May 20, 2014: The Rainbow International, Corp. (RNBI) promotion was launched almost a week ago and it looks to to be an extended effort. It's a relative rarity among promos in that the company's being touted by a well-known pumper, Pennystocks.com, but the identity of Pennystocks' client can't even be guessed at. Most promotions are financed by the company itself, or, more often, by some kind of insider--a holder of convertible debt, an associate of a predecessor company who still owns stock--who has a large position he wants to dump for a profit. And a profit is made, because those people paid little or nothing for their shares. They only need sufficient volume to sell into. Company filings usually offer clues suggesting who those people may be. In this case, there are none. Pennystocks.com doesn't even identify its "third party" payor.
Curiously, the following day saw very little trading--only 8,550 shares--and the price stayed flat at $0.30. For the next five sessions it mostly declined. And then, without a single press release having ever been issued by the company, the promo began.
Rainbow International, Corp.
Though RNBI has undergone two changes of control in a little less than three years, it hasn't bothered to change its name. Not even to get rid of that annoying misplaced comma. The company was formed in Nevada on 22 April 2011. The founder was Validmir Bibik, a young man--he was only 26 at the time--living in Brno in the Czech Republic. As the company's initial S-1 explains, Bibik had a day job: he ran a business installing and operating "amusement machines" in public venues. He planned to spend 20 hours a week getting RNBI up and running.
His idea was to create a website from which he'd sell Bohemian crystal in Europe and North America. To that end, he'd signed an agreement with a Czech wholesale crystal distributor called Autodily Rachot, S.R.O.; it would be good until 31 December 2012, and could be renewed at that time. Bibik would resell the crystal at a ten to fifteen percent markup.
Bibik was the sole officer and director; he'd purchased 3 million shares of the company's stock for $3000, at a price of $0.001 per share. The S-1 offering was for 2 million shares priced at $0.04; with luck, it would raise $80,000 for RNBI. In the filing, Bibik declared that the company was a shell. In a comment letter, an SEC examiner pointed out that it needed to be made clear that RNBI was a blank check company, since it had no operations. In reply, Attorney Thomas Puzzo objected that it had a business plan and an agreement with Autodily Rachot, and so was not a blank check. Following up, the examiner made no objection to Puzzo's interpretation. The S-1 was deemed effective on 14 September 2011.
It was a modest venture, and perhaps not ready for prime time. As of 29 February 2012, Bibik had sold only 540,000 shares of the S-1 offering, for a mere $21,600. And so he arranged to sell the shell; striking a deal that was set up before 26 March, but not announced until 22 August.
On 26 March, a stock purchase agreement was executed between the company, which was represented by one Donald Perks, and Aslan Ozer, who owned all of the member interests of Aslany Madencilik Sanayi Ve Ticaret Limited Sirketi (Aslany Mining Trade and Ind. Limited Co.) a mining exploration company registered in Turkey in April 2012. Though it's explained nowhere in the documents, Vladimir Bibik had evidently agreed to turn over the RNBI shell to Perks, who then sold 2.5 million shares of the company's stock to Ozer. What isn't at all clear is the sequence of events. According to the 22 August 8-K, on 26 March, Ermine Ozer acquired 2,856,312 common shares, or 80.69 percent control. On 15 May, RNBI authorized the issuance of 2,207,508 million shares to Aslan Ozer, Ermine's brother, for $264,867 in cash. On 31 July, RNBI authorized the issuance of 2.5 million shares to Aslan Ozer for the purchase of Aslanay. And so Aslan became the company's majority shareholder, with 57 percent interest. At that date, Aslan's stock had not yet been issued.
The negotiations leading up to all this were not conducted by Bibik. The deal was apparently put in motion by Donald Perks. On 1 April 2012, Bibik resigned, having first appointed Perks sole officer and director of the company. There is no indication of what consideration Bibik received, or of whether he retained any stock. If he was still a shareholder, his holding must have been very small. The numbers and the stock ownership are less than crystal clear, but apparently once everything was completed, Ermine had turned over her stock to Aslan.
Aslany Mining Trade already owned some claims; they're described in the 8-K. There's much more about that in the 10-K filed on 12 September 2012. Under Perks's leadership, a geologist was hired to make some preliminary studies, but nothing more was done. Initially, Perks was paid no salary, but did somehow receive 143,688 shares of common.
Perks, who had some previous experience in the mining business, did not make a go of Aslany. He was also the founder and an officer and director of Canada Pay Phone, a telecommunications company, so it may be wondered just where his competency lies. By mid-2013, even a 400:1 forward split couldn't stimulate penny players' interest. By October of that year, RNBI's accountant had informed the company that three quarterlies needed to be restated because they couldn't be relied upon due to incorrect accounting for the reverse merger. By that time, thanks to the forward split, there were 273.5 million shares outstanding.
Because of the accounting mess, the merger with Aslany was terminated effective 31 May 2013, and the shares issued in connection with it were cancelled. Nonetheless, Alsan Ozer still held 80 million shares, and his wife Lucia 112 million. Together they owned 71% of the company. The SEC was not happy with the 10-K the company filed to explain all that, and on 15 January 2014 sent a comment letter in which the examiner noted that "it does not appear that you have taken any steps in furtherance of your business plan." He went on to explain that "future filings should indicate you are a shell company with no mining or any other business related assets, and extraneous inapplicable disclosure should be avoided."
It was game over for Rainbow, at least in its incarnation as a mining exploration company. It was time to find a new buyer.
