Visionary Equity Group

It may not be as exciting or glamorous as an Initial Public Offering (IPO) but, the end results can be as effective and often more rewarding.

There are basically two distinctly different types of "public" shell companies being used to do reverse mergers: "Trading and Reporting" corporations and "Virgin" corporations.

"Trading and Reporting" shell corporations once held an active business. For any number of reasons the business has either ceased to exist or is in a dormant state. It had filed a FORM 10 with the S.E.C. and usually completed an IPO. At its peak, the company's stock was traded on the OTC:BB or the Nasdaq National Market.

The perception is that these shell corporations can be used to circumvent the S.E.C. reporting requirements and enable the new owners to immediately begin offering and trading their stock on the open market. Unless the shell is bought in bankruptcy, all issued shares acquired through a merger are restricted under Rule 144. To initiate a registered secondary offering, the company is required to submit a complete FORM S-4 disclosure of all business activities to bring the S.E.C. information up to date, regardless of the implied trading status of the shell's stock.

Another area to examine closely is the actual condition of the corporation. Why are they out of business? Are there any hidden problems? Angry employees, upset investors, product litigation, even inconsistencies in prior financial reporting can cause serious legal or SEC problems when they arise later.

"Virgin" shell corporations are created through a standard reorganization process. They are not "spin-off" corporations. When acquired they have no assets and no liabilities. "Virgin" corporations are inactive and non-reporting. They qualify as widely held public corporations because they have a bona fide shareholder pool of over 300 individuals and a public float of over 500,000 shares.

A properly created "Virgin" shell corporation provides a wide variety of options that the "Trading and Reporting" shells can't. Only non-reporting corporations can raise capital under any of the SEC Regulation D offerings. They can also be used by foreign companies to raise capital offshore under the Regulation S offering. They can be listed on the National Quotation Bureau - Pink Sheets without becoming a reporting company. This requires the services of a market maker who will file a FORM 211 with the NASD OTC Compliance Unit. This OTC service is Internet assessable at www.pinksheets.com.

A full registered secondary offering can also be done using a "Virgin" shell corporation by filing a FORM 10SB with the SEC and creating a Stock Offering Memorandum. As you can see, the work required to fully utilize either type of shell corporation is essentially the same. The "Virgin" shell is more flexible, often cleaner and definitely a less expensive way to take your company public.

Non-reporting public corporations, with less than $25 million in revenues, can raise up to $1 million in "seed money" annually - without registering the offering using a 504 exemption. Or, they can raise up to $5M using a 505 offering.

A public corporation can undertake a fully registered "follow-on" or "secondary" offering, of any size, at any time, by filing the appropriate documents with the SEC and securing the services of a couple of market makers / brokers.

Once a market value is established for your stock you can use these securities to capitalize other acquisitions or as collateral on loans or lines of credit.

Venture capital groups who underwrite offerings have two exit strategies: drive the business to a major IPO; or, sell it off to a larger corporation. Either one will generate maximum ROI and that's what they're in it for.

Using a shell corporation and a reverse merger strategy puts the control of the entire process into your hands. You decide where, when and how things will be done. Few owners consider the effect that the loss of primary equity and decision-making control will have on their business when they work with an underwriter to do an IPO. The first job of an underwriting company is to protect their profits and their institutional client's investments. Remember, you'll only do one IPO, the underwriters may be doing one each week.

The cost of acquiring a shell corporation can range from $100K to $200K. Completing the merger could add an additional $40K or more. Time frame is 3-4 months – or less. Based on doing a below average IPO of $10 million the costs to implement will be about 10% of the offering. About 50 to 70% of this is out-of-pocket. The average time frame for completion is 14-18 months or longer.

Nearly half of the companies trading on a small cap exchange went public by way of a reverse merger.
Most private companies that go public by way of a reverse merger experience higher evaluations once public.
Most private companies have an easier time raising capital after going public due to shareholder liquidity and reporting requirements.
Ted Turner did a reverse merger with Rice Broadcasting Inc. which became Turner Broadcasting Inc.
Blockbuster Video went public by way of a reverse merger.

The OTC Bulletin Board (OTC:BB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. An OTC equity security generally is any equity that is not listed or traded on NASDAQ or a national securities exchange. OTC:BB securities include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts and Direct Participation Programs.

The OTC:BB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The NASDAQ Stock Market. There are no minimum quantitative standards which must be met by an issuer for its securities to be quoted on the OTC:BB; however, the new eligibility rules limits quotations on the OTC:BB to the securities of issuers that are current in their reports filed with the SEC and other regulatory authorities. Issuers do not have any filing or reporting requirements with The NASDAQ Stock Market, Inc., or the NASD. Market Makers will be required to provide the periodic financial reports filed by OTC:BB issuers with the SEC or other regulatory authorities pursuant to the eligibility rule.

NASDAQ has no business relationship with the issuers of securities quoted on the OTC:BB. Investors must contact a broker/dealer to trade OTC:BB securities. Investors do not have direct access to the OTC:BB service. The Securities and Exchange Commission's (SEC's) Order-Handling Rules which apply to NASDAQ-listed securities do not apply to OTC:BB securities.

Quarterly and Annual financial information, as well as other company information is filed with the SEC by all OTC:BB issuers. OTC:BB issuers information can be viewed at the SEC's website at www.sec.gov.

OTC:BB companies can merge with private companies by way of a share exchange. This process is called a "Reverse Merger."

The Pink Sheets is a centralized quotation service that collects and publishes market maker quotes for OTC securities in real time. Companies that trade on the Pink Sheet exchange do not have to report to the SEC or any other regulatory body. The Pink Sheet exchange does not list bid and ask prices of securities.

The Pink Sheet exchange hosts a website that provides price quotes, financial news and information about OTC companies to investors. Designed to democratize information on OTC companies and OTC markets, pinksheets.com offers free quotes with a fifteen-minute delay.

The mission of the Pink Sheets is to create greater transparency in the OTC markets, by using state-of-the-art Internet technology to give investors the information they need to make informed investment decisions. The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by OTC market makers and company information is provided by the OTC companies.

OTC, or "Over The Counter," securities are issued by companies that either choose not to, or are unable to, meet the standards for listing on the NASDAQ or a stock exchange. OTC equity securities can be quoted on the Pink Sheets Electronic Quotation Service, or, if the companies are SEC reporting, on the NASD OTC Bulletin Board Service.

The OTC market presents investment opportunities for intelligent, informed investors, but also has a high degree of risk. Many OTC issuers are small companies with limited operating histories or are economically distressed.

Visionary Equity Group has no fiduciary or management connection with any of their shell clients once the sale and transfer of any shell corporation is complete.