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On July 24, 2007, UTStarcom (Nasdaq:UTSI) disclosed two problems. As you would expect, the market reacted very negatively and UTSI shares declined approximately 18%.
First, the Company disclosed that a review of its stock option practices found what appears to be evidence that stock option grants were backdated in violation of generally accepted accounting principles.
As a result, the Company determined that the effect of using incorrect measurement dates would require the Company to record material additional stock-based compensation charges in its previously issued financial statements. The Company therefore announced its previously issued financial statements for the years 2000 through 2006, including interim periods within these fiscal years, should no longer be relied upon. The Company has now determined that the amount of the non-cash restatement will be approximately $28 million over the years 2000 through 2006.
Second, the Company announced an independent review of historical sales contracts with some of its customers in China. The Company indicated that it cannot rule out the possibility that the outcome could impact revenue recognized for certain of such contracts as recorded in its previously issued financial statements.
Investors who purchased UTStarcom securities during the period between October 17, 2002 and July 23, 2007, may be affected.
CV Technologies (Toronto Exchange:CVQ.TO)
On April 11, 2007, CV Technologies announced that its consolidated financial statements for the year ended Sept. 30, 2006, as well as its interim consolidated financial statements for the first quarter of fiscal 2007 warranted restatement due to a revenue deferral issue in the U.S. market.
The Company stated that its reported U.S. sales in the fourth quarter of fiscal 2006 and the first quarter of fiscal 2007 of $8.6 million were materially overstated because the reported net revenue was based upon product sold to retailers to stock shelves, not upon sales to ultimate consumers. The Company explained that the actual sell through to U.S. consumers during this period was estimated to be $1.5 to $2.5 million. As a result, the Company's reported net revenue was materially overstated by between 244% and 473%.
Investors who purchased CVT during the period between December 11, 2006 through March 23, 2007 may be affected.
We are investigating both of these companies and affected investors may wish to contact us at info@securitiessleuth.com or 202 338 1756 to discuss your options.
Likewise, if you happen to be aware of corporate restatements or other financial fraud -- especially if you're a victim -- you're encouraged to contribute to the Sleuth by giving your own tip-offs at http://securitiessleuth.typepad.com or by e-mailing info@securitiessleuth.com.
If you have a friend or colleague you think would benefit from The Sleuth, please pass along this issue and ask them to sign up at
http://www.cartville.com/app/join.asp?MerchantID=47994.
Warmest regards,
Mark McNair
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