About the Lawsuit

Green Mountain and certain of its Officers are charged with making a series of materially false and misleading statements related to the Company’s business and operations in violation of the Securities Exchange Act of 1934. The Complaint alleges that Green Mountain artificially inflated the Company’s stock price during the Class Period by issuing inaccurate and unreliable financial statements, which were not prepared in accordance with GAAP and SEC rules. The Complaint further alleges that on August 28, 2010, Green Mountain completed a sale of 8,566,649 shares of its common stock to Luigi Lavazza, for an aggregate purchase price of $250 million, despite the fact that the Company knew its reported financial statements were untrue and that it lacked adequate systems of internal operational and financial controls.

From earlier posts I made here: and for all the analysis: here

There was a comment from Dean that touched on an interesting area of analysis. Working Capital.

Is the company a selling machine as flippe-floppe asserts, or is it rather, simply a fad common stock, that has caught the imagination of the market currently?

The financial statements, from a Working Capital analysis, suggest a fad stock, and potentially a fad gadget. The company, over a five year period has had a woeful record in actually getting paid. Their collections ratio has been 0.82. As a bare minimum, a company should show about 0.96. The last ratio was 0.95. Now this is a tremendous one off improvement, and would in isolation, be construed as a positive.

Receivables have however accelerated past Revenues, suggesting that the company is exercising a lax credit policy to customers, and if, past collections fall back to historical levels, a real problem will become apparent.

Second, Inventory levels have accelerated even faster than Receivables. We have an inventory glut. When inventory builds to excessive levels [increased supply] unless demand is growing faster, which it isn’t, then prices have to drop to sell-off the excess inventory, very often resulting in losses and reduced margins.

As a very significant portion of Revenue is based on selling common stock, and not actually selling product, losses on inventory will have a very leveraged effect on Net Income, as, Investors sour on the common stock.

Is this the future?