What started as an informal inquiry into supply chain software vendor i2 Technologies' finances has turned into a full-blown investigation by the US Securities and Exchange Commission - even as i2 announced that it faced delisting from the Nasdaq stock exchange and was scrambling to reaudit its finances for the last several years.
In February, the SEC opened an inquiry into i2's revenue recognition and financial reporting practices. Last week, the ailing software maker quietly announced that the SEC had opened a formal investigation into its finances. The company said it intended to co-operate fully.
At the time, i2 also announced that it would delay filing its annual Form 10-K for 2002 and would notify the SEC accordingly. i2 explained in a statement that the delay was due to its decision to reaudit financial statements for fiscal years 1999, 2000 and 2001. i2 had warned previously that the reaudit could affect the fourth-quarter 2002 results it announced last month.
The Dallas-based company expects to complete the audits by June, although not in time to file its 2002 Form 10-K to meet Nasdaq's reporting requirements. As a result, it said it "expects to become subject to Nasdaq delisting proceedings." The company had previously received a delisting notification from Nasdaq, but it had been withdrawn.
The reaudit and SEC probe leave i2's exact financial condition somewhat uncertain. "While the reaudits have not been completed and i2 cannot be certain of their eventual outcome with regard to amounts or periods affected, the company currently believes that material adjustments to its previously reported financial results will be required," i2 said.
The company also advised investors not to rely on its previously reported 10-K annual or quarterly 10-Q numbers for 1999 through to September 2002.
Last week, law firm Cauley Geller Bowman Coates & Rudman announced that it had filed a class-action lawsuit against i2 in the US District Court for the Northern District of Texas on behalf of company investors. The lawsuit was launched over what was described as a "series of material misrepresentations" by i2 over its finances during the past three years that artificially inflated the value of its stock.