Crocs (NASDAQ:CROX) shares have surged over recent days -- not particularly difficult for a stock trading around $4 or $5 per share. But after reading its recent Form 10-Q filing, I still think this company's too risky, even at a bargain-basement price.  

Investors' newfound optimism may stem from news that Microsoft (NASDAQ:MSFT) founder Bill Gates disclosed a stake in Crocs for the Bill and Melinda Gates Foundation; he also added shares of Dick's Sporting Goods (NYSE:DKS) and Bank of Florida (NASDAQ:BOFL), and upped an existing stake in Eastman Kodak (NYSE:EK). I hope some of those other picks work out for Gates, because I'm still not convinced Crocs is a red-hot stock idea.

Crocs filed its Form 10-Q on Thursday afternoon; earlier in the week, the company had filed an NT 10-Q, indicating that the SEC filing will be late. Given the extension, and Crocs' recent major problems, I figured its 10-Q would make interesting reading, especially after Crocs' shares surged on news of Skechers' (NYSE:SKS) acquisitive interest in Heelys (NASDAQ:HLYS). I wasn't wrong.

Hot or not?
Crocs admitted the possibility of faddishness in the filing, at least in relation to its original styles. Although Crocs asserted in its filing that its recent revenue decline relates to the current dour economy, "We also believe that the decline may be attributed to the challenges we face in merchandising our expanded product lines in existing wholesale channels as well as the maturity of our core products in the consumer market and lessening demand for such product."

And though Crocs' inventory levels looked better on its balance sheet, the 10-Q reveals that the company's recognizing $7.2 million in obsolescence expense related to the writedown of its inventory, because of the "decline in demand of certain shoe styles experienced in the second quarter."

Some not-so-capital ideas?
For more indications of how much times have changed for Crocs, check out the "Liquidity and Capital Resources" section of the filing:

As the result of our rapid growth and in anticipation that our growth would continue in 2008, we made substantial investments in our inventory, global infrastructure, personnel and property plant and equipment, such as molds, tooling, and manufacturing equipment… The overall moderation of our growth in the six month period… represent(s) a substantial change of trends in our business. Additionally, we may not experience growth and may experience decreases in revenues for the remainder of fiscal 2008. This change in trends, coupled with the decisions to build infrastructure to support levels of growth that we have not realized during 2008, could place additional demands on our capital resources and liquidity.

I also noticed that the sharp drop in Crocs' stock price pushed the company into noncompliance with its loan covenants. It has now amended its revolving credit facility for the fourth time, reducing its available borrowing amount to $40 million. (Last quarter, it had raised the amount to $60 million.)

While Crocs believes its cash from operations and its credit facility will meet its financial needs through Dec. 31, 2008, the company intends to find an alternative arrangement, extend its existing credit facility, or explore other sources of capital to provide liquidity beyond that date.

Heavy summer reading
The filing also discusses Crocs' burgeoning interest expense (which grew $598,000 from $51,000 last year as the company increased its borrowings); its current evaluation of its operating expenses (the company's mulling personnel cost reductions, warehouse space reductions, and modifications of vendor terms, to name a few potential cuts); and the possibility of an additional impairment assessment, with the potential for a non-cash charge in the third quarter.

A lot of this is over my head, and would probably require some major accounting chops to unravel. However, one thing I think many of us investors could agree on is that it's a serious change in attitude from Crocs' management, for good or for ill. Despite a few attempts at positive spin, executives are owning up to the company's problems, which may be the first step toward remedying them. But the company's honesty won't necessarily make its challenges any easier. 

Earlier this year, Crocs director Michael Marks' purchase of shares seemed like a bullish indicator. Unfortunately, Marks recently resigned from the board; today, a Form 4 filing shows that he sold 250,000 Crocs shares -- the same amount be bought back in March, at roughly $20 per share -- at a loss. Ouch!

Putting the "Q" in 10-Q
As Crocs' filing demonstrates, you can dig up a lot of fascinating information in SEC documents, especially when a company's facing turbulent times. As for the stock itself, I still say "investor, beware," even at Crocs' current beaten-down levels. Plenty of other bargain-priced stocks out there carry far less risk and uncertainty.

Slip on some related Foolishness: