The meteoric rise in the share price of L.L. Knickerbocker Co., a maker and marketer of collectible dolls and other products sold on home shopping television stations, has triggered inquiries from federal regulators and stock exchange officials about the stock’s tenfold increase since the end of June.
The Rancho Santa Margarita-based company, which went public Jan. 26, has seen its stock soar from $5 a share six weeks ago to a high of $52 during Nasdaq trading Friday, before it fell back to close at $46.75 a share.
Directors, eager to keep investors trading shares, authorized a 5-for-1 stock split Friday. The split, to take effect Aug. 30, will increase the number of shares outstanding to 12.3 million and cut the price 80% to make it more affordable to small investors.
Meanwhile, both the Securities and Exchange Commission and the market surveillance division of the National Assn. of Securities Dealers, which runs the computerized Nasdaq market system, called the company this week to find out what executives were telling investors, said Louis L. Knickerbocker, the company’s president.
“The SEC just asked for us to send them our projections for sales and earnings,” Knickerbocker said. “The Nasdaq group just asked us if we knew why, and we said that our only assumption was because Rafi Khan was a broker who was recommending our stock.”
Neither agency has launched an investigation, he stressed.
Khan, best known in Orange County for his attempt early last year to oust the board and management of ICN Pharmaceuticals Inc., said neither organization had contacted him.
Both Khan and Knickerbocker believe that certain investors had taken short positions, a strategy that pays off only if a stock falls. With such a large leap in the stock price, the short sellers face hefty losses.
“I am not a stock-market-savvy person,” Knickerbocker said. “My expertise is in manufacturing and selling products over television.” The run-up in the stock price, he said, is a “tremendous vote of confidence in the company,” which has “tremendous potential” to become a $1-billion company.
But the company, despite the big jump in its stock price, has a way to go to reach that plateau. Its revenue last year was $7.8 million, a 50% increase over the $5.2 million it saw the previous year.
Knickerbocker is banking on celebrities to sell its products, which also include toys, jewelry, clothing and environmental systems.
Entertainer Marie Osmond, for instance, sold out a limited line of her designer dolls for $2 million in only 13 minutes of air time on the QVC home shopping station, Knickerbocker said. Other celebrities, including Angie Dickinson and Farrah Fawcett, will also be pitching products on QVC.
Knickerbocker stock began its climb as soon as former broker Khan started promoting it.
Khan said he came upon the Knickerbocker stock in late June and was impressed with the company’s growth rate. The next day, he visited with Louis Knickerbocker for four hours, discussing the company and reviewing its plans for six new products.
“Here’s a company with no institutional ownership. No one loved it. No one followed it,” Khan said. “I started buying the stock at $5.50.”
By July 3, the stock began to move as Khan introduced Knickerbocker to money managers. The investors began taking big stakes in the company. Daily trading, which had stagnated at about 20,000 shares or less, jumped that first trading day in July to 113,000 shares.
While he’s thrilled with the huge amount of interest in his company, Knickerbocker said he isn’t surprised by the increase in the stock price, mainly because he’s “never been here before.”
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L.L. Knickerbocker, which makes items, such as celebrity dolls, sold on the Home Shopping Network, has seen its stock climb from $4 a share in mid-June to $48.25 on Tuesday. Daily closes since June 15:
Friday: $46.75, down $1.50
Source: Bloomberg Business News