Legal

• Reverse Mergers Attract Foreign Companies – Part 10- This entry is part 10 of 10 in the series Reverse Mergers Attract Foreign CompaniesForeign deals are valued differently than US deals. The goal for the foreign company is not to get listed on the OTCBB but to gain listing on an exchange like AMEX or NASDAQ. To do this they have to demonstrate earnings [...]
• Reverse Mergers Attract Foreign Companies – Part 9- Investment in a foreign company is treated in a much different manner. This is due the inherent risk factors. Investors are keenly aware they have little recourse if a foreign company does not perform. Most of these emerging growth companies are located in BRIC (Brazil, Russia, India, China) countries. Those countries do not have an [...]
• Reverse Mergers Attract Foreign Companies – Part 8- There terms and conditions of financing a US based versus foreign company are as different as night and day. Most US based companies have a tendency to give their companies much higher valuations than they deserve. Investors are usually split into two camps. Either they want a company that has revenues, profits and large growth [...]
• Reverse Mergers Attract Foreign Companies – Part 7- The thought processes of going public through a reverse merger are quite different for foreign companies versus their US counterparts. Consideration of revenues and profits of foreign companies differ greatly from the investor’s point of view. Most foreign companies will not try to attempt a reverse merger or financing unless they have a minimum of [...]
• Reverse Mergers Attract Foreign Companies – Part 6- There are many cultural differences between US investors and management of foreign companies. US investors have certain expectations when they make an investment in a company, regardless whether it is foreign or domestic. In most cases they expect a substantial ROI in less than 24 months. US investors want to see returns as soon as [...]
• Reverse Mergers Attract Foreign Companies – Part 2- There are some startling differences between a US based company performing a reverse merger into an OTCBB shell and a foreign company performing the same transaction. US based companies may or may not be revenue producing and profitable. Most foreign companies have a history, are profitable and have strong potential growth. Both US and foreign [...]
• Do you believe Oil prices are being manipulated by energy traders
• 8 Frugal Tips for Legal Matters-

  “The good lawyer is not the man who has an eye to every side and angle of contingency, and qualifies all his qualifications, but who throws himself on your part so heartily, that he can get you out of a scrape.” - Ralph Waldo Emerson

  I recently was asked some questions from readers about legal matters, especially when it comes to trying to deal with legal matters while living on a budget. As these things are a bit beyond my level of expertise, I turned to a friend, Andrew Flusche, a lawyer in Virginia who has done some excellent work for me in some of my online ventures. In addition to being a good lawyer, he’s a great guy, and someone I trust, and intelligent to boot.

  I asked him for some frugal tips for people dealing with legal matters, and what follows are some of his suggestions and thoughts, in his words.

  1. Do you need a lawyer?

• Patent Litigation Under a Future Biosimilars Act-
  Biopharmaceuticals, such as Epogen® (epoetin) and Erbitux® (cetuximab), are becoming increasingly important for the treatment of disease. U.S. sales of such drugs were about $40 billion in 2006 and are expected to rise to over $90 billion in 2009. Accordingly, political pressure is building to allow the sale of “biosimilar” drugs. Inspired by the success of the Hatch-Waxman Act, which has led to the wide use of generic “small molecule” drugs, four different biosimilars bills have been introduced in Congress in the past fifteen months. Three of the proposed bills would establish a complex scheme for patent litigation between brand-name and generic biopharmaceutical companies, especially as compared to the Hatch-Waxman Act.
  

  
  Hatch-Waxman Act
• Quebec Court reminds that shareholders aren’t the only stakeholders-

  The Quebec Appeal Court has sided with BCE’s bondholders. The proposed BCE LBO lenders are meeting in New York with OTPPB, Madison Dearborn and Providence to see if they can agree on the debt covenants. And that was just yesterday’s news. Are we having fun yet?

  As lenders, we occassionally find ourselves waxing philosophically with various lawyers regarding the “duties” that a Board of Directors owes to the various “stakeholders” in a business.

  There are the shareholders, of course. But then you have the creditors, employees and customers as well. Shareholders aren’t the only ones with capital in the business, and although they enjoy all of the upside when things work out, they certainly aren’t alone on the downside when they don’t.

  Employees lose their jobs (although Directors may need to make good on their accrued vacation pay, for example). Customers can get caught without key supplies. Lenders can get wiped out.

