thebullandbear.com
Investigating the Stock Detective: Avoid
by J. Michael Pinson, editor
J. Michael Pinson's Investment Digest
FinancialWeb.com (FWEB $6-5/8) distributes editorial content, stock quotes, charts, securities data and news to investors via the Internet free of charge across 17 financial Web sites. The FinancialWeb.com network includes the acclaimed StockDetective.com as well as other Web sites such as: Rapid Research.com, WallStreetGuru.com, The SmallCapInvestor.com, and BearTracker.com. The company is heavily concentrated on focusing toward small cap and penny stock stories on its StockDetective.com Web site.
In the summer of 1998, FinancialWeb.com's common share price was $0.50 per share. By late January 1999, the common shares soared to approximately $25 per share. In early 1999, I telephoned founder and CEO Kevin Lichtman who refused to disclose any financial information and stated, "we are a non-reporting company," meaning that as a small cap company themselves, they were not required to disclose any financial information to the public as an Over-the-Counter listed company. CEO Lichtman was also the editor of StockDetective.com, a Web site that allegedly exposes securities fraud by public companies on the Internet. The business model that Lichtman had created back then, and still uses today, does not make any financial sense for investors at all. While I had my doubts about the company, I gave him some time to prove this Internet model and withheld comment. During that telephone call Lichtman had stated that FinancialWeb.com was "profitable". However, since the company was a non-reporting OTC company, I had no way to verify this statement. What I just discovered was that this was far from the truth.
In 1998 and 1999, StockDetective.com and Lichtman received quite a bit of positive press claiming how Lichtman helps to expose stock fraud and small cap investor scams. According to the company, publications such as TheStreet.com, Forbes, Online Investor, CNBC, Yahoo Finance, The Wall Street Journal, Barrons and Money.com have all featured StockDetective.com in a very positive light. Consequently, thousands of investors have flocked into this Web site. These new Web site readers were also provided full access to FinancialWeb.com's investor relationship postings about how great this company may be, to include 1998-99 press releases and other information. It is not uncommon that a public company offers investor relations material to the public from their Web site. What is uncommon is when a public company knowingly posts information that is not accurate or outdated as FinancialWeb.com has done. I find it interesting that StockDetective.com has written so many negative articles about OTC listed public companies, and alleges massive securities fraud by such companies to gain credibility, when FinancialWeb.com was also a non-reporting OTC company.
On August 18, 1999, the company stated to the SEC, "Management knows of no arrangements that may result in a change of control of the Company."
By early September 1999, FinancialWeb.com's stock had declined from $25 per share in late January to about $5-3/4 per share. In the second week of September, the common shares jumped from $5-3/4 to $8 per share. The next week, the company announced "that is has entered into an agreement with MyCity.com to provide financial quotes, news, editorial and market data to MyCity.com's network of over 50,000 online U.S. city guides. `We're excited about working with MyCity.com. Together we will provide users with up-to-date national and localized financial news and information in a seamless portal environment,'" said Kevin Lichtman, President and Chairman of FinancialWeb.com. There were no other financial details provided and calls were not returned from MyCity.com prior to going to press.
Last week, a source brought to my attention that CEO Lichtman had bailed from the company and it deserved another look. A second source provided me with a copy of a press release by FinancialWeb.com, dated October 27, 1999 "that [founder] Kevin Lichtman has resigned as President and Chairman of the Board of the Company and from its Board of Directors. Mr. Lichtman's planned resignation is part of a global arrangement with FinancialWeb.com, Inc. whereby the Company will purchase 848,000 shares of his total stock holdings of 902,000 shares and restore them to the status of authorized and unissued shares. As a result, the Company's 5,457,839 issued and outstanding shares will be reduced by 15.5%, to 4,609,839 shares." This press release is currently not posted on the FinancialWeb.com Web site.
The press release did not detail the sale of Lichtman's holdings. "You should be happy for me. I sold my stock at a price where I never will have to work again. I can now retire. Don't ask questions why or how, just wish me Mazel Tov," said the 39-year-old former CEO. This transaction did not include any other shareholders, only Lichtman's shares. I went on to ask him about the company sales and operations, to which he replied, "What sales? Since when do you have to have sales as a public company? This is an Internet company. Internet companies do not have to have sales, you should know that." Lichtman began to become upset as I still attempted to ask at what price per share he sold his stock at and who was the real money behind this sale.
On November 8, 1999, the company reported net revenues of only $131,770 with a net loss of $706,871 for the three months ending September 30, 1999. For the nine month period ending September 30, 1999, the company reported revenues of a mere $287,003 with a net loss of $2,542,010. Three officers and directors, whose names are not disclosed in the recent SEC records, are paid a combined $1,014.250 in base salaries for 1999 and 2000. While shareholders had invested in the great stock detectives at FinancialWeb.com, the company has grossed less than $500,000 in total sales while company management was paying themselves over $1 million per year. According to SEC records, FinancialWeb.com reported that it was out of money. The company stated, "At October 31, 1999 the cash on hand was approximately $28,000, which is considered sufficient to continue current operations for only about one week." Also, the company has over $2.9 million in current liabilities that are due in December 1999 and April 2000.
