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Reverse Mergers – When Private Companies Want to Go Public Quickly

Many people have never heard the term “reverse mergers” before. However, if you are in the corporate or finance world, you surely have because these events are a big deal. What are they? In essence, reverse mergers are what happens when a company that is privately held wants to go public quickly, without having to go through all of the hurdles in which to do so. What happens is that the privately held company acquires or takes over a publicly held company. This process usually means that changes have to be made at the publicly held company, such as reorganization – which is rarely ever good for the current employees of the acquired company.

When reverse mergers happen, the newly acquired publicly held company is called a shell. The reason it is called a shell is because nothing but the barebones of that company continues to exist. Everything that was once “inside” the original company either no longer exists or has changed so drastically that it is no longer recognizable as that acquired company. This shell company is then merged into the private company and the shareholders of that company have control over its stock on the stock market.

As previously mentioned, reverse mergers happen so that a privately held company can become public without having to go through all of the hurdles in which to do so. This is a way for the company to go public quicker – as long as the acquired company is already registered with the SEC to be traded on the stock market. Even so, the privately held company still must submit some documentation pertaining to their financial matters to the SEC immediately after the reverse merger is completed. This is so that, even with the privately held company not having to go through the extensive interviews with the SEC, they are still being held accountable for their business dealings.

There are some benefits to reverse mergers, like being able to have higher priced stock on the exchange. There are also, however, some pitfalls to reverse mergers. For instance, the company that is being acquired is going to have a history of some sort. This history could be good or it could be bad. Either way, you will have to take the bad with the good and work through it. There is also the threat of it coming with some shareholders who are angry about the merger. If this is the case, the acquiring company needs to do whatever it can to placate these shareholders to prevent them from selling out their stock as quickly as possible. That is really the only way that the merger can be a successful one for both companies involved.

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Power Purchase Agreements Explained – What Does It Really Mean?

The terms “power purchase agreements” may be a bit confusing to some. They may conjure up images of executives with a lot of power making purchases. The truth is that power purchase agreements are contracts that two parties have where one party generates the electricity and the other person buys the electricity. To have it explained more simply: the terms are meant literally and not figuratively. The contract specifications vary depending on the electricity source, whether it is solar, wind, hydro, etc. All of the specifications will be spelled out explicitly so that there are no confusions when it comes to what is expected from either party. That is how even the most basic contracts work.

There are several different types of power purchase agreements:

  • Solar Power Purchase Agreements – These contracts are for electricity that comes from the sun. There is a tax credit from the U.S. government that serves as a heavy incentive for people to use solar power as their means of electricity. Those who can benefit from this credit are the ones most likely to seek out these contracts.
  • Wind Power Purchase Agreements – These contracts are for electricity that is generated from wind. They are a little less often seen, but there are some contracts of this nature out there.
  • Federal Power Purchase Agreements – Because of regulations, the US government can’t enter a contract for a longer period of time than 10 years. Most other contracts like this are for at least 15 years.

As with any other type of contract, these agreements are legally binding. Both parties must live up to their end of the bargain or face penalties for breach of contract. This even goes for the contracts with the government. There are a lot of safeguards in place when it comes to government contracts to make it less likely that the government will try go back on what was originally agreed upon when the purchase agreement was drafted.

From a financial standpoint, it is best to view power purchase agreements just like you view regular contracts. Each party agrees to either deliver the service or good while the other party agrees to pay for the service or good for a specified amount of time. Furthermore, neither party can go back on the agreement without having to face some heavy penalties. There you have power purchase agreements explained in its most simplistic way.

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Ponzi Schemes – What Are They and How to Avoid Them

Throughout the years, there have been many times when people have invested their hard earned money into what they thought were sound investments. The person selling the investment was smooth. They made it sound like it was a sure-fire win and that no one involved could possibly lose. As it turned out, there was no investment. The fraudulent person would get money from an investor or two, then when an investor wanted to cash out, they would take money from another investor to pay the other person off. It is a cycle that can keep going until, eventually, too many people want out and the person gets caught. This, my friends, is called ponzi schemes.