• Buying OTCBB Shells – The May Effect- 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 [...]
• OTCBB Shells – Buyer Beware – Part 10- Conclusion Hopefully after having read my ten part series both Buyers and Sellers of OTCBB shells will understand that it is very important to have someone looking out for your interests before during and after the sale or purchase of a shell. Shells are costly so why take chances? As they say an ounce of prevention [...]
• OTCBB Shells – Buyer Beware – Part 9- Sellers Transaction Concerns The Seller usually has three basic concerns when it comes to selling his shell. 1. Is the Buyer backing a legitimate company into his OTCBB shell? 2. Does the Buyer have the money to close on the shell? 3. Will his due diligence package satisfy Buyers counsel? Ventana [...]
• OTCBB Shells – Buyer Beware – Part 8- The Due Diligence Package The proper preparation of the due diligence package also saves the Buyer a substantial amount of money on due diligence review. Many times we have seen Buyers spend several thousand dollars on the review of a shell by their counsel only to find out the Seller can not provide adequate due diligence [...]
• OTCBB Shells – Buyer Beware – Part 7- Pre Sale Due Diligence Proper preparation of the due diligence package is essential to both the Buyer and the Seller. For the Seller it allows him to prepare all of the documents in advance of the sale of the shell and locate any missing pieces. To my company, Ventana Capital Partners, it exhibits that the Seller [...]
• OTCBB Shells ??? Buyer Beware ??? Part 3- After the Sale In two recent sales of shells where my company, Ventana Capital Partners, represented the Seller of the shell we had to track down the previous Sellers to provide additional information to the Buyer???s counsel.?? In both cases the Buyers representative was nowhere to be found after the sale.?? I was contacted directly by [...]
• OTCBB Shells ??? Buyer Beware ??? Part 1- This entry is part 1 of 1 in the series OTCBB Shells ??? Buyer BewareWhen purchasing an OTCBB shell there is more to consider than price alone. There are many individuals trying to sell shells to potential Buyers that are totally clueless about what they are selling. In many instances the finder has [...]
• Harvard Club Equity Conference ??? Part 7- There was much discussion about Chinese companies seeking listing on the OTCBB. Last year 69 companies originating out of China did a reverse merger into an OTCBB shell. There are a tremendous number of private companies with a history of revenues and profits that are looking to US markets to gain much needed access to [...]
• Harvard Club Equity Conference ??? Part 6- The conference had several speakers addressing issues concerning Reverse Mergers and Form 10 shells. Form 10, or ???virgin shells??? as they are sometimes called, consist of a blank check S1 that has been reviewed by the SEC. The Form 10 shell does shorten the SEC review process ??? but not by much. A company still [...]
• Harvard Club Equity Conference ??? Part 5- One conference topic regarded alternative listing strategies, such as the AIM London Stock Exchange. I have written a series on this subject and covered its merits in depth (see AIM under the Categories section). The plus side is their regulatory requirements are rather lax compared to the US Securities and Exchange Commission and [...]
• Harvard Club Equity Conference ??? Part 4- Your company???s current status will determine which course of action to take when it comes to going public.?? I suggest an S1 registration statement over a reverse merger when the company is a startup or still in the developmental stage process (non-revenue producing).?? The reasons are as follows: Most startups need to conserve their finances for [...]
• Five Ways to Find the Best Stock Picks- There is no doubt that penny stocks are a risky and thinly traded breed of stocks issued by relatively tiny companies. Also, the SEC does not require penny stocks to follow their reporting rules. This combined with unclear or unverifiable financials can make this stock seem like something to avoid altogether. Penny stocks can be dangerous for investors of all experience levels but especially for amateurs just getting their feet wet. 1. Profit
• FAS 157 and Marking to Market-

  A few months ago we wrote some articles pointing out the misconceptions around the new FAS 157 accounting standard.  (This one is a good example, with links to prior articles as well).

  The FAS 157 accounting standard requires companies use actual market data rather than models when possible, providing different levels of treatment.  Level III assets are valued by model, but only when there is no comparable trading.  The nature of the business means that specific bonds of specific companies may not be trading much, so there the modeled assets are large.

