


                PREPARING A SMALL BUSINESS TO GO PUBLIC

               Selling securities to the public is a highly
          regulated activity and to do so successfully requires
          considerable skill and expertise.

               The financial statements of a company with existing
          operations are at the heart of any disclosure about the
          company and necessarily play a central role in the
          disclosure document in any public offering.  It is
          desirable to engage reputable accountants at as early a
          stage as possible to insure that suitable financial
          statements will be available on a timely basis when the
          decision to raise public funds is made.  This should be
          done many months before the expected public offering is to
          be commenced in order to have an adequate lead time.

               Both selling agents and investors have a distinct
          preference for companies that can show an audit or review
          by one of the larger public accounting firms because of the
          credibility of such a firm.  It is not necessary to use a
          "Big Six" accounting firm, however, and a regional firm
          will generally do just fine.  Even a strong local firm
          should suffice.  Accountants practicing by themselves are
          usually not appropriate for the audit or review in a public
          securities offering, and companies that have such
          accountants should consider engaging another firm to do the
          audit. Do not fire the sole practitioner accountant,
          however, because such accountants are often quite good in
          assisting in preparing the answer to Question 4 of the
          registration form.

               If auditing costs are a concern and the company's
          business will allow a fiscal year ending June 30 or
          September 30, the company should consider adopting one of
          these fiscal years, as accountants are not as busy
          immediately following these dates and often will discount
          fees for audits with these fiscal years.

               There is a tendency for some entrepreneurs, for family
          and other reasons, to place different portions of a
          business in different corporations.  For example, the real
          estate may be held by one corporation, the distribution
          function by another and the manufacturing function by a
          third.  Sometimes the technology may be held separately,
          and at other times one company will make one product and
          another company will make a related but separate product.
          Often the ownership of the different corporations will be
          held by different people or in different proportions.

               If the key personnel in a company are going to try to
          split their time between different businesses or if there
          are transactions between the separate corporations for what
          is essentially a single business (perhaps, however, with
          several products or lines of business) the business should
          be combined in one corporation with only one set of
          shareholders.  It is acceptable for subsidiaries to exist,
          but they must be wholly-owned subsidiaries.  In essence,
          the entrepreneur must not try to carry on more than one
          business at a time so that his or her entire efforts will
          be behind the company going public.

               The mechanics of combining multiple parts of a
          business into one can be time-consuming and may require
          negotiations between various participants.  Putting the
          entire business (including particularly the technology, if
          applicable) under one corporate roof is an absolute must to
          preclude conflicts of interest and to allow an offering to
          be successfully sold, so this question should be addressed
          at an early stage and the combination completed in time to
          have audited statements for the entire combined business
          for a one-year period to be prepared.  In this regard, so
          called "pro forma" combined statements are usually
          confusing and difficult to read at best.

               A related question is being sure that all of the
          assets critical to the business have in fact been conveyed
          by the entrepreneurs into the corporation by proper deeds,
          bills of sale, assignments or other documents.  This should
          be checked and carried out if not theretofore accomplished
          -- always, of course, with the advice of a tax accountant
          or attorney.

               It is not uncommon for a company to make loans to
          officers or directors -- frequently in connection with
          company-mandated relocation of personnel so that a
          residence can be purchased pending sale of the old
          residence.  In addition to problems created under corporate
          statutes, such loans frequently create problems when a
          company attempts to register securities in various states
          in connection with a public offering.  State administrators
          often require that the loans be paid off and that the
          company undertake not to make any such loans in the future.

               It is not uncommon for a private company to lease real
          estate from its officers, directors, major stockholders or
          their relatives.  Disclosure of this type of insider
          transactionis often deemed a "dirty" disclosure in a
          disclosure document, and generally these types of
          arrangements should be reduced to an absolute minimum, or
          preferably eliminated.  Accordingly, in the planning of a
          company's affairs, it is often wise to restrict these types
          of transactions and eliminate them as soon as it becomes
          feasible to do so.  Remember that disclosure is generally
          required as to insider transactions that have occurred
          since the beginning of the full fiscal year preceding the
          offering, whether or not the transactions have ceased or
          been "cleaned up" at the time of the offering.

