1. JOBS ACT CAPITAL RAISING FOR SMALL BUSINESSES RUTH JIN, ESQ. rjin@jinlex.com August 22, 2015 rjin@jinlex.com © The JIn Law Group, PLLC All Rights Reserved. www.jinlex.com 1

2. JOBS ACT Title III – Crowdfunding Tittle IV – Small Company Capital Formation DEFAULT RULE: Raising capital through issuing securities (common shares, preferred or debt securities) require registration with the SEC unless the transaction is qualified for exemption from such registration. Traditional Exemptions: Rule 144, Regulation D, Regulation S exemptions (accredited investors, qualified institutional investors and foreign investors). Small Business Exemption Under Traditional Regulation A – Too costly due to compliance with state Blue Sky laws, in addition to federal securities law. © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 2

3. TITLE III - CROWDFUNDING General Provisions: 1.Entrepreneurs can raise up to $1million from investors without registration; 2.Such offerings much be conducted thru Internet-based funding portals subject to SEC and Finra regulations; or thru FINRA-licensed broker- dealers. 3.Must be a domestic company. 4.Limit on investors investment amount:  Annual income or net worth below $100k: can invest up to $2k or 5% of annual income or net worth per year per opportunity.  Annual income or net worth above $100k: can invest up to 10% of annual income or net worth.  Within one year, total investment amount cannot exceed $100k. 5. One year transfer restriction.. © The Jin Law Group, PLLC. All Rights Reserved. www.jinlex.com 3

4. CROWDFUNDING A funding portal is prohibited from giving Investment advice. 1.Can only set standards for opportunities (industry, geography, etc) 2. Must post “all” opportunities meeting criteria. 3. Cannot make “recommendations” or “promotions” or put certain deals as “highlight of the day” or “highlight of the week”, etc. 4. Cannot profile an investor and suggest certain new deals available to him next time he returns to the site. Funding portals registered as a broker-dealer may “curate” 1.Issuer’s anti-fraud liability 2.Due diligence © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com. 4

5. CROWDFUNDING SOLICITATION AND ADVERTISING: Issuer companies cannot market to people other than to investors to the funding portal or broker. The Funding Portal can market itself to the public as an interesting place to looking for investment opportunities, but cannot market specific deals. The Funding Portal must do due diligence on potential investors before granting them the full access membership. Funding Portal cannot sell, solicit or market to the investors about itself/its own company. It can only list companies other than itself in its portal. © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 5

6. CROWDFUNDING DISCLOSURE: Principle of equal access to and disclosure of material information Company: the issuer and its members, name and legal status and address, names of directors and officers. Offering terms Structure of ownership and capital of the issuer Valuation Risks of your business Financial statements: To raise less than $100k: Must disclose most recently filed income tax returns and financial statement certified by its principle executive officer. To raise more than $100k but less than $500k: Must disclose financial statement reviewed by an independent public account. To raise more than $500k, audited financial statement. © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 6

7. B. TITLE IV – REGULATION A+ Effective March 25, 2015. Exemption from registration with the SEC. Tier 1: Can raise up to $20 million, less the aggregate offering price for all securities sold within the 12 months before the start of and during the offering of securities in reliance on Reg. A. Tier 2: Raise up to $50m, less …. Must file an offering statement with the SEC. MUST provide investors with an offering circular/disclosure document – But content is limited than regular IPO disclosures © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 7

8. B. REGULATION A+  Tier 2: Must include audited financial statements in the offering circular. Must file annual, semiannual, and current reports with the SEC on an ongoing basis. With exception of securities that will be listed on a national security exchange (NY Stock Exchange, NASDAQ), investors must be accredited investors under Regulation D. If not, cannot invest more than 10% of the greater of annual income or net worth (for natural person); or 10% of the greater of annual revenue or net assets at fiscal year end (for non-natural person). © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 8

9. REGULATION A+ Eligible Issuers and Securities Companies organize in and with their principle place of business in USA and Canada. Not available to the following companies: Companies subject to Section 13 or 15(d) of Exchange Act. Companies subject to Investment Company Act of 1940. Development stage companies that have no business plan or purpose (such as purely engaging in M&As with other companies, aka “blank check companies”) Issuers of fractional undivided interests in oil/gas/mineral rights. Issuers not compliant with Reg 4 for the past 2 years. Issuers subject to “bad actor” disqualifications. Issuers subject to SEC order denying, suspending, revoking securities registration. © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 9

10. REGULATION A+ Eligible Companies and Securities: Types of Eligible Securities  Common Stock  Preferred Stock  Debt Securities  Warrants  Excluded: Asset-backed securities Tier 2 exempt from Section 12(g) requirement (500 persons limit) © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 10

11. REGULATION A+ Offering Statement: Must electronically file an offering statement on Form 1-A with the SEC Part I. Notice of basic information about the issuer and its proposed offering. Issuer Info Issuer Eligibility No “bad actor” Summary of the Offering Jurisdictions in which securities are offered. Unregistered securities issued within one year. Part II. Primary disclosure statement, called an “offering circular”. Two Formats: (1) OC Format; (2) Part I of Form S-1/Form S-11 Format Part III. Exhibits Underwriting Agreement; Charter and Bylaws; Legal Opinion; etc. © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 11

12. REGULATION A+ Allowed to Test the Water: Submit substantially completed draft offering documents with the SEC privately for comments. Within 21 days, all correspondents with SEC must be public. Before or after filing the offering docs, can conduct general solicitation to “test the water” with LEGENDS. ONGOING REPORTING a. Annual report on Form 1-K (Tier 2 only) b. Semi-annual report on Form 1-SA (Tier 2 only) c. Current report on Form I-U (Tier 2 only) d. Exit Report on Form 1-z (both Tier 1 and Tier 2) © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 12

13. REG. A + “Bad Actor” Disqualification 1)Covered Persons: Issuer, underwriters, placements agents, directors, officers and significant shareholders. 2)Conviction; subject to court or admin sanction for securities fraud or other securities law violations. 3)Exceptions: reasonable care exception © The JIn Law Group, PLLC. All Rights Reserved. www.jinlex.com 13

14. UPCOMING EVENTS How to Buy and Sell a Restaurant July 10, 2015 (12.00-1.30pm) JOBS ACT Regulation A+: Capital Raising for Small Businesses September 15, 2015 (12.00-1.30pm) www.jinlex.com The JIn Law Group (c) All Rights Reserved. 14

15. THE JIN LAW GROUP Thank you! See you next time! www.jinlex.com The JIn Law Group (c) All Rights Reserved. 15