FDKP article:
By Bob Davis
Thursday, July 27, 2000 11:45:00 AM
This story would be funny if it wasn't so sad.
It is funny because the story is so completely improbable. It is sad because a large number of investors have bought into this story, seemingly without doing any personal investigation whatsoever. It is doubly sad because, if this company really is legitimate, the impact of two "pump and dump" efforts, one after the other, may hamper its ability to raise the capital that it really needs to grow.
What's the "Story"?
Various I-net "investment newsletters" are claiming that Finders Keepers (OTCBB: FDKP) is "a leader in locating lost and abandoned assets that have been escheated to State and Federal Government agencies, which are holding billions of dollars derived from dormant bank accounts, lost or forgotten stocks and bonds, forgotten safe deposit boxes, money from health benefits and lost assets belonging to Estates." Further, they state that Finders Keepers' website has generated approximately 20,000 different claims pending with government agencies for a variety of clients, and that "Finders Keepers, Inc. is way ahead of any of its nearest competitors."
On March 30, 2000, Finders Keepers announced a two-for-one stock split of the company's common stock, and is considering a second stock split in the near future. A July 20 press release stated:
Company council is currently exploring alternatives necessary to facilitate increased liquidity objectives. The company is actively proceeding with authorization to increase authorized shares which currently number 20 million. Once that has been achieved the company board of directors will meet to discuss and vote upon a forward stock split with the goal being between a 5:1 and 20:1 stock split.
On May 18, FDKP announced that "it has located, and received State approval to return to several clients, in excess of $160.000.00 of lost and abandoned funds." At its normal 15 percent commission rate, this should generate $24,000 in revenues.
On June 27, FDKP announced "it has added the State of California to its domain of databases for locating lost and abandoned assets. The addition of these new databases will enable Finders Keepers Inc. to unlock a potential 3.5 billion dollars of unclaimed assets which are currently being held custody in the State of California and the State of California's Government agencies."
What's Wrong with the "Story"?
If we assume that the underlying business concept will work, Finders Keepers is very under-capitalized and extremely overvalued by the market.
However, there are serious questions as to whether a high volume/high growth business can be built around locating lost and abandoned assets.
Finders Keepers is extremely overvalued by the market...
At its market price of $1.54 as of the July 25 close, its investors are saying that FDKP is worth $17.8 million -- for a company with no assets, no current revenues and no technological advantages that separate it from its many competitors.
While the company apparently may soon see its first cash inflows, it is not clear when these will actually start or whether they will continue at a meaningful level. Its 10-Q Report for the first quarter of this year states, "The realization of these pending claims are estimated to take between 12 to 18 months from the date of initial filing with the respective jurisdiction."
Finders Keepers' most serious problem is not "liquidity" but a lack of capital...
FDKP is a "one-woman show." Ms. Devorah Zirkind, age 28, is the company's President/CEO, sole Director, and only current employee. The company, which operates out of her condo in Brooklyn, went public in September 1999 and raised a total of $63,630 by selling stock at a split-adjusted $0.05 a share.
As reported in its 10-Q Report for the first quarter of the year, as of March 31, FDKP had $1,279 in total assets, in cash, with which to maintain its operations. Offsetting this was an $87,000 development stage deficit.
Net-net, this company badly needs private financing to allow it to become properly capitalized. An additional stock split will do little to assist this, and may actually prove harmful.
Lots of competition -- this business is very easy to enter...
An I-net search turned up at least one company that will sell you a kit for $24.95 that will allow you to enter this business yourself. "Start your own business as an Unclaimed Property Locator," reads the ad. "All you need is a computer and Internet access!!"
Is anybody actually using this service?
FDKP's recent 10-Q Report states that "For claims searched over the Company's web site, a non-refundable charge of $9.95 per search is charged regardless of success."
The 10-Q Report also states that "We experience approximately 9,000 hits on our website a month."
However, since the company generated no revenues whatsoever during the quarter, it would appear that not one of these 27,000 visitors during the quarter actually whipped out a credit card to make use of the service.
Finders Keepers is hardly "way ahead of any of its nearest competitors"...
FDKP does not appear to be a leader in locating lost and abandoned assets. Its "high-end" competition is Keane Tracers Inc. With a 50-year history of successes and a 125-member staff, it is undoubtedly "North America's most complete source for unclaimed property services."
In addition, an I-net search turned up a significant number of companies that offer similar services, some of which are free.
Added to this, virtually every state and the federal government offer free sites where people can conduct their own searches for abandoned assets. For instance, although FDKP recently claimed to have "added the State of California to its domain of databases," the state of California's unclaimed property database is already available on the Internet.
And a word about "forward stock splits"...
A number of people who are posting about FDKP on I-net forums claim that a "forward stock split" will cause the price of this stock to rise. This is definitely not correct!
To understand the idea of a stock split, it is important to remember exactly what a share of stock is -it is a share in the ownership of the company that issued the stock.
In other words, since FDKP has 11,554,416 shares outstanding and if you own 115,544 of them, you own one percent of the company. As a shareholder holding one percent of the company's stock, you have a claim on one percent of the company's stockholders equity, and thus a claim on one percent of any increases in stockholders equity generated by its earnings.
If FDKP decides to do a five-for-one forward stock split, it will issue an additional 46.2 million shares and give you 462,177 of them. You will now have 577,661 shares in a company that has 57.8 million shares outstanding. But you will still own the same one percent of the company and have the same claim on one percent of earnings and stockholders equity.
In other words, if this stock previously had earnings per share of $0.10 (which it does not& ), after the stock split its earnings per share will be divided into fifths, i.e. $0.02 per share. But, again, since you own five times as many shares, you would still have the same claim on one percent of the company's earnings.
Only one thing has changed as a result of this five-for-one split -- the market price of the shares of stock. If the market priced FDKP at $1.50 per share before the split, it should, in theory at least, price it at $0.30 per share after the split. Of course, the stock market does not consistently function with this degree of logic.
In theory, a split should improve a stock's liquidity and thus make it easier to buy and sell. However, for a variety of reasons, this does not always come to pass. If a stock's price per share is sufficiently high that it prevents some individual investors from easily buying a round lot (i.e. 100 shares), a split may improve the stock's marketability.
However, a forward split of an OTC Bulletin Board stock such as FDKP that is selling for a couple of dollars or less is only useful in hyping the stock upwards, because novice investors believe that such a split automatically causes their investment to somehow increase in value. |
