If you have loads of time, read the TRKN 10-K. In it they indicate that as of 12/31 they created a $3.4m reserve for a doubtful account, two machines shipped to a distributor whose ability to pay is in doubt. They also indicated that as a part of the acquisition they wrote up the inventory of Electrotech to market value, which added about $10.6m to inventory. Of that $10.6m, they were able to expense $3m in Q4 1997, leaving an excess of $7.6m on the books as of 12/31. Presumably an aditional $3m or so was written off in Q1 1997 through CGS, which is part of the reason CGS is so high, the other reason being fixed manufacturing costs.
I did not see how the reserve for bad debt is accounted for, though. I assume that it is an offset to AR, and that the AR shown is net AR, and thus actual AR is even higher.
I should also mention that they have another potential problem looming in that they discontinued R&D on HDP CVD which was being done under a limited partnership, and one of the partners is not happy about it, so they may have to settle with the limited partners who were funding the R&D. The limited partners injected about $3m for R&D.
I would say that if they had a CFO worth his salt they wouldn't be in this jam at all. What do you think about the possibility that they go back to the subordinated debt holders and convert the debt to equity at say $5, and also issue the debt holders warrants as incentive to do so? This would have the effect of giving the debt holders effective control of about 68% of the company, but would stabilize the price. I'd rather see them looking for a buyout, but I doubt it will happen. I aso suspect they will wai another quarter or two before taking action, by which time the stock price could well hit your target of $2.
Carl |
