Reviewing the Financials

One of the first items on your due diligence list is to check the financials of the shell you are seeking to purchase. The financials listed below are for Shell Profile #2 that was outlined in Part 4 of this series.

The assets of Shell #2 are minimal so there will be no problem with vending in the Buyers Company and meeting the acid test of the surviving company to be of “greater or equal value”. However, the total liabilities could pose a major stumbling block. Upon closer review and speaking with the Sellers attorney we found that all of the liabilities were owed to “related parties” or the principal shareholder of the shell and that all liabilities would be transferred or paid prior to closing.

In some cases there may be liabilities that can be converted into common shares of stock. This is known as convertible debt. Sometimes this debt is purchased by non affiliates of the Buyer. The reason being is that this convertible debt can be converted into free trading common shares of the new company. Please note that the conversion privilege must have been established at least one year prior to the conversion of the debt into free trading shares of common stock.

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