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Presented by Steven M. Plumb, CPA
Proper Dress:Is Your Business Suited to Go
(or Stay) Out in Public
2 © 2012 Clear Financial Solutions, Inc.
Agenda
Introduction Advantages of Going Public Disadvantages of Going Public Methods for Going Public Hard Costs Soft Costs Preparing to Go Public
3 © 2012 Clear Financial Solutions, Inc.
Steven M. Plumb, CPA
30+ years experience (29 as CPA) Former KPMG auditor Public company experience
SEC PIPEs Registration statements
Life science, O & G, IT entrepreneur
© 2012 Clear Financial Solutions, Inc.4
Why choose to “go public”?
Access equity capital for growth. Less dilutive than private sources Founder control maintained/maximized
Exit the business to capture future value. Diversify founders’ individual wealth
(partial). Redirect business interests or retire.
© 2012 Clear Financial Solutions, Inc.5
Are you ready?
Can you produce accurate GAAP financial statements within 15 days of month end?
Do you have adequate and industry standard internal controls in place?
Can you accurately report material events within 4 days of their occurrence?
© 2012 Clear Financial Solutions, Inc.6
Do you have…
Experienced securities lawyer familiar with SEC practice?
Experienced CPAs with public GAAP reporting experience?
Strong controller? Committed management?
7
Going Public Advantages
Access to Capital Liquidity Growth through acquisitions Stock options for execs Expansion of Markets
© 2012 Clear Financial Solutions, Inc.
8
Going Public Disadvantages
Corporate Governance Emphasis on short term results Public disclosure Costs Lawsuit magnet Permanent dilution
© 2012 Clear Financial Solutions, Inc.
9 © 2012 Clear Financial Solutions, Inc.
Methods for Going Public
IPO Expensive investment bank managed process. Requires expertly guided SEC registration. Free trading shares offer flexible capital
access.
APO Reverse merger with “legacy” risk Smaller scale, less expensive.
Acquired by Public Co
10
Access to Capital
Opens up new pools of money Line up funding before going public
APO follow on rounds are difficult Stock performance determines future
funding Requires liquidity so investors can sell
Must have a plan for creating and maintaining liquidity
© 2012 Clear Financial Solutions, Inc.
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Liquidity
Trading volume Driven by results Requires investor relations efforts
Communication with public Developing broad base of investors
Driven by press releases Analyst coverage Expensive
© 2012 Clear Financial Solutions, Inc.
12
Corporate Governance
D & O Insurance Independent directors Director fees Committees of board
Audit Compensation
Regular, documented board meetings
© 2012 Clear Financial Solutions, Inc.
13
Liquidity Challenges
Limited float Concentration of Control of the float Weak analyst coverage Minimal support from market makers Short selling Difficulty depositing shares
© 2012 Clear Financial Solutions, Inc.
14
Hard Costs
Audit fee: $50K to $100K Purchase a shell for an APO: $350K Due diligence and legal: $150K Audit prep work: $25K SOX: $50K minimum All this before you:
Raise a penny of capital File your first report with the SEC
© 2012 Clear Financial Solutions, Inc.
15
Soft Costs
Management must spend time preparing for IPO or APO
Management must spend time preparing regular SEC filings
Board must make decisions with public and SEC looking over shoulder Longer lead time to make decisions More cautious decision making process
© 2012 Clear Financial Solutions, Inc.
16
Ongoing Costs
Quarterly review Audit fees Prep time Legal review
Shareholder communications Web site updates Press releases
Public communications
© 2012 Clear Financial Solutions, Inc.
17
Ongoing costs (cont’d)
Investor awareness Analyst reports Sarbanes-Oxley testing and reporting Additional staff to handle public
reporting requirements
© 2012 Clear Financial Solutions, Inc.
18
As an exit strategy
M & A strategy Acquired by a public company IPO or APO
© 2012 Clear Financial Solutions, Inc.
19
Timeline
Public co must be able to consolidate your results immediately
May require SEC filing Therefore, you must be:
Audited for three years Comply with SOX when you go public Clean financials for previous 12 quarters
Must be prepared three years in advance
© 2012 Clear Financial Solutions, Inc.
20
How we can help
Develop financial reporting systems Prepare SEC reports & filings Compile due diligence Audit prep SOX testing
© 2012 Clear Financial Solutions, Inc.
© 2012 Clear Financial Solutions, Inc.21
Resources
RR Donnelly Guides http://
www.rrdonnelley.com/financial/Resources/Library.asp SEC Reporting Corporate Governance Annual Meeting Guide Others
22 © 2012 Clear Financial Solutions, Inc.
About CFS
Contract CFO & SEC Reporting Key Performance Indicator Analysis Performance Improvement SOX Consulting Strategic Planning Due Diligence Services Audit Preparation Services
23 © 2012 Clear Financial Solutions, Inc.
Contact Info
Steven M. Plumb, CPAwww.clearfinancials.com