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I have been a member of Rule Breakers since last summer and I love this service (although I admit to being very skeptical about your IMAX recommendation as I purchased at $10.12 and dollar-averaged additional purchases as the stock declined to under $8.00). I enjoy reading their articles and message boards despite never having posted a message during my relatively brief history as a member.

The purpose of this note is to ask for opinions about a subject that I'm sure many of you feel is a distasteful waste of time - penny stocks. I only have $17,000 invested in the market (thanks in large part to following my ex-broker's advice about buying tech stocks during the 1999-2000 tech bubble), but I have almost fifteen years to go before I retire and a very good paying job that allows me to put aside over $1,000 a month to invest in an individual account in addition to my 10% 401K contribution.

Although the vast majority of my investment vehicles are in recommended stocks from the Rule Breakers (and the Motley Fool Hidden Gems) list of recommendations, I found out about a penny stock last summer that intrigued me and I subsequently purchased 10,000 shares at 7 cents a share. After reaching a historic high of 48 cents earlier this year, it is now trading for 30 cents. I just sold 3,000 shares at 30 cents in order to get back my original investment – so my 7,000 shares are free and clear.

I won't mention the name (since we aren't supposed to tout penny stocks) but I heard about it from my parents at a PGA golf event at which they often do volunteer work. This company (and I use this term loosely because the company doesn't have employees yet – just some very talented consultants with impressive backgrounds) is beginning to OEM the manufacturing of golf clubs and shafts this year using a space-age material called scandium. I understand that they have patents on the method of using this material in the manufacturing process.

They have also developed a shock absorption device called ShotBloc that eliminates most of the shock of hitting the ball – something that older golfers should be very interested in trying. I was allowed to shoot a round of golf with a set of these clubs and I can tell you that it was the best round I've had in years. These clubs were really incredible in reducing my slices off the tee. The clubs are a bit expensive for my current situation, but I will definitely be getting a set when I can justify the expense. In addition - they compete in an industry that relies on producing clubs with titanium, so they have a big competitive advantage if they can prove the superiority of their scandium equipment. To that end, there have been numerous recent articles written about their product in major golf magazines.

Recent independent tests have proven that, in addition to being much lighter and stronger than titanium, clubs made with scandium are 30% more accurate than standard clubs because the club head can be molded with a more acute curvature due to the additional strength of the metal. The PGA just approved the scandium clubs for use on the PGA tour and there are over a dozen tour professionals that have already had clubs custom made for their specifications or are in the process of having clubs re-shafted or custom built. The company is also putting a lot of emphasis on marketing efforts with a PGA tour van and a recent announcement that they will be driving a ball into outer space from the space station this spring (to commemorate Alan Shepard's moon shot).

The company hasn't made a profit yet, but this will be the first year that they will be distributing clubs to stores and to professional club makers. They just received almost $500,000 in capital from a bank to finance the development and production of these clubs. They also have some high profile consultants that have been added since I purchased my stock. In particular, their newest consultant is a former top executive with Tommy Armour Golf, a manufacturer of golf equipment that increased its bottom line ten-fold under this gentleman's direction.

Although this is my first taste of owning a penny stock, I certainly don't intend to allow my good fortune to influence future investment decisions – but I would like to get some advice on what to do with this stock. My question is what I should look for in determining the long-term prospects of a company with an excellent product – but no employees? How would you quantify the performance of a company in their development stage?

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