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| Public
Shell Companies |
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There is a
strong demand for U.S. public shell companies. By definition these are companies
that are publicly owned but have no existing business operations. There are many
types of public shell companies available, and many pitfalls that need to be avoided, but
properly utilized public shell companies can save private businesses considering
"going public" hundreds of thousands of dollars in costs and months, if not
years, of strategizing when compared to the typical Initial Public Offering (IPO).
There are numerous other benefits to using, or
"reverse merging" into, a public shell company, including gaining quick access
to public capital markets. Stag Financial Group has extensive experience in
the area of public shell companies, including their creation, qualifications, and
acquisition.
The
Reverse Merger Process
There are four key steps to
undertake while conducting a successful reverse merger. These steps
include: the review of client goals and capital structure, identifying a
suitable public shell, the preparation and filing of all necessary and
required documentation, and the transformation into being a publicly
traded company. Click here for
more information on these steps and examples of successful past reverse
mergers.
Types of Public Shell
Companies
There
are numerous types of public shells available. Some are trading, some are
not trading. Some report to the Securities and Exchange Commission while
others remain non-reporting. Some even have cash on hand and are looking
for just the right private operating company to conduct a reverse merger.
Below is a summary of typical public shell vehicles and their usual cost
ranges (Note: all cost estimates assume the public shell has no assets and no
liabilities. Public shells with cash on hand and other assets often
cost many times more than those without such assets. Whereas public shells with
outstanding
liabilities can be purchased for lesser amounts, but come with a long list of
"clean-up" problems. Additionally, private companies with
significant revenues and earnings, or sizeable assets, can often negotiate
a better price.):
| OTC
Bulletin Board |
The most
popular type of public shell for conducting a reverse merger is the
OTC Bulletin Board public shell vehicle. The OTC Bulletin Board is operated by
the National Association of Securities Dealers (NASD) and requires that all companies
whose stock is traded on the OTC Bulletin Board (or Nasdaq or Amex) maintain their current
reporting status with the Securities and Exchange Commission (SEC), which
includes current audited financial statements. OTC
Bulletin Board shells come in various forms and packages, with some
currently trading and some non-trading.
Cost:
(non-trading) $150,000 - $250,000, plus 5 - 20% retained equity
ownership
(trading) $250,000 - $800,000+,
plus 5 - 20% retained equity ownership
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| NQB
Pink Sheets |
"Pink
Sheet", often referred to as "pinks", shell companies
are listed by the National Quotation Bureau (NQB). Neither the NASD nor the
SEC require Pink Sheet companies to maintain current reporting status nor
undertake costly annual audits. Pink
Sheet shell companies also come in various forms and packages,
including some that are currently trading and others that are
non-trading.
Cost:
(non-trading) $50,000 - $150,000, plus 5 - 20% retained equity
ownership
(trading) $100,000 - $200,000,
plus 5 - 20% retained equity ownership
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| Registered Rule 419 "Blank Check" |
A "Blank Check" company is one that
was formed with the sole purpose of becoming a public shell company. Blank Check
companies have no ongoing business activity and have no business purpose except to acquire
and merge with an existing private business wishing to go public quickly. All of Stag
Financial Group's Blank Check companies are fully registered with the Securities and
Exchange Commission (SEC) under Rule 419 of the Securities Act of 1933, as amended.
Blank Check companies are non-trading until after the reverse merger
is completed, and then typically will trade on the OTC Bulletin
Board.
Cost: $150,000 -
$250,000, plus 5 - 20% retained equity ownership
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Nasdaq
Small-Cap,
Nasdaq NMS,
NYSE, and
AMEX |
While the OTC Bulletin Board is an excellent
stock market and the NQB Pink Sheets are gaining a following, some clients are interested in trading on one of the more mature U.S. stock
markets - Nasdaq Small-Cap, Nasdaq NMS, NYSE or AMEX. There are varying levels of
qualification for each exchange including asset levels, number of shareholders, required
Board level committees, and market capitalization. There are also secondary stock
exchanges such as the Boston Stock Exchange and Pacific Stock Exchange. Stag
Financial Group can assess whether your company qualifies for one of these stock exchanges
and, if not, help your company grow and obtain a listing when it does meet the minimum
requirements for such a listing. Typically, though, a client wishing
to trade on one of these exchanges will need a minimum of $20 - 100
million in annual revenue and net profits of at least $2 million
annually.
Cost: $3,000,000
- 100,000,000+, plus 30 - 70% retained equity ownership
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Alternatives to the Reverse
Merger
Stag Financial does not
believe in the theory "one size fits all." This includes
the reverse merger with a public shell company. Reasons can range
from the maturity of a client company, limited financial resources, and
difficulty in finding the "right" public shell company. As
such there are some alternatives to undergoing a reverse merger with a
public shell company yet still "go public." These viable
options include the following:
Stag
Financial's
"Going Public" Turnkey Program |
Stag Financial
has developed a turnkey program especially for small businesses,
including start-ups. The program encompasses each and every
aspect from a strategic review and planning session with the client
company all the way through obtaining a unique trading symbol on the
OTC Bulletin Board. Because the turnkey program uses the
client's own company and not a public shell company there is no
concern over hidden costs or unknown liabilities and unknown
shareholders. This special program has been hailed The
Ultimate "Go Public" Option for Today's Small
Businesses. Limited bridge
funding may be available for the turnkey program clients.
Cost: $75,000
(payable in three installments), plus 10% retained equity ownership
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| Registered
"Spin-Offs" |
A Registered
"Spin-Off" is a quasi-Initial Public Offering (IPO).
Registered Spin-Offs are used by both companies wishing to go public
and companies wishing to enhance shareholder value. In a
registered spin-off, the client company issues a significant block of its
common stock to a publicly traded affiliate company with a large shareholder base.
This public affiliate company then dividends, or "spins-off", a
portion of that stock to its own shareholders thereby creating an immediate base of shareholders for the client
company. Upon registering this stock with the SEC and making all of the subsequent
required filings, the client company's stock can then begin trading under its own trading
symbol, typically on the OTC Bulletin Board.
Cost: $25,000+, plus
30+% retained equity ownership
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