Debt Problems Knock Down Knickerbocker

Shares of L.L. Knickerbocker--whose stock once traded above $15--have sunk to new lows as some large debt-holders moved this month to dump shares and short-selling activity surged to a four-year high.

The Lake Forest company’s shares closed Monday at about 22 cents, up 2 cents. The stock has lost 65% since May, hitting a 52-week low of 19 cents Friday on the Nasdaq.

Following heavy losses in 1998, Knickerbocker--which sells dolls, toys and other collectibles--warned investors recently that problems with its lenders threaten to put the company out of business.

In recent filings with the Securities and Exchange Commission, the company has said ongoing financial problems raise “substantial doubt about the company’s ability to continue as a going concern.”

Fran Daniels, a company spokeswoman, said Knickerbocker is negotiating with its lenders and remains optimistic about resolving its problems.

But for individual investors, there was more bad news this month. Dual factors helped push the stock price even lower.

First, the average daily volume of short-selling--the sale of borrowed stock, an indication that traders are betting the stock price will fall--jumped to more than 1 million shares this month, or triple the pace of the previous three months. The company said it was aware of the short-selling activity but could not explain the recent surge.

The activity marks the highest level of short-selling since 1995, when the company’s stock surged in response to a tug of war between Wall Street short-sellers and flamboyant stock promoter Rafi Khan. Securities regulators eventually sued Khan for alleged stock manipulation.

Also hurting Knickerbocker’s stock was the announcement by several big investors that hold company-issued notes that they plan to convert their holdings into stock and sell the shares, Daniels said.

Over the past two weeks, four debt-holders said they plan to sell more than 3 million shares.