CyberGuard plans return to NASDAQ. Here is an article you might find interesting.
bizjournals.com
John T. Fakler
Executives at CyberGuard Corp. in Fort Lauderdale expect to return
to a Nasdaq listing within the next three months.
South Florida's largest software security firm (OTC BB: CYBG) is
making the move less than two years after being delisted because of
cash flow problems. An SEC investigation of its accounting practices,
followed by a flurry of shareholder lawsuits and the resignation of its
auditor hastened its decline.
David R. Proctor, Cyber-Guard's new chairman, president and CEO
says the company's SEC woes are mostly behind it. And now that
new management and a cohesive marketing plan are in place, the
company is expecting approval from Nasdaq to return to a small cap
market listing.
"We've made our application to the Nasdaq small cap, and we qualify
for it based on our market float," Proctor says. CFO Terry Zielinski
made the application about a month ago.
"We've gotten back the first set of questions from the small cap
people, and we're proceeding," Proctor said.
"Figure about another eight to 12 weeks," said Zielinski. "You can't
speed them [Nasdaq] up."
The company's last annual reported had 8.96 million shares
outstanding. The stock recently was trading at $14 a share, although
that price dropped to $8 1/2 a share on Tuesday.
The company lost 1 cent a share in the second fiscal quarter
compared with a 20-cent loss in the year-ago quarter. Proctor said it
was unclear whether CyberGuard would turn a profit anytime soon
and that revenues may lag due to the costs of new product
positioning in the marketplace. The company has experienced losses
since its inception, according to a recent SEC filing, with most of its
money tied up in R&D and capital expenditures.
CyberGuard has conducted its due diligence for "many months," and
is trading at heavy volume with more than 4,000 shareholders, Proctor
said. Volume at market close Tuesday was 124,200.
One small cap analyst said Proctor bought much of his 800,000
shares with his own personal funds, which indicates a strong
personal stake in the company's future.
A filing made with the SEC earlier this month reported that Proctor
upped his ownership stake by almost 300,000 shares.
"I came in control of the shares last August, and it was the best
investment I ever made," Proctor says.
When Proctor bought the shares on August 26, the stock price was
less than two dollars a share.
The first step back to real legitimacy in the public's eye is a national
market listing, Proctor said. "We just have to compete. This is my
second year - I didn't want to come in here and beat my head against
the wall and fail, so I did my homework first. I found three things - the
technology was great, we had some good people, and some weak
areas had to be addressed."
Proctor says since his arrival, the company totally revamped its
marketing and sales department, and made a concerted effort to
protect existing accounts - particularly their privacy. "We have very
strong customers - I can't name them because they don't want to be
named - they don't want to throw a red flag out for people to hack
them."
CyberGuard's No.1 customer actually did a study when the company
was having financial problems, Proctor said. The customer looked at
two or three of its competitors, then had an independent firm come in
and evaluate the products.
"They came back in 90 days and said they were still worried, but we
had the product they needed, and they stuck with us," Proctor says.
"I looked at that and said there is something here to save."
Some customers have left, however. Mistakes were made managing
cash and bad publicity scared clients off, Proctor admits. "Without
Terry's capital management, we wouldn't be here today."
Mixed industry outlook
Although public security company shares skyrocketed in February
after the latest round of hacker attacks, predictions for the industry
are mixed. According to Boston-based First Call, a consensus of 16
Wall Street analysts rated competitor Check Point Software's
(Nasdaq: CHKP) stock at "buy" and expect the company to earn 38
cents a share for the March quarter. However, on March 28,
Josephthal & Co. lowered its brokerage rating on another CyberGuard
competitor Axent Technologies (Nasdaq: AXNT) to "hold" from
"trading buy."
Gregory J. Kuhn, a general partner of hedge fund KAMCO Partners
said he feels RSA Security (Nasdaq: RSAS) is "late to the party." He
calls this CyberGuard rival a "breakout failure" and recently
recommended that investors stay out of this market entirely.
