I could be mistaken, but I believe Bruce indicated that this announcement falls within the potential $288mm mentioned in the original licensing agreement. Thus SRDX will be paid for R&D work they perform attempting to gain approval of the product and bring it to market, and they would get royalties on the product if sales ever resulted from their efforts and their Ivation product. However, it does not indicate any new sales at this time. Actually, given the accounting treatment, it will result in more amortised R&D revenue offset by even greater R&D expense for the next few quarters. And possibly nothing more than the gradual recognition of revenue over the next 16 years or so.
I like the annuity feature of this accounting and believe that Mr Market will continue to award SRDX a higher PE than would otherwise be extant just because of the certainty of increasing reported earnings long into the future. But of course, many of you prefer to be rewarded completely now and that is a desire Bruce and Phil are reacting to. I am not convinced that the accounting standard referenced in the meeting actually would demand so much deferral of revenue since it violates the spirit of financial accounting to fail matching expense with revenue in time. In other words, I think they chose a very conservative accounting treatment. Part of the advantage for us is that individual scientists who might take their vested shares which grew too fast and break away from SRDX, may find it more advantageous to stick with the company longer term for greater rewards as the price continues to increase based upon their efforts back in 2008.
But listen to the conference call as it was the last question asked in the Q&A and I was getting tired from so much information being ingested over 2 hours. It was a large meeting--I'd guess twice the usual size. And expensive I'm sure.
The most rewarding information for me came from Dr Tice who is the VP for research at Brookwood. In the short time Brookwood has been in existence they went from a 20 man operation in 05 to approximately 80 people now. Although it was not confirmed, a friend of Dale's since childhood thought that the reason Brookwood was so happy to make their funding source SRDX was an old relationship between a founder of Brookwood who was not at this meeting and Dale when he was at Medtronic. I suggested to Dr. Tice that the founders of Brookwood had chosen a strategy for obtaining growth funds which they would not be able to easily back out of and his response was a determined "We're going to make this relationship work!".
The other information which felt very good to me was a private assertion by a VP that the equipment Oakwood was producing incorporating SRDX's IP could not be kept in stock. I had not guessed that there were standard models on a showroom floor someplace, but he showed me pictures of 4 units about the size of refrigeraters into which trays of product could be loaded for coating and ---nuts--can't remember SRDX's copywrited tradename for the light activated curing process--PHOTOLINK!?
I was at the edge of my skill set and could easily have misunderstood some of this.
Best, L.
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