S-Ray and the JOBS Act – Part 1 of 3

Posted on September 30, 2016 in CEO Perspectives

Shortly after the founding of S-Ray in 2008, the United States entered the Great Recession. In response to this financial devastation, the Federal Government passed the American Recovery and Reinvestment Act of 2009 and followed up with the Jumpstart Our Business Startups Act (JOBS Act) in 2012. S-Ray has utilized aspects of both Acts. This three-part perspective will explain why and how we used that legislation to survive and grow throughout the recession.

The first benefit we utilized was the Qualified Small Business Stock provisions. In brief terms, this encouraged individual investment in entities such as S-Ray by setting a ZERO federal capital gains tax rate if the stock is sold after a five-year holding period. As of this article (September 30, 2016), 26,041,370 of our shares have passed the five-year threshold. If S-Ray were either to go public or to be acquired, existing shareholders meeting the five-year holding period would have the opportunity to sell their stock and pay NO federal capital gains tax on the transaction.

The QSBS function provided a no cost incentive to early investors. Neither S-Ray nor the investors had any additional expense to earn the QSBS designation.

QSBS has also given S-Ray management guidance on investment timelines – meaning that about 25% of our shareholders may be ready to liquidate their holdings given that the five-year holding period has been met.

S-Ray shareholders were some of the first to be issued QSBS stock. As we move through the maturity of those early investments, we are learning more aspects of QSBS.

One of those aspects is the potential of rolling QSBS stock from an existing venture into a new venture which is also QSBS. We are examining this feature of QSBS to determine if there are opportunities that may benefit our shareholders.

My next perspective will explain how S-Ray is utilizing another legislative change – the Regulation A Plus, Tier 2 stock registration (also known as an IPO Lite).

As always, we welcome your comments and questions.

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