I don't typically buy microcaps since I don't have a good sense of how often they rip off shareholders. Sometimes I see what should be decent companies, and I wonder if I'm being too cautious and passing up alpha. For example, I was looking for non-MLP oil plays, and BRN stood out to me: on the NASDAQ, mountain of cash, NOLs of 150% the market cap, p/e of ~6. But its market cap is $26 million. And it looks like the board loves to issue new shares and dilute the hell out of stockholders while never paying a dividend. So is this the typical playbook for these sub-100m companies—basically all FCF and investor proceeds go to the board, with just enough left over to keep operations going and not get de-listed, and the auditors sign off on it since they don't want to lose a client?

The only thing that I struggle with in that explanation is why doesn't private equity or some roll-up buy them out? Mom-and-pop outfits in various industries get bought out or rolled up all the time, so I don't think that an 8-figure market-cap company is simply too small to bother with. Do companies like BRN threaten poison pills in a way that larger companies can't? I don't understand how these microcaps just endure indefinitely without getting bought out or getting sued for breach of fiduciary duty.

Even if you can avoid the CEOs and directors who scam you, dilute you, or 100 to 1 reverse split you; it's tough to tell if you're getting in early on the front of a parabolic wave, or if you're invested in some ol' bull****.

Bridgeway Funds is the only mutual fund company that I know of with any track record in this space, and their long-term track record is... not good.

BRUSX - Bridgeway Ultra Small Company Fund (investment based)
BRSIX - Bridgeway Ultra Small Company Market Fund (model based)

It's even tough to mine companies that are going out of the index because they grew too big for the ultra small company market cap definition (I tried investing in the top 10 or top 100 holdings.) Offhand I can think of some fairly promising companies that hit big in the Bridgeway Funds - payday lending companies in the early 2000's are a good example of stocks that went parabolic before they imploded or were straight up outlawed, even after hitting the billion market cap threshold.

Private equity is not going to be scooping up a bunch of gold mining scam stocks who release PR Newswire letters to gullible degenerates.

No. Definitely not. Just look at MVO VOC. Both are $100 mil market cap. Both pay extraordinary dividends. MVO has paid dividends for a decade atlseast. 14-16% div yield atm and VOC similar yield. That BRN just seems unusual for an oil and gas company. I was looking at the cash flow statement and saw a couple "dividends received" lines. Not sure what's going on with that. Seemed odd. I used to own some MVO and sold back when oil was in a bust.

If you are interested in oil dividends check out USOI 21% div yield. It's an oil ETF that sells covered calls.

Petrobras PBR is still my favorite oil play because management committed to a huge dividend payment for the year. Like a special dividend. They have roughly a 20% or more yield right now and its one of the largest companies. I think it was in the 10-Q or might have been a press release. I put it on my blog in February

I have always liked and own BGSF EDUC PETS PRTS TGLS. They're shareholder friendly or just good management with the PRTS. SOHO was a really good one before Covid and payed a nice dividend but they haven't recovered.

Hey all:

The nano and micro cap sector can be INCREDIBLY profitable for a patient investor.

The nano and micro cap space is a sector where market efficiency is not that strong...arguably not even hardly there. If so, this allows hard working individuals to be the Goldman Sachs boys.

Of course, you've got to know what you are doing. You have to be properly capitalized, and you've got to be patient. Finally, you need a bit of luck.

One of my favorite nano-cap stocks has been Calloway's Nursery (CLWY). Back in the day, you could buy it for well under $1/share. Now? It trades for a bit more than $15/share. The real "kicker" though is that it has paid dividends. Many dollars in dividends through the years (about $5/share).

So let us say that you bought your shares for about $.75/share in 2012 or so. Fast foward to 2022, you have 20X capital gain and you have recouped your initial outlay many times over. Even if the company goes bankrupt tomorrow, you still made money.

CLWY is not going to go bankrupt. They have been making A LOT of money, and at $15/share it is arguably still very cheap. I expect over the next few years, they will continue to pay out dividends. They are smartly growing the business, and are likely to be able to reliably make $2/share. What is the right multiple for a company paying nice dividends and making $2/share? I would argue somewhere in the low 20's easily.

Peter Kamin can take credit for a lot of this....he has a rather good track record.

There are other interesting stocks out there....you just have to get good at analyzing them, then you've got to find them.

Fortunately, a person can get rather wealthy if they can find just one of these a year!

Shout out to Rafiki. He found Nano tech security couple years ago. Think it was like 50 cents for the longest time. Eventually got bought out by a bigger company for around 1 dollar a share maybe more can't remember but did pretty well on that.

The last quarterly filing I see from CLWY is March 2021. Are they still actively filing?

Pocket Zeros:

I am not sure where or what you are looking at.