• When a Direct Public Offering is the Right Choice-

  There are certain circumstances where it is in the best interests of a company to perform a Direct Public Offering or DPO instead of the reverse merger. If your company is a startup or a development stage company, has little or no revenues or profits then the best route could be a DPO. This gives the emerging growth company additional time to gain traction with its business model while simultaneously experiencing the going public process. Taking your company public requires the company to file an S1 registration statement with the SEC. From there you will slowly work your way through the process of several rounds of SEC review and comments followed by responses by your company’s counsel before your registration statement goes effective (is approved). This process is long and tedious and usually takes nine months to one year from start to finish.

• Direct Public Offering – Part I- I am contacted by entrepreneurs that inquire about purchasing an OTCBB shell for a reverse merger for their company. In many cases, after an initial discussion, it becomes obvious an alternative course of action would be best suited for reaching their goals and taking their company public. One of those alternative options is a Direct [...]
• District Court Upholds Validity of P&G's Actonel Patent, Rejecting Teva's Obviousness Arguments-

  Proctor & Gamble v. Teva Pharms. USA, No. 04-940 (D. Del. 2008)

  Late last month, the U.S. District Court for the District of Delaware (J. Farnan) upheld the validity of Proctor & Gamble's U.S. Patent No. 5,583,122, which claims risedronate sodium, the active ingredient in Actonel.  Teva had challenged the '122 patent in a paragraph IV certification in its ANDA.  P&G's U.S. sales of Actonel, which is indicated for the prevention and treatment of osteoporosis, were approximately $1 billion last year.

• IPO Alternatives: London Stock Exchange AIM-

  Listing on AIM

  The biggest difference between a US listed company and an AIM listed company; NO Sarbanes-Oxley compliance. Listing on AIM eliminates the SEC governmental review process of the prospectus, the multitude of periodic regulatory filings and mandatory financial reporting requirements.

• IPO Alternatives: London Stock Exchange AIM - Part 6- Listing on AIM In the U.S., the IPO or DPO prospectus has to go through several SEC comment letters and responses before the company’s registration statement can become effective (approved). The Company must then either file a 15-C2-11 with FINRA to gain trading status on the OTCBB or if it qualifies and is raising capital [...]
• IPO Alternatives: London Stock Exchange AIM - Part 4- AIM Overview AIM, operated by the London Stock Exchange, tends to work best for companies that have a capitalization and valuation from $20MM US to $300MM US. Filing or entry costs, excluding fundraising, are approximately $600,000 US, with ongoing yearly costs of around $100,000. Capital raisings activities tend to be in the $4MM to $40MM US [...]
• IPO Alternatives: London Stock Exchange AIM - Part 2- At last month’s World Economic Forum which was held in Davos, Switzerland, John Thain, CEO of the New York Stock Exchange, took a direct shot at AIM for what he considered as a lack of regulatory guidance. He was quoted as saying “AIM did not have any standards at all and anyone could list”. The [...]
• Shell Companies and Rule 144- I recently read an explanation from Perkins Coie law firm concerning Rule 144 and how it affects OTCBB companies that file as “shell companies”. Here is a direct quote issued by the firm: January 22, 2008 Shell Company Securities. “Rule 144 generally may not be relied on for the resale of securities [...]
• Shell Mergers for 2007 Part VII- CHINESE Reverse Mergers for 2007 China’s State Administration of Foreign Exchange issued a rule entitled Circular 106 which went into effect in the summer of 2007. The new rule required Chinese companies that set up offshore entities for domestic investment to receive approval from Chinese regulators prior to establishing such offshore jurisdiction. At first it was [...]
• Shell Mergers for 2007 Part IV-

  The fourth quarter of 2007 was the busiest season for reverse mergers. There were 71 deals brought to market but the average market cap per deal dropped 16% from the previous quarter to $37.3 million. We have also seen greater participation of foreign companies using reverse mergers to get their companies listed in the US markets. The OTCBB shell is the perfect vehicle for these companies. It is no secret the SEC is very stringent in their review and approval process of foreign companies seeking to gain entry in the US; especially if the company is from China. A reverse merger into an OTCBB shell allows these companies access to the US markets much quicker than if they chose to file a traditional registration statement with the SEC. I must say the recent deals I have witnessed coming to market from China have been stellar. The companies have a history of success, strong revenues and profits, and they bring their companies to market at low PE ratio’s hoping the stock will trade above $4.00 per share so they can eventually gain listing on an exchange.

