The article below on Reverse Merger rules is worth a read. It is the most informative Reverse Merger article I have read. I'll emphasis the key points.
In order to forego the one year "seasoning period" on the OTC and uplist to Nasdaq the company needs a "firm commitment underwriting" or it needs 4 Annual Reports with audited financials.
Since we don't have 4 years of audited financials, JB&ZJMY will need a firm commitment underwriting from an investment bank in order to avoid the 1 year waiting period on the OTC (more on firm commitment underwriting below article).
SEC Moves Forward and Approves Tougher Listing Standards for Reverse Merger Companies
The rule making follows many months (even years) of SEC analysis of reverse merger companies and warnings to investors regarding what the SEC considers significant risk in investing in these entities, including a June 2011 SEC Investor Bulletin about investing in companies that enter U.S. securities markets through reverse mergers. Those risks include the company’s failure or struggle to remain viable following a reverse merger, fraud and other abuses, and, with respect to foreign companies in particular, the use of smaller U.S. auditing firms which are unable to identify non-compliance with the relevant accounting standards. The New Reverse Merger Rules look to curb some of those risks by giving investors a better opportunity to assess the reverse merger company prior to investing in it.
A reverse mergeris a transaction in which a private company (either U.S. or foreign) is acquired by an existing public “shell company.” Via the merger, the private operating company is able to “go public” by merging into the public shell, giving the operating company stockholders equity in the shell company, and thereby providing theoretical access to funding in the U.S. capital markets (unlike public companies which have a deeper potential funding pool from their access to public investors, private companies generally have much more limited access from private forms of equity).Additional attractions of the reverse merger are that it is quicker and cheaper than a standard initial public offering, with lower legal and accounting fees and no registration required under the Securities Act of 1933.The shell company is a public reporting company with minimal or no operations, while the private company is an actual operating company.The private company shareholders typically exchange their private company shares for a majority of the shell company shares – enough to gain a controlling interest in the voting power and outstanding public shell company shares. In addition, generally, the board of directors and management of the public company are supplanted by that of the private operating company. Finally, the assets and business operations of the post-merger surviving public company are primarily, if not solely, those of the former private operating company.
Investors can find reverse merger companies listed on different exchanges and can buy and sell their shares, just like those of other operating companies. However, the SEC has been concerned about the inability of investors, auditors and regulators to obtain reliable information from reverse merger companies, particularly those based overseas. As a result of such concern, the SEC has taken a number of steps to better regulate reverse merger companies and to provide investors with less risk and more information when making an investment decision in a reverse merger company.
The New Reverse Merger Rules, in particular, work to increase the time investors have to analyze the reverse merger company, as well as the amount of company information and trading history available to an investor, prior to investing. The New Rules raise the standards the reverse merger company needs to satisfy before being eligible for listing on a U.S. exchange. Under the New Reverse Merger Rules, a post-reverse merger company will be prohibited from applying to list on NYSE, NYSE Amex or NASDAQ until:
The company has completed a one-year “seasoning period” by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange following the reverse merger, and filed all required reports with the SEC, including audited financial statements; and
The company maintains the requisite minimum share price for a sustained period, and for at least 30 of the 60 trading days, immediately prior to its listing application and the exchange’s decision to list.
However, if the post-reverse merger company is listing in connection with a substantial firm commitment underwritten public offering, or if the reverse merger was effected at a date where at least four annual reports with audited financial information have been filed with the SEC prior to its listing, then, in general, the reverse merger company would be exempt from these special requirements.
Clearly, the SEC is taking their concerns over reverse mergers seriously, particularly those companies with overseas operations. In the summer of 2010, the SEC launched an initiative to determine whether certain companies with foreign operations – including those that were the product of reverse mergers – were accurately reporting their financial results, and to assess the quality of the audits conducted of these companies. Since that time, the SEC and U.S. exchanges have suspended or halted trading in numerous companies based overseas citing a lack of current and accurate information about the firms and their finances, including companies that were formed by reverse mergers. In addition, this year, the SEC has revoked the securities registration of several reverse merger companies due to a failure to make required periodic filings which normally contain material information for investors, and there have been a number of enforcement actions involving reverse merger companies based on issues related to (i) the accuracy and completeness of information contained in public filings; (ii) failure to properly disclose auditor, legal counsel and director resignations; (iii) failure to disclose the lack of the required review of interim financial statements by an independent public accountant; (iv) questions regarding the size of operations and number of employees, material customer contracts, and the existence of two separate and materially different sets of corporate books and accounts; (v) failure to file certain periodic reports with the SEC.
The New Reverse Merger Rules should help the SEC, as well as investors and companies considering reverse merger transactions (or those which have already effected reverse merger transactions), to avoid the disclosure and filing issues that have resulted in the enforcement actions and de-registrations mentioned above. In addition, those companies looking to access the U.S. public markets via a reverse merger transaction should pay particular attention to the New Reverse Merger Rules and plan accordingly.
ABOUT THE AUTHOR: Craig Tzvi Gherman Craig Tzvi Gherman is a member of the Corporate & Securities Practice Groups at Schwell Wimpfheimer & Associates. His clients range from individuals and start-ups to Fortune 500 public companies. His practice focuses on public and private company stock and asset based acquisitions and sales, mergers, tender offers, joint ventures and corporate governance/Sarbanes-Oxley compliance.
An underwriting in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares. Also known as bought deal.
From Wiki:
Bought Deal
A bought deal is one form of financial arrangement often associated with an Initial Public Offering. It occurs when an underwriter, such as an investment bank or a syndicate, purchases securities from an issuer before a preliminary prospectus is filed. The investment bank (or underwriter) acts as principal rather than agent and thus actually "goes long" in the security. The bank negotiates a price with the issuer (usually at a discount to the current market price, if applicable).
From Investopedia:
What is a 'Firm Commitment' A firm commitment is a lending institution's promise to enter into a loan agreement with a specific entity within a certain period of time.
2. An underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public at the price specified.
BREAKING DOWN 'Firm Commitment' 1. The lender specifies the terms that that must be met in order for the loan to be processed. Also known as a "standby loan commitment".
2. In a firm commitment, underwriters act dealers and are responsible for any unsold inventory. The dealer profits from the spread between the purchase price and the public offering price. Also known as a "firm commitment underwriting".