RSA, which began trading mid-September 1999 has seen its stock
price fall from $93 in early March to $51 earlier this week.
Current softness in B2Bs and Nasdaq tech issues are contributing to
the problem, Kuhn said.
In addition, Forrester Research analyst Charles Rutstein said in
February that the recent denial-of-service [hacker] attacks were the
equivalent of mass prank calling, not sophisticated invasion. On Feb.
7, hackers shut down Yahoo for three hours before bringing down
Ebay, Amazon.com and CNN.com the next day.
To compete in this volatile and crowded field, CyberGuard is readying
a launch of what it sees as the generation in computer security - this
month, the company showcased KnightSTAR, its stand-alone
network peripheral at a trade show in Orlando replete with live sword
fights and real time interactive graphics.The company's flagship
product, CyberGuard Firewall, maintains network security through
remote monitoring of network access and system activity.
CyberGuard recently announced alliances with Patriot Technologies
of Frederick, M.D. and Syracuse (N.Y.) University as well as a
Mideast expansion - a deal with Mideast Data Systems to be the
exclusive CyberGuard distributor for Saudi Arabia. The commitment
could total $1.5 million in orders for CyberGuard.
The company also teamed up with Computer Associates (NYSE: CA)
last week to defeat hackers in Asia by offering a "bundled security"
system that combines CyberGuard's firewall with CA's intrusion
detection and anti-virus products.
Staff morale is high, product roll outs are ready, and new executives
have extensive business management experience, Proctor said. The
company also just hired a staffer to address Latin America - a
potential market that Proctor says hasn't been addressed.
One caveat that remains as a potential roadblock to a public listing is
an ongoing class action lawsuit filed against CyberGuard and its
former directors back in 1998.
The complaint, represented by the law firm Weiss & Yourman,
alleges CyberGuard overstated earnings and concealed accounting
irregularities from shareholders.
However, Ken Vianali, an attorney with Milberg Weiss in Boca Raton,
said Nasdaq would be more concerned with the company's financial
condition than its legal problems.
"It's not impossible to recover from the devastation that this company
has had," he says. "But any exchange will ask a lot of questions
before it allows relisting. They are more interested in things like its
capitalization, its outstanding shares. It doesn't look good for Nasdaq
to bring back an errant child."
CyberGuard was banished to the pink sheets in 1998 after it
experienced "significant pressures on its liquidity" following a
misstatement of first through third quarter earnings, the resignation of
outside auditors KPMG Peat Marwick LLP, and the SEC's monitoring
of its restatement of revenue.
Former top executives Robert L. Carberry and William D. Murray were
been suspended from their management duties and Brad Lesher
retired, the company said. All three are no longer with the company,
Proctor said.
Following these disclosures, the price of CyberGuard shares dropped
70 percent, to $1.87 a share, on volume of more than 5.8 million
shares - almost 35 times the three-month daily average.
A bevy of shareholder lawsuits followed before the class action suit
was filed.
Despite the legal and financial problems, CyberGuard's products have
received positive reviews.
A May 21,1999 article published in the network trade journal Data
Communications announced that CyberGuard won its "Tester's
Choice" award. On April 3, CyberGuard announced KnightSTAR
received the SC Recommendation Award and a five-star rating - the
highest rating possible - from SC Magazine. The recognition in the
April issue of the security magazine comes three months after the
introduction of KnightSTAR.
Proctor, who includes banks, phone companies and the defense
industry as his biggest clientele admits the latest hacker scare that
hit Internet companies over the past several months has been
especially healthy for his sector of the computer business. Interest in
security companies has been tweaked, even if revenues are lagging
behind
"In the past year, because of the number of [hacker] instances,
there's strong interest in firewall products," Proctors says. "There was
a time when people just wanted the `box,' now they want to know how
it works."
E-mail staff Corporations Writer John T. Fakler at jfakler@amcity.com |
