Huh oh! Some one threw a lot of blood into the fray.. And you know what some of the sharks do! ITS FEEDING FRENZY! And to think I thought we would have a nice steady gain with predictibility..
"There are enough hungry acquirers out there that Cyberguard probably won't remain independent very long," said Chris Christiansen, an analyst who follows the security software market for International Data Corp.
Tuesday August 25 8:19 AM ET SEC probes leader in Net security By MSNBC's Barton Crockett
A management shake-up, SEC probe, accounting dispute and earnings restatement would be horrible news for any business, and it's potentially deadly for a company in the conservative security trade, MSNBC's Barton Crockett reports. But that's exactly what Internet security specialist Cyberguard Corp. disclosed Monday morning, prompting a massive sell-off that cut the company's stock value by more than two-thirds.
The blow-up raises immediate questions about Cyberguard's ability to fund ongoing operations. It also threatens to put the small but influential company's sales into a deep slump.
Cyberguard, as the sixth-largest seller of so-called firewall software that protects corporate networks from hackers on the Internet, faces a raft of competitors, including market leader Checkpoint Systems Inc., and network equipment specialist Cisco Systems Inc. Cyberguard has lined up an impressive customer base, including the National Security Agency, a consortium of electricity companies, and law-enforcement agencies in Texas and California. But industry experts said the company's customers might flee to other vendors, rather than risk dealing with an unstable supplier in such a critical area.
"The whole thing you're selling in terms of security is trust," said a senior executive of a Cyberguard competitor, who asked not to be named. "The fact that they've got some problems of a regulatory nature, I would expect to really hurt them."
"This is a crippling, if not a deadly problem for this company," added Ted Julian, an analyst with Forrester Research in Cambridge, Mass.
CEO, CFO SUSPENDED
The company announced that chief executive Robert Carberry and chief financial officer Bill Murray had been suspended, and that management control had been assumed by a committee of four outside directors, with auditing committee head Shelly James taking over as acting chairman. In a related move, Brad Lesher, vice president of international sales, retired.
The palace coup was prompted by a bitter accounting dispute, director Richard Rifenburgh, a member of the group of directors now running Cyberguard, told MSNBC. (Carberry and Murray could not be reached for comment.)
Rifenburgh said that in an audit for the fiscal year ending June 30, Cyberguard's former auditor KPMG Peat Marwick questioned the accounting of certain transactions, in which revenues from sales to resellers and distributors - primarily in Asia - had been booked before payments were received. The auditors objected to the treatment, Rifenburgh said. But Cyberguard's chief executive and chief financial officer argued in board meetings that the accounting was proper.
On Friday, KPMG resigned as Cyberguard's auditors, citing disagreements with management. That prompted the outside directors on Sunday to suspend Carberry and Murray, and to take over the company.
Company officials disclosed that the Securities and Exchange Commission is investigating the incident.
Rifenburgh added that the audit committee was inclined to agree with KPMG, even though Cyberguard is considering suing KPMG for resigning from the audit.
CASH-PINCH
The accounting dispute puts Cyberguard in a cash-pinch. The company reported sales of $5.2 million, and an operating loss of $1.6 million, in the quarter ending March 31, compared to sales of $4.1 million and a loss of $892,000 in the previous year.
But cash and cash equivalents totaled only $4.6 million at the end of the quarter, while current liabilities amounted to $4.3 million.
The company said that the accounting dispute will prompt it to restate financial results for the March quarter, potentially eliminating up to $2.5 million of sales. The restatement may also reduce sales in the December quarter, and the June quarter.
As a result, Cyberguard faces "significant pressures on the company's liquidity," the company said in a statement.
Rifenburgh declined to comment on how long the company's cash reserves can hold out. But he added that a key to surviving the crunch was collecting money owed from distributors, resellers and customers. Those "accounts receivable" totaled $7 million at the end of March.
James, the acting chairman, told Reuters that Cyberguard was negotiating with Asian investors for a cash infusion. But he added that the accounting dispute could derail a deal. Rifenburgh said he couldn't comment on the report.
SALE SPECULATION
Analysts said that Cyberguard, as a relatively small player in a consolidating security industry, was a likely acquisition candidate before the accounting blow-up. With the stock drop after the disclosure, the company might be even more attractive.
"There are enough hungry acquirers out there that Cyberguard probably won't remain independent very long," said Chris Christiansen, an analyst who follows the security software market for International Data Corp.
Julian cited Hewlett-Packard Co., which is seeking to improve its security offerings, as a potential buyer.
But Rifenburgh said a sale was unlikely until the accounting questions were sorted out.
That portends tough times ahead for a company that was among the first to enter the soaring market for Internet security software, and which has been noted for leading-edge work, including supplying key technology for an Internet-based power market for electric utilities, and evaluating technology for the ultra-secret National Security Agency. Reacting to the news, investors drove Cyberguard stock down 70 percent Monday, to $1 7/8, in heavy trading. |
