Harold, a dear friend, called me early this week and told me about GT Advanced Technologies (GTAT). The company’s stock closed at $11.05 per share on Friday, October 3, 2014 and declared bankruptcy following the weekend, on Monday, the 6th. The stock closed at .80 a share that Monday. Later this week, a good friend, Bill, e-mailed me and suggested I write about GTAT in this week’s post. Thanks to Bill for making the suggestion.

While I’ve witnessed companies discovered to be fraudulent go into sudden bankruptcy upon such discovery, GTAT is the first company I’ve ever heard about that was seemingly a sound, viable business one day and declaring bankruptcy the next.

The link below is one of a plethora of articles about the ordeal:

http://www.bloomberg.com/news/2014-10-10/gtat-blames-burdensome-apple-terms-in-sapphire-halt.html?cmpid=yhoo

After reading several stories on this debacle, my understanding of this matter reflects a situation that held great investor appeal on its surface, but was an incredibly risky venture too. GTAT had a deal to be a major supplier to Apple. At the same time, GTAT had indebted itself completely to Apple in that it was apparently not only financially dependent on sustaining Apple’s business but also on Apple to be its lender. It seems that GTAT committed itself to something that was bigger than its ability to financially deliver.

Many people lost a lot of money on this company. In my opinion, GTAT represents a “spotlight” kind of company with an attractive story of being yoked to the biggest company in the world. I surely feel for those who were adversely impacted by this situation.

GTAT points out the merits of having substantive balance sheet equity supporting your entry price. Further, it highlights the importance of reading information from corporate filings to gain a better understanding of a business beyond the numbers that are displayed on its financial statements. In every company’s corporate financial filings (10Qs and 10Ks), a company’s financing arrangements are a required part (required by SEC) of the management discussion. GTAT’s arrangement with Apple seems to be one where it had put itself into financial bondage.

Again, I’m sorry for those who were hurt. Where oftentimes, one could say that he/she saw it coming, this situation with GTAT was clearly not the norm. It had a great thing going, but was dependent almost entirely on that one great thing, namely its relationship with Apple.