Company to act as incubator for Japanese firms.

Hoping to jumpstart businesses that find trading on Japan's stock exchange too costly or too difficult, a wealthy Japanese businessman has formed an investment group to help these companies gain access to U.S. financial markets.

Through a newly formed public holding company, Westlake Canyon International Inc., Eiichiro Hemmi hopes to bring about 200 young Japanese companies to America in the next three years and list them on the OTC:BB exchange by executing reverse mergers for each.

"Putting these companies onto the pink sheets as subsidiaries of our parent company would make them more attractive to Japanese investors," said Hemmi, the chairman and CEO of Direct Investment Japan Inc., Tokyo-based holding company for Westlake Canyon International, speaking through an interpreter at temporary offices in Westlake Village recently. "They would get shares in an American company."

Five companies will initially join what Hemmi refers to as an incubator that will be located in offices now under renovation in Newbury Park. They include AFO International Inc., which manufactures and distributes spirits such as Awamori, a rice-based spirit that has taken on an appeal in Japan similar to single malt scotch in America; Tenguy World International Inc., a corporate training services company that the executives liken to the "Tony Robbins of Japan"; AirProtect International Inc., a maker of airbags outfitted into jackets and other apparel that protects motorcycle riders from injuries to the spine and neck if they fall; and a company that makes low-calorie sweetcakes from rice and beans.

Hemmi, a self-described rebel whose arrests as a college protester kept him from securing employment upon graduation, turned instead to an entrepreneurial venture developing schools to train corporate executives to advance to the next level. A few years after selling the business in 1991 he began to think about setting up a venture firm that would help younger companies gain access to capital for expansion.

"In Japan it is very restrictive to become a publicly held company," Hemmi said. "And most of the publicly held companies rely on debt financing."

Japan has several exchanges open to smaller companies, including the so-called Mother's market on the Tokyo Stock Exchange, JASDAQ and the Osaka Securities Exchange. But some experts say most of its financial system is still dominated by large banks, often divisions of some of the country's largest companies.

Because of the orientation toward mega-corporations, the argument goes, the small, developing companies have difficulty gaining access .to debt funding, and, if they choose to go public, they are forced to lower their share to compensate for the perceived risk associated with these smaller investments. At the same time, there are fewer individual investors in Japanese markets and fewer mutual fund opportunities for these individuals.

"The Japanese markets are the second financial markets after the U.S. but for very small companies, the capital is very expensive," said Vicentiu Covrig, assistant professor specializing in international investments at Cal State Northridge. "So there is an incentive to come to the U.S. markets."

Other experts disagree, saying that the market for smaller companies has opened up in recent years. They also point out that trading on the U.S. pink sheets has its own difficulties because the exchange is not widely traded either.

But Hemmi believes that more companies will utilize over-the-counter trading in the future.

"We believe that the incubation of Japanese early-stage companies will be enhanced by utilizing the U.S. financial markets and economic system," he said. "At the same time, we believe that we will be able to contribute to making the pink sheets a more sound general market."

SHELLY GALICIA Senior Reporter