Shell Stocks

[Stock]

Posted by: SSP
In reply to: Jim Bishop who wrote msg# 112823 Date:1/17/2007 10:32:31 PM
Post #of 112824

SEC Rule Change Will Impact Mergers With “Shell Companies”

July 7, 2005 - Last week, in a long anticipated move, the U.S. Securities and Exchange Commission (SEC) passed its rule change which impacts privately-held companies merging or being acquired by shell companies.

The proposed rule change was initially published by the SEC in August 2004, and many Wall Street insiders had wondered whether the rule change would ever be enacted. The rule change will become effective on November 7, 2005.

The rule change requires a reporting shell company to file a Form 8K within four days of the closing of the merger or share exchange agreement with the private company. This Form 8K must include audited financial statements and “full prospectus equivalent disclosure” including management, risk factors, management, and the private company’s business.

Filing the Form 8K within the four day period will be a virtual impossibility for most privately-held companies merging with a shell company, primarily due to the audit requirement. The audit not only will have to include the financial results of the publicly-held shell company, but also the financial results of the private company’s operations, consolidated with the publicly-held shell company.

In recent months many shell companies have sold for $350,000 to $650,000. Many Wall Street insiders believe that this SEC rule change will greatly decrease the value of shells, if not make shell companies essentially worthless.

In commenting on the rule change, Jeffrey Friedland, Managing Director of Friedland Capital commented, “When we learned of the SEC proposed rule change last August, we designed our “Micro IPO Program” as an alternative for privately-held companies contemplating a merger with shell companies. Now, with the SEC rule changes soon to take effect, Friedland Capital’s “Micro IPO Program” may be one of the few viable alternatives left for privately-companies seeking to become publicly- traded.”

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