Since I don't know if I should go long or short on FORE, I did some research to check out the probability of what you said in this post.
FORE's Sept 98 8-K provides their reasoning for writing off $188.5M of Berkeley R&D instead of amortizing it:
Management estimates that $188,500,000 ($230,000,000 before the proportionate allocation of the excess of assets acquired over the purchase price) of the purchase price represents in-process technology that has not yet reached technological feasibility and has no alternative future use. This amount will be expensed as a non-recurring, non-tax deductible charge upon closing of the acquisition. This amount has been reflected as a reduction to stockholders' equity and has not been included in the pro forma combined statements of operations due to its non-recurring nature.
The value assigned to purchased in-process technology was determined by identifying research projects in areas for which technological feasibility has not been established. The value was determined by estimating the costs to develop the purchased in-process technology into commercially viable products; estimating the resulting net cash flows from such projects; and discounting the net cash flows back to their present value. The nature of the efforts to develop the purchased in-process technology into commercially viable products principally relate to the completion of all planning, designing, prototyping, high-volume manufacturing verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications including functions, can be features and technical performance requirements.
The resulting net cash flows from such projects are based on FORE management's estimates of revenues, cost of sales, research and development costs, selling, general and administrative costs, and income taxes from such projects. Estimated revenues for the purchased in-process products commence in fiscal year 2000 and increase through year 2002, at which time they are assumed to decrease through year 2004, as newer products are released. The discount rate used in discounting the net cash flows from purchased in-process technology averaged 25%.
In the 8-K they state that Berkeley had no revenues and their principal and initial product was ready for shipment in May 1998.
I can see where the SEC may not interpret as FORE's CPA did. This R&D generated a completed product that was ready for shipment during May 1998 yet FORE wrote off the R&D expenditures as they interpreted Berkeley's initial product as a non-finished product whereby they could sell it as a FORE product.
This is a subjective interpretation the SEC is questioning.
In my opinion, one cannot total disregard the SEC's inquiry into this matter. Your post may be validate? It will probably take a month or two for the resolution of this matter.
Right now, FORE appears to be at its support level of around $16.
Personally, I like networking companies. Putting my emotions aside,
I am asking myself should I go long or short on this company or do nothing?
Is anyone familiar with FASB guidelines on this subject and who may have an opinion on how this may be interpreted by the SEC so that we may then decide which way to go with FORE.
Here's the bookmark for FORE's Sept 98 8-K:
excite.elogic.com
I would appreciate some objective feedback on this matter.
Thanks, Rob |
