Peregrine Systems Inc., which saw its stock slide 65 percent this week amid concerns of accounting impropriety that could amount to $100 million, is facing trouble on a number of fronts.
Because of questions raised by independent auditor KPMG, Steve Gardner, chairman of the board and CEO, and Matt Gless, chief financial officer, resigned their posts Monday morning. KPMG was hired by Peregrine in April after it became clear that Arthur Andersen LLP, its initial auditor, would not be able to deliver on its audit because of difficulties stemming from the Enron debacle.
During a conference call with investors and analysts on Monday, additional questions were raised.
Christopher Cole, a director and founder at Peregrine, sold half a million shares between Feb. 5 and Feb. 14, at a time when others in the company were piling up stock, leading to questions of insider trading.
At the same time, Peregrine is trying to find a buyer for its supply chain unit--a combination of Peregrines Harbinger Corp. and Extricity acquisitions--and find the cash to meet its May convertible debt payment.
During the call, interim CEO Richard Nelson said the company expected final bids on the supply chain unit this week and that he anticipates no change in the timeline of that divestiture.
Its not certain how the upset at the company will affect either effort.
"If anything [recent happenings] would make a better buy for anyone" looking at the supply chain unit, said Don LaVallee, director of strategic business operations and IT at Sharp Microelectronics of the Americas, a subsidiary of Sharp Electronics Corp. "This is going to hurt Peregrines stock price and their revenues, and theyre going to be looking for cash to keep things going."
Separately, the $450 million line of credit that was available to Peregrine is now in technical default, and the company is not sure it can secure additional funding.
"To my knowledge, there are some discussions going on with banks in that area," said Nelson. "But no one is going to step forward and lend until we see some more definitive response to questions in regard to the audit."
Once KPMG releases its findings, Peregrine may have to restate its earnings for fiscal years 2001 and 2002. The company will also delay its fourth quarter and annual results from the fiscal year ending March 31.
The earnings that are in question are a result of indirect channel sales--where Peregrine derives about 40 percent of its license revenues.
And while its still unclear what product lines or business areas might have been affected by the botched audit, some customers are taking the news in stride.
"Before Enron, this would have been a big surprise. Now everyone is conditioned that these things could happen. And I dont think its the end," said Larry Maready, grounds support equipment fleet manager at US Airways Inc. "In the tech business, it will happen again."
Maready said his company has quite an investment in Peregrines fleet management software and unless something drastic happens, hell go forward with using the product and upgrades, as long as theyre available.
"Im not quite sure what the future holds for Peregrine, but theres no doubt in my mind that the product will survive," said Maready.