Reverse Shell Mergers Explained » OTCBB

BCSC revises 51-509 Rule for U.S. OTC Issuers – Part 7

Ralph Amato — Tue, 12 Aug 2008 15:00:14 +0000

In my previous Blog (Part 6) I stated that the revised 51-509 Rule for US OTC Issuers only applies to shareholders who reside in British Columbia (“BC”). It does not apply to Canadians that reside in the other 12 provinces of Canada. However, how is one to determine if the shareholder resides in or out of the BC geographical area? Also, since the company is responsible for making sure a legend is placed on securities for shareholders residing in BC what happens if a shareholder who lives in one of the other 12 provinces, not affected by this new rule, purchases shares from a company listed on the OTCBB and then moves his or her residence into BC? Or, if a resident of BC purchases shares from an OTCBB and moves out of the BC area? How does the revised rule affect the securities? There are still many questions and not enough answers at this point in time.

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BCSC revises 51-509 Rule for U.S. OTC issuers – Part 5

Ralph Amato — Fri, 08 Aug 2008 15:00:34 +0000

As far as we can tell any shells coming out of Canada after September 15, 2008 that contains 100% Canadian shareholders will be 100% restricted. This brings up some pretty interesting questions.

Can a company that has 100% Canadian shareholders get approved for trading by FINRA after the revised rule goes effective?
If a company has a shell previously approved for trading prior to the rule change are those Canadian shareholders subject to the new “legend” rule on their already freely tradable securities.
If your company gains trading approval from FINRA after September 15, 2008 would not the entire float of a company that is composed of Canadian shareholders require (i) all of those shares to have a legend placed upon the stock certificate and (ii) the shares to be placed with a licensed NASD Broker Dealer to become freely tradable electronically and (iii) shareholders not to sell their shares in a private transaction for over a year?

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BCSC revises 51-509 Rule for U.S. OTC issuers – Part 4

Ralph Amato — Thu, 07 Aug 2008 15:00:06 +0000

So what does this revised BCSC rule 51-509 change mean to Buyers and Sellers of OTCBB shells? The short answer to that question is – PLENTY!

Buyers will now have to make sure that they do not purchase a shell that has Canadian shareholders. The BCSC has, in effect, deemed that all securities issued to Canadian shareholders in US OTC issuers will have a restricted legend even if those securities were registered in an SEC registration statement to become freely tradable. The rule also includes companies that are incorporated in the US.

Canadian shells will disappear from the landscape. With the passing of this new rule all shells originating out of Canada or that have Canadian shareholders will be suspect. Once the news is disseminated to law community the SEC attorneys will err on the side of safety and reject any shells that have a taint of a Canadian connection.

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BCSC revises 51-509 Rule for U.S. OTC issuers – Part 3

Ralph Amato — Wed, 06 Aug 2008 15:00:15 +0000

What changes is the British Columbia Securities Commission (BCSC) making to the proposed 51-509 Rule?

the Canadian Trading and Quotation System Inc. (CNQ) was added to the list of exchanges that exclude issuers from the proposed instrument
changes were made to the significant connections requirement that will result in an OTC issuer being designated as a reporting issuer
an OTC issuer that becomes a reporting issuer must remain a reporting issuer for at least one year after it no longer has a substantial connection to B.C.
most foreign issuer and multi-jurisdictional disclosure system (MJDS) exemptions will apply, with the exception of the exemption regarding material change reporting
there will be a legend requirement for securities that OTC reporting issuers distribute under exemptions

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BCSC revises 51-509 Rule for U.S. OTC issuers – Part 2

Ralph Amato — Tue, 05 Aug 2008 15:00:33 +0000

The British Columbia Securities Commission (BCSC) second 30-day comment period for the proposed revised 51-509 rule ended on June 13, 2008. The revised rule changes go effective September 15, 2008 with additional filing requirements going effective September 30, 2008.

So why is the BCSC concerned about the U.S. OTC securities market?

Because “there is a disproportionate number of BC players in the U.S. OTC markets who engage in abusive activities. Their activities damage the reputation of the province’s capital markets and cast a cloud over the interests of legitimate issuers, investment dealers, and other market participants.”

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BCSC revises 51-509 Rule for U.S. OTC issuers – Part 1

Ralph Amato — Mon, 04 Aug 2008 19:26:30 +0000

The British Columbia Securities Commission (BCSC) is proposing new rule changes along with the related companion policy’s and forms for issuers quoted in the U.S. over-the-counter markets (OTCBB) and pink sheets. These changes can be located at:

B.C. Instrument (BCI) 51-509 Issuers Quoted in the U.S. Over-the-Counter Markets.

