Reverse Shell Mergers Explained » Conferences

Harvard Club Equity Conference – Part 7

Ralph Amato — Thu, 24 Apr 2008 19:02:53 +0000

There was much discussion about Chinese companies seeking listing on the OTCBB. Last year 69 companies originating out of China did a reverse merger into an OTCBB shell. There are a tremendous number of private companies with a history of revenues and profits that are looking to US markets to gain much needed access to capital. By reversing into a shell Chinese based companies can provide not only transparency but also liquidity to investors. Most of the deals coming out of China have substantial revenues and profits and valuations of the companies are such that they attract US investors.

I predict we will see substantial increase in the number of China based companies seeking reverse mergers in the next five years. There is a multitude of information I could share with my readers about companies coming out of China but I can not do the subject justice in this space. Stay tuned for my upcoming series on this subject.

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Harvard Club Equity Conference – Part 6

Ralph Amato — Wed, 23 Apr 2008 15:00:35 +0000

The conference had several speakers addressing issues concerning Reverse Mergers and Form 10 shells. Form 10, or “virgin shells” as they are sometimes called, consist of a blank check S1 that has been reviewed by the SEC. The Form 10 shell does shorten the SEC review process – but not by much. A company still has to back into the Form 10 shell and go through the entire review process with the SEC, find a minimum of 30 shareholders, and apply to FINRA to gain trading status. This process will cost somewhere between $150K and $200K plus audit fees.

By comparison, a reverse merger into an OTCBB shell is quicker but quite a bit more expensive. Costs can run from $550K to almost $1MM. Determining factors on the best vehicle to use to go public depends upon several different factors. If your company is a startup, then an S1 registration statement or Form 10 shell is probably your best choice. If you are established and have both revenues and profits and there is a good possibility of getting your company funded then a reverse merger might suit you better. If you have a foreign company and you are trying to gain entry into US markets a reverse merger is definitely the way to go. It really all depends upon your circumstances.

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Harvard Club Equity Conference – Part 5

Ralph Amato — Tue, 22 Apr 2008 19:48:15 +0000

One conference topic regarded alternative listing strategies, such as the AIM London Stock Exchange. I have written a series on this subject and covered its merits in depth (see AIM under the Categories section). The plus side is their regulatory requirements are rather lax compared to the US Securities and Exchange Commission and Sarbanes Oxley compliance. However, the biggest problem with companies listed on AIM is their limited US exposure and apparent liquidity issues. US investors have shown very little interest in AIM-listed companies in the past, and I doubt that will change in the near future. If your company is listed on AIM and a second round of funding is necessary, plan on spending a substantial amount of time in Europe trying to raise capital. Very few US-based funds will entertain an investment on an AIM-listed company.

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Harvard Club Equity Conference – Part 4

Ralph Amato — Fri, 18 Apr 2008 15:00:41 +0000

Your company’s current status will determine which course of action to take when it comes to going public. I suggest an S1 registration statement over a reverse merger when the company is a startup or still in the developmental stage process (non-revenue producing). The reasons are as follows:

Most startups need to conserve their finances for developing their company.
The price differential between an S1 and a reverse merger are substantial. An S1 will cost between $50K and $150K – a reverse merger $700K to $1MM. These numbers exclude audit fees.
It is difficult to raise capital for a startup company. By taking the S1 route a company can raise an initial small round of funding and gather the 40 plus shareholders it will need to qualify for trading status when it files its 15c2-11 with FINRA.

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Harvard Club Equity Conference – Part 3

Ralph Amato — Fri, 18 Apr 2008 15:00:30 +0000

S1 Registrations
The S1 registration statement has recently replaced SB2 registration statements. The S1 is used for companies that are seeking to go public via a self underwritten or Direct Public Offering (“DPO”). The DPO process from start to finish usually takes anywhere from 9 to 18 months depending on the complexity of your filing and the number of comments you receive from the SEC. If you are development stage company with little or no revenue or a company with no profits, then the S1 is your best choice for going public. The S1 will take longer to complete, but it will save you hundreds of thousands of dollars compared with buying an OTCBB shell. The average cost of attorney fees for an S1 can run from $50K to $150K. You will still need a PCAOB audit of your company’s records, which will cost $10K to $50K for a startup with little or no revenues.

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Harvard Club Equity Conference – Part 2

Ralph Amato — Thu, 17 Apr 2008 17:26:57 +0000

The Investors’ and Issuers’ Summit on Alternative Capital Raising Strategies Conference was held at The Harvard Club in New York City on March 31st and April 1st, 2008. The speakers addressed several different topics, but there was particular interest in reverse mergers as a main alternative for companies seeking to go public. All of the speakers agreed that the main problem confronting small cap companies was the inability of the marketplace to participate in underwriting these emerging growth companies.

With the standard underwriting of an IPO averaging $229MM in 2007, it is clear most underwriters have taken the flight to safety and are only doing deals for companies that approach billion dollar valuations.

If there is doubt in your mind where the traditional IPO marketplace is heading, read the following statistic for the first quarter of 2008. According to www.ipohome.com, only 22 companies went IPO versus 53 companies for the first quarter of 2007. The startling news is the average capital raise exceeded $1 billion per deal compared with $186MM for the first quarter of 2007. While there are fewer underwritings, the deals are getting much larger.

This explains why it is so difficult for small cap companies to go public– no sponsorship! The conference speakers addressed the alternatives companies could take to become publicly traded, with the main topics concerning S1 registrations, reverse mergers into an OTCBB shell and listing on the AIM London Exchange.

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Harvard Club Equity Finance Conference

Ralph Amato — Mon, 07 Apr 2008 15:47:15 +0000

On March 31^st and April 1^st I was a guest speaker at the Investors and Issuers Summit on Alternative Capital Raising Strategies which was held at the Harvard Club in NYC. The conference was sponsored by Financial Research Associates http://www.frallc.com .

Several companies representing the reverse merger sector attended the conference. The concentration of the conference was geared towards alternative ways for companies to go public. There were several interesting speakers and I will comment on their views and topics of discussion for the remainder of this week via this Blog.

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