Tuesday, November 11, 2014 12:08:40 AM
Compared to the prior quarter the financials look good. Personally, I’ll continue to buy shares and won’t be selling any. SLTD beat out the prior quarter while maintaining a constant gross margin percentage which shows SLTD is closing more contracts than ever before.
I’m not too worried about the balance sheet. Accounts Payable and accrued expenses are ~800K higher than the cash on hand. However, once SLTD bills for the work already performed (the $1,551,854 from “Cost in excess of billing”) and collect on the $1,082,436 sitting in AR SLTD will be able to cover the ~$800K with no problems.
The liability account “Billings in excess of cost and estimated earnings” of $939,364 is the amount JFW has already paid that will be recorded as revenue next quarter plus anything else they still have to pay for. The reason why this is sitting in the liabilities and not revenues this quarter is because SLTD records revenues using the percentage of completion method and can only record revenue for the portion of the project that is completed at the end of the quarter. JFW is scheduled to be completed during November.
I saw someone asked what is the derivative liability. The derivative is nothing new for SLTD and was on their books last quarter. The derivative liability is basically a stock option with a cashless exercise feature. The cashless exercise feature means the holder of the derivative liability does not have to pay any cash first to exercise it like you would with an option. Derivative liabilities can be recorded as assets, liabilities, or even equity. Because of the way SLTDs’ are structured they are recorded as liabilities which requires them to be adjusted to fair value every quarter. To value them, certain inputs are put into the Black-Scholes model which then spits out a value. To adjust the prior quarter’s derivative to the current fair value, SLTD had to book a $12M loss on the statement of operations. This was a primarily a function of the stock price increasing which made the derivative more valuable to the holders.
When looking over the statement of operations I would look at the “income before other income/expenses” instead of net income. “Income before other income/expense” gives a better feel of SLTD’s operations and excludes the non-operating expenses like the non-cash loss on liability derivatives.
The statement of cash flows also shows that this quarter SLTD has added to the cash flow generated from operations. This is healthy and shows SLTD is actually generating cash flow from legitimate operations.
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