Weekly Article: Possible Warning Signs in Microcap Stocks.
Investing in the world of microcap stocks is EXTREMELY risky. While it is
very likely to make many times your money, it is possible to lose most or
all of your investment. The key is to manage the risk. Here we give you
some tips:
*The company recently did a Reg S or Reg D offering that is convertible
into stock at a percentage of the stock price at the time of conversion.
We call this type of offer floorless. If you invest in the company, you
are looking for trouble.
*The company doesn't provide financial information to investors.
*The company recommends that you buy its stock.
*The company has almost no revenues and needs to issue common stocks for
its daily operation, but the company claims to have a stock buy-back
program.
*The company has negative cash flow and claims to have a stock buy-back
program.
*The company has debts and claims to have a stock buy-back program.
*The company claims to have a stock buy-back program, but does not mention
its outstanding shares in the press release.
*The company releases its earning report, but does not mention its
earnings per share in the press release.
*The company issues misleading press releases. For example, a Chairman of
a company had a stock option to purchase several million shares of its
common stocks at a very low price compared to its market price and then
claimed he bought the shares did not even mention if he bought the shares
in the open market in the press release.
*The company claims that some investors buy the shares at a market price
with 144 restriction in order to show investors have confidence in the
company. Only fools will do that. They must have bought the shares at a
decent discount of its market price!
*The company issues massive amounts of stock and options to insiders and
their relatives.
*The company spends a significant amount of time and money promoting the
stock.
*The company has almost no revenues but pays its top executives several
hundred thousand dollars per year.
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Weekly Thoughts:
The process of implementing the OTC Bulletin Board Eligibility Rule has
begun. The status of the first group of companies, whose trading symbols
begin with "A" through "AD", will be evaluated as of the close of business
on July 1, 1999. Securities of OTC Bulletin Board®
(OTCBB) companies that do not meet the Eligibility Rule requirements at
that time will no longer be eligible for quotation on the OTCBB.
>From now on, we will no longer profile any non-reporting OTCBB companies.
For those non- reporting OTCBB companies that we have covered before, we
will follow for another six months and we should find the best time to
cash out our positions. Please don't recommend any non-reporting companies
to us. Be advised, it's not wise to invest your money in any
non-reporting OTCBB companies from now on, as the risk is just too high.
If these non-reporting companies are not eligible for quotation on the
OTCBB, their stocks could be worthless.
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