Go to the mobile version of this Web site.

Login | Contact Us | Site Map | Paid archives | Electronic edition | Subscription Questions | Extras

For maximum risk, trade on Pink Sheets

Nonreporting companies, real or not, listed here

By David Milstead, Rocky Mountain News (Contact)

Published December 15, 2007 at 12:05 a.m.

Text size  
Denise Sutton and husband John Sutton operate WarpRadio. com from their home. Denise Sutton said the "private-public" company has made a profit the past five years.

Photo by Linda McConnell / Special to the Rocky

Denise Sutton and husband John Sutton operate WarpRadio. com from their home. Denise Sutton said the "private-public" company has made a profit the past five years.

More Money & Markets

More stories »

All stocks are risky. Some are riskier than others.

Perhaps the most risky? Stocks that trade on the Pink Sheets.

Companies are on the Pink Sheets because they don't file financial reports with the Securities and Exchange Commission. Sometimes, they don't release any kind of information. Sometimes, the companies behind the stocks have ceased to exist.

"The problem with Pink Sheet companies is the financial information is, in some cases, nil," said Fred Joseph, Colorado's securities commissioner. "It's really hard for an investor to make a decision. The company might not exist anymore, except on a sheet of paper."

At the same time, many of the companies that trade on the Pink Sheets are real, operating businesses that have decided they don't want the hassle or expense of being what's called a "reporting company."

The Pink Sheets don't have any regulatory power, like the Nasdaq or the New York Stock Exchange, which set rules for corporate governance and minimum financial performance.

Yet Pink Sheets LLC, the privately held company that runs the quotation service, has taken steps to warn investors about what they're getting into. It has a "premium market tier" for companies with operating businesses and audited financials.

Companies that fall short are placed into one of four other categories, the worst of which is "caveat emptor," or buyer beware. It's for when there's a "public interest concern associated with the company," such as a spam campaign or "known investigation of fraudulent activity" by the company or its insiders.

These companies are marked with a skull and crossbones, the universal symbol for poison.

"It's an arena that certainly opens itself for great creativity, if not comic relief," said Frank Birgfeld, a retired NASD enforcement officer.

For years, "what was on the Pink Sheets was largely left over, what didn't qualify for the major exchanges. Even though the Pink Sheets are filled with shell companies rife with manipulation, there are some real companies on there, too."

More than 200 Colorado stocks are on the Pink Sheets. Some are real; others used to be. Some may not have been.

What are the Pink Sheets?

Companies that have public stockholders but choose not to file reports with the Securities and Exchange Commission are on the Pink Sheets.

At one time, these stocks were quoted on pink sheets of paper. It's electronic now, but Pink Sheets LLC, a private, for-profit company formerly known as the National Quotation Bureau, still provides the quotes.

Some companies that trade on the Pink Sheets also are eligible for the Over-the-Counter Bulletin Board, a quotation service operated by the Nasdaq. That's because those companies are "reporting companies" that file regular reports with the SEC.

Who owns these stocks?

Speculators who can make rapid profits - or quickly lose all their money. Also, longtime investors in companies that have decided to stop filing financial statements.

What are the benefits?

Shares are generally cheap, and quick upward movements can yield big profits.

What are the pitfalls?

Lack of liquidity, lack of audited financial information, risk of scams and fraud. All that can add up to losing your entire investment.

LASER STORM (Ticker: LAZR)

Headquarters: Denver (defunct)

Business: Manufactured and sold laser-tag gaming equipment under the name ?Laser Storm?

Last trade: Nov. 7, 10,000 shares at 0.005 (one-half of 1 cent)

Year-to-date: Up 900 percent

What?s next: Nothing. The company went bankrupt and liquidated in 1998, although laser-tag centers, like one in Westminster, use the products and the name.

The good news for Laser Storm is that its stock has produced an eye-popping return of 900 percent in 2007. The bad news - aside from the fact its shares trade at one-half of 1 cent - is that it went out of business in 1998.

