Excerpt on Accounts Receivable from new 10-K filing:
Accounts receivable and accounts payable.
In the course of the past twelve months, the Company has experienced severe cash flow issues, primarily as a result of the rapid growth of a semiconductor fabrication facility expansion project undertaken for a customer. The project has more than doubled in size from its inception as a result of scope increases and massive functional requirement changes. The invoice processing system employed by the customer was inadequate to the task of keeping up with the changes they were directing. As a result, the Company has had significant and disproportionate working capital tied up in accounts receivable, retention and change order processing on this one project. As a consequence, management was forced to delay payment of its accounts to preserve maximum possible liquidity. The Company has had to repeatedly force the issue of improved invoice processing with the customer's management. In addition, the Company believes it has substantial claims in excess of the original contract amount that will be recovered through the claims process. As of June 30, 1997, the Company has recognized revenue of $2,200,000 associated with this claim which it believes is in excess of $3,900,000. Accounts receivable and costs in excess of billings relating to this project at June 30, 1997 totaled $4,489,000 with obligations related to this project in the amount of $737,000. Management believes these assets will be fully realizable although litigation may be required. As of September 15, 1997, work on this project is substantially complete. Should the Company not be successful in realizing these amounts, liquidity would be negatively impacted.
As of June 30, 1997, the Company elected to increase its allowance for
doubtful accounts by incurring a provision expense of $944,000 for the year. This expense resulted in the Company having an allowance for doubtful accounts of $2,075,000 at June 30, 1997. The allowance account was increased based on the increase in size of the Company's general business and individual contracts as well as review its over 90 day accounts receivable and costs in excess of billings. The allowance account is reviewed regularly by management.
As of June 30, 1997, the Company had accounts payable in excess of 90 days past invoice date in the amount of $3,435,000. The Company anticipates utilizing collection of receivables and proceeds of any additional financing to reduce trade accounts payable. Some of the extended accounts payable relate to disputes with vendors regarding the performance of their equipment and subcontractors to the Company of projects where the Company has extended accounts receivable. |
