4.8.10, 1-1-2010