ragingbull.com
By: Kknightmcc
Reply To: None Wednesday, 19 May 1999 at 2:19 PM EDT
Post # of 1028
I spoke to Joe Murphy this morning in regard to the "F" Series Convertible Preferred mostly because I have received quite a few emails in regard to the fact that 1,110,904 shares of stock have been filed in 144's through Thomson Khernagan on May 1, 1999 as follows:
1-May-99 DOMINION CAPITAL FUND LIMITED Planned Sale (144) 564,387 Common - $1,128,774
1-May-99 SOVEREIGN PARTNERS LP Planned Sale (144) 546,517 Common - $1,093,034
Joe Murphy has promised to put an update in the FAQ in regard to these filings. He did say that these are restricted shares that were converted in September 1998 and that they can only be sold through the "dribble rule" which means they can only sell about 23,036 shares a week for 13 weeks. He doesn't believe it will adversely affect the market once the trading begins again on the OTC. Joe said, "That he is still working on buying back those shares, or as many as possible, but the financing was delayed due to the halt in the trading of the stock.
I also spoke to Joe in regard to the situation with the pink sheet trading and the status of our being able to trade again. The SEC has definitely cleared the stock for trading on the OTC, but the NASD has been holding up the works. He said he had good news last night that several market makers had filed their 211 forms and wanted to trade the stock, but that the NASD had returned the forms and requested further information which he is putting together in packages and Fedexing out to the market makers. They should have the information tomorrow. He said the NASD is legally entitled to take 7 days to make a decision based on the information submitted with the form 211's. He said he has done everything necessary and more to comply with all requests and hopes we will be trading no later than a week from Friday. It could be sooner but he has no control over the due diligence process of the NASD. He can't even talk to them directly. It all has to go through the market makers. Joe said to keep an eye on the FAQ because he will have it updated as much as possible with necessary information. He also said to tell everyone he is overwhelmed and appreciative of all of the supportive phone calls he has received since this mess started.
I have been making inquiries about how parties who are interested can go about trading the stock in its present "pink sheet status". My understanding is that if you call your broker, you can place a trade through him, but he has to do it directly with the market makers involved in the trading. Not all brokers appear to know how this is done, because a lot of them do not trade the "pink sheets" at all due to compliance issues and share values being under $5.
I have also posted here some information I have located on how the pink sheets work, not concise enough but hard to get, and two emails below from Brad Driesen and Joe Medsker in relation to conversations they have had concerning this issue and the latest update: May 17, 1999 on DCI Telecommunications web site in regard to trading status:
How does DCI resume trading?
DCI has restated its last three quarterly statements to reflect the Edge acquisition under the purchase method of accounting. Those filings are available via the Edgar system. DCI resumed trading on May 17, 1999. In order for a Market Maker to resume quoting our common stock, it must file a Form 15c2-11. Upon receipt of this Form, the NASD reviews and must approve it before the Market Maker can resume publishing quotations. It is our understanding that the NASD responds to these filings in approximately three business days. If the NASD finds the Form to be incomplete, the approval process will take longer, as they are allowed approximately seven business days to review any supplemental filings.
This is an email I received this morning from Brad Dreisen who owns a very large position in DCTC. It does contain some pertinent information.
Good Morning Everyone,
I just this second got off the phone with one of DCI's Market Makers,
Sharpe Capital (SHRP). I spoke with their chief Market Maker, Alyse, and
she was more than cordial and took about 5 minutes of her time to give
her thoughts to me.
First, she said that it is a very good sign that it has been cleared for
trading, albeit the "pink sheets" for now. She felt that as soon as they
resubmit their 15c-211's that were requested by NASD that it would not
be a problem returning to trading on the OTC-BB once they have reviewed
their (MM's) filings.
For those that would like to take the time to call you can reach Alyse
at 1-800-355-5781. I would suggest calling her before 9:00 a.m. or after
the close of market as it gets very hectic for them during the day.
She also told me that the current quote was 1 3/8 x 1 7/8.
Hope this has been of help.
"Grupo Brad"
Here is an email I received this morning from Joe Medsker who also has a large position in DCTC. It also is pertinent to our situation:
The last time I looked we had traded over 70,000 shares today and my
best guess is the bid is 1 3/8 and the ask is still 1 3/4 That is a big
spread but welcome to the world of the pink sheets. I did find out that
some of our familiar MM's are still with us, HRZG, SHRP, NITE and one
other I can't remember. I talked with Joe late today and as usual there
is another fly in the ointment. The MM's all had their 15C2-11's
returned. The MM's had failed to show the NASD that DCI had restated
their revenues. I guess the people at the NASD don't know how to get on
EDGAR. Tomorrow the DCI staff will put together a complete package for
each of the MM's. This package will include all of the latest press
releases along with anything else they can think of. This information
will be over nighted and the MM's will have it on Thursday. Assuming
they get it out on Friday and the NASD receives it on Monday we should
be back on the OTCBB the following week. The NASD has 7 days to review
the information and you can bet your bottom dollar they will take all 7
days. It just seems crazy to me that the MM's must prove that DCI has
complied with the SEC's wishes but that is the rule.
