From AAO Weblog
Little Biophan Technologies (current market cap: $45 million) posted one of the more quirky non-reliance 8-Ks in recent history.
The quirk is in the effect of the restatement they’ll be making for the proper application of FASB Interpretation 46R, issued in December 2003. That standard became effective for small business issuers like Biophan in years ending after December 15, 2004; not a new standard by anyone’s calendar.
The transactions causing Biophan’s restatement occurred in late 2005, anyway. It’s Biophan’s interest in Myotech LLC that’s given the company the restatement fits. Originally, the firm accounted for its interest in Myotech by the “equity method” of accounting for investments. A later inspection showed that Biophan should have consolidated Myotech with its own financial statements, presenting the other investors’ interests as a minority interest. To reach that conclusion, the management must have reasoned that Biophan was the primary beneficiary of Myotech’s activities.
Biophan will restate financials for the year ended February 28, 2006 and for the fiscal quarters ended November 30, 2005, May 31, 2006 and August 31, 2006. What’s so odd about the restatement? Just this: applying FIN 46R properly will just about double the firm’s assets at year end 2006 to $28 million, and knock about 17% off of stockholders’ equity. (Down to $9.6 million.) It’s a striking picture of the law of small numbers at work: big percentage changes in relationships resulting from calculations made from a small absolute base.
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