Recalculating its financial situation is proving so difficult for Quantum that the biz has asked Nasdaq for more time to straighten it all out and avoid being de-listed.
The problem stems from Quantum recognizing it hit a problem calculating the standalone selling prices for components it sold in product bundles in the three months to the end of September – the second quarter of its fiscal year 2024 – and possibly before. In November, it submitted a 12b-25 form to America’s securities watchdog, the SEC, admitting it was “unable to file” its standard 10-Q financial results form for that fiscal Q2 by a November 9 deadline “without unreasonable effort or expense.”
This was because “the company is conducting a reevaluation of its application of standalone selling price under Accounting Standards Codification Topic 606 and the financial reevaluation process is taking longer than expected.” It did not then say when it could complete the late 10-Q filing.
Failure to file a 10-Q on time can result in being de-listed from stock exchanges among other potential penalties. Thus the Silicon Valley storage biz has submitted a plan to Nasdaq, where it is listed, on how it intends to stay on the right side of the rules, saying it hopes “to finish its initial assessment, determination of materiality, and completion of the reevaluation no later than March 31, 2024.” Specifically, Quantum is requesting a 180-day grace period from the original Q2 results report due date, saying it expects to file its second-quarter report to the SEC no later than May 7, 2024, and before the 180-day extension runs out on May 30.
Quantum also expects its 10-Q report for its third fiscal quarter – the three months to December 31 – will be delayed and expects to file it by May 7 as well. Quantum’s shares are currently cruising at less than dollar apiece after crashing 31 percent in August 8, when it reported yet another loss-making quarter.
The issue at hand now is how to calculate the standalone selling price of each product or service that a customer has purchased in a group of products and/or services. A supplier can apply discounts or other changes to component selling prices in a bundle.
Let’s suppose hypothetically that Quantum sells a $30,000 storage product with a year of service that normally costs $5,000 for an all-in discounted price of $32,500. How should it allocate portions of the $32,500 transaction to the array and the service contract?
One approach, as shown by PWC, is to say that the allocation should be based on their relative standalone selling prices. Eg;
- Array: $27,857 based on ($32,500 x ($30,000 / $35,000))
- Service: $4,683 based on ($32,500 x ($5,000 / $35,000))
But a supplier might have a range of prices for a product or a service, and not just one price. That makes the accountant’s job of determining the standalone selling price considerably more difficult. A product or service contract price might be inside or outside a range and that adds even more difficulty.
We are not saying these are the exact issues Quantum is actually wrestling with, but only supplying these as theoretical examples of the problems it could be facing. Either way, figuring out the breakdown of these component sales is making it impossible to file a 10-Q of its revenue totals and resulting profit (or losses) right now.