The allure of penny stocks lies in their potential to deliver massive gains in a short period of time.
But in exchange for that opportunity, penny stocks carry TREMENDOUS risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
How is this possible? For starters, the majority of penny stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In short, OTC-traded penny stocks don’t meet the rigorous standards required to trade on major exchanges like the NYSE, NASDAQ, and AMEX.
As a result, they can go largely “unchecked” and their financial condition can be extremely difficult to analyze. In the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment.
With this in mind, and to give you an idea of the kind of red flags to look for when you’re considering a penny stock, we’re taking a closer look at five of today’s most hyped penny stocks. These stocks are being touted by YouTube “influencers” with far-reaching audiences, carrying the risk of a “pump and dump”.
| Sl # | Name | Ticker | Last Close |
| 1 | Cyberlux Corp | OTCMKTS: CYBL | $0.0050 |
| 2 | Majic Wheels Corp. | OTCMKTS: MJWL | $0.25 |
| 3 | Darkpulse Inc. | OTCMKTS: DPLS | $0.098 |
| 4 | Ilustrato Pictures International Inc. | OTCMKTS: ILUS | $0.063 |
| 5 | Demand Brands Inc. | OTCMKTS: DMAN | $0.037 |
#1 Cyberlux Corp (OTCMKTS: CYBL)
Company Info: Cyberlux Corp. engages in the development, manufacturing, and marketing of long-term portable lighting products for commercial and industrial users. It offers a range of products such as light-weight, portable battery-powered advanced LED lighting systems for special operators, forward-base operations, security, and equipment maintenance. It serves a range of industries including commercial, government, and military organizations.
Website: http://www.cyberlux.com/
Last Close: $0.0050
Reason for the hype: The company had done widespread publicity and touting, to lure novice traders into buying shares; rumors about buy outs; the company announcing that they are balancing their books for the OTC compliance and working on the process to go Pink Current.
Latest 10-k report: Not available
Red Flags:
- The company’s latest 10-k available on the sec website is for the period ending 2009-12-31. On the OTC website, the latest annual report available is for the year ending December 31, 2013. This significant lack of visibility on the company’s financials is a huge red flag.
- The OTC market had sent an email to CYBL titled “Pink No Information 15c2-11 Compliance Requirements Final Notice: Action Required by June 30th for Non-Reporting Companies”. The company needs to be in line with OTC Market requirements before the SEC requirement of September 28, 2021, when the amendments to Rule 15c2-11 go into effect and the company will no longer be eligible for public trading.
- On the company’s website, CYBL admits to operating in ‘dark gray mode’, wherein the details of relevant business and financials like existing employees & revenues have not been disclosed.
- The company has a history of toxic financing deals and has current outstanding shares of 5.08 billion. This includes the recent 600 million Strategic Restricted Share issuance.
- The OTC market has issued a warning on the stock, stating “This company may not be making material information publicly available”.
- The company is no longer listed on GSA Advantage, the government purchasing website run by the General Services Administration (GSA).
- The company has a history of litigation with the NIR Group, Ltd. and its affiliates.
- Most investors in CYBL are speculative investors, indicating that the stock is filled with penny-flippers.
- The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
- The chart indicates that the stock had formed a bearish engulfing candlestick pattern, which is usually a bearish sign.
#2 Majic Wheels Corp. (OTCMKTS: MJWL)
Company Info: Majic Wheels Inc., a Delaware corporation located in Ft. Myers, Florida, is a rapidly growing company that intends to continue its growth and expansion in major US markets. The Company plans leveraging its operating division and management team to expand into additional major market sectors. The company operates the Southwest Florida Franchise of College Hunks Haul Junk and College Hunks Moving. The company’s waste management and site work division provide services that include roll off dumpster rentals, site work services, construction and foreclosure cleanup, and junk removal services.