• Fraud, A Blemmish on the White Collar of America-

  Edwin H. Sutherland, who is one of the most influential criminologists of the first half of the twentieth century defined white collar crime as “a crime committed by a person of respectability and high social status in the course of his occupation.”

  According to the IRS website, fraud on the corporate level, encompasses violations of the Internal Revenue Code (meaning mostly taxes) and related statues committed by large, publicly or privately traded corporation and/or by the senior executives. There are incredibly strict laws governing such crimes, and high profile cases such as Wesley Snipes recent tax evasion case have grown in scope of late.

• OTCBB Shells – The Reverse Merger Process - Part VIII-

  Closing on the Shell

  Upon the closing your SEC attorney has now received all of the due diligence on the shell his client (the “Buyer”). The attorney has also received all of the stock certificates with signed (and usually with gold medallion guaranteed signatures) stock powers from all of the Sellers.

• OTCBB Shells – The Reverse Merger Process - Part VII-

  Examination of Shell Due Diligence by Buyer

• Shell Companies - Start-ups No Longer Considered “Shells”-

  The SEC recently stated in a release concerning “footnote 172 shells” that a start-up company does not necessarily fit the definition of a “shell company”. When a publicly traded OTCBB company files with the SEC as a “shell company” or subsequently checks the box as a shell company on its 10Q or 10K filings then the company is still subject to the one-year hold versus the new six-month period for companies who do not check the box. Back in 2005 the SEC defined a shell company as having no or nominal assets (other than cash) and no or nominal operations.

• OTCBB Shells – The Reverse Merger Process - Part X-

  Promoting Your New Public Company

  This is a great time for the Buyer to start getting the word out to the investing public about their company. The best way to do this is to hire an investor relations (“IR”) or public relations (“PR”) professional. Personally, I prefer the PR route versus the IR.

  Investor Relations Firms

• OTCBB Shells – The Reverse Merger Process – Part VI-

  Preparation of Shell Due Diligence by Seller

  After your initial review of the shell you and your SEC attorney will perform a complete due diligence review. For Ventana Capital Partners clients we use a ten page due diligence questionnaire that we have the Seller complete before we ever approach a Buyer. We do this for several reasons.

• OTCBB Shells – The Reverse Merger Process – Part V-

  Preliminary Review of the Shell Corporate Profile

• OTCBB Shells – The Reverse Merger Process – Part III-

  Purchasing the Shell

  The protocol for purchasing an OTCBB shell is as follows:

  1. Buyer will receive a “Corporate Shell Profile” from the Seller or Sellers Representative.

  2. After a successful review of the shell by Buyers and his SEC attorney Buyer will enter into Letter of Intent (“LOI”) for the purchase of the shell.

  3. OTCBB Shells – The Reverse Merger Process – Part II-

     Shareholders

  4. OTCBB Shells – The Reverse Merger Process – Part I-

     When contemplating the purchase of an OTCBB shell you first need to analyze what type of shell best suits your company. Shells come in a variety of structures and in many cases the structure will determine the pricing of the shell.

  5. Has Justice Robert J. Sharpe put process before truth in libel ruling?-

     In a single, Titantic decision last week, the Ontario Court of Appeal may have gone against Canada’s own Supreme Court and sacrificied more than 100 years of libel law jurisprudence at the altar of the Charter of Rights and Freedoms. The impact, if other judges read the decision the way some observers have, will be far-reaching and survive for decades. Every subject of a tough news story or opinion piece, particularly public company executives and individuals in the public limelight, may suffer as a result.

  6. Industry Service Organizations- Organizations such as banks, clearing, depository, market or reference data and message standards have considerable expertise and play a critical role in the post trade through asset servicing lifecycle. We believe that these organizations are under-utilized and are a potential resource as the US financial community strives for greater efficiencies. In the late 1960’s CCS, a [...]
  7. AML – Anti-Money Laundering – USA PATRIOT ACT- The USA PATRIOT ACT seriously impacted firms and required that many new account processes be modified to verify the identity of clients – Self Regulatory Organizations (SROs) are now focusing on this to ensure that firms have integrated and are following this identify verification into their account opening process. As a “Qualfied Third Party”, we have [...]