I did not get a chance to ask Joe about the switch in London but I am
pretty sure it will be there this week and would be installed by the end
of the month. My best guess is that the company has several more
announcements but they most likely will hold them until the NASD
situation is completed. So far after two days of trading on the PS I
must say I am both pleased and surprised that we are holding in the
current price range. The MM's don't see any panic and are holding the
ask at 1 3/4. Many thought the MM's would absolutely tank us until we
got back on the OTCBB. I know of one 1000 share buy order in at 1 1/4
that did not get filled and it was out there all day. If the MM's
thought there was going to be a lot of selling they would be shorting to
fill those orders and they are not. For those of you who are not of the
Christian faith I mean no offense when I say that I believe the Good
Lord has thrown up a ton of hurdles and if we are patient and persistent
and get over them HE must have one super reward at the end.
Joe
Below is some information I've been researching on the "pink sheets":
Subject: Trading - Pink Sheet Stocks
A company whose shares are traded on the so-called "pink sheets" is commonly one that does not meet the minimal criteria for capitalization and number of shareholders that are required by the NASDAQ and OTC and most exchanges to be listed there. The "pink sheet" designation is a holdover from the days when the quotes for these stocks were printed on pink paper. "Pink Sheet" stocks have both advantages and disadvantages.
Disadvantages:
Can make it tough (and expensive) to buy or sell shares.
Bid/Ask spreads tend to be pretty steep. So if you bought today the stock might have to go up 40-80% before you'd make money.
Market makers may be limited. Much discussion has taken place in this group about the effect of a limited number of market makers on thinly traded stocks. (They are the ones who are really going to profit).
Can be tough to follow. Very little coverage by analysts and papers.
Advantages:
Normally low priced. Buying a few hundred share shouldn't cost a lot.
Many companies list in the "Pink Sheets" as a first step to getting listed on the National Market. This alone can result in some price appreciation, as it may attract buyers that were previously wary.
invest-faq.com
Business Week Article
Going For the Green in the Pink Sheets
Tired of paying ridiculously high multiples for a stake in hot growth companies only to see their share prices get clobbered? There are alternatives. While the NASDAQ market was taking a recent beating—down almost 20% from its high in May—another section of the over-the-counter market was quietly chugging along, seemingly immune from earnings disappointments and fickle investors.
Hidden among the shadows of celebrated NASDAQ superstars such as Microsoft is a less well-known part of the OTC market, the "pink sheets." They're a compilation of the bid and ask prices of some 20,000 stocks, most of which aren't listed on any exchange. Often associated with bankrupt firms and penny-stock scams, the pink sheets are also home to some 300 bona fide moneymakers that have been trading at discounts to their book value in relative anonymity. Many are household names such a mapmaker Rand McNally and Houlihan's Restaurant Group.
Illiquidity
These companies are all but ignored by the professional investment community, and many outfits want to keep it that way. Although most have had a public offering, families and officers control much of the stock, so they're not eager for new shareholders. A dearth of information and lack of liquidity are why many of the stocks are undervalued, says Binkley Shorts, senior vice-president at Wellington Management in Boston.
Until recently, learning anything relevant about these closely held, thinly traded companies has been next to impossible. "These aren't companies you can just ask your average broker to investigate for you," says Edward McLaughlin, a professional investor in Vero Beach, Fla.
Now, however, a reference book is available that sifts through the junk that litters the pink sheets. It offers investors a window into this oft-murky market. Walker's Manual of Unlisted Stocks...contains four years' worth of financial details on 500 companies that list their stock in either the pink sheets or on the OTC bulletin board, a real-time quotation service for 5,500 companies. "None of these companies is under any obligation to report to the Securities & Exchange Commission (SEC). But if they don't, they can't list on any of the major exchanges," says Peter Salmon, the NASDAQ's assistant director for trading and market services. In addition to per-share data—such as price-earnings ratios, book value, and dividends—the guide lists the market maker for each issue and tells whether a regular stockbroker or pink-sheet specialist is required. More than half of the companies in the book don't report to the SEC, so you won't find their financials in databases such as the SEC's EDGAR.
While publisher Harry Eisenberg, a CPA in Lafayette, Calif., has done the legwork, even becoming, in some cases a shareholder in nonreporting companies to gain access to their data, he cautions readers that the book is only a starting point. It's a secondary source, so you'll need original financial statements and reports to make sure the data is up to date. Many of these companies look good on paper, but because they're insular and secretive, they can be prone to malfeasance or reversals of fortune. "You have to take a hobby approach to investing in this area," says Jack Norberg, a pink-sheet specialist and president of Standard Investment in Tustin, Calif. "This is not for the passive person."
