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Presenting a live 90-minute webinar with interactive Q&A

Reg A+ Securities Offerings and FAST Act:

Navigating New Rules and Leveraging

Capital Raising Opportunities

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, MARCH 2, 2016

Albert Lung, Of Counsel, Morgan Lewis & Bockius, Palo Alto, Calif.

Robert R. Kaplan, Jr., Kaplan Voekler Cunningham & Frank, Richmond, Va.

Brenda Hamilton, Esq., Hamilton & Associates Law Group, Boca Raton, Fla.

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Reg A+ Securities Offerings and FAST Act: Navigating New Rules and Leveraging Capital Raising Opportunities Robert R. Kaplan Jr. March 2, 2016

Offer Name/Filing

Name

Date

Initial

Filing

Sponsor

Gross Offering

Amt

Distributing Party

(Broker/Underwriter)

Status Amount

Raised

Industry Market

Sun Dental

Holdings, LLC

9/3/15 Minimum of

$5MM; maximum

of $20MM Class

A Common Units

VRA Partners, LLC, as Placement

Agent: $50K retainer + 4.5%

commission on aggregate units sold.

Intention to supplement with non-

commissioned “crowdfunding

platforms” (Internet-based)

Qual

12/1/15

Unclear Medical Device - Dental No current plans to list

Allegiancy, LLC 9/3/15

(follow-on

from

2013

offering)

All or nothing for

$30MM of

Common Stock

W.R. Hambrecht & Co.

Amend 3 None Real Estate Asset Management

Services

OTCQX

AWA Group, LP 6/26/15 Minimum of

$20MM,

maximum of

$50MM of Class

A Common Units

Issuer selling Qual

1/25/16

Unclear PE – Purchase RIA Firms No current plans to list

Aperion Biologics,

Inc.

9/21/15 $25M W.R. Hambrecht & Co. Amend 9

1/19/16

None Medical Device – Human Tissue NASDAQ Capital Markets

Coastal Financial

Corporation

8/24/15 Merger and share

exchange

None 1-Z Merger

complete

Bank Holding Company None yet

GoChip Inc. 7/6/15 Up to $20MM

Class B Common

Stock

Issuer selling Amend 2 None Digital entertainment No plans

Elio Motors, Inc. 8/28/15 $12.6MM

minimum,

$25.08MM

maximum of

Common Stock

Issuer Selling Qual

11/20/15

@$17MM Auto OTCQX

Sprinter Football

Club, Inc.

9/3/15 $20MM maximum Issuer selling Amend 3 None Soccer club Unclear

Groundfloor

Finance Inc..

3/23/15 Constantly

increasing as

projects are

added

Issuer selling

Qual

2/5/16

$1,808,000 Real Estate Development –Series

of Limited recourse obligations for

each property (single family)

None – short term debt

StepOne Personal

Health Inc.

5/6/14 $10MM

maximum; $1MM

minimum of 9%

Convertible

Preferred Stock

Issuer selling

Qual

12/31/15

Unclear Online Medical Technology Listing or additional offering in 12

months

ralliBox Inc. 8/12/15 $3MM Issuer selling Qual

11/2/15

Unclear Internet platform for e-commerce Unclear

6

Alternative

Securities Markets

Group Corporation

3/20/15 $20M maximum

(Debt

Instruments)

Issuer selling

Amend 1

8/13/15

None Financial Services – Create

ASMX exchange

None

Tuscan Gardens

Secured Income

Fund LLC

6/22/15 $50MM

maximum

aggregate

(Series of

Preferred for

each property)

Issuer selling Amend

9/29/15

(Series C)

None Real Estate – Senior Housing Repayment upon sale of property

in 5 to 7 years

Weed Real Estate

Inc.

6/29/15 $1.25MM

Issuer selling Amend 5

1/28/16

None Real Estate - acquire and lease

growing space and related facilities

to licensed marijuana growers and

dispensary owners for their

operation

OTCQB

Beautykind

Holding, Inc.

