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Message: "Official" company response/non-response to 10q questions
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FWIW,
Here is an e-mail string between me and Hawk/PTSC trying to clarify some issues that I saw as conflicting at worst, and unclear at best, between the 10q & the letter from RG. These are listed in reverse chronology with the most recent listed first, so to follow, you're better off to read from the bottom up. As I indicated to them, unless they clarified further, I would "infer" (as they typically dictate we should do), from Ken's response that the answers listed in red are the company's official responses to my questions. Since it's been about 3 business days with no further clarification, I'm taking their responses as I indicated I would in my e-mail to them.
From: Investor Relations [mailto:ir@ptsc.com]
Sent: Wednesday, April 30, 2008 12:41PM
Subject: RE: Questions Regarding 10q
Forwarding your email to the company.
Regards,
Ken AuYeung, Hawk Associates Inc.
Sent: Wed 4/30/2008 1:03 PM
To: Investor Relations
Cc: Rick Goerner
Subject: RE: Questions Regarding 10q
Ken,
From your response about what I should and shouldn’t infer, you imply the following as the company’s official responses to my questions:
1. By his comment, does Mr. Goerner mean that “all transactions announced prior to the end of January” includes the 12 licenses from and inclusive of TEAC through Psion, and specifically inclusive of the 4 license agreements made that ended the litigation with Matsushita, JVC, Toshiba and NEC, as announced in late December? YES
2. Have all PDS license agreements or other PTSC transactions made prior to the end of January, 2008, been announced? YES
3. By using the language “fully reflects the financial results”, should investors take this to mean that all the revenues attributable to these transactions has been fully recognized and reflected in the 10q, and that no other revenue from these transactions remains to be recognized in the future? YES
4. If the above answer is no, what then did Mr. Goerner mean by “fully reflects the financial results”, and considering the company’s publicly proclaimed pursuit of only a one-time license payment structure, how can Mr. Goerner justify what would be in this context a very misleading statement? An explanation would only be required if the above answer is no.
5. If the financial results of the licenses announced in February are not reflected in the 10q, then is this due to revenue recognition issues, or is it possible that there are no financial considerations to these transactions to reflect? YES
6. Since history prior to this quarter has shown that fees associated with licenses signed prior to the issuance of a 10q have always been reflected in the 10q, either in the actual financial spreadsheets or in the subsequent events section, has something fundamentally changed in the MMP licensing process that is precluding PTSC/TPL/PDS/Alliacense from being able to deliver the MMP license(s) in a timely fashion, and thus being able to recognize the revenue from those transactions? If so, what has changed? NO
If my inferences do not correctly interpret your response, please correct your responses accordingly, otherwise, I’ll accept your response as inferred as the correct and final company issued position on these issues. Thank you.
From: Investor Relations [mailto:ir@ptsc.com]
Sent: Wednesday, April 30, 2008 5:44 AM
Subject: RE: Questions Regarding 10q
The "end of January 2008" comment in the recent shareholders letter was to address specific shareholder questions about whether the licenses announced in the December-January period were included in the results for the 2/29 quarter.
It should not be inferred that the February quarter's results are inclusive of only the licensees announced in December and January, nor should it be inferred that the licenses announced in the first two months of any given quarter will always be included in that quarter's results. As you can see from the Company's revenue recognition policy excerpted below, there is not always a correlation between the period when a license is announced and when it is recognized, although that generally has been the case.
"1. Revenue Recognition
Accounting for revenue recognition is complex and affected by interpretations of guidance provided by several sources, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). This guidance is subject to change. We follow the guidance established by the SEC in Staff Accounting Bulletin No. 104, as well as generally accepted criteria for revenue recognition, which require that, before revenue is recorded, there is persuasive evidence of an arrangement, the fee is fixed or determinable, collection is reasonably assured, and delivery to our customer has occurred. Applying these criteria to certain of our revenue arrangements requires us to carefully analyze the terms and conditions of our license agreements. Revenue from our technology license agreements is generally recognized at the time we enter into a contract and provide our customer with the licensed technology. We believe that this is the point at which we have performed all of our obligations under the agreement; however, this remains a highly interpretive area of accounting and future license agreements may result in a different method of revenue recognition. Fees for maintenance or support of our licenses are recorded on a straight-line basis over the underlying period of performance.
