Hey isn't someone supposed to repost inaccuracies from the Prescience Point Research Group report at this time of day?
I actually liked the report a great deal. It got a lot of things wrong but I think it was a legitimate effort to analyze the business. The conference call, however, addressed a number of the issues and it seems to me that they ought to retract the report and issue a corrected version now that they have had the conference call and filed the 10-Q.
a) Precarious cash position. First they have a revolver agreement with all covenants being met. If you want to say it is going to get pulled fine but provide some sort of explanation because this is a common business arrangement. Second, you need to address what their balance sheet looked like pre-IPO when they had even less cash and how they managed to get by for years.
b) Sudden managerial changes. Just delete this. It is misleading as no one left or was hired. All that happened is that the old CEO is giving up management duties and focusing on strategy and building alliances.
c) Customer complaints. Wish you would have explained what the problem was. It was material. Basically, they appear to get people who register for the events to sign up with Active and charge an outrageous monthly fee. They should be called to the carpet for that and asked about it on the conference call. In their favor, they do resolve these issues with a phone call.
Those were the two instances I looked at, maybe there are others but it does indeed look like a problem that I hope was rectified.
d) Ongoing effort to mask organic growth. I hate acquisition oriented companies, but it really doesn't reflect what they are doing. In a mature industry, yea acquiring companies can mask true growth. Oracle has been accused of this with good reason in my opinion but ACTV is buying companies that are just getting started and are very small relative to the core Active business. It is a topic worth discussing but it isn't an effort to mislead as I fear the report was.
e) Revenue reporting issues. This is the key problem with the report and it needs to be pulled down immediately as the importance stressed in the report IS CLEARLY WRONG. In the management call, they indicated that less than 1% of the revenues were of the type mentioned.
Just delete it or mention it as something to watch for in the future as it is important.
At this point in time, the report looks more like fraud than anything else. I admit I'm shooting from the hip and I'm pretty sure the writer of the report was as well but it is time to pull the report given that virtually all of the report is inaccurate. The shares got slammed because of a decrease in sales, not because of the issues you raised in the report.
Bottom line, you got lucky. Luck is important and good but leaving false information in the public domain when it can be withdrawn is an indication of a problem with your ethical standards.
you are delusional if you think their financial situation is good and that cash they show is real. they are borrowing so heavily and fooling investors. The interest expense never lies - why did it nearly triple from the previous quarter and the company increase their borrowing need? The balance sheet shows no debt at quarter end. Even their banks can figure out they are lying to investors. They will pull the plug -- banks have enough problems at the moment, they don't need to support Active. They've already gotten their IPO fees and now no one will trade the stock...game over.
If you want to call the $239,000 in interest expense an indication of fraud I don't quite know how to respond as it strikes me as being rather strange thing to say. Interest expense can pop up in any one of a number of ways for a company that does not have outstanding debt. Three examples, two of which I'm pretty certain exist here are:
1) Tax assessment. We know they increased accrued for some prior year sales tax. Those alway involve interest accruals and some states hit you with extremely high interest rates.
2) Revolver costs. They amended the debt agreement in July. Normally costs associated with debt agreements are capitalized and amortized over the term of the agreement. This could be a reason.
3) Other. Reach an agreement with a party who you really don't completely trust to carry through to pay interest rather than remitting funds.
The CFO isn't the sharpest guy in the world and has a lot going on but he is obviously very transparent and trying to be honest. Listen to the conference call, he told you what a new sales rep's base salary is. It isn't easy to get a business like this going and I'm sure he makes lots of mistakes. BTW I'm sure he makes fewer mistakes than you and I would. I'm just saying, this has similarities to a start-up and is not a GE where mistakes are kind of buried as the numbers are just so huge.
Prescient Point needs to pull their report due to the large number of errors it contains. They can re-issue it and say their prospects are lousy. I don't care what they think, but fix the errors!!!