2/5/15 $10MM W.R. Hambrecht + Co., LLC Initial filing None Beauty products OTCQX

Coastal Banking

Co. Inc.

Merger

Chicago Housing

REIT, Inc.

1/27/16 $20MM (9%

Debt)

Issuer selling Initial filing None Real Estate – single and multi-

family

Listing or additional offering in 12

months

CF Fund II, LLC

(withdrawn)

Withdraw

San Carlos Resort,

LLC

1/7/16 $20MM (Series

Debt)

Issuer selling Initial filing None Real Estate – Hotel development None

Virtuix Holdings

Inc.

1/4/16 $15MM

(Preferred

Convertible into

Common)

SeedInvest Amend 5

1/29/16

None Virtual reality device None

GK Investment

Holdings, LLC

12/23/15 GK

Developmen

t

$50MM

(Unsecured 7%)

JCC Advisors Initial

Filing

None Real estate investment – Existing

income producing properties

None

Hamilton National

Income Trust, Inc.

12/21/15 $50MM Common Issuer selling Initial

Filing

None Mortgage REIT None

Hunting Dog

Capital Corp

12/22/15 $50MM W.R. Hambrecht + Co., LLC Amend 1

12/23/15

None PE – Investments in middle market

companies

NASDAQ Capital Market

Advanced

Predictive

Analytics Holding,

Inc.

12/17/15` $10MM

Promissory Notes

Issuer selling Amend 1

1/29/16

None Software analytics None

Boxx Corp 12/17/15 $10MM 9% Issuer selling Initial

Filing

None Electric scooters None

Fundrise Equity

REIT, LLC

12/15/15 Rise

Companies

$50MM Common Issuer selling Qual

1/5/15

Unclear REIT – Diverse assets Liquidity transaction in 5 years

Planters Holding

Co

12/7/15 Merger Qual

12/30/15

XTI Aircraft Co 12/10/15 $20MM Common Issuer selling Qual

1/21/16

Unclear Aircraft – verticle takeoff plane None

Stack-It Storage

Inc.

12/10/15 Caprock Oil $6.4 MM Unclear Amend 3

2/4/16

None Self-Storage OTC Pink

Streetshares, Inc. 12/4/15 $50MM Notes Issuer selling Amend 5

2/5/16

None Online loan marketplace None

7

Advantameds

Solutions USA

Fund I, Inc.

11/6/15 $20M Issuer selling Qual

1/14/16

None To acquire controlling interests

in 4 Development Companies

None

Fundrise Real

Estate Investment

Trust, Inc.

11/3/15 $50MM Issuer selling Qual

11/24/15

$16.9MM Mortgage REIT None

Medalist

Diversified REIT,

Inc.

10/5/15 $30MM Moloney Securities Initial

Filing

None Equity REIT OTC

Waybetter, Inc. 1/15/16 $20MM Series B

Preferred

Issuer selling Initial

Filing

None Health games None

Great Coin, Inc. 11/10/15 $50MM Issuer selling Amend 1

12/31/15

None Software – Digital currency ATS

Punch TV Studios

Inc.

10/26/15 $50MM Issuer selling Amend 4

2/8/16

None Studio development None

Chameleon Media

Group Inc.

5/15/15 $20MM Issuer selling Amend 1

10/23/15

None Film and TV program development None

CMX Gold & Silver

Corp

10/23/15 $450,000 Issuer selling Qual

2/3/16

Unclear Develop silver mine Canadian Stock Exchange

8

Keys to Reg A

Not limited to Accredited General solicitation allowed Trading markets developing for liquidity Transparency with ongoing reporting Access equals delivery for sales

9

Two “Tiers” of Regulation A offerings Tier 1 – consists of those offerings already covered by Regulation A, or offerings of up to $20 million in a trailing 12-month period, including up to $6 million for the account of selling security-holders. Tier 2 – offerings of up to $50 million in a trailing 12-month period, including up to $15 million for the account of selling security-holders.