Our consolidated variable interest entity recognizes revenue upon shipment of its product and recognizes revenue on its short-term installation contracts as time and materials costs are incurred."
Excerpt from
http://www.sec.gov/Archives/edgar/da...
Regards,
Ken AuYeung, Hawk Associates Inc.
Sent: Tue 4/29/2008 5:53 PM
To: Investor Relations
Cc: Rick Goerner
Subject: RE: Questions Regarding 10q
Dear Investor Relations:
Please provide answers to the questions listed below. This is my third request for clarification on these issues, yet I have received no response, not even an acknowledgement of your receipt of my query. If there is another channel through which I should address my questions, please let me know. In any case, I would appreciate thoughtful, direct and unambiguous responses to my questions. Thank you.
Sent: Friday, April 25, 2008 3:47 PM
To: 'Investor Relations'
Subject: RE: Questions Regarding 10q
I’m resending the following e-mail that I sent on Tuesday in the event it has been forgotten, or never received. I’d appreciate a prompt response to the questions listed. Thank you.
Sent: Tuesday, April 22, 2008 3:30 PM
To: 'Investor Relations'
Subject: Questions Regarding 10q
In an effort to reconcile the 10q filing and the Letter to Shareholders that followed, I have some questions about some apparent contradictions to which I ask that you provide some clarification. I’ll do my best to be complete and specific in my questions, focusing on available disclosed information, and to ask questions that you can answer without concern for confidentiality agreements or other disclosure concerns. As a long term shareholder, I ask that you be as complete, specific and direct in your responses.
The recent 10q filing was for the quarter ending Feb 29, 2008. However, Mr. Goerner’s letter indicates that the 10q “fully reflects the financial results of all transactions announced prior to the end of January 2008”. These appear to be contradictory conditions, though perhaps not, depending on the revenue recognition issues involved with the February licenses. However, in trying to decipher whether that’s the case, the 10q obscures that potential explanation since under the PDS Balance sheet section of the 10q, there is no figure shown in the “License Fees Receivable” section for the nine months ending Feb 29, 2008, while for the same quarter last year, fees for licenses signed before the quarter ended but for which fees were not received until after the quarter ended were listed under “License Fees Receivable” line item. Still, I understand that there may be revenue recognition conventions that would preclude the February signings from appearing in even the receivables column if the fees had yet to be received or were not measurable prior to the filing of the 10q, or if some other revenue recognition convention were not yet met. With this understanding, I have the following questions:
1. By his comment, does Mr. Goerner mean that “all transactions announced prior to the end of January” includes the 12 licenses from and inclusive of TEAC through Psion, and specifically inclusive of the 4 license agreements made that ended the litigation with Matsushita, JVC, Toshiba and NEC, as announced in late December?
2. Have all PDS license agreements or other PTSC transactions made prior to the end of January, 2008, been announced?
3. By using the language “fully reflects the financial results”, should investors take this to mean that all the revenues attributable to these transactions has been fully recognized and reflected in the 10q, and that no other revenue from these transactions remains to be recognized in the future?
4. If the above answer is no, what then did Mr. Goerner mean by “fully reflects the financial results”, and considering the company’s publicly proclaimed pursuit of only a one-time license payment structure, how can Mr. Goerner justify what would be in this context a very misleading statement?
5. If the financial results of the licenses announced in February are not reflected in the 10q, then is this due to revenue recognition issues, or is it possible that there are no financial considerations to these transactions to reflect?
6. Since history prior to this quarter has shown that fees associated with licenses signed prior to the issuance of a 10q have always been reflected in the 10q, either in the actual financial spreadsheets or in the subsequent events section, has something fundamentally changed in the MMP licensing process that is precluding PTSC/TPL/PDS/Alliacense from being able to deliver the MMP license(s) in a timely fashion, and thus being able to recognize the revenue from those transactions? If so, what has changed?
I understand that these questions may seem pedantic. However, considering the company’s prior public proclamations of increasing license fees, its public commentary of added pressure on licensees to license in order to avoid supply chain disruptions, its stated elimination of first mover discounts, the large legal expenses the company incurred directly prior to the settlement announcement timeframe, and the 10q’s results which appear to reflect license fees for 12 licenses that are less than what Fujitsu alone paid, either the information provided by the company is unclear, or something material has changed.
Thank you in advance for your anticipated prompt and unambiguous responses.
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