Premium Articles – Page 306

Sorry so late in getting to this one….

$31M in cash…..$61K in debt…….$24M market cap…$35M of available borrowing…YOY cash balance $10M higher than ’09

Why? A large factor IMO was the mess former mgmt left behind. That is being resolved and almost totally behind the company now. Without the “special charge” related to it, the loss from operation would have been cut in half (note that we fully expected a loss for the Q…retail). So, an explanation on it:

Special Costs
In 2006, the Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) commenced an investigation related to, among other things, the misuse and misappropriation of assets for personal benefit, certain related party transactions, tax reporting, internal control deficiencies, financial reporting, and accounting for expense reimbursements, in each case involving certain members of the Company’s former management (the “Audit Committee Investigation”).

On December 3, 2007, the Company purchased an insurance policy that insures a person who was a director or an officer of the Company for purposes of the Company’s 2005/2006 directors’ and officers’ insurance policy against litigation brought either by any director or officer of the Company who was terminated during 2006 or by the Company directly (“Special D&O Insurance Policy”). The Special D&O Insurance Policy provides coverage of $7.5 million, has a term of six years, and cost $4.1 million including taxes and fees. This payment was treated as a prepaid expense as the policy covers a six year period and amortized at a rate of approximately $0.7 million per year. It is included in Other current assets and Other assets.
As discussed in Note 5 hereto, the Company entered into settlements in August 2010 with the two remaining former officers who were terminated during 2006, and therefore, the remaining value of the Special D&O Insurance Policy totaling $2.4 million was written off at July 3, 2010. Including this $2.4 million write off, the Company recognized expense related to the Special D&O Insurance Policy in the amount of $2.5 million in the three month period ended July 3, 2010, as compared with $0.2 million in the three month period ended June 27, 2009. The Company recognized expense related to the Special D&O Insurance Policy in the amount of $2.7 million in the year to date period ended July 3, 2010 as compared with $0.3 million in the year to date period ended June 27, 2009.

The Company reports certain costs as Special Costs including, but not limited to, the costs associated with the Audit Committee Investigation, the assessment and remediation of certain tax exposures, the restatement of the financial statements which resulted from the findings of the Audit Committee Investigation, investigations by the SEC and the U.S. Attorney’s Office, a stockholder derivative suit, Nasdaq Global Market listing related costs, the Special D&O Insurance expense, legal and other expenses related to the now settled arbitration and litigation with Ludwig Kuttner, the Company’s former Chief Executive Officer, Chairman and director, legal and other expenses related to the now settled litigation involving former employees Charles Clayton and Roger Clark, and other matters investigated by the Audit Committee. See Note 5 — Commitments and Contingencies.

Special Costs incurred since inception of the Audit Committee Investigation were approximately $23.4 million through July 3, 2010. All litigation related to the Audit Committee Investigation has now been resolved, and thus, the Company does not expect to incur significant expenses associated with the Audit Committee Investigation after the recognition of legal costs incurred in the third quarter of 2010.

HAMP 2010 Annual Shareholder Meeting Presentation (click to open .pdf)

Stock is absurdly cheap on every level. Current management has done a nice job in fixing the mess and keeping the company on solid footing. Investing in turnarounds like this take a ton of patience. But, the company is moving in the right direction steadily….