10

Eligible issuers:

Companies organized in and with their principal place of business in the United States or Canada

Not eligible:

– Are already SEC reporting companies or Investment Companies, including BDC’s.

– “Blank Check” Companies.

– Have not filed the ongoing reports required by the proposed rules during the preceding two years (if required to).

– Are or have been subject to a Commission order revoking the company’s registration under the Exchange Act during the preceding five years.

– Are disqualified under the proposed 506 “bad actor” disqualification rules.

11

Eligible Securities

BROAD! no asset-backed securities or fractional undivided interests in oil, gas, or other mineral rights.

12

Investment limitation:

Non-accredited’s: 10% of the greater of the investor’s net worth or annual salary on a “per offering” basis. No limitation for accredited’s or where list on National Exchange. Issuers may rely on investor representations to comply.

13

“Testing the Waters”:

Testing the waters solicitation materials may be used before and after initial filing; Old Reg A required that cease using once initial filing made. After initial filing, must include preliminary offering circular OR notice as to where it can be obtained – URL to EDGAR filing suffices. Testing waters solicitation materials need not be filed prior to first use, but filed as exhibit to initial filing or non-public submission.

14

- Annual report with audited financials - Semi-annual report with unaudited financials - Analog to 8k for changes fundamental to business

Issuer Reporting:

15

Rule 15c2-11:

Tier 2 reporting would meet BD’s 15c2-11 obligations of information for publishing quotation for securities not listed on national securities exchange. Rule 12(g):

Carveout for Tier II, if: - Current in reporting - Section 17 Transfer Agent - Float/Revenue limitations

16

State Pre-emption: TIER 2 ARE ENTIRELY EXEMPT!!!!! * Some states require agent/BD registered in that state

NASAA has proposed a standard 50 State Notice filing regime for comment Does not cover secondary. So, how?:

The fact is that a variety of exemptions exist under state laws for secondary activity. 42 states have adopted some form of the “manual exemption,” and virtually every state has iterations of one or more exemptions for secondary activity not for the benefit of the issuer that does not constitute arbitrage activity.

17

1401 E. Cary Street | Richmond, VA | 23219 www.kv-legal.com

18

19

Albert Lung

Morgan Lewis & Bockius

alung@morganlewis.com

Secondary Trading Considerations

20

• Post-offering liquidity and secondary trading market is a key consideration.

• OTC Market versus NASDAQ/NYSE

– Regulation A does not provide preemption for secondary trading. Unlike NASDAQ, OTC securities are

not “covered securities” and companies must apply for manual exemptions.

– NASDAQ and OTC listing requirements

• OTC Market: Three primary tiers: (1) OTCQX; (2) OTCQB; (3) OTCPINK

– Qualification standards such as minimum bid price, market cap and other financial and liquidity criteria.

– Financial Reporting: Regulation A+ Reporting is sufficient for OTCQB, but OTCQX requires additional

quarterly reports: Rule 144 and Rule 15c2-11 considerations.

– OTCQX requires PCAOB registered auditors (although not PCAOB audit standard)

• NASDAQ Listing:

– Additional disclosures in the Form 1-A, except for financial statements.

– Listing Qualifications: Public float requirement

– PCAOB Audit

– Form 8-A: Must be filed with 5 days of qualification of Form 1-A

Regulation A+ Marketing Strategies

• Combination of Testing the Water Communications (TTW) and formal roadshows.

– Consumer/Customer based offering—marketing to existing customers as potential investor,

particularly internet companies.

• Regulation A+ TTW provides more flexibility to TTW under Title I IPO on ramp: Not

restricted to QIB and institutional accredited investors.

• Unlike TTW under Title I, all Regulation A+ TTW materials must be filed with the SEC “as

an exhibit” to the Form 1-A.

– TTW encompasses a large categories of materials.

– Review content for consistency and accuracy.

– No need to file multiple slide decks if they are substantively the same as materials

previously filed.

