SMALL BUSINESS FINANCING OPPORTUNITY

• Instead of Federal Small Business Loan • Instead of line of Credit A “reverse merger” is a method by which a private company goes public. In a reverse merger, a private company merges with a publicly listed company with no assets or liabilities. The public company is also called a “shell” corporation). The publicly traded corporation is called a “shell” since all that exists of the original company is its corporate shell 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%). 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 new public corporation will have a base of shareholders sufficient to meet the 300 shareholder requirement for admission to quotation on the NASDAQ Small Cap Market.

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 public spin off (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 public spin off or reverse merger (also known as a “blind pool” merger) these two functions are unbundled; a company can go public without requesting additional capital. Through this unbundling operation, the process of going public is simplified greatly.

The private company which has gone public can obtain 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.

- Small amounts of capital can be raised through the sale of treasury stock.

- 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 of the reverse merger are significantly less than the costs required for an initial public offering - The time required for a shell merger 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.

- Less dilution of ownership control Instead of getting a line of credit The registered spin off, also known as a public company spin off, offers yet another method of going public. In a spin off, a privately-held company becomes a public company by issuing shares of its common stock to our existing affiliate company which has a base of shareholders. That stock is then registered with the SEC and distributed to the shareholders of the existing company as a stock dividend distribution. The company's shares are distributed as a dividend to the shareholders of the existing affiliate company. The “dividends” of the stock of the once privately- held company is considered a “spin off” of the private company's shares. Once received by the shareholders, some of these shares begin to be traded, a trading market develops in the stock of the once-private company, and the company is now public.

The public company spin off differs from a reverse merger in the following ways:

- The private company may structure the new public company to meet its particular needs, such as amount and classes of stock, warrants, etc. A merger requires that the private company accept the structure of the existing public company or change it by shareholder vote, including outside shareholders.

- Typically only a small percentage of the private company's shares are distributed as a spin off. This serves to preserve the corporate ownership of the existing shareholders for future financial transactions.

- The spin off serves to prepare the stock market for a secondary public offering later on, which typically occurs at a cost that is much lower than an IPO.

- Principals and shareholders of the private company can include their securities in the registration statement for the stock dividend distribution. This can allow them to then sell their securities in the public market, subject to the volume limitations of Rule 144.

- The private company will not have to be concerned about contingent liabilities, undisclosed stock ownership or other problems of an existing public company, as can occur in a merger unless great care is taken.

- If the private company is an overseas company, it will normally not want to become an American company as it would in a merger into a shell. A stock dividend distribution is a solution to that problem.

- A domestic company may also prefer a stock dividend distribution to a merger with a shell if it wants “custom features” which it does not find in a shell, e.g., two classes of stock owned by shareholders of the private company and/or warrants.

Our banking sources will place from one million up to seventy-five million in assets into a small cap company to enhance the balance sheet and attract investors more readily. We also have a very reliable and available source of lenders to make small business loans once the company have a strong balance sheet to qualify for debt financing.

Dr.Jason Kuruso,MBA,CPA Email: info@fargofinancial.com

Web Site: www.fargofinancial.com

SMALL BUSINESS FINANCING OPPORTUNITY - To learn more about this author, visit Jason Kuruso's Website.

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