Here's a warning from the FWA (Fool Watchlist Association): If you have a weak heart, click away now! I propose to open the book on micro caps and suggest three potential winners from a sea filled with hundreds of companies likely destined to fail.

Micro caps often have spotty analyst coverage at best, dicey corporate track records, and high implied risk -- thus they are not for the faint of heart. But just as we can find values in small-, mid-, and large-cap segments, there look to be potential values locked up in micro caps as well. You just have to be even more discerning than normal regarding your criteria. Though these are by no means buy suggestions, they are breaking the surface on what could be some truly stellar companies.

NetSol Technologies (Nasdaq: NTWK)
NetSol is an application software company that provides point-of-sale, enterprise information, and credit processing systems to the automotive, health care, and financial sectors. As imagined, the recession took a toll on the company's financial and automotive segment, yet it's been profitable in the past five quarters. In its most recent quarterly filing, NetSol delivered 21% revenue growth, a profit that tripled over the year-ago period, and it grew its gross margin by 130 basis points from a year earlier. NetSol is trading at a paltry 8.4 times the low end of its own 2011 guidance, and for that reason alone it should merit further research.

Mad Catz Interactive (AMEX: MCZ)
GameStop (NYSE: GME) recently proved to the world that the demise of gaming was highly overrated and no one cheered this on more than Mad Catz. This small company provides video game, PC, and downloadable accessories for the gaming sector and based on its recent cash flow statements, it's growing by leaps and bounds. Since 2003, the company has reported only two full-year losses, and one of those years -- in 2008 -- was due in large part to a one-time writedown. In its most recent quarter, Mad Catz exhibited revenue growth of 91% from the year-ago period on a 67% jump in earnings. This is definitely a company worth watching!

FSI International (Nasdaq: FSII)
FSI is riding the coattails of success from other semiconductor equipment giants Applied Materials and KLA-Tencor, but that in no way diminishes the blazing growth rate FSI has put up over the past two years. Last year, revenue leapt 80% as the company turned a loss of $0.57 from the previous year into a profit of $0.39. In 2011, FSI is taking a bit of a breather, but its 2012 estimates point to robust growth once again. The company is trading at a minuscule 7.3 times 2012 earnings and has a squeaky-clean, debt-free balance sheet. It bears further research!

State your case
Which of these three potentially undervalued micro caps is your favorite? Perhaps you have your own favorite that I didn't mention here? What I do know is we'll never be able to find the next Cisco Systems unless we take off our gloves and do a little research -- and personally, my research starts with adding these stocks to our free new My Watchlist service:

Add NetSol Technologies, Mad Catz Interactive, and FSI International to your watchlist.