Going public on the cheap is usually a risky business. Too often merging with a public "shell" company turns into a real shell game -- there's more guesswork than certainty about what's behind the wrapper. In 1986 James A. Merriam decided there was a better way. His Vintage Group Inc., a public company traded on NASDAQ, creates high-quality shells from scratch and marries them off to deserving young companies. Merriam's special twist: Vintage distributes shares of the merged company to its own shareholders, so the new stock is immediately tradable. Usually, trading in such stock is restricted for two years.

Merriam has made other improvements, too. Vintage's newly hatched shells are the result of an S-1 registration with the Securities and Exchange Commission, which means they're subject to greater scrutiny than regionally registered com-panies. More disclosure to Washington means fewer surprises for prospective partners. Vintage also puts a freeze on trading in a shell's stock during the delicate premerger period, when such companies are most vulnerable to stock manipulation.

Vintage charges its going-public candidates $50,000 for its guidance and registration expenses. Entrepreneurs get to keep from 50% to 85% of their companies. So far Vintage has taken eight companies public. Shares of the first, Teletimer International Inc., trade at $2.50 on NASDAQ, up 25% since it went public in March 1987. And what about the penny-stock market's current bad reputation? Merriam, a veteran of franchising's bad old days during the 1960s, thinks it will eventually work to his advantage. "Good ideas are often abused," he says. Now that the SEC is cracking down, "a lot of the bad pennies are gone."

-- Ellyn E. Spragins