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There seems to be a general consensus lately among active penny stock traders that graphite is the new stevia.

For anyone who is new to trading penny stocks, the Stevia sector was red hot between Q4 2011 - Q1 2012 as three of the most actively traded public companies all operated in the stevia sector. All three were subject to stock promotion campaigns and two in particular generated substantial short-term gains before falling 75% and 90%, respectively.

Fast forward twelve months and now it is all about graphite stocks trading on the OTC Bulletin Board. Between National Graphite Corp. (OTCQB:NGRC), Graphite Corp. (OTCQB:GRPH) and USA Graphite Inc. (OTCQB:USGT) there seems to be no shortage of graphite exploration companies entering the public marketplace with absurd valuations that are the subject of large-scale stock promotion campaigns.

Although the team at the Fraud Research Institute has followed these graphite stocks since they first began trading, in light of Graphite Corporation's recent 50% decline we have decided to publish a two-part research report on USA Graphite in order to help us determine whether the company will either:

  • Follow in the footsteps of several other promoted OTCBB graphite stocks with more favorable price-to-book ratios that fell as much as 86%; or

  • Put together the right team and obtain all necessary capital requirements in order to execute the business plan.

Part I of this research report will compare USA Graphite to the other graphite exploration companies trading on the OTCBB in order to determine any correlation between the graphite stocks that are subject to stock promotion campaigns and their underlying intrinsic value.

We will also take a close look at the current stock promotion campaign featuring USA Graphite - including over one hundred unsolicited emails that our team has received to date.

This research report in its entirety will provide the material information necessary for investors to determine whether or not a pre-revenue exploration company with $2,212 total assets is fairly valued at $100,000,000 dollars.

The Micro Cap Graphite Sector

One recent press release disseminated by USA Graphite Inc. suggests that domestic graphite resources are low. Despite the possibility of a graphite shortage, it is the opinion of the Fraud Research Institute that the number of "going concern" graphite stocks trading with lofty market caps on the OTCBB is at an all-time high.

Currently there are five graphite stocks listed on the OTCBB and China Carbon Graphite Corp. (OTCQB:CHGI) is the only one of them that has been around for more than twelve months. The remaining four graphite stocks just recently became public entities through an alternative method of going public that circumnavigates some of the typical red-tape associated with the conventional IPO process.

Here are the five companies for our analysis:

COMPANY
NAME

TICKER SYMBOL

MARKET
CAP (IN $)

REVENUES
(IN $)

TOTAL
ASSETS

USA Graphite

USGT.OB

$100,000,000

$0

$2,212

Graphite Corp.

GRPH.OB

$9,900,000

$0

$688,589

National Graphite

NGRC.OB

$12,270,000

$0

$643,655

American Graphite Technologies

AGIN.OB

$34,420,000

$0

$588,368

China Carbon Graphite Group

CHGI.OB

$15,620,000

$49,846,777

$123,097,920

Data from Yahoo Finance on January 25, 2013

Market Performance

To date, the four most newly-listed OTCBB graphite stocks that just began trading during the past nine months have lost an average 44% from their peaks. This is despite the fact that three of these stocks have been featured in large-scale investor awareness campaigns. Or perhaps that is the reason for the declines?

Performance: USA Graphite Corp.

Shares closed on Friday, January 25 2012 at $0.69, representing a 27% decline from its peak on January 8, 2013. Despite the drop, shares have since rebounded and are still 38% higher than where they started trading when the stock promotion campaign began about five weeks ago on December 5, 2012.

(click to enlarge)

Performance: Graphite Corp.

Shares of GRPH have been cut in half since hitting its peak over twelve weeks ago on October 26, 2012. The stock is trading about 54% lower since the promotional campaign kicked-off. It is interesting to note that it only took two days for GRPH shares to peak after the start of its stock promotion campaign.

(click to enlarge)

Performance: National Graphite Corp.

Shares of National Graphite stock jumped from $0.40 to a high of $1.24 during the first two weeks of October, representing a 210% gain. The gains were short lived, however, as the stock dropped 78% in the eleven days after hitting its peak.

(click to enlarge)

The table below showcases the stock performance for the four most newly-listed OTCBB graphite stocks. Three of them have already been featured in stock promotion campaigns and have fallen by as much as 86%. To date there is only one stock in this peer group that has not been part of a stock promotion campaign - American Graphite Technologies.

TICKER:

START DATE:

START PRICE:

PEAK DATE:

PEAK PRICE:

CURRENT PRICE:

USGT

12/5/2012

$0.50

1/8/2013

$0.93

$0.69

GRPH

10/24/2012

$0.75

10/26/2012

$0.94

$0.35

NGRC

9/5/2012

$0.40

10/16/2012

$1.24

$0.18

AGIN

N/A

N/A

N/A

N/A

$0.44

  • NGRC was the first graphite stock to be promoted back on September 5, 2012 and since then it has lost 86% of its value.
  • GRPH was the second graphite stock to be promoted back on October 24, 2012 and since then it has lost 54% of its value.

Since the first promoted graphite stock has experienced the largest drop from its peak and the latest promoted graphite stock is still above its starting price we believe that there is an inverse correlation between time and a promoted stock's performance. This would conclude that USGT may experience an even greater than 86% drop and ample evidence exists in the next two sections to support our claim.

Red Flags For Reverse Merger Graphite Stocks

Have you noticed that China Carbon Graphite Group (OTCQB:CHGI) has not been mentioned even once since we began discussing the promotional campaigns of the most newly listed OTCBB graphite stocks? Of course that is because it has never been promoted, but is it a coincidence that the only OTCBB graphite stock not to be promoted (besides AGIN) is the one generating revenues?

