15 July 2002 Troubled UK network management software vendor Orchestream has admitted overstating revenues by £3.6 million (€5.5m) during the last 18 months. The company joins a long list of technology companies admitting to over-aggressive revenue recognition policies, although it is one of the first in the UK to be exposed.
Orchestream has admitted that revenues were inflated by £2.7 million (€4.2m) in 2001 as a result of recognising revenue before receipt of payment. Its revised figure is now just £12.1 million (€18.9m).
In addition, the company admits it overstated revenues in the first quarter of 2002 by £900,000 (€1.4m). “I’m deeply disappointed that we recognised the revenue recognition issue and have had to restate our 2001 and Q1 2002 results,” said Anthony Finbow, the company’s newly appointed CEO.
He remained tight-lipped about how this blunder had arisen and who was to blame. But he admitted that there were problems with the contracts the company had signed in 2001 and 2002, which meant that the company should not have recognised those revenues at that time.
This embarrassing revelation comes at a difficult time for Orchestream. Its cash pile is down to £10 million (€15.6m), which has forced the company to severely cut its workforce by 36% from 234 to 150.
In addition, it is struggling to sell its software platforms for configuration of next-generation broadband services. Orchestream relies heavily on sales to telecoms carriers, but this sector has been hit hard in recent years as a result of over-aggressive expansion and lower than expected sales. Orchestream’s sales have therefore slowed dramatically.
Orchestream’s current nadir is a long way from its 2000 flotation on the London Stock Exchange for £214 million (€332.9m). Its stock will soon be de-listed from Nasdaq in the US and news of its accounting scandal sparked a 43% fall in early trading in London today to just under four pence.