Ray asked:

We have a renewable energy company and in our current share structure we have 1 billion shares. Our technology is sound and validated. We do have 500 outside share holders. We have raised with private placements 2.5 million dollars. Our long term strategy is to list on a U.S. Exchange such as NASDAQ. The CEO holds 94% of the shares. Our share price is $.25 Canadian. Some people have told us this is an incorrect structure, others feel with the potential of the technology, our share structure is fine. We would value your opinion.

Trudy White answered:

The person suggests that they have been advised that the "share structure" is incorrect. Is the person asking if the valuation on the company is too high? It is currently $250M, based on the number of shares (I am assuming that the 1Billion shares are issued and not just authorized) and the current share price of $0.25. Note, however, that there is nothing to say that the value of the company isn't grossly overstated. That is not unusual in today's market. Look at the multiples being given to hi-tech companies.

The value really depends on the premium that investors are willing to pay for future profitability. On the flip side, from the private placements, where it is anticipated that investors looked more carefully at the worth of the company, the company is given a valuation of about $42M. This calculation is based on the assumption that 2.5M has been generated from private placements by giving away 6% of the shares (assuming that the CEO has not given any money for his 94%). It may be that the investors on the private placement got a great deal for their shares (getting shares worth 6x more than they paid, based on the market price) or the company is valued closer to what the private investors paid, at $41.6M. Keep in mind that directors are prohibited from issuing shares at less than fair market value.

As an aside, did the company do a reverse takeover? It seems peculiar that the company has 500 external shareholders with only 2.5M raised since the most common exemption under the Securities Act is for an investment of a minimum of $150,000. That would only account for 16 investors. There are other exemptions under the Securities Act but none that would generate the number of shareholders that this company has.

The question of "share structure" doesn't really make sense in this context, especially since the person hasn't given any details re share structure i.e., types of shares etc.

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