– SEC is focused on reviewing TTW materials

– Best practices: forward looking statement; written script; no broad distribution of

materials at investor meetings.

• Distinctions between TTW and roadshow—unclear but may be relevant in terms of

disclosures.

21

Regulation A+ IPO Timeline (Tier 2 Offering) (4 to 5 months)

22

Pre-Filing Period Post-Filing and Waiting

Period Marketing and

Roadshow Qualification/Closing

• Organize the team: auditors, attorneys, underwriters, consultants and internal resources

• Determine structure of offering

• Complete financial statements (audit requirements)

• Prepare and draft Form 1-A • Complete substantially all

business, legal and financial due diligence

• First SEC Comment Letter within 27 days of filing

• File Amendments to Form 1-A (typically 2-3 amendments)

• Conduct TTW meetings • Prepare marketing

materials • Apply for NASDAQ/OTC • Negotiate and complete

underwriting agreement

• Resolve all material comments with SEC and NASDAQ

• Complete FINRA review if applicable.

• Conduct roadshow or commence formal marketing efforts

• Confirm NASDAQ and OTC applications are approved

• File “request to qualify” within 2 business days of qualification.

• Price upon qualification and close transaction.

• Trading in secondary markets begin.

6 to 8 weeks 4 to 6 weeks 2 to 3 weeks If continuous offering, 30 to 60 days before closing

Phase 1 Phase 2 Phase 3 Phase 4

Form 1-A: Process and Disclosure Issues

• Form 1-A generally follows the traditional S-1 process:

– No filing fees are required

– SEC review process is streamlined;

– Response letter filed on EDGAR

– More flexibility in the review process with SEC examiner; and

• Financial Statement requirements

– Instead of the 135-day stale period, Form 1-A provide a 9-month period.

• Ability to use to use “Offering Circular Supplement” for omission of

pricing and other information under Rule 430A prior to qualification

– 20% Safe harbor for upsizing and downsizing transaction without recirculation.

– Cannot change the number of shares disclosed in the offering statement

23

Legal Liabilities to Officer and Directors

• There are two basic provisions under federal securities laws that are implicated

by a Regulation A+ Offering:

– Section 17: Antifraud provision typically reserved for SEC enforcement action.

– No Section 11 liability but Section 12(a)(2) liability: Strict liability for materially misleading

information in Form 1-A

– no need to allege or prove intent or scienter or reliance

– No need to prove direct causation that sales would not have occurred if plaintiff knew the statement

– The mis-statements include both Form 1-A and any oral communications

– Officers, directors and controlled persons are liable.

• State law: fiduciary duty issues.

• Due diligence defense for underwriters.

• Practical considerations

24

ASIA

Almaty

Astana

Beijing

Singapore

Tokyo

EUROPE

Brussels

Frankfurt

London

Moscow

Paris

MIDDLE EAST

Dubai

NORTH AMERICA

Boston

Chicago

Dallas

Harrisburg

Hartford

Houston

Los Angeles

Miami

New York

Orange County

Philadelphia

Pittsburgh

Princeton

San Francisco

Santa Monica

Silicon Valley

Washington, DC

Wilmington

25

Reg A+ Securities Offerings and FAST Act Webinar

Brenda Hamilton, Esq. bhamilton@securitieslawyer101.com Hamilton & Associates Law Group, P.A. Securities Attorney March 2, 2016

