Yet that didn't stop investors from bidding up the price of shares in the company over the past two months, from less than 20 cents to a peak of $1.15 on Aug. 6. The stock quickly reversed course after that, and as of Friday it traded at just 12 cents.

It's now clear a scam had targeted the company's stock.

The wild ride for investors illustrates the riskiness of trading stock in thinly capitalized development-stage companies.

Paul Loo, executive director of investment banking and brokerage firm Morgan Stanley in Hawai'i, said there is inherently higher risk investing in "penny stock" companies.

"Good companies shouldn't be trading in pennies," he said, adding that prospective investors should assess a company's assets, earnings and other tangibles to see if that can be equated with its stock price.

Richard H. Miller, 57, runs Maui General Store out of his Hana home and acknowledges that his company has struggled, but stands by its value and future prospects.

As its name might suggest, Maui General Store has hung its hopes on a variety of business endeavors that included catalog publishing and hotel acquisition in addition to the disposable phone and clothing deals.

The business was incorporated in Colorado in 1993 as a holding company for Hawai'i real estate and other investments, but was not used for any purpose for nearly 10 years.

Miller took the inactive company public in 2001 by merging it with a dormant firm with public stock. Maui General Store then began seeking operations, and started by acquiring a small Maui pearl jewelry firm.

To date, only pearl jewelry, currently sold at the Hotel Hana Maui, has provided the company revenue, according to Maui General Store's most recent financial report.

Last year, the company reported a $75,000 net loss on sales of $31,000. For the first half of this year, the company reported a $32,000 net profit on sales of $25,000, but without roughly $32,000 in forgiven debt there was a $500 net loss.

At the end of June, the company had an accumulated deficit of $446,000 and cautioned in its 2003 annual report that "unless we achieve the financial and/or operational wherewithal to sustain our operations, our negative cash flow will likely result in the cessation of our operations."

The company's New York based-auditor Rotenberg & Co. LLP also raised "substantial doubt" about the company's ability to continue operating.

The children's clothing, phone and catalog plans — all of which the company expected to launch this year — have been dropped to focus on the company's latest proposition: opening Caribbean Joe retail stores, Miller said.

"Since Caribbean Joe is the strongest, I'm going to put all my attention on that," he said.

A year ago, the company touted the phone enterprise as promising, announcing in a press release that it finalized a $5 million line of credit that provided certainty for a vendor to manufacture the phones and fulfill about $100 million in existing orders.

Miller said that the phone manufacturer, New Horizons Technologies International Inc. of Orlando, Fla., didn't make the phones as expected.

A phone number for New Horizons was out of service and the company's Web site no longer exists.

The company put out a news release in October 2002 saying: "Maui General Store, a merchandiser of island products, announced the signing of an exclusive licensing agreement with Baby Buddha Inc., a designer and manufacturer of innovative clothing for children that embodies Buddhist and other Asian/Eastern influences in its clothing design."

According to business incorporation records, Baby Buddha Inc. was registered in November 2001 in Colorado with Miller acting as the sole director. No officers were listed. The company's address also was the same as Maui General Store in Hana. The news release did not mention Miller's role in Baby Buddha.

Last year, Maui General Store reported that it expected to begin production and sales by the middle of next month, and described Baby Buddha Inc. as an "unaffiliated party."

Miller, who said that he dropped the deal with Baby Buddha because people didn't like the name, said he didn't recall being a director of the company.

Maui General Store announced its latest licensing agreement last month. This one was with a private New York company, Apparel Holdings Group, which sells Caribbean Joe brand clothing through department stores, including Macy's in Hawai'i.

Apparel Holdings did not return calls seeking comment.

Kenneth Sitomer, a principal with Apparel Holdings, has been a director of Maui General Store since 2001 and was granted 500,000 shares of the Hana company. He registered to sell 25,000 shares during the mid-August stock bubble, but has not reported making any sales.

Miller reported selling 100,000 of his 110 million shares in the company during the recent run-up in prices. He sold when the shares were priced between 53 cents and 99 cents, netting an estimated $86,000.

"Obviously, the company needs funding to do certain things like architectural designs, accounting and legal — I'm the one who pays everything," he said.

Miller said he figured the stock price was rising in response to plans announced regarding Caribbean Joe about two weeks before the major stock run-up.

A day after the Securities & Exchange Commission warned the public about the scam, Miller issued a statement condemning the scheme, which also involved several other companies.

In that statement, he encouraged investors to make prudent decisions, and also emphasized his confidence in his company's outlook tied to Caribbean Joe store plans. "We don't need the hype — our value stands on its own," he said.

Miller said the stock scam ultimately hurt his company, because the negative publicity makes it harder to raise capital to finance the Caribbean Joe plan.

Miller said he initially needs about $500,000 to open the first of what he projects will be at least 20 stores in the next three years.

Some of Maui General Store's roughly 2,000 shareholders are optimistic about the company's ability to deliver.

"I think in the long run it will do well," said J. Kalani English, a state senator from Hana who acquired 10,000 shares in the company two years ago for $10 or 1/10 of 1 cent per share.

"For me it was more of a token of support for a startup company from Hana, like buying Huli-Huli chicken from someone," he said, adding that he still owns the stock. "It's a great company and the concept is great."

Mark Matsumoto, a Kane'ohe resident who took 50,000 shares in the company last year in return for partial payment on a Lexus RX300 SUV he sold to Miller, doesn't know much about the company, but he also thinks positive.

"I took (the stock) as a gamble," he said. "I just met (Miller) and took a chance."

It will be another month before Matsumoto can trade his restricted shares. On Friday Matsumoto's shares were worth $6,000.

"I've quadrupled my money. I can't say that it was a bad deal, at the moment."

USE Caution when investing in microcap stocks

Microcaps are low-priced stocks issued by companies with little capitalization. They are not as regulated as larger-capitalized firms, which makes it easier for investors to spread false information and profit from losses created for unsuspecting investors.

These small companies, often referred to as penny stock firms, are among the most risky because relatively small trades can have a volatile effect on stock price.

Microcaps also tend to be new businesses often in a development stage without much of a track record.

The Securities and Exchange Commission advises prospective investors to thoroughly research companies by reviewing financial reports, management backgrounds, company prospectus and any other available information.

Companies with 500 or more investors and $10 million or more in assets must file financial reports and other disclosures with the SEC.

Many microcaps don't file SEC reports, which makes it easier for fraudsters to manipulate a stock through spam e-mail, online chat rooms, high-pressure stock brokers, exaggerated news releases and paid promoters often portrayed as interviewers and researchers.

Red flags the SEC warns of include companies where insiders own large amounts of stock, companies with large assets and little revenue, auditor statements about a company's ability to continue operating and stock for which trading has been suspended.

More information can be found at www.sec.gov/investor/pubs/microcapstock.htm.