| |
| |
|
Small Business Information |
|
|
|
Reverse Merger: Have They Taken the Reverse out of Reverse Merger?
Are the promoters and consultants destroying the market for Reverse Merger? First lets take a look at reverse merger. In a Reverse Merger, an operating private company merges with a public company that has little or no assets, nor know liabilities (the "shell"). In some rare instances, the shell may have some amount of cash remaining for investment in the new enterprise. The public corporation is called a "shell" since all that exists of the original company is its corporate shell structure and shareholders. The private company owners obtain the majority of the shell corporation stock (usually 90-95%) through a new issue of stock for the private enterprise or assets. The public corporation will normally change its name to the private company's name and elect a new board of directors which will appoint the officers. The public corporation will usually have a base of shareholder sufficient to to meet the 300 shareholder requirement for eventual admission to quotation on the NASDAQ Small-Cap Market, Or some other market. Now to the problem or the devil is in the details: The private company goes out perform the proper due diligence on a "shell" after finding it to be clean, and with no adverse past history to disqualify it, goes ahead completes the purchase. After paying an astronomical price, say in the neighborhood of $500,000.00- to 700,000.00 for a Bulletin Board shell they get 90-95% of the stock. Not only is the price extravagant, he will also take the reverse out of Reverse Merger, by insisting on a stipulation that you won't do a reverse split and reduce the number of shares outstanding. By reverse splitting the shares you are reducing his 10%. Which was the original intent of the reverse merger. What a bargain $500,000.00 or more for 90% of nothing and it gets better, Lets say the company has 300 shareholders and those 300 shareholders collectively own 500,000 shares and in some cases more, and the shell has 30,000,000 million shares outstanding which the owner(s) of the shell get keep 10% or 3.000,000 share. I am using the old math not the new. After the market maker files and the company is trading on the Otcc Bulletin Board. Your problems begin, lets say friends and acquaintances hear your company is now public and go out and buy some shares driving the price to say $3.50, now those 300 share holder who received their stock for pennies decide that they have hit the lottery and start selling making it necessary for you to go out and buy stock in the open market. Now back to basic math, supposing you want to maintain the 3.50 price so you go out and buy the stock. 500,000 x 3.50 = $1,750,000.00 forcing you to go raid the kid's piggy bank if you don't have the spare change. Now what about the 3,000,000 shares in the hands of the "shell" owner? 3,000.000 x 3.50 = $10,500,000.00, Time to ask the wife for loan. And don't forget about those astute market makers and trader that are aware of the stock that will be coming out and depress the price of your company's stock. Being the enterprising individual that they are, they will establish a short position on the stock of your company, after all they are entitle to make a living too. Before you jump from the Empire State Building make sure there is net down below waiting for you. Don't get me wrong a reverse merger can be done if you have a consultant that is looking out for you and is not part of the triumvirate (shell owner, securities Attorney and consultant). And in a few cases the same individual is performing all three functions. I wouldn't recommend for you to go step out in to the mine field without a mine detector, in some of my previous articles I suggested way to check the smooth talking consultants and shell owners before they take you to the cleaners. Also be aware that there are alternate way to go public the Reverse merger is only one of several option, so don't jump without looking, if you feel that you must do a Reverse merge insist on obtaining all the stock and not a share less. In order to prepare you to deal with the complexities of the public arena I would have to write a book not an article, but I will continue to try and inform through articles so that you will be prepare if you decide to take the plunge and go public. There are honest hard working consultants out there, in over 25 years in the business I have personally come across two of them. But there must be more. If you want to know about the alternatives to a reverse merger get in touch with me through our website: www.genesiscorporateadvisors.com the alternatives may not be cheap but they are cheaper than paying $500,000.00 for 90% of nothing. The answer to the title of this article is a resounding yes! They have taken the reverse out of Reverse merger. josephquinones@genesiscorporateadvisors.com Joseph D. Quinones, President of Genesis Corporate Advisors has spent over 25 years in the securities industry. In 1992 he founded JDQ Financial Group, Inc. and proceeded to build it up from a one man operation to the point where it employed many traders, advised numerous client and generate millions in revenues.
