Dave: Ouch!!!, but not unforeseen. I'll repeat what I have said after the last earning report, this company must shape up, reorganize, consolidate the activities from South Wales here (or vice versa), clean their book from this bloated "upwritten inventory", go out and get some solid orders, or else, they will end up in the death spiral.
They are losing the battle and we are at least half way, if not further, in the semi-cap recovery (I hear whispers that actual equipment shipments are slowing and that mostly finishing of existing projects and consumables are sustaining sales).
Let me tell you some of the gory details of the balance sheet: First you should know that TRKN has currently a negative worth. Yes, I know, the balance sheet cites about $2/share equity (or less with the updated number of shares), but of the $28 MM in net equity $38 MM is GOODWILL, thus the net equity is a negative $10 MM.
Furthermore, the assets still include a large amount of "upwritten inventories". On sales of $19 MM per quarter, they should not have much more than $20 MM in inventory, thus about $18 MM of that inventory will bleed the bottom line over the next few quarters.
They are doing a slightly better job of collection, sales increased by $8 MM over the last quarter but receivables increased only $2 MM. This indicates to me that a chunk of the receivables may not be collectible. I have no idea how much, but usually, this kind of business should not have more than 60 days sales receivables (if it was my business, I would shoot for 40 days sales as receivables, and would not be too irrate if they got to 45, anything above 50 would get me into an agida state). I would guess that the ticking time bomb there is about $5 MM.
My greatest worry is that at that rate of bleeding their bank line of credit might be closed. I am sure that there are covenants in the line of credit agreement allowing for calling the debt if some minimal balance sheet standards are not met, and I am afraid we are at or very close to that state. You ask about the open tomorrow, I would say under 6, maybe back to the yearly low or lower. They did not even indicate what their sales expectations are for next quarter, a very depressing sign.
David, I did not like it from the day the Electrotech acquisition was announced, and except for the CFO artful management of an extremely desperate financial situation, I see no operational or marketing ray of light.
Zeev |
