WRASP, A New and Better Way To Go WRASP, A New and Better Way To Go Public on NASDAQ and AMEXPublic on NASDAQ and AMEX
Presented by James E. HoschPresented by James E. HoschManaging Director, Investment BankingManaging Director, Investment Banking
WestPark Capital, Los Angeles, CAWestPark Capital, Los Angeles, CA
[email protected]@wpcapital.com
DC Finance IsraelAnnual Corporate Finance ConferenceNovember 22, 2010
Conference Package Handout Conference Package Handout MaterialMaterial
Conference Package Handout Conference Package Handout MaterialMaterial
Conference Package Handout Conference Package Handout MaterialMaterial
IntroductionIntroduction
Founded in 1999, WestPark Capital is one of the few remaining independent investment banks dedicated to emerging growth companies in the small and micro-cap market. Our independence enables us to maintain our focus on these companies, their entrepreneurial managers and their highly specialized financing needs.
WestPark Capital is a leading full-service investment bank dedicated to providing innovative, professional financial services to emerging growth companies. Our commitment to this segment of the market is unsurpassed and our success is founded on delivering solutions while providing the highest quality service.
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IntroductionIntroduction
Broad IndustryBroad Industry FocusFocus
• Technology
• Special Situations
• Software
• Financial Services
• Media & Telecom
• Medical Services
• Biotechnology
• Healthcare
WestPark focuses on emerging growth and middle market with the following characteristics:
Strong Management TeamStrong Management Team•Management has substantial equity interest in CompanyManagement has substantial equity interest in Company•Proven operating experienceProven operating experience
Sizable Market OpportunitySizable Market Opportunity•Market leadershipMarket leadership•Large addressable marketLarge addressable market•Market position: strong & defensibleMarket position: strong & defensible•Well developed, attainable business planWell developed, attainable business plan
Established PresenceEstablished Presence•Independent, industry and leadership experienced Board of DirectorsIndependent, industry and leadership experienced Board of Directors•Strong and supportive shareholders and sponsorsStrong and supportive shareholders and sponsors•Value-added strategic partnershipsValue-added strategic partnerships
Solid Financial FundamentalsSolid Financial Fundamentals•Existing or near-term profitabilityExisting or near-term profitability•Strong revenue, cash flow and net income growth potentialStrong revenue, cash flow and net income growth potential•Defined path to realization and appreciation of investors’ capitalDefined path to realization and appreciation of investors’ capital
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Recent TransactionsRecent Transactions
WRASP-APO
January 2010$3,500,000
ZST Digital Networks, Inc.
April 2010$24,000,000
Public Offering
Common Stock: $8.00 per Share
NASDAQ GM: ZSTN
WRASP
January 2010$26,000,000
China Electric Motor, Inc.NIVS IntelliMedia Technology
Group, Inc.
Common Stock: $3.29 per Share
NYSE Amex: NIV
October 2009$25,000,000WRASP
October 2008$4,900,000
WRASP-APO
Common Stock: $4.50 per Share
NASDAQ GM: CELM
WRASP-APO
May 2009$5,000,000
Yinlips Digital Technology, Inc.
WRASP-APO
October 2009$4,300,000
ZST Digital Networks, Inc.China Electric Motor, Inc.
China Intelligent Lighting and Electronics, Inc.
WRASP-APO
April 2010$5,400,000
China Century Dragon Media, Inc.
The Scope of a The Scope of a WRASPWRASP
A WRASP involves a comprehensive set of interrelated transactions managed by WestPark Capital, Inc. (“WestPark”), a FINRA-registered
broker-dealer.
A WRASP involves a comprehensive set of interrelated transactions managed by WestPark Capital, Inc. (“WestPark”), a FINRA-registered
broker-dealer.
A WRASP is a process in which a Company becomes publicly-traded through a reverse merger and trades directly onto a Senior Exchange such
as the New York Stock Exchange Amex (“NYSE Amex”) or NASDAQ.
