Thursday, September 22, 2005
DND Technologies (DNDT)
This company makes semiconductor fab equipment for plasma etching and dry stripping. They sell new, refurbished equiptment, aftermarket support, spare parts, etc. In 2004, spare parts and tech support as 38% of sales. 25% of inventory purchases were from Lam Research. Lam can't be changed easily but other suppliers can. Lam owns a lot of the IP, unfortunately.
Customers: Intel, TI, ST Micro, Motorola (the Circle M Ranch), Nationnal Semiconductor, On-Semi. No 10% or more. In 2003, TI and National were 17% and 12%.
2 employees: CEO and CFO. Aspect Systems, ASI, subsidiary has 53 employees.
Revenues have gone up with the semiconductor industry lately. Revenues were $15.8 million in 2004. Gross margins were 40%. Net margins were 15.6%. They earned 5 cents a share. Q2 was worse with gross margins of 32% with a significant net loss, even with a much lower reserve for bad inventory vs last year.
Assets are license agreements or $3.2 million (presumably with Lam), inventories of $2.9 million, and AR of $2.4 million. Liabilities are AP of $3.7 million, customer deposits of $1.1 million, payables to Lam of $967K current and $3.3 million non-current. By Q2 inventories were up to $3.3 million, AR down to $1.34 million.
In 2003 they issued $1 million in stock for AP. 441K options exercised in first half 2005. Shares increased to 26 million. 4.23 million outstanding warrants and options.
Free cash flow for 2004 was about $840K ($270K for first half of 2005). They paid off a net $700K in debt. Nothing else going on with cash.
There are a lot of things unpleasant about this company. Lam has a lot of power via IP. Lam is actually a competitor (although they let DND keep this niche for now). It's a cyclical business with lots of IP issues and uncertainty. The only good thing is that the stock is selling for 12 cents a share. If their free cash flow is say $500K per year and they have 30 million diluted shares, then it would be worth 25 cents a share. But the capital expenditures have been very low, perhaps it will increase to something more normal, I don't know. Do they have a sustainable $240K of free cash flow per year? Is it certain enough?