Depending on what SEC rules are governing the RM, SLJB has up to 90 days to file the financials. And this is only a thumbnail of the quagmire that companies have to wade through. Different requirements for different types of RMs and final structure.
I have posted this several times but here is the entire text:
http://www.edgar-filing.com/reverse.htm
Corporate Shells and Reverse Mergers
Basically two different types of Public shell companies used to do reverse mergers. "Trading" and Reporting and virgin corporations.
Perception that these shells can be used to circumvent SEC reporting requirements and enable the new owners to immediately begin offering and trading their stock on the open market. Unless the shell is bought in bankruptcy, all issued shares acquired through a merger are restricted under Rule 144. To initiate a registered secondary offering the company is required to submit a complete Form S-4 disclosure of all business activities to bring the SEC information up to date, regardless of the implied trading status of the shell’s stock.
Examine closely the actual condition of the corporation.
"Virgin" shell corporations are created through standard reorganization process. They are not "spin-off" corporations. When acquired they have no assets and no liabilities. Virgin corporations are inactive and non-reporting. They qualify as widely held public corporations because they have a bona fide shareholder pool of over 300 individuals and a public float of over 500,000 shares. A properly created virgin shell provides a wide variety of options that the trading and reporting shells can’t. Only non-reporting corporations can raise capital under any of the SEC Regulation D offerings. They can also be used by foreign companies to raise capital offshore under the Regulation S offering. They can be listed on the National Quotation Bureau - Pink Sheets without becoming a reporting company. This requires the services of a market maker who will file a Form 211 with the NASD OTC Compliance Unit. See www.pinksheets.com.
A fully registered secondary offering can also be done using a Virgin shell by filing a Form 10SB with the SEC and creating a Stock Offering Memorandum. The virgin shell is more flexible, often cleaner and definately a less expensive way to take your company public.
REVERSE TRIANGULAR MERGER
When the subsidiary of the acquiring corporation merges with the target firm. IN this case, the subsidiary’s equity merges with the target firm’s stock. As a result of the merger, the target would become a wholly-owned subsidiary of the acquirer and shareholders of the target would get shares of the acquirer.
WHY USE A REVERSE MERGER FOR RAISING CAPITAL INSTEAD OF AN IPO?
Things to consider merger vs. IPO:
Non-reporting public corporations with less than $25M in revenues, can raise up to $1,000,000 in "seed money" annually - without exemption. Or they can raise up to 5M using a 505 offering.
A public corporation can undertake a fully registered "follow-on" or "secondary" offering of any size, at any time, by filing the appropriate documents with the SEC and securing the services of a couple of market makers/brokers. Once a market value is established for your stock you can use these securities to capitalize other acquisitions or as collateral on loans or lines of credit.
[Venture capital groups who underwrite offering have two exit strategies - drive the business into an IPO or sell it off to a larger corporation, Either one will generate maximum ROI and that’s what they are in it for.
CONTROL:
Using a shell corporation and a reverse verger strategy puts the control of the entire process into your hands. You decide where, when and how things will be done. [Few owners consider the effect that the loss of primary equity and decision-making control will have on their business when they work with an underwriter to do an IPO. The first job of a underwriting company is to protect their profits and their institutional client’s investments.
COSTS:
Acquiring a shall corporation, completing the merger and 504 or 505 offering documents can be done for less than $60k. Based on a below average IPO of $15M the costs to implement will be about $1.5M or 10% of the offering. About 50% of this out-of-pocket. The current average IPO offering is about $150M.
REVERSE TAKEOVER UTILIZING A SHELL
A shell has marketable and tradable shares of stock that have been registered.
ADVANTAGES
- less expensive than an IPO
- can usually be completed in four to eight weeks
- a trading shell can save time, effort and money to get the stock trading
C Increased Valuator: Typically publically traded companies enjoy substantially higher valuations than private companies.
C Capital Formation: Raising capital is usually easier because of the added liquidity for the investors, and it often takes less thme and expense to complete an offering.
C Acquisitions: Making acquisitions with public stock is often easier and less expensive.
C Incentives: Stock options or stock incentives can be useful in attracting management and retaining valuable employees.
C Financial Planning: Public company stock is often easier to use in estate planning for the principals. Public stock can provide a long term exit strategy for the founders.
C Reduced Costs: The costs are significantly less than the costs required for an initial public offering.
C Reduced Time: The time frame requisite to securing public listing is considerably less than that for an IPO.
C Reduced Risk: Additional risk is involved in an IPO in that the IPO may be withdrawn due to an unstable market condition even after most of the up front costs have been expended.
C Reduced Management Time: Traditional IPOs generally require greater attention from senior management.
C Reduced Business Requirements: While an IPO requires a relatively long and stable earnings history, the lack of an earnings history does not normally keep privately held company from completing a reverse merger.
C Reduced Dilution: There is less dilution of ownership control, compared to a traditional IPO.
