Going Public

Rhodes Holdings LLC provides merchant banking services for small- to mid-capitalization businesses that want to ready themselves for continued growth. These businesses can be private, publicly traded or those who would entertain “going public” as a means of achieving their business goals.  We believe in repeatable processes wherein our best practices, gained by our principals over their business careers, are used in an open and documented manner.

Phase 1 – Retain

This phase allows the client and one of our consultants to determine if services to render and parameters for engagement will be mutually satisfactory before investing a great deal of time and effort into our relationship.

  1. Initial contact with potential client

    Determine client adherence to our client requirements ($2M+ revenue with 10%+ EBITDA or any revenue with $200,000+ annual profit) and if we provide services that can help the client.  Start-up financing will only be provided or reviewed on a paid consulting basis. Normally this will be done over a series of meetings or meals with majority owners of the business.

  2. Mutual Non-Disclosure Agreement (N/D/A)

    Our clients’ non public information will be guarded.

  3. Initial due diligence #1

    Our process is very data intensive and requires our clients to be very open with our business analysts. We require our clients to disclose most of what is required for an audit for our due diligence #1. We schedule this with two meetings – one when we go over the due diligence requirement list and one a week after we receive the data and are able review it all.

  4. Client agreement and retainer

    Before Rhodes Holdings LLC completes any work, we require our clients to sign a consulting agreement (customized for each client) with either the Rhodes Holdings LLC or one of its service provider organizations and pay a retainer. Very infrequently will we undertake any work without a retainer.

Phase 2 – Prepare

This phase is the integration and synthesis of all the information provided to Rhodes Holdings LLC by the client.  The end product(s) include everything that we will use in order to provide in depth consulting with the client through the process of “going public“.

  1. Client summary creation

    Based upon the information in the initial due diligence package from the client, we will create a one page client summary that we will use to speak with merger or acquisition candidates, funding sources (the company will do the discussion but we will consult with them on the discussion), and other professionals.

  2. SEC legal due diligence

    After we have gotten the first round of due diligence material and determined a course of action, now its time to get the in depth due diligence packet going. This information will be the basis for a PCAOB audit in the future, so this will obviously take a long time to get together. Three copies should be made and put in binders – one for our organization, one for any buyers or funding sources, and one for the PCAOB auditors.

  3. The “going public” business plan creation

    This is the most time consuming and analytical of our steps.  Even if the client has their own business plan that is complete, our organization will recast it into our standard format with the required sections that will flow into future registration statements.

  4. The investor presentation creation

    This is a 10 page slide presentation for use in PPM investor conferences.

  5. Restructuring

    Through years of operations, corporate structures becomes very muddled, may have financial commitments that are not easily described, or have structural pieces that are not conducive to funding, going public, or being audited.  We will walk our clients through restructuring their corporate entities.

Phase 3 – Bridge Finance

Securing bridge financing ensure that the client can follow through on all the business plans and restructuring planned in the previous phase.

  1. Bridge financing

    Based upon step 3, we will immediately support the client in placing the information gathered with a bridge financing provider, including conventional bank lines of credit, conventional bank acquisition loans, leasing solutions, general capitalization, and factoring.  All of these will, at some time, require a personal financial statement (“PFS“), so we recommend filling out the Small Business Administration’s PFS form (except where they have a customized version).

  2. Private Placement Memorandum (“PPM“)

    As part of the process for “going public“, a company should have at least 35 investors, which should either be “accredited investors” or investors intimate with officers or the inner workings of the company, such as vendors or clients.  Many times this round of financing is called the “friends and family” round of financing. If the companies are sold using a PPM, the SEC Rule 144 currently requires these securities to be held for one (1) years before being able to remove the restricted legend and sell them.

  3. Regulation D offerings (Texas 504)
    If the client put together a PPM and the client does not want its accredited investors to have restrictions on their holdings, putting the PPM into a Texas 504 format is the next step.  Regulation D provides three exemptions from registration for securities – 504, 505, and 506. In doing a 504 offering, the client is using an exemption from registration which further is regulated by each state.

