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Risky Business

August 27, 2010

In SEC filings published today, four companies disclose meaningful risks that investors should heed. These risks also shed light on the challenges facing businesses in different operating environments.

  • American Business Change Agents – This Georgia company incorporated in Nevada is issuing a Best Efforts offering with the goal of raising a maximum of $12,000. The company proposes to offer strategic business planning and management consulting services to small businesses. Risks include:
    • its status as a shell company with no meaningful assets or revenue
    • a high risk of business failure
    • a CEO and CFO who has lacks accounting and financial reporting experience
    • governance by only two directors, who are related to each other
    • aggregate proceeds ($12,000) less than the cost of the offering ($65,000)
  • American Realty Capital Healthcare Trust Inc. – This company is a medical real estate investment trust seeking to raise a maximum of $1.5 billion. Its business risks include:
    • financial uncertainty of potential tenants due to adverse trends in the healthcare industry, including reductions in reimbursements from third-party payors
    • officers and directors with conflicts of interest
    • no prior operating history or established financing sources
    • no ability to calculate net asset value per share for investors until 18 months after the shares are purchased
  • Chemtura Corp. – This company is a leading diversified global developer, manufacturer and marketer of performance-driven engineered specialty chemicals emerging from Chapter 11 bankruptcy. The company is seeking to raise up to $100 million from this offering. Risks include:
    • significant indebtedness that accompanies the company’s emergence from bankruptcy
    • adverse impact of the drilling moratorium in the Gulf of Mexico on the company’s flame retardants business
  • China Oumei Real Estate Inc. – This company faces many risks unique to real estate development in the People’s Republic of China:
    • Cayman Islands incorporation leaves investors without many protections common to incorporation in the United States
    • the common practice in China of pre-sale of property exposes the company to liabilities
    • policies of the PRC government designed to cool down the housing market may adversely affect the company
    • the company is dependent on the performance of the residential property market in China, which is still in an early stage of development
    • the property development market in China is extremely competitive, with state-owned enterprises entering the fray
    • the company’s future ability to acquire land use rights from the PRC government remains uncertain
    • business insurance in China offers limited coverage for damages and losses the company might suffer
    • the company faces significant short-term debt obligations

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