NEW YORK, Nov. 17 (GenomeWeb News) - Ciphergen Biosystems' second-quarter earnings report should "no longer be relied upon" and should be restated after the company last week brought into question the validity of around $500,000 in revenue from that period, Ciphergen said yesterday.
The company said the audit committee it appointed to investigate the revenue recommended that it restate its second-quarter earnings to "recognize revenue in a manner consistent" with the company's policy, the statement added.
The audit committee had been investigating how and why Ciphergen recognized approximately $500,000 in sales for the three months ended June 30, the firm said last week. The investigation caused Ciphergen to delay releasing its third-quarter financial results, which were originally scheduled to appear Nov. 3, according to a notice on Ciphergen's website that has since been removed.
"To date, the investigation has identified four transactions involving instances of revenue recognition in a manner inconsistent with the company's revenue recognition policy," Ciphergen said in a statement released yesterday. "Based on the findings of its advisors and the progress of the investigation to date, the committee believes that these transactions resulted in improperly recognized revenue of approximately $503,000 for the quarter ended June 30, 2005."
This represents around 7 percent of the company's reported revenue for the quarter, Ciphergen said. The company said it expects that striking this revenue would cause net loss for the second quarter to increase by approximately $301,000, representing approximately 3 percent of the company's reported net loss for the quarter.
Ciphergen said the committee's investigation is not over. "The committee and its advisors are currently reviewing the appropriateness of revenue recognition in connection with certain transactions that took place in the fourth quarter of fiscal 2004 and in fiscal 2005," the company said. Due to the ongoing nature of the Committee's investigation, the reported periods affected and the financial impact of the transactions described above may change as further information becomes available."
In addition, the company has not finished assessing "how the errors it has identified reflect on the adequacy of its internal controls over financial reporting." Ciphergen added that it "expects that, either individually or in the aggregate, these errors may result in the company reporting one or more material weaknesses in its internal controls over financial reporting.
Ciphergen said that it and its audit committee "are continuing to assess these matters and their implications on the adequacy of the company's internal controls."
Though Ciphergen officials declined to comment on the specifics of the investigation, a former company official who spoke on the condition of anonymity said Ciphergen could be struggling to deal with the new Sarbanes-Oxley accounting laws. He also suggested that mistakes in accounting were not likely to be nefarious in nature.
"To satisfy the auditors, you can't recognize a sale until all the i's are dotted and all the t's are crossed," said the source, who asked not to be named because of his proximity to the company. "It could be as simple as saying, 'We'll train six people if you buy the instrument,' but until that training was done, they couldn't recognize the sale."
The source, who spoke to GenomeWeb News sister publication ProteoMonitor last week, added that he doubted that Ciphergen was dealing with "subversive stuff" where they were trying to get around the act. "Dan Caserza, the accountant for the group, is pretty squeaky clean about that stuff," he said.
Also yesterday, Ciphergen said that on Nov. 15, the Nasdaq Listings Qualification Department notified the company that its common stock will be delisted from the Nasdaq National Market as of Nov. 25 unless the company requests a hearing. Said it will appeal the decision.
Nasdaq said Ciphergen "has not complied with its periodic reporting requirements for the filing of" its third-quarter earnings report. Also, beginning today, Ciphergen's ticker symbol will be changed to CIPHE from CIPH.