Bankrupt and Distressed (BAD) Research and Due Diligence

[Madclown]

FGOCQ March 2010 MOR is out.

The March MOR shows assets of $105 Million and liabilities of $32 million leaving equity of $73 million. While I am not typically a proponent of looking at balance sheets on MORs I make an exception here for 2 reasons. First, it is all we have to go on and second, this one is allegedly prepared based on market value of assets and debt. The largest asset is leasehold improvements of $86 million valued based on discounted cash flows of ore deposits. We are not given any info on the discount rate or the number of years the DCF was based on. The largest liability is secured claims of $20 million.

The unrestricted cash as of March 31, 2010 was only $6,000 with restricted cash of $2.85 million. They had negative cash flow for the month of $43,000. Net loss for the period was just north of $1 million. The largest expense groups were Interest of $570k, Officer Compensation of $150k and depreciation of 220k. I am fascinated by the $73 million equity number in light of the “I declare under penalty of perjury…” statement resting just above the preparer’s signature.

It will be interesting to see what the reconstituted balance sheet looks like when the secured parties take their property back. This one is very tough to value. I try to take clues from all different types of data points, including the volume that the stock trades. I find it interesting that this stock has not had a true capitulation where massive blocks of the equity turn over. Last week we had a 14 million and a 7 million volume day following the announcement that the secured lenders would be reclaiming their assets, but the total of those 2 days only represents just north of 10% of the o/s. Leaves me wondering whether those holding the stock know something that keeps them from selling or whether it possibly signals that the amount received from the sale would be insignificant to them.


Link to MOR:
http://www.scribd.com/doc/30832353