Red Flags in the Filings

Updated from 10:47 a.m. EST

Corporate annual report and proxy season is fast approaching. I love reading these filings because they're chock-full of eye-opening stuff -- the one time during the year when companies are forced to air what can be construed as dirty laundry. What did the CEO make this year and how many stock options did he get? Did executives or directors receive any sweetheart loans? Were there insider dealings? Did the company make any suspicious changes to its accounting rules? Any lawsuits?

All this, and more, is a smorgasbord of riches for any investor even vaguely interested in good corporate governance (and post-Enron/Worldcom/Tyco aren't we all?). As I wait for the 2002 filings to roll in, whet your appetite with these red flags, found in the annual reports and proxy statements of Cell Therapeutics (CTIC - commentary - Cramer's Take), VaxGen (VXGN - commentary - Cramer's Take) and Northfield Laboratories (NFLD - commentary - Cramer's Take) from the past year.

Cell Therapeutics

You can bet that Dr. Jim Bianco has never had to remove his dress shoes at an airport security checkpoint. That's because the chief executive of tiny biotech firm Cell Therapeutics doesn't fly commercial. The company has its own private jet -- a Gulfstream IV, according to its 2001 annual report.

Nice perk, especially for an unprofitable company with a tiny revenue stream and a market cap of only $190 million. Amgen (AMGN - commentary - Cramer's Take), the top dog in the biotech sector, doesn't have a corporate jet. Neither does No. 2 Genentech (DNA - commentary - Cramer's Take).

Cell Therapeutics doesn't exactly flaunt its luxurious wings, so you have to dig a bit into its quarterly financial statements for details on the Gulfstream. In the first nine months of 2002, Cell Therapeutics spent $4.8 million in the aircraft's lease, maintenance and operations. That's $1.6 million per quarter, or an annual run rate of $6.4 million.

A Cell Therapeutics spokeswoman defends the jet as a time and expense saver, and says the aircraft "pays for itself" because it is leased out to others when not needed by Bianco and company executives. That might be the case, but I can't find any mention of this offsetting aircraft revenue in the company's financial statements. The company spokeswoman said she couldn't offer any further details until after fourth-quarter results are released later this month.

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Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback.