WHITEFISH, MT / July 23, 2014 / The overheated upside in mid-caps to large-caps, which have run up some impressive gains in the last year or so, is putting more and more growth focus onto the micro-cap space, as investors start to consider pulling back from buying at all-time highs. However, the micro-cap field, while an increasingly attractive territory for hungry investors seeking big gains, is also a notoriously difficult terrain to navigate, even for seasoned veterans. The difficulty is primarily due to a host of well-known inherent risk/reward factors, not the least of which are dilutive, often toxic financing moves by a company which ultimately blow out their share structure, destroying both confidence and market cap.
Typically, the OTC market exists for smaller players to raise capital, but all too often companies either fall into the cascading failure trap of poorly structured offerings, or they end up signing off on debt arrangements bearing ultimately detrimental terms that may (and often do) also eventually lead to further dilution. In a particularly bad situation where shares are to be issued to cover debt that has come due, short sellers in the market can have a field day with the volume as well (especially in illiquid markets), driving share prices down faster and farther just as a company is trying to recoup losses and organize capital, simultaneously scaring off the genuine investors.
While it is often extremely difficult for small companies to pull out of the toxic financing nosedive, with typically little choice other than to bite the bullet, it is possible to correct this expensive error by clearing the balance sheet. The move by Myriad Interactive Media Inc. (OTCQB: MYRY) in mid-January this year, designed to regain market confidence through expunging some unfortunate convertible debt they had taken on to their books, has been largely positive for the company. Release of any shares historically placed into reserves and the initiative to follow up their extinguishing of this outstanding debt with more rigorous balance sheet overhauling, set MYRY up nicely to approach a spate of new projects for 2014 revolving around their proprietary Mingle Suite social media technology platform.
Growth Good, Unsustainable Debt Bad
The drive to grow the business is often a major culprit for micro-caps and leads many a company down the primrose path to self-destruction as they stretch out beyond the range of their grasp and enter into questionable financing practices. It is important for investors to focus on micro-caps that have shown they understand the debt/growth formula and who generally double-down from the start on creating long-term shareholder value.
Downward pressure on the share price and investor’s perceptions as a result of toxic financing can be lethal to a micro-cap. Such financing should be understood as essentially counter-productive to market operations.
Premium Model and Logistics Plus Non-Toxic Financing Spells Market Gold
An even better example of tight financing that really supports the company’s growth model is the recently announced long-term financing deal struck by Blue Water Global Group, Inc. (OTCQB: BLUU) with Madison Park Investment Fund managing firm, Madison Park Advisors. Blue Water Global Group is developing a focused, Caribbean-themed restaurant chain that follows the big cruise ship ports of call through the Caribbean. This deal with Madison Park Advisors not only secures the requisite capital to comfortably complete the initial Blue Water Bar & Grill(TM) location, it gives BLUU access to the veteran financial advisory services of Madison Park as well.
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The Blue Water Bar & Grill concept is designed to offer what is by far the largest segment of Caribbean tourists, Westerners (mostly from North America), a reliably consistent dining experience no matter what island or port of call they happen to be at. A far cry from the cynical rip-off local bar and grill executions that prey on tourists throughout the Caribbean, and priced much more affordably than high-end eateries that have benefitted from the region’s growing reputation for gastronomic tourism, Blue Water Bar & Grill perfectly evokes what tourists expect in a Caribbean vacation experience.
A picturesque white sand beach and large open-aired tiki roof, a swimming pool with swim up bar, as well as fire pits and pool lounge chairs on the beach with full drink/food service; in short, everything western tourists expect from a Caribbean vacation, but with the same kind of consistently good, affordable casual dining experience they are used to getting at similar theme restaurants back home. The initial Blue Water Bar & Grill location, located in an established 150-acre commercial/residential project with gorgeous beachfront known as Indigo Bay, will be the newest and closest attraction to the thriving Port of St. Maarten (1.79M cruise passengers last year). This thoroughly modern port on the southern side of the island is big enough to handle even the world’s largest cruise ships like Royal Caribbean Cruises Ltd. (NYSE: RCL) Oasis Class vessels, which carry around 5.4k passengers and 2.4k crew per ship.
Complete with a branded merchandise model featuring the company’s own signature series of high-quality rums, Blue Water Ultra Premium Rum(TM) and now Blue Water Caribbean Gold(TM), Blue Water Global Group is shooting for a sort of Hard Rock Cafe of the Caribbean solution and they are already off to a great start. Tapping underserved market demand from the primary consumer group, amid a resurgence of the global cruise industry and operating inside the number one global destination region for cruise tourism, is a powerful business model for BLUU.
With $500k in new capital this year from Madison Park, the company is on stable footing. The first tranche of $250k from will be through a registered transaction. All new equity issuances will be at a market-based fixed price and no toxic convertible or derivative-style debt will be issued. The solid financial backing of this established investment firm is great news for Blue Water Global Group shareholders.
Unique Micro-Cap Plays with Solid Financing are Diamonds in the OTC Rough
Micro-caps without floorless or other toxic financing that have unique fundamentals and a clearly defined business model are tough to come by, but they represent some of the only truly compelling multi-bagger plays available and thus are worth hunting for. Indeed, finding a micro-cap company with a unique platform and a well hammered-out strategy for creating shareholder value, which is simultaneously free of worrisome debt financing, is a difficult but rewarding endeavor for investors.
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