MORE RESOURCES:
Small-Business - Google News |
|
|
|
RELATED ARTICLES
Leveraging Business Relationships for more Profits When should you leverage the relationship?Leveraging sometimes brings a negative connotation to the mix. It does not have to be that way. If You Want To Be Remembered... Send handwritten notes. That applies whether you're a guy or a gal. Small Business Strategies - Four Critical Success Factors Scenario OneDuring a recent presentation, a business owner was given the following challenge. If 10 of his 100 employees were asked to name the top 3 organizational goals for the current year as they perceived them to be, would he receive the same 3 goals from everyone or would he receive 5, 10 or even 25 different goals? The business owner shook his head and thoughtfully responded, "No, I am sure that I would receive more than 3 goals. Cleaning Grain Silos, Towers, Containers, and Combines If you run a pressure washing company in a rural market you will need to learn how to wash agricultural industry equipment and infrastructure. In our company The Tractor Wash Guys, we We have several years of experience washing combines. Financial Fundamentals - What Every Small Business Owner Should Know! Business owners rarely go into business to deal with the financial aspects of running a business. It's easy to understand why! You are passionate about the products or services you provide and want to focus your time there. Mobile Carwash; Senior Citizens and Mobile Homes Senior citizens are generally not a large marketing segment for mobile detailers or car washers, however, they should not be ignored. You will find in a near by area a seniors-only mobile home park. Are You Making the Most of Your Intern? KEEPING INTEREST HIGH: Supervision is key to the success of the program. Interns like direction, but don't like to feel they are being constantly checked on. Keeping Business Alive Who is responsible for maintaining the business relationship?Nurturing a business relationship will take effort on your part and effort on the part of the other person. If you feel the business is worth having, then you must take the time to make sure you are in touch on a regular basis. Overcoming Your Biggest Competitor Before you read any further in this article, I'd like you to take a moment and write down who your biggest competition is.OK, got it?I'm going to go out on a limb here and tell you that no matter what company you wrote down, you're wrong. Pressure Washer Companies and Steam Cleaner Maintenance If you run a pressure washing business it is a must that you understand and take care of your equipment. It is your livelihood. Community Relations Strategy for Small Business Does your company have a community relation strategy? Have you even considered it? It is essential to have policies in place. Having run a small business for years which eventually turned into a multi-state franchise system, I realized early on that a business who is part of the community it serves can survive the ups and downs of the business cycles, making it somewhat recession proof. Small Business Success Tip: Learn Something New Everyday Your grandfather probably told you to "learn something new everyday". Your grandfather was giving you advice that works for your small business as well as your own education. Basic Psychology of Franchisee Ownership and Expansion If you are a franchisee of a large franchise system; before you expand your franchise to include more stores there are some questions you might ask yourself. If, however, you bought your franchise to expand, grow and amass a small empire of your own, your franchisor will be the last person to stand in your way. Top 10 Record Keeping Mistakes Business Owners Make (and How To Avoid Them) If you interviewed business owners of failed businesses, a majority will tell you that they didn't understand or feel comfortable dealing with the "book work". Your ability to understand and perform day to day accounting tasks in your small business is a critical success factor. Canon City, Colorado - Good for Small Business Canon City, Colorado is known for it's 6 Prisons; State and Federal, women's prison and juvenile. It is also home to the First Colorado Territorial Prison. Pressure Washing at Golf Courses There are many potential niches for pressure washing companies that often go unchecked. Some are quite lucrative and are worth investigation if you own a pressure washing business. Starting a Pressure Washing Business Are you thinking of starting a small pressure washer business to help clean up the world and make a little money? You might be surprised how many mobile pressure washers companies there are in the United States; approximately 45,000 of them. And since God made dirt on the Third Day; Genisis 1:9 - 1:12. Why Small Businesses Fail (or Fail to Thrive) Tammy, a skilled and gifted horticulturist, called me to discuss what she needed to know to start her own florist and landscaping business. She had been in the horticulture industry for 10 years and was incredibly skilled at working with flowers and plants - one of the best. Franchise Rule to be Revised; Why? The FTC, Federal Trade Commission, is considering modifying the franchise rule. So far it has be a ten-year process; just imagine working that slow in your business? In 1995, 1997 and 1999 when the comments were first considered and taken in, which spans a ten-year period. More Business Card Marketing If you are worried about how many different business cards you should carry, let me speak from experience, you need only ONE!The best way to confuse a potential customer is to present them with more than one business card. You may be doing a number of things and have cards for each one (even have several businesses where you do work) but you need to focus on what it is that you do best.
|
|
|
|
|
