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EisnerAmper Blog

Technology and Life Sciences Blog

COSO Update

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November 21, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcOn May 14, 2013, COSO issued an updated Internal Control-Integrated Framework (Framework) and related illustrative documents. The update replaced COSO's original Framework, which was published in 1992.  When it was issued, the COSO Board believed that the continued use of the original Framework during the transition period of May 14, 2013 to December 15, 2014 was appropriate. However, for external reporting subsequent to December 15, 2014, the COSO Board believes the old 1992 framework will be considered superseded and therefore no longer available. 
 

Because the 1992 framework will be superseded prior to the calendar year-end for most public clients, auditors and audit committees should ask public registrants whether they have implemented the new 2013 framework and discuss with them any changes that may result from the update.   Although the 1992 framework will be technically superseded by December 14, 2014, the SEC has not officially stated that 2013 COSO is the only acceptable framework for 404(a) purposes for annual filings after that date.  Given this, and related SEC comments on the subject, it is our belief that registrants should defend why there are still using the superseded 1992 COSO methodology for the current year-end (December 31, 2014).  Additionally, for accelerated and large accelerated filers, both the management and the auditors’ reports should indicate the framework utilized.

A Shift in Perception Could Bring Capital Flooding Back to Science Companies

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November 19, 2015

 

By: Marc Fogarty, CPA, CFE


Fogarty,MarcMarket psychology can turn quickly with major headlines, and the Ebola epidemic’s effect on the stock market is no exception. With the Ebola outbreak unfortunately progressing, the stock market is seeing negative fluctuations in areas such as travel; but some life sciences companies are seeing a benefit that is helping to raise capital.

For example, Tekmira Pharmaceuticals, which made headlines with their Ebola drug, saw a share increase of 200% this year. Lakeland Industries, a company that makes Hazmat suits, has seen an increase of almost 300%. Inovio Pharmaceuticals’ shares saw an increase after the company announced collaboration with GeneOne Life Science in the development of a DNA-based Ebola vaccine that, based on pre-clinical studies, might not only work as a preventative but as a treatment for multiple strains of the virus.

But what about science and technology companies that are not developing Ebola drugs? The good news is that venture capitalists are starting to have renewed interest in science companies, including a wide range of technologies. For example, Google announced the intent to buy Lift Labs, a biotechnology start-up that makes a high-tech spoon for people with hand tremors.  John Sorenson, a chief executive at Vestaron, makers of an eco-friendly pesticide, was quoted as saying, “Thankfully, venture funders are starting to invest again in real, hard-core science and innovation.”  In fact, investment in biotechnology start-ups saw a 26% increase in the first half of 2014 and is on a trajectory to exceed the peak experienced in 2008.

While investment in non-concrete products like Twitter, Facebook and Uber may be appealing in a tech-feverish stock market, there is something to be said for true innovation in the tangible goods markets. A quote from Adam Draper, the chief executive and founder of Boost VC, sums it up. “I’m just so interested in anything that gets me closer to an Iron Man suit.... V.C. funding is supposed to be about funding what comes next.”
 

 

The Google Product Pipeline -- An Example of Where to Go After the IPO

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November 5, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcContinuing to produce new, innovative products that are in public demand is a great way to retain or attract investors. We recently covered Apple's latest product offerings and the impact on investor confidence. But, as I was using another company's products the other day, it occurred to me they are equally shaping the future. The company I am talking about is Google.

Most people know the search engine giant’s brand name so well that it has become a household verb: when someone needs an answer to a question, they 'Google' it. But the company is more than just a search engine and a company that sells ads. They are also innovators and masters of marketing new technologies.

Since their IPO, which raised $1.2 billion in 2004, Google has continually added products and services (such as Google Nexus cell phones and tablets and Chromecast television service) to diversify the company into the behemoth it is today. Some of their most newsworthy products are Google Glass and the Google Self-Driving Car. It's uncertain whether both of these products will become firmly entrenched in future society, but the company also has a knack for bringing us "products" that many people now take for granted. I'm talking about Google search, Google Maps, Gmail, YouTube and Chrome. These web-based services are all embedded into our everyday lives, and one of the most notable things about them is that they are all free.
 

