From Small-Cap Digest:
Xtreme Companies (OTCBB: XTME) released their third quarter results yesterday. While most accounting statements usually include some written explanation to add the proper context, we’d say Xtreme’s interesting quarter almost requires it. Before we even dive in, a quick accounting lesson…..
Even the most accounting-averse of our reader probably knows revenue is ‘booked’ when merchandise is sold (or when service time is billed). What may be less understood is that revenue is essentially reduced when merchandise is returned to the manufacturer. Such is the case with Xtreme for their Q3; the numbers don’t look all that great, primarily because a couple of their key vendors returned, or refused delivery of, boats they had agreed to purchase.
The reversal of those sales pretty much wiped out Xtreme’s whole year, at least on paper. But, you should also recognize that their inventory levels shot way up when they for the boats back. Obviously those boats are still ‘for sale’. Once they finally are sold, their selling price (less the cost) can be re-booked as revenue.
So, keep that in mind when you review the abbreviated results here, or the detailed results here.
Aside from the footnote added to the accounting statements, we also feel it’s critical to remember this company is basically a re-invented company. A few weeks ago they made a major decision to drop utility boats (police, fire) and focus exclusively on performance boats. In our opinion it was a wise move, as that’s where they have an edge on the competition. However, we never thought it would be a perfect or easy transition. And, we don’t think anybody would say it has been. That’s just the way things are.
What’s interesting to us is how investors may be seeing a light at the end of the tunnel despite this quarter’s numbers. After sinking for the better part of the year, we’re finally seeing some interest in the stock. Granted, at only 4 cents, the limited risk may be part of the attraction. But, for the first time in weeks, we’re seeing some consistent activity above the 50 day moving average line. There still appears to be a cap at 4 cents, so some traders may want to see that nut cracked first before they decide to take the plunge.