Website: https://majiccorp.co/
Last Close: $0.25
Reason for the hype: The news that Majic Wheels Corp. would enter Blockchain & Crypto industry through 150M acquisition of Calfin Global Crypto Exchange (CGCX); the company announcing new management and intention to file with the OTC Markets to become OTC Pink Current; the company reporting that it was granted OTCIQ Access after completing the required verifications.
Latest 10-k report: https://sec.report/otc/financial-report/288850
Red Flags:
- MJWL is a loss-making company and has no revenue according to the annual reports.
- The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
- The current surge in the stock price is not backed by any new development other than the CGCX acquisition and is therefore not expected to sustain.
- Searching the company’s address 1950 Custom Dr., Fort Myers, FL in Google, comes back to a warehouse, like a storage unit.
- There has been a sudden increase in interest for the stock and a lot of pumping happening in various forums and exchanges.
- The company’s website/domain had recently expired and was brought back up again. The webpage is just a single page and contains only the press release about the CGCX acquisition.
- The chart shows that the current price increase had happened in a vertical manner and could result in a possible correction.
#3 Darkpulse Inc. (OTCMKTS: DPLS)
Company Info: DarkPulse Inc is a technology-security company. It offers a full suite of engineering, installation, and security management solutions to industry and government. It provides a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Its technology can determine wall deformation, corrosion, pipe wall thickness, pressure, strain, & temperature from sensor data collected in Real-Time. A DarkPulse system offers multiple power sources for continuous monitoring including solar and battery which allows for off-grid installations. Its products have applications in the following sectors: Structural Monitoring, Temperature Sensing, Security & Defense, Consulting Services, and others.
Website: www.darkpulse.com
Last Close: $0.098
Reason for the hype: The DPLS suite of products of the company receiving the ITAR designation; The signing of a Letter of Intent to acquire TerraData Unmanned, PLLC a drone -based company offering multiple platform capabilities including underwater inspection services; and signing of an agreement with Grae con.
Latest 10-k report: https://sec.report/Document/0001683168-21-001436/
Red Flags:
- The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
- The company has been a loss-making company and has not generated revenue yet. As per Q1 2021 shareholder letter, income is first expected only in Q3. DPLS had reported a net loss for the year ended December 31, 2020, of $275,842. The net loss was $1,825,469 for the year ended December 31, 2019.
- The company has accumulated a large amount of toxic debt. In order to keep the company’s current reporting status, completion of the BOTDA system, as well as assisting with payments for patents, the company’s CEO had to fund DarkPulse in the amount of $97,000.00 as per the 2021 shareholder notice.
- The company has significant Outstanding Shares, of around 4.09B.
- There are many comparable technologies to the company’s patented DarkPulse (BOTDA) sensor technology. For instance, NASA has patented the Distributed Rayleigh Scatter Sensor (DRFOSS) technology. DFOSS and DRFOSS offer new approaches to distributed strain sensing with much higher sensor counts than state-of-the-art systems.
- DPLS has high volatility due to low market cap and a high float. Hence, this is a high risk-high reward opportunity to get in from the ground up on an emerging technology.
- The company seems to be overstating practical applications, and it could take a long time before they could be even considered in some industries. For instance, in the case of applications of oil and gas lines, many existing technology would be cheaper, widely familiar to maintenence technicians, and comparably more reliable.
- The company has an ongoing lawsuit. The complaint alleges that Carebourn and Darkpulse entered into securities-purchase agreements, whereby Carebourn loaned Darkpulse approximately $500,000. Carebourn alleges that Darkpulse breached the agreements, including by failing to repay the principal loan with interest and by continuing to sell shares of common stock earmarked for Carebourn as loan collateral. [Carebourn Capital, L.P. v. Darkpulse, Inc., Case No. 21-cv-0288 (WMW/DTS), (D. Minn. Feb. 17, 2021)]
- The company’s CEO Dennis M. O’Leary is also running a tour agency and also filing for trademarks for Carpool Karaoke Limo Edition.
