i2 faces SEC accounting probe
The software maker is under investigation by the Securities and Exchange Commission over allegations of improper accounting and is re-auditing its books in its own related inquiry.
Dallas-based i2 designs business-management applications to help manufacturers cut inventory costs and operate more efficiently. The company originally disclosed the accounting allegations in a regulatory filing last fall after two former executives presented them to i2's board. The former executives claimed that i2 hadn't accounted properly for revenue related to a number of customer contracts in the years 2000 and 2001 and may have committed fraud.
In a November filing, i2 said it was investigating the allegations but found no merit to the claims, nor any need to revise financial results. However, executives discovered new information last week in the company's internal probe of the matter, which led them to order a reexamination of the financial statements for the two years in question, according to i2 spokeswoman Melanie Ofenloch.
The call for a re-audit was also driven by the fact that Arthur Anderson, i2's auditor for those years, is no longer in business. The company hired Deloitte & Touche last year, and that firm is conducting the second audit.
The SEC notified i2 in December that it had launched an "informal inquiry" into the matter, Ofenloch said. i2 offered no further details on the nature of the alleged problems, the specific contracts in question or the new information it discovered last week.
Unrelated to the investigations, i2 also said Monday that its shares will be listed on the Nasdaq Small Cap Market rather than the Nasdaq National Market exchange, effective Thursday. The company made the change in order to avoid being delisted from the stock exchange. Nasdaq warned i2 in October that it was in danger of being delisted because it had not met certain listing requirements, such as the mandate that stock not trade below $1 for more than 30 consecutive trading days.
i2 also reported fourth-quarter earnings Monday of 2 cents a share before a restructuring charge, on $120 million in revenue. After the charge, i2 posted a loss of 3 cents a share. In the same quarter of 2001, i2 reported a pro forma loss of 8 cents a share, on revenue of $194 million. Net loss for that quarter was $1.40 a share.
One analyst maintained a sell rating on the stock despite the fact that i2 had exceeded his expectations for the quarter.
"Unfortunately, i2's operational improvements are overshadowed by its accounting issues and deteriorating balance sheet," said Patrick Walravents, a software analyst at JMP Securities.