Hello friends. Today’s post will briefly discuss shelf offerings. A shelf offering (or shelf registration) is not an actual offering (or issuance) of equity (stock) securities or debt securities. Rather it is a registration of securities with the SEC that allows a company to issue securities covered by the filing at any time over the three years following the filing. This permits a company to raise capital at opportune times as the securities are already registered for issuance.

Shelf offerings are very common in the small biotech arena. If you’ve ever observed this area or held investments in such companies, you’ve likely witnessed shelf offerings before. I’ve noted that stock prices usually drop (sometimes significantly) when a shelf offering occurs. Based on my reading of comments from shareholders on various stock discussion forums, there seems to be widespread confusion about the meaning of shelf offerings. It seems the word “offering” is interpreted as “securities being sold.”

Of course, when a company issues or sells stock, it dilutes existing ownership. Dilution is often intuitively followed by a near-term decline in share prices. But a shelf offering is not the actual offering of stock for sale. It simply registers securities so that they can be sold at a future opportune time.

See you next time.