A WRASP is a process in which a Company becomes publicly-traded through a reverse merger and trades directly onto a Senior Exchange such
as the New York Stock Exchange Amex (“NYSE Amex”) or NASDAQ.
W R A S W R A S PP
MINIMUM
Net Income:$5,000,000 in last fiscal year or in the last twelve months
(LTM)
Net Income Growth:
25% Year-Over-Year (YOY)
Market Capitalization (Valuation):
$50,000,000
WRASP Quantitative WRASP Quantitative RequirementsRequirements
Overview of a Overview of a WRASPWRASP
• The Operating Company merges with a fully-reporting Clean Shell.• Concurrent with the Shell Transaction, WestPark conducts a small
private placement ($3 million to $5 million).– This is in addition to any larger funding requirements.
• Listing Phase:– Stock symbol issued.– A second fund-raising, the amount of which varies from $5
million to $30 million.– Senior Exchange clears stock for trading.– Stock begins trading.
The Operating Company has two fundraising options after the completion of the shell merger and private placement:
– Track I) • To raise a lower amount ($4 million to $5 million) at the time
of trading followed by a substantial follow-on financing ($15 million and up),
-or-– Track II)
• To raise a larger amount of capital ($15 million to $30 million) at the time of trading.
• Eliminates the need for a follow-on fundraising in the near future.
WRASP Dual-Track WRASP Dual-Track FundraisingFundraising
Publicly-Reporting Operating Company
$3 million - $5 million
Small public offering
$3 million - $5 million
Large public offering
$15 million - $30 million
Fundraising$15 million & up
Post Private Placement and
Reverse Merger
Concurrent with Trading
Post Trading
Track II Example:China Electric
Motor, Inc.
Track I Example: NIVS IntelliMedia
Technology Group, Inc.
TRACK I
TRACK II
WRASP Dual-Track Fundraising WRASP Dual-Track Fundraising (cont.)(cont.)
The Company only trades on a senior exchange, which generally possesses superior:
– Liquidity– Research– Valuation– Institutional coverage
The initial fund-raising that closes concurrently with the reverse merger covers all the costs of the WRASP transaction and provides the Company with capital.
The shell is fully-reporting and has cleared SEC registration and never had operations.
The shell has been designed specifically for a WRASP transaction.
Advantages of a Advantages of a WRASPWRASP
STEP 1 STEP 2DAY
1 23 30 35 50 89 90
Merger
agreement
reviewed and
signed
8-K
disclosing
merger
prepared and
filed
Reverse
merger and
$3-5 million
private
placement
close
File with
senior
exchange,
FINRA, and
the SEC
Receive
comments
Issue
declared
effective by
the SEC
Stock begins
trading with
$10-30 million
raise
RECENT WRASP EXAMPLES
China Electric Motor, Inc. 10/06/09 01/29/10
ZST Digital Networks, Inc. 05/05/09 10/20/09
Timeframe of a WRASPTimeframe of a WRASP
Reverse Merger TransactionsReverse Merger Transactions
Advantages Of Going Public through a Reverse Merger with a Public Shell:
Allows a private company to go public
• Less Costs
• Less Time
• Less Dilution of ownership control
• Less Risk
Disadvantages Of Going Public through an IPO:
Additional risk
• The IPO may be withdrawn due to an unstable market condition, even after most of the up-front-costs have been expended.
IPO requires greater attention from top management
Reverse Merger TransactionsReverse Merger Transactions
The benefits of being a public company:
Increased liquidity of the ownership shares of the company
Higher share price and thus higher company valuation
Greater access to capital markets for possible future stock offerings
Enables the company to make acquisitions using stock
Ability to use stock incentive plans to attract and retain key employees
Tax advantages through the reverse mergers and proper exit strategies
WRASP Case WRASP Case StudyStudy
Profile for China Electric Motor, Inc. WRASP Transaction
China Electric Motor, Inc. (NASDAQ: CELM) engages in the design, production, marketing and sale of micro-motor products through their subsidiary Shenzhen YPC. Their products, which are incorporated into consumer electronics, automobiles, power tools, toys and household appliances, are sold under their “Sunna” brand name. The Company is focused on providing micro-motor products that meet the growing demand for efficient, quiet and compact motors. They produce both Direct Current motors and Alternating Current motors.
