For all my negativity and rants towards companies de-registering from the SEC, sometimes it does help operations. It definitely saves them money and enables them to spend more time on the business.
The real risk is communication. If they cut the world off the stock can drop to nothing but as long as they keep talking good things can happen.
Dynasil (DYSL) de-registered from the SEC in the fall of 2019 with the hope of saving $900k per year. They filed their last 10k in Dec 2019 and told shareholders to only expect an annual report moving forward. A week ago they put out the report and the numbers back up their motivation for de-registering.
Getting straight to the point the numbers are good. They did save money with the de-registration and have a common reduction from their reverse split. Revenue wasn't impacted much by covid and they saved money by not attending trade shows. The numbers:
- revenue $44.0M in 2020 vs $43.7M in 2019
- cash $2.9M vs $0.3M
- BV $21.6M vs $18.8M
- shares common 14.9M vs $17.1M
- net income $2.5M vs -$0.4M
- EPS $0.17 vs -$0.02
- ****update 20200210 DYSL had a $1.5M PPP loan forgiven which I did not realize when I first wrote this post. EPS without that would have been $0.06****
Often times when a company de-registers from the SEC they claim a major reason is cost. You see estimates from a few hundred thousand dollars to over a million. I understand the motivation but I'm always a bit skeptical the savings will actually benefit shareholders. What if the executives just increase their own pay or use the money to fund a dying business? What if the company stops communicating and the world never knows what happens?
My first question of a newly dark company is always how they will communicate. I always send an email to ask. Will they keep filing quarterly with OTC Markets or post an annual on their own website or what? With their answer comes the next question: will they follow through? You don't really know if they'll feel the same way a year or two later. All you can do is ask and try to evaluate. Do you trust them?
Sometimes it works out. DEWY saved money, it flowed to the bottom line, and the stock is now up 200% from the de-registration lows (real estate also played a part but you get the idea).
Other times it does not work. RBCL is one I own that de-registered 5 years ago then disappeared. It happens.
I wrote up DYSL in Sept 2019 laying out the case for this dark stock and you should read it for all the background. So far the darkness is working for DYSL's business. Margins went up and expenses were way down while revenue slightly increased. I hope they keep that recipe going once covid is gone.
So now I go back to waiting. I hope to see another report a year from now. The risk is it may not come...
disclosure: long DYSL
Hello Dan, thanks for the write up. Which are the best brokers for these kind of companies?ReplyDelete
I use Schwab. Some more info here: http://www.nonamestocks.com/2019/06/my-brokerages-fidelity-schwab-etrade.htmlDelete
and here: http://www.nonamestocks.com/2016/10/brokerage-firms-otc-markets-and-dark.html
I think for a dark stock it is actually best if it pays dividends (see e.g. NSYC which pays an annual dividend of USD 20). Only then can a shareholder assume that the money will not trickle away. Actually, the management can simply enrich itself if it owns the majority of the stocks. A shareholder can't really do anything about it. So I'm not sure if such stocks are really good investments. There are many disadvantages to consider for example, a total loss or complete untradability.ReplyDelete
I own probably only one stock that pays dividends. For sure there are risks in dark stocks but there is also opportunity. Dark stock HEMA made me 8000%. Dark stock SIMA made me 1200%. Dark stock COMX made me 500%. The list goes on and of course some of them are big losers. This dark and tiny world is my whole stock strategy, I look for the winners to drown out the losersDelete
This comment has been removed by the author.ReplyDelete
Yes Mark that's a good question. I did not mention a PPP loan in this post because it was not explicitly called out in the DYSL report but I should have. They did get a $1.5M loan that was forgiven. It's part of their other income line item which shows a net expense of $286k so not clear at first sight.Delete
This means without the PPP loan net income would have been $0.968M = $0.06 per share
They also state they saved $800k by not reporting. And operating expenses are down by about $1.8M.
Thanks for the reply, I had deleted as I realized I should have read your comments closer and saw that you did say expenses were down. It is certainly a great thing for a lot of these small companies. I'm in ECIA, which is up ~50% the last week or two. The only news was earnings that were in my opinion no different than the last several quarters other than the loan forgiveness and then the announcement that they got another round of PPP.Delete
I gave it more thought and I may be underselling the importance of it for these companies as it gives them an additional couple of quarters to find new customers, new contracts, etc. With these small stocks being somewhat similar to a long term option, adding on additional time is probably more valuable than I was initially thinking.
on ECIA I think the recent movement is more due to the talk of their new scissors product. but that's just my guessDelete
You're probably right on that. I may have been a little too negative, sales being flat year over year is pretty good in this environment. Certainly better than the last couple of reports. Will be interesting to see the 10-Q. I think the stock has the most upside of any that I own. Between new products and the contract with a JNJ sub, there are a lot of catalysts for change. I think it is pocket change for JNJ to buy out if they see any value from the services provided, even with a significant premium to the current price.Delete
thanks for the Post. By the way. What do you think of GIGA? they issued excellent report couple of days back but the stock remain flat. I opened position after that report. SHow increase in all areas and during CovidReplyDelete
Revenue grew 55% to $4.1 million, compared to third quarter fiscal 2020
Net income attributable to common shareholders for the third fiscal quarter 2021 was $830,000, or $0.33 per basic and $0.28 per fully diluted share, compared to a loss of $1.4 million or ($0.58) per basic and fully diluted share for the same period last year.
It was a nice report and I still hold all my GIGA shares. They need to string a few good Qs together in a row. Sales have been lumpyDelete
But the disadvantage is that Dynasil is not at a 5 year low or multi-year low. I thought that was also an important factor and I would prefer this. The current price is rather at an average of the last years.ReplyDelete
yes you are correctDelete
Did you received printed copy of the report or it was posted online?
The company emailed it to me. I have emailed back and forth with them a number of times and they are responsive.Delete
see Investor Relations here:
Perfect. I just emailed them as well.Delete
Have you ever heard of AMIH?
nope, that's a new one to meDelete
A really dumb question: Is any of the increase in net income from ppp loans because of pandemic? I am not sure how these are handled on the books.ReplyDelete
Could you email me a copy of the annual report as all they would give me was the 2 page presidents letter?
see my comment above about PPP loanDelete
in that presidents letter is a link to the full financials
Sorry, missed your ppp comment. There is no link in my presidents letterDelete
something else: do you think that a stock chart such as the chart of Wah Wo Holdings Group (9938) could be interesting? It is a Hong Kong listed stock. I have never seen this before; a strong rise after the IPO to 2.8 hkd and than a strong fall to 0.13 hkd. maybe it could go to 2.8 hkd again. Management commented that they don't know why this stock showed these price changes.ReplyDelete
BTW this video at min 3:11 explains why I find the Hong Kong stock market attractive: https://www.youtube.com/watch?v=VQo8zX7B3pI&feature=emb_titleDelete
I don't own any hong kong stocks. I would find the reason for that drop before buyingDelete
any thoughts on the stock JRSIS Health Care Corp? I don't like that it is Chinese. However, it is really cheap and trades since 2013. The chart spikes to usd >2 look interesting.ReplyDelete
I don't know that oneDelete
DYSL just send out an announcement with some year end results and they sold off two division. This stock is cheap.ReplyDelete
They earned $0.42 per share for the year and then sold two divisions for $2.15 per share. Now have $2 per share in cash and even after the sale expect $2.3-$2.5 in revenue next year. will be returning some cash to shareholders maybe with a tender. Wish I could buy some more