Advantages of a Reverse Merger

• Raising Capital – There are several difference between raising capital via an IPO versus through shell. This is sort of like comparing apples to oranges. Lets review both options:

• Reverse Merger – One of the biggest pluses in raising capital for a company that has performed a reverse merger is that you can either wait until you after have finalized your transaction and have become publicly traded on the OTC Bulletin Board or you can raise capital subject to your company starting to trade on the OTC Bulletin Board. Additionally, if you have purchased a shell that also includes non affiliate selling shareholders then your non affiliate investors may be able to negotiate some free trading shares from the non affiliate shareholders. However, the more common occurrence is for investors to purchase shares in a PIPE transaction. This type of transaction usually gives registration rights to the investors in a period of 90 days from the close of the funding. Investors like deals where they can realize liquidity quickly. It is important to note there is currently a new SEC proposal that will reduce the hold time from one year to six months (Rule 144) for investors who have purchased restricted equity securities in a public company. We anticipate the new proposed rule will take effect by the end of this year.

• IPO – In an IPO it is the underwriter who calls the shots. Underwriters are paid based upon the amount of money they raise for your company. Therefore they have a tendency to err on the side of raising you more money than you think the company will need. The underwriter will also determine the valuation of company post IPO and they will dictate the price and terms of the deal. Let’s not forget who the underwriter really serves – the investment banking community. After all, they may be doing one IPO with you but they do countless deals with their investment banker brethren. It is their job to make sure they undervalue the IPO so they can leave “a little on the table” (about 20%) so the investment bankers can make immediate returns on their IPO investment.

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