B. To be registered by qualification under this section, securities must satisfy either of the following:

1. 1. An offering of shares, warrants, options or other rights to purchase shares must meet all of the following conditions:

   1. (a) The offering must be made through a firm commitment underwriting by one or more securities broker-dealers who are all of the following:

      1. (i) Members of a national securities association registered under the securities exchange act of 1934.
      2. (ii) Registered as dealers in this state.
      3. (iii) Not affiliates of the issuer.

   2. (b) If the offering is of shares, or units, whose direct or indirect constituents are shares or warrants, options or other rights to purchase shares, both of the following must be true:

      1. (i) The initial offering price for each share, after attributing all consideration paid in the initial offering to the shares, is not less than five dollars.
      2. (ii) The exercise or conversion price for each share, for all warrants, options or other rights to purchase shares, is not less than five dollars.
   3. (c) No securities may be sold in units for the purpose of avoiding the requirements of subdivision (b) of this paragraph.
   4. (d) The total amount of securities offered and sold, in or out of this state, is not less than three million dollars.

   5. (e) The issuer shall provide to the commission undertakings that for four years after the registration:

      1. (i) The issuer will not engage in any transaction with a promoter or an affiliate of a promoter unless the transaction is approved by a majority of the outside directors after full disclosure or is on terms no less favorable to the issuer than would be available from an unaffiliated third party.
      2. (ii) The issuer will not issue to any promoter or an affiliate of any promoter any shares, options, warrants or other rights to purchase shares at a price per share less than the market price as of the close of business on the day before the proposed issuance of the shares, options, warrants or other rights to purchase shares. Nothing in this item alters corporate or other law with respect to fiduciary duties, conflicts of interest or the duty of officers and directors to a corporation and its shareholders.
   6. (f) The issuer's most recent audit report on its financial statements filed with its registration statement or the footnotes accompanying the financial statements do not express reservations about the issuer's ability to continue in business as a going concern and the most recent financial statements filed with its registration statement do not show that the issuer has both negative shareholders' equity and negative working capital.

2. 2. Except as provided in subsection D of this section, an offering of limited partnership interests may be made under this paragraph if:

   1. (a) All securities sold to purchasers in this state are sold only to purchasers who represent in writing that the investment represents not more than ten per cent of the purchaser's net worth less the value of the purchaser's other investments in limited partnership interests and the purchaser has any of the following:

      1. (i) An annual gross income of at least seventy-five thousand dollars and a net worth of at least seventy-five thousand dollars, exclusive of home, car and home furnishings.
      2. (ii) A net worth of at least two hundred twenty-five thousand dollars exclusive of home, car and home furnishings.
      3. (iii) In the case of sales to qualified pension or profit sharing plans or trusts, keogh plans or individual retirement accounts, that the net worth and income requirements set forth in item (i) or (ii) of this paragraph are met by the fiduciary account or by the donor who directly or indirectly supplies the monies for the purchase of the securities.
   2. (b) The issuer has a reasonable basis to believe that each purchaser in this state, along or with one or more representatives, advisors or agents has the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the offering.
   3. (c) The issuer, the general partners of the issuer and the general partners or other persons liable directly or indirectly for the obligations of the general partners, in the aggregate, have a net worth of not less than one million dollars, as demonstrated by audited financial statements in the case of the issuer or any other entity and by reviewed financial statements in the case of an individual.

E. The issuer or underwriter of the securities shall make an application for registration pursuant to this section by filing with the commission the following:

1. 1. An application for registration of the securities by qualification, in the form prescribed by the commission pursuant to section 44-1892, demonstrating eligibility for registration under this section.
2. 2. The documents required for registration of securities by qualification pursuant to section 44-1892.
3. 3. One copy of the prospectus on file with the SEC in its most recent form as of the date of the filing under this section.
4. 4. One copy of all amendments or any supplements to the prospectus.
5. 5. A final prospectus.

F. The front cover or a sticker attached to the front cover, or the inside front cover, of any prospectus delivered to a purchaser in this state shall contain a conspicuous notice as follows or a notice that is substantially equivalent in plain and concise language:

These securities are registered under the securities act of Arizona, but the fact of the registration is not to be deemed a finding by the Arizona corporation commission or the director of the securities division that this prospectus is true or accurate, nor does the registration mean that the commission or the director has passed on the merits of or otherwise approved the securities described in this prospectus.

