This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Commerce One: We Saw a Revenue Problem With Stock Warrants Early On

The software industry practice of trading warrants for revenue, which recently caught the attention of the Securities and Exchange Commission is nothing new to Commerce One (CMRC). The firm said it's already dealt with the issue in the past.

Peter Pervere, CFO of the B2B software maker, told investors at the JPMorgan H&Q Technology Conference that the company did not recognize revenue from a joint venture with Royal Dutch/Shell (RD) last year because of revenue-for-warrants concerns.

"We have our auditors look at every transaction we do very closely," Pervere told investors at a break-out session here. "Shell is an example of where we did not recognize revenue when the warrant was in place in that instance."

Last week, B2B auctioneer FreeMarkets (FMKT) said the Securities and Exchange Commission ruled that it couldn't recognize revenue from Visteon (VC), its largest customer, because it had given the company warrants to purchase its stock as an incentive to do business. The SEC said any money FreeMarkets received from Visteon should be viewed as payment for those warrants, and not as revenue. That situation raised that other B2B companies, including Commerce One, could see some of their own revenue at risk.

Pervere made his comments to reassure investors that the firm has closely looked at the revenue-for-warrants issue, and has acted accordingly to make sure that its revenue is recognized appropriately.

"We have faced this problem before, and we've not recognized revenue while there has been a warrant deal in place," Pervere said later in an interview. He said that in all, there have been two instances where the company has not recognized revenue due to warrants, though he didn't go into detail about the second instance.

In January 2000, Commerce One and Shell announced they would set up an Internet marketplace for the energy industry. As part of that deal, Shell received 4.2 million warrants to purchase Commerce One shares. In exchange, according to a press release at the time, Commerce One would get license fees for its software to power the exchange, as well as an equity stake in the exchange itself.

But ultimately, said Pervere, the offer of the warrants were rescinded, making revenue recognition a moot point. In April 2000, Shell announced that it would go ahead with 13 other energy-industry partners to launch the exchange now known as Trade-Ranger. That exchange is powered by Commerce One.

On the other hand, Pervere said that the company is comfortable with its revenue-recognition practices from Covisint, the big Internet exchange it's helping build for the auto industry. Analysts have said the 14% combined equity stake Commerce One gave Ford and General Motors as part of its deal to build the exchange could trigger further scrutiny of Commerce One by the SEC.

But Pervere said the company should be OK on that point.

"Given the high visibility of Covisint, we have had our auditors review it and we are very comfortable with the accounting treatment," Pervere said.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.19 -1.04%
FB $118.06 0.54%
GOOG $695.70 0.48%
TSLA $222.56 -4.20%
YHOO $36.00 -0.03%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs