When we last left


(AMZN) - Get Report

the issue was that some of last quarter's revenue was little more than a bookkeeping entry, or

air, and that the company hadn't bothered to tell anybody. The bottom line, from one analyst's point of view, was that if Amazon hadn't told anybody about that, what else wasn't it saying?

Well, try this: In the three weeks between the time Amazon reported its first-quarter financials on April 26 and the filing of its 10-Q on May 15, deferred revenue of $62 million suddenly disappeared -- like, poof! -- from the balance sheet. However, there was no press release disclosing the change, and the company didn't even call attention to it in the 10-Q. You wouldn't have caught it unless you had compared the balance sheets in the earnings press release and the 10-Q.

In fact, the only public notice of the change came Wednesday in a report by

Banc of America Securities

analyst Tom Courtney, a former CPA who ranks Amazon a strong buy and is known for his detailed combing of financial statements. In a note to clients, he even referred to Amazon's "new balance sheet." Courtney said the change, which doesn't affect last quarter's revenue, reflects "a more conservative approach to the valuation of certain agreements that were struck in the first quarter." (That's the good news; the bad news is that it means the value of those investments has fallen and that future revenue tied to those deals will be lower than originally expected.)

Why care? Because balance-sheet items from the same quarter don't just disappear overnight (or from the time between the earnings release and the 10-Q) without an explanation. (Or at least they shouldn't.) Besides, says one longtime Amazon bear, who is short the stock: "This is real money. Amazon has $2 billion of debt and $25.6 million of shareholder equity. This is a highly leveraged balance sheet. In February they sold $680 million of convertible bonds with a junk bond rating, and a

couple months later they come out with a balance sheet that changes by $62 million. What happens if one day goodwill suddenly goes poof, or what happens if one day other intangibles suddenly go poof? You could wind up wiping out shareholder equity."

Amazon, of course, doesn't quite see it that way. Tim Stone, director of investor relations, says the change wasn't a write-off. Instead, it merely reflected the finalization of an independent evaluation of marketing deals that the company had entered into in the first quarter and was a reduction in the calculation. Amazon didn't see a need to disclose the change, he adds, because the profit-and-loss statement hadn't changed. What's more, he says, until the 10-Q is filed, the numbers aren't considered official.

Perhaps, but try telling that to an investor who bought into the company between April 26 and May 15, thinking the balance sheet was one thing, only to find it was really something else.

Air on Wednesday, numbers going poof Friday. What next?

Whole Foods Follies

It was one thing when

Whole Foods


created its


Web site a few months ago. (Everybody was doing it at the time!) It was another when it unloaded the risks, and losses, associated with the unit to venture capital investors -- especially considering that Whole Foods still controlled nearly 80% of the Internet start-up.

Neat trick, but how'd they do it? The official explanation by Whole Foods was that the minority partners had received substantive rights that gave them control.


Pressed further about it a week-and-a-half ago on a conference call after the natural foods chain reported earnings, CEO John Mackey said, "We just spent a lot of money trying to figure out how to do it." He went on to say he wouldn't give out his secret (which was approved by two major accounting firms).

Spent money trying to figure out how to do it?!

Is it ever a good sign when companies try to figure out ways to make things look better than they really are? Not generally, which is one reason the relationship between Whole Foods and WholePeople.com has become a lightning rod among short-sellers, and the reason one Whole Foods long I know sold his stock. The other (and this is the important one) is that while the WholePeople.com losses may not be consolidated with Whole Foods right now, they will be after those losses exceed $35 million. After tax they were $4 million last quarter, and Mackey thinks that before they reach $35 million, the WholePeople.com unit will do an IPO or receive more private capital. "John has been adamant that that will not come back to Whole Foods," says CFO Glenda Flanagan.

That may have been the case when the WholePeople.com idea was cooked up, but it's anybody's guess whether that will still be the case in the market when the $35 million benchmark is passed. (Some short-sellers suspect that could be in three or four more quarters.) That's especially true now that investors seem to have figured out that e-commerce is really just another way for people to sell and buy a product; more like an alternative to catalogs than anything else. Just look at the trouble

Lands' End

(LE) - Get Report


Action Performance





have had with


Internet units. Although, of course, those units wouldn't be problems if they had been smart enough to find a way to offload the losses. (Didn't

Boston Chicken


try that?!)

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.