Investors check out prospects of companies with sales to China.

Once upon a time, Microsoft was an over-the-counter stock like many of our clients ...

It's a hackneyed come on that stock promoters have used for years--and last week David Gentry, chief executive of RedChip Companies Inc., was not hesitant applying it to a client involved in the latest investor craze: companies doing business in the red hot Chinese market.

An Orlando, Fla.-based equity research, consulting and investor relations firm, RedChip brought its road show to town, promoting 25 microcap stocks, most of them doing some business on the mainland or actually based there.

"They're real companies, some with good revenue but very undervalued," said Gentry, whose audience included at least 35 small-cap fund managers. "With very few exceptions, these companies are fully reporting and SEC compliant."

Held at the swank Casa del Mar in Santa Monica, the investor conference included a disparate collection of technology, defense, healthcare and consumer product companies, from one trying to export the U.S. health maintenance organization model to another that sells pollution monitoring equipment to a third, a steel manufacturer, once owned by the Chinese government.

But what many had in common: a dubious distinction of being penny stocks trading under $5 on the Over the Counter Bulletin Board or the Pink Sheets, where many went public in reverse mergers without the benefit of traditional IPOs--and where investors can make big bucks from a hot stock but also take in the pants from the slightest bit of bad news.

Indeed, some attendees weren't seeing companies that fit their investment criteria.

"You look at the traditional cash flow or book value metrics and they don't make a lot of sense for a lot of these companies," said Chris Kiper, a principal at Los Angeles-based Ridgestone Co., an investment company owned by Global Crossings founder Abbott Brown and his family. "But what they have is a story about why they're going to be worth what they're trading for, or where they'd like to be trading at."

Foreign travels

The conference followed a recent tour Gentry said he took of Chinese companies in four provinces that want help navigating the maze of Securities and Exchange Commission regulations Oxley in order to gain access to U.S. capital markets.

One example is Beijing-based General Steel Holdings Inc., which has been acquiring formerly state-owned steel companies. It now has $100 million in annual revenues, though it only trades at around $1 on the OTC.

Gentry and his delegation also toured some former state-run healthcare facilities where West Covina-based Sunnylife Global Inc. is working to create a U.S.-style managed care model in a joint venture with China's health ministry. The company, founded by Chinese natives who immigrated to the U.S. several years ago, also has a pharmaceutical division that provides traditional Chinese medicine remedies.

Other conference presenters were established U.S. companies with a growing business in China but even larger ambitions at home. China is the largest market for Electronic Sensor Technology Inc., which makes sensors that detect and analyze chemical vapors. In China, its wireless zNose sensors monitor water quality, a major problem in the fast-growing country.

But the eight-year-old Newbury Park company is on track to make $3 million in revenues this year, and has grown slowly in large part because zNose results were complicated to interpret, especially in a foreign language. So associate marketing director Frank Zuhde, also an electrical engineer, developed a way to translate the sensor's complicated numerical readings into plain English and other languages.

Zuhde isn't concerned by his company's thinly traded $17 million market cap or 32-cent a share price. "We sell more units outside the United States than in it, but we hope to turn that around," he said.

RedChip tries to counter skepticism that its analyst reports should be automatically suspect since companies typically pay a monthly fee and grant some stock to RedChip to increase awareness of their company.

About half the companies RedChip regularly covers are sponsored firms, but the remainder are covered at no charge, with subscribers paying around $200 to $300 a year for an investor newsletter.

BY DEBORAH CROWE

Staff Reporter