National Energy Services Inc (OTCMKTS:NESV) Hauls its Way Up
At the end of January, National Energy Services Inc (OTCMKTS:NESV) was sitting at just under $2.50 per share. On Monday, it closed the session at just under $0.02. In other words, about 99.2% of the value evaporated in less than nine months. Why?
If you open the latest 10-Q, you might be able to spot one of the problems. Here’s a summary of the figures:
- cash: $96,104
- current assets: $1,853,138
- current liabilities: $11,309,645
- quarterly revenues: $2,527,474
- quarterly net loss: $3,900,723
The second quarter of 2015 was a bit of a disaster for NESV. The management team explained in the 10-Q that due to the overall downturn in the oil and gas industry, their revenues have dropped by a whopping 43% on a year-over-year basis. Things do look better when you check out the figures for the first six months of the year, but the sales still aren’t enough to outweigh the hefty expenses which is a rather big problem. It’s not the only one, though.
In April, when NESV filed its 2014 10-K, it said that a letter of intent has been signed for the acquisition of a Texas-based oil field maintenance company. The seven-figure revenues that you see above are the direct result of an acquisition of another entity called JD Field Services, and many people thought that a second equally successful daughter company would really give the financial statements a boost.
Unfortunately, over the next five months, NESV gave absolutely no indications of closing the aforementioned deal. There were no press releases concerning it and the SEC filings failed to give any new information. As a result, quite a few people felt a bit misled.
On September 21, the management team finally shed some light on the matter. They announced that the due diligence process had taken more than expected and said that they didn’t want to jump the gun and put out news before they have anything concrete. The press release says that the deal hasn’t been closed yet, but it hints that there might be some updates soon.
Investors are particularly excited about the “upcoming updates” part. The message boards and social networks are now full of people who reckon that the closing of the acquisition is very near. Thanks to their enthusiasm, NESV logged a few heavy volume sessions and yesterday, it also bounced 50% to a close of just under $0.03 per share.
If the stock supporters turn out to be correct and if NESV does complete the acquisition soon, the ticker might fly even higher. Whether that’s going to happen is for time to tell, however, and in the meantime, people contemplating a potential investment mustn’t forget one very important factor – dilution.
NESV has gone through quite a lot of it already. In December 2014, the company effected a 1 for 200 reverse split which means that the number of issued and outstanding shares at the end of last year stood at around 4 million. By the end of June 2015, it had grown to just under 8 million, and that’s when the really serious stock printing started.
On September 4, days before the filing of the latest 10-Q, the O/S count was sitting at more than 17 million, but a few recent filings suggest that it’s much higher right now. On September 21, a person by the name of Jeffery James Krueger filed a Form 4 which informed us that he holds just under 3 million shares. The filing said that Mr. Krueger is owner of 10% or more of NESV‘s outstanding common stock. A few days later, however, another Form 4 on his behalf appeared. It disclosed no sales of the aforementioned 3 million shares, but it said that he is no longer an owner of 10% of the company which, a quick calculation will tell you, means that the number of issued and outstanding shares should now be sitting at more than 30 million.
As is often the case, one of the main reasons for the excessive stock printing lies with the numerous convertible notes that the company has issued over the years. The discounts range from 30% to 40% and we can see that some of the note holders have definitely taken advantage of them.
This, by the way, also contributed to the massive crash NESV experienced during the first nine months of 2015. It could put pressure on the stock in the future as well.
