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What Is Reverse Merger, And Is It For Everyone? Part 2
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Author: Joseph Quinones
Topic: Business
Viewed: 42 time(s)
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Many Reverse Mergers have been successful when done properly
that is why I never consent to doing one without providing the
company with the possible problems that can arise and how to
deal with them. I also provide the client with the alternatives
to Reverse Merger, such as Regulation D Offering, Direct Public
Offering and private placement. One way to make sure that the
Reverse merger is going to work is to buy one hundred per cent
of the shares owned by the shell owner, but this is not a
guarantee because there could be shares unaccounted for. Proper
due diligence is a must, and you must be immune to smooth
talking salesmen.An alternative to a Reverse Merger is a Direct
Public Offering, DPO. Direct Public Offerings are increasing in
popularity since the shell prices are skyrocketing and companies
are becoming aware of the problems associated with Reverse
mergers. And if a company is trying to obtain financing Direct
Public Offerings are preferable to a venture capital investment,
venture capital firms demand a large portion of the company and
will not be passive investors. Venture capital investors will be
very involved with the company and will make demands that can be
detrimental to the company?s success, they may not give you
enough time to put your business plan in place. An IPO is
probably out of the question because you must convince an
underwriter that your company is the next Microsoft, or you will
have a difficult time getting someone to do the IPO for you. An
IPO is more expensive and time consuming and will take the
decision making out of your hands place it in the underwriters
hands. A DPO is targeted to affinity groups such as employees,
suppliers, distributors and customers. These groups usually are
familiar with the company and are loyal to it. DPO?s are
registered securities offerings that allow you to market the
securities directly to the public. The Internet can be use to
market the securities but if your website doesn?t have a lot of
traffic nobody will know about your stock offering. So that
leaves affinity groups as your best source of funding, unless
you are a google and the investors are looking for you. As the
large corporations continue to reduce their work force and are
leaving a lot of talented people with the option of an
unemployment check or starting their on business, we find that a
lot of the job creation is being left to small businesses. These
small businesses must find capital in order to expand or to fill
order, small business have created over 20 million jobs over the
last 15 years while big business has been cutting them. If this
creative force had the capital they could propel the economy to
unheard of levels. DPO?s fall under ?SCOR? small corporate
registration and are for companies doing under $25 million in
revenues and have a capitalization (share market value) of less
than $25 million dollars. By doing a Direct Public Offering you
are raising capital that will not be costing you monthly
interest payment, and is a permanent source of funding. You will
not have to give a large portion of the company to investors, a
venture capitalist will demand a disproportionate Amount.
Private funding is always more expensive in terms of equity and
control. As a public company you can better negotiate future
financing requirements, and use the company stock for
acquisitions. In a DPO filing you only need 2 years of audited
financial as compare to 3 years for other filings. All this
sounds easy but in reality it isn?t you need somebody with
experience to hold your hand and guide you through the process.
You must make sure that you are ready for the commitment and are
prepare to devote the required time to this endeavor. Talk to
your affinity groups about the possibility of investing in your
company, this will give you an idea as to who is a potential
investor. Keep updated records of your customers and friends in
the community who may be contacted later on. It may become
necessary to purchase a mailing list, if you are medical product
company or laboratory you would know some of the Doctors in your
community but not all of them. Stay in the planning mode and
take necessary step while you are preparing for your DPO, such
as having one year of financials audited and having a business
plan prepared and printed, so that you don?t have to incur all
the expenses at once. Give us a call so that we can start
planning together, the more prepare you are the less you will
have to rush later, everyone everything done yesterday but the
process takes time. Regulation D Offerings: This rule provides
an exemption from the registration requirements of section 5 of
the Securities Act of 1933. Such transactions are not exempt
from the antifraud civil liability, or other provisions of the
federal securities laws. (See my article on Regulation D (504)
offering. Nothing in these rules obviates the need to comply
with any applicable state law relating to the offer and sale of
securities. Rule 506: Provides an exemption for limited offers
and sales without regard to the dollar amount of the offering.
This offer does not limit the number of accredited investors,
but the nonaccredited investors is limited to 35. for a
description of accredited and nonaccredited investors see my
article on Regulation D (504) offering. Rule 505: Offerings may
not exceed $5,000.000.00 less the total dollar amount of
securities sold during the preceding 12 months period under rule
504 or 505. This exemption limits the number of nonaccredited
investors to 35 but has no investor sophistication standards.
Rule 504: Offerings allows business to raise a maximum of
$1,000,000.00 in a twelve month period, under Rule 504, Rule 505
or section 3 of the act a business can raise only $500,000.00 by
the sale of securities to persons residing in the states of
Montana and Alaska, which have no disclosure law. In states that
have disclosure laws companies can raise up to $1,000,000,.00.
Rule 504 has no prescribed disclosure requirements, no limit on
the number of purchasers. Offering under Rule 504 are relatively
simple to prepare, which reduces the cost and delay and does not
require an underwriter. For additional Information Please visit:
www.genesiscorporateadvisors.com For questions email:
josephquinones@genesiscorporateadvisors.com
About the author:
Joseph 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 generated millions in
revenues.
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