FIRST AMERICA RESOURCES CORPORATION Item 5.06 Change in Shell Company Status
On
The company believes that it does not meet the
The
In SEC Release No. 33-8587, the Commission stated:
We are defining a "shell company" as a registrant with:
· no or nominal operations and
· either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets.
We note that this is an "and" test, not an "or" test. Thus, if the Company has more than no or nominal operations, it is not a shell company, regardless of whether or not it has any assets.
We further note that the test is not based upon revenues but upon operations. A company that has more than nominal operations but has not generated revenues is not a shell company within this definition.
The
To demonstrate that the Commission did not think the term vague or ambiguous, they indicated specifically what would be considered nominal.
[32] We have become aware of a practice in which a promoter of a company and/or affiliates of the promoter appear to place assets or operations within an entity with the intent of causing that entity to fall outside of the definition of "blank check company" in Securities Act Rule 419. The promoter will then seek a business combination transaction for the company, with the assets or operations being returned to the promoter or affiliate upon the completion of that business combination transaction. It is likely that similar schemes will be undertaken with the intention of evading the definition of shell company that we are adopting today. In our view, where promoters (or their affiliates) of a company that would otherwise be a shell company place assets or operations in that company and those assets or operations are returned to the promoter or its affiliates (or an agreement is made to return those assets or operations to the promoter or its affiliates) before, upon completion of, or shortly after a business combination transaction by that company, those assets or operations would be considered "nominal" for purposes of the definition of shell company.
If, then, the company has no intention to place assets or operations in that
company and those assets or operations are returned to the promoter or its
affiliates (or an agreement is made to return those assets or operations to the
promoter or its affiliates) before, upon completion of, or shortly after a
business combination transaction by that company, according to the
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Nonetheless, some confusion arose over the application of the definition to early stage, pre-revenue companies with legitimate business plans that were taking active steps to implement their business plans as opposed to companies with phony business plans that did not take and did not intend to take actions to implement a business plan. To clarify that the shell company definition did not apply in the first situation, early stage, pre-revenue companies with legitimate business plans that were taking active steps to implement their business plans, the Commission in adopting revisions to Rule 144 in Release No. 33-8869 stated:
Contrary to commenters' concerns, Rule 144(i)(1)(i) is not intended to capture a "startup company," or, in other words, a company with a limited operating history, in the definition of a reporting or non-reporting shell company, as we believe that such a company does not meet the condition of having "no or nominal operations."
Thus, the
· The company is early stage, pre-revenue "start up" company with a legitimate business plan that is taking active steps to implement its business plan.
· The company has no intention to place assets or operations in that company and those assets or operations are returned to the promoter or its affiliates (or an agreement is made to return those assets or operations to the promoter or its affiliates) before, upon completion of, or shortly after a business combination transaction by that company.
The Company has more than No or Nominal operations.
The Company has current assets of
We note specifically that the
Future filings will include specific disclosure of the significant, not
nominal, steps the Company has taken and has committed to take to implement its
legitimate business plan to acquire
The Company also intends to initially purchase already income producing properties or properties that will produce rent income in a short period of time, meaning less than three months. The income will be produced by the rent that we will be receiving because we will be the owners of the properties. In order to finance future real estate investments we plan to do additional equity financing, and in addition, we plan to sell some of the properties that we will have acquired at a higher price that we paid in order to buy them using the proceeds in order to buy new properties again at opportunistic prices. Therefore, the profits of our operations will be used in order to acquire new properties.
Investment goals ? Investment portfolio diversification ? Capital appreciation ? A holding period of from four to eight years
Strategy and target markets
It is the owners intention to roll in existing property(s) to be used as capital contributions for the purposes of supporting real estate sales and purchases if support of the Investment Goals stated above.
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We have instructed counsel to prepare an acquisition contract for a commercial property. This property is:
Description: Tract 1 -1.425 Acres, Tract 2 - 2.554 Acres and 72,000SF
facility, Tract 3 - 2.724 Acres and 28,000 SF facility totaling 6.703 acres
and 100,000 SF industrial facility located in the 2nd District , 4th Section
of the City of Cedartown , Polk County, Georgia .
Status: Unoccupied, for rent.
Anticipated Mortgage: Owned Outright
Owner:Value Trade, LLC Current Value:$250,000
Current Mortgage Debt: Zero
We are refocusing our intention initially on acquiring similar properties. However, our ability to do so will depend upon our ability to secure additional equity financing and, if necessary or appropriate, mortgage financing on these properties. We will not acquire any property unless we believe the property will generate sufficient cash flow to cover all operating costs, including mortgage payments.
We also note that the Company is really an extension of the many years of operational history of management, as disclosed in the registration statement as follows: Our president, Jian Li, has significant real estate experience, primarily involving construction and management of various kinds of properties, specifically industrial properties of various type in multiple states. In managing properties, he oversaw purchases, approving leases, maintaining communication with villages or cities to be in compliance with all ordinances. He handled tenant complaints, interviewed perspective tenants, handled roofing issues, plumbing issues, and door issues by hiring outsourced labor. He also handled all accounting issues including maintenance of books and negotiated with banks on loans.
All of the above clearly demonstrates that the Company has significant
operational activities and thus does not meet the definition of a shell company
under the
Management of the Company has no intention of creating a Footnote 32 Shell.
By affidavit of Jian Li, President of the Company, management has sworn under oath that:
· The Company has no intention to place assets or operations in that company and those assets or operations be returned to management or its affiliates and has no agreement or understanding to return those assets or operations to management or its affiliates at any time.
? The Company is not engaged in a scheme to avoid the definition of a shell company through the actions described in Footnote 32 or otherwise.
CONCLUSION Based upon the foregoing: ? The Company has more than no or nominal operations.
? The fact that the Company has no revenues and is a "start up," according to
the
? The Company is not engaged in a scheme to avoid the definition of a shell company through the actions described in Footnote 32 or otherwise.
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