Mr. Sumichrast: I got into the investment banking world in the early 1990s. I was one of the founding members of Global Capital Partners, Inc. (GCAP). GCAP owned and operated a full service retail brokerage network in the United States as well as in Central Europe. GCAP did a number of IPOs and secondary financings. GCAP was also involved with reverse mergers, or as some people are now calling them, Alternative Public Financings (APOs). After I left GCAP in 2002, I started Lomond International, Inc., which has focused on the reverse merger business for the past seven years.
TWST: There was a taint on the name of reverse mergers, but now it's being
reborn. Can you tell us why it got this bad reputation and why now it's being
looked at?
Mr. Sumichrast: The reverse merger business has been around for a long time and
it's a business where a shell or non operating publicly listed company acquires
or merges with an operating business and in the process, the operating business
becomes a public company and the shareholders of the operating business become
the shareholders of the public company. There is usually a name change to the
operating company's business. The OTC Bulletin Board or the lesser OTC Pink
Sheets exchanges are where the shells are listed. Unfortunately, there have been
a lot of disreputable characters and the companies that have been used in those
Exchanges. However, over the last decade the regulators have taken a number of
very positive steps to stamp out fraud.
The most important regulation that has been adopted has been the requirement for
the filing of the Super 8-K within a few business days of the merger. In the
Super 8-K, the company must disclose a complete set of two-year historical
financials, complete overview of the company, as well as many other significant
items that an investor would need in order to make a reasonable investment
decision on the company.
I think this prevents a lot of the shenanigans that went on where sham companies
would be put into shells, there would be no reporting on these companies and
therefore investors wouldn't have the ability to see what was going on. I think
that's been a big step in the right direction. I congratulate the regulators for
doing that; they've really done a good job.
The second piece, which I outlined in one of the articles that I wrote for my
blog site www.sumichrastreport.com, is there are virtually no IPOs left any
more. Any IPOs that are being done are in excess of $300 million valuation. For
the smaller company, the IPO world has virtually disappeared. The only way left
to access the public market is the reverse merger and a lot of great companies
out there have been using this process and have been very successful.
In addition, what I have seen over the last two years is that even the mid-sized
to the larger investment banks are getting involved in the reverse merger field.
There is now a new air of credibility to it. The kind of companies that are
seeking reverse mergers and the management teams that are part of these
companies have really increased their luster in the marketplace and, as a
result, it is a common way to go in the financing field.
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