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.
CyberGuard said it suspended Robert Carberry, chairman and chief executive
officer, and Bill Murray, chief financial officer, pending the completion
of the committee’s review. In addition,
Brad Lesher, vice president of international sales, announced his retirement.
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.