Avoid Investing in Reverse Merger Companies

 Have you heard of a "reverse merger" company?  The SEC describes a reverse merger as : "In a reverse merger transaction, an existing public “shell company,” which is a public reporting company with few or no operations,1 acquires a private operating company—usually one that is seeking access to funding in the U.S. capital markets."  

I got that quote from an SEC investor warning about reverse merger companies.   On the same topic Forbes says in How to Spot a Pump and Dump of reverse mergers that " this variety of reorganization happens to be a common first step in penny stock scams."

There have been some recent problems with reverse mergers.   In that investor warning the SEC says they have suspended trading in several companies because of concerns over the accuracy and completeness of their financial filings.  The list is :
Heli Electronics Corp. (HELI);
China Changjiang Mining & New Energy Co (CHJI)
RINO International Corporation (RINO);
Advanced Refractive Technologies, Inc. (ARFR);
HiEnergy Technologies, Inc. (HIET); and
Digital Youth Network Corp. (DYOUF):

If you'd bought any of these you'd have lost all or virtually all of your money.

Recently there have been several Chinese companies that did reverse mergers with virtually dead US companies merely as a method of getting into the US stock market.   Several of these companies have had some major issues with their financial reporting.  Some people allege that there are Chinese companies perpetrating financial fraud and reporting false information to the SEC. This article claims: 1 in 10 reverse mergers of Chinese firms on US stock exchanges "fraudulent"    I'll leave it for the authorities to decide who is committing fraud and who isn't.   But there is sufficient reason for concern.  For these reasons I would be particularly careful of Chinese reverse merger companies.    Personally I think that buying stock in foreign companies should be left to the experts and that individuals are best to go with index funds if want to buy foreign stocks.

How do you spot reverse merger??  

An article on Chinese reverse mergers says that one way to tell is if they list a 5.06 item in their 8-k filings.   One such example is the 8-k from Rino International which was one of the companies the SEC stopped trading on.  In their 8-k it says:

Item. 5.06   Change in Shell Company Status.

As a result of its acquisition of all of the outstanding capital stock of Innomind and the Restructuring Agreements, as described in Item 2.01, which description is in its entirety incorporated by reference in this Item 5.06 of this Current Report, the Company ceased being a shell company as such term is defined in Rule 12b-2 under the Exchange Act.

THis is a clear sign of a reverse merger.   You may also tell by finding references to a reverse merger specifically in the companies filings.   THey should expose this as a risk element in their financial statements.   Spotting reverse mergers isn't always easy.   For that reason again, in general I'd recommend avoiding buying stock in foreign companies unless you've done good due diligence to investigate them and ensure they are legit.

This is not to say that all reverse mergers are bad.   Its just a financial mechanism.  Some well known names like Atari and US Airways went through reverse mergers.    Unless you're talking about a well known entity then I think that the risks involved in buying a reverse merger company are too high for us normal people and so we should avoid buying into reverse mergers.

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Discount Magazines at Amazon.com

A while back I got a magazine subscription for my wife for a gift.   After shopping around I got the subscription at Amazon.   They had the best price I could find at the time.  However I had to use their magazine subscription service to qualify for the rate.

They have several popular titles for cheap : Magazines under $12 including $5 off select magazines until July 6th.

Some examples :

Popular Science (1-year auto-renewal) for $7
Marie Claire (1-year auto-renewal) for $5
Country Living (1-year auto-renewal) for $7
Good Housekeeping (1-year auto-renewal) for $7.97


I would also try checking the prices using Ebates to get a 26% cash back at Magazines.com.  Some magazines will be cheaper going that route. 

I usually have 1-2 magazine subscriptions on and off.  I get the subscriptions because I like to have a magazine to read on the plane when I'm traveling and in other such situations.  Generally I've found that I spend a lot less with a discounted subscription than I would spend buying 1-2 magazines at the newsstand at full price.  For this reason magazine subscriptions are a good buy for me. 

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Cancer Incident Rates by Age Group

Recently I saw a commenter on The Simple Dollar said something that sounded like he didn't think cancer rates were age related.   As you can see in the data below, cancer rates are very age related.    

I got the data from the National Cancer Institute's Surveillance Epidemiology and End Results SEER website.   The figures are for 2004-2008.

These are the rates of cancer incidence per 100,000 people for each age group.   The low is for years 5-9 when the rate is 11.9 and the peak is at age 80-84 the rate is 2,444.    The incidence rate for the population as a whole is 464.    These incident rates are per year, so people in their early 80's have about a 2% annual rate of being diagnosed with cancer.

This data is for all forms of cancer.   Different types of cancers have different incident rates.  Most cancers follow a pattern similar to the graph.  However there are exceptions, for example testicular cancer in men peaks in the late 20's.