Paid Stock Promotion

Graphite or no graphite - whenever an unrelated third party shareholder foots a big cash budget to kick-off an investor awareness campaign, it should be an ongoing concern in the minds of investors. What are the motives of that third party shareholder and why are they paying for the promotional campaign? Is that shareholder seeking to liquidate large amounts of stock? In the OTCBB marketplace we believe the answer to that last question is almost always yes.

Stock Promotion: USA Graphite Inc.

USA Graphite Inc. has been the subject of an aggressive stock promotion campaign beginning in early December 2012. According to the legal disclaimer at the bottom of a USGT promotional email, a third party identified as "Wimtak Systems, Ltd." paid $800,000 cash for a promotion involving newsletters such as "Wall Street Penny Stock Advisors", "Obscure Stocks" and "Stock Castle." We have also received over one hundred unsolicited emails pertaining to USA Graphite, which we will elaborate on in the next section.

Below is an annotated copy of the USGT legal disclaimer stating: "compensated a total of eight hundred thousand dollars to date from Wintak Systems LTD."

(click to enlarge)

Stock Promotion: National Graphite Corp. and Graphite Corp.

Keep in mind that the purpose of this research report is to shed light on USA Graphite's $100,000,000 dollar valuation and to highlight the correlation (or perhaps more accurately the reverse correlation) between promoted and non-promoted OTCBB graphite stocks and their intrinsic values. However, it is important to lay the foundation for the other promoted OTCBB graphite stocks in order to ensure that USA Graphite is not an outlier.

Graphite Corp. was originally incorporated in Nevada on August 3, 2007 and became a publicly traded entity in June 2012 although it hardly traded a single share until late October. This was right around the exact time when a promotional landing page appeared on the web. Graphite Corporation's lack of substance was replaced with hyperbole and a trading advisor that found Graphite Corp. to be the single best opportunity in the market. It is not until you read the tiny font at the end of the advertisement that you learn everything contained in the issue of Jim Hyerczyk's The Industry Growth Report Newsletter is completely biased. According to the legal disclaimer, "Greenstone Media, LLC, the third party advertiser, is managing a budget of $2,500,000" so it should come as no surprise that Jim Hyerczyk's near-term forecast of $2.00 was nonsensical and completely unsubstantiated.

(click to enlarge)

Several days after Graphite Corporation's share volume began ramping up, an entity doing business as Providence Media Strategies LLC joined the promotional campaign and began promoting the stock through a number of their paid newsletters including Five Star Equities, Bedford Report and Paragon Report.

National Graphite Corp., on the other hand, executed what seemed like two separate, short-lived stock promotion campaigns between early October and Early December 2012. At first NGRC was the featured stock pick by OutOfTheBoxStox (owned by Hennesey Road Media LLC). Shortly thereafter a promotional landing page featuring Mike Casson's MicroCap Marketplace went live and the stock hit a high of $1.24. Then roughly six weeks later John Bell's Hack The Stock Market newsletter began featuring NGRC after it had just rebounded from $0.35 to nearly $1.00. As of January 25, 2013 the stock traded below $0.20.

Receipt of Unsolicited Commercial Emails (SPAM)

As this research report unfolds we continue to learn that legitimate companies with real operations like China Carbon Graphite Group have no need to resort to stock promotion because they are building real businesses and that begs the question:

Is USA Graphite Inc. a legitimate company with real operations?

Up until this point even the most questionable stock promotion campaigns fell within the confines of the law. However, it is our opinion that USA Graphite is currently in the midst of a mass email campaign that may be walking a very fine line with the CAN-SPAM Act.

Seeking Alpha contributors have already written reports on this subject and we, like those contributors, are currently receiving a tremendous number of unsolicited emails that discuss USGT.

Due to a significant increase in the number of unsolicited spam emails hitting the inboxes of team members at the Fraud Research Institute, a decision was made way back in April 2012 to retain an outside consultant that would be responsible for identifying, subscribing to, and tracking all stock market newsletters.

His duty is to oversee all finance-related computer mediated communications ("CMC") with two primary objectives:

  1. Continually update a list of all active stock market newsletters that offer free subscriptions via email opt-in; and

  2. Track emails received and identify all possible sources of unsolicited emails.

Our CMC initiative has recently identified a record number of unsolicited emails received from unknown senders and over 50% of these unsolicited emails mention USA Graphite Inc.

The image below is one example of the content typically found in the unsolicited emails that our team began received on December 4, 2012. This particular message was sent from an email address registered at Outlook.com, an email service owned by Microsoft Corp. (MSFT):

(click to enlarge)

Conclusion

The big takeaway from Part I is that legitimate businesses have no reason to subject themselves to stock promotion and, because unaffiliated third party shareholders of USA Graphite are subjecting the company to extremely questionable stock promotion tactics that may even lead to a lawsuit, there is no way possible to justify USA Graphite's $100,000,000 dollar market cap. So far we have identified questionable stock promotions, $2,212 total assets and zero revenues as indefensible truths that support our opinion that USGT's $100,000,000 dollar market cap is beyond lofty.

In Part II we will dig deeper into USA Graphite's financial statements and the backgrounds of the management team along with the affiliates of the company. By the end of Part II our goal is to go way beyond proving that the company is not worth $100,000,000 dollars (that already seems fairly obvious). Rather, our objective is to come up with a method to fairly value this pre-revenue graphite exploration company.

Source: USA Graphite: Why This $100 Million Company Could Fall By 85% Or More