It seems my previous post mentioned unmentionables, so below (in italics) is the post in nearly its entirety, but first must refute a couple of other posts, including this one...
1) What this post fails to mention is that the investigation into R&H was from 2006 and included only a failure to provide warrant and other share structure issues. It takes a lot of digging to go back to 2006.
I prefer to stay in the present, as this is what we are all faced with.
Below is my original post, omitting was apparently out of bounds..
Just got back from spending a great weekend with my son at PSU...beautiful weather, trees turning into fall colors, and a nice way to get away from the fanatics who waste so much of their weekends here.
Since I have many things to catch up with here at home, I will probably make this post only until maybe a little later tonight. I hope you all had a chance to get away and also enjoy your weekends with your loved ones.
Bear with me, as I will cover several subjects, and by all means feel free to skip the post if/when it begins to bore you, as I sometimes even bore myself.
- Someone questioned my credentials, which does not bother me in the least, but for clarity... I graduated Summa Cum Laude (of highest honors) with a dual major in Finance and Accounting, then proceeded on to obtain my Masters in Finance and currently hold both my CPA and CFA. Have been working in the corporate accounting environment for over 25 years, moving to financial analyst, now Controller and Financial Risk Manager for a large multinational firm and teach Investments & Portfolio Mgmt at a local University at night. Okay, enough of that, it's even boring me.
- Someone tried to explain "headroom" incorrectly. Headroom has absolutely nothing to do with the difference between O/S and A/S, but everything to do with available funds underneath an LOC (line of cerdit) cap, normally based on ABL (aseet based lending), based on 85% of A/R and 50% finished goods of inventory. Perhaps the poster simply meant there could be wide disparity between A/S and O/S, which is no different than many, if not most, publicly traded companies. I think he just didn't understand the terminology being used.
- RME has been providing the LOC, in essence, by financing SPNG A/R. Nothing more, as it was paid back at cost, which is better than to be obtained at a bank or other financial institution, which charge interest usually based on an average daily balance for the month, similar to our credit cards, which is essentially what it is.
- Moving on to the D&T situation, I have spoken to several members of Big 4 firms, the sources I would NEVER reveal on this board. They have all told me, in no uncertain terms, that D&T is overseeing the entire SEC investigation and helping Robison to get everything in order by the filing date. To a person, they said they would be shocked if the 10K is not filed by Oct 16. When asked about the FINRA appeal, they said this is SOP (stndard operating procedure), as we are now within 2 weeks of the 10K being due...no mystery, nothing to read into it.
- As far as NT's, most NT's deal with debt issues more so than anything else. Several of my suppliers are in this very process...ummm...big board stocks I might add. When pressed, my Big 4 colleagues said this is not unusual for a growth company, especially given the fact there were problems with the previous accounting firm...par for the course.
- These same forensic acoountants/auditors have said that if the SEC thought things were not on the up-and-up, the stock would have been halted immediately. Their opinions were just what we have learned through PRs and 8Ks, that the re-audit is being worked on...nothing more, nothing less.
- I saw another post from someone who I respect, but wanted to clarify an outside audit. Internal audits might check 100% of expenditures in excess of a pre-defined $ amount. All paperwork (mostly electronic these days) must be checked for segregation of duties, approval authority limits have been adhered to, and assets are accounted for, location known, and proper depreciation have been applied. These assets include what was previously referred to as amortization in the past, but since Sarbanes-Oxley (SOX) became implented (of which I was on an implementation committee and know whereof I speak), amortization has been replaced by impairment, which is to write-down assets to fair market value. For manufacturing companies this includes intangible assets such as goodwill, patents, licenses, and intellectual properties. For PP&E, it includes buildings, computer eqpt, etc. And for inventory, it includes correct depreciation (LIFO/FIFO), and obsolence, for the most part. This is why a company like Hayes Lemmerz took a $400M non-cash charge to impair their assets which killed their bottim line on that year's income statement and did a real number on their equity position by way of lost equity from negative retained earnings. Because there is neither much in the line of inventory, intangibles, or PP&E, SOX plays a very smalll role in the audit of SPNG.
But, the point behind all this is that external auditors, even if done at the forensic level, spot-check these items, based again on higher $ items, and ensure that GAAP and SOX regulations are in compliance. There is nothing magical about a SOX audit, except that it has forced many companies to go private due to the expense involved.
- As far as legit companies, we can check different websites until the cows some home, but the only official documents we have to rely on are SEC filings. Unless proven otherwise, we must assume the customer companies are what the company claimed...and we must keep in mind that while sales rose $13M from Q2 to Q3, A/R rose only $3M. This is a tremendous turnaround as well as collection of previous A/R. Again, we must rely on filings. This is neither pumping nor bashing...just fact.
- Finally, we see people say the smart traders/investors have already sold. In hindsight, that could be true, if the intention was to make a nice payday based on the ebb and flow of the share price. I took some profit back in June when the stock was way overbought due to the emotional exuberance of new shareholders, most of whom are probably out with a slight (or large) loss. I am now riding free at a very nice cost basis and believe we are at a bottom right now, not only by understanding the fundamentals of the company, but also by looking at charts.
Thank you for listening if you made it this far and I wish you all well.
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