California Software Strongly Denies Lawsuit Allegation

Joanna Doyle

California Software Corp. released a statement this week denying allegations that it reported false earnings earlier this year.

A class-action lawsuit suit filed earlier this month by Milberg Weiss Bershad Hynes & Lerach, LLP came after a California Software announced it would restate its 1999 and Q1 2000 earnings because it had learned that the method it used to book revenue from new product sales was not allowed under SEC SOP 97-2. The suite alleges officers of the company acted intentionally to inflate the value of the company's stock to defraud investors.

California Software CEO Bruce Acacio says the initial earnings report was mistaken, but not malicious.

"Contrary to the uninformed claims made in the Milberg Weiss lawsuit, the company has always attempted to accurately inform investors and the financial community of our financial status,” Acacio says. “When we learned there was a problem with the way we had booked revenue, we moved immediately to correct it and to disclose the information. We could not have responded in a more above-board manner."

Acacio says the accounting problem was identified by Stark Tinter and Associates LLC, an accounting firm California Software retained while pursuing a listing on the American Stock Exchange (AMEX). Prior to retaining Stark Tinter, California Software had followed a long-time practice of allowing customers to work with new products for 30 days before deciding whether to keep or return them. The process under question, which the company says they understood to be acceptable accounting practice, has to do with the fact that California Software booked revenue for new products and set aside reserves to cover anticipated returns.

According to Acacio, the company is now undergoing a re-audit of 1999 performance. Upon completion, 1999 and Q1 2000 financials will be restated, and the company's Q2 filing will be delayed until the audit is complete.

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