Artfest International, Inc. (OTC:ARTS, ARTS message board) had a nice spike up on Monday, coinciding with an announcement of a dividend payment and a possibly continuing stock promotion campaign.
The dividend announcement itself was not appreciated by the market and was rather weird. The numbers announced - $10 per share dividend - is not something that ordinary penny stocks can pay. The catch is they will not be giving cash to anyone.
Shareholders of record will receive 1 share of Artfest's subsidiary for every 1,000 shares of Artfest they own. That one share is valued at 10 bucks.
The announcement was vague and had no retained value for investors. The share price increase was built on speculation and not a real reaction to the news. Though it proved to be a good intraday play, the company doesn't have what it takes to retain higher share prices:
- their recent increase in revenue was offset by increase in SG&A;
- cash and receivables do not top short term liabilities;
- common stock sale is one of the funding sources;
- recently taken $900 thousand loan adds more leverage.
To date, the company has lost investors 99.93% of their value, as it's stock price declined from $10, at the beginning of 2008. Moreover the stock is being promoted by collegestock.com since February 2010:
"ARTS - Artfest International. The Dean has verbally agreed to be compensated 200,000 shares of free-trading stock and up to 2.5 million shares of restricted stock from a 3rd party which we're unable to sell until July 7th, 2010. "
With 47 million shares outstanding that's a possible 6% dilution from the promoter alone.
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