C Reduced Underwriter Requirements: No underwriter is needed (a significant factor to consider given the difficulty companies face in attracting an investment banking firm to commit to an offering.)
DISADVANTAGES OF BEING PUBLIC EITHER VIA A REVERSE MERGER OR IPO
- may not be current in filings and will need to be brought current
- past operations may have created potential liabilities that can come back to haunt the post merged entity
C Less Confidentiality - complete financial disclosure is required to become publically held.
C More Public Reporting - Reporting expense is greater because of the need for full disclosure.
C Ownership Dilution - Owners give up some equity percent.
C Greater Time Involvement - Management must devote additional time to public company operations.
C Greater Liability - More company visibility brings a higher level of liability exposure.
C Increased Expense - Higher costs of regulatory compliance for audit, legal and investor relations.
PREPARATION FOR A REVERSE MERGER OR PUBLIC SHELL MERGER
C Locate a suitable public shell - Public shells can often be found by consulting with securities law firms or CPA - Audit firms that deal with public companies.
C Important to start with a clean shell - Due diligence on the public shell cannot be over emphasized, advice from your securities counsel, auditors, and a financial consultant should be utilized. Shells have no predecessor entities and little baggage in the way of business failure or other skeletons in the closets.
C Comprehensive Business Plan - Potential investors, public shareholders, auditors, securities counsel, brokers and market makers will want to see a well documented business plan.
C Strong Management Team - Public investors demand a strong management team.
C Convincing Marketing Plan - Public companies need the ability to show good sales and earning growth.
C Produce or Service - Public companies should be able to develop strong or dominant position in their business segment.
C Financial Audits - SEC qualified audited financial statements for your last two fiscal years.
C Experienced Securities Counsel - Your attorney must be qualified to deal with regulatory compliance, and the ongoing reporting requirements of all public companies.
C Have Public Company Experience - Should have at least one person in senior management that has significant public company experience. You will most likely end up with financing consultants as minority shareholders in the new company holding between 2-5%. However, in almost any reverse merger transaction, the principals of the shell company keep a small equity position in the company going forward. Therefore, this surrender of equity is simply a cost of doing business.
C Devise your financing strategy - A reverse merger is an indirect route to raising capital. Entrepreneurs must firs consider how additional capital will be raised after the deal is done.
REQUIREMENTS NECESSARY TO CLOSE A REVERSE MERGER OR PUBLIC SHELL MERGER.
- Business plan of merger partner. Sufficient information to complete and file the required 8K.
- Management information including completion of the "Officer and Director Questionnaire," for all officers and Directors designated by the private company merger partner.
- Agreement on structure and terms of merger.
- Letter of intent with escrow payment made to public company or its principal shareholders. (This must happen for the public company to cease negotiations with other merger prospects.)
- Audited Financial Statement conformed to US, GAAP for the private merger partner. The audit statements of the private company have to be consolidated with the public company’s financial statements.
- Agreed merger fee in escrow with the securities attorney representing the merger partner.
- Consent from the majority, preferably %100, of existing shareholders of the private company to merge or exchange their shares for shares of the public company.
- Agreement for the Officers and Directors of the public shell to be replaced with the officers and directors designated by the private company merger partner.
-
REVERSE MERGER
Reverse merger is a transaction where the private company shareholders may gain control of a public company by merging into it. The private company shareholders receive a substantial majority of the shares of the public company (normally 85%-90%) and the control of the board of directors. It can be accomplished in as little as two weeks resulting in the private company becoming public.
The transactions involves the private and shell company exchanging information on each other, negotiating the merger terms and signing a share exchange agreement. At closing the public shell company issues a substantial majority of its shares and the board control to the shareholders of the private company. The private company shareholders pay for the shell and contribute their private company shares to the shell company and the private company is now public.
Upon completion of the reverse merger, the name of the shell company is usually changed to the name of the private company. It gets a new trading symbol to reflect its name. An information statement (8K) must be filed within 15 days after closing. The 8K describes the newly combined company, stock issued, information of new officers and directors, and financial information. The financial statements must be audited to US GAAP standards and the SEC allows a maximum of 75 days to amend the 8-K with audited financials if necessary.
If the shell company is listed on the Bulletin board, the registered or "free trading" shares can continue to trade. The company can do a private placement immediately. The trade new shares offered by the public the newly combined public company must first register the shares with the SEC. This takes three to four months and normally requires filing a Registration statement with the SEC under Reb. SB-2 or SB-1.
If the shell company does not have a symbol an application for a symbol is usually made to the NASDAQ Bulletin Board. The application for a symbol requires filing a Form 15c211 by a market maker that is a member of the NASD. The Bulletin Board has no financial requirements. A listing will be granted if the affairs of the company are in order and the company answers the questions posed by NASDAQ.
News 
Market Data 
Discover 
AI