Under the newly proposed rules the BCSC will have better legal tools to improve disclosure of B.C.-connected OTC issuers. But here is the big news:

The proposed rule also discourages the manufacture and sale of shell companies that may be used for abusive purposes.

We are still trying to get our arms around the new revised rule change along with its affect on Buyers and Sellers of OTCBB shells. This Blog series will share with our readers what we know so far. Keep in mind the final version of the rule has not yet been set in stone so there may be further revisions and updates before September 15, 2008 when the final revised rule 51-509 goes into effect.

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Going Public in Today’s Market – Part 6

Ralph Amato — Tue, 29 Jul 2008 15:00:35 +0000

In regards to the Securities and Exchange Commission (“SEC”) issues as it relates to timing for going public the differences between using an OTCBB shell (the back door) versus filing a registration statement with the SEC your (the front door) are numerous. Going public via an S1 or Form 10 registration statement does allow the company to better understand the entire SEC process and get acclimated to their rules and procedures. However it does consume a great deal of the officers and directors time. The CEO and CFO will have to devote hundreds of hours dealing with responses to SEC comments. There are several other items that need to be addressed when you are filing an information statement with the SEC. I will cover those items on Part 7.

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Going Public in Today’s Market – Part 5

Ralph Amato — Fri, 25 Jul 2008 15:00:00 +0000

If you have a well established business that is profitable and you are seeking to expand nationally or globally then bringing your company public would allow you access to the capital markets to expedite your expansion plans. If there is a “window of opportunity” that you want to access then backing into an OTCBB shell would allow you to become a public company quickly (one to three months) and avoid the entire SEC review process.

So basically there is a tradeoff. If timing is important you will pay more for a fully trading OTCBB shell. If timing is not an issue then by all means file a registration statement with the SEC and go through the long ordeal of becoming a public company. The process is painful but it is a learning experience that gets you prepared for the future of how to run a public company.

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Chinese Companies Wanting to Go Public in US

Ralph Amato — Wed, 14 May 2008 19:50:17 +0000

Ventana Capital Partners is seeking China based companies who want to go public in the US. We have received several calls from investment bankers seeking to provide funding to companies that meet certain criteria. Companies must be able to demonstrate they are earning in excess of $5 million (US) net income per year, their financial information can be audited and that there is substantial growth in their industry sector. The companies chosen will have the ability to raise the capital they are seeking and go public via a reverse merger into a NASDAQ OTC Bulletin Board shell. Funding for the entire transaction will be provided by US based private investors and investment banking firms. To qualify prospective China based companies will only need to provide audited financials by a reputable audit firm. Interested parties should contact Ralph Amato at 858 729 0075 or email Ralph@ventanacapitalpartners.com

Last year 69 Chinese companies went public via a reverse merger into an OTCBB shell. That represented almost 34% of the total number of OTCBB reverse mergers. Most of the companies also received a PIPE financing and those companies performed quite well in the public marketplace.

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Buying OTCBB Shells – The May Effect

Ralph Amato — Mon, 12 May 2008 17:17:23 +0000

This is the second year in a row that I have witnessed softness in the marketplace for OTCBB shells during the month of May. I have now dubbed this the “May Effect”. Again there are more Sellers of shells than there are Buyers. This is partly due to the influx of new shells coming to market because of their inability to raise capital for their companies. The opportunities to raise capital this year have become more difficult in these economic times. Funding sources are very particular when it comes to funding a PIPE transaction. Companies must now have a sold history of both revenues and earnings and offer cheap valuations to attract capital. Startups are really feeling the pinch and finding it very difficult to get funded. So it is no surprise that companies that fail to attract much needed capital are deciding that it is too expensive to stay public and are opting to take their companies private through the sale of the shell.

This year the quality of the shells and the due diligence packages I have received have greatly improved. So if you are contemplating taking your company public this is by far the best time of year to do so. Just make sure you have a company that has expanding revenues, profits and a solid business plan for growth.

Last year excess shell inventory was swallowed up by smart Buyers and by late June prices returned to their normal levels. By mid summer Buyers were paying substantially higher prices through the end of last year. One shell closed for a $900,000 price tag in December, 2007.

If you are contemplating the purchase of an OTCBB shell give us a call. We can provide several options to fit your circumstances. Please contact Ralph Amato at Ventana Capital Partners at either 858 729 007 or Ralph@ventanacapitalpartners.com .

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