Contrary to popular belief, ponzi schemes are no more prevalent today than they were 100 years ago. It is just, now, we have trials exposing the ones behind the ponzi schemes and we make it to where everyone knows about the misdeeds they have done. The easiest solution for investors to avoid these fraudulent investments is to keep on your guard. If an investment sounds too good to be true, chances are it more than likely is too good to be true. Always question an investment when the person trying to sell it to you says that it is a sure win and that there is no way any of you can lose on the investment. That is a red flag right there. With investments, nothing is ever a sure thing. Always remember that.

What do you do if you have already fallen victim to ponzi schemes? If you have already fallen victim to one of these fraudulent investments, there is little to no likelihood of you ever getting all or any of your investment back. In some cases where the person being charged has assets, those assets will be auctioned off and the money received from that will be divided between the investors who haven’t gotten their money back and also used for court costs. However, it is best to just assume that you will not get any money back – that way you will not be disappointed if it does not happen for you.

Probably the best way to avoid ponzi schemes is to always invest in something tangible, like real estate. That way, you know that you have definitely bought a house because you looked at it, read the paperwork and were given the keys for it. However, being told that there is some diamond mine in some other country that is selling shares for $1,000 each with a minimum buy-in of 100,000 shares? Well, that is likely to be a Ponzi scheme and you should steer clear of it at all costs.

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Pink Sheets – What Are They and Why Exactly Are They Called “Pink Sheets”?

To the investing outsider, the words “pink sheets” may conjure up images of bed sheets the color of Pepto-Bismol. However, in regards to the investing community, those two words mean something else entirely.  In reality, the pink sheets are a publication that is published on a daily basis that tells the bid prices and the ask prices of over-the-counter stocks. Over-the-counter stocks, or OTC stocks, are stocks that are not listed or traded on the stock exchange like other stocks are and, thus, do not have to meet any minimum requirements or file with the SEC.

You are probably wondering why these publications are called the pink sheets. The reason they are called such is because the publications were printed on pink paper. This made them stand out and people knew that they were looking at OTC stocks without having to look for an added symbol at the end of the stock name. However, it is rather easy to find a company on the pink sheets because they have the stock symbol “.PK” at the end of their stock name.

The Pink Sheets have several different market tiers:

  • OTCQX – This is the top tier. It is generally reserved for the companies that have met certain financial standards and have had a qualitative review.
  • OTCQB – Companies on this tier provide significant disclosure of their financial information to the public, though not enough to grant them trade on a stock exchange.
  • OTC Pink – The third tier that has absolutely no disclosure or financial requirements at all. The companies themselves decide how much to disclose to the public and investors.
  • Current Information – These are companies that have given information to the Pink Sheets within the past six months.
  • Limited Information – These are the companies that either cannot or will not meet the standards for providing current information to the organization. These companies have let some information be known, but not all.
  • No Information – These companies provide absolutely no disclosure to the public about their business.
  • Caveat Emptor (Buyer Beware) – These companies have a public interest concern associated with them and may have their stocks blocked.

Since the Pink Sheets do not require companies to meet any minimum requirements like the regular stock exchange does, most of the companies that are listed on them are rather small in both size and revenue. Stockbrokers tend to view the Pink Sheets as a list of companies that are very high-risk and all who seek to invest in them should do a lot of research into the company before putting any of their money into it. The way the economy is going, you can never be too careful with your money when you are looking to make investments.

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Off Balance Sheet Financing – What You Need To Know About Off Balance Sheet Financing

Believe it or not, there are certain things that companies can and do leave off of their balance sheets, or statements of financial position. These things are assets in which the company has control over or helps the owner to manage, but they do not have ownership of. Some companies do include these assets on their statement of financial position, but many of them utilize off balance sheet financing for these assets. Generally, this is a perfectly acceptable practice. However, during the whole Enron debacle, this practice became front and center. The problem during that whole thing was that they had set up faulty and improper off balance sheet units.

Needless to say, if a company is going to utilize off balance sheet financing for some of their assets, they had better be careful and very sure that they are reporting everything correctly. One wrong move and they can be part of a huge scandal like Enron turned out to be. So, it is best for the company to fully understand if they are just overseers of an asset for a client or if they actually own the asset themselves. Sometimes, difficult as it may seen, it can be hard to understand just who owns a certain asset based on the legal standards that are in place.

