S-Ray and the JOBS Act: IPO (Part 3 of 3)

Posted on December 06, 2016 in CEO Perspectives

The opportunity for an Initial Public Offering (IPO) using a new aspect of the JOBS Act is the topic of this CEO Perspective.

The JOBS Act recognized that new ventures (startups) can provide substantial returns to early stage investors willing to accept the risk and are a potent job creation force in the American economy. This job creation aspect is of high priority because new jobs are created by innovation – which requires creative ideas, an innovative team and risk tolerant investors.

Moving a company from private to public is a detailed and very deliberate process. It includes review and revision of documents, auditing of financial records and a more complex capital structure. In this article, I will discuss the IPO aspect of the JOBS Act as it specifically relates to S-Ray.

S-Ray has started the process of “going public” and it is now part of the daily work done by the management and staff. It is also guidance for decision-making, planning and communication. A public company has very specific rules and regulations regarding information provided to shareholders and potential shareholders.

Our path to an IPO parallels current discussions to sell the company. Our dual path strategy continues. For those interested in more details on the specific route to an IPO, you can reference the “Regulation A, Tier 2” process. It’s a new, low-cost, faster route to a publicly traded stock. In addition, the costs are much lower than another route to an IPO – the reverse merger. At one point in our history, we engaged in discussions regarding acquisition of a public company to enable S-Ray to trade publicly. A “Reg A” is now recognized as being much lower cost without the risk of the “baggage” that could come from acquiring an existing business.

How would an IPO look for S-Ray?

1. We are planning for an IPO in the first or second quarter of 2017.
2. After much deliberation and discussions with investors, we will obtain FDA clearance BEFORE we initiate an IPO. This will decrease the perceived risk by new investors and double our common stock price from its current $2.00 to $4.00.
3. Assuming our plan is valid, we will offer up to $50 million of stock when we go public. At $4.00 per share, this would be 12,500,000 shares of common stock sold.
4. Of the $50 million of cash from the sale of the common stock, $15 million would be used to purchase stock from existing stockholders. We are set by law to limit the stock purchase to $15 million. The majority of the $15 million would be used to buy the Preferred A shares at $1.50 per share.
5. Because of the rules of the Reg A offering, common stock held by our shareholders can IMMEDIATELY be sold to the public. We cannot predict the price of the shares once we are public, but we plan on making some important announcements that should be seen as positive drivers for the stock price shortly after going public.

From a shareholder point of view, it may be that an investor decides to sell all of their stock on the first trading day and lock in whatever profits are available. Another option could be to hold and sell after some announcements that may increase the stock price. A third option could be to sell some and hold some.

An aspect of being a public company requires full disclosure of stock holdings by executives of the company. Some investors pay particular attention to the holdings of the CEO. The perception is that if the CEO is heading for the exit, they may have a reason for doing so.
As for this CEO, at this moment, I intend on following prudent processional advice and planning the occasional sale of stock for estate planning and portfolio balance.

I am, for the foreseeable future, bullish on S-Ray. We are building a very valuable company with a global product line. I plan on harvesting that value alongside our shareholders. An IPO is one way of doing it – but not the only way.

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