Vuance releases going concern qualification

Thursday, July 9, 2009

FRANKLIN, Wis.—Vuance, a maker of RFID, identity, and access control products, has announced in a release that “for the fiscal year ended Dec. 31, 2008, the audit opinion of Fahn Kanne & Co., the company’s independent registered public accounting firm, contained a ‘going concern’ qualification.” According to Auditing Standards No. 59, an auditor who concludes there is substantial doubt about a company’s ability to continue as a going concern “for a period not to exceed one year from the date of the financial statements being audited” must make that doubt known in a report on the company’s financial statements.

Does this mean Vuance is going out of business or will soon announce bankruptcy?

No, said Brett Maas, who handles investor relations for Vuance. Normally, he said, something like this would be buried in annual reports, and “especially in the last six to nine months, if you go through the filings, there are a lot of these” going concern qualifications. However, due to NASDAQ requirements that it announce going concern qualifications, and because there isn’t a ready earnings report to bury this in, this announcement was made independently, which is somewhat unusual.

Or, as Maas put it, “it’s par for the course, but it’s out of the ordinary.”

Quite simply, the auditors note that there’s more money going out than there is money coming in. According to financial reports released by the company, while Vuance earned $5.4 million in net profit in 2006, it suffered $11.3 million and $12.35 million in losses in 2007 and 2008, respectively, a period in which it was actively making acquisitions, including Security Holding Corp.’s SecurityInc and AutoAccess ID.

At this point, according to the most recent statistics available, the thinly traded public company has roughly $1 million in cash and debt of about $3.5 million. Thus the concerns expressed by the auditors.

However, Vuance feels, said Maas, “they have enough runway to get cash-flow positive ... they have receivables out there, which will be evident when they announce the next quarter,” most likely in August. This should also boost the company’s stock price, currently around $.35, which would provide more financial buffer.

Even if the company does not get cash-flow positive, however, Maas said, “there’s nothing wrong here in terms of them going forward. They have solid investors where, if they needed capital and they were backstopped, they could get capital.” The company is currently avoiding getting more capital, he said, because the terms are unfavorable right now.

Vuance’s product was recently installed in the Daytona Beach Airport, and integrator Charles Butler, director of Gannett Fleming’s security programs and security services, in the Security Services Group of the Facilities Division, was complementary of the product. He called its access control software, “very distributed and automated. It uses ladder-logic programming, which makes it very flexible and programmable.”