Is Lazare Kaplan in Financial Fix?

What is going on with Lazare Kaplan? That’s what the industry wants to know after LKI, the only U.S. diamond company that is public, filed a series of perplexing financial reports, which show disputes with its banks, million-dollar insurance claims, and the possibility of being delisted from the New York Stock Exchange.

In early January, the company announced that Antwerp Diamond Bank wanted to terminate the $45 million facility it has with LKI’s Belgium subsidiary, of which $43 million was left. According to an SEC filing, LKI “sharply disputes ADB’s claim that it has the right” to terminate the facility. “The Company expects to be in discussions with ADB to amicably resolve these matters, of which there can be no assurance of success,” it said.

In the same report, LKI announced it had received $28 million from its underwriters as an “interim payment” for insurance claims and hopes to receive more. However, the company was tight-lipped on what those insurance payments were for. LKI vice president and chief financial officer William H. Moryto declined comment to JCK, and the company later submitted a filing about the insurance payments with the relevant information blacked out, because of “a request for confidential treatment” submitted to the SEC.

The company is also not reporting its current finances, and that’s jeopardizing its listing on the New York Stock Exchange.

The company has delayed filing quarterly and annual reports, because of “material uncertainties” regarding “the collectability and recovery of certain assets” and “potential obligations under certain lines of credit and a guaranty.”

These delays put the company in material violation of its agreement with the exchange, and as a result the NYSE sent it a notice warning it of possible delisting. The company had until May 31 to regain compliance with the Exchange’s standards, after the Exchange accepted a new compliance plan. Still, at press time, its last listed NYSE trade was Oct. 8.

The company did say that sales had dropped for the six months ended Nov. 30, 2009, to $97.2 million, from $119.6 million the year before.

It added that the company was focusing on cash flow by reducing costs and overhead, and that gross margins remained under pressure.