1. Do you plan on reversing the shares or forward splitting the shares of the shell you are purchasing?

OTCBB shells are capitalized in many different ways. Even when you buy a shell with a 99% delivery it doesn’t necessarily mean you do not have to perform a reverse or forward split. Let me explain through the following two examples.

Example A

You have purchase a 99% delivery shell that is delivering the following shares:

Total shares authorized: 500,000,000

Total shares issued and outstanding: 200,000,000

Deliverable shares:

Restricted: 195,000,000

Free trading (non affiliates): 3,000,000

Float: 2,000,000

Since this shell has a large number of shares issued and outstanding the first thing to determine is how many shares you want outstanding at the end of the day. If the valuation of your company is approximately $20 million and you would like to start the stock out at approximately $1.00 per share then you have to reduce the number of issued and outstanding shares from its current 200,000,000 to 20,000,000. Therefore, you would perform a 10 for 1 reverse split of the common shares of the stock. That would leave you with a float of 200,000 shares which would be retained by the previous shareholders of the shell. That is a manageable number to deal with in your float.

Example B

You have purchase a 99% delivery shell that is delivering the following shares:

Total shares authorized: 10,000,000

Total shares issued and outstanding: 2,000,000

Deliverable shares:

Restricted: 1,500,000

Free trading (non affiliates): 480,000

Float: 20,000

This shell has a small number of shares outstanding, so it will require a forward split of the stock. This type of situation is easier to work with and will eliminate any shareholder complaints because you will be awarding them more shares by performing a forward split of the stock. If the valuation of your company is approximately $20 million and you would like to start the stock out at approximately $1.00 per share, then you must increase the number of issued and outstanding shares from its current 2,000,000 to 20,000,000. Therefore, you would perform a 10 for 1 forward split of the common shares of the stock. That would leave you with a float of 200,000 shares, which would be retained by the previous shareholders of the shell. That is a manageable number to deal with in your float. Also, as a result of the forward split you are getting 4,800,000 free trading shares that could be used to enhance a PIPE transaction or Private Placement.

What is very important is the capital structure of your shell after you have purchased it. There are many variables to consider and we will address those issues in our next blog post.

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