Some days there’s a bit too much news to deal with, and it’s all bad news.
First, TrackingPoint. Bad News.
The maker of high-tech and extremely costly integrated optics/arms systems has sent its employees home, suspended sales and orders, and closed its doors. Guns.com has a good overview:
The Texas-based scope company, located north of Austin, launched almost three years ago when it introduced the precision guided firearm system that allows the user to tag a target up to 1,000 yards out and hit it once the trigger is fully compressed.
Source familiar with the company told Guns.com that more than 20 people were laid off today and given a two-week severance package, but we have been unable to confirm those details with an official with the company.
Rumors of financial difficulties surfaced in February when the company hired a new chief executive officer and laid off an unspecified number of employees. At the time new CEO, Frank Bruno, told Guns.com that the company was cutting its research and development branch in order to lower costs and initiate new steps in a business plan.
Reports from June put TrackingPoint’s estimated revenue at $20 million for 2014, and $10 million revenue in 2013, but the company’s new CEO, Frank Bruno, declined to say in February if these figures were in line with current growth.
It’s a good and thorough report, as thorough as it can get without an update from the horse’s mouth (which is understandably not forthcoming), so go Read The Whole Thing™.
Shooting Sports Retailer, a site that’s increasingly becoming as important to industry watchers as TFB and Guns.com, noted that the company is “officially out of business,” that these layoffs were the half of the company that didn’t get whacked three months ago, and that SSR was warned some time ago that this reckoning was coming.
A source alerted SSR May 18 that TrackingPoint is “officially out of business” but a statement on the company’s website simply says TrackingPoint “is no longer accepting orders” and that it thanks its “loyal customers and followers for sharing our vision.”
In February we reported that TrackingPoint had fired nearly 50 percent of its workforce and appointed a new CEO, Frank Bruno. At the time Bruno said his company was poised for success and had grown its orders more than 200 percent.
But inside sources were telling SSR the company would go bankrupt by year’s end. Now it looks like that prediction has come to pass.
The question becomes: what happens to TrackingPoint’s technology now? They were never able to get it over the RDT&E hump and into production, where economies of scale could bring the price down. A deal with Remington (one of the many heads of Cerberus — the mythologically-challenged founders should have called that company Hydra) produced a disappointing de-contented version.
There are several possibilities for TrackingPoint:
- Chapter 11 reorganization (which would erase most of the debts incurred by the company’s $45 million R&D effort), which would preserve something of the company, while zeroing out investors and haircutting (at least) unsecured creditors. Freed of the burden of debt, the new company might thrive.
- Chapter 7 liquidation (which would sell off the assets of the firm, its technology probably foremost, and use the proceeds to make secured creditors whole, if possible, and make partial restitution to unsecured creditors, if anything is left after the secured creditors are paid. In this case the patents and technology might vanish, into one of the large defense industry prime contractors or even overseas.
- Some variety of sale of the whole thing, which might have it resurface as part of a larger firm, either in the firearms industry or (more likely) the defense industry. Unlike Colt, whose moves are constrained by its nature as a publicly-held (stock exchange-listed) company, privately-held TrackingPoint can probably explore more options for survival of the company, or at least, its DNA.
Hey, That Reminds Us. What About Colt?
As you remember, when we left Pauline at the close of last week’s episode, she was chained to the railroad track, and the 1:30 from Tikrit was approaching, flying a black flag. Colt had just
kicked the can down the road extended the deadline for the scantily subscribed exchange offer for 8.75% Senior Notes due 2017, bonds which are technically in default already, as Colt missed last week’s payment. But the one-week can-kick was how Pauline got off the scraggly branch she was hanging from over a long drop into Desperation Canyon at the end of the previous week’s episode, and onto the railroad tracks instead.
