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 SECs reporting requirements. Regulation A+ may prove to be

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 FINRAs 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
Tiers 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

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 SECs Exchange Act reporting obligations.

Companies not opting to become SEC reporting companies will be subject to the SECs 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

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