I previously wrote about the ‘audited’ quarterly financial statements published by Baristas Coffee Company (BCCI) last week. To recap, my main problems with the ‘audited’ statements is that the company has not filed an audited financial statement in over two years and there was no auditor letter. The company’s accounting issues look even worse now, after I read the CEO’s comments in the Seattle Times. The article focuses on Q1 2013 and compares the new ‘audited’ financials with the previously reported numbers for that quarter and the differences are huge.
None of the key numbers match: Previously reported sales of $433,858 morphed into $366,673, a 15 percent drop. Personnel costs rose to $152,254 from $114,415. General and administration expenses, previously shown as $54,510, in fact amounted to $200,078, the audited report says.
It just beggars belief that the company’s SG&A expenses were over 3 times higher than previously reported. How dumb are the executives that they didn’t think they needed to include stock-based compensation? But even crazier is to have sales drop by 15% after the audit. Here is how CEO Barry Henthorn explained the differences (emphasis mine):
Asked about the stark difference between the audited and unaudited books, CEO Barry Henthorn said sales in the audited report were lower because they omitted amounts that were not backed up by daily sales records. Also, general and administrative expenses rose to reflect stock-based compensation in 2013 that was not previously recognized.
If the previous sales numbers were not backed up by daily sales records then how was the company arriving at those numbers? Did it really receive 15% more in cash receipts than what was rung up at the register? Where did this cash come from? Normally the problem is receiving less cash than sales receipts show due to theft. I find it unlikely that the customers were getting shortchanged by 15% when paying cash. I cannot think of any reasonable explanation for sales receipts to be 15% lower than cash receipts. This is a sign of very, very poor management: nightly reconciliation between cash receipts and sales records is standard in retail and it just boggles my mind that they would not do this or that they would mess it up so badly.
According to the press release last Friday BCCI will file audited financials for 2012 and 2013 this week. I will wait with baited breath for these (and an auditor letter for Q1 2014) to be filed.
Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.
Wait – BCCI – they really have that as their ticker? Makes me think of the old Bank of Credit and Commerce International.