The former high-flying i2 Technologies Inc is to re-audit its financial results for 2000 and 2001, and also faces the humiliation of being delisted from Nasdaq,writes Tom Jowitt
The move follows an internal investigation of allegations regarding the company's financial reporting. The announcement comes on top of recent news that rival Ariba Inc will also have to restate its fiscal 2000 and 2001 figures.
The first signs of trouble surfaced last November when i2's board of directors reported that they had started looking into allegations of improper accounting practices reported by two former senior executives. The company hired outside lawyers and accounting advisers to conduct the internal investigation, which is believed to have started sometime in 2001, but which was only disclosed a few months ago.
At the time, i2 officials said that the review to date had not uncovered any accounting problems, but additional information brought forward by two ex-employees spurred deeper investigation. The allegations center around "accounting and revenue recognition; inadequate financial controls; and gross negligence or potential fraud in connection with product and customer problems, acquisitions, public disclosure and other management decisions."
Interestingly the two former executives that brought further allegations to light have both sued i2 since leaving the company for unrelated issues (damages and unpaid compensation).
Now, based on recent information developed during the investigation, the audit committee has hired Deloitte & Touche LLP, its current external auditors, to re-audit its financial statements for 2000 and 2001. The Securities and Exchange Commission has also opened an informal probe.
According to i2, material adjustments to previously reported financial statements may be required. However, it said the re-audit won't have any impact on the company's cash position in any affected period.
The Dallas-based company also reported that, effective Thursday, it will move to the Nasdaq SmallCap Market. This will provide it with additional time to address its non-compliance with the Nasdaq National Market stockholders' equity listing requirement, possibly by seeking stockholder approval for a reverse stock split at its next annual meeting.
It has been a torrid time for i2, which at one time saw it share price dip below a dollar. It is currently standing at $1.03, down 18.2% as of 5:30pm GMT, a far cry from the dizzy heights of over $100 per share during the boom years of 2000.
The freeze on software spending by customers led to plummeting revenues and spiraling losses, forcing the company to shed thousands of personnel and adapt its sales force to target smaller-sized deals; a stark contrast to the multimillion-dollar deals that i2 used to sign.
i2 also announced preliminary fourth-quarter results. For the quarter ended December 31, it reported a net loss of $12.4m, on revenue of $119.9m. These results are subject to change following the re-audit.