GOPHER_BROKER since you asked. Here’s my critique. I will lay it out for you and others and let you decide.
To respond to your comment, I compared ONCI “condensed” financials with conformity to GAAP. Note: ONCI condensed reporting with lack of full footnotes completely contradicts GAAP reporting requirements. IMO ONCI condensed reporting is intended to simplify and as a result meant to mislead investors. Plus, ONCI intentionally includes about 10- 15 pages of old, historical information to look professional as a public reporting company but its not necessary, and creates lots of confusion in navigating the report. Perhaps, ONCI believes the longer the financial, the more legit it is.
FINANCIAL REPORTING:
The proper way to report revenue is as follows:
Net product revenues - $x,xxx,xxx Net service revenues - xxx,xxx Total net revenues - x,xxx,xxx
WHEREAS, ONCI Q3 reports as follows:
Sales - $1,203,631
Note: The omission of the word “net” (as in net sales) from ONCI financial. This is very important in GAAP financial reporting. GAAP requires that specific language be used since those terms have specific meanings in accounting (same is true is many fields).. ONCI fails to use the word “net”. Therefore, by default a reader would take the word “Sales of $1,203.631” at face value and presume it to mean gross sales and not net sales). Furthermore, ONCI’s footnote (down below) omits any mention of a provision for returns or allowances (which is a GAAP requirement) so that also confirms “Sales of $1,203.631“ means gross sales of $1,203,631..
FOOTNOTE DISCLOSURES ON ALL INTERIM AND YEAR-END FINANCIAL STATEMENTS:
GAAP rules require the following footnote with specific language--- which is in bold ---to be included in the footnote. There is not suppose to be any arbitrary or misleading language in a footnote (ie ONCI footnote for “estimates” is very arbitrary and vague)
Proper examples of GAAP footnote disclosures are:
Revenue footnote “Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, discounts, and any rebates.”
Return Allowances footnote “Return allowances, which reduce revenue and cost of sales, are estimated using historical experience.”
Accounts receivable and Allowance for Doubtful Accounts “Amounts expected to be received in: Less than one year $ x,xxx,xxx versus One or more years $xxx,xxx”
WHEREAS, here are ONCI Revenue and Estimates footnote(s)
In ONCI footnotes, there is no mention of any product returns, allowances, or doubtful A/R accounts in Q3 or any prior financial (As well as, the omission of a contingent liability footnote for unpaid Delaware debt which was reported by the State to be $329k for 2015 alone. What’s the amount when 2016 & 2017 are included? Investors don’t know. ONCI omits this material footnote.). Ironically, the only contingent liability footnote is Steve Berman's 2016 compensation package (this is in case BoD or shareholders sue, as he walks out, or is carried out the door imo.)
ONCI REFERENCE TO "ESTIMATES" IN THEIR FOOTNOTE
In this footnote, ONCI makes vague references to “estimates” in the disclosure without providing the actual description or detail behind what are the estimates. It is for cosmetic and show purposes only imo. Vague footnotes are the opposite of the intended purpose of Generally Accepted Accounting Purposes. The whole purpose of GAAP is to fully inform readers of the financial statement of material, relevant and timely information (ie. “Estimate of’ Delaware debt which was---and still are--- being hid from investors) so that they can rely upon the financials and make fully informed decisions. ONCI does the exact opposite and instead misinforms readers with their financials. They exclude required GAAP rules such as inclusion for Provision of product returns, allowances and an estimate of their Delaware liability.
ONCI has acknowledge a Delaware debt and has said repeatedly they are seeking to settle with the State. So therefore, we know ONCI is willing to agree to some minimum liability. And this liability is for three years, not one. And yet, this “estimate of their Delaware liability” is (still) to this day withheld from readers (Unreal!!). That is a real slap in the face that ONCI feels investors and readers do not need this material information to make fully informed investment decisions. Further, since they withheld Delaware debt from investors, what else is ONCI excluding from their financials? It's a real concern. Before you say “nothing”, keep in mind the company’s long sales and collection cycle which results in the real possibility of considerable returns and bad debt write offs down the pike.
REVENUE RECOGNITION POLICY
ONCI revenue recognition policy contradicts accrual-based accounting rules which requires adherence to matching of revenues with its related cost of sales (called the Matching Principle in GAAP). ONCI does improper sales cut offs every quarter by recording sales when contracts are signed and executed rather than recording sales when goods are shipped. Yes, I understand that’s the basis for Steve Berman’s commission computation, but it’s simply not allowable in GAAP reporting. This improper sales cut-off would have resulted in a major downward adjustment to Sales and A/R by Mazurs had there been a 10/31/17 audit.. For instance, a dealership contract signed today would result in ONCI estimating and including sales in Q4 2018 (and 12.5% commission paid to SB); even though, the units would not ship until Q1 2019 (for example). This is improper matching of sales and expenses, and improper revenue recognition and reporting.
INVENTORY
Tigerpac has mentioned and I concur, there’s no inventory included on the financials (and no inventory obsolescence). Think about that for a second. There’s no raw material, no work in process, and no finished goods reported. That’s extremely unusual even with just-in-time inventory order/ replenishment. The only way that could occur is if 100% of the goods were shipped within the quarter. And receipt of new raw material was received in the next quarter.
ACCOUNTS RECEIVABLE
I saved the best for last. ONCI began recording revenue in the Jan 2017 quarter and their A/R balance has risen in every subsequent quarter (even the most recent quarter). GAAP financial presentation requires a Accounts Receivable footnote (for each quarter) showing a table which breakdowns A/R. Showing total A/R on the last day of each quarter (less any amount pledge as collateral, or sold to a factor, etc) and management needs to disclose in the footnote the amount of A/R which they estimate is reasonably collectible within one year, versus one or more years.
Since Jan 2017, ONCI has failed to include this important A/R footnote, and has not included any estimate for provision for potential bad debts). Even if hypothetically there were no potential bad debts (which never happens in the real world, there’s always some bad debt in a one year period), ONCI would still need to disclose it. ONCI does not, nor have they ever, broken down in the financials what A/R amount was collectible within one year, or longer. They just ignored the required GAAP footnote altogether.
Had ONCI fully disclosed in 2017 (to present) their long sales and collections cycle, I believe investors in 2017 when the stock rallied to .019 would have had an issue. Instead, the CEO’s assistant originally informed investors A/R terms were Net 30. Then as each quarter passed and it was documented A/R collections were very slow (12 cents on the dollar) the CEO’s assistant then indicated Net 30-60-90 were more normal terms for ONCI.
In looking back over the last 18 months and reviewing ONCI billing and collections history (from Jan 2017 - July 2018), we now see collections are just now starting to increase which is long overdue and I’m sure a pleasant surprise to all. This “estimate” of slow collections should have been fully disclosed a year or more ago just as ONCI boldly displayed in their financials as a footnote on “Estimates”. What’s the point of a footnote if there’s no truth to the words used in it, and instead the footnote and financial reporting is misleading.The powers that be do not care that ONCI is a micro-cap. They are still must comply with GAAP and a whole host of other securities laws.
Gopher broker, those are some of the GAAP errors and omissions in ONCI financials. It is also why ONCI could never complete an outside year-end audit with Mazur USA. Large, material adjustments would have resulted as Mazurs restated ONCI financials.
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