Minor league sports may be trendy now, but few folks follow minor league stocks.
The trouble with bulletin board and pink sheet stocks is that they're hard to find, harder to research and tricky to track, local brokers say.
So while there are more than 75 public companies based in the Inland Empire, only a couple of dozen - those listed on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market System and Nasdaq SmallCap Market - get much notice.
The rest of the region's public firms lie in a fringe area of the stock market, an area so volatile some brokerages won't let their traders tread there.
According to the National Quotation Bureau, 53 Inland Empire-based public companies don't camp out on NYSE, AMEX or Nasdaq.
Some of these fringe companies are "shells" - ghosts of once-viable companies, now defunct and looking for vibrant private companies with which to merge. Others have had a tough time making it in the public arena. Many are small banks. And a few are active, energetic entities with a fighting chance of making it to the major leagues.
The wilderness outside the major exchanges primarily consists of two types of public companies. There are the "bulletin board" stocks, tracked electronically by the National Association of Securities Dealers. And there are those that inhabit the "pink sheets" - a weekly, rose-colored National Quotation Bureau publication that lists the most obscure public companies and the brokers, or "market makers," who sell their stock.
Some of the pink sheet companies are on their way up. Some are on their way out. And often pink sheet readers don't know if they're looking at a company's birth announcement or its obituary.
"It's tough to get information and research on (pink sheet stocks)," said Upland stockbroker Garry Nichols. "If they've been on the pink sheets for 10 years ... the chances of them going anywhere are, in my opinion, slim to none."
Banks, however, frequently dwell in the pink sheets for a long time.
"Most banks start out in the pink sheets," said Troy Norlander, a market maker with Sutro & Co. Inc. in Big Bear. Because small banks don't see very many trades, they don't usually pack enough volume to be listed on bulletin boards or the stock exchanges, he said.
Norlander and other Sutro brokers deal stock for a host of Inland Empire pink sheet and bulletin board banks, including Rancho Bank in San Dimas (RBSD), Redlands Centennial Bank (REDD), Vineyard National Bank in Rancho Cucamonga (VNBC), Temecula Valley Bank (TMUL), Valley Merchants Bank in Hemet (VYMB), First Mountain Bank in Big Bear (FMBR), Valley Bank in Moreno Valley (VMOY), and the bulletin board-traded Business Bank of California in San Bernardino (BBNK).
As pink sheet banks and their trading volumes grow, they frequently move up to the electronic bulletin boards, Norlander said. Some banks even graduate to Nasdaq's Small Cap or National Market System. "But for a lot of them, that's as high as they might get," Norlander said.
That path is common for other types of companies, too, because the easy requirements for getting listed as a Small Cap stock provide an attractive stepping stone for companies on the rise, said Mike Shokouhi, a Nasdaq spokesman.
"A lot of times they come on the Small Cap, and after a while they move up to the National Market System," he said.
Rising to more prominent stock exchanges can help a company by giving it better visibility, access to capital and credibility.
Rancho Cucamonga-based Ultra Shield Products International Inc. (USPDU) desperately wants to be on the Nasdaq Small Cap.
But the chemical company withdrew its application last year when it learned the exchange was considering tougher listing requirements. Those requirements were approved in late August.
A listing on a prominent national exchange would cap the company's best year since its formation in 1987.
On the heels of last year's anti-pollution laws targeting solvents, sales of Ultra Shield's water-based and environmentally approved cleaning products raked in $716,186 between January and June - a 960% increase over the $69,160 in sales generated in the first two quarters of 1996, according to the company's earnings statement.
Recent and pending agreements with major fast food chains like Taco Bell should double revenue each of the next two years, said Ultra Shield President and Chief Executive Officer J.W. "Jay" Rutherford.
Rutherford intends to apply to the Nasdaq Small Cap Market again after he wraps up a deal with a major, unnamed franchise chain.
Other local bulletin board companies have Nasdaq Small Cap and National Market System ambitions. That includes AMCOR Capital Corp. (ACAP) of Coachella. The embattled agricultural corporation wants back on the Nasdaq now that things are looking up.
In 1989, armed IRS agents raided AMCOR's offices and confiscated company records. The raid was triggered by the testimony of a farmer and company investor who had admitted to tax evasion, but offered AMCOR as a bigger fish to fry, said AMCOR Vice President Barry Goverman.