There's no requirement that a stock represent an actual operating business before it changes hands. Laser Storm is one of many stocks that give owners a share of nothing.

It wasn't always so. The company went public in April 1996, raising $5.2 million with the high hopes of building its business selling laser-tag systems for commercial use. The Laser Storm systems included barriers, fog machines, lighting and sound effects for small arenas.

There were plenty of takers at first, with hundreds of stores opening up under the licensed Laser Storm name. Less than two years later, however, the company declared Chapter 11 bankruptcy, with CEO Bob Cooney saying its attempts to operate its own Laser Storm centers proved too costly. The restructuring attempt quickly failed, and the company liquidated in a matter of months.

"(Cooney) tried to open up way too many stores - he spent big bucks," said Pete Schwartz, the former director of sales.

Schwartz, a former stockbroker who left that industry after getting dinged in a regulatory action, still sells laser-tag systems.

Schwartz, who still owns 75,000 shares of Laser Storm stock he presumed worthless, said, "(Cooney) had a niche market but tried to play a high-end game with the big boys when he didn't have the equipment."

Cooney is now a vice president at eCast, which says it provides digital music to bars and nightclubs through a "broadband touchscreen media network." He did not return phone calls.

The Laser Storm outside the Westminster Mall was operated, until recently, by an owner who dated back to Laser Storm's public-company days. He sold it to Chris Denton, who is working to reopen the store by February, perhaps at a new location.

WARPRADIO.COM (Ticker: WRPR)

Headquarters: Parker

Business: Originally called Web Audio & Radio Portal, the company operates a Web site with streaming audio from various broadcast radio stations throughout the U.S.

Last trade: Dec. 7, 17,000 shares at 1 cent

Year-to-date: Down 23 percent

What?s next: CEO Denise Sutton hopes to resume reporting to the SEC and join the OTC Bulletin Board.

WarpRadio.com filed its first - and so far, only - annual report just three weeks after the all-time peak of the Nasdaq stock market in March 2000.

It seemed like a good time to be public, what with the "dot-com" in its name. The company delivered streaming audio from 158 radio stations over its Web site. It made clear it was a "development stage" company: In its first nine months of operation, it booked only $1,100 in revenue and posted a loss of $1.6 million.

As it turned out, 2000 was not a good year to have "dot-com" in your name. While the company boosted revenue, it lost another $1.6 million. It got behind by more than $100,000 on payroll taxes. It raised $352,000 in the third quarter but warned shareholders it needed more money.

That was the last thing heard from the company. WarpRadio.com failed to file its 2000 annual report, and it could have been assumed to have wound down afterward.

Except WarpRadio.com kept on operating. Founder and CEO Denise Sutton, who owns more than 60 percent of the company, moved the corporate headquarters to her home. Her servers are outsourced to Data393 on Inverness Parkway. And the stock still trades.

"We're kind of a private-public company at this point," Sutton said.

WarpRadio.com uses Denver accounting firm Comiskey & Co. for audited financials, and reports numbers to database company Dun & Bradstreet. But Sutton said Sarbanes-Oxley, the law that requires CEOs and their chief financial officers to certify the accuracy of their financials, seems to be "pretty onerous."

That and the company's lack of public float - only about 3 million shares are held by outsiders - are the chief obstacles to WarpRadio exiting the Pink Sheets. Yet Sutton said she'd like her company to join the Over-the-Counter Bulletin Board next year.

"We've been profitable for the past five years," she said.

W-W CAPITAL (Ticker: WWCL)

Headquarters: Berthoud

Business: Manufactures livestock equipment at its subsidiary W-W Manufacturing in Thomas, Okla.

Last trade: Nov. 13, 400 shares at 12 cents

Year-to-date: Up 9 percent

What?s next: The company intends to keep operating without reporting to the SEC, saying being a public company isn?t a good fit.

W-W Capital made its last SEC filing in September 2005, when it notified the agency that it had fewer than 500 shareholders, so it was exempt from producing any future public financial reports.

