Is Gencor an Accounting Fraud?

I'm looking at Gencor (ticker: GENC), a company whose market cap is
significantly less than current assets minus total liabilities (a
"net-net"), and seems to actually have a legitimate profitable
business making capital equipment for asphalt production, as well.
Obviously, as an investor, this piqued my attention, but there are
some really funny things going on:



1) Doubtful accounts receivable runs about 1/3 of their entire
accounts receivable and has for the last 8 years. It looks like a
normal 30 day payment period (I'm sure this is buried somewhere in the
footnotes, but receivables turnover is in the general vicinity of 10),
so its not a "it collects its bills so fast that the only ones left
are doubtful ones' story (which I've never heard of but would be
theoretically possible). Thus, I can't figure out why they keep
selling to lousy customers. Perhaps there's a legitimate reason why
this would happen other than fraud (if it's fraud, for example, why is
it declared as doubtful - normally that stuff gets hidden), but it
does inflate revenues when announced and the writeoffs are less
prominent.




2) For some reason their marketable securities purchases are listed as
operating cash flow when clearly municipal bond and equity investing
are investments, not operations, for an asphalt equipment production
company. I can't figure out why this is happening, I've never seen
this in a company whose business was not in the financial sector and
had no idea this was allowed. This is weird, because it makes their
Operating Cash Flow look way too low and Investing Cash Flow look too
high. Most frauds fake high operating cash flow, not low operating
cash flow.



3) At the end of 2008, they had one CFO resign "for personal
interests" after working there for 8 years (this is a tiny company, I
doubt he's rich enough to retire), replaced him with someone else (not
interim, as far as I can tell, because they don't say so and they go
out of their way to mention he actually relocated with his entire
family from Connecticut to Florida), and then 5 months later the new
guy quit with no warning and no publicized letter or reason. 3 months
later they announce another new CFO. The departure of the second CEO
is found in an 8-k with an accompanying press release on the SEC
website, but that press release is not listed in the section for press
releases on their website, though all the surrounding ones from the
same time periods (earnings reports, etc) are. There are just two "New
CFO!" press releases.




4)  They had an activist investor who accumulated a big position,
joined the board, supposedly (according to the CEO) never went to a
meeting, and resigned from the board suddenly and sold everything a
few months later. Unlike most board resignations ("It's been an honor
to work with these people and I am sure the company will see brighter
things to come", or something like that - as seen in the first CFO's
resignation), his resignation letter was about as terse as it gets:
"Dear Sir or Madam: I hereby resign as a member of the Board of
Directors of Gencor Industries, Inc. effective May 7, 2008. Sincerely,
Lloyd I. Miller, III"




5) I know I'm not Obama's biggest fan, but the CEO directly rips into
Obama IN THE COMPANY'S OFFICIAL PRESS RELEASES AND 8-KS. At the very
least, it's unprofessional.




6) The CEO also insults investors in official press releases. This is
an actual press release from the company. Read it word for word,
you'll miss some gems if you read too fast.
http://sec.gov/Archives/edgar/data/64472/000119312508114391/dex9914.htm
some quotes:

"In view of the accelerated trading of the Company's stock [after the
resignation], and for the benefit of those who persist on remaining
uninformed in spite of all of Gencors (Nasdaq:GENC) SEC filings,
10-K's, 8-K's, Proxy Statements, Annual Reports and Press Releases..."


"The Company is actively engaged in exploring acquisitions, and when
one such is under contract the information will be issued" (Firstly,
what a terrible way to run a company, but secondly, it's been two and
a half years, with more bargains on the market than anytime in
history, and they have cash to burn, and still no acquisitions...)


"Mr. Lloyd Miller only attended the Board meeting immediately after
being elected to the Board on March 6, 2008. At that Board meeting he
was elected to the Audit Committee but never attended one of it's
meetings and then resigned from the Board on May 7, 2008, and based on
recent conversations with management, he did so purely for personal
reasons and convenience and maintains a professed high esteem for the
company, its management, and its future." (If you say so...)


"Disinformation and rumors only serve the purposes of the self-serving
speculators preying on the uninformed investors."


7) They quote a "James Zeller, US Asphalt" as saying they are
wonderful about service when US Asphalt bought equipment. I googled
James Zeller, and saw a Jim Zeller on the Sales team at a different
asphalt company. Not a major finding, but most sales guys don't buy
capital equipment, and he's changed his company if it's really him. I
have to imagine it's the same guy - there can't be too many James
Zellers in the US working in asphalt.


8) In other trivial but interesting findings, they claim to have a
24/7 help desk but don't have the number anywhere (what, does every
contractor know the number by heart?)


9) I cannot find a single place other than a nebulous "contact us"
form with no other information given to figure out how to BUY THEIR
PRODUCTS. They don't list distributors, they don't say to email them
for a quote or call them for a quote, they don't pop up on google when
I write "Gencor purchase" or "Bituma purchase" (one of their brands).
I understand their products aren't exactly going to pop up on Amazon,
but usually places like this will give you the ability to contact
their sales staff. There's a general corporate line on their website,
which a person does pick up. I haven't pursued anything by phone further.


10) Despite the amount of cash they have, they have had no dividends or buybacks at all. At best, this is a symptom of bad management, but in context, it makes you wonder how much actually exists.



11) In their defense, their corporate headquarters does in fact pop up
on google maps, and the street photo clearly has their logo. It looks
like they have equipment there, though there's no guarantee they don't
share the building.



I'm wondering if maybe the CEO wants to run a mutual fund or
something, which is why he holds the cash and makes Investing cash
flow look too high, etc. But that's reaching at straws, it's not a
normal thing. This is really, really weird. None of this stuff
individually screams "fraud" but all together it starts getting
interesting. The problem, of course, is that shorting a net-net that
also generates cash is asking for trouble if the company is real. I'll
keep investigating.