As we write this, Colt still has a technical chance of getting its bondholders to take the offer, in the same way that Chicago Cubs fans tell themselves they their team is not mathematically eliminated yet in late-summer baseball. But as we wrote this last night, Colt was just an hour short of the latest deadline (i.e. the arrival of the Tikrit Express):
The Old Notes may still be tendered, Consents may still be delivered and votes to accept or reject the Prepackaged Plan may still be casted until midnight, New York City time, on May 18, 2015 unless the Exchange Offer, the Consent Solicitation or the Prepackaged Plan Solicitation is terminated or withdrawn earlier, or unless the Exchange Offer, the Consent Solicitation or the Prepackaged Plan Solicitation is further extended.
So sometime today there will be news of one of these, from least to greatest probability:
- a resolution of Colt’s financial problems by some deus ex macchina (i.e., sale to a new hedge fund)
- bankruptcy, either as Chapter 11 reorganization or Chapter 7 liquidation;
- a daring escape for Colt, kicking the can yet again to a new deadline.
Something that can’t go on forever, won’t — but there are a lot of clever guys on Wall Street who can wring every minute of life out of an undead company. And something that can’t happen (like Colt paying off its debts) won’t happen. So somewhere in the other large set of Things That Can Happen is what will happen.
This part of the post was OBE. As we posted last night, after scheduling this post to go live, Colt released a new deadline of May 26 (yes, it kicked the can another week — which we thought the most probable outcome).
Finally, Stag Arms is in a Legal Jam
Once again we’ll go to Guns.com for the tale of the tape, as it were.
Federal agents seized thousands of gun parts and documents from New Britain gun maker Stag Arms LLC today.
According to court documents, an investigation by the Bureau of Alcohol, Tobacco, Firearms and Explosives revealed that Stag failed to comply with the National Firearms Act when agents found 3,000 unserialized machine gun lower receivers, and that the company failed to maintain documents for 136 unserialized receivers.
Stag’s owner, Mark Malkowski, was named as the claimant in the civil suit filed in Connecticut federal court on May 6.
ATF inspectors discovered the alleged violations last July and August during a routine check of Stag’s facilities and the inspector subsequently informed the company.
Tadeusz Malkowski, the federal firearms licensee for the Stag facility where the unserialized parts were found, told ATF inspectors that the receivers had been on the premises between seven and 30 days because the employee who serialized the receivers was on vacation, according to the filing.
This sounds pretty bad, but so far there have been no criminal charges. What is really happening here is that Stag’s IOI seems to have gone wild on the firm.
The IOI reneged on a verbal OK previous IOIs had given the company about keeping spare receivers on hand to retro-serialize to replace damaged receivers for warranty or other repairs. If you do this, expect ATF to target you (not that they’re consistent at all from one office to another). If you want to keep receivers to be serialized as replacements, keep those receivers in an incomplete state, which ATF has generally interpreted to mean no milling or drilling of the fire control pocket (partially finishing the pivot and takedown pin recesses, broaching or EDM’ing the magwell, finishing the mag release and bolt release recesses, and partially finishing the buffer tower (drill and tap for receiver extension), have all been ruled OK in the past). Go beyond that without a serial number and maker name, city and state on the receiver and they will violate you.
ATF Managers and US Attorneys, including the ones involved in this case, have been given marching orders to destroy firearms companies, and especially, makers of Modern Sporting Rifles, by any means necessary.
Here’s the .pdf of one forfeiture complaint. As is customary with forefeiture proceedings, the “defendants” are the seized guns and they are guilty until Stag proves them innocent. The file is courtesy of Guns.com.
The forfeiture complaint makes little sense to us, as they charge that these receivers were unserialized, but they list them by serial number. There are also many fewer receivers listed in this complaint than the 3,000-plus that the ATF supposedly seized. Three thousand receivers are a staggering number but as Stag produces about 150,000 a year, it’s really only a week’s production.
The anti-gun reporters at the Hartford Business Journal breathlessly reported that, “a large cache of gun parts” was found — at the gun factory. Layers and layers of editors!
In court filings and to the Hartford Business Journal, ATF agents charged that Stag is “suspected of ongoing illegal activity” and “unauthorized trafficking of guns.” They have also called all the receivers the company had on hand “machine guns,” and have obtained an opinion from the ever-flexible Firearms Technology Branch supporting that position.