The good news from MiniScribe Corp was the company’s new 1 high 3.5 disk drive (CI No 1,295): now comes the bad news from the Longmont, Colorado disk drive maker with the black hole in its balance sheet caused by scores of millions of dollars in phantom product shipments. The preliminary unaudited consolidated balance sheet as at July 2 shows assets of $241m and liabilities of $329m, which adds up to a negative net worth of $88m. The balance sheet reflects the cumulative expected adjustments to be made to the company’s financial statements for fiscal years 1986, 1987 and 1988, all of which are now known to be at best unreliable, at worst, pure fiction. The company has filed with the National Association of Securities Dealers a status report in which it requests an extension of the previously granted exception and an exception to NASD’s $375,000 minimum capital and surplus requirements in light of the $88m negative net worth – against the original 1988 balance sheet that showed a $131m positive net worth. The balance sheet shows working capital of about $8m and the deficit is the result of the previously announced fraudulent and improper accounting practices first discovered by the new management in March, plus write-downs and reserves to account for the discontinuance of the 5.25 product line, and substantial losses for the first two quarters of 1989. The company expects to complete the restatement of earlier years later this month, and will then be able to draw up accounts showing the level of the operating losses for the first half of this year.It expects to report continuing but reduced losses in the third and fourth quarters of 1989. It is still managing to pay the interest on its 7.5% convertible subordinated debentures and plans to make the next payment, due on November 15, 1989. The company acknowleges that as well as reflecting serious problems inherited from the past, the new balance sheet also poses problems for the future, as the company is still short of working capital. It is now beginning to explore strategic business relationships, sources of private and public capital, for both the domestic company and the foreign subsidiaries, as well as other refinancing and balance sheet restructuring opportunities, it says.