The past ten years as a public company on the NASDAQ exchange has shown significant stock growth for Google. Despite a dip in stock price during the 2008 recession, Google has shown a steady incline from its opening price of a little over $53 a share in 2004 to its current price of over $591 a share. Google's product development pipeline has continued to stimulate investor confidence and in return that has helped Google continue to create the products many of us rely on every day.

Alibaba – The Right Marketing at the Right Time

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October 29, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcBy now, the success of Alibaba’s marketing to investors is quite clear, as the company raised $21.8 billion in its IPO. But how did a Chinese company that many people hadn’t even heard of in the U.S. make such a splashy debut in the U.S. markets? In part, by organizing an amazing public relations campaign.

The founder, Jack Ma, appears in the news as very ‘down to earth’ with various stories that lend themselves to making Mr. Ma (a former English teacher) a likable, ‘real’ person.  For example, the original IPO was scheduled for 8/8 and the word ‘ba’ means 8 in Chinese so the company stated it seemed fortuitous that BABA (the stock ticker symbol for Alibaba on the NYSE) would have its IPO on 8/8. Even though the Alibaba IPO was delayed to a different date, the engaging stories continued.

Another popular story that circulated in the news was how Alibaba got its name.  Mr. Ma chose the name while in a San Francisco coffee shop. He asked a waitress what she knew about the story of Ali Baba. She replied “Open Sesame” and he decided at that moment that Alibaba was the right name. Then he asked people on the street, of various nationalities, the same question and they all had the same answer. It was an easy name to spell and had a global appeal. In the story Ali Baba and the Forty Thieves, the phrase "open sesame" reveals an enormous treasure hidden within.

This story might appeal to people on various levels, but the one that sticks out the most is that Jack Ma was an average person in a coffee shop who sought outside opinion from perfect strangers of various nationalities. The bottom line is that investors are just people, and at the end of the day everyone loves a good story.

With Alibaba’s strong showing of profits in a market that is open for expansion, the IPO was bound to be successful. But the combination of an excellent public relations and marketing campaigns seems to have made it wildly successful.

Home Depot Security Breach – How Will it Affect Investor Confidence?

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October 27, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcLast February, I wrote a blog that looked at the Target breach – how it was handled and how it affected consumer and investor confidence. Just seven months later, Home Depot is in the news for what is being deemed the largest retail data breach in history, exposing credit card information of 56 million customers.  Here’s a look at the current fall out.

The headline in a recent news article from the New York Times, “Ex-Employees Say Home Depot Left Data Vulnerable,” is really going to be a challenge for Home Depot’s public relations department. The article’s sources are purported to be former members of Home Depot’s cybersecurity team.  They claim that Home Depot did not follow basic compliance requirements and security risk management procedures were not taken seriously.

Home Depot has put out statements to the contrary, stating specifically what they have done this year to mitigate risk, such as encrypting register systems and using a new smart-chip based payment method. But it may have been 'too little, too late' since the breach took place between April and September of this year. That’s five months of fraud that went undetected.

The Target breach occurred last holiday season and Home Depot said that, as a result, they brought in experts in January to evaluate their own risk. By April, they had started the introduction of enhanced encryption at registers. By the time the security enhancements in U.S. stores were fully implemented in early September, their security breach had already occurred.

What’s the take away? Public and private companies should be evaluating their risk exposure on an ongoing basis, not just as a reaction to a breach in their industry. Being proactive, rather than reactive, can help thwart an attack, or at least discover it much sooner so mitigation strategies can be put in place.

