StreetSweeper Warns 'You Could Go Broke' Buying Broke Out, Inc.

German-based developer of mobile apps Broke Out Inc BRKO gained 9 percent on the news that it acquired the highly popular Secret Menu for Starbucks Corporation SBUX's iOS app. The stock soared 124 percent in the last five days.

The company said the app currently generates stable revenues and sells for 99 cents. Users have rated it positively with an average of 4.5 out of five stars. Originally developed by AppVizzle, the app contains over 200 custom "secret" Starbucks drink combinations.

However, StreetSweeper has warned investors not to buy Broke Out shares.

"Unfortunate investors have no idea that this is a company that has gone $81,559 into the hole as it holds only $3,762 in cash," a report on the StreetSweeper said.

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The report said Broke Out is a "going concern" company that is operating at the very brink of bankruptcy. Indeed, auditors MaloneBailey noted "substantial doubt about its ability to continue as a going concern."

StreetSweeper noted that the quality of Broke Out's auditors is questionable because MaloneBailey, incidentally, has been singled out by the Public Company Accounting Oversight Board for deficiencies in clients' audit reports related to GAAP (Generally Accepted Accounting Principles).

Broke Out's Own Warning

Broke Out filings warn investors, "As outlined in this Annual Report, we expect to need approximately $120,000 in additional capital to meet our operating needs over the course of our next full fiscal year. As of December 31, 2015, we had $3,762 in cash."

So, Broke Out doesn't have the money to make it through even one quarter. TheStreetSweeper says it can't imagine how the company even hopes to survive because last year's revenues were $131,515 (expenses were $130,186) and there's no logical reason to invest in any sort of stock offering which would dilute current shares.

'Pump-And-Dump' Scheme?

StreetSweeper has also warned that Broke Out could be another "pump-and-dump" scheme. After the filing about the Starbucks menu app and the Google Android test reaction app on March 7, stock promoters Finest Penny Stocks and Traders Choice broke out hype campaigns. Moreover, Insiderfinancial.com said the most powerful newsletter group in the OTC markets is now calling Broke Out its newest bagholder.

The SEC categorizes "pump-and-dump" schemes as involving the touting of a company's stock (typically small, so-called "microcap" companies) through false and misleading statements to the marketplace. These false claims could be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat rooms.

In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money.

"We think Broke Out will be dead in a year and its investors will be dead broke," StreetSweeper said.

Shares of Broke Out most recently traded up 3.73 percent at $3.34.