Like a "stove" boat out of its hometown's whaling past, historic Morse Cutting Tool is about to go under -- ending what readers will remember ("Against All Odds," November 1986) as an extraordinary five-year effort to keep the company afloat. In January, the 123-year-old New Bedford, Mass., manufacturer of drills, taps, and reamers filed for Chapter 11 reorganization. The company was carrying $17.9 million in debt, showed operating losses of $1.7 million, and had fiscal 1986 revenues of $23.6 million. Then in March, Morse Inc. abruptly announced that within 90 days it would close its Morse Cutting Tool Division entirely, putting some 350 workers out of jobs. Now only the unlikely arrival of a new buyer -- one who might succeed where erstwhile savior James F. Lambert did not -- can rescue Morse from the sadly ironic fate of having gone bankrupt even as its business prospects improved.

This claim of a lately brightening outlook is one of the few that chief executive officer Lambert, who acquired Morse from Gulf & Western Industries Inc. in a highly leveraged 1984 buyout, and union official Ron Carver can still agree about. Once praised as a model of cooperation between organized labor and corporate management, the relationship between the company and the union has since deteriorated into bitter recrimination, mainly about Morse's chronic underfunding.

However the cash shortage occurred, it proved lethal, because it meant Morse could not buy steel. For three months last fall after getting both a $1.5-million state loan and the personal attention of governor and President candidate Michael J. Dukakis -- who has made the economic vitality of Massachusetts a centerpiece of his political agenda -- plant utilization and productivity improved. At the same time, Lambert signed on two new customers representing $10 million in drill business. But, again, the company ran out of money. Morse had to pay C.O.D. for the steel needed to fill the new orders, and couldn't finance the cash gap from delivery of the steel to receipt of payment for the tools it would be used to make. "We were scrambling around like hell trying to make the thing happen," says Lambert now, "but we just didn't have enough money to keep the steel coming."

Carver cries mismanagement, saying that as part of a strategy to make Morse a "one-stop supplier" of cutting tools, Lambert "diverted $1.5 million of the company's daily working capital" to add two new small businesses to Morse and another tool manufacturer as divisions of Lambert's own company, Lambert Consolidated Industries Inc. He claims Morse never recovered from these "gambles," which occurred during the first year of Lambert's ownership. "We contend," Carver says, "that had he not taken the money out and other wrongful acts in managing the company, the company was and still is basically sound." In interviews last August for INC.'s earlier article, Carver did not mention any of the moves as cause for concern.

While Lambert agrees with Carver's assessment of Morse's potential profitability, saying, "I'll take that belief all the way to my grave," he disagrees with virtually everything else Carver has to say. He points out in rapid, indignant succession that Carver has his numbers wrong and that what Carver calls gambles were actually prudent business decisions that netted Morse valuable revenue.

In Lambert's own analysis, the company's ultimate collapse was brought on not by mismanagement but by the gradually asphyxiating cash depletion and the high cost of running the plant in the first place. After the bankruptcy declaration, he met with the union again on February 24 and proposed additional cost cuts designed to reduce operating expenses by $115,000 a month, so the company could survive long enough to get a chance at the $10 million in new business. The union, which in 1986 had already agreed to significant reductions in wages and benefits, was unresponsive. Lambert left the meeting dejected. The month of February alone, figures would later show, produced a loss of some $400,000. Soon after, on March 11, Lambert announced the eventual plant closure.

"Go back," Lambert says hotly, "and read all their [the union's] comments when they thought things were rosy. Everything was beautiful. I was a great manager. Now, when things go sour, all the stuff crawls out of the woodwork -- mismanagement and all that. The fact that there's $16.11 an hour of labor expenses per employee versus competitors in many cases who are doing it for $8 and $10 and $13 an hour, well, they [the union] don't look at that side of the coin."

Lambert himself, however, has said he blundered badly when he based his addition of the two new companies on his understanding that Barclays American/Business Credit would adjust his existing financing formula to free up another $1 million in working capital. When Barclays refused, he found himself running four companies on a formula barely sufficient for two. He admits he should have secured the financing before going ahead with his plans. He also admits he underestimated the amount of money needed to save Morse, saying, "After all, I ran out, right? There's no way to dodge that bullet."

His plan now is to liquidate the plant to pay off the company's debts. The union, meanwhile, presses for Lambert's immediate ouster and seeks another white knight to do what it had hoped Lambert could accomplish after his heralded '84 purchase staved off Gulf & Western's threatened shutdown. The glow of that early promise can be recaptured now only as wishful thinking.

"Even with the cost structure being what it is in New Bedford," Lambert muses, "with adequate financing and with the new sales that we picked up, we could've made it; we really could have made it."