The 10Q says the SEC and Nasdaq are investigating CYOE:
Since the publication of the articles, the Nasdaq National Market and the
Securities and Exchange Commission (the "Commission") have asked the Company to
provide documents and other material about the Crescent Communications
transaction. The Company is cooperating with both the Nasdaq National Market and
the Commission in connection with these requests. However, because of the
Commission's practice of keeping its inquiries confidential, the Company does
not know the status of the inquiry. Inquiries by the Commission and/or the
Nasdaq National Market may cause disruption in the trading of the Company's
common stock and/or divert the attention of management. In addition, any adverse
determination from these inquiries could have a material adverse effect on the
Company.
The public dialogue and inquiries have focused attention on Crescent
Communications and Gene Curcio, its president.
On the whole, in the 10Q you will find totally different language compared to the news release, which is a marvel of spin meistering.
The 10Q shows a liquidity problem. (Negative working capital, $13.4M of negative cash flow from operations, and a maxed-out credit line.) Management passes the buck, attributing it 'primarily as a result of the negative publicity'. Uh huh.
The realities of the cash flow situation portrayed in the statement of cash flow, compared to the fantasy world of the news release, is a wonder to behold. In one quarter, this puppy burned $13.4 M of cash on $12.9 M of revenues. Yet they claim to have a loss of only $4 M, with much of that attributable to 'conservative accounting.' Uh huh. This discrepancy between cash flow and earnings is a quite simply a classic sign of possible shenanigans in revenue recognition. At most $2.5 M of this burn is due to the sale to 'Wireless USA', so there has got to be more funny stuff going on that just that deal.
Re. the $3.7 M of 'deferred profit,' it relates to a sale of $7.2 M equipment to a new company which can't get financing. The way they accounted for this is not explained very clearly ... as best as I can tell, they booked the revenues, but artificially inflated the cost of goods sold by $3.7 M so that the gross profit from the sale was nil.
The 10Q can be found here:
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