"We're pretty much the same company we were a couple years ago," said Mike Dick, the company's chief financial officer.

Dick is just one of two people in the company's headquarters in Berthoud.

Most of the action is in Thomas, Okla., where CEO Harold Gleason watches over its operating subsidiary, W-W Manufacturing.

W-W Manufacturing makes livestock-handling equipment like gates, chutes, scales, portable corrals and rodeo equipment.

"We're a pretty small company, and it was really expensive for us to continue on as a reporting company," Dick said. "It was just a real burden on us financially."

The company had just over $13 million in sales in the year ended in June 2004, and posts about $15 million to $16 million in revenue now, Dick said. That amount, of course, hasn't been released for the benefit of attracting new investors. Dick seemed unconcerned.

"Most of our shareholders have been with the company for the past 15 years, and there hasn't been much trading."

Dick said W-W Capital moved its headquarters to Colorado in the 1980s to become a public company and see its stock rise from being part of the Centennial State corporate culture.

"That wasn't a good fit for us 20 years ago, and it isn't a good fit for us now," he said.

BSI2000 (Ticker: BSIO)

Headquarters: Evergreen

Business: Made electronic fingerprint security systems

Last trade: Dec. 13, 200 shares at 0.00063 (just above one-twentieth of 1 cent) apiece

Year-to-date: Down 76 percent

What?s next: Ran out of cash in April 2006 and got evicted from its offices in August 2007. President Jack Harper resigned but formed a new company to service BSI2000 products.

Companies file what are called "8-K" reports when there's a material event, something important to investors. BSI2000's filing of May 23, 2006, qualified.

The company, which made what it called "high-end" security systems, such as fingerprint- identification machines, said it had less than $1,000 of cash on hand and insufficient capital to continue operations.

"Almost all" of the employees had resigned for failure to be paid. It had defaulted on its borrowings, couldn't fulfill its contracts, and its creditors were threatening bankruptcy.

No further news followed for nearly a year. In April, BSI2000 filed another report. Its first item was titled "Situation has Not Improved."

"Since May 2006, almost a year, Jack Harper, BSI2000 president, has worked full time with little salary to do everything he could to put an agreement together" with the company's major creditor/shareholder. Nothing worked. "As a result, in the view of Harper, the situation has deteriorated even further with no realistic positive prospects in sight. . . . Today, the Company has been evicted from its facilities and there are no employees."

The filing also says Harper "carefully accumulated, organized, and securely stored" the company's technology and products and had started a new company to provide customer support.

Harper responded to an e-mail to his Web site, Frobenius.com, but did not provide an interview.

WEBB INTERACTIVE (Ticker: WEBB)

Headquarters: Denver

Business: Webb Interactive was trying to introduce a kind of Internet-based Yellow Pages during the tech boom but now only holds stock in an offshoot company, Jabber.

Last trade: Dec. 14, 32,065 shares at 5 cents

Year-to-date: Up 25 percent

What?s next: Webb Interactive?s one employee and three directors are waiting for Jabber to cash out, bringing them profits.

Webb Interactive ultimately became a boom highflier. Not at first - it went public in 1996, but switched business models several times before acquiring netIgnite, a startup from the founders of MapQuest that was working on commercial applications of XML, then a new standard. Investor excitement caused Webb Interactive stock to triple in the first few weeks of 2000.

Within two years, 98 percent of the stock's value was gone, and ultimately, its operations went with it.

"When it ceased being an operating company, it was helping small and emerging companies with their Web sites," said Lin Branson, a Minneapolis attorney who is the company's sole officer, its general counsel.

"It was going to be a viable business, but Webb couldn't afford to fund it until it was a business."

What Webb still had was a piece of a company called Jabber, which it helped form in February 2000.

"It was believed Jabber had a future of its own."

Indeed.

Denver-based Jabber exists today as a private company. And Webb kept filing financial reports with the SEC each quarter, informing its investors of how its only holding, 25 percent of the stock of Jabber, was doing.

