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Microcap & Penny Stocks : The Real Micro-penny- Less then one penny!! -- Ignore unavailable to you. Want to Upgrade?

To: DRRISK who wrote (89)	6/26/1998 11:41:00 AM
From: Chloe R	Read Replies (1) \| Respond to of 906

I didn't check the times to see if I got them before the no-PM talk, but I had 8 PM's this morning based on this thread alone - 8!!!! I did answer all of them but will summarize some thoughts here. (I was asked everything from my background to my strategy and examples.) First: Yes, I AM an interior designer (the owner of a design company). My story is on all the other threads I visit in bits and pieces, but it goes something like this - Got a rather sizable inheritance; dated an investment banker for a couple of years; dated a stockbroker for a couple of years; have a brother who was an M&A guy who followed in my father's footsteps; was asked to go the MBA route and join them but wanted to use the left side of my brain; got burned many years on bad public investments; never got the good IPO shares; lost patience in many private investments (that were always in R&D - you know the story); then found the right combination - private companies with agreements to go public via a reverse merger (Again, much like an IPO but in two steps). But I have been evaluating the shell side recently and do toy with pennies occasionally. Anybody who knows me by my posts (peter, you still there?), knows that I'm very much the devils' advocate as far as shells go. At this point, I wouldn't recommend it as an investment strategy to anybody but the most hard-core risk taker. Again, too many unknowns in an area where many seedy characters have known to reside. I've read some of the shell threads and it amazes me how people throw money at something without all the facts. With floats sometimes in the hundred millions, they don't realize that their shell will only be 5% of a new company and that, even in the pennies, with the reverse split and dilution, it puts the market cap of the merged dog food company or whatever at $200 million - a company that has only done $500,000 in sales in three years. It's pure craziness. You can only figure out if this scenario exists with real news of a merger that INCLUDES the final share structure. This VERY rarely happens. As such, shell investing is a pure gamble. Yes, we are all gamblers at heart, but I prefer to have the information and think that I have an edge. Even if you have a solid rumor about a reverse merger from a very good source, unless you know the final structure of the merged company, you are taking a gamble. They'll always be people that know more than you, and they'll always be in before you, and they'll always get their money out before you, and they'll usually have the largest position that can really pummel a stock. This is what you deal with when you enter the world of shell momentum plays. As I have said, I prefer to invest on the PRIVATE side of the transaction. I find (through the various sources I mentioned) private companies that are doing a private placement and that have committed to going public with a reverse merger so that I have a timely exit strategy (I have been tied up in too many private companies that said they were going to be public by X date, but never ever did!). The interesting thing about that side of the coin is that the information is readily available. The private placement documents tell you everything about the company and you can talk to REAL people about the company's prospects. The returns can be greater and with less risk. This is due to a very verifiable fact - private companies are valued very much lower than public companies. Benson Eyecare was one I got into a few years ago. They were eventually gobbled up but the scenario went something like this - Private company (Pembridge) was valued at $670,000; did a private placement for just shy of $2 million; did a reverse for 70% of public shell (the most expensive one I've ever been in - wouldn't touch one like that now); now 11 million shares or so total; had stock for acquisition so acquired Benson for 700,000 or so shares; changed company name to Benson; three months later had public valuation of $57 million (so us original Pembridge investors turned a $2 million investment into $35 million in three months - I sold at this point but should have stayed in); during the next year they used stock alone to acquire 3 more companies and obtained a market cap of $125 million or so; then over next two years acquired three more and had market cap close to $300,000,000. Here's the interesting thing - all this was done by having stock available for acquisitions (at a public multiple) and buying companies valued at a PRIVATE valuation (MUCH, MUCH LOWER!). Once the private company was acquired, the WHOLE was boosted more because of the public valuation - instant increase in value and all obtained with just stock. Here's the real kicker on this one - during this whole time frame the company operated with a net LOSS of a couple million. I originally invested just to get the initial boost with a public valuation verses a private valuation. Now, I'm looking for long term investments in this reverse merger area. It has to be said that this can be very, very risky also. You have to really do your DD on the private company and get comfortable that all the players are who they say they are. The R&D "black hole" is evident here also, so I look for companies that presently have a product (AND PATENTS!!! - have to remember that one.) There has to be significant funding involved before hand (that's the only way to get in) and all the owners have to have all their stock tied up (to avoid the P&D that is so darn evident in most of these arrangements). I have a lot more criteria, but I won't go into them now. I hate the "check out my stock" by posters that have never been seen before, but I think I've been here long enough to identify my latest to you and I was asked by a couple of you and a lurker. The private company is Hide and Seek Technologies. They have the only user-friendly/cost effective copy protection (an 15-18 billion dollar problem) for optical media that is not an intrusive or ineffective software or hardware solution. They achieve the protection using manufacturing defects (that aren't copyable) and special polymers that react to the laser. They were started by a list of who's who in the industry (including the president of the Optical Disc Manufacturers Association), and have received glowing endorsements from the key industry organizations and trade journals including the Software Publishers Assoc., Replitech, and Emedia. They have just started marketing their first product (no R&D black hole!) and have initial quotes on millions of disks to be shipped. They are currently doing a private placement (at only a $12.5 million valuation) and will announce their shell candidate within the next couple of weeks (this I know for sure now). You can check them out at hideseek.com or read the thread at exchange2000.com. It may provide a good example of how it works on the side I prefer in the shell game. Any other questions, guys, please post them on the open thread. Clo