Enter Donald Corn
Coloradan Donald Corn stepped up to the plate. On 1 May 2014--just a few short weeks ago--he purchased the RNBI shell from Perks for $25,000. The transaction was memorialized in an 8-K filed on 5 May. By the terms of the stock purchase agreement, for his $25,000 Corn got control of the shell, in the form of Perk's 57,475,200 common shares and 5 million Series A preferred. Over the past couple of years, Perks had made a few loans to the company to keep it going; as a further inducement to Corn, he agreed to waive his right to any monies due him.
In addition, Aslan and Lucia Ozer retired their 192 million shares, leaving RNBI with 81,475,200 shares outstanding. Corn became the company's majority shareholder with a 70.54 percent holding. Perks appointed Corn sole officer and director, and then Perks resigned all of his offices.
|Mr. and Mrs. Donald Corn|
In an 8-K filed on 12 May, Corn explained that he's also interested in formulating a line of products high in cannabidiol (CBD) that will be used to treat pain. He got started on that before buying the RNBI shell, registering a company called PainFree Corporation in Colorado on 31 January.
website, but it's clear that the operation isn't yet up and running. Much of its content is explanatory, describing what Corn hopes to do and eventually to sell. Now that site has been joined by a new one dedicated to Rainbow International; evidently he doesn't plan to change the company name. The domain was registered on 1 May, the day he took over RNBI. Much of the information provided is identical to that found at the PainFree site.
We wonder if Corn realizes that his shell is really that: a blank check company, as defined by the SEC. What he may have thought was a bargain--a fully-reporting vehicle for a mere $25,000--could turn out to be problematic for him in the longer term. Earlier this year the SEC made it painfully clear that when submitting financial reports, RNBI must check "yes" to the shell company question. As a result of its status, Rainbow will be unable to sell unregistered stock using Regulation D or Regulation S, because Rule 144 is not available to shells. To fix that problem, Corn will have to take some steps to get a business going, and then declare that the company is no longer a shell. A year later, Rule 144 will become available to it.
In the meanwhile, if he wants to raise money by selling stock, he'll have to register that stock in an S-1 offering.
The promo of RNBI is the work of the once-famous Pennystocks.com. Pennystocks is familiar to nearly all OTC traders as one of the flagship sites of Awesome Penny Stocks. With the outing of John Babikian as the Man Behind the Curtain at APS, all of the sites either shut down or were transferred to new management. Pennystocks.com is apparently one of the latter. The domain was sold to APS by Peter Leeds to an anonymous entity--obviously connected to Babikian--during the summer of 2012. Although Leeds's name still appears on the registration as email contact, he told us the other day that he didn't take back the domain, and has had nothing to do with it since the sale. We believe him.
website has been redesigned since its APS days. The success rate of its pumps has plummeted. Whoever's running the operation now doesn't know how to wow his audience, nor does he know how to generate the kind of volume APS was famous for.
The email alerts for the RNBI pump are signed by someone calling himself "Allan Trustein". "True" as in "I'd never lie to you," or was he looking for "Trust me"? Amusingly, the inventor of "your trusted editor" invented a name that turns up no hits at all in a Google search, which is a considerable achievement. Given that the latest StockTips promo--of Pingify (PGFY)--ended with yet another SEC suspension, perhaps we should think of Allan Trustein as another "Mike Statler."
Pennystocks.com disclaims compensation of £250,000 from an unidentified third party for "marketing and advertising services for a one month profile of this company." That's a tidy sum, and it's difficult to imagine who might have been willing to pay it. Unless Perks screwed up his accounting of the stock cancellations and exchanges executed in connection with the change of control--which, given his earlier mistakes, must be seriously considered--there isn't a large block of stock in the hands of any single individual or entity. If someone did manage to acquire a significant part of the float, he theoretically must have done so by buying on the open market. That theory does not fly when looking at the historical trading volumes. The alternative is to believe a large stock issuance somehow went unrecorded. Of course, when dealing with a penny stock that's had past disclosure problems, as evidenced by the SEC comment letters, anything is possible.
In a cheerful closing, Trustein says he's certain RNBI will perform well; in fact, by the end of the month it could be trading over a dollar! And going all out in Sunday night's alert, he says that's a "conservative" estimate.
The SEC and pot stocks
Perhaps Trustein hasn't been following recent SEC actions and statements directed at the burgeoning OTC pot sector. Since the middle of last year, it and FINRA have warned investors more than once about throwing money at small companies about which little information is available.
RNBI promo got off to a mildly promising start, but that came to an abrupt end last Friday, when the SEC suspended FusionPharm (FSPM). That company is purportedly in the business of selling grow facilities made from shipping containers, and had been considered by many to be one of the most "legitimate" marijuana companies. Evidently the SEC has reason to believe differently.
The agency has by now suspended five weed companies--six, if you count Citadel Eft (CDFT), which was whacked for reasons having to do with fake sovereign debt instruments, but did say it planned to process pot-related credit card transactions--as it notes in a press release and investor alert posted to accompany the FSPM action.
The SEC has made it blindingly clear that the suspensions will not stop anytime soon. They feel the sector presents a high risk for fraud, and advise potential investors to perform extensive due diligence on any company whose stock they may want to buy. RNBI is only one of a large number of questionable OTC pot stocks, but its shell status, history of accounting problems, confusing past stock issuances, and sudden liquidity makes it a strong candidate for regulatory inquiry. That could lead to trouble for shareholders.
It seems the days of easy money for pot companies, pot promoters, pot insiders, and pot penny plungers are over. Players who earlier in the year jumped from one new entrant to the next, reaping hundreds of percentages in gains with each bet, are backing off, alarmed by an across the board drop in stock prices.
It will be interesting to see how many of these fledgling medical and recreational marijuana and hemp operations are left standing a year from now.