Without records, the company couldn't file Securities and Exchange Commission reports. So it delisted itself from the Nasdaq, Goverman said.
According to news reports, the IRS tried to build a case that AMCOR's agricultural tax shelters defrauded the federal government to the tune of $1 billion. But no charges were filed, and in late 1996 a Texas grand jury leveled criminal charges against the accusing farmer for allegedly framing AMCOR.
AMCOR reported $2.2 million in revenues and net income of $667,000 for the quarter ended May 31. Its $36.3 million in assets includes July's purchase of TransPacific Environmental Inc., a green waste recycler in Santa Fe Springs.
Dreams Inc. (DRMS) of Palm Desert is another bulletin board company hoping to hit the major markets. Once a restaurant management company known as StratAmerica, Dreams dropped off the Nasdaq Small Cap due to low trading volume following its abandonment of the restaurant business in 1992 to start a chain of sports memorabilia stores called "Field of Dreams."
Today there are 30 Field of Dreams franchises nationwide, according to founder and Chief Executive Officer Sam Battistone.
He expects to add another 15 to 20 stores next year, increase chainwide sales volume from $12 million to maybe $20 million, and possibly return to the Nasdaq within the next two years.
The company suffered a setback last month when MCA/Universal Merchandising Inc. suspended the company's license of the "Field of Dreams" trademark from the movie of the same name while the two companies negotiate over "accounting issues," Battistone said. He added that he expects a resolution soon.
Some small public companies are too young to worry about advancing to the major markets right now. "We might try the Nasdaq someday, but we don't have enough assets or shareholders," said Thomas Coldicutt, a spokesman for Rancho Mirage-based ClassicVision Entertainment Inc. (CLVE).
More likely, the company will try for one of the regional exchanges, like the Pacific Stock Exchange, Coldicutt said.
ClassicVision, which acquired Time Line Entertainment Inc. last year, produces feature films as well as documentaries about silent screen actress Mary Pickford and the lives of famous child stars, President Bob Berk said.
Getting on an exchange is a boon, since brokers dread unlisted stocks, companies say.
"There are a lot of brokerage houses that basically tell their brokers just not to deal with (bulletin boards)," Upland broker Nichols said.
Others require the investor to sign a waiver, he added. Ultra Shield's Rutherford elaborated: "You have to sign a document that says in effect, 'I'm a complete idiot to buy this stock.'"
There's a reason for caution, Nichols said. The pink sheets contain scams and worthless stocks aplenty.
Nevertheless, there are efforts to recycle the trash, which can sometimes be a commodity in itself.
Indian Wells-based Magellan Capital is engaged in the business of selling "shell" companies - public companies without substance, usually defunct corporations that have sold their assets.
One of those shells is AG Holdings Inc., formerly a video production company, Magellan Vice President Randy Baker said.
By buying AG Holdings and merging with it, a company could go public quickly, Baker said. The company could later change its name and ticker symbol.
Prospective buyers of shell companies range from those in a hurry to go public to companies that have found it difficult to go public, Baker said. Sometimes family estates buy shells to get around inheritance taxes, he added.
Selected local bulletin board stocks:
| Name | Location | Business Type |
|---|---|---|
| Alfa Leisure Inc. (ALEI) | Chino | Recreational vehicle maker |
| Amcor Capital Corp. (ACAP) | Coachella | Agriculture, recycling, golf courses |
| AmeriNet Financial (ANFS) Systems Inc. | Ontario | Computer-aided mortgage lending |
| Autographics Inc. (AUGR) | Pomona | Database management |
| ClassicVision Inc. (CLVE) | Rancho Mirage | Film distribution and production |
| Dreams Inc. (DRMS) | Palm Desert | Sports memorabilia franchises |
| Maesa Gaming Management (MGMT) Inc. | Rancho Mirage | Gaming management |
| MediaConcepts Inc. (MDCE) | Palm Springs | Film distribution and production |
| Nerox Energy Corp. (NROX) Ultra Shield | Upland | Energy resources |
| Products Intl. Inc. (USPDU) | Rancho Cucamonga | Cleaning chemicals |
Originally published in The Business Press 09/01/97