Prospective For Underwriters & Broker-Dealers: Due Diligence Considerations

Unlike for traditional Initial Public Offerings (“IPOs”), there is no potential liability for issuers under Section 11 of the Securities Act in connection with Regulation A+ offerings. Sellers in Regulation A+ offerings are potentially liable under Section 12(a)(2) of the Securities Act for materially misleading statements in the offering circular or in oral communications. Accordingly, the potential Securities Act liability of issuers under a Regulation A+ offering is less than in connection with a Rule 506 offering but greater than in connection with an IPO. As such, underwriters and broker-dealers participating in a Regulation A+ offering should require a level of due diligence and disclosure comparable to that of offerings registered with the Securities & Exchange Commission (“SEC”). Tier I and Tier II offerings will be subject to review by Financial Industry Regulatory Authority (“FINRA”), if broker-dealers participate in the Regulation A+ offering. Under FINRA Rule 5110(b)(1), no FINRA member or associated person may participate in a public offering unless the offering has been filed with and reviewed by FINRA. In addition, FINRA Rule 5110(b)(9)(G) specifically includes securities offered pursuant to Regulation A+ as a public offering that must be filed with FINRA. Offering materials will be subject to FINRA comment and review, which includes a thorough assessment of the underwriting terms and arrangements. Proper due diligence will help ensure a smooth FINRA comment process.

27

Benefits and Costs: Comparison with Conventional IPOs v. Regulation D Private Placements

The costs associated with third party advisors, such as the issuer’s securities attorney and auditor, will be lower in a Regulation A offering than an IPO. Since disclosure requirements are less than that of an IPO, management will be required to devote less time to the preparation of the Form 1-A offering circular. A registration statement on Form S-1 is typically subject to full review by the SEC staff in connection with an issuer’s IPO. While the review process undertaken by SEC staff in a Regulation A+ offering will be generally shorter than the review and comment process in a registration statement. Generally, issuers will provide fewer disclosures than a Regulation A offering to investors in a private placement offering. As such, the cost of a private placement are typically less than an IPO or Regulation A offering.

28

• Regulation A+ requires less extensive disclosure documents unless the issuer uses the simplified

Exchange Act registration procedure. • Regulation A+ is generally less expensive because of scaled down disclosure requirements. • Regulation A+ is potentially faster than an IPO because of reduced disclosures and faster SEC

review. • There are no ongoing reporting requirements for Regulation A+ as Tier 1 offerings and Tier 2

offerings have scaled down on disclosure requirements. The advantages of an IPO compared to Regulation A+ are: • There are no limitations on the amounts that can be raised in an IPO. Regulation A+ contains the

Tier 1 and Tier 2 offering amount limitations. • There are no limitations on purchases by non-accredited investors in an IPO. Tier 2 Regulation

A+ offerings are subject to the investment limitation provisions.

29

Comparison with Conventional IPOs v. Regulation D Private Placements

• The IPO provisions require less public disclosure of solicitation materials for emerging growth companies.

• Issuers have the benefit of information in Schedules 13D and 13G that are not required in Regulation A+ offerings.

Regulation A+ provides a potentially faster and less expensive method of going public than a traditional IPO. There are limitations on the amounts that can be raised and in Tier 2 offerings on investments by any non-accredited investors. The ongoing reporting requirements in Tier 2 offerings are scaled down from those for SEC reporting companies. According to the SEC, Regulation 506 is used more than any other exemption from registration. Rule 506 provides two distinct exemptions: • Rule 506(b) is a traditional private placement, where general solicitation is prohibited and the

offering can include up to 35 non-accredited investors and an unlimited number of accredited investors.

• In Rule 506(c) offerings the issuer may use general solicitation so long as it verifies that all

purchasers are accredited investors.

30

Comparison with Conventional IPOs v. Regulation D Private Placements

The advantages of Regulation A+ in comparison to Rule 506 offerings includes: • Securities issued in Regulation A+ offerings are not “restricted securities.” Securities issued in a

Rule 506 offerings are restricted securities. The potential for a secondary trading market after a Regulation A+ offering are far greater than a Regulation A offering.

• In Regulation A+ offerings, securities can be offered to the general public using general

solicitation. While general solicitation is allowed under Rule 506(c), sales can only be made if the issuer takes reasonable steps to verify that the purchasers are accredited investors. Rule 506(b) does not allow general solicitation.

• Issuers are not required to use reasonable methods to verify accredited investor status in Tier 2

Regulation A+ offerings. Unlike Rule 506(c), issuers in a Regulation A+ offering can rely on purchaser self-certification unless the issuer has actual knowledge that the purchaser’s self-certification is incorrect.

