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Microcap & Penny Stocks : ETPI-Military Entertainment Enters Civilian Market
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To: Gator who wrote (3491)2/11/1999 2:50:00 PM
From: Toby Zidle  Read Replies (1) of 4767
 
Looks like they had to depreciate equipment more than they had planned during the first couple of quarterly filings. Assets dropped substantially from previous quarter's report.

Gator, this doesn't make a whole lot of sense. Assets don't suddenly go on a depreciation binge. There are depreciation schedules. If you buy restaurant equipment, for example, with a four-year life, it depreciates 25% each year (or some variation if you schedule accelerated depreciation). The point is years in advance you know each year's depreciation. This is not something that catches you by surprise.

Elements that would catch the company by surprise might be things lie this ($numbers are hypothetical):

-- The company buys equipment for $10 million and books it for $10 million, but actually it's old and out-of-date. Value can't be justified and auditors force a writedown.

-- The company buys another company and transfers assets to their books at value claimed by the other company. The equipment turns out to be trash. Auditors force a writedown.

-- The company pays top dollar for great equipment, but it doesn't fit into company operations (e.g., computers that can't be networked). Company has to sell equipment for 25 cents on the dollar.

-- The company closes a location (Arlington mall, perhaps) and can't use the equipment elsewhere. Storage costs a fortune, so they dispose of equipment at fire sale prices.

All of these situations cause unexpected writedowns of assets and loss of stockholder equity. The issue is whether well managed companies get hit with these things so suddenly. Considering how late the financial reports are, I suspect there must have been a lot of 'discussion' of these issues between the ETPI financial staff and the auditors.

The auditors, as they always do, won and we see that in the 10K.

Does this give you confidence that ETPI is a well managed company?
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