A "reverse merger" is a method by which a private company goes public. In a reverse merger, a private company merges with a public company with no assets or liabilities. (The public company is also called a "shell" corporation). The publicly traded corporation is called a "public shell" since all that exists is its corporate structure. By merging into such an entity, a private company becomes public. The private company merges into a public company and obtains the majority of its stock (usually 90% or more). The private company normally will change the name of the public corporation (often to its own name) and will appoint and elect its management and Board of Directors.

The advantages of public trading status, which are outlined in greater detail below, notably include the possibility of commanding a higher price for a later offering of the company's securities. Going public through either a reverse merger or a registered spinoff (described below) allows a private company to go public typically at a lesser cost and with less stock dilution than through an initial public offering (IPO). While the process of going public and raising capital is combined in an IPO, in a registered spinoff or reverse merger these two functions are unbundled; a company can go public without raising additional capital. Through this unbundling operation, the process of going public is simplified greatly.

The private company which has gone public obtains the benefits of public trading of its securities, namely:

• Increased liquidity of the ownership shares of the company
• Higher share price and thus higher company valuation
• Greater access to the capital markets through the possibility of a future stock offering
• The ability of the company to make acquisitions of other companies using the company's stock
• The ability to use stock incentive plans to attract and retain key employees
• Going public can be part of a retirement strategy for business owners

The benefits of going public through a reverse merger, as opposed to an IPO, are the following:

• The costs are significantly less than the costs required for an initial public offering
• The time is considerably less than that for an IPO
• Additional risk is involved in an IPO in that the IPO may be withdrawn due to an unstable market condition even after most of the up-front-costs have been expended
• IPOs generally require greater attention from top management while an IPO requires a relatively long and stable earnings history, the lack of an earnings history does not normally keep a privately-held company from completing a reverse merger
• There is less dilution of ownership control
• The company does not require an underwriter
• You can receive a higher valuation for your company

We assist our clients in evaluating and executing reverse merger. However, we do not perform the securities of a broker/dealer, nor are we in the securities business. Our role is a consulting role for which our compensation can be tailored to include an equity component.

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