G. Except as provided in subsection H of this section, a registration pursuant to this section is not available for the securities of an issuer if the issuer or any of its predecessors, affiliates, directors, officers, general partners or beneficial owners of ten per cent or more of any class of its equity securities, or the managing underwriter of the securities:

1. 1. Has been convicted of a felony involving racketeering or a transaction in securities or of which fraud is an essential element or offenses listed in section 13-2301, subsection D, paragraph 4.
2. 2. Has been convicted within the ten years before the filing of the application under this section, or at any time thereafter, of a misdemeanor involving racketeering or a transaction in securities or of which fraud or dishonesty is an essential element.
3. 3. Is subject to an order, judgment or decree of a court of competent jurisdiction entered within ten years of the date of filing of the application under this section enjoining or restraining him from engaging in or continuing any conduct or practice in connection with the sale or purchase of securities or involving fraud, deceit, racketeering or consumer protection laws.
4. 4. Has been subject to any state or federal administrative order or judgment in connection with the purchase or sale of securities entered within five years before the filing of the application under this section or at any time thereafter.
5. 5. Is subject to the reporting requirements of the securities exchange act of 1934 and has not filed all required reports during the twelve calendar months before the filing of the application under this section.
6. 6. Is subject to an order of an administrative tribunal, an SRO or the SEC denying, suspending or revoking membership or registration as a broker or dealer in securities or an investment adviser or investment adviser representative for at least six months.

I. An offering of securities pursuant to this section is subject to section 44-1876 only if the offering is made pursuant to subsection B, paragraph 1 and either:

1. 1. The issuer has negative shareholders' equity or negative working capital as shown on its most recent financial statements filed with its registration statement.
2. 2. The issuer has no public market for its shares and has no significant earnings.

K. Unless the commission or the director of the division declares registration under this section effective at an earlier time, a registration of securities under this section becomes effective on the latter of the following:

1. 1. Twenty business days after filing the documents required by subsection E, paragraphs 1, 2 and 3 of this section, except that if an application is filed with the commission more than ten days after the initial registration statement is filed with the SEC, this period shall be extended by the number of days between ten days after the filing of the initial registration statement with the SEC and the filing of an application with the commission.
2. 2. In the case of an offering of limited partnership interests, ten business days after filing any amendment under subsection E, paragraph 4 of this section, containing such material changes to the registration statement that recirculation of the prospectus would be required if a preliminary prospectus was circulated.
3. 3. Concurrently with effectiveness of the registration statement under the securities act of 1933.
4. 4. A later date as the issuer requests.

L. No registration of securities pursuant to this section may be denied, revoked or suspended pursuant to article 8 of this chapter. The commission may enter an order, after a hearing or notice of and opportunity for a hearing, denying, suspending or revoking a registration under this section if it finds that either:

1. 1. The conditions established in this section are not met, the application for registration, prospectus or any financial statement or any document or exhibit filed with the application or any amendment or supplement to the application is incomplete, inaccurate or misleading or the issuer has failed or refused to furnish information required to establish that the conditions of this section are met.

2. 2. Grounds exist for denial of registration under section 44-1921, paragraph 2 or 44-1991.

   The commission shall promptly send notice to the issuer of any order entered under this subsection.

M. For the purposes of this section:

1. 1. "Firm commitment underwriting" means that the dealers contract in a principal capacity to purchase at least the minimum amount of securities if any are purchased.
2. 2. "Promoter" means any person who is an officer, director or owner, directly or indirectly, of ten per cent or more of the issuer's outstanding shares before, or on the day of, the registration of the offering, but does not include an affiliated institutional investor which owns less than twenty per cent of the shares to be outstanding upon completion of the proposed offering.
3. 3. "Significant earnings" include earnings per share over the issuer's past two years of operations, or the shorter period of its operations, equal to not less than five per cent per annum of the per share total of stated and additional paid in capital of the issuer during the period. A calculation of significant earnings shall be submitted to the commission and may be computed by the issuer's chief financial officer based on the issuer's financial statements.
4. 4. "Unaffiliated institutional investor" means any unaffiliated bank, investment company registered under the investment company act of 1940, business development company as defined in section 2(a)(48) of the investment company act of 1940, small business investment company licensed by the United States small business administration under section 301 of the small business investment act of 1958, employee benefit plan within the meaning of title I of the employee retirement income security act of 1974, insurance company, private business development company as defined in section 202(a)(22) of the investment adviser act of 1940 or comparable business entity engaged as a substantial part of its business in the purchase and sale of securities.