               Company yachts, condominiums, and properties unrelated
          to the business.  Assets of this type should be transferred
          out of the company prior to an initial public offering, as
          they represent unproductive assets that are not part of the
          company's business operations.  Maintenance of such assets
          in the corporation creates perquisite disclosure problems
          and may present fiduciary duty problems in the directors.
          Selling agents and investors usually view ownership of such
          assets by the corporation unfavorably.

               Frequently a private company will do business with
          management or relatives of management in the acquisition of
          insurance, supplies, services or products.  Such
          arrangements give rise to disclosure in the "dirty" portion
          of the management transactions section of the disclosure
          document.  It is generally desirable to reduce or eliminate
          such arrangements, and any such arrangements that continue
          should be justified to the investors.

               In the earlier stages of the growth of a company, it
          is common for major stockholders and management to
          personally guarantee debts of the company to the company's
          lenders.  This is generally deemed a sign of financial
          weakness of the company by the financial community, and
          thus these guarantees should be removed if possible prior
          to a public offering.  Under certain circumstances a pledge
          of all of a mature company's assets to its lenders is also
          viewed as a sign of financial weakness, and this too may
          have to be eliminated prior to a public offering.  Because
          banks and other lenders may be reluctant to give up
          guarantees or security, such changes should be reviewed
          with lenders well in advance of any public offering to
          allow adequate time for them to be completed.

               For many types of businesses, the principal assets are
          in reality "intellectual property," often consisting of the
          know-how of key management.  This is particularly true of
          high technology companies but often also applies to other
          types of enterprises.  In order for selling agents and
          investors to have confidence that this "asset" will not be
          dissipated after the offering, they often favor employment
          agreements containing stiff non-competition clauses with
          each member of management.  To guard against the effects of
          untimely death of such persons, the use of key man
          insurance is also favored in these situations.  Such
          precautions, plus an appropriate management incentive
          program such as stock options and bonus plan, can assure
          that this type of "asset" will be preserved and viable
          after the offering.  Making arrangements of this type can
          take time and should be worked out and implemented well in
          advance of a public offering.

               In connection with a public offering, the lawyers will
          often carefully review the articles, minutes and bylaws of
          the company to assure that major corporate events are
          covered by appropriate corporate action and that in
          connection with any such action the minutes or other
          records reflect that the action has been validly taken.  It
          is advisable for the company and its lawyer to have made a
          complete review and cleanup prior to the offering to give
          the underwriters and investors confidence and preclude
          last-minute problems.

               Perhaps the most troublesome corporate cleanup
          problems in preparation for a public offering involve
          corporate stock records.  Frequently a substantial lead
          time is necessary in order to make the required
          corrections.  While a company is privately owned and acts
          as its own stock transfer agent, or has its attorneys do
          so, it should be careful to keep its stock records in good
          order.  To the extent that a corporate review reveals that
          proper procedures have not been adhered to, appropriate
          steps should be taken to remedy the defects.

               At the outset, the entire set of stock records should
          be reconciled, starting with each original issuance by the
          company and following through each transfer to the current
          shareholders.  For each time an original issuance of stock
          is made, whether or not there was then sufficient
          authorized shares and whether proper director authorization
          for the particular issuance (all as reflected in the minute
          books) should be confirmed.  Of particular importance is
          the obtaining of assignments by old shareholders to any
          transfer of shares.  The signatures on the assignment
          should be the same name as that on the stock certificate.
          Another important area is the obtaining of an affidavit and
          indemnification when a stock certificate has been reissued
          to replace a lost or stolen one.  These defects can cause
          problems when the relevant persons are no longer living or
          are uncooperative.  Sometimes curing problems in this area
          requires substantial imagination, as there are no
          applicable statutes of limitation in most circumstances.




