Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim.
As previously disclosed in its Form 10-Q filed for the second quarter of fiscal
2012 ended January 31, 2012, the Company received an inquiry from the Securities
and Exchange Commission regarding the Company's treatment of rebates associated
with volume discounts provided by vendors. Concurrent with the inquiry, the
audit committee of the Company's Board of Directors initiated an internal
investigation and has determined that certain client contracts have not been
aligned consistently with the Company's practice of retaining volume discounts.
In the course of this investigation, the audit committee also identified limited
instances where vendor costs incurred were marked-up to clients in a manner not
consistent with client contracts.
Based on the preliminary results of the Company's accounting evaluation done in
connection with the investigation, the Company believes it is no longer able to
conclude that amounts from such volume discounts and mark-ups, where now found
to be inconsistent with client contracts, were correctly accounted for as
revenue.
As a result of the accounting evaluation conducted to date, the audit committee
has assessed the impact of errors in the Company's financial statements from
fiscal years 2009 through 2011, as well as the first two quarters of fiscal 2012
and its unaudited selected financial data for fiscal years 2007 and 2008 and, on
June 9, 2012, concluded that those previously issued financial statements should
no longer be relied upon. As soon as practicable, the Company expects to file
restated audited financial statements from fiscal years 2009 through 2011, as
well as unaudited interim financial statements for the first two quarters of
fiscal 2012 and unaudited selected financial data for fiscal years 2007 and
2008.
Management is continuing to assess the Company's internal control over financial
reporting and its disclosure controls and procedures, and expects to report a
material weakness in its internal control over financial reporting. Management
will report its conclusion on internal control over financial reporting and
disclosure controls and procedures upon completion of the restatement process.
The audit committee and management have discussed the matters disclosed herein
with the Company's independent registered public accounting firm, KPMG LLP.
Forward Looking Information
This report contains forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainty. These forward-looking statements include the estimated extent of
volume discounts and pricing misalignment as a percentage of historical revenue;
expectations regarding the restatement's estimated impact on historical revenue
and on the Company's overall cash position; the Company's anticipated time frame
for filing restated financial statements; expected response from NASDAQ
regarding the Company's reporting delinquency and continued listing; the
Company's expectations regarding financial results for the third quarter of
fiscal 2012 ended April 30, 2012 and related expectations regarding preliminary
estimates of revenue, revenue from new programs,
gross margin and cash, cash equivalents and marketable securities. All
statements other than statements of historical fact, including without
limitation, those with respect to the Company's goals, plans, expectations and
strategies set forth herein are forward looking statements. The following
important factors and uncertainties, among others, could cause actual results to
differ materially from those described in these forward looking statements:
unanticipated accounting issues or audit issues regarding the financial data for
the periods to be restated or adjusted; inability of the Company or its
independent registered public accounting firm to confirm relevant information or
data; unanticipated issues that prevent or delay the Company's independent
registered public accounting firm from concluding the audit or that require
additional efforts, procedures or review; the Company's inability to design or
improve internal controls to address identified issues; the impact upon
operations of legal compliance matters or internal controls review, improvement
and remediation, including the detection of wrongdoing, improper activities or
circumvention of internal controls; difficulties in controlling expenses,
including costs of legal compliance matters or internal controls review,
improvement and remediation; the Company's success, including its ability to
meet its revenue, operating income and cost savings targets, maintain and
improve its cash position, expand its operations and revenue, lower its costs,
improve its gross margins, reach and sustain profitability, reach its long-term
objectives and operate optimally, depends on its ability to execute on its
business strategy, including the announced investment and costs savings plan and
the continued and increased demand for and market acceptance of its services;
global economic conditions, especially in the technology sector are uncertain
and subject to volatility; demand for our clients' products may decline or may
not achieve the levels anticipated by our clients; the Company's management may
face strain on managerial and operational resources as they try to oversee the
expanded operations; the Company may not realize the expected benefits of its
restructuring and cost cutting actions; the Company may not be able to expand
its operations in accordance with its business strategy; the Company's cash
balances may not be sufficient to allow the Company to meet all of its business
and investment goals; the Company may experience difficulties integrating
technologies, operations and personnel in accordance with its business strategy;
the Company derives a significant portion of its revenue from a small number of
customers and the loss of any of those customers could significantly damage the
Company's financial condition and results of operations; the Company frequently
sells to its supply chain management clients on a purchase order basis rather
than pursuant to contracts with minimum purchase requirements, and therefore its
sales and the amount of projected revenue that is actually realized are subject
to demand variability; the Company's pipeline of sales opportunities represents
potential sales transactions and estimated annual revenue therefrom and there
can be no assurance that such sales efforts will be successful or that the
potential revenue will be realized; risks inherent with conducting international
operations; tax rate expectations are based on current tax law and current
expected income and may be affected by the jurisdictions in which profits are
determined to be earned and taxed, changes in estimates of credits, benefits and
deductions, the resolution of issues arising from tax audits with various tax
authorities, including payment of interest and penalties and the ability to
realize deferred tax assets; the mergers and acquisitions and IPO markets are
inherently unpredictable and liquidity events for companies in the Company's
venture capital portfolio may not occur; and increased competition and
technological changes in the markets in which the Company competes; and the
potential outcome and impact of the Company's ongoing review of strategic
alternatives. There can be no assurance that the Company's review of strategic
alternatives will lead to any transaction, result in increased value to its
stockholders or the realization of long-term value by stockholders. For a
detailed discussion of cautionary statements that may affect the Company's
future results of operations and financial results, please refer to the
Company's filings with the Securities and Exchange Commission, including the
Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form
10-Q. Forward-looking statements represent management's current expectations and
are inherently uncertain. We do not undertake any obligation to update our
forward-looking statements except as required by law.
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