First, what is a Custodianship?
Let’s get the boring stuff out of the way first. In the OTC markets, there is an estimated 50%+ of issuers that are no longer active with their company. This can be for a variety of reason, most commonly because the company is no longer active and simply fall behind in their business license requirements, and the shell eventually becomes “revoked” by the state filing center. However, the stock will continue to trade. This then opens the door for control of the public issuer to be taken over by a new entity, with one of the aims to act in the best interest of the existing shareholders. This is done by filing a petition with the reporting issuers state court, requesting a new motion to take over control of the abandoned shell.
If no objection is made to the petition, the court will almost always approve the petition at the custodianship hearing which then puts the custodian in control of the shell. The key point that makes them among the most saought after investments for OTC investors is that custodianship stocks are automatically considered reverse merger candidates.
LCTZ – On February 4th they filed an annual report at the Nevada Secretary of State showing new officers in control of the shell, which is from the Custodianship hearing.
–> Time of filing $0.00975 per share and within 4 days, the price climbed to $0.244 per share for an estimated gain of 2400%.
CNHC had a similar fate going from $.0036 per share to a high of $.0325 per share for an estimated gain of over 800%.
The Stages of the Custodianship Investment:
- Custodianship petition is filed with the courts.
- Custodianship petition is granted
- Reinstated at the Nevada SOS
- Custodian is discharged by the courts
- Shell –> Reverse Merger
Right now, FONU2 Inc (OTC:FONU) is at Stage 1, as it became official today the Custodianship petition has been filed with Clark County (Nevada) Courts. We will make an update on each stage of the Custodianship Petition.
The other type of Mid-Cap Investment that is gaining traction is the Debt/Revenue convergence principle. We have seen a number of stocks lately on the OTC and CSE that have had a year full of consolidation and spending, which drives the stock down. The Debt/Revenue convergence principle is when the said company begins to show the convergence of Debt and Revenue, based on the previous year consolidation or spending. This signifies to investors that the company has spent money in the best interest of the company, and this is beginning to show by the increase of revenues and decrease of debt. This principle is difficult to spot, since you have to examine a company that is either consolidation or spending to develop the company, and at the same time continue to watch it to see if the debt/revenue convergence is near.
A prime example of this is Surge Holdings Inc (OTC:SURG), which is now a top candidate. Surge shares are undervalued due to the companies lull in 2019, which say the company spend on large development projects. However, today’s press release shows that the debt/revenue convergence is within sight now. Investors were first alerted to this possibility with the completion of the ECS Prepaid Network acquisition in November 2019 notable adding over $48.7 million of top line revenues and 9,800 retail locations with significant cross-sell opportunities for other Surge products and services.
Now, we have confirmation the debt/revenue convergence is playing out, as the company released news this morning that Surge Holdings Reports has shown Rapid Growth in Surge Logics; with sales increase nearly 10-Fold in January 2020 Versus Same Period Last Year.
The CEO further added,
“We are generating significant traction in our Surge Logics subsidiary. This is best illustrated by the fact we achieved unaudited gross revenue of nearly $1 million in January 2020, close to a ten-fold increase versus the same period last year. This puts us at an annualized revenue run-rate in excess of $10 million within this division alone.”
Now we will continue to watch SURG as it continues to roll out its 2020 growth plans. We believe the debt/revenue convergence will open this stock up to larger investors, who will undoubtedly see value due to the minimal price range it is currently at due to last years development spending.