I have been conversing on the IV MB about the delayed (apparently) revenues from the company's "FPU" program, which has been indicated in public presentations as being, after a partial expansion into large metro areas, something like 500% over its initial levels. However, the 10K (31 Aug 2012) does not show such increases, though it does show some substantial increases. I recommend reading list of exchanges on this topic, because it is key to what is happening now and will happen soon. Here is one exchange (the use of "or was" re Gauger's responsibility is from the fact that he has just been replaced -- more on that, next) :
Ray (Pleo): "...And it is – or was – Gauger’s responsibility to develop and manage the mechanics of the program."
fwco: “All good questions, Ray, and therein might be the problems that Gauger might not have been able to address adequately. “
Yes, I suspect something like that is behind the discrepancies between what Maravich and Wolcott have publicly said and the 2012 10K (and it is very unlikely they would be lying, as they are legally liable for those statements). I take what they said to be correct; and that, basically, delayed revenue recognition is involved, for some reason. But, unless such delayed income is delayed by many months, there should have been SOME sharply increased revenue from the FPU program evident in the 10K -- and this does show. However, it takes a little analysis (below).
fwco: Could it be that the FPU program has grown so fast that it has gotten out of control? Without control BSD might not be able to identify what is going out and what is coming in. That problem in itself could keep BSD from accurately giving information in the 10k“
If you mean “control” to include actual and sufficient documentation reaching Gauger promptly, I do think lack of control is involved. If so, it should have been a temporary problem and solved at some point before the FPU program was expanded so much. That some changes in accounting were happening is indicated by comparing the “pay-per-use” treatment, as stated under “Critical Accounting Policies”. Before the Nov 30 10 Q (1st FQ 2012) this section contained the following: “Revenue from equipment rental under an operating lease is recognized when billed in accordance with the lease agreement.” From then and through the 3rd FQ 2012, this was changed to include the pay-per-use rental: “Revenue from equipment rental under an operating lease and from pay-per-use equipment rental is recognized when billed in accordance with the underlying agreements.” Then, for the 10K for 2012, the pay-per-use wording was dropped and the statement read as it did earlier. However this might be just an error, I suppose.
They state most of the rental income is from the FPU program. I don’t know why they did not specifically break it out. The following is what I believe is correct. From Section F-9 of the 20112 10K:
“Revenue Recognition – We recognize revenue from the sale of medical systems, the sale of parts, accessories, and consumable devices related to the systems, equipment rental, training, and service support contracts. Total product sales, including related party product sales, were $1,358,604, $2,581,275 and $1,261,490 for the years ended August 31, 2012, 2011 and 2010, respectively. Equipment rental income was $129,350, $110,207and $0 for the years ended August 31, 2012, 2011 and 2010, respectively. Total service and other revenues, including related party service and other revenues, were $583,238, $345,993 and $320,786 for the years ended August 31, 2012, 2011 and 2010, respectively.”
The rental income for 2011, for a BSD-500 was the sum of an initial larger payment of about $40k in the 1st Q (includes an initial set-up charge, I suppose) followed by steady $9,900/Q rental. I am going to round this and some other numbers off, for easier presentation, which is rough, anyway – so, say $10k per quarter. I assume this $10k/Q continues, as they continue to indicate rental income other than FPUs. If this BSD-500 rental, about $70k for 2011 and $40k for 2012 are subtracted from the above rental incomes, we have about $40k and $90k, respectively – as estimates for the (recognized) FPU revenue. IF that fee is $2000/use, then the uses *per year* would have been about 20 and 40, respectively (less if the FPU is more). And, it should be remembered that most of the FY 2012 FPUs were in the latter half of the FY. However, we were told by Maravich, on 7 Aug, that 300 antennas were “sold” in the prior 90 days, May through July (and I think he meant sales, not Sales – Sales being the RECOGNIZED $ revenues, not the act of selling). Then, IF an average of two probes per use is assumed (up to 3 can be used at a time), he implied 50 FPUs *per month*, average, for those three months -- FAR more than the 10K indicates per month by way of stated revenues. (Math and timing checks, please. I can easily goof.)
The above is just a more detailed presentation of my claim that delayed revenue recognition is involved. And, perhaps Gauger just did not accomplish a satisfactory (meeting the needs) accounting regimen in a timely manner). Or the reps-in-the-field are way behind in reporting their results – or what?
Again, Maravich’s claim of of about 100 antennas per month means, IMO, something like $300,000 per month is sales (assuming 2 antennas used per FPU). The company owes itself and the investors an explanation for why this income has not been reported. I am not suggesting anything nefarious, just unclear, insufficient reporting.” |
