Reverse Mergers & Low Float Plays

[Potse]

NewJerichoMan...legacy share valuation.....

Quick aside, I'm trying to understand why you are taking legacy shares into account when evaluating the market cap. Could you explain why one would analyze one's DCA in this manner?

Legacy share count/valuation is something that I find very useful when I am analyzing shells and reverse mergers. I think it is a very quick and (more importantly) a pretty effective way to compare various shells/RMs and identify potentially good value opportunities.

Let me stress this: It is just a quantitative look at a shell/RM and should always be used in conjunction with other quantitative/qualitative analysis. I consider shell/RM investing to be a combination of "art and science", so I don't completely rely on legacy share valuation when I make buy/sell decisions. Sometimes just going with a "gut feeling" on a particular play will prove to be a far better approach than basing investment decisions on the result of numbers you have punched into a calculator.

The shell/RM market is filled with wildly different share structures, prices and market caps. What I have found is that legacy share valuation helps me basically filter out a lot of that noise and get a more clear picture. Not only does it help me identify potentially good entry/accumulation opportunities, but I can also use it to help me guess/predict a price range that a shell/RM might have a realistic chance of reaching.

Some very general observations I have on legacy share valuation: Optimal risk/reward for entry/accumulation on shells usually seems to be at legacy valuations around $1M (or preferably lower). Bull market conditions can change that rule of thumb higher but generally I figure I have a good chance of making some decent money if I can build a position at that kind of valuation. Reasonably good reverse mergers will often see the legacy share valuations reach a minimum of somewhere in the $3-10M range.

The ADMG shell might turn out to be a good example of how important legacy share valuation (and luck) can be to investing success. My cost basis is higher than I would normally like because some of my accumulation occurred at a time when OTC Market conditions were more favorable. After I started accumulating, a person purchased control of the shell. Because he has some history of selling some or all of his shell positions to the incoming RM targets, that could significantly improve the legacy share count/valuation in my favor. The legacy share count could end up being less than 4.5M shares if he sold his entire position to the RM target. Instead of owning a position in ADMG at a legacy share valuation over $1.9M, there is an outside possibility the legacy valuation at my cost basis might end up being well under $600K.....

But focusing on the current numbers/valuation, the upside potential from this 5-cent level is pretty hard for me to ignore. Using the full 16M shares as a legacy base number gives ADMG around an $800K legacy valuation at the current 5 cents. There usually is the potential for decent money to be made when you can buy a relatively attractive shell at a legacy valuation under $1M. What makes ADMG even more interesting/attractive to me is the possibility of Eastland selling some or all of his position to the RM target. In that best-case scenario, ADMG's legacy valuation at 5 cents could be under $220K.

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Regarding FWFW: If the reverse merger gets officially completed and I am correct in the legacy share count being under 1.6M shares, I think FWFW would have a pretty decent chance of seeing at least $3-5M on those legacy shares. So I am semi-expecting to get at least $2-3 on my position.