Shell Sum­mary for July 17, 2017

Stockwatch Daily - - SHELLS - By Stock­watch Busi­ness Reporter

THE TSX Ven­ture Ex­change gained 4.80 points to 762.32 Mon­day. Nathan Smith’s cap­i­tal pool shell, Value Cap­i­tal Trust (VLU), be­gan trad­ing to­day. It reached an in­tra­day high of 17 cents be­fore clos­ing at 15.5 cents on 90,000 shares. Value Cap­i­tal sold a $500,000 ini­tial pub­lic of­fer­ing of trust units at 10 cents, through Ech­e­lon Wealth Part­ners Inc.

The shell is a mu­tual fund trust, rather than a cor­po­ra­tion, be­cause the trust struc­ture of­fers ben­e­fits for the type of qual­i­fy­ing trans­ac­tion which the shell has in mind: Value Cap­i­tal plans to seek a real es­tate deal.

Mr. Smith is an ac­coun­tant in the Cay­man Is­lands and a first-time shell-maker. He is a di­rec­tor and the chief fi­nan­cial of­fi­cer of 60 De­grees Group SEZC Ltd., an in­vest­ment ad­vi­sory firm. Be­tween Septem­ber, 2010, and July, 2013, he was a man­ager at Price­wa­ter­house Coop­ers on Grand Cay­man Is­land.

Mr. Smith’s fe llow shell trustees are Jor­dan Calonego, David Beckow and An­thony Dut­ton. Mr. Calonego is a char­tered fi­nan­cial an­a­lyst in Thun der Bay, Ont. Mr. Beckow is a di­rec­tor of Pareto Cap­i­tal Part­ners Ltd., a real es­tate in­vest­ment and ad­vi­sory firm in Van­cou­ver. Mr. Dut­ton is the prin­ci­pal of Delu Corp., a fi­nan­cial ad­vi­sory firm in Van­cou­ver. He is also a di­rec­tor of Trakopo­lis IoT Corp. (TRAK: $1.05), a lo­gis­tics soft­ware com­pany.

Robert Far­rell’s shell grad­u­ate and phar­ma­ceu­ti­cal mar­i­juana pro­mo­tion, Ka­lytera Ther­a­peu­tics Inc. (KALY), rose 0.5 cent to 14.5 cents on 393,723 shares. It con­tin­ues to con­duct clin­i­cal stud­ies on a po­ten­tial mar­i­juana-based drug treat­ment — mar­i­juana in a pill — for graft-ver­sus-host dis­ease. This dis­ease typ­i­cally af­fects pa­tients who have un­der­gone a bone mar­row trans­plant. The com­pany has changed its goal to a much more im­pres­sive med­i­cal ac­com­plish­ment than be­fore, when it orig­i­nally planned to go pub­lic. Ini­tially, it was hop­ing to de­velop mar­i­juana-based drugs for treat­ing bone frac­tures and os­teo­poro­sis.

Ka­lytera went pub­lic in Jan­uary, 2017, through An­drew DeFrancesco’s NEX shell, Santa Maria Pe­tro­leum Inc. In con­nec­tion with the launch of Ka­lytera, the shell sold two pri­vate place­ments at 40

cents, rais­ing a com­bined $8.33-mil­lion. There were 54 sub­scribers to one of the pri­vate place­ments and seven to the other. None of the sub­scribers was an in­sider, so all their names are hid­den. Who­ever they might be, they are down on their in­vest­ment. Mr. DeFrancesco, a for­mer bro­ker and oc­ca­sional shell-pack­ager, did not join the board of Ka­lytera. He is no longer a di­rec­tor of any pub­lic com­pany. He keeps busy as the chair­man and chief ex­ec­u­tive of­fi­cer of the Delavaco Group, a pri­vate eq­uity firm in Fort Laud­erdale, Fla.

Ka­lytera’s Mr. Far­rell is a lawyer in San Fran­cisco. From 1996 to 2008, he was the CFO of Nas­daq-listed Ti­tan Phar­ma­ceu­ti­cals Inc. (TTNP: $4.30 (U.S.)). Then from 2008 to 2009, he was its pres­i­dent. Ti­tan man­u­fac­tures a skin im plant t hat treats opi­oid ad­dic­tion. Un­der Mr. Far­rell’s lead­er­ship (be­fore the com­pany re­ceived U.S. Food and Drug Ad­min­is­tra­tion ap­proval for the im­plant), Ti­tan peaked at $2.49 (U.S.).

The share­hold­ers of El­lip­siz Com­mu­ni­ca­tions Ltd. (ECT: $0.02), a shell grad­u­ate and Tai­wanese telco, have re­jected Michael Koh’s pro­posal to re­move three direc­tors: Grant Saw­iak, El­liott Ja­cob­son and Mark Korol. Mr. Koh, an elec­tri­cal en­gi­neer, is the com­pany’s chair­man and largest share­holder. He took El­lip­siz pub­lic in Novem­ber, 2015, through an­other NEX shell of Mr. DeFrancesco: NXA Inc. The shell did not sell a pri­vate place­ment in con­nec­tion with the launch of El­lip­siz, but the tar­get did. In Oc­to­ber, 2015, the then-pri­vate El­lip­siz sold a $1.24-mil­lion (U.S.) pri­vate place­ment of 112,900 subscription re­ceipts at a costly $11 (U.S.). Each re­ceipt was con­vert­ible into one share. Mr. Koh bought 500 subscription re­ceipts. His pro­posal to re­move the three direc­tors comes from his dis­ap­point­ment over El­lip­siz’s share price per­for­mance.

Mr. Koh’s loss from the pri­vate place­ment (about $7,000) is much less than that of an­other sub­scriber, Hong Kong res­i­dent Chi­ang-sen Chang, a for­mer di­rec­tor of the pri­vate El­lip­siz. Mr. Chang bought 54,686 subscription re­ceipts. Based on to­day’s clos­ing price, he is down by about $762,870. Only one more sub­scriber is known: Van­cou­ver res­i­dent Nel­son Lin, who bought 500 subscription re­ceipts. Mr. Lin is the pres­i­dent of a soft­ware com­pany called Robocoder Corp. He also owns a web­site called Den­trader that pre­dicts the move­ment of ma­jor in­dexes and of­fers trad­ing strate­gies.

The board of El­lip­siz re­mains in­tact. Mr. Koh is still on it. He also con­tin­ues to hold 42 per cent of the com­pany’s shares. Ac­cord­ing to El­lip­siz’s news re­lease fol­low­ing the share­hold­ers meet­ing, there are “trans­gres­sions of se­cu­ri­ties laws and reg­u­la­tions, al­legedly com­mit­ted by Koh while serv­ing as a di­rec­tor of pub­lic com­pa­nies in Asia.” The news re­lease does not pro­vide de­tails, but it adds, “In De­cem­ber of last year, the al­leged mis­con­duct en­gaged in by Koh was brought to the at­ten­tion of both the [On­tario Se­cu­ri­ties Com­mis­sion] and TSX-V, but to date the com­pany is un­aware of any ac­tion be­ing taken by ei­ther reg­u­la­tor.”

Mr. Saw­iak is a se­cu­ri­ties lawyer with Fogler, Ru­bi­noff LLP in Toronto. Mr. Ja­cob­son is an ac­coun­tant who pro­vides his ser­vices through El­liott M. Ja­cob­son & As­so­ci­ates Ltd., also in Toronto. Mr. Korol is a char­tered fi­nan­cial an­a­lyst in Toronto.


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