Transaction BackgroundChina Electric Motor, Inc. sold common stock at the purchase price of $2.08 per share with gross proceeds of approximately $4.0MM, whereby it concurrently closed on its merger with SKRP 21 through a WRASP transaction. On January 29, 2010, China Electric Motor, Inc. began trading on the NASDAQ under the ticker symbol CELM.
NASDAQ GM:CELMRTO/Private Placement Share Price$2.08Public Share Offering: $4.50Shares Outstanding (MM): 20.7Market Capitalization (MM): $109.0Total Capital Raised (MM):$30.0 As of October 12, 2010
NASDAQ GM:CELMRTO/Private Placement Share Price$2.08Public Share Offering: $4.50Shares Outstanding (MM): 20.7Market Capitalization (MM): $109.0Total Capital Raised (MM):$30.0 As of October 12, 2010
$4.0MM Private Placement closes concurrently with
RTOPrice $2.08
Private Private PlacementPlacement
$26.0MM Public Offering; Stock
trades directly on NASDAQ Global
MarketPrice $4.50
NASDAQNASDAQListingListing
Stock continues to trade on the NASDAQ
Global MarketPrice: $4.18 - $9.88
Stock Actively Stock Actively TradesTrades
$2.08
$9.88
October 2009
Average Daily Volume: 208,940*Average Daily Volume: 208,940*
October 2010
* Source: Capital IQ
January 2010
WRASP Case StudyWRASP Case StudyProfile for ZST Digital Networks, Inc. WRASP Transaction
ZST Digital Networks, Inc. (NASDAQ GM:ZSTN) develops, manufactures, and supplies digital and optical network equipment to cable system operators in the P.R.C. The company offers a range of cable television devices and related networking products, including Internet protocol television set-top boxes, which integrate Internet, multi-media, and communication technologies, and provide residential customers with high definition digital multi-media service, as well as facilitate to choose video programs offered by the network video providers on broadband IP network. The company was founded in 1996 and is headquartered in Zhengzhou, the People’s Republic of China.
Transaction BackgroundZST Digital Networks, Inc. sold common stock at the purchase price of $3.94 per share with gross proceeds of approximately $5.0MM, whereby it concurrently closed on its merger with SKRP 18 through a WRASP transaction. On October 20, 2009, ZST Digital Networks, Inc. began trading on the NASDAQ under the ticker symbol ZSTN.
NASDAQ GM:ZSTNRTO/Private Placement Share Price $3.94Public Share Offering: $8.00Shares Outstanding (MM):
11.6Market Capitalization (MM):
77.6Total Capital Raised (MM):
30.0As of October 12,2010
NASDAQ GM:ZSTNRTO/Private Placement Share Price $3.94Public Share Offering: $8.00Shares Outstanding (MM):
11.6Market Capitalization (MM):
77.6Total Capital Raised (MM):
30.0As of October 12,2010
$5.0MM Private Placement closes concurrently with
RTOPrice $3.94
Private Private PlacementPlacement
$25.0MM Public Offering; Stock
trades directly on NASDAQ Global
MarketPrice $8.00
NASDAQNASDAQListingListing
Stock continues to trade on the NASDAQ
Global MarketPrice : $4.43 - $11.90
Stock Actively Stock Actively TradesTrades
$3.94
$11.90
May 2009 October 2010
* Source: Capital IQ
October 2009
Average Daily Volume: 177,440*Average Daily Volume: 177,440*
Thank You!!
For further information, please contact:
WESTPARK CAPITAL, INC.
James E. HoschManaging Director, Investment Banking