Reverse Merger – The Process, a Detailed Explanation


WEBWIRE – Thursday, October 16, 2008

NEW YORK, October 16, 2008: With ever increasing complexity and cost of going public by way of Initial Public Offerings (IPOs), many companies today are looking for alternative ways of going public. One increasingly popular method for companies looking to go public is a process known as the “Reverse Merger”. According to Going Public, Ltd. (www.gopublicpros.com), “the ‘reverse merger’ is a transaction whereby a company that desires to go public exchanges all of its shares for shares of a public shell company, which is a public company with little or no operations.” We asked Going Public, Ltd. to tell us a little more about the process of going public by reverse merger:

“The first step in completing a reverse merger is to locate a 1934 ‘clean’ Exchange Act United States shell company (the “Public Shell Company”) which has no (or minimal) operations and is listed on the OTC Bulletin Board (“OTCBB”). The Public Shell Company and your Company will enter into a letter of intent indicating the parties preliminary intentions to engage in a reverse merger transaction which will be subject to the satisfactory completion of due diligence by both parties. Thus, you must locate and evaluate an appropriate Public Shell Company based on many factors including the consideration willing to be paid by your Company for the Public Shell Company, the amount of acceptable dilution willing to be endured by the Parent company and the appropriate mix of cash and equity paid to the Public Shell Company owners.”

”The second step is for your Company to enter into a reverse merger transaction through a share exchange with the OTCBB Public Shell Company. Pursuant to the share exchange, your Company will exchange all of its shares of stock for shares of the Public Shell Company. As a result of the share exchange, your Company will become a wholly owned subsidiary of the Pubic Shell Company. The current price of a high quality U.S. public shell company listed on the OTC Bulletin Board typically costs approximately $350,000 to $450,000 or more. The purchase price, as well as, the mix of consideration (i.e. cash vs. equity) typically depends on the type and quality of operating company that will undertake the reverse merger. Specifically, the stronger your Company is (revenues, profits and an operating history), the more willing the seller of the Public Shell Company is to reduce the cash portion of the purchase price and retain more shares of stock.”

“The parties typically schedule a closing date that occurs within one or two months of the execution of the letter of intent. In order to close the reverse merger transaction, your Company must have two years of audited financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), as well as up to date reviewed quarterly statements. These financial statements must be filed in a “Super 8-K” with the SEC within four days of the closing date of the transaction. The “Super 8-K” must include among other things, the terms of the transaction, a description of the operations of your Company and the financial statements. The shareholders of your Company will now control the OTC Bulletin Board company which has its shares quoted on the OTC Bulletin Board.”

“One of the main differences between conventional initial public offerings (IPOs) and the reverse merger is that in an IPO, raising capital and going public are combined, and in a reverse merger, the two functions are separate, and so a broker dealer is not needed. Separating these two functions greatly simplifies the process. Further, going public by reverse merger typically results in substantially less ownership dilution and less cost, than through a conventional initial public offering (IPO). In addition, reverse mergers are less susceptible to market conditions which, if unfavorable, can cause the sponsoring broker dealer to drop the offering altogether. Finally, going public via conventional IPO can easily take more than a year. On the other hand, the entire reverse merger process can be completed inside thirty days.”

Regardless of the method used to go public, it is definitely an exciting and rewarding journey for a private company to make, and one that truly embraces the American dream.

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