My DFNS 10k Analysis

Hi StockDoublers,

DFNSE (OR DFNS) came out with their 10k today.

1. The E should come off the symbol sometime soon I believe. So give it a couple of days and the symbol should go back to DFNS.

2. Their 1st Quarter report is due by May 15th. Whether they will report in time I don't know since they were so late with this report. (In their 10k they did talk about lack of accounting people at their company and they would be hiring additional ones)

3. They had revenue of $19 million and net income of $1.4 million.
In their NT-10K back on March 31st (which is a report you have to file saying you are going to be late) they said that Net income was $1.6 million and EPS was .07. I talked about it then that $1.6 million into 29 million shares only equals .055 EPS so where they came up with .07 I had no idea.
Well based on the 10K that was released they only did $1.4 million in Net Income which is roughly .048 EPS or under .05. That is HUGE difference!
I wish I could get an answer why the #'s were so off but I can't ever get ahold of Investor relations and no one really answers questions their so I doubt I could ever find out.

4. They have just under 200 full time employees

5. They paid $129K in a bonus to the President of the company. I have NO problem with the bonus, the issue I have is he OWNS ZERO shares of the stock and could have taken the bonus in stock if he felt it was so undervalued.

6. They have book value of about .25 per share BEFORE the $5 million or so they are receiving in Q1 and Q2 settlement from the government that should add roughly .15-.17 after taxes to their book value. So book value will be around .40-.43 per share.

7. Based on a .38 share price the stock has a market cap of about $11 million which is about .58 Price to sales ratio. If it had a 1 price to sales ratio it would be trading at .65 per share.

8. It earned .048 EPS (they rounded up to .05) at 10x P/E its a .48 stock. At 15x P/E its a .72 stock.

9. The company grew revenues by 81% last year and had earnings of almost .05 vs a little more than a penny loss last year. So 2007 was a good year for sure.

10. Hopefully they will come out with a press release tomorrow talking about how 2007 was a great year and what they look for in 2008. That would help share prices.

11. What are my thoughts on the stock price?
If I didn't own any shares at this time I don't know if I would buy some or not.
The negatives are ......
a. I don't think they will be able to match last years revenue for IDM ($9 million+)
b. If a. is true then revenue would slip in 2007.
c. Investor relations is horrible will the stock have a run?
d. how much upside does it really have?
e. could the Q1 report be negative (breakeven) and send the stock lower?

The positives are...
a. Very limited downside. Book value of .40 per share soon.
b. earning money good P/E ratio?

Personally if the stock was at .60 today I would probably bail out of it completely. I just don't see a huge run in it coming unless they can build on this 19 million revenue and .05 EPS. If 2008 is better than 2007 by 15-20%+ I think this stock can run a little bit but based on the orders from IDM so far this year I find it hard pressed to beat revenue #'s of 2007.

But I don't also see much downside either. They are earning money and any move to .30 is way too low for this stock that has a book value of .40 and earned .048.

A couple of positives that are good for this coming year. They had a hit of tax penalty of $200k in 2007 which if that is taken care of is almost .01 added to EPS. Also the president only gets his bonus if revenue increases so if revenue is say $17 million for 2008 he wouldn't get the bonus and that is $100k saved from 2007.

12. They talk about possibly using the settlement money for buying other companies. That could be good or bad depending on the buyout. Personally I would like them to buy back $1 million worth of stock. That is roughly 2 million shares if they were bought at .50 each. It would help share prices and the bottomline with less shares outstanding.

I am in DFNS and will stay in for the time being. Long from .50 from a almost 13 months ago so I frustrated that they had such a good year and I didn't get to take part in it.

Have a profitable day
Steve Hoven
alleycatnews@alleycatnews.net