HOW TO VALUE A SHELL STOCK

Major Considerations

• VERIFIED SHELL STOCK LOOKING FOR AN ACQUISITION: it should be actively looking for a reverse merger.  Verification can come from SEC reports, news releases, or verbally from company management.
• EXPERIENCED MANAGEMENT: management must understand the mechanics of a reverse merger and know a good business opportunity.  If management is not experienced, it is imperative they are working with an experienced consultant.
• SEC REPORTING: it must report regularly to the SEC.  This is known as a "reporting company."  We want to be able to verify information about the company from public/legal filings . . . not by word of mouth or rumor.  Believe it or not, there are public companies that are non-reporting.
• CLEAN: it has little or no debt, no pending law suites, and little or no outstanding convertible securities (preferred stock or warrants).  We don't want anything that can complicate the reverse merger.
• SMALL NUMBER OF OUTSTANDING SHARES: the smaller the number of outstanding shares, the better.  A smaller number of outstanding shares lessens the chance of a Reverse Stock Split.  A Reverse Stock Split can lessen the chance of price appreciation.
• LOW MARKET VALUE: basically, this is the buy low sell high rule.  A Shell Stock with a low Market Value will have a greater chance of price appreciation than one with a high Market Value.  (Market Value = price X shares outstanding).  NOTE: the Profile List by Market Value sorts the Shell Companies from low to high Market Value.
• CASH ON HAND: some Shell Companies have cash remaining from their previous business endeavors.  Having cash to fund the new company's business plan will attract high quality candidates.

Minor Considerations

• TAX LOSS CARRY FORWARD: the new company can offset future net income with the Shell Stock's Tax Loss Carry Forward (but may be limited in amount due to IRS change of control stipulations).
• EXCHANGE LISTED: it is better for the Shell Stock to be listed on a stock exchange (NYSE, AMSE, NASDAQ, OTCBB).  But, there are some quality Shell Companies that are trading on the Pink Sheets.

Indicators of a possible Reverse Merger

• INCREASED VOLUME/PRICE: increased volume and price with no news may be an indicator of a potential reverse merger.  Information on a reverse merger sometimes leaks out and insiders/family/friends start buying before the reverse merger is announced.
• CORPORATE ACTIVITY: cleaning up debts, law suits, and issuing reverse splits can indicate management is getting the shell company ready for a reverse merger.