For most companies there are certain times when off balance sheet financing can be used:

  • Research and development – Multiple companies can share the expenses for research and development, thus allowing it to be considered as off the balance sheet.
  • Joint ventures – This is when two or more companies undertake a project together. Each one is usually financially responsible for certain aspects of the venture, so it is not considered to be an asset to one particular company.
  • Operating lease – This is a lease where the company is only required to disclose the expense in regards to using the property or the equipment furnished instead of everything involved in major projects that they undertake.

Companies who use off balance sheet financing really have to be careful how they use it. Since the Enron scandal, these things are looked at more closely and any little red flag will set someone off who is looking at your balance sheets. As long as the separate entity is on the up and up, however, the company who uses off balance sheet financing should be in the clear and will benefit from this type of financing.

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Market to Book Value Explained – It Really Isn’t That Difficult To Understand

When it comes to financial matters like buying and selling stock, there are a lot of things that need to be taken into consideration. One of those things is the market to book value. To put it in its most basic context, book value is based more on historical elements in relation to the company and how it has performed while market value is the actual worth of the company at that point in time on the stock market. While it may sound like a difficult thing to understand, it is really quite simple.

Market to book value is not just a concept reserved for the financial industry. If you own a car, motorcycle, or even collectible items, you are well aware of what market value is versus what book value is. It is just a little different when you transfer the principle over to the financial world. Instead of the book value being determined by an actual book that figures up what a certain item is worth, the company’s value is determined by how good their history is on the performance and financial level. You do not want to buy stock at an inflated price and then find out that the actual book value is much less than the market price you paid. That makes for a lousy investment.

There is an easy way to determine if a stock is worth purchasing when you figure in the market to book value. Basically, once the ratio is figured up, if the number is above one, the stock is undervalued and, if the number is one or below, the stock is overvalued. Market to book value is not an exact science. You can’t look at the ratio number and automatically know that a stock is a good investment or vice versa. It is, however, a good indicator of how things are going for that company and whether or not you should invest your money in them.

Sometimes you just have to trust your instinct when it comes to buying stocks based upon the market to book value. There are some good purchases to be made on stocks that do not have close market to book values. However, you still need to be careful that you do not waste your money on a company that is going to go bankrupt before they can make you a profit. After all, you are only in this game in order to make a profit.

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Management Buy Outs (MBO’s) – The Simple Definition of an MBO

For those who do not know what management buy outs are, the definition is really quite simple: it is when the management of a company buys out a majority of or all of their company. This type of acquisition is more common than you would think. The truth is that it is just like other types of company acquisitions, it is just that instead of the buyers being outsiders, the buyers are those who work for company management. This can actually only work of the company is a privately held company – which it usually is to start with, but if it is not, then the company goes from being publicly held to being privately held in order to continue with the MBO.

Some people feel that management buy outs are unfair to the owners of companies because of the information that the managers gain during their time working for the company. These same people feel that this can help contribute to stock manipulation where the stock prices are unduly increased to make it seem that they are worth more than they actually are. In some respects that could be true, but more than likely it is not true in all cases.

You may be wondering why managers would want to buy out their companies. Again, it is quite simple: to ensure that they will continue to have jobs. The way the economy is going, financial and business executives do not truly know from one day to the next if their company is going to end up letting them go. However, if they do management buy outs, they will know for sure that they have a job. MBO’s also allow the managers to reap more of the profits that they earn the company instead of only getting a small return on all of the time and energy they invest into their work. It is easy to see the appeal of MBO’s in this respect.

There are different ways in which management buy outs can be financed. They can financed through seller financing where the owner of the company extends the loan for them to buy it out, debt financing where the management goes to a bank and gets a loan, or private equity financing which is where the management will go to private investors in order to fund the MBO when they can’t get a bank loan. Whatever way the MBO is financed, the management has to be confident that they can pay the loan funds back. Otherwise, they will end up losing their jobs in the end anyway.

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Junk Bonds – Not Exactly Bonds That Are Meant for the Junkyard

When you hear the words “junk bonds,” you probably get the mental picture of a junkyard full of bonds that are pretty much worthless. This, however, could not be further from the truth. Junk bonds are essentially bonds that are financed to companies that pay out high interest to the issuer. The reason these pay out high interest is because the companies have no other choice but to get these high-interest bonds because of their less than stellar credit rating. Who knew that credit ratings also affected companies and not just people? It is definitely food for thought.

