KGIC Inc LGLTF

RE:RE:RE:RE:RE:RE:RE:Internalaudit68- You said everything that I believe too.

[Trelawny]

Internal,
I just posted a response to TheRock - while putting that together I spoke with two analysts to chat about the possible ways of manipulating deferred revenue.

The nub of it was this - deferred revenue is when cash is received the balance sheet inputs are: you credit cash and add a deferred liability.

If it were only a partial payment then the non-paid component would go to Accounts Receivables (A/R).

I'm not working off of supposition or conjecture  - I am working of knowledge and experience.

I am TELLING you that the the discrepancy between the cash position and the deferred liability is a MASSIVE problem.

LOY must still deliver the services.
LOY is a lower margin business.
This means that the liability of the deferred revenue is real and big.

Consider this: 
LOY gross margin is currently 16% which means it takes 84% of the deferred liability to deliver the service.

So of the $12mm costs are $10mm - only $2mm gross profit flow from providing those services. There are still other costs that will reduce this further (as this is not net profit).

But Let's say that they jump back up to their historical gross margin of 40%. That still means that they have costs of $7.2mm and only $4.8mm gross profit (this is still not cash as they have other costs to debit from this number).

Given that there last two quarters had gross margins of around 16% - I don't expect a return to the previous margins anytime soon.

So let me be VERY, VERY clear:

I am representing the reality of the situation exactly as it is.


Best regards,



Trelawny