For public companies in particular, a data breach can have dramatic effects on investor confidence. The huge outlay of expenses related to a security breach will take some time to surface in the accounting and financial reporting of a public company, so it will also take some time to assess the total financial impact. Currently, for Home Depot, investor confidence has not seemed to change. Home Depot's stock in the last six months has had some small fluctuation, but then saw a sharp increase in August. Only a small dip is noticeable after the September breach announcement, and the stock was back up as of the date this blog was written. This is in contrast to the sharp decline Target experienced after their data breach announcement earlier this year.

Apple Innovates – Will it Keep Investors Interested?

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October 20, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcAs I have mentioned in other blogs, tech companies often need to think of ways to reinvent themselves to keep investors interested. The recent unveiling of the new Apple IOS, iPhone 6 and Watch in the second week of September is no exception.

Despite Apple’s slight stock decline the week before the announcement, it made its way back up shortly thereafter. Fans lined up at Apple stores, much like a new movie, eagerly waiting to experience the new Apple offerings. Investors will keep an eye on preliminary sales but initial indicators are very good. In the opening weekend for sales of the iPhone 6, Apple sold 10 million units, which was record breaking.

Both of the new iPhone models have larger screens, which consumers seem happy about, and Apple has introduced a new electronic payment system called Apple Pay. The Apple Watch, which is the first new product Apple has launched since the iPad in 2010, will integrate with the iPhone and enable health and fitness monitoring as well as response to messages, plus access to Siri, calendar, music and other apps like maps for directions. The hope for the new Apple Watch is that it will have the ease-of-use that Apple products have become known for and competitor products are lacking. 

Despite all the good news, there are a few flies in the ointment. The estimated delivery time for new phone orders is a month plus and the iPhone 6 will not be available yet in the Chinese market. The Apple Watch is not due out until early 2015 and it requires the owner to have an iPhone. Despite the issues regarding supply, there is still a strong demand and this should keep investors happy, at least in the short term.

There were also a few glitches with the new iOS and ‘Bendgate,’ but glitches happen all the time in a mass roll out -- especially one of this magnitude.  The update to new iOS software is a large scale update that happens to virtually everyone at the same time. There is rarely such an event that is similar.  When Microsoft updates to a new operating system or new web browser, those are seldom rolled out to everyone at the same time. 

Also, if there was any doubt about Tim Cook’s effectiveness as Apple’s Chief Executive Officer, following in Mr. Job’s footsteps, the latest plethora of product announcements and seamless integration may appeal to investors. By improving existing products, creating new ones of interest, and tying them all together, Apple still seems to be just one step ahead of competitors.

Alibaba Shows Strong IPO

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October 8, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcThere have been 195 IPOs this year in the U.S., which is an increase of 34% over last year. Alibaba continues to show the IPO market is strong as it historically eclipsed every IPO this year.

After pricing its initial offering at $68 a share, Alibaba closed its first day of trading at $93.89. Alibaba is now one of the largest publicly traded companies in the world as it raised $21.8 billion in its IPO.  Let’s look at what went right with this IPO.

The whole marketing strategy behind this IPO, which took place over many months, may have greatly contributed to its ultimate success. Alibaba’s founder, Jack Ma, was presented as a likeable character and actively participated in the 2 week (so-called) road show where he presented to would-be investors just before the IPO. Alibaba was able to show strong growth and profit reports, and demonstrated a trend in online spending by Chinese shoppers that is predicted to continue to increase. Alibaba’s last fiscal year showed sales which were estimated to be more than eBay and Amazon combined, and Alibaba is showing an enormous profit. 

Some intended IPOs even held back this week to make room for this unprecedented event. Even GoDaddy was reported to be considering waiting until early next year for their IPO. But according to Mr. Ethridge of the New York Stock Exchange, there isn’t a need to wait. The IPO market is still hot and one large stock sale won’t “sap” the appetite for other IPOs. Only time will tell if he’s right. But, for now, it appears that the right combination of proactive marketing, solid profits and a positive future outlook contributed to the success of Alibaba's IPO. 

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