Peregrine Systems (PRGN) investors' worst fears came true Monday when the software firm's CEO and CFO resigned amid accounting irregularities totaling as much as $100 million.
The San Diego-based company, whose software helps companies manage IT resources and other assets, was losing more than half its value in recent trading, falling 61% to $1.01. The stock traded as low as 98 cents Monday morning.
Peregrine said its board's audit committee will handle an internal investigation of potential accounting inaccuracies discovered by KPMG, the independent auditors hired to replace Arthur Andersen in early April. When Peregrine announced last week that
its results would be delayed, the company said its new auditors needed time to go over its numbers.
Based on the preliminary information reviewed to date, certain transactions involving revenue recognition irregularities of up to $100 million have been called into question and may have been recorded in fiscal 2001 and fiscal 2002. The transactions were recorded as revenue from the company's indirect channels and then may have been written off in later quarters.
In fiscal year 2001, Peregrine booked $564.7 million in revenue and a net loss of $852.2 million, including $918.2 million in acquisition and other costs. The company was expected to report $698.5 million in revenue in fiscal year 2002, according to Thomson Financial/First Call.
The company has informed the
Securities and Exchange Commission
of the internal investigation and plans to keep regulators informed of its progress.
Change of the Guard
Additionally, Steve Gardner, Peregrine's chairman and chief executive, and Matt Glass, chief financial officer, executive vice president of finance and a director on the board, have resigned. The company named Executive Vice President Rick Nelson acting chief executive officer and a director. Peregrine also named Fred Gerson, CFO of the San Diego Padres baseball team, acting chief financial officer and appointed Charles La Bella as executive vice president and senior counsel.
Peregrine is the latest in a string of software companies to face accounting woes, joining others such as
( NET) and
Ian Murray, a portfolio manager at Straus Asset Management in New York, who owns Peregrine shares, said three outcomes are possible for the company. The best-case scenario is that Peregrine follows the path of Network Associates. The security firm's top executives resigned at the end of 2000 amid an accounting scandal and new management then helped turn the company around, boosting Network Associates stock from about $4 to a high of about $30 earlier this year. Network Associates is now being investigated by the SEC for accounting issues during the reign of the prior management.
A second and more realistic scenario is that management fixes up the company and sells it, though how much it could be worth is unclear given that its revenue remains in question, Murray said. The worst-case scenario is the company loses a lot of customers, burns through cash and goes bankrupt.
"I do believe it
Peregrine has a viable product and viable customers," Murray added.
On a conference call Monday morning, the company said it had just under $100 million in cash as of March 31 and is still moving forward on selling its supply-chain enablement unit.
"As a team, we take full responsibility for fixing these problems and getting the company back on track," Chairman John Moores said on the call. Moores, Peregrine's chairman from 1990 to 2000, regained the title with Gardner's departure. Moores founded
in 1980 and served as its president and CEO from 1990 to 1986 and board chairman from 1980 to 1992. He also has served as owner and chairman of the board of the Padres since September 1991.