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Q2 By The Numbers – An Analysis of Market

First, I’d like to give credit to The DealFlow Report which was my initial source for the numerical factual information in this blog.


The Numbers and Facts

Q2 reflects the uncertainty that goes along with an election year and the concerns over tax increases (or decreases) that go along with election years.  There also remains the ongoing worry over European markets.  In short, it is a time of change and uncertainty.  Moreover, according to Adam Lyon, a managing director and co-head of private capital at Conaccord Genuity, the small cap financing market, “is probably in for the usual seasonal fluctuations: a tough summer followed by a pick-up in late August and September.”  I note that my law firm has seen this trend consistently for the past decade.

According to data from Dealogic, the number of IPO’s dropped by 41.4% in Q2, however, mainly as a result of the facebook IPO, the dollar value of those IPO’s rose by 56.4%.  Similarly the number of PIPE’s dropped by 11.3% but the dollar value rose by 13.9%.  The small-cap Russell 2000 Index dropped by 3.83% and Standard & Poor’s 500 went down 3.12%.  There were 282 PIPE’s, 129 secondary and 34 IPO’s in Q2.  The PIPE figure however, per DealFlow, excludes deals that raised less than $1 million.  In the PIPE market, ATM’s (at the market offerings) continue to gain in popularity, with 40 new ATM’s being announced in Q2.


Reverse Mergers

The reverse merger market continues to perform poorly.  Only 27 deals were completed in Q2, which per Dealflow, is the smallest number since Q3 2004.  There are many reasons for this, all of which have been the topic of previous blogs.  In May, the Securities and Exchange Commission (SEC) suspended the trading in 379 dormant shell companies.  That was the most trading suspensions in a single day in the history of the SEC.  The trading suspensions were part of an SEC initiative tabbed Operation Shell-Expel by the SEC’s Microcap Fraud Working Group.  Each of the companies was a dormant shell that was lacking any and all public disclosures.  That is, each of the companies failed to have adequate current public information available either through the news service on OTC Markets or filed with the SEC via EDGAR.

Other factors affecting the reverse merger market include the numerous fraud allegations against Chinese companies; prohibitions and restrictions on the use of Rule 144 for a company that was ever a shell; difficulties clearing penny stocks with broker dealers and clearing firms; and DTC chills and global locks.


On the Upside – Emerging Growth Companies

One thing that I believe, and that seems universally accepted, is that the JOBS Act is helping the small cap finance market.  In fact, the current strategy has been accelerated and confidential filings, which became possible with the passage of the JOBS Act, and in particular the provisions related to emerging growth companies (EGC).  The pertinent provisions that are driving EGC’s to market are: (i) an EGC only needs to provide two years of audited financial statements instead of the now required three years; (ii) EGC’s can report executive compensation as a small business and will not be required to obtain shareholder approval for executive officer compensation; (iii) no SOX Section 404 internal control over financial reporting audit requirements; (iv) relief from compliance with new US GAAP accounting requirements; (v) confidential submittal, review and treatment of IPO registration statements with the SEC until just 21 days prior to commencing a road show; (vi) elimination of restrictions on publishing analyst research and communications while IPO’s are underway; (vii) permitting EGC’s to test the waters by communicating with qualified investors regarding interest in the offering; and (viii) waiving conflict of interest restrictions on three way communications between research analysts, investment bankers and company management.

Personally, I am extremely optimistic about Q1 andQ2 of 2013, following both the inauguration and implementation of the Crowdfunding Act.


The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the over the counter market including the OTCBB and OTCQB. For almost two decades Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to crowdfunding, registration statements, PIPE transactions, private placements, reverse mergers, and compliance with the reporting requirements of the Securities Exchange Act of 1934 including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SRO’s such as FINRA and DTC for corporate changes such as name changes, reverse and forward splits and change of domicile.

© Legal & Compliance, LLC 2012

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