- The chart shows that the stock has a near-term resistance level.
#4 Ilustrato Pictures International Inc. (OTCMKTS: ILUS)
Company Info: ILUS a public M&A investment company operating out of New York, London, and Dubai focused on adding shareholder value by innovation and growth. The company is primarily focused but not limited to acquiring businesses in the Technology, Engineering & Manufacturing space globally. Historically the company has evolved out the industrial sector mainly from Emergency Services products, Emergency Response vehicles, Vehicle conversions, EVs, Wearable tech & Smart Tech. ILUS looks to acquire companies who have strong management and potential to grow rapidly and will benefit from cross pollination of territories, products, and skills from other group companies.
Website: https://ilus-group.com/
Last Close: $0.063
Reason for the hype: The announcement of the global rollout plan for its revolutionary Mongoose External Firefighting Lance, a world first for Compartment Firefighting; partnership agreement with Takeleap, a technology agency that delivers unique virtual reality solutions to roll out Virtual Reality Fire Training globally; lifting of Canadian Cease Trade order; and commencement of production at company’s new Dubai plant.
Latest 10-k report: https://sec.report/otc/financial-report/273636
Red Flags:
- The company has a history of name changes. It was previously named Superior Venture Corporation in 2012, later renamed Cache Elite Inc. and then renamed Ilustrato Pictures International Inc. These companies used to do diverse businesses like kitchen Cabinetry, acquiring cannabis growers, and an EV company.
- The company had a Cease Trade Order (CTO) applied in 2012 due to various administrative and filing deficiencies at that time.
- ILUS is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
- As per the annual report, the company has incurred operating losses, and as of March 31, 2019 the Company also had a working capital deficit and an accumulated deficit. ILUS would need to raise additional capital for working capital.
- As of the last filing, the company has a convertible debt of $525,000.
- The type of technology marketed by the company could take years to catch on and actually be used by firefighters. This could impede the growth of the stock.
- The chart shows that the stock is currently near a supply zone.
#5 Demand Brands Inc. (OTCMKTS: DMAN)
Company Info: Demand Brands Inc invests and acquires companies that are engaged in the Hemp + Healthy, Cannabis Edibles, Cannabidiol (CBD), Superfood, and related Educational and Technology industries. It markets Edibles, Oils, Vapes, and Beverage products under the brands Infusional, Weedies Edibles, Canadian Organic Popcorn, Oil of Sunshine, and CoCos Pure.
Website: www.demandbrandsinc.com
Last Close: $0.037
Reason for the hype: The company’s acquisition of Lucky Chief, a leading company in the global cannabis industry
Latest 10-k report: https://sec.report/otc/financial-report/275909
Red Flags:
- DMAN is currently a loss-making company. For the Year Ended December 31, 2020, the company had reported a net loss of $162,054. For the Year Ended December 31, 2019, the company had reported a net income of $14,597.
- The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
- On September 10th, 2019, Demand Brands obtained 100% interest from GEOEnhanced Technologies, a 4D seismic imaging system that focuses on Oil, Gas, Mineral, and Water Exploration. A cannabis company in California buying an oil and gas Services Company based in Texas is quite unusual.
- The Company currently generates revenues from services related to performing electro-seismic mapping of oil, gas, and mineral leases. Cameron Cravey, hired to operate the Company’s wholly owned subsidiary, Integrated Oil and Gas Solutions Corp., is a convicted fraud and has been barred from drilling in Texas.
- The company has highly volatile share price over the past 3 months, pointing to possible pump and dump.
- The stock has a lackluster balance sheet with weak fundamentals.
- Shareholders have been diluted in the past year.
- The chart shows that the stock is currently near a resistance area.
As you can see, there are quite a few red flags in these hyped penny stocks. We would advise investor caution before entering into such high-risk ventures. Remember to think before you trade!
Happy Trading!
— Trades of the Day Research Team
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