Cost Of Going Public

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.

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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?

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Do you have…

Experienced securities lawyer familiar with SEC practice?

Experienced CPAs with public GAAP reporting experience?

Strong controller? Committed management?

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Going Public Advantages

Access to Capital Liquidity Growth through acquisitions Stock options for execs Expansion of Markets

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Going Public Disadvantages

Corporate Governance Emphasis on short term results Public disclosure Costs Lawsuit magnet Permanent dilution

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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

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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

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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

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Corporate Governance

D & O Insurance Independent directors Director fees Committees of board

Audit Compensation

Regular, documented board meetings

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Liquidity Challenges

Limited float Concentration of Control of the float Weak analyst coverage Minimal support from market makers Short selling Difficulty depositing shares

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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

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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

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Ongoing Costs

Quarterly review Audit fees Prep time Legal review

Shareholder communications Web site updates Press releases

Public communications

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Ongoing costs (cont’d)

Investor awareness Analyst reports Sarbanes-Oxley testing and reporting Additional staff to handle public

reporting requirements

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As an exit strategy

M & A strategy Acquired by a public company IPO or APO

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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

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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

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About CFS

Contract CFO & SEC Reporting Key Performance Indicator Analysis Performance Improvement SOX Consulting Strategic Planning Due Diligence Services Audit Preparation Services

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Contact Info

Steven M. Plumb, CPAwww.clearfinancials.com

steven@clearfinancials.com713.780.0806