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CPA's
Public Accounting Firm | Public Company Audits | Private Company Audits | PCAOB, CPAB, AICPA, SEC audits | Reverse mergers

Reverse Merger Transactions

LBB has extensive experience in the accounting and audit issues inherent with the reverse merger transaction process, having been auditors in over 20 such transactions. We have seen numerous restatements associated with the recording of the recapitalization, so you need experienced auditors for these types of transactions. The Company should anticipate issues related to timing of the audit of the private company, recapitalization accounting, potential re-domiciling, determination of year-end, SOX 404 requirements, interim financial statement requirements, pro-forma presentations, and others.

For your reference, here is an overview of matters which you will need to address in reverse merger or public shell merger transaction:

  • Audited financial statement, conformed to US GAAP for the private merger partner. The audit statements of the private company have to be consolidated with the public company's financial statements.
  • While not required for the 8-K, you should insist on a PCAOB registered form for the audit of the entities which are party to a reverse merger, since later Form 10-K and 10-Q filings will require it.
  • Business plan of merger partner. Sufficient information to complete and file the required 8-K with the SEC.
  • Management information, including completion of the "Officer and Director Questionnaire," for all Officers and Directors designated by the private company merger partner.
  • Agreement on structure and terms of merger.
  • Letter of intent with escrow payment made to public company or its principal shareholders. (This must happen for the public company to cease negotiations with other merger prospects.)
  • Agreed merger fee in escrow with the securities attorney representing the merger partner.
  • Consent from the majority, preferably 100%, of existing shareholders of the private company to merge or exchange their shares for shares of the public company.
  • Agreement for the Officers and Directors of the public shell to be replaced with the Officers and directors designated by the private company merger partner.
  • List of all shareholders in the private company that will make the share exchange.
  • Number of shares to be outstanding “post merger”, and a complete breakdown of share ownership post merger. Note: It is often necessary for the public shell to do a reverse split and/or cancel shares owned by the affiliates of the public share prior to completing the merger.
  • Agreement on state the company will be domiciled in post merger.
  • Satisfaction of warranties and representations between public shell and merger partner.
  • Designation of securities attorneys and SEC qualified auditors that will represent the private merger partner.
  • Preparation of the share exchange agreement, stock purchase agreement, definitive merger agreement, and all other documents necessary to complete the merger.
  • Final preparation of the 8K that is required to be filed with the SEC within 4 days of closing the merger. The 8-K must disclose the same type of information that it would be required to provide in registering a class of securities under the Securities Exchange Act of 1934.
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Certified Public Accountants | Houston, Texas
10260 Westheimer Road, Suite 310 * Houston, Texas 77042
Phone 1.800.859.9945

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