Indeed, the traditional investment rule applies: Buy only what you know. Shorts, once the manager of a mutual fund that specialized in OTC stocks, says investors should consider this area only if they have a thorough understanding of the company and find doing all the required research "fun." For example, a race-car fan might want to check out International Speedway Corp., which runs racing events at major tracks.
Local Banks
How else can you discover these low-profile companies? Trade publications are a good source of ideas. Local Business Journals often carry quotes of bulletin board stocks, most notably some of the 10,000 banks that trade in the OTC market. Walker's Manual lists 60 small community banks with strong balance sheets and exceptional earnings, says Eisenberg. For example, Lancaster National Bank returned more than the average for small-bank stocks in 1995. But its stock traded at only four times earnings and 58% of its book value at yearend.
Whether you choose to look into an unlisted local bank or a company within a certain industry, you can narrow your choices using the indexes in Walker's. Here, companies are ranked by a number of measures, including market capitalization, p-e ratio, price-to-book value, and compound revenue growth.
Once you find a stock that appears undervalued, don't take Walker's word for it: Call the company. Some may readily send you information. Others may be less cooperative—or even hostile. If so, be wary. "It's a big problem if management doesn't have any interest in husbanding the interest of minority shareholders." Says Shorts.
The more knowledgeable you are, the better protected you'll be against the biggest risk associated with these investments: illiquidity. Finding buyers isn't the problem. "When shares become available, it's like throwing a handful of chicken feed into a coop: Everyone dives for it," McLaughlin says. Even more worrisome is the steep spreads between the bid and ask prices. "Many are bid-only market orders, so the stock creeps up in price without a transaction ever taking place—as market makers try to trump each other's bid," Norberg says.
"Get Rich"
Without the proper information, first-time investors may not only pay a higher price for the stock but may also get less for it when they eventually sell. "The trading aspect is so difficult it's beyond the experience of most individuals and even most brokers," says Charles Royce who manages two closed-end mutual funds, Royce Value Trust and Royce Micro-Cap, which hold 5% of their assets in OTC stocks. One way to protect yourself: Never put in an open order to buy at market—because you'll often end up paying more. Also, you're more likely to get a good price at the end of the month, when market makers update the pink sheets, says Eisenberg, who has 15% of his net worth in these investments.
Once investors understand the risks, they may discover what prominent value strategists such as Mario Gabelli have long understood. "These aren't necessarily 'feel-good' stocks, where you buy them and watch them go up. But if you do it right, these really are get-rich stocks," Gabelli says. He should know. In 1993, Michael Ferrucci, director for corporate finance at Barclay Investments in Providence, heard there was a block of stock available in Providence Journal Co. Privately owned since the early 1800s, the newspaper had evolved into a multimedia conglomerate—exactly the type of media play Gabelli specialized in. Even though there was a huge spread between the bid and ask prices, he suggested Gabelli buy the shares. Three years later, the stock has returned in excess of 85%, and Gabelli believes it's still undervalued. "after going public in June, the stock is up 21%—despite the market being hammered," Ferrucci says.
Granted, few investors have Gabelli's contacts or resources. But that doesn't mean they can't learn from his experience. By sticking to an industry he knew well, Gabelli was able to ascertain that despite the big spread, the company was exceptionally undervalued.
Remember that unlisted companies are long-term plays. The stocks often don't trade every day—but then they're not subject to short-term influences. Think of it this way: You won't be tempted to watch the ticker and your stomach won't rise and fall with the stock market, either.
Capell, Kerry. 1996. Going For The Green In The Pink Sheets. Business Week, August 19, 82-83.
walkersotc.com
Kathy Knight-McConnell
Investor to Investor
investortoinvestor.com
Disclaimer: Knight-McConnell Information Retrieval Service and Investor to Investor Newsletter is not nor does it claim to be a licensed stock broker, analyst or financial advisor. This service and newsletter has been set up strictly to provide research information. All research information is obtained from sources believed to be reliable. I and my research helpers take no responsibility for decisions made by individual investors based upon information provided. All research is provided for informational purposes only. I will not write about stocks that I have not purchased in the open market as an investor, like you, and I refuse to take any money, stock or any other incentives from any company whatsoever in return for writing about the company or it's stock. If in the course of my contact with said company(s) I should be instrumental in providing Internet consultation services or making introductions to other parties who may be in a position to help said companies and it is totally unrelated to my writing about said company(s), it is not beyond the realm of possibility that payment for those particular services might be received. In that event I will make full disclosure. I may on occasion trade shares of stock that I have purchased and am under no obligation to announce all of those trades. However, if I should sell a position due to adverse conditions, I will so inform my readers of that adverse condition so that they may make their own evaluations in that regard. Investor to Investor is a subscription based newsletter. All subscription fees are nominal and cover the costs of research and time spent compiling information on publicly traded companies. The first issue is always free to new subscribers.
NOTE: I have not been paid in any way, shape or form to write about DCTC.
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