Phase 3 – Going Public

There are three ways to “go public” – one is the venerable Initial Public Offering (“IPO“) which is basically what large investment banking houses do and includes filing a registration statement (S1 or similar filing) to create a reporting public company; the second includes smaller companies filing an SEC form 15c211 with a market maker to create a non-reporting public company traded on the Pink Sheets; and the third is doing a reverse merger with a public company already trading.  All of these are valid processes and require specialized experience in lining up the professionals required to accomplish these complex process.  Rhodes Holdings LLC specializes in providing merchant banking expertise to accomplish the second and third procedures.

  1. Retain professionals

    This is not a process to do yourself – it would take a lifetime to come up to speed on all the different work streams and make the correct networking.  The whole process really starts in filling out the forms required by the SEC, which always starts with a PCAOB sanctioned audit and following on with the SEC counsel integrating the audit into the filing form.  There is also a division of labor that must be included that usually requires a secondary CPA and legal team to do the work that is then reported on by the auditor / SEC counsel – plus SEC counsel is usually much more expensive than the general counsel.

  2. Complete PCAOB audit

    This in and of itself is a bookshelf of books within this process, so let’s leave it to the professionals.

  3. Complete the SEC form(s)

    Completing the forms can be done by any person for the client seeking to go public on the Pink Sheets, but many of the questions will need to be answered by SEC counsel or by professionals that have completed a SEC registration statement previously – like the professionals at Rhodes Holdings LLC.  Professionals that need to be referenced within the form:

    – General counsel
    – SEC counsel
    – Auditors
    – Officers
    – All shareholders
    – Transfer agent

  4. File SEC registration statement

    If the client only wants to be a Pink Sheet listed, “1934 Act” company, this step would be eliminated, but Rhodes Holdings LLC believes that our clients’ long term access to attractive funding depends upon being a “1933 Act“, fully SEC reporting company.  Therefore, we recommend that our clients complete a PCAOB audit and include that audit within an SEC registration statements, of which there are many including Form 10, Form S-1, Form S-4, etc.

  5. FINRA Broker dealer files the Form 211 with FINRA

    Broker Dealers file the form, not just SEC counsel or the Client. Currently, no broker dealers will file without PCAOB audited financials.  Form 211 gets filed with FINRA, not the SEC, although the SEC current does the review.  This process can take any amount of time, although FINRA has 30 days to review the form before it becomes effective immediately – in practice, you can almost always depend upon 2 sets of comments coming back.

  6. Submit DTC Eligibility Form

    A participant in the Depository Trust Clearing Corporation (“DTCC” and sometimes referred to as “DTC“) needs to submit the form.  There is now a fee.  Eligibility within the DTCC allows book entry of share transactions between broker dealers and is a must for public companies that look forward to the promise of liquidity that being public provides.

  7. Submit OTC Markets’ forms

    The OTC Markets’ marketplace ( is both a quotation system and a national market place with securities organized into different tiers, including:

    – OTC Pink Current Information
    – OTC Pink Limited Information
    – OTC Pink No Information
    – OTCQX International Premier
    OTCQX International
    – OTCQX U.S. Premier
    – OTCQX U.S.

    Most of our clients will opt for the OTC Pink Current Information and when possible, graduate to the OTCQB.  To become OTC Pink Current Information, the client will need to have their SEC registration statement effective & current, receive a symbol by their Form 211 becoming current, receive DTC eligibility, submit an OTC Markets’ application, and pay the fee – $4,500 currently for OTC Pink Current Information (for 1934 Act companies without PCAOB audit), and $10,000 for 1933 Act companies, annually.

Phase 4 – Public Finance

Now that the client is publicly quoted on OTC Market’s website (see above), NASDAQ, NYSE or other venue, it is time to seek funding to provide for the growing company’s working capital needs. Rhodes Holdings LLC is not registered as a broker dealer in any jurisdiction so we cannot and do not seek funding for your companies. What we can do is provide consulting services to help our client’s management to prepare for the search for capital, including:

  • creation of proposed funding transaction(s), including how it integrates with current financials;
  • revision of current business plans to include: proposed funding transactions use of proceed;
  • introduction to brokers dealers;
  • vetting of transaction structures; and
  • introduction to professionals involved within the funding process.

Please do not mistake our organization for someone who promises funding, as we do not.  We take the laws, rules, and regulations of the United States very seriously.

Copyright 2016 by Rhodes Holdings LLC, all rights reserved.


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