May 27, 2004
May 26, 2004
Division of Corporate Finance
United States Securities and Exchange Commission
450 5th Ave. NW
Washington D.C. 20549
Re: Proposed release 33-8407
To Whom it May Concern:
This letter is in comment to proposed rules regarding the use of Registration Form S-8 pursuant to the Securities Act of 1933, and Form 8-K of the Securities and Exchange Act of 1934. This firm represents a number of issuers who are listed in the OTCBB, and have used both Form S-8 for registering shares, as well as Form 8-K for business combinations. I believe that we are familiar with the use of both of these forms.
There is no doubt in my mind that there continues to be abuse of Form S-8, even after the restrictions on its use were instituted by the Commission in previous rules adopted in 1999. However, I believe it is inappropriate to completely remove the ability of companies without substantial assets from using Form S-8.
Many companies on the OTCBB are under development. Yes, there are certain shell companies that exist for nothing more than a reverse merger opportunity. However, many OTCBB companies without substantial assets are attempting to develop their respective business models. Some of those companies will be unsuccessful in that development process, and will have to look for a potential merger candidate to survive. However, these developing companies often have limited cash by which they can pay employees, attorneys and other individuals to assist them in their business development. And with the increasing costs of audit compliance, which must be paid for in cash, there will be additional strain on those companies with limited cash resources. Existing shareholders may suffer from a companys inability to pay executives or others reasonable compensation by way of an efficient registration process.
I agree with another suggestion which would limit the amount that a shell company can register to a percentage of the companys outstanding stock. This would prevent the company from issuing substantial stock to its officers, directors and other consultants in an indirect attempt to take control of the company, and prevent excessive shareholder dilution. A 20 threshold seems reasonable in this context.
As to the restrictions on Form 8-K regarding business accommodations, my experience suggests that such a proposal has merit. Unfortunately, many companies that are considering merger opportunities find it difficult to both complete a three 3 year audit and maintain a quiet period. I would like to suggest that the time frame for filing the audit be reduced from additional sixty five 65 days to thirty 30 days. This would balance both interests, but avoid the reverse merger between shells and companies that have difficulty with any audit.
Thank you for the opportunity to submit comments to the Commission regarding these issues.
Very truly yours,
PARSONS LAW FIRM
/s/ James B. Parsons
JAMES B. PARSONS