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For nine months, investors in the ACE Auto Depot hardware chain have been waiting for improvement in its critical financial condition. Even after two management changes within two years, layoffs, large-scale restructuring and capital infusions by the owners, the Gaon and Zbeda families; the situation has only gotten worse.

The company's forecasts for the third and fourth quarters were released on Wednesday - and contained plenty of bad news. They included earnings and going concern warnings, casting doubt on ACE's ability to continue operations.

As a result, the firm is considering asking for a debt restructuring agreement.

ACE expects a NIS 25 million net loss in the third quarter, compared with a NIS 900,000 loss for the same quarter of 2010. As a result, the firm will not meet its financial covenants with the banks for the second half of 2011.

The firm blames the large net loss on a drop in revenues and gross profits, caused in part by the summer's social protests that affected retail sales all over the country. In addition, ACE wrote down NIS 3.2 million for closing down branches and a write-off of NIS 8.5 million in deferred taxes.

ACE has lost NIS 41 million from the begining of 2009 through the end of the second quarter of 2011, though it has broken even from the start of 2007 until now.

ACE postponed the release of its third-quarter financials, which were scheduled for Wednesday, to next week after the media reported on the firm's troubles Wednesday morning. Only then will the full damage be known. As a result, Gaon Holdings announced it was expecting a NIS 11.4 million loss on its ACE subsidiary for the third quarter.

ACE Auto Depot is the franchisee of U.S.-based ACE Hardware.

ACE still owes NIS 85 million on bonds it issued in 2007, which now have a yield of 44% and a BBB- rating form S&P Maalot. The share fell 4% on thursday and the firm now has a market cap of NIS 30 million.