Drakes, you are more severe than the NASD analysts.
I've talked to the NASD analysts many times in the last several years to figure out exactly how they deal with delistings, and how they figure net tangible assets.
To figure NTA, they just compute:
NTA = assets - liabilities - goodwill.
That's their formula.
With all three numbers, they take them exactly as the co. says in its latest Q and k. They don't try to be clever in figuring whether the numbers are good or not. They just rely on the auditor cleaning things up once a year.
The formula can be simplified as shareholders equity minus goodwill, although they don't say it that way.
re. how good an asset something is: The co. can put any kind of rubbish in the assets column. Deferred expenses, prepaid advertising that might never materialize, anything like that ought to make a shareholder run for the hills, but it is fine with the NASD.
Same thing with goodwill. If the co. does an acquisition at over book value, it is supposed to put the excess in an asset called 'good will'. If a company instead elects to list it in a less specific category of 'intangible assets', then the NASD won't subtract it when computing NTA. I learned this when following a co., which later went bankrupt, that I was just sure must be getting delisting letters from the NASD, but when I called the co., they said no, we have never heard from the NASD. It was because the co. was calling the goodwill an 'intangible asset.' I don't think they were trying to be sneaky, just lucky that they stayed listed because of sloppy nomenclature on their balance sheet.
Back to PAMC
Yes, PAMC did list expenses on the balance sheet as prepaid advertising, and maybe they did that in order to make their NTA look bigger, but contrary to your speculation, that asset would be just fine with the NASD for getting or keeping a listing.
BTW: trivia quiz:
Q. Who can think of a stock many of us wanted to short, but couldn't, where the co. listed 'prepaid advertising' as its primary asset?
A. GUMM. A stock the NASD happily allowed to remain listed. The asset was advertising from somebody who probably had nothing to do with advertising, given in return for GUMM shipping it some obsolete chewing gumm. The asset was valued at a ridiculously inflated value. Their auditor was a no-name outfit that allowed this. Eventually they filed a prospectus to sell shares, and the SEC told them this asset wasn't okay. So they amended their k's and Q's.
So there you have it. The NASD has the world's easiest analysts to snow. The SEC is a little better. |
