CyberGuard Q3 Results Off By Millions, CEO Suspended
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Internet security provider CyberGuard Corp. said today that an audit committee found significant accounting errors in a review of its revenue recognition policies of distributors and resellers, and as a result the company will restate third quarter financial results, ending March 31, 1998.
CyberGuard said it estimates the restatement will amount to approximately $2.5 million. Although the company believes most of the restatement will be reflected in the third fiscal quarter results, it said the possibility exists that some of amount could be reflected in a restatement of the first and/or second fiscal quarter.
As a result, CyberGuard is forecasting negative fourth fiscal quarter revenues, due to the application of these software revenue recognition policies pertaining to distributors and resellers.
A special committee has been appointed today comprised of the company's four outside directors who have assumed executive control of the company. Shelly James has been appointed Chairman of this Committee and has been named acting Chairman of the Board of Directors.
Adding to the scenario, CyberGuard also said KPMG Peat Marwick LLP (KPMG) "unexpectedly" resigned at close of business on Friday August 21, 1998 as CyberGuard's independent auditors. CyberGuard said it is considering whether it will take legal action against KPMG and is seeking new auditors to complete the audit for the fiscal year ended June 30, 1998.
Trading of CyberGuard (NASDAQ:CYBG) was briefly suspended this morning. Wall Street reacted swiftly to the company's unfavorable news, with shares falling over 70%. Late morning trading saw shares at 1 13/16, falling from an opening of 3, with over 2.5 million shares trading hands.