TAVA Research: Accounting Tricks!
Software Capitalization and Amortization
It appears TAVA has incorrectly handled software capitalization and amortization issues last quarter. This is a serious issue, let me explain:
Last quarter, TAVA capitalized $306,000 in software costs, apparently mostly for PlantY2KOne. They amortized (wrote off) $271K in capitalized software costs, resulting in an asset of $3,674K. There are two significant issues:
1) Any development costs for PlantY2KOne should be expensed, not capitalized, starting as of Jan 1, 1998. This change has seriously impacted the earnings of DDIM, ACLY and other Y2K companies. It appears TAVA should have expensed the $306K in costs this last quarter, resulting in a net loss for the quarter!
2) TAVA should amortize all PlantY2KOne development costs over the "useful life" of the product. "Useful life" in this context is an accounting concept, not a technical argument. No Big six accounting firm would allow a client to amortized a Y2K product past Jan 1, 2000! Therefore, it appears TAVA should have amortized $454K or an additional $183K last quarter.
Although TAVA reported net income last quarter of $0.01 per share, if they had followed conservative accounting practices (on just this issue) they would have reported a material net loss of the quarter!
Regards, Bill
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