Ultimately, Branson said, Webb Interactive's board decided "we had some of the disadvantages of being public without the advantages," chiefly the expense of reporting.

Also a factor, Webb acknowledged as it suspended its SEC filings in November 2006, was Jabber's desire to stop seeing its financial information show up in Webb's reports.

"There was some feeling by Jabber and the primary shareholders of Jabber that we were putting Jabber at somewhat of a disadvantage by some of the disclosures we were making."

Perhaps confirming this, Jabber refused to cooperate with this story.

"Thank you for thinking of Jabber," spokeswoman Johanna Erickson said in an e-mail. "Unfortunately, we are not going to be able to participate in this story. Please think of us in the future."

Branson, however, is happy to say Webb Interactive hopes a sale or IPO of Jabber will bring value to his company.

"We're optimistic that within a year or so Jabber will have an event that will let us recognize that asset."

RUB-A-DUB SOAP (Ticker: RUBD)

Headquarters: Frisco, Texas (formerly Lakewood)

Business: Rub-A-Dub Soap was a custom soapmaker run by Lisa Powell, who held a full-time job at a civil engineering firm.

Last trade: Dec. 4, 100 shares at $4.57

Year-to-date: Down 12 percent

What?s next: Powell sold the shell of the company in 2006 to Texas dealmaker Kevin Halter Jr., who is merging it with a Hong Kong tire distributor called Zhongsen International Co. Group.

From its first securities filing in August 2002, Rub-A-Dub Soap was an unusual public company.

It's not that the company was in the early stages of becoming an online retailer of handmade soaps and gift baskets. It's not even that the company was 11 months old and had $971 in revenue when it first registered $200,000 of its stock.

It was that Lisa Powell, founder, president and controlling shareholder, acknowledged she spent 20 percent of her time on the business because she had a full-time job as a civil engineer. The headquarters was at her house.

Her qualifications, the company said, were that she "has in excess of five years of experience in producing natural, vegetable-based soaps by hand and practicing aromatherapy as a hobby. Her gift baskets of soaps have been highly regarded for the past two years. She has taken numerous courses in aromatherapy and herbology at Red Rocks Community College, Lakewood, Colorado."

Three years later, in its annual report, Rub-A-Dub Soap said its cash had dwindled to $41. Revenue in its first two years was $1,676 and $1,821, and the combined loss was nearly $48,000.

In February 2006, Powell gave up and sold her shares, representing 75 percent of the company, for $12,505, plus $514,495 to pay off Rub-A-Dub Soap's liabilities.

The buyer was Halter Capital, a Frisco, Texas, investment company that looks for troubled "shell" companies. Kevin Halter Jr. was quick to say Rub-A-Dub soap is "not a Pink Sheet company." It's always been a reporting company to the SEC, so it qualifies for and trades on the Over-the- Counter Bulletin Board. (It's "dually listed" on the Pink Sheets.)

As for what his firm does: "We come in to pay the creditors, take the shell and try to find a suitable merger partner," Halter said. In October, Halter Capital said Rub-A-Dub Soap will acquire Zhongsen International Company Group, a Hong Kong-based tire and rubber distributor.

Powell, who was given her remaining inventory of soap by Halter, has since moved to California. Attempts to reach her through the civil engineering firm where she used to work were unsuccessful.

Comments

  • December 18, 2007

    11:17 a.m.

    Suggest removal

    pinksheeter writes:

    Good piece. I actually own one of these (I will not mention the name) and I find it irresponsible of companies that claim they are profitable to leave shareholders in the dark. It is not pleasant to see smiling company owners in a picture while their stock does not trade and the only way we find out that they are profitable for years now is by some happenstance article in my local paper. I invested in this company and to find out after holding this stock for this many years that it is profitable and somebody is enjoying the benefits of those profits is completely unacceptable. I am quite upset and would like to know how it is appropriate to announce profitability while never reporting anything since 2000.
    I guess that profitability will not pass onto the shareholder any time soon. The intent to disclose this through proper channels is speculation at best, based on this article.