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As we predicted, China Fire’s business has hit a rough patch due to weakness in China’s iron and steel industry -- a segment of major customers for the company. Revenue was flat year-over-year and gross margin declined from 64% to 54%.

The full press release is here: http://mot.ly/dseQ5F

And although the company failed to release a cash flow statement (boo!), the business continues to look like it’s in a little bit of trouble from this perspective. Accounts receivable are up 21.5% year-over-year to $34.4mm and unbilled receivables are up an incredible 90% year-over-year to $55.3mm. That unbilled receivables number is also up more than 20% sequentially. In other words, the company was only able to achieve zero growth while aggressively booking work performed as revenue even though they have yet to send out an invoice. Given that this work is generally being performed for a struggling segment of customers (again, iron and steel) who are causing the company to keep writing up doubtful accounts, CFSG could be looking at a disaster if that sector doesn’t turn around.

I had started to get interested in CFSG again, but these numbers give me significant pause with regard to revenue recognition, and it’s very difficult to get a sense of the actual health of the business here.

Tim
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Superb job, GG!

Anurag
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10-Q is now out with cash flow statement:

We had $3.4mm cash consumed in receivables and $18.5mm in unbilled receivables. All told the company consumed more than $7mm in the Q. That's a lot of money for a small company like this. It could get ugly out there.

Tim
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Sorry, that's in 1H10. That 58% rise in unbilled receivables is truly incredible. Eventually the music stops with that kind of thing.

Tim
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