The old aphorism “penny wise, pound foolish” has been revised to “penny-stock wise guys get pounded.” San Diego has reams of penny stocks: don’t get foolish.

Actually, the Securities and Exchange Commission defines a penny stock as one trading below $5. Because such low-priced stocks tend to be manipulated, those who put money in them must sign a written agreement affirming the purchase, which has to be okayed by the brokerage house. The buyer gets a warning document explaining the risks of plunking money into penny stocks.

Forget that $5 threshold. Let’s examine San Diego stocks that actually trade for a few pennies per share or even lower. In each case, company records reveal sound reasons for such rock-bottom prices. These are not aristocrats disguised as paupers.

For example, biotech Alliance Pharmaceutical trades for just under 1 cent a share. The lure: if you buy this stock, you get two of the biggest big shots in San Diego. Chief executive Duane J. Roth has held, or is holding, top jobs at the San Diego Regional Economic Development Corporation; the UCSD Cardiovascular Center’s advisory board; UCSD’s foundation; the Citizens’ Advisory Committee on Housing to the San Diego Association of Governments; Connect, a nonprofit business generator; Biocom; the California Healthcare Institute; and the Lincoln Club, the Republican Party’s money distributor. A board member and former president of Alliance is Roth’s brother, Theodore D. Roth. He is a top official of Roth Capital Partners, an investment banking firm, and board member of BioMed Realty and Orange 21.

Whoopee? Nope. Look at Alliance Pharmaceutical’s official government filings. The company goes back more than 100 years, mainly in Otisville, New York. In 1987, the New York company joined with a San Diego pharmaceutical firm. Alliance has been trying for years to develop a product for delivering oxygen to patients in surgery. It has spent $161 million on the effort and will need another $70 million. But lacking funds, it has slowed developmental work sharply. It has an accumulated deficit of a stunning $500.5 million. Alliance needs $3 million in financing to keep going until 2011. It hasn’t identified a source of the funds and doesn’t know if it will. Its accounting firm says that Alliance lacks the capital to service its debts and fund operations and there is “substantial doubt about its ability to continue as a going concern.”

The company is in default on its senior notes but has persuaded note holders to take common stock as a replacement; they will get revenues from the products, if there ever are any. On April 3 of last year, Alliance’s board authorized a reverse 1-for-10 stock split. Such a move reduces the number of outstanding shares and, in theory, increases the stock price proportionately. Alliance would go from 63 million shares to 6.3 million, and presumably the stock’s price would go to around 10 cents, although stockholders wouldn’t be any richer, because they would hold fewer shares. But the reverse split hasn’t been effectuated. The company didn’t respond to my questions.

Then there is Green Star Products of Chula Vista. Its stock goes for 1.6 cents a share. This company produces so-called clean-burning fuels, such as biodiesel and ethanol. It says the future for biofuels is in such things as wood and algae. “Algae is the hottest thing. When everything is settled we will have the algae business in our pocket,” says Joe LaStella, president. Then why doesn’t the stock rise? “We’re not great promoters,” claims LaStella. Actually, the company has an energetic publicity machine that pumps out news releases on its experimental plug-in hybrid electric vehicle, as well as the fuels.

On December 29 of last year, LaStella sent a letter to shareholders blaming his stock’s low price on short sellers (those who borrow shares, sell them, and then hope to replace them at a lower price) and, specifically, naked short sellers (shorts who don’t bother to borrow the shares). He urged stockholders to complain to Congress and thinks he influenced six senators. But the last financial report (on the company’s website) is for 2007, and it’s unaudited. In his letter blasting shorts, LaStella complained, “If the company is doing great, why is the company stock not increasing?” But how do investors know if the company is doing “great”? Actually, its last report says the accumulated deficit is $14.4 million. LaStella says Green Star made money in 2008 and will do so this year on sales of more than $2.5 million. Thanks to the post-Enron Sarbanes-Oxley legislation requiring companies to put out more comprehensive reports, putting together an annual filing costs $200,000, he complains, saying he will have the 2008 report out shortly. He laments that he “is a 2-cent company,” but “my competitors through the years went out of business.”

There are some other dandies. Stock of a company called ubroadcast, which has been losing money, sells for 2.5 cents a share. It changed its name in 2003, 2004, 2005, and 2009, as it moved from one business to another. It has been in wireless Internet and in distributed handheld gambling systems for use in casinos. It has run an online biofuels exchange and dabbled in oil and gas properties, among other things. With its software, ubroadcast says that “anyone can host a live Internet radio show on the Internet.” The company boasts that a San Diego Business Journal headline says the ubroadcast business could be “larger than MySpace and YouTube.” However, in its official filing, the company admits it doesn’t have the capital, brand recognition, or personnel to pursue its mission fully. It has three employees.

Carlsbad’s Who’s Your Daddy has gotten lots of publicity for its energy drink, but sales are decreasing as losses mount, and the stock sells for 2.5 cents. Biotech Nanogen recently filed for Chapter 11 bankruptcy and sold its assets. Its has been headed by Howard Birndorf, one of San Diego’s biotech leaders. The stock got as high as $78.50 in February of 2000, just before the dot-com crash. Now it is below a nickel.

Another once-promising biotech, Protein Polymer Technologies, sells for 2 cents. And you can get another biotech, Akesis Pharmaceuticals, for 1.5 cents. Nascent Wine Company, which distributes food and beverages to Mexico, sells for 2 cents. Com-Guard, whose software supposedly protects computers, sells for less than a penny.

Then there is Rim Semiconductor. It was named New Visual when it was in San Diego. Its stock did quite well after a purported brokerage house issued a report saying that the company’s technology was a winner. In a footnote, the brokerage admitted that it had been retained by New Visual to provide public relations and stockholder services. New Visual went into the semiconductor business, changed its name, and in 2003 moved to Portland. Last year, the company was locked out of its office for nonpayment of rent, according to the Portland Business Journal. To stay alive, Rim kept issuing shares; finally it issued 4 billion of them — almost as many as Exxon has outstanding. Rim’s stock was recently selling for one-hundredth of a cent a share, but now there is no quote available. I left a message at the company, which appears to be located in a Portland-area home, but got no response. I was not intending to buy Rim stock; I just wanted information — like how morale was holding up.