Wednesday, January 25, 2012

Sometimes, It's Best To Take A Pass #3: The Problem With FCCC Inc.

Often times, when looking at nano-cap companies, I come across some real shitty companies that trade at what strike me to be absurdly high prices. FCCC Inc, is almost certainly one of those.

FCCC Inc is a shell company, that is a nano-cap of nano caps. Here is it's most recent 10K.

When reading though, you come across a very few positive things... Mainly, a little bit of cash, no debt, and a pretty fair amount of net operating losses; there are over a million dollars worth of them.

You also come across a ton of negatives: The executive makes way too much money for what he does. Roughly $24K a year for doing to nothing (from what I can tell). This is part of an agreement that was struck in 2003. Have there really been no opportunities for the company in nearly a decade? Legal fees almost constantly make up $12K. Additionally, last year, the directors made $300 per meeting which totaled $1,800 dollars. Furthermore, the company is burning through ~$50K a year in book value with no sign of slowing down... At this rate, shareholders will be left with nothing in just a few years.


It seems that being public is a large expense for the company as well... Audit fees are $7.5K per annual report and another $2,000 per 10Q. This confuses me a little bit, as the company is presently wasting this and other monies by being public... that is, unless they actually do believe that they are going to do something with the company. Regardless, it seems that a whole lot of these little leaks are going to sink the ship.


If this isn't enough, the company more or less says that it won't be doing anything to start up business again:
It is anticipated that opportunities may come to FCCC’s attention from various sources, including its management, its stockholders, professional advisors, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. At this time, FCCC has no plans, understandings, agreements, or commitments with any individual or entity to act as a finder in regard to any business opportunities for it. While it is not currently anticipated that the Company will engage unaffiliated professional firms specializing in business acquisitions, reorganizations or other such transactions, such firms may be retained if management deems it in the best interest of the Company.

So, by my reading, they are hoping that someone just brings them a golden goose and sits it in their lap... Even Warren Buffett engages companies to bring him ideas- and everybody knows that he is looking to buy!


The CEO does own ~16% of the stock, so, it isn't like it wouldn't be in his best interest to try to do something with the company. At this point, it almost seems as if management and the board are counting on bleeding the company dry, then doing some sort of reverse merger, which due to the change in control, would destroy the NOLs that (I would assume current buyers of the stock think) give the company a good chunk of it's value. Using a whole lot of debt seems to be the only way to do much in the acquisition realm and with the debt markets as they are, I would hope that these guys are well versed in issuing seller's paper. The could issue stock, but, there again, you lose the NOLs and the CEO gets diluted out. Who knows...

All of this said, I was lucky to leave the tab in my browser containing their 10K open long enough that I had totally forgotten the market cap of the company... As such, when I finally got the chance to go to my favorite bagel shop and read some of their filings, I thought to myself "Well, if I somehow had control of the company to ensure that they would buy something (at this point, almost anything would be better than what they are presently doing), it might be worth, ohhhhhhh, call it a quarter of a million bucks. Since I don't, and the executives seem Hell bent on sucking the company dry and letting the NOLs get destroyed, I wouldn't pay (much more than) a cent for it. If I thought that they were actually trying to buy something (and would do so in the next few quarters), it might be worth as much as net cash... In which scenario, I might be willing to buy in if it were trading for, say, $50K. But, I would have to be able to 13D them at that price and then become way more than a beneficial owner just so it would make up enough of my portfolio to even matter to me. That would then constitute a change of control in the view of the IRS, and would destroy the NOLs, which would make my then very large stake in the company be worth a lot less!"

So, I sat back in my chair, took a sip of my tea and a bite of my bagel. Just for the sake of my own curiosity, I decided to look at the market cap of the company. An astounding $593K! For this much doubt, it seemed freakishly expensive.

Disclosure/Disclaimer: I have no financial position or interest in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

3 comments:

Taylor Conant said...

Jeff,

How do you find these companies and better yet, how do you look at them without catching a glimpse of their market caps/share price, first?

I try to avoid it but the free stock websites (Yahoo, Google, etc) I use for a lot of research make it hard to not see a big, bold stock price first thing.

Taylor Conant said...

Jeff,

Okay, I see from your other post you're running a screen. Still interested in tips on avoiding knowing the stock price ahead of time.

jeff said...

In this instance, I ran a screen, and then opened up the annual report. I left the tab that the annual report was in, open for probably a week. A week later when I finally read through the report, I had forgotten about the stock price.

It probably helps that I can never seem to remember stock prices, yet, can readily remember a lot about the companies that I read about.