While StockDetective.com was busy attacking other small cap companies and receiving a massive influx of positive mainstream press that attracted new potential investors to their own stock Web site, they had refused to disclose any financial information more recent than June 1998 in their own investor relations pages. However, the company has been swift to post their 1999 press releases to their Web site, except the one about the founder leaving the company. Investors who may have purchased FinancialWeb.com common shares in the first quarter who have yet to sell their stock appear to have sizable losses.
Meanwhile, Lichtman appears to be happily retired with allegedly millions of dollars in cash while keeping it a secret as to who really provided the funds for his exit plan, even as the company collapses 30-days later, with no cash left in the bank to pay the bills. It is unknown who is really behind the FinancialWeb.com with such funds. According to public records at SEC.gov as of 11/21/99, there have been no 13D filings of insider selling by officers or directors within the company. Also in the November 08, 1999 SEC filing, there was no mention of the founding CEO Lichtman selling his shares and resigning from the company in October 1999. This filing was submitted by the brother-in-law of Lichtman and who owns approximately 9,400 common shares, plus a stock option of an additional 25,000 shares of FinancialWeb.com.
One would have hoped that a company that touts itself to investigate and expose investment fraud on the Internet would pay closer attention to its own investor relations about the sale of its common stock and offer financial statements that were more recent than 18-months. Also, although founder and CEO Lichtman jumped ship in late October, the company still promoted Lichtman as being at helm of the company as of November 22, 1999 on their own Web site. They also refused to disclose anything in the Web site's investor relations pages regarding that they expect to be in business for no more than one week, as noted in a November 8, 1999 SEC filing. It is very strange that a public company with no cash could re-purchases 848,000 shares of Lichtman's stock and within 30-days the same company tells the SEC that it does not have enough cash to remain in business for more than another week or two.
Another insight here is that StockDetective.com stated in their own investor relations Web pages as of 11/21/99 that: "Until such time that FinancialWeb.com, Inc. can make publicly available audited financial information and provide the additional benefit of producing periodic SEC filings, it is the policy of FinancialWeb.com, Inc. to refrain from organized investor relations activities designed to encourage investment in its publicly traded shares and to limit information about the Company to current and historic data."
However, the reality is that the company had been reporting to the SEC since April 1999, its 1998 and 1999 financial results, but refused to post this data in their own investor relations Web site pages. Shame on FinancialWeb.com. When a public company files its financial results with the SEC, it does become public record. However, former stock detective Lichtman seemed to have forgotten this part for his own shareholders reading his Web site. One could conclude that by FinancialWeb.com's advising prospective or current investors on its own Web site that the company has not made such filings public, that they could have been discouraging investors from searching the SEC.gov database for such financial disclosures.
It is unclear how any founding CEO is able to allegedly receive millions of dollars for selling the majority of his stock and be "Cashed Out" by the company, only leaving $28,000 in total cash in the company's bank account. Remember, the company historically has spent over $150,000+ per month in administrative overhead. During my telephone conversation with Lichtman, he acted as if he had won the State Lottery and never had to work again. But what about the shareholders he had left behind? With approximately sixteen to twenty-one employees, and the ridiculous cost of three current board members receiving over $1 million per year in base salary, in all reality here, FinancialWeb.com is out of business. What is more interesting is that the common shares are still trading around $6-5/8 with a market cap of about $25 million. If the company were to raise additional capital it would most likely end up diluting the shareholder value by 100% to 700%, while attempting to re-negotiate a $2.9 million loan that will soon be due. To date, the company has not released any information as to where the former CEO received funds for the sale of his common stock, or who was behind the transaction. According to Lichtman, he has already been paid, but would not provide any details of the sale. "It is not my company anymore. I am not responsible for disclosing the transaction. You will need to call the company, they are responsible, not me," stated Lichtman. The company did not return my telephone call prior to going to press.
FinancialWeb.com is a disaster. In my 16 year career, I have never heard of a public company re-purchasing a CEO's stock and then admitting within four weeks that it does not have enough money to pay its own employees, while the CEO brags about being rich on the deal. As Lichtman was the editor of StockDetective.com, which was designed to help protect investors, he really just burned his own investors with outrageous management fees compared to the amount of total revenues produced. FinancialWeb.com is one of the worst small cap deals I have ever seen. I suspect that there will be a lot more news about this in months to come. This stock is rated as an Avoid/Sell Short. Share price target is below $1.00 per share.
Editor's Note: J. Michael Pinson is editor of J. Michael Pinson's Investment Digest, 2653 McCormick Drive, Clearwater, FL 34619, 1 year, 12 issues, $89.95. Visit www.TradersPressBookstore.com and save up to 75% off on books. |
