Martinas B.

K2 Digital (KTWO OTCBB ) Merges with a Florida Builder

by Martinas B. April 29, 2007
K2 Digital announced on April 27th that they have merged with a Florida Building company. It appears there was no cash involved in this all stock transaction. Existing shareholders will suffer 90% dilution from the transaction. Even with the dilution the deal looks OK to us. There was nothing there before and now they are a 6 million dollar business that builds wonderful things such as Baptist Churches and Schools in Orlando Florida We know how wall street gets really excited to buy stock in companies that build Baptist Churches ..... NOT.

baptist-church.jpg

The stock looks fairly priced here. and that is even with its 120% increase on Friday. There was about 5 million shares outstanding. According to their announcement, they are doing a 10 for 1 reverse split and issuing about 4.5 million new shares to the Florida Builders. This would put the market cap at about 5 million. That sounds about right for a boring company with 6 million in sales.

Even though it is fairly priced, and may go higher from here. We would avoid this stock. We are at the early stages of a housing slump. This is a lousy time for a builder to go public. The company they acquired is loosing money and has debt. We think they are going to try and raise money this will further dilute investors.

What were these guys were thinking going public. Maybe they will unveil their master business plan to build Baptist Churches and schools all over your neighborhood soon. Stay tuned.

Comments 0

Type the characters that you see in the box (5 characters).