Go Public With Regulation A Without Reverse Mergers

1. How Can Regulation A+ Be Used By Small Companies To Go Public Without A Reverse Merger? On March 25, 2015, the Securities and Exchange Commission (the “SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. The amended rules known as Amended A+ were adopted to facilitate capital-raising by smaller companies. Regulation A+ expands existing Regulation A. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a going public transaction. The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital enabling small companies to go public without a reverse merger. Both public and private companies can use Regulation A+ but the exemption cannot be used by companies that are subject to the SEC’s reporting requirements. Regulation A+ may prove to be

2. a popular exemption for private companies in going public transactions where the issuer seeks to ease into the public company reporting process without using a reverse merger. For years, small companies have been the victims of reverse merger purveyors because they had few options available for going public. Regulation A+ changes this by allowing companies to easily meet the requirements for going public with a direct public offering/DPO. Regulation A+ provides a middle ground between private and public company status by allowing companies to transition between being private and going public. Regulation A+ created two distinct offering exemptions, Tier 1 and Tier 2. Tier 1 offerings allow issuers to raise up to $20 million in a rolling 12-month period, of which no more than $6 million may be sold by affiliated shareholders. Tier 2 offerings allow issuers to raise up to $50 million in a rolling 12-month period, of which no more than $15 million may be sold by affiliated shareholders. One of the most significant changes from Regulation A+ for going public transactions is that issuers can use Regulation A+’s short form registration statement, to register shares on behalf of selling shareholders. This allows the issuer to more easily locate a sponsoring market maker to file its Form 211 and meet FINRA’s shareholder requirements for a ticker symbol assignment. Regulation A+ offering may become a popular way of conducting a direct public offering. In regulation A+ offerings, selling stockholders can register up to 30% of the particular offering. After this 12-month period, secondary sales by non-affiliates are not limited except by the relevant Tier’s offering cap. An issuer in a Regulation A+ Tier 2 offering may also take advantage of reduced thresholds for the registration statement requirements of Section 12(g) of the Securities Exchange Act, if it engages a SEC registered transfer agent, remains subject to and current in its Tier 2 periodic reporting requirements with the SEC, and has a public float of less than $75 million as of its most

3. recent semiannual period. For an issuer without a public float, the thresholds are reduced to annual revenues of less than $50 million as of its most recent fiscal year. Issuers that exceed Regulation A+’s public float or revenue thresholds and Section 12(g)’s 500 holders threshold are allowed a two-year transition period before they are required to register a class of securities under Section 12(g). These increased thresholds provide more flexibility for some issuers in going public transactions allowing them to register a class of securities on Form 8-A after their transaction is complete. Issuers using Regulation A+ for a Tier 2 offering may become fully reporting with the SEC by filing the short Form 8-A registration statement simultaneously with the clearance of its Regulation A offering statement so long as it includes disclosures comparable to Part 1 of Form S-1 and includes selected financial information requirements statements that are audited in accordance with an accounting firm that is registered with, the PCAOB. Thereafter, the issuer will be subject to the SEC’s Exchange Act reporting obligations. Companies not opting to become SEC reporting companies will be subject to the SEC’s ongoing disclosure requirements, including filing annual, semiannual and current reports with the SEC through the EDGAR system. Regulation A+’s ongoing reporting requirements are not as comprehensive as those imposed on SEC reporting companies. One primary benefit of Tier 2 offerings is that they are preempted from state Blue Sky requirements. Although Tier 1 of Regulation A+ significantly increased the offering cap from $5 million to $20 million, the exemption has significant limitations. The most significant being that state “Blue Sky” laws are not preempted for Tier 1 offerings. As such, Tier 1 offerings will be subject to both federal and state securities registration and qualification requirements. While companies conducting Tier 1 offerings save costs by not being required to provide audited financial statements, Tier 1 issuers will incur the cost of state Blue Sky compliance. This securities law blog is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal

4. and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about direct public offerings and going public with Regulation A+, please contact Hamilton and Associates at (561) 416- 8956 or info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes. Hamilton & Associates | Securities Lawyers Brenda Hamilton, Securities Attorney 101 Plaza Real South, Suite 202 N Boca Raton, Florida 33432 Telephone: (561) 416-8956 Facsimile: (561) 416-2855 https://www.securitieslawyer101.com