Of course, with poor credit ratings comes a lot of risk in loaning the companies any amount of money. People who deal in junk bonds are, in a way, playing Russian roulette with their money. There is a chance that they will see a return on their investment, but there is also a good chance that they will never see all of their initial investment again. Even if the company has to file bankruptcy and liquid all of its assets, the person holding the junk bond could still not get back everything that is owed to them. For that very reason, it is important to know exactly what you are getting into before getting involved in this type of investment trade.

The main benefit to dealing with junk bonds is that it allows you to have a diversified investment portfolio. It is important to have a diversified investment portfolio because you do not want all of your eggs, or money, in one basket so to speak. However, you need to keep the risks of these junk bonds in the forefront of your mind. Do not just buy every single one that you can get your hands on. This type of investment requires more research and analysis than other types of investment – even more than simply buying stocks on the stock exchange.

As long as you keep in mind all of the risks involved with junk bonds and you do all of your research, you should be fine when it comes to getting these types of investments. Never go into any investment with your eyes closed, but this is especially true for junk bonds. The more you know about a company you thinking about investing in – no matter how you plan to make that investment – the better off you will be in the long run.

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Investing in Solar Energy – Why Solar Energy Investment Could Be Right for You

Every savvy investor these days is looking for something new to invest their money in. E-companies are old news, so it is time to think towards the future and what different types of investment opportunities it will provide. Well, look no further than investing in solar energy. Solar energy is energy that is harnessed from the sun. In today’s eco-minded society, more and more people are starting to utilize solar energy, so it only makes sense for people to start investing their money in it. Considering how popular it is right now, it is only going to get more popular so it is best to strike while the iron is hot, so to speak.

The reason that investing in solar energy makes such perfect sense for people looking to make a good investment is that, well to be simplistic about it, the sun is not going anywhere anytime soon. It is not as if one day in the near future, the sun will no longer be there and no one will be able to utilize solar energy any longer. As long as the sun is around, this is always going to be a safe investment to make – even if not everyone jumps on board and participates in this type of energy utilization.

One might think that investing in solar energy is pretty much risk-free. Well, not exactly. As with any investment, there will always be certain risks to investing – even in eco-friendly energy sources. For one thing, the solar energy industry may not grow as quickly as is being projected. If it does not grow very quickly, then you will not see as great of a return on your investment very quickly. It could take years for you to see the return numbers that you are expecting. So just keep that in mind when seeking to invest in this energy source.

Keep in mind that investing in solar energy is a somewhat new thing. Do not expect overnight returns as you would with other company types. This is the type of investment that you make more for what the long-term future can bring you with your investment. There will likely always be a market for solar energy so you can feel safe investing in this market. Just be sure to stay up-to-date on everything that is going on with this market and your portfolio so there will be no undue surprises for you when you go to sell off your stock.

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Investing in Real Estate – The Real Deal for Your Investment Dollar

Everyone knows that investing in real estate can be a solid way to turn a profit. Of course, this all depends on the way the housing market is going. If the housing market is flooded with more houses than there are buyers, then some people think that means it is not good to invest in it. This, however, could not be further from the truth. Honestly, it is always good to have real estate. This is a good asset to have. Not only does it increase your net worth, but it also can provide a steady cash flow if you rent out the houses you own.

Thanks to television shows on cable channels, people are constantly looking to buy houses that are run down for cheap so they can fix them up and sell them for a massive profit. There are many people who have made good money by doing this. Of course, you generally must have the money to not only buy the house outright, but also to fix it up. Therefore, this idea does not work for everyone. However, in today’s economy, it can be quite difficult to make a profit when you fix up run down houses and sell them. Not many people can afford the home loans once you figure in the cost of all the changes you make to the house. So, if you are going to do this, you should probably go with good quality fixtures and appliances, but not the most expensive ones. That way, you will be better able to sell the house.

If you want to hold on to a property as a long term real estate investment, then you can look at renting the property out. Not only does this ensure that you get to keep the house and property, but it will also give you a steady income coming in. Even if you figure in a mortgage payment and property taxes, you can still make a fairly good living off of buying houses and renting them out. As long as you choose renters who have a good renting history, this method should work out just fine for you.

When you are trying to decide if investing in real estate is the right thing for you, you need to keep in mind if your intentions are to sell the property or rent it out. That has a major impact on whether or not you should take the gamble on the investment. The buy and sell real estate market can be iffy on even a good day, but people are always looking to rent a home, so you can never go wrong there.

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