Please point your interweb browser to: www.otcmarkets.com/stock/CLWY/overview

Their latest filing is for the quarter ending 3/31/22. I believe that is an up to date and latest filing. That quarter they had earnings come down to a level of $.24/share for the quarter. Earnings for the prior 4 quarters were $2.14.

Those earnings of $2.14 were pretty darn good and are PROBABLY not sustainable at that level for the near term. Medium & long term, probably yes, CLWY has opened a couple of new stores and they took over an existing operation in Galveston TX. I think they have a very large addressable market in Texas. I think there is a very good chance that they can grow SSS in the low single digits. They can also have new stores of 1-2-3 a year. If so, new store openings will grow revenue by mid single digit revenue. Put it together, and I think that they can fairly reasonably grow the company revenue at 8-9-10-11 percent a year for the next few years.

Another thing is that they have some absolutely INCREDIBLY valuable real estate that they own. That was what got me into the company in the first place way back when. That Houston location (VOSS RD.) ALONE was probably worth close to the THEN market cap of the company. Of course, they also owned some other properties that were worth substantially more than what they were being carried for on the books.

I have not checked their real estate holdings for many years now, but I am going to guess that they are worth MORE than the last time I checked up on them.

When you can buy a company for just a bit more than what their one premier location is worth....you've got a deal!

Thanks for the link. I was checking the SEC database. Are OTC companies not required to file with the SEC? I also noticed their quarterly and annual reports are not audited. Is that also not required for OTCs?

I checked their most recent annual report. They lease eight of their retail stores. They show land holdings valued at $11.2 million and buildings of $14.4 million. Focusing on the land holdings, since the buildings may not hold much value for alternate uses if sold, are you saying the market value of the land is substantially higher than the $11.2 million they have on the books?

This is how I invest in nanos

check the balance sheet, calculate the burn rate, understand when they will need to raise funds. Talk to management, they won't give much away but if you're good enough to make money in poker you'll figure out what to ask and what their reaction means.

Now this part I just don't understand how it's legal but short the company because you're aiming to time it so that within a few weeks you will partake in a direct offering that's 20% below market rate (that's the standard). These deals will include warrants.

You will use the shares you got from the private placement to cover your shorts (banking 20% maybe more because after the dilution the stock price tanks below the offering price in most cases, at least for a few weeks because why buy at the open market when you can get those sweet warrants? So that soaks up a ton of the demand the stock would have had on the buy side) and then ride the warrants for free. Beware of the type of deal, some have a 4 month hold period.

Good luck

Pocket Zeros:

Oh my yes...the value of the land they hold is a bit more than what it is being carried for.

That is how I got knowledge of their situation years ago. A fund manager in the North East reached out to me to do some leg work in the Houston market. At the time, I didn't live very far from Houston.

Their Voss Rd. location is an A+ real estate location. That is putting it mildly. About 10 years ago, I figured that location was worth well over $.50/share. The stock was trading for about $.75/share (give or take).

I no longer live in the Houston MSA. I would be willing to bet a bunch of money that the Voss Rd. location has appreciated in the last 8-10 years. CLWY also had other land in the Houston MSA that was valuable. Mind you, not as good as Voss Rd., but still pretty good.

CLWY also owns properties in the Dallas market. I had very little knowledge of the Dallas market, but at the time I reached out, i was told most of their properties were in decent areas.

At this point in time, and for the foreseeable future, the real estate values are not going to matter a whole lot. What IS going to matter is the sales the company can do, what they can net on those sales. Expansion of the company is also critical, and finally the dividends that are likely to be paid.

A $32,000 investment in CLWY at around 2013 has given at a minimum $200,000 in dividends through the years. While 9 years is certainly a good, long period of time, it is not "crazy" in length. Peter Kamin coming in and changing management, the BOD, and company strategy/philosophy has made a tremendous difference. Mr. Kamin has a LONG track record of finding companies like this, making changes, and producing results.

CLWY has been one of my favorite companies...but there are others in the nano-small cap space. Heck, there are even companies that have performed better than it. I like CLWY though, as it has paid tremendous dividends. Investing in it way back then was like a "lead pipe cinch", given the property valuation(s). Finally, those dividends were enough to make a difference in people's lives and enough to fund other investments!

Thanks. Do you have any insight into why they're intentionally under-marking the value of the land on their books? What valuation model are they using to mark it?

Pocket Zeros:

It is an accounting rule that the land is carried on the books at the price that you paid for it. Buildings and improvement are depreciated over a number of years, the land is not.

Thus, you can get situations where land is being carried for $1MM (acquisition price paid in 1983) that was purchased in 1983. Now, in the year of 2022, that land may have appreciated (and is not reflected on the balance sheet). Sometimes it has appreciated quite substantially. CLWY is not the only company out there that has significant value "hidden" in the real estate that they own.

The only valuation model used for the land is the price that was paid.

Hope this helps.