• There is no limit to the number of non-accredited investors in a Regulation A+ offering. Rule 506(c) does not allow sales to non-accredited investors. In Rule 506(b) offerings, only 35 non-accredited investors can be purchasers.

Comparison with Conventional IPOs v. Regulation D Private Placements

31

The advantages of Rule 506 over Regulation A+ are the following: • There are no limitations on the amounts that can be raised under Rule 506. Regulation A+ offerings

are subject to the Tier 1 and Tier 2 caps.

• Rule 506 always preempts state securities registration requirements other than notice filings and anti-fraud provisions. Tier 1 Regulation A+ offerings are subject to state securities registration requirements.

• There are no mandatory disclosure provisions if sales are made only to accredited investors. Regulation A+ contains substantial various disclosure requirements.

• The SEC does not review the offering documents is a Rule 506(c) offering. Regulation A+ offerings like registration statement documents, are required to be filed with and are subject to, review and comments by the SEC. Additionally, Tier 1 offerings are subject to review by state regulators.

• Rule 506 does not impose ongoing reporting obligations while Regulation A+ Tier 2 offerings impose ongoing reporting obligations.

32

Comparison with Conventional IPOs v. Regulation D Private Placements

33

What Companies Should Do To Prepare For A Regulation A+ Offering Planning ahead for a Regulation A+ offering will prevent common pitfalls that issuers encounter

during the securities offering process.

The most important step in planning ahead for issuers planning a Regulation A+ offering is to understand the exemption’s requirements and limitations.

Issuers should consider the cost they will incur in conducting their Regulation A+ offering, complying

with ongoing reporting obligations and costs associated with public company status. Along with the IPO’s transactional fees and costs for underwriters, SEC registration, FINRA filing, legal counsel and accountants, there are also listing and transfer agent fees. After a Regulation A+ Tier 2 offering, there are ongoing public reporting costs and associated professional fees.

Issuers should define their business strategy and identify their future plans. Issuers should get their house in order including compiling their unaudited financial statements and

getting their corporate book updated.

Issuers should ensure they have sufficient management in place to deal with the capital raising process and associated disclosure obligations.

Issuers should decide whether they will conduct their offering or use the services of an underwriter

Issuers should address how investors will have an exit strategy after the Regulation A offering.

Regulation A provides for multiple structures and issuers should decide whether their goal is to have their securities publicly traded after their Regulation A Offering.

• Before closing the Regulation A offering, the issuer should ensure it meets the requirements for

obtaining a ticker symbol if it plans to go public. Companies not meeting the requirements of listing on a national securities exchange, must meet FINRA’s requirements for a ticker symbol assignment. For companies seeking to be quoted on the OTC Markets, the issuer should have at least 25 shareholders who paid cash consideration for their shares and which own at least 500 shares of a company’s stock each. The issuer should also ensure it can locate a sponsoring market maker to sponsor its Form 211 application with FINRA.

• A transfer agent is the custodian of the company’s shareholder records, including purchases, sales, transfers and account balances. After a going public transaction, as the company’s securities begin to trade actively, it becomes critical to have efficient transfer agent operations. Setting up transfer agency early, and then issuing and shipping shares to initial subscribing shareholders is a formality that helps avoid confusion and extra burdens for the issuer.

34

FAST Act: Title LXXI

-Reduce from 21 to 15 number of days between filing and roadshow.

- EGC which loses status after filing or confidential submission, will be treated as EGC until earlier of IPO closing or one year after lose of status.

- Omission of certain historical financial information otherwise required by SX

35

FAST Act: Title LXXVI

New Safe Harbor for “4(1)(1/2)”: - Only accredited’s

- No general solicitation

- Information requirements

- Affiliate disclosure

- Bad Actor prohibition

- Subsidiary disqualification

- Must be engaged in business

- Cannot be used for unsold